================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 March 28, 1998
-----------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______________________ to
__________________________
Commission File Number 1-7352
------------------------------
Data General Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2436397
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
4400 Computer Drive, Westboro, Massachusetts 01580
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 898-5000
--------------
Former name, former address and former fiscal year if changed since last report:
Not Applicable
------------------------------
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
--- ---
Number of shares outstanding of each of the registrant's classes of common
stock, as of April 24, 1998:
Common Stock, par value $.01 49,145,661
---------------------------- ------------------
(Title of each class) (Number of shares)
================================================================================
<PAGE>
PART I -- FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements.
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Quarter Ended Six Months Ended
Mar. 28, Mar. 29, Mar. 28, Mar. 29,
in thousands, except net income (loss) per share 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product................................................. $263,744 $292,022 $530,921 $541,822
Service................................................. 98,066 97,358 196,164 196,011
---------- ---------- --------- --------
Total revenues..................................... 361,810 389,380 727,085 737,833
---------- --------- --------- --------
Costs and expenses:
Cost of product revenues................................ 190,698 198,694 379,869 363,756
Cost of service revenues................................ 63,114 62,167 123,290 126,575
Research and development................................ 28,945 27,044 56,393 53,282
Selling, general, and administrative.................... 85,083 85,544 169,454 166,053
--------- --------- -------- --------
Total costs and expenses........................... 367,840 373,449 729,006 709,666
--------- -------- -------- --------
Income (loss) from operations............................... (6,030) 15,931 (1,921) 28,167
Interest income............................................. 3,382 1,591 6,891 3,573
Interest expense............................................ 3,595 3,141 7,215 6,344
Other income, net........................................... 2,240 -- 2,240 --
---------- --------- ----------- -------
Income (loss) before income taxes........................... (4,003) 14,381 ( 5) 25,396
Income tax provisions....................................... 500 600 1,000 1,200
----------- -------- ----------- --------
Net income (loss)........................................... $ (4,503) $ 13,781 $ (1,005) $ 24,196
========== ======== ========== ========
Basic net income (loss) per share
Net income (loss) per share............................. $(0.09) $0.34 $(0.02) $0.61
======= ===== ======= =====
Weighted average shares outstanding..................... 48,887 40,146 48,763 39,938
====== ======= ====== ======
Net income (loss) per share assuming dilution
Net income (loss) per share............................. $(0.09) $0.32 $(0.02) $0.57
======= ===== ======= =====
Weighted average shares outstanding, including
common stock equivalents, where applicable.............. 48,887 42,944 48,763 42,517
====== ====== ====== ======
<FN>
No cash dividends have been declared or paid since inception.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
Mar. 28, Sept. 27,
dollars in thousands 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and temporary cash investments............................................ $ 163,916 $ 216,814
Marketable securities.......................................................... 140,525 151,455
Receivables, net............................................................... 290,863 296,375
Inventories.................................................................... 173,463 166,008
Other current assets........................................................... 37,298 27,584
----------- ------------
Total current assets............................................. 806,065 858,236
Property, plant, and equipment, net................................................ 200,731 180,410
Other assets....................................................................... 108,649 96,222
----------- -------------
$1,115,445 $1,134,868
========== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable............................................................... $ 146,740 $ 154,624
Other current liabilities...................................................... 213,728 237,198
---------- ------------
Total current liabilities........................................ 360,468 391,822
---------- ------------
Long-term debt..................................................................... 212,750 212,750
------------ ------------
Other liabilities.................................................................. 8,439 11,516
------------ ------------
Stockholders' equity
Common stock
Outstanding - 49,096,000 shares at Mar. 28, 1998
and 48,588,000 shares at Sept. 27, 1997 (net of
deferred compensation of $16,007 at Mar. 28, 1998
and $14,157 at Sept. 27, 1997)............................................ 615,390 607,130
Accumulated deficit................................................................ (80,586) (79,581)
Unrealized gains on marketable securities.......................................... 11,014 2,812
Cumulative translation adjustment.................................................. (12,030) (11,581)
------------ ------------
Total stockholders' equity................................................ 533,788 518,780
------------ ------------
$1,115,445 $1,134,868
============ ============
<FN>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DATA GENERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
Mar. 28, Mar. 29,
in thousands 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss).................................................................. $ (1,005) $ 24,196
Adjustments to reconcile net income (loss) to
net cash provided from operating activities
Depreciation.................................................................. 38,442 39,946
Amortization of capitalized software development costs........................ 12,565 9,924
Other non-cash items, net..................................................... 454 5,918
Change in operating assets and liabilities.................................... (42,022) (16,548)
---------- ---------
Net cash provided from operating activities................................... 8,434 63,436
----------- ---------
Cash flows from investing activities
Expenditures for property, plant, and equipment.................................... (66,149) (51,775)
Net proceeds from the sales (purchases) of marketable securities................... 22,003 14,746
Capitalized software development costs............................................. (21,290) (16,508)
----------- -----------
Net cash used by investing activities......................................... (65,436) (53,537)
---------- ---------
Cash flows from financing activities
Cash provided from stock plans..................................................... 5,212 5,429
Decrease in notes payable.......................................................... - (1,794)
Repayment of long-term debt........................................................ - (3,900)
----------- ----------
Net cash (used by) provided from financing activities......................... 5,212 (265)
----------- ----------
Effect of foreign currency rate fluctuations
on cash and temporary cash investments................................................ (1,108) (2,891)
------------ -----------
Increase (decrease) in cash and temporary cash investments............................. (52,898) 6,743
Cash and temporary cash investments - beginning of period.............................. 216,814 178,997
---------- -----------
Cash and temporary cash investments - end of period.................................... $ 163,916 $185,740
========== ===========
Supplemental disclosure of cash flow information
Interest paid...................................................................... $ 6,646 $ 6,022
Income taxes paid.................................................................. $ 908 $ 567
<FN>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
DATA GENERAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
Note 1. Consolidated Balance Sheet Details
<CAPTION>
Mar. 28, Sept. 27,
in thousands 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Inventories
Raw materials........................... $ 23,294 $ 16,169
Work in process......................... 77,969 78,335
Finished systems........................ 46,739 44,349
Field engineering parts and components.. 25,461 27,155
---------- ----------
$173,463 166,008
========= ==========
Property, plant, and equipment
Property, plant, and equipment.......... $ 685,169 $ 657,351
Accumulated depreciation................ (484,438) (476,941)
-------- --------
$ 200,731 $ 180,410
========= =========
</TABLE>
<TABLE>
Note 2. Accounting Policies
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share". The
following data show the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares of potentially
dilutive common stock.
