Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 1, 1994
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 1-7534
___________________________
STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0593263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
2270 South 88th Street, Louisville, Colorado 80028-4309
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (303) 673-5151
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. /X/ YES / / NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock ($.10 Par Value) - 43,970,105 shares outstanding at August 8, 1994.
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Form 10-Q
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
JULY 1, 1994
PAGE
----
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Supplementary Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 6 - Exhibits and Reports on Form 8-K 20
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
07/01/94
(Unaudited) 12/31/93
--------- ---------
ASSETS
Cash, including cash equivalents $ 184,228 $ 255,062
Short-term investments 16,042
Accounts receivable, net 240,801 218,701
Notes and installment receivables 7,744 9,973
Net investment in sales-type leases 164,116 171,165
Inventories (Note 2) 262,274 203,257
--------- ---------
Total current assets 859,163 874,200
Notes and installment receivables 8,715 13,968
Net investment in sales-type leases 236,878 252,678
Computer equipment, at cost (net) 117,349 97,324
Spare parts for field service, at cost (net) 54,150 50,150
Property, plant and equipment, at cost (net) 318,719 306,034
Deferred income tax assets, net 52,425 52,260
Other assets 140,733 146,395
--------- ---------
$1,788,132 $1,793,009
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Nonrecourse borrowings secured by lease commitments $ 71,187 $ 74,191
Current portion of other long-term debt 31,514 32,581
Accounts payable and accrued liabilities 303,911 284,764
Income taxes payable 2,486 14,167
--------- ---------
Total current liabilities 409,098 405,703
8% Convertible subordinated debentures 145,645 145,645
Nonrecourse borrowings secured by lease commitments 94,489 96,975
Other long-term debt 110,255 119,098
Deferred income tax liabilities 8,723 8,285
--------- ---------
Total liabilities 768,210 775,706
--------- ---------
Contingencies (Note 3)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 40,000,000 shares
authorized; 3,450,000 shares of $3.50 Convertible
Exchangeable Preferred Stock issued at July 1, 1994,
and December 31, 1993, $172,500,000 aggregate
liquidation preference 35 35
Common stock, $.10 par value, 150,000,000 shares
authorized; 43,951,588 shares issued at July 1, 1994,
and 43,097,788 shares issued at December 31, 1993 4,395 4,310
Capital in excess of par value 1,434,443 1,421,860
Accumulated deficit (412,886) (401,623)
Treasury stock of 35,325 shares at July 1, 1994, and
34,349 shares at December 31, 1993 (767) (735)
Unearned compensation (5,298) (6,544)
--------- ---------
Total stockholders' equity 1,019,922 1,017,303
--------- ---------
$1,788,132 $1,793,009
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
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Form 10-Q
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<TABLE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In Thousands of Dollars, Except Per Share Amounts)
<CAPTION>
Quarter Ended Six Months Ended
--------------------- ---------------------
07/01/94 06/25/93 07/01/94 06/25/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $235,696 $234,941 $445,109 $449,558
Service and rental revenue 125,220 123,562 251,430 247,937
------- ------- ------- -------
Total revenue 360,916 358,503 696,539 697,495
------- ------- ------- -------
Cost of sales 150,289 170,576 305,744 314,210
Cost of service and rental revenue 79,206 79,359 158,066 160,230
------- ------- ------- -------
Total cost of revenue 229,495 249,935 463,810 474,440
------- ------- ------- -------
Gross profit 131,421 108,568 232,729 223,055
Research and product development costs 37,276 39,333 76,441 73,892
Marketing, general, administrative and
other income and expense, net 76,384 76,337 162,051 151,615
Restructuring and other charges 363 363
------- ------- ------- -------
Operating profit (loss) 17,761 (7,465) (5,763) (2,815)
Interest expense 11,199 11,156 20,431 22,805
Interest income (11,401) (13,940) (22,969) (27,956)
------- ------- ------- -------
Income (loss) before income taxes and
cumulative effect of accounting change 17,963 (4,681) (3,225) 2,336
Provision for income taxes 3,600 600 2,000 3,600
------- ------- ------- -------
Income (loss) before cumulative effect
of accounting change 14,363 (5,281) (5,225) (1,264)
Cumulative effect on prior years of
change in method of accounting
for income taxes 40,000
------- ------- ------- -------
Net income (loss) 14,363 (5,281) (5,225) 38,736
Preferred stock dividend 3,019 3,018 6,038 3,767
------- ------- ------- -------
Income (loss) applicable to common shares $ 11,344 $ (8,299) $(11,263) $ 34,969
======= ======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE
Income (loss) before cumulative
effect of accounting change $ 0.26 $ (0.19) $ (0.26) $ (0.12)
Cumulative effect on prior years
of change in method of accounting
for income taxes 0.92
------- ------- ------- -------
$ 0.26 $ (0.19) $ (0.26) $ 0.80
------- ------- ------- -------
Weighted average common shares
and equivalents 44,329 42,738 43,417 43,443
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
Six Months Ended
--------------------------
07/01/94 06/25/93
--------- ---------
OPERATING ACTIVITIES
Cash received from customers $ 711,876 $ 766,500
Cash paid to suppliers and employees (734,235) (686,763)
Interest received 22,969 27,232
Interest paid (19,532) (21,042)
Income taxes paid (13,951) (15,134)
------- -------
Net cash from (used in) operating activities (32,873) 70,793
------- -------
INVESTING ACTIVITIES
Short-term investments, net 16,042 (44,712)
Purchase of property, plant and equipment (49,068) (27,778)
Other assets, net (4,903) (6,674)
------- -------
Net cash used in investing activities (37,929) (79,164)
------- -------
FINANCING ACTIVITIES
Proceeds from nonrecourse borrowings 74,689 51,758
Repayments of nonrecourse borrowings (80,454) (73,600)
Proceeds from other debt 9,189 8,497
Repayments of other debt (22,485) (21,398)
Proceeds from employee stock plans and warrants 12,358 5,342
Proceeds from preferred stock offering, net 166,479
Preferred stock dividends paid (6,038) (3,421)
------- -------
Net cash from (used in) financing activities (12,741) 133,657
------- -------
Effect of exchange rate changes on cash 12,709 (4,256)
------- -------
Increase (decrease) in cash and cash equivalents (70,834) 121,030
Cash and cash equivalents - beginning
of the period 255,062 117,954
------- -------
Cash and cash equivalents - end of the period $ 184,228 $ 238,984
======= =======
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
FROM (USED IN) OPERATING ACTIVITIES
Net income (loss) $ (5,225) $ 38,736
Cumulative effect of accounting change (40,000)
Depreciation and amortization expense 84,756 75,198
Deferred income taxes 27 (3,410)
Translation (gain) loss (9,591) 4,693
Other non-cash adjustments to income 38,200 770
(Increase) decrease in accounts receivable (17,698) 27,847
Decrease in notes receivable and sales-type leases 31,172 54,308
Increase in inventories (76,309) (25,969)
Increase in computer equipment, net (46,898) (36,631)
Increase in spare parts, net (16,332) (11,896)
Decrease in accounts payable and accrued liabilities (2,997) (4,768)
Decrease in income taxes payable (11,978) (8,085)
------- -------
Net cash from (used in) operating activities $ (32,873) $ 70,793
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PREPARATION
The accompanying consolidated financial statements of Storage Technology
Corporation and subsidiaries (StorageTek or the Company) have been prepared in
accordance with the Securities and Exchange Commission requirements for Form
10-Q. In the opinion of management, these statements reflect all adjustments
necessary for the fair presentation of results for the periods presented. For
further information, refer to the consolidated financial statements and
footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands of dollars):
07/01/94 12/31/93
-------- --------
Raw Materials $ 51,884 $ 38,991
Work-In-Process 106,479 66,668
Finished Goods 103,911 97,598
------- -------
$262,274 $203,257
======= =======
NOTE 3 - LITIGATION
In the second quarter of 1992, seven purported class actions were filed in the
U.S. District Court for the District of Colorado against the Company and certain
of its officers and directors. These actions were subsequently consolidated
into a single action, and a consolidated amended complaint was filed on July 7,
1992, seeking an unspecified amount of damages. The complaint alleged that the
defendants failed to properly disclose the status of development of a new
product and the Company's business prospects. The complaint further alleged
that the individual defendants sold shares of the Company's common stock based
on material inside information, in violation of federal securities and common
law. Following the court's ruling on the defendants' motion to dismiss, a
ruling which dismissed several of the fraud and insider trading claims against a
number of the individual defendants, the class plaintiffs filed a second, and
then a third, amended complaint which renewed many of the dismissed fraud and
insider trading claims and sought to extend the class period to November 9,
1992. In response to the defendants' second motion to dismiss, the court
refused to extend the class period, but did not dismiss any of the claims as
pleaded in the third amended complaint. The court has certified a class
consisting (with certain exceptions) of those who purchased StorageTek's common
stock and related securities from December 23,
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Form 10-Q
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1991, to August 8, 1992. Depositions of Company employees and other potential
witnesses commenced in August 1993 and are expected to continue through 1994.
In addition to the class action, a shareholder derivative action was filed in
the second quarter of 1992 based on substantially similar factual allegations
and the derivative action has been consolidated with the class action. The
Company believes the suits are without merit and intends to vigorously defend
against them. There can be no guarantee, however, that the cases will result in
decisions favorable to the Company. In the event of an adverse decision,
neither the amount nor the likelihood of any potential liability which might
result is reasonably estimable. In the derivative action, any recovery would be
the property of the Company. A trial has been scheduled for May 1995.
In June 1993, the Company received a subpoena from the Denver Regional Office of
the Securities and Exchange Commission (the Commission) to produce certain
documents in connection with the Commission's order for an investigation of
possible violations of federal disclosure, reporting and insider trading
requirements. The requests by the Commission relate principally to
announcements and related disclosures concerning the status of development of a
new product in 1992.
In January 1994, Stuff Technology Partners II, a Colorado Limited Partnership
(Stuff), filed suit in Boulder County, Colorado, District Court against the
Company and certain subsidiaries. The suit alleges that the Company breached a
1990 settlement agreement which had resolved earlier litigation between the
parties. The suit seeks injunctive relief and damages in the amount of
$2,400,000,000. The Company believes that the claims in the suit are barred by
the 1990 settlement between the Company and Stuff, the claims are without merit,
and the Company intends to vigorously defend against them. The Company has
filed a motion to dismiss the complaint, as well as an alternative motion to
bifurcate certain of the claims. On July 1, 1994, the Court partially granted
the Company's motion to dismiss, dismissing claims based on facts or conduct
occurring before the 1990 settlement of the previous litigation. The case is
now in the discovery phase as to the remaining claims.
In addition, the Company is involved in various other less significant legal
proceedings. The outcomes of these legal proceedings are not expected to have a
material adverse effect on the financial condition or operations of the Company
based on the Company's current understanding of the relevant facts and law.
NOTE 4 - SUBSEQUENT EVENT - NETWORK SYSTEMS MERGER
- - --------------------------------------------------
On August 8, 1994, the Company entered into an Agreement and Plan of Merger with
Network Systems Corporation (Network Systems). As a result of the merger,
Network Systems will become a wholly owned subsidiary of the Company. The
transaction is expected to be completed during the fourth quarter of 1994. In
the proposed transaction, each share of Network Systems common stock will be
exchanged for 0.2618 of a share of the Company's common stock. The Company
will issue a total of approximately 8.5 million shares of common stock. In the
event the average price of the Company's common stock drops below a specified
level, as calculated pursuant to
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Page 8
the agreement, the parties will have the option of renegotiating the value of
the transaction or terminating the Agreement. The merger is intended to be
accounted for as a pooling of interests. Completion of the merger is subject
to, among other things, the approval of the shareholders of Network Systems and
various regulatory agencies.
Network Systems designs, manufactures, markets and services, worldwide, computer
networking products. The following schedule presents selected financial data
for Network Systems as reported for the six-month period ended June 30, 1994,
and for each of the three years ended December 31, 1993 (in thousands of
dollars).
Six Months
Ended Year Ended
----------- -----------------------------
06/30/94 12/31/93 12/31/92 12/31/91
----------- -----------------------------
Revenue $118,402 $215,558 $219,118 $198,728
Net income (loss) 2,599 2,207 (39,674) 15,214
Total assets 300,712 305,481 293,425 342,811
Total debt 1,000 1,000 1,000 2,822
Stockholders' equity 231,236 223,381 229,949 274,143
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STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JULY 1, 1994
GENERAL
- - --------
Storage Technology Corporation (StorageTek or the Company) reported net income
for the second quarter ended July 1, 1994, of $14.4 million on revenue of $360.9
million, compared to a net loss for the second quarter ended June 25, 1993, of
$5.3 million on revenue of $358.5 million. A net loss of $5.2 million was
reported for the first half of 1994 on revenue of $696.5 million. This compares
to net income of $38.7 million for the first half of 1993, including a $40
million benefit from the cumulative effect of an accounting change, on revenue
of $697.5 million.
Revenue was largely unchanged in the second quarter and first half of 1994,
compared to the same periods in 1993. The Company experienced increased sales
of its Silverton 4490 (Silverton), the Company's 36-track tape offering; its
PowderHorn 9310 (PowderHorn), an Automated Cartridge System (ACS) library; and
incremental sales revenue from the Iceberg 9200 Disk Array Subsystem (Iceberg).
These increases were offset by decreased sales of older tape and library
products and decreased sales of midrange products. The loss reported for the
first half of 1994 reflects the significant investments associated with the
development, manufacturing, marketing and servicing of new products, along with
charges associated with the settlement of litigation, and writedowns and
reserves taken associated with the Company's midrange business. The Company's
return to profitability in the second quarter of 1994 was primarily due to
increased profit margins associated with the sale of new serial and random
access products for the large subsystem market.
The Company anticipates that it will remain profitable in the third and
fourth quarters of 1994. Further improvements in the Company's operating
results in the second half of 1994 are significantly dependent upon the
continuing success of new product introductions, particularly Iceberg, as well
as strong customer demand for the Company's serial access products. Commencing
with the third quarter, the Company discontinued its austerity measures,
including salary reductions, in anticipation of improved operating results.
There can be no assurance that the Company will maintain profitability in the
second half of the year.
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The following table, stated as a percentage of total revenue, presents
consolidated statement of operations information and revenue by product line
which includes product sales, service and rental, and software revenue.
Quarter Ended Six Months Ended
------------------- -------------------
07/01/94 06/25/93 07/01/94 06/25/93
-------- -------- -------- --------
Revenue:
Serial Access Subsystems 69.9% 60.4% 66.0% 61.0%
Random Access Subsystems 11.5 8.8 9.0 10.9
Midrange Systems 13.4 24.6 19.5 22.2
Other 5.2 6.2 5.5 5.9
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Cost of revenue 63.6 69.7 66.6 68.0
----- ----- ----- -----
Gross profit 36.4 30.3 33.4 32.0
Research and product development
costs 10.3 11.0 11.0 10.6
Marketing, general, administrative
and other income and expense, net 21.2 21.3 23.2 21.7
Restructuring and other charges 0.1 0.1
----- ----- ----- -----
Operating profit (loss) 4.9 (2.1) (0.8) (0.4)
Interest (income) expense, net (0.1) (0.8) (0.3) (0.7)
----- ----- ----- -----
Income (loss) before income
taxes and cumulative effect
of accounting change 5.0 (1.3) (0.5) 0.3
Provision for income taxes 1.0 0.2 0.3 0.5
----- ----- ----- -----
Income (loss) before cumulative
effect of accounting change 4.0 (1.5) (0.8) (0.2)
Cumulative effect on prior years of
change in method of accounting
for income taxes 5.8
----- ----- ----- -----
Net income (loss) 4.0% (1.5)% (0.8)% 5.6%
===== ===== ===== =====
REVENUE
- - -------
SERIAL ACCESS SUBSYSTEMS
Revenue from serial access subsystem products increased 17% and 8% in the second
quarter and first half of 1994, respectively, as compared to the same periods in
1993. Increased sales of the Company's new, next-generation library and tape
products were partially offset by decreased sales of the Company's older library
and tape products. The Company realized incremental sales revenue during the
first half of 1994 from new products introduced in the second half of 1993:
PowderHorn, the next generation of the 4400 ACS library, and Silverton, the
Company's 36-track tape offering. Sales of PowderHorn and Silverton were
partially offset by decreased sales of the Company's first generation 4400 ACS
library and 4480 18-track cartridge subsystem.
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Compared to 1993, the Company anticipates its serial access product revenue will
remain largely unchanged in 1994, with increased revenue associated with
PowderHorn, Silverton, and other new serial access products being offset by
declining revenue from the Company's first generation library and tape products.
The serial access product family generates substantially more revenue than any
other product line of the Company and continues to be a major element of the
Company's plans for the foreseeable future.
RANDOM ACCESS SUBSYSTEMS
Revenue from random access subsystem products increased 31% in the second
quarter of 1994 and decreased 17% in the first half of 1994, as compared to the
respective periods in 1993. The increase in random access revenue for the
second quarter of 1994 reflects incremental sales of the Company's new Iceberg
subsystem, which became generally available during the second quarter. The
decrease in random access revenue in the first half of 1994 was primarily due to
decreased sales and service revenue associated with the Company's older random
access products.
The Company continues to commit substantial resources to product ramp-up and
support of Iceberg. The Company anticipates significant revenue contribution
from Iceberg in the second half of 1994; however, this revenue contribution is
dependent upon the continuing ramp-up of manufacturing and increasing customer
acceptance of Iceberg in the marketplace.
The Nordique 9100 (Nordique), an IBM-compatible disk array product targeted
toward the lower end of the large subsystem market, is currently in beta testing
and is expected to be available in the third quarter. The Company anticipates
that Nordique will experience intense price competition in the lower-end
mainframe DASD market segment which it will occupy. Other new DASD products are
also targeted for availability in late 1994; however, no significant revenue
contribution is anticipated from these products until 1995.
MIDRANGE SYSTEMS
Revenue from midrange system products decreased 45% and 12% in the second
quarter and first half of 1994, respectively, as compared to the same periods in
1993. Midrange revenue and operating profits, particularly in the second
quarter, were adversely affected by a steep erosion in pricing for midrange
DASD.
While the Company continues to take actions to reduce the cost structure of its
midrange business, the price erosion in this rapidly evolving and intensely
competitive marketplace is expected to continue for the remainder of 1994.
Accordingly, there can be no assurance that the Company's midrange business will
be profitable in the second half of 1994.
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OTHER
Revenue from other products decreased 15% and 7% in the second quarter and first
half of 1994, respectively, as compared to the same periods in 1993, due to a
decrease in printer revenue. Revenue from printer products will continue to
decline as the Company continues to wind down its printer operations. Sales of
the NearNet network storage manager (NearNet) in the first half of 1994 did not
meet the Company's expectations. The Company is refocusing its NearNet
marketing efforts; however, no significant revenue contribution is expected from
NearNet in 1994.
GROSS PROFIT
- - ------------
Overall gross profit was 36% and 33% for the second quarter and first half of
1994, respectively, compared to 30% and 32% for the same periods of 1993, as
both product sales and service margins increased.
Gross profit on product sales increased to 36% and 31% for the second quarter
and first half of 1994, respectively, compared to 27% and 30% for the same
periods of 1993, due to increased revenue contribution from new serial and
random access products for the large subsystem market; reduced revenue
contribution from lower margin midrange products; and improved manufacturing
overhead absorption due to increased production volumes. These favorable trends
in product sales margins more than offset charges associated with the writedown
of midrange inventory during the first half of 1994.
Gross profit on service and rental revenue increased to 37% in both the second
quarter and first half of 1994, compared to 36% and 35% in the same periods of
1993, reflecting increased product reliability and economies created by a larger
installed service base.
Product sales margins are anticipated to improve for the remainder of 1994,
although the rate of increase is expected to be slower than that experienced
during the second quarter. Margin contribution associated with the sale of new
serial and random access products in the large subsystem market is expected to
more than offset the significant investments associated with these new products.
The Company's service margins in the second half of 1994 are expected to be
adversely affected by incremental costs associated with the installation of new
products, coupled with longer warranty periods for new DASD products.
RESEARCH AND PRODUCT DEVELOPMENT
- - --------------------------------
Research and product development expenditures decreased 5% in the second quarter
of 1994, compared to the same period of 1993, as the Company completed several
of its development programs. Research and product development expenditures
increased 3% in the first half of 1994, compared to the same period of 1993.
The Company continues to invest in the development of new DASD, tape, library,
software and
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network communication products that will expand the applications for its
library and DASD subsystems.
MARKETING, GENERAL, ADMINISTRATIVE AND OTHER
- - --------------------------------------------
Marketing, general, administrative and other income and expense (MG&A) was
largely unchanged in the second quarter of 1994, compared to the second quarter
of 1993. Marketing and other operating expenses increased during the second
quarter as new products were brought to market. These increases were offset by
a gain of $5.7 million from the sale of an investment and favorable movements in
foreign currency exchange rates. Gains and losses associated with foreign
currency transactions and translation adjustments, net of associated hedging
results, aggregated a net gain of $0.4 million in the second quarter of 1994,
compared to a net loss of $2.3 million in the same period of 1993.
MG&A increased 7% for the first half of 1994, as compared to the same period of
1993. The increase in MG&A was primarily due to a charge recognized during the
first quarter of 1994 associated with settlement of litigation with Unisys
Corporation, an increase in marketing expenses associated with new products, and
reserves taken on a midrange product line investment. Gains and losses
associated with foreign currency transactions and translation adjustments, net
of associated hedging results, aggregated a net loss of $1.0 million in the
first half of 1994, compared to a net loss of $5.5 million in the same period of
1993.
See "INTERNATIONAL OPERATIONS AND HEDGING ACTIVITIES" for further discussion of
the foreign exchange risks associated with the Company's international
operations and the related foreign currency hedging activities.
INTEREST INCOME AND EXPENSE
- - ---------------------------
Interest income decreased 18% in both the second quarter and first half of 1994,
compared to the same periods of 1993, due primarily to a reduction in net
investment in sales-type lease balances and lower interest rates.
Interest expense was largely unchanged in the second quarter of 1994, compared
to the same period of 1993. Interest expense decreased 10% in the first half of
1994, compared to the same period of 1993, due primarily to lower interest rates
and lower levels of nonrecourse borrowings in the first half of 1994, as
compared to the same period in 1993.
INCOME TAXES
- - ------------
A one-time benefit of $40 million was recognized in the first quarter of 1993 as
a result of the required adoption of SFAS No. 109, Accounting for Income Taxes,
on a prospective basis.
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SFAS No. 109 requires that deferred income tax assets be recognized to the
extent realization of such assets is more likely than not. The Company
evaluates a variety of factors in determining the amount of the deferred income
tax assets to be recognized pursuant to SFAS No. 109, including the number of
years the Company's operating loss and tax credits can be carried forward, the
existence of taxable temporary differences, the Company's earnings history, the
Company's near-term earnings expectations and possible reductions in the
Company's net operating loss carryforwards as a result of proposed adjustments
by the Internal Revenue Service to the Company's previously filed federal income
tax returns. Based on the currently available information, management has
determined that the Company will more likely than not realize $52 million of its
deferred income tax assets as of July 1, 1994.
The Company's provision for income taxes relates primarily to taxable earnings
associated with its international operations. The Company's effective tax rate
can be subject to significant fluctuations due to dynamics associated with the
mix of its U.S. and international taxable earnings.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
WORKING CAPITAL
The Company's cash balances decreased $70.8 million and short-term investments
decreased $16.0 million from December 31, 1993, to July 1, 1994. The current
ratio decreased from 2.2 as of December 31, 1993, to 2.1 as of July 1, 1994.
Net cash used in operating activities was $32.9 million for the first half of
1994, compared to net cash provided by operations of $70.8 million for the
first half of 1993. The decrease in cash and short-term investments during
the first half of 1994 primarily resulted from a build-up in accounts
receivable and inventory.
Accounts receivable increased from $218.7 million as of December 31, 1993, to
$240.8 million as of July 1, 1994, due primarily to significant sales volume at
the end of the second quarter of 1994. Inventories increased from $203.3
million as of December 31, 1993, to $262.3 million as of July 1, 1994,
principally as a result of a build-up of inventories associated with new DASD
development programs.
AVAILABLE FINANCING LINES
The Company has a $150 million secured multicurrency credit agreement with a
group of U.S. and international banks (the Revolver) which expires in March
1995. The interest rates available under the Revolver depend on the type of
advance selected; however, the primary advance rate is the agent bank's prime
lending rate (7.25% at July 1, 1994). The total amount available under the
Revolver is limited to a percentage of the Company's eligible U.S. accounts
receivable and lease assets (primarily net investments in sales-type leases not
previously utilized for secured borrowings). To obtain funds under the
Revolver, the Company is required to comply with certain
PAGE
<PAGE>
Form 10-Q
Page 15
financial and other covenants, including restrictions on the payment of cash
dividends on its common stock. There were no advances under the Revolver during
the first half of 1994. Based on the amount of eligible accounts receivable and
lease assets assigned to the Revolver, the Company had approximately $43 million
of available credit under the Revolver as of July 1, 1994.
As of July 1, 1994, the Company had approximately $90 million of lease assets
available for financing. The Company can, subject to lender credit approval,
borrow against a portion of these lease assets through its unused committed
lease discounting lines. The Company believes it can increase its lease
discounting lines, if needed, or fund its operating and capital requirements
through other forms of lease asset financings. At the Company's option, a
portion of these lease assets can also be utilized for borrowings under the
Revolver.
In order to sustain desired levels of available cash, the Company anticipates
borrowing against its Revolver during the second half of 1994. Currently, the
Company is working with its bank group to increase the amount of the borrowing
commitment and availability of funds under the Revolver. The Company believes
it has adequate working capital and financing capabilities to meet its
anticipated 1994 operating and capital requirements, including new product
offerings.
LONG-TERM DEBT-TO-EQUITY
The Company's long-term debt-to-equity ratio decreased to 34% as of July 1,
1994, from 36% as of December 31, 1993. These debt-to-equity ratios include
$94.5 million and $97.0 million, respectively, of long-term nonrecourse
borrowings secured by customer lease commitments included within total assets
(primarily net investment in sales-type leases). Excluding long-term
nonrecourse borrowings, the Company's long-term debt-to-equity ratio decreased
to 25% as of July 1, 1994, from 26% as of December 31, 1993.
REPAYMENT OBLIGATIONS
Pursuant to the indenture related to the Company's 8% Convertible Subordinated
Debentures due 2015 (Convertible Debentures), the Company is required to make
semiannual interest payments on the $145.6 million principal amount of
Convertible Debentures outstanding. The Convertible Debentures became
redeemable at the option of StorageTek beginning May 31, 1993, at a premium of
5.6%, and are redeemable at decreasing premiums through May 30, 2000.
Convertible Debentures in the principal amount of $8 million per annum, plus
accrued interest, must be redeemed beginning May 31, 2000, through a sinking
fund which provides for the retirement of 75% of the Convertible Debentures
prior to their maturity on May 31, 2015. Convertible Debentures purchased by
the Company in the open market and Convertible Debentures converted to common
stock may be applied to the sinking fund requirements. As of July 1, 1994, the
Company held Convertible Debentures in the principal amount of $14.3 million
available for sinking fund payments.
PAGE
<PAGE>
Form 10-Q
Page 16
In connection with the Company's 9.53% Senior Secured Notes due August 31, 1996
(the Notes), the Company is required to make semiannual interest payments on the
$55 million principal amount outstanding. The Notes are redeemable at the
option of the Company, in whole or in part, from time to time, at a premium
which is determined based on current interest rates and the time remaining until
maturity. Any principal amounts not previously redeemed are due and payable on
August 31, 1996.
The Company's Preferred Stock provides for cumulative dividends payable
quarterly in arrears at an annual rate of $3.50 per share, when and as declared
by the Company's board of directors. Based on the 3.45 million shares
outstanding, annual dividends will aggregate $12.1 million. The Notes contain
restrictions which limit the payment of dividends; however, these restrictions
are not expected to limit the ability of the Company to pay dividends on its
Preferred Stock.
INTERNATIONAL OPERATIONS AND HEDGING ACTIVITIES
- - -----------------------------------------------
A significant portion of the Company's revenue is generated by its international
operations. As a result, the Company's operations and financial results can be
materially affected by changes in foreign currency exchange rates. An increase
in the exchange value of the U.S. dollar reduces the U.S. dollar value of
revenue and profits generated by the Company's international operations because
the functional currency for the Company's foreign subsidiaries is the U.S.
dollar and a significant portion of the costs associated with this revenue are
incurred in the United States.
