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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950123-01-509621.txt : 20020413
<SEC-HEADER>0000950123-01-509621.hdr.sgml : 20020413
ACCESSION NUMBER: 0000950123-01-509621
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011228
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: GARTNER INC
CENTRAL INDEX KEY: 0000749251
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741]
IRS NUMBER: 043099750
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-14443
FILM NUMBER: 1824529
BUSINESS ADDRESS:
STREET 1: 56 TOP GALLANT RD
STREET 2: P O BOX 10212
CITY: STAMFORD
STATE: CT
ZIP: 06904-2212
BUSINESS PHONE: 2039640096
MAIL ADDRESS:
STREET 1: 56 TOP GALLANT RD
STREET 2: P O BOX 10212
CITY: STAMFORD
STATE: CT
ZIP: 06904-2212
FORMER COMPANY:
FORMER CONFORMED NAME: GARTNER GROUP INC
DATE OF NAME CHANGE: 19930823
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>y56014e10-k.txt
<DESCRIPTION>GARTNER INC.
<TEXT>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<Table>
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
</Table>
COMMISSION FILE NUMBER 0-14443
GARTNER, INC.
(Exact name of Registrant as specified in its charter)
<Table>
<S> <C>
DELAWARE 04-3099750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. BOX 10212 06904-2212
56 TOP GALLANT ROAD (Zip Code)
STAMFORD, CT
(Address of principal executive offices)
</Table>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(203) 316-1111
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>
TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------- -----------------------------------------
<S> <C>
Common Stock, Class A, $.0005 Par Value New York Stock Exchange
Common Stock, Class B, $.0005 Par Value New York Stock Exchange
</Table>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE.
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by persons other than
those who may be deemed affiliates of the Registrant, as of November 30, 2001,
was approximately $768.0 million. This calculation does not reflect a
determination that persons are affiliates for any other purposes.
The number of shares outstanding of the registrant's capital stock as of
November 30, 2001 was 51,196,453 shares of Common Stock, Class A and 32,547,828
shares of Common Stock, Class B.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the 2002 Annual Meeting of
Stockholders of the Registrant currently scheduled to be held on March 6, 2002
are incorporated by reference into Part III of this Report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GARTNER, INC.
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<Table>
<Caption>
<S> <C> <C>
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 4
Item 3. Legal Proceedings........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......... 4
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder matters......................................... 4
Item 6. Selected Consolidated Financial Data........................ 5
Item 7. Management's Discussion and Analysis of Results of
Operations.................................................. 8
Item 7a. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 21
Item 8. Consolidated Financial Statements and Supplemental Data..... 22
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure........................................ 22
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 22
Item 11. Executive Compensation...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 23
Item 13. Certain Relationships and Related Transactions.............. 23
PART IV
Item 14. Exhibits, Consolidated Financial Schedules and Reports on
Form 8-K.................................................... 23
Report by Management.................................................. F-2
Independent Auditors' Report.......................................... F-3
Consolidated Balance Sheets........................................... F-4
Statements of Operations.............................................. F-5
Statements of Changes in Stockholders' Equity (Deficit)............... F-6
Statements of Cash Flows.............................................. F-8
Notes to Consolidated Financial Statements............................ F-9
Independent Auditors' Report on Consolidated Financial Statement S-1
Schedule............................................................
Schedule II -- Valuation and Qualifying Accounts...................... S-2
</Table>
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Gartner, Inc., founded in 1979, is the world's leading independent provider
of research and analysis on the computer hardware, software, communications and
related information technology ("IT") industries. We currently provide
comprehensive coverage of the IT industry to approximately 10,000 client
organizations. The Company is organized into three business segments: research,
consulting and events.
- Research. Gartner's research products and services highlight industry
developments, review new products and technologies, provide quantitative
market research, and analyze industry trends within a particular
technology or market sector. The Company typically enters into annually
renewable subscription contracts for research products. Gartner
distributes its research products through a number of electronic delivery
formats, CD ROM and print media.
- Consulting consists primarily of consulting, measurement engagements and
strategic advisory services (paid one-day analyst engagements), which
provide comprehensive assessments of cost performance, efficiency and
quality for all areas of IT.
- Events consists of various focused symposia, conferences and exhibitions.
Gartner's primary clients are senior business executives, IT
professionals, purchasers and vendors of IT products and services.
MARKET OVERVIEW
In the dynamic IT marketplace, vendors continually introduce new products
with a wide variety of standards and ever-shorter life cycles. The users of
technology -- almost all organizations -- must not only stay abreast of these
new developments, but also make major financial commitments to new IT systems
and products in a short time. To purchase and plan effectively, they need
independent, third-party research and consultative services.
While the pace of IT investments is expected to slow significantly in 2002,
companies are still spending more on IT than they were two years ago. Those
investments are expected to account for more than half of all capital spending
and 6% of GDP in the United States in 2002. The intense scrutiny on technology
spending ensures that Gartner's products and services remain essential in the
current economy, for while the nature of client decision-making is changing, the
need for value-added, independent and objective research and analysis of the IT
market has not.
PRODUCTS AND SERVICES
The Company's principal products and services are Research, Consulting and
Events.
- Research. Gartner devotes an experienced research team to every
significant IT product category. Our staff researches and prepares
published reports and responds to telephone and e-mail inquiries from
clients. Clients receive our information through a number of electronic
delivery formats -- including gartner.com -- as well as CD-ROM and print
media. Most clients purchase annually renewable subscription contracts
for research products. Among these products: highlights of industry
developments and trends, new product and technology evaluations,
quantitative market research, and comparative analysis of IT operations
of organizations. Gartner Research also provides clients with information
such as IT trends and vendor strategies, statistical analysis, growth
projections, and market share rankings of suppliers and vendors. This
information is useful to IT manufacturers and the financial community; it
also helps business leaders formulate, implement and execute growth
strategies. By using Gartner research, IT buyers, technology users,
vendors and business executives are able to make decisions faster and
with greater confidence. Our research products and services include our
core research business, Dataquest, Gartner Executive Programs and
GartnerG2.
2
<PAGE>
- Consulting. Consulting consists primarily of consulting and measurement
engagements and strategic advisory services. Gartner's consulting
provides customized project consulting on the delivery, deployment and
management of high-tech products and services. We offer consulting
through seven specialized practices: Enterprise Solutions, IT Strategy &
Management, Architecture & Technology, Human Capital Management,
Strategic Sourcing, Market & Business Strategies, and General Advisory
Services. Our Measurement services provide performance management,
benchmarking, continuous improvement and best practices services.
- Events. Events include symposia, conferences and exhibitions that
provide comprehensive coverage of IT issues and forecasts of key IT
industry segments. The conference season begins each year with Symposia
and ITxpo, Gartner's flagship event held in Orlando, Florida; Cannes,
France; Tokyo, Japan and Sydney, Australia. Throughout the year, the
Company sponsors other conferences, seminars and briefings worldwide.
Attendees at the majority of Gartner events pay in advance of the event.
Events revenues are deferred and recognized upon the completion of the
related symposium, conference or exhibition.
See Note 17 of the Notes to Consolidated Financial Statements for a summary of
the Company's operating segments and geographic information.
COMPETITION
We believe that the principal competitive factors that differentiate
Gartner are:
- high quality, independence and objectivity of our research and analysis;
- multi-faceted expertise in all industries and technologies, both legacy
and emerging;
- our position as the only research company with broad consulting
capabilities, and the only consulting firm with research;
- timely delivery of information;
- the ability to offer products that meet changing market needs and prices;
and
- superior customer service.
We believe we compete favorably with respect to each of these factors.
The Company faces competition from a significant number of independent
providers of information products and services, as well as the internal
marketing and planning organizations of our clients. We also compete indirectly
against consulting firms and other information providers, including electronic
and print media companies. These indirect competitors could choose to compete
directly with Gartner in the future. In addition, limited barriers to entry
exist in the markets in which we compete. As a result, additional new
competitors may emerge and existing competitors may start to provide additional
or complementary services. Increased competition may result in loss of market
share, diminished value in Gartner's products and services, reduced pricing and
increased sales and marketing expenditures. The Company may not be successful if
it cannot continue to compete effectively on any of its principal competitive
factors.
EMPLOYEES
As of September 30, 2001, the Company had 4,281 employees, of which 825
employees are located at the Company's headquarters in Stamford, CT; 1,955 are
located at other domestic facilities; and 1,501 are located outside of the
United States. None of the Company's employees are represented by a collective
bargaining arrangement. The Company has experienced no work stoppages and
considers its relations with employees to be favorable.
3
<PAGE>
ITEM 2. PROPERTIES
The Company's headquarters are located in approximately 244,000 square feet
of leased office space in five buildings located in Stamford, CT. These
facilities accommodate research and analysis, marketing, sales, client support,
production and corporate administration. The leases on these facilities expire
in 2010. The Company has a significant presence in the United Kingdom with
approximately 89,000 square feet of leased office space in two buildings located
in Egham, UK. The Company also leases office space in 50 domestic and 43
international locations to support its research and analysis, domestic and
international sales efforts and other functions. The Company believes its
existing facilities and expansion options are adequate for its current needs and
that additional facilities, if needed, are available for lease to meet future
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings and litigation arising in the
ordinary course of business. The Company believes the outcome of all current
proceedings, claims and litigation will not have a material effect on the
Company's financial position or results of operations when resolved in a future
period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders during the
fourth quarter of the fiscal year covered by this Annual Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of November 30, 2001, there were approximately 220 holders of record of
the Company's Class A Common Stock and approximately 3,964 holders of record of
the Company's Class B Common Stock. Since September 15, 1998, the Company's
Class A Common Stock has been listed for trading on the New York Stock Exchange
under the symbol "IT". Prior to September 15, 1998, the Class A Common Stock was
listed on the NASDAQ National Market. Since July 20, 1999, the Company's Class B
Common Stock has been listed for trading on the New York Stock Exchange under
the symbol "IT/B". The Class B Common Stock is identical in all respects to the
Class A Common Stock, except that the Class B Common Stock is entitled to elect
at least 80% of the members of the Company's Board of Directors. In connection
with the Company's recapitalization in July 1999, the Company declared a
special, non-recurring cash dividend of $1.1945 per share, payable to all
Company stockholders of record as of July 16, 1999. The cash dividend, totaling
approximately $125.0 million, was paid on July 22, 1999 and was funded out of
existing cash. While subject to periodic review, the current policy of the
Company's Board of Directors is to retain all earnings primarily to provide
funds for the continued growth of the Company.
The following table sets forth the high and low sales prices for the Class
A Common Stock and Class B Common Stock as reported on the New York Stock
Exchange for the periods indicated.
CLASS A COMMON STOCK
<Table>
<Caption>
FISCAL YEAR 2001 FISCAL YEAR 2000
---------------- -----------------
HIGH LOW HIGH LOW
------- ------ ------- -------
<S> <C> <C> <C> <C>
First Quarter ended December 31............................. $12.38 $5.66 $19.00 $ 9.56
Second Quarter ended March 31............................... $ 9.16 $6.01 $22.25 $12.63
Third Quarter ended June 30................................. $11.00 $5.80 $17.00 $11.38
Fourth Quarter ended September 30........................... $11.17 $8.40 $15.25 $11.63
</Table>
4
<PAGE>
CLASS B COMMON STOCK
<Table>
<Caption>
FISCAL YEAR 2001 FISCAL YEAR 2000
---------------- -----------------
HIGH LOW HIGH LOW
------- ------ ------- -------
<S> <C> <C> <C> <C>
First Quarter ended December 31............................. $10.94 $4.95 $18.75 $ 9.38
Second Quarter ended March 31............................... $ 8.45 $5.81 $17.63 $10.00
Third Quarter ended June 30................................. $ 9.81 $5.50 $13.25 $ 9.19
Fourth Quarter ended September 30........................... $10.60 $8.05 $13.06 $ 9.75
</Table>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<Table>
<Caption>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Research.............................. $535,114 $509,781 $479,045 $433,141 $349,600
Consulting............................ 265,450 208,810 149,840 110,955 84,631
Events................................ 132,684 108,589 75,581 49,121 34,256
Other................................. 18,794 27,414 29,768 48,740 42,752
-------- -------- -------- -------- --------
Total revenues..................... 952,042 854,594 734,234 641,957 511,239
Total costs and expenses................ 909,528 770,463 600,866 496,227 393,047
-------- -------- -------- -------- --------
Operating income........................ 42,514 84,131 133,368 145,730 118,192
Net gain (loss) on sale of
investments........................... (640) 29,630 -- (1,973) --
Net loss from minority-owned
investments........................... (26,817) (775) (846) (511) (202)
Interest income......................... 1,616 3,936 9,518 9,650 7,260
Interest expense........................ (22,391) (24,900) (1,272) (94) --
Other expense, net...................... (3,674) (722) (1,521) (1,681) (1,377)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes................... (9,392) 91,300 139,247 151,121 123,873
Provision (benefit) for income taxes.... (9,172) 36,447 50,976 62,774 50,743
-------- -------- -------- -------- --------
Income (loss) from continuing
operations............................ (220) 54,853 88,271 88,347 73,130
Loss from discontinued operation, net of
taxes................................. (65,983) (27,578) -- -- --
Extraordinary loss on debt
extinguishment, net of taxes.......... -- (1,729) -- -- --
-------- -------- -------- -------- --------
Net income (loss)....................... $(66,203) $ 25,546 $ 88,271 $ 88,347 $ 73,130
======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic................................. 85,862 86,564 101,881 100,194 94,742
Diluted............................... 85,862 89,108 104,603 105,669 102,751
</Table>
5
<PAGE>
<Table>
<Caption>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) PER COMMON SHARE:
Basic:
Income (loss) from continuing
operations......................... $ (0.00) $ 0.63 $ 0.87 $ 0.88 $ 0.77
Loss from discontinued operation...... (0.77) (0.31) -- -- --
Extraordinary loss.................... -- (0.02) -- -- --
-------- -------- -------- -------- --------
Net income (loss)..................... $ (0.77) $ 0.30 $ 0.87 $ 0.88 $ 0.77
======== ======== ======== ======== ========
Diluted:
Income (loss) from continuing
operations......................... $ (0.00) $ 0.62 $ 0.84 $ 0.84 $ 0.71
Loss from discontinued operation...... (0.77) (0.31) -- -- --
Extraordinary loss.................... -- (0.02) -- -- --
-------- -------- -------- -------- --------
Net income (loss)..................... $ (0.77) $ 0.29 $ 0.84 $ 0.84 $ 0.71
======== ======== ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, marketable
equity securities..................... $ 40,378 $ 97,102 $ 88,894 $218,684 $171,054
Fees receivable, net.................... 300,306 323,849 282,047 239,243 205,760
Other current assets.................... 108,137 157,823 61,243 53,152 48,794
-------- -------- -------- -------- --------
Total current assets............... 448,821 578,774 432,184 511,079 425,608
Property, equipment, and leasehold
improvements, net..................... 100,288 88,402 63,592 50,801 44,102
Intangibles and other assets............ 289,893 305,185 307,668 270,991 175,602
-------- -------- -------- -------- --------
Total assets....................... $839,002 $972,361 $803,444 $832,871 $645,312
======== ======== ======== ======== ========
Deferred revenues....................... $351,263 $384,966 $354,517 $288,013 $254,071
Other current liabilities............... 176,251 191,465 117,363 126,822 118,112
-------- -------- -------- -------- --------
Total current liabilities.......... 527,514 576,431 471,880 414,835 372,183
Long-term debt.......................... 326,200 307,254 250,000 -- --
Other liabilities....................... 19,806 13,856 7,078 3,098 3,259
Stockholders' equity (deficit).......... (34,518) 74,820 74,486 414,938 269,870
-------- -------- -------- -------- --------
Total liabilities and stockholders'
equity (deficit)...................... $839,002 $972,361 $803,444 $832,871 $645,312
======== ======== ======== ======== ========
</Table>
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of
1934, as amended. Forward-looking statements are any statements other than
statements of historical fact, including statements regarding the Company's
expectations, beliefs, hopes, intentions or strategies regarding the future. In
some cases, forward-looking statements can be identified by the use of words
such as "may," "will," "expects," "should," "believes," "plans," "anticipates,"
"estimates," "predicts," "potential," "continue," or other words of similar
meaning. Forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those discussed in, or
implied by, the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Factors That May
Affect Future Results" below. Readers should not place undue reliance on these
forward-looking statements, which reflect management's opinion only as of the
date on which they were made. Except as required by law, the Company disclaims
any obligation to review or update these forward-looking statements to reflect
events or circumstances as they occur. Readers should also carefully review any
risk factors described in Company Reports filed with the Securities and Exchange
Commission.
BUSINESS STRATEGY
Gartner is a research and advisory firm that helps business and IT
professionals use technology to build, guide and grow their enterprises. The
Company employs a diversified business model leveraging our unparalleled breadth
and depth of research intellectual capital to maintain and enhance our
market-leading position and brand franchise.
The Company's primary objective is consistent revenue growth with higher,
more predictable profit through moderated investment. We are focused on:
- improving the profitability and free cash flow of our three core business
segments;
- maintaining our position as the market leader among research and advisory
firms; and
- growing our business relationships with our most valuable clients.
Profitability & Cash Flow. The Company has a number of strategies for
improving operating margins and increasing free cash flow, including:
- rigorous analysis and assessment of our client, product and market
portfolio;
- reducing selling, general and administrative expenses as a percentage of
revenue by (1) leveraging the Company's global infrastructure to tightly
control worldwide costs, (2) maximizing our inside sales model (which has
a lower cost of selling), and (3) focusing client growth on our most
valuable clients;
- enhancing analyst productivity and consultant utilization;
- managing capital expenditures and foreign exchange exposure;
- tax planning; and
- selectively investing in new initiatives aligned with core competencies
and capable of driving near-term returns.
Market Leadership. Gartner is by far the leading provider of proprietary
research and analysis of the IT industry and the world's pre-eminent source of
insight about technology purchasing and deployment. The Company's global network
of professionals is an unrivalled "brain trust" of provocative thought
leadership. Gartner employs more analysts with more data points than any
competitor; these analysts advise over 1,000 executives each day across 80
countries. Hundreds of experienced Gartner consultants combine our objective,
independent research with a practical, sought-after business perspective focused
on the IT market. Gartner's
7
<PAGE>
events are the world's largest of their kind, gathering one of the most highly
qualified audiences of senior business executives, IT professionals, purchasers
and vendors of IT products and services.
Business Relationships. Gartner serves approximately 10,000 client
organizations and roughly half of the Fortune 1000. Our great strength is the
intimate understanding of our clients' industries and the technologies they
employ, and the expertise to redefine and transform their businesses. A key
strategy is to increase business volume with our most valuable clients,
identifying relationships with the greatest sales potential and expanding those
relationships where possible by offering strategically relevant research and
analysis. Our diversified business model provides multiple entry points and
synergies that facilitate increased client spending on Gartner research,
consulting and events. Specific growth opportunities in fiscal 2002 include
GartnerG2, a new research service designed specifically for business executives,
and Gartner Executive Programs ("Gartner EXP"), concierge-quality service and
personalized programs for senior IT executives.
BUSINESS MEASURES
Research encompasses products which, on an ongoing basis, highlight
industry developments, review new products and technologies, provide
quantitative market research, analyze industry trends within a particular
technology or market sector and provide comparative analysis of the IT
operations of organizations. The Company typically enters into annually
renewable subscription contracts for research products. Revenues from research
products are deferred and recognized ratably over the contract term. Consulting
revenues, primarily derived from consulting and measurement engagements and
strategic advisory services are recognized as work is performed on a contract by
contract basis. Events revenues are deferred and recognized upon the completion
of the related symposium, conference or exhibition. Other revenues includes
software licensing fees which are recognized when a signed non-cancellable
software license exists, delivery has occurred, collection is probable, and the
Company's fees are fixed or determinable. Revenue from software maintenance is
deferred and recognized ratably over the term of each maintenance agreement,
typically twelve months.
The Company believes the following business measurements are important
indicators of future revenues for its significant business segments.
<Table>
<Caption>
REVENUE CATEGORY BUSINESS MEASUREMENTS
- ---------------- ---------------------
<S> <C>
Research...................... Contract value attributable to all subscription research
products with ratable revenue recognition. Contract value is
calculated as the annualized value of all subscription
research contracts in effect at a given point in time,
without regard to the duration of the contracts.
Consulting.................... Consulting backlog represents future revenue to be derived
from in-process consulting, measurement and strategic
advisory services engagements.
Events........................ Deferred events revenue directly relates to symposia,
conferences and exhibitions.
</Table>
Contract value is a significant measure of the Company's volume of
business. The Company's past experience has been that a substantial portion of
client companies renew subscription products for an equal or higher level each
year. In addition, the Company has been able to increase its multi-year
contracts to 48% of total contract value at September 30, 2001 from 40% at
September 30, 2000. Total research contract value decreased 7% to approximately
$556.0 million at September 30, 2001 from $599.2 million at September 30, 2000.
The decrease was due primarily to less favorable economic conditions which have
led to constrained IT spending, the September 11th terrorist attacks, which
occurred three weeks before the Company's fiscal year end and the impact of
foreign currency adjustments. After adjusting for foreign exchange, research
contract value was down 4%.
Total research deferred revenues of $263.5 million and $296.9 million at
September 30, 2001 and 2000, respectively, represent unamortized revenues from
billed products and services. Deferred revenues do not directly correlate to
contract value as of the same date since contract value represents an annualized
value of
8
<PAGE>
all outstanding contracts without regard to the duration of such contracts, and
deferred revenue represents unamortized revenue remaining on all outstanding and
billed contracts.
All research contracts are billable upon signing, absent special terms
granted on a limited basis from time to time. All research contracts are
non-cancelable and non-refundable, except for government contracts which have a
30-day cancellation clause, but have not produced material cancellations to
date. With the exception of certain government contracts which permit
termination, it is the Company's policy to record at the time of signing of a
contract the entire amount of the contract billable as a fee receivable, which
represents a legally enforceable claim, and a corresponding amount as deferred
revenue. For government contracts which permit termination, the Company bills
the client the full amount billable under the contract but only records a
receivable equal to the earned portion of the contract. In addition, the Company
only records deferred revenue on these contracts when cash is received. Deferred
revenues attributable to government contracts were $24.5 million and $33.8
million at September 30, 2001 and 2000, respectively. In addition, at September
30, 2001, the Company has billed but not yet collected $13.3 million of
government contracts which permit termination. Accordingly, the Company has not
recorded the receivable and associated deferred revenue for these contracts. The
Company records the commission obligation related to research contracts upon the
signing of the contract and amortizes the corresponding deferred commission
expense over the contract period in which the related revenues are earned.
Consulting backlog increased 13% to approximately $119.0 million at
September 30, 2001 from $105.5 million at September 30, 2000. The increase in
backlog reflects primarily the growth in the strategic advisory services
engagements.
Deferred revenue from events decreased 2% to approximately $70.5 million at
September 30, 2001 from $72.2 million at September 30, 2000. The decrease was
due primarily to less favorable economic conditions and the September 11th
attacks, including the related impacts on clients' willingness to travel.
Historically, research revenues typically increase in the first quarter of
the fiscal year over the immediately preceding quarter primarily due to the
increase in contract value at the end of the prior fiscal year. Events revenues
have increased similarly due to annual conferences and exhibition events held in
the first quarter. Additionally, operating income margin (operating income as a
percentage of total revenues) typically improves in the first quarter of the
fiscal year over the immediately preceding quarter due to the increase in
research revenue upon which the Company is able to further leverage its selling,
general and administrative expenses, plus operating income generated from the
first quarter Symposium and ITxpo exhibition events. Although operating income
margins have generally not been as high in the remaining quarters, the full year
impact of acquisitions and strategic initiatives may result in operating margin
trends in the future that are not comparable to historical trends.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 2001 VERSUS FISCAL YEAR ENDED SEPTEMBER 30,
2000
Total revenues increased 11% to $952.0 million in fiscal 2001 compared to
$854.6 million in fiscal 2000.
- Research revenue increased 5% in fiscal 2001 to $535.1 million compared
to $509.8 million in fiscal 2000 and comprised approximately 56% and 60%
of total revenues in fiscal 2001 and 2000, respectively.
- Consulting revenue increased 27% to $265.5 million in fiscal 2001
compared to $208.8 million in fiscal 2000 and comprised approximately 28%
and 24% of total revenues in fiscal 2001 and 2000, respectively.
- Events revenue was $132.7 million in fiscal 2001, an increase of 22% over
the $108.6 million in fiscal 2000 and comprised approximately 14% of
total revenues in fiscal 2001 versus 13% in fiscal 2000.
- Other revenues, consisting principally of software licensing and
maintenance fees, decreased 31% to $18.8 million in fiscal 2001 from
$27.4 million in fiscal 2000.
Although the growth rate in total revenues declined slightly in fiscal
2001, the increase in total revenues reflects the ability of the Company to gain
client acceptance of new products and services, deliver high value
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consultative services, increase sales penetration into new and existing clients
and develop incremental revenues from prior year acquisitions (see discussion of
segment results below).
Revenue has grown in the three defined geographic market areas of the
Company: United States and Canada, Europe, and Other International. Revenues
from sales to United States and Canadian clients increased 12% to $633.7 million
in fiscal 2001 from $563.6 million in fiscal 2000. Revenues from sales to
European clients increased 8% to $248.2 million in fiscal 2001 from $230.3
million in fiscal 2000. Revenues from sales to Other International clients
increased by 16% to $70.2 million in fiscal 2001 from $60.7 million in fiscal
2000.
The Company's sales strategy is to maintain its focus on large customers
and to expand sales of product and service offerings to different user bases
within existing and potential client companies. Key components of this strategy
are the focus on the Company's most valuable accounts to ensure that these
relationships are maintained and expanded, emphasis on GartnerG2, Gartner EXP
and seat retention and penetration amongst Fortune 1000 companies. The Company
continues to invest in direct sales personnel and distributor relationships in
Europe and other international markets and intends to pursue continued expansion
of operations outside of the United States in fiscal 2002.
Costs and expenses, excluding other charges, in fiscal 2001, increased to
$863.0 million from $770.5 million in fiscal 2000. The increase in costs and
expenses reflects the additional support required for the growing client base,
incremental costs associated with conferences, and strategic investments which
included the hiring of additional project executives and sales personnel in the
first half of fiscal 2001, and spending on sales productivity tools and
interactive initiatives. During fiscal 2001, the Company implemented certain
measures, including the workforce reduction in the second half of the year, to
reduce ongoing costs and expenses.
Cost of services and product development expenses were $439.6 million and
$387.7 million for fiscal 2001 and fiscal 2000, respectively. The costs of
services and product development expenses increased as a percentage of total
revenues to 46% from 45%. The increase is attributable to growth in personnel
costs associated with the development and delivery of products and services.
Selling, general and administrative expenses increased to $370.1 million in
fiscal 2001 from $341.9 million in fiscal 2000. The increase was due to
recruiting and facilities costs related to the growth in Company personnel as
well as increases in sales costs associated with revenue growth.
Depreciation expense increased to $40.9 million in fiscal 2001 from $27.8
million in fiscal 2000, primarily due to capital spending and internal use
software development costs required to support business growth, including the
launch of the new gartner.com web site in January 2001. Amortization of
intangibles of $12.4 million in fiscal 2001 was down from $13.0 million in
fiscal 2000.
During 2001, the Company recorded other charges of $46.6 million. Of these
charges, $24.8 million are associated with the Company's workforce reduction
announced in April 2001. This workforce reduction has resulted in the
elimination of 383 positions, or approximately 8% of the Company's workforce.
Approximately $14.3 million of the other charges are associated with the
write-down of goodwill and other long-lived assets to net realizable value as a
result of the Company's decision to discontinue certain unprofitable products,
and $7.5 million of the charge is associated primarily with the write-off of
internally developed systems in connection with the launch of gartner.com and
seat-based pricing. At September 30, 2001, $6.6 million of the termination
benefits relating to the workforce reduction remain to be paid, primarily in the
first quarter of fiscal 2002. The Company is funding these costs out of
operating cash flows.
Operating income decreased 49% to $42.5 million in fiscal 2001 compared to
$84.1 million in fiscal 2000. In fiscal 2001, the United States and Canada, and
Europe markets experienced declines in operating income of 49% and 21%,
respectively. Other International markets experienced an operating loss for the
year. These operating results were all impacted by the other charges recorded
during fiscal 2001. On a consolidated basis, operating income as a percentage of
total revenues was 4% and 10%, respectively, for fiscal 2001 and 2000. Operating
income was impacted, in part, by other charges and costs associated with the
re-architecture of the Company's Web capabilities and its research methodology
and delivery processes, and higher growth in lower margin consultative services.
Excluding the other charges, operating income for fiscal 2001 was 9.4% of total
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revenues. The Company decreased its staff by approximately 8% in the second half
of fiscal 2001 and, in the fourth quarter, decreased the expense to revenue
ratio on selling, general and administrative expense by 2.4 percentage points as
compared to the fourth quarter of last year. As a result of the Company's cost
reduction initiatives, operating margin improved from 7.9% for the first six
months of the fiscal year to 10.8% for the second half, all excluding other
charges.
Net loss on sale of investments in fiscal 2001 of $0.6 million includes the
sale of the Company's remaining 1,922,795 shares of Jupiter Media Metrix
("Jupiter") for net cash proceeds of $7.5 million for a pre-tax loss of $5.6
million, offset in part by the sale of shares received from the Company's
venture capital funds, SI Venture Associates ("SI I") and SI Venture Fund II
("SI II") for net cash proceeds of $6.0 million for a pre-tax gain of $4.9
million. Net gain on sale of investments in fiscal 2000 reflects the sale of
1,995,950 shares of Jupiter for net cash proceeds of $55.5 million for a pre-tax
gain of $42.9 million. This gain was partially offset by the sale of the
Company's 8% investment in NETg, Inc., a subsidiary of Harcourt, Inc., to an
affiliate of Harcourt, Inc. for $36.0 million in cash that resulted in a pre-tax
loss of approximately $6.6 million. The Company acquired this investment as
consideration for its sale of GartnerLearning in September 1998. In addition, in
fiscal 2000 the Company settled a claim arising from the sale of GartnerLearning
to NETg Inc. The claim asserted that the Company had breached its contractual
commitment under a joint venture to co-produce a product when the business was
sold. The claim was settled for approximately $6.7 million and has been recorded
as a loss on sale of investments.
Net loss from minority-owned investments in fiscal 2001 of $26.8 million
was primarily the result of impairment losses related to investments owned by
the Company through SI I, SI II and other directly owned investments for other
than temporary declines in value. These investments are comprised of early to
mid-stage IT-based or Internet-enabled companies. The Company made an assessment
of the carrying value of its investments and determined that certain investments
were in excess of their fair value due to the significance and duration of the
decline in valuation of comparable companies operating in the internet and
technology sectors (see Note 5 -- Investments in the Notes to Consolidated
Financial Statements). The impairment factors evaluated by management may change
in subsequent periods, given that the entities underlying these investments
operate in a volatile business environment. In addition, these entities may
require additional financing to meet their cash and operational needs, however,
there can be no assurance that such funds will be available to the extent
needed, at terms acceptable to the entities, if at all. This could result in
additional material non-cash impairment charges in the future.
Interest expense decreased to $22.4 million in fiscal 2001 from $24.9
million in fiscal 2000. The decrease related primarily to lower interest rates
and lower revolving credit borrowings compared to fiscal 2000. Interest income
of $1.6 million in fiscal 2001 was down from $3.9 million in fiscal 2000 due to
a lower average balance of funds available for investment and due to lower
interest rates. Other expense, net increased to $3.7 million in fiscal 2001 from
$0.7 million in fiscal 2000. The increase relates primarily to foreign currency
exchange losses.
Provision for income taxes on continuing operations was a benefit of $9.2
million in fiscal 2001 compared to a provision of $36.4 million in fiscal 2000.
The effective tax rate in 2001, less the impact of a one-time tax benefit of
$14.5 million due to the utilization of foreign tax credits in the second half
of the year and other charges and losses on investments and related tax impact,
was 37% compared to 40% for fiscal 2000. The decrease in the effective tax rate
from fiscal 2000 is due to on-going tax planning initiatives. A more detailed
analysis of the changes in the provision (benefit) for income taxes is provided
in Note 14 of the Notes to Consolidated Financial Statements.
Diluted income (loss) per common share from continuing operations decreased
to $0.00 per share in fiscal 2001 compared to $0.62 per share in fiscal 2000 and
$0.84 per share in fiscal 1999. Excluding the effect of other charges of $46.6
million, losses on investments of $27.5 million, net of tax benefits of $18.6
million, in the aggregate, on these items, and certain one-time tax benefits of
$14.5 million, diluted income per common share from continuing operations was
$0.47 per share in fiscal 2001. Excluding the effect of the net gain on
investments of $28.9 million, net of taxes of $11.6 million, diluted net income
per common share from continuing operations was $0.42 per share in fiscal 2000.
Excluding the effect of other charges related to the
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Company's recapitalization of $23.4 million, net of tax benefits of $6.0 million
on these items, plus a one-time tax benefit of $2.5 million, diluted income per
common share from continuing operations was $0.98 per common share in fiscal
1999. Basic income (loss) per common share from continuing operations was $0.00
per common share in fiscal 2001 compared to $0.63 per common share in fiscal
2000 and $0.87 per common share in fiscal 1999.
