-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VRETb+RBLq5x7+JbGu8rV9lNBOCm/6QPmAfgeB6B1bsRR4cwK6yu8+cJEHQpzom1 GwYqOafpWNhQKp8wPC3oXw== 0000950116-03-001653.txt : 20030214 0000950116-03-001653.hdr.sgml : 20030214 20030214142257 ACCESSION NUMBER: 0000950116-03-001653 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYSTEMS & COMPUTER TECHNOLOGY CORP CENTRAL INDEX KEY: 0000707606 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 231701520 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11521 FILM NUMBER: 03566215 BUSINESS ADDRESS: STREET 1: GREAT VALLEY CORPORATE CTR STREET 2: 4 COUNTRY VIEW RD CITY: MALVERN STATE: PA ZIP: 19355 BUSINESS PHONE: 6106475930 MAIL ADDRESS: STREET 1: GREAT VALLEY CORP CTR STREET 2: 4 COUNTRY VIEW RD CITY: MALVERN STATE: PA ZIP: 19355 10-Q 1 ten-q.txt 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (Mark One) /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2002 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______. 0-11521 (Commission File Number) SYSTEMS & COMPUTER TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-1701520 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) Great Valley Corporate Center 4 Country View Road Malvern, Pennsylvania 19355 (Address of principal executive offices) Registrant's telephone number, including area code: (610) 647-5930 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 33,617,000 Common shares, $.01 par value, as of February 11, 2003 Page 1 of 33 consecutively numbered pages SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES INDEX PART I. UNAUDITED FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets - December 31, 2002 and September 30, 2002 Condensed Consolidated Statements of Operations - Three Months Ended December 31, 2002 and 2001 Condensed Consolidated Statements of Cash Flows - Three Months Ended December 31, 2002 and 2001 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K SIGNATURES 2 SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
December 31, September 30, 2002 2002 (UNAUDITED) (NOTE) ASSETS CURRENT ASSETS Cash and cash equivalents $ 39,199 $ 72,820 Short-term investments, including accrued interest of $159 and $701 18,146 60,754 Receivables, including $47,017 and $41,446 of earned revenues in excess of billings, net of allowance for doubtful accounts of $4,994 and $4,789 84,393 77,824 Prepaid income taxes 16,574 20,353 Prepaid expenses and other assets 17,282 16,757 ----------- ----------- TOTAL CURRENT ASSETS 175,594 248,508 PROPERTY AND EQUIPMENT--at cost, net of accumulated depreciation 28,569 27,265 CAPITALIZED COMPUTER SOFTWARE COSTS, net of accumulated amortization 3,879 4,427 GOODWILL 45,467 28,784 INTANGIBLE ASSETS, net of accumulated amortization 20,726 10,689 OTHER ASSETS AND DEFERRED CHARGES 24,183 15,169 NET ASSETS OF DISCONTINUED OPERATIONS 28,495 31,805 ----------- ----------- TOTAL ASSETS $ 326,913 $ 366,647 =========== ===========
Note: The condensed consolidated balance sheet at September 30, 2002, has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. 3 SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (in thousands, except per share amounts)
December 31, September 30, 2002 2002 (UNAUDITED) (NOTE) LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,919 $ 6,402 Income taxes payable 1,180 1,096 Accrued expenses 39,142 37,995 Deferred revenue 23,989 24,948 ----------- ----------- TOTAL CURRENT LIABILITIES 69,230 70,441 LONG-TERM DEBT, less current portion 33,790 74,723 OTHER LONG-TERM LIABILITIES 2,912 2,912 STOCKHOLDERS' EQUITY Preferred stock, par value $.10 per share--authorized 3,000 shares, none issued -- -- Common stock, par value $.01 per share-- authorized 100,000 shares, issued 38,138 and 38,029 381 380 Capital in excess of par value 126,021 125,586 Retained earnings 119,841 117,622 Accumulated other comprehensive loss (939) (583) ----------- ----------- 245,304 243,005 Less Held in treasury, 4,567 and 4,582 common share--at cost (24,323) (24,434) ----------- ----------- 220,981 218,571 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 326,913 $ 366,647 =========== ===========
Note: The condensed consolidated balance sheet at September 30, 2002, has been derived from the audited financial statements at that date. See notes to condensed consolidated financial statements. 4 SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts)
For the Three Months Ended December 31, 2002 2001 Revenues: Software sales and commissions $ 10,994 $ 6,056 Maintenance and enhancements 22,033 18,964 Software services 19,727 16,099 Outsourcing services 8,276 8,353 Interest and other income 1,945 1,497 ----------- ----------- 62,975 50,969 ----------- ----------- Expenses: Cost of software sales, commissions, maintenance and enhancements 16,512 11,442 Cost of software services 17,653 13,904 Cost of outsourcing services 6,104 6,666 Selling, general and administrative 18,865 14,656 Interest expense 504 1,046 ----------- ----------- 59,638 47,714 ----------- ----------- Income from continuing operations before income taxes 3,337 3,255 Provision for income taxes 1,335 1,361 ----------- ----------- Income from continuing operations 2,002 1,894 Discontinued operations Income (loss) from discontinued operations, adjusted for applicable provision (benefit) for income taxes of $144 and ($986) 217 (1,332) ----------- ----------- Income (loss) from discontinued operations 217 (1,332) ----------- ----------- Net income $ 2,219 $ 562 ----------- ----------- Income from continuing operations per common share $ 0.06 $ 0.06 per share -- assuming dilution $ 0.06 $ 0.06 Income (loss) from discontinued operations per common share $ 0.01 $ (0.04) per share -- assuming dilution $ 0.01 $ (0.04) Net income per common share $ 0.07 $ 0.02 per share -- assuming dilution $ 0.07 $ 0.02 Common shares and equivalents outstanding average common shares 33,531 33,068 average common shares -- assuming dilution 33,606 33,471
See notes to condensed consolidated financial statements. 5 SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
For the Three Months Ended December 31, 2002 2001 Operating Activities Net income $ 2,219 $ 562 Adjustment to reconcile net income to net cash used in operating activities Gain on bond repurchase (1,350) -- Depreciation and amortization 3,772 5,306 Changes in operating assets and liabilities: (Increase) decrease in receivables (3,131) 6,686 (Increase) decrease in prepaid income taxes 3,779 (8,154) Increase in other current assets (797) (1,516) Decrease in accounts payable (1,483) (3,521) Increase (decrease) in income taxes payable 84 (6,716) Decrease in accrued expenses (9,745) (5,348) Increase (decrease) in deferred revenue (3,523) 2,842 Decrease in other operating assets and deferred charges 1,357 426 Decrease in net assets of discontinued operations 3,310 -- --------- --------- NET CASH USED IN OPERATING ACTIVITIES (5,508) (9,433) Investing Activities Purchase of property & equipment (1,639) (1,161) Capitalized computer software costs -- (278) Purchase of investments available for sale (5,854) (57,099) Proceeds from the sale or maturity of investments available for sale 47,779 21,835 Purchase of subsidiary assets, net of cash acquired (27,032) (527) --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 13,254 (37,230) Financing Activities Repayment of borrowings (41,911) (188) Issuance of Company stock 111 105 Proceeds from exercise of stock options 433 504 --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (41,367) 421 DECREASE IN CASH & CASH EQUIVALENTS (33,621) (46,242) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 72,820 101,475 --------- --------- CASH & CASH EQUIVALENTS AT END OF PERIOD $ 39,199 $ 55,233 ========= =========
See notes to condensed consolidated financial statements. 6 SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 1O-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 2002. During the quarter ended June 30, 2002, the Company announced the discontinuation of the Global Energy and Utilities Solutions ("EUS") business. The EUS business is accounted for as a discontinued operation, and accordingly, amounts in the condensed consolidated balance sheets and condensed consolidated statements of operations and related notes for all periods presented reflect discontinued operations accounting. Also during the quarter ended June 30, 2002, the Company completed the sale of the Global Manufacturing & Distribution Solutions ("MDS") business. The fiscal year 2002 condensed consolidated statement of operations reflects the MDS business as a discontinued operation. Operating results for the three-month period ended December 31, 2002, are not necessarily indicative of the results that may be expected for the year ending September 30, 2003. The statement of cash flows for the three-month period ending December 31, 2002 shows the EUS business as a discontinued operation. The statement of cash flows for the prior year period is based on historical information and has not been restated to present the MDS and EUS businesses as discontinued operations. NOTE B--ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). No stock-based employee compensation cost is reflected in net income, as all options granted under the option plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation (in thousands, except per share amounts).