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------------------
Mar. 28, 1998 Mar. 29, 1997
-------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
in thousands, except per share amounts (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------- ----------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Net income (loss) available to
common stockholders $(4,503) 48,887 $(0.09) $13,781 40,146 $0.34
======= =====
Effect of Dilutive Securities
Stock Options -- -- -- 2,798
---------- --------- ------- ------
Diluted Earnings Per Share
Net income (loss) available to
common stockholders and
assumed conversions $(4,503) 48,887 $(0.09) $13,781 42,944 $0.32
======== ====== ======= ======= ====== =====
</TABLE>
<PAGE>
<TABLE>
Six Months Ended
------------------------------------------------------------------------------------------
Mar. 28, 1998 Mar. 29, 1997
-------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share
in thousands, except per share amounts (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------- ----------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Net income (loss) available to
common stockholders $(1,005) 48,763 $(0.02) $24,196 39,938 $0.61
======= =====
Effect of Dilutive Securities
Stock Options -- -- -- 2,579
---------- --------- ------- ------
Diluted Earnings Per Share
Net income (loss) available to
common stockholders and
assumed conversions $(1,005) 48,763 $(0.02) $24,196 42,517 $0.57
======== ====== ======= ======= ====== =====
<FN>
For the quarter and six-month periods ended March 28, 1998 and March
29, 1997, the assumed conversion of the convertible debentures, giving effect to
the incremental shares and the adjustment to reduce interest expense, is
anti-dilutive and has therefore been excluded from the computation. For the
quarter and six-month period ended March 28, 1998, the assumed exercise of stock
options, giving effect to the incremental shares, is anti-dilutive and has
therefore been excluded from the computation.
</FN>
</TABLE>
Note 3. Basis of Presentation and Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation. The Company's
accounting policies are described in the Notes to Consolidated Financial
Statements in the Company's 1997 Annual Report. The results of operations for
the quarter ended March 28, 1998 are not necessarily indicative of the results
of the entire fiscal year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
Cash and temporary cash investments as of March 28, 1998 were $163.9
million, a decrease of $52.9 million from the end of fiscal 1997. At the same
date, the Company held $140.5 million in marketable securities, a net decrease
of $10.9 million during the current six-month period. In total, cash and
temporary cash investments along with marketable securities decreased $63.8
million for the current six-month period. The decrease was mainly attributable
to the purchases of inventory and equipment required for the growth of the
Company's server and storage businesses and payments reducing employee-related
accruals. The marketable securities held, which supplement cash and temporary
cash investments, include United States treasury bills and notes, notes issued
by U.S. government agencies, commercial paper and certificates of deposit, as
well as equity securities recorded at the fair market value of $12.3 million and
classified as available-for-sale. The unrealized gain on marketable securities
of $11 million is recorded as a separate component of stockholders' equity.
During the current quarter, the Company recorded a gain of $2.2 million on the
sale an equity security. Net cash provided from operations for the six months
ended March 28, 1998 totaled $8.4 million; expenditures for property, plant, and
equipment were $66.1 million; capitalized software development costs totaled
$21.3 million; and cash provided from stock plans totaled $5.2 million. The
effect of foreign currency exchange rate fluctuations on cash and temporary cash
investments was a decrease of $1.1 million.
Net receivables at March 28, 1998 were $290.9 million, a decrease of
$5.5 million from $296.4 million at September 27, 1997. Total inventories at
March 28, 1998 were $173.5 million, an increase of $7.5 million from September
27, 1997, primarily as a result of end-of-quarter procurement required to
support both the server and storage businesses. Net property, plant, and
equipment increased $20.3 million from September 27, 1997, principally due to
the purchases of equipment and capital expenditures for developing both
operating and financial systems and to support the new product initiatives in
the server and storage businesses. Fixed asset dispositions related to the sale
of demonstration equipment totaled $2.5 million for the current six-month
period. Management expects that sales of demonstration equipment will continue.
The decrease of $7.9 million in accounts payable from September 27,
1997 levels was attributed mainly to the timing of payments related to material
purchases. Other current liabilities decreased $23.5 million from September 27,
1997, primarily as a result of payments reducing employee-related accruals.
Long-term debt of $212.8 million remained unchanged from September 27, 1997.
During fiscal year 1995, the Company recorded restructuring charges of
$43 million. No material changes in estimates to prior provisions or additional
charges were recorded during the first six-month period of fiscal 1998. All
charges, excluding asset writedowns and certain other charges, are cash in
nature and are funded from operations. The remaining reserves of $5.4 million at
March 28, 1998 are for the closure of various domestic branch sales offices and
excess vacant rental properties, primarily located in Europe, and for the
remaining severance payments due to employees impacted by the restructuring
actions.
<PAGE>
Results of Operations
The Company reported a net loss of $4.5 million for the current quarter
ended March 28, 1998, compared with net income of $13.8 million for the same
period of the prior-year. The net loss was $1 million for the six months ended
March 28, 1998, compared with net income of $24.2 million for the same six-month
period ended March 29, 1997.
<TABLE>
Revenues (in millions)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Quarter ended Six months ended
----------------------------------------------------------------------------------------------
3/28/98 Change 3/29/97 3/28/98 Change 3/29/97
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Product $263.7 (10%) $292.0 $530.9 (2%) $541.8
% of Total Revenues 73% 75% 73% 73%
Service 98.1 1% 97.3 196.2 -- 196.0
% of Total Revenues 27% 25% 27% 27%
Total $361.8 (7%) $389.3 $727.1 (1%) $737.8
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the fiscal quarter ended March 28, 1998, product revenues of $133.5
million from the Company's AViiON family of open systems server products
represented an increase of 5% from the comparable period of the prior year. In
the current quarter, revenues from the Company's Intel-based AViiON systems
increased 48%, while revenues from the Motorola-based AViiON systems declined by
59% compared with the same period of the prior year. The Company anticipates
that the percentage of server product revenues generated by the Intel-based
AViiON products will continue to increase in fiscal 1998, while the
Motorola-based AViiON system revenues are expected to continue to decline.
Product revenues from the Company's CLARiiON storage systems decreased 31% from
the comparable prior-year period and accounted for 35% of total product revenues
in the current quarter. This decline is primarily the result of the longer than
anticipated product transition from SCSI-based systems to the Company's newer
fibre-based storage products. CLARiiON is sold primarily through the Company's
Original Equipment Manufacturer and distributor channels; thus sales in any
given period are subject to sales cycles and inventory levels of the Company's
customers. CLARiiON product revenues have been concentrated in a limited number
of customers, with a significant portion of the Company's CLARiiON product sales
to a single OEM. Product revenues from personal computers and other equipment
decreased 24% from the same period in the prior year and represented 9% of total
product revenues compared to 11% for the comparable prior-year period. In fiscal
1996, the Company formed the VALiiANT Business Unit, a contract manufacturing
operation, to take advantage of the Company's manufacturing expertise and
facilities. VALiiANT product revenues for the quarter ended March 28, 1998
represented 5% of total product revenues.
