SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995 Commission File number 1-8086
_______________
General DataComm Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-0853856
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1579 Straits Turnpike
Middlebury, Connecticut 06762-1299
(Address of principal executive offices)
(203) 574-1118
(Registrant's telephone number, including area code)
______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. { }
The aggregate market value of the voting stock of the Registrant
held by nonaffiliates as of December 4, 1995: $345,692,624
Number of shares of Common and Class B Stock outstanding as of
December 4, 1995:
18,307,865 Shares of Common Stock
2,207,836 Shares of Class B Stock
Item 10 as to Directors and Items 11, 12 and 13 to be filed by
definitive proxy statement.
<PAGE> 2
GENERAL DATACOMM INDUSTRIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis
of Results of Operations and Financial
Condition 16
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 36
PART III
Item 10. Directors and Executive Officers of the
Registrant 37
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial
Owners and Management 39
Item 13. Certain Relationships and Related
Transactions 39
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 40
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PART I
ITEM 1. BUSINESS
General DataComm Industries, Inc. (the "Corporation" or "GDC")
was incorporated in 1969 under the laws of the State of
Delaware. Unless the context otherwise requires, the terms
"Corporation" and "GDC" as used here and in the following pages
mean General DataComm Industries, Inc. and its subsidiaries.
Overview
GDC is a leading worldwide provider of wide area networking and
telecommunications products. The Corporation designs,
assembles, markets, installs and maintains products and services
that enable telecommunications common carriers, corporations and
governments to build, upgrade and better manage their global
telecommunications networks. Products include Asynchronous
Transfer Mode ("ATM") cell switches, multiplexers,
internetworking equipment, digital data sets, analog modems,
network management systems and comprehensive support services.
The Corporation sells and leases its products through its own
worldwide sales and service organizations, as well as through
distributors, value-added resellers and system integrators.
GDC's customer base includes: Local Exchange Carriers including
all seven Regional Bell Operating Companies, Bell Canada and
GTE; Competitive Access Providers including MFS Datanet;
Interexchange Carriers including AT&T, MCI and Sprint; corporate
end users such as American Airlines, Citicorp, EDS, Chrysler,
Amoco, Hitachi and Hong Kong & Shanghai Bank; government
entities including the British Ministry of Defence, the French
Ministry of State, NASA, the U.S. State Department and many
state and local governments; and international communication
carriers such as Telecom Finland, Impsat (Argentina and
Colombia), Telefonos de Mexico, France Telecom and Deutsche
Telekom.
The Corporation's executive offices are located at 1579 Straits
Turnpike, Middlebury, Connecticut, 06762-1299 and its telephone
number is (203) 574-1118.
Strategy
The Corporation's broad product line provides integrated
networking solutions used to construct global data, voice and
video communications networks. The Corporation's core product
line of multiplexers and internetworking equipment, digital data
sets and analog modems has historically combined advanced wide
area networking technology with analog and digital transmission
capabilities. During the last several years the Corporation has
emphasized its digital product offerings over its analog
products as telephone companies upgrade their transmission
facilities and offer new digital services at substantially lower
rates.
In the early 1990s, the Corporation identified ATM technology as
the preferred solution for addressing problems caused by the
increasing limitations of conventional Local Area Network
("LAN") and Wide Area Network ("WAN") technologies. ATM
provides a dramatic increase in network capacity, carrying both
LAN and WAN traffic faster than conventional networking
technologies. ATM also enables the transmission of voice, video
and high-speed data traffic on a single communications line.
After reviewing various strategic alternatives for entering the
ATM market, the Corporation entered into a distribution and
technology transfer agreement with Netcomm Limited ("Netcomm")
in December 1992. The Corporation subsequently acquired Netcomm
in 1993.
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By offering ATM solutions to its customers, the Corporation
believes it has enhanced its position as a leading supplier of
wide area networking and telecommunications products. The
Corporation's strategy of providing integrated solutions to its
customers is based upon the following:
Capitalizing on ATM Technology. The Corporation believes it has
a leading position in the ATM switch market. The following
entities have deployed GDC's ATM cell switches in their ATM
networks: Bell Canada; MCI; MFS Datanet; Telecom Finland;
France Telecom and Deutsche Telekom. As of September 30, 1995,
GDC, including Netcomm, had shipped approximately 550 ATM
switches and related products to a variety of customers in
approximately 20 countries. Additionally, the Corporation has
shipped non-revenue products for trial and evaluation. The
Corporation also believes that growing market awareness of its
ATM switch technology has increased customer exposure to GDC's
other products.
Providing Cost-Effective Flexible Product Solutions. The
Corporation's product families are designed with architectures
that scale to most network sizes and cost requirements.
Customers can select the products that are most appropriate for
their needs and migrate to higher capacity products over time.
GDC's common software modules across product families allow the
end user to utilize a single network management system, which
provides value-added capabilities such as extensive alarm
reporting, diagnostics and advanced service restoral options for
each circuit in the network.
Improving Performance of Customer Networks. The Corporation's
products are designed to improve network efficiency by
increasing transmission speed, compressing and consolidating
voice and data communication and providing dynamic bandwidth
allocation.
Leveraging Global Customer Base, Distribution and Support. The
Corporation has a worldwide customer base of corporate and
government users and telecommunications carriers. The
Corporation has global distribution capabilities and products
installed in more than 60 countries around the world. GDC's
ability to provide international customer service and support is
critical to customers that run mission-critical applications
over their networks.
ATM Market
Background. Improvements in microprocessor technology over the
past several years have significantly changed the way users
design and build communications networks. Corporations are
migrating away from mainframe centric computer networks and
moving to client/server architectures in which increasing
processing power is located on the desktop. Personal computers
("PCs") and workstations are connected together to form LANs,
and large corporations today may have up to several hundred LANs
within their enterprise. LANs typically use shared medium
technologies like Ethernet, Token Ring and Fiber Distributed
Data Interface. These LAN technologies require that all users
contend for the available bandwidth and consequently, as the
number of users increases, throughput decreases. In addition,
users find that shared medium LANs cannot provide the bandwidth
necessary to support today's powerful PCs running
communication-intensive applications. As a result,
switched-connection architecture is now being implemented in the
LAN with several competing technologies, including ATM, vying
for the business.
WANs present an additional bottleneck constraining greater
deployment of enterprise-wide networks. The underlying WAN
architecture of the telephone companies is optimized for low
speed, constant bit-rate voice communications. It does not
scale well to accommodate high-speed, burst-oriented data
communications typical of a LAN. To address this problem,
telecommunications carriers have
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deployed fiber optic transmission facilities in their networks
over the past decade and are beginning to, or have announced
their intention to, test and deploy ATM switches as the platform
of choice for offering new, value-added services to their
customers. The need for more bandwidth in both the LAN and WAN
environments to support current data processing and networking
applications is a key factor driving demand for ATM products.
Increasing numbers of applications combining voice, video and
data will demand even more bandwidth than current applications
ATM Segments. Although currently in the early stages of
development, ATM is expected to become a leading transmission
switch technology for communications networks. Within the broader ATM
market, the Corporation has identified the four distinct segments
described below and has chosen to pursue the enterprise and edge
switch segments.
Workgroup Hub. ATM workgroup hubs are devices used to connect
high-speed workstations and servers to form a high performance,
local computing environment. The Corporation expects switched
Ethernet and virtual LAN architectures to be the dominant
approaches to creating this high-performance local computing
environment and anticipates a gradual migration to ATM desktop
connectivity. GDC intends to address this market segment
through partnerships or potential acquisitions in order to
provide a timely entrance into this market.
Enterprise Switch. Enterprise switches are used to interconnect
a broad range of customer premise equipment, including LAN hubs,
routers, multiplexers, PBXs and video codecs, across a campus or
a more geographically dispersed area to create high-speed
backbone networks linking major corporate locations. Key market
requirements include a fault tolerant architecture and the
ability to support a broad range of interfaces and adaptation
capabilities for new, as well as legacy, technologies.
Edge Switch. The telecommunications carrier edge switch is
typically located in the central office of a Local Exchange
Carrier, an Interexchange Carrier, a Competitive Access Provider
or a Cable TV Operator. Switches are used as platforms to
provide services to a number of end user locations. Common
carriers also utilize these switches in the basements of
buildings to offer new services to multiple customers. As with
the enterprise switch market, fault tolerance and the ability to
support a broad range of interfaces and adaptation capabilities
are key requirements because carriers need maximum flexibility.
In addition, the unique packaging and environmental requirements
of telecommunications carriers must be met.
Central Office Switch. At large central offices, all traffic in
the network hierarchy has been converted into ATM cells and the
required switches must provide up to hundreds of gigabits of
throughput. GDC does not intend to address this market directly
as the Corporation views the development costs of these switches
to be high and believes this market is currently served by
established central office switching providers. Rather, the
Corporation has developed strategic partnerships with
participants in this market, such as Siemens, Ericcson and DSC
Communications Corporation, as a vehicle for enhancing its
position in the edge and enterprise switch markets.