For the three months ended December 31, 2002 2001 ------------------------------- Net income, as reported $ 2,219 $ 562 Less: stock-based employee compensation expense determined under fair value method, Net of related tax effects (571) (478) ------------------------------ Pro forma net income $ 1,648 $ 84 ==============================
7 Earnings per share: per common share, as reported $ 0.07 $ 0.02 per common share, pro forma $ 0.05 $ 0.00 per share--assuming dilution, as reported $ 0.07 $ 0.02 per share--assuming dilution, pro forma $ 0.05 $ 0.00
NOTE C--CASH AND SHORT-TERM INVESTMENTS Cash equivalents are short-term, highly liquid investments with maturities of three months or less at the date of purchase. Short-term investments consist of corporate and municipal debt securities. Management determines the appropriate classification of the securities at the time of purchase. At December 31, 2002, the portfolio of securities has been classified as available for sale. These securities are carried at fair value, based on quoted market values, with the unrealized gains and losses, net of income taxes, reported as a component of accumulated other comprehensive loss. The available-for-sale portfolio is comprised of highly liquid investments available for current operations and general corporate purposes and, accordingly, is classified as a current asset. For the purpose of determining gross realized gains and losses, the cost of securities sold is based on the specific identification method. Gross realized gains on sales of available-for-sale securities were approximately $0.3 million for the three months ended December 31, 2002. Short-term investments at December 31, 2002, are comprised of (in thousands): State and municipal securities $ 7,323 Corporate securities 10,823 --------- $ 18,146 ========= The contractual maturities of short-term investments held as of December 31, 2002, are (in thousands): Due in one year or less $ 14,592 Due after one year through four years 3,554 --------- $ 18,146 ========= NOTE D--LONG-TERM INVESTMENTS The Company has made investments for strategic business purposes in the common and preferred stock of WebCT, a privately held Internet company. The fair value of the investment in WebCT, which is classified as a long-term asset, is not readily determinable; therefore, it is carried at cost adjusted for other-than-temporary impairments discussed below. On a quarterly basis, the Company reviews the underlying operating performance, cash flow forecasts, private equity transactions, and stock prices and equity values of publicly traded competitors of this privately held company in assessing impairment. During fiscal years 2001 and 2002, the Company recorded asset impairment charges totaling $13.2 million and wrote-off the non-compete agreement with WebCT, which had a carrying value of $1.5 million, reducing the carrying value of the investment in WebCT to $4.0 million, which is included in other assets and deferred charges in the condensed consolidated balance sheet. At December 31, 2002, the Company owns approximately 11% of the voting shares of WebCT. 8 NOTE E--RETIREMENT AND RESTRUCTURING CHARGES In the second quarter of fiscal year 2002, Michael J. Emmi, former President, Chief Executive Officer, and Chairman of the Board of Directors retired from the Company. In connection with his retirement, Mr. Emmi received a compensation package including a reduction of indebtednesses of $0.07 million, the continuation of his life and health insurance and other fringe benefits for periods ranging from two to five years, as well as an assignment to him of life insurance policies covering him, and the immediate vesting of certain rights under other compensation plans. All Company stock options held by Mr. Emmi became vested and were amended to permit Mr. Emmi to exercise them by the earlier of their original expiration date or two years from the date of his resignation. The Company recorded a charge of approximately $3.5 million related to the above actions in the second quarter of fiscal year 2002. During the first quarter of fiscal year 2003, the Company made payments of $0.03 million related to these charges and at December 31, 2002, $0.6 million of the accrual remains, which the Company believes is adequate to cover remaining obligations. Also, during the quarter ended March 31, 2002, the Company implemented a plan for restructuring, which included the termination of employees, management changes, discontinuation of non-critical programs and the disposition of related assets. During that quarter, the Company recorded a charge of $1.4 million related to severance payments and disposition of assets. During the first quarter of fiscal year 2003, the Company made payments of $0.1 million related to these charges and at December 31, 2002, $0.3 million of the accrual remains, which the Company believes is adequate to cover remaining obligations. NOTE F--ACQUISITIONS Effective October 23, 2002, the Company acquired Campus Pipeline, Inc. for $36.4 million cash and the assumption by the Company of certain employee bonus and severance obligations totaling $5.2 million (the "Merger Consideration"). Campus Pipeline was a privately held corporation that provided digital and information systems products and services to colleges and universities. In accordance with the merger agreement, $3.5 million of the Merger Consideration will be held in escrow until December 31, 2003 to secure certain indemnification obligations of the former stockholders of Campus Pipeline in favor of the Company in case of certain breaches of the Merger Agreement by Campus Pipeline. Pursuant to the merger agreement and Campus Pipeline's Certificate of Incorporation, holders of common stock of Campus Pipeline were not entitled to receive any portion of the Merger Consideration. The total amount of funds used to pay the Merger Consideration was obtained from the working capital of the Company. The allocation of the Campus Pipeline purchase price is as follows (in thousands): Total cost of Campus Pipeline acquisition $ 36,391 Employee bonus and severance obligations 5,191 Accrued acquisition costs 6,993 --------- 48,575 Net tangible assets acquired 11,598 Customer relationships 6,000 Purchased software 3,000 Trade names and trademarks 2,000 Deferred taxes 9,295 --------- 31,893 Total goodwill $ 16,682 9 The Company recorded goodwill of $16.7 million related to the acquisition, none of which is deductible for tax purposes. Goodwill includes $7.0 million of costs, including professional fees and other costs directly related to the acquisition. Some of these additional acquisition costs are estimates that may change and could cause an adjustment to goodwill. Intangible assets acquired included $6.0 million of customer relationships, $3.0 million of purchased software and $2.0 million of trade names and trademarks. Intangible assets acquired have a weighted-average amortization period of eight years. Additionally the Company recorded a deferred tax asset of $9.3 million primarily to reflect the future benefit of net operating losses of Campus Pipeline. The acquired net operating losses will be used to offset the Company's future taxable income and expire in various periods ending on or before September 30, 2022. The completion of this transaction provides the Company with core technologies for the e-Education Infrastructure with portal, platform, integration, and content management technologies designed specifically for higher education. Based on open standards, these technologies can be integrated with an institution's systems to connect information, resources, and constituents. Concurrent with the acquisition of Campus Pipeline, the Company began a detailed evaluation of Campus Pipeline's operations, resulting in a plan to terminate approximately 35 redundant employees and vacate space in a leased facility. The Company provided a reserve of $2.7 million, included in the $7.0 million accrued acquisition costs discussed above, for these actions and anticipates making payments for severance through the third quarter of fiscal year 2003 and for the leased facility through fiscal year 2004. Additionally the Company assumed certain employee bonus and severance obligations totaling $5.2 million and anticipates making payments on these obligations through fiscal year 2003. At December 31, 2002, approximately $6 million of these accruals remain. The following table discloses the pro forma effect of the Campus Pipeline acquisition as if it had occurred on October 1, 2002 and October 1, 2001, the beginning of the three month periods ending on December 31, 2002 and 2001, respectively. The information included in the pro forma disclosures is unaudited and is based on historical information and includes adjustments having a continuing impact on the consolidated company as a result of using the purchase method of accounting for the acquisition. The adjustments are based on the most recent information available and certain management judgments. Pro forma results of operations are not necessarily indicative of the results of operations that would have occurred had the acquisition been made on the date above or the results which may occur in the future. Three Months Ended December 31, 2002 2001 ---- ---- (in thousands) Revenue $63,402 $52,064 Income from continuing operations 952 (2,393) Net income 1,169 (3,725) Net income per share - assuming dilution $0.03 $(0.11) 10 NOTE G--DIVESTITURES During the third quarter of fiscal year 2002, the Company declared the Global Energy and Utilities Solutions ("EUS") business as discontinued. On February 12, 2003, the Company signed a definitive agreement to sell the EUS business to Indus International, Inc. for $39 million, subject to adjustment based on the working capital of the business at closing, which is expected to be before March 31, 2003. The EUS business is treated as a discontinued operation in the consolidated balance sheet, consolidated statement of operations, consolidated statement of cash flows, and related footnotes. The Company expects to recognize a gain on the sale of the EUS business. The prior year consolidated statement of operations has been restated to present EUS as a discontinued operation. For business segment reporting, EUS was previously reported as a separate segment. Revenues from the EUS business were $14.9 and $19.5 million for the three-month periods ending December 31, 2002 and 2001, respectively. The net assets of discontinued operations at September 30, 2002, were $31.8 million. Net assets of the discontinued operation were $28.5 million as of December 31, 2002, comprised of the following (in thousands): Accounts receivable $ 11,187 Prepaid expenses and other receivables 820 Property and equipment 15,323 Capitalized computer software costs 3,285 Goodwill 1,056 Intangible assets 1,727 Deferred taxes and other assets 3,880 Current liabilities (8,783) ----------- Net Assets of Discontinued Operations $ 28,495 The EUS business has a purchase commitment with Enlogix CIS L.P. to purchase development expertise in the form of labor hours, which the business is utilizing in its development efforts. The purchase commitment extends through December 22, 2005. During the remainder of the term of the commitment, the business will purchase approximately $3.5 million of labor hours at agreed upon labor rates, which approximate the Company's fully costed labor rates. NOTE H--EARNINGS PER SHARE A reconciliation of the numerators and the denominators of earnings per common share and per share -- assuming dilution follows (in thousands, except per share amounts):
For the three months ended December 31, 2002 2001 ---- ---- Numerator: Income from continuing operations available to common stockholders $2,002 $ 1,894 Discontinued operations: Income (loss) from discontinued operations net of income taxes 217 (1,332) ------ ------- Net income available to common stockholders $2,219 $ 562 ============================
11 Denominator: Weighted average common shares 33,531 33,068 Effect of dilutive securities: Employee stock options 75 403 ------ ------ Weighted average common shares assuming dilution 33,606 33,471 ============================ Income from continuing operations Per common share $0.06 $0.06 Per share -- assuming dilution $0.06 $0.06 Income (loss) from discontinued operations Per common share $0.01 ($0.04) Per share -- assuming dilution $0.01 ($0.04) Net income Per common share $0.07 $0.02 Per share -- assuming dilution $0.07 $0.02
Potentially dilutive securities with an anti-dilutive effect (convertible debt in both periods presented) are not included in the above calculation. NOTE I--PRODUCT DEVELOPMENT Product development expenditures, including software maintenance expenditures, for the three months ended December 31, 2002 and 2001, were approximately $8.0 and $6.5 million, respectively, all of which were charged to operations as incurred. For the same periods, amortization of capitalized software costs (not included in expenditures above) amounted to $0.5 and $0.7 million, respectively. NOTE J--BUSINESS SEGMENTS As a result of the discontinuation of the Global Energy and Utilities Solutions business at the end of third quarter of fiscal year 2002 and the sale of the Global Manufacturing & Distribution Solutions business on May 31, 2002, the Company currently has one reportable segment: Global Education Solutions ("GES"). The financial statements presented above, exclusive of discontinued operations, reflect the operations of the Global Education Solutions business. NOTE K--COMPREHENSIVE INCOME (in thousands) Three Months Ended December 31, 2002 2001 ---- ---- Net income $2,219 $562 Foreign currency translation adjustment (92) (86) Unrealized gain (loss) on marketable securities (264) 79 ---------------------------- Other comprehensive loss (356) (7) ---------------------------- Total Comprehensive Income $1,863 $555 ============================ 12 NOTE L--GOODWILL AND INTANGIBLE ASSETS Effective October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which resulted in discontinuing the amortization of goodwill. Under the Statement, goodwill is instead carried at its book value as of October 1, 2001, and any future impairment of goodwill will be recognized as an operating expense in the period of impairment. However, under the terms of the Statement, identifiable intangibles with identifiable lives will continue to be amortized. The Company's goodwill was $45.5 and $28.8 million at December 31, 2002, and September 30, 2002, respectively. The increase in goodwill at December 31, 2002, is the result of the Campus Pipeline acquisition (see Note F). The Company will be required to test the value of its goodwill at least annually. The following table sets forth the Company's amortized and unamortized intangible assets at the periods indicated (in thousands):
December 31, 2002 September 30, 2002 Gross Carrying Accumulated Gross Carrying Accumulated Amount Amortization Amount Amortization ------ ------------ ------ ------------ Amortized intangible assets Purchased software 15,462 (5,144) 12,462 (4,558) Covenants-not-to-compete 6,065 (5,862) 6,065 (5,687) Customer relationships 7,652 (265) 1,652 (110) Trade names and trademarks 2,000 (47) -- -- --------------------------------- ---------------------------------- 31,179 (11,318) 20,179 (10,355) ================================= ================================== Unamortized intangible assets Trade names and trademarks 865 865 --------- ------------ 865 865 ========= ============
Estimated amortization expense for amortized intangible assets for the next five fiscal years ending September 30, are as follows (in thousands): Fiscal Year 2003 $ 3,741 2004 3,413 2005 3,401 2006 3,401 2007 2,350 thereafter 4,518 ------- Total $20,824 Amortization expense on intangible assets was $1.0 and $0.2 million for the three months ended December 31, 2002 and 2001, respectively. NOTE M--BOND REPURCHASE In several transactions during the first quarter of fiscal year 2003, the Company repurchased $40.9 million face value of the $74.7 million, 5% convertible subordinated debentures due October 15, 2004. The Company repurchased the convertible debentures at prices ranging from $94 to $96, plus accrued interest. The transaction included $39.2 million principal and interest of $0.9 million for a total payment of $40.1 million including fees. The Company recorded a gain of $1.3 million, included in interest and other income, in the first quarter of fiscal year 2003 related to these transactions. The gain was 13 classified as interest and other income as a result of the Company's adoption of Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"), at the beginning of fiscal year 2003. SFAS 145 requires that gains and losses on extinguishments of debt be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement No. 4. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The purpose of this section is to give interpretive guidance to the reader of the financial statements. The following discussion excludes the results of the Global Energy and Utilities Solutions ("EUS") and Global Manufacturing & Distribution Solutions ("MDS") businesses as they were classified as discontinued operations in fiscal year 2002. RESULTS OF OPERATIONS The following table sets forth: (i) income statement items as a percentage of total revenues and (ii) the percentage change for each item from the prior-year comparative period.
