Exhibit 99.4
TERM SHEET RE SYSTEM SOFTWARE ASSOCIATES
This term sheet is entered into by and between Gores Technology Group
and designated participants (collectively, "Gores"), Romulus Holdings, Inc. and
designated participants (collectively, "RHI") and Cerberus Partners L.P. on
behalf of various funds and accounts managed by it ("Cerberus"), with respect to
the bid (the "Bid") by SSA Acquisition Corporation ("Newco") for the acquisition
of substantially all of the assets of System Software Associates, Inc. ("SSA")
in SSA's chapter 11 bankruptcy case. Xxxxx and RHI are sometimes referred to
herein jointly as the "Parties" and individually as a "Party."
1. Purchase Price. The Purchase Price, which shall be set forth in Section
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1.06 of that certain Asset Purchase Agreement by and among SSA, Gores
Technology Group and SSA Acquisition Corporation ("Newco") dated as of May
3, 2000 as modified and amended in accordance herewith, shall consist of
(i) the SSA Equity Allocation (as defined below), (ii) the SSA Rights (as
defined below), (iii) Newco's repayment of the existing senior secured
indebtedness of SSA, (iv) the costs to cure defaults under the leases and
executory contracts to be assumed by Newco (up to $4 million) and (v)
$2,000,000.
2. Newco. Newco is currently owned by Gores. Prior to closing, Newco, a
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Delaware corporation, shall be recapitalized as follows and shall be the
vehicle which acquires the assets of SSA:
A. RHI (through an investment vehicle to be formed with Cerberus, Magten
Asset Management and Xxxxx Xxxxxx and hereinafter referred to as the "Investor")
shall contribute $15 million in working capital to Newco (the "RHI Capital
Contribution"). In exchange for the RHI Capital Contribution, Investor shall
receive preferred stock with a liquidation preference equal to the amount of the
RHI Capital Contribution (the "Newco Preferred Stock") plus common stock equal
to sixty percent (60%) of the "initial common equity"/1/ of Newco (the "RHI
Equity Allocation"). Such Newco Preferred Stock shall have a preferred
return/redemption feature which provides RHI with a full return of its RHI
Capital Contribution, plus cumulative dividends equal to fifteen percent (15%)
per annum (the "RHI Return"), prior to any person's receipt of any distributions
on account of any common stock in Newco. The Newco Preferred Stock will pay
dividends in kind. Once the Investor has received the RHI Return, any
distributions on the RHI Equity by Newco shall be made on a pro rata basis to
all holders of common equity of Newco. The Newco Preferred Stock will not have
voting rights, except as required by law. The Newco Preferred Stock shall have a
liquidation preference equal to the RHI Capital Contribution plus accrued and
unpaid dividends. In the event that Newco does not redeem at least $5 million in
Newco Preferred Stock issued to the Investor within 30 days following
consummation of SSA's plan of reorganization or liquidation (or within 180 days
after Closing), the Investor will also receive warrants to acquire an additional
ten percent (10%) of the initial common equity of Newco exercisable for five (5)
years at a strike price of $0.01 per share (the "RHI Warrants"). If issued, the
RHI Warrants shall reduce the SSA Equity Allocation (as defined below) from 20%
to
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/1/ The "initial common equity" of Newco means the total number of shares of
common stock issued or issuable after giving effect to the RHI Equity
Allocation, the Gores Equity Allocation, the SSA Equity Allocation and the
RHI Warrants (if any), but without giving effect to the SSA Rights or the
Senior Lender Warrants.
10% and shall not be exercisable under any circumstances prior to the effective
date of a plan of reorganization or liquidation for SSA.
X. Xxxxx shall receive twenty percent (20%) of the initial common equity
in Newco (the "Gores Equity Allocation") in order to induce Gores to perform the
management services referred to in paragraph 3 below. In addition, Gores'
$250,000 Deposit shall be applied to purchase shares of Newco Preferred Stock
with a liquidation preference in such amount.
X. Xxxxxxxx (together with the other senior lenders), in order to induce
them to execute and deliver the loan documentation in connection with the Newco
Credit Facility (as defined below) shall receive warrants to acquire thirty-five
percent (35%) of the common equity of Newco on a fully-diluted basis,
exercisable for five (5) years at a strike price equal to $0.01 per share (the
"Senior Lender Warrants").
D. Newco will allocate twenty percent (20%) of the initial common equity
of Newco to the estate of SSA as part of the Purchase Price (the "SSA Equity
Allocation"), and such shares shall be distributed pursuant to SSA's plan of
reorganization or liquidation; provided, however, that, as noted above, the
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percentage of shares represented by the SSA Equity Allocation shall be reduced
from 20% to 10% in the event that the RHI Warrants are issued. In addition,
Newco will deliver to the estate of SSA rights (the "SSA Rights") to purchase
units of securities of Newco consisting of $5.3565 million in additional shares
of Newco Preferred Stock and twenty percent (20%) of the common equity of Newco
(without taking the Senior Lender Warrants into account) at an aggregate
purchase price equal to $5.3565 million. The SSA Rights shall be distributed
pursuant to SSA's plan of reorganization or liquidation. SSA shall use its best
efforts to consummate its plan (and to distribute the SSA Equity Allocation and
the SSA Rights in accordance therewith) promptly following the Closing hereunder
(and, in any event, within 180 days). If such plan is not consummated and such
securities are not distributed within 180 days after the closing hereunder, the
number of common shares included in the SSA Equity Allocation shall be reduced
by a number of shares with a fair value equal to the costs and expenses incurred
by Newco in connection with the registration of such distribution under the
Securities Act of 1933 or applicable Blue Sky laws (to the extent such
registration is required as a result of such delay in consummation of the plan).