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GDC's Target ATM Segments. The enterprise and edge switch
markets, which the Corporation is pursuing, address the points
in a network where LAN, voice, video and other data applications
converge with WANs and the greatest bandwidth bottlenecks exist.
The Corporation also believes that, at present, these two
segments are not adequately served by any established vendors.
Products
In fiscal 1995, sales and leases of products represented
approximately 83% of revenues while service revenues
represented about 17% of revenues. GDC's line of products
includes:
Multiplexers/Internetworking Products. GDC's multiplexer and
internetworking products family includes systems for both branch
office and corporate backbone locations which integrate voice,
traditional data, video and LAN traffic over narrowband (56/64
Kbps) or wideband (fractional T1/E1 and T1/E1) digital services.
By consolidating multiple forms of traffic over a single
transmission line, these products dramatically decrease an end
user's network costs. The Corporation's products integrate both
time division multiplexing and packet switching (LAN routing and
frame relay switching), thereby providing a flexible networking
platform.
For the corporate backbone locations, the Corporation offers the
TMS 3000 which supports a wide range of voice, facsimile, LAN,
traditional data and video applications. In April 1993, GDC
introduced the Office Communications Manager ("OCM"), a
cost-effective networking solution for the branch office
location, which offers the integration of voice, LAN routing,
frame relay and traditional data at speeds ranging from 9.6 Kbps
to T1/E1.
In corporate backbone environments requiring broadband speeds
and services, the Corporation's APEX ATM switches can be used.
The TMS 3000 and OCM can feed into the APEX switch enabling the
Corporation to offer an integrated networking solution that
scales from small remote or branch locations into regional
wideband backbones and ultimately into ATM-based broadband
backbones. Selling prices vary widely depending upon the size
and complexity of the system being ordered.
Digital Data Sets. Digital data sets are used to convert and
interpret signals from computers and communications equipment
into a form that is acceptable for transmission over
telecommunications facilities. The Corporation offers a broad
set of narrowband digital data sets that run at various speeds
up to 64 Kbps and wideband digital data sets operating at
fractional T1 and T1 speeds. GDC recently introduced broadband
data sets running at T3 rates. GDC supplies its digital data
sets to the major North American telephone companies and various
end users. GDC continues to enhance its digital transmission
product line by combining higher transmission speeds with
value-added capabilities including data compression,
concentration, protocol adaptation/conversion and network
management. This enables the Corporation to offer
differentiated, and, in some cases, unique transmission
solutions.
The Corporation is leveraging its digital transmission expertise
by pursuing international markets. In China and in developing
countries in Latin America and the Pacific Rim, there is
insufficient copper wire installed to support the growing demand
for communications services. The Corporation believes it is
responding to these needs by offering new products utilizing
transmission technologies like 2B1Q
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(Two Binary One Quarternary) and HDSL (High Speed Digital
Subscriber Line). These products offer much higher transmission
speeds while using half of the copper wire pairs normally needed
to provision private line services.
Analog Modems. Analog modems convert digital computer signals
to a format that can be transmitted over telephone lines. The
market for private line modems has been shrinking as telephone
networks move from an analog to a digital format. However, with
the growth of telecommuting and Internet access, the market for
dial-up modems is continuing to grow. The Corporation offers a
broad range of private line and dial-up analog modems operating
at all standard speeds up to 28.8 Kbps.
GDC began shipments of its new modem family, known as the V.F.
28.8 family, in the first quarter of fiscal 1994. These modems,
which are compliant with the global transmission standard V.34,
offer transmission speeds twice as fast as modems conforming to
any pre-V.34 standards with throughputs of up to 115 Kbps over
basic analog dial-up facilities or over two-wire analog private
line circuits. The V.F. 28.8 enables faster transmission speeds
on a single pair of wires whereas traditional analog
provisioning requires two pairs. In fiscal 1995, the
Corporation added standards-based SNMP (Simple Network
Management Protocol) network management capability to its V.34
modems. These modems are sold through direct and indirect sales
channels throughout the world. V.34 modem sales doubled in
fiscal 1995 versus fiscal 1994 but are still not a significant
part of the Corporation's aggregate product revenues.
In fiscal 1995, the Corporation entered into a licensing
agreement with a semiconductor manufacturer which will produce
V.34 modem-integrated circuit chips for the mass modem market.
The Corporation will receive royalties from the sale of such
chips.
ATM Switches and Network Management Systems. The Corporation
currently offers a family of ATM switches and access products
for both public and private networks under the GDC APEX name.
The APEX product line consists of the APEX-DV2, the APEX-NPX,
the APEX-MAC and the APEX-MAC1.
<TABLE>
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Switch Specifications Targeted Segment
<S> <C> <C>
APEX-DV2 Provides up to 6.4 Gbps Enterprise switch for
of capacity and support for corporate and government
up to 64 ports within a single users.
shelf, utilizing AC power supplies.
APEX-NPX Provides up to 6.4 Gbps of Edge switch for common
capacity and support for up carriers,
to 64 ports within a single including telephone
shelf, utilizing DC power and cable television
DC power supplies. companies.
APEX-MAC Provides up to 2.8 Gbps of Lower capacity enterprise
capacity and support for 14 to switch for corporate and
28 ports within a single shelf. government users and
common carriers.
APEX-MAC1 Provides up to 1.6 Gbps of Access concentrator for
capacity and support for 8 to 16 corporate and government
ports within a single enclosure. users and common carriers.
</TABLE>
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GDC's APEX-NMS 3000 Network Management System supports the
Corporation's APEX-ATM switches. The network management
platform offers a powerful UNIX-based, object-oriented system
employing a graphical user interface for ATM network management
via the industry-standard Simple Network Management Protocol.
The APEX-NMS 3000 enables a network manager to configure
APEX switches and monitor the ATM switch network, the capacity
and utilization of each ATM node and the status of each other
component of the network.
Several major carriers have begun deploying GDC-APEX ATM
switches as their platform for provisioning new data
communications services. A number of corporate customers also
have purchased APEX switches. The Corporation believes its
family of APEX switches have the following competitive features:
Scalability, allowing a customer to construct a multitiered
switch network that scales in price and performance.
Flexibility, providing the customer with comprehensive
interfaces and adaptation capabilities.
Traffic management architecture, providing networks with
traffic policing, traffic prioritization and buffer management
capabilities.
Switched virtual circuits, dynamically establishing connections
on an end-to-end basis.
Selling prices vary directly with the size and complexity of the
systems being ordered.
Acquisition Strategy
As part of its business strategy, the Corporation actively
reviews acquisition opportunities, including those which may
complement its product lines, provide access to emerging
technologies or enhance market penetration. In November 1993,
the Corporation acquired Netcomm for $5.5 million in cash and
$1.8 million in Common Stock. Future acquisitions could be for
stock or cash or a combination thereof and could be
substantially larger than past acquisitions. The Corporation at
this time has no understandings or commitments to make any
acquisitions and there can be no assurances that any
acquisitions will be made.
Marketing, Sales and Customers
The Corporation's products and networks are marketed throughout
the world. GDC's sales and marketing organization, which, at
September 30, 1995, consisted of approximately 451 employees, is
organized on a worldwide basis to address three market segments:
(1) corporate and government end users; (2) common carriers; and
(3) indirect sales through value-added resellers and distributors.
In the United States, the Corporation sells, leases and services its
equipment primarily through its own sales and service groups,
which include separate geographic sales and technical support
organizations for corporate and government end users and common
carrier markets. In fiscal 1995, a National Resellers Division
was established as part of the U.S. Sales organization to more
aggressively pursue distributors, value-added resellers and
system integrators as channels to market. No customer accounted
for 10% or more of the Corporation's revenues during any of the
past three fiscal years.
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Internationally, GDC maintains full subsidiary operations in
Canada (sales and service), the United Kingdom (sales and
service), Mexico (sales and service), France (sales and
service), Germany (sales and service), Australia (sales),
Singapore (sales) and Russia (sales), and sales and technical
support offices in Japan, Hong Kong, China, Brazil and Spain.
These sales offices manage a worldwide distribution network with
representatives in more than 60 countries. International
operations represented approximately 40% of the Corporation's
revenues in fiscal 1995. GDC's foreign operations are subject
to all the various risks inherent in operating outside the U.S.
and Canada.