On July 2, 2001, the Company sold its subsidiary, TechRepublic, to CNET
Networks, Inc. ("CNET") for approximately $23.0 million in cash and common stock
of CNET, before reduction for certain termination benefits. The proceeds were
$14.3 million in cash and 755,058 shares of CNET common stock, which had a fair
market value of $12.21 per share on July 2, 2001. From July 2, 2001 through
September 30, 2001, the market value of the CNET shares had declined
substantially, accordingly the Company recorded a $3.9 million impairment charge
in net loss from minority-owned investments representing an other than temporary
decline in market value of the CNET common stock. The Consolidated Financial
Statements of the Company have been restated to reflect the disposition of the
TechRepublic segment as a discontinued operation in accordance with APB Opinion
No. 30. Accordingly, revenues, costs and expenses, assets, liabilities, and cash
flows of TechRepublic have been excluded from the respective captions in the
Consolidated Statements of Operations, Consolidated Balance Sheets and
Consolidated Statements of Cash Flows, and have been reported through the date
of disposition as "Loss from discontinued operation," "Net assets of
discontinued operation," and "Net cash used by discontinued operation," for all
periods presented. During 2001, the Company recorded a pre-tax loss of $66.4
million ($39.9 million after tax) to recognize the loss on the sale of
TechRepublic. This pre-tax loss includes a write-down of $42.4 million of
assets, primarily goodwill, to net realizable value, operating losses through
the date of sale of $6.5 million, severance and related benefits of $8.3
million, and other sale-related costs and expenses, including costs associated
with the closure of facilities, of $9.2 million.
Segment Analysis:
The Company evaluates reportable segment performance and allocates
resources based on gross contribution margin. Gross contribution is defined as
operating income excluding certain selling, general and administrative expenses,
depreciation, amortization of intangibles and other charges.
Research
Research revenues grew 5% to $535.1 million in fiscal 2001 as compared to
$509.8 million in the prior fiscal year. The increase was due primarily to
higher client retention in North America, the continued successful migration of
clients from legacy to seat-based pricing, the increased penetration of new
buying centers within existing clients and continued focus and growth of
GartnerG2 and Gartner EXP. The new pricing structure provides broader access to
research compared to the traditional individual research subscription. During
fiscal 2001, the Company launched GartnerG2, a new research service designed
specifically to help business executives grow their companies. The Company
expects that the gartner.com web site and launch of GartnerG2 will facilitate
continued penetration within the existing client base as well as the ability to
add new clients. Research gross contribution in fiscal 2001 increased to $352.6
million from $341.1 million in fiscal 2000. Gross contribution margin decreased
slightly to 66% in fiscal 2001 from 67% in fiscal 2000, primarily a result of
the investments in gartner.com and the launch of GartnerG2. Gross contribution
margin increased to 67% for the second half of fiscal 2001 from 64% for the
first half, due in large part to cost reduction measures instituted during the
year.
Consulting
Consulting revenues grew 27% to $265.5 million in fiscal 2001 as compared
to $208.8 million in the prior fiscal year. The increase was due primarily to an
increase in the number of projects, increased project size, and increases in
billing rates. Consulting gross contribution increased by 15% to $86.9 million
in fiscal 2001 from $75.7 million in fiscal 2000. Consulting gross contribution
margin of 33% in fiscal 2001 decreased from 36% in fiscal 2000 primarily due to
increases in compensation expense related to the hiring of additional personnel
in the first half of fiscal 2001, coupled by an increase in non-billable
services, such as training, participation in
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annual symposia events, and increased selling activity. Gross contribution
margin increased to 40% for the second half of fiscal 2001 from 23% for the
first half, due in large part to cost reduction measures instituted during the
year. The Company intends to reduce the rate of investment in consulting and
improve consultant productivity in an effort to improve profitability.
Events
Events revenues grew 22% to $132.7 million in fiscal 2001 as compared to
$108.6 million in the prior fiscal year. The increase was due to greater
attendance at existing and new events and increased sponsorships and exhibit
revenues. Events gross contribution increased by 26% to $63.6 million in fiscal
2001 from $50.6 million in fiscal 2000 with gross contribution margin of 48% in
2001 compared to 47% in fiscal 2000. The increase in gross contribution margin
was due to the ability of the Company to leverage existing events and an overall
increase in sponsorship and exhibitor sales.
FISCAL YEAR ENDED SEPTEMBER 30, 2000 VERSUS FISCAL YEAR ENDED SEPTEMBER 30,
1999
Total revenues increased 16% to $854.6 million in fiscal 2000 as compared
to $734.2 million in fiscal 1999.
- Research revenue increased 6% in fiscal 2000 to $509.8 million compared
to $479.0 million in fiscal 1999 and comprised approximately 60% and 65%
of total revenues in fiscal 2000 and 1999, respectively.
- Consulting revenue increased 39% to $208.8 million in fiscal 2000 as
compared to $149.8 million in fiscal 1999 and comprised approximately 24%
of total revenue in fiscal 2000 versus 20% in fiscal 1999.
- Events revenue was $108.6 million in fiscal 2000, an increase of 44% over
the $75.6 million in fiscal 1999.
- Other revenues, consisting principally of software licensing and
maintenance fees, experienced a slight decrease of $2.4 million to $27.4
million in fiscal 2000 from $29.8 million in fiscal 1999.
Revenue grew in the three defined geographic market areas of the Company:
United States and Canada, Europe, and Other International. Revenues from sales
to United States and Canadian clients increased 19% to $563.6 million in fiscal
2000 from $471.8 million in fiscal 1999. Revenues from sales to European clients
increased 9% to $230.3 million in fiscal 2000 from $212.1 million in fiscal
1999. Although European revenues increased in fiscal 2000, the rate of growth
was less than in fiscal 1999. This decrease in growth rate was attributable, in
part, to research revenues remaining relatively unchanged from fiscal 1999 as a
result of foreign exchange rates. On a constant dollar basis, revenues from
Europe would have increased 16% compared to fiscal 1999. Revenues from sales to
Other International clients increased by 21% to $60.7 million in fiscal 2000
from $50.3 million in fiscal 1999. This increase reflected primarily the general
recovery in the economic climate in the Asian markets in fiscal 2000 as compared
to fiscal 1999.
Costs and expenses, excluding other charges in fiscal 1999, increased to
$770.5 million in fiscal 2000 from $577.4 million in fiscal 1999. The increase
in costs and expenses reflected the additional support required for the growing
client base, incremental costs associated with conferences, costs associated
with acquired businesses and previously planned strategic investments which
included the hiring of additional consultants, analysts, project executives and
sales personnel, and spending on sales productivity tools and gartner.com
initiatives. Cost of services and product development expenses were $387.7
million and $293.6 million for fiscal 2000 and fiscal 1999, respectively. The
increase in costs of services and product development expenses, as a percentage
of total revenues to 45% from 40%, was primarily attributable to continuing
growth in personnel costs associated with the development and delivery of
products and services and the hiring of personnel in association with the
planned strategic investments. Costs and expenses in fiscal 2000 were also
impacted by the amounts earned by employees under the retention bonus program as
well as the performance-related variable compensation expense incurred in fiscal
2000. In contrast, costs and expenses in fiscal 1999 were favorably impacted
through the elimination of variable compensation costs linked to financial
performance.
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Selling, general and administrative expenses, increased to $341.9 million
in fiscal 2000 from $252.2 million in fiscal 1999 as a result of the Company's
continued expansion of worldwide distribution channels and additional general
and administrative resources needed to meet the expanding infrastructure
requirements of the growing revenue base and fiscal 2000 and fiscal 1999
acquisitions. These infrastructure requirements involved information systems
support, telecommunication, facilities, and human capital costs.
In fiscal 1999, the Company recorded pre-tax other charges totaling $9.2
million of legal and advisory fees related to the recapitalization (see Note
16 -- Recapitalization in the Notes to Consolidated Financial Statements) and
$14.2 million of costs, primarily severance related, incurred as part of
strategic reduction in workforce initiatives.
Depreciation expense increased to $27.8 million in fiscal 2000 from $21.6
million in fiscal 1999, primarily due to capital spending required to support
business growth. Additionally, amortization of intangibles increased by $3.0
million in fiscal 2000 as compared to fiscal 1999, reflecting primarily goodwill
associated with fiscal 2000 and 1999 acquisitions.
Operating income decreased 37% to $84.1 million in fiscal 2000 compared to
$133.4 million in fiscal 1999. In fiscal 2000, the United States and Canada,
Europe, and Other International markets experienced declines in operating income
of 13%, 64% and 71%, respectively. On a consolidated basis, operating income as
a percentage of total revenues was 10% and 18%, respectively, for fiscal 2000
and 1999. Operating income was impacted, in part, by expenditures related to
planned investments and the rearchitecture of the Company's Web capabilities and
the research methodology and delivery processes, the hiring of analysts and
consultants and higher growth in lower margin consultative services.
Net gain on sale of investments in fiscal 2000 reflects the sale of
1,995,950 shares of Jupiter Communications, Inc. (now known as Jupiter Media
Metrix) for net cash proceeds of $55.5 million for a pre-tax gain of $42.9
million. This gain was partially offset by the sale of the Company's 8%
investment in NETg, Inc., a subsidiary of Harcourt, Inc., to an affiliate of
Harcourt, Inc. for $36.0 million in cash that resulted in a pre-tax loss of
approximately $6.6 million. The Company had acquired this investment as
consideration for its sale of GartnerLearning in September 1998. In addition,
Gartner settled a claim arising from the sale of GartnerLearning to NETg Inc.
The claim asserted that the Company had breached its contractual commitment
under its joint venture arrangement to co-produce a product when the business
was sold. The claim was settled for approximately $6.7 million and has been
recorded as a loss on sale of investments. Interest expense increased to $24.9
million in fiscal 2000 from $1.3 million in fiscal 1999. This increase related
primarily to debt facility borrowings, of which the proceeds were used primarily
to fund the Company's recapitalization in the prior fiscal year. Interest income
and other decreased in fiscal 2000 which was due primarily to a lower average
balance of investable funds as compared to the prior fiscal year.
Provision for income taxes decreased by 29%, or $14.6 million, to $36.4
million in fiscal 2000 from $51.0 million in fiscal 1999. The effective tax rate
was 40% and 37% for fiscal 2000 and fiscal 1999, respectively. The increase in
the effective rate principally reflected the impact of non-deductible goodwill
related to acquisitions. A more detailed analysis of the changes in the
provision for income taxes is provided in Note 14 of the Notes to Consolidated
Financial Statements.
In fiscal 2000, the Company entered into a second amendment to its Credit
Agreement. Under this amendment, the Company agreed to refinance all existing
indebtedness and to repay in full and terminate the term loans drawn under the
existing Credit Agreement. In connection with the extinguishment of the term
loan, the Company wrote-off $2.9 million of deferred debt issuance costs in the
fourth quarter of fiscal 2000. The charge was recorded, net of tax benefit of
$1.2 million, as an extraordinary loss.
Segment Analysis:
The Company evaluates reportable segment performance and allocates
resources based on gross contribution margin. Gross contribution is defined as
operating income excluding certain selling, general and administrative expenses,
depreciation, amortization of intangibles and other charges.
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Research
Research revenues grew 6% to $509.8 million in fiscal 2000 as compared to
$479.0 million in the prior fiscal year due to increased sales penetration into
new and existing clients. Contributing to the growth in sales was the
introduction of a new pricing architecture launched in the third quarter of
fiscal 2000. This pricing plan provides broad access to Gartner research on
price per seat basis. Research gross contribution in fiscal 2000 increased
slightly to $341.1 million from $336.9 million in fiscal 1999. Gross
contribution margin decreased to 67% in fiscal 2000 from 70% in fiscal 1999 due
primarily to slower revenue growth and increases in compensation expenses
associated with headcount and annual merit increases.
Consulting
Consulting revenues grew 39% to $208.8 million in fiscal 2000 as compared
to $149.8 million in the prior fiscal year due primarily to an increase in
demand for IT consulting. Also contributing to the revenue growth was the full
year impact of prior year and current year acquisitions. Consulting gross
contribution increased by 35% to $75.7 million in fiscal 2000 from $55.9 million
in fiscal 1999. Consulting gross contribution margin of 36% in fiscal 2000
decreased from 37% in fiscal 1999 primarily due to the impact of integration
costs and lower margins associated with new strategic consulting practices and
recent consulting related acquisitions.
Events
Events revenues grew 44% to $108.6 million in fiscal 2000 as compared to
$75.6 million in the prior fiscal year due to a growth in attendance at existing
and new events and increased sponsorships and exhibit revenues. Events gross
contribution increased by 56% to $50.6 million in fiscal 2000 from $32.5 million
in fiscal 1999 with gross contribution margin increasing to 47% in 2000 from 43%
in fiscal 1999. The increase in Events gross contribution margin was due to the
ability of the Company to leverage existing event infrastructure, selected price
adjustments, and an overall increase in sponsorship and exhibitor sales.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities during fiscal 2001 was $73.5 million,
compared to $104.3 million in the prior fiscal year. The decrease was primarily
due to lower operating income which was impacted by termination payments
associated with the workforce reduction and to changes in balance sheet
accounts.
Cash used in investing activities totaled $44.6 million for fiscal 2001,
compared to $98.6 million used by investing activities in fiscal 2000. Cash used
in investing activities during fiscal 2001 and 2000 included $57.5 million and
$54.6 million, respectively, for additions to property, equipment and leasehold
improvements. The additions to property, equipment and leasehold improvements
were primarily the result of investments in gartner.com and other infrastructure
systems. This was partially offset by proceeds from the sale of marketable
securities and discontinued operations of $14.4 million and $10.5 million,
respectively. Cash used in investing activities during fiscal 2000 included
$115.2 million in cash used for acquisitions, primarily for the purchase of
TechRepublic, Inc. for $78.5 million, Computer Financial Consultants Limited for
$16.0 million and Rendall and Associates, Inc. for $12.0 million. This was
partially offset by proceeds from the sale of marketable securities and
investments of $55.5 million and $36.0 million, respectively.
Cash used in financing activities totaled $18.9 million in fiscal 2001,
compared to $1.0 million of cash provided by financing activities in fiscal
2000. The cash used in financing activities in fiscal 2001 resulted primarily
from the purchase of treasury stock of $37.9 (see discussion below under Stock
Repurchases). Net proceeds from borrowings under the Company's credit facility
of $15.0 million and $9.1 million in proceeds from the issuance of common stock
for the Employee Stock Purchase Plan and from the exercise of stock options
partially offset the cash used in financing activities. Fiscal 2000 included
$420.0 million in borrowings under a credit facility and issuance of the
convertible notes (see Note 10 -- Debt in the Notes to the Consolidated
Financial Statements) offset by repayments of $370.0 million of borrowings under
the credit facility. Additionally, the Company paid $49.9 million for the
repurchase of shares under the terms of the recapitalization plan, as well as
$8.2 million for the settlement of a forward purchase agreement on the
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Company's common stock (see discussion below under Stock Repurchases). Cash
provided by financing activities in fiscal 2000 also includes $13.1 million in
proceeds from the issuance of common stock upon the exercise of employee stock
options and from the Employee Stock Purchase Plan.
Total cash used by discontinued operations was $34.2 million in fiscal 2001
and $30.1 million in fiscal 2000.
Stock Repurchases
The Company completed the required open market purchases pursuant to the
recapitalization plan with the $5.4 million purchase, in fiscal 2001, of 662,363
shares of Class A Common Stock and 4,128 shares of Class B Common Stock. Shares
purchased in the open market since July 1999 under the plan totaled 5,166,691
shares.
On July 19, 2001, the Company's Board of Directors approved the repurchase
of up to $75.0 million of Class A and Class B Common Stock. Repurchases will be
made from time to time over the next two years, subject to the availability of
the stock, prevailing market conditions, the market price of the stock, and the
Company's financial performance. Repurchases will be funded from cash flow from
operations and possible borrowings under the Company's existing credit facility.
Repurchases will be made proportionately between shares of the two classes of
common stock. As a part of the repurchase program, on August 29, 2001, the
Company purchased 1,867,149 shares of its Class A Common Stock at $9.88 per
share from IMS Health, Inc. During the fourth quarter of fiscal 2001, the
Company purchased an additional 451,000 shares of Class A Common Stock and 7,960
shares of Class B Common Stock in the open market, at an average price of $9.42
per share. These purchases, taken together, were at a cost of $22.9 million.
In addition, during fiscal 2001, the Company also purchased 1,164,154
shares of its Class A Common Stock through an early termination of its forward
purchase agreement at a cost of $9.7 million.
In fiscal 2000, the Company paid $49.9 million for the repurchase of
2,493,500 shares of Class A Common Stock and 2,006,700 shares of Class B Common
Stock under the terms of the recapitalization plan.
At September 30, 2001, cash and cash equivalents totaled $37.1 million. The
effect of exchange rates reduced cash and cash equivalents by $0.4 million for
the year ended September 30, 2001, and was due to the strengthening of the U.S.
dollar against certain foreign currencies. In fiscal 2000, the effect of
exchange rates reduced cash and cash equivalents by $3.8 million.
The Company has a $200.0 million unsecured senior revolving credit facility
with JPMorgan Chase Bank. At September 30, 2001, there was $15.0 million
outstanding under the facility. The Company is subject to certain customary
affirmative, negative and financial covenants under this credit facility, and
continued compliance with these covenants could preclude the Company from
borrowing the maximum amount of the credit facilities. As a result of these
covenants, the Company's borrowing availability at September 30, 2001 was $123.7
million. The Company also issues letters of credit in the ordinary course of
business. As of September 30, 2001, the Company had letters of credit
outstanding with JPMorgan Chase Bank for $0.8 million and with The Bank of New
York for $2.0 million.
The Company also has outstanding convertible notes in the principal amount
of $326.2 million as of September 30, 2001. These notes are due and payable on
April 17, 2005. On or after April 17, 2003, subject to satisfaction of certain
customary conditions, the Company may redeem all of the convertible notes for
cash provided that (1) the average closing price of the class A Common Stock for
the twenty consecutive trading days immediately preceding the date the
redemption notice is given equals or exceeds 150% of the adjusted conversion
price, and (2) the closing price of the Class A Common Stock on the trading day
immediately preceding the date the redemption notice is given also equals or
exceeds 150% of the adjusted conversion price of $7.45 per share. The redemption
price is the face amount of the notes plus all accrued interest. If the Company
initiates the redemption, Silver Lake has the option of receiving payment in
cash, stock, or a combination of cash and stock. Commencing on April 18, 2003,
Silver Lake may elect to convert all or a portion of the notes to stock. If
Silver Lake initiates the conversion, the Company has the option of redeeming
all such notes for cash at a price based on the number of shares into which the
notes would be converted and
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<PAGE>
the market price on the date the notice of conversion is given. On the maturity
date, April 17, 2005, the Company must satisfy any remaining notes for cash.
Letters of credit are issued by the Company in the ordinary course of
business. At September 30, 2001, the Company had outstanding letters of credit
with The Bank of New York for $2.0 million and with JPMorgan Chase Bank for $0.8
million.
The Company has a total remaining investment commitment to the SI II
venture capital fund of $7.4 million at September 30, 2001. This remaining
commitment is expected to be funded in fiscal 2002.
The Company believes that its current cash balances, together with cash
anticipated to be provided by operating activities, the sale of marketable
equity securities, and borrowings available under the existing credit facility,
will be sufficient for the expected short-term and foreseeable long-term cash
needs of the Company in the ordinary course of business. If the Company were to
require substantial amounts of additional capital to pursue business
opportunities that may arise involving substantial investments of additional
capital, there can be no assurances that such capital will be available to the
Company or will be available on commercially reasonable terms.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a very competitive and rapidly changing environment
that involves numerous risks and uncertainties, some of which are beyond the
Company's control. In addition, the Company and its clients are affected by the
condition of the general economy. The following section discusses many, but not
all, of these risks and uncertainties.
General Economic Conditions. The Company's revenues and results of
operations are influenced by general economic conditions. A general economic
downturn or a recession, anywhere in the world, could negatively effect demand
for the Company's products and services and may substantially reduce existing
and potential client information technology-related budgets. Such economic
downturn may materially and adversely affect the Company's business, financial
condition and results of operations including the ability to achieve continued
customer renewals and achieve new contract value, backlog and deferred events
revenue. The recent less favorable economic conditions and the September 11th
terrorist attacks, which occurred three weeks before fiscal year end, have led
to constrained IT spending and some unwillingness on the part of clients to
travel, thereby impacting the events business.
Competitive Environment. The Company faces competition from a significant
number of independent providers of information products and services, as well as
the internal marketing and planning organizations of the Company's clients. The
Company also competes indirectly against consulting firms and other information
providers, including electronic and print media companies. These indirect
competitors could choose to compete directly with the Company in the future. In
addition, limited barriers to entry exist in the markets in which the Company
competes. As a result, additional new competitors may emerge and existing
competitors may start to provide additional or complementary services. Although
the Company's market share has been increasing, increased competition may result
in loss of market share, diminished value in the Company's products and
services, reduced pricing and increased marketing expenditures. The Company may
not be successful if it cannot compete effectively on quality of research and
analysis, timely delivery of information, customer service, the ability to offer
products to meet changing market needs for information and analysis, and price.
Hiring and Retention of Employees. The Company's success depends heavily
upon the quality of its senior management, sales personnel, analysts,
consultants and other key personnel. The Company faces competition for these
qualified professionals from, among others, technology companies, market
research firms, consulting firms and electronic and print media companies. Some
of the personnel that the Company attempts to hire are subject to
non-competition agreements that could impede the Company's short-term
recruitment efforts. Any failure to retain key personnel or hire additional
qualified personnel, as required to support the evolving needs of clients or
growth in the Company's business, could adversely affect the quality of the
Company's products and services, and, therefore, its future business and
operating results.
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<PAGE>
Maintenance of Existing Products and Services. The Company operates in a
rapidly evolving market, and the Company's success depends upon its ability to
deliver high quality and timely research and analysis to its clients and to
anticipate and understand the changing needs of its clients. Any failure to
continue to provide credible and reliable information that is useful to its
clients could have a material adverse effect on future business and operating
results. Further, if the Company's predictions prove to be wrong or are not
substantiated by appropriate research, the Company's reputation may suffer and
demand for its products and services may decline.
Introduction of New Products and Services. The market for the Company's
products and services are characterized by rapidly changing needs for
information and analysis. To maintain its competitive position, the Company must
successfully continue to enhance and improve its products and services, develop
or acquire new products and services in a timely manner, and appropriately
position and price products and services. Any failure to successfully do so
could have a material adverse effect on the Company's business, results of
operations or financial position. In addition, the Company must continue to
improve its methods for delivering its products and services. Failure to
increase and improve the Company's Internet capabilities could adversely affect
the Company's future business and operating results. Technological advances may
provide increased competition from a variety of sources.
International Operations. A substantial portion of the Company's revenues
are derived from international sales. As a result, the Company's operating
results are subject to the risks inherent in international business activities,
including general political and economic conditions in each country, changes in
market demand as a result of exchange rate fluctuations and tariffs, challenges
in staffing and managing foreign operations, changes in regulatory requirements,
compliance with numerous foreign laws and regulations, different or overlapping
tax structures, higher levels of United States taxation on foreign income, and
the difficulty of enforcing client agreements and protecting intellectual
property rights in international jurisdictions. Additionally, the Company relies
on local distributors or sales agents in some international locations. If any of
these arrangements are terminated, the Company may not be able to replace the
arrangement on beneficial terms or on a timely basis or clients of the local
distributor or sales agent may not want to continue to do business with the
Company or its new agent.
Branding. The Company believes that its Gartner brand is critical to the
Company's efforts to attract and retain clients and that the importance of brand
recognition will increase as competition increases. The Company expects to
expand its marketing activities to promote and strengthen the Gartner brand and
may need to increase its marketing budget, hire additional marketing and public
relations personnel, expend additional sums to protect the brand and otherwise
increase expenditures to create and maintain brand loyalty among clients. If the
Company fails to effectively promote and maintain the Gartner brand, or incurs
excessive expenses in attempting to do so, the Company's future business and
operating results could be materially and adversely impacted.
Investment Activities. The Company maintains investments in equity
securities in private and publicly traded companies through direct ownership and
through wholly and partially owned venture capital funds. The companies invested
in are primarily early to mid-stage IT-based and Internet-enabled businesses.
The risks related to such investments, due to their nature and the volatile
public markets, include the possibilities that anticipated returns may not
materialize or could be significantly delayed. In addition, these entities may
require additional financing to meet their cash and operational needs, however,
there can be no assurance that such funds will be available to the extent
needed, at terms acceptable to the entities, if at all. As a result, the
Company's financial results could be materially impacted.
Indebtedness. The Company has incurred significant indebtedness. The
associated debt service could impair future operating results. Further, the
outstanding debt could limit the amount of cash or additional credit available
to the Company, which in turn, could restrain the Company's ability to expand or
enhance products and services, respond to competitive pressures or pursue
business opportunities that may arise in the future and involve substantial
investments of additional capital. Pursuant to the terms of the $300.0 million
convertible notes issued by the Company in April 2000 (see Note 10 -- Debt in
the Notes to Consolidated Financial Statements), the conversion price per share
is $7.45. As a result, the number of shares of Class A
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<PAGE>
Common Stock issuable upon conversion of the notes is 43.9 million shares of
Class A Common Stock at September 30, 2001. Although the Company has the right
to redeem the notes in certain circumstances, there can be no assurance that the
Company will be able to obtain sufficient capital on a commercially reasonable
basis, or at all, in order to fund any such redemption, which in turn, could
impact future business and operating results.
Organizational and Product Integration Related to Acquisitions. The
Company has made and may continue to make acquisitions of, or significant
investments in, businesses that offer complementary products and services. The
risks involved in each acquisition or investment include the possibility of
paying more than the value the Company derives from the acquisition, the
assumption of undisclosed liabilities and unknown and unforeseen risks, the
ability to integrate successfully the operations and personnel of the acquired
business, the ability to retain key personnel of the acquired company, the time
to train the sales force to market and sell the products of the acquired
company, the potential disruption of the Company's ongoing business and the
distraction of management from the Company's business.
Enforcement of the Company's Intellectual Rights. The Company relies on a
combination of copyright, patent, trademark, trade secrets, confidentiality and
contractual procedures to protect its intellectual property rights. Despite the
Company's efforts to protect its intellectual property rights, it may be
possible for unauthorized third parties to obtain and use technology or other
information that the Company regards as proprietary. In addition, the Company's
intellectual property rights may not survive a legal challenge to their validity
or provide significant protection for the Company. Furthermore, the laws of
certain countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. Accordingly, the Company may not be
able to protect its intellectual property against unauthorized third-party
copying or use, which could adversely affect the Company's competitive position.
Agreements with IMS Health Incorporated. In connection with its
recapitalization in July 1999, the Company agreed to certain restrictions on
business activity to reduce the risk to IMS Health, Inc. and its stockholders of
substantial tax liabilities associated with the spin-off by IMS Health, Inc. of
its equity interest in the Company. The Company also agreed to assume the risk
of such tax liabilities if the Company were to undertake certain business
activities that give rise to the liabilities. As a result, the Company may be
limited in its ability to undertake acquisitions involving the issuance of a
significant amount of stock unless the Company were to seek and obtain a ruling
from the IRS that the transaction will not give rise to such tax liabilities. In
addition, the Company has certain limits in purchasing its common stock under
the terms of the recapitalization.
Possibility of Infringement Claims. Third parties may assert infringement
claims against the Company. Regardless of the merits, responding to any such
claim could be time consuming, result in costly litigation and require the
Company to enter into royalty and licensing agreements which may not be offered
or available on terms acceptable to the Company. If a successful claim is made
against the Company and the Company fails to develop or license a substitute
technology, the Company's business, results of operations or financial position
could be materially adversely affected.
Potential Fluctuations in Operating Results. The Company's quarterly
operating income may fluctuate in the future as a result of a number of factors,
including the timing of the execution of research contracts, the performance of
consulting engagements, the timing of symposia and other events, the amount of
new business generated by the Company, the mix of domestic and international
business, changes in market demand for the Company's products and services, the
timing of the development, introductions and marketing of new products and
services, and competition in the industry. An inability to generate sufficient
earnings and cash flow, and achieve our forecasts, may impact operating
activities, the share repurchase program and other activities.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their sovereign currencies and
a new currency called the "euro" and adopted the euro as their common legal
currency. During 2001, a twelfth country joined and established a fixed
conversion rate between its sovereign currency and the euro. In 2002,
participating countries will adopt the euro as their
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<PAGE>
single currency. The participating countries will issue new euro-denominated
bills and coins for use in cash transactions. Legacy currency will no longer be
legal tender for any transactions beginning July 1, 2002, making conversion to
the euro complete. As of September 30, 2001, the Company does not believe that
the translation of financial transactions into euros has had, or will have, a
significant effect on the Company's results of operations, liquidity, or
financial condition. Additionally, the Company does not anticipate any material
impact from the euro conversion on the Company's financial information systems,
which currently accommodate multiple currencies. Costs associated with the
adoption of the euro have not been and are not expected to be significant and
are being expensed as incurred.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, Statement of Financial Accounting Standards No. 141,
"Business Combinations" ("FAS 141") and Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" ("FAS 142") were
issued. FAS 141 requires the purchase method of accounting to be used for all
business combinations initiated or completed after June 30, 2001. FAS 141 also
specifies criteria that intangible assets acquired must meet to be recognized
and reported separately from goodwill. The Company does not anticipate that
adoption of FAS 141 will have any material effect on the Company. FAS 142
requires that goodwill and intangible assets with indefinite lives no longer be
amortized but instead be measured for impairment at least annually, or when
events indicate that there may be an impairment. In connection with the FAS 142
transitional goodwill impairment evaluation, the Company is required to perform
an assessment of whether there is an indication that goodwill is impaired as of
the date of adoption. To accomplish this, the Company must identify its
reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company will then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the carrying amount of
the reporting unit. To the extent the carrying amount of a reporting unit
exceeds the fair value of the reporting unit, an indication exists that the
reporting unit goodwill may be impaired and the Company must perform the second
step of the transitional impairment test. In the second step, the Company must
compare the implied fair value of the reporting unit goodwill with the carrying
amount of the reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation, in accordance with Statement 141. The residual fair
value after this allocation is the implied fair value of the reporting unit
goodwill. This second step is required to be completed as soon as possible, but
no later than the end of the year of adoption. Any transitional impairment loss
will be recognized as the cumulative effect of a change in accounting principle
in the Company's statement of operations.
FAS 142 is effective for fiscal years beginning after December 15, 2001.
Early adoption is permitted for companies with fiscal years beginning after
March 15, 2001. The Company expects to adopt FAS 142 in the first quarter ended
December 31, 2001. Because of the extensive effort needed to comply with
adopting FAS 142, it is not practicable to reasonably estimate the impact on the
Company's financial statements, specifically whether it will be required to
recognize any transitional impairment losses as the cumulative effect of a
change in accounting principle. As of September 30, 2001, the Company had
unamortized goodwill of $216.8 million and unamortized identifiable intangible
assets of $5.4 million. Amortization expense related to goodwill and other
identifiable intangible assets was $9.1 million and $3.3 million, respectively,
for the fiscal year ended September 30, 2001.
In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("FAS 143") was issued. FAS 143
addresses financial accounting and reporting for legal obligations associated
with the retirement of tangible long-lived assets and the associated retirement
costs that result from the acquisition, construction, or development and normal
operation of a long-lived asset. Upon initial recognition of a liability for an
asset retirement obligation, FAS 143 requires an increase in the carrying amount
of the related long-lived asset. The asset retirement cost is subsequently
allocated to expense using a systematic and rational method over the assets
useful life. FAS 143 is effective for fiscal years beginning after
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June 15, 2002. The adoption of this statement is not expected to have a material
impact on the Company's financial position or results of operations.
In August 2001, Statement of Financial Standards No. 144, "Accounting for
the Impairment or Disposal of Long-lived Assets" ("FAS 144") was issued. FAS 144
supersedes Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-lived Assets to be Disposed of," and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently occurring Events and Transactions." FAS
144 also amends ARB ("Accounting Research Bulletins") No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. FAS 144 retains the
fundamental provisions of FAS 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while resolving significant implementation issues associated with FAS
121. Among other things, FAS 144 provides guidance on how long-lived assets used
as part of a group should be evaluated for impairment, establishes criteria for
when long-lived assets are held for sale, and prescribes the accounting for
long-lived assets that will be disposed of other than by sale. FAS 144 is
effective for fiscal years beginning after December 15, 2001. The Company is
currently evaluating the effect, if any, that adoption of FAS 144 will have on
the Company's financial position and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to borrowing under long-term debt which consists of a $200.0 million
unsecured senior revolving credit facility with JPMorgan Chase Bank and $326.2
million of 6% convertible subordinated notes (see Note 10 -- Debt in the Notes
to Consolidated Financial Statements). At September 30, 2001, there was $15.0
million outstanding under the revolving credit facility. Under the revolving
credit facility the interest rate on borrowings is based on LIBOR plus an
additional 100 to 200 basis points based on the Company's debt to EBITDA ratio.
The Company believes that an increase or decrease of 10% in the effective
interest rate on available borrowings from its senior revolving credit facility,
if fully utilized, will not have a material effect on future results of
operations. In addition, pursuant to the terms of the convertible subordinated
notes, the conversion price as of September 30, 2001 was $7.45 per share. The
number of shares of Class A Common Stock issuable upon conversion of the notes
as of September 30, 2001 was 43.9 million shares with a total market value of
$397.2 million, using the Company's September 30, 2001 market price. Commencing
on April 17, 2003, the note holder can convert the notes into shares of Class A
Common Stock. Although the Company has the right to redeem the notes in certain
circumstances, including after a conversion election, there can be no assurance
that the Company will be able to obtain sufficient capital on a commercially
reasonable basis, or at all, to fund a redemption.
Beginning in 1997, the Company entered into a series of forward purchase
agreements that extended through May 2003 to offset the dilutive effect of the
Company's stock-based employee compensation plans. These agreements were settled
quarterly on a net basis in either shares of the Company's Class A Common Stock
or cash, at the Company's option. During the year ended September 30, 2001, two
settlements resulted in the Company's issuance of 491,789 shares of Class A
Common Stock and paying approximately $64,000 in cash. During the quarter ended
June 30, 2001, the Company reacquired 1,164,154 shares of Class A Common Stock
for approximately $9.7 million through an early termination of the forward
purchase agreements. As of September 30, 2001, the Company has no remaining
commitments under these forward purchase agreements.