In an attempt to mitigate the impact of foreign currency fluctuations, the
Company employs a hedging program which utilizes foreign currency options and
forward exchange contracts. The Company utilizes foreign currency options,
generally with maturities of less than one year, to hedge its exposure to
exchange-rate fluctuations in connection with anticipated sales revenue from its
international operations. Gains and losses on the options are deferred and
subsequently recognized as an adjustment to the associated sales revenue. The
Company also utilizes forward exchange contracts, generally with maturities of
less than two months, to hedge its exposure to exchange-rate fluctuations in
connection with monetary assets and liabilities held in foreign currencies.
Gains and losses on forward contracts are recognized currently within MG&A as
adjustments to the foreign exchange gains and losses on the translation of net
monetary assets.
OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS
- - --------------------------------------------
The Company believes that successful and timely development and shipment of its
new products will play a key role in determining its competitive strength during
the next several years. The Company has introduced many new and enhanced
products in 1993 and the first half of 1994 and has plans to introduce
additional products in the second half of 1994. There can be no assurance
that the Company will successfully develop, manufacture or market these
products.
PAGE
<PAGE>
Form 10-Q
Page 17
The Company's strategic plans assume that its new DASD products will serve as a
significant source of revenue beginning in the second half of 1994. While the
Company believes the development and introduction schedules for these products
are achievable, there is no assurance that they can be met. If, as part of the
development and testing of these DASD products, significant problems arise which
result in material delays in their availability, expected revenue would be
delayed or may be lost, and such delays would adversely affect the Company's
financial results.
The Company competes with several large, multinational companies having
substantially greater resources than the Company's, principally, IBM, Fujitsu
Limited and Hitachi Ltd., as well as other midsized companies. Because of the
significance of the IBM mainframe and midrange operating environments, many of
the Company's products are designed to be compatible with certain IBM operating
systems and many of its products function like IBM equipment. As a result, the
Company's business has been and in the future may be adversely affected by a
number of factors including, among others, modifications in the design or
configuration of IBM computer systems; the announcement and introduction of new
products by competitors; continuing changes in customer requirements such as
migration toward networked computing; and price competition for comparable
systems, equipment or services. The Company's ability to sustain or increase
sales levels depends to a significant extent upon acceptance of and continued
demand for the many new and enhanced products it introduced in 1993 and the
first half of 1994, and products planned for introduction in the second half of
1994. There can be no assurance that the Company's current product offerings,
products in development, or products in the early stages of market introduction
will achieve or sustain market acceptance.
The market for the Company's products is characterized by rapid technological
advances which can result in frequent product introductions and enhancements,
unpredictable product transitions and shortened product life cycles. To be
successful in this market, the Company must make significant investments in
research and product development and introduce competitive new products and
enhancements to existing products on a timely basis. These factors can reduce
the effective life of product-line-specific assets. There can be no assurance
that new products developed by the Company will be accepted in the marketplace.
Moreover, certain components of the Company's products operate near the present
limits of electronic and physical capabilities of performance and are designed
and manufactured with relatively small tolerances. If flaws in design or
production occur, the Company may experience a rate of failure in its products
that results in substantial costs for the repair or replacement of defective
products and potential damage to the Company's reputation.
The Company's manufacturing processes have increased in complexity as it has
increased the number and diversity of products offered to customers. The
Company generally uses standard parts and components for its products and
believes that, in most cases, there are a number of alternative, competent
vendors for most of those parts and components. The Company purchases certain
important components and
PAGE
<PAGE>
Form 10-Q
Page 18
products from single suppliers that the Company believes are currently the
only manufacturers of the particular components that meet the Company's
specifications. In addition, the Company manufactures some key components or
its products include components for which alternative sources of supply are not
readily available. In the past, certain suppliers have experienced occasional
technical, financial or other problems that have delayed deliveries to the
Company, without significant effect on it. An unanticipated failure of any sole
- - -source supplier to meet the Company's requirements for an extended period, or
an interruption of the Company's ability to secure comparable components, could
have a material adverse effect on its revenue and profitability. In addition,
the Company markets a number of products acquired from other manufacturers on an
original equipment manufacturer (OEM) basis. These products are often available
only from a single manufacturer. Some of these OEM suppliers are, or may in the
future be, competitors of the Company. In the event that an OEM product is no
longer available, second sourcing is not always feasible and there could be a
material adverse effect on the Company's profitability.
The Company's earnings can fluctuate significantly from quarter to quarter due
to the effects of (i) customers' tendencies to make purchase decisions near the
end of the calendar year, (ii) the timing of the announcement and availability
of products and product enhancements by the Company and its competitors, and
(iii) fluctuating foreign currency exchange rates.
SUBSEQUENT EVENT - NETWORK SYSTEMS MERGER
- - -----------------------------------------
As more fully discussed in Supplementary Note 4 to the Consolidated Financial
Statements, on August 8, 1994, the Company entered into an Agreement and Plan of
Merger with Network Systems Corporation (Network Systems). As a result of the
merger, Network Systems will become a wholly owned subsidiary of the Company.
The transaction is expected to be completed during the fourth quarter of 1994.
PAGE
<PAGE>
Form 10-Q
Page 19
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- - --------------------------
See Supplementary Note 3 to the Consolidated Financial Statements, and Part II,
Item 1, of the Form 10-Q for the period ended April 1, 1994.
On February 23, 1994, the Company and its subsidiary XL/Datacomp, Inc.
(XL/Datacomp), filed suit in Boulder County, Colorado, District Court against
Array Technology Corporation (Array) and Tandem Computers Incorporated (Tandem).
The suit asked that the court order Array and Tandem to either support certain
disk drives purchased from them or provide the Company with the technical data
necessary for StorageTek to provide such customer support. On June 15, 1994,
the court ordered Array and Tandem to continue to provide support for these
products and maintain in an independent escrow account the materials necessary
to enable the Company and XL/Datacomp to support the products in the event Array
and Tandem failed to provide such services.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
The annual meeting of stockholders of the Company was held of May 25, 1994. A
quorum of stockholders was represented at the meeting in person or by proxy.
There was no solicitation in opposition to management's nominees as listed in
the proxy statement and all managerial nominees were elected. The directors
elected at the annual meeting include:
For Withheld
----------- ---------
Ryal R. Poppa 34,787,556 318,677
Judith E.N. Albino 34,785,513 320,720
William L. Armstrong 34,803,589 302,644
Robert A. Burgin 34,803,268 302,965
Paul Friedman 34,042,230 302,003
Stephen J. Keane 34,805,810 300,423
Robert E. LaBlanc 34,805,285 300,948
Robert E. Lee 34,805,700 300,533
Harrison Shull 34,803,132 303,101
Richard C. Steadman 34,803,540 302,693
Robert C. Wilson 34,802,953 303,280
PAGE
<PAGE>
Form 10-Q
Page 20
At the annual meeting, the stockholders approved an amendment to the 1987
Employee Stock Purchase Plan, to increase the number of shares issuable
thereunder by 1,250,000, by a vote of 33,344,010 in favor to 1,366,209 against,
with 396,014 abstentions.
The stockholders approved the material terms of the Company's MBO Bonus Plan, a
performance-based incentive plan established for the Company's executive
officers, by a vote of 32,972,623 in favor to 1,746,942 against, with 386,668
abstentions.
The stockholders also approved the ratification of the appointment of Price
Waterhouse as the Company's independent accountants for the current fiscal year,
by a vote of 34,805,128 in favor to 149,675 against, with 151,430 abstentions.
Two proposals made by a stockholder were presented to the stockholders for a
vote. The first, a proposal to prohibit the Directors and Officers of the
Company from selling stock obtained by exercising options until the earlier of
two years after the exercise date or the date they terminate their association
with the Company was defeated, by a vote of 21,922 in favor to 35,084,546
against, with no abstentions.
The second proposal, to prohibit the Directors and Officers of the Company from
voting any stock owned or proxies obtained on any issue in which they have a
conflict of interest was defeated, by a vote of 21,772 in favor to 35,084,546
against, with 150 abstentions.
There were no broker non-votes on any of the proposals.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- - -----------------------------------------
(a) Exhibits
*/** 10.1 Storage Technology Corporation MBO Plan
** 10.2 Amendment No. 2 to 9.53% Senior Secured Note
Agreement
** 10.3 Fourth Amendment to Credit Agreement
** 10.4 Fifth Amendment to Credit Agreement
____________________
* Contract or compensatory plan or arrangement in which directors
and / or officers participate.
** Indicates Exhibits filed with this Quarterly Report on Form 10-Q.
PAGE
<PAGE>
Form 10-Q
Page 21
** 11.0 Computation of Earnings (Loss) Per Common
Share.
(b) Reports on Form 8-K
None.
_________________
** Indicates Exhibits filed with this Quarterly Report on Form 10-Q.
PAGE
<PAGE>
Form 10-Q
Page 22
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STORAGE TECHNOLOGY CORPORATION
(Registrant)
August 12, 1994 /s/ GREGORY A. TYMN
- - --------------- -------------------------
(Date) Gregory A. Tymn
Senior Vice President and
Chief Financial Officer
August 12, 1994 /s/ DAVID E. LACEY
- - --------------- -------------------------
(Date) David E. Lacey
Corporate Vice President
and Controller
<PAGE>
STORAGE TECHNOLOGY CORPORATION
CORPORATE OFFICER MBO BONUS PLAN
1. Purposes of the Plan. The purposes of this Corporate
Officer MBO Bonus Plan (the "Plan") are to motivate, reward and
recognize executive level employees ("Eligible Employees") of
Storage Technology Corporation and its subsidiaries (the
"Company") for their role in helping achieve corporate success and
the traits critical for long term corporate success, namely:
- Responsibility for achievement of corporate quality
improvement objectives,
- Teamwork in the accomplishment of corporate goals, and
- Accountability for the overall success of the
corporation.
2. Operation of the Plan. Under the Plan, each participant
is assigned one or more performance targets established in writing
while the outcome of the targets is substantially uncertain. At
the same time, formulas for determining bonus payments based upon
achievements of these performance targets are established in
writing. After the end of the ensuing fiscal year, each
participant's performance is scored and each participant's bonus
for the year is calculated by means of the pre-established
formula.
The committee reserves the right to reduce or entirely eliminate
bonuses for a year if, in its sole discretion, notwithstanding
achievement of results which would otherwise require a bonus,
overall performance of the Company or any participant is
determined to be unsatisfactory.
3. Administration of the Plan. The Plan will be
administered by the Compensation Committee of the Board of
Directors of the Company (the "Board") or such other committee
(the "Committee") which meets the requirements of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "IRC") and
the Regulations issued thereunder. The Board will take reasonable
steps to ensure that the size and membership of the Committee
continues to meet the requirements of IRC Section 162(m)(4)(C)(i).
4. Functions of the Committee. Subject to the provisions of
this Plan, the Committee shall:
a. Select those Eligible Employees who may participate in
the Plan for the ensuing year ("participants").
b. Establish the objective performance targets for each
participant based upon one or more of the Business
Criteria outlined in this Plan.
c. Establish an objective formula or standard for
computing the amount of compensation payable to each
participant if the performance targets are met.
d. Establish other relevant provisions including the form
of payment to be made (including cash, stock or other
property) and the timing of payments.
<PAGE>
STORAGE TECHNOLOGY CORPORATION
CORPORATE OFFICER MBO BONUS PLAN
Page Two
e. Certify in writing prior to payment of the
compensation that the performance targets and any
other material conditions were met and the actual
amount of the compensation to be paid.
f. Reduce (but not increase) or eliminate the amount of
compensation payable that would otherwise be due upon
attainment of the target.
5. Restrictions and Limitations. This Plan is subject to
the following restrictions and limitations:
a. Maximum Amounts Payable. In no event may the maximum
amount payable pursuant to this Plan exceed $2,000,000
in the case of the Chief Executive Officer, and
$1,000,000 in the case of any other participant for
any single year's performance.
b. Shareholder Approved Business Criteria. All amounts
paid as compensation pursuant to this Plan must be
payable as the result of the achievement of objective,
quantifiable, measurable performance targets, which
targets are critical to the Company's strategic
priorities of customer satisfaction, financial
strength and market presence, including one or more of
the following (the "Business Criteria"):
- reliability measurements of products and component
parts,
- measurements of adherence to product development
and delivery schedules,
- measurements of the product creation and delivery
processes,
- market penetration,
- net-after-tax income,
- economic value added,
- return on assets,
- return on equity,
- debt ratings,
- revenue growth, product revenue and,
- timely updates and approval of strategic plans.
6. Amendments. The Plan may be amended by the Board without
shareholder approval to, among other things, ensure continued
compliance with the requirements of "performance based
compensation" as defined by IRC Section 162(m)(4)(C) and the
Regulations thereunder. No change may be made, however, to the
maximum amounts payable specified in subparagraph 5a or to the
Business Criteria in subparagraph 5b or the class of Eligible
Employees, without shareholder approval.
<PAGE>
AMENDMENT NO. 2
TO
NOTE AGREEMENT
This Amendment No. 2 (the "Amendment") to that certain Note
Agreement, dated as of August 30, 1991, between Storage Technology
Corporation, a Delaware corporation (the "Company"), and the
purchasers listed in the Purchaser Schedule attached thereto, as
amended by Amendment No. 1, dated as of April 1, 1994 (the "Note
Agreement") is entered into as of April 2, 1994 by and between the
Company, StorageTek Financial Services Corporation, a Delaware
corporation ("SFSC") and the holders of the Company's 9.53% Senior
Secured Notes due August 31, 1996 ("Notes") which are signatories
hereto. Capitalized terms defined in the Note Agreement which are
used herein shall have the meanings set forth in the Note Agreement
unless otherwise specified herein.
WITNESSETH:
WHEREAS, pursuant to the Note Agreement, the Company issued
and sold $55,000,000 principal amount of Notes; and
WHEREAS, the Company leases to other Persons equipment
manufactured by it and, to secure the Notes, the Company has granted
a security interest in certain lease agreements and equipment
relating thereto to the Collateral Agent for the benefit of the
holders of the Notes (the "Holders"); and
WHEREAS, SFSC is a Subsidiary of the Company and has been
formed to acquire equipment manufactured and/or distributed by the
Company and lease such equipment to other Persons; and
WHEREAS, the Company desires to sell, and SFSC desires to
purchase, pursuant to the Purchase and Sale Agreement, the Company's
interest in all Collateral (except the Specified Collateral as
defined in Section 4.7 hereof); and
WHEREAS, in exchange for the lease agreements, installment
sales agreements and related equipment specified in Schedule A to
the Purchase and Sale Agreement (the "Schedule A Assets") and having
a Contract Present Value of not less than $55,000,000, SFSC has
agreed, pursuant to the Purchase and Sale Agreement, to execute the
1 <PAGE>
Assumption Agreement under which it will (i) assume and become
jointly and severally liable with the Company for all obligations of
the Company under the Note Agreement and the Notes and (ii) agree to
comply with certain agreements and covenants contained in the Note
Agreement and other Transaction Documents, including agreeing to
grant to the Collateral Agent as security for the Notes a security
interest from time to time hereafter in leases and equipment owned
by it in order for the Company and SFSC to comply with paragraph 6E
of the Note Agreement; and
WHEREAS, effecting the above transactions would cause the
Company to violate the provisions of the Note Agreement and other
Transaction Documents and the Company has requested that the Holders
agree to amend the Note Agreement and the other Transaction
Documents to permit the Company and SFSC to effect the above
transactions; and
WHEREAS, the Holders which are signatories hereto are willing
to agree to the amendments to the Note Agreement and other
Transaction Documents as set forth herein to enable the Company and
SFSC to effect the above transactions provided that, among other
things, SFSC executes and delivers this Amendment, the Assumption
Agreement, the Security Agreement and the Segregation Account
Agreement (each as defined below).
NOW, THEREFORE, in consideration of the premises set forth
above, the mutual covenants contained herein and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendments to Note Agreement. Subject to the terms and
conditions specified herein, effective as of the Effective Date (as
defined below), the Agreement is amended as of April 2, 1994 as
follows:
1.1 Paragraph 3H of the Note Agreement is hereby amended by
deleting the words "(the "Security Agreement")".
1.2 Paragraph 3J of the Note Agreement is hereby amended by
deleting the words "(the "Segregation Account")" and the words "(the
"Segregation Account Agreement")".
1.3 Paragraph 3M of the Note Agreement is hereby amended by
2 <PAGE>
deleting the words "(the "Equipment Certificate")".
1.4 Exhibit C to the Note Agreement is hereby amended and
restated in its entirety to read as set forth in Exhibit 1.4
attached hereto.
1.5 Exhibit D to the Note Agreement is hereby amended and
restated in its entirety to read as set forth in Exhibit 1.5
attached hereto.
1.6 Exhibit E to the Note Agreement is hereby amended and
restated in its entirety to read as set forth in Exhibit 1.6 hereto.
1.7 Exhibit 1.7 hereto is hereby added to the Note Agreement
as Schedule 8C thereto.
1.8 Exhibit 1.8 hereto is hereby added to the Note Agreement
as Exhibit F thereto.
1.9 Paragraphs 4 through 11, inclusive, of the Note
Agreement are hereby amended and restated in their entirety to read
as set forth in Schedule 1.9 attached hereto, and such Schedule is
incorporated by reference herein as though set forth fully herein.
2. Conditions to Effectiveness. The effectiveness of this
Amendment is subject to satisfaction of the following conditions on
June 30, 1994 or any other date on or before June 30, 1994 on which
the Company, SFSC and the Holders which are signatories hereto may
mutually agree (the date upon which such conditions are satisfied
being called the "Effective Date"):
2.1 Execution and Delivery of Amendment by Holders. This
Amendment shall have been executed and delivered by SFSC, the
Company and holders of at least 66-2/3% of the aggregate principal
amount of the outstanding Notes.
2.2 Opinion of Holders' Special Counsel. The Holders shall
have received from Schiff Hardin & Waite, the Holders' special
counsel in connection with this Amendment, a favorable opinion dated
the Effective Date and satisfactory to the Holders which are
signatories hereto.
2.3 Opinion of Company's General Counsel and Special
3 <PAGE>
Counsel. The Holders shall have received from (i) W. Russell
Wayman, Corporate Vice President and General Counsel for the Company
and SFSC, an opinion dated the Effective Date and in substantially
the form of Exhibit 2.3(a) attached hereto and (ii) Sherman &
Sterling, special counsel to the Company and SFSC, an opinion dated
the Effective Date and in substantially the form of Exhibit 2.3(b)
attached hereto, and the Company and SFSC, by its execution of this
Amendment, authorizes and requests such counsel to render such
opinions to the Holders.
2.4 Purchase and Sale of Assets; Assumption of Obligations
by SFSC. The Company and SFSC shall have executed and delivered a
Purchase and Sale Agreement in substantially the form of Exhibit 2.4
attached hereto and the Purchase and Sale Agreement shall be in full
force and effect on the Effective Date, and pursuant to such
agreement, the Company and SFSC shall have executed and delivered
the Bill of Sale and the Assumption Agreement in substantially the
forms of Exhibit A and B, respectively, to the Purchase and Sale
Agreement, and the Bill of Sale and Assumption Agreement shall be in
full force and effect on the Effective Date.
2.5 Value of Schedule A Assets. All Schedule A Assets shall
constitute Collateral and the Contract Present Value of the Schedule
A Assets shall not be less than $55,000,000, and the Company and
SFSC shall have delivered to the Holders an executed Officer's
Certificate, dated the Effective Date, to such effect.
2.6 Value of Assets. All Assets (as defined in the Purchase
and Sale Agreement) shall constitute Collateral and the fair market
value of all Assets shall not be less than the consideration to be
paid for such assets as specified in the Purchase and Sale
Agreement, and the Company and SFSC shall have delivered to the
Holders an executed Officer's Certificate, dated the Effective Date,
to such effect with supporting calculations, in form and substance
satisfactory to the Required Holders.
2.7 Equity of SFSC. SFSC shall have not less than
$14,000,000 of stockholders equity as of the Effective Date and the
Company shall have delivered to the Holders an executed Officer's
Certificate to such effect.
2.8 Amended and Restated Security Agreement. The Company,
SFSC and the Collateral Agent shall have executed and delivered an
4 <PAGE>
Amended and Restated Security Agreement in substantially the form of
Exhibit 2.8 attached hereto and the Security Agreement shall be in
full force and effect on the Effective Date.
2.9 Solvency Certificate. The Company and SFSC shall have
delivered to the Holders an executed Solvency Certificate, dated the
Effective Date, substantially in the form of Exhibit 2.9 attached
hereto, and such Solvency Certificate shall be in substance
satisfactory to the Holders which are signatories hereto.
2.10 Representations and Warranties by the Company; No
Default. The representations and warranties contained in Section 5
hereof, in paragraph 8 of the Note Agreement and Section 3 of the
Purchase and Sale Agreement shall be true on and as of the Effective
Date (and for purposes of this Amendment all references in such
representations and warranties to "date of closing" or "closing"
shall mean the Effective Date), both before and after giving effect
to the transactions contemplated hereby and the effectiveness of
this Amendment and the other Transaction Documents executed in
connection herewith; there shall exist on the Effective Date no
Event of Default or Default, both before and after giving effect to
the transactions contemplated hereby and the effectiveness of this
Amendment and the other Transaction Documents executed in connection
herewith; and the Company shall have delivered to the Holders an
Officer's Certificate, dated the Effective Date, to both such
effects and demonstrating (with computations in reasonable detail)
compliance as of June 2, 1994 with Paragraphs 6E, 6F, 6G, 6H and 6I
of the Note Agreement.
2.11 Representations and Warranties by SFSC. The
representations and warranties contained in Section 5 hereof, in
Article III of the Assumption Agreement and Section 4 of the
Purchase and Sale Agreement shall be true on and as of the Effective
Date, both before and after giving effect to the transactions
contemplated hereby and the effectiveness of this Amendment and the
other Transaction Documents executed in connection herewith and SFSC
shall have delivered to the Holders an Officer's Certificate, dated
the Effective Date, to such effect.
2.12 Filings. All financing statements, documents, uniform
commercial code and lien search results and other writings required
to be filed, recorded or delivered in order to create, perfect,
preserve, evidence or maintain a valid first-priority security
interest in all assets in which a security interest has been or is
5 <PAGE>
being granted pursuant to the Security Agreement in favor of the
Collateral Agent for the benefit of the Holders shall have been duly
filed, recorded and delivered (as the case may be), in each case as
determined by the Holders which are signatories hereto in their sole
and reasonable discretion; and there shall have been filed by the
Company and SFSC with the Secretary of State of Colorado and in the
jurisdictions listed in the SFSC Equipment Certificate financing
statements, in form and substance satisfactory to the Holders which
are signatories hereto, naming the Company as seller and SFSC as
buyer and describing all of the Contracts on the SFSC Contract
Schedule and the Identified Equipment relating to such Contracts,
and acknowledgment copies of all such financing statements and such
uniform commercial code and lien search results as required by such
Holders in their sole and reasonable discretion to evidence such
filings shall have been delivered to such Holders.
2.13 Segregation Account Agreement. SFSC shall have
established and there shall exist at the Segregation Account Bank
the SFSC Segregation Account and the Company, SFSC, the Collateral
Agent, the Segregation Account Bank and each of the Holders that is
a signatory hereto shall have executed and delivered the Segregation
Account Agreement and the Segregation Account Agreement shall be in
full force and effect on the Effective Date.
2.14 Equipment Certificates. The Company and SFSC shall have
delivered to the Holders (i) an executed Officer's Certificate dated
the Effective Date and satisfactory to the Holders which are
signatories hereto as to the location of the Identified Equipment
listed in the SFSC Contract Schedule ("SFSC Equipment Certificate")
and (ii) an executed Officer's Certificate dated the Effective Date
and satisfactory to the Holders which are signatories hereto as to
the location of the Identified Equipment listed in the ST Contract
Schedule (the "ST Equipment Certificate").
2.15 Certain Payments. The Company shall have paid all
expenses payable by the Company pursuant to paragraph 11B of the
Agreement relating to the fees and expenses of the Holders' special
counsel to the extent the Company has received an invoice therefor.
2.16 Amendment Permitted By Applicable Laws. The
transactions contemplated by this Amendment shall not violate any
applicable law or governmental regulation and shall not subject the
Holders to any tax, penalty, liability or other onerous condition
6 <PAGE>
under or pursuant to any applicable law or governmental regulation,
and the Holders shall have received such certificates or other
evidence as you may request to establish compliance with this
condition.
2.17 Execution of Support Agreement and Operating Agreement.
The Company and SFSC shall have executed and delivered an Operating
Agreement in substantially the form of Exhibit 2.17(a) hereto and a
Support Agreement in substantially the form of Exhibit 2.17(b)
hereto, and each agreement shall be in full force and effect.
2.18 Delivery of Notes. The Company and SFSC shall have
executed and delivered to each Holder a replacement Note in
substantially the form of Exhibit 2.18 attached hereto, which Note
shall be in the aggregate principal of each Note currently held by
such Holder. The unpaid balance of the indebtedness evidenced by
the Notes in the original amount of $55,000,000 (the "Original
Notes") dated August 30, 1991 issued by STC remains outstanding as
of the date hereof and shall continue to be secured pursuant to the
terms of the Security Agreement and the other agreements executed in
connection therewith. The replacement Notes (i) merely reevidence
the indebtedness theretofore evidenced by the Original Notes, (ii)
are given in substitution for, and not as payment of the
indebtedness evidenced by the Original Notes, and (iii) are in no
way intended to constitute a novation or discharge of the
indebtedness evidenced by the Original Notes.
2.19 Amendment to Revolving Loan Agreement. The Company,
SFSC and the Majority Lenders (as defined in the Revolving Loan
Agreement) shall have executed and delivered an amendment to the
Revolving Loan Agreement ("Bank Amendment") in form and substance
satisfactory to the Holders, a copy of such amendment shall have
been delivered to the Holders and such amendment shall be in full
force and effect.
2.20 Investment Account. The Collateral Agent shall have
established and there shall exist with Harris Trust and Savings Bank
the Investment Account and Harris Trust and Savings Bank and SFSC
shall have entered into a Letter of Instructions and Investment
Management Agreement ("Letter of Instructions") in form and
substance satisfactory to the Required Holders and acknowledged by
the Collateral Agent, a copy of such agreement shall have been
delivered to the Holders and such agreement shall be in full force
7 <PAGE>
and effect.
2.21 Proceedings. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in
form and substance to the Holders which are signatories hereto, and
the Holders shall have received all such counterpart originals or
certified or other copies of such documents as the Holders which are
signatories hereto may reasonably request.
3. Agreement of Company with respect to Assumption
Agreement. The Company agrees and acknowledges that the execution
of the Assumption Agreement does not release or discharge the
Company from any of its obligations, indebtedness, liability or
duties under the Note Agreement, the Notes or any other Transaction
Document to which it is a party and notwithstanding the Assumption
Agreement the Company shall be bound by the terms of the Note
Agreement, Notes and other Transaction Documents to which it is a
party, and liable thereunder, to the same extent as prior to the
execution of the Assumption Agreement by SFSC.
4. Representations and Warranties. The Company represents,
covenants and warrants:
4.1 Power and Authority. Each of the Company and SFSC is a
corporation duly organized and existing in good standing under the
laws of the state of its incorporation. Each of the Company and
SFSC has all requisite corporate power to conduct its business as
currently conducted and as currently proposed to be conducted. Each
of the Company and SFSC has all requisite corporate power to
execute, deliver and perform its obligations under this Amendment,
the replacement Notes, the Security Agreement, the Purchase and Sale
Agreement, the Bill of Sale, the Assumption Agreement, the
Segregation Account Agreement, the Letter of Instructions, the
Operating Agreement and the Support Agreement (collectively, the
"Amendment Agreements"). The execution, delivery and performance by
the Company and SFSC of each of the Amendment Agreements has been
duly authorized by all requisite corporate action on the part of the
Company and SFSC. Each of the Company and SFSC has duly executed
and delivered each of the Amendment Agreements, and each of the
Amendment Agreements constitutes the legal, valid and binding
obligation of the Company and SFSC, enforceable against the Company
and SFSC in accordance with its terms.
8 <PAGE>
4.2 No Conflicts. Neither the execution and delivery of the
Amendment Agreements by the Company and SFSC, nor the consummation
of the transactions contemplated hereby or thereby, nor fulfillment
of nor compliance with the terms and provisions hereof or thereof
will conflict with, or result in a breach of the terms, conditions
or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien (other than the
security interest in the Collateral in favor of the Collateral Agent
pursuant to the Security Agreement) upon any of the properties or
assets of the Company, SFSC or any other Subsidiary of the Company
pursuant to, the charter or by-laws of the Company, SFSC or any such
Subsidiary, any award of any arbitrator or any agreement (including
any Assigned Contract and agreement with stockholders), instrument,
order, judgment, decree, statute, law, rule or regulation to which
the Company, SFSC or any such Subsidiary is subject.
4.3 Title. The Company or SFSC, as applicable, has good
title to all of the Collateral, including without limitation all of
the Contracts set forth on the Contract Schedule, subject to no
Liens other than the Liens in favor of the Collateral Agent created
under the Security Agreement.