Selected users of the Corporation's products include:
<TABLE>
<CAPTION>
Telecommunications Commercial Financial Services
<S> <C> <C>
Alascom American Airlines Boatmen's Bancshares
Ameritech EDS Cecoban (Mexico)
AT&T Harris Citicorp
Bell Atlantic Hitachi Fiserv
Bell Canada Lockheed Hong Kong & Shanghai Bank
BellSouth Loral Key Services
British Telecom TRW Quotron Systems
Netherlands PTT Shawmut Bank
GTE Government Telerate Systems
Guangdong PTA (China) British Ministry of Wheat First
Sprint Defence Butcher & Singer
Impsat (Agrentina, French Ministry of Securities
Columbia) State
MCI NASA
MFS Datanet Los Angeles, City and
NYNEX County
Pacific Bell New York City Transit
SNET Authority
Southwestern Bell U.S. State Department
Telefonos de Mexico Various state governments,
US West including: California,
France Telecom Florida, Michigan, Ohio
Deutsche Telekom and Texas
</TABLE>
While the majority of the Corporation's products are sold on an
outright basis, the Corporation also leases its equipment
through a wholly-owned consolidated subsidiary under a versatile
selection of leasing programs designed to meet the specific
needs and objectives of its customers. At September 30, 1995,
the Corporation's leasing subsidiary had agreements in place
with financial institutions whereby certain finance lease
receivables can be transferred with full recourse. Each request
for financing is subject to the approval of the financing
institution.
The Corporation's order backlog, while one of several useful
financial statistics, is, however, a limited indicator of the
Corporation's future revenues. Because of normally short
delivery requirements, the Corporation's sales in each quarter
primarily depend upon orders received and shipped in that same
quarter. In addition, since product shipments are historically
heavier in the last month of each quarter, quarterly revenues
can be adversely or beneficially impacted by several events:
unforeseen delays in product shipments; large sales that close
at the end of the quarter; sales order changes or cancellations;
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changes in product mix; new product announcements by the
Corporation or its competitors; and the capital spending trends
of customers.
Industry and geographic area information is hereby included in
Note 9 of "Notes to Consolidated Financial Statements." See
"Index to Financial Statements and Schedules" on page F-1 in
this report.
Customer Service and Support
GDC provides comprehensive technical support crucial for its
telecommunications carrier, corporate and government customers
that run mission-critical applications over their networks.
Each of the Corporation's sales subsidiaries directly provides
its own support capabilities, augmented by third party service
providers when necessary. Authorized distributors provide their
own support services and participate in service certification
programs administered by the Corporation's service division.
The Corporation's service and support programs include product
repair, logistics support, installation, maintenance,
educational services and on-line network management services.
Services are supported by field service engineers, technical
support staff and Technical Operations and Assistance Centers
("TOAC") located in the U.S., Canada and the United Kingdom.
TOACs in the U.S. and United Kingdom are staffed 24 hours a day,
365 days a year. The Corporation offers various value added
services, including First ResponseTM, an outsourcing service by
which TOAC Technicians monitor and manage customer networks on a
remote basis. Customers of GDC's service and support programs
include Bell South Mobility, New York City Transit Authority,
the State of Michigan and Volvo. At September 30, 1995, GDC had
306 people engaged in services and support activities.
Research, Engineering and Product Development
In order to develop and implement new technology in the data,
voice and video communications industry and to broaden the
applications for its products, the Corporation has significant
ongoing engineering programs for product improvement and new
product development. At September 30, 1995, 369 people were
engaged in research and development activities. The Corporation
conducts research and development activities in three locations.
Development for all transmission products, multiplexer and
internetworking products, enhancements to the APEX-ATM switch
products and continuation engineering activities occur in the
Technology Research Center in Middlebury, Connecticut. The
Multimedia Research Center in Montreal, Quebec, focuses on
ATM-based applications and solutions, and the Advanced Research
Centre in Basildon, England, focuses on next-generation ATM
hardware and software.
The combination of research, development and capitalized
software spending amounted to 18.3%, 15.7% and 14.1% of revenues
in fiscal 1995, 1994 and 1993, respectively. In order to
support its commitment to new products and technologies, the
Corporation expects to continue or to increase these levels of
spending on research and product and software development.
Manufacturing
GDC's principal assembly plant is a Corporation-owned, 360,000
square foot facility located in Naugatuck, Connecticut, of which
approximately 210,000 square feet are currently being utilized.
The Corporation also outsources the manufacturing and assembly
of certain subassemblies, generally high volume and power and
packaging items. Outsourced products represented approximately
26% of the manufacturing assembly during the 1995 fiscal year.
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GDC's Connecticut facilities are ISO 9001 certified. ISO 9001 is
a comprehensive model for quality assurance in
design/development, production, installation and servicing. It
was developed by a technical committee comprised of
representatives from over 90 countries under the direction of the
Geneva-based International Organization for Standardization. GDC's
United Kingdom facilities are BS 5750 certified. Awarded by the British
Standards Institute, BS 5750 also is a comprehensive quality
assurance model. The Corporation's Montreal, Canada sales and
service facility received ISO 9002 certification in October 1995.
ISO 9002 covers quality assurance in production, installation and
servicing; it does not not cover design and development.
Competition
Each of the segments of the telecommunications and networking
industries is intensely competitive. Many of the Corporation's
current and prospective competitors have greater name
recognition, a larger installed base of networking products,
more extensive engineering, manufacturing, marketing,
distribution and support capabilities and greater financial,
technological and personnel resources.
Many of the participants in the networking industry, including,
among others, ADC Telecommunications, Bay Networks, Cascade
Communications, Cisco, ECI Telecom, FORE Systems, Newbridge Networks
and StrataCom, and certain participants in the computer industry,
including among others, DEC and IBM, have introduced, or announced their
intention to develop, ATM networking products. Other companies are
expected to follow. In addition, traditional suppliers of central office
switching equipment such as Alcatel, AT&T Network Systems, DSC
Communications Corporation, Fujitsu, Hitachi, LM Ericsson,
Northern Telecom and Siemens, are expected to offer ATM-based
switches for central offices. Companies may also develop
alternative network solutions to ATM. Even though certain of
these ATM competitors currently offer or plan to offer ATM
products in markets in which the Corporation does not plan to
compete, it is possible that such competitors will develop ATM
technology that does compete with the Corporation's products.
This competition could result in the same intense price
competition that is present in the broader networking market.
Patents and Related Rights
The Corporation presently owns approximately 61 domestic
patents and has approximately 9 additional applications pending.
In addition, all of these patents and applications have been
filed in Canada; most also have been filed in other various
foreign countries. Most of those filed outside the United
States have been allowed while the remainder are pending. The
Corporation believes that certain features relating to its
equipment for which it has obtained patents or for which patent
applications have been filed are important to its business, but
does not believe that its success is dependent upon its ability
to obtain and defend such patents. Because of the extensive
patent coverage in the data communications industry and the
rapid issuance of new patents, certain equipment of the
Corporation may involve infringement of existing patents not
known to the Corporation.
Employee Relations
At September 30, 1995, the Corporation employed 1,781 persons,
of whom 369 were research and development personnel, 509 were
manufacturing personnel, 451 were employed in various selling
and marketing activities, 306 were in field services and 146
were in general and administrative activities. No Corporation
employees are covered by collective bargaining agreements. The
Corporation has never experienced a work stoppage and considers
its relations with its employees to be good.
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Reliance on Key Components
The Corporation's products use certain components, such as
microprocessors, memory chips and pre-formed enclosures that are
acquired or available from one or a limited number of sources. The
Corporation has generally been able to procure adequate supplies of
these components in a timely manner from existing sources. While
most components are standard items, certain application-specific
integrated circuit chips, used in many of the Corporation's products, are
customized to the Corporation's specifications. The suppliers
of components do not operate under contract. The Corporation's
inability to obtain a sufficient quantity of components as
required, or to develop alternative sources at acceptable prices
and within a reasonable time, could result in delays or
reductions in product shipments which could materially affect
the Corporation's operating results in any given period.
ITEM 2. PROPERTIES
The principal facilities of the Corporation are as follows:
Middlebury, Connecticut -- executive offices of the Corporation
and of Data Comm Leasing Corporation located in a 120,000
square foot facility owned by the Corporation
Naugatuck, Connecticut -- principal assembly, test and systems
integration operations and service division located in a 360,000 square
foot facility owned by the Corporation
Middlebury, Connecticut -- engineering organization located in a
275,000 square foot facility leased through 2003 by the Corporation;
approximately 80,000 square feet are sub-leased to a third party through
December 1999
Wokingham, England -- sales, service, systems integration and
administrative offices (including a parking garage) located in a
36,000 square foot facility owned by General DataComm Limited
Toronto, Canada -- sales and administrative offices located in a
12,000 square foot facility leased through November 2004 by General
DataComm Ltd.
Montreal, Canada -- a 20,000 square foot research, sales and
service facility leased through February 2000 by General DataComm Ltd.
Paris, France -- sales and administrative offices located in a 10,000
square foot facility leased through April 1997 by General DataComm France
SARL
Mexico City, Mexico -- sales, service and administrative offices
located in a 4,400 square foot facility leased through August 14,
1997 by General DataComm de Mexico S.A. de C.V.