% of Total Revenue Three Months Ended % Change from December 31, Prior Year 2002 2001 2002 ---- ---- ---- Revenues Software sales and commissions 18% 12% 82% Maintenance and enhancements 35% 37% 16% Software services 31% 32% 23% Outsourcing services 13% 16% (1)% Interest and other income 3% 3% 30% --------------------- ------------- Total 100% 100% 24% ===================== ============= Expenses Cost of software sales, commissions, services, and maintenance and enhancements 64% 63% 26% Selling, general and administrative 30% 29% 29% Interest expense 1% 2% (52)% Income from continuing operations before income taxes 5% 6% 3% ===================== =============
The following table sets forth the gross profit for each of the following revenue categories as a percentage of revenue for each such category and the total gross profit as a percentage of total revenue (excluding interest and other income). The Company does not separately present the cost of maintenance and enhancements revenue as it is impracticable to separate such cost from the cost of software sales. Three Months Ended December 31, 2002 2001 ---- ---- Gross Profit Software sales and maintenance and enhancements 50% 54% Software services 11% 14% Outsourcing services 26% 20% ------------------ Total 34% 35% ================== 15 Revenues: - --------- o Software sales and commissions revenue increased 82% compared to the prior-year period due to increases in traditional Banner license fees and the results of the first quarter fiscal year 2003 Campus Pipeline, Inc. and second quarter fiscal year 2002 Applied Business Technologies, Inc. ("ABT") acquisitions, which provided approximately 37% and 20%, respectively, of the increase. o The 16% increase in maintenance and enhancements revenue in the first three months of fiscal year 2003 was the result of the growing installed base of clients in all of the Company's product lines and annual escalators on existing contracts. Maintenance and enhancements revenue from the second quarter fiscal year 2002 acquisitions of ABT and the Sallie Mae business and the first quarter fiscal year 2003 acquisition of Campus Pipeline provided 51% of the increase. The Company continues to experience a high annual renewal rate on existing maintenance contracts, although there can be no assurance that this will continue. o Software services revenue increased 23% in the first three months of fiscal year 2003 compared with the prior-year period. The increase is primarily the result of (i) increased implementation and integration services provided to the Company's traditional Banner clients and (ii) new services business as a result of the ABT and Sallie Mae acquisitions in the second quarter of fiscal year 2002 and the Campus Pipeline acquisition in the first quarter of fiscal year 2003. o Outsourcing services revenue decreased 1% in the first quarter of fiscal year 2003 compared with the prior-year period. This decrease is primarily the result of the Company's decision to focus its efforts on servicing its existing outsourcing client base and obtaining renewals from these clients as opposed to aggressively seeking new outsourcing clients. As a result, the Company does not anticipate future growth in its outsourcing business. o The increase in interest and other income in the first quarter of fiscal year 2003 compared with the prior year period is the result of the $1.3 million gain on the repurchase of $40.9 million face value of the Company's $74.7 million, 5% convertible subordinated debentures due October 15, 2004. This increase was offset by decreased interest income earned on the Company's decreased cash and short-term investments balances. Gross Profit: - ------------- Total gross profit decreased as a percentage of total revenue (excluding interest and other income) from 35% for the first quarter of fiscal year 2002 to 34% for the first quarter of fiscal year 2003. The software sales, commissions, maintenance, and enhancements gross profit percentage decreased primarily as a result of the separate development efforts related to the ABT and Sallie Mae products acquired in fiscal year 2002 and the Campus Pipeline products acquired in the first quarter of fiscal year 2003. The software services margin decreased in the three-month period ending December 31, 2002, compared with the prior-year period as a result of decreased utilization. The services utilization decrease is primarily the result of a disparity between client requirements of the Company's growing backlog of services contracts and the Company's available resources. The Company is developing methods to better analyze services backlog and anticipates improved services margins over the year. The outsourcing services margin increased in the fiscal year 2003 period primarily as a result of contract renewals and increased utilization of outsourcing professionals. 16 Selling, General and Administrative Expenses: - --------------------------------------------- Selling, general and administrative expenses increased in fiscal year 2003 compared with fiscal year 2002 as a result of (i) amortization and employee costs related to the ABT and Sallie Mae business acquisitions in the second quarter of fiscal year 2002 and the Campus Pipeline acquisition in the first quarter of fiscal year 2003, (ii) investments the Company has made in its sales and marketing organizations, and (iii) increased sales commissions as a result of increased revenues. Discontinued Operations: - ------------------------ During fiscal year 2002, the Company declared the Global Energy and Utilities Solutions ("EUS") and the Global Manufacturing & Distribution Solutions ("MDS") businesses as discontinued. The MDS business was sold on May 31, 2002, and, as a result, the fiscal year 2003 income from discontinued operations includes only the results of the EUS business. The fiscal year 2002 loss from discontinued operations includes the results of the EUS and the MDS businesses, which, net of taxes were $0.6 million and ($1.9) million, respectively. Cyclical Nature of Business: - ---------------------------- Certain factors have resulted in quarterly fluctuations in operating results, including variability of software license fee revenues, seasonal patterns of capital spending by clients, the timing and receipt of orders, competition, pricing, new product introductions by the Company or its competitors, levels of market acceptance for new products, and general economic and political conditions. While the Company has historically generated a greater portion of license fees and total revenue in the last two fiscal quarters, the nonseasonal factors cited above may have a greater effect than seasonality on the Company's results of operations. Liquidity, Capital Resources, and Financial Position The Statement of Cash Flows for the three-month period ending December 31, 2002 shows the EUS business as a discontinued operation. The Statement of Cash Flows for the prior year period is based on historical information and has not been restated to present the MDS and EUS businesses as discontinued operations. The Company's cash and short-term investments balance was $57.3 million as of December 31, 2002 and $133.6 million as of September 30, 2002. The cash balances decreased primarily as a result of the acquisition of Campus Pipeline and the repurchase of the Company's convertible subordinated debentures in the quarter ending December 31, 2002. The Company anticipates using its cash and short-term investments balance to fund future growth through various means, including strategic alliances and acquisitions. Cash used in operating activities was $5.5 million in the first quarter of fiscal year 2003 compared with $9.4 million used in the prior-year period. The primary uses of cash in the fiscal year 2003 period were decreased accrued expenses, decreased deferred revenue, and increased accounts receivable offset by decreased prepaid income taxes and net assets of discontinued operations. The decrease in accrued expenses is primarily the result of employee bonus and other payments, interest paid on the Company's convertible debentures, and payments related to the Company's legal matters discussed below. The increases in accounts receivable at December 31, 2002 compared to September 30, 2002, are primarily the result of the timing of billings on software licenses and a seasonal decline in collections in December. The Company is working to implement 17 actions directed at improving payment terms and reducing days sales outstanding. Prepaid income taxes decreased as a result of a refund received in the first quarter of fiscal year 2003 and net assets of discontinued operations decreased primarily as a result of collections on accounts receivable of the discontinued business. Cash expenditures for the first three months of fiscal year 2003 related to retirement and restructuring charges (which are included in operating activities) were approximately $0.2 million, and are expected to be approximately $0.5 million for the remainder of fiscal year 2003 and $0.4 million in total for all subsequent years, principally for severance costs. Cash provided by investing activities was $13.3 million for the first quarter of fiscal year 2003 compared with cash used of $37.2 million for the fiscal year 2002 period. Net cash of $41.9 million was provided by the sale or maturity of investments available for sale offset by $27.0 million used for the purchase of Campus Pipeline in October 2002. The $41.4 million in cash used in financing activities was primarily the repayment of $40.9 million of the Company's 5% convertible subordinated debentures due October 15, 2004. The Company has a $30 million senior revolving credit facility available for general corporate purposes. The credit facility agreement expires in June 2004 and includes optional annual renewals. There were no borrowings outstanding at December 31, 2002 or September 30, 2002. As long as there are borrowings outstanding, and as a condition precedent to new borrowings, the Company must comply with certain covenants established in the agreement. Under the covenants, the Company is required to maintain certain financial ratios and other financial conditions. The Company has complied with all covenants and conditions at December 31, 2002. The Company may not pay dividends (other than dividends payable in common stock) or acquire any of its capital stock outstanding without a written waiver from its lender. The credit agreement provides for the issuance of letters of credit. The amount available for borrowing under the revolving credit facility is reduced by the total outstanding letters of credit. At December 31, 2002, the Company had no letters of credit outstanding and $30 million available under the revolving credit facility. The Company pays a commitment fee of 5/16% on the unused portion of the revolving credit facility. The Company has convertible debentures outstanding, which bear interest at 5% and mature on October 15, 2004. In several transactions in the first quarter of fiscal year 2003, the Company repurchased $40.9 million face value of the $74.7 million debentures. The Company repurchased the convertible debentures at prices ranging from $94 to $96, plus accrued interest. The transaction included $39.2 million principal and interest of $0.9 million for a total payment of $40.1 million including fees. The Company recorded a gain of $1.3 million, included in interest and other income, in the first quarter of fiscal year 2003 related to these transactions. If the remaining debentures outstanding were converted, 1.3 million additional shares would be added to common shares outstanding at December 31, 2002. The debentures were antidilutive for the fiscal year 2003 and 2002 periods and therefore are not included in the denominators for income from continuing operations per share - assuming dilution, income (loss) from discontinued operations per share - assuming dilution, or net income per share - assuming dilution for these periods. At December 31, 2002, the Company had performance bonds outstanding that could require the Company's performance or cash payment in the event of demands by third parties. The expiration periods of the performance bonds are: less than one year, $0.2 million and one year through three years, $11.2 million. 18 At December 31, 2002, the Company has purchase commitments with third party software providers totaling approximately $1.9 million. The commitments are for the purchase of license fee and related maintenance or services inventories from the third-party provider for use or sale to the Company's clients and extend through October 2005. The Company has guaranteed the obligations under a lease agreement assigned by the Company. Such guarantee is effective through the end of the lease term, which is March 2013. If the current leaseholder fails to meet its payment obligations under the assigned lease, the Company would be responsible for payments up to a maximum of $2.5 million. Based on experience with these arrangements, the Company believes that any obligations that may arise will not be material. Should the Company be required to make any payments under the guarantee, it would then seek recourse from the current leaseholder. Contingency: - ------------ The Company was involved in litigation relating to two software implementations. The claimants asserted that the Company did not perform under the contracts. The Company had filed counter suits seeking to recover unpaid accounts receivable. The Company recorded an accrual in fiscal year 2002 in the amount of $0.7 million against the possibility of unfavorable judgments. In the first quarter of fiscal year 2003, in order to avoid the expense and disruption of protracted litigation, the Company and the claimants reached agreement to settle the lawsuits. Terms of the settlements were confidential, but the amount paid, net of anticipated insurance proceeds approximates the amount accrued. While these contracts originated within the MDS business, which has been sold, the right to appeal and the impact of the related outcome were retained by the Company. The Company believes that its cash and cash equivalents, short-term investments, and borrowing arrangements should satisfy its financing needs for the foreseeable future. Critical Accounting Policies: - ----------------------------- The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies require significant judgments and estimates in the preparation of its consolidated financial statements. Revenue Recognition: The Company licenses software under license agreements and provides services including training, installation, consulting, and maintenance and enhancements. License fee revenues are recognized when a license agreement has been signed, the software product has been shipped, the fees are fixed and 19 determinable, collection is considered probable, and no significant vendor obligations remain. In certain license arrangements, the Company ships the product and recognizes revenue, but has not billed the complete contract amount due to contractual payment terms, resulting in an excess of revenues over billings in such periods. The resulting excess is reflected as unbilled accounts receivable; such amounts were approximately $11 million at December 31, 2002. Maintenance and enhancement agreements provide for telephone support and error correction for current versions of licensed systems, as well as regulatory updates and functional and technical enhancements to licensed systems if and when they become generally available. Fees for maintenance and enhancements agreements are recognized ratably over the term of the agreements. Maintenance and enhancement agreements are