The Company is exposed to market risk as it relates to changes in the
market value of its equity investments. The Company invests in equity securities
of public companies directly and through SI I and SI II. The Company owns 34% of
SI II. SI I and SI II are engaged in making venture capital investments in early
to mid-stage IT-based or Internet-enabled companies (see Note 5 -- Investments
in the Notes to the Consolidated Financial Statements). As of September 30,
2001, the Company had equity investments totaling $18.5 million, including
available for sale marketable securities with a fair market value of $3.2
million and a cost basis of $5.3 million. The gross unrealized losses of $2.0
million have been recorded net of deferred taxes of $0.8 million as a separate
component of accumulated other comprehensive income in the stockholders' equity
section of the Consolidated Balance Sheets. The gross unrealized gains were
insignificant. These
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<PAGE>
investments are inherently risky as the businesses are typically in early
development stages and may never develop. Furthermore, certain of these
investments are in publicly traded companies whose shares are subject to
significant market price volatility. Adverse changes in market conditions and
poor operating results of the underlying investments may result in the Company
incurring additional losses or an inability to recover the original carrying
value of its investments. The Company does not attempt to reduce or eliminate
its market exposure on its investments in equity securities and may incur
additional losses related to these investments. If there were a 100% adverse
change in the value of the Company's equity portfolio as of September 30, 2001,
this would result in a non-cash impairment charge of $18.5 million.
The Company faces two risks related to foreign currency exchange:
translation risk and transaction risk. Amounts invested in the Company's foreign
operations are translated into U.S. dollars at the exchange rates in effect at
the balance sheet date. The resulting translation adjustments are recorded as a
component of accumulated other comprehensive income (loss) in the stockholders'
equity (deficit) section of the Consolidated Balance Sheets. The Company's
foreign subsidiaries generally collect revenues and pay expenses in currencies
other than the United States dollar. Since the functional currency of the
Company's foreign operations is generally the local currency, foreign currency
translation adjustments are reflected as a component of stockholders' equity and
do not impact operating results. Revenues and expenses in foreign currencies
translate into higher or lower revenues and expenses in U.S. dollars as the U.S.
dollar weakens or strengthens against other currencies. Therefore, changes in
exchange rates may negatively affect the Company's consolidated revenues and
expenses (as expressed in U.S. dollars) from foreign operations. Currency
transaction gains or losses arising from transactions in currencies other than
the functional currency are included in results of operations. The Company has
generally not entered into foreign currency forward exchange contracts or other
derivative financial instruments to hedge the effects of adverse fluctuations in
foreign currency exchange rates. At September 30, 2001, the Company had only one
outstanding foreign currency forward contract outstanding. The contract requires
the Company to sell U.S. dollars and purchase Japanese yen. The contract amount
is $1.0 million, and is for a one year term expiring on September 25, 2002, and
contains a forward exchange rate of 114.26 Japanese yen. The foreign currency
forward contract was entered into to offset the foreign exchange effects of the
Company's Japanese yen intercompany payable, which had a value at September 30,
2001 of $1.0 million. The forward contract and the intercompany payable are each
reflected at fair value with gains and losses recorded currently in earnings.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements as September 30, 2001 and
2000 and for each of the years in the three-year period ended September 30,
2001, together with the reports of KPMG LLP, independent auditors, dated October
29, 2001 are included in this Annual Report beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be furnished pursuant to this item will be set
forth under the captions "Proposal One: Election of Directors," "Executive
Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Definitive Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's 2002 Annual Meeting of Stockholders
currently scheduled to be held on March 6, 2002 (the "Proxy Statement") or if
the Proxy Statement is not filed with the Commission by January 25, 2002, such
information will be included in an amendment to this Annual Report filed by
January 25, 2002.
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ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item is
incorporated by reference from the information set forth under the caption
"Executive Compensation" in the Proxy Statement or if the Proxy Statement is not
filed with the Commission by January 25, 2002, such information will be included
in an amendment to this Annual Report filed by January 25, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished pursuant to this item will be set
forth under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement or if the Proxy Statement is not filed with
the Commission by January 25, 2002, such information will be included in an
amendment to this Annual Report filed by January 25, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be furnished pursuant to this item will be set
forth under the caption "Certain Relationships and Transactions" in the Proxy
Statement or if the Proxy Statement is not filed with the Commission by January
25, 2002, such information will be included in an amendment to this Annual
Report filed by January 25, 2002.
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. and 2. Consolidated Financial Statements and Schedules
The independent auditors' report, consolidated financial statements and
financial statement schedule listed in the Index to Consolidated Financial
Statements and Schedule on page F-1 hereof are filed as part of this report,
beginning on page F-2 hereof.
All other financial statement schedules not listed in the Index have been
omitted because the information required is not applicable or is shown in the
financial statements or notes thereto.
3. Exhibits
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
3.1a(8) Amended and Restated Certificate of Incorporation -- July
16, 1999
3.1b Certificate of Amendment of the Restated Certificate of
Incorporation -- February 1, 2001
3.1c(5) Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock and Series B Junior
Participating Preferred Stock of the Company -- March 1,
2000
3.2(8) Amended Bylaws, as amended through April 14, 2000
4.1 Form of Certificate for Common Stock, Class A -- as of
February 2001
4.2 Form of Certificate for Common Stock, Class B -- as of
February 2001
4.3(5) Rights Agreement, dated as of February 10, 2000, between the
Company and Bank Boston N.A., as Rights Agent, with related
Exhibits
4.4 Amended and Restated Credit Agreement dated July 17, 2000 by
and among the Company and certain financial institutions,
including Chase Manhattan Bank in its capacity as a lender
and as agent for the lenders
10.1(1) Form of Indemnification Agreement
10.2a(7) Securities Purchase Agreement dated as of March 21, 2000
between the Company, Silver Lake Partners, L.P., Silver Lake
Technology Investors, L.L.C. and other parties thereto
</Table>
23
<PAGE>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.2b(7) Amendment to the Securities Purchase Agreement dated as of
April 17, 2000 between the Company, Silver Lake Partners,
L.P., Silver Lake Technology Investors, and the other
parties thereto
10.2c(7) Form of 6% Convertible Junior Subordinated Promissory Note
due April 17, 2005
10.2d(7) Securityholders Agreement dated as of April 17, 2000 among
the Company, Silver Lake Partners, L.P. and the other
parties thereto
10.2e Letter Agreement dated September 6, 2001 relating to the
Securities Purchase Agreement and 6% Convertible Junior
Subordinated Promissory Notes
10.3a(2) Lease dated December 29, 1994 between Soundview Farms and
the Company for premises at 56 Top Gallant Road, 70
Gatehouse Road, and 88 Gatehouse Road, Stamford, Connecticut
10.3b(4) Lease dated May 16, 1997 between Soundview Farms and the
Company for premises at 56 Top Gallant Road, 70 Gatehouse
Road, 88 Gatehouse Road and 10 Signal Road, Stamford,
Connecticut (amendment to lease dated December 29, 1994, see
exhibit 10.3a)
10.4(4)* 1991 Stock Option Plan, as amended and restated on October
12, 1999
10.5(8)* 1993 Director Stock Option Plan as amended and restated on
April 14, 2000
10.6(1)* Employee Stock Purchase Plan
10.7(4)* 1994 Long Term Stock Option Plan, as amended and restated on
October 12, 1999
10.8(1) Commitment Letter dated July 16, 1993 from The Bank of New
York
10.9(4)* 1998 Long Term Stock Option Plan, as amended and restated on
October 12, 1999
10.10(3) Commitment Letter dated September 30, 1996 from Chase
Manhattan Bank
10.11(4)* 1996 Long Term Stock Option Plan, as amended and restated on
October 12, 1999
10.12a(4)* Employment Agreement between Manuel A. Fernandez and the
Company as of November 12, 1998
10.12b(8)* Addendum No. 1 to Employment Agreement between Manual A.
Fernandez and the Company as of April 14, 2000
10.13(6)* Employment Agreement between Michael D. Fleisher and the
Company as of November 1, 1999
10.14(8)* Employment Agreement between Regina M. Paolillo and the
Company as of July 1, 2000
10.15a(8)* Employment Agreement between Robert E. Knapp and the Company
dated as of August 7, 2000
10.15b* Addendum No. 1 to Employment Agreement between Robert E.
Knapp and the Company as of February 1, 2001
21.1 Subsidiaries of Registrant
23.1 Independent Auditors' Consent
24.1 Power of Attorney (see Signature Page)
</Table>
- ---------------
* Management compensation plan or arrangement.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-67576), as amended, effective October 4, 1993.
(2) Incorporated by reference from the Company's Annual Report on Form 10-K as
filed on December 21, 1995.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K as
filed on December 17, 1996.
24
<PAGE>
(4) Incorporated by reference from the Company's Annual Report on Form 10-K
filed on December 22, 1999.
(5) Incorporated by reference from the Company's Form 8-K dated March 1, 2000 as
filed on March 7, 2000.
(6) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
as filed on May 12, 2000.
(7) Incorporated by reference from the Company's Form 8-K dated April 17, 2000
as filed on April 25, 2000.
(8) Incorporated by reference from the Company's Annual Report on Form 10-K as
filed on December 29, 2000.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fiscal quarter
ended September 30, 2001.
25
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
GARTNER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<S> <C>
Report by Management........................................ F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of September 30, 2001 and
2000...................................................... F-4
Consolidated Statements of Operations for Years Ended
September 30, 2001, 2000 and 1999......................... F-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for Years Ended September 30, 2001, 2000 and
1999...................................................... F-6
Consolidated Statements of Cash Flows for Years Ended
September 30, 2001, 2000 and 1999......................... F-8
Notes to Consolidated Financial Statements.................. F-9
Independent Auditors' Report on Consolidated Financial
Statement Schedule........................................ S-1
Schedule II -- Valuation and Qualifying Accounts, Years
Ended September 30, 2001, 2000 and 1999................... S-2
</Table>
F-1
<PAGE>
REPORT BY MANAGEMENT
Management's Responsibility for Financial Reporting
Management has prepared and is responsible for the integrity and
objectivity of the consolidated financial statements and related information
included in the Annual Report. The consolidated financial statements, which
include amounts based on management's best judgments and estimates, were
prepared in conformity with generally accepted accounting principles. Financial
information elsewhere in this Annual Report is consistent with that in the
consolidated financial statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance at reasonable cost that assets are safeguarded and
transactions are properly executed and recorded for the preparation of reliable
financial information. The internal control system is augmented with written
policies and procedures, an organizational structure providing division of
responsibilities and careful selection and training of qualified financial
people and a program of internal audits.
The Audit Committee of the Board of Directors, composed solely of
non-employee directors, meets regularly with management, internal auditors and
our independent accountants to ensure that each is meeting its responsibilities
and to discuss matters concerning internal controls and financial reporting.
Both the independent and internal auditors have unrestricted access to the Audit
Committee.
The independent auditors for fiscal 2001, 2000 and 1999, KPMG LLP, audit
and render an opinion on the financial statements in accordance with generally
accepted auditing standards. These standards include an assessment of the
systems of internal controls and tests of transactions to the extent considered
necessary by them to support their opinion.
/s/ MICHAEL D. FLEISHER
--------------------------------------
Michael D. Fleisher
Chairman of the Board and Chief
Executive Officer
/s/ REGINA M. PAOLILLO
--------------------------------------
Regina M. Paolillo
Chief Financial Officer
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Gartner, Inc.:
We have audited the accompanying consolidated balance sheets of Gartner,
Inc. and subsidiaries as of September 30, 2001 and 2000, and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for each of the years in the three-year period ended September
30, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gartner,
Inc. and subsidiaries as of September 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
--------------------------------------
New York, New York
October 29, 2001
F-3
<PAGE>
GARTNER, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
SEPTEMBER 30,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 37,128 $ 61,698
Marketable equity securities.............................. 3,250 35,404
Fees receivable, net of allowances of $5,600 in 2001 and
$5,004 in 2000......................................... 300,306 323,849
Deferred commissions...................................... 34,822 46,756
Prepaid expenses and other current assets................. 73,315 34,738
Net assets of discontinued operation...................... -- 76,329
--------- ---------
Total current assets................................... 448,821 578,774
Property, equipment and leasehold improvements, net......... 100,288 88,402
Intangible assets, net...................................... 222,233 237,105
Other assets................................................ 67,660 68,080
--------- ---------
Total assets........................................... $ 839,002 $ 972,361
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.................. $ 161,251 $ 191,465
Deferred revenues......................................... 351,263 384,966
Short-term debt........................................... 15,000 --
--------- ---------
Total current liabilities.............................. 527,514 576,431
--------- ---------
Long-term convertible debt.................................. 326,200 307,254
Other liabilities........................................... 19,806 13,856
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock:
$.01 par value, authorized 5,000,000 shares; none issued
or outstanding......................................... -- --
Common stock:
$.0005 par value, authorized 166,000,000 shares of Class A
Common Stock and 84,000,000 shares of Class B Common
Stock; issued 77,737,660 shares of Class A Common Stock
(77,066,738 in 2000) and 40,689,648 shares of Class B
Common Stock in 2001 and in 2000.......................... 59 59
Additional paid-in capital.................................. 342,216 333,828
Unearned compensation, net.................................. (5,145) (6,451)
Accumulated other comprehensive loss, net................... (14,961) (1)
Accumulated earnings........................................ 116,083 182,286
Treasury stock, at cost, 26,621,154 shares of Class A Common
Stock (23,740,562 in 2000) and 8,141,820 shares of Class B
Common Stock (8,129,732 in 2000).......................... (472,770) (434,901)
--------- ---------
Total stockholders' equity (deficit)................... (34,518) 74,820
--------- ---------
Total liabilities and stockholders' equity
(deficit)....................................... $ 839,002 $ 972,361
========= =========
</Table>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
GARTNER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Research.................................................. $535,114 $509,781 $479,045
Consulting................................................ 265,450 208,810 149,840
Events.................................................... 132,684 108,589 75,581
Other..................................................... 18,794 27,414 29,768
-------- -------- --------
Total revenues......................................... 952,042 854,594 734,234
Costs and expenses:
Cost of services and product development.................. 439,629 387,746 293,612
Selling, general and administrative....................... 370,096 341,874 252,195
Depreciation.............................................. 40,873 27,839 21,592
Amortization of intangibles............................... 12,367 13,004 10,041
Other charges............................................. 46,563 -- 23,426
-------- -------- --------
Total costs and expenses............................... 909,528 770,463 600,866
-------- -------- --------
Operating income............................................ 42,514 84,131 133,368
Net gain (loss) on sale of investments...................... (640) 29,630 --
Net loss from minority-owned investments.................... (26,817) (775) (846)
Interest income............................................. 1,616 3,936 9,518
Interest expense............................................ (22,391) (24,900) (1,272)
Other expense, net.......................................... (3,674) (722) (1,521)
-------- -------- --------
Income (loss) from continuing operations before income
taxes..................................................... (9,392) 91,300 139,247
Provision (benefit) for income taxes........................ (9,172) 36,447 50,976
-------- -------- --------
Income (loss) from continuing operations.................... (220) 54,853 88,271
Discontinued operation, net of taxes:
Loss from discontinued operation.......................... (26,059) (27,578) --
Loss on disposal of discontinued operation................ (39,924) -- --
-------- -------- --------
Loss from discontinued operation....................... (65,983) (27,578) --
-------- -------- --------
Income (loss) before extraordinary item..................... (66,203) 27,275 88,271
Extraordinary loss on debt extinguishment, net of taxes..... -- (1,729) --
-------- -------- --------
Net income (loss)........................................... $(66,203) $ 25,546 $ 88,271
======== ======== ========
Net income (loss) per common share:
Basic:
Income (loss) from continuing operations............... $ (0.00) $ 0.63 $ 0.87
Loss from discontinued operation....................... (0.30) (0.31) --
Loss on disposal of discontinued operation............. (0.47) -- --
Extraordinary loss..................................... -- (0.02) --
-------- -------- --------
Net income (loss)...................................... $ (0.77) $ 0.30 $ 0.87
======== ======== ========
Diluted:
Income (loss) from continuing operations............... $ (0.00) $ 0.62 $ 0.84
Loss from discontinued operation....................... (0.30) (0.31) --
Loss on disposal of discontinued operation............. (0.47) -- --
Extraordinary loss..................................... -- (0.02) --
-------- -------- --------
Net income (loss)...................................... $ (0.77) $ 0.29 $ 0.84
======== ======== ========
Weighted average shares outstanding:
Basic..................................................... 85,862 86,564 101,881
======== ======== ========
Diluted................................................... 85,862 89,108 104,603
======== ======== ========
</Table>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
GARTNER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<Table>
<Caption>
ACCUMULATED
OTHER
ADDITIONAL UNEARNED COMPREHENSIVE
PREFERRED COMMON PAID-IN COMPENSATION, INCOME (LOSS),
STOCK STOCK CAPITAL NET NET
--------- ------ ---------- ------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998............ $ -- $57 $262,776 $ 0 $ (2,155)
Net income............................... -- -- -- -- --
Foreign currency translation
adjustments............................ -- -- -- -- (1,675)
Comprehensive income................... -- -- -- -- --
Issuance of 2,648,169 shares of Class A
Common Stock upon exercise of stock
options................................ -- 1 18,032 -- --
Issuance from treasury stock of 286,033
shares of Class A Common Stock for
purchases by employees................. -- -- 4,842 -- --
Tax benefits of stock transactions with
employees.............................. -- -- 15,096 -- --
Net share settlement of 155,962 shares of
Class A Common Stock on forward
purchase agreement..................... -- -- -- -- --
Net cash settlement paid on forward
purchase agreement..................... -- -- (10,900) -- --
Special cash dividend paid............... -- -- -- -- --
Restricted stock award of 452,000 shares
of Class A Common Stock, net of
forfeitures............................ -- -- 9,940 (9,940) --
Dutch auction repurchase of 9,636,247
shares of Class A Common Stock and
6,123,032 shares of Class B Common
Stock.................................. -- -- -- -- --
Acquisition of 65,500 shares of Class A
Common Stock........................... -- -- -- -- --
Issuance of 663,716 shares of Class A
Common Stock related to acquisitions... -- -- 15,043 -- --
Amortization of unearned compensation.... -- -- -- 1,660 --
----- --- -------- ------- --------
Balance at September 30, 1999............ -- 58 314,829 (8,280) (3,830)
Net income............................... -- -- -- -- --
Foreign currency translation
adjustments............................ -- -- -- -- (11,667)
Net unrealized gain on marketable
investments, net of tax effect of
$12,084................................ -- -- -- -- 15,496
Comprehensive income................... -- -- -- -- --
Issuance of 1,379,306 shares of Class A
Common Stock upon exercise of stock
options................................ -- 1 8,091 -- --
Issuance from treasury stock of 394,279
shares of Class A Common Stock for
purchases by employees................. -- -- 5,008 -- --
Tax benefits of stock transactions with
employees.............................. -- -- 4,179 -- --
Net share settlement of 155,792 shares of
Class A Common Stock on forward
purchase agreement..................... -- -- -- -- --
Net cash settlement paid on forward
purchase agreement..................... -- -- (8,200) -- --
<Caption>
TOTAL
STOCKHOLDERS'
ACCUMULATED TREASURY EQUITY
EARNINGS STOCK (DEFICIT)
----------- --------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Balance at September 30, 1998............ $ 193,485 $ (39,225) $ 414,938
Net income............................... 88,271 -- 88,271
Foreign currency translation
adjustments............................ -- -- (1,675)
---------
Comprehensive income................... -- -- 86,596
Issuance of 2,648,169 shares of Class A
Common Stock upon exercise of stock
options................................ -- -- 18,033
Issuance from treasury stock of 286,033
shares of Class A Common Stock for
purchases by employees................. -- 6 4,848
Tax benefits of stock transactions with
employees.............................. -- -- 15,096
Net share settlement of 155,962 shares of
Class A Common Stock on forward
purchase agreement..................... -- -- --
Net cash settlement paid on forward
purchase agreement..................... -- -- (10,900)
Special cash dividend paid............... (125,016) -- (125,016)
Restricted stock award of 452,000 shares
of Class A Common Stock, net of
forfeitures............................ -- -- --
Dutch auction repurchase of 9,636,247
shares of Class A Common Stock and
6,123,032 shares of Class B Common
Stock.................................. -- (344,633) (344,633)
Acquisition of 65,500 shares of Class A
Common Stock........................... -- (1,192) (1,192)
Issuance of 663,716 shares of Class A
Common Stock related to acquisitions... -- 13 15,056
Amortization of unearned compensation.... -- -- 1,660
--------- --------- ---------
Balance at September 30, 1999............ 156,740 (385,031) 74,486
Net income............................... 25,546 -- 25,546
Foreign currency translation
adjustments............................ -- -- (11,667)
Net unrealized gain on marketable
investments, net of tax effect of
$12,084................................ -- -- 15,496
---------
Comprehensive income................... -- -- 29,375
Issuance of 1,379,306 shares of Class A
Common Stock upon exercise of stock
options................................ -- -- 8,092
Issuance from treasury stock of 394,279
shares of Class A Common Stock for
purchases by employees................. -- 8 5,016
Tax benefits of stock transactions with
employees.............................. -- -- 4,179
Net share settlement of 155,792 shares of
Class A Common Stock on forward
purchase agreement..................... -- -- --
Net cash settlement paid on forward
purchase agreement..................... -- -- (8,200)
</Table>
F-6
<PAGE>
GARTNER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT) -- (CONTINUED)
<Table>
<Caption>
ACCUMULATED
OTHER
ADDITIONAL UNEARNED COMPREHENSIVE
PREFERRED COMMON PAID-IN COMPENSATION, INCOME (LOSS),
STOCK STOCK CAPITAL NET NET
--------- ------ ---------- ------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Restricted stock net forfeitures of
27,500 shares of Class A Common
Stock.................................. $ -- $-- $ (719) $ 719 $ --
Acquisition of 2,493,500 shares of Class
A and 2,006,700 shares of Class B
Common Stock........................... -- -- -- -- --
Increase in carrying value of Jupiter
Media Metrix........................... -- -- 8,321 -- --
Issuance of 2,074 shares of Class A
Common Stock issued for services
rendered............................... -- -- 42 -- --
Option to purchase subsidiary shares..... -- -- 1,000 -- --
Return of 37,013 shares of Class A Common
Stock related to acquisitions.......... -- -- (723) -- --
Issuance of subsidiary stock related to
an acquisition......................... -- -- 2,000 -- --
Amortization of unearned compensation.... -- -- -- 1,110 --
----- --- -------- ------- --------
Balance at September 30, 2000............ -- 59 333,828 (6,451) (1)
Net loss................................. -- -- -- -- --
Foreign currency translation
adjustments............................ -- -- -- -- 1,627
Change in net unrealized loss on
marketable investments, net of tax
effect of $12,811...................... -- -- -- -- (16,587)
Comprehensive loss..................... -- -- -- -- --
Issuance of 592,832 shares of Class A
Common Stock upon exercise of stock
options................................ -- 0 3,650 -- --
Issuance from treasury stock of 769,085
shares of Class A Common Stock for
purchases by employees................. -- -- 5,374 -- --
Tax benefits of stock transactions with
employees.............................. -- -- 1,331 -- --
Net settlement paid of 491,789 shares of
Class A Common Stock and $64 on forward
purchase agreement..................... -- -- (73) -- --
Acquisition of 4,144,666 shares of Class
A and 12,088 shares of Class B Common
Stock.................................. -- -- -- -- --
Elimination of minority interest from
sale of discontinued operation......... -- -- (2,056) -- --
Issuance of subsidiary stock upon
exercise of stock options.............. -- -- 56 -- --
Compensation from modification of stock
options related to employee
terminations........................... -- -- 261 -- --
Amortization of unearned compensation.... -- -- -- 1,151 --
Issuance of 81,290 shares of Class A
Common Stock upon earnout of restricted
shares and forfeiture of unvested
restricted share awards................ -- -- (155) 155 --
----- --- -------- ------- --------
Balance at September 30, 2001............ $ -- $59 $342,216 $(5,145) $(14,961)
===== === ======== ======= ========
<Caption>
TOTAL
STOCKHOLDERS'
ACCUMULATED TREASURY EQUITY
EARNINGS STOCK (DEFICIT)
----------- --------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Restricted stock net forfeitures of
27,500 shares of Class A Common
Stock.................................. $ -- $ -- $ --
Acquisition of 2,493,500 shares of Class
A and 2,006,700 shares of Class B
Common Stock........................... -- (49,877) (49,877)
Increase in carrying value of Jupiter
Media Metrix........................... -- -- 8,321
Issuance of 2,074 shares of Class A
Common Stock issued for services
rendered............................... -- -- 42
Option to purchase subsidiary shares..... -- -- 1,000
Return of 37,013 shares of Class A Common
Stock related to acquisitions.......... -- (1) (724)
Issuance of subsidiary stock related to
an acquisition......................... -- -- 2,000
Amortization of unearned compensation.... -- -- 1,110
--------- --------- ---------
Balance at September 30, 2000............ 182,286 (434,901) 74,820
Net loss................................. (66,203) -- (66,203)
Foreign currency translation
adjustments............................ -- -- 1,627
Change in net unrealized loss on
marketable investments, net of tax
effect of $12,811...................... -- -- (16,587)
---------
Comprehensive loss..................... -- -- (81,163)
Issuance of 592,832 shares of Class A
Common Stock upon exercise of stock
options................................ -- -- 3,650
Issuance from treasury stock of 769,085
shares of Class A Common Stock for
purchases by employees................. -- 15 5,389
Tax benefits of stock transactions with
employees.............................. -- -- 1,331
Net settlement paid of 491,789 shares of
Class A Common Stock and $64 on forward
purchase agreement..................... -- 9 (64)
Acquisition of 4,144,666 shares of Class
A and 12,088 shares of Class B Common
Stock.................................. -- (37,893) (37,893)
Elimination of minority interest from
sale of discontinued operation......... -- -- (2,056)
Issuance of subsidiary stock upon
exercise of stock options.............. -- -- 56
Compensation from modification of stock
options related to employee
terminations........................... -- -- 261
Amortization of unearned compensation.... -- -- 1,151
Issuance of 81,290 shares of Class A
Common Stock upon earnout of restricted
shares and forfeiture of unvested
restricted share awards................ -- -- --
--------- --------- ---------
Balance at September 30, 2001............ $ 116,083 $(472,770) $ (34,518)
========= ========= =========
</Table>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
GARTNER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
--------------------------------
2001 2000 1999
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss)......................................... $(66,203) $ 25,546 $ 88,271
Adjustments to reconcile net income (loss) to cash provided
by operating activities of continuing operations:
Loss from discontinued operation.......................... 65,983 27,578 --
Depreciation and amortization of intangibles.............. 53,240 40,843 31,633
Deferred compensation..................................... 1,151 2,151 1,660
Tax benefit associated with employee exercise of stock
options................................................. 1,331 4,179 15,096
Provision for doubtful accounts........................... 5,037 4,256 5,128
Deferred revenues......................................... (35,488) 36,993 57,270
Deferred tax (benefit) expense............................ (34,973) (10,159) 6,648
Net loss (gain) on sale of investments.................... 640 (29,630) --
Net loss from minority-owned investments.................. 26,817 775 846
Accretion of interest and amortization of debt issuance
costs................................................... 20,802 9,520 --
Non-cash charges associated with impairment of long-lived
assets.................................................. 18,888 -- --
Extraordinary loss on debt extinguishment, net of tax
benefit................................................. -- 1,729 --
Acquisition-related tax benefit applied to reduce
goodwill................................................ 158 966 327
Changes in assets and liabilities, excluding effects of
acquisitions and discontinued operation:
(Increase) decrease in fees receivable.................... 19,634 (51,633) (40,628)
(Increase) decrease in deferred commissions............... 11,902 (16,552) (3,186)
(Increase) decrease in prepaid expenses and other current
assets.................................................. (26,039) (4,500) 381
(Increase) decrease in other assets....................... (2,559) (11,245) (4,880)
Increase (decrease) in accounts payable and accrued
liabilities............................................. 13,147 73,514 (14,651)
-------- --------- ---------
Cash provided by operating activities....................... 73,468 104,331 143,915
-------- --------- ---------
Investing activities:
Payments for businesses acquired (excluding cash
acquired)............................................... (12,011) (115,162) (57,769)
Proceeds from sale of marketable equity securities........ 14,437 55,516 --
Proceeds from sale of investments......................... -- 36,000 --
Payments for investments.................................. -- (20,427) (13,960)
Addition of property, equipment and leasehold
improvements............................................ (57,546) (54,565) (31,747)
Net proceeds from sale of discontinued operation.......... 10,501 -- --
Marketable debt securities sold, net...................... -- -- 104,550
-------- --------- ---------
Cash (used in) provided by investing activities............. (44,619) (98,638) 1,074
-------- --------- ---------
Financing activities:
Proceeds from the exercise of stock options............... 3,706 8,092 18,033
Proceeds from Employee Stock Purchase Plan offering....... 5,389 5,016 4,842
Net cash settlement on forward purchase agreement......... (64) (8,200) (10,900)
Purchase of treasury stock................................ (37,893) (49,877) (345,819)
Proceeds from issuance of debt and related option......... 15,000 420,000 250,000
Payments on debt.......................................... -- (370,000) --
Payments for debt issuance costs.......................... (5,000) (3,993) (4,925)
Dividends paid............................................ -- -- (125,016)
-------- --------- ---------
Cash (used in) provided by financing activities............. (18,862) 1,038 (213,785)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 9,987 6,731 (68,796)
Cash used by discontinued operation......................... (34,203) (30,096) --
Effect of exchange rates on cash and cash equivalents....... (354) (3,831) (54)
Cash and cash equivalents, beginning of period.............. 61,698 88,894 157,744
-------- --------- ---------
Cash and cash equivalents, end of period.................... $ 37,128 $ 61,698 $ 88,894
======== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.................................................. $ 1,589 $ 14,964 $ 976
Income taxes.............................................. $ 14,729 $ 13,685 $ 47,045
Supplemental schedule of non-cash investing and financing
activities:
Stock issued by Company and subsidiary in connection with
acquisitions............................................ $ -- $ 2,000 $ 15,056
Option to purchase subsidiary shares issued by Company.... $ -- $ 1,000 $ --
</Table>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
GARTNER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation. The fiscal year of Gartner, Inc. (the "Company")
represents the period from October 1 through September 30. References to 2001,
2000 and 1999, unless otherwise indicated, are to the respective fiscal year.
Certain prior year amounts have been reclassified to conform to the current year
presentation or restated to reflect the disposition of the previously reported
TechRepublic segment as a discontinued operation (see Note 3 -- Discontinued
operation).
Principles of consolidation. The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. The Company's
investments in companies in which it owns less than 50% but has the ability to
exercise significant influence over operating and financial policies are
accounted for using the equity method. All other investments for which the
Company does not have the ability to exercise significant influence or for which
there is not a readily determinable market value are accounted for under the
cost method of accounting. The results of operations for acquisitions of
companies accounted for using the purchase method have been included in the
Consolidated Statements of Operations beginning on the closing date of
acquisition.
Revenue and commission expense recognition. The Company typically enters
into annually renewable subscription contracts for research products. Revenue
from research products is deferred and recognized ratably over the contract
term. Consulting revenues, primarily derived from consulting, measurement and
strategic advisory services (paid one-day analyst engagements), are recognized
as work is performed on a contract by contract basis. Events revenue is deferred
and recognized upon the completion of the related symposium, conference or
exhibition. In addition, the Company defers certain costs directly related to
events and expenses these costs in the period during which the related
symposium, conference or exhibition occurs. The Company's policy is to defer
only those costs, primarily prepaid site and production services costs, that are
incremental and are directly attributable to a specific event. Other costs of
organizing and producing the Company's events, primarily Company personnel and
non-event specific expenses, are expensed in the period incurred. At the end of
each fiscal quarter, management assesses on an event-by-event basis whether
expected direct costs of producing a scheduled event will exceed expected
revenues. If such costs are expected to exceed revenues, the Company records the
expected loss in the period determined. Other revenues includes software
licensing fees which are recognized when a signed non-cancellable software
license exists, delivery has occurred, collection is probable, and the Company's
fees are fixed or determinable. Revenue from software maintenance is deferred
and recognized ratably over the term of each maintenance agreement, typically
twelve months. All research contracts are billable upon signing, absent special
terms granted on a limited basis from time to time. All research contracts are
non-cancelable and non-refundable, except for government contracts which have a
30-day cancellation clause but have not produced material cancellations to date.
With the exception of certain government contracts which permit termination, it
is the Company's policy to record at the time of signing of a contract the
entire amount of the contract billable as a fee receivable, which represents a
legally enforceable claim, and a corresponding amount as deferred revenue. For
government contracts which permit termination, the Company bills the client the
full amount billable under the contract but only records a receivable equal to
the earned portion of the contract. In addition, the Company only records
deferred revenue on these contracts when cash is received. Deferred revenues
attributable to government contracts were $24.5 million and $33.8 million at
September 30, 2001 and 2000, respectively. In addition, at September 30, 2001,
the Company had not recognized receivables or deferred revenues relating to
government contracts which permit termination of $13.3 million which have been
billed but not yet collected. The Company also records the commission obligation
related to research contracts upon the signing of the contract and amortizes the
corresponding deferred commission expense over the contract period in which the
related revenues are earned.
Cash and cash equivalents. All highly liquid investments with original
maturities of three months or less are considered cash equivalents. The carrying
value of these investments approximates fair value based upon
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<PAGE>
their short-term maturity Investments with maturities of more than three months
are classified as marketable securities.