<PAGE>
For the six months ended March 28, 1998, product revenues of $266.8
million from the Company's AViiON family of open systems server products
increased 7% from $248.4 million for the first six-month period of fiscal 1997.
For the current six-month period, the Company's Intel-based AViiON revenues
increased 58%, while product revenues from the Motorola-based AViiON systems
declined by 58% as compared with the first six-month period of fiscal 1997.
Product revenues from the Company's CLARiiON storage systems decreased 17%
compared to the same six-month period in fiscal 1997. Product revenues from
personal computers and other equipment decreased by 13% from the same six-month
period in the prior year and represent 9% of total product revenues for the
current six-month period compared to 11% for the comparable prior-year period.
The VALiiANT product revenues for the six-month ended March 28, 1998 represented
4% of total product revenues.
In the service business, the Company experienced an 18% and a 14%
increase in professional service revenues in the current quarter and six-month
periods ended March 28, 1998, respectively, as compared with the same periods in
fiscal 1997. This increase was completely offset by a 4% decline in contract
maintenance revenues in both the current quarter and six-month periods ended
March 28, 1998 as compared with the quarter and six-month periods ended March
29, 1997.
<TABLE>
Revenues by Geographic Marketplace
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Percentage of Percentage Change of
Consolidated Revenues $ of Revenues
-------------------------------------------------------------------------------------------------------
Quarter ended Six months ended 3/28/98 - 3/29/97
-------------------------------------------------------------------------------------------------------
3/28/98 3/29/97 3/28/98 3/29/97 Quarter ended Six months ended
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Product 59% 64% 60% 62% (17%) (7%)
Service 59% 57% 60% 57% 4% 4%
Total 59% 63% 60% 61% (12%) (4%)
Europe:
Product 25% 22% 24% 23% 5% 5%
Service 31% 33% 31% 32% (3%) (5%)
Total 27% 24% 26% 25% 2% 2%
Other International:
Product 16% 14% 16% 15% - 7%
Service 10% 10% 9% 11% (7%) (9%)
Total 14% 13% 14% 14% (2%) 3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The decrease in domestic product revenues for the current quarter and
six-month periods ended March 28, 1998 was primarily a result of decreased
shipments of CLARiiON, Motorola-based AViiON systems, and personal computer and
other equipment product revenues, which was partly offset by the increase in the
Company's Intel-based AViiON systems and product revenues from VALiiANT. The
increase in European product revenues, including U.S. direct export sales, for
the current quarter and six-month periods ended March 28, 1998 was mainly
attributable to the increase in Intel-based AViiON product revenues partially
offset by decreases in CLARiiON product revenues. Other international product
revenues, including U.S. direct export sales, for the current quarter remained
unchanged as compared with the same fiscal quarter in 1997. The increase in
other international product revenues for the six-month period ended March 28,
1998 was primarily due to an increase in revenues from the CLARiiON product
line.
For the current six-month period, total revenues in the European
marketplace were reduced by approximately 3% due to a stronger U.S. dollar as
compared to the six-month period ended March 29, 1997.
<TABLE>
Cost of Revenues (in millions)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter ended Six months ended
--------------------------------------------------------------------------------------------------------
3/28/98 Change 3/29/97 3/28/98 Change 3/29/97
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Product $190.7 (4%) $198.7 $379.9 4% $363.8
% of Product Revenues 72% 68% 72% 67%
Service 63.1 2% 62.1 123.3 (3%) 126.5
% of Service Revenues 64% 64% 63% 65%
Total Cost of Revenues $253.8 (3%) $260.8 $503.2 3% $490.3
% of Total Revenues 70% 67% 69% 66%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in the product cost as a percentage of product revenues
for the current quarter and six-month periods ended March 28, 1998 was primarily
caused by competitive pricing pressures and a shift in product mix. Service cost
as a percentage of service revenues for the quarter ended March 28, 1998 was
relatively unchanged as compared to the quarter ended March 29, 1997. The
decrease in the service cost as a percentage of service revenues for the six
months ended March 28, 1998 was the result of continued improvements in spare
parts inventory management and improved gross margins in the professional
service business.
<PAGE>
<TABLE>
Operating Expenses (in millions)
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Quarter ended Six months ended
---------------------------------------------------------------------------
3/28/98 Change 3/29/97 3/28/98 Change 3/29/97
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Research & Development $28.9 7% $27.1 $56.4 6% $53.3
% of Total Revenues 8% 7% 8% 7%
Selling, general & administrative $85.1 (1%) $85.4 $169.5 2% $166.0
% of Total Revenues 24% 22% 23% 23%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company continued to focus its research and development efforts on
its core business technology: multi-user computer systems, servers, and mass
storage devices. In the current six-month period, gross expenditures on research
and development and software development before capitalization were $77.6
million, an increase of 11% from $69.8 million for the comparable prior-year
period. The increase in research and development expenditures was driven by
investment in CLARiiON fibre products and in the Company's Non-Uniform Memory
Access (NUMA) architecture for high-end servers.
The increase in selling, general, and administrative expenses for the
six-month period ended March 28, 1998 was the result of increased marketing
efforts in the server and storage businesses. The Company is in the process of
conducting a comprehensive review of its total cost structure. It is anticipated
that this review will result in decreases in selling, general, and
administrative expenses in the second half of calendar year 1998. At March 28,
1998, the number of employees totaled 5,091, a net decrease of 32 employees from
September 27, 1997 and a net increase of 162 employees from March 29, 1997.
Interest income for the current quarter was $3.4 million, a 113%
increase from $1.6 million for the comparable period of fiscal 1997, due to
higher levels of invested cash. Interest expense for the current quarter was
$3.6 million, a 15% increase from $3.1 million for the comparable period of
fiscal 1997 due to the interest expense related to the 6% Convertible
Subordinated Notes due 2004 which were issued during the third fiscal quarter of
1997. Other income, net includes a gain of $2.2 million from the sale of an
equity security.
The income tax provision for the current quarter was $.5 million
compared to $.6 million for the comparable prior-year period. The current year
tax provision relates primarily to foreign, state, and federal alternative
minimum taxes. The Company has a valuation allowance which offsets substantially
all deferred tax assets as of March 28, 1998 and March 29, 1997. The amount of
the deferred tax assets considered realizable is subject to change based on
estimates of future income during the carryforward period. The Company will
assess the need for the valuation allowance at each balance sheet date based on
all available evidence and may adjust the level of the valuation allowance, if
appropriate.