billed annually and often billed in arrears, resulting in revenues in excess of billings as revenue is recognized ratably over the contract term. The resulting excess is reflected as unbilled accounts receivable; such amounts were approximately $22 million at December 31, 2002. Software services are generally provided under time and materials contracts and revenue is recognized as the services are provided. In some circumstances, services are provided under fixed-price arrangements in which revenue is recognized on the proportional-performance method, which relies on estimates of total expected contract revenues and costs. Since accounting for these contracts depends on estimates, which are assessed continually during the term of these contracts, recognized revenues and profit are subject to revisions as the contract progresses to completion. Revisions in estimates of costs to complete are reflected in operations in the period in which facts requiring those revisions become known. In certain software services contracts, the Company performs services but cannot immediately bill for them. Revenue is usually recognized as work is performed, resulting in an excess of revenues over billings in such periods. The resulting excess is reflected as unbilled accounts receivable; such amounts were approximately $12 million at December 31, 2002. Billings in these software services contracts cause a decrease in the unbilled accounts receivable, although additional unbilled accounts receivable will continue to be recorded based on the terms of the contracts. For client arrangements that include license fees and implementation and other professional services, the portion of the fees related to software licenses is generally recognized in the current period, while the portion of the fees related to implementation and other professional services is recognized as such services are performed. The Company allocates revenue to each component of the contract based on objective evidence of its fair value, which is specific to the Company, or, for products not being sold separately, the price established by management. Because licensing of the software is not dependent on the professional services portions of the contract, the software revenue is recognized upon delivery. The remainder of the contract revenue is recorded as earned as software services revenue. Contract fees from outsourcing services are typically based on multi-year contracts ranging from three to five years in length, and provide a recurring revenue stream throughout the term of the contract. During the first several years of a typical outsourcing services contract, the Company performs services and incurs expenses at a greater rate than in the later years of the contract. Since billings usually remain constant during the term of the contract, and revenue is recognized as work is performed, revenues usually exceed billings in the early years of the contract. The resulting excess is reflected as unbilled 20 accounts receivable; such amounts were approximately $2 million at December 31, 2002. In some cases when a contract term is extended, the billing period is also extended over the new life of the contract. As a contract proceeds, services are performed, and expenses are incurred at a diminishing rate, resulting in billings exceeding revenue recognized, which causes a decrease in the unbilled accounts receivable balance. These contracts require estimates of periodic revenue earned and costs to be incurred to deliver products or services and are subject to revision as work progresses. Revisions in the estimates are reflected in operations in the period in which facts requiring those revisions become known. Many of the Company's outsourcing services contracts include contractual termination provisions, which provide for payment of a fee to the Company in the event a client terminates a contract early. The aggregate termination fees under these contracts were approximately $8 million at December 31, 2002. Long-Term Investments: The Company has made investments for strategic business purposes in the common and preferred stock of WebCT, a privately held Internet company. The fair value of this investment, which is classified as a long-term asset, is not readily determinable; therefore, it is carried at cost adjusted for other-than-temporary impairments. The Company recorded asset impairment charges of $5.4 million and $7.8 million in the third quarter of fiscal year 2002 and the second quarter of fiscal year 2001, respectively. On a quarterly basis, the Company reviews the underlying operating performance, cash flow forecasts, private equity transactions, and stock prices and equity values of publicly traded competitors of this privately held company in assessing impairment. Future earnings would be reduced and earnings would be charged if there was an additional impairment that was found to be other than temporary at a future balance sheet date. The Company's future results of operations could be materially affected by a future write-down in the carrying amount of this investment to recognize an impairment loss due to an other than temporary decline in the value of the investment. Goodwill and Intangible Assets: The Company's business acquisitions typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that the Company will incur. The determination of the value of such intangible assets requires estimates and assumptions that affect the consolidated financial statements. The Company assigns intangible assets useful lives, which are reassessed on an ongoing basis, ranging from two to 10 years, based on estimates, assumptions, and third-party valuations. The Company evaluates goodwill and other intangibles for potential impairment on an annual basis unless circumstances indicate the need for impairment testing between the annual tests. The judgments regarding the existence of impairment indicators are based on legal factors, market conditions, and operational performance of the Company. In assessing the recoverability of the Company's goodwill and other intangibles, the Company would make valuation assumptions to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges which could have a material adverse impact on the Company's financial condition and results of operations. Deferred Taxes: The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not 21 be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. Factors That May Affect Future Results and Market Price of Stock: - ----------------------------------------------------------------- The forward-looking statements discussed herein and elsewhere -- including statements concerning the Company's or management's forecasts, estimates, intentions, beliefs, anticipations, plans, expectations, or predictions for the future -- are based on current management expectations that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. The following discussion highlights some, but not all, of the risks and uncertainties that may have a material adverse effect on the Company's business, results of operations, financial condition, and cash flows. The Company's revenues and operating results can vary substantially from quarter to quarter, owing to a number of factors. Software sales revenues in any quarter depend on the execution of license agreements and the shipment of product. The execution of license agreements is difficult to predict for a variety of reasons, including the following: a significant portion of the Company's license agreements is typically signed in the last month of each quarter; the Company's sales cycle is relatively long; the size of transactions can vary widely; client projects may be postponed or cancelled due to changes in the client's management, budgetary constraints, strategic priorities, or economic uncertainty; and clients often exhibit a seasonal pattern of capital spending. The Company has historically generated a greater portion of license fees and total revenue in the last two fiscal quarters, although there is no assurance that this will continue. Because a significant part of the Company's business results from software licensing, it is characterized by a high degree of operating leverage. The Company bases its expense levels, in significant part, on its expectations of future revenues. Therefore, these expense levels are relatively fixed in the short term. If software-licensing revenues do not meet expectations, net income is likely to be disproportionately adversely affected. There can be no assurance that the Company will be able to increase profitability on a quarterly or annual basis in the future. It is, therefore, possible that in one or more future quarters, the Company's operating results will be below expectations. This would likely have an adverse effect on the price of the Company's common stock. A significant part of the Company's business also results from the provision of services by the Company to clients who license the Company's software. The Company realizes lower margins on services revenues than on license revenues. The Company bases its expense levels in the services area on various factors, including the Company's expectation of future license sales and its expectation of when clients who have licensed the Company's software will actually implement the software. If software license revenues do not meet expectations, or if clients delay implementation of software licensed, the Company's business, results of operations, financial condition, and cash flows would be adversely affected. The success of the Company's business depends upon certain key management, sales, and technical personnel. In addition, the Company believes that to succeed in the future, it must continue to attract, retain, and motivate talented and qualified management, sales, and technical personnel. Competition for such personnel in the information technology industry is intense. The 22 Company sometimes has difficulty locating qualified candidates. There can be no assurance that the Company will be able to retain its key employees or that it will be able to continue to attract, assimilate, and retain other skilled management, sales, and technical personnel. The loss of certain key personnel or the inability to attract and retain qualified employees in the future could have a material adverse effect on the Company's business, results of operations, financial condition, and cash flows. The application software industry is characterized by intense competition, rapid technological advances, changes in client requirements, product introductions, and evolving industry standards. The Company believes that its future success will depend on its ability to compete successfully, and to continue to develop and market new products and enhancements cost-effectively. This necessitates continued investment in research and development and sales and marketing. There can be no assurance that new industry standards or changing technology will not render the Company's products obsolete or non-competitive, that the Company will be able to develop and market new products successfully, or that the Company's market will accept its new product offerings. Furthermore, software programs as complex as those the Company offers may contain undetected errors or bugs when they are first introduced or as new versions are released. Despite Company and third-party testing, there can be no assurance that errors will not be found in new product offerings. Such errors can cause unanticipated costs and delays in market acceptance of these products and could have a material adverse effect on the Company's business, results of operations, financial condition, and cash flows. In addition, distribution methods, such as the Internet and other electronic channels, have removed many of the barriers to entry that small and start-up software companies faced in the past. Therefore, the Company expects competition to increase in its market. If the Company were to experience delays in the commercialization and introduction of new or enhanced products, if customers were to experience significant problems with the implementation and installation of products, or if customers were dissatisfied with product functionality or performance, this could have a material adverse effect on the Company's business, results of operations, financial condition, and cash flows. There can be no assurance that the Company's new products will achieve significant market acceptance or will generate significant revenue. Additional products that the Company plans to directly or indirectly market in the future are in various stages of development. Intense competition in the market in which the Company competes may put pressure on the Company to reduce prices on certain products, particularly where certain vendors offer deep discounts in an effort to recapture or gain market share or to sell other software products, hardware products, or services. The bundling of software products for promotional purposes or as a long-term pricing strategy or guarantees of product implementations by certain of the Company's competitors could have the effect over time of significantly reducing the prices that the Company can charge for its products. Any such price reductions and resulting lower license revenues could have a material adverse effect on the Company's business, results of operations, financial condition, and cash flows. The Company uses a common industry practice to forecast sales and trends in its business. The Company's sales personnel monitor the status of prospective sales, such as the date when they estimate that a customer will make a purchase decision and the potential dollar amount of the sale. The Company regularly aggregates these estimates to generate a sales pipeline. The Company compares the pipeline at various points in time to look for trends in its business. While 23 this pipeline analysis may provide the Company with some guidance in business planning and budgeting, these pipeline estimates are necessarily speculative and may not consistently correlate to revenues in a particular quarter or over a longer period of time. A variation in the conversion of the pipeline into contracts or in the pipeline itself could cause the Company to improperly plan or budget and thereby adversely affect its business or results of operations. During fiscal year 2000, the Company made an investment in WebCT and entered into a strategic alliance with WebCT to exclusively market the WebCT e-learning tools and e-learning hub to the Company's client base. The alliance builds upon the Company's Campus Pipeline and Luminus solutions and the Company's Banner Student Self-Service and Banner Faculty and Advisor Self-Service products to offer a unified, on-line, connected e-learning solution. This integrated solution enables clients to access information systems, learning tools, online services, campus communication, and community resources through a single point of access. The Company provides the real-time, bi-directional exchange of data between the Company's student information system and the WebCT course environment, eliminating manual synchronization of like information. The continued success of this investment and strategic alliance depends upon: (i) the ability of the Company and WebCT to meet development and implementation schedules for products and to enhance the products over time, (ii) the market acceptance of the products, (iii) the Company's ability to integrate the WebCT products with the Company's products cost-effectively and on a timely basis, and (iv) the ability of WebCT to achieve their financial goals. Certain of the Company's contracts are subject to "fiscal funding" clauses, which entitle the client, in