Investments in equity securities. The Company accounts for its investments
in publicly traded equity securities under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"). These investments, which meet the criteria for
classification as available for sale, are recorded at fair value and are
included as Marketable Equity Securities on the Consolidated Balance Sheets
given the Company's ability and intent to sell such investments within a one
year period. Unrealized gains and losses on marketable investments are recorded,
net of tax, as a component of Accumulated other comprehensive income (loss), net
in the Stockholders' equity (deficit) section of the Consolidated Balance
Sheets. Realized gains and losses are recorded in Net gain (loss) from sale of
investments within the Consolidated Statements of Operations. The cost of equity
securities sold is based on specific identification. The Company assesses the
need to record impairment losses on investments and records such losses when the
impairment of an investment is determined to be other than temporary in nature.
These impairment losses are reflected in Net loss from minority-owned
investments within the Consolidated Statements of Operations. Investments that
are not publicly traded and for which the Company does not have the ability to
exercise significant influence over operating and financial policies are
accounted for under the cost method. Accordingly, these investments are carried
at the lower of cost or net realizable value and are included in Other assets in
the Consolidated Balance Sheets (See Note 5 - Investments). The equity method is
used to account for investments in entities that are not majority-owned and that
the Company does not control but does have the ability to exercise significant
influence.
Property, equipment and leasehold improvements. Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Property and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized using the straight-line method over the shorter of the estimated
useful lives of the assets or the remaining term of the related leases.
Software development costs. The Company capitalizes certain computer
software development costs and enhancements upon the establishment of
technological feasibility, limited to the net realizable value of the software
product, and ceases when the software product is available for general release
to clients. Until these products reach technological feasibility, all costs
related to development efforts are charged to expense. Once technological
feasibility has been determined, additional costs incurred in development,
including coding, testing, and documentation, are capitalized. Amortization of
software development costs is provided on a product-by-product basis over the
estimated economic life of the software, generally two years, using the
straight-line method. Amortization of capitalized computer software development
costs begins when the products are available for general release to customers.
Additionally, the Company capitalizes certain costs that are incurred to
purchase or to create and implement internal use software. The Company performs
periodic reviews to ensure that unamortized capitalized software development
costs remain recoverable from future revenue.
Intangible assets. Intangible assets include goodwill, non-compete
agreements, tradenames and other intangibles. Goodwill represents the excess of
the purchase price of acquired businesses over the estimated fair value of the
tangible and identifiable intangible net assets acquired. Amortization is
recorded using the straight-line method over periods ranging from three to
thirty years. Non-compete agreements are being amortized on a straight-line
basis over the period of the agreement ranging from two to five years.
Tradenames are being amortized on a straight-line basis over their estimated
useful lives ranging from nine to twelve years.
Impairment of long-lived assets and intangible assets. The Company reviews
long-lived assets and intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the respective
asset may not be recoverable. Such evaluation may be based on a number of
factors including current and projected operating results and cash flows,
changes in management's strategic direction as well as other economic and market
variables. Management's policy regarding long-lived assets and intangible assets
is to evaluate the recoverability of these assets by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash
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flows. Should events or circumstances indicate that the carrying value may not
be recoverable based on undiscounted future operating cash flows, an impairment
loss would be recognized by the Company. The amount of impairment, if any, is
measured based on the difference between projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds
and the carrying value of the asset (see Note 6 -- Other charges).
Foreign currency translation. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at fiscal year-end exchange rates.
The resulting translation adjustments are recorded as a component of
stockholders' equity. Income and expense items are translated at average
exchange rates prevailing during the year. Currency transaction gains or losses
arising from transactions of the Company in currencies other that the functional
currency are included in results of operations within Other expense, net.
Income taxes. Deferred tax assets and liabilities are recognized based on
differences between the book and tax basis of assets and liabilities using
presently enacted tax rates. The provision for income taxes is the sum of the
amount of income tax paid or payable for the year as determined by applying the
provisions of enacted tax laws to taxable income for that year and the net
changes during the year in the Company's deferred tax assets and liabilities.
Undistributed earnings of subsidiaries outside of the U.S. amounted to
approximately $0.9 million as of September 30, 2001 and will either be
indefinitely reinvested or remitted substantially free of U.S. tax. Accordingly,
no material provision has been made for taxes that may be payable upon
remittance of such earnings, nor is it practicable to determine the amount of
this liability. The Company credits additional paid-in capital for realized tax
benefits arising from stock transactions with employees. The tax benefit on a
nonqualified stock option is equal to the tax effect of the difference between
the market price of a share of the Company's common stock on the exercise and
grant dates.
Fair value of financial instruments. The Company's financial instruments
include cash and cash equivalents, fees receivable, accounts payable, and
accruals which are short-term in nature. Accordingly, the carrying amounts of
these financial instruments approximate their fair value (see Note
12 -- Stockholders' equity (deficit) regarding forward purchase agreements).
Investments in publicly traded equity securities are valued based on quoted
market prices. Investments in equity securities that are not publicly traded are
valued at the lower of cost or net realizable value, which approximates fair
market value.
Long-term convertible debt consists of 6% convertible subordinated notes
(see Note 10 -- Debt). In addition, at September 30, 2001, $15.0 million was
outstanding under a senior revolving credit facility. The carrying amount of the
senior revolving credit facility approximates fair value as the rates of
interest on the revolving credit facility approximate current market rates of
interest for similar instruments with comparable maturities.
Concentrations of credit risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents, marketable equity securities and fees receivable.
Concentrations of credit risk with respect to fees receivable are limited due to
the large number of clients comprising the Company's client base and their
dispersion across many different industries and geographic regions.
Use of estimates. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosures, if any, of contingent
assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates. Estimates are used when accounting for such
items as allowance for doubtful accounts, investments, depreciation,
amortization, income taxes and certain accrued liabilities.
Recently issued accounting standards. In June 2001, Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("FAS 141") and Statement
of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("FAS 142") were issued. FAS 141 requires the purchase method of accounting to
be used for all business combinations initiated and/or completed after June 30,
2001. FAS 141 also specifies criteria that intangible assets acquired must meet
to be recognized and reported apart from
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<PAGE>
goodwill. The Company does not anticipate that adoption of FAS 141 will have any
material effect on the Company. FAS 142 requires that goodwill and intangible
assets with indefinite lives no longer be amortized but instead be measured for
impairment at least annually, or when events indicate that there may be an
impairment. In connection with the FAS 142 transitional goodwill impairment
evaluation, the Company is required to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. To
accomplish this, the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the carrying amount of the reporting unit. To the extent the carrying
amount of a reporting unit exceeds the fair value of the reporting unit, an
indication exists that the reporting unit goodwill may be impaired and the
Company must perform the second step of the transitional impairment test. In the
second step, the Company must compare the implied fair value of the reporting
unit goodwill with the carrying amount of the reporting unit goodwill, both of
which would be measured as of the date of adoption. The implied fair value of
goodwill is determined by allocating the fair value of the reporting unit to all
of the assets (recognized and unrecognized) and liabilities of the reporting
unit in a manner similar to a purchase price allocation, in accordance with
Statement 141. The residual fair value after this allocation is the implied fair
value of the reporting unit goodwill. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.
FAS 142 is effective for fiscal years beginning after December 15, 2001.
Early adoption is permitted for companies with fiscal years beginning after
March 15, 2001. Although the Company is not required to adopt this statement
until the first quarter of fiscal 2003, it expects to adopt FAS 142 in the first
quarter ended December 31, 2001. Because of the extensive effort needed to
comply with adopting FAS 142, it is not practicable to reasonably estimate the
impact on the Company's financial statements, specifically whether it will be
required to recognize any transitional impairment losses as the cumulative
effect of a change in accounting principle. As of September 30, 2001, the
Company had unamortized goodwill of $216.8 million and unamortized identifiable
intangible assets of $5.4 million. Amortization expense related to goodwill and
other identifiable intangible assets was $9.1 million and $3.3 million,
respectively, for the fiscal year ended September 30, 2001.
In June 2001, Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations" ("FAS 143") was issued. FAS 143
addresses financial accounting and reporting for legal obligations associated
with the retirement of tangible long-lived assets and the associated retirement
costs that result from the acquisition, construction, or development and normal
operation of a long-lived asset. Upon initial recognition of a liability for an
asset retirement obligation, FAS 143 requires an increase in the carrying amount
of the related long-lived asset. The asset retirement cost is subsequently
allocated to expense using a systematic and rational method over the assets
useful life. FAS 143 is effective for fiscal years beginning after June 15,
2002. The adoption of this statement is not expected to have a material impact
on the Company's financial position or results of operations.
In August 2001, Statement of Financial Standards No. 144, "Accounting for
the Impairment or Disposal of Long-lived Assets" ("FAS 144") was issued. FAS 144
supersedes Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-lived Assets to be Disposed of," and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently occurring Events and Transactions." FAS
144 also amends ARB ("Accounting Research Bulletins") No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. FAS 144 retains the
fundamental provisions of FAS 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while resolving significant implementation issues associated with FAS
121. Among other things, FAS 144 provides guidance on how long-lived assets used
as part of a group should be evaluated for impairment, establishes criteria for
when long-lived assets are held for sale, and prescribes the accounting for
long-lived
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<PAGE>
assets that will be disposed of other than by sale. FAS 144 is effective for
fiscal years beginning after December 15, 2001. The Company is currently
evaluating the effect, if any, that adoption of FAS 144 will have on the
Company's financial position and results of operations.
2 -- BUSINESS ACQUISITIONS
On October 2, 2000, the Company acquired all of the assets and assumed the
liabilities of Solista Global LLC ("Solista") for approximately $9.0 million in
cash. Solista is a provider of strategic consulting services that merge
technology and business expertise to help clients build strategies for the
digital world. The acquisition was accounted for by the purchase method and the
purchase price has been allocated to the assets acquired and the liabilities
assumed, based upon estimated fair values at the date of the acquisition. The
excess purchase price over the fair value of amounts assigned to the net
tangible assets acquired was approximately $6.5 million, of which $6.0 million
has been allocated to goodwill and is being amortized over 20 years. In
addition, $0.5 million of the purchase price was allocated to non-compete
agreements which are being amortized over three years. See Note 6 -- Other
Charges.
On December 10, 1999, the Company acquired all of the assets and assumed
the liabilities of Rendall and Associates, Inc. ("Rendall") for $12.0 million in
cash. Rendall provides strategic planning advice, feasibility and competitive
analysis and research on the telecommunications market, technologies, regulation
and public policies. Additionally, Rendall provides technical expertise in
broadband technologies. The acquisition was accounted for by the purchase method
and the purchase price has been allocated to the assets acquired and the
liabilities assumed, based upon estimated fair values at the date of the
acquisition. The excess purchase price over the fair value of amounts assigned
to the net tangible assets acquired was approximately $11.1 million, of which
$9.9 million has been allocated to goodwill and is being amortized over 20
years. In addition, $1.2 million of the purchase price was allocated to a
non-compete agreement, and is being amortized over 5 years.
On November 30, 1999, the Company acquired all the outstanding shares of
Computer Financial Consultants Limited ("CFC") for $16.0 million in cash. CFC
provides senior executives in IT and purchasing with assistance intended to
enhance the procurement of IT related products and services. The acquisition was
accounted for by the purchase method and the purchase price has been allocated
to the assets acquired and the liabilities assumed, based upon estimated fair
values at the date of the acquisition. The excess purchase price over the fair
value of amounts assigned to the net tangible assets acquired was approximately
$11.6 million, of which $11.0 million has been allocated to goodwill and is
being amortized over 30 years. In addition, $0.6 million of the purchase price
was allocated to a non-compete agreement, and is being amortized over 5 years.
During fiscal 2000, the Company completed additional acquisitions for
consideration of $9.7 million in cash and a $1.0 million note payable.
On July 30, 1999, the Company acquired all of the outstanding shares of The
Warner Group ("Warner") for $18.0 million in cash. Warner is a leading
management consulting firm specializing in information technology,
communications technology and performance improvement for government agency
clients. The acquisition was accounted for by the purchase method, and the
purchase price has been allocated to the assets acquired and the liabilities
assumed, based upon estimated fair values at the date of acquisition. The excess
purchase price over the fair value of amounts assigned to the net tangible
assets acquired was approximately $15.2 million, of which $14.3 million has been
recorded as goodwill and is being amortized over 30 years. In addition, $0.9
million of the purchase price was allocated to non-compete agreements and is
being amortized over 2 and 5 years.
On January 1, 1999, the Company acquired all of the assets and assumed the
liabilities of G2R, Inc. ("G2R") for $7.8 million in cash and 358,333 shares of
Class A Common Stock of the Company which had an approximate fair market value
of $7.8 million. G2R is a provider of research and consulting services to IT
product vendors and professional services and outsourcing firms. The acquisition
was accounted for by the purchase method and the purchase price has been
allocated to the assets acquired and the liabilities assumed, based upon
estimated fair values at the date of acquisition. The excess purchase price over
the fair value of
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<PAGE>
amounts assigned to the net tangible assets acquired was approximately $13.4
million, of which $12.6 million has been recorded as goodwill, which is being
amortized over 30 years. In addition, $0.8 million of the purchase price was
allocated to a non-compete agreement and is being amortized over 4 years.
On November 13, 1998, the Company acquired all of the outstanding shares of
Wentworth Research, Limited ("Wentworth") for $8.3 million in cash. Wentworth
provides research and advisory services to chief information officers and the
senior information technology management community in the United Kingdom and
Hong Kong. The acquisition was accounted for by the purchase method, and the
purchase price has been allocated to the assets acquired and the liabilities
assumed, based upon estimated fair values at the date of acquisition. The excess
purchase price over the fair value of amounts assigned to the net tangible
assets acquired was approximately $10.5 million, of which $9.7 million has been
recorded as goodwill, which is being amortized over 30 years. In addition, $0.8
million of the purchase price was allocated to a non-compete agreement, and is
being amortized over 2 years.
On October 7, 1998, the Company acquired all the assets and assumed the
liabilities of Griggs-Anderson, Inc., for $10.9 million in cash and 305,808
shares of Class A Common Stock of the Company, which had an approximate fair
market value of $7.3 million. Griggs-Anderson, Inc. provides custom market
research to vendors in the technology marketplace, research and surveys for the
evaluation of Web sites for effectiveness of content, technical performance,
ease of navigation, impact of graphics, and demographic profiles of users. The
acquisition was accounted for by the purchase method and the purchase price has
been allocated to the assets acquired and the liabilities assumed, based upon
estimated fair values at the date of acquisition. The excess purchase price over
the fair value of amounts assigned to the net tangible assets acquired was $16.9
million, of which $15.5 million has been recorded as goodwill, which is being
amortized over 30 years. In addition, $1.4 million of the purchase price was
allocated to a non-compete agreement and is being amortized over 5 years.
During 1999, the Company completed additional acquisitions for
consideration of $16.1 million in cash. These acquisitions have been accounted
for under the purchase method and substantially all of the purchase price has
been assigned to goodwill.
3 -- DISCONTINUED OPERATION
On July 2, 2001, the Company sold its subsidiary, TechRepublic, to CNET
Networks, Inc. ("CNET") for approximately $23.0 million in cash and common stock
of CNET, before reduction for certain termination benefits. The proceeds were
$14.3 million in cash and 755,058 shares of CNET common stock which had a fair
market value of $12.21 per share on July 2, 2001. The Consolidated Financial
Statements of the Company have been restated to reflect the disposition of the
TechRepublic segment as a discontinued operation in accordance with APB Opinion
No. 30. Accordingly, revenues, costs and expenses, assets, liabilities, and cash
flows of TechRepublic have been excluded from the respective captions in the
Consolidated Statements of Operations, Consolidated Balance Sheets and
Consolidated Statements of Cash Flows, and have been reported through the date
of disposition as "Loss from discontinued operation," "Net assets of
discontinued operation," and "Net cash used by discontinued operation," for all
periods presented.
During 2001, the Company recorded a pre-tax loss of $66.4 million ($39.9
million after tax) to recognize the loss on the sale. This pre-tax loss includes
a write-down of $42.4 million of assets, primarily goodwill, to net realizable
value, operating losses through the date of sale of $6.5 million, severance and
related benefits of $8.3 million, and other sale-related costs and expenses,
including costs associated with the closure of facilities, of $9.2 million.
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Summarized financial information for the discontinued operation is as
follows (in thousands):
STATEMENTS OF OPERATIONS DATA
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000
---------- ----------
<S> <C> <C>
Revenues.................................................... $ 12,368 $ 4,077
======== ========
Loss before income taxes.................................... $(32,574) $(35,199)
(Benefit) for income taxes.................................. (6,515) (7,621)
-------- --------
Loss from discontinued operation, net....................... $(26,059) $(27,578)
======== ========
Loss on disposal before income taxes........................ $(66,436) $ --
(Benefit) for income taxes.................................. (26,512) --
-------- --------
Loss on disposal of discontinued operation, net............. $(39,924) $ --
======== ========
</Table>
BALANCE SHEET DATA
<Table>
<Caption>
SEPTEMBER 30,
--------------
2001 2000
---- -------
<S> <C> <C>
Current assets.............................................. -- $ 3,693
Total assets................................................ -- $84,842
Current liabilities......................................... -- $ 6,335
Long-term liabilities....................................... -- $ 2,178
Net assets of discontinued operation........................ -- $76,329
</Table>
4 -- NET GAIN (LOSS) ON SALE OF INVESTMENTS
During the year ended September 30, 2001, the Company sold the remaining
1,922,795 shares of Jupiter Media Metrix ("Jupiter") for net cash proceeds of
$7.5 million at an average price of $3.91 per share for a pre-tax loss of $5.6
million. In addition the Company received additional stock distributions from
its investment in SI Venture Associates, LLC ("SI I"), and SI Venture Fund II,
LP ("SI II"). During the year ended September 30, 2001, the Company sold a
portion of the shares received from SI I and SI II for net cash proceeds of $6.0
million for a pre-tax gain of $4.9 million.
On June 30, 2000, the Company sold its 8% investment in NETg, Inc. ("NETg")
for $36.0 million in cash to an affiliate of Harcourt, Inc. resulting in a
pre-tax loss of approximately $6.6 million. The Company received the cash
proceeds on July 7, 2000. In addition, the Company recorded an additional loss
in connection with a negotiated settlement of a joint venture agreement
associated with the sale of GartnerLearning for approximately $6.7 million.
On October 7, 1999, Jupiter Communications, Inc. ("Jupiter") completed its
initial public offering at $21.00 per share of common stock. Upon completion of
Jupiter's initial public offering, the Company owned 4,028,503 shares of
Jupiter's outstanding common stock. The change in the Company's proportionate
share of Jupiter's equity resulted in the Company's write-up of the investment
by approximately $15.4 million and increases in deferred tax liability and
additional paid-in capital of approximately $7.1 million and $8.3 million,
respectively. During the quarter ended June 30, 2000, the Company's investment
decreased below 20% of Jupiter's outstanding common stock. Because the Company
had concluded it no longer exercised significant influence over Jupiter, it has
changed its method of accounting for this investment from the equity method to
the cost method. During the year ended September 30, 2000, the Company sold
1,995,950 shares for net cash proceeds of $55.5 million at an average price of
$27.81 per share for a pre-tax gain of $42.9 million. In September 2000, Jupiter
merged with Media Metrix, Inc., creating Jupiter Media Metrix. Jupiter
shareholders received 0.946 shares of Jupiter for each share of Jupiter that
they owned. At the date of the merger, the
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<PAGE>
Company owned 2,032,553 shares of the former Jupiter, which were exchanged for
shares of Jupiter Media Metrix. At September 30, 2000, the Company's investment
of 1,922,795 shares of Jupiter had a fair market value of $30.6 million and is
recorded at fair value and is included in Marketable equity securities in the
Consolidated Balance Sheets at September 30, 2000.
5 -- INVESTMENTS
A summary of the Company's investments in marketable equity securities and
other investments at September 30, 2001 and 2000 is as follows (in thousands):
<Table>
<Caption>
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
As of September 30, 2001:
Marketable equity securities available for
sale...................................... $ 5,287 $2 $(2,039) $ 3,250
Other investments........................... 15,248 -- -- 15,248
------- -- ------- -------
Total.................................. $20,535 $2 $(2,039) $18,498
======= == ======= =======
</Table>
<Table>
<Caption>
GROSS GROSS
UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
As of September 30, 2000:
Marketable equity securities available for
sale...................................... $14,205 $21,265 $(66) $35,404
Other investments........................... 47,037 -- -- 47,037
------- ------- ---- -------
Total.................................. $61,242 $21,265 $(66) $82,441
======= ======= ==== =======
</Table>
At September 30, 2001, marketable equity securities were comprised of
755,058 shares of CNET received in connection with the sale of TechRepublic on
July 2, 2001 which had a fair value of $12.21 per share, or $9.2 million on the
closing date. Since July 2, 2001, the market value of the CNET shares has
declined substantially, accordingly the Company has recorded a $3.9 million
impairment charge in net loss from minority-owned investments representing an
other than temporary decline in market value of the CNET common stock. At
September 30, 2001, these shares are reflected in the September 30, 2001
Consolidated Balance Sheet at their fair market value of $3.2 million after
giving effect to an additional $2.0 million of unrealized losses.
In addition to equity securities owned directly by the Company and through
SI I, a wholly owned affiliate, the Company owns 34% of SI II. Both entities are
venture capital funds engaged in making investments in early to mid-stage
IT-based or Internet-enabled companies. Both entities are managed pursuant to a
management contract with SI Services Company, LLC, an entity controlled by the
former Chairman of the Board of the Company, who continues as an employee of the
Company, and certain former officers and employees of the Company. The accounts
of SI I are included in the Company's Consolidated Financial Statements. The
Company had a total original investment commitment to SI I and SI II of $10.0
million and $30.0 million, respectively, of which $7.4 million of the commitment
to SI II remained unfunded at September 30, 2001. This commitment is expected to
be funded in fiscal 2002.
The Company's investment in SI II is recorded on the equity method. Equity
method investments represent the investments held through SI II. The Company's
share of equity losses were $0.3 million and $0.1 million for fiscal 2001 and
2000, respectively. Other investments is comprised of various cost-based and
equity-based investments. During fiscal 2001, the Company wrote-down certain of
its investments and recognized an impairment charge of $22.6 million for other
than temporary declines in the value of certain investments which is reflected
in Net loss from minority-owned investments in the 2001 Consolidated Statement
of Operations. The Company made an assessment of the carrying value of its
investments and determined that certain investments were in excess of their fair
value due to the significance and duration of the decline in valuation of
comparable companies operating in the internet and technology sectors. The
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<PAGE>
impairment factors evaluated by management may change in subsequent periods,
given that the entities underlying these investments operate in a volatile
business environment. In addition, these entities may require additional
financing to meet their cash and operational needs, however, there can be no
assurance that such funds will be available to the extent needed, at terms
acceptable to the entities, if at all. This could result in additional material
non-cash impairment charges in the future.
6 -- OTHER CHARGES
During 2001, the Company recorded other charges of $46.6 million. Of these
charges, $24.8 million are associated with the Company's workforce reduction
announced in April 2001. This workforce reduction has resulted in the
elimination of 383 positions, or approximately 8% of the Company's workforce.
Approximately $14.3 million of the other charges are associated with the
write-down of goodwill and other long-lived assets to net realizable value as a
result of the Company's decision to discontinue certain unprofitable products,
and $7.5 million of the charge is associated primarily with the write-off of
internally developed systems in connection with the launch of gartner.com and
seat-based pricing. At September 30, 2001, $6.6 million of the termination
benefits relating to the workforce reduction remain to be paid, primarily in the
first quarter of fiscal 2002. The Company is funding these costs out of
operating cash flows.
During 1999, the Company recorded other charges related to reorganization
and recapitalization of approximately $23.4 million on a pre-tax basis.
Approximately $14.2 million of the charge related to certain job eliminations
associated with certain strategic reduction in force initiatives. Approximately
$9.2 million of the other charge pertained to legal and advisory fees associated
with the Company's recapitalization (see Note 16 -- Recapitalization).
7 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, less accumulated
depreciation and amortization consist of the following (in thousands):
<Table>
<Caption>
SEPTEMBER 30,
USEFUL LIFE -------------------
(YEARS) 2001 2000
------------ -------- --------
<S> <C> <C> <C>
Computer equipment and software..................... 2-3 $117,062 $108,071
Furniture and equipment............................. 3-8 49,040 47,635
Leasehold improvements.............................. 2-15 39,758 29,424
-------- --------
205,860 185,130
Less -- accumulated depreciation and amortization... (105,572) (96,728)
-------- --------
$100,288 $ 88,402
======== ========
</Table>
At September 30, 2001 and 2000, capitalized development costs for internal
use software were $27.3 million and $26.3 million, respectively, net of
accumulated amortization of $24.7 million and $10.3 million, respectively.
Amortization of capitalized internal software development costs totaled $14.3
million, $7.2 million and $2.3 million in fiscal 2001, 2000 and 1999,
respectively.
F-17
<PAGE>
8 -- INTANGIBLE ASSETS, NET
Intangible assets, less accumulated amortization consist of the following
(in thousands):
<Table>
<Caption>
SEPTEMBER 30,
AMORTIZATION -------------------
PERIOD (YEARS) 2001 2000
-------------- -------- --------
<S> <C> <C> <C>
Goodwill.......................................... 3-30 $258,200 $263,319
Non-compete agreements............................ 2-5 12,567 11,983
Tradenames........................................ 9-12 1,758 2,247
-------- --------
272,525 277,549
Less -- accumulated amortization.................. (50,292) (40,444)
-------- --------
$222,233 $237,105
======== ========
</Table>
9 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (in
thousands):
<Table>
<Caption>
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
<S> <C> <C>
Taxes payable............................................... $ 49,128 $ 51,100
Payroll and related benefits payable........................ 35,529 44,099
Commissions payable......................................... 19,987 33,985
Accounts payable............................................ 14,509 23,938
Current deferred taxes payable.............................. -- 9,344
Other accrued liabilities................................... 42,098 28,999
-------- --------
$161,251 $191,465
======== ========
</Table>
10 -- DEBT
On July 16, 1999, the Company entered into an unsecured Credit Agreement
with JPMorgan Chase Bank, as administrative agent for the participating
financial institutions thereunder, providing for a maximum of $500.0 million of
credit facilities, consisting of a $350.0 million term loan and a $150.0 million
senior revolving credit facility. On February 25, 2000, the Company modified
certain financial and other covenants to permit the issuance of convertible
debt. Loans under the revolving facility were to be available for five years,
subject to certain customary conditions on the date of any such loan. On July
17, 2000, the Company entered into a second amendment to the Credit Agreement.
Under this amendment, the Company agreed to refinance all existing indebtedness
and to repay in full and terminate the term loans drawn under the existing
Credit Agreement. At September 30, 2001, the Company has a senior revolving
credit facility, as amended, totaling a maximum aggregate principal amount of up
to $200.0 million. In connection with the extinguishment of the $350.0 million
term loan, the Company wrote off $1.7 million, net of the related tax benefit of
$1.2 million, of deferred debt issuance costs in the fourth quarter of fiscal
2000. The charge was recorded as an extraordinary loss on debt extinguishment.
At September 30, 2001, $15.0 million was outstanding under the revolving
credit facility. A commitment fee of 0.30% to 0.50% is paid on the unused
revolving credit amount. Pursuant to certain financial covenants of the
revolving credit facility, the Company had $123.7 million of available
borrowings at September 30, 2001. The weighted average interest rate on
borrowings was 6.8% for the year ended September 30, 2001.
On April 17, 2000, the Company issued in a private placement transaction,
$300.0 million of 6% convertible subordinated notes (the "convertible notes") to
Silver Lake Partners, L.P. ("Silver Lake") and certain of Silver Lake's
affiliates. The convertible notes mature in April 2005 and accrue interest at 6%
per annum. Interest accrues semi-annually by a corresponding increase in the
face amount of the convertible notes
F-18
<PAGE>
commencing September 15, 2000. Accordingly, $26.2 million has been added to the
face amount of the convertible notes' balance outstanding at September 30, 2001.
As part of the transaction, two Silver Lake representatives were elected to
the Company's ten-member Board of Directors. The Company also granted to Silver
Lake the right to acquire 5% of any Company subsidiary that is spun off or spun
out at 80% of the initial public offering price. The Company valued the option
at $1.0 million, which was recorded as a discount to the convertible notes, and
is being amortized to interest expense over the five-year term.
On April 18, 2000, $200.0 million of the proceeds were used to pay down
term loan borrowings under the Credit Agreement with JPMorgan Chase Bank. The
Company incurred $7.9 million of transaction and advisory fees related to the
transaction. These fees were accounted for as debt issuance costs and are being
amortized over the five-year term of the debt using the effective interest
method.
The convertible notes were originally convertible into shares of the
Company's Class A Common Stock, commencing April 17, 2003, at an initial price
of $15.87 per share. In accordance with the original terms of the note, on the
first anniversary date of issuance of the convertible notes, April 17, 2001, the
conversion price was adjusted, or reset, to be equal to the lower of the initial
conversion price of $15.87 per share, or the average closing price over the
thirty trading day period ending April 17, 2001 if less than $14.43, a price
equal to a 10% premium to the average closing price over that same period. On
April 17, 2001, the conversion price was reduced to $7.45 per share. The number
of shares of Class A Common Stock issuable upon conversion of the notes as of
September 30, 2001 was 43.9 million shares with a total market value of $397.2
million, using the Company's September 30, 2001 market price of $9.05 per share.
On or after April 17, 2003, subject to satisfaction of certain customary
conditions, the Company may redeem all of the convertible notes for cash
provided that (1) the average closing price of the class A Common Stock for the
twenty consecutive trading days immediately preceding the date the redemption
notice is given equals or exceeds 150% of the adjusted conversion price of $7.45
per share, and (2) the closing price of the Class A Common Stock on the trading
day immediately preceding the date the redemption notice is given also equals or
exceeds 150% of the adjusted conversion price. The redemption price is the face
amount of the notes plus all accrued interest. If the Company initiates the
redemption, Silver Lake has the option of receiving payment in cash, stock, or a
combination of cash and stock.
Commencing on April 18, 2003, Silver Lake may elect to convert all or a
portion of the notes to stock. If Silver Lake initiates the conversion, the
Company has the option of redeeming all such notes for cash at a price based on
the number of shares into which the notes would be converted and the market
price on the date the notice of conversion is given.
On the maturity date, April 17, 2005, the Company must satisfy any
remaining notes for cash.
Letters of credit are issued by the Company in the ordinary course of
business. At September 30, 2001, the Company had outstanding letters of credit
with The Bank of New York for $2.0 million and with JPMorgan Chase Bank for $0.8
million.
F-19
<PAGE>
11 -- COMMITMENTS AND CONTINGENCIES
The Company leases various facilities, furniture and computer equipment
under operating lease arrangements expiring between 2001 and 2026. Future
minimum annual payments under non-cancelable operating lease agreements at
September 30, 2001 are as follows (in thousands):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
- ------------------------
<S> <C>
2002...................................................... $ 27,706
2003...................................................... 23,903
2004...................................................... 21,674
2005...................................................... 19,374
2006...................................................... 16,303
Thereafter................................................ 122,742
--------
Total minimum lease payments.............................. $231,702
========
</Table>
Rental expense for operating leases, net of sublease income, was $26.9
million, $22.4 million, and $18.4 million for the years ended September 30,
2001, 2000 and 1999, respectively. The Company has commitments with two
facilities management companies for printing, copying, mailroom and other
related services. The minimum annual obligations under these service agreements
are $4.9 million for 2002 and $1.6 million for 2003.
The Company is involved in legal proceedings and litigation arising in the
ordinary course of business. The Company believes the outcome of all current
proceedings, claims and litigation will not have a material effect on the
Company's financial position or results of operations when resolved in a future
period.
12 -- STOCKHOLDERS' EQUITY (DEFICIT)
Capital stock. Class A Common Stock and Class B Common Stock stockholders
are entitled to one vote per share on all matters to be voted by stockholders
and vote together as a single class, other than with respect to the election of
directors. Class A Common Stock stockholders are entitled to one vote per share
on the election of Class A directors, which constitute no more than 20% of the
directors, and Class B Common Stock stockholders are entitled to one vote per
share on the election of Class B directors, which constitute at least 80% of the
directors.
Stock option plans. The Company's 1991 Stock Option Plan expired on April
25, 2001. As a result, as of September 30, 2001, no options were available for
future grant under this plan. At September 30, 2000, 1,354,876 options were
available for grant.
In January 1993, the Company adopted the 1993 Director Option Plan, a stock
option plan for directors, and reserved an aggregate of 1,200,000 shares of
Class A Common Stock for issuance under this plan. The plan currently provides
for the automatic grant of 15,000 options to purchase shares of Class A Common
Stock to each non-employee director upon first becoming an outside director and
the automatic grant of an option to purchase an additional 7,000 shares of Class
A Common Stock annually based on continuous service as an outside director. The
exercise price of each option granted under the plan is equal to the fair market
value of the Class A Common Stock at the date of grant. Options granted are
subject to yearly vesting over a three-year period after the date of grant.
Directors are also compensated in common stock equivalents payable under this
plan. At September 30, 2001 and 2000, 420,738 and 464,635 options were available
for grant, respectively.
In October 1994, the Board of Directors and stockholders of the Company
approved the adoption of a Long-Term Stock Option Plan and the reservation of an
aggregate of 6,560,000 shares of Class A Common Stock for issuance thereunder.
The purpose of the plan is to provide to senior personnel long-term equity
participation in the Company as an incentive to promote the long-term success of
the Company. The exercise price of each option granted under the plan is equal
to the fair market value of the Class A Common Stock at the date of grant.