4.4 Governmental Consent. Other than the filing of
financing statements in the office of the Secretary of State of
Colorado and in the jurisdictions listed in the SFSC Equipment
Certificate naming SFSC as debtor and the Collateral Agent as
secured party, neither the nature of the business conducted by the
Company or SFSC or any Subsidiary of the Company, nor any of their
respective properties, nor any relationship between the Company or
SFSC or any other such Subsidiary and any other Person, nor any
circumstance in connection with the transactions contemplated by
this Amendment is such as to require any authorization, consent,
approval, exemption or other action by or notice to or filing with
any court or administrative or governmental body in connection with
the execution and delivery of this Amendment or any other Amendment
Agreement or fulfillment of or compliance with the terms and
provisions hereof or thereof.
4.5 Copies of Agreements. The Company has delivered to the
Holders true, accurate and complete copies of the Operating
Agreement, Support Agreement, Purchase and Sale Agreement,
Assumption Agreement, Bank Amendment, Letter of Instructions and
9 <PAGE>
Bill of Sale, each as in effect on the Effective Date and none of
which have been amended or otherwise modified and no waiver has been
given with respect thereto.
4.6 Capital Stock of SFSC. As of the Effective Date, (i)
the Company is the sole legal and beneficial owner of all of the
capital stock of SFSC, free and clear of any Lien and (ii) no
warrants, rights or options to purchase any capital stock of SFSC
are outstanding.
4.7 Collateral. The Schedule A Assets and Schedule B Assets
constitute all Contracts and Identified Equipment that are
Collateral other than Identified Equipment identified on the ST
Contract Schedule and the Contracts related thereto (the "Specified
Collateral").
4.8 Legends. The Legend contained in paragraph 5G of the
Note Agreement (as in effect prior to the amendments contemplated
hereunder) has been placed on the face of each and every original
copy of each and every Contract.
5. Reference to the Effect on the Agreement.
a. Upon the effectiveness of this Amendment, (i) each
reference, if any, in the Note Agreement to "this Agreement,"
"hereunder," "hereof," or words of like import shall mean and be a
reference to the Note Agreement as amended hereby, (ii) each
reference to the Note Agreement in the other Transaction Documents
shall mean and be a reference to the Note Agreement, as amended
hereby and (iii) each reference to the Notes in all of the
Transaction Documents shall mean and be a reference to the
replacement Notes executed and delivered hereunder.
b. Except as specifically amended above, the Agreement
shall remain in full force and effect, and is hereby ratified and
confirmed.
c. The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or
remedy of the Holders, nor constitute a waiver of any provision of
the Note Agreement or any other document, instrument or agreement
executed and delivered in connection with the Note Agreement.
10 <PAGE>
6. Descriptive Headings. The descriptive headings of the
several paragraphs of this Amendment are inserted for convenience
only and do not constitute a part of this Amendment.
7. Governing Law. This Amendment has been delivered in and
shall be construed and enforced in accordance with, and the rights
of the parties shall be governed by, the law of the State of
Illinois.
8. Counterparts. This Amendment may be executed simulta-
neously in two or more counterparts, each of which shall be deemed
an original, and it shall not be necessary in making proof of this
Amendment to produce or account for more than one such counterpart.
[Signature pages to follow]
11 <PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed and
delivered as of the day and year first written above.
STORAGE TECHNOLOGY CORPORATION
By: /s/ Mark D. McGregor
----------------------------
Title: Assistant Treasurer
STORAGETEK FINANCIAL SERVICES CORPORATION
By: /s/ Robert J. Kali
----------------------------
Title: Vice President and Chief
Operating Officer
THE TRAVELERS INSURANCE COMPANY Aggregate Principal
Amount of Notes Held
By: /s/ Thomas T.S. Li
----------------------------
Title: Investment Officer $19,000,000
THE PHOENIX INSURANCE COMPANY
By: /s/ Thomas T.S. Li
----------------------------
Title: Investment Officer $ 7,000,000
THE TRAVELERS INDEMNITY COMPANY
By: /s/ Thomas T.S. Li
----------------------------
Title: Investment Officer $ 2,000,000
THE TRAVELERS LIFE AND ANNUITY COMPANY
By: /s/ Thomas T.S. Li
----------------------------
Title: Investment Officer $ 1,000,000
THE TRAVELERS INDEMNITY COMPANY OF
RHODE ISLAND
By: /s/ Thomas T.S. Li
----------------------------
Title: Investment Officer $ 1,000,000
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By: /s/ Warren Shank
----------------------------
Title: Counsel
By: /s/ Dennis D. Ballard
----------------------------
Title: Counsel $20,000,000
CUMMINGS & CO.
for the trusteed assets of
Canada Life Insurance Company
of America
By: /s/ Louis E. Raysor
----------------------------
Title: Louis E. Raysor, AT $ 500,000
INCE & CO.
for the trusteed assets of
Canada Life Insurance Company
of New York
By: /s/ Ince & Co.
----------------------------
Title: Signature Guaranteed $ 500,000
Medallion Guaranteed
Morgan Guaranty Trust Co. N.Y.
INCE & CO.
for the trusteed assets of
The Canada Life Assurance Company
By: /s/ Ince & Co.
----------------------------
Title: Signature Guaranteed $ 4,000,000
Medallion Guaranteed
Morgan Guaranty Trust Co. N.Y.
PAGE
<PAGE>
Schedule 1.9 to
Amendment No. 2
Schedule 1.9
to
Amendment No. 2
to the Note Agreement
Amended and Restated Paragraphs 4 through 11
of the Note Agreement
(See Attached)
<PAGE>
Schedule 1.9 to
Amendment No. 2
4. PREPAYMENTS. The Notes shall be subject to
prepayment under the circumstances set forth in paragraph 4A and
paragraph 4C.
4A. Optional Prepayment With Yield-Maintenance
Premium. The Notes shall be subject to prepayment, in whole or in
part (in multiples of $5,000,000), on any Interest Payment Date at
the option of the Obligors, at 100% of the principal amount so
prepaid plus interest thereon to the prepayment date and the Yield-
Maintenance Premium, if any, with respect to each Note.
4B. Notice of Optional Prepayment. The Obligors
making any prepayment under this paragraph 4 shall give the holder
of each Note irrevocable written notice of any prepayment pursuant
to paragraph 4A not less than 30 days, and not more than 60 days,
prior to the prepayment date, specifying such prepayment date and
the principal amount of the Notes, and of the Notes held by such
holder, to be prepaid on such date and stating that such prepayment
is to be made pursuant to paragraph 4A and setting forth in
reasonable detail such Obligor's calculation of the Yield-Mainte-
nance Premium, if any, which is required to be paid to such holder
on such prepayment date. Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such
notice, together with interest thereon to the prepayment date and
together with the Yield-Maintenance Premium, if any, herein
provided, shall become due and payable on such prepayment date.
4C. Mandatory Prepayments.
4C(1). Change in Control. The Company shall forthwith
upon the occurrence of a Change in Control give written notice
thereof to each holder of the Notes which notice shall describe in
reasonable detail the facts and circumstances giving rise to such
Change in Control. After the occurrence of a Change in Control,
each holder of a Note shall have the right, at such holder's option,
to require the Obligors to prepay in whole the aggregate outstanding
principal amount of such holder's Notes together with interest
thereon to the prepayment date and the Yield-Maintenance Premium, if
any, with respect thereto. Each holder of a Note may exercise this
option by giving written notice to the Obligors of such holder's
decision to exercise such option no later than 15 Business Days
<PAGE>
Schedule 1.9 to
Amendment No. 2
after such holder's actual receipt of the written notice of the
Company disclosing the occurrence of such Change in Control in
accordance with the first sentence of this paragraph 4C(1). Notice
of exercise of such option having been given as aforesaid, the
principal amount of such holder's Notes together with interest
thereon to the prepayment date and the Yield-Maintenance Premium, if
any, with respect thereto shall become due and payable on the 30th
day after the date such holder's notice of its decision to exercise
such option is given to the Obligors.
4C(2). Collateral Maintenance Event. In the event that
110% of the outstanding principal amount of all Notes as of the last
day of any Accounting Period shall exceed the sum of (i) the
aggregate of the Contract Present Values of all Eligible Contracts
as of the last day of such Accounting Period and (ii) subject to
paragraph 5Q hereof, the Value of all Investments as of the last day
of such Accounting Period, and the Company or SFSC shall have not,
after the last day of such Accounting Period and prior to the 30th
day after the last day of such Accounting Period, added Contracts
(which constitute Eligible Contracts) as additional Assigned
Contracts pursuant to Section 3.3 of the Security Agreement with a
then aggregate Contract Present Value equal to at least the amount
of such excess, then the Obligors jointly and severally agree to and
shall prepay, on the 30th day after the last day of such Accounting
Period, a principal amount of the Notes equal to the amount of such
excess, together with interest on the principal of the Notes being
prepaid to the prepayment date and the Yield-Maintenance Premium, if
any, with respect thereto.
4D. Partial Payments Pro Rata. Upon any partial
prepayment of the Notes pursuant to paragraph 4A or paragraph 4C(2),
the principal amount so prepaid shall be allocated to all Notes at
the time outstanding in proportion to the respective outstanding
principal amounts thereof.
4E. Retirement of Notes. The Obligors jointly and
severally agree and covenant that they shall not, nor shall they
permit any of their Subsidiaries or Affiliates to, prepay or
otherwise retire in whole or in part prior to their stated final
maturity (other than by prepayment pursuant to paragraphs 4A or 4C
-2-
<PAGE>
Schedule 1.9 to
Amendment No. 2
or upon acceleration of such final maturity pursuant to paragraph
7A), or purchase or otherwise acquire directly or indirectly, Notes
held by any holder unless such Obligors or such Subsidiary or
Affiliate shall have offered to prepay or otherwise retire or
purchase or otherwise acquire, as the case may be, the same
proportion of the aggregate principal amount of Notes held by each
other holder of Notes at the time outstanding upon the same terms
and conditions; provided, however, that no such prepayment,
retirement, purchase or other acquisition may be directly or
indirectly conditioned upon receipt by the Obligors of any consent,
waiver or agreement to amend or otherwise modify this Agreement or
any of the instruments or agreements related hereto. Any Notes so
prepaid or otherwise retired or purchased or otherwise acquired by
the Obligors or any of their Subsidiaries or Affiliates shall not be
deemed to be outstanding for any purpose under this Agreement.
5. AFFIRMATIVE COVENANTS. The Obligors agree and
covenant as follows (provided that any covenant made by the Obligors
jointly shall be a joint and several agreement by, and obligation
of, each of the Obligors):
5A. Financial Statements and Other Reports.
(1) The Company covenants that it shall deliver
to each holder of the Notes in duplicate, as soon as
practicable and in any event within 55 days after the
end of each quarterly period (other than the last
quarterly period) in each fiscal year, a consolidated
statement of income and statement of cash flows of the
Company and its Subsidiaries for such quarterly period
and for the period from the beginning of the current
fiscal year to the end of such quarterly period, and a
consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures
for the corresponding period in the preceding fiscal
year, all in reasonable detail and certified by an
authorized financial officer of the Company, subject to
changes resulting from ordinary year-end adjustments;
-3-
<PAGE>
Schedule 1.9 to
Amendment No. 2
(2) The Company covenants that it shall deliver
to each holder of the Notes in duplicate, as soon as
practicable and in any event within 100 days after the
end of each fiscal year, a consolidated statement of
income and statement of cash flows of the Company and
its Subsidiaries for such year, and a consolidated
balance sheet of the Company and its Subsidiaries as at
the end of such year, setting forth in each case in
comparative form corresponding consolidated figures from
the preceding annual audit all in reasonable detail and,
as to the consolidated financial statements, certified
to the Company by independent public accountants of
recognized national standing selected by the Company
whose certificate shall be in scope and substance
satisfactory to you;
(3) SFSC covenants that it shall deliver to each
holder of the Notes in duplicate, as soon as practicable
and in any event within 100 days after the end of each
fiscal year, a consolidated statement of income and
statement of cash flows of SFSC and its Subsidiaries for
such year, and a consolidated balance sheet of SFSC and
its Subsidiaries as at the end of such year, setting
forth in each case in comparative form corresponding
consolidated figures from the preceding fiscal year, all
in reasonable detail and certified by an authorized
financial officer of SFSC;
(4) The Obligors covenant that they shall
deliver to each holder of the Notes in duplicate,
promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and
reports as each Obligor shall send to its public
stockholders or other public security holders and copies
of all registration statements (without exhibits) and
all reports which it files with the Securities and
Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and
Exchange Commission);
-4-
<PAGE>
Schedule 1.9 to
Amendment No. 2
(5) Each of the Obligors covenant that it shall
deliver to each holder of the Notes in duplicate,
promptly upon receipt thereof, a copy of each management
letter or similar report submitted to it or any of its
Subsidiaries by independent public accountants in
connection with any annual, interim or special audit
made by them of the books of such Obligor or any Subsid-
iary of such Obligor;
(6) The Company covenants that it shall deliver
to each holder of the Notes in duplicate, at the request
of any holder of the Notes, such financial and other
information as any such holder or any potential
Transferee that is a "qualified institutional buyer" (as
defined in Rule 144A promulgated under the Securities
Act) of such holder may reasonably determine is required
to permit compliance with the requirements of Rule 144A
in connection with the resale by a holder of any Notes,
except at such times as the Company is a reporting
company under Section 13 or 15(d) of the Exchange Act or
has complied with the requirements for the exemption
from registration under the Exchange Act set forth in
Rule 12g3-2(b) under such Act;
(7) The Obligors covenant that they shall
deliver to each holder of the Notes in duplicate, as
soon as practicable and in any event within 30 days
after the end of each Accounting Period, an Officer's
Certificate demonstrating (with computations in
reasonable detail) compliance by the Company and SFSC
with the provisions of paragraph 6E as of the end of
such Accounting Period;
(8) The Obligors covenant that they shall
deliver to each holder of the Notes in duplicate, as
soon as practicable and in any event within 55 days
after the end of each quarterly period a collateral
report (the "Collateral Report") demonstrating (with
computations in reasonable detail) compliance by the
Obligors with the provisions of paragraphs 6F, 6G, 6H
-5-
<PAGE>
Schedule 1.9 to
Amendment No. 2
and 6I in the form of Exhibit D hereto providing the
information called for by such form for and as of the
end of such quarterly period;
(9) The Obligors covenant that they shall
deliver to each holder of the Notes in duplicate,
promptly and in any event within 5 days, after obtaining
knowledge of any Default or Event of Default or the
occurrence of any material adverse change to the
property, assets, business, condition (financial or
otherwise) or operations of the Company and its
Subsidiaries, taken as a whole, SFSC and its
Subsidiaries, taken as a whole, or the ability of the
Company or SFSC to repay the Notes or perform its other
obligations under this Agreement or any other
Transaction Document, an Officer's Certificate
specifying the nature of such Default, Event of Default
or material adverse change (as the case may be), the
period of existence thereof and the action the Obligors
propose to take with respect thereto; and
(10) The Obligors covenant that they shall
deliver to each holder of the Notes in duplicate, with
reasonable promptness, such other financial data or
other data regarding the Collateral (including, without
limitation, data relating to compliance by the Company
and SFSC with the requirements of paragraph 6J) as any
such holder may reasonably request.
Each of the Obligors shall, and shall cause each of its
Subsidiaries to, maintain its books and records in accordance with
generally accepted accounting principles consistently applied.
Together with each delivery of financial statements
required by clauses (1) and (2) above, (i) the Company will deliver
to each such holder an Officer's Certificate demonstrating (with
computations in reasonable detail) compliance by the Company with
the provisions of paragraphs 6A(1), 6A(2), 6B, 6C(2) and 6C(4) as of
the end of the period covered by such financial statements and
(ii) the Obligors will deliver to each such holder an Officer's
-6-
<PAGE>
Schedule 1.9 to
Amendment No. 2
Certificate stating that there exists no Event of Default or
Default, or, if any Event of Default or Default exists, specifying
the nature and period of existence thereof, the action the Obligors
propose to take to cure such Event of Default or Default and the
time by which the Obligors propose to complete such cure.
Together with each delivery of financial statements
required by clause (2) above, (i) the Company will deliver to each
such holder a certificate of such accountants stating that, in
making the audit necessary to the certification of such financial
statements, they have obtained no knowledge of any breach or
violation of the terms of paragraphs 6A(1), 6A(2), 6B, 6C(2) and
6C(4), or, if they have obtained knowledge of any breach or
violation of the terms of such paragraphs, specifying to the best of
their knowledge the nature and period of existence thereof (such
accountants, however, shall not be liable to anyone by reason of
their failure to obtain knowledge of any Event of Default or Default
which would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards) and (ii) the
Obligors will deliver to each such holder a report listing all of
the Assigned Contracts existing as of the last day of the fiscal
year to which such financial statements relate and setting forth as
to each such Assigned Contract (1) the name, address and customer
number for each Customer, (2) the contract or lease number and
whether the Company or SFSC is the lessor under such Assigned
Contract and the owner of the Identified Equipment, (3) the monthly
installment payments of rent or purchase price due under such
Assigned Contract, (4) the Firm Termination Date with respect to the
Identified Equipment thereunder, (5) the Contract Present Value of
such Assigned Contract, and (6) the serial number and model number
of each item of such Identified Equipment.
Together with each delivery of financial statements
required by clause (1) above (but only as to such financial
statements relating to the Company's second fiscal quarter of each
fiscal year) and by clause (2) above, the Obligors shall deliver to
the Collateral Agent (i) Uniform Commercial Code search results of
applicable files in the State of Colorado reasonably satisfactory to
the Collateral Agent covering the period from the effective date of
the Uniform Commercial Code search results of applicable files in
-7-
<PAGE>
Schedule 1.9 to
Amendment No. 2
the State of Colorado most recently delivered by the Obligors to the
Collateral Agent to the end of each such fiscal period and showing
no financing statement filed with respect to any of the Collateral
other than in favor of the Collateral Agent pursuant to the Security
Agreement or with the Company as seller and SFSC as buyer as
required by the Security Agreement, (ii) an opinion of the general
counsel of the Obligors (or such other counsel as may be
satisfactory to the Required Holders) dated the date of delivery and
in the form of Exhibit E hereto as to the valid creation and
perfection of a first priority security interest in favor of the
Collateral Agent for the benefit of the holders of the Notes in all
Contracts and related Identified Equipment identified in any
Collateral Certificate delivered to the Collateral Agent pursuant to
Section 3.3 of the Security Agreement during the period from the
date hereof to the last day of the Company's fiscal year ending in
1991 and, thereafter, during the period from the last day of the
last such fiscal period to the end of each such following fiscal
period, respectively and (iii) an opinion of special counsel to the
Obligors satisfactory to the Required Holders, dated the date of
delivery, and in the form of Exhibit F hereto as to the valid
creation and perfection of a first priority perfected security
interest in favor of the Collateral Agent for the benefit of the
holders of the Notes, as of the last day of the last such fiscal
period, in all Investments.
5B. Books and Records; Inspection of Property. Each
of the Obligors covenants that it shall keep adequate records and
books of account with respect to its properties and assets
(including, without limitation, each Assigned Contract and each item
of Identified Equipment relating thereto) in which entries will be
made in sufficient detail to enable the Company or SFSC to prepare
the reports and certificates required under the Transaction
Documents. Each of the Obligors further covenants that no such
records relating to any Collateral or any Identified Equipment
relating thereto will be destroyed until all principal of, and
interest and premium, if any, on the Notes has been paid in full, if
such destruction would adversely affect, in any material way, the
ability of the Collateral Agent or the holders of the Notes to
effectively exercise, realize upon or enforce any or all of its or
their rights under this Agreement, the Security Agreement or any
-8-
<PAGE>
Schedule 1.9 to
Amendment No. 2
other Transaction Document (as the case may be) and that each of the
Obligors will maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate
records of the Assigned Contracts and information with respect
thereto of the type required to enable the Company to prepare the
reports and certificates required under the Transaction Documents)
reasonably necessary or advisable for the collection of the amounts
due under the Assigned Contacts. Once a year, at any reasonable
time and upon no less than fifteen (15) days' prior written notice,
each of the Obligors shall permit the Collateral Agent and each
holder of any Notes, and any of its respective employees,
consultants, accountants or attorneys, at its expense, to examine
and make copies of and abstracts from the records (including
computer disks and tapes) and books of account of, and to visit the
properties of, the Company, SFSC and their Subsidiaries and to
discuss the same with any of their officers, authorized representa-
tives or independent public accountants; provided, however, that
after the occurrence of any Default or Event of Default, each of the
Obligors shall permit the Collateral Agent and each holder of any
Notes, and any of its respective employees, consultants, accountants
or attorneys, at the Obligors' sole expense, to examine and make
copies of and abstracts from the records (including computer disks
and tapes) and books of account of, and to visit the properties of,
the Company, SFSC and their Subsidiaries and to discuss the same
with any of their officers, authorized representatives or
independent public accountants at any time and from time to time
upon prior notice to the Obligors. Each of the Obligors shall be
entitled to designate its employees or representatives to accompany
representatives of the Collateral Agent or holder of a Note during
each such inspection conducted at a time when no Default or Event of
Default exists.
5C. Conduct of Business; Maintenance of Existence;
Maintenance of Security Interest; Compliance with Laws. The Company
covenants that it shall, and shall cause its Subsidiaries to,
continue to engage primarily in the business of manufacturing and
distributing computer storage devices and computer peripheral
equipment as such business is operated on the date hereof (provided
that, XL may, and the Company shall cause XL to, engage primarily in
the business of distributing computer systems). SFSC covenants that
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<PAGE>
Schedule 1.9 to
Amendment No. 2
it shall engage primarily in the business of leasing, or financing
the purchase of, computer equipment or software manufactured or
distributed by the Company. Each of the Obligors covenants that it
shall, and shall cause its Subsidiaries to, (1) preserve, renew and
keep in full force and effect its corporate existence and its
material rights, privileges and franchises necessary or desirable in
the normal conduct of its business, (2) comply in all material
respects with all applicable laws, ordinances, rules, regulations,
and requirements of governmental authorities (including, without
limitation, environmental laws and ERISA and the rules and regula-
tions thereunder) and (3) preserve, maintain and keep in full force
and effect the first priority security interest granted to the
Collateral Agent in the Collateral in the Security Agreement.
Without limiting the foregoing clause (2) of this paragraph, each of
the Obligors covenants that it shall, for each item of Identified
Equipment, file and remit all forms and reports for personal
property taxes required to be filed or remitted by it relating to
the Identified Equipment, and each shall pay and remit (or cause to
be paid and remitted) promptly when due all such personal property
taxes together with any interest or other charge applicable thereto;
provided, however, that each of the Obligors shall have the right to
protest, in good faith and by appropriate proceedings, any assessed
valuation or imposition of tax or claim and its obligation to pay
such contested tax or claim shall be deferred during the pendency of
such protest to the extent permitted by law and to the extent
adequate reserves have been established by the Company or SFSC, as
the case may be, with respect thereto on its books and records if
required under generally accepted accounting principles consistently
applied.
5D. Performance and Compliance with Assigned
Contracts; Amendments to Assigned Contracts; Collections.
5D(1). Performance. Each of the Obligors covenants
that it shall (i) perform and comply with each of the material
provisions, covenants and other promises or undertakings by it under
the Assigned Contracts; (ii) except as otherwise permitted under
this Agreement, maintain all such Assigned Contracts in full force
and effect and enforce such Assigned Contracts in accordance with
their respective terms and take all such action to such end as shall
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PAGE
<PAGE>
Schedule 1.9 to
Amendment No. 2
be necessary or advisable; (iii) prepare on a monthly basis a report
showing the change (if any) in the status of Remaining Net Firm Term
Payments of the Assigned Contracts and deliver a copy of each such
report to the Collateral Agent promptly after the Obligors'
preparation thereof; and (iv) upon the occurrence and during the
continuation of any Default and upon any request of any such holder,
make such reasonable demands and requests under such Assigned
Contracts for information and reports of or on, or action by, the
respective Customers, as the Obligors shall be entitled to make
under such Assigned Contracts. The Company covenants that it shall
provide maintenance and service for all Identified Equipment in
accordance with the terms of each Contract and the Company's
customary practices.
5D(2). Amendments. The Obligors will not amend,
modify, supplement or terminate, in whole or in part, any Assigned
Contract except in the normal course of their respective businesses;
provided, however, that (i) no such amendment, modification,
supplement, or termination shall be made with the intention or
purpose of adversely affecting the rights or interests of the
holders of the Notes; (ii) no such amendment, modification or
supplement would terminate or amend any provision of any Assigned
Contract intended to be for the benefit of any assignee of such
Assigned Contract or a party having a security interest in such
Assigned Contract (such as provisions providing that the Customer's
obligations to pay rent are unconditional and shall be made without
set-off, provisions that the Customer will not assert defenses or
counterclaims against any assignee or secured party, provisions that
an assignee may exercise rights, but is not chargeable with
obligations, of either Obligor under the Assigned Contract, or
similar clauses), and (iii) if a Default or an Event of Default
shall have occurred and be existing, no such amendment,
modification, supplement or termination shall be made which would
decrease the Contract Present Value of an Eligible Contract, change
the ranking of the concentration of the Eligible Contracts by
Industry Groups, or change the Product Line of the Identified
Equipment of such Eligible Contract, unless prior thereto it shall
have delivered to the holders of the Notes an Officer's Certificate
demonstrating (with computations in reasonable detail) compliance by
the Obligors with the provisions of paragraphs 6E, 6F, 6G, 6H, 6I
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<PAGE>
Schedule 1.9 to
Amendment No. 2
and 6J hereof (determined without regard to 45 day remedy period
referred to in paragraphs 6E, 6F, 6G, 6H and 6I) after giving effect
to such amendment, modification, supplement or termination (and any
additional Contracts identified in any Collateral Certificate
delivered to the Collateral Agent pursuant to Section 3.3 of the
Security Agreement in connection therewith).
5D(3). Collections. The Obligors will invoice each
Customer in accordance with the provisions of the Assigned Contract
with such Customer and the Company's standard invoicing procedures.
The Obligors will, at their own expense, use all reasonable efforts
in good faith to collect all amounts due under all Assigned
Contracts to which each is a party and in connection therewith will
comply with the provisions of the Company's standard collection
practices.
5D(4). Segregation Accounts. The Company covenants
that it shall cause immediately available funds to be deposited in
the ST Segregation Account (i) on each Business Day representing
amounts attributable to payments made by Customers with respect to
the Assigned Contracts owned by the Company equal to, as to any
Business Day of any month, an amount which is determined by dividing
the aggregate lease payments and installment sale payments due under
the terms of such Assigned Contracts for such month by the number of
Business Days of such month (or, as to any Business Day of any
period less than a month, an amount equal to such aggregate payments
for such period divided by the number of Business Days in such
period) and (ii) in each month, an amount equal to the lesser of (a)
all payments due the Company by any Customer in the immediately
preceding month with respect to an Assigned Contract or the
Identified Equipment covered thereby other than periodic installment
payments of rent and other payments described in clause (i) above
with respect to such Assigned Contract, including, without
limitation, all payments due arising from a termination of an
Assigned Contract prior to the Firm Termination Date for such
Assigned Contract or from the Customer purchasing such Identified
Equipment and (b) the aggregate Contract Present Value of all
Assigned Contracts for which any such payment was due in such
preceeding month; provided, however, that after the occurrence of an
Event of Default the Company shall cause to be deposited in the ST
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<PAGE>
Schedule 1.9 to
Amendment No. 2
Segregation Account in each month immediately available funds equal
to the amounts specified in clause (a) above. The Company may
withdraw funds from the ST Segregation Account for its business
purposes, at its discretion, at any time prior to, but not in
anticipation of, upon or during the continuance of any Default or
Event of Default.
SFSC covenants that it shall cause immediately available
funds to be deposited in the SFSC Segregation Account (i) on each
Business Day representing amounts attributable to payments made by
Customers with respect to the Assigned Contracts constituting SFSC
Collateral equal to, as to any Business Day of any month, an amount
which is determined by dividing the aggregate lease payments and
installment sale payments due under the terms of such Assigned
Contracts for such month by the number of Business Days of such
month (or, as to any Business Day of any period less than a month,
an amount equal to such aggregate payments for such period divided
by the number of Business Days in such period) and (ii) in each
month, an amount equal to the lesser of (a) all payments due SFSC or
the Company as SFSC's agent under the Operating Agreement by any
Customer in the immediately preceding month with respect to an
Assigned Contract or the Identified Equipment covered thereby other
than periodic installment payments of rent and other payments
described in clause (i) above with respect to such Assigned
Contract, including, without limitation, all payments due arising
from a termination of an Assigned Contract prior to the Firm
Termination Date for such Assigned Contract or from the Customer
purchasing such Identified Equipment and (b) the aggregate Contract
Present Value of all Assigned Contracts for which any such payment
was due in the such preceding month; provided, however, that after
the occurrence of an Event of Default SFSC shall cause to be
deposited in the SFSC Segregation Account in each month immediately
available funds equal to the amounts specified in clause (a) above.