the event of budgetary constraints, to reduce the level of services to be provided by the Company, with a corresponding reduction in the fee the client must pay. In certain circumstances, the client may terminate the services altogether. While the Company has not been impacted materially by early terminations or reductions in service from the use of fiscal funding provisions in the past, there can be no assurance that such provisions will not give rise to early terminations or reductions of service in the future. If clients that represent a substantial portion of the Company's revenues were to invoke the fiscal funding provisions of their contracts, the Company's business, results of operations, financial condition, and cash flows would be adversely affected. Certain of the Company's outsourcing and software services contracts may be terminated by the client for convenience. If clients that represent a substantial portion of the Company's revenues terminate for convenience, the Company's future business, results of operations, financial condition, and cash flows would be adversely affected. The Company provides software-related services, including systems implementation and integration services. Services are provided under time and materials contracts, in which case revenue is recognized as the services are provided, and under fixed-price arrangements, in which case revenue is recognized on the proportional performance method. Revisions in estimates of costs to complete are reflected in operations during the period in which the Company learns of facts requiring those revisions. The impact on the Company of areas such as the Internet, online services, and electronic commerce is uncertain. There can be no assurance that the Company will be able to provide a product that will satisfy new client demands in these areas. In addition, standards for network protocols and other industry standards for the Internet are evolving rapidly. There can be no assurance that standards 24 the Company chooses will position its products to compete effectively for business opportunities as they arise on the Internet and in other emerging areas. The Company relies on a combination of copyright, trademark, trade secrets, confidentiality procedures, 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 copy certain portions of the Company's products, or to reverse engineer or obtain and use technology or other Company-proprietary information. There can also be no assurances that the Company's intellectual property rights would survive a legal challenge to their validity or provide significant protection to the Company. In addition, 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, there can be no assurance that the Company will be able to protect its proprietary technology against unauthorized third-party copying or use, which could adversely affect the Company's competitive position. In the second quarter of fiscal year 2002, the Company acquired the Sallie Mae student information systems business and Applied Business Technologies, Inc. and in October 2002, the Company acquired Campus Pipeline, Inc. These acquisitions were entered into in order to increase the Company's opportunities in the higher education market. The success of these acquisitions depends upon: (i) the Company's ability to integrate the acquired products and operations with the Company's products and operations cost-effectively and on a timely basis, (ii) the Company's ability to complete development of and enhance the products acquired efficiently and cost effectively, and (iii) the market acceptance of the products and technologies acquired and the services related thereto. If these acquisitions are not successful, acquired intangibles might become impaired and the Company may be required to record impairment charges that could have a material adverse impact on the Company's business, financial condition, cash flows, and results of operations. On May 31, 2002, the Company consummated the sale of its process manufacturing software business to Agilisys International Limited. The Company agreed to sell substantially all of the assets of the process manufacturing software business for $13.2 million in cash, subject to adjustment in certain circumstances. Due to such adjustments, which principally related to the collection of receivables by the Company, the net proceeds received by the Company were $10.5 million. The Company could receive up to an additional $3.0 million based upon the achievement by Agilisys of specified revenue targets over the three-year period subsequent to the sale. On February 12, 2003, the Company signed a definitive agreement to sell the Global Energy and Utilities Solutions ("EUS") business to Indus International, Inc. for $39 million, subject to adjustment based on the working capital of the business at closing, which is expected to be before March 31, 2003. The Company expects to recognize a gain on the sale of the EUS business. The consummation of the transaction is subject to the receipt by the purchaser of necessary financing and certain closing conditions and required approvals. Other factors that could affect the Company's future operating results include the effect of publicity on demand for the Company's products and services; general economic and political conditions; the success of the Company's new business model; the success of the Company's long-term strategy; continued 25 market acceptance of the Company's products and services; the timing of services contracts and renewals; continued competitive and pricing pressures in the marketplace; new product introductions by the Company's competitors; the Company's ability to complete fixed-price contracts profitably; the Company's ability to sell the EUS business at a profit; and the Company's ability to generate capital gains sufficient to offset the capital losses that are expected to be realized upon the disposition of the investments held by the Company for which the carrying value has been reduced for financial reporting purposes. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in quantitative or qualitative disclosures for fiscal year 2003. Reference is made to Item 7A in the Annual Report on Form 10-K for the year ended September 30, 2002. ITEM 4. CONTROLS AND PROCEDURES The Company carried out an evaluation, under the supervision and with the participation of the Company's Disclosure Committee and the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the date of filing this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of Evaluation Date, the disclosure controls and procedures of the Company are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods. Since the Evaluation Date, there have been no significant changes to the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 26 SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES PART II Item 1. Legal Proceedings In connection with the sale of assets or a business, the Company typically agrees to indemnify the purchaser for breaches of representations and warranties made by the Company in the agreement. If indemnity claims are made against the Company, the proceeds received by the Company for the sale may be subject to adjustment. In the opinion of management, any indemnity obligations of the Company that may result would not materially affect the Company's consolidated financial statements. The Company was involved in litigation relating to two software implementations. The claimants asserted that the Company did not perform under the contracts. The Company had filed counter suits seeking to recover unpaid accounts receivable. The Company recorded an accrual in fiscal year 2002 in the amount of $0.7 million against the possibility of unfavorable judgments. In the first quarter of fiscal year 2003, in order to avoid the expense and disruption of protracted litigation, the Company and the claimants reached agreement to settle the lawsuits. Terms of the settlements were confidential, but the amount paid, net of anticipated insurance proceeds approximates the amount accrued. While these contracts originated within the MDS business, which has been sold, the right to appeal and the impact of the related outcome were retained by the Company. The Company from time to time is involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect the Company's consolidated financial statements. Item 6 (a). Exhibits Exhibit 10.1 Eleventh Amendment and Modification to Credit Agreement dated as of October 18, 2002, among Systems & Computer Technology Corporation and SCT Software & Resource Management Corporation as Borrowers and Citizens Bank of Pennsylvania, successor to Mellon Bank, N.A. Exhibit 10.2 Subsidiary Guaranty Agreement dated as of October 18, 2002, between Campus Pipeline, Inc. as Guarantor and Citizens Bank of Pennsylvania, successor to Mellon Bank, N.A. Exhibit 10.3 Explanation and Waiver of Rights Regarding Confession of Judgment (Surety) dated as of October 23, 2002, between Campus Pipeline, Inc. as Obligor and Citizens Bank of Pennsylvania, successor to Mellon Bank, N.A. Exhibit 99.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. Exhibit 99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. 27 Item 6 (b). Reports on Form 8-K On November 5, 2002, the Company filed a Current Report on Form 8-K announcing that on October 23, 2002 (the "Effective Time"), CPI Acquisition Company, Inc., a Delaware corporation ("Acquisition Sub"), merged with and into Campus Pipeline, Inc., a Delaware corporation ("Campus Pipeline"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated September 30, 2002, by and among Systems & Computer Technology Corporation, a Delaware corporation (the "Company"), Campus Pipeline and Acquisition Sub (the "Merger"). Pursuant to the Merger Agreement, Campus Pipeline was to be the surviving company in the Merger, and at the Effective Time, became a wholly-owned subsidiary of the Company. 28 SYSTEMS & COMPUTER TECHNOLOGY CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYSTEMS & COMPUTER TECHNOLOGY CORPORATION (Registrant) Date: 02/14/03 /s/ Eric Haskell ________________________________ Eric Haskell Executive Vice President, Finance & Administration, Treasurer, and Chief Financial Officer 29 CERTIFICATIONS CEO CERTIFICATION I, Michael D. Chamberlain, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Systems & Computer Technology Corporation (the "Company"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6. The Company's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 30 Date: February 14, 2003 /s/ Michael D. Chamberlain _______________________________________ Michael D. Chamberlain, President and Chief Executive Officer 31 CFO CERTIFICATION I, Eric Haskell, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Systems & Computer Technology Corporation (the "Company"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report; 4. The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and have: a) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation, to the Company's auditors and the audit committee of the Company's board of directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data and have identified for the Company's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal controls; and 6. The Company's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 32 Date: February 14, 2003 /s/ Eric Haskell _________________________________________ Eric Haskell, Executive Vice President, Finance & Administration, Treasurer and Chief Financial Officer 33 EX-10 3 ex10-1.txt EXHIBIT 10.1 ELEVENTH AMENDMENT AND MODIFICATION TO CREDIT AGREEMENT THIS ELEVENTH AMENDMENT AND MODIFICATION TO CREDIT AGREEMENT (the "Amendment") is made as of the 18th day of October, 2002, by and among SYSTEMS & COMPUTER TECHNOLOGY CORPORATION ("Company"), SCT SOFTWARE & RESOURCE MANAGEMENT CORPORATION (collectively, "Borrowers" and individually a "Borrower") and CITIZENS BANK OF PENNSYLVANIA, successor to Mellon Bank, N.A. ("Bank"). BACKGROUND A. By a Credit Agreement dated June 20, 1994 among Bank and Borrowers, as amended by that certain Amendment and Modification to Credit Agreement dated April 8, 1997, that certain Second Amendment and Modification to Credit Agreement dated April 8, 1997, that certain Third Amendment and Modification to Credit Agreement dated June 4, 1997, that certain Fourth Amendment and Modification to Credit Agreement dated May 6, 1998, that certain Fifth Amendment and Modification to Credit Agreement dated October 9, 1998, that certain Sixth Amendment and Modification to Credit Agreement dated July 7, 2000, that certain Seventh Amendment and Modification to Credit Agreement dated September 7, 2000, that certain Eighth Amendment and Modification to Credit Agreement dated June 20, 2001, that certain Ninth Amendment and Modification to Credit Agreement dated February 19, 2002 and that certain Tenth Amendment and Modification to Credit Agreement dated May 30, 2002, 2002 (as the same may be further amended from time to time, the "Credit Agreement"), Bank agreed, inter alia, to extend to Borrowers a revolving credit facility in the principal amount of up to Thirty Million Dollars ($30,000,000.00), as further evidenced by that certain Amended and Restated Promissory Note dated April 8, 1997 payable to Bank in the original principal amount of Thirty Million Dollars ($30,000,000.00). B. Borrowers and Guarantors have requested that Bank consent to the Acquisition (as defined below) and acknowledge and agree to certain other matters as set forth herein. C. Capitalized terms used herein and not otherwise defined shall have the meanings provided for such terms in the Credit Agreement. NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows: 1. PROPOSED TRANSACTION. (a) Company, CPI Acquisition Company, Inc. and Campus Pipeline, Inc. ("Campus") have entered into that certain Agreement and Plan of Merger dated September 30, 2002 (the "Acquisition Agreement") pursuant to which Campus will become a wholly owned subsidiary of Company (the "Acquisition"). (b) Borrowers have caused to be delivered to Bank a true and complete copy of the Acquisition Agreement. (c) Borrowers have requested that Bank consent to the Acquisition. Bank is willing to provide such consent, subject to the terms and conditions of this Amendment. 2. CONSENT TO ACQUISITION OF CAMPUS. (a) Bank hereby consents to the Acquisition as described in the Acquisition Agreement. (b) The foregoing consent (i) is given solely in connection with the Acquisition and does not constitute the consent or approval by Bank to any other acquisition or similar transaction and (ii) shall not be deemed to be an agreement, obligation or commitment by Bank to consent to any other transaction which would be prohibited by the terms and conditions of the Credit Agreement or any of the other Loan Documents. 3. SUBSIDIARY SCHEDULE. Schedule 5.01(a) of the Credit Agreement is hereby deemed amended by adding "Campus Pipeline, Inc.*" to the list of Subsidiaries identified thereon. 4. ADDITIONAL GUARANTY. (a) Contemporaneously with the execution of this Amendment, Company shall cause Campus to execute and deliver to Bank a Subsidiary Guaranty Agreement, in form and content satisfactory to Bank (the "Guaranty"). (b) From and after the date hereof, Campus shall be a "Material Subsidiary" and a "Guarantor" under the Credit Agreement and the other Loan Documents and shall be bound by all the terms and conditions thereof. All references to "Material Subsidiary" and to "Guarantor" in the Credit Agreement and the other Loan Documents shall hereafter be deemed to include Campus. 