E. Subject to the consent and approval of Gores and RHI, Newco shall
provide registration rights (to be negotiated) with respect to the RHI Equity
Allocation, the Gores Equity Allocation, the RHI Warrants and the Senior Lender
Warrants.
3. Management of Newco/Board Representation. Allocation of board seats and
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voting rights to come, although Investor shall appoint a majority of the
members of the board of directors. Gores shall manage Newco pursuant to a
management agreement (to be negotiated) and shall have the right to appoint
the executive officers of Newco (the "Executive Officers"), subject to the
approval of the board of directors of Newco. For a period of one year
after the closing (the "One Year Period"), Xxxxx shall operate as a
restructure manager pursuant to such management agreement and shall
appoint, subject to the consent of the board of directors of Newco, a
turnaround team of managers (the "Turnaround Team") to effectuate a
turnaround of the acquired SSA assets at a monthly
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fee to be negotiated (plus reimbursement of reasonable out of pocket
expenses) (the "Management Fee"), which Management Fee shall be subject to
the approval of the board of directors of Newco. The Management Fee shall
be the only compensation provided by Newco to Gores and the Turnaround Team
during the One Year Period. Among other things, the management agreement
will provide that, during the One Year Period, Gores shall cause Xxxx
Xxxxx, Xxxxx Xxxxxxx, Xxx Xxxxxxx and Xxxxxxxxx Xxxxxxx to allocate to
Newco's business and operations such portion of their time and attention as
is reasonably necessary in the judgment of Xxxxx's board of directors from
time to time. At the end of the One Year Period, Xxxxx and the board of
directors of Xxxxx will jointly decide whether Xxxxx should continue in the
role as restructure manager and on what terms. Xxxxx will use its
reasonable commercial efforts to appoint a permanent management team of
Executive Officers, subject to approval of the board of directors of Newco,
to replace the Turnaround Team by the end of the One Year Period. The
Parties anticipate that, subject to board approval, certain of the members
of the Turnaround Team will become Executive Officers (with their salaries
and benefits to be taken into account when negotiating the amount of any
Management Fee to be paid to Xxxxx).
4. Treatment of Existing Debt. The Pre-Petition Facility (as defined in the
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Asset Purchase Agreement) and the DIP Financing (as defined in the Asset
Purchase Agreement) shall be refinanced by Cerberus by extending to Newco a
credit facility (the "Newco Credit Facility") pursuant to which Newco may
borrow up to $50 million. The terms of the credit facility shall be
subject to approval of the Creditors' Committee, Investor and Gores.
5. Conditions. Shall include (without limitation) (a) agreement upon mutually
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acceptable documentation of the transactions contemplated hereby and (b)
entry of a final order by the Bankruptcy Court acceptable to the parties.
Xxxxx shall agree to be a co-proponent of SSA's plan of liquidation. If
Newco is not otherwise required to be a publicly reporting company under
the Securities Exchange Act of 1934, Newco will agree to provide to its
stockholders (i) quarterly unaudited and annual audited financials and (ii)
an annual management discussion and analysis of operations.
6. Representations and Warranties of the Parties. Customary representations
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and warranties to be included in definitive transaction documents.
7. Other. Shall include further assurances, confidentiality, buy/sell
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arrangement between Xxxxx and Investor (on terms to be negotiated) in
respect of their Newco equity stakes, reimbursement of expenses, and other
customary conditions. In addition, Gores shall have no further obligation
to deliver any additional funds to supplement the Deposit when
Cerberus/Foothill, on the one hand, and Gores, RHI and the Committee, on
the other, agree to final documentation with respect to the Newco Credit
Facility.
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This term sheet shall be of no further force and effect if the
Bankruptcy Court has not entered an order approving the transactions
contemplated hereby by July 15, 2000 and such transactions have not been
consummated by August 15, 2000.
Dated: July 10, 2000 GORES TECHNOLOGY GROUP
By: /s/ Xxxxx XxXxxxxx
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Name: Xxxxx XxXxxxxx
Title: Vice President
Dated: July 10, 2000 ROMULUS HOLDINGS, INC.
By: /s/ Xxxx Xxxxxx
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Name: Xxxx Xxxxxx
Title:_______________________________
Dated: July 10, 2000 CERBERUS PARTNERS L.P.
By: /s/ Xxxxx Xxxxx
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Name: Xxxxx Xxxxx
Title________________________________
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