Options granted under the plan vest and become fully exercisable five years
following the
F-20
<PAGE>
date of grant, based on continued employment, and have a term of ten years from
the date of grant assuming continued employment. Vesting and exercisability
accelerates upon achievement of certain financial performance targets determined
by the Board of Directors. If the financial performance targets are met for the
year of grant in accordance with parameters as set by the Board at its sole
discretion, 25% of the shares granted become exercisable on the first
anniversary date following the date of grant and, if cumulative financial
performance targets are met for both the first and second years following the
date of grant, a second 25% become exercisable three years following the date of
grant. If cumulative financial performance targets are met for all three years
following the date of grant, a third 25% become exercisable on the fourth
anniversary date following the date of grant and the final 25% become
exercisable on the fifth anniversary following the date of grant. Based on
cumulative performance through 2001, 1,652,770 shares were exercisable on
September 30, 2001. At September 30, 2001 and 2000, 419,250 and 600,250 options
were available for grant, respectively.
In October 1996, the Company adopted the 1996 Long Term Stock Option Plan.
Under the terms of the plan, the Board of Directors may grant non-qualified and
incentive options, entitling employees to purchase shares of the Company's
common stock at the fair market value at the date of option grant. A total of
1,800,000 shares of Class A Common Stock was reserved for issuance under this
plan. All options granted under the plan vest and become fully exercisable six
years following the date of grant, based on continued employment, and have a
term of ten years from the date of grant assuming continued employment. Vesting
and exercisability accelerates upon achievement of certain financial performance
targets determined by the Board of Directors. If financial performance targets
are met in the year of grant in accordance with parameters as set by the Board
in its sole discretion, 25% of the shares granted become exercisable on the
third anniversary date following the date of grant. If cumulative financial
performance targets are met for both the first and second years following the
date of grant, a second 25% become exercisable three years following the date of
grant. If financial performance targets are met cumulatively for all three years
following the date of grant, a third 25% become exercisable on the fourth
anniversary date following the date of grant and the final 25% become
exercisable on the fifth anniversary following the date of grant. Based on 1997
and 1998 performance, 638,000 options were exercisable on September 30, 2001.
Based on 1999 performance, an additional 172,375 will vest in 2002. Based on
2000 and 2001 performance, there was no additional acceleration of vesting. At
September 30, 2001 and 2000, 952,125 and 812,000 options to purchase common
stock were available for grant, respectively.
In October 1998, the Company adopted the 1998 Long Term Stock Option Plan.
Under the terms of the plan, the Board of Directors may grant non-qualified and
incentive options, entitling employees to purchase shares of the Company's
common stock at the fair market value at the date of option or restricted stock
grant. A total of 2,500,000 shares of Class A Common Stock was reserved for
issuance under this plan. Options currently granted under the plan generally
vest and become fully exercisable six years following the date of grant, based
on continued employment, and have a term of ten years from the date of grant
assuming continued employment. Vesting and exercisability accelerates upon
achievement of certain financial performance targets determined by the Board of
Directors. If financial performance targets are met in the year of grant in
accordance with parameters as set by the Board in its sole discretion, 25% of
the shares granted become exercisable in the third anniversary date following
the date of grant. If cumulative financial performance targets are met for both
the first and second years following the date of grant, a second 25% become
exercisable three years following the date of grant. If financial performance
targets are met cumulatively for all three years following the date of grant, a
third 25% become exercisable on the fourth anniversary date following the date
of grant and the final 25% become exercisable on the fifth anniversary following
the date of grant. Based on cumulative 2001 performance, no vesting has
accelerated. At September 30, 2001 and 2000, 838,509 and 662,001 options to
purchase common stock were available for grant, respectively.
On December 15, 1998, the Company adopted an option exchange program that
allowed the exchange of certain stock options granted from April 1998 through
July 1998 for options with an exercise price of $20.46. In total, options to
purchase 4,737,400 shares of common stock were exchanged under this program. The
original vesting schedules and expiration dates associated with these stock
options were also amended to
F-21
<PAGE>
commence with the stock option exchange program date. These amounts have been
included as granted and canceled options during 1999 in the summary activity
table shown below.
In connection with the recapitalization (see Note 16 -- Recapitalization),
substantially all options with an exercise price below the fair market value of
the stock on the effective date were reduced to maintain the ratio of the
exercise price to the fair market value of the stock prior to the special,
nonrecurring cash dividend, which was $1.1945 per share. The exercise prices of
options with an exercise price equal to or greater than the fair market value of
the stock on the effective date were reduced by an amount equal to the dividend
per share paid by the Company. No changes were made in either the number of
shares of common stock covered or in the vesting schedule of the options.
In November 1999, the Company adopted the 1999 Stock Option Plan. Under the
terms of the plan, the Board of Directors may grant non-qualified and incentive
stock options and other awards to eligible employees and consultants. The
Company's directors and most highly compensated executive officers are not
eligible for awards under the plan. A total of 20,000,000 shares of Class A
Common Stock was reserved for issuance under this plan. Substantially all of the
options currently granted under the plan vest and become fully exercisable each
year for three years in equal installments following the date of grant, based on
continued employment, and have a term of ten years from the date of grant
assuming continued employment. At September 30, 2001 and 2000, 2,767,349 and
9,776,090 options to purchase common stock were available for grant,
respectively.
A summary of stock option activity under the plans and agreement through
September 30, 2001 follows:
<Table>
<Caption>
WEIGHTED
CLASS A COMMON STOCK AVERAGE EXERCISE
UNDER OPTION PRICE
-------------------- ----------------
<S> <C> <C>
Outstanding at September 30, 1998.................. 16,131,032 $19.086
Granted.......................................... 11,818,259 $20.946
Exercised........................................ (2,648,169) $ 6.810
Canceled......................................... (7,511,554) $21.637
----------
Outstanding at September 30, 1999.................. 17,789,568 $17.475
Granted.......................................... 18,256,310 $11.859
Exercised........................................ (1,379,306) $ 5.886
Canceled......................................... (4,099,846) $17.240
----------
Outstanding at September 30, 2000.................. 30,566,726 $14.669
Granted.......................................... 10,339,620 $ 8.207
Exercised........................................ (592,832) $ 6.156
Canceled......................................... (5,330,390) $13.859
----------
Outstanding at September 30, 2001.................. 34,983,124 $13.029
========== =======
</Table>
Options for the purchase of 12,935,484 and 6,754,574 shares of Class A
Common Stock were exercisable at September 30, 2001 and 2000, respectively.
F-22
<PAGE>
The following table summarizes information about stock options outstanding
at September 30, 2001:
<Table>
<Caption>
WEIGHTED
AVERAGE
REMAINING WEIGHTED
NUMBER CONTRACTUAL NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
$ 1.00 - 6.77.............................. 1,477,951 3.87 1,277,886 $ 6.75
$ 6.90 - 9.94.............................. 9,218,477 8.88 508,450 $ 7.84
$10.28 - 10.31.............................. 8,720,999 8.11 3,588,965 $10.31
$10.40 - 14.56.............................. 4,375,623 8.60 1,495,434 $13.62
$15.67 - 19.90.............................. 7,688,799 6.91 4,368,319 $18.52
$20.46 - 37.29.............................. 3,501,275 6.92 1,696,430 $24.24
---------- ----------
34,983,124 12,935,484
========== ==========
</Table>
Employee stock purchase plans. In January 1993, the Company adopted
employee stock purchase plans, and reserved an aggregate of 4,000,000 shares of
Class A Common Stock for issuance under this plan. Eligible employees are
permitted to purchase Class A Common Stock through payroll deductions, which may
not exceed 10% of an employee's compensation (or $21,250 in any calendar year),
at a price equal to 85% of the Class A Common Stock price as reported by NYSE at
the beginning or end of each offering period, whichever is lower. Eligible
international employees can purchase shares at a price that is calculated
monthly with no corresponding discount. During the years ended September 30,
2001 and 2000, 769,085 and 394,279 shares were issued from treasury stock at an
average purchase price of $7.01 and $12.72 per share, respectively, in
conjunction with this plan. At September 30, 2001 and 2000, 676,994 and
1,429,406 shares were available for purchase under the plan, respectively.
Restricted stock awards. Beginning in 1998, the Company granted restricted
stock awards under the 1991 Stock Option Plan and the 1998 Long Term Stock
Option Plan. The restricted stock awards vest in six equal installments with the
first installment vesting two years after the grant and then annually
thereafter. Recipients are not required to provide consideration to the Company
other than rendering service and have the right to vote the shares and to
receive dividends. The restricted stock may not be sold by the employee during
the vesting period. In 1999, the Company also granted 40,500 stock options under
the 1998 Long Term Stock Option Plan with an exercise price of $1.00 per share
that vest on the same basis as the restricted stock awards to certain
international employees. Such stock options had a weighted average fair market
value of $22.81 per stock option on the date of grant. At September 30, 2001, a
total of 271,616 restricted shares of Class A Common Stock were outstanding at a
weighted average market value, as of the original grant date, of $23.14 per
share. At September 30, 2000, a total of 417,499 restricted shares of Class A
Common Stock were outstanding at a weighted average market value, as of the
original grant date, of $22.26 per share. In 2000, the Company granted a
restricted stock award of 50,000 shares with a fair market value of $13.00 per
share. During 2001, there were forfeitures and acceleration of grants of 64,593
shares and 9,581 shares, respectively. At September 30, 2001, the aggregate
unamortized compensation expense for restricted stock awards and the $1 stock
option grants was $5.1 million. During 2000, there were forfeitures and
acceleration of grants of 77,501 shares and 7,833 shares, respectively. Total
compensation expense recognized for the restricted stock awards and option
grants was $1.1 million, $1.1 million and $1.7 million for 2001, 2000 and 1999,
respectively.
Deferred compensation employee stock trust. The Company has supplemental
deferred compensation arrangements for the benefit of certain officers, managers
and other key employees. These arrangements are funded by life insurance
contracts, which have been purchased by the Company. The plan permits the
participants to diversify in marketable equity securities. The value of the
assets held, managed and invested, pursuant to the agreement was $7.8 million
and $7.2 million at September 30, 2001 and 2000, respectively, and are included
in other assets. The corresponding deferred compensation liability of $8.8
million and $8.2 million at September 30, 2001 and 2000, respectively, is
recorded at the fair market value of the shares held in a rabbi trust and
adjusted, with a corresponding charge or credit to compensation cost, to reflect
the fair value of the amount owned by the employee. Due to declines in the fair
value of the shares held by the
F-23
<PAGE>
rabbi trust, the Company recorded no compensation expense for fiscal 2001. Total
compensation expense recognized for the plan in fiscal 2000 was $1.0 million.
Forward purchase agreements. Beginning in 1997, the Company entered into a
series of forward purchase agreements to effect the repurchase of 1,800,000 of
its Class A Common Stock. These agreements were settled quarterly at the
Company's option on a net basis in either shares of its own Class A Common Stock
or cash. To the extent that the market price of the Company's Class A Common
Stock on a settlement date is higher (lower) than the forward purchase price,
the net differential is received (paid) by the Company. During the year ended
September 30, 1999, four settlements resulted in the Company receiving 155,962
shares of Class A Common Stock and paying approximately $10.9 million in cash.
During the year ended September 30, 2000, four settlements resulted in the
Company receiving 155,792 shares of Class A Common Stock and paying
approximately $8.2 million in cash. During the year ended September 30, 2001,
two settlements resulted in the Company delivering 491,789 shares of Class A
Common Stock and paying approximately $64,000 in cash. During June 2001, the
Company terminated the forward purchase agreement by reacquiring 1,164,154
shares of Class A Common Stock for approximately $9.7 million.
Stock repurchases. On July 19, 2001, the Company's Board of Directors
approved the repurchase of up to $75.0 million of Class A and Class B Common
Stock. Repurchases will be made from time to time over the next two years
through open market purchases, subject to the availability of the stock,
prevailing market conditions, the market price of the stock, and the Company's
financial performance. Repurchases will be funded from cash flow from operations
and possible borrowings under the Company's existing credit facility.
Repurchases will be made proportionately between shares of the two classes of
common stock. On August 29, 2001, the Company purchased 1,867,149 shares of its
Class A Common Stock at $9.88 per share from IMS Health, Inc. During the fourth
quarter of fiscal 2001, the Company purchased an additional 451,000 shares of
Class A Common Stock and 7,960 shares of Class B Common Stock in the open
market, at an average price of $9.42 per share.
Stock based compensation. The Company applies the provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for stock-based compensation plans. Accordingly,
no compensation cost has been recognized for the fixed stock option plans.
Pursuant to the requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the following are the pro forma
net income (loss) and net income (loss) per share for the years ended September
30, 2001, 2000, and 1999 had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant date for
grants under those plans (in thousands, except per share data):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
-----------------------------
2001 2000 1999
--------- ------- -------
<S> <C> <C> <C>
Net income (loss)
As reported......................................... $ (66,203) $25,546 $88,271
Pro forma........................................... $(106,370) $(3,325) $67,128
Net income (loss) per diluted common share
As reported......................................... $ (0.77) $ 0.29 $ 0.84
Pro forma........................................... $ (1.24) $ (0.04) $ 0.64
--------- ------- -------
</Table>
The pro forma disclosures shown above reflect options granted after the year
ended September 30, 1995 and are not likely to be representative of the effects
on net income (loss) and net income (loss) per common share in future years.
F-24
<PAGE>
The fair value of the Company's stock plans used to compute pro forma net
income and diluted earnings per share disclosures is the estimated fair value at
grant date using the Black-Scholes option pricing model. The following
weighted-average assumptions were utilized for stock options granted or
modified:
<Table>
<Caption>
2001 2000 1999
----- ------------- -------------
<S> <C> <C> <C>
Expected life (in years)...................... 3.1 3.1 - 5.2 3.1 - 5.0
Expected volatility........................... .65 .44 .40
Risk free interest rate....................... 3.2% 5.76% - 6.08% 4.93% - 5.82%
Expected dividend yield....................... 0.00% 0.00% 0.00%
</Table>
The weighted average fair values of the Company's stock options granted in
the years ended September 30, 2001, 2000 and 1999 are $3.77, $6.63 and $10.19,
respectively.
13 -- COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK FROM CONTINUING
OPERATIONS
Basic earnings per share ("EPS") is computed by dividing earnings available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings. When the exercise of stock options is
antidilutive they are excluded from the calculation.
The following table sets forth the reconciliation of the basic and diluted
net earnings per share computations (in thousands, except per share).
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
----------------------------
2001 2000 1999
------- ------- --------
<S> <C> <C> <C>
Numerator:
Net income (loss) from continuing operations.............. $ (220) $54,853 $ 88,271
======= ======= ========
Denominator
Denominator for basic income (loss) per share -- weighted
average number of common shares outstanding............ 85,862 86,564 101,881
Effect of dilutive securities:
Weighted average number of common shares under warrant
outstanding............................................ -- -- 155
Weighted average number of option shares outstanding...... -- 2,544 2,567
------- ------- --------
Dilutive potential common shares.......................... -- 2,544 2,722
------- ------- --------
Denominator for diluted income (loss) per share --adjusted
weighted average number of common shares outstanding... 85,862 89,108 104,603
======= ======= ========
Basic income (loss) per common share from continuing
operations................................................ $ 0.00 $ 0.63 $ 0.87
======= ======= ========
Diluted income (loss) per common share from continuing
operations................................................ $ 0.00 $ 0.62 $ 0.84
======= ======= ========
</Table>
For the year ended September 30, 2001, options to purchase 35.0 million
shares of Class A Common Stock of the Company were not included in the
computation of diluted loss per share because the effect would have been
antidilutive. For the year ended September 30, 2000, options to purchase 14.3
million shares of Class A Common Stock of the Company with exercise prices
greater than the average fair market value of $13.78 were not included in the
computation of diluted net income per share because the effect would have been
antidilutive. For the years ended September 30, 2001 and 2000, unvested
restricted stock awards were not included in the computation of diluted earnings
(loss) per share because the effect would have been antidilutive. Additionally,
convertible notes outstanding for the year ended September 30, 2001 and 2000,
representing 30.5 million and 8.8 million common shares, if converted, and the
related interest expense of $18.8 million and $8.2 million, respectively, were
not included in the computation of diluted net income (loss) per share because
the effect would have been antidilutive.
F-25
<PAGE>
14 -- INCOME TAXES
Following is a summary of the components of income before provision for
income taxes, loss from discontinued operations and extraordinary loss (in
thousands):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------------
2001 2000 1999
--------- ------- --------
<S> <C> <C> <C>
U.S.................................................. $(132,522) $27,016 $107,243
Non-U.S.............................................. 24,120 26,204 32,004
--------- ------- --------
Total........................................... (108,402) 53,220 139,247
Extraordinary loss on debt extinguishment............ -- 2,881 --
Loss from discontinued operations.................... 99,010 35,199 --
--------- ------- --------
Income (loss) from continuing operations before
income taxes....................................... $ (9,392) $91,300 $139,247
========= ======= ========
</Table>
The provision for income tax on the above income consists of the following
components (in thousands):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
-----------------------------
2001 2000 1999
-------- -------- -------
<S> <C> <C> <C>
Current tax expense from operations:
U.S. federal........................................ $ 9,192 $ 23,556 $18,613
State and local..................................... 4,862 11,660 2,977
Foreign............................................. 10,258 7,211 6,533
-------- -------- -------
Total current......................................... 24,312 42,427 28,123
Deferred tax expense (benefit):
U.S. federal........................................ (29,355) (5,768) 4,286
State and local..................................... (4,782) (2,754) 1,052
Foreign............................................. (836) (1,637) 1,310
-------- -------- -------
Total deferred........................................ (34,973) (10,159) 6,648
-------- -------- -------
Total current and deferred............................ (10,661) 32,268 34,771
Benefit of stock transactions with employees.......... 1,331 4,179 15,878
Benefit of purchased tax benefits applied to reduce
goodwill............................................ 158 -- 327
-------- -------- -------
Income tax (benefit) expense on continuing
operations....................................... (9,172) 36,447 50,976
Current taxes from extraordinary loss:
U.S. federal tax expense on debt extinguishment..... -- (922) --
State and local tax expense on debt
extinguishment................................... -- (230) --
Current taxes from loss on discontinued operations:
U.S. federal........................................ (33,522) (7,985) --
State and local..................................... (1,585) (287) --
Deferred tax expense (benefit) from loss on
discontinued operations:
U.S. federal........................................ 137 (135) --
State and local..................................... 178 (180) --
Benefit of purchased tax benefits applied to reduce
goodwill on loss from discontinued operations....... 1,765 966 --
-------- -------- -------
$(42,199) $ 27,674 $50,976
======== ======== =======
</Table>
F-26
<PAGE>
Current and long-term deferred tax assets and liabilities are comprised of
the following (in thousands):
<Table>
<Caption>
SEPTEMBER 30,
-------------------
2001 2000
-------- --------
<S> <C> <C>
Depreciation and amortization............................... $ 5,426 $ 3,052
Expense accruals for book purposes.......................... 29,530 11,277
Loss and credit carryforwards............................... 26,832 13,320
Intangible assets........................................... 9,906 2,150
Equity interest............................................. 814 --
Other....................................................... 4,078 1,420
-------- --------
Gross deferred tax asset.................................... 76,586 31,219
-------- --------
Intangible assets........................................... (11,121) (12,691)
Equity interest............................................. (87) (15,651)
Other....................................................... -- (165)
-------- --------
Gross deferred tax liability................................ (11,208) (28,507)
-------- --------
Valuation allowance......................................... (26,072) (10,083)
-------- --------
Net deferred tax asset (liability).......................... $ 39,306 $ (7,371)
======== ========
</Table>
Current and long-term net deferred tax assets were $9.9 million and $29.4
million as of September 30, 2001 and were $0.2 million and $2.2 million as of
September 30, 2000, respectively, and are included in Prepaid expenses and other
current assets and Other assets in the Consolidated Balance Sheets. Current and
long-term net deferred tax liabilities were $9.5 million and $0.3 million as of
September 30, 2000, and were included in Accounts payable and accrued
liabilities and Other liabilities in the Consolidated Balance Sheet. In 2001,
the Company recorded a $27.5 million current tax receivable as a result of its
ability to recover federal income taxes for capital loss and foreign tax credit
carrybacks. This amount is included in Prepaid expenses and other current assets
in the Consolidated Balance Sheet.
The valuation allowance relates to domestic and foreign tax net operating
loss and capital loss carryforwards that more likely than not will expire
unutilized. The net increase in the valuation allowance of approximately $16.0
million in the current year results primarily from the increase in federal and
state and local tax capital loss carryforwards of $14.8 million and $7.2
million, respectively, the net decrease in federal and state and local net
operating losses of $4.6 million and $1.9 million, respectively, and the net
increase in foreign tax loss carryforwards of approximately $0.5 million.
Approximately $2.4 million of the valuation allowance will reduce additional
paid-in-capital upon subsequent recognition of any related tax benefits.
F-27
<PAGE>
The differences between the U.S. federal statutory income tax rate and the
Company's effective tax rate on income from continuing operations are:
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------
2001 2000 1999
------ ---- ----
<S> <C> <C> <C>
Statutory tax rate......................................... (35.0)% 35.0% 35.0%
State income taxes, net of federal benefit................. 3.6 6.9 3.1
Foreign income taxed at a different rate................... 13.2 (2.5) 1.7
Non-deductible goodwill and direct acquisition costs....... 18.1 2.2 1.1
Non-taxable income......................................... (0.3) (0.1) (1.3)
Exempt foreign trading gross receipts...................... (13.5) (0.8) (2.3)
Non-deductible recapitalization costs...................... -- -- 2.2
Benefit of operating loss and tax credit carryforwards..... -- -- (2.0)
Settlement of tax exams.................................... -- -- (1.8)
Non-deductible meals and entertainment expense............. 5.6 0.6 0.3
Officers life insurance.................................... 12.7 (0.3) --
Valuation allowance on losses from minority-owned
investments.............................................. 88.5 -- --
Utilization of foreign tax credits......................... (185.1) -- --
Other items................................................ (5.5) (1.0) 0.6
------ ---- ----
Effective tax rate......................................... (97.7)% 40.0% 36.6%
====== ==== ====
</Table>
As of September 30, 2001 the Company had U.S. federal tax net operating
loss carryforwards of $0.2 million which will expire in fifteen to twenty years,
federal capital loss carryforwards of $18.5 million which will expire in five
years, foreign tax credit carryforwards of $8.6 million which will expire in
five years and other federal tax credit carryforwards of $1.7 million which can
be carried forward indefinitely. The Company had state and local tax net
operating loss carryforwards of $83.8 million, of which $20.9 million will
expire within one to five years, $7.3 million will expire within six to fifteen
years, and $55.6 million will expire within sixteen to twenty years. The Company
also had $68.9 million in state and local capital loss carryforwards which will
expire in five years. Lastly, the Company had foreign tax loss carryforwards of
$5.4 million of which $2.4 million will expire in two years and $3.0 million
which can be carried forward indefinitely.
In 2001, the Company generated a one-time tax benefit of $14.5 million due
to the utilization of foreign tax credits. In 2001, the Company also recorded a
valuation reserve of $8.3 million on deferred tax assets generated from losses
from minority-owned investments.
15 -- EMPLOYEE BENEFITS
The Company has a savings and investment plan covering substantially all
domestic employees. The Company contributes amounts to this plan based upon the
level of the employee contributions. In addition, the Company also contributes
fixed and discretionary amounts based on employee participation and attainment
of operating margins set by the Board of Directors. Amounts expensed in
connection with the plan totaled $10.5 million, $8.5 million, and $6.6 million
for the years ended September 30, 2001, 2000, and 1999, respectively.
16 -- RECAPITALIZATION
The Dun and Bradstreet Corporation ("D&B"), an investor in Information
Partners Capital Fund, L.P. ("Fund"), provided a portion of the financing in
connection with the acquisition of the Company in October 1990. In April 1993,
D&B acquired a majority of the outstanding voting securities of the Company in
transactions among the Company, D&B and persons and entities associated with the
Fund. On November 1, 1996, D&B transferred ownership of its common stock of the
Company to Cognizant Corporation ("Cogni-
F-28
<PAGE>
zant"), a spin-off of D&B and an independent public company. At the date of
transfer, these shares represented 51% of the Company's outstanding common
stock. During the year ended September 30, 1997, Cognizant's ownership of the
Company's outstanding common stock fell below 50%. On June 30, 1998, Cognizant
transferred its ownership in the Company to IMS Health Incorporated ("IMS
Health"), a spin-off of Cognizant and an independent public company.
On July 16, 1999, the Company's stockholders approved a series of
transactions that resulted in the separation of the Company and IMS Health. This
was accomplished, in part, through the recapitalization of the Company's
outstanding Common Stock into two classes of Common Stock, consisting of Class A
Common Stock and Class B Common Stock, and the issuance of an aggregate of
40,689,648 shares of Class B Common Stock to IMS Health in exchange for a like
number of shares of Class A Common Stock held by IMS Health. The separation was
effected, in part, through the July 26, 1999 tax-free distribution by IMS Health
to its stockholders of the newly issued Class B Common Stock of the Company
owned by IMS Health. The Class B Common Stock is identical in all respects to
the Class A Common Stock, except that the Class B Common Stock is entitled to
elect at least 80% of the members of the Company's Board of Directors. The
Company's stockholders also approved an amendment to the Company's Certificate
of Incorporation to create a classified Board of Directors of three classes
having staggered three-year terms.
The Company also declared a special, nonrecurring cash dividend of $1.1945
per share, payable to all Company stockholders of record as of July 16, 1999.
The cash dividend, totaling approximately $125.0 million, was paid on July 22,
1999 and was funded out of existing cash.
On August 29, 2001, the Company purchased 1,867,149 shares of its Class A
Common Stock at $9.88 per share from IMS Health. The Company also confirmed on
that date that IMS Health sold its remaining shares of the Company's Class A
Common Stock at $9.88 per share through a direct placement to several
institutional investors. These transactions divest IMS Health of any remaining
ownership in the Company.
Under the terms of the recapitalization agreement, the Company is required
to indemnify IMS Health for additional taxes, under certain circumstances, if
actions by the Company cause the distribution to become taxable to IMS Health
and its stockholders. These actions include the use of stock for substantial
acquisitions and the issuance, without regulatory approval, of stock options
over set limitations during a two-year period following the recapitalization. In
addition, the Company has indemnified IMS Health for any tax liabilities
associated with the spin-off that may result from the acquisition of the
Company. The Company monitors compliance in this regard and believes that it is
unlikely, within matters under the Company's control, that it will incur any
significant costs as a result of its indemnity.
17 -- SEGMENT INFORMATION
The Company previously managed its business in four reportable segments
organized on the basis of differences in its related products and services. With
the discontinuance and sale of TechRepublic (see Note 3 -- Discontinued
Operation), three reportable segments remain: research, consulting and events.
Research consists primarily of subscription-based research products. Consulting
consists primarily of consulting and measurement engagements and strategic
advisory services. Events consists of various symposia, conferences and
exhibitions.
The Company evaluates reportable segment performance and allocates
resources based on gross contribution margin. Gross contribution, as presented
below, is defined as operating income excluding certain selling, general and
administrative expenses, depreciation, amortization of intangibles and other
charges. The accounting policies used by the reportable segments are the same as
those used by the Company.
The Company earns revenue from clients in many countries. Other than the
United States, the Company's country of domicile, there is no individual country
in which revenues from external clients represent 10% or more of the Company's
consolidated revenues. Additionally, no single client accounted for 10% or more
of total revenue and the loss of a single client, in management's opinion, would
not have a material adverse effect on revenues.
F-29
<PAGE>
The Company does not identify or allocate assets, including capital
expenditures, by operating segment. Accordingly, assets are not being reported
by segment because the information is not available by segment and is not
reviewed in the evaluation of performance or making decisions in the allocation
of resources.
The following tables present information about reportable segments (in
thousands). The "Other" column includes certain revenues and corporate and other
expenses (primarily selling, general and administrative) unallocated to
reportable segments, expenses allocated to operations that do not meet the
segment reporting quantitative threshold, and other charges. There are no
intersegment revenues:
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 2001 RESEARCH CONSULTING EVENTS OTHER CONSOLIDATED
- ----------------------------- -------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues...................... $535,114 $265,450 $132,684 $ 18,794 $ 952,042
Gross contribution............ 352,574 86,949 63,625 4,227 507,375
Corporate and other
expenses.................... (464,861) (464,861)
Net loss on sale of
investments................. (640)
Net loss from minority-owned
investments................. (26,817)
Interest income............... 1,616
Interest expense.............. (22,391)
Other expense, net............ (3,674)
Loss from continuing
operations before income
taxes....................... (9,392)
</Table>
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 2000 RESEARCH CONSULTING EVENTS OTHER CONSOLIDATED
- ----------------------------- -------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues...................... $509,781 $208,810 $108,589 $ 27,414 $ 854,594
Gross contribution............ 341,061 75,652 50,604 11,231 478,548
Corporate and other
expenses.................... (394,417) (394,417)
Net gain on sale of
investments................. 29,630
Net loss from minority-owned
investments................. (775)
Interest income............... 3,936
Interest expense.............. (24,900)
Other income expense, net..... (722)
Income from continuing
operations before income
taxes....................... 91,300
</Table>
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 1999 RESEARCH CONSULTING EVENTS OTHER CONSOLIDATED
- ----------------------------- -------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues....................... $479,045 $149,840 $75,581 $ 29,768 $ 734,234
Gross contribution............. 336,919 55,857 32,532 12,152 437,460
Corporate and other expenses... (304,092) (304,092)
Net loss from minority-owned
investments.................. (846)
Interest income................ 9,518
Interest expense............... (1,272)
Other income expense, net...... (1,521)
Income from continuing
operations before income
taxes........................ 139,247
</Table>
The Company's consolidated revenues are generated primarily through direct
sales to clients by domestic and international sales forces and a network of
independent international distributors. The Company defines "Europe Revenues" as
revenues attributable to clients located in England and the European region and
F-30
<PAGE>
"Other International Revenues" as revenues attributable to all areas located
outside of the United States, Canada and Europe. Most products and services of
the Company are provided on an integrated worldwide basis. Because of the
integration of products and services delivery, it is not practical to separate
precisely the revenues and operating income of the Company by geographic
location. Accordingly, the separation set forth in the table below is based upon
internal allocations, which involve certain management estimates and judgments.
European identifiable tangible assets consist primarily of the assets of
the European subsidiaries and include the accounts receivable balances carried
directly by the subsidiaries located in England, France and Germany. All other
European customer receivables are maintained by, and therefore are included as
identifiable assets of, the United States operations.
Summarized information by geographic location is as follows (in thousands):
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------------
2001 2000 1999
-------- -------- --------
<S> <C> <C> <C>
United States and Canada:
Revenues........................................... $633,683 $563,552 $471,783
Operating income................................... $ 31,773 $ 62,903 $ 72,187
Operating income, excluding other charges.......... $ 67,450 $ 62,903 $ 92,206
Identifiable tangible assets....................... $423,738 $476,755 $437,452
Long-lived assets.................................. $343,440 $341,648 $318,509
Europe:
Revenues........................................... $248,153 $230,307 $212,131
Operating income................................... $ 13,918 $ 17,577 $ 48,753
Operating income, excluding other charges.......... $ 23,826 $ 17,577 $ 51,746
Identifiable tangible assets....................... $155,855 $171,420 $110,472
Long-lived assets.................................. $ 35,398 $ 56,918 $ 41,233
Other International:
Revenues........................................... $ 70,206 $ 60,735 $ 50,320
Operating income (loss)............................ $ (3,177) $ 3,651 $ 12,428
Operating income (loss), excluding other charges... $ (2,199) $ 3,651 $ 12,842
Identifiable tangible assets....................... $ 37,176 $ 32,846 $ 32,420
Long-lived assets.................................. $ 11,343 $ 10,383 $ 11,518
</Table>
18 -- QUARTERLY FINANCIAL DATA -- (UNAUDITED)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 2001
-----------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues........................................... $255,615 $224,756 $247,566 $224,105
Operating income (loss)(1)......................... $ 30,180 $ 8,021 $ (3,459) $ 7,772
Income (loss) from continuing operations(2)........ $ 17,697 $ (1,382) $(10,219) $ (6,316)
Income (loss) from discontinued operation, net of
taxes............................................ $(13,800) $(52,198) $ 1,765 $ (1,750)
Net income (loss)(2)............................... $ 3,897 $(53,580) $ (8,454) $ (8,066)
Diluted earnings (loss) per common share(3):
Income (loss) from continuing operations........... $ 0.20 $ (0.02) $ (0.12) $ (0.08)
Income (loss) on discontinued operation............ $ (0.16) $ (0.60) $ 0.02 $ (0.02)
Net income (loss).................................. $ 0.04 $ (0.62) $ (0.10) $ (0.10)
</Table>
F-31
<PAGE>
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30, 2000
-----------------------------------------
1ST 2ND 3RD 4TH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues........................................... $222,897 $193,318 $220,825 $217,554
Operating income................................... $ 32,718 $ 13,736 $ 20,086 $ 17,591
Income from continuing operations.................. $ 16,464 $ 11,204 $ 11,870 $ 15,315
Loss from discontinued operation, net of taxes..... -- $ (8,417) $ (9,488) $ (9,673)
Extraordinary loss on debt extinguishment, net of
taxes............................................ -- -- -- $ (1,729)
Net income......................................... $ 16,464 $ 2,787 $ 2,382 $ 3,913
Diluted earnings (loss) per common share(3):
Income from continuing operations.................. $ 0.18 $ 0.12 $ 0.13 $ 0.17
Loss on discontinued operation..................... -- $ (0.09) $ (0.10) $ (0.11)
Extraordinary loss on debt extinguishment.......... -- -- -- $ (0.02)
Net income......................................... $ 0.18 $ 0.03 $ 0.03 $ 0.04
</Table>
- ---------------
(1) Includes other charges of $31.1 million and $15.5 million in the quarters
ended March 31, 2001 and September 30, 2001, respectively.