Neither Obligor shall at any time be entitled to withdraw or
transfer any funds from the SFSC Segregation Account. If at any
time the Contract Present Value of all Eligible Contracts added by
SFSC as additional Assigned Contracts after July 1, 1994 (as
specified in item no. 20 of the Collateral Certificate adding such
Eligible Contracts) in accordance with Section 3.3 of the Security
Agreement exceeds the aggregate amount of all cash released from the
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<PAGE>
Schedule 1.9 to
Amendment No. 2
Investment Account in accordance with this paragraph 5D(4) after
July 1, 1994 and (i) SFSC shall have executed the Cash Release
Certificate in accordance with Section 3.4 of the Security Agreement
certifying as to, among other things, such excess (provided,
however, SFSC may not execute and deliver a Cash Release Certificate
to the Collateral Agent more than twice during any Accounting
Period), (ii) no Default or Event of Default has occurred and is
continuing and no Default or Event of Default will exist after, or
as a result of, the release from the Investment Account of the
amount of funds requested to be released by SFSC in such Certificate
and (iii) all of the conditions set forth in Section 3.4 of the
Security Agreement have been satisfied, then the amount specified by
SFSC in the Cash Release Certificate shall be transferred to the
SFSC Operating Account in accordance with Section 3.4 of the
Security Agreement.
Notwithstanding any other provision herein, in the event
that a Default occurs and continues in effect for 5 days and until
six months after such Default and any other Defaults or Events of
Default shall have been cured or waived to the satisfaction of the
Required Holders, the Obligors shall not be entitled to withdraw any
funds from either of the Segregation Accounts without the written
consent of the Required Holders. Upon the occurrence and during the
continuance of any Event of Default, the Collateral Agent shall be
entitled to withdraw any and all funds existing in the Segregation
Accounts.
In the event that (a) a Default occurs and continues in
effect for five days and until six months after such Default and any
other Defaults or Events of Default shall have been cured or waived
to the satisfaction of the Required Holders, (b) SFSC or the Company
has, as to any month after the occurrence of such Default, deposited
into its respective Segregation Account an amount which exceeds
(i) in the case of SFSC, the actual collections of lease payments
and installment payments and all other payments received by SFSC
with respect to the Contracts constituting SFSC Collateral which
were paid under such Contracts as to such month or (ii) in the case
of the Company, the actual collections of lease payments and
installment payments and all other payments received by the Company
with respect to Contracts not constituting SFSC Collateral which
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<PAGE>
Schedule 1.9 to
Amendment No. 2
were paid under such Contracts as to such month, (c) the Obligor
depositing such excess under clause (b) above has delivered to the
Collateral Agent an Officer's Certificate certifying the existence
of such excess deposits into such Obligor's Segregation Account and
showing in reasonable detail such Obligor's calculations thereof,
and (d) such Obligor has received from the Collateral Agent a
written confirmation, based on written instruction from the Required
Holders, of the existence of such excess as set forth in the
Officer's Certificate described in clause (c) above, then such
Obligor may upon written notice to the Collateral Agent (which
notice may be included in the Officer's Certificate referred to in
clause (c) above) reduce the amount of future deposits into its
Segregation Account that it is otherwise obligated to make under
this paragraph 5D(4) by an amount equal to such excess.
5E. Maintenance of Insurance. Each of the Obligors
covenants that it will (and will cause each of its Subsidiaries to)
(1) maintain insurance in such amounts and with such deductibles and
against such liabilities and hazards as customarily is maintained by
other companies operating similar businesses, and (2) upon a request
by any holder of a Note, deliver to such holder a certificate of the
insurer or the Obligor's independent insurance agent summarizing the
details of such insurance in effect and stating the term of such
insurance. Without limiting the foregoing, as to Identified
Equipment, the Obligors will maintain and keep in force, at the
their expense and in such form and with such insurers as may be
reasonably satisfactory to the Obligors, product liability insurance
covering property damage and personal injury with a combined single
limit of at least $10,000,000 per occurrence; provided, however,
that in lieu of maintaining insurance for property loss or damage as
to any Identified Equipment, the Company may maintain and SFSC may
participate in, a self-insurance plan that is adequate for such
purpose and is consistent with customary industry practice. Each of
the Obligors further covenants that all insurance maintained by it
relating to any Identified Equipment which is the subject of any
Assigned Contract shall have the Collateral Agent named as an
additional insured and loss payee as to such Identified Equipment.
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<PAGE>
Schedule 1.9 to
Amendment No. 2
5F. Original Contracts. Each of the Obligors
covenants that it shall maintain the location of its chief executive
office at 2270 South 88th Street, Louisville, Colorado 80028;
provided, however, that the Company or SFSC may change such location
of its chief executive office to another location within the United
States if (1) it shall have given to the Collateral Agent not less
than 45 days prior written notice of its intention to establish a
new chief executive office which notice shall specifically describe
such new location, and (2) the Company or SFSC, as the case may be,
shall have taken all such action as the Collateral Agent may
reasonably request in connection with maintaining the perfection of
the security interest of the Collateral Agent in the Collateral.
All originally executed copies of the Assigned Contracts shall be
maintained at all times at the chief executive office of the Obligor
owning such Assigned Contracts, and such Obligor shall not permit
any Person (other than the Collateral Agent or any person designated
by the Collateral Agent after the occurrence of an Event of Default)
to take possession of any of the Assigned Contracts or any documents
relating thereto until the Collateral Agent shall have released its
security interest therein. As used herein the "chief executive
office" of the Obligors shall have the meaning given to such term in
the Uniform Commercial Code.
5G. Legends. The Obligors covenant that they shall
upon the delivery after July 1, 1994 of each Collateral Certificate
to the Collateral Agent pursuant to Section 3.3 of the Security
Agreement place the following legend conspicuously on the face of
each and every original copy of each and every Contract that is
listed in each such Collateral Certificate:
"CERTAIN RIGHT, TITLE AND INTEREST IN THIS
CONTRACT HAS BEEN ASSIGNED AS SECURITY FOR
THE FULL PAYMENT OF ALL SECURED DEBT TO
CONTINENTAL BANK, N.A., AS COLLATERAL AGENT,
FOR THE RATABLE BENEFIT OF THE SECURED
PARTIES UNDER THE AMENDED AND RESTATED
SECURITY AGREEMENT ("SECURITY AGREEMENT"),
DATED AS OF APRIL 2, 1994 AMONG THE COMPANY,
SFSC AND THE COLLATERAL AGENT. ALL DEFINED
TERMS USED HEREIN ARE DEFINED IN THE
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<PAGE>
Schedule 1.9 to
Amendment No. 2
SECURITY AGREEMENT.";
5H. Holders and Collateral Agent Not Liable. Each of
the Obligors covenants that nothing in this Agreement or any other
Transaction Document shall be construed as imposing on the
Collateral Agent or any holder of any Note any obligation or
liability under the Contracts included in the Collateral, nor shall
the Collateral Agent or any such holder be obligated to perform any
of the obligations or duties of the Company or SFSC thereunder or
take any action to collect or enforce any claim for payment assigned
to the Collateral Agent.
5I. Further Actions -- Collateral. Each of the
Obligors shall, at its own expense, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time
to time such lists, descriptions and designations of the Collateral,
schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, certificates, reports and other
assurances or instruments and take such further steps relating to
the Collateral and other property or rights covered by the security
interest granted by the Collateral Documents, which the Required
Holders or the Collateral Agent reasonably deems appropriate or
advisable to perfect, preserve, protect or enforce the security
interest granted to the Collateral Agent in the Collateral
(including, without limitation, placing a legend, in the form set
forth in paragraph 5G, on all such books, records and documents
relating to the Contracts as the Required Holders or the Collateral
Agent may reasonably request).
5J. Enforcement of Agreements. The Company shall cause
SFSC to comply at all times with all of the covenants of SFSC in
this Agreement and each other Transaction Document to which SFSC is
a party and all other documents and agreements executed by SFSC in
connection herewith and therewith and SFSC shall use its best
efforts to cause Harris Trust and Savings Bank to comply with all
provisions of the Letter of Instructions.
5K. Compliance with Agreements. Except to the extent
the Obligors are permitted under paragraph 6O to amend or waive any
covenant contained in the Operating Agreement or Support Agreement,
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<PAGE>
Schedule 1.9 to
Amendment No. 2
each of the Obligors shall at all times comply with all of the
covenants contained in the Operating Agreement, Support Agreement,
the Purchase and Sale Agreement, Bill of Sale and the Letter of
Instructions.
5L. Collateral Owned by SFSC. In the Company's capacity
as SFSC's agent pursuant to the Operating Agreement, the Company
will, on behalf of SFSC, take all action necessary to comply with
all covenants and agreements herein and in all other Transaction
Documents to which SFSC is a party with respect to all Contracts,
Identified Equipment and other Collateral constituting SFSC
Collateral.
5M. Subordination. The Obligors covenant that any and
all present and future debts, liabilities and obligations (includ-
ing, without limitation, all Intercompany Payables and Intercompany
Debt (each as defined in the Support Agreement)) of SFSC to the
Company or any Subsidiary or Affiliate thereof and any and all
claims of the Company or any Subsidiary or Affiliate thereof against
SFSC shall, upon any Event of Default, be subordinate, and subject
in right of payment, to the prior payment in full of the Notes and
all other obligations of the Obligors to the holders of the Notes
under or in respect of the Transaction Documents, and the Company
shall not receive and SFSC shall not make any payment upon or in
respect of or exercise any rights of set off against debts,
liabilities or obligations of SFSC to the Company until the Notes
have been paid in full or all Events of Default that have occurred
and are continuing have been cured to the satisfaction of the
Required Holders or waived in accordance with this Agreement.
5N. Disclosure of Assumption of Debt and Agreement to
Pledge Collateral. SFSC shall disclose in its financial statements
(other than accounting reports produced during any Accounting Period
in the ordinary course of SFSC's business and distributed solely to
employees of SFSC) the existence of the Assumption Agreement, SFSC's
joint and several liability with the Company with respect to the
Obligations (as defined in the Assumption Agreement) and SFSC's
agreement to grant a security interest to the Collateral Agent in
lease agreements and installment sales agreements and the related
equipment in order for the Obligors to comply with this Agreement.
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<PAGE>
Schedule 1.9 to
Amendment No. 2
5O. Duties and Obligations of the Company as Agent and
Otherwise. The Obligors covenant as follows:
(1) The Company shall serve as agent for SFSC to
administer and manage all Contracts in accordance with the Operating
Agreement and this paragraph 5O, and as SFSC's agent the Company
shall invoice all lessees and purchasers under all Contracts and
collect from such lessees and purchasers all payments due
thereunder, including without limitation all sales and use taxes and
property taxes and shall duly file with the appropriate governmental
authorities all reports and statements with respect to all such
taxes.
(2) The Company shall offer to any lessee or purchaser
of any equipment purchased by SFSC under the Operating Agreement
maintenance and repair services with respect to such equipment and
until such equipment is remarketed, delivered to a lessee or
purchaser or not otherwise subject to the Operating Agreement the
Company shall insure such equipment in accordance with the terms of
paragraph 5E hereof and provide for storage of such equipment if
requested by SFSC.
(3) For any modification of a Contract resulting in a
reduction of the present value of the remaining payments due under
the Contract, the Company shall pay to SFSC an amount equal to the
present value differential applying the interest rate used by SFSC
to record the purchase of the equipment, or upgrade thereto, that
relates to such Contract.
(4) Except as otherwise provided in clause (5) below, if
a Contract is terminated for any reason other than a default by the
customer prior to its stated expiration date, the Company shall pay
to SFSC an amount no less than the present value of the remaining
lease payments due thereunder. For purposes of this paragraph 5O,
any exchange of equipment with respect to any Contract that results
in an upgrade of such equipment shall be a termination of the
original Contract.
(5) If any Contract is terminated prior to three months
before such Contract's expiration date in order for a lessee to
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<PAGE>
Schedule 1.9 to
Amendment No. 2
purchase the equipment leased thereunder, the Company shall pay to
SFSC an amount equal to the greater of (i) the amount for which such
equipment was purchased or (ii) the "Remaining Investment Balance"
as defined in the Operating Agreement on the date hereof; provided
that if such purchase is subject to a "Purchase Option" as defined
in the Operating Agreement on the date hereof, SFSC shall be paid by
the Company the standard purchase option price.
(6) At its own expense, the Company shall indemnify and
defend and hold SFSC harmless from and against all claims, losses
and damages resulting from any action involving a claim that any
equipment purchased by SFSC from the Company infringes any patent,
copyright, trademark, mask work, trade secret or other proprietary
right. If any equipment purchased by SFSC from the Company becomes
the subject of any injunction arising from a claim of infringement,
the Company shall, at its option (i) take such action so as to
permit SFSC to continue to lease or use such equipment, (ii) take
such action so that such equipment no longer is subject to the claim
of infringement or (iii) pay to SFSC the purchase price paid by SFSC
for such equipment, less depreciation.
(7) The Company shall permit SFSC access to the
Company's management systems in order for SFSC to carry out the
terms of the Operating Agreement, including, without limitation, to
allow SFSC to process the purchase of equipment pursuant to the
Operating Agreement.
(8) The Company shall not at any time permit or cause
stockholders' equity, as determined in accordance with generally
accepted accounting principles, of SFSC to be less than $1.00.
(9) At the request of SFSC, the Company shall provide
cash management and payables processing services to SFSC, including
without, limitation, cash payment services in order for SFSC to pay
when due its obligations to other Persons.
(10) To the extent that any provision of the Operating
Agreement conflicts with paragraph 5D(4) hereof, paragraph 5D(4)
shall govern.
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<PAGE>
Schedule 1.9 to
Amendment No. 2
(11) All amounts paid under any Purchased Contract (as
defined in the Purchase and Sale Agreement) which are collected from
April 2, 1994 to June 29, 1994 by the Company as agent for SFSC
under the Operating Agreement and which are owed to SFSC shall as
soon as possible and in no event later than the last day of each
month commencing June 30, 1994, be setoff against all amounts due
the Company by SFSC, and SFSC shall not make any payment to the
Company for any reason, until such a time as the Company shall no
longer owe any such amount to SFSC.
For purposes of this paragraph 5O (other than item no. 11 above),
the term "Contracts" shall mean, collectively, "Contracts" and
"Other Contracts", each as defined in the Operating Agreement.
5P. Replacement of Revolving Loan Agreement. If the
Revolving Loan Agreement is terminated and either Obligor enters
into any agreement in lieu thereof, or enters into any other
agreement, under which either Obligor grants a security interest to
a Person in lease agreements or installment sales agreements and the
related equipment that may be required to be released to permit an
Obligor to grant a security interest in such agreements or equipment
to the Collateral Agent in order to comply with this Agreement or if
the Revolving Loan Agreement is amended to materially change the
procedure under which the Bank Agent releases property from its lien
to permit either Obligor to grant a security interest in such
property to the Collateral Agent, the Obligors shall give written
notice and a copy of such agreement to the holders of the Notes and
enter into an amendment to this Agreement and the other Transaction
Documents satisfactory in form and substance to the Required Holders
relating to the release of such Person's security interest and other
matters in connection therewith as determined by the Required
Holders.
5Q. Determination of Value of Investments.
Notwithstanding any other provision of this Agreement or any other
Transaction Document, until the Obligors shall have delivered to all
holders of the Notes (a) an opinion in form and substance
satisfactory to the Required Holders and their special counsel from
special counsel to the Obligors satisfactory to the Required Holders
or (b) a written acknowledgment in form and substance satisfactory
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PAGE
<PAGE>
Schedule 1.9 to
Amendment No. 2
to the Required Holders and their special counsel from the Bank
Agent or the Majority Lenders (as defined in the Revolving Credit
Agreement), that the Bank Agent (as defined in the Security
Agreement) and the Lenders (as defined in the Revolving Credit
Agreement) have no Lien on or other interest in any amount
transferred by the Obligors to the Segregation Accounts in
accordance with the Transaction Documents and any Investment
purchased with any such amount, and the Required Holders shall have
delivered to the Obligors written notice (with a copy to the
Collateral Agent) that it has received such opinion or
acknowledgment, the Value of all Investments shall be deemed to be
zero for all purposes, including without limitation for the purpose
of (i) the Obligors complying with paragraphs 4C(2) and 6E hereof,
(ii) the definition of Applicable Amount and (iii) SFSC completing
any Cash Release Certificate.
6. NEGATIVE COVENANTS. The Obligors agree and
covenant as follows (provided that any covenant made by the Obligors
jointly shall be a joint and several agreement by, and obligation,
of each of the Obligors):
6A. Certain Financial Covenants.
6A(1). Tangible Net Worth. The Company covenants
that it will not cause or permit Tangible Net Worth, as of the last
day of any fiscal quarter of the Company, to be less than
$700,000,000.
6A(2). Current Ratio. The Company covenants that
it will not cause or permit the ratio of (i) Current Assets, as of
the last day of any fiscal quarter of the Company, to (ii) Current
Liabilities as of the last day of such fiscal quarter, to be less
than 1.2:1.
6B. Limitation on Restricted Payments. The Company
covenants that it shall not, and it shall not permit any Subsidiary
of the Company to, directly or indirectly:
(1) pay or declare any dividend on any of its
capital stock (other than dividends payable solely in
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Schedule 1.9 to
Amendment No. 2
shares of its capital stock) or make any other distribu-
tion on account of its capital stock,
(2) redeem, purchase or otherwise acquire any
shares of its own capital stock,
(3) prepay, redeem, defease (whether actually or
in substance) or purchase in any manner (or deposit or
set aside funds or securities for the purpose of the
foregoing), or make any payment (other than scheduled
payments of interest due on the date of payment thereof,
if such payment is permitted to be made pursuant to the
terms of the applicable Subordinated Debt) in respect
of, or establish any sinking fund, reserve or like set
aside of funds or other property for the redemption,
retirement, or prepayment of, any Subordinated Debt, or
(4) make or otherwise expend any funds for any
Restricted Investment (as defined in paragraph 6C(4))
(all of the foregoing items set forth in clauses (1) through (4)
above being collectively referred to as "Restricted Payments" and
individually as a "Restricted Payment"), except:
(a) any Subsidiary of the Company may declare
and pay dividends to the Company,
(b) any Subsidiary of the Company may declare
and pay dividends or make other distributions in respect
of its beneficial interest (if such Subsidiary is a
trust) to any other Subsidiary of the Company,
(c) the Company may declare and pay dividends
with respect to, and may redeem, Redeemable Preferred
Stock,
(d) the Company may exercise its rights under
the Stockholder Rights Plan,
(e) the Company may redeem Convertible
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<PAGE>
Schedule 1.9 to
Amendment No. 2
Subordinated Debt provided that at the time the Company
calls such Convertible Subordinated Debt for such
redemption the "Market Price" of a share of "Common
Stock" exceeds the "Conversion Price" for such share of
Common Stock by an amount which is not less than 20% of
such Conversion Price at such time (for purposes of this
clause (d) the terms "Market Price", "Common Stock" and
"Conversion Price" shall have the meanings set forth for
such terms in the Convertible Subordinated Debt
Indenture),
(f) the Company may prepay, redeem, defease or
purchase Subordinated Debt which is owed by the Company
to any Subsidiary of the Company,
(g) the Company may make cash payments for the
redemption or repurchase of its common stock ($.10 par
value) in connection with Normal Course Repurchase
Agreements provided that all such cash payments made
since December 28, 1990 do not exceed $5,000,000 in the
aggregate,
(h) the Company may accept from its employees
payments consisting of the Company's common stock ($.10
par value) paid in connection with such employee's
exercise of an employee stock option for the purchase of
shares of the Company's common stock ($.10 par value),
and
(i) out of Consolidated Net Income Available for
Restricted Payments.
Notwithstanding anything herein to the contrary, no
Restricted Payment (other than as described in clauses (a), (b) and
(g) above) may be made or declared unless immediately before such
Restricted Payment is made or declared (and after giving effect
thereto) there exists no Default or Event of Default. "Consolidated
Net Income Available for Restricted Payments" shall mean an amount
equal to (1) 50% (or minus 100% in the case of a deficit) of
Consolidated Net Income for the period (taken as one accounting
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<PAGE>
Schedule 1.9 to
Amendment No. 2
period) commencing on December 28, 1990 and terminating at the end
of the last fiscal quarter of the Company immediately preceding the
date of any determination thereof, plus (2) 50% of the net cash
proceeds received by the Company from the issue or sale, after the
date hereof, of the Company's common stock ($.10 par value) other
than any such issuance or sale to a Subsidiary of the Company, plus
(3) $50,000,000, less (4) the aggregate amount of all Restricted
Payments (other than any Restricted Payments described in clauses
(a), (b) and (d) through (h) above) made or declared after Decem-
ber 28, 1990 plus (5) Net Repaid Restricted Investments. "Net
Repaid Restricted Investments" shall mean an amount (if any) equal
to the cash (net of any and all costs of collection) received by the
Company after December 28, 1990 upon repayment to it of loans and
advances constituting Restricted Investments which were deducted
from Consolidated Net Income Available for Restricted Payments
pursuant to clause (4) above. The term "stock" as used in this
paragraph 6B shall include warrants, rights and options to purchase
stock.
6C. Lien, Debt and Other Restrictions. The Company
covenants that it shall not, and it shall not permit any Subsidiary
of the Company to directly or indirectly:
6C(1). Liens -- Create, assume or suffer to exist
any Lien, except the security interest in favor of the Collateral
Agent pursuant to the Security Agreement, upon any of the Collateral
including, without limitation, any of the Identified Equipment which
is the subject of any Contract, whether such Collateral or
Identified Equipment is now owned or hereafter acquired nor, other
than pursuant to the Security Agreement, assign any right to receive
income relating to the Collateral or such Identified Equipment, or
sign or file, under the Uniform Commercial Code of any United States
jurisdiction a financing statement relating to the Collateral or any
such Identified Equipment or under the law of any other jurisdiction
a registration, filing or recordation relating to the Collateral or
any such Identified Equipment, in either case, that names the
Company or any of its Subsidiaries as debtor, mortgagor, trustor or
assignor or the equivalent, or sign any security agreement
authorizing any secured party thereunder to file any such financing
statement or other document. Each of the Obligors further covenants
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<PAGE>
Schedule 1.9 to
Amendment No. 2
that it shall not permit any such Identified Equipment to be located
in a jurisdiction other than that set forth in the Equipment
Certificate as to such Identified Equipment or set forth in any
Collateral Certificate delivered to the Collateral Agent after the
date of closing as to such Identified Equipment unless the Obligors
shall have delivered written notice to the Collateral Agent and each
holder of a Note advising of the new location of such Identified
Equipment within the earlier of (i) 90 days after the change to such
new location and (ii) 30 days after any Company or SFSC employee in
the lease finance administration department (or successor
department) of the Company or SFSC obtains knowledge of any such
change and the Obligors take all action, satisfactory to the
Collateral Agent, to maintain in full force and effect the security
interest of the Collateral Agent in such Identified Equipment as, at
all times, fully perfected and ranking first in priority.
6C(2). Debt -- Create, incur or assume any Debt
or Contingent Obligation, except:
(i) Debt of the Company represented by the
Notes,
(ii) Debt of the Company to any Subsidiary of the
Company,
(iii) Debt of any Subsidiary of the Company to any
other Subsidiary of the Company,
(iv) Debt of any Subsidiary of the Company to the
Company, and
(v) Other Debt of the Company or of any
Subsidiary of the Company and Contingent Obligations if
as of the last day of the Company's fiscal quarter in
which such Debt or Contingent Obligation is created,
incurred or assumed (including, without limitation, each
borrowing under the Revolving Loan Agreement and each
borrowing under any other revolving credit facility) and
after giving effect thereto, (a) the sum of the
aggregate outstanding principal amount of all Senior
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<PAGE>
Schedule 1.9 to
Amendment No. 2
Recourse Debt plus the amount of all Contingent
Obligations of the Company and its Subsidiaries does not
exceed an amount equal to 40% of Tangible Net Worth, (b)
the sum of the aggregate outstanding principal amount of
all Consolidated Debt (including, without limitation,
Subordinated Debt and Consolidated Non-Recourse Debt)
plus the amount of all Contingent Obligations of the
Company and its Subsidiaries does not exceed an amount
equal to 115% of Tangible Net Worth and (c) the amount
of all Contingent Obligations of the Company and its
Subsidiaries does not exceed 10% of Tangible Net Worth.
For purposes of this clause (v), the amount of
Contingent Obligations shall be the aggregate
outstanding face amount of all obligations guaranteed,
endorsed or otherwise subject to becoming a direct
obligation (upon the occurrence of any contingency or
otherwise) under all Contingent Obligations of the
Company and its Subsidiaries (including, without limita-
tion, the face amount of all undrawn letters or credit).
6C(3). [Intentionally omitted.]
6C(4). Restricted Investments -- Make or permit to
remain outstanding any loan or advance to, or own, purchase or
acquire any stock, obligations or securities of, or any other
interest in, or make any capital contribution to any Person (all of
the foregoing loans, advances, purchases, acquisitions, extensions
and permissions to remain outstanding, other than those set forth in
clauses (i) through (vi) below, being collectively referred to as
"Restricted Investments" and individually as a "Restricted Invest-
ment"), except:
(i) any Subsidiary of the Company may make or
permit to remain outstanding loans or advances to the
Company or any other Subsidiary and the Company may make
or permit to remain outstanding loans or advances to any
of its Subsidiaries,
(ii) the Company and each of its Subsidiaries may
own, purchase or acquire stock or other securities of
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<PAGE>
Schedule 1.9 to
Amendment No. 2
another Subsidiary or of a corporation which immediately
after such purchase or acquisition will be a Subsidiary,
(iii) the Company and each of its Subsidiaries may
acquire and own stock, obligations or securities
received in settlement of debts (created in the ordinary
course of business) owing to the Company or any such
Subsidiary,
(iv) the Company and each of its Subsidiaries may
make investments in accordance with its written cash
investment policy as set forth as Schedule 6C(4)(iv)
attached hereto,
(v) the Company may permit to remain outstanding
the Company's present investments described on Schedule
6C(4)(v) attached hereto, and
(vi) Restricted Investments permitted to be made
pursuant to paragraph 6B.
6C(5). Sale of Stock and Debt of Subsidiaries --
Sell or otherwise dispose of, or part with control of, any shares of
capital stock (other than directors' qualifying shares) or Debt of
any Subsidiary of the Company or any beneficial or other interest in
any Subsidiary if such Subsidiary is a trust, except to the Company
or a Subsidiary of the Company, and except that all shares of
capital stock, and Debt of and beneficial or other interest in any
such Subsidiary may be sold as an entirety provided that (a) at the
time of such sale, such Subsidiary shall not own, directly or
indirectly, any shares of capital stock or Debt of or any beneficial
or other interest in any other Subsidiary of the Company (unless all
of the shares of capital stock and Debt of and beneficial or other
interest in such other Subsidiary are simultaneously being sold and
such sale otherwise complies with the terms of this Agreement), and
(b) such sale would be permitted by paragraph 6C(6).
6C(6). Merger and Sale of Assets -- Merge or
consolidate with any other corporation or sell, lease, transfer or
otherwise dispose of all of its assets or a Substantial Part of its
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<PAGE>
Schedule 1.9 to
Amendment No. 2
assets, to any Person, except that:
(i) any Subsidiary of the Company may merge with
the Company (provided that the Company shall be the
continuing or surviving corporation) or with any one or
more other such wholly-owned Subsidiaries,
(ii) any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to the Company or
another such Subsidiary,
(iii) the Company may merge with any other
corporation, provided that (a) the Company shall be the
continuing or surviving corporation, and (b) both before
and immediately after such merger (1) the Company shall
not be in violation of the covenants set forth in
paragraphs 6A(1) and 6A(2) hereof, as of the date of
such merger, and (2) the Company shall be able to incur
at least $1.00 of additional Senior Recourse Debt and
$1.00 of additional Contingent Obligations under para-
graph 6C(2) (assuming such Debt and Contingent
Obligations were incurred in the fiscal quarter of the
Company immediately preceding the then existing fiscal
quarter),
(iv) any Subsidiary of the Company may sell lease
agreements or installment sales agreements (other than
any Collateral) to any Person (other than an Affiliate
of the Company), provided that (a) such sale is recorded
as a true sale in accordance with generally accepted
accounting principles consistently applied, (b) such
Subsidiary receives from such sale an amount not less
than the fair market value of the lease agreements and
installment sales agreements sold, (c) both before and
immediately after such sale, the Company shall not be in
violation of any covenant set forth in this paragraph 6
as of the date of any such sale and (d) the Company
shall be able to incur at least $1.00 of additional
Senior Recourse Debt and $1.00 of additional Contingent
Obligations under paragraph 6C(2) (assuming such Debt
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<PAGE>
Schedule 1.9 to
Amendment No. 2
and Contingent Obligations were incurred in the fiscal
quarter of the Company immediately preceding the then
existing fiscal quarter), and
(v) the Company may sell, lease, transfer or
otherwise dispose of any of its assets to SFSC.
provided, however, that with respect to each of clauses (i), (ii),
(iii), (iv) and (v) above, there shall exist no Default or Event of
Default either immediately before or after giving effect to any such
merger or sale, lease, transfer or other disposition.