5. ZION BANK INDEBTEDNESS. On or before October 31, 2002, Company shall (a) cause all indebtedness of Campus to Zion Bank ("Zion") to be paid in full, including without limitation, the indebtedness evidenced by that certain note dated June 21, 2000 in the original principal amount of Three Million Dollars ($3,000,000.00) and (b) cause Zion to release all liens and security interests held by Zion in and against any assets of Campus. 6. FURTHER ASSURANCES. Each Borrower covenants and agrees to execute and deliver to Bank or to cause to be executed and delivered at the sole cost and expense of Borrowers, the Guaranty and from time to time, any and all other documents, agreements, statements, certificates and information as Bank shall reasonably request to evidence or effect the terms hereof, the Credit Agreement, as amended, or any of the other Loan Documents. 7. AMENDMENT/REFERENCES. The Credit Agreement and the other Loan Documents are hereby amended to be consistent with the terms of this Amendment. All references in the Credit Agreement and the other Loan Documents to (i) the "Credit Agreement" shall mean the Credit Agreement as amended hereby; and (ii) the "Loan Documents" shall include this Amendment and all other instruments or agreements executed pursuant to or in connection with the terms hereof. 2 8. FURTHER AGREEMENTS AND REPRESENTATIONS. Each Borrower does hereby: (a) ratify, confirm and acknowledge that the statements contained in the foregoing Background are true and complete and that, as amended hereby, the Credit Agreement and the other Loan Documents are in full force and effect and are valid, binding and enforceable against each Borrower and each Guarantor and their respective assets and properties, all in accordance with the terms thereof, as amended hereby; (b) covenant and agree to perform all of such Borrower's or Guarantor's obligations under the Credit Agreement and the other Loan Documents, as amended; (c) acknowledge and agree that as of the date hereof, such Borrower or such Guarantor has no defense, set-off, counterclaim or challenge against the payment of any sums owing under any of the Notes or any other obligations of Borrowers under the Credit Agreement ("Bank Indebtedness"), or the enforcement of any of the terms of the Credit Agreement or of the other Loan Documents, as amended; (d) acknowledge and agree that except as heretofore disclosed to Bank by Borrowers or Guarantors in writing, all representations and warranties of Borrowers and Guarantors contained in the Credit Agreement and/or the other Loan Documents, as amended are true, accurate and correct on and as of the date hereof as if made on and as of the date hereof; (e) represent and warrant that, after giving effect to the terms and conditions of this Amendment, no Event of Default exists; (f) covenant and agree that Borrowers' or Guarantors' failure to comply with any of the terms of this Amendment or any other instrument or agreement executed or delivered in connection herewith, shall constitute an Event of Default under the Credit Agreement, subject to the notice and grace periods provided therein, if applicable; and (g) acknowledge and agree that nothing contained herein, and no actions taken pursuant to the terms hereof, are intended to constitute a novation of any of the Notes, the Credit Agreement or of any of the other Loan Documents and does not constitute a release, termination or waiver of any existing Event of Default or of any of the liens, security interests, rights or remedies granted to Bank in any of the Loan Documents, which liens, security interests, rights and remedies are hereby ratified, confirmed, extended and continued as security for all Bank Indebtedness. 9. COSTS AND EXPENSES. Borrowers shall pay to Bank all reasonable costs and expenses incurred by Bank in connection with the review, preparation and negotiation of this Amendment and all documents in connection therewith, including, without limitation, Bank's reasonable attorneys' fees and costs. 3 10. INCONSISTENCIES. To the extent of any inconsistency between the terms, conditions and provisions of this Amendment and the terms, conditions and provisions of the Credit Agreement or the other Loan Documents, the terms, conditions and provisions of this Amendment shall prevail. All terms, conditions and provisions of the Credit Agreement and the other Loan Documents not inconsistent herewith shall remain in full force and effect and are hereby ratified and confirmed by Borrowers. 11. NO WAIVER. Nothing contained herein and no actions taken pursuant to the terms hereof are intended to nor shall they constitute a waiver by the Bank of any rights or remedies available to Bank at law or in equity or as provided in the Credit Agreement or the other Loan Documents. Nothing contained herein constitutes an agreement or obligation by Bank to grant any further amendments or consents. 12. BINDING EFFECT. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 13. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania. 14. HEADINGS. The headings of the sections of this Amendment are inserted for convenience only and shall not be deemed to constitute a part of this Amendment. 15. COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Amendment to be executed the day and year first above written. SYSTEMS & COMPUTER TECHNOLOGY CORPORATION By: /s/ Eric Haskell Name/Title: Eric Haskell / Executive Vice President SCT SOFTWARE & RESOURCE MANAGEMENT CORPORATION By: /s/ Eric Haskell Name/Title: Eric Haskell / Executive Vice President CITIZENS BANK OF PENNSYLVANIA By: /s/ Frank P. Mohapp Name/Title: Frank P. Mohapp / Sr. Vice President 4 ACKNOWLEDGMENT AND CONSENT The undersigned Guarantors hereby acknowledge and consent to the foregoing Amendment and agree that the foregoing Amendment shall not constitute a release or waiver of any of the obligations of the undersigned to the Bank under the terms of their respective Subsidiary Guaranty Agreements dated June 20, 1994, all of which are hereby ratified and confirmed. IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have executed this Acknowledgment and Consent, effective as of the date of the foregoing Agreement. SCT UTILITY SYSTEMS, INC. By: /s/ Eric Haskell Name/Title: Eric Haskell / Executive Vice President SCT FINANCIAL CORPORATION By: /s/ Eric Haskell Name/Title: Eric Haskell / Executive Vice President SCT INTERNATIONAL LIMITED By: /s/ Eric Haskell Name/Title: Eric Haskell / Executive Vice President SCT PROPERTY, INC. By: /s/ Eric Haskell Name/Title: Eric Haskell / Executive Vice President 5 EX-10 4 ex10-2.txt EXHIBIT 10.2 SUBSIDIARY GUARANTY AGREEMENT THIS SUBSIDIARY GUARANTY AGREEMENT (this "Guaranty") is entered into effective as of October 18, 2002, by CAMPUS PIPELINE, INC., a Delaware corporation (the "Guarantor"), in favor of and for the benefit of CITIZENS BANK OF PENNSYLVANIA, successor to Mellon Bank, N.A. (the "Bank"). BACKGROUND A. Systems & Computer Technology Corporation, a Delaware corporation (the "Company") and SCT Software & Resource Management Corporation, a Delaware corporation (the "Borrowing Subsidiary"), have entered into that certain Credit Agreement dated as of June 20, 1994, as amended by that certain Amendment and Modification to Credit Agreement dated April 8, 1997, that certain Second Amendment and Modification to Credit Agreement dated April 8, 1997, that certain Third Amendment and Modification to Credit Agreement dated June 4, 1997, that certain Fourth Amendment and Modification to Credit Agreement dated May 6, 1998, that certain Fifth Amendment and Modification to Credit Agreement dated October 9, 1998, that certain Sixth Amendment and Modification to Credit Agreement dated July 7, 2000, that certain Seventh Amendment and Modification to Credit Agreement dated September 7, 2000, that certain Eighth Amendment and Modification to Credit Agreement dated June 20, 2001, that certain Ninth Amendment and Modification to Credit Agreement dated February 19, 2002, that certain Tenth Amendment and Modification to Credit Agreement dated May 30, 2002, 2002 and that certain Eleventh Amendment and Modification to Credit Agreement dated of even date herewith (as the same may be further amended from time to time, the "Credit Agreement"). Capitalized terms defined therein and not otherwise defined herein shall have the meanings set forth in the Credit Agreement. Pursuant to the Credit Agreement, the Bank has agreed to make certain Loans to the Company and the Borrowing Subsidiary (collectively, the "Borrowers") subject to the terms and conditions of the Credit Agreement; B. Certain of the obligations under the Credit Agreement are being incurred in part for, and will inure to, the benefit of the Guarantor, which benefits include managerial support of and financial assistance to the Guarantor. Such benefits are hereby acknowledged. C. The Guarantor desires to guaranty all obligations of the Borrowers under the Credit Agreement. D. It is a condition precedent to the making of further Loans under the Credit Agreement that the obligations thereunder are irrevocably and unconditionally guarantied by the Guarantor. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Bank to enter into the Credit Agreement and to make the Loans thereunder, the Guarantor, intending to be legally bound hereby, agrees as follows: SECTION 1. DEFINITIONS SECTION 1.1 Certain Defined Terms. As used in this Guaranty, the following terms shall have the following meanings unless the context otherwise requires: "Guarantied Obligations" has the meaning assigned to that term in subsection 2.1. "Guaranty" means this Guaranty dated as of October 18, 2002, as it may be amended, supplemented or otherwise modified from time to time. "Payment in full", "paid in full" or any similar term means payment in full of the Guarantied Obligations including, without limitation, all principal, interest, costs, fees and expenses (including, without limitation, reasonable legal fees and expenses) of the Bank as required under the Credit Agreement and the other Loan Documents. SECTION 1.2 Interpretation. (a) References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Guaranty unless otherwise specifically provided. (b) In the event of any conflict or inconsistency between the terms, conditions and provisions of this Guaranty and the terms, conditions and provisions of the Credit Agreement, the terms, conditions and provisions of this Guaranty shall prevail. SECTION 2. THE GUARANTY SECTION 2.1 Guaranty of the Guarantied Obligations. The Guarantor hereby irrevocably and unconditionally guaranties, as a primary obligor, the due and punctual payment in full of all Guarantied Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)). The term "Guarantied Obligations" means all of the obligations of the Borrowers under the Credit Agreement and includes: (a) any and all obligations of the Borrowers, including but not limited to obligations in respect of notes, advances, borrowings, loans, debts, letters of credit, bankers' acceptances, interest, fees, costs, expenses (including, without limitation, reasonable legal fees and expenses of counsel), indemnities and liabilities of whatsoever nature now or hereafter made, incurred or created, whether absolute or contingent, liquidated or unliquidated, whether due or not due, and however arising under or in connection with the Credit Agreement and the other Loan Documents, including those arising under successive borrowing transactions under the Credit Agreement which shall either continue the obligations of the Borrowers or from time to time renew them after they have been satisfied and including any increases to the Commitment or the Loans to be made under the Credit Agreement; and (b) those expenses set forth in subsection 2.10 hereof. - 2 - SECTION 2.2 Liability of Guarantor. The Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than indefeasible payment in full of the Guarantied Obligations. In furtherance of the foregoing and without limiting the generality thereof, Guarantor agrees as follows: (a) This Guaranty is a guaranty of payment when due and not of collectibility. (b) The Bank may enforce this Guaranty upon the occurrence of an Event of Default under the Credit Agreement notwithstanding the existence of any dispute between the Bank and the Borrowers with respect to the existence of such Event of Default. (c) The obligations of the Guarantor hereunder are independent of the obligations of the Borrowers under the Loan Documents and the obligations of any other guarantor of the obligations of the Borrowers under the Loan Documents, and a separate action or actions may be brought and prosecuted against the Guarantor whether or not any action is brought against any Borrower or any of such other guarantors and whether or not any Borrower is joined in any such action or actions. (d) The Guarantor's payment of a portion, but not all, of the Guarantied Obligations shall in no way limit, affect, modify or abridge the Guarantor's liability for any portion of the Guarantied Obligations which has not been paid. Without limiting the generality of the foregoing, if the Bank is awarded a judgment in any suit brought to enforce the Guarantor's covenant to pay a portion of the Guarantied Obligations, such judgment shall not be deemed to release the Guarantor from its covenant to pay the portion of the Guarantied Obligations that is not the subject of such suit. (e) The Bank, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability of this Guaranty or giving rise to any reduction, limitation, impairment, discharge or termination of the Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guarantied Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guarantied Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guarantied Obligations and take and hold security for the payment of this Guaranty or the Guarantied Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guarantied Obligations, any other guaranties of the Guarantied Obligations, or any other obligation of any Person with respect to the Guarantied Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of the Bank in respect of this Guaranty or the Guarantied Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that the Bank may have against any such security, as the Bank in its discretion may determine consistent with the Credit Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantor against any Borrower or any security for the Guarantied Obligations; and (vi) exercise any other rights available to it under the Loan Documents. - 3 - (f) This Guaranty and the obligations of the Guarantor hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than indefeasible payment in full of the Guarantied Obligations), including without limitation the occurrence of any of the following, whether or not the Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, at law, in equity or otherwise) with respect to the Guarantied Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guarantied Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including without limitation provisions relating to events of default) of the Credit Agreement, any of the other Loan Documents or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guarantied Obligations, in each case whether or not in accordance with the terms of the Credit Agreement or such Loan Document or any agreement relating to such other guaranty or security; (iii) the Guarantied Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Loan Documents or from the proceeds of any security for the Guarantied Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guarantied Obligations) to the payment of indebtedness other than the Guarantied Obligations, even though the Bank might have elected to apply such payment to any part or all of the Guarantied Obligations; (v) the