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<PAGE> 13
Basildon, England -- engineering organization located in 8,500
square foot facility owned by General DataComm Advanced Research Centre
Limited
In addition, the Corporation leases sales, service and engineering offices
throughout the United States and in international locations.
Approximately sixty (60) percent of the 360,000 square-foot
Naugatuck, Connecticut, facility is being utilized by the
Corporation's manufacturing (assembly, test and systems
integration) operations. The plant is currently operating at
37% utilization by running partial first and second shifts. With
two full shifts, the aggregate productive
capacity would be approximately 565,000 printed circuit boards
per year. The Corporation has the capability of adding a third
shift should product demand require it.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
- 13 -
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common Stock Prices
General DataComm Industries, Inc.'s Common Stock is listed on
the New York Stock Exchange and trades under the symbol "GDC."
The table below shows the intra-day high and low and closing
sales prices as reported during each quarter of the last two
fiscal years.
<TABLE>
<CAPTION>
1995 1994
Quarter High Low Closing High Low Closing
<S> <C> <C> <C> <C> <C> <C>
First 34 7/8 23 3/8 32 3/8 11 7/8 8 5/8 10 3/8
Second 35 7/8 12 7/8 14 3/4 17 5/8 8 1/4 13 1/8
Third 14 7/8 9 3/8 12 1/2 16 3/4 10 16
Fourth 15 3/8 11 5/8 14 3/4 30 1/4 15 1/4 28 1/4
</TABLE>
No cash dividends have ever been paid on the Common or Class B
Stock. The Corporation's principal loan agreement does not
allow payment of cash dividends. In the event this would
change, it is still management's intention to reinvest future
earnings in the business to support growth plans.
The Corporation had approximately 1,797 shareholders of record
at November 30, 1995.
-14-
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Selected Financial Data
In thousands except per share, ratio and employee data
<TABLE>
<CAPTION>
Years ended September 30, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Revenues $221,193 $210,990 $211,847 $197,858 $191,686
Inventory write-down
and other items (7,600) - - - (1,100)****
Operating income(loss) (24,618) 661 8,997 5,549 4,405
- -----------------------------------------------------------------------------
Income (loss) before
cumulative effect
of accounting changes ($27,630) ($1,895) $6,116 $2,643 $598
Net income (loss) (27,630) (2,328)* 6,116 2,643 598
Earnings (loss) per
share before cumulative
effect of accounting
changes ($1.40) ($0.11) $0.36 $0.17 $0.04
Earnings (loss) per
share (1.40) (0.14) 0.36 0.17 0.04
- -----------------------------------------------------------------------------
Financial Position
Working capital $63,287 $56,413 $38,245 $43,467 $36,937
Current ratio 2.2:1 2.2:1 1.9:1 2.1:1 1.7:1
Total assets 198,388 180,264 141,676 127,654 134,945
Long-term debt, less
current 23,435 42,118 28,402 23,711 14,973
Stockholders'
equity*** 117,085 84,487 67,028 60,290 57,948
- -----------------------------------------------------------------------------
General
Research and product
development:
Gross spending
(before software
capitalization) $40,439 $33,189 $29,829 $25,184 $24,623
Net expense 28,244 20,076 19,279 15,910 15,610
Depreciation 10,530 8,776 7,985 8,686 10,251
Investments in
property, plant
and equipment 16,398 11,534 22,378 ** 7,157 5,920
Cash flows provided
(used) by (5,553) (3,521) 27,406 25,738 17,546
- -----------------------------------------------------------------------------
Average number of
common and common
equivalent shares
outstanding 19,772 16,659 16,874 15,505 15,409
Average number of
employees 1,849 1,823 1,805 1,764 1,899
- -----------------------------------------------------------------------------
</TABLE>
(* - Fiscal 1994 net (loss) includes: (i) after-tax charges
totaling $(433), or ($0.03) per share, resulting from the
adoption of Financial Accounting Standards Nos. 106 and 112
effective October 1, 1993, and (ii) an income tax benefit of $1,700,
or $0.10 per share, relating to the resolution of a foreign tax issue.
(** - Fiscal 1993 includes the purchase of the Corporation's
principal manufacturing facility and corporate headquarters for
$14,473.
(***-The Corporation has never paid cash dividends, and
dividends are not permitted by the Corporation's prinicpal loan
agreement.
(**** -In fiscal 1991, restructuring charges of $1,100 were
incurred for severance and other costs related to a work force
reduction.
-15-
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General Summary Discussion
This was a year of transition for the Corporation as its focus
shifted heavily toward the development and introduction of new
products and features in its line of ATM (Asynchronous Transfer
Mode) products. The complexity of this technology required
large investments in research and development and in retooling
of manufacturing operations. Although ATM product revenues more
than doubled to almost $28.0 million for the fiscal year, time
taken to resolve technical issues with vendor-supplied parts
delayed achievement of a potentially higher shipment level.
Due to the general emergence of digital technology, the
Corporation continued to experience a decline in its private
line analog product family, which was down 35% for the fiscal
year. Investments in this area have been held to a minimum to
maximize profits on these sales, which now account for
approximately 11% of total product sales.
Overall, revenues for fiscal 1995 increased $10.2 million, or
4.8%, to $221.2 million from $211.0 million in fiscal 1994.
However, revenues fell below planned levels, contributing to a
net loss of $(27.6) million, or $(1.40) per share, including a
$(7.6) million, or $(0.38) per share, charge principally for
inventory write-downs. This compares to a net loss of $(2.3)
million, or $(0.14) per share, in fiscal 1994.
Growth in costs and operating expenses were due to the
Corporation's decision to continue its investments despite the
revenue shortfall. These investments included engineering
development, marketing and manufacturing programs associated
with the ATM products. In addition, strategic investments in
expansion of international sales and support operations also
contributed to higher expense levels.
To help fund these investments and to support growth plans,
the Corporation completed the sale of 2,070,000 shares of Common
Stock pursuant to an underwritten public offering in the first
quarter of fiscal 1995. The net proceeds of approximately $58.1
million were used to reduce debt and to provide additional
working capital.
Results of Operations
The following table sets forth selected consolidated financial
data stated as a percentage of total revenues:
<TABLE>
<CAPTION>
Years Ended September 30, 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net product sales 80.5% 80.6% 80.9%
Service revenue 16.8 16.2 15.5
Leasing revenue 2.7 3.2 3.6
- -----------------------------------------------------------------------------
100.0 100.0 100.0
- -----------------------------------------------------------------------------
Costs and expenses:
Cost of revenues 49.8 47.7 48.2
Inventory write-down and
other items 3.4 - -
Amortization of capitalized
software development costs 5.2 4.6 3.9
Selling, general and
administrative 39.9 37.9 34.6
Research and product development 12.8 9.5 9.1
- --------------------------------------------------------------------------
Operating income (loss) (11.1) 0.3 4.2
- --------------------------------------------------------------------------
Net income (loss) (12.5)% (1.1)% 2.9%
==========================================================================
</TABLE>
-16-
<PAGE> 17
1995 Compared with 1994
For the 1995 fiscal year, net product sales increased $8.1
million, or 4.8%, service revenue was up $2.9 million, or 8.3%,
and leasing revenue was down $796,000, or 11.7%. International
product revenues grew $8.6 million and service revenues grew
$1.5 million, with increased business in Europe, as well as in
emerging Asian markets. Domestic product revenues were
maintained at about the same level as in fiscal 1994 and were
impacted by the decline in private line analog business which
offset growth in the ATM business. Also, domestic product
revenues from telephone companies grew while direct end user
sales declined.. Domestic service revenues increased $1.3
million, due to new types of service offerings.
Gross margin (excluding inventory write-down and other items,
and amortization of capitalized software development costs) as a
percent of revenues declined 2.1%, to 50.2% in fiscal 1995 from
52.3% in fiscal 1994. The reduction was attributable to high
startup costs associated with the APEX ATM product family and
reduced sales prices, particularly on certain analog products.
Inventory write-down and other items totaled $7.6 million in
fiscal 1995. These charges primarily related to both rapid
technological improvements which served to devalue earlier
generations of the APEX ATM product line and to performance
issues in vendor-supplied component parts. Amortization of
capitalized software development costs increased to $11.5
million in fiscal 1995 from $9.7 million in fiscal 1994. High
technology products, in particular, are subject to sales price
pressures as competition grows and sales cycles reach maturity.
The Corporation works to offset the effect of price pressures by
negotiating lower material component prices, improving
manufacturing costs and efficiencies and introducing new
generation products.
Selling, general and administrative expenses increased $8.3
million, or 10.4%, in fiscal 1995, principally due to a growing
APEX ATM marketing organization and related product launch
expenses (an increase of $1.8 million), expansion of
international selling organizations (an increase of $4.0
million) and the remainder (an increase of $2.5 million), due to
higher costs of medical insurance, salary increases, employee
hiring and relocation, among others As a percent of revenue,
selling, general and administrative expenses rose to 39.9% of
revenues in fiscal 1995 from 37.9% in fiscal 1994.