(2) Includes net losses from minority owned investments of $1.7 million, $3.4
million, $6.6 million and $15.1 million for each of the four quarters in the
fiscal year ended September 30, 2001. Also includes benefits for income
taxes from the utilization of foreign tax credits of $2.9 million in the
quarter ended June 30, 2001 and $11.6 million in the quarter ended September
30, 2001.
(3) The aggregate of the four quarters' diluted earnings per common share does
not total the reported full fiscal year amount due to rounding.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT ON
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Gartner, Inc.:
Under date of October 29, 2001, we reported on the consolidated balance
sheets of Gartner, Inc. and subsidiaries as of September 30, 2001 and 2000, and
the related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for each of the years in the three-year period
ended September 30, 2001, which are included in the September 30, 2001 Annual
Report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule of Valuation and Qualifying Accounts in the Form
10-K. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
--------------------------------------
New York, New York
October 29, 2001
S-1
<PAGE>
GARTNER, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
BALANCE ADDITIONS ADDITIONS
AT CHARGED AS % OF CHARGED DEDUCTIONS
BEGINNING TO COSTS YEAR END TO OTHER FROM
OF YEAR AND EXPENSES AMT. ACCOUNTS(1) RESERVE
--------- ------------ -------- ------------ ----------
(ALL AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1999
Allowance for doubtful accounts
and returns and allowances...... $4,125 $ 5,128 $274 $ 4,589
====== ======= ==== =======
$4,125 $ 5,128 104% $274 $ 4,589
====== ======= ==== =======
YEAR ENDED SEPTEMBER 30, 2000
Allowance for doubtful accounts
and returns and allowances...... $4,938 $ 4,256 $ 46 $ 4,237
====== ======= ==== =======
$4,938 $ 4,256 85% $ 46 $ 4,237
====== ======= ==== =======
YEAR ENDED SEPTEMBER 30, 2001
Allowance for doubtful accounts
and returns and allowances...... $5,003 $ 5,027 90% $ -- $ 4,430
====== ======= ==== =======
Other charges (Note 6 -- Other
Charges)........................ $ -- $24,780 376% $18,181
====== ======= ==== =======
$5,003 $29,807 244% $ -- $22,611
====== ======= ==== =======
<Caption>
AS % OF DEDUCTIONS
YEAR END FOR SALE BALANCE AT
AMT. OF BUSINESS END OF YEAR
-------- ----------- -----------
(ALL AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1999
Allowance for doubtful accounts
and returns and allowances...... $-- $ 4,938
== =======
93% $-- $ 4,938
== =======
YEAR ENDED SEPTEMBER 30, 2000
Allowance for doubtful accounts
and returns and allowances...... $-- $ 5,003
== =======
85% $-- $ 5,003
== =======
YEAR ENDED SEPTEMBER 30, 2001
Allowance for doubtful accounts
and returns and allowances...... 79% $-- $ 5,600
== =======
Other charges (Note 6 -- Other
Charges)........................ 276% $ 6,599
== =======
185% $-- $12,199
== =======
</Table>
- ---------------
(1) Allowance of $46,000 and $274,000 assumed upon acquisitions of entities in
fiscal 2000 and 1999, respectively.
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Report on Form 10-K to be signed on its behalf by the
undersigned, duly authorized, in Stamford, Connecticut, on December 28, 2001.
GARTNER, INC.
By: /s/ MICHAEL D. FLEISHER
------------------------------------
Michael D. Fleisher
Chairman of the Board, Chief
Executive Officer and President
Date: December 28, 2001
POWER OF ATTORNEY
Each person whose signature appears below appoints Michael D. Fleisher and
Regina M. Paolillo and each of them, acting individually, as his or her
attorney-in-fact, each with full power of substitution, for him or her in all
capacities, to sign all amendments to this Report on Form 10-K, and to file the
same, with appropriate exhibits and other related documents, with the Securities
and Exchange Commission. Each of the undersigned, ratifies and confirms his or
her signatures as they may be signed by his or her attorney-in-fact to any
amendments to this Report.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
<S> <C> <C> <C>
/s/ MICHAEL D. FLEISHER Director and Chairman of the December 26, 2001
------------------------------------------------ Board, Chief Executive Officer
Michael D. Fleisher and President
(Principal Executive Officer)
/s/ REGINA M. PAOLILLO Executive Vice President December 26, 2001
------------------------------------------------ Corporate Services and
Regina M. Paolillo Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ ANNE SUTHERLAND FUCHS Director December 26, 2001
------------------------------------------------
Anne Sutherland Fuchs
/s/ WILLIAM O. GRABE Director December 26, 2001
------------------------------------------------
William O. Grabe
/s/ MAX D. HOPPER Director December 26, 2001
------------------------------------------------
Max D. Hopper
</Table>
II-1
<PAGE>
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
<S> <C> <C> <C>
/s/ GLENN HUTCHINS Director December 26, 2001
------------------------------------------------
Glenn Hutchins
/s/ STEPHEN G. PAGLIUCA Director December 26, 2001
------------------------------------------------
Stephen G. Pagliuca
/s/ KENNETH ROMAN Director December 26, 2001
------------------------------------------------
Kenneth Roman
/s/ DAVID J. ROUX Director December 26, 2001
------------------------------------------------
David J. Roux
/s/ DENNIS G. SISCO Director December 26, 2001
------------------------------------------------
Dennis G. Sisco
/s/ MAYNARD G. WEBB, JR Director December 26, 2001
------------------------------------------------
Maynard G. Webb, Jr.
</Table>
II-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1.B
<SEQUENCE>3
<FILENAME>y56014ex3-1_b.txt
<DESCRIPTION>CERTIFICATE OF AMENDMENT TO RESTATED CERT OF INC
<TEXT>
<PAGE>
Exhibit 3.1b
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "GARTNER GROUP, INC.", CHANGING ITS NAME FROM "GARTNER GROUP, INC."
TO "GARTNER, INC.", FILED IN THIS OFFICE ON THE FIRST DAY OF FEBRUARY, A.D.
2001, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[DELAWARE SEAL] /s/ Harriet Smith Windsor
------------------------------------------
Harriet Smith Windsor, Secretary of State
2232152 8100 AUTHENTICATION: 0982426
010053688 DATE: 02-21-01
<PAGE>
STATE OF DELAWARE:
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/02/2001
010053688 - 2232152
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT OF
THE RESTATED CERTIFICATE OF INCORPORATION
OF GARTNER GROUP, INC.
a Delaware corporation
(originally incorporated on June 1, 1990 under the name "GGHI Holding
Corporation")
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Gartner Group, Inc.
resolutions were duly adopted setting forth a proposed amendment of the Restated
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Restated Certificate of Incorporation of this corporation be
amended by changing Article 1 so that, as amended, said Article shall be and
read as follows:
"The name of the corporation is Gartner, Inc. (the "corporation")."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
meeting of the stockholders of said corporation was duly called and held upon
notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said Gartner Group, Inc. has caused this certificate to be
signed by William R. McDermott, an Authorized Officer, this 25th day of
January, 2001.
By: /s/ William R. McDermott
------------------------------------
Title: President
Name: William R. McDermott
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>4
<FILENAME>y56014ex4-1.txt
<DESCRIPTION>FORM OF CERTIFICATE FOR COMMON STOCK CLASS A
<TEXT>
<PAGE>
Exhibit 4.1
GARTNER, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-______________Custodian______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_____________________
(State)
UNIF TRF MIN ACT-_______Custodian (until age-_______)
(Cust)
_______ under Uniform Transfers
(Minor)
.
to Minors Act_____________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE [ ]
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
_______________________________________________________________________ SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
_____________________________________________________________________ ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED_______________________
-------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the
name as written upon the face of the certificate in every
particular, without alteration or enlargement or any change
whatever.
Signature(s) Guaranteed By
- --------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM). PURSUANT TO
SEC RULE 17Ad-15
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS
AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN THE CORPORATION AND BANK BOSTON,
N.A., NOW KNOWN AS FLEET NATIONAL BANK AS THE RIGHTS AGENT, DATED AS OF FEBRUARY
10, 2000 (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE
"RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE INCORPORATED HEREIN BY REFERENCE AND
A COPY OF WHICH IS ON FILE AT THE CORPORATION'S PRINCIPAL EXECUTIVE OFFICES.
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS
WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY
THIS CERTIFICATE. THE CORPORATION WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A
COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST
THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR
ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
<PAGE>
069047
NUMBER SHARES
GA
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK, N.Y. AND RIDGEFIELD PARK, N.J.
GARTNER, INC.
COMMON STOCK, CLASS A
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS AND
A STATEMENT AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS OF SHARES
CUSIP 366651 10 7
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
CLASS A, PAR VALUE $0.0005 PER SHARE, OF
Gartner, Inc. transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
/s/ ILLEGIBLE SIGNATURE MELLON INVESTOR SERVICES LLC
- ----------------------- TRANSFER AGENT
CEO AND REGISTRAR
[ARTWORK OF LADY LIBERTY]
BY
/s/ ILLEGIBLE SIGNATURE
- ----------------------- AUTHORIZED SIGNATURE
SECRETARY
[SEAL OF GARTNER, INC., 1990, DELAWARE]
American Bank Note Company
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.2
<SEQUENCE>5
<FILENAME>y56014ex4-2.txt
<DESCRIPTION>FORM OF CERTIFICATE FOR COMMON STOCK CLASS B
<TEXT>
<PAGE>
Exhibit 4.2
GARTNER, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-______________Custodian______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_____________________
(State)
UNIF TRF MIN ACT-_______Custodian (until age_______)
(Cust)
_______ under Uniform Transfers
(Minor)
to Minors Act _____________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_______________________
_________________________________________________________________
NOTICE: The signature to this assignment must correspond with the
name as written upon the face of the certificate in every
particular, without alteration or enlargement or any change
whatever.
Signature(s) Guaranteed By
_______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS
AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN THE CORPORATION AND BANK BOSTON,
N.A., NOW KNOWN AS FLEET NATIONAL BANK AS THE RIGHTS AGENT, DATED AS OF FEBRUARY
10, 2000 (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME, THE
"RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE INCORPORATED HEREIN BY REFERENCE AND
A COPY OF WHICH IS ON FILE AT THE CORPORATION'S PRINCIPAL EXECUTIVE OFFICES.
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS
WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY
THIS CERTIFICATE. THE CORPORATION WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A
COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST
THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR
ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
<PAGE>
069047
NUMBER SHARES
GB
THIS CERTIFICATE IS TRANSFERABLE IN
NEW YORK, N.Y. AND RIDGEFIELD PARK, N.J.
GARTNER, INC.
COMMON STOCK, CLASS B
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS AND
A STATEMENT AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS OF SHARES
CUSIP 366651 20 6
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
CLASS B, PAR VALUE $0.0005 PER SHARE, OF
Gartner, Inc. transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
CERTIFICATE OF STOCK
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
/s/ ILLEGIBLE SIGNATURE MELLON INVESTOR SERVICES LLC
- ----------------------- TRANSFER AGENT
CEO AND REGISTRAR
[ARTWORK OF LADY LIBERTY]
BY
/s/ ILLEGIBLE SIGNATURE
- ----------------------- AUTHORIZED SIGNATURE
SECRETARY
[SEAL OF GARTNER, INC., 1990, DELAWARE]
American Bank Note Company
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>6
<FILENAME>y56014ex4-4.txt
<DESCRIPTION>AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 4.4
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
July 16, 1999,
as amended and restated as of
July 17, 2000,
Among
GARTNER GROUP, INC.
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
CHASE SECURITIES INC. and
CREDIT SUISSE FIRST BOSTON,
as Co-arrangers
CREDIT SUISSE FIRST BOSTON,
as Syndication Agent
FLEET NATIONAL BANK,
as Documentation Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
Definitions
SECTION 1.01. Defined Terms ....................................................... 1
SECTION 1.02. Classification of Loans and Borrowings .............................. 23
SECTION 1.03. Terms Generally ..................................................... 23
SECTION 1.04. Accounting Terms; GAAP .............................................. 24
ARTICLE II
The Credits
SECTION 2.01. Commitments ......................................................... 25
SECTION 2.02. Loans and Borrowings ................................................ 25
SECTION 2.03. Requests for Borrowings ............................................. 26
SECTION 2.04. Funding of Borrowings ............................................... 26
SECTION 2.05. Interest Elections .................................................. 27
SECTION 2.06. Termination and Reduction of Commitments ............................ 29
SECTION 2.07. Repayment of Loans; Evidence of Debt ................................ 30
SECTION 2.08. Letters of Credit ................................................... 30
SECTION 2.09. Prepayment of Loans ................................................. 36
SECTION 2.10. Fees ................................................................ 38
SECTION 2.11. Interest ............................................................ 39
SECTION 2.12. Alternate Rate of Interest .......................................... 40
SECTION 2.13. Increased Costs ..................................................... 41
SECTION 2.14. Break Funding Payments .............................................. 42
SECTION 2.15. Taxes ............................................................... 43
SECTION 2.16. Payments Generally; Pro Rata Treatment;
Sharing of Setoffs .................................................. 45
SECTION 2.17. Mitigation Obligations; Replacement of
Lenders ............................................................. 47
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers ................................................ 48
SECTION 3.02. Authorization; Enforceability ....................................... 48
SECTION 3.03. Governmental Approvals; No Conflicts ................................ 49
SECTION 3.04. Financial Condition; No Material Adverse
Change .............................................................. 49
SECTION 3.05. Properties .......................................................... 50
SECTION 3.06. Litigation and Environmental Matters ................................ 50
</TABLE>
<PAGE>
Contents, p. 2
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 3.07. Compliance with Laws and Agreements ................................. 51
SECTION 3.08. Investment and Holding Company Status ............................... 51
SECTION 3.09. Taxes ............................................................... 51
SECTION 3.10. ERISA ............................................................... 51
SECTION 3.11. Disclosure .......................................................... 52
SECTION 3.12. Subsidiaries ........................................................ 52
SECTION 3.13. Insurance ........................................................... 52
ARTICLE IV
Conditions
SECTION 4.01. Effective Date ...................................................... 52
SECTION 4.02. Each Credit Event ................................................... 54
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other
Information ......................................................... 55
SECTION 5.02. Notices of Material Events .......................................... 56
SECTION 5.03. Existence; Conduct of Business ...................................... 57
SECTION 5.04. Payment of Obligations .............................................. 57
SECTION 5.05. Maintenance of Properties ........................................... 57
SECTION 5.06. Insurance ........................................................... 57
SECTION 5.07. Books and Records; Inspection and Audit
Rights .............................................................. 58
SECTION 5.08. Compliance with Laws ................................................ 58
SECTION 5.09. Use of Proceeds and Letters of Credit ............................... 58
SECTION 5.10. Additional Subsidiaries; Significant
Subsidiaries ........................................................ 58
SECTION 5.11. Federal Reserve Regulations ......................................... 59
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness ........................................................ 59
SECTION 6.02. Liens ............................................................... 61
SECTION 6.03. Fundamental Changes ................................................. 62
SECTION 6.04. Investments, Loans, Advances, Guarantees
and Acquisitions .................................................... 62
SECTION 6.05. Asset Sales ......................................................... 64
SECTION 6.06. Sale and Leaseback Transactions ..................................... 65
SECTION 6.07. Hedging Agreements .................................................. 65
SECTION 6.08. Restricted Payments ................................................. 65
SECTION 6.09. Transactions with Affiliates ........................................ 66
</TABLE>
<PAGE>
Contents, p. 3
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 6.10. Restrictive Agreements .............................................. 66
SECTION 6.11. Amendment of Material Documents ..................................... 67
SECTION 6.12. Interest Expense Coverage Ratio ..................................... 67
SECTION 6.13. Total Balance Sheet Indebtedness to
EBITDA .............................................................. 67
SECTION 6.14. Annualized Contract Value to Total
Balance Sheet Indebtedness .......................................... 67
SECTION 6.15. Minimum Annualized Contract Value ................................... 67
SECTION 6.16. Certain Indemnity Obligations ....................................... 68
SECTION 6.17. Total Senior Balance Sheet Indebtedness
to EBITDA ........................................................... 68
SECTION 6.18. Other Indebtedness and Agreements ................................... 68
ARTICLE VII
Events of Default
ARTICLE VIII
The Administrative Agent
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices ............................................................. 74
SECTION 9.02. Waivers; Amendments ................................................. 75
SECTION 9.03. Expenses; Indemnity; Damage Waiver .................................. 77
SECTION 9.04. Successors and Assigns .............................................. 78
SECTION 9.05. Survival ............................................................ 82
SECTION 9.06. Counterparts; Integration; Effectiveness ............................ 83
SECTION 9.07. Severability ........................................................ 83
SECTION 9.08. Right of Setoff ..................................................... 84
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process .................................................. 84
SECTION 9.10. WAIVER OF JURY TRIAL ................................................ 85
SECTION 9.11. Headings ............................................................ 85
SECTION 9.12. Confidentiality ..................................................... 85
SECTION 9.13. Interest Rate Limitation ............................................ 86
</TABLE>
<PAGE>
Contents, p. 4
SCHEDULES:
Schedule 2.01 -- Commitments
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Borrower's Counsel
Exhibit C -- Form of Guarantee Agreement
Exhibit D -- Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit E -- Form of Pledge Agreement
<PAGE>
CREDIT AGREEMENT dated as of July 16,
1999, as amended and restated as of July 17, 2000,
among GARTNER GROUP, INC., a Delaware corporation
(the "Borrower"), the LENDERS party hereto (the
"Lenders"), and THE CHASE MANHATTAN BANK, a New York
banking corporation, as Administrative Agent (the
"Administrative Agent").
The parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16th of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire in
a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be
<PAGE>
2
effective from and including the effective date of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Annualized Contract Value" means, for any date, the annualized value
of all advisory and measurement contracts of the Borrower and its Subsidiaries
in effect on such date, without regard to the duration of such contracts, as
calculated in the manner used to calculate "Contract Value" in the Borrower's
most recent annual report on Form 10-K filed with the Securities and Exchange
Commission; provided that any material changes to the method of calculating
"Annualized Contract Value" hereunder from the method used in calculating
"Contract Value" in the Borrower's annual report on Form 10-K for the fiscal
year ended September 30, 1998 shall require the consent of the Required Lenders.
"Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means, for any day with respect to any Loan, or with
respect to the commitment fees payable hereunder, as the case may be, the
applicable rate per annum set forth below under the caption "ABR Spread",
"Eurodollar Spread" or "Commitment Fee Rate", as the case may be, based upon the
Leverage Ratio as of the most recent determination date; provided that until the
Borrower has delivered financial statements pursuant to Section 5.01(a) or (b)
covering the first two fiscal quarters that end after the Second Amendment
Effective Date, the "Applicable Rate" shall be the applicable rate per annum set
forth below in Category 3:
<TABLE>
<CAPTION>
ABR Eurodollar Commitment Fee
Leverage Ratio: Spread Spread Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Category 1
- ----------
[> or =] $1.75x 0.75% 2.00% 0.50%
Category 2
- ----------
[> or =] $1.50x but
<1.75x 0.50% 1.75% 0.40%
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
ABR Eurodollar Commitment Fee
Leverage Ratio: Spread Spread Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Category 3
- ----------
[> or =] $1.25x but
<1.50x 0.25% 1.50% 0.35%
Category 4
- ----------
[< or =] 1.25x
0% 1.00% 0.30%
</TABLE>
For purposes of the foregoing, (a) the Leverage Ratio shall be
determined as of the end of each fiscal quarter of the Borrower's fiscal year
based upon the Borrower's consolidated financial statements delivered pursuant
to Section 5.01(a) or (b) and (b) each change in the Applicable Rate resulting
from a change in the Leverage Ratio shall be effective during the period
commencing on and including the date of delivery to the Administrative Agent of
such consolidated financial statements indicating such change and ending on the
date immediately preceding the effective date of the next such change; provided
that the Leverage Ratio shall be deemed to be in Category 1 at the option of the
Administrative Agent or at the request of the Required Lenders (i) at any time
that an Event of Default has occurred and is continuing or (ii) if the Borrower
fails to deliver the consolidated financial statements required to be delivered
by it pursuant to Section 5.01(a) or (b), during the period from the expiration
of the time for delivery thereof until such consolidated financial statements
are delivered. Notwithstanding anything to the contrary herein, for purposes of
determining the Applicable Rate only, Total Balance Sheet Indebtedness used to
calculate the Leverage Ratio shall exclude the Permitted Subordinated Debt
issued by the Borrower to Silver Lake Partners L.P. on April 17, 2000.
"Assessment Rate" means, for any day, the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders.
<PAGE>
4
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"Attributable Debt" means, on any date, in respect of any lease of the
Borrower or any Subsidiary entered into as part of a sale and leaseback
transaction subject to Section 6.06, (i) if such lease is a Capital Lease
Obligation, the capitalized amount thereof that would appear on a balance sheet
of such Person prepared as of such date in accordance with GAAP, and (ii) if
such lease is not a Capital Lease Obligation, the capitalized amount of the
remaining lease payments under such lease that would appear on a balance sheet
of such Person prepared as of such date in accordance with GAAP if such lease
were accounted for as a Capital Lease Obligation.
"Availability Period" means the period from and including the Second
Amendment Effective Date to but excluding the earlier of the Maturity Date and
the date of termination of the Commitments.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System of
the United States of America.
"Borrower" means Gartner Group, Inc., a Delaware corporation.
"Borrowing" means Loans of the same Type, made, converted or continued
on the same date and, in the case of Eurodollar Loans, as to which a single
Interest Period is in effect.
"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
<PAGE>
5
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of Rule 13d-5 under the Securities Exchange Act of 1934 as in effect on
the date hereof), other than, prior to the Recapitalization, IMS, of shares
representing more than 35% of the aggregate ordinary voting power represented by
the issued and outstanding Common Stock; or (b) occupation of a majority of the
seats (other than vacant seats) on the board of directors of the Borrower by
Persons who were neither (i) nominated by the board of directors of the Borrower
nor (ii) appointed by directors so nominated.
"Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.13(b), by any lending office of such Lender
or by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means, with respect to each Lender, the commitment, if
any, of such Lender to make Loans and acquire participations in Letters of
Credit hereunder during the Availability Period, expressed as an amount
representing the maximum aggregate amount of such Lender's Exposure hereunder,
as such commitment may be (a) reduced from time to time pursuant to Section 2.06
and (b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 9.04. The initial amount of each Lender's
Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed its Commitment, as applicable.
<PAGE>
6
The initial aggregate amount of the Lenders' Commitments is $200 million.
"Common Stock" means common stock of the Borrower.
"Consolidated Cash Interest Expense" means, for any period, (a) the sum
of (i) the interest expense (including imputed interest expense in respect of
Capital Lease Obligations) of the Borrower and the Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP, (ii) any interest
accrued during such period in respect of Indebtedness of the Borrower or any
Subsidiary that is required to be capitalized rather than included in
consolidated interest expense for such period in accordance with GAAP, (iii)
cash payments made during such period to holders of Permitted Preferred Stock,
plus (iv) any cash payments made during such period in respect of obligations
referred to in clause (b)(ii) below that were amortized or accrued in a previous
period, minus (b) the sum of (i) to the extent included in such consolidated
interest expense for such period, noncash amounts attributable to amortization
of financing costs paid in a previous period, plus (ii) to the extent included
in such consolidated interest expense for such period, noncash amounts
attributable to amortization of debt discounts or accrued interest payable in
kind for such period.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period plus (a) without duplication and to the extent deducted in
determining such Consolidated Net Income, the sum of (i) consolidated interest
expense for such period, (ii) consolidated income tax expense for such period,
(iii) all amounts attributable to depreciation and amortization for such period,
(iv) any extraordinary noncash charges for such period and (v) any noncash
nonrecurring charges for such period, and minus (b) without duplication and to
the extent included in determining such Consolidated Net Income, any
extraordinary gains and nonrecurring gains for such period, all determined on a
consolidated basis in accordance with GAAP.
"Consolidated Funded Debt" means, at any time, the sum, without
duplication of (i) the long-term obligations of the Borrower and its
Subsidiaries (excluding current maturities) plus (ii) all Indebtedness of the
Borrower and its Subsidiaries which matures one year or less from the date of
determination but is extendable or renewable at the sole option of the Borrower
or any Subsidiary in such a manner that it may become payable more than one year
from the date of determination, in each case on a consolidated basis in
accordance with GAAP.
<PAGE>
7
"Consolidated Net Income" means, for any period, the net income or loss
of the Borrower and the Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income of SIV at any time when SIV is not a wholly-owned
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Borrower or any of the Subsidiaries by SIV
during such period, and (b) the income or loss of any Person accrued prior to
the date it becomes a Subsidiary or is merged into or consolidated with the
Borrower or any Subsidiary or the date that such Person's assets are acquired by
the Borrower or any Subsidiary.
"Consolidated Net Tangible Assets" means, at any time, the aggregate
amount of assets (less applicable accumulated depreciation, depletion and
amortization and other reserves and other properly deductible items) of the
Borrower and its Subsidiaries, minus (a) all current liabilities of the Borrower
and its Subsidiaries (excluding (i) liabilities that by their terms are
extendable or renewable at the option of the obligor to a date more than 12
months after the date of determination and (ii) current maturities of long-term
debt) and (b) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other intangible assets of the Borrower and its
Subsidiaries, all as set forth in the most recent consolidated balance sheet of
the Borrower and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any act, event or condition which constitutes an Event
of Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06 to the Disclosure Letter.
"Disclosure Letter" means the letter dated the Initial Effective Date
delivered by the Borrower to the Administrative Agent and designated as the
"Disclosure Letter".
<PAGE>
8
"Distribution Agreement" means the Distribution Agreement dated as of
June 17, 1999, between the Borrower and IMS, as the same may be amended from
time to time in accordance with the terms hereof.
"Dividend" means a one-time dividend in the approximate aggregate
amount of $125 million paid by the Borrower to the holders of Common Stock as
part of the Recapitalization.
"dollars" or "$" refers to lawful money of the United States of
America.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or health and safety matters, as now or hereafter in effect.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"Equity Interests" means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
<PAGE>
9
"ERISA Event" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article
VII.
"Excluded Taxes" means, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located; (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction described in clause (a) above; and (c) in the case of
a Foreign Lender (other than an assignee pursuant to a request by the Borrower
under Section 2.17(b)), any withholding tax that (i) is in effect and would
apply to amounts payable to such Foreign Lender at the time such Foreign Lender
becomes
<PAGE>
10
a party to this Agreement (or designates a new lending office), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to any withholding tax
pursuant to Section 2.15(a), or (ii) is attributable to such Foreign Lender's
failure to comply with Section 2.15(e).
"Existing Letter of Credit" means the letter of credit in a face amount
of $280,539 issued by the Issuing Bank on or about June 23, 2000 for the benefit
of Elberon Development Co.
"Exposure" means, with respect to any Lender at any time, the sum of
the outstanding principal amount of such Lender's Loans and its LC Exposure at
such time.
"Federal Funds Effective Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100th of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100th of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, chief financial
officer-North American, principal accounting officer, treasurer, assistant
treasurer, controller or assistant controller of the Borrower.
"Foreign Lender" means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized under the
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
States of America.
<PAGE>
11
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement, substantially in
the form of Exhibit C, among the Subsidiary Loan Parties and the Administrative
Agent, for the benefit of the Lenders.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
<PAGE>
12
"IFSC" means the wholly-owned Subsidiary to be formed under the laws of
Ireland and used in connection with the Borrower's corporate treasury functions,
including intra-group factoring and lending, cash pooling and netting and
liquidity management.
"IMS" means IMS Health Incorporated, a Delaware corporation.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding accounts
payable incurred in the ordinary course of business and not more than 60 days
past due), (f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person
of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party or
applicant in respect of letters of credit and letters of guaranty and (j) all
obligations, contingent or otherwise, of such Person in respect of bankers'
acceptances. The Indebtedness of any Person shall include the Indebtedness of
any other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness provide that such Person is not liable
therefor; provided, that, for the avoidance of doubt, the Share Forward Purchase
Agreements shall not constitute Indebtedness.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnity, Subrogation and Contribution Agreement" means the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit D, among the Borrower, the Subsidiary Loan Parties and the
Administrative Agent, for the benefit of the Lenders.
<PAGE>
13
"Information Memorandum" means the Confidential Information Memorandum
dated June, 1999 relating to the Borrower and the Transactions.
"Initial Effective Date" means July 16, 1999.
"Insignificant Subsidiary" means any Subsidiary that is not a
Significant Subsidiary.
"Interest Election Request" means a request by the Borrower to convert
or continue a Borrowing in accordance with Section 2.05.
"Interest Payment Date" means (a) with respect to any ABR Loan, the
last day of each March, June, September and December and (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months' duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter shall
be the effective date of the most recent conversion or continuation of such
Borrowing.
"Issuing Bank" means The Chase Manhattan Bank, in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.08(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term
<PAGE>
14
"Issuing Bank" shall include any such Affiliate with respect to Letters of
Credit issued by such Affiliate.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to
a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Lender at any time shall be
its Applicable Percentage of the total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"Letter of Credit" means any Existing Letter of Credit and any letter
of credit issued pursuant to this Agreement.
"Leverage Ratio" means, on any date, the ratio of (a) Total Balance
Sheet Indebtedness as of such date to (b) Consolidated EBITDA for the period of
four consecutive fiscal quarters of the Borrower ended on such date (or, if such
date is not the last day of a fiscal quarter, ended on the last day of the
fiscal quarter of the Borrower most recently ended prior to such date).
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5 million and for a maturity comparable to such Interest Period are
offered by the principal London office of the entity serving as
<PAGE>
15
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Indemnity, Subrogation and
Contribution Agreement, the Pledge Agreement and the Guarantee Agreement
(including any supplements thereto).
"Loan Parties" means the Borrower and the Subsidiary Loan Parties.
"Loans" means the revolving loans made by the Lenders to the Borrower
pursuant to this Agreement.
"Margin Stock" means "Margin Stock" (as defined in Regulation U of the
Board).
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects, financial condition or contractual
arrangements of the Borrower and the Subsidiaries taken as a whole, (b) the
ability of any Loan Party to perform any of its obligations under any Loan
Document or (c) the rights of or benefits available to the Lenders under any
Loan Document.
"Material Indebtedness" means Indebtedness (other than the Loans and
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of the Borrower and the Subsidiaries in an aggregate
principal amount exceeding $30 million. For purposes of determining Material
Indebtedness, the "principal amount" of the obligations of the Borrower or any
Subsidiary in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Borrower or
such Subsidiary would be required to pay if such Hedging Agreement were
terminated at such time.
"Maturity Date" means July 16, 2004.
<PAGE>
16
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event, (a) the cash proceeds
received in respect of such event including any cash received in respect of any
noncash proceeds, but only as and when received, net of (b) all reasonable fees
and out-of-pocket expenses paid by the Borrower and the Subsidiaries to third
parties (other than Affiliates, to the extent such fees and expenses are greater
than those that would have been obtained on an arm's-length basis) in connection
with such event.
"Other Taxes" means any and all present or future recording, stamp,
documentary, excise, transfer, sales, property or similar taxes, charges or
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Permitted Acquisitions" means any acquisition of any assets or capital
stock of another Person; provided that (i) the Borrower shall be in pro forma
compliance with the covenants in Sections 6.12, 6.13, 6.14, 6.15 and 6.17 after
giving effect to such acquisition as if such acquisition occurred immediately
prior to the first day of the period of four consecutive fiscal quarters most
recently ended prior to such acquisition and (ii) if such acquisition, when
given pro forma effect as described in clause (i) above, would cause a 10% or
greater decrease in the Borrower's Consolidated EBITDA for the period of four
consecutive fiscal quarters most recently ended prior to such acquisition, the
Required Lenders shall have consented to such acquisition.
"Permitted Capital Obligations" means Permitted Preferred Stock or
Permitted Subordinated Debt.
"Permitted Capital Obligations Effective Date" means April 17, 2000.
"Permitted Encumbrances" means:
<PAGE>
17
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than 60 days or are being contested in compliance with
Section 5.04;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business;
(e) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article VII; and
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Borrower or any
Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America),
in each case maturing within one year from the date of acquisition
thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or from
Moody's;
<PAGE>
18
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within one year from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of
(i) any commercial bank organized under the laws of the United States
of America or any State thereof which has a combined capital and
surplus and undivided profits of not less than $500 million or (ii) any
other commercial bank that has a rating of at least AA by S&P or Aa by
Moody's (or an equivalent rating by Fitch IBCA if neither S&P nor
Moody's provides such a rating);
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria
described in clause (c) above;
(e) direct obligations of, or obligations the principal and
interest of which are unconditionally guaranteed by, any State of the
United States or any foreign state having, at the date of its
acquisition by the Borrower or a Subsidiary, a rating of at least AA by
S&P or Aa by Moody's, in each case maturing within one year from the
date of the acquisition;
(f) money market funds organized under the laws of the United
States or any State thereof that invest solely in the foregoing
investments; and
(g) municipal and corporate auction rate preferred stock with
reset periods of no longer than 49 days.
"Permitted Preferred Stock" means preferred stock issued by the
Borrower that (a) does not require any repurchase or redemption (other than
conversion or exchange into Common Stock), whether contingent or not, prior to
the date that is eight months after the Maturity Date and (b) is on terms and
conditions that are reasonably acceptable to the Administrative Agent, and
otherwise is on terms customary in the relevant capital markets for preferred
stock issued by issuers similar to the Borrower.