<PAGE>
Statements concerning the Company's business outlook or future economic
performance; anticipated profitability, revenues, expenses or other financial
items; product or service line growth, plans or objectives; and statements
concerning assumptions made or expectations as to any future events, conditions,
performance or other matters, are "forward-looking statements", as that term is
defined under the Federal Securities Laws. Forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from those stated in such statements. Such risks,
uncertainties and factors include, but are not limited to, fluctuations in
customer demand, order patterns and inventory levels, changes and delays in
product development plans and schedules, customer acceptance of new products,
changes in pricing or other actions by competitors, general economic conditions,
as well as other risks detailed in the Company's filings with the Securities and
Exchange Commission, including Data General's Report on Form 10-K for the 1997
fiscal year ended September 27, 1997 and this Quarterly Report on Form 10-Q for
the second fiscal quarter of 1998, which ended March 28, 1998.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has been engaged in patent infringement litigation against
IBM Corporation since November 1994. Two lawsuits, both in the discovery stages,
are pending in the United States District Court for the District of
Massachusetts in Worcester. The Company alleges that several IBM products
including the AS/400 midrange systems and the AS/400 RISC-based computer product
line infringe various Company's patents. Both suits seek compensatory damages
and, where appropriate, injunctive relief. IBM has answered both complaints, has
denied the Company's infringement claims and has interposed counterclaims
alleging that the Company's CLARiiON storage products infringe IBM patents.
Although the Company believes its claims are valid, it cannot predict
the outcome of the litigation. In the opinion of management, based on
preliminary evaluation of the IBM patents covered in the counterclaims and
subject to the risks of litigation, the counterclaims are without merit, the
Company will prevail thereon and the counterclaims will not have a material
adverse impact on the results of operations or the financial position of the
Company.
The Company and certain of its subsidiaries are involved in various
other patent infringement, contractual, and proprietary rights suits. In the
opinion of management, the conclusion of these suits will not have a material
adverse effect on the financial position or results of operations and cash flows
of the Company and its subsidiaries.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
3. (c) By-Laws of the Company, as amended, previously filed or
Form 10-K/A dated April 21, 1998, which is incorporated
herein by reference.
(d) Certificate of Increase dated November 26, 1997, previously
filedon March 16, 1998 as Exhibit 4 to the Company's
Registration Statement on Form 8-A, which is incorporated
herein by reference.
4. (d) Form of 6% Convertible Subordinated Note due 2004,
previously filed on March 16, 1998 as Exhibit 2 to the
Company's Registration Statement on Form 8-A, which is
incorporated herein by reference.
10.(nn) Deferred Compensation Plan Trust Agreement dated January 2,
1998.
11. Computation of basic and diluted earnings per share.
(b) No reports on Form 8-K were filed during the current quarter ended March
28, 1998.
<PAGE>
SIGNATURE
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.
DATA GENERAL CORPORATION
(Registrant)
/s/ Arthur W. DeMelle
----------------------------------
Arthur W. DeMelle
Senior Vice President
Chief Financial Officer
Dated: May 7, 1998
<PAGE>
EXHIBITS
Index to Exhibits.
3. (c) By-Laws of the Company, as amended, previously filed on Form
10-K/A dated April 21, 1998, which is incorporated herein by
reference.
(d) Certificate of Increase dated November 26, 1997, previously filed
on March 16, 1998 as Exhibit 4 to the Company's Registration
Statement on Form 8-A, which is incorporated herein by reference.
4. (d) Form of 6% Convertible Subordinated Note due 2004, previously filed
on March 16, 1998 as Exhibit 2 to the Company's Registration
Statement on Form 8-A, which is incorporated herein by reference.
10. (nn) Deferred Compensation Plan Trust Agreement dated January 2, 1998.
11. Computation of basic and diluted earnings per share.
EXHIBIT 10(nn)
TRUST AGREEMENT
THIS TRUST AGREEMENT is effective as of the first day of January 1,
1998, by and between DATA GENERAL CORPORATION, a Delaware corporation (the
"Employer"), and T. ROWE PRICE TRUST COMPANY, a Maryland corporation (the
"Trustee").
W I T N E S S E T H T H A T:
WHEREAS, the Employer has established the DATA GENERAL CORPORATION
DEFERRED COMPENSATION PLAN (the "Plan") to provide deferred compensation
benefits for a select group of its management or highly compensated employees;
WHEREAS, the Trustee agrees to the terms and conditions of this Trust
Agreement;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the Employer and the Trustee declare and agree as follows:
SECTION 1. Establishment and Title of the Trust.
Employer hereby establishes with the Trustee a trust to be known as the
Data General Corporation Deferred Compensation Trust (the "Trust"), to accept
such sums of money and other property acceptable to the Trustee as from time to
time shall be paid or delivered to the Trustee. All such money and other
property, all investments and reinvestments made therewith or proceeds thereof
and all earnings and profits thereon, less all payments and charges as
authorized herein, are hereinafter referred to as the "Trust Fund". The Trust
Fund shall be held by the Trustee in trust and shall be dealt with in accordance
with the provisions of this Trust Agreement. The Trust Fund shall be held for
the exclusive purpose of providing payments to participants and beneficiaries of
the Plan (collectively referred to as the "Trust Beneficiaries") and defraying
reasonable expenses of administration in accordance with the provisions of this
Trust Agreement until all such payments required by this Trust Agreement have
been made; provided, however, that the Trust Fund shall at all times be subject
to the claims of the general creditors of Employer as and to the extent set
forth in Section 9 of this Trust Agreement. The Trust hereby established shall
be irrevocable.
SECTION 2. Acceptance by the Trustee.
The Trustee accepts the Trust established under this Trust Agreement on
the terms and subject to the provisions set forth herein, and it agrees to
discharge and perform fully and faithfully all of the duties and obligations
imposed upon it under this Trust Agreement.
SECTION 3. Limitation on Use of Funds.
No part of the corpus of the Trust Fund shall be recoverable by
Employer or used for any purpose other than for the exclusive purpose of
providing payments to Trust Beneficiaries in accordance with the provisions of
the Plan and defraying reasonable expenses of administration in accordance with
the provisions of this Trust Agreement until all such payments required by this
Trust Agreement have been made; provided, however, that (i) nothing in this
Section 3 shall be deemed to limit or otherwise prevent the payment from the
Trust Fund of expenses and other charges as provided in Sections 5.1(i), 11.1
and 11.2 of this Trust Agreement or the application of the Trust Fund as
provided in Section 6.3 of this Trust Agreement and (ii) the Trust Fund shall be
subject to the claims of the general creditors of Employer as and to the extent
set forth in Section 9 of this Trust Agreement.
SECTION 4. Duties and Powers of the Trustee with Respect to Investments.
4.1 The Trustee shall invest and reinvest the principal and income of
the Trust Fund and keep the Trust Fund invested, without distinction between
principal and income, in such investments as directed by the Employer or its
designee, as the same may be modified from time to time by the Employer, or duly
authorized representatives thereof. The Trustee shall have no duty to question
any action or direction of the Employer or any failure to give directions, or to
make any suggestion to the Employer as to the investment or reinvestment of, or
the disposition of, such assets.