Bank's consent to the change, reorganization or termination of the corporate structure or existence of the Company or any of its Subsidiaries and to any corresponding restructuring of the Guarantied Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guarantied Obligations; (vii) any defenses, set-offs or counterclaims that any Borrower may allege or assert against the Bank in respect of the Guarantied Obligations, including but not limited to failure of consideration, breach of warranty, statute of frauds, statute of limitations, and usury, but excluding payment defenses; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of the Guarantor as an obligor in respect of the Guarantied Obligations. SECTION 2.3 Limitation on Amount Guarantied. Anything contained in this Guaranty to the contrary notwithstanding, the obligations of the Guarantor hereunder shall be limited to the lesser of (i) the Guaranteed Obligations and (ii) a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), if and to the extent the Guarantor (or a trustee on its behalf) has properly invoked the protections of the Fraudulent Transfer Laws in each case after giving effect to all other liabilities of the Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of the Guarantor (x) in respect of intercompany indebtedness to any Borrower or Affiliates of any Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by the Guarantor hereunder and (y) under any guaranty of subordinated debt issued by any Borrower, which guaranty contains a limitation as to maximum amount similar to that set forth in this subsection, pursuant to which the liability of the Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of the Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among the Guarantor and other Affiliates of any Borrower of obligations arising under guaranties by such parties. - 4 - SECTION 2.4 Waivers by the Guarantor. The Guarantor hereby expressly waives, for the benefit of the Bank: (a) any right to require the Bank, as a condition of payment or performance by the Guarantor, to (i) proceed against the Borrower, any other guarantor of the Guarantied Obligations or any other Person, (ii) proceed against or exhaust any security held from any Borrower, the Guarantor, any other guarantor of the Guarantied Obligations or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of the Bank in favor of the Borrower or any other Person, or (iv) pursue any other remedy in the power of the Bank whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of any Borrower including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Guarantied Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of any Borrower from any cause other than indefeasible payment in full of the Guarantied Obligations; (c) any defense based upon any statute or rule of law that provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon the Bank's errors or omissions in the administration of the Guarantied Obligations, except for errors or omissions caused solely by the gross negligence or willful misconduct of the Bank; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of the Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting the Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims in any action brought in conjunction with this Guaranty, but this waiver shall not preclude any right the Guarantor may have to assert set-offs, recoupments or counterclaims in a separate proceeding and (iv) promptness, diligence and any requirement that the Bank protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Credit Agreement or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guarantied Obligations or any agreement related thereto, notices of any extension of credit to any Borrower and notices of any of the matters referred to in subsection 2.2 and any right to consent to any thereof; and - 5 - (g) to the fullest extent permitted by law, any defenses or benefits that may be derived from or afforded by law that limit the liability of or exonerate guarantors or sureties, or that may conflict with the terms of this Guaranty. SECTION 2.5 Payment by the Guarantor Application of Payments. The Guarantor hereby agrees, in furtherance of the foregoing and not in limitation of any other right which the Bank or any other Person may have at law or in equity against the Guarantor by virtue hereof, upon the failure of the Borrowers to pay any of the Guarantied Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(0) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), the Guarantor will forthwith pay, or cause to be paid, in cash, to the Bank, an amount equal to the sum of the unpaid principal amount of all Guarantied Obligations then due as aforesaid, accrued and unpaid interest on such Guarantied Obligations (including, without limitation, interest which, but for the filing of a petition in bankruptcy with respect to a Borrower, would have accrued on such Guarantied Obligations, whether or not a claim is allowed against that Borrower for such interest in any such bankruptcy proceeding) and all other Guarantied Obligations then owed to the Bank. All such payments shall be applied promptly from time to time by the Bank: FIRST, to the payment of the costs and expenses of any collection or other realization under this Guaranty, including reasonable compensation to the Bank and its agents and counsel, and all expenses, liabilities and advances made or incurred by the Bank in connection therewith; SECOND, to the payment of all other Guarantied Obligations owing to the Bank; and THIRD, after payment in full of all Guarantied Obligations, to the payment to the Guarantor, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such payments. All applications of payments to the Guarantied Obligations shall be applied to the payment of interest before application to the payment of principal. SECTION 2.6 Subrogation. Guarantor hereby waives any and all rights Guarantor may have at any time (whether arising directly or indirectly, by operations of law or contract) to assert any claim against any Borrower on account of payments made under this Guaranty, including without limitation any and all rights of subrogation or indemnity. Until the Guarantied Obligations shall have been indefeasibly paid in full, the Guarantor shall withhold exercise of (a) any right of subrogation against any other guarantor of the Guarantied Obligations in respect of the Guaranteed Obligations, (b) any right of contribution in respect of the Guaranteed Obligations the Guarantor may have against any other guarantor of the Guarantied Obligations, (c) any benefit of, and any right to participate in, any security now or hereafter held by the Bank. The Guarantor further agrees that, to the extent the waiver of its rights of subrogation and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation the Guarantor may have against any Borrower or against any collateral or security, and any rights of contribution the Guarantor may have against any other guarantor, shall be junior and subordinate to any rights the Bank may have against the Borrowers, to all right, title and interest the Bank may have in any such collateral or security, and to any right the Bank may have against such other guarantor. The Bank may use, sell or dispose of any item of collateral or security as it sees fit without regard to any subrogation rights the Guarantor may have, and upon any such disposition or sale any rights of subrogation the Guarantor may have shall terminate. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all Guarantied Obligations shall not have been paid in full, such amount shall be held in trust for the Bank and shall forthwith be paid over to the Bank to be credited and applied against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement or any applicable security agreement. - 6 - SECTION 2.7 Subordination of Other Obligations. Any indebtedness of any Borrower now or hereafter held by the Guarantor is hereby subordinated in right of payment to the Guarantied Obligations, and any such indebtedness of any Borrower to the Guarantor collected or received by the Guarantor after an Event of Default has occurred and is continuing shall be held in trust for the Bank and shall forthwith be paid over to the Bank to be credited and applied against the Guarantied Obligations but without affecting, impairing or limiting in any manner the liability of the Guarantor under any other provision of this Guaranty. SECTION 2.8 Real Property Security. The Guarantor agrees that, if all or a portion of the Guarantied Obligations are at any time secured by a deed of trust or mortgage covering interests in real property, the Bank or its designee, in its sole discretion, without notice or demand and without affecting the liability of the Guarantor under this Guaranty, may foreclose, pursuant to the terms of the Loan Documents or otherwise, on such deed of trust or mortgage and the interests in real property secured thereby by nonjudicial or other sale. The Guarantor understands that the exercise by the Bank of certain rights and remedies contained in the Credit Agreement and such deed of trust or mortgage may affect or eliminate the Guarantor's right of subrogation against a Borrower and that the Guarantor may therefore incur a partially or totally nonreimbursable liability hereunder. Nevertheless, the Guarantor hereby authorizes and empowers the Bank to exercise, in its sole discretion, any rights and remedies, or any combination thereof, which may then be available, since it is the intent and purpose of the Guarantor that the obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. Notwithstanding any foreclosure of the lien of such deed of trust or mortgage with respect to any or all real or personal property secured thereby, whether by the exercise of the power of sale contained therein, by an action for judicial foreclosure or by an acceptance of a deed in lieu of foreclosure, the Guarantor shall remain bound under this Guaranty, including its obligation to pay any deficiency after a nonjudicial foreclosure. - 7 - SECTION 2.9 Expenses. The Guarantor agrees to pay, or cause to be paid, and to save the Bank harmless against liability for, any and all costs and expenses (including reasonable fees and disbursements of counsel) incurred or expended by the Bank in connection with the enforcement of or preservation of any rights under this Guaranty. SECTION 2.10 Continuing Guaranty: Termination of Guaranty. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guarantied Obligations shall have been indefeasibly paid in full and the Commitments shall have terminated, subject in any event to reinstatement in accordance with Section 2.15(c) hereof. SECTION 2.11 Authority of the Guarantor or the Borrower. It is not necessary for the Bank to inquire into the capacity or powers of the Guarantor or any Borrower or the officers, directors or any agents acting or purporting to act on behalf of any of them. SECTION 2.12 Financial Condition of the Borrowers. Any Loans may be granted to any Borrower or continued from time to time without notice to or authorization from the Guarantor regardless of the financial or other condition of such Borrower at the time of any such grant or continuation. The Bank shall have no obligation to disclose or discuss with the Guarantor its assessment, or the Guarantor's assessment, of the financial condition of any Borrower. The Guarantor has adequate means to obtain information from the Borrowers on a continuing basis concerning the financial condition of the Borrowers and their ability to perform their obligations under the Loan Documents, and the Guarantor assumes the responsibility for being and keeping informed of the financial condition of the Borrowers and of all circumstances bearing upon the risk of nonpayment of the Guarantied Obligations. The Guarantor hereby waives and relinquishes any duty on the part of the Bank to disclose any matter, fact or thing relating to the business, operations or conditions of any Borrower now known or hereafter known by the Bank. SECTION 2.13 Rights Cumulative. The rights, powers and remedies given to the Bank by this Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to the Bank by virtue of any statute or rule of law or in any of the other Loan Documents or any agreement between the Guarantor and the Bank or between any Borrower and the Bank. Any forbearance or failure to exercise, and any delay by the Bank in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. SECTION 2.14 Bankruptcy; Post Petition Interest; Reinstatement of Guaranty. (a) So long as any Guarantied Obligations remain outstanding, the Guarantor shall not, without the prior written consent of the Bank in accordance with the terms of the Credit Agreement, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency proceedings of or against any Borrower. The obligations of the Guarantor under this Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of any Borrower or by any defense which any Borrower may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. - 8 - (b) The Guarantor acknowledges and agrees that any interest on any portion of the Guarantied Obligations which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Guarantied Obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Guarantied Obligations if said proceedings had not been commenced) shall be included in the Guarantied Obligations because it is the intention of the Guarantor and the Bank that the Guarantied Obligations that are guarantied by the Guarantor pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve any Borrower of any portion of such Guarantied Obligations. The Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay the Bank, or allow the claim of the Bank in respect of, any such interest accruing after the date on which such proceeding is commenced. (c) In the event that all or any portion of the Guarantied Obligations are paid by the Borrowers, the obligations of the Guarantor hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from the Bank as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guarantied Obligations for all purposes under this Guaranty. SECTION 2.15 Notice of Events. As soon as the Guarantor obtains knowledge thereof, the Guarantor shall give the Bank written notice of any condition or event which has resulted or might reasonably be expected to result in (a) a material adverse change in the financial condition of the Guarantor or any Borrower, or (b) a breach of or noncompliance with any term, condition or covenant contained herein or in the Credit Agreement, any other Loan Document or in any document delivered pursuant hereto or thereto, or (c) a material breach of, or noncompliance with, any material term, condition or covenant of any material contract to which the Guarantor or any Borrower is a party or by which the Guarantor or any Borrower or the Guarantor's or any Borrower's property may be bound. SECTION 2.16 Set Off. In addition to any other rights the Bank may have under law or in equity, if any amount shall at any time be due and owing by the Guarantor to the Bank under this Guaranty, the Bank is authorized at any time or from time to time, without notice (any such notice being hereby expressly waived), to set off and to appropriate and to apply any and all deposits (general or special, including but not limited to indebtedness evidenced by certificates of deposit, whether matured or unmatured, provided that if unmatured, the Bank shall, to the extent permitted by law, waive any applicable prepayment penalty) and any other indebtedness of the Bank owing to the Guarantor and any other property of the Guarantor held by the Bank to or for the credit or the account of