6C(7). Sale and Lease-Back -- Enter into any
arrangement with any Person providing for the leasing by the Company
or any Subsidiary of the Company of real or personal property which
has been or is to be sold or transferred by the Company or any such
Subsidiary to such Person or to any Person to whom funds have been
or are to be advanced by such Person on the security of such
property or rental obligations of the Company or any such Subsidiary
except where the obligations of the Company or such Subsidiary
thereunder constitute Capitalized Lease Obligations and such
transaction is permitted under paragraph 6C(2); provided, however,
that this paragraph shall not prohibit the Company or a Subsidiary
of the Company from selling and leasing back (pursuant to an
arrangement where the obligations of the Company or such Subsidiary
thereunder do not constitute Capitalized Lease Obligations) (i) the
Company's real property located at 2270 South 88th Street, in
Louisville, Colorado which is the site of its chief executive
office, (ii) the Company's real property located at 2345 Clover
Basin Drive, Longmont, Colorado, (iii) real or personal property
acquired by the Company or such Subsidiary after the date hereof,
(iv) products distributed by the Company in connection with wrap
lease transactions by the Company and (v) property as to which the
Company is currently in the process of selling and leasing back,
provided that the fair market value of such property does not exceed
$5,000,000 in the aggregate.
6C(8). Pension Plan Funding Deficiency -- Incur or
suffer to exist any material accumulated funding deficiency within
the meaning of ERISA or incur any material liability to the Pension
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Schedule 1.9 to
Amendment No. 2
Benefit Guaranty Corporation established under ERISA (or any
successor thereto under ERISA) in connection with any employee
benefit plan.
6C(9). Transactions With Affiliates -- Directly or
indirectly, purchase, acquire or lease any property from, or sell,
transfer or lease any property to, or otherwise deal with in the
ordinary course of business or otherwise (i) any Affiliate of the
Company, or (ii) any Person related by blood, adoption or marriage
to any Affiliate of the Company; provided, however, that this
paragraph shall not be deemed to prohibit transactions the terms of
which are at least as favorable to the Company and its Subsidiaries
(as applicable) as the terms that could be obtained by the Company
and such Subsidiary on an arm's length basis with a Person other
than a Person described in clause (i) or (ii) above.
6D. Issuance Of Stock By Subsidiaries. The Company
covenants that no Subsidiary of the Company shall (either directly,
or indirectly) by the issuance of rights or options for, or
securities convertible into, such shares, issue, sell or otherwise
dispose of any shares of any class of its stock (other than
directors' qualifying shares) or any beneficial interest if such
Subsidiary is a trust, except as may otherwise be permitted by
paragraph 6C(5).
6E. Collateral Maintenance. The Obligors covenant
that they will not cause or permit the sum of (i) the aggregate of
the Contract Present Values of all Eligible Contracts as of the last
day of any Accounting Period and (ii) subject to paragraph 5Q
hereof, the Value of all Investments as of the last day of any
Accounting Period to be less than 110% of the outstanding principal
amount of all Notes as of such day without either (i) adding
Contracts which have an aggregate Contract Present Value equal to at
least the amount of such difference and which constitute Eligible
Contracts as additional Assigned Contracts pursuant to Section 3.3
of the Security Agreement within 30 days after the last day of such
Accounting Period, or (ii) prepaying the Notes in accordance with
paragraph 4C(2) on the 30th day after the last day of such
Accounting Period.
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<PAGE>
Schedule 1.9 to
Amendment No. 2
6F. Collateral Customer Diversification. The Obligors
covenant that, as to Eligible Contracts having an aggregate Contract
Present Value of not less than the Applicable Amount determined as
of the last day of the quarter referred to below, they shall not
cause or permit the aggregate of the Contract Present Values of all
such Eligible Contracts with any Customer and with all Consolidated
Subsidiaries of such Customer as of the last day of any fiscal
quarter of the Company to be greater than the Maximum Customer
Percentage of the aggregate of the Contract Present Values of all
such Eligible Contracts at such time, unless remedied within 45 days
after the end of such last day of such quarter. The Maximum Customer
Percentage with respect to any Customer shall mean at any date (a)
if such Customer and all Consolidated Subsidiaries of such Customer
which are Customers under any Eligible Contracts have outstanding
long term unsecured indebtedness which is then rated at or above A
(or the then existing equivalent) by Standard & Poor's Corporation,
or the then successor thereto, or which is rated at or above A (or
the then existing equivalent) by Moody's Investor Service, Inc., or
the then successor thereto, 10% or (b) otherwise, 5%.
6G. Collateral Industry Diversification. The Obligors
covenant that, as to Eligible Contracts having an aggregate Contract
Present Value of not less than the Applicable Amount determined as
of the last day of the quarter referred to below, they shall not
cause or permit the aggregate of the Contract Present Values of all
such Eligible Contracts with all Customers within any Industry Group
as of the last day of any fiscal quarter of the Company, unless
remedied within 45 days after the end of such last day of such
quarter, to be greater than the following:
(a) if the concentration of such Eligible
Contracts with all Customers within such Industry Group,
as determined in the manner set forth below, ranks first
in size as of such day, 25.0% of the aggregate of the
Contract Present Values of all such Eligible Contracts
at such time;
(b) if the concentration of such Eligible
Contracts with all Customers within such Industry Group,
as so determined, ranks second in size as of such day,
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PAGE
<PAGE>
Schedule 1.9 to
Amendment No. 2
12.5% of the aggregate of the Contract Present Values of
all such Eligible Contracts at such time;
(c) if the concentration of such Eligible
Contracts with all Customers within such Industry Group,
as so determined, ranks third in size as of such day,
10% of the aggregate of the Contract Present Values of
all such Eligible Contracts at such time;
(d) if the concentration of such Eligible
Contracts with all Customers within such Industry Group,
as so determined, ranks fourth, fifth, sixth or seventh
in size as of such day, 7.5% of the aggregate of the
Contract Present Values of all such Eligible Contracts
at such time; or
(e) if the concentration of such Eligible
Contracts with all Customers within such Industry Group,
as so determined, ranks eighth or lower in size as of
such day, 5.0% of the aggregate of the Contract Present
Values of all such Eligible Contracts at such time.
For the purposes hereof:
(i) A Customer shall be considered to be
within such Industry Group as of any day if, the
primary industry in which such Customer is en-
gaged, as most recently determined by the Company
in good faith and in a manner consistent with its
past practices, is within such Industry Group; and
(ii) The ranking in size of the
concentration of Eligible Contracts in Industry
Groups at any time shall be determined by
calculating, for each Industry Group, the
aggregate amount of the Contract Present Values of
all Eligible Contracts with all Customers then
within such Industry Group and ranking the amounts
so obtained for all Industry Groups from largest
to smallest.
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<PAGE>
Schedule 1.9 to
Amendment No. 2
The Obligors further covenant that they shall not permit
the aggregate amount of the Contract Present Values of all Customers
within the Industry Group designated as "Unassigned" on Schedule 10B
attached hereto to exceed 5% of the aggregate of the Contract
Present Values of all such Eligible Contracts as of the last day of
any fiscal quarter of the Company, unless remedied within 45 days
after such last day of such quarter.
6H. Customer Bankruptcy and Other Limitations. The
Obligors covenant that, as to Eligible Contracts having an aggregate
Contract Present Value of not less than the Applicable Amount
determined as of the last day of the quarter referred to below, they
shall not cause or permit the aggregate of the Contract Present
Values of all such Eligible Contracts with Customers (1) that are
subject to bankruptcy proceedings, as hereinafter determined, and
(2) that are state or local governments or agencies of state or
local governments whose long term unsecured indebtedness is either
below Investment Grade or not rated by either Standard & Poor's
Corporation (or its successor) or Moody's Investor Service, Inc. (or
its successor) to be greater than 6% of the aggregate of the
Contract Present Values of all such Eligible Contracts as of the
last day of any fiscal quarter of the Company, unless remedied
within 45 days after such last day of such quarter. For the
purposes of this paragraph, a Customer shall be considered to be
subject to bankruptcy proceedings if a petition or application to
any tribunal for the appointment of, or taking of possession by, a
trustee, receiver, custodian, liquidator or similar official of such
Customer or of any Substantial Part of the assets of such Customer
has been filed by or against such Customer, or any case or
proceeding is commenced by or with respect to such Customer under
any Bankruptcy Law of any jurisdiction.
6I. Product Line Limitation. The Obligors covenant
that, as to Eligible Contracts having an aggregate Contract Present
Value of not less than the Applicable Amount determined as of the
last day of the quarter referred to below, they shall not cause or
permit the aggregate of the Contract Present Values of all such
Eligible Contracts relating to Identified Equipment in any Product
Lines as of the last day of any fiscal quarter of the Company,
unless remedied within 45 days after such last day of such fiscal
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<PAGE>
Schedule 1.9 to
Amendment No. 2
quarter, to be greater than 70% of the aggregate of the Contract
Present Values of all such Eligible Contracts as of such date nor
cause or permit the aggregate of the Contract Present Values of all
such Eligible Contracts relating to Identified Equipment in any
Product Line other than the Serial Access Subsystems or Random
Access Subsystems Product Lines as of the last day of any fiscal
quarter of the Company, unless remedied within 45 days after such
last day of such fiscal quarter, to be greater than 25% of the
aggregate of the Contract Present Value of all such Eligible
Contracts as of such date.
6J. General Diversification. Except as may be
necessary to comply with the provisions of paragraphs 6F, 6G or 6I,
the Obligors covenant that they shall not cause or permit the
relative proportions of the Eligible Contracts, when classified by
Industry Group of Customers, Credit Quality of Customers, Product
Line of Identified Equipment, and Lease Terms, to vary in any
material respect from the relative proportions of all other computer
peripheral equipment lease agreements and installments sales
agreements owned or sold by the Obligors, taken as a whole, when
similarly classified.
6K. Segregation Account. Each of the Obligors
covenants that it shall not cause or permit either Segregation
Account to be closed, or deposit or otherwise credit, or cause or
permit to be deposited or credited, to either Segregation Account
cash or cash proceeds other than payments made with respect to
Contracts as provided pursuant to paragraph 5D(4). Without limiting
the foregoing, the Segregation Account Bank may terminate the
Segregation Accounts maintained at such Segregation Account Bank
upon 30 days' prior written notice to the Obligors and the
Collateral Agent pursuant to Section 6 of the Segregation Account
Agreement; provided, however, that prior to or concurrently with
such termination, the Segregation Accounts have been transferred to
a successor Segregation Account Bank which is a financial
institution acceptable to the Collateral Agent and which has entered
into a Segregation Account Agreement in the form of Exhibit C
attached hereto and, provided further, that the Obligors take all
such actions as the Collateral Agent may reasonably request in
connection with such transfer of the Segregation Accounts. The
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<PAGE>
Schedule 1.9 to
Amendment No. 2
Obligors covenant that each of the Segregation Accounts shall be
kept at the same Segregation Account Bank.
6L. Amendments of Subordinated Debt, Etc. The Company
covenants that it shall not, violate the subordination terms of any
Subordinated Debt, or amend, modify or change in any manner the
terms of any Subordinated Debt or any instrument, indenture or other
document evidencing, governing or affecting the terms of any
Subordinated Debt, if any such amendment, modification or change has
or could have in any way any material adverse effect on the holders
of any Notes or the Collateral Agent or their rights or remedies
under any of the Transaction Documents.
6M. Corporate Name. Neither the Company nor SFSC
shall change its name from that listed on the signature page hereto
(with respect to the Company) or on the signature page to the
Assumption Agreement (with respect to SFSC) unless and until (i) the
Obligor changing its name shall have given to the Collateral Agent
not less than 45 days prior written notice of its intention to
change its name setting forth such new name and (ii) the Obligor
changing its name shall have taken all action, satisfactory to the
Collateral Agent, to maintain in full force and effect the security
interest of the Collateral Agent in the Collateral as, at all times,
fully perfected and ranking first in priority.
6N. Protection of Collateral Agent's Security. Each
of the Obligors covenants that it shall not nor permit any
Subsidiary to do anything to impair the rights of the Collateral
Agent in the Collateral, provided that this paragraph shall not be
construed to prohibit any amendment, modification, supplement or
termination of any Assigned Contract permitted by paragraph 5D(2).
Each of the Obligors assumes all liability and responsibility in
connection with the Collateral, and the liability of the Obligors
with respect to the Notes shall in no way be affected or diminished
by reason of the fact that such Collateral may be lost, stolen,
damaged, or for any reason whatsoever unavailable to the Company or
SFSC.
6O. Operating Agreement, Support Agreement and Purchase
and Sale Agreement. Each of the Obligors covenants that it shall
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<PAGE>
Schedule 1.9 to
Amendment No. 2
not (i) assign or terminate the Operating Agreement, Support
Agreement or the Purchase and Sale Agreement or (ii) enter into or
consent to, or suffer to occur, any amendment, waiver or termination
of (a) any provision of the Purchase and Sale Agreement or Letter of
Instructions, (b) Section XII and XIV(B) of the Operating Agreement
or (c) any other provision of the Support Agreement or Operating
Agreement that may result in a violation of paragraph 5O hereof or
that could have an adverse effect on the property, assets, business,
condition (financial or otherwise) or operations of either of the
Obligors, the Collateral or the Collateral Agent's security interest
therein or the ability of either of the Obligors to repay the Notes
or perform their other obligations under this Agreement or any other
Transaction Document.
7. EVENTS OF DEFAULT.
7A. Acceleration. If any of the following events
shall occur and be continuing for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or
be effected by operation of law or otherwise):
(i) the Obligors default in the payment of any
principal of or premium on any Note when the same shall
become due, either by the terms thereof or otherwise as
herein provided; or
(ii) the Obligors default in the payment of any
interest on any Note for more than 5 days after the date
due; or
(iii) the Company or any of its Subsidiaries shall
fail to pay when due any amount of its Debt or
Contingent Obligations (other than Debt hereunder) which
has a face amount or balance due (if less than the face
amount) in excess of $7,500,000 or which, in the
aggregate for all Debt and Contingent Obligations,
exceeds $7,500,000, or any interest or premium thereon,
when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such
failure shall continue for three Business Days, or any
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<PAGE>
Schedule 1.9 to
Amendment No. 2
default under any agreement or instrument relating to
any Debt or Contingent Obligations (other than Debt
hereunder) which has a face amount or balance due (if
less than the face amount) in excess of $5,000,000 or
which, in the aggregate for all Debt exceeds $5,000,000,
or any event shall occur and shall continue after the
applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default
or event is to accelerate or permit the acceleration of
the maturity of such Debt; or
(iv) any representation or warranty made by the
Company herein or in any writing (including any
Collateral Documents) furnished in connection with or
pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(v) either of the Obligors fails to perform or
observe any agreement contained in paragraphs 5D(4), 5J,
5K, 5L, 5M, 5N, 5O, 6K or 6O or the Obligors fail to
perform or observe any agreement contained in paragraphs
6E, 6F, 6G, 6H or 6I; or
(vi) either of the Obligors fails to perform or
observe any agreement contained in paragraph 5F,
paragraphs 6A through 6D, or paragraphs 6L, 6M or 6N and
such failure shall not be remedied within 20 days after
the earlier of (a) any officer or Department Director of
the Company or SFSC obtaining knowledge thereof and (b)
written notice thereof being given to the Company or
SFSC by any holder of any Notes, by the Collateral Agent
or by any Person acting on behalf of any such holder or
the Collateral Agent; or
(vii) either of the Obligors fails to perform or
observe any other agreement, term or condition contained
herein or in any Collateral Document and such failure
shall not be remedied within 30 days after the earlier
of (a) any officer or Department Director of the Company
or SFSC obtaining knowledge thereof and (b) written
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Schedule 1.9 to
Amendment No. 2
notice thereof being given to the Company or SFSC by any
holder of any Notes, by the Collateral Agent or by any
Person acting on behalf of any such holder or the
Collateral Agent; or
(viii) the Company or any Subsidiary of the
Company makes an assignment for the benefit of creditors
or is generally not paying its debts as such debts
become due; or
(ix) any decree or order for relief in respect of
the Company or any Subsidiary of the Company is entered
under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolu-
tion or liquidation or similar law, whether now or
hereafter in effect (herein called the "Bankruptcy
Law"), of any jurisdiction; or
(x) the Company or any Subsidiary of the Company
petitions or applies to any tribunal for, or consents
to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar
official of the Company or any such Subsidiary, or of a
Substantial Part of assets or commences a voluntary case
under the Bankruptcy Law of any jurisdiction or any
proceedings (other than proceedings for the voluntary
liquidation and dissolution of a Subsidiary of the
Company (other than SFSC) into the Company) relating to
the Company or any such Subsidiary under the Bankruptcy
Law of any jurisdiction or the Company or any such
Subsidiary by any act indicates its approval of or
consent to or acquiescence in the filing of any such
petition or application or commencement of any case
under any Bankruptcy Law against it; or
(xi) any such petition or application is filed, or
any such proceedings are commenced, against the Company
or any Subsidiary of the Company, or an order, judgment
or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or
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Schedule 1.9 to
Amendment No. 2
approving the petition in any such proceedings, and such
order, judgment or decree remains unstayed and in effect
for more than 60 days; or
(xii) any order, judgment or decree is entered in
any proceedings against the Company or SFSC decreeing
the dissolution of the Company or SFSC and such order,
judgment or decree remains unstayed and in effect for
more than 60 days; or
(xiii) any order, judgment or decree is entered in
any proceedings against the Company or any Subsidiary of
the Company decreeing a split-up of the Company or such
Subsidiary which requires the divestiture of assets
representing a Substantial Part of the assets of the
Company, or the divestiture of the stock of such a
Subsidiary whose assets represent a Substantial Part of
the assets of the Company, and such order, judgment or
decree remains unstayed and in effect for more than 60
days; or
(xiv) a final judgment in an amount in excess of
$5,000,000 is rendered against the Company or any
Subsidiary of the Company and, within 60 days after
entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within 60
days after the expiration of any such stay, such
judgment is not discharged; or
(xv) the Collateral Agent shall cease to possess
at any time a valid, first priority perfected security
interest in any of the Collateral; or
(xvi) any representation or warranty made by
SFSC in the Assumption Agreement or in any writing
(including any Collateral Documents) furnished in
connection with or pursuant to the Assumption
Agreement shall be false in any material respect
on the date as of which made; or
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Schedule 1.9 to
Amendment No. 2
(xvii) SFSC fails to perform or observe any
agreement contained in the Assumption Agreement;
or
(xviii) the Company shall at any time cease
to own all of the Voting Stock of SFSC;
(xix) the Assumption Agreement or any
provision of the Assumption Agreement shall at any
time for any reason cease to be valid and binding
on SFSC or shall be declared to be illegal or null
and void, or the validity or enforceability
thereof shall be contested by any Person, or shall
be terminated, rejected or disaffirmed by SFSC, or
a proceeding shall be commenced by any
governmental agency or authority or other Person
seeking to establish the invalidity or
enforceability thereof, or SFSC shall deny that it
has any or further liability or obligation under
the Assumption Agreement; or
(xx) Harris Trust and Savings Bank fails to
perform or observe any agreement contained in the
Letter of Instructions or any representation or
warranty made to the Collateral Agent by Harris
Trust and Savings Bank in the Letter of
Instructions shall be false in any respect on the
date as of which made or deemed made.
then (a) if such event is an Event of Default specified in clause
(ix), (x) or (xi) of this paragraph 7A with respect to the Company
or SFSC, all of the Notes at the time outstanding shall automati-
cally become immediately due and payable at par together with
interest accrued thereon, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Obligors,
(b) if such event is an Event of Default specified in clause (i) or
clause (ii) of this paragraph 7A, any holder of a Note may at any
time such Event of Default is continuing, at its option, by notice
in writing to the Company, declare all of the Notes owned by such
holder to be, and all such Notes shall thereupon be and become,
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Schedule 1.9 to
Amendment No. 2
forthwith due and payable together with interest accrued thereon and
together with the Yield-Maintenance Premium, if any, with respect to
each such Note, without presentment, demand, protest or notice of
any kind, all of which are hereby waived by the Obligors, and (c) if
such event is an Event of Default other than an Event of Default
specified in clause (ix), (x) or (xi) of this paragraph 7A with
respect to the Company or SFSC, the holder or holders of 40% or more
of the aggregate principal amount of the Notes then outstanding may
at its or their option, by notice in writing to the Obligors,
declare all of the Notes to be, and all of the Notes shall thereupon
be and become, immediately due and payable together with interest
accrued thereon and together with the Yield-Maintenance Premium, if
any, with respect to each Note, without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the
Obligors.
7B. Annulment of Acceleration. If a declaration is
made pursuant to clause (c) of paragraph 7A, then and in every such
case, the holder or holders of 70% or more of the aggregate
principal amount of the Notes then outstanding, may, by written
instrument filed with the Obligors, rescind and annul such declara-
tion, and the consequences thereof, provided that at the time such
declaration is annulled and rescinded:
(1) no judgment or decree has been entered for
the payment of any monies due under the Notes or this
Note Agreement; and
(2) all arrears of interest upon all the Notes
and all other sums payable under the Notes and under
this Note Agreement (except any principal or interest on
the Notes which has become due and payable by reason of
such declaration under paragraph 7A) shall have been
duly paid;
and provided, further that no such rescission and annulment shall
extend to or affect any subsequent Default or Event of Default or
impair any right resulting therefrom.
7C. Other Remedies. If any Event of Default or Default
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Schedule 1.9 to
Amendment No. 2
shall occur and be continuing, the holder of any Note may proceed to
protect and enforce its rights under this Agreement and such Note by
exercising such remedies as are available to such holder in respect
thereof under applicable law, either by suit in equity or by action
at law, or both, whether for specific performance of any covenant or
other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy
conferred in this Agreement upon the holder of any Note is intended
to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy
conferred herein or now or hereafter existing at law or in equity or
by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The
Company represents, covenants and warrants:
8A. Organization, Etc.
8A(1). Due Organization. The Company is a
corporation duly organized and existing in good standing under the
laws of the state of its incorporation. The Company has no Subsid-
iaries other than the Subsidiaries identified (by name and jurisdic-
tion of organization) on Schedule 8A(1) attached hereto. Each of
the Subsidiaries identified on Schedule 8A(1) is duly organized and
in good standing under the laws of the jurisdiction of its organiza-
tion. Each of the Company and each of the Company's Subsidiaries is
duly qualified and authorized to transact business as a foreign
corporation and is in good standing in every jurisdiction in which
the nature of the business conducted by it or the ownership of its
properties or assets makes such qualification necessary, except
where the failure to be in good standing or to be so qualified or
authorized would not have a material adverse effect on the property,
assets, business, condition (financial or otherwise) or operations
-43-
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<PAGE>
Schedule 1.9 to
Amendment No. 2
of the Company and its Subsidiaries, taken as a whole, the ability
of the Obligors to repay the Notes or perform their other respective
obligations under this Agreement or any other Transaction Document
or in order to make the Assigned Contracts the legal, binding and
valid obligation of the Customers, enforceable against the Customers
in accordance with the terms.
8A(2). Power and Authority. The Company and each
Subsidiary of the Company has all requisite corporate power to
conduct its business as currently conducted and as currently
proposed to be conducted. The Company has all requisite corporate
power to execute, deliver and perform its obligations under each of
the Transaction Documents. The execution, delivery and performance
by the Company of each of the Transaction Documents have been duly
authorized by all requisite corporate action on the part of the
Company. The Company has duly executed and delivered each of the
Transaction Documents, and each of the Transaction Documents consti-
tutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
8A(3). Title to Collateral; Security Interest in
Collateral. The Company or SFSC, as applicable, has good title to
all of the Collateral, including without limitation all of the
Contracts set forth on the Contract Schedule, subject to no Liens
other than the Liens in favor of the Collateral Agent created under
the Security Agreement, other than as described in the Purchase and
Sale Agreement none of such Contracts is with a Customer subject to
bankruptcy proceedings (within the meaning of the last sentence of
paragraph 6H hereof) and none of such Contracts relates to
Identified Equipment which constitutes New Generation Equipment. At
the time of the delivery of each Collateral Certificate pursuant to
Section 3.3 of the Security Agreement to the Collateral Agent with
respect to any other Contract, the Company or SFSC, as applicable,
will have good title to such Contract and to the Identified
Equipment relating thereto subject to no Liens other than the Lien
in favor of the Collateral Agent created under the Security
Agreement, such Contract will not be with a Customer subject to
bankruptcy proceedings (within the meaning of the last sentence of
paragraph 6H hereof) and such Contract will not relate to Identified
Equipment which constitutes New Generation Equipment. The Security
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Schedule 1.9 to
Amendment No. 2
Agreement creates a legal, valid, perfected and first priority
security interest in favor of the Collateral Agent, for the benefit
of the holders of the Notes, in the Collateral.
8B. Financial Statements. The most recent financial
statements furnished by the Company to you are an unaudited consoli-
dated balance sheet of the Company and its Subsidiaries as of April
1, 1994 and consolidated statements of income and cash flows of the
Company and its Subsidiaries for the three month period ended on
such date, prepared by the Company and all as reported on the
Company's Quarterly Report on Form 10-Q delivered to you for the
fiscal quarter ended on such date. The balance sheet fairly
presents the condition of the Company and its Subsidiaries as at the
date thereof, and the statements of income and statements of cash
flows fairly present the results of the operations and cash flows of
the Company and its Subsidiaries for the periods indicated. Since
December 31, 1993, there has been no material adverse change in or
to the property, assets, business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries, taken
as a whole, or the ability of the Obligors to repay the Notes or
perform their other respective obligations under this Agreement or
any other Transaction Document.
8C. Actions Pending. Except as described on Schedule
8C hereto, there is no action, suit, investigation or proceeding
pending or, to the knowledge of the Company, threatened against the
Company, any of its Subsidiaries or any Customer, or any properties
or rights of the Company or any of its Subsidiaries, by or before
any court, arbitrator or administrative or governmental body which
the Company reasonably expects might have a material adverse effect
on the property, assets, business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries, taken
as a whole, the ability of the Obligors to repay the Notes, perform
their other respective obligations under this Agreement or any other
Transaction Document or enforce any Assigned Contract in accordance
with the terms or the ability of any Customer to perform the
obligations under any Assigned Contract in accordance with its
terms.
8D. Outstanding Debt. The Company and its
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Schedule 1.9 to
Amendment No. 2
Subsidiaries do not have outstanding any Debt except as permitted by
paragraph 6C(2). There exists no default (nor any event which with
the passage of time, the giving of notice or both would constitute a
default) and, after giving effect to the transactions contemplated
by this Agreement and the other Transaction Documents, there will
exist no default (or event which with the passage of time, the
giving of notice or both would constitute a default) under the
provisions of any instrument evidencing such Debt or of any
agreement relating thereto.
8E. Title to Properties. The Company and each Subsid-
iary of the Company has good and indefeasible title to its
respective real properties (other than properties as to which it is
a lessee) and good title to all of its other respective properties
and assets. All leases necessary in any material respect for the
conduct of the Company's business are valid and subsisting and are
in full force and effect.
8F. Taxes. The Company and each of its Subsid-
iaries has filed all federal, state and other income tax returns
which are required to be filed, and each has paid all taxes as shown
on such returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes as are being
contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with generally
accepted accounting principles consistently applied.
8G. Conflicting Agreements and Other Matters. Neither
the Company nor any Subsidiary of the Company is a party to any
contract or agreement or subject to any charter or other corporate
restriction which might, individually or in the aggregate, have a
material adverse effect on the property, assets, business, condition
(financial or otherwise) or operations of the Company and its
Subsidiaries, taken as a whole, or the ability of the Obligors to
repay the Notes, perform their other respective obligations under
this Agreement or any other Transaction Document or enforce any
Assigned Contract in accordance with its terms. Neither the
execution nor delivery of this Agreement or the other Transaction
Documents, nor the offering, issuance and sale of the Notes, nor
fulfillment of nor compliance with the terms and provisions hereof
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Schedule 1.9 to
Amendment No. 2
and thereof will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien
(other than the security interest in the Collateral in favor of the
Collateral Agent pursuant to the Security Agreement) upon any of the
properties or assets of the Company or any Subsidiary of the Company
pursuant to, the charter or by-laws of the Company or any such
Subsidiary, any award of any arbitrator or any agreement (including
any Assigned Contract and agreement with stockholders), instrument,
order, judgment, decree, statute, law, rule or regulation to which
the Company or any such Subsidiary is subject.