"Permitted Subordinated Debt" means subordinated, unsecured
Indebtedness of the Borrower that (a) requires no scheduled cash payments of
principal and no mandatory repurchase or redemption obligations prior to the
date that is eight months after the Maturity Date, (b) does not impose any
financial or other "maintenance" covenants on the Borrower or any of the
Subsidiaries, (c) is not guaranteed
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19
by any Subsidiaries and (d) contains customary subordination terms that are
reasonably acceptable to the Administrative Agent, and otherwise is on terms and
conditions customary in the relevant capital markets for subordinated
indebtedness issued by issuers similar to the Borrower.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement " means the pledge agreement dated the Initial
Effective Date between the Borrower and the Administrative Agent for the benefit
of the Lenders, substantially in the form of Exhibit E.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Recapitalization " means the recapitalization pursuant to which (a)
the Borrower paid the Dividend, (b) the Common Stock was reclassified into Class
A Common Stock and Class B Common Stock, (c) IMS exchanged all but approximately
7,000,000 shares of Common Stock held by it for an equal number of newly issued
shares of Class B Common Stock and distributed such shares to its stockholders
in a tax-free distribution, (d) the Borrower repurchased approximately 15% of
its outstanding shares of Common Stock pursuant to the Tender Offer and (e) the
Borrower has effected or will effect open market repurchases aggregating
approximately 5% of its shares of Common Stock outstanding as of the Initial
Effective Date.
"Recapitalization Documents" means the Distribution Agreement and the
Agreement and Plan of Merger dated June 17, 1999 and any other documents entered
into by the Borrower or any Subsidiary in connection with the Recapitalization.
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20
"Register" has the meaning set forth in Section 9.04.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Exposures and
unused Commitments representing more than 50% of the sum of the total Exposures
and unused Commitments at such time.
"Restricted Payment" means any dividend or other distribution (whether
in cash, securities or other property) with respect to any Equity Interests in
the Borrower or any Subsidiary, or any payment (whether in cash, securities or
other property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any Equity Interests in the Borrower or any Subsidiary or any option, warrant
or other right to acquire any such Equity Interests in the Borrower or any
Subsidiary.
"Sale-Leaseback Transaction" means any arrangement whereby the Borrower
or a Subsidiary shall sell or transfer any property, real or personal, used or
useful in its business, whether now owned or hereinafter acquired, and
thereafter rent or lease such property or other property that it intends to use
for substantially the same purpose or purposes as the property sold or
transferred.
"Second Amendment Effective Date" means the date that this Agreement
was amended and restated pursuant to the Second Amendment and Restatement
Agreement, dated as of July 17, 2000, among the Borrower, the Subsidiary Loan
Parties, the Administrative Agent and the Lenders.
"Share Forward Purchase Agreements" means those certain letter
agreements entered into on May 8, 1997, between the Borrower and Deutsche Morgan
Grenfell, in respect of the Borrower's Common Stock.
"Significant Subsidiary" means (a) any Subsidiary that is identified as
significant on Schedule 3.12 to the Disclosure Letter so long as it has not been
designated as insignificant by the Borrower in accordance with Section 5.10 and
(b) such other Subsidiaries as the Borrower may designate as significant to the
Administrative Agent in accordance with Section 5.10; provided that at all times
(i) the book value of the total assets of the Borrower and all
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21
Significant Subsidiaries shall exceed 90% of the book value of all assets of the
Borrower and its Subsidiaries and (ii) the total revenue of the Borrower and all
Significant Subsidiaries shall exceed 90% of the total revenue of the Borrower
and its Subsidiaries, in each case for the fiscal year most recently ended.
"SIV" means SI Venture Fund L.L.C. (which is expected to change its
name to SI Venture Associates L.L.C.), a limited liability company formed under
the laws of Delaware.
"S&P" means Standard & Poor's Ratings Services.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the entity serving as Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or
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22
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Subsidiary Loan Party" means (a) any Significant Subsidiary that is
not a Foreign Subsidiary and (b) any Subsidiary (other than a Foreign
Subsidiary) that directly or indirectly owns any capital stock of any Subsidiary
Loan Party; provided, that "Subsidiary Loan Party" shall not include SIV.
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Tender Offer" means the tender offer pursuant to which the Borrower
purchased up to 15% (plus or minus 2%) of the shares of Common Stock outstanding
as of the Initial Effective Date.
"Three-Month Secondary CD Rate" means, for any day, the secondary
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"Total Balance Sheet Indebtedness" means, at any date, all Indebtedness
of the Borrower and its Subsidiaries on such date that would be reflected as a
liability on a consolidated balance sheet of the Borrower and its Subsidiaries
prepared as of such date in accordance with GAAP.
"Total Senior Balance Sheet Indebtedness" means, at any date, Total
Balance Sheet Indebtedness on such date minus the amount of outstanding
Permitted Subordinated Debt that would be reflected on a consolidated balance
sheet of
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23
the Borrower prepared in accordance with GAAP as of such date.
"Transactions" means (a) the Recapitalization and (b) the execution,
delivery and performance by the Borrower and the Subsidiary Loan Parties of the
Loan Documents, the borrowing of Loans, the use of proceeds thereof and the
issuance of Letters of Credit hereunder.
"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of
this Agreement, Loans and Borrowings may be classified and referred to by Type
(e.g., a "Eurodollar Loan" or a "Eurodollar Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding mascu-
line, feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof and the
"date hereof" shall be construed to mean the Second Amendment Effective Date,
(d) all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and
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24
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. (a) Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the Initial Effective Date in GAAP or in the application
thereof on the operation of such provision (or if the Administrative Agent
notifies the Borrower that the Required Lenders request an amendment to any
provision hereof for such purpose), regardless of whether any such notice is
given before or after such change in GAAP or in the application thereof, then
such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such
notice shall have been withdrawn or such provision amended in accordance
herewith.
(b) All pro forma computations required to be made hereunder giving
effect to any acquisition, investment, sale, disposition, merger or similar
event shall reflect on a pro forma basis such event and, to the extent
applicable, the historical earnings and cash flows associated with the assets
acquired or disposed of and any related incurrence or reduction of Indebtedness,
but shall not take into account any projected synergies or similar benefits
expected to be realized as a result of such event.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Loans to the Borrower from time to time
during the Availability Period in an aggregate principal amount that will not
result in such Lender's Exposure exceeding such Lender's Commitment. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Loan shall be made as
part of a Borrowing consisting of Loans of the same Type made by the Lenders
ratably in accordance with their respective Commitments. The failure of any
Lender to make any Loan required to be made by it
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25
shall not relieve any other Lender of its obligations hereunder; provided that
the Commitments of the Lenders are several and no Lender shall be responsible
for any other Lender's failure to make Loans as required.
(b) Subject to Section 2.12, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in
accordance herewith. Each Lender at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan; provided that any exercise of such option shall not affect the obligation
of the Borrower to repay such Loan in accordance with the terms of this
Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1 million and not less than $5 million. At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1 million and not less than $5 million; provided that an
ABR Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total Commitments or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.08(e).
Borrowings of more than one Type may be outstanding at the same time; provided
that there shall not at any time be more than a total of 10 Eurodollar
Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Borrowings. To request a Borrowing, the
Borrower shall notify the Administrative Agent of such request by telephone (a)
in the case of a Eurodollar Borrowing, not later than 9:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing or (b) in
the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, on
the Business Day of the proposed Borrowing. Each such telephonic Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
facsimile transmission to the Administrative Agent of a written Borrowing
Request in a form approved by the Administrative Agent and signed by the
Borrower. Each such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.02:
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26
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.04.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Funding of Borrowings. (a) Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon (or 3:00 p.m. in the case of an ABR
Loan), New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the Borrower by promptly
crediting the amounts so received, in like funds, to an account of the Borrower
maintained with the Administrative Agent in New York City and designated by the
Borrower in the applicable Borrowing Request; provided, that ABR Loans made to
finance the reimbursement of an LC Disbursement as provided in Section 2.08(e)
shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from
a Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in
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27
reliance upon such assumption, make available to the Borrower a corresponding
amount. In such event, if a Lender has not in fact made its share of the
applicable Borrowing available to the Administrative Agent, then the applicable
Lender and the Borrower severally agree to pay to the Administrative Agent
forthwith on demand such corresponding amount with interest thereon, for each
day from and including the date such amount is made available to the Borrower to
but excluding the date of payment to the Administrative Agent, at (i) in the
case of such Lender, the greater of the Federal Funds Effective Rate and a rate
determined by the Administrative Agent in accordance with banking industry rules
on interbank compensation or (ii) in the case of the Borrower, the interest rate
applicable to ABR Loans. If such Lender pays such amount to the Administrative
Agent, then such amount shall constitute such Lender's Loan included in such
Borrowing as of the date of such Borrowing.
SECTION 2.05. Interest Elections. (a) Each Borrowing initially shall
be of the Type specified in the applicable Borrowing Request and, in the case of
a Eurodollar Borrowing, shall have an initial Interest Period as specified in
such Borrowing Request. Thereafter, the Borrower may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of
a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in
this Section. The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans comprising each such portion shall be considered a separate
Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Borrowing of the Type resulting from such election to be made on
the effective date of such election. Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
facsimile transmission to the Administrative Agent of a written Interest
Election Request in a form approved by the Administrative Agent and signed by
the Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:
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28
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.06. Termination and Reduction of Commitments. (a) Unless
previously terminated, the Commitments shall terminate on the Maturity Date.
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29
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $1 million and not less
than $5 million and (ii) the Borrower shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the Loans in
accordance with Section 2.09, the sum of the Exposures would exceed the total
Commitments.
(c) [reserved]
(d) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section, at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Commitments delivered by the Borrower may state that such
notice is conditioned upon the effectiveness of other credit facilities, in
which case such notice may be revoked by the Borrower (by notice to the
Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments
shall be permanent. Each reduction of the Commitments shall be made ratably
among the Lenders in accordance with their respective Commitments.
SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Loan of such
Lender on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Type thereof and
the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent
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30
hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement or the
obligations of the Lenders to make Loans or give credit for repayments.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.08. Letters of Credit. (a) General. Subject to the terms
and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account or for the account of Subsidiaries, in a
form reasonably acceptable to the Administrative Agent and the Issuing Bank, at
any time and from time to time during the Availability Period. In the event of
any inconsistency between the terms and conditions of this Agreement and the
terms and conditions of any form of letter of credit application or other
agreement submitted by the Borrower to, or entered into by the Borrower with,
the Issuing Bank relating to any Letter of Credit, the terms and conditions of
this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or transmit by facsimile (or transmit by electronic communication,
if arrangements for doing so have been approved by the Issuing Bank) to the
Issuing Bank and the Administrative Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice requesting
the issuance of a Letter of Credit, or
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31
identifying the Letter of Credit to be amended, renewed or extended, and
specifying the date of issuance, amendment, renewal or extension (which shall be
a Business Day), the date on which such Letter of Credit is to expire (which
shall comply with paragraph (c) of this Section), the amount of such Letter of
Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit. If requested by the Issuing Bank, the Borrower also shall submit a
letter of credit application on the Issuing Bank's standard form in connection
with any request for a Letter of Credit. A Letter of Credit shall be issued,
amended, renewed or extended only if (and upon issuance, amendment, renewal or
extension of each Letter of Credit the Borrower shall be deemed to represent and
warrant that), after giving effect to such issuance, amendment, renewal or
extension (i) the LC Exposure shall not exceed $20,000,000 and (ii) the total
Exposures shall not exceed the total Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior
to the close of business on the earlier of (i) the date one year after the date
of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each Lender hereby acquires from the Issuing
Bank, a participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuing Bank, such Lender's Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in paragraph (e) of this Section, or of any reimbursement
payment required to be refunded to the Borrower for any reason. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default or reduction or
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32
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If (i) the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit and (ii) there is insufficient
cash collateral held pursuant to paragraph (j) of this Section to be applied to
make the portion of such payment not made by the Borrower without leaving the
requirements of such paragraph (j) unsatisfied after making such payment, then
the Borrower shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than 2:00
p.m., New York City time, on (i) the date that the Borrower shall have received
notice of such LC Disbursement, if the Borrower shall have received such notice
prior to 10:00 a.m., New York City time, on such date, or (ii) on the Business
Day immediately following the date that the Borrower receives such notice, if
such notice is received after 10:00 a.m., New York City time; provided that, if
such LC Disbursement is not less than $5,000,000, the Borrower may, subject to
the conditions to borrowing set forth herein, request in accordance with Section
2.03 or 2.04 that such payment be financed with an ABR Borrowing in an
equivalent amount and, to the extent so financed, the Borrower's obligation to
make such payment shall be discharged and replaced by the resulting ABR
Borrowing. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Lender's
Applicable Percentage thereof. Promptly following receipt of such notice, each
Lender shall pay to the Administrative Agent its Applicable Percentage of the
payment then due from the Borrower, in the same manner as provided in Section
2.04 with respect to Loans made by such Lender (and Section 2.04 shall apply,
mutatis mutandis, to the payment obligations of the Lenders), and the
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Lenders; provided, that the amount required to be funded
by any Lender under this paragraph in respect of such LC Disbursement, together
with the amount of any ABR Loan made by such Lender as contemplated by this
clause (e), shall not exceed such Lender's Applicable Percentage of the amount
by which such LC Disbursement exceeds portion of such LC Disbursement reimbursed
by the Borrower. Promptly following receipt by the Administrative Agent of any
payment from the Borrower pursuant to this paragraph, the Administrative Agent
shall distribute such payment to the Issuing Bank or, to the extent that Lenders
have made payments pursuant to this paragraph to reimburse the Issuing Bank,
then to such
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33
Lenders and the Issuing Bank as their interests may appear. Any payment made by
a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Loans as contemplated above) shall
not constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their
Related Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or wilful misconduct on the part of the
Issuing Bank, the Issuing Bank shall be deemed to have exercised care in each
such determination. In
<PAGE>
34
furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
facsimile transmission) of such demand for payment and whether the Issuing Bank
has made or will make an LC Disbursement thereunder; provided that any failure
to give or delay in giving such notice shall not relieve the Borrower of its
obligation to reimburse the Issuing Bank and the Lenders with respect to any
such LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Loans; provided that,
if the Borrower fails to reimburse such LC Disbursement when due pursuant to
paragraph (e) of this Section, then Section 2.11(c) shall apply. Interest
accrued pursuant to this paragraph shall be for the account of the Issuing Bank,
except that interest accrued on and after the date of payment by any Lender
pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be
for the account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.10(c). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing
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35
Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall continue to have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and
be continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Lenders with LC Exposures representing greater than 50% of
the total LC Exposures) demanding the deposit of cash collateral pursuant to
this paragraph, the Borrower shall deposit in an account with the Administrative
Agent, in the name of the Administrative Agent and for the benefit of the
Lenders, an amount in cash equal to the LC Exposure as of such date plus any
accrued and unpaid interest thereon; provided that the obligation to deposit
such cash collateral shall become effective immediately, and such deposit shall
become immediately due and payable, without demand or other notice of any kind,
upon the occurrence of any Event of Default with respect to the Borrower
described in clause (h) or (i) of Article VII. Each such deposit shall be held
by the Administrative Agent as collateral for the payment and performance of the
obligations of the Borrower under this Agreement. The Administrative Agent shall
have exclusive dominion and control, including the exclusive right of
withdrawal, over such account. Other than any interest earned on the investment
of such deposits, which investments shall be made at the option and sole
discretion of the Administrative Agent and at the Borrower's risk and expense,
such deposits shall not bear interest. Interest or profits, if any, on such
investments shall accumulate in such account. Moneys in such account shall be
applied by the Administrative Agent to reimburse the Issuing Bank for LC
Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the Borrower for the LC Exposure at such time or, if the maturity of the Loans
has been accelerated (but subject to the consent of Lenders with LC Exposure
representing greater than 50% of the total LC Exposure), be applied to satisfy
other obligations of the Borrower under this Agreement. If the Borrower is
required
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36
to provide an amount of cash collateral hereunder as a result of the occurrence
of an Event of Default, such amount (to the extent not applied as aforesaid)
shall be returned to the Borrower within three Business Days after all Events of
Default have been cured or waived.
SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to the requirements of this Section and Section 2.14.
(b) In the event and on such occasion that the sum of the Exposures
exceeds the total Commitments, the Borrower shall prepay Borrowings (or, if no
such Borrowings are outstanding, deposit cash collateral in an account with the
Administrative Agent pursuant to Section 2.08(j)) in an aggregate amount equal
to such excess.
(c) [intentionally omitted]
(d) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (e) of this Section.
(e) The Borrower shall notify the Administrative Agent by telephone
(confirmed by facsimile transmission) of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment or (ii) in the
case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City
time, one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date, the principal amount of each
Borrowing or portion thereof to be prepaid and, in the case of a mandatory
prepayment, a reasonably detailed calculation of the amount of such prepayment;
provided that, if a notice of optional prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.06, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.06(d). Promptly following
receipt of any such notice, the Administrative Agent shall advise the Lenders of
the contents thereof. Each partial prepayment of any Borrowing shall be in an
amount that would be permitted in the case of an advance of a Borrowing of the
same Type as provided in Section 2.02, except as necessary to apply fully the
required amount of a mandatory prepayment. Each prepayment of a Borrowing shall
be applied ratably to the
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37
Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.11.
(f) [intentionally omitted].
SECTION 2.10. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the average daily unused amount of each
Commitment of such Lender during the period from and including the date hereof
to but excluding the date on which such Commitment terminates. Accrued
commitment fees shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the Commitments
terminate, commencing on the first such date to occur after the Initial
Effective Date. All commitment fees shall be computed on the basis of a year of
360 days and shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). For purposes of computing commitment
fees, a Commitment of a Lender shall be deemed to be used to the extent of the
outstanding Loans and LC Exposure of such Lender.
(b) The Borrower agrees to pay to the Administrative Agent, for its
own account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
(c) The Borrower agrees to pay (i) to the Administrative Agent for
the account of each Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate as interest on Eurodollar Loans on the average daily amount of such
Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed
LC Disbursements) during the period from and including the Second Amendment
Effective Date to but excluding the later of the date on which such Lender's
Commitment terminates and the date on which such Lender ceases to have any LC
Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the
rate of 0.25% per annum on the average daily amount of the LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Second Amendment Effective Date to but
excluding the later of the date of termination of the Commitments and the date
on which there ceases to be any LC Exposure, as well as the Issuing Bank's
standard fees with respect to the issuance, amendment, renewal or extension of
any Letter of Credit or processing of drawings thereunder. Participation fees
and fronting fees accrued through and
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38
including the last day of March, June, September and December of each year shall
be payable on the third Business Day following such last day, commencing on the
first such date to occur after the Second Amendment Effective Date; provided
that all such fees shall be payable on the date on which the Commitments
terminate and any such fees accruing after the date on which the Commitments
terminate shall be payable on demand. Any other fees payable to the Issuing Bank
pursuant to this paragraph shall be payable within 10 days after demand. All
participation fees and fronting fees shall be computed on the basis of a year of
360 days and shall be payable for the actual number of days elapsed (including
the first day but excluding the last day).
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees, to the Lenders entitled thereto. Fees paid shall not be
refundable under any circumstances.
SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing
shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest
on any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan and upon termination of the
Commitments; provided that (i) interest accrued pursuant to paragraph (c) of
this Section shall be payable on demand, (ii) in the event of any repayment or
prepayment of any Loan (other than a prepayment of an ABR Loan prior to the end
of the Availability Period), accrued interest on the principal amount repaid or
prepaid shall be payable on the date of such repayment or prepayment
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39
and (iii) in the event of any conversion of any Eurodollar Loan prior to the end
of the current Interest Period therefor, accrued interest on such Loan shall be
payable on the effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be prima facie evidence absent demonstrative error.
SECTION 2.12. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall
be prima facie evidence absent demonstrative error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate for
such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders of making or maintaining their
Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or facsimile transmission as promptly as practicable
thereafter and, until the Administrative Agent notifies the Borrower and the
Lenders that the circumstances giving rise to such notice no longer exist, (i)
any Interest Election Request that requests the conversion of any Borrowing to,
or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.13. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against assets
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40
of, deposits with or for the account of, or credit extended by, any Lender
(except any such reserve requirement to the extent reflected in the
Adjusted LIBO Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then
within 10 Business Days after demand the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank for such additional costs incurred or
reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in
Law regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a consequence
of this Agreement or the Loans made by, or participations in Letters of Credit
held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or the Issuing Bank's policies and the
policies of such Lender's or the Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
or the Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to the Borrower and shall be prima facie
evidence absent demonstrative error. The
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41
Borrower shall pay such Lender or the Issuing Bank, as the case may be, the
amount shown as due on any such certificate within 10 Business Days after
receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank
to demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 180 days prior to the date that such Lender or the Issuing Bank
notifies the Borrower of the Change in Law giving rise to such increased costs
or reductions and of such Lender's or the Issuing Bank's intention to claim
compensation therefor; provided further that, if the Change in Law giving rise
to such increased costs or reductions is retroactive, then the 180-day period
referred to above shall be extended to include the period of retroactive effect
thereof.
SECTION 2.14. Break Funding Payments. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice may be revoked under Section
2.09(f) and is revoked in accordance therewith), or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.17, then,
in any such event, the Borrower shall compensate each Lender for the loss, cost
and expense attributable to such event. In the case of a Eurodollar Loan, such
loss, cost or expense to any Lender shall be deemed to equal an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period for
such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and
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42
period from other banks in the eurodollar market. A certificate of any Lender
setting forth any amount or amounts that such Lender is entitled to receive
pursuant to this Section shall be delivered to the Borrower within 180 days of
the event giving rise to such loss, cost or expense and shall be prima facie
evidence absent demonstrative error. The Borrower shall pay such Lender the
amount shown as due on any such certificate within 10 Business Days after
receipt thereof.
SECTION 2.15. Taxes. (a) Any and all payments by or on account of
any obligation of the Borrower hereunder or under any other Loan Document shall
be made free and clear of and without deduction for any Indemnified Taxes or
Other Taxes; provided that if the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
the Administrative Agent, the Issuing Bank or the applicable Lender (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law and (iv) the Borrower shall have the
right to contest any such Taxes and/or receive any refunds paid or payable with
respect to the same.
(b) In addition, but without duplication of clause (a), the Borrower
shall pay any Other Taxes to the relevant Governmental Authority in accordance
with applicable law.
(c) The Borrower shall indemnify and reimburse the Administrative
Agent, each Lender and the Issuing Bank within 10 Business Days after written
demand therefor, for the full amount of any Indemnified Taxes or Other Taxes
paid by the Administrative Agent, such Lender or the Issuing Bank, as the case
may be, on or with respect to any payment by or on account of any obligation of
the Borrower hereunder or under any other Loan Document (including Indemnified
Taxes or Other Taxes imposed or asserted on or attributable to amounts payable
under this Section) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or
liability delivered to the Borrower by a Lender or the Issuing Bank or by the
Administrative Agent on its own behalf or on behalf of a
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43
Lender or the Issuing Bank shall be prima facie evidence absent demonstrative
error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or reasonably requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate, provided that such Foreign Lender
has received written notice from the Borrower or the Administrative Agent
advising it of the availability of such exemption or reduction and supplying all
applicable documentation.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of
Setoffs. (a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest, fees
or reimbursement of LC Disbursements, or of amounts payable under Section 2.13,
2.14 or 2.15, or otherwise) prior to the time expressly required hereunder or
under such other Loan Document for such payment (or, if no such time is
expressly required, prior to 2:00 p.m., New York City time), on the date when
due, in immediately available funds, without setoff or counterclaim. Any amounts
received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank as
expressly provided herein and except that payments pursuant to Sections 2.13,
2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto and
payments pursuant to other Loan Documents shall be made to the Persons specified
therein. The Administrative Agent shall distribute any such payments received by
it for the
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44
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment under any Loan Document shall be due on a day
that is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, unreimbursed
LC Disbursements, interest and fees then due hereunder, such funds shall be
applied (i) first, towards payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal and unreimbursed LC Disbursements then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans or participations in LC Disbursements resulting in
such Lender receiving payment of a greater proportion of the aggregate amount of
its Loans and participations in LC Disbursements and accrued interest thereon
than the proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in the
Loans and participations in LC Disbursements of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Loans and participations in LC
Disbursements; provided that (i) if any such participations are purchased and
all or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent
of such recovery, without interest (except to the extent that such purchasing
Lender is ordered by a court of competent jurisdiction to pay interest on such
recovered payment), and (ii) the provisions of this paragraph shall not be
construed to apply to any payment made by the Borrower pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by a
Lender as consideration for the assignment of or sale of a participation in any
of its Loans or participations in LC Disbursements to any assignee or
participant, other than to the Borrower or any Subsidiary or
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45
Affiliate thereof (as to which the provisions of this paragraph shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of setoff and counterclaim with respect to such participation as
fully as if such Lender were a direct creditor of the Borrower in the amount of
such participation.
(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or the Issuing Bank with
interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the Administrative
Agent, at the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on
interbank compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(b), 2.08(d), 2.16(d) or 9.03(c), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.13, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.15, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
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46
amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.13, or if
the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent and
the Issuing Bank, which consent shall not unreasonably be withheld, (ii) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Loans and participations in LC Disbursements, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case
of any such assignment resulting from a claim for compensation under Section
2.13 or payments required to be made pursuant to Section 2.15, such assignment
will result in a material reduction in such compensation or payments. A Lender
shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances
entitling the Borrower to require such assignment and delegation cease to apply.
ARTICLE III
Representations and Warranties
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the
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47
jurisdiction of its organization, has all requisite power and authority to carry
on its business as now conducted and to own and lease its properties as now
owned or leased, and is qualified to do business in, and is in good standing in,
every jurisdiction where such qualification or such good standing is required,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
entered into by each Loan Party are within such Loan Party's corporate powers
and have been duly authorized by all necessary corporate and, if required,
stockholder action. This Agreement has been duly executed and delivered by the
Borrower and constitutes, and each other Loan Document to which any Loan Party
is to be a party, when executed and delivered by such Loan Party, will
constitute, a legal, valid and binding obligation of the Borrower or such Loan
Party (as the case may be), enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of the Borrower or any of its Subsidiaries or any order of any
Governmental Authority, (c) will not violate or result in a default under any
material indenture, agreement or other instrument binding upon the Borrower or
any of its Subsidiaries or its assets, or give rise to a right thereunder to
require any payment to be made by the Borrower or any of its Subsidiaries, and
(d) will not result in the creation or imposition of any material Lien on any
asset of the Borrower or any of its Subsidiaries.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a)
The Borrower has heretofore furnished to the Lenders its consolidated balance
sheet and statements of income, stockholders equity and cash flows (i) as of and
for the fiscal year ended September 30, 1998, reported on by KPMG Peat Marwick
LLP, independent public accountants, and (ii) as of and for the fiscal quarter
and the portion of the fiscal year ended March 31, 1999, certified by its chief
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48
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.
(b) The Borrower has heretofore furnished to the Lenders its pro
forma consolidated balance sheet as of March 31, 1999, prepared giving effect to
the Transactions as if the Transactions had occurred on such date. Such pro
forma consolidated balance sheet (i) has been prepared in good faith based on
the same assumptions used to prepare the pro forma financial statements included
in the Information Memorandum (which assumptions are believed by the Borrower to
be reasonable), (ii) is based on the best information available to the Borrower
after due inquiry, (iii) accurately reflects all adjustments necessary to give
effect to the Transactions and (iv) presents fairly, in all material respects,
the pro forma financial position of the Borrower and its consolidated
Subsidiaries as of March 31, 1999 as if the Transactions had occurred on such
date.
(c) On the date hereof, except as disclosed in the financial
statements referred to above or the notes thereto or in the Information
Memorandum and except for the Disclosed Matters, after giving effect to the
Transactions, none of the Borrower or its Subsidiaries has any material
contingent liabilities, unusual long-term commitments or unrealized losses.
(d) Since September 30, 1998, there has been no material adverse
change in the business, assets, operations, prospects, financial condition or
contractual arrangements of the Borrower and its Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrower and its
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business, except for minor defects in
title that do not interfere in any material respect with its ability to conduct
its business as currently conducted or to utilize such properties for their
intended purposes.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed
or otherwise has rights to use, all trademarks, trade names, copyrights, patents
and other intellectual property material to its business, and, to the Borrower's
knowledge, the use thereof by the Borrower and its Subsidiaries does not
infringe upon the rights of any
<PAGE>
49
other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries (i) as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters) or (ii) that involve any of the Loan Documents or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, neither the Borrower nor any of
its Subsidiaries (i) has failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval required
under any Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
(c) Since the Initial Effective Date, there has been no change in
the status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the
Borrower and its Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority (including any applicable labor laws or
regulations) applicable to it or its property and all indentures, agreements and
other instruments binding upon it or its property, except where the failure to
do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect. No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the
Borrower nor any of its Subsidiaries is (a) an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
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50
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) any Taxes that are being or promptly will be contested in
good faith by appropriate proceedings and for which the Borrower or such
Subsidiary, as applicable, has set aside on its books adequate reserves in
accordance with GAAP or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed the fair
market value of the assets of such Plan.
SECTION 3.11. Disclosure. Neither the Information Memorandum nor any
of the other reports, financial statements, certificates or other information
furnished by or on behalf of any Loan Party to the Administrative Agent or any
Lender in connection with the negotiation of this Agreement or any other Loan
Document or delivered hereunder or thereunder (as modified or supplemented by
other information so furnished) contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided that, with respect to projected financial information, the Borrower
represents only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time.
SECTION 3.12. Subsidiaries. Schedule 3.12 to the Disclosure Letter
sets forth the name of, and the ownership interest of the Borrower and each
other Subsidiary in, each Subsidiary and identifies each Subsidiary that is a
Significant Subsidiary and/or a Subsidiary Loan Party, in each case as of the
Second Amendment Effective Date.
SECTION 3.13. Insurance. Schedule 3.13 to the Disclosure Letter sets
forth a description of all insurance maintained by or on behalf of the Borrower
and its Subsidiaries as of the Second Amendment Effective Date. As
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51
of the Second Amendment Effective Date, all premiums in respect of such
insurance have been paid. The Borrower believes that the insurance maintained by
or on behalf of the Borrower and its Subsidiaries is adequate.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed
on behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include facsimile transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) [intentionally omitted].
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each
Loan Party, the authorization of the Transactions and any other legal
matters relating to the Loan Parties, the Loan Documents or the
Transactions, all in form and substance satisfactory to the Administrative
Agent and its counsel.
(d) The Administrative Agent shall have received a certificate,
dated the Second Amendment Effective Date and signed by the President, a
Vice President or a Financial Officer of the Borrower, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Second Amendment Effective
Date, including, to the extent invoiced, reimbursement or payment of all
reasonable out-of-pocket expenses (including fees, charges and
disbursements of counsel) required to be
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52
reimbursed or paid by any Loan Party hereunder or under any other Loan
Document.
(f) The Administrative Agent (or its counsel) shall have received
from each party thereto a counterpart of the Guarantee Agreement signed on
behalf of such party.
(g) All consents and approvals required to be obtained from any
Governmental Authority or other Person in connection with the
Recapitalization shall have been obtained (including from the stockholders
of the Borrower), and all applicable waiting periods and appeal periods
shall have expired, in each case without the imposition of any materially
burdensome conditions. The Administrative Agent shall have received copies
of any Recapitalization Documents signed prior to such date and all
certificates, opinions and other documents delivered thereunder prior to
such date, certified by a Financial Officer as complete and correct.
(h) The Lenders shall have received a pro forma consolidated balance
sheet of the Borrower as of March 31, 1999, reflecting all pro forma
adjustments as if the Transactions had been consummated on such date, and
such pro forma consolidated balance sheet shall be consistent in all
material respects with the forecasts and other information previously
provided to the Lenders.
SECTION 4.02. Each Credit Event. The obligation of each Lender to
make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to receipt of the
request therefor in accordance herewith and to the satisfaction of the following
conditions:
(a) The representations and warranties of each Loan Party set forth
in the Loan Documents shall be true and correct in all material respects
on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable,
except to the extent they expressly relate to an earlier date, in which
case as of such earlier date.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable no Default shall have occurred and be continuing.
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53
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (a) and
(b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, and all Letters of Credit shall have expired or terminated
and all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
Borrower will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the
Borrower, its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures as
of the end of and for the previous fiscal year, all reported on by KPMG
Peat Marwick LLP or other independent public accountants of recognized
national standing (without a "going concern" or like qualification or
exception and without any qualification or exception as to the scope of
such audit) to the effect that such consolidated financial statements
present fairly in all material respects the financial condition and
results of operations of the Borrower and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, its consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form
the figures for the corresponding period or periods of (or, in the case of
the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all
material respects
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54
the financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer (i)
certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed
to be taken with respect thereto, (ii) setting forth reasonably detailed
calculations demonstrating compliance with Sections 6.12, 6.13, 6.14, 6.15
and 6.17 and (iii) stating whether any change in GAAP or in the
application thereof has occurred since the date of the Borrower's audited
financial statements referred to in Section 3.04 and, if any such change
has occurred, specifying the effect of such change on the financial
statements accompanying such certificate;
(d) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any
Default (which certificate may be limited to the extent required by
accounting rules or guidelines);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange;
and
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may reasonably
request.
SECTION 5.02. Notices of Material Events. The Borrower will furnish
to the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
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55
(b) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting
the Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect; and
(c) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Existence; Conduct of Business. The Borrower will, and
will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges, franchises, patents,
copyrights, trademarks and trade names material to the conduct of its business;
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 6.03.
SECTION 5.04. Payment of Obligations. The Borrower will, and will
cause each of its Subsidiaries to, pay its Indebtedness and other obligations,
including Tax liabilities, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05. Maintenance of Properties. The Borrower will, and will
cause each of its Subsidiaries to, keep and maintain all property material to
the conduct of its business in good working order and condition, ordinary wear
and tear and obsolescence excepted.