the Guarantor against and on account of the Guarantied Obligations and liabilities of the Guarantor to the Bank for the benefit of the Bank under this Guaranty. - 9 - SECTION 3. REPRESENTATIONS AND WARRANTIES In order to induce the Bank to accept this Guaranty and to enter into the Credit Agreement and to make the Loans thereunder, the Guarantor hereby represents and warrants that the following statements are true and correct: SECTION 3.1 Corporate Existence. The Guarantor is duly organized, validly existing and in good standing under the laws of the state of its incorporation, has the corporate power to own its assets and to transact the business in which it is now engaged and is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except for failures to be so qualified, authorized or licensed that would not in the aggregate have a material adverse effect on the business, operations, assets or financial condition of the Guarantor. SECTION 3.2 Corporate Power Authorization Enforceable Obligations. The Guarantor has the corporate power and authority to execute, deliver and perform this Guaranty and all obligations required hereunder, and has taken all necessary corporate action to authorize this Guaranty on the terms and conditions hereof and its execution, delivery and performance of this Guaranty and all obligations required hereunder. No consent of any other Person including, without limitation, stockholders and creditors of the Guarantor, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required by the Guarantor in connection with this Guaranty or the execution, delivery, performance, validity or enforceability of this Guaranty and all obligations required hereunder. This Guaranty has been, and each instrument or document required hereunder will be, executed and delivered by a duly authorized officer of the Guarantor, and this Guaranty constitutes, and each instrument or document required hereunder when executed and delivered will constitute, the legally valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws or equitable principles relating to or limiting creditors' rights generally. SECTION 3.3 No Legal Bar. The execution, delivery and performance of this Guaranty and the documents or instruments required hereunder, will not violate any provision of any existing law or regulation binding on the Guarantor, or any order, judgments award or decree of any court, arbitrator or governmental authority binding on the Guarantor, or the certificate of incorporation or bylaws of the Guarantor or any securities issued by the Guarantor, or any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which the Guarantor is a party or by which the Guarantor or any of its assets may be bound, the violation of which would have a material adverse effect on the business, operations, assets or financial condition of the Guarantor and will not result in, or require, the creation or imposition of any Lien on any of its property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking. SECTION 4. AFFIRMATIVE COVENANTS The Guarantor covenants and agrees that, unless and until all of the Guarantied Obligations shall have been indefeasibly paid in full and the Commitments shall have terminated, unless the Bank shall otherwise consent in writing: - 10 - SECTION 4.1 Corporate Existence, Etc. The Guarantor shall at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to its business; provided, however, that the Guarantor may merge with a Material Subsidiary or the Company. SECTION 4.2 Compliance with Laws, Etc. The Guarantor shall comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, paying when due all taxes, assessments and governmental charges imposed upon it or upon any of its properties or assets or in respect of any of its franchises, businesses, income or property before any penalty or interest accrues thereon; provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in accordance with GAAP, shall have been made therefor. SECTION 4.3 Books and Records. The Guarantor shall keep and maintain books of record and account with respect to its operations in accordance with GAAP and shall permit the Bank and its officers, employees and authorized agents, to the extent the Bank in good faith deems necessary for the proper administration of this Guaranty, to examine, copy and make excerpts from the books and records of the Guarantor and its Subsidiaries and to inspect the properties of the Guarantor and its Subsidiaries, both real and personal, at such reasonable times upon reasonable notice as the Bank may request, without disruption of the Guarantor's business. SECTION 5. MISCELLANEOUS SECTION 5.1 Survival of Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Guaranty and any increase in the Commitments under the Credit Agreement until payment in full of the Guaranteed Obligations. SECTION 5.2 Notices. Except as otherwise set forth in this Guaranty, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex or facsimile communication) and mailed or telegraphed or telexed or sent by facsimile, overnight courier or delivered, if to the Guarantor, at its address set forth on the signature page hereof; and if to the Bank, at its address set forth on the signature page of the Credit Agreement; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall be effective three (3) Business Days after deposit in the U.S. Mail, postage pre-paid, when delivered to the telegraph company or to the overnight courier, when sent by telex or when sent by facsimile, respectively. SECTION 5.3 Severability. In case any provision in or obligation under this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 5.4 Amendments and Waivers. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. - 11 - SECTION 5.5 Headings. Section and subsection headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect. SECTION 5.6 Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW DOCTRINE. SECTION 5.7 Successors and Assigns. This Guaranty is a continuing guaranty and shall be binding upon the Guarantor and its successors and assigns. This Guaranty shall inure to the benefit of the Bank, and its respective successors and assigns. The Guarantor shall not assign this Guaranty or any of the rights or obligations of the Guarantor hereunder without the prior written consent of the Bank. The Bank may, without prior notice or consent, assign its interest in this Guaranty in whole or in part. The Bank shall give the Guarantor written notice of any such assignment within thirty (30) days after such assignment. The terms and provisions of this Guaranty shall inure to the benefit of any assignee or transferee, and in the event of such transfer or assignment the rights and privileges herein conferred upon the Bank shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. SECTION 5.8 Consent to Jurisdiction; Waiver of Immunities. All judicial proceedings brought against the Guarantor with respect to this Guaranty may be brought in any state or federal court of competent jurisdiction in the Commonwealth of Pennsylvania, and by execution and delivery of this Guaranty, the Guarantor accepts for itself and in connection with its properties, generally and unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Guaranty. The Guarantor irrevocably waives any right it may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section. The Guarantor designates and appoints its Secretary, at the address set forth on the signature page hereof, and such other Persons as may hereafter be selected by the Guarantor irrevocably agreeing in writing to so serve as its agent to receive on its behalf service of all process in any such proceedings in any such court, such service being hereby acknowledged by the Guarantor to be effective and binding service in every respect. A copy of any such process so served shall be mailed by registered mail to the Guarantor at its address provided in the applicable signature page hereto, except that unless otherwise provided by applicable law, any failure to mail such copy shall not affect the validity of service of process. If any agent appointed by the Guarantor refuses to accept service, the Guarantor hereby agrees that service upon it by mail shall constitute sufficient notice. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Bank to bring proceedings against the Guarantor in courts of any jurisdiction. - 12 - SECTION 5.9 Waiver of Jury Trial. THE GUARANTOR AND THE BANK, BY ITS ACCEPTANCE HEREOF, HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/GUARANTOR RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. The Bank and the Guarantor each acknowledge that this waiver is a material inducement to enter into a business relationship, that each has already relied on the waiver in entering into this Guaranty, and that each will continue to rely on the waiver in their related future dealings. The Bank and the Guarantor further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court. SECTION 6. Confession of Judgment. GUARANTOR HEREBY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF PENNSYLVANIA, OR IN ANY OTHER JURISDICTION WHICH PERMITS THE ENTRY OF JUDGMENT BY CONFESSION, TO APPEAR FOR GUARANTOR AT ANY TIME AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT (AS DEFINED IN THE LOAN AGREEMENT), IN ANY ACTION BROUGHT AGAINST GUARANTOR ON THIS SURETY AGREEMENT AT THE SUIT OF BANK, WITH OR WITHOUT COMPLAINT OR DECLARATION FILED, WITHOUT STAY OF EXECUTION, AS OF ANY TERM OR TIME, AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST GUARANTOR FOR THE ENTIRE UNPAID AMOUNT OF THE GUARANTEED OBLIGATIONS AND ALL ARREARAGES OF INTEREST THEREON, TOGETHER WITH ALL COSTS AND OTHER EXPENSES AND AN ATTORNEY'S COLLECTION COMMISSION OF FIFTEEN PERCENT (15%) OF THE AGGREGATE AMOUNT OF THE FOREGOING SUMS, BUT IN NO EVENT LESS THAN FIVE THOUSAND DOLLARS ($5,000.00); AND FOR SO DOING THIS SURETY AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE AUTHORITY GRANTED HEREIN TO CONFESS JUDGMENT SHALL NOT BE EXTINGUISHED BY ANY EXERCISE THEREOF, BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES DURING THE DURATION OF THIS SURETY AGREEMENT. GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS SURETY AGREEMENT. GUARANTOR KNOWINGLY WAIVES GUARANTOR'S RIGHT TO BE HEARD PRIOR TO THE ENTRY OF SUCH JUDGMENT AND UNDERSTANDS THAT, UPON SUCH ENTRY, SUCH JUDGMENT SHALL BECOME A LIEN ON ALL REAL PROPERTY OF GUARANTOR IN THE COUNTY IN WHICH SUCH JUDGMENT IS ENTERED AND THAT EXECUTION MAY IMMEDIATELY BE ISSUED ON THE JUDGMENT TO GARNISH, LEVY ON OR ATTACH ANY PERSONAL PROPERTY OF GUARANTOR. - 13 - GUARANTOR WAIVES AND RELINQUISHES ALL ERRORS, DEFECTS AND IMPERFECTIONS IN THE ENTRY OF JUDGMENT AS AFORESAID, OR IN ANY PROCEEDING PURSUANT THERETO, AND ALL BENEFITS THAT MAY ACCRUE TO GUARANTOR BY VIRTUE OF ANY LAW OR RULE OF COURT RELATING TO A STAY OF EXECUTION OR EXEMPTING ANY PROPERTY FROM LEVY OR SALE UNDER EXECUTION. SECTION 7.1 No Other Writing. This writing is intended by the Guarantor and the Bank as the final expression of this Guaranty and is also intended as a complete and exclusive statement of the terms of their agreement with respect to the matters covered hereby. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Guaranty. There are no conditions to the full effectiveness of this Guaranty. SECTION 7.2 Further Assurances. At any time or from time to time, upon the request of the Bank, the Guarantor shall execute and deliver such further documents and do such other acts and things as the Bank may reasonably request in order to effect fully the purposes of this Guaranty. IN WITNESS WHEREOF, the Guarantor has executed this Guaranty by its duly authorized officer as of the date first above written. CAMPUS PIPELINE, INC., a Delaware corporation By: /s/ Eric Haskell Name/Title: Eric Haskell / Executive Vice President Address: SCT Corporation 4 Country View Road Malvern, PA 19355 Attention: Mr. Eric Haskell Telecopy No.: (610)578-5102 With a copy to General Counsel - 14 - EX-10 5 ex10-3.txt EXHIBIT 10.3 EXPLANATION AND WAIVER OF RIGHTS REGARDING CONFESSION OF JUDGMENT (SURETY) 1. On the date hereof, CAMPUS PIPELINE, INC. (the "Obligor"), is signing and delivering to CITIZENS BANK OF PENNSYLVANIA, successor to Mellon Bank, N.A. ("Bank") a Subsidiary Guaranty Agreement (as the same may be renewed, modified, amended, extended, restated or replaced, whether one or more, the "Obligation"). Obligor has been advised by the Bank (and by the Obligor's legal counsel, if applicable) that the Obligation contains a clause that provides that the Bank may confess judgment against Obligor. Obligor has read the Obligation and clearly and specifically understands that by signing the Obligation which contains such confession of judgment clause: (a) The Obligor is authorizing the Bank to enter a judgment against the Obligor and in favor of the Bank, which may give the Bank a lien upon certain real estate of Obligor; (b) The Obligor is giving up an important right to any notice or opportunity for a hearing before the entry of this judgment on the records of the Court; (c) The Obligor is agreeing that the Bank may enter this judgment and understands that the Obligor will be unable to contest the validity of the judgment, should the Bank enter it, unless the Obligor successfully challenges entry of the judgment through a petition to open or strike the judgment, which will require the Obligor to retain counsel at the Obligor's expense; (d) The Obligor is giving up an important right to any notice or opportunity for a hearing before the Bank may request and use the power of the state government to deprive the Obligor of certain of its property pursuant to the judgment by seizing or having the Sheriff or other official seize certain personal property of Obligor, to satisfy the Obligation; and (e) The Obligor may be immediately deprived of the use of certain property that is seized by the Bank pursuant to the judgment without notice or a hearing, and the procedural rules of Pennsylvania's court system do not guarantee that the Obligor will receive a prompt hearing after the Obligor's property is seized. 2. Obligor knows and understands that it is the confession of judgment clause in the Obligation which gives the Bank the rights described in subparagraphs (a) through (e) of paragraph 1 above. 3. Fully and completely understanding the rights which are being given up if the Obligor signs the Obligation containing the confession of judgment, Obligor nevertheless freely, knowingly and voluntarily waives said rights and chooses to sign the Obligation. 4. Obligor acknowledges that the proceeds of the Obligation are to be used for business purposes. Dated this 23rd day of October, 2002. OBLIGOR HAS READ THIS EXPLANATION AND WAIVER PRIOR TO SIGNING THE OBLIGATION AND FULLY UNDERSTANDS ITS CONTENTS. CAMPUS PIPELINE, INC. By: /s/ Eric Haskell Name/Title: Eric Haskell / Executive Vice President - 2 - EX-99 6 ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Systems & Computer Technology Corporation (the "Company") on Form 10-Q for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael D. Chamberlain, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael D. Chamberlain Michael D. Chamberlain President and Chief Executive Officer February 14, 2003 EX-99 7 ex99-2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Systems & Computer Technology Corporation (the "Company") on Form 10-Q for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Eric Haskell, Executive Vice President, Finance & Administration, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Eric Haskell Eric Haskell Executive Vice President, Finance & Administration, Treasurer and Chief Financial Officer February 14, 2003 -----END PRIVACY-ENHANCED MESSAGE-----