8H. Offering of Notes. Neither the Company nor any
agent acting on its behalf has, directly or indirectly, offered the
Notes or any similar security for sale to, or solicited any offers
to buy the Notes or any similar security from, or otherwise
approached or negotiated with respect thereto with, any Person other
than accredited investors, as defined in Regulation D under the
Securities Act, and neither the Company nor any agent acting on its
behalf has taken or will take any action which would subject the
issuance or sale of the Notes to the provisions of section 5 of the
Securities Act or to the provisions of any securities or Blue Sky
law of any applicable jurisdiction.
8I. Regulation G, Etc. Neither the Company nor any
Subsidiary of the Company owns or has any present intention of
acquiring any "margin stock" as defined in Regulation G (12 CFR Part
207) of the Board of Governors of the Federal Reserve System (herein
called "margin stock"). The proceeds of sale of the Notes have been
used for working capital purposes, for making certain capital
expenditures and for other general corporate purposes. None of such
proceeds have been used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of purchasing or carrying
any margin stock or for the purpose of maintaining, reducing or
retiring any indebtedness which was originally incurred to purchase
or carry any stock that is currently a margin stock or for any other
purpose which might constitute this transaction a "purpose credit"
within the meaning of such Regulation G. Neither the Company nor
any agent acting on its behalf has taken or will take any action
which might cause this Agreement or the Notes to violate Regulation
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Schedule 1.9 to
Amendment No. 2
G, Regulation T or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the Securities Exchange Act
of 1934, as amended, in each case as in effect now or as the same
may hereafter be in effect.
8J. Investment Company Status; Holding Company Status.
Neither the Company nor any Subsidiary of the Company is (a) an
"investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended (the "1940 Act") or an "investment adviser" within the
meaning of the Investment Advisors Act of 1940, as amended or (b) a
"holding company," or a "subsidiary company" of a "holding company"
or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" or a "public utility," within the
meaning of the Public Utility Holding Company Act of 1935, as
amended, or a "public utility" within the meaning of the Federal
Power Act, as amended.
8K. Section 144A. The Notes are not of the same class
as securities, if any, of the Company listed on a national
securities exchange registered under Section 6 of the Securities
Exchange Act of 1934, as amended, or quoted in a U.S. automated
inter-dealer quotation system.
8L. Compliance with Laws.
(a) The Company and each Subsidiary of the Company
is in compliance in all respects with all applicable laws and
regulations, including, without limitation, those relating to equal
employment opportunity, employee safety and consumer protection,
except where the failure to do so could not, whether considered
individually or in the aggregate, result in a material adverse
effect on the property, assets, business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries, taken
as a whole, or the ability of the Obligors to repay the Notes,
perform their other respective obligations under this Agreement or
any other Transaction Document or enforce any Assigned Contract in
accordance with its terms.
(b) Without limiting the foregoing clause (a),
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Schedule 1.9 to
Amendment No. 2
the Company and each Subsidiary of the Company and the plants and
sites of each, have complied in all material respects with all
federal, state, local and regional statutes, ordinances, orders,
judgments, rulings, regulations, and all permits, authorizations and
approvals issued by any governmental body, relating to quality
criteria and standards for air, ground water, surface water and
land, or otherwise relating to matters of pollution or of environ-
mental regulation or control except, where such failure to comply
could not, whether considered individually or in the aggregate,
result in a material adverse effect on the property, assets,
business, condition (financial or otherwise) or operations of the
Company and its Subsidiaries, taken as a whole, or the ability of
the Obligors to repay the Notes, perform their other respective
obligations under this Agreement or any other Transaction Document
or enforce any Assigned Contract in accordance with its terms.
Neither the Company nor any Subsidiary of the Company has received
notice of or has actual knowledge of any actual or claimed or
asserted failure so to comply, except where such failure to comply
could not, whether considered individually or in the aggregate,
result in a material adverse effect on the property, assets,
business, condition (financial or otherwise) or operations of the
Company and its Subsidiaries, taken as a whole, or the ability of
the Obligors to repay the Notes, perform their other respective
obligations under this Agreement or any other Transaction Document
or enforce any Assigned Contract in accordance with its terms.
Neither the Company nor any Subsidiary of the Company during their
respective periods of use, ownership, occupancy or operation have
treated, stored, managed, generated, recycled, released or disposed
of, any hazardous wastes, hazardous substances, hazardous materials,
toxic substances or toxic pollutants, as those terms are used or
defined in the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act,
the Hazardous Materials Transportation Act, the Toxic Substance
Control Act, the Clean Air Act and the Clean Water Act, each as
amended from time to time (collectively, "Hazardous Substances") or
any other wastes, substances, materials or pollutants, in violation
of or in a manner (including any off-site disposal) which could
result in liability under such statutes or any regulations
promulgated pursuant thereto or any other applicable law, except
where such non-compliance or liability could not, whether considered
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Schedule 1.9 to
Amendment No. 2
individually or in the aggregate, result in a material adverse
effect on the property, assets, business, condition (financial or
otherwise) or operations of the Company and its Subsidiaries, taken
as a whole, or the ability of the Obligors to repay the Notes,
perform their other respective obligations under this Agreement or
any other Transaction Document or enforce any Assigned Contract in
accordance with its terms. No Person has treated, stored (other
than for periods of less than 90 days in compliance with the
exemption for storing such Hazardous Substances under the Resource
Conservation and Recovery Act), managed, generated, recycled,
released or disposed of any Hazardous Substances on any property now
or previously owned or leased by the Company or each Subsidiary of
the Company. The Company and each Subsidiary of the Company have
from every governmental body, including the United States
Environmental Protection Agency, all approvals, consents, licenses,
permits, authorizations and orders necessary to carry on their
respective business as currently conducted except where any such
failure could not, whether considered individually or in the
aggregate, result in a material adverse effect on the property,
assets, business, condition (financial or otherwise) or operations
of the Company and its Subsidiaries, taken as a whole, or the
ability of the Obligors to repay the Notes, perform their other
respective obligations under this Agreement or any other Transaction
Document or enforce any Assigned Contract in accordance with its
terms.
8M. ERISA. No accumulated funding deficiency (as
defined in section 302 of ERISA and section 412 of the Code),
whether or not waived, exists with respect to any plan (other than a
multiemployer plan). No liability to the Pension Benefit Guaranty
Corporation has been or is expected by the Company to be incurred
with respect to any plan (other than a multiemployer plan) by the
Company or any Subsidiary of the Company which might have a material
adverse effect on the property, assets, business, condition
(financial or otherwise) or operations of the Company and its
Subsidiaries, taken as a whole, or the ability of the Obligors to
repay the Notes, perform their other respective obligations under
this Agreement or any other Transaction Document or enforce any
Assigned Contract in accordance with its terms. Neither the Company
nor any Subsidiary of the Company has incurred or presently expects
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Schedule 1.9 to
Amendment No. 2
to incur any withdrawal liability under Title IV of ERISA with
respect to any multiemployer plan which might have a material
adverse effect on the property, assets, business, condition
(financial or otherwise) or operations of the Company and its
Subsidiaries, taken as a whole, or the ability of the Obligors to
repay the Notes, perform their other respective obligations under
this Agreement or any other Transaction Document or enforce any
Assigned Contract in accordance with its terms. The execution and
delivery of this Agreement and the other Transaction Documents and
the issuance and sale of the Notes will not involve any transaction
which is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section
4975 of the Code. The representation by the Company in the next
preceding sentence is made in reliance upon and subject to the
accuracy of your representation in paragraph 9 as to the source of
the funds to be used to pay the purchase price of the Notes to be
purchased by you. For the purpose of this paragraph 8N, the term
"Code" shall mean the Internal Revenue Code of 1986, as amended; the
term "plan" shall mean an "employee pension benefit plan" (as
defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the
Company or by any trade or business, whether or not incorporated,
which, together with the Company is under common control, as
described in section 414(b) or (c) of the Code; and the term
"multiemployer plan" shall mean any plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
8N. Governmental Consent. Other than the filing of
financing statements in the office of the Secretary of State of
Colorado and in the jurisdictions listed in the (i) Equipment
Certificate naming the Company as debtor and the Collateral Agent as
secured party and (ii) SFSC Equipment Certificate naming SFSC as
debtor and the Collateral Agent as secured party, neither the nature
of the business conducted by the Company or any Subsidiary of the
Company, nor any of their respective properties, nor any relation-
ship between the Company or any such Subsidiary and any other
Person, nor any circumstance in connection with the offering,
issuance, sale of the Notes or the execution, delivery and
performance of the Transaction Documents is such as to require any
authorization, consent, approval, exemption or other action by or
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Schedule 1.9 to
Amendment No. 2
notice to or filing with any court or administrative or governmental
body in connection with the execution and delivery of this Agreement
or any other Transaction Document, the offering, issuance, sale or
delivery of the Notes or fulfillment of or compliance with the terms
and provisions hereof or thereof.
8O. Disclosure. Neither this Agreement nor any other
document, certificate or statement furnished to you by or on behalf
of the Company in connection herewith contains any untrue statement
of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not
misleading. There is no fact peculiar to the Company or any Subsid-
iary of the Company which might have a material adverse effect on
the property, assets, business, condition (financial or otherwise)
or operations of the Company and its Subsidiaries, taken as a whole,
or the ability of the Obligors to repay the Notes, perform their
other respective obligations under this Agreement or any other
Transaction Document or enforce any Assigned Contract in accordance
with its terms and which has not been set forth in this Agreement.
The copies of the Contracts set forth on the Contract Schedule and
furnished to you and your representatives are true and complete
copies of such Contracts as in effect on the date hereof, include
all amendments, modifications and supplements thereto, and are the
only originally executed counterparts of such Contract (other than
those owned by the Customer). Any copy of a Contract which may
hereafter be identified in a Collateral Certificate to the
Collateral Agent pursuant to Section 3.3 of the Security Agreement
will be a true and complete copy of such Contract as in effect on
the date of delivery, including all amendments, modification and
supplements thereof, and will be the only originally executed
counterpart of such Contract (other than those owned by the
Customer). All information provided in the Contract Schedule is,
and all information in each Collateral Certificate when delivered to
the Collateral Agent will be, true and complete in all respects.
8P. Certain Additional Representations. As to each
Contract listed in the Contract Schedule and in any Collateral
Certificate hereafter delivered to the Collateral Agent pursuant to
Section 3.3 of the Security Agreement:
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Schedule 1.9 to
Amendment No. 2
(1) Such Contract constitutes an Eligible
Contract;
(2) Such Contract complies in all material
respects with all applicable laws and rules and regula-
tions promulgated thereunder;
(3) Such Contract is the legal, valid and
binding obligation of the Customer and is enforceable
against such Customer in accordance with its terms;
(4) There is no default, breach, violation or
event permitting acceleration existing under such
Contract and no event which, with notice and the
expiration of any grace or cure period, would constitute
such a default, breach, violation or event permitting
acceleration under such Contract exists, and neither the
Company nor SFSC has waived any such default, breach,
violation or event permitting acceleration;
(5) No procedures adverse to the interests of
the holders of the Notes have been employed by the
Company or SFSC in selecting such Contract from all
other contracts of the Company for inclusion in the
Collateral;
(6) There is only one original of such Contract
and such original is in the possession of the Company or
SFSC, as custodian on behalf of the Collateral Agent;
(7) Each item of Identified Equipment relating
to any contract listed in the (i) ST Contract Schedule
is located in one of the jurisdictions identified in the
ST Equipment Certificate and (ii) SFSC Contract Schedule
is located in one of the jurisdictions identified in the
SFSC Equipment Certificate; and
(8) The Collateral Agent has a valid, perfected
first priority security interest in each such Contact
pursuant to the Security Agreement.
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PAGE
<PAGE>
Schedule 1.9 to
Amendment No. 2
9. REPRESENTATIONS OF THE PURCHASERS. You represent,
and in making this sale to you it is specifically understood and
agreed, that you are not acquiring the Notes to be purchased by you
hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act,
provided that the disposition of your property shall at all times be
and remain within your control. You also represent that no part of
the funds being used by you to pay the purchase price of the Notes
being purchased by you hereunder constitutes assets allocated to any
separate account maintained by you. For the purpose of this
paragraph 9, the term "separate account" shall have the respective
meanings specified in section 3 of ERISA.
10. DEFINITIONS. For the purpose of this Agreement,
the following terms shall have the meanings specified with respect
thereto below:
10A. Yield-Maintenance Terms.
"Called Principal" shall mean, with respect to any
Note, the principal of such Note that is to be prepaid pursuant to
paragraph 4A or paragraph 4C or is declared to be immediately due
and payable pursuant to paragraph 7A, as the context requires.
"Discounted Value" shall mean, with respect to the
Called Principal of any Note, the amount obtained by discounting all
Remaining Scheduled Payments with respect to such Called Principal
from their respective scheduled due dates to the Settlement Date
with respect to such Called Principal, in accordance with accepted
financial practice and at a discount factor (applied on a semi-
annual basis) equal to (i) 0.5% plus (ii) the Reinvestment Yield
with respect to such Called Principal.
"Reinvestment Yield" shall mean, with respect to
the Called Principal of any Note, the yield to maturity implied by
(i) the yields reported, as of 10:00 A.M. (New York City time) on
the Business Day next preceding the Settlement Date with respect to
such Called Principal, on the display designated as "Page 678" on
the Telerate Service (or such other display as may replace Page 678
on the Telerate Service) for actively traded U.S. Treasury
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PAGE
<PAGE>
Schedule 1.9 to
Amendment No. 2
securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or if such yields
shall not be reported as of such time or the yields reported as of
such time shall not be ascertainable, (ii) the Treasury Constant
/Maturity Series yields reported, for the latest day for which such
yields shall have been so reported as of the Business Day next
preceding the Settlement Date with respect to such Called Principal,
in Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Life of such
Called Principal as of such Settlement Date. Such implied yield
shall be determined, if necessary, by (a) converting U.S. Treasury
bill quotations to bond-equivalent yields in accordance with
accepted financial practice and (b) interpolating linearly between
reported yields.
"Remaining Life" shall mean, with respect to the
Called Principal of any Note, the number of years (calculated to the
nearest one-twelfth year) which will elapse between the Settlement
Date with respect to such Called Principal and the scheduled
maturity date of the Notes.
"Remaining Scheduled Payments" shall mean, with
respect to the Called Principal of any Note, all payments of such
Called Principal and interest thereon that would be due on or after
the Settlement Date with respect to such Called Principal if no
payment of such Called Principal were made prior to its scheduled
due date.
"Settlement Date" shall mean, with respect to the
Called Principal of any Note, the date on which such Called
Principal is to be prepaid pursuant to paragraph 4A or paragraph 4C
or is declared to be immediately due and payable pursuant to
paragraph 7A, as the context requires.
"Yield-Maintenance Premium" shall mean, with
respect to any Note, a premium equal to the excess, if any, of the
Discounted Value of the Called Principal of such Note over the sum
of (i) such Called Principal plus (ii) interest accrued thereon as
of (including interest due on) the Settlement Date with respect to
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Schedule 1.9 to
Amendment No. 2
such Called Principal. The Yield-Maintenance Premium shall in no
event be less than zero.
10B. Other Terms.
"Accounting Period" shall mean a fiscal month of
the Company consisting of either a four-week or five-week period
ending on the Friday which is closest to the last Friday of the
calendar month.
"Applicable Amount" shall mean on any date of
determination an amount equal to (i) 110% of the outstanding
principal amount of the Notes as of such date minus (ii) subject to
paragraph 5Q hereof, the Value of all Investments as of such date.
"Affiliate" shall mean with respect to any Person,
any other Person who is directly or indirectly controlling,
controlled by, or under direct or indirect common control with, such
first mentioned Person, except a wholly-owned Subsidiary of such
first mentioned Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Assigned Contract" shall mean, at any time, any
Contract arising from a bona fide transaction in the ordinary course
of the Company's or SFSC's business, which has not been released by
the Collateral Agent pursuant to Section 3.1 of the Security
Agreement, and with respect to which the requirements of Sections
3.3(a)(i) through 3.3(a)(vii) of the Security Agreement have been
satisfied.
"Assumption Agreement" shall mean the Assumption
Agreement, dated as of April 2, 1994, executed by SFSC for the
benefit of the holders of the Notes and the Company.
"Bankruptcy Law" shall have the meaning set forth
for such term in paragraph 7A(viii).
"Blue Sky law" shall mean any state statute (the
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Schedule 1.9 to
Amendment No. 2
rules and regulations promulgated thereunder and the common law
relating thereto) relating to the regulation and supervision of
securities offerings, sales and distributions and matters relating
thereto.
"Bill of Sale" shall mean that certain Assignment
and Bill of Sale dated as of April 2, 1994, executed by the Company
pursuant to the Purchase and Sale Agreement.
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed.
"Capitalized Lease Obligation" shall mean any
rental obligation which, under generally accepted accounting
principles, is or will be required to be capitalized on the books of
the Company or any Subsidiary of the Company, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"Cash Release Certificate" shall have the meaning
set forth for such term in the Security Agreement.
"Change in Control" shall mean the occurrence of
either of the following events: (i) during any period of 24
consecutive calendar months (a) individuals who were directors of
the Company on the first day of such period and (b) other individu-
als whose election or nomination to the Board of Directors of the
Company was approved by at least a majority of the individuals
referred to in clause (a) above and (c) other individuals whose
election or nomination to the Board of Directors of the Company was
approved by at least a majority of the individuals referred to in
clauses (a) and (b) above shall no longer constitute a majority of
the Board of Directors of the Company; or (ii) any Person or any
Group, together with any Affiliates or Subsidiaries thereof, other
than the trust for the employee stock ownership plan of the Company,
shall beneficially own (as defined in Rule 13D-3 of the Exchange
Act) at least 40% of the outstanding Voting Stock of the Company.
"Closing" shall have the meaning set forth for
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Schedule 1.9 to
Amendment No. 2
such term in paragraph 2 hereof.
"Collateral" shall have the meaning set forth for
such term in the Security Agreement.
"Collateral Agent" shall have the meaning set
forth for such term in the Security Agreement.
"Collateral Certificate" shall have the meaning
set forth for such term in the Security Agreement.
"Collateral Documents" shall mean the Security
Agreement and the Segregation Account Agreement, each as amended,
restated, modified or supplemented in accordance with its terms.
"Collateral Report" shall have the meaning set
forth for such term in paragraph 5A(7) hereof.
"Company" shall have the meaning set forth for
such term in the introductory paragraph hereof.
"Consolidated Debt" shall mean all Debt of the
Company and its Consolidated Subsidiaries determined on a consoli-
dated basis.
"Consolidated Net Income" shall mean the consoli-
dated net income of the Company before extraordinary items, as
determined in accordance with generally accepted accounting
principles consistently applied.
"Consolidated Non-Recourse Debt" shall mean Debt
of the Company and its Consolidated Subsidiaries determined on a
consolidated basis which (i) is collateralized by the grant by the
Company or such Consolidated Subsidiary, respectively, of a security
interest in certain specific property of the Company or such
Consolidated Subsidiary, respectively, and (ii) for which recourse
for non-payment of any such Debt is limited solely to recourse to
such specific property and not to any other assets of the Company or
such Consolidated Subsidiary, respectively; provided, however, that
if the Company or such Consolidated Subsidiary shall enter into a
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Schedule 1.9 to
Amendment No. 2
lease financing transaction (a "Lease Financing Transaction")
whereby it incurs Debt and grants to the lender thereof a perfected
first priority security interest in collateral consisting of certain
of its leases ("Recourse Collateral"), and the lender's recourse
against the Company or such Consolidated Subsidiary in connection
with such Debt is limited to the Recourse Collateral except insofar
as the Company or such Consolidated Subsidiary has guarantied
payment or performance of a portion of such Debt (or payment of
rental payments constituting part of the Recourse Collateral), that
portion of such Debt which is not so guarantied shall constitute
Consolidated Non-Recourse Debt; provided, further, that Debt
incurred by the Company or such Consolidated Subsidiary under a
Lease Financing Transaction shall not be excluded from Consolidated
Non-Recourse Debt solely because recourse thereunder may be to
assets other than the Recourse Collateral as a result of non-
performance by the Company or such Consolidated Subsidiary of its
obligation (a "Lease Obligation") to remit monthly lease payments
from lessees, or, upon early termination or modification by the
Company of a lease constituting part of the Recourse Collateral, to
substitute collateral or to make prepayments in lieu of substitution
of collateral, in each case to the extent expressly required
pursuant to the instrument evidencing such Lease Financing
Transaction provided such instrument was entered into in the
ordinary course of business of the Company or such Consolidated
Subsidiary, except (a) in any event, neither the Company nor such
Consolidated Subsidiary shall have personal liability arising solely
from the failure of any lease customer to pay any amounts due under
any lease constituting part of the Recourse Collateral or otherwise
and (b) if, at any time, a claim is asserted against the Company for
failure to perform a Lease Obligation, such Debt shall, upon and
after such time, no longer constitute Non-Recourse Debt to the
extent of the amount of such claim.
"Consolidated Subsidiary" shall mean, as to any
Person, (i) any corporation 51% or more of the total combined voting
power of all classes of Voting Stock of which or (ii) any trust 51%
of the beneficial ownership of which, shall, at the time as of which
any determination is being made, be owned by such Person either
directly or through other Consolidated Subsidiaries; provided that a
trust shall be a Consolidated Subsidiary hereunder only if such
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Schedule 1.9 to
Amendment No. 2
trust is consolidated with such Person for financial reporting
purposes under generally accepted accounting principles consistently
applied.
"Contingent Obligation" shall mean (without
duplication) any:
(i) guarantee, endorsement (other than
endorsement of negotiable instruments for collection in
the ordinary course of business) and other contingent
liability (whether direct or indirect) in connection
with the obligations, stock or dividends of any Person,
(ii) obligation under any contract providing for
the making of loans, advances or capital contributions
to any Person, or for the purchase of any property from
any Person, in each case in order to enable such Person
primarily to maintain working capital, net worth or any
other balance sheet condition or to pay debts, dividends
or expenses,
(iii) obligation under any contract to rent or
lease (as lessee) any real or personal property if such
contract (or related document) provides that the obliga-
tion to make payments thereunder is absolute and
unconditional under conditions not customarily found in
commercial leases then in general use or requires that
the lessee purchase or otherwise acquire securities or
obligations of the lessor,
(iv) obligation under any other contract for the
sale or use of materials, supplies or other property or
services if such contract (or any related document)
requires that payment for such materials, supplies or
other property or services, or the use thereof, shall be
subordinated to any indebtedness (of the purchaser or
user of such materials, supplies or other property or
the Person entitled to the benefit of such services)
owed or to be owed to any Person,
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Schedule 1.9 to
Amendment No. 2
(v) obligations under any contract for the
purchase of materials, supplies or other property or
services if such contract (or any related document)
requires that payment (excluding customary contract
cancellation changes) for such materials, supplies or
other property or services shall be made regardless of
whether or not delivery of such materials, supplies or
other property or services is ever made or tendered,
(vi) any obligation of a Person which does not
constitute Debt of such Person and which is secured by a
Lien on property owned by such Person, whether or not
the indebtedness secured thereby shall have been assumed
by such Person,
(vii) obligation with respect to any undrawn
letters of credit or unpaid bankers' guarantees or
similar items, and
(viii) obligation under any other contract which,
in economic effect, is substantially equivalent to a
guarantee; all as determined in accordance with
generally accepted accounting principles consistently
applied;
provided, however, that , in order to avoid simultaneously treating
an obligation described in the following clauses (a) through (c) as
both Debt and a Contingent Obligation, the term "Contingent
Obligation" shall not include (a) any guarantee by the Company of
Debt of any Subsidiary of the Company if such Debt was permitted to
be incurred by such Subsidiary under the terms of paragraph 6C(2),
(b) any guarantee by a Subsidiary of the Company of Debt of the
Company or another Subsidiary of the Company if such Debt was
permitted to be incurred by the Company or such Subsidiary (as the
case may be) under the terms of paragraph 6C(2), or (c) any
guarantee by the Company or any Subsidiary of the Company of its own
Debt if such Debt was permitted to be incurred by the Company or
such Subsidiary (as the case may be) under the terms of paragraph
6C(2).
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Schedule 1.9 to
Amendment No. 2
"Contract" shall have the meaning set forth for
such term in the Security Agreement.
"Contract Present Value" shall mean, at any time
with respect to any Assigned Contract, the amount obtained by
discounting all then Remaining Net Firm Term Payments with respect
to such Assigned Contract from their respective scheduled due dates
to such time in accordance with accepted financial practice and at a
discount rate (applied on a monthly basis) equal to 9.53% per annum.
"Contract Schedule" shall mean the ST Contract
Schedule and the SFSC Contract Schedule, taken as a whole.
"Convertible Subordinated Debt" shall mean and the
indebtedness evidenced by the 8% Convertible Debentures issued under
the Convertible Subordinated Debt Indenture, in each case as in
effect on the date hereof.
"Convertible Subordinated Debt Indenture" shall
mean that certain Indenture dated as of May 31, 1990 between the
Company Manufacturers Hanover Trust Company of California, as
Trustee, as in effect on the date hereof.
"Credit Quality" shall mean as to any Customer the
credit worthiness of such Customer as reasonably determined by the
Company in good faith based on the standards used by nationally
recognized credit rating agencies, by the payment history of such
lessee or purchaser with respect to its prior payment obligations to
the Company or any of its Subsidiaries, and any other reasonable
method for determining the credit worthiness of such Customer.
"Current Assets" shall mean, as at any date, the
current assets of the Company and its Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting
principles consistently applied.
"Current Liabilities" shall mean, as at any date,
the current liabilities of the Company and its Subsidiaries
determined on a consolidated basis in accordance with generally
accepted accounting principles consistently applied; provided,
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<PAGE>
Schedule 1.9 to
Amendment No. 2
however, that Current Liabilities shall not include (i) the
principal amount due upon the stated maturity of the Notes and (ii)
any borrowings by the Company under any revolving credit agreement
to which it is a party if the remaining period during which the
Company may obtain or has obtained borrowings under such revolving
credit agreement exceeds one year.
"Customer" shall mean, with respect to any
Contract, the lessee or purchaser of the Identified Equipment of
such Contract and such lessee's or purchaser's successors and
assigns.
"Date of closing" shall have the meaning set forth
for such term in paragraph 2 hereof.
"Debt" shall mean and include without duplication
the following:
(i) any obligation for borrowed money regardless
of its term (and any notes payable and drafts accepted
representing extensions of credit whether or not repre-
senting obligations for borrowed money) or for the
deferred purchase price (excluding any deferred purchase
price that constitutes a trade account payable incurred
in the ordinary course) of property or services,
(ii) any obligation evidenced by any bond, note,
debenture, convertible debenture or other similar
instrument,
(iii) any obligation created or arising under any
conditional sale or other title retention agreement,
(iv) any sale (other than a transaction which is
recorded as a true sale in accordance with generally
accepted accounting practices consistently applied),
assignment or transfer with or without recourse, at
discount or for less than face value of any notes
receivable, accounts receivable, lease receivable,
lease, installment sale agreement or similar contract
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Schedule 1.9 to
Amendment No. 2
rights, and
(v) any other obligation which under generally
accepted accounting principles is shown on the balance
sheet as debt (including Capitalized Lease Obligations);
all as determined in accordance with generally accepted accounting
principles consistently applied; provided, however, that in no event
shall sales by the Company or its Subsidiaries of securities issued
by the United States government or the agency thereof subject to a
repurchase agreement with a term of not more than 30 days constitute
Debt for purposes of this Agreement.
"Department Director" shall mean the employee or
employees of the Company with the title of Director in any of the
Treasury Departments or Accounting Departments of the Company or
SFSC.