SECTION 5.06. Insurance. The Borrower will, and will cause each of
its Subsidiaries to, maintain, with financially sound and reputable insurance
companies insurance in such amounts (with no greater risk retention) and against
such risks as are customarily maintained by companies of established repute
engaged in the same or
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56
similar businesses operating in the same or similar locations. The Borrower will
furnish to the Lenders, upon request of the Administrative Agent, information in
reasonable detail as to the insurance so maintained.
SECTION 5.07. Books and Records; Inspection and Audit Rights. The
Borrower will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, without material disruption of the Borrower's business,
to visit and inspect its properties, to examine and make extracts from its books
and records, and to discuss its affairs, finances and condition with its
officers and independent accountants, all at such reasonable times and as often
as reasonably requested, in each case subject to the Lenders' confidentiality
obligations under Section 9.12.
SECTION 5.08. Compliance with Laws. The Borrower will, and will
cause each of its Subsidiaries to, comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it or its property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.09. Use of Proceeds and Letters of Credit. (a) The
proceeds of the Loans will be used by the Borrower only (i) to finance
repurchases of common stock pursuant to the Tender Offer or on the open market
and (ii) for general corporate purposes of the Borrower and its Subsidiaries
(including to refinance Indebtedness outstanding hereunder prior to the Second
Amendment Effective Date). Letters of Credit will be issued for general
corporate purposes of the Borrower and its Subsidiaries.
(b) No part of the proceeds of any Loan and no Letter of Credit will
be used, whether directly or indirectly, for any purpose that entails a
violation of any of the Regulations of the Board, including Regulations U and X.
SECTION 5.10. Additional Subsidiaries; Significant Subsidiaries. The
Borrower may from time to time, but no more than once each fiscal year, by
written notice to the Administrative Agent designate Subsidiaries as
"Significant Subsidiaries" or "Insignificant Subsidiaries",
<PAGE>
57
and the Borrower shall make such designation as necessary to comply with the
requirements of the definition of "Significant Subsidiary". If any additional
Subsidiary is formed or acquired or becomes a Subsidiary after the date hereof,
the Borrower shall, within thirty days after such Subsidiary is formed or
acquired or becomes a Subsidiary, notify the Administrative Agent thereof and
designate such Subsidiary as a "Significant Subsidiary" or an "Insignificant
Subsidiary". The Borrower may designate Subsidiaries as "Significant
Subsidiaries" or "Insignificant Subsidiaries" if such designation is necessary
to cure a default described in clause (m) of Article VII, provided that the
Required Lenders have determined that the newly-designated "Significant
Subsidiaries" are comparable in all material respects to the newly-designated
"Insignificant Subsidiaries." At the time of any designation pursuant to any of
the preceding three sentences, the Borrower shall (a) provide to the
Administrative Agent a certificate of a Financial Officer (i) if any Subsidiary
is being designated as "Insignificant," stating that no Default has occurred and
is continuing after giving effect to such designation and (ii) setting forth
reasonably detailed calculations demonstrating compliance with the requirements
of the definition of "Significant Subsidiary" immediately after such designation
on a pro forma basis as if such designation had occurred immediately prior to
the first day of the fiscal year most recently ended and (b) cause any
Subsidiary that is being designated as a "Significant Subsidiary" and is not a
Foreign Subsidiary to become a party to the Guarantee Agreement. Section 19 of
the Guarantee Agreement shall apply to designations made pursuant to this
Section.
SECTION 5.11. Federal Reserve Regulations. The Borrower will, and
will cause each Subsidiary to, ensure that at no time will Margin Stock comprise
25% or more of the assets that are (or would but for the exclusions in Sections
6.02(e) and 6.05(d) be) subject to the restrictions of Section 6.02 or Section
6.05.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal
of and interest on each Loan and all fees payable hereunder have been paid in
full and all Letters of Credit have expired or terminated and all LC
Disbursements
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58
shall have been reimbursed, the Borrower covenants and agrees with the Lenders
that:
SECTION 6.01. Indebtedness. The Borrower will not, and will not
permit any Subsidiary Loan Party to, create, incur, assume or permit to exist
any Indebtedness, except:
(a) Indebtedness created under the Loan Documents and Permitted
Subordinated Debt;
(b) Indebtedness existing on the date hereof and set forth in
Schedule 6.01 to the Disclosure Letter and extensions, renewals and
replacements of any such Indebtedness that do not increase the outstanding
principal amount thereof or result in an earlier maturity date or
decreased weighted average life thereof;
(c) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary; provided that
Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or
any Subsidiary Loan Party shall be subject to Section 6.04;
(d) Guarantees by the Borrower of Indebtedness of any Subsidiary and
by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary;
provided that Guarantees by the Borrower or any Subsidiary Loan Party of
Indebtedness of any Subsidiary that is not a Loan Party shall be subject
to Section 6.04;
(e) any Indebtedness of a Subsidiary, secured Indebtedness of the
Borrower, or Capital Lease Obligation of the Borrower; provided that the
sum, without duplication, of (i) the aggregate principal amount of
Indebtedness permitted by this clause (e) and (ii) the Attributable Debt
permitted by Section 6.06(b), shall not exceed at any time outstanding the
greater of (i) $25 million and (ii) 12.5% of Consolidated EBITDA for the
period of four consecutive fiscal quarters most recently ended on or prior
to such time;
(f) Indebtedness of the Borrower or any Subsidiary in respect of (i)
standby or performance letters of credit; provided that the aggregate
amount of Indebtedness permitted by this clause (i) shall not at any time
exceed the greater of (A) $10 million and (B) 5% of Consolidated EBITDA
for the period of four
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consecutive fiscal quarters most recently ended on or prior to such time;
and (ii) trade letters of credit;
(g) Indebtedness of any Person that becomes a Subsidiary after the
date hereof; provided that such Indebtedness exists at the time such
Person becomes a Subsidiary and is not created in contemplation of or in
connection with such Person becoming a Subsidiary; and
(h) other unsecured Indebtedness in an aggregate principal amount
not exceeding at any time outstanding the greater of (i) $100 million and
(ii) 50% of Consolidated EBITDA for the period of four consecutive fiscal
quarters most recently ended on or prior to such time.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
Subsidiary Loan Party to, create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect of
any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02 to
the Disclosure Letter; provided that (i) such Lien shall not apply to any
other property or asset of the Borrower or any Subsidiary and (ii) such
Lien shall secure only those obligations which it secures on the date
hereof;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that
(i) such Lien is not created in contemplation of or in connection with
such acquisition or such Person becoming a Subsidiary, as the case may be,
(ii) such Lien shall not apply to any other property or assets of the
Borrower or any Subsidiary and (iii) such Lien shall secure only those
obligations which it secures on the date of such acquisition or the date
such Person becomes a Subsidiary, as the case may be, and extensions,
renewals and replacements thereof that do not increase the outstanding
principal amount thereof;
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(d) Liens securing Indebtedness permitted by Section 6.01(e);
provided that the fair market value of the property and assets subject to
such Liens does not exceed the principal amount of such Indebtedness by
more than 25%;
(e) Liens on any Margin Stock held by the Borrower or any Subsidiary
to the extent that such Margin Stock would otherwise comprise 25% or more
of the property and assets subject to this Section 6.02; and
(f) any Lien renewing, extending or refunding any Lien permitted by
Section 6.02(b), provided that the principal amount secured is not
increased and the Lien is not extended to other property.
SECTION 6.03. Fundamental Changes. (a) The Borrower will not, nor
will it permit any Subsidiary to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing (i) any
Person may merge into the Borrower in a transaction in which the Borrower is the
surviving corporation, (ii) any Person may merge into any Subsidiary and any
Subsidiary may merge into any Person in a transaction in which the surviving
entity is or becomes a Subsidiary and (if any party to such merger is a
Subsidiary Loan Party) is or becomes a Subsidiary Loan Party and (iii) any
Subsidiary (other than a Subsidiary Loan Party) may liquidate or dissolve if the
Borrower determines in good faith that such liquidation or dissolution is in the
best interests of the Borrower and is not materially disadvantageous to the
Lenders; provided that any such merger involving a Person that is not a wholly
owned Subsidiary immediately prior to such merger shall not be permitted unless
also permitted by Section 6.04; provided further, that prior to consummating any
merger pursuant to clause (i) or (ii) of this Section 6.03, the Borrower will
deliver to the Administrative Agent a certificate of a Financial Officer
demonstrating compliance immediately following such merger, on a pro forma basis
giving effect to such merger, with Sections 6.12, 6.13, 6.14, 6.15 and 6.17.
(b) The Borrower and its Subsidiaries, collectively, will not engage
to any material extent in any business other than businesses of the type
conducted by the Borrower and its Subsidiaries on the date hereof and businesses
reasonably related or incidental thereto.
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SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries
to, purchase, hold or acquire (including pursuant to any merger with any Person
that was not a wholly owned Subsidiary prior to such merger) any Equity
Interests in or evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person, or
purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments existing on the date hereof and set forth on
Schedule 6.04 to the Disclosure Letter;
(c) investments by the Borrower and its Subsidiaries in
Subsidiaries; provided that the aggregate amount of investments by Loan
Parties in, and loans and advances by Loan Parties to, and Guarantees by
Loan Parties of Indebtedness of, Subsidiaries that are not Loan Parties
(excluding all such investments, loans, advances and Guarantees otherwise
permitted pursuant to this Section 6.04) shall not at any time outstanding
exceed the greater of (i) $100 million and (ii) 37.5% of Consolidated
EBITDA for the period of four consecutive fiscal quarters most recently
ended on or prior to such time;
(d) loans or advances made by the Borrower to any Subsidiary and
made by any Subsidiary to the Borrower or any other Subsidiary; provided
that any such loans or advances from Loan Parties to Subsidiaries that are
not Loan Parties are represented by promissory notes that are pledged to
the Administrative Agent for the benefit of the Lenders pursuant to the
Pledge Agreement;
(e) Guarantees constituting Indebtedness permitted by Section 6.01;
provided that the aggregate principal amount of Indebtedness of
Subsidiaries that are not Loan Parties that is Guaranteed by any Loan
Party shall be subject to the limitation set forth in clause (c) above;
(f) Permitted Acquisitions;
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(g) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
(h) investments by the IFSC and investments by the Borrower and its
Subsidiaries in the IFSC; provided that such investments in the IFSC do
not in the aggregate exceed $100 million;
(i) investments by SIV and investments by the Borrower and its
Subsidiaries in SIV, to the extent that such investments in SIV do not
exceed (i) $30 million in the aggregate made at any time pursuant to
approvals of the Borrower's Board of Directors on or prior to the Initial
Effective Date or (ii) $15 million made in any fiscal year of the Borrower
that ends after the Initial Effective Date; and
(j) investments not described in clauses (a) through (i) above;
provided that the aggregate amount of such investments does not at any
time outstanding exceed the greater of (i) $15 million and (ii) 7.5% of
Consolidated EBITDA for the period of four consecutive fiscal quarters
most recently ended on or prior to such time.
SECTION 6.05. Asset Sales. The Borrower will not, and will not
permit any Subsidiary Loan Party to, sell, transfer, lease or otherwise dispose
of any asset, including any Equity Interest owned by it, nor will the Borrower
permit any of its Subsidiaries to issue any additional Equity Interest in such
Subsidiary (other than to the Borrower or another Subsidiary), except:
(a) sales of inventory, used or surplus equipment
and Permitted Investments in the ordinary course of
business;
(b) sales, transfers and dispositions to the Borrower or a
Subsidiary; provided that any such sales, transfers or dispositions
involving a Subsidiary that is not a Loan Party shall be made in
compliance with Section 6.09;
(c) sales, transfers and other dispositions of assets (other than
Equity Interests in a Subsidiary Loan Party) that are not permitted by any
other clause of this Section; provided that the aggregate book value of
all assets sold, transferred or otherwise disposed
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of on or after the Second Amendment Effective Date in reliance upon this
clause (c) shall not, at the time of such sale, transfer or other
disposition, exceed the greater of (i) 10% of Consolidated Net Tangible
Assets and (ii) $50 million; and
(d) sales, transfers or other dispositions of any Margin Stock held
by the Borrower or any Subsidiary to the extent such Margin Stock would
otherwise comprise 25% or more of the property and assets subject to this
Section 6.05.
SECTION 6.06. Sale and Leaseback Transactions. The Borrower will
not, and will not permit any Subsidiary to, enter into any Sale-Leaseback
Transaction except:
(a) Sale-Leaseback Transactions to which the Borrower or any
Subsidiary is a party as of the date hereof; and
(b) other Sale-Leaseback Transactions; provided that the sum,
without duplication, of (i) the Indebtedness permitted by Section 6.01(e)
and (ii) the aggregate Attributable Debt in respect of Sale-Leaseback
Transactions permitted by this clause (b), does not at any time
outstanding exceed the greater of (i) $25 million and (ii) 12.5% of
Consolidated EBITDA for the period of four consecutive fiscal quarters
most recently ended on or prior to such time.
SECTION 6.07. Hedging Agreements. The Borrower will not, and will
not permit any Subsidiary Loan Party to, enter into any Hedging Agreement, other
than Hedging Agreements entered into in the ordinary course of business to hedge
or mitigate risks to which the Borrower or any Subsidiary is exposed in the
conduct of its business or the management of its liabilities, including Hedging
Agreements entered into in connection with this Agreement.
SECTION 6.08. Restricted Payments. The Borrower will not, nor will
it permit any Subsidiary Loan Party to, declare or make, or agree to pay or
make, directly or indirectly, any Restricted Payment, or incur any obligation
(contingent or otherwise) to do so, except, so long as no Default has occurred
and is continuing or would occur as a result thereof, (i) the Borrower may
declare and pay dividends with respect to its capital stock payable solely in
additional shares of Common Stock, (ii) Subsidiaries may declare and pay
dividends ratably with respect to their capital stock, (iii) the Borrower may
make Restricted
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Payments pursuant to and in accordance with stock option plans or other benefit
plans for management or employees of the Borrower and its Subsidiaries, (iv) the
Borrower may pay the Dividend, (v) the Borrower may repurchase shares of Common
Stock pursuant to the Tender Offer, (vi) the Borrower may effect open market
purchases of up to approximately 5% (as the same may increase or decrease based
on the number of shares acquired in the Tender Offer) of its shares of Common
Stock outstanding on the Initial Effective Date, and (vii) the Borrower may make
other Restricted Payments so long as the aggregate amount of Restricted Payments
made pursuant to this clause (vii) after the Initial Effective Date does not
exceed $50 million; (viii) the Borrower may make Restricted Payments made
pursuant to the Share Forward Purchase Agreements; (ix) the Borrower may make
any other cash Restricted Payment, provided that, in the case of this clause
(ix), on a pro forma basis after giving effect to such Restricted Payment, the
Borrower's Leverage Ratio is less than 1.50 to 1.00; and (x) the Borrower may
pay cash dividends to holders of Permitted Preferred Stock; provided that, after
giving effect to any such dividend on a pro forma basis as if such dividend had
been made on the last day of the fiscal quarter most recently ended on or prior
to the date of such dividend, the Borrower would be in compliance with Sections
6.12, 6.13 and 6.17.
SECTION 6.09. Transactions with Affiliates. The Borrower will not,
nor will it permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions in the ordinary course of business that are
at prices and on terms and conditions not less favorable to the Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties, (b) transactions between or among the Borrower and the Subsidiary Loan
Parties not involving any other Affiliate, (c) any Restricted Payments permitted
by Section 6.08 and (d) the Recapitalization.
SECTION 6.10. Restrictive Agreements. The Borrower will not, nor
will it permit any Subsidiary Loan Party to, directly or indirectly, enter into,
incur or permit to exist any agreement or other arrangement that prohibits,
restricts or imposes any condition upon (a) the ability of the Borrower or any
Subsidiary to create, incur or permit to exist any Lien upon any of its property
or assets, or (b) the ability of any Subsidiary to pay dividends or other
distributions with respect to any shares of its capital stock or to make or
repay loans or advances to the Borrower or any other Subsidiary or to Guarantee
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Indebtedness of the Borrower or any other Subsidiary; provided that (i) the
foregoing shall not apply to restrictions and conditions imposed by law or by
any Loan Document, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 6.10 to the
Disclosure Letter (but shall apply to any extension or renewal of, or any
amendment or modification expanding the scope of, any such restriction or
condition), (iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary or
assets pending such sale, provided such restrictions and conditions apply only
to the Subsidiary or assets that are to be sold and such sale is permitted
hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or
conditions imposed by any agreement relating to secured Indebtedness permitted
by this Agreement if such restrictions or conditions apply only to the property
or assets securing such Indebtedness and (v) clause (a) of the foregoing shall
not apply to customary provisions in leases and other contracts restricting the
assignment thereof.
SECTION 6.11. Amendment of Material Documents. The Borrower will
not, nor will it permit any Subsidiary to, make or agree to any material change
in the terms of the Recapitalization from those described to the Lenders prior
to the date hereof in any manner that is adverse in any significant respect to
the Lenders.
SECTION 6.12. Interest Expense Coverage Ratio. The Borrower will not
permit the ratio of (a) Consolidated EBITDA to (b) Consolidated Cash Interest
Expense, in each case for any period of four consecutive fiscal quarters, to be
less than (i) 3.50 to 1.00, for the periods of four consecutive fiscal quarters
ending March 31, 2000, June 30, 2000 and September 30, 2000, respectively, and
(ii) 4.50 to 1.00, for all subsequent periods.
SECTION 6.13. Total Balance Sheet Indebtedness to EBITDA. The
Borrower will not permit the ratio of (a) Total Balance Sheet Indebtedness as of
the last day of any fiscal quarter to (b) Consolidated EBITDA for the period of
four consecutive fiscal quarters ending with such fiscal quarter, to exceed 4.00
to 1.00.
SECTION 6.14. Annualized Contract Value to Total Balance Sheet
Indebtedness. The Borrower will not permit the ratio of (a) Annualized Contract
Value as of the last day of any fiscal quarter to (b) Consolidated Funded Debt
as of the last day of such fiscal quarter, to be less than 1.25 to 1.00.
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SECTION 6.15. Minimum Annualized Contract Value. The Borrower will
not permit Annualized Contract Value as of the last day of any fiscal quarter to
be less than $350 million.
SECTION 6.16. Certain Indemnity Obligations. The Borrower will not,
nor will it permit any Subsidiary to, take any action, or omit to take any
action, that could reasonably be expected to result in the Borrower or any
Subsidiary being liable for any indemnity or reimbursement obligation under any
Recapitalization Document, including any indemnity or reimbursement obligation
under Section II.7 of the Distribution Agreement, except for, on any date, (a)
indemnity or reimbursement obligations that do not in the aggregate exceed $150
million or (b) indemnity or reimbursement obligations that would not in the
aggregate result in the ratio of (i) the sum of (A) Total Balance Sheet
Indebtedness as of the last day of the fiscal quarter most recently ended on or
prior to such date plus (B) the amount of such indemnity or reimbursement
obligations to (ii) Consolidated EBITDA for the period of four consecutive
fiscal quarters most recently ended on or prior to such date, exceeding 2.00 to
1.00.
SECTION 6.17. Total Senior Balance Sheet Indebtedness to EBITDA. On
or after the Permitted Capital Obligations Effective Date, the Borrower will not
permit the ratio of (a) Total Senior Balance Sheet Indebtedness as of the last
day of any fiscal quarter to (b) Consolidated EBITDA for the period of four
consecutive fiscal quarters ending with such fiscal quarter, to exceed 2.00 to
1.00.
SECTION 6.18. Other Indebtedness and Agreements. The Borrower will
not, nor will it permit any Subsidiary to, make any distribution, whether in
cash, property, securities or a combination thereof, other than regular
scheduled payments as and when due, in respect of, or pay, or offer or commit to
pay, or directly or indirectly redeem, repurchase, retire or otherwise acquire
for consideration, or set apart any sum for the aforesaid purposes, any
Permitted Subordinated Debt, in each case except for any conversion of Permitted
Subordinated Debt into Common Stock or Permitted Preferred Stock.
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ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
or any reimbursement obligation in respect of any LC Disbursement when
and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement or any other Loan
Document, when and as the same shall become due and payable, and such
failure shall continue unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of the Borrower or any Subsidiary in any Loan Document or any
amendment or modification thereof or waiver thereunder, or in any
report, certificate, financial statement or other document furnished
pursuant to or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, shall prove to have been
incorrect in any material respect when made or deemed made or
furnished;
(d) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.03 (with
respect to the existence of the Borrower) or 5.09(a) or in Article VI;
(e) any Loan Party shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document (other
than those specified in clause (a), (b) or (d) of this Article), and
such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent to the Borrower (which
notice will be given at the request of any Lender);
(f) the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become
due and payable;
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(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
provided that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any
Significant Subsidiary or its debts, or of a substantial part of its
assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Significant
Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) the Borrower or any Significant Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Significant
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
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(j) the Borrower or any Subsidiary shall become unable, admit
in writing its inability or fail generally to pay its debts as they
become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $30 million shall be rendered against the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 60 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets
of the Borrower or any Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in a
Material Adverse Effect;
(m) the guarantee of any Subsidiary Loan Party under the
Guarantee Agreement shall not be (or shall be claimed by the Borrower
or any Subsidiary Loan Party not to be) valid or in full force and
effect, and such failure to be valid or in full force and effect shall
not have been cured by the Borrower in accordance with the third
sentence of Section 5.10; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then
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outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to be
due and payable), and thereupon the principal of the Loans so declared to be due
and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; and in case of any event with
respect to the Borrower described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
Each of the Lenders and the Issuing Bank hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms of the Loan Documents,
together with such actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth in the Loan Documents. Without
limiting the generality of the foregoing, (a) the Administrative Agent shall not
be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing, (b) the Administrative Agent shall not
have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated by the
Loan Documents that the Administrative Agent is required to exercise in writing
by the Required Lenders (or such other number or percentage of the Lenders as
shall be necessary under the circumstances as provided in Section 9.02), and (c)
except as expressly set forth in the Loan Documents, the Administrative Agent
shall not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to the Borrower or any of its Subsidiaries
that is communicated to or obtained by the bank serving as Administrative Agent
or any of its Affiliates in any capacity. The Administrative Agent shall not be
liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or percentage of the
Lenders as shall be
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necessary under the circumstances as provided in Section 9.02) or in the absence
of its own gross negligence or wilful misconduct. The Administrative Agent shall
not be deemed not to have knowledge of any Default unless and until written
notice thereof is given to the Administrative Agent by the Borrower or a Lender,
and the Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with any Loan Document, (ii) the contents of any certificate,
report or other document delivered thereunder or in connection therewith, (iii)
the performance or observance of any of the covenants, agreements or other terms
or conditions set forth in any Loan Document, (iv) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth in
Article IV or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all of its duties
and exercise its rights and powers by or through any one or more subagents
appointed by the Administrative Agent. The Administrative Agent and any such
subagent may perform any and all of its duties and exercise its rights and
powers through their respective Related Parties. The exculpatory provisions of
the preceding paragraphs shall apply to any such subagent and to the Related
Parties of the Administrative Agent and any such subagent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
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Subject to the appointment and acceptance of a successor to
the Administrative Agent as provided in this paragraph, the Administrative Agent
may resign at any time by notifying the Lenders, the Issuing Bank and the
Borrower. Upon any such resignation, the Required Lenders shall have the right,
with the prior approval of the Borrower (which shall not be unreasonably
withheld), to appoint a successor. If no successor shall have been so appointed
by the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Bank, appoint a successor Administrative Agent which shall be a bank with an
office in New York, New York and a minimum capital surplus of $100 million, or
an Affiliate of any such bank. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its subagents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or related agreement or any document furnished hereunder
or thereunder.
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ARTICLE IX
Miscellaneous
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SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by facsimile transmission, as follows:
(a) if to the Borrower, to it at 56 Top Gallant
Road, Stamford, CT 06902, Attention of Chief Financial
Officer (Facsimile No. (203) 316-6488) with copies to
the Borrower's Treasurer at the same address and
facsimile number and to the Borrower's Legal Department
(Facsimile No. (203) 316-6525) at the same address;
(b) if to the Administrative Agent or to the
Issuing Bank, to The Chase Manhattan Bank, Loan and
Agency Services Group, One Chase Manhattan Plaza, 8th
Floor, New York, New York 10081, Attention of Ms. Mahin
Gandomi (Facsimile No. (212) 552-5650), with a copy to
The Chase Manhattan Bank, 999 Broad Street,
Bridgeport, CT 06604, Attention of Mr. David Short
(Facsimile No. (203) 382-6314); and
(c) if to any Lender, to it at its address (or
facsimile number) set forth in its Administrative
Questionnaire.
Any party hereto may change its address or facsimile number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by
the Administrative Agent, the Issuing Bank or any Lender in exercising any right
or power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the Issuing
Bank and the Lenders hereunder and under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provision of any Loan Document or consent to any departure by
any Loan Party therefrom shall in any event be effective unless the same shall
be permitted by paragraph (b) of this Section,
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and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, the Issuing Bank or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or, in the case of any
other Loan Document, pursuant to an agreement or agreements in writing entered
into by the Administrative Agent and the Loan Party or Loan Parties that are
parties thereto, in each case with the consent of the Required Lenders;
provided that no such agreement shall (i) increase the Commitment of any Lender
without the written consent of such Lender, (ii) reduce the principal amount of
any Loan or the LC Disbursement or reduce the rate of interest thereon, or
reduce any fees payable hereunder, without the written consent of each Lender
affected thereby, (iii) postpone the maturity of any Loan, or the required date
of reimbursement of any LC Disbursement, or any date for the payment of any
interest or fees payable hereunder, or reduce the amount of, waive or excuse any
such payment, or postpone the scheduled date of expiration of any Commitment,
without the written consent of each Lender affected thereby, (iv) change Section
2.16(b) or (c) in a manner that would alter the pro rata sharing of payments
required thereby, without the written consent of each Lender, (v) change any of
the provisions of this Section or the percentage set forth in the definition of
"Required Lenders" or any other provision of any Loan Document specifying the
number or percentage of Lenders required to waive, amend or modify any rights
thereunder or make any determination or grant any consent thereunder, without
the written consent of each Lender, (vi) release any Subsidiary Loan Party from,
or limit or condition its obligations under, the Guarantee Agreement (except as
expressly provided in the Guarantee Agreement or in Section 5.10), in each case
without the written consent of each Lender or (vii) amend, modify or otherwise
affect the rights or duties of the Administrative Agent or the Issuing Bank
without the prior written consent of the Administrative Agent or the Issuing
Bank, as the case may be. Notwithstanding the foregoing, any provision of this
Agreement may be amended by an agreement in writing entered into by the
Borrower, the Required Lenders and the Administrative Agent (and, if its rights
or obligations are affected thereby, the Issuing Bank) if (i) by the terms of
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such agreement the Commitment of each Lender not consenting to the amendment
provided for therein shall terminate upon the effectiveness of such amendment
and (ii) at the time such amendment becomes effective, each Lender not
consenting thereto receives payment in full of the principal of and interest
accrued on each Loan made by it and all other amounts owing to it or accrued for
its account under this Agreement.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The
Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent, in connection with
the syndication of the credit facilities provided for herein, the preparation
and administration of the Loan Documents or any amendments, modifications or
waivers of the provisions thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket
expenses incurred by the Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder and (iii) all out-of-pocket expenses incurred by the
Administrative Agent, the Issuing Bank or any Lender, including the reasonable
fees, charges and disbursements of any counsel for the Administrative Agent, the
Issuing Bank or any Lender, in connection with the enforcement or protection of
its rights in connection with the Loan Documents, including its rights under
this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out- of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) The Borrower shall indemnify the Administrative Agent, the
Issuing Bank and each Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the reasonable fees, charges and disbursements of
any counsel for any Indemnitee, incurred by or asserted against any Indemnitee
arising out of, in connection with, or as a result of (i) the execution or
delivery of any Loan Document or any other agreement or instrument contemplated
hereby, the performance by the parties to the Loan Documents of their respective
obligations thereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use
of the proceeds therefrom (including any refusal by the Issuing
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Bank to honor a demand for payment under a Letter of Credit if the documents
presented in connection with such demand do not strictly comply with the terms
of such Letter of Credit), (iii) any actual or alleged presence or release of
Hazardous Materials on or from any property currently or formerly owned or
operated by the Borrower or any of its Subsidiaries, or any Environmental
Liability related in any way to the Borrower or any of its Subsidiaries, or (iv)
any actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any other
theory and regardless of whether any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent or the Issuing Bank under
paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the
Administrative Agent or the Issuing Bank, as the case may be, such Lender's pro
rata share (determined as of the time that the applicable unreimbursed expense
or indemnity payment is sought) of such unpaid amount; provided that the
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent or the Issuing Bank in its capacity as such. For purposes
hereof, a Lender's "pro rata share" shall be determined based upon its share of
the sum of the total Exposures and unused Commitments at the time.
(d) To the extent permitted by applicable law, the Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions, any Loan or Letter of Credit or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable within
10 Business Days after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns permitted hereby (including
any
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Affiliate of the Issuing Bank that issues any Letter of Credit), except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitments and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower, the Issuing Bank and the Administrative Agent must give
their prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) except in the case of an assignment to a Lender or
an Affiliate of a Lender or an assignment of the entire remaining amount of the
assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of
the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Acceptance with respect to such assignment is delivered to
the Administrative Agent) shall not be less than $5 million unless each of the
Borrower and the Administrative Agent otherwise consent, (iii) each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender's rights and obligations under this Agreement, (iv) the parties
to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and provided further that
any consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default under clause (h) or (i) of Article VII has
occurred and is continuing. Subject to acceptance and recording thereof pursuant
to paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and Acceptance,
have the rights and obligations of a Lender under this Agreement, and the
assigning Lender
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thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections 2.13,
2.14, 2.15 and 9.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and the Borrower, the Administrative Agent,
the Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Issuing Bank and any Lender, at
any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Issuing Bank or the Administrative Agent sell participations to one or more
banks or other entities (a "Participant") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitments and the Loans owing to it);
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provided that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) the Borrower, the
Administrative Agent, the Issuing Bank and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement. Any agreement or instrument
pursuant to which a Lender sells such a participation shall provide that such
Lender shall retain the sole right to enforce the Loan Documents and to approve
any amendment, modification or waiver of any provision of the Loan Documents;
provided that such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that
affects such Participant. Subject to paragraph (f) of this Section, the Borrower
agrees that each Participant shall be entitled to the benefits of Sections 2.13,
2.14 and 2.15 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 9.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 2.16(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.13 or 2.15 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.15 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.15(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign, or grant a
security interest in, all or any portion of its rights under this Agreement to
secure obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment or grant of a security interest; provided that no such
pledge or assignment or grant of a security interest shall release a Lender from
any of its obligations hereunder or substitute any such pledgee or assignee for
such Lender as a party hereto.
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(h) Notwithstanding anything to the contrary contained herein,
any Bank (a "Granting Bank") may grant to a special purpose funding vehicle (a
"SPC"), identified as such in writing from time to time by the Granting Bank to
the Administrative Agent and the Borrower, the option to provide to the Borrower
all or any part of any Loan that such Granting Bank would otherwise be obligated
to make to the Borrower pursuant to this Agreement; provided that (i) nothing
herein shall constitute a commitment by any SPC to make any Loan and (ii) if a
SPC elects not to exercise such option or otherwise fails to provide all or any
part of such Loan, the Granting Bank shall be obligated to make such Loan
pursuant to the terms hereof. The making of a Loan by a SPC hereunder shall
utilize the Commitment of the Granting Bank to the same extent, and as if, such
Loan were made by such Granting Bank. Each party hereto hereby agrees that no
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Granting Bank). In
furtherance of the foregoing, each party hereto hereby agrees (which agreement
shall survive the termination of this Agreement) that, prior to the date that is
one year and one day after the payment in full of all outstanding commercial
paper or other senior indebtedness of any SPC, it will not institute against, or
join any other person in instituting against, such SPC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings under the
laws of the United States or any State thereof. In addition, notwithstanding
anything to the contrary contained in this Section 9.04(h), any SPC may (i) with
notice to, but without the prior written consent of, the Borrower and the
Administrative agent and without paying any processing fee therefor, assign all
or a portion of its interests in any Loans to the Granting Bank or to any
financial institutions (consented to by the Borrower and Administrative Agent)
providing liquidity and/or credit support to or for the account of such SPC to
support the funding or maintenance of Loans and (ii) disclose on a confidential
basis any non-public information relating to its Loans to any rating agency,
commercial paper dealer or provider of any surety, guarantee or credit or
liquidity enhancement to such SPC. This section may not be amended without the
written consent of the SPC.
SECTION 9.05. Survival. All covenants, agreements,
representations and warranties made by the Loan Parties in the Loan Documents
and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the other parties hereto and shall survive the
execution and delivery of the Loan Documents and the making of any Loans and
issuance of
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any Letters of Credit, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent, the
Issuing Bank or any Lender may have had notice or knowledge of any Default or
incorrect representation or warranty at the time any credit is extended
hereunder, and shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan or any fee or any other amount payable
under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.13, 2.14, 2.15 and 9.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Commitments or the termination of
this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Documents and any separate letter agreements with respect to fees
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and thereof and supersede any and
all previous agreements and understandings, oral or written, relating to the
subject matter hereof and thereof. Except as provided in Section 4.01, this
Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Delivery of an executed counterpart of a signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
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SECTION 9.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of the Borrower against any of and all the obligations of the Borrower now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service
of Process. (a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right that
the Administrative Agent, the Issuing Bank or any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or any other Loan
Document against the Borrower or its properties in the courts of any
jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any other
Loan Document in any court referred to in
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paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement or any other Loan Document will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative
Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality
of the Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors on a need to know basis
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Informat