4.2 Notwithstanding any provisions of this Trust Agreement to the
contrary, the Employer shall not direct the Trustee to invest any portion of the
Trust Fund in any obligation or other security issued by Employer.
SECTION 5. Additional Powers and Duties of the Trustee.
5.1 Subject to the provisions of Section 4, the Trustee shall have the
following powers and authority with respect to property constituting a part of
the Trust Fund:
(a) To receive and hold all contributions paid to it by the
Employer; provided however, that the Trustee shall have no duty to require any
contributions to be made, or to determine that any of the contributions received
comply with the conditions and limitations of the Plan.
(b) At the direction of the Employer, to sell, exchange or
transfer any property at public or private sale for cash or on credit and grant
options for the purchase or exchange thereof, including call options for
property held in the Trust Fund and put options for the purchase of property.
(c) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar plan relating
to any such property, and at the direction of the Employer, to consent to or
oppose any such plan or any action thereunder, or any contract, lease, mortgage,
purchase, sale or other action by any corporation or other entity.
(d) To deposit any such property with any protective,
reorganization or similar committee and to pay part of the expenses and
compensation of any such committee and any assessments levied with respect to
any property so deposited.
(e) At the direction of the Employer, to exercise any
conversion privilege or subscription right available in connection with any such
property; to oppose or to consent to the reorganization, consolidation, merger
or readjustment of the finances of any corporation, company or association, or
to the sale, mortgage, pledge or lease of the property of any corporation,
company or association any of the securities of which may at any time be held in
the Trust Fund and to do any act with reference thereto, including the exercise
of options, the making of agreements or subscriptions and the payment of
expenses, assessments or subscriptions, which may be deemed necessary or
advisable in connection therewith, and to hold and retain any securities or
other property which it may so acquire.
(f) Subject to its proper indemnification as provided in
Section 18, to commence or defend suits or legal proceedings and to represent
the Trust in all suits or legal proceedings; to settle, comprise or submit to
arbitration, any claims, debts or damages, due or owing to or from the Trust.
(g) At the direction of the Employer, to exercise any right,
including the right to vote or tender, appurtenant to any securities or other
such property.
(h) At the direction of the Employer, to borrow money from any
lender in such amounts and upon such terms and conditions as shall be deemed
advisable or proper to carry out the purposes of the Trust and to pledge any
securities or other property for the repayment of any such loan.
(i) To engage any legal counsel, including counsel to the
Employer or counsel to the Trustee, or any other suitable agents, to consult
with such counsel, or agents with respect to the construction of this Trust
Agreement, the duties of the Trustee hereunder, the transactions contemplated by
this Trust Agreement or any act which the Trustee proposes to take or omit, to
rely upon the advice of such counsel, or agents, to obtain the prior consent of
Client before incurring the costs of such agents and counsel which are to be
paid from the Trust and, upon the advance notice to the Employer, to pay its
reasonable fees, expenses and compensation out of the Trust Fund, if not paid by
the Employer.
(j) To register any securities held by it in its own name or
in the name of any custodian of such property or of its nominee, including the
nominee of any system for the central handling of securities, with or without
the addition of words indicating that such securities are held in a fiduciary
capacity, to deposit or arrange for the deposit of any such securities with such
a system and to hold any securities in bearer form.
(k) To make, execute and deliver, as Trustee, any and all
deeds, leases, notes, bonds, guarantees, mortgages, conveyances, contracts,
waivers, releases or other instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers.
(l) At the direction of the Employer, to transfer assets of
the Trust Fund to a successor trustee as provided in Section 13.4.
(m) To exercise, generally, any of the powers which an
individual owner might exercise in connection with property either real,
personal or mixed held by the Trust Fund, and to do all other acts that the
Trustee may deem necessary or proper to carry out any of the powers set forth in
this Section 5 or otherwise in the best interests of the Trust Fund.
5.2 The Trustee shall establish and maintain a separate bookkeeping
account in the Trust Fund for each Trust Beneficiary of the Plan. Each Trust
Beneficiary's account shall be divided into subaccounts to reflect the
particular investment fund or funds in which the account is deemed to be
invested pursuant to the Plan (whether or not the account is actually invested
in those accounts). The Trustee shall allocate the amount of any contributions
to the Trust to such accounts and subaccounts when made, as directed by the
Employer at the time of contribution.
SECTION 6. Payments by the Trustee.
6.1 The establishment of the Trust and the payment or delivery to the
Trustee of money or other property acceptable to the Trustee shall not vest in
any Trust Beneficiary any right, title or interest in and to any assets of the
Trust.
6.2 At the direction of the Employer, the Trustee shall make payments
out of the Trust Fund to Trust Beneficiaries in such manner and in such amounts
as are required under the Plan ("Supplemental Benefits"). The Trustee shall
follow the instructions of the Employer with respect to the payment of
Supplemental Benefits and shall be fully indemnified therefore by the Employer.
6.3 Notwithstanding any other provision of this Trust Agreement to the
contrary, if at any time the Trust is finally determined by the IRS not to be a
"grantor trust," with the result that the income of the Trust Fund is not
treated as income of the Employer pursuant to sections 671 through 679 of the
Code, or if a federal tax is finally determined by the IRS or is determined by
counsel to the Trustee to be payable by the Trust Beneficiaries with respect to
the income of the Trust Fund prior to the final distribution of the amounts
credited to the accounts of such Trust Beneficiaries, then the Trust shall
immediately terminate and the assets of the Trust shall be liquidated and paid
to the Trust Beneficiaries to the extent of their account balances or, if the
assets are not sufficient to pay the total amount of all of the account
balances, pro rata based upon the account balance. Such liquidation and payment
shall be made as soon as practicable by the Trustee, regardless of whether any
Trust Beneficiary's employment with Employer has terminated and regardless of
the form and time of payment specified by a Trust Beneficiary, if any, under the
relevant provisions of the Plan. Any remaining assets (less any expenses or
costs due under Section 11 of this Trust Agreement) shall then be paid by the
Trustee to Employer. If a federal tax is finally determined by the IRS or by
counsel to the Trustee to be payable by one or more of the Trust Beneficiaries
with respect to less than the entire income of the Trust Fund, then the
preceding provision of this Section 6.3 shall apply only with respect to the
effected accounts. Any amounts distributed pursuant to this Section 6.3 shall be
deemed Supplemental Benefits and shall accordingly reduce the Employer's
liability for such benefits under the Plan.
6.4 Employer shall remain primarily liable to pay Supplemental Benefits
payable under the Plan. However, the Employer's liability under the Plan shall
be reduced or offset to the extent Supplemental Benefit payments are made from
the Trust Fund.
6.5 Pursuant to instruction by the Employer, The Trustee shall withhold
federal and state taxes from each payment under this agreement at the rate(s)
designated by the Employer and shall report and pay such amounts to the
appropriate federal and state taxing authorities. The Trustee shall rely on
Employer instructions and shall have no duty to inquire into the accuracy of
such instructions.