"Eligible Contracts" shall mean, at any time, any
Assigned Contract in which the Collateral Agent then has a
perfected, first priority security interest; provided, however, that
any Assigned Contract shall not constitute an Eligible Contract if
(i) any payment due to the Company or SFSC thereunder is unpaid at
such time for more than 90 days after the date such payment was due,
(ii) the Identified Equipment constitutes New Generation Equipment,
(iii) the Customer under such Assigned Contract is an Affiliate or a
Subsidiary of the Company or SFSC or any officer, director or
employee of the Company or SFSC or an Affiliate or a Subsidiary of
the Company or SFSC, (iv) the Customer under such Assigned Contract
is not a resident of the United States of America, (v) the
Identified Equipment related to such Assigned Contract has not been
shipped to or accepted by the Customer, or for any other reason the
Customer is not then obligated to make payments of rent or
installments of purchase price pursuant to the terms of such
Assigned Contract (vi) the Customer under such Assigned Contract is
located in New Jersey, Minnesota or any other state denying
creditors access to its courts in the absence of a Notice of
Business Activities Report or similar filing, unless a current
Notice of Business Activities or similar filing has been made with
the applicable state agency (and a copy provided to the Collateral
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<PAGE>
Schedule 1.9 to
Amendment No. 2
Agent) or unless an exemption from such requirement exists and a
legal opinion to such effect in form and substance acceptable to the
Required Holders has been delivered to each holder of the Notes,
(vii) the payments to be made to the Company or SFSC under such
Assigned Contract are or may reasonably be expected to become
subject to any defense, claims, dispute or right of setoff by the
Customer, or any such defense, claims, dispute or right of setoff
has been asserted, or the obligation of the Customer to make such
payments is not a legal, valid or binding obligation of such
Customer, (viii) such Assigned Contract is terminable or otherwise
cancelable by its terms upon any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or any similar occurrence of or by the
Company or SFSC or any of their Subsidiaries, (ix) the Identified
Equipment of such Assigned Contract has been lost, destroyed or
significantly damaged or is possessed by a Person other than the
Customer of such Assigned Contract unless such Assigned Contract
remains in full force and effect and the Customer continues to be
legally obligated to make all payments thereunder, (x) the Assigned
Contract has been or should have been charged off in conformity with
the Company's standard credit and collection practices and policies
or which otherwise does not satisfy all of the credit collection
policies of the Company, (xi) any notice required to be given to the
Customer thereof by the terms thereof with respect to any assignment
or grant of a security interest by the Company or SFSC of any of its
rights therein to the Collateral Agent, or any assignment by the
Company of any of its interest therein to SFSC, shall not have been
given or any consent required to be obtained from such Customer with
respect to any such assignment or grant shall not have been duly
obtained or (xii) the Assigned Contract contains any provision that
the Required Holders have notified the Company or SFSC is materially
adverse to the interests of such Required Holders. For the purposes
of the definition of "Eligible Contract", any unpaid payment shall
not be considered unpaid for more than 90 days to the extent the
Company or SFSC has made a billing correction, consistent with the
Company's current practices and in good faith and with no intention
to impair the Collateral, resulting in the Customer being re-
invoiced by the Company or SFSC for a corrected amount; provided,
however, that the Obligors shall take such steps as are reasonably
necessary to ensure that its re-billing practices are not manipu-
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Schedule 1.9 to
Amendment No. 2
lated by its Customers or otherwise for the purpose of extending
invoice payment terms.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"Equipment Certificate" shall mean the ST
Equipment Certificate and the SFSC Equipment Certificate, taken as a
whole.
"Event of Default" shall mean any of the events
specified in paragraph 7A, provided that there has been satisfied
any requirement in connection with such event for the giving of
notice, or the lapse of time, or the happening of any further
condition, event or act, and "Default" shall mean any of such
events, whether or not any such requirement has been satisfied.
"Exchange Act" shall mean the Exchange Act of
1934, as amended.
"Firm Termination Date" shall mean, at any time
with respect to the Identified Equipment under any Assigned
Contract, the then earliest date prior to which termination of such
Assigned Contract with respect to such Identified Equipment by the
Customer thereunder would result in a default or payment of
penalties by such Customer under such Assigned Contract as then in
effect. Provisions in such Assigned Contract allowing the Customer
to optionally purchase the Identified Equipment, upgrade or add
features, providing for rights of termination based upon failure to
perform or, as to Customers that are governmental entities, based
upon failure of such governmental entity to obtain requisite
appropriations or providing for automatic renewal shall not, until
such provisions are exercised and become effective, be considered in
determining the Firm Termination Date.
"Group" shall mean any group of Persons
constituting a "group" for purposes of Section 13(d) of the Exchange
Act.
"Identified Equipment" shall have the meaning set
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PAGE
<PAGE>
Schedule 1.9 to
Amendment No. 2
forth for such term in the Security Agreement.
"Industry Group" shall mean each industry group
identified on Schedule 10B hereto.
"Interest Payment Date" shall mean any day on
which interest on the Notes is due and payable pursuant to the terms
of this Agreement.
"Investments" on any date of determination shall
mean all investments, securities and other property described in
Schedule 5.3 to the Security Agreement that are in the Investment
Account and for which a confirmation has been delivered by Harris
Trust and Savings Bank to the Collateral Agent in accordance with
the Letter of Instructions.
"Investment Account" shall have the meaning set
forth for such term in the Security Agreement.
"Investment Grade" shall mean with respect to the
long term unsecured indebtedness of any Person a rating of at least
BBB- (or the existing equivalent) by Standard & Poor's Corporation
(or its successor) or Baa3 (or the existing equivalent) by Moody's
Investor Service, Inc. (or its successor).
"Lease Terms" shall mean, as to any lease or
installment sale agreement, the material terms of such lease or
installment sale agreement including, without limitation, the length
of maturity of such lease or agreement, the original date thereof,
the aggregate amount of remaining rental or installment payments
required to be made thereunder, the types of termination provisions
in such lease or installment sale agreement, and provisions intended
to be for the benefit of any assignee of such lease or installment
sale agreement or for a party having a security interest therein
(such as provisions described in paragraph 5D(2)).
"Letter of Instructions" shall mean collectively
the Letter of Instructions and Investment Management Agreement dated
as of June 28, 1994 executed by Harris Trust and Savings Bank and
SFSC and acknowledged by the Collateral Agent and the Letter
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Schedule 1.9 to
Amendment No. 2
Instructions attached thereto as Addendum A and the Letter of
Instructions executed by the Collateral Agent and accepted by Harris
Trust and Savings Bank relating to the Investment Account.
"Lien" shall mean any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof,
and the filing of or agreement to give any financing statement under
the Uniform Commercial Code of any jurisdiction).
"New Generation Equipment" shall mean, as to any
Identified Equipment at any time, equipment which (a) has been
assigned, or consistent with the Company's past practices should
have been assigned, within the prior six months from such time a
family code prefix (evidenced by the first three digits of the
Company's serial number of an item of equipment) by the Company not
previously assigned to any equipment or otherwise used, or (b) is of
a type that the Company has not then shipped at least 130 units
thereof to unaffiliated third party customers or that unaffiliated
third party customers have not then accepted at least 130 units of
such equipment.
"Normal Course Repurchase Agreement" means an
agreement between the Company and any officer, director, employee or
consultant of the Company or its Subsidiaries entered into in the
ordinary course of the Company's business wherein the Company is
obligated or has the option to repurchase from such officer,
director, employee or consultant shares of common stock ($.10 par
value) of the Company upon such person's termination of employment
or services with the Company or such Subsidiary.
"Obligors" shall mean, collectively, the Company
and SFSC and "Obligor" shall mean either the Company or SFSC.
"Officer's Certificate" shall mean a certificate
signed in the name of the Company or SFSC by its President, one of
its Vice Presidents, its Treasurer, one of its Assistant Treasurers,
its Controller or a Department Director.
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Schedule 1.9 to
Amendment No. 2
"Operating Agreement" shall mean the Operating
Agreement dated as of April 2, 1994 between the Company and SFSC, as
amended from time to time as permitted hereunder.
"Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorpo-
rated organization and a government or any department or agency
thereof.
"Product Line" shall mean a group of products sold
by the Company which would be reported as a class of similar
products under the provisions of Item 101(c)(1)(i) of Regulation S-K
under the Securities Act of 1933, as such Item is presently in
effect. As of the date of this Agreement, the Product Lines of the
Company are Serial Access Subsystems, Random Access Subsystems and
Printer Subsystems.
"Purchase and Sale Agreement" shall mean the
Purchase and Sale Agreement dated as of April 2, 1994, between the
Company and SFSC.
"Redeemable Preferred Stock" shall mean any of the
Company's preferred stock which is unconditionally subject to
mandatory redemption by the Company upon a scheduled date or dates.
"Remaining Net Firm Term Payments" shall mean, at
any time with respect to any Assigned Contract, all periodic
installment payments of rent or purchase price with respect to the
Identified Equipment covered by such Assigned Contract that will be
due on or after such time and on or prior to the Firm Termination
Date pursuant to the terms of such Assigned Contract as then in
effect. With respect to such Identified Equipment, Remaining Net
Firm Term Payments shall in no event include any payments for
software, service, maintenance, insurance, freight, taxes or
installation changes which may be due under any Assigned Contract.
"Required Holder(s)" shall mean the holder or
holders of at least 66-2/3% of the aggregate principal amount of the
Notes from time to time outstanding.
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Schedule 1.9 to
Amendment No. 2
"Restricted Investment" shall have the meaning set
forth for such term in paragraph 6C(4).
"Restricted Payments" shall have the meaning set
forth for such term in paragraph 6B.
"Revolving Loan Agreement" shall mean that certain
Multicurrency Credit Agreement dated as of March 31, 1993 among the
Company, Bank of America, National Trust and Savings Association and
certain other parties.
"Securities Act" shall mean the Securities Act of
1933, as amended.
"Security Agreement" shall mean the Amended and
Restated Security Agreement dated as of April 2, 1994 among the
Company, SFSC and the Collateral Agent, as amended from time to time
in accordance with its terms.
"Segregation Account" shall have the meaning set
forth for such term in paragraph 3J.
"Segregation Accounts" shall mean the ST
Segregation Account and the SFSC Segregation Account.
"Segregation Account Agreement" shall mean the
agreement in substantially the form of Exhibit C hereto among the
Company, SFSC, the Segregation Account Bank and the Collateral
Agent, as amended from time to time in accordance with its terms.
"Segregation Account Bank" shall have the meaning
set forth for such term in paragraph 3J.
"Senior Recourse Debt" shall mean all Consolidated
Debt excluding Subordinated Debt and any Consolidated Non-Recourse
Debt.
"SFSC" shall mean StorageTek Financial Services
Corporation, a Delaware corporation.
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Schedule 1.9 to
Amendment No. 2
"SFSC Collateral" shall have the meaning set forth
for such term in the Security Agreement.
"SFSC Contract Schedule" shall have the meaning
set forth for such term in the Security Agreement.
"SFSC Equipment Certificate" shall have the
meaning set forth for such term in Section 2.14 of Amendment No. 2
to this Agreement, dated as of April 2, 1994.
"SFSC Segregation Account" shall mean the demand
deposit account established on behalf of SFSC at a financial
institution acceptable to the Required Holders pursuant to the
Segregation Account Agreement.
"Significant Holder" shall mean (i) you or any of
your Affiliates, so long as you or such Affiliate shall hold (or be
committed under this Agreement to purchase) any Note, or (ii) any
other holder of at least 5% of the aggregate principal amount of the
Notes from time to time outstanding.
"ST Contract Schedule" shall have the meaning set
forth for such term in the Security Agreement.
"ST Equipment Certificate" shall have the meaning
set forth for such term in Section 2.14 of Amendment No. 2 to this
Agreement, dated as of April 2, 1994.
"ST Segregation Account" shall mean the demand
deposit account established on behalf of the Company at a financial
institution acceptable to the Required Holders pursuant to the
Segregation Account Agreement.
"Stockholder Rights Plan" shall mean that certain
Rights Agreement, effective as of August 20, 1990, between the
Company First Fidelity Bank, National Association, New Jersey, as in
effect on the date hereof.
"Subordinated Debt" shall mean the Convertible
Subordinated Debt and other Debt which is expressly and validly
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Schedule 1.9 to
Amendment No. 2
subordinated to the Notes and the Company's other obligations
arising in connection with this Agreement upon terms and conditions
approved in writing by the Required Holders.
"Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of the total combined voting power of all classes
of Voting Stock of which or (ii) any trust 100% of the beneficial
interest of which, shall, at the time as of which any determination
is being made, be owned by such Person either directly or through
Subsidiaries; provided that a trust shall be a Subsidiary hereunder
only if such trust is consolidated with such Person for financial
reporting purposes under generally accepted accounting principles
consistently applied.
"Substantial Part" shall mean with respect to any
Person at any time when used with respect to assets, more than 10%
of the consolidated assets of such Person at such time.
"Support Agreement" shall mean the Support
Agreement dated as of April 2, 1994 between the Company and SFSC, as
amended from time to time as permitted hereunder.
"Tangible Net Worth" shall mean, as of the time of
any determination thereof, consolidated stockholders' equity of the
Company and the Subsidiaries less (a) consolidated Intangible Assets
and (b) the aggregate amount payable by the Company upon the
mandatory redemption of any outstanding Redeemable Preferred Stock,
all determined as of such date in accordance with generally accepted
accounting principles consistently applied. For purposes of this
definition the term "Intangible Assets" shall mean (i) all write-ups
in the book value of any asset owned by the Company or any of its
Subsidiaries (except write-ups of financial instruments if required
by generally accepted accounting principles consistently applied),
(ii) all investments by the Company (whether by means of share
purchase, capital contribution, loan, time deposit or otherwise) in
unconsolidated subsidiaries of the Company, other than investments
permitted by paragraph 6C(4)(v), (iii) all unamortized original
issue discount and (iv) all unamortized debt expense, goodwill,
patents, trademarks, service marks, trade names, copyrights,
organization and development expense and other intangible assets of
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<PAGE>
Schedule 1.9 to
Amendment No. 2
the Company and its Subsidiaries on a consolidated basis.
"Transaction Documents" shall mean this Agreement,
the Notes, the Assumption Agreement, the Collateral Documents, the
Purchase and Sale Agreement, the Bill of Sale, the Letter of
Instructions, the Operating Agreement and the Support Agreement,
each as amended, restated, modified or supplemented in accordance
with its terms as permitted hereunder.
"Transferee" shall mean any direct or indirect
transferee of all or any part of any Note purchased by you under
this Agreement.
"Uniform Commercial Code" shall have the meaning
set forth for such term in the Security Agreement.
"Value" on any date of determination shall mean
the fair market value of all Investments on such date as specified
by Harris Trust and Savings Bank.
"Voting Stock" shall mean, with respect to any
corporation, any shares of stock of such corporation whose holders
are entitled under ordinary circumstances to vote for the election
of directors of such corporation (irrespective of whether at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
"XL" shall mean XL/Datacomp, Inc., a Delaware
corporation if, and only so long as such corporation is a Subsidiary
of the Company.
11. MISCELLANEOUS.
11A. Note Payments. The Obligors jointly and severally
agree that, so long as you shall hold any Note, it will make
payments of principal thereof and premium, if any, and interest
thereon and fees with respect thereto, in lawful money of the United
States of America, which comply with the terms of this Agreement, by
wire transfer of immediately available funds for credit not later
than noon Denver, Colorado time on the date payment thereof is due
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Schedule 1.9 to
Amendment No. 2
to your account or accounts as specified in the Purchaser Schedule
attached hereto, or such other account or accounts as you may
designate from time to time in writing, notwithstanding any contrary
provision herein or in any Note with respect to the place of payment
and without any requirement for presentment of the Note. Each wire
transfer to you shall set forth the name of the Company, the full
title (including the coupon rate and final maturity date) of the
Note in question, a reference to the applicable Private Placement
Number and the due date and application (as among principal,
premium, if any, and interest) of the payment being made. Interest
shall be calculated on the basis of a month of thirty days and a
year of 360 days and shall be payable semi-annually in arrears on
August 31 and February 28 of each year, commencing with February 28,
1992, and on the date the Notes are paid in full. In the event that
any payment of interest on the Notes becomes due and payable on a
day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day, and interest during
any such extension shall be payable on the next succeeding Business
Day. You agree that, before disposing of any Note, you will make a
notation thereon (or on a schedule attached thereto) of all
principal payments previously made thereon and of the date to which
interest thereon has been paid; provided, however, that failure to
make any such notation shall not subject you to any liability or
loss of any right or remedy. The Obligors jointly and severally
agree to afford the benefits of this paragraph 11A to any Transferee
which shall have made the same agreement as you have made in this
paragraph 11A.
11B. Expenses. The Obligors jointly and severally
agree, whether or not the transactions contemplated hereby shall be
consummated, to pay, and save you and any Transferee harmless
against liability for the payment of, all reasonable out-of-pocket
expenses arising in connection with such transactions, including (i)
all document production and duplication charges and the fees and
expenses of any special counsel engaged by you in connection with
this Agreement, the Notes and the other Transaction Documents and
the transactions contemplated hereby or thereby (including, without
limitation, all recording charges, filing fees and other costs
incurred in order to create or perfect, or maintain the creation or
perfection of, the security interests intended to be created by the
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<PAGE>
Schedule 1.9 to
Amendment No. 2
Collateral Documents), any subsequent proposed modification of, or
proposed consent under, this Agreement, the Notes or any other
Transaction Document or any instrument or agreement relating
thereto, whether or not such proposed modification shall be effected
or proposed consent granted, and any additional Contracts and
supporting documentation identified in any Collateral Certificate
delivered to the Collateral Agent pursuant to Section 3.3 of the
Security Agreement, (ii) the cost of obtaining a Private Placement
Number from Standard & Poor's CUSIP Service Bureau with respect to
the Notes and (iii) the costs and expenses, including reasonable
attorneys' fees, with respect to enforcing any rights under this
Agreement, the Notes or any instrument or agreement relating thereto
or in responding to any subpoena or other legal process issued in
connection with this Agreement or the transactions contemplated
hereby or by reason of your or any Transferee's having acquired any
Note, including without limitation, costs and expenses incurred in
any bankruptcy case. Without limiting any of the foregoing, the
Obligors jointly and severally agree to pay, and indemnify and hold
harmless the Collateral Agent and each holder of a Note against, all
reasonable out-of-pocket expenses, fees and costs (i) which any of
them may incur in connection with opening and maintaining the
Investment Account and the Segregation Accounts and to reimburse
them for any claim asserted by any Customer or any other Person in
connection with the Segregation Accounts or in connection with any
returned or uncollected checks received from a Customer of a
Contract relating to the Segregation Accounts and (ii) which any of
them, or any special counsel engaged by the holders of the Notes,
may incur to verify that the first priority, perfected security
interest intended to be created by the Collateral Documents has been
created and is being maintained in accordance with the Transaction
Documents, provided however that so long as no Default or Event of
Default has occurred and is continuing at the time any such
verification has commenced or occurs during any such verification,
the Obligors shall have no liability for any expenses or fees
incurred to perform such verification if, with respect to all
Contracts and related Identified Equipment that were the subject of
such verification, a first priority, perfected security interest in
favor of the Collateral Agent exists in Contracts subject to such
verification, and related Identified Equipment, that have an
aggregate Contract Present Value of not less than 98% of the
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<PAGE>
Schedule 1.9 to
Amendment No. 2
aggregate Contract Present Value of all Contracts subject to such
verification. The obligations of the Obligors under this paragraph
11B shall survive the transfer of any Note or portion thereof or
interest therein by you or any Transferee and the payment of any
Note.
11C. Consent to Amendments. This Agreement may be
amended, and the Obligors may take any action herein prohibited, or
omit to perform any act herein required to be performed by them, if
the Obligors shall obtain the written consent to such amendment,
action or omission to act, of the Required Holder(s) except that,
without the written consent of the holder or holders of all Notes at
the time outstanding, no amendment to this Agreement shall change
the maturity of any Note, or change the principal of, or the rate or
time of payment of interest or any premium payable with respect to
any Note, or affect the time, amount or allocation of any required
prepayments, or reduce the proportion of the principal amount of the
Notes required with respect to any consent, or release the security
interest of the Security Agreement in any Collateral (other than as
may be permitted by the Security Agreement). Each holder of any
Note at the time or thereafter outstanding shall be bound by any
consent authorized by this paragraph 11C, whether or not such Note
shall have been marked to indicate such consent, but any Notes
issued thereafter may bear a notation referring to any such consent.
The Obligors will not solicit, request or obtain any proposed waiver
or amendment of or consent in respect of any of the provisions of
this Agreement or any other Transaction Document unless in the case
of such waiver, amendment or consent each holder of Notes shall
receive 15 days advance notice thereof and copies of any information
furnished to any other holder of Notes. The Obligors will not,
directly or indirectly, pay or cause to be paid any remuneration,
whether by way of supplemental or additional interest, fee or
otherwise, to any holder of Notes as consideration for or as an
inducement to the entering into by such holder of Notes of any
waiver or amendment of, or giving a consent in respect of, any of
the terms and provisions of this Agreement or any Note unless such
remuneration is concurrently paid, on the same terms, ratably to all
such holders of Notes, as the case may be. The Obligors will give
prompt written notice of the receipt and effect of each such waiver,
amendment or consent to all holders of the Notes. No course of
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<PAGE>
Schedule 1.9 to
Amendment No. 2
dealing between the Obligors and the holder of any Note nor any
delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note. As
used herein and in the Notes, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to
time be amended or supplemented.
11D. Form, Registration, Transfer and Exchange of
Notes; Lost Notes. The Notes are issuable as registered notes
without coupons in denominations of $500,000, except as may be
necessary to reflect any principal amount not evenly divisible by
$500,000; provided that each such amount shall be reduced by the
same proportion by which any Obligor makes any prepayment of the
principal amount of the Notes pursuant to paragraph 4, such
reduction to be effective as of the date each such prepayment is
made. The Company shall keep at its principal office a register in
which the Company shall provide for the registration of Notes and of
transfers of Notes. Upon surrender for registration of transfer of
any Note at the principal office of the Company, the Obligors shall,
at its expense, execute and deliver one or more new Notes of like
tenor and of a like aggregate principal amount, registered in the
name of such transferee or transferees. At the option of the holder
of any Note, such Note may be exchanged for other Notes of like
tenor and of any authorized denominations, of a like aggregate
principal amount, upon surrender of the Note to be exchanged at the
principal office of the Company. Whenever any Notes are so
surrendered for exchange, the Obligors shall, within 5 Business Days
of such date of surrender and at the Obligors' expense, execute and
deliver the Notes which the holder making the exchange is entitled
to receive. Every Note surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or
such holder's attorney duly authorized in writing. Any Note or
Notes issued in exchange for any Note or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which
were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such
transfer or exchange. Upon receipt of written notice from the
registered holder of any Note of the loss, theft, destruction or
mutilation of such Note and, in the case of any such loss, theft or
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<PAGE>
Schedule 1.9 to
Amendment No. 2
destruction, upon receipt of such holder's unsecured indemnity
agreement, or in the case of any such mutilation, upon surrender and
cancellation of such Note, the Obligors will make and deliver a new
Note, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Note.
11E. Persons Deemed Owners; Participations. Prior to
due presentment for registration of transfer, the Obligors may treat
the Person in whose name any Note is registered as the owner and
holder of such Note for the purpose of receiving payment of
principal of and premium, if any, and interest on such Note and for
all other purposes whatsoever, whether or not such Note shall be
overdue, and the Obligors shall not be affected by notice to the
contrary. Subject to the preceding sentence, the holder of any Note
may from time to time grant participations in all or any part of
such Note to any Person on such terms and conditions as may be
determined by such holder in its sole and absolute discretion.
11F. Survival of Representations and Warranties; Entire
Agreement. All representations and warranties contained herein or
made in writing by or on behalf of the Obligors in connection
herewith shall survive the execution and delivery of this Agreement
and the Notes, the transfer by you of any Note or portion thereof or
interest therein and the payment of any Note, and may be relied upon
by any Transferee, regardless of any investigation made at any time
by or on behalf of you or any Transferee. Subject to the preceding
sentence, this Agreement, the Notes and the other Transaction
Documents embody the entire agreement and understanding between you
and the Obligors and supersede all prior agreements and
understandings relating to the subject matter hereof.
11G. Successors and Assigns. All covenants and other
agreements in this Agreement shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto
(including, without limitation, any Transferee) whether so expressed
or not.
11H. Disclosure to Other Persons. (i) The Obligors
acknowledge that the holder of any Note may, after notice given to
the Company, deliver copies of any financial statements and other
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PAGE
<PAGE>
Schedule 1.9 to
Amendment No. 2
documents delivered to such holder, and disclose any other
information disclosed to such holder, by or on behalf of the
Obligors or any Subsidiary of the Obligors in connection with or
pursuant to this Agreement to (a) such holder's directors, officers,
employees, agents and professional consultants, (b) any holder of
any Note, (c) any Person to which such holder offers to sell such
Note or any part thereof, (d) any Person to which such holder sells
or offers to sell a participation in all or any part of such Note,
(e) any federal or state regulatory authority having jurisdiction
over such holders, (f) the National Association of Insurance
Commissioners or any similar organization, (g) any independent
rating agency which is rating such holder's debt instruments or
(h) any other Person to which such delivery or disclosure may be
necessary or appropriate (1) in compliance with any law, rule,
regulation or order applicable to such holder, (2) in response to
any subpoena or other legal process, (3) in connection with any
litigation to which such holder is a party or (4) in order to
protect such holder's investment in such Note. (ii) Notwithstanding
clause (i) of this paragraph, each holder of a Note agrees that it
will not disclose to any third party any written information marked
"Confidential" or "Secret" provided to it by the Company; provided,
however, that the foregoing clause (ii) shall not prohibit or
restrict any such holder from disclosing any such information (1) to
Persons described in clauses (a), (b), (c), (d), (e), (f), (g) or
(h) of clause (i) of this paragraph provided that, as to Persons
described in the aforesaid clauses (c) and (d), such Person executes
a confidentiality agreement with such selling or offering (as the
case may be) holder prior to disclosure of such information to such
Person whereby such Person agrees to be bound by the terms of this
clause (ii) and such Person is not engaged in a business
substantially similar to the business of the Obligors, or (2) which
becomes publicly available other than through a breach of this
clause (ii); becomes available through a Person other than the
Obligors or a Subsidiary of the Obligors; or is disclosed in any
litigation with the Obligors or with any Subsidiary of the Obligors.
11I. Notices. All written communications provided for
hereunder shall be sent by first class mail (with postage prepaid)
or nationwide overnight delivery service (with charges prepaid) and
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<PAGE>
Schedule 1.9 to
Amendment No. 2
(i) if to you, addressed to you at the address specified for such
communications in the Purchaser Schedule attached hereto, or at such
other address as you shall have specified to the Obligors in
writing, (ii) if to any other holder of any Note, addressed to such
other holder at such address as such other holder shall have
specified to the Obligors in writing, (iii) if to either of the
Obligors, addressed to it at 2270 South 88th Street, Louisville,
Colorado 80028, Attention: General Counsel (with a copy sent to the
same address and to the attention of the Treasurer), or at such
other address as the Obligors shall have specified to the holder of
each Note in writing; provided, however, that any such communication
to the Obligor may also, at the option of the holder of any Note, be
delivered by any other means either to the Obligors at their address
specified above or to any of their officers. Any such
communications which satisfy the foregoing provisions of this
paragraph 11I shall be deemed to have been given for the purposes
hereof when deposited in the United States Mail in the case of
communication by first class mail, or, when deposited with a
nationwide overnight delivery service in the case of communication
by nationwide overnight delivery service.
11J. Descriptive Headings. The descriptive headings of
the several paragraphs of this Agreement are inserted for conve-
nience only and do not constitute a part of this Agreement.
11K. Governing Law. This Agreement has been delivered
in and shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of
Illinois.
11L. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such
counterpart.
11M. Indemnification. The Obligors jointly and
severally agree to and shall defend, protect, indemnify and hold you
harmless and each of your respective officers, directors, employees,
attorneys and agents (collectively, called the "Indemnities") from
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<PAGE>
Schedule 1.9 to
Amendment No. 2
and against any and all liabilities, obligations, costs, expenses
and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel
for such Indemnities) which may be imposed on, incurred by, or
asserted against such Indemnities in any manner relating to or
arising out of this Agreement, the other Transaction Documents, or
any act, event or transaction related or attendant thereto. The
obligations of the Obligors under this paragraph 11M shall survive
the transfer of any Note or portion thereof or interest therein by
you on any Transferee and the payment of any Note.
11N. Sharing of Payments. Each of the holders of the
Notes hereby agree among themselves, but not with the Obligors, that
the provisions of Section 5.2 of the Security Agreement are for each
such holder's benefit and if any such holder shall receive any
monies contrary to the provisions of the Security Agreement, such
holder shall forthwith turn such money over to the Collateral Agent
to be distributed in accordance with the provisions of the Security
Agreement and until so turned over shall be held in trust for the
benefit of the Collateral Agent. This paragraph 11N is intended to
be, and shall be, for the benefit only of the holders of the Notes
and not of the Obligors and the Obligors shall have no rights with
respect to this paragraph 11N.
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<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT ("Fourth
Amendment"), dated as of May 31, 1994, is entered into by and among
the following parties:
STORAGE TECHNOLOGY CORPORATION ("STK");
STORAGETEK FINANCIAL SERVICES CORPORATION ("SFSC");
STORAGE TECHNOLOGY DE PUERTO RICO, INC. ("STPR");
XL/DATACOMP, INC. ("XL/DC") (STK, SFSC, STPR and XL/DC
are collectively referred to as the "Borrowers");
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as agent for itself and the Lenders (the "Agent"); and
The several financial institutions party to the Credit
Agreement (collectively, the "Lenders").