In fiscal 1995, research and product development spending,
before considering the reduction for capitalized software
development costs, increased to $40.4 million, or 18.3% of
revenues, from $33.2 million, or 15.7% of revenues, in fiscal
1994. This increase, 21.8% year-over-year, reflects continued
investment (an increase of $12.7 million) in ATM development in
three research centers: the Montreal Research Center (Canada);
Advanced Research Centre (UK); and the domestic ATM Product
Development Group (CT, USA), which was offset by reduced
investments in other product lines. The timing , technical
complexity and nature of ATM software development projects
contributed to a reduction in the capitalization of software
development costs to $12.2 million in fiscal 1995 from $13.1
million in fiscal 1994, and, as a percent of total research and
development spending, such capitalized costs fell to 30.2% in
fiscal 1995 from 39.5% of total spending in fiscal 1994.
Net interest expense in fiscal 1995 decreased $1.4 million, or
37.7%, compared to fiscal 1994. This reduction reflected the
impact of the cash proceeds received from an equity offering
and the related favorable impact of interest income earned on
short-term investments and reduced borrowing levels.
-17-
<PAGE> 18
The fiscal 1995 income tax provision of $1,150,000 consists
primarily of foreign income taxes. This compares to an income
tax benefit of $975,000 in fiscal 1994, which resulted from the
resolution of a foreign tax issue in the amount of $1.7 million
offset by provisions for foreign and state income taxes. The
Corporation has significant net operating loss carryforwards
(approximately $52 million at September 30, 1995) available to
offset future federal income taxes. These net operating losses
begin to expire in the year 2003.
1994 Compared with 1993
Revenues for fiscal 1994 were slightly lower (0.4%) than fiscal
1993. However, fiscal 1994 fourth quarter revenues rose $8.0
million, or 15.4%, over the fourth quarter of fiscal 1993.
Growth markets in the fiscal 1994 fourth quarter included both
the domestic carriers, which increased by $1.3 million, or
10.3%, and many international areas, which increased by $6.8
million, or 39.4%. New products, such as ATM cell switches, V.F
28.8 modems and additions to digital data set and multiplexer
product lines, sold higher volumes compared to the prior
quarters of fiscal 1994, offset in part by a reduction in
traditional analog modem shipments. For the 1994 fiscal year,
net product sales were down $1.5 million, or 0.1%, service
revenue was up $1.4 million, or 4.2%, and leasing revenue
was down $737,000, or 9.8%.
Gross margin (excluding amortization of capitalized software
development costs) as a percent of revenues improved slightly
(0.5%) to 52.3% in fiscal 1994 from 51.8% in fiscal 1993.
However, amortization of capitalized software development costs
charged to cost of product sales increased to $9.7 million in
fiscal 1994 from $8.3 million in fiscal 1993 and had the effect
of reducing gross margins by 0.7%.
Selling, general and administrative expenses increased $6.8
million, or 9.2%, in fiscal 1994, principally due to strategic
investments made in ATM marketing operations (an increase of
$1.1 million) and in international selling organizations (an
increase of $4.3 million). Since there was no corresponding
growth in revenue until the second half of the fiscal year,
selling, general and administrative expenses rose to 37.9% of
revenues from 34.6% in fiscal 1993.
Research and product development spending, before considering
the reduction for capitalized software development costs,
increased to $33.2 million, or 15.7% of revenues, from $29.8
million, or 14.1% of revenues, in fiscal 1993. This increase,
11.3% year-over-year, reflects the acquisition of Netcomm and
its subsequent conversion to a dedicated ATM research facility
($947,000), the start-up of a new ATM product development
facility in Quebec, Canada ($395,000), and the strategic
repositioning of the domestic product development organization
($2.0 million). The increase in capitalized software
development costs to $13.1 million, or 39.5% of total spending,
in fiscal 1994, from $10.6 million or 35.4% of totaling spending
in fiscal 1993, is directly related to the increasing software
content within the Corporation's products.
Interest expense in fiscal 1994 increased $1.8 million, nearly
double the fiscal 1993 level. The Corporation purchased and
concurrently mortgaged two of its principal facilities in
September 1993, adding $630,000 to interest expense, which was
offset by lower rent expense. Also, the higher interest levels
reflected an increase in borrowing levels attributable to the
acquisition cost of Netcomm in November 1993 (approximately
$400,000 in interest), the related investments since made to
support the ATM product line and investments in international
sales organizations.
The fiscal 1994 income tax benefit of $975,000 is comprised of
a $1.7 million favorable resolution of a foreign tax issue
offset by $725,000 in provisions for state and foreign income
taxes. The Corporation has significant net operating loss
carryforwards (approximately $35 million at September 30, 1994)
available to offset future federal income taxes.
-18-
<PAGE> 19
Financial Condition and Liquidity
The Corporation's cash and cash equivalents improved to $18.4
million at September 30, 1995, as compared to $2.9 million at
September 30, 1994. Bank debt was reduced to $36.0 million at
September 30, 1995, as compared to $47.4 million at September
30, 1994. Also, the Corporation has accumulated $2.9 million of
cash on deposit in an escrow account, which is available to pay
certain real estate lease obligations beginning in March 1996.
Operating
Non-debt working capital, excluding cash and cash equivalents,
decreased $1.3 million in fiscal 1995 to $57.4 million at
September 30, 1995. The decrease resulted primarily from a
decrease in accounts receivable, which was partially offset by
an increase in net inventories and a decrease in current
liabilities. Accounts receivable decreased $6.6 million in
fiscal 1995 to $43.0 million at September 30, 1995, due to the
level and timing of revenues in the fourth quarter of fiscal
1995 and to more favorable collection activities. Inventory
grew $8.6 million, but was offset by a provision for a
write-down of ATM inventory so that the net increase was only
$2.8 million. The increase in gross inventories, before
write-downs, the net loss in fiscal 1995 and other items,
contributed to the $5.6 million net cash used by operating
activities in fiscal 1995 compared to the $3.5 million net cash
used in fiscal 1994 and to the $27.4 million net cash provided
in fiscal 1993.
Investing
Investing activities during fiscal 1995 were comprised of net
additions to property, plant and equipment of $16.3 million,
including new surface-mount equipment, ATM test equipment and
improvements related to the relocation of the service
organization, and additions to capitalized software development
costs of $12.2 million. Any future product growth will increase
capital requirements for manufacturing and development
equipment. However, due to the completion of certain large
capital projects in fiscal 1995, the Corporation anticipates
that fiscal 1996 net additions to property, plant and equipment
may be lower than fiscal 1995 expenditures. Cash used for
investing activities decreased $1.8 million in fiscal 1995
versus fiscal 1994. This was attributable to $5.9 million
relating to the acquisition of Netcomm in fiscal 1994 and a
decline in capitalized software of $0.9 million in fiscal 1995,
offset by an increase in additions to property, plant and
equipment of $5.0 million in fiscal 1995. Cash used for
investing activities grew $10.2 million in fiscal 1994 versus
fiscal 1993, $5.9 million of which related to the acquisition of
Netcomm. The balance of the increase, $4.3 million, related to
additions to property, plant and equipment and capitalized
software.
Financing
Financing activities during fiscal 1995 added $49.9 million in
cash, representing $58.1 million from the sale of common stock,
as described below, $3.2 million from the issuance of common
stock pursuant to employee stock programs and $4.8 million from
long-term borrowings, partially offset by the net repayment of
the Corporation's revolving credit loan of $16.2 million.
On December 22, 1994, the Corporation completed the
sale of 2,070,000 shares of Common Stock pursuant to an
underwritten public offering. The sales price was $29.875 per
share before offering costs and commissions. The net proceeds
of approximately $58.1 million were used to reduce debt and to
provide additional working capital for general corporate
purposes, including development and expansion of the APEX ATM
product family.
-19-
<PAGE> 20
In November 1995, the Corporation entered into an amended
revolving credit agreement maturing in November 1998 that
provides for borrowings of up to $25.0 million, reduced by the
value of outstanding letters of credit issued by the lenders on
behalf of the Corporation of up to $5.0 million. Interest is
charged at the higher of either (1) the prime rate plus 3/4 of
1%, or (2) the federal funds rate plus 1.25%. Alternatively,
the Corporation may elect to borrow at 2.75% over LIBOR for
terms of 1, 2, 3 or 6 months. The agreement imposes various
financial covenants, requires that most accounts receivable and
inventories be pledged as collateral and limits the permitted
amount of borrowing through an asset-based formula. This
amended agreement replaced the prior revolving credit agreement
that also provided for borrowings of up to $25.0 million. There
was no balance outstanding under the prior revolving credit
agreement as of September 30, 1995.
In September 1993, the Corporation purchased its corporate
headquarters and manufacturing facilities and concurrently
entered into mortgages to partially finance these purchases.