SECTION 7. Limitations on the Payment of Benefits.
The Trustee shall make payments to Trust Beneficiaries in such amounts
and at such times as the Employer may direct the Trustee, subject to the
following:
(a) The Trustee shall have no responsibility to inquire as to
whether a payee is entitled to a Supplemental Benefit, or as to whether any such
payment is proper, and shall have no liability for a payment made in good faith
without actual notice or knowledge of the changed condition or status of the
Trust Beneficiary.
(b) If any check for a Supplemental Benefit directed to be
made from the Trust has been mailed by the Trustee, by regular United States
mail, to the last known address of the Trust Beneficiary and is returned
unclaimed, the Trustee shall notify the Employer.
SECTION 8. Funding of the Trust.
In accordance with the relevant provisions of the Plan, the Employer
may at any time or from time to time make additional contributions to the Trust
Fund to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement.
SECTION 9. Trustee Responsibility Regarding Payments to Trust
Beneficiaries When the Employer is Insolvent.
9.1 The Employer shall have the duty to inform the Trustee in writing
if the Employer becomes Insolvent, as hereinafter defined. When so informed, the
Trustee shall immediately discontinue payments of Supplemental Benefits to Trust
Beneficiaries, and shall hold assets of the Trust Fund for the benefit of
Employer's general creditors. The Employer shall be considered "Insolvent" for
purposes of this Trust Agreement in the event of (i) written notification of
insolvency from the Employer's Chairman of the Board of Directors ("Chairman")
and the Chief Executive Officer, such that the Employer is unable to pay its
debts as they become due; (ii) the Employer files for bankruptcy under the
United States Bankruptcy Code (or any successor federal statute); or (iii) the
Employer is placed in bankruptcy by the Employer's creditors. The Trustee shall
have no duty to determine whether the Employer is Insolvent or bankrupt and
shall only follow the directions of the Chairman and Chief Executive Officer.
The Chairman and Chief Executive Officer shall notify the Trustee of the
Insolvency of the Employer within three days of receipt of knowledge of such
Insolvency. Prior to receipt of written notice that the Employer is Insolvent,
in conformity with Section 17.2, the Trustee shall have no duty to inquire
whether the Employer is Insolvent. Nothing in this Trust Agreement shall in any
way enlarge or diminish the rights of the Trust Beneficiaries in the event the
Employer is Insolvent to pursue their rights as general creditors of the
Employer with respect to their benefits or otherwise. All assets of the Trust
shall be subject to the claims of the general creditors of the Employer but only
under circumstances in subsection (i), (ii) or (iii) above.
9.2 When the Trustee determines that the Employer has filed for
bankruptcy, is placed in bankruptcy by the Employer's creditors or the Trustee
has received notice of Insolvency from the Chairman and the Chief Executive
Officer, the Trustee shall discontinue payments of Supplemental Benefits under
the Plan and shall hold for the benefit of the Employer's creditors all cash and
other assets in the Trust Fund and shall deliver the assets of the Trust Fund to
satisfy the claims of the Employer's creditors as directed by a court of
competent jurisdiction.
9.3 If the Trustee discontinues payments of Supplemental Benefits from
the Trust pursuant to Section 9.1 of this Trust Agreement and subsequently
resumes such payments, then, unless the Employer directs otherwise, the first
payment to each Trust Beneficiary following such discontinuance shall include
the aggregate amount of all payments which would have been made to such Trust
Beneficiary in accordance with the relevant provisions of the Plan during the
period of such discontinuance, less the aggregate amount of payments of
Supplemental Benefits made to such Trust Beneficiary by Employer during any such
period of discontinuance.
SECTION 10. Third Parties.
A third party dealing with the Trustee shall not be required to make
inquiry as to the authority of the Trustee to take any action nor be under any
obligation to see to the proper application by the Trustee of the proceeds of
sale of any property sold by the Trustee or to inquire into the validity or
propriety of any act of the Trustee.
SECTION 11. Taxes, Expenses and Compensation.
11.1 The Employer shall from time to time pay taxes of any and all
kinds whatsoever which at any time are lawfully levied or assessed upon or
become payable in respect of the Trust Fund, the income or any property forming
a part thereof, or any security transaction pertaining thereto. To the extent
that any taxes levied or assessed upon the Trust Fund are not paid by the
Employer, the Trustee shall pay such taxes out of the Trust Fund. The Trustee
shall if requested by the Employer, or may, in its discretion, contest the
validity of taxes in any manner deemed appropriate by the Employer or its
counsel, but at the Employer's expense, and only if it has received an indemnity
bond or other security satisfactory to it to pay any such expenses. In the
alternative, the Employer may itself contest the validity of any such taxes. The
Trustee will withhold federal and state income taxes from any payments made to a
Trust Beneficiary in accordance Section 6.5 of this Agreement.
11.2 The Employer shall pay the Trustee such reasonable compensation
for its services as may be agreed upon in writing from time to time by Employer
and the Trustee. Employer shall also pay the reasonable expenses incurred by the
Trustee in the performance of its duties under this Trust Agreement, including
but not limited to brokerage commissions and fees of counsel engaged by the
Trustee pursuant to Section 5.1(i) of this Trust Agreement. Such compensation
and expenses shall be charged against and paid from the Trust Fund, to the
extent the Employer does not pay such compensation.
SECTION 12. Administration and Records.
12.1 The Trustee shall keep or cause to be kept accurate and detailed
accounts of any investments, receipts, disbursements and other transactions
hereunder and all necessary and appropriate records required to identify
correctly and reflect accurately the respective interests of each Trust
Beneficiary, and all accounts, books and records relating thereto shall be open
to inspection and audit at all reasonable times by any person designated by the
Employer. All such accounts, books and records shall be preserved (in original
form, or on microfilm, magnetic tape or any other similar process) for such
period as the Trustee may determine, but the Trustee may only destroy such
accounts, books and records after first notifying the Employer in writing of its
intention to do so and transferring to Employer any of such accounts, books and
records requested.
12.2 Within ninety (90) days after the close of each Plan Year (as such
term is defined in the Plan), and within ninety (90) days after the removal or
resignation of the Trustee or the termination of the Trust, the Trustee shall
file with the Employer a written account setting forth all investments,
receipts, disbursements and other transactions effected by it during the
preceding Plan Year, or during the period from the close of the preceding Plan
Year to the date of such removal, resignation or termination, including a
description of all investments and securities purchased and sold with the cost
or net proceeds of such purchases or sales and showing all cash, securities and
other property held at the end of such Plan Year or other period. Upon the
expiration of ninety (90) days from the date of filing such annual or other
account, the Trustee shall to the maximum extent permitted by applicable law be
forever released and discharged from all liability and accountability with
respect to the propriety of its acts and transactions shown in such account
except with respect to any such acts or transactions as to which the Employer
shall within such ninety (90) day period file with the Trustee written
objections.