RECITALS
A. The Borrowers, the Lenders and the Agent are
parties to that certain $150,000,000 Multicurrency Credit Agreement
dated as of March 31, 1993, as amended by that certain First
Amendment to Credit Agreement dated as of August 6, 1993, that
certain Second Amendment to Credit Agreement dated as of September
24, 1993, and that certain Third Amendment to Credit Agreement dated
as of March 1, 1994 (collectively, the "Prior Credit Agreement"),
pursuant to which the Agent and the Lenders have extended certain
credit facilities and other financial accommodations to the
Borrowers.
B. The Borrowers have requested that the Lenders
agree to certain amendments to the Prior Credit Agreement.
C. The Lenders are willing to amend the Prior Credit
Agreement, pursuant to Section 9.01 of the Prior Credit Agreement
and subject to the terms and conditions of this Fourth Amendment.
1 <PAGE>
<PAGE>
NOW, THEREFORE, for valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Defined Terms; General Principles. Unless
otherwise defined herein, capitalized terms used herein shall have
the meanings, if any, assigned to them in the Prior Credit
Agreement. This Fourth Amendment is incorporated into the Prior
Credit Agreement by this reference and made a part thereof. The
Prior Credit Agreement, as amended by this Fourth Amendment, is
herein referred to as the "Credit Agreement."
2. Amendments to Credit Agreement.
(a) Amendment to Agent's Partial Collateral
Release Certificate Delivered in Connection with Exhibit Q [Form of
Periodic Release Certificate]. A portion of the Exhibit Q attached
to the Prior Credit Agreement consists of the partial collateral
release certificate to be executed and delivered by the Agent on the
terms and conditions set forth in the Prior Credit Agreement (the
"Agent's Partial Collateral Release Certificate"). The Agent's
Partial Collateral Release Certificate is hereby amended and
restated in its entirety by the Form of Amended and Restated Agent's
Partial Collateral Release Certificate attached hereto as Exhibit A
(the "Form of Amended and Restated Agent's Partial Collateral
Release Certificate"). All references in the Prior Credit Agreement
to the Agent's Partial Collateral Release Certificate shall refer to
Exhibit A
attached hereto and the Form of Amended and Restated Agent's Partial
Collateral Release Certificate, respectively. All other provisions
of Exhibit Q to the Prior Credit Agreement remain valid and
enforceable in accordance with their express terms.
3. Representations and Warranties. The Borrowers
hereby represent and warrant to the Agent and the Lenders as
follows:
(a) No Event of Default has occurred and is
continuing;
(b) The execution, delivery and performance by
each Borrower of this Fourth Amendment are within such Borrower's
corporate powers, have been duly authorized by all necessary
2 <PAGE>
<PAGE>
corporate action, do not contravene (i) such Borrower's charter or
bylaws, (ii) any law, rule, regulation (including, without
limitation, Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award binding on or affecting such Borrower
or any of its properties, or (iii) any contractual restriction
binding on or affecting such Borrower or any of its properties,
except, in each case, where any such contravention would not cause a
Material Adverse Effect or render any Loan Document unenforceable
against such Borrower or any third party, and do not result in or
require the creation of any Lien (other than pursuant to the Credit
Agreement or pursuant to the Collateral Documents) upon or with
respect to any of its material properties;
(c) No authorization, approval or other action
by, and no notice to or filing with, any governmental authority or
regulatory body or other Person is required for the due execution,
delivery and performance by any Borrower of this Fourth Amendment;
(d) This Fourth Amendment and the Prior Credit
Agreement, as amended hereby, are each the legal, valid and binding
obligation of each Borrower enforceable against such Borrower in
accordance with their terms;
(e) All representations and warranties of the
Borrowers contained in Article V of the Credit Agreement are true
and correct; and
(f) The Borrowers are entering into this Fourth
Amendment on the basis of their own investigation and for their own
reasons, without reliance upon the Agent and the Lenders or any
other Person.
4. Effective Date. This Fourth Amendment shall be
deemed effective as of May 31, 1994 (the "Effective Date"), provided
that each of the following conditions precedent has been satisfied:
(a) The Agent has received from the Borrowers
and each of the Majority Lenders a duly executed original of this
Fourth Amendment.
(b) The Agent has received from each of the
Borrowers a certificate signed by the Secretary or Assistant
3 <PAGE>
<PAGE>
Secretary of such Borrower, certifying that the resolution passed by
the board of directors of such corporation in connection with the
execution delivery and performance of the Prior Credit Agreement
authorizes the execution, delivery and performance of this Fourth
Amendment and the Credit Agreement and that such resolution is in
full force and effect as of the date of delivery of such
certificate; and
(c) All representations and warranties contained
herein are true and correct as of the date the Agent has received a
duly executed original of this Fourth Amendment from all of the
parties hereto.
5. Reservation of Rights. The Borrowers acknowledge
and agree that the execution and delivery by the Agent and the
Lenders of this Fourth Amendment shall not be deemed (i) to create a
course of dealing or otherwise obligate the Agent or the Lenders to
execute similar agreements or provide other accommodations under the
same or similar circumstances in the future, or (ii) to waive,
relinquish or impair any right of the Agent or the Lenders to
receive any indemnity or similar payment from any Person.
6. Miscellaneous.
(a) Except as herein expressly amended, all
terms, covenants and provisions of the Prior Credit Agreement are
and shall remain in full force and effect and all references therein
to the Credit Agreement shall henceforth refer to the Prior Credit
Agreement as amended by this Fourth Amendment. This Fourth
Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
(b) This Fourth Amendment shall be binding upon
and inure to the benefit of the parties hereto and thereto and their
respective successors and assigns. No third party beneficiaries are
intended in connection with this Fourth Amendment.
(c) This Fourth Amendment shall be governed by
and construed in accordance with the law of the State of California.
(d) This Fourth Amendment may be executed in any
number of counterparts, each of which shall be deemed an original,
4 <PAGE>
<PAGE>
but all such counterparts together shall constitute but one and the
same instrument.
(e) This Fourth Amendment, together with the
Credit Agreement, contains the entire and exclusive agreement of the
parties hereto with reference to the matter discussed herein and
therein. This Fourth Amendment supersedes all prior drafts and
communications with respect thereto. This Fourth Amendment may not
be amended except in accordance with the provisions of Section 9.01
of the Credit Agreement.
(f) If any term or provision of this Fourth
Amendment shall be deemed prohibited by or invalid under any
applicable law, such provision shall be invalidated without
affecting the remaining provisions of this Fourth Amendment or the
Credit Agreement, respectively.
(g) The Borrowers agree to pay to or reimburse
the Agent, upon demand, for all reasonable Attorney Costs and
expenses incurred in connection with the development, preparation,
negotiation, execution and delivery of this Fourth Amendment.
5 <PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Fourth Amendment as of the date first above written.
THE BORROWERS:
STORAGE TECHNOLOGY CORPORATION
By: /s/ Mark D. McGregor
----------------------------------------
Name: Mark D. McGregor
Title: Assistant Treasurer
STORAGE TECHNOLOGY DE PUERTO RICO, INC.
By: /s/ Mark D. McGregor
----------------------------------------
Name: Mark D. McGregor
Title: Assistant Treasurer
XL/DATACOMP, INC.
By: /s/ Mark D. McGregor
----------------------------------------
Name: Mark D. McGregor
Title: Assistant Treasurer
STORAGETEK FINANCIAL SERVICES CORPORATION
By: /s/ Robert J. Kali
----------------------------------------
Name: Robert J. Kali
Title: Vice President and Chief
Operating Officer
THE AGENT:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: /s/ Shannon Collins
----------------------------------------
Name: Shannon Collins
Title: Vice President
6 <PAGE>
<PAGE>
THE SWING LINE BANK:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Swing
Line Bank
By: /s/ Kevin McMahon
----------------------------------------
Name: Kevin McMahon
Title: Vice President
THE ISSUING BANK:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Issuing
Bank
By: /s/ Kevin McMahon
----------------------------------------
Name: Kevin McMahon
Title: Vice President
7 <PAGE>
<PAGE>
THE LENDERS:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Kevin McMahon
----------------------------------------
Name: Kevin McMahon
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Oscar Jazdowski
----------------------------------------
Name: Oscar Jazdowski
Title: Managing Director
BANK OF MONTREAL
By: /s/ Daniel A. Brown
----------------------------------------
Name: Daniel A. Brown
Title: Director
NBD BANK, N.A.
By: /s/ James Gregory Mickens
----------------------------------------
Name: James Gregory Mickens
Title: Vice President
CONTINENTAL BANK N.A.
By: /s/ Elizabeth M. Nolan
----------------------------------------
Name: Elizabeth M. Nolan
Title: Vice President
8 <PAGE>
<PAGE>
FIRST INTERSTATE BANK OF DENVER
By: /s/ Alex J. McCombs
----------------------------------------
Name: Alex J. McCombs
Title: Vice President
BANQUE NATIONALE DE PARIS
By: /s/ C. Battles
----------------------------------------
Name: C. Battles
Title: Vice President
By: /s/ D. Mansoorian
----------------------------------------
Name: D. Mansoorian
Title: A.V.P.
9 <PAGE>
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT ("Fifth
Amendment"), dated as of June 29, 1994, is entered into by and among the
following parties:
STORAGE TECHNOLOGY CORPORATION ("STK");
STORAGETEK FINANCIAL SERVICES CORPORATION ("SFSC");
STORAGE TECHNOLOGY DE PUERTO RICO, INC. ("STPR");
XL/DATACOMP, INC. ("XL/DC") (STK, SFSC, STPR and XL/DC are
collectively referred to as the "Borrowers");
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
agent for itself and the Lenders (the "Agent"); and
The several financial institutions party to the Credit
Agreement (collectively, the "Lenders").
RECITALS
A. The Borrowers, the Lenders and the Agent are parties
to that certain $150,000,000 Multicurrency Credit Agreement dated as of
March 31, 1993, as amended by that certain First Amendment to Credit
Agreement dated as of August 6, 1993, that certain Second Amendment to
Credit Agreement dated as of September 24, 1993, that certain Third
Amendment to Credit Agreement dated as of March 1, 1994 and that certain
Fourth Amendment to Credit Agreement dated as of May 31, 1994
(collectively, the "Prior Credit Agreement"), pursuant to which the
Agent and the Lenders have extended certain credit facilities and other
financial accommodations to the Borrowers.
B. The Borrowers have requested that the Lenders agree to
certain amendments to the Prior Credit Agreement.
C. The Lenders are willing to amend the Prior Credit
Agreement, pursuant to Section 9.01 of the Prior Credit Agreement and
subject to the terms and conditions of this Fifth Amendment.
1 <PAGE>
<PAGE>
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined Terms; General Principles. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings,
if any, assigned to them in the Prior Credit Agreement. This Fifth
Amendment is incorporated into the Prior Credit Agreement by this
reference and made a part thereof. The Prior Credit Agreement, as
amended by this Fifth Amendment, is herein referred to as the "Credit
Agreement."
2. Amendments to Credit Agreement.
(a) Section 1.01 of the Prior Credit Agreement is hereby
amended by adding the following definitions in the appropriate
alphabetical order:
(i) "Program" means the securitization of certain
computer leases, computer equipment and related assets pursuant to
a Receivables Financing Agreement dated as of June 30, 1994 (as
amended and supplemented from time to time) among the Trust as
borrower, SFSC as servicer, STK as performance guarantor, Pooled
Accounts Receivable Capital Corporation as lender and Bank of
Montreal as agent (the "Receivables Financing Agreement").
(ii) "Trust" means SFSC Receivables Trust 1994-1, a
Delaware Business Trust.
(iii) "Securitized Assets" means (a) the
original equipment leases, schedules to such leases, original
installment purchase agreements or schedules to such agreements
owned from time to time by the Trust, in each case which are
included in the Program, together with a copy of the master lease
relating to each such lease or schedule, if applicable, and all
UCC financing statements filed in connection therewith, (b) all
payments due thereunder, (c) all rights and privileges thereunder,
(d) with respect to such equipment leases or schedules and such
installment purchase agreements or schedules, all of the Trust's
right, title and interest in and to such lease or schedule, such
installment purchase agreement or schedule or other agreements
relating thereto including each master lease to the extent it
relates thereto; all of the Trust's interest in the computer
2 <PAGE>
<PAGE>
equipment related to such lease or schedule or such installment
purchase agreement or schedule, and all parts, accessories,
upgrades and appliances related thereto, all substitutions
therefor and replacements thereof; all security interests or liens
and property subject thereto from time to time purporting to
secure payment of such lease or schedule or such installment
purchase agreement or schedule, whether pursuant thereto or
otherwise, including any security deposits and prepaid rent; all
UCC financing statements covering any collateral securing payment
of such equipment lease or schedule or such installment purchase
agreement or schedule; all guarantees and other agreements or
arrangements of whatever character from time to time supporting or
securing payment of such equipment lease or schedule or such
installment purchase agreement or schedule whether pursuant
thereto or otherwise; and all funds that are received in payment
of any amounts owed in respect thereof (including funds received
by the Trust as the purchase price thereof) or applied to such
amounts, (e) the bank accounts established pursuant to the Program
and the investments therein, (f) the Trust's rights and claims
under the Contribution Agreement dated as of April 2, 1994 (as
amended and supplemented from time to time) entered into by SFSC,
STK and the Trust in connection with the Program and all payments
due thereunder, (g) all proceeds of, and rights to enforce, each
of the foregoing, (h) any interest rate hedging arrangements
entered into from time to time by the Trust, and (i) all other
agreements, papers, books and records (including computerized data
and computer tapes and disks) of whatever kind or description,
relating to or evidencing any of the foregoing, in each case
wherever located and whether now or hereafter arising.
(b) The definition of "Permitted Lien" in Section 1.01 of
the Prior Credit Agreement is hereby amended by adding to the end
thereof a new subsection (xv) as follows:
"(xv) Liens on the Securitized Assets arising in
connection with the Program, provided that no such Lien shall
extend to or cover any property other than the Securitized
Assets."
(c) Section 6.02(d)(i) of the Prior Credit Agreement is
hereby amended in full to read as follows:
3 <PAGE>
<PAGE>
"(i) any Subsidiary of any Borrower may declare and
make cash dividend payments or other distributions in respect of
its equity interests to such Borrower or to any other Subsidiary
of such Borrower which is its shareholder or holder of the equity
interests therein;"
(d) Section 6.02(g) is amended by adding to the end
thereof a new subsection (vii) to read as follows:
"and (vii) Transfers of the Securitized Assets
pursuant to the Program free and clear of any Lien granted to the
Agent, provided that, as of the time of each respective Transfer,
the aggregate present value of the income stream arising from all
leases of equipment and all schedules to such leases that
constitute the Securitized Assets (discounted by a rate selected
by the applicable Borrower, expressed as a decimal, rounded upward
to the nearest 1/100 of 1%, provided that such rate shall be no
less than the Treasury Rate (as such term is defined in the
definition of "Adjusted Value" set forth in the Credit Agreement)
plus 3.50% per annum) shall not be in excess of $100,000,000."
(e) Section 6.02(h)(ii) of the Prior Credit Agreement is
hereby amended in full to read as follows:
"(ii) making any loan or advance to, or investing in,
or making any capital contribution to, or guarantee the
obligations of, any Borrower or any Subsidiary of STK, provided
that any such loan, advance, or guarantee is otherwise permitted
under Section 6.02(c) and Section 6.02(o), and provided further
that (a) any Borrower may make investments in or capital
contributions to another Borrower, and (b) any Borrower may make
an investment of Securitized Assets in, or a contribution of
Securitized Assets to, the Trust;"
3. Release of Lien on Securitized Assets.
The Lenders, pursuant to Section 8.09 of the Prior Credit
Agreement, hereby authorize the Agent, without further action or
decision by the Lenders, to release upon the request of STK and in
accordance with the terms of the Loan Documents and the Program
Collateral Release Certificate (the form of which is attached hereto as
EXHIBIT A (the "Program Collateral Release Certificate")), the Lien on
the Securitized Assets granted to the Agent for the benefit of the
4 <PAGE>
<PAGE>
Lenders and further authorize the Agent to take all reasonable actions
requested by the applicable Borrower in connection with such release,
including the execution by the Agent of all necessary or appropriate UCC
partial releases or termination statements (as determined by the Agent
in its discretion) with respect to the Securitized Assets.
4. Collateral Requirements.
(a) Maintain Lenders' Liens. Each of the Borrowers
shall continue to take all acts or measures necessary or appropriate to
preserve and maintain the Liens on the Collateral in favor of the Agent
for the benefit of the Lenders. At all times the assets and property
interests that are subject to the Liens in favor of the Agent for the
benefit of the Lenders (including, without limitation, all books,
records, agreements, documents, schedules, computer disks, computer
tapes and other information, in electronic form or otherwise, pertaining
to the Collateral) shall be maintained separate and apart from, and be
easily identifiable from, the Securitized Assets.
(b) Security Interest in Trust Ownership. Each of
the Borrowers acknowledges and agrees that the Liens granted to the
Agent for the benefit of the Lenders in connection with the Security
Documents shall attach to, and be enforceable as perfected Liens (with
the priority specified in the Security Agreements) against, all legal,
equitable, beneficial or other rights, titles or interests (and all
proceeds thereof) that such Borrower may have in, to or under the Trust
(all of which rights, titles and interests shall constitute Collateral).
Regardless of any provision in the Loan Documents to the contrary, each
Borrower may transfer to any other Borrower its rights, titles and
interests in, to and under the Trust subject to the Liens created under
the Security Documents.
(c) Reaffirm Security Documents. Each of the
Borrowers ratifies and reaffirms (i) its obligations and duties under
the Security Documents and all other Loan Documents, and (ii) all Liens
previously granted to the Agent for the benefit of the Lenders. The
Borrowers acknowledge and agree that, if for any reason any Securitized
Assets (or the proceeds thereof) are ever transferred or distributed to
any of the Borrowers, then regardless of the Agent's previous acceptance
and execution of the Program Collateral Release Certificate and any
related documents evidencing the release of the Lenders' Liens against
such assets when those assets were originally transferred to the Trust
and first became Securitized Assets, such former Securitized Assets (and
5 <PAGE>
<PAGE>
the proceeds thereof) shall once again be automatically and immediately
subject to, and encumbered by, the Liens in favor of the Agent for the
benefit of the Lenders in accordance with the terms set forth in the
Security Documents. The Borrowers shall take all steps and actions that
the Agent may require in order to ensure that the Liens (and their
priority) in favor of the Agent for the benefit of the Lenders shall at
all times be preserved and maintained to the satisfaction of the Agent.
5. Representations and Warranties. The Borrowers hereby
represent and warrant to the Agent and the Lenders as follows:
(a) No Event of Default has occurred and is continuing;
(b) The execution, delivery and performance by each
Borrower of this Fifth Amendment are within such Borrower's corporate
powers, have been duly authorized by all necessary corporate action, do
not contravene (i) such Borrower's charter or bylaws, (ii) any law,
rule, regulation (including, without limitation, Regulations G, T, U or
X of the Board of Governors of the Federal Reserve System), order, writ,
judgment, injunction, decree, determination or award binding on or
affecting such Borrower or any of its properties, or (iii) any
contractual restriction binding on or affecting such Borrower or any of
its properties, except, in each case, where any such contravention would
not cause a Material Adverse Effect or render any Loan Document
unenforceable against such Borrower or any third party, and do not
result in or require the creation of any Lien (other than pursuant to
the Credit Agreement or pursuant to the Collateral Documents) upon or
with respect to any of its material properties;
(c) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or other Person is required for the due execution, delivery and
performance by any Borrower of this Fifth Amendment;
(d) This Fifth Amendment and the Prior Credit Agreement,
as amended hereby, are each the legal, valid and binding obligation of
each Borrower enforceable against such Borrower in accordance with their
terms;
(e) All representations and warranties of the Borrowers
contained in Article V of the Credit Agreement are true and correct; and
6 <PAGE>
<PAGE>
(f) The Borrowers are entering into this Fifth Amendment
and the Program on the basis of their own investigation and for their
own reasons, without reliance upon the Agent and the Lenders.
6. Effective Date. This Fifth Amendment shall be deemed
effective as of June 29, 1994 (the "Effective Date"), provided that each
of the following conditions precedent has been satisfied:
(a) The Agent has received from the Borrowers and each of
the Lenders a duly executed original of this Fifth Amendment;
(b) The Agent has received from each of the Borrowers a
certificate signed by the Secretary or Assistant Secretary of such
Borrower, certifying that the resolution passed by the board of
directors of such corporation in connection with the execution delivery
and performance of the Prior Credit Agreement authorizes the execution,
delivery and performance of this Fifth Amendment and the Credit
Agreement and that such resolution is in full force and effect as of the
date of delivery of such certificate;
(c) All representations and warranties contained herein
are true and correct as of the date the Agent has received a duly
executed original of this Fifth Amendment from all of the parties
hereto; and
(d) All conditions precedent to the effectiveness of the
Receivables Financing Agreement, other than the execution and delivery
of this Fifth Amendment, shall have been fulfilled. The Borrowers shall
promptly provide the Agent with copies of the fully executed Receivables
Financing Agreement and all other documents pertaining to the Program to
which any of the Borrowers or the Trust are parties.
7. Reservation of Rights. The Borrowers acknowledge and
agree that the execution and delivery by the Agent and the Lenders of
this Fifth Amendment shall not be deemed (i) to create a course of
dealing or otherwise obligate the Agent or the Lenders to execute
similar agreements or provide other accommodations under the same or
similar circumstances in the future, or (ii) to waive, relinquish or
impair any right of the Agent or the Lenders to receive any indemnity or
similar payment from any Person.
8. Miscellaneous.
7 <PAGE>
<PAGE>
(a) Except as herein expressly amended, all terms,
covenants and provisions of the Prior Credit Agreement are and shall
remain in full force and effect and all references therein to the Credit
Agreement shall henceforth refer to the Prior Credit Agreement as
amended by this Fifth Amendment. This Fifth Amendment shall be deemed
incorporated into, and a part of, the Credit Agreement.
(b) This Fifth Amendment shall be binding upon and inure
to the benefit of the parties hereto and thereto and their respective
successors and assigns. No third party beneficiaries are intended in
connection with this Fifth Amendment.
(c) This Fifth Amendment shall be governed by and
construed in accordance with the law of the State of California.
(d) This Fifth Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
(e) This Fifth Amendment, together with the Prior Credit
Agreement, contains the entire and exclusive agreement of the parties
hereto with reference to the matter discussed herein and therein. This
Fifth Amendment supersedes all prior drafts and communications with
respect thereto. This Fifth Amendment may not be amended except in
accordance with the provisions of Section 9.01 of the Prior Credit
Agreement.
(f) If any term or provision of this Fifth Amendment shall
be deemed prohibited by or invalid under any applicable law, such
provision shall be invalidated without affecting the remaining
provisions of this Fifth Amendment or the Prior Credit Agreement,
respectively.
(g) The Borrowers agree to pay to or reimburse the Agent,
upon demand, for all reasonable Attorney Costs and expenses incurred in
connection with the development, preparation, negotiation, execution and
delivery of this Fifth Amendment.
8 <PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Fifth Amendment as of the date first above written.
THE BORROWERS:
STORAGE TECHNOLOGY CORPORATION
By: /s/ Mark D. McGregor
--------------------------------------------
Name: Mark. D. McGregor
Title: Assistant Treasurer
STORAGE TECHNOLOGY DE PUERTO RICO, INC.
By: /s/ Mark D. McGregor
--------------------------------------------
Name: Mark D. McGregor
Title: Assistant Treasurer
XL/DATACOMP, INC.
By: /s/ Mark D. McGregor
--------------------------------------------
Name: Mark D. McGregor
Title: Assistant Treasurer
STORAGETEK FINANCIAL SERVICES CORPORATION
By: /s/ Robert J. Kali
--------------------------------------------
Name: Robert J. Kali
Title: Vice President and Chief
Operating Officer
9 <PAGE>
<PAGE>
THE AGENT:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Shannon Collins
--------------------------------------------
Name: Shannon Collins
Title: Vice President
THE SWING LINE BANK:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Swing
Line Bank
By: /s/ Kevin McMahon
-------------------------------------------
Name: Kevin McMahon
Title: Vice President
THE ISSUING BANK:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Issuing
Bank
By: /s/ Kevin McMahon
--------------------------------------------
Name: Kevin McMahon
Title: Vice President
THE LENDERS:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Kevin McMahon
--------------------------------------------
Name: Kevin McMahon
Title: Vice President
10 <PAGE>
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Oscar Jazdowski
--------------------------------------------
Name: Oscar Jazdowski
Title: Managing Director
BANK OF MONTREAL
By: /s/ David A. Brown
--------------------------------------------
Name: David A. Brown
Title: Director
NBD BANK, N.A.
By: /s/ James Gregory Mickens
--------------------------------------------
Name: James Gregory Mickens
Title: Vice President
CONTINENTAL BANK N.A.
By: /s/ Elizabeth M. Nolan
--------------------------------------------
Name: Elizabeth M. Nolan
Title: Vice President
FIRST INTERSTATE BANK OF DENVER
By: /s/ Alex J. McCombs
--------------------------------------------
Name: Alex J. McCombs
Title: Vice President
11 <PAGE>
<PAGE>
BANQUE NATIONALE DE PARIS
By: /s/ C. Battles
--------------------------------------------
Name: C. Battles
Title: Vice President
By: /s/ Deborah Gohh
--------------------------------------------
Name: Deborah Gohh
Title: Vice President
12 <PAGE>
EXHIBIT 11
<TABLE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
<CAPTION>
Quarter Ended Six Months Ended
---------------------- ----------------------
07/01/94 06/25/93 07/01/94 06/25/93
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY (a)
Earnings (loss)
Income (loss) before cumulative
effect of accounting change $14,363 ($5,281) ($5,225) ($1,264)
Cumulative effect on prior years of change
in method of accounting for income taxes 40,000
---------- ---------- ---------- ----------
Net income (loss) 14,363 (5,281) (5,225) 38,736
Preferred stock dividend 3,019 3,018 6,038 3,767
---------- ---------- ---------- ----------
Income (loss) applicable to common shares $11,344 ($8,299) ($11,263) $34,969
========== ========== ========== ==========
Shares
Weighted average common shares outstanding 43,680 42,738 43,417 42,665
Dilutive effect of outstanding options
and warrants (as determined under
the treasury stock method) 649 778
---------- ---------- ---------- ----------
Weighted average common shares
and equivalents 44,329 42,738 43,417 43,443
========== ========== ========== ==========
Earnings (loss) per common share
Income (loss) before cumulative
effect of accounting change $0.26 ($0.19) ($0.26) ($0.12)
Cumulative effect on prior years of change
in method of accounting for income taxes 0.92
---------- ---------- ---------- ----------
$0.26 ($0.19) ($0.26) $0.80
========== ========== ========== ==========
Quarter Ended Six Months Ended
---------------------- ----------------------
07/01/94 06/25/93 07/01/94 06/25/93
---------- ---------- ---------- ----------
FULLY DILUTED (b)
Earnings (loss)
Income (loss) before cumulative
effect of accounting change $14,363 ($5,281) ($5,225) ($1,264)
Adjustment for interest and amortization
of debt issue costs on 8% Convertible
Debentures, net of estimated tax effects 2,568 2,578 5,137 5,157
---------- ---------- ---------- ----------
Income (loss) before cumulative effect
of accounting change, as adjusted 16,931 (2,703) (88) 3,893
Cumulative effect on prior years of change
in method of accounting for income taxes 40,000
---------- ---------- ---------- ----------
Net income (loss), as adjusted $16,931 ($2,703) ($88) $43,893
========== ========== ========== ==========
Shares
Weighted average common shares outstanding 43,680 42,738 43,417 42,665
Dilutive effect of outstanding options
and warrants (as determined under
the treasury stock method) 815 1,014 920 1,027
Adjustment for shares issuable upon assumed
conversion of $3.50 Convertible
Exchangeable Preferred Stock 7,340 7,340 7,340 4,598
Adjustment for shares issuable upon assumed
conversion of 8% Convertible Debentures 4,132 4,132 4,132 4,132
---------- ---------- ---------- ----------
Weighted average common shares
and equivalents, as adjusted 55,967 55,224 55,809 52,422
========== ========== ========== ==========
Earnings (loss) per common share
Income (loss) before cumulative
effect of accounting change $0.30 ($0.05) $0.00 $0.07
Cumulative effect on prior years of change
in method of accounting for income taxes 0.77
---------- ---------- ---------- ----------
$0.30 ($0.05) $0.00 $0.84
========== ========== ========== ==========
(a) These figures agree with the related amounts in the Consolidated Statement of Operations.
(b) This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11) although it is
contary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result.
</TABLE>