The mortgage balances outstanding at September 30, 1995 totaled
$11.0 million. Interest is charged at LIBOR (90-day) plus 2%.
The principal payments are $100,000 per quarter and the
mortgages mature in the year 2003.
Notes payable at September 30, 1995 includes a term loan in the
amount of $6.6 million, which was paid in its entirety in
November 1995 in conjunction with the amended revolving credit
agreement mentioned above. Therefore, such note payable was as
a current liability at September 30, 1995. Other notes payable
and capitalized lease obligations, both used to finance capital
equipment purchased, totaled $15.6 million at September 30, 1995
and have four or five-year maturities.
Cash provided by financing activities of $49.9 million in
fiscal 1995 was required to fund the operating and investing
requirements previously described. This compares to cash
provided by financing activities of $34.2 million in fiscal 1994
and cash used by financing activities of $6.4 million in fiscal
1993.
The Corporation believes that its existing cash balances and
future cash flow from operations, combined with available funds
under its revolving credit facility will be adequate to support
the Corporation's growth for the foreseeable future. The
Corporation also considers its ability to offer for sale its
Common Stock as a viable alternative source of financing.
Lease Financing Agreements
The Corporation's principal leasing subsidiary has agreements in
place with financial institutions whereby lease receivables can
be transferred with full recourse. Each request for financing
is subject to the approval of the financing institution.
Operating Lease Obligations
See Note 7 of the "Notes to Consolidated Financial Statements"
for discussion of the Corporation's operating lease obligations.
Concentrations of Credit
Financial instruments which potentially subject the Corporation
to concentrations of credit risk consist principally of cash
instruments and accounts receivable. The Corporation places its
cash investments with high-quality financial institutions and,
as of September 30, 1995, maintained balances of approximately
$14,000,000 with one such institution.
Approximately $18.6 million, or 38.7%, of
consolidated accounts receivable at September 30, 1995 ($15.2
million, or 28.5%, at September 30, 1994) were concentrated in
telephone companies in North America and Europe. These
receivables are not collateralized due to the high credit
ratings and the extensive financial resources available to such
telephone companies.
-20-
<PAGE> 21
Impact of Inflation and Changing Prices
In management's opinion, the impact of inflation and changing
prices for the three most recent fiscal years is not significant
to the financial statements as reported.
Adoption of Financial Accounting Standards Nos. 106, 109, 112
and 123 Effective October 1, 1993, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Post-Retirement Benefits Other
Than Pensions," requiring the use of an accrual method of
accounting for post-retirement benefits. The Corporation
elected to recognize the transition obligation as a one-time
cumulative after-tax charge to income of $(117,000), or $(0.01)
per share. The increase in annual expense for retiree health
care is not material.
Effective October 1, 1993, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No.
109 (SFAS 109), "Accounting for Income Taxes". SFAS 109 is an
asset and liability approach that requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the
Corporation's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers
all expected future events other than enactments of changes in
the tax law or rates. Previously, the Corporation used the SFAS
96 asset and liability approach that gave no recognition to
future events other than the recovery of assets and settlement
of liabilities at their carrying amounts. The effect of
adoption was not material to the Corporation's results of
operations.
Effective October 1, 1993, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Post-Employment Benefits,"
requiring the use of an accrual method of accounting for
post-employment benefits. The Corporation elected to recognize
the transition obligation as a one-time cumulative after-tax
charge to income of $(316,000), or $(0.02) per share. The
increase in annual expense for post-employment costs is not
material.
In October 1995, Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" was issued,
which establishes financial accounting and reporting standards
for stock-based employee compensation plans and for certain
other issues of equity instruments. As permitted by this
standard, the Corporation expects to continue to measure costs
for its employee stock compensation plans by using the
accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". Accordingly,
the issuance of this standard will have no impact on the
Corporation's financial position or results of operations when
the disclosure provisions are adopted, as required, in fiscal
1997.
-21-
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
General DataComm Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
In thousands except shares
September 30, 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $18,443 $2,939
Accounts receivable, less allowance
for doubtful receivables of $1,704
in 1995 and $1,618 in 1994 43,033 49,581
Inventories 44,958 42,162
Deferred income taxes 3,612 4,062
Other current assets 6,054 5,288
- -----------------------------------------------------------------------------
Total current assets 116,100 104,032
- -----------------------------------------------------------------------------
Property, plant and equipment:
Land 1,764 1,764
Buildings and improvements 27,894 27,058
Test equipment, fixtures and field spares 50,632 47,012
Machinery and equipment 46,669 38,522
- ----------------------------------------------------------------------------
126,959 114,356
Less: accumulated depreciation and
amortization 80,237 73,248
- ----------------------------------------------------------------------------
46,722 41,108
Capitalized software development costs, net
of accumulated amortization of $13,577 in
1995 and $14,008 in 1994 23,407 22,712
Other assets 12,159 12,412
- ----------------------------------------------------------------------------
$198,388 $180,264
- ----------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $12,598 $5,238
Accounts payable, trade 11,023 15,317
Accrued payroll and payroll-related costs 6,173 5,415
Deferred income 6,495 6,548
Other current liabilities 16,524 15,101
- -----------------------------------------------------------------------------
Total current liabilities 52,813 47,619
- -----------------------------------------------------------------------------
Long-term debt, less current portion 23,435 42,118
Deferred income taxes 4,469 4,997
Other liabilities 586 1,043
- -----------------------------------------------------------------------------
Total liabilities 81,303 95,777
- -----------------------------------------------------------------------------
Commitments and contingent liabilities - -
Stockholders' equity:
Capital stock, par value $.10 per
share, issued: 21,122,209 in 1995 and
18,733,739 in 1994 2,112 1,873
Capital in excess of par value 128,076 68,027
Earnings reinvested (deficit) (6,153) 21,477
Cumulative foreign currency translation
adjustment (2,026) (901)
Common stock held in treasury, at cost:
673,674 shares in 1995 and 841,773 in 1994 (4,924) (5,989)
- -----------------------------------------------------------------------------
Total stockholders' equity 117,085 84,487
- -----------------------------------------------------------------------------
$198,388 $180,264
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
<PAGE> 23
General DataComm Industries, Inc. and Subsidiaries
Consolidated Statements of Operations and Earnings Reinvested (Deficit)
<TABLE>
<CAPTION>
In thousands except per share data
Years ended September 30, 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net product sales $178,092 $169,958 $171,468
Service revenue 37,110 34,245 32,855
Lease revenue 5,991 6,787 7,524
- -----------------------------------------------------------------------------
221,193 210,990 211,847
- -----------------------------------------------------------------------------
Costs and expenses:
Cost of product sales 85,406 76,854 78,622
Inventory write-down and other items 7,600 - -
Amortization of capitalized software
development costs 11,500 9,735 8,300
Cost of services 23,993 22,861 22,493
Cost of lease revenue 836 882 990
Selling, general and administrative 88,232 79,921 73,166
Research and product development 28,244 20,076 19,279
- -----------------------------------------------------------------------------
245,811 210,329 202,850
- -----------------------------------------------------------------------------
Operating income (loss) (24,618) 661 8,997
- -----------------------------------------------------------------------------
Other income (expense):
Interest (2,355) (3,780) (1,982)
Other, net 493 249 126
- -----------------------------------------------------------------------------
(1,862) (3,531) (1,856)
- -----------------------------------------------------------------------------
Income (loss) before income taxes
and cumulative effect of
accounting changes (26,480) (2,870) 7,141
Income tax provision (benefit) 1,150 (975) 1,025
- -----------------------------------------------------------------------------
Income (loss) before cumulative
effect of accounting changes (27,630) (1,895) 6,116
Cumulative effect of changes in accounting
for post-retirement and post-employment
benefits - (433) -
Net income (loss) (27,630) (2,328) 6,116
Earnings reinvested at beginning of year 21,477 23,805 17,689
- -----------------------------------------------------------------------------
Earnings reinvested (deficit) at end of year ($6,153) $21,477 $23,805
- -----------------------------------------------------------------------------
Earnings (loss) per share:
Income (loss) before cumulative effect
of accounting changes ($1.40) ($0.11) $0.36
Cumulative effect of changes in accounting
for post-retirement and
post-employment benefits - (0.03) -
- -----------------------------------------------------------------------------
Earnings (loss) per share ($1.40) ($0.14) $0.36
- -----------------------------------------------------------------------------
Average number of common and common
equivalent shares outstanding 19,772 16,659 16,874
=============================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
<PAGE> 24
General DataComm Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Increase(Decrease) in Cash and Cash Equivalents
In thousands
Years ended September 30, 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) before cumulative effect
of accounting changes ($27,630) ($1,895) $6,116
Adjustments to reconcile income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 24,097 20,504 17,072
Inventory write-down and other items 7,600 - -
Deferred income amortization - - (1,963)
Deferred income taxes (21) 132 (107)
(Increase) decrease in accounts
receivable 5,750 (13,206) 1,096
(Increase) decrease in inventories (8,659) (6,594) 2,086
Increase (decrease) in accounts
payable and accrued expenses (2,062) 2,268 1,123
(Increase) in other net current assets (2,685) (1,787) (36)
(Increase) decrease in other net
long-term assets (1,943) (2,943) 2,019
- ----------------------------------------------------------------------------
Net cash provided (used) by operating
activities (5,553) (3,521) 27,406
- -----------------------------------------------------------------------------
Cash flows from investing activities:-1)
Acquisition of property, plant
and equipment (16,283) (11,344) (9,537)
Capitalized software development costs (12,195) (13,113) (10,550)
Purchase price of companies acquired - (5,852) (24)
- -----------------------------------------------------------------------------
Net cash (used for) investing activities (28,478) (30,309) (20,111)
- -----------------------------------------------------------------------------
Cash flows from financing activities:-1)
Revolver borrowings 21,400 135,333 274,683
Revolver repayments (37,600) (119,583) (281,674)
Proceeds from notes and mortgages 11,511 13,432 2,639
Principal payments on notes and mortgages (6,649) (12,208) (3,192)
Proceeds from issuing common stock 61,252 17,676 2,135
Payment of escrow deposits - (500) (1,000)
- -----------------------------------------------------------------------------
Net cash provided (used) by financing
activities 49,914 34,150 (6,409)
- -----------------------------------------------------------------------------
Effect of exchange rates on cash (379) 25 (310)
- -----------------------------------------------------------------------------
Net increase in cash and cash equivalents 15,504 345 576
Cash and cash equivalents at beginning
of year-2) 2,939 2,594 2,018
- -----------------------------------------------------------------------------
Cash and cash equivalents at end of
year-2) $18,443 $2,939 $2,594
- -----------------------------------------------------------------------------
Supplemental disclosures of cash flow
information:
Cash paid (received) during the
year for:
Interest $1,884 $2,979 $1,202
Income taxes, net $ 675 ($55) ($1,152)
- -----------------------------------------------------------------------------
</TABLE>
(1 - Excluded from the fiscal 1994 Consolidated Statements of
Cash Flows is the issuance of common stock with a fair market
value of $1,846 related to the acquisition of a company. Excluded
from the fiscal 1993 cash flows are: (1) the acquisitions of capital
equipment in the amount of $701 financed in their entirety with capital
leases; and (2) the acquiisiton of property financed with mortgages
in the amount of $11,925.