12.3 The Trustee shall from time to time permit an independent public
accountant selected by the Employer to have access during ordinary business
hours to such records as may be necessary to audit the Trustee's accounts.
12.4 As of the last day of each calendar quarter, the fair market value
of the assets held in the Trust Fund shall be determined. Within ten (10)
business days after the close of each calendar quarter, the Trustee shall file
with the Employer the written report of the determination of such fair market
value of the assets held in the Trust Fund.
12.5 Nothing contained in this Trust Agreement shall be construed as
depriving the Trustee or Employer of the right to have a judicial settlement of
the Trustee's accounts, and upon any proceeding for a judicial settlement of the
Trustee's accounts or for instructions, the only necessary parties thereto in
addition to the Trustee shall be Employer and the Trust Beneficiaries.
12.6 In the event of the removal or resignation of the Trustee, the
Trustee shall deliver to the successor trustee all records which shall be
required by the successor trustee to enable it to carry out the provisions of
this Trust Agreement.
12.7 In addition to any returns required of the Trustee by law, the
Trustee shall prepare and file such tax reports and other returns as the
Employer and the Trustee may from time to time agree to in writing.
SECTION 13. Removal or Resignation of the Trustee and Designation of
Successor Trustee.
13.1 At any time the Employer may remove the Trustee with or without
cause, upon at least sixty (60) days notice in writing to the Trustee.
13.2 The Trustee may resign at any time upon at least ninety
(90) days notice in writing to the Employer.
13.3 In the event of such removal or resignation, the Trustee shall
duly file with the Employer a written account as provided in Section 12.2 of
this Trust Agreement for the period since the last previous annual accounting,
listing the investments of the Trust and any uninvested cash balance thereof,
and setting forth all receipts, disbursements, distributions and other
transactions respecting the Trust not included in any previous account, and if
written objections to such account are not filed as provided in Section 12.2,
the Trustee shall to the maximum extent permitted by applicable law be forever
released and discharged from all liability and accountability with respect to
the propriety of its acts and transactions shown in such account.
13.4 Unless otherwise mutually agreed upon in writing by the Employer
and the Trustee, within sixty (60) days after any such notice of removal or
resignation of the Trustee, the Employer shall designate a successor trustee
qualified to act hereunder. In the event that the Employer fails to designate a
successor trustee within sixty (60) days after the Trustee's resignation or
removal, the Trustee shall have the right to apply to a court of competent
jurisdiction for the appointment of such successor and for the determination of
any question of construction or instruction. Each such successor trustee, during
such period as it shall act as such, shall have the powers and duties herein
conferred upon the Trustee, and the word "Trustee" wherever used herein, except
where the context otherwise requires, shall be deemed to include any successor
trustee. Upon designation of a successor trustee and delivery to the resigned or
removed Trustee of written acceptance by the successor trustee of such
designation, such resigned or removed Trustee shall promptly assign, transfer,
deliver and pay over to such Trustee, in conformity with the requirements of
applicable law, the funds and properties in its control or possession then
constituting the Trust Funds.
SECTION 14. Termination and Suspension.
The Trust shall terminate when all payments, which have or may become
payable pursuant to the terms of the Trust, have been made or the Trust Fund has
been exhausted, and all remaining assets shall then be paid by the Trustee to
Employer.
SECTION 15. Amendments.
15.1 The Employer may from time to time amend or modify, in whole or in
part, any or all of the provisions of this Trust Agreement provided, however,
that no amendment may increase the duties of the Trustee or reduce the amount
payable to a Trust Beneficiary without the Trustee's or such Trust Beneficiaries
consent. Provided further that no such amendment shall be permitted if it would
cause the Trust to cease to constitute a grantor trust as described in Section
6.3 of this Trust Agreement. No amendment may have the affect of remaking the
Trust.
15.2 The Employer and the Trustee shall execute such supplements to, or
amendments of, this Trust Agreement as shall be necessary to give effect to any
such amendment or modification.
15.3 The Employer shall furnish the Trustee with a copy of all
amendments to the Plan prior to their adoption.
SECTION 16. Nonalienation.
Except insofar as applicable law may otherwise require and subject to
Sections 1, 3 and 8 of this Trust Agreement, (i) no amount payable to or in
respect of any Trust Beneficiary at any time under the Trust shall be subject to
any manner of alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any
attempt to so alienate, sell, transfer, assign, pledge, attach, charge or
otherwise encumber any such amount, whether presently or thereafter payable,
shall be void; and (ii) the Trust Fund shall in no manner be liable for or
subject to the debts or liabilities of any Trust Beneficiary.
SECTION 17. Communications.
17.1 Communications to the Employer shall be addressed to the Employer
at 4400 Computer Drive, Westboro, MA 01580 Attn: General Counsel; provided,
however, that upon the Employer's written request, such communications shall be
sent to such other address as the Employer may specify.
17.2 Communications to the Trustee shall be addressed to T. Rowe Price
Trust Company at 100 East Pratt Street, Baltimore, Maryland 21202; Attention
Legal Department; provided, however, that upon the Trustee's written request,
such communications shall be sent to such other address as the Trustee may
specify.
17.3 No communication shall be binding on the Trustee until it is
received by the Trustee, and no communication shall be binding on the Employer
until it is received by the Employer.
17.4 Any action of the Employer pursuant to this Trust Agreement,
including all orders, requests, directions, instructions, approvals and
objections of the Employer to the Trustee, shall be in writing, signed on behalf
of the Employer by any duly authorized officer of the Employer. Any
communication by a Trust Beneficiary with the Trustee must be in writing in
order to have effect. The Trustee may rely on, and will be fully protected with
respect to, any such action taken or omitted in reliance on any information,
order, request, direction, instruction, approval, objection, or list delivered
to the Trustee by the Employer.
SECTION 18. Indemnification.
The Employer shall indemnify and save the Trustee (including its
affiliates, representatives, agents and employees) harmless from and against any
liability, cost or other expense, including, but not limited to, the payment of
reasonable attorneys' fees that the Trustee may incur in connection with this
Trust Agreement or the Plan unless such liability, cost or other expense
(whether direct or indirect) arises from the Trustee's own willful misconduct or
gross negligence. The Employer recognizes that a burden of litigation may be
imposed upon the Trustee as a result of some act or transaction for which it has
no responsibility or over which it has no control under this Trust Agreement.