(2 - The Corporation considers all highly liquid investments
purchased with a maturity of three months or less to be cash
equivalents.
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
<PAGE> 25
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
the Corporation and its majority-owned subsidiary companies.
Intercompany accounts, transactions and profits have been appropriately
eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market, using a
first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated
or amortized using the straight-line method over their estimated
useful lives. The cost of internally constructed assets
includes manufacturing labor and related overhead costs.
Depreciation expense amounted to $10,530,000, $8,776,000 and
$7,985,000 in fiscal 1995, 1994 and 1993, respectively.
Capitalized Software Development Costs
Software development costs are capitalized for those products
that have met the requirements of technological feasibility.
These costs are amortized on a product-by-product basis using a
straight-line method over the estimated economic life of the
product, not to exceed three years.
Revenue Recognition
Revenue from equipment sales is generally recognized at the date
of shipment unless the terms and conditions of the sale dictate
recognition at a later date. Service revenue is recognized when
the service is performed or, in the case of maintenance
contracts, on a straight-line basis over the term of the
contract.
Revenue from sales-type leases is recognized at the date of
shipment. Revenue from operating leases is recognized ratably
over the lease term, and the related equipment is depreciated
using the straight-line method over its estimated useful life
which approximates four years. The average length of initial
lease terms in fiscal 1995 was approximately 30 months. Leasing
revenue includes income from the transfer of certain finance
lease receivables with full recourse. Such income amounted to
$518,000, $842,000 and $1,354,000 in fiscal 1995, 1994 and 1993,
respectively.
Promotion and Advertising Costs
All promotion and advertising costs are charged to results of
operations during the fiscal year in which they are incurred.
Promotion and advertising costs amounted to $5,828,000,
$4,524,000 and $3,510,000 in fiscal 1995, 1994 and 1993,
respectively.
Income Taxes
The Corporation adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires
the use of the liability method of accounting for deferred
income taxes effective October 1, 1993. The financial effect of
adoption on the results of operations was not material.
However, adoption changed the classification of deferred income
tax accounts on the balance sheet.
-25-
<PAGE> 26
The provision for income taxes includes federal, foreign, state
and local income taxes currently payable and deferred taxes
resulting from temporary differences between the financial
statement and tax basis of assets and liabilities. The
Corporation intends to permanently reinvest the undistributed
earnings of foreign subsidiaries ($3,129,000). Accordingly, no
federal income taxes have been provided on such earnings.
Earnings Per Share
Earnings per share are computed using the weighted average
number of common (including Class B Stock) and common
equivalent shares outstanding. Common equivalent shares consist
of dilutive stock options and warrants.
Concentrations of Credit
Financial instruments which potentially subject the Corporation
to concentrations of credit risk consist principally of cash
instruments and accounts receivable. The Corporation places its
cash investments with high-quality financial institutions and,
as of September 30, 1995, maintained balances of approximately
$14,000,000 with one such institution.
Approximately $18.6 million, or 38.7%, of consolidated accounts receivable
at September 30, 1995 ($15.2 million, or 28.5%, at September 30, 1994)
were concentrated in telephone companies in North America and Europe.
These receivables are not collateralized due to the high credit
ratings and the extensive financial resources available to such
telephone companies.
Foreign Currency
Assets and liabilities of the Corporation's foreign subsidiaries
are translated using fiscal year-end exchange rates, and revenue
and expenses are translated using average exchange rates
prevailing during the year. The effects of translating foreign
subsidiaries' financial statements are recorded as a separate
component of stockholders' equity.
In addition, included in other income are net realized foreign
currency exchange gains (losses) of $(323,000), $(188,000) and
$54,000 for fiscal 1995, 1994 and 1993, respectively.
Post-Retirement Benefits
Effective October 1, 1993, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Post-Retirement Benefits Other
Than Pensions," requiring the use of an accrual method of
accounting for post-retirement benefits. The Corporation
elected to recognize the transition obligation as a one-time
cumulative after-tax charge to income of $(117,000), or $(0.01)
per share. The increase in annual expense for retiree health
care is not material.
Post-Employment Benefits
Effective October 1, 1993, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Post-Employment Benefits,"
requiring the use of an accrual method of accounting for
post-employment benefits. The Corporation elected to recognize
the transition obligation as a one-time cumulative after-tax
charge to income of $(316,000), or $(0.02) per share. The
increase in annual expense for post-employment costs is not
material.
-26-
<PAGE> 27
Accounting for Stock-Based Compensation
In October 1995, Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" was issued, which
establishes financial accounting and reporting standards for
stock-based employee compensation plans and for certain other
issues of equity instruments. As permitted by this standard,
the Corporation expects to continue to measure costs for its
employee stock compensation plans by using the accounting
prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Accordingly, the
issuance of this standard will have no impact on the
Corporation's financial position or results of operations when
the disclosure provisions are adopted, as required, in fiscal
1997.
Fair Values of Financial Instruments
Cash and cash equivalents - The carrying amount reported in the
consolidated balance sheet for cash and cash equivalents approximates
its fair value due to their short-term nature.
Long-term debt - The carrying amounts of the Corporation's
long-term borrowings, including current maturities, approximate
fair value based on current rates available to the Corporation
for debt of the same remaining maturities.
Reclassifications
Certain reclassifications were made to prior years' financial
statements to conform to the current year's presentation.
2. Business Acquisition
Effective November 24, 1993, the Corporation acquired Netcomm
Limited ("Netcomm"), a leader in Asynchronous Transfer Mode
(ATM) technology, located in England. Under the terms of the
acquisition, the Corporation issued 184,647 shares of common
stock valued at $1.8 million and paid cash of $5.5 million in
return for all the outstanding common stock of Netcomm. The
acquisition was accounted for as a purchase and, accordingly,
the results of operations of the acquired business have been
included in the Corporation's consolidated financial statements
commencing on November 24, 1993. Approximately $6.5 million of
the purchase price was allocated to goodwill, which is being
amortized on a straight-line basis over fifteen years.
3. Product Development and Purchase Agreements
Quebec R&D Project
In fiscal 1993, the Corporation's Canadian subsidiary entered
into an agreement with the Quebec, Canada, government to
establish a research and development facility in Quebec for the
development of an ATM hub product. The Corporation has
committed to spend approximately $9.0 million over a three-year
period. Up to 50% of the costs of this facility will be
reimbursed through tax credits and grants from the Quebec
government. Such tax credits and grants, which amounted to
$893,000 and $308,000, respectively, for the year ended
September 30, 1995 ($320,000 and $355,000, respectively, for the
year ended September 30, 1994), are recorded as a reduction to
research and product development expense. As of September 30,
1995, the Corporation's remaining commitment on this project
amounted to approximately $3.3 million.