Therefore, the Employer agrees to indemnify and hold harmless and, if requested,
defend the Trustee (including its affiliates, representatives and agents) from
any expenses (including reasonable counsel fees, liabilities, claims, damages,
actions, suits or other charges) necessarily incurred by the Trustee in
prosecuting or defending against any such litigation. Trustee agrees that the
Employer may select and employ the Employer's counsel and Trustee will fully
cooperate in any defense. If the Employer fails to select counsel in a timely
fashion or if Employer selects counsel that is unacceptable to the Trustee, the
Trustee may employ counsel of its choice at the Employer's expense with
indemnification for any fees or expenses of such counsel from the Employer. The
Trustee shall not, except at its own expense, settle any such litigation without
the approval of the Employer.
Except as provided herein, the Trustee shall reimburse, indemnify and
hold harmless Employer from any liability, loss, damage or expense (including
reasonable attorneys' fees and costs) arising as a result of a claim of any kind
which arises from a breach of any duties, obligations or responsibilities of the
Trustee, or its agents, under this Agreement unless such liability, cost or
other expense (whether direct or indirect) arises from the Employer's own
wilfull misconduct or gross negligence; provided, however, that in the event of
such a claim, Employer shall cooperate with the Trustee and shall not, except at
its own expense, voluntarily make any payment, assume any liability or incur any
expense. Notwithstanding the foregoing, the Trustee shall not reimburse,
indemnify or hold harmless Employer from any such liability, loss, damage or
expense arising from any occurrence commonly known as force majeure, including,
but not limited to, fire, flood, acts of God, war, riot, acts of any regulated
telephone network, strikes or other acts of workmen (whether of the Trustee or
others), accidents, acts of terrorism, revolution or any other events or
circumstances beyond the reasonable control of the Trustee which prevent the
Trustee from performing its duties under this Agreement.
SECTION 19. Miscellaneous Provisions.
19.1 Successors and Assigns. This Trust Agreement shall be binding upon
and inure to the benefit of the Employer and the Trustee and their respective
successors and assigns.
19.2 No Assumption of Duties. The Trustee assumes no obligation
or responsibility with respect to any action required by this Trust Agreement
on the part of the Employer.
19.3 Headings. Titles to the Sections as well as all headings and
subheadings of this Trust Agreement are included for convenience only and shall
not control the meaning or interpretation of any provision of this Trust
Agreement.
19.4 Conflict with Plan. In the event of any conflict between the
provisions of the Plan document and this Trust Agreement, the provisions of this
Trust Agreement shall prevail.
19.5 Construction. Whenever used in this Trust Agreement, unless the
context indicates otherwise, the singular shall include the plural, the plural
shall include the singular, and the male gender shall include the female gender.
19.6 Severability. If any provision of this Trust Agreement is held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision, and this Agreement shall be construed and enforced as if
such provision had not been included.
19.7 Law to Govern. This Trust Agreement and the Trust established
hereunder shall be governed by and construed, enforced and administered in
accordance with the laws of the State of Maryland and the Trustee shall be
liable to account only in the courts of the State of Maryland.
19.8 Counterparts. This Trust Agreement may be executed in any
number of counterparts, each of which shall be deemed to be the original
although the others are not produced.
19.9 Trustee as Successor Trustee. If the Trustee is acting as a
successor trustee with respect to the Trust, the Employer shall indemnify the
Trustee against all liabilities with respect to the Trust arising prior to the
appointment of the Trustee and its acceptance thereof.
19.10 Plan Amendments. Nothing in this Trust Agreement shall cause
the Plan to become irrevocable, and the Employer retains the sole discretion to
modify, amend or terminate the Plan at any time.
19.11 ERISA. It is not the intention to this Trust to cause the Plan to
be treated as a funded plan for purposes of the Employee Retirement Income
Security Act of 1974 ("ERISA"). This Trust is not intended to be subject to Part
4 of Title I of ERISA.
19.12 Effective Date. This Agreement shall be effective as of the date
of transfer to T. Rowe Trust Company of the assets which are to be held in trust
pursuant to this Agreement but in any event no earlier than January 1, 1998.
IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the
parties hereto on the 2nd day of January , 1998.
___ ________ ____
Attest: DATA GENERAL CORPORATION
/s/ Suzanne Paul By: /s/ Robert C. McBride
_________________________ ______________________________________
Attest: T. ROWE PRICE TRUST COMPANY
/s/ Patricia Denice /s/ David M. Abbey
_________________________ By: ___________________________________
EXHIBIT 11
<TABLE>
EXHIBIT 11
DATA GENERAL CORPORATION
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
(Unaudited)
(In thousands except per share amounts)
<CAPTION>
Quarter Ended Six Months Ended
Mar. 28, Mar. 29, Mar. 28, Mar. 29,
1998 1997 1998 1997
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income.................................................. $(4,503) $13,781 $(1,005) $24,196
======== ======= ======== ========
Weighted average shares outstanding......................... 48,887 40,146 48,763 39,938
====== ====== ====== ======
Net income per share........................................ $(0.09) $0.34 $(0.02) $0.61
======= ===== ======= =====
Earnings per share assuming full dilution: (a)
Net income.................................................. $(4,503) $13,781 $(1,005) $24,196
======== ======= ======== ========
Weighted average shares outstanding......................... 48,887 40,146 48,763 39,938
Incremental shares from use of treasury
stock method for stock options............................ -- 2,798 -- 2,579
--------- ------- ------- -------
Common and common equivalent shares,
assuming full dilution, where applicable.................. 48,887 42,944 48,763 42,517
======== ======= ======= =======
Net income per share........................................ $(0.09) $.32 $(0.02) $0.57
======= ==== ======= =====
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) For the quarters and six-month periods ended March 28, 1998 and March 29,
1997, the assumed conversion of convertible debentures, giving effect to the
incremental shares and the adjustment to reduce interest expense, results in
anti-dilution and has therefore been excluded from the computation. For the
quarter and six-month period ended March 28, 1998, the assumed exercise of stock
options, giving effect to the incremental shares, results in anti-dilution and
has therefore been excluded from the computation.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE Q2 FY98 CONDENSED CONSOLIDATED BALANCE SHEET AND
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-END> MAR-28-1998
<CASH> 163,916
<SECURITIES> 140,525
<RECEIVABLES> 290,863
<ALLOWANCES> 0
<INVENTORY> 173,463
<CURRENT-ASSETS> 806,065
<PP&E> 685,169
<DEPRECIATION> 484,438
<TOTAL-ASSETS> 1,115,445
<CURRENT-LIABILITIES> 360,468
<BONDS> 212,750
0
0
<COMMON> 615,390
<OTHER-SE> (81,602)
<TOTAL-LIABILITY-AND-EQUITY> 1,115,445
<SALES> 263,744
<TOTAL-REVENUES> 361,810
<CGS> 190,698
<TOTAL-COSTS> 253,812
<OTHER-EXPENSES> 114,028
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,595
<INCOME-PRETAX> (4,003)
<INCOME-TAX> 500
<INCOME-CONTINUING> (4,503)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,503)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