-27-
<PAGE> 28
CrossComm
In 1992, the Corporation entered into a joint development
agreement with CrossComm Corporation ("CrossComm") pursuant to
which the Corporation and CrossComm will jointly develop certain
new products that will integrate CrossComm's Token Ring Local
Area Network (LAN) technology into the Corporation's Wide Area
Network (WAN) products. CrossComm will receive royalties based
upon sales of the new products, including up to $1,250,000 in
payments for software license fees. However, the Corporation
expects such fees to be renegotiated.
4. Inventories
<TABLE>
<CAPTION>
Inventories consist of (in thousands)
<C> <S> <S>
September 30, 1995 1994
Raw materials $19,466 $18,313
Work-in-process 5,801 7,249
Finished goods 19,691 16,600
-------- -------
$44,958 $42,162
======== ========
</TABLE>
Fiscal 1995 included a $(7.6) million, or $(0.38) per share,
charge for an inventory write-down and other items primarily
related to: (1) rapid technological improvements which served to
devalue earlier generations of the APEX ATM product line; and
(2) performance issues in vendor-supplied component parts.
5. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
September 30, 1995 1994
<S> <C> <C>
Revolving credit loan $ - $16,200
Notes payable 22,179 18,318
Mortgages payable 13,018 11,809
Capital lease obligations 836 1,029
------- -------
36,033 47,356
Less: current portion 12,598 5,238
------- --------
$23,435 $42,118
====== =========
</TABLE>
The following is a schedule of the future minimum payments of
long-term debt at September 30, 1995 (in thousands):
<TABLE>
<CAPTION>
Y/E Sept. 30, 1996 1997 1998 1999 2000 2001 and Thereafter
<S> <C> <C> <C> <C> <C> <C>
$12,598 $5,037 $4,342 $3,528 $ 928 $ 9,600
Total future
minimum
payments $36,033
</TABLE>
-28-
<PAGE> 29
Revolving Credit Loan
On November 30, 1995, the Corporation entered into an amended
agreement with The Bank of New York Commercial Corporation to
provide a revolving credit facility maturing in November 1998 in
the amount of $25,000,000, with availability subject to a
borrowing base formula. The facility provides for a sub-limit
of $5,000,000 for letters of credit. The amended agreement
provides for interest on outstanding borrowings to be charged at
the higher of either (1) the prime rate plus 3/4 of 1%, or (2)
the federal funds rate plus 1.25% (on September 30, 1995, the
prime rate was 8.75% and the federal funds rate was 6.20%).
Alternately, the Corporation may elect to borrow at 2.75% over
LIBOR for terms of 1, 2, 3 or 6 months (on September 30, 1995,
these LIBOR rates ranged from 5.75% to 5.88%).
The agreement also requires conformity with various
financial covenants, the most restrictive of which include
minimum tangible net worth and a fixed charge coverage ratio.
Certain assets of the Corporation, including most accounts
receivable and inventories, are pledged as collateral. The
amount of borrowing is predicated on satisfying a borrowing base
formula related to levels of certain accounts receivable and
inventories. This amended agreement replaced the prior
revolving credit agreement that also provided for borrowings of
up to $25,000,000 and a sub-limit of $5,000,000 for letters of
credit. Although there were no borrowings outstanding, there
were $707,000 of letters of credit outstanding under the prior
revolving credit agreement as of September 30, 1995.
Notes Payable
The Corporation has entered into four and five-year note and
installment purchase agreements collateralized by certain
machinery, test equipment and furniture and fixtures. The
outstanding balance of $15,554,000 at September 30, 1995, which
approximates the net book value of the underlying equipment,
bears interest depending upon the agreement, either at fixed
rates ranging from 6.50% to 10.84%, at prime rate, at prime plus
1% or at the 30-day commercial paper rate plus 3.75%.
Individual notes mature between fiscal 1996 and fiscal 2000.
On June 1, 1994, the Corporation refinanced $8,000,000
of a note payable, previously maturing January 2, 1995, with The
Bank of New York as lender and agent for other institutions by
incorporating term loan provisions and additional collateral
into the previous revolving credit agreement. Interest is
payable either at 2.00% over LIBOR for terms of 1, 2, 3 or 6
months or at the prime rate, at the Corporation's election. In
conjunction with the amended revolving credit loan mentioned
above, this note, in the amount of $6,625,000, was paid in its
entirety on November 30, 1995. Therefore, such note payable was
classified as a current liability at September 30, 1995.
Mortgages Payable
In September 1993, the Corporation purchased its corporate
headquarters and manufacturing facilities with financing
provided by the seller's banks. Interest is payable at 90-day
LIBOR (5.88% at 9/30/95) plus 2%, and quarterly principal
payments of $100,000 are required until these mortgages mature
in the year 2003.
Capital Lease Obligations
The Corporation has acquired the use of certain machinery and
equipment by entering into capital leases. The outstanding
balance of $836,000 at September 30, 1995 bears interest,
depending upon the agreement, at fixed rates ranging from 6.66%
to 10.75%.
-29-
<PAGE> 30
6. Income Taxes
Income (loss) before income taxes and cumulative effect of
accounting changes consists of both domestic and foreign income
(loss) as follows (in thousands):
<TABLE>
<CAPTION>
Years ended September 30, 1995 1994 1993
<C> <S> <S> <S>
United States $(22,452) $(1,703) $5,391
Foreign (4,028) (1,167) 1,750
- -----------------------------------------------------------------------------
$(26,480) $(2,870) $7,141
- ----------------------------------------------------------------------------
</TABLE>
The provision for (benefit from) income taxes consists of the
following amounts (in thousands):
<TABLE>
<CAPTION>
Years ended September 30, 1995 1994 1993
<S> <C> <C> <C>
Current:
State $ 600 $ 500 $ 400
Foreign 571 (1,607) 732
- ----------------------------------------------------------------------------
$1,171 $(1,107) $1,132
- --------------------------------------------------------------------------
Deferred:
Federal $ (80) $ (100) $ (91)
Foreign 59 232 (16)
- ---------------------------------------------------------------------------
$ (21) $ 132 $ (107)
</TABLE>
Due to the Corporation's net operating loss carryforward
position, no tax benefit was recorded for the cumulative effect
of adopting SFAS Nos. 106 and 112 (see Note 1).
The following reconciles the U.S. statutory income tax rate to
the Corporation's effective rate:
<TABLE>
<CAPTION>
Years ended September 30, 1995 1994 1993
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% 34.0%
No benefit recognized for
domestic net operating loss 27.5 12.8 -
Benefit recognized for domestic
net operating loss carryforward - - (24.6)
Effect of foreign income taxes 7.5 29.8 1.7
Reversal of excess reserves for
tax audits - (67.4) (1.3)
State and local income taxes 2.3 17.4 3.7
Non-deductible expenditures 1.0 7.4 0.8
- ---------------------------------------------------------------------------
4.3% (34.0)% 14.3%
- -----------------------------------------------------------------------------
</TABLE>
For regular tax reporting purposes at September 30, 1995, tax
credit and net operating loss carryforwards amounted to
$6,029,000 and $59,000,000, respectively. Domestic federal loss
carryforwards of $52,200,000 expire between 2003 and 2010, of
which approximately $8,800,000 relate to items which will be
credited to stockholders' equity when applied; state loss
carryforwards of $25,344,000 expire between 1996 and 2010.
Foreign loss carryforwards of $6,800,000 expire beginning in
1997. Tax credit carryforwards expire between 1996 and 2010.
For federal alternative minimum tax purposes at September 30,
1995, net operating loss carryforwards amounted to $45,700,000.
-30-
<PAGE> 31
The tax effects of the significant temporary differences
comprising the deferred tax assets and liabilities at September
30, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred Tax Assets:
Receivable reserve $ 1,600 $ 1,429
Inventory reserve 5,862 3,721
Deferred income 1,420 1,419
Restructuring and other accruals 286 1,116
Loss carryforwards 22,093 14,793
Tax credits 6,100 4,118
--------- ---------
Valuation allowance (23,211) (12,956)
--------- ---------
Net deferred tax assets $14,150 $13,640
========= ========
Deferred Tax Liabilities
Depreciation $ 2,471 $ 1,735
Deferred income 1,496 1,527
Capitalized software 7,958 7,722
Operating leases 925 1,027
Capital leases 1,632 2,041
Other 525 523
-------- ---------
Gross deferred tax liability $15,007 $14,575
======= ========
</TABLE>
During fiscal 1995 and 1994, the valuation allowance increased
by $10,255,000 and $754,000, respectively.
7. Operating Leases
The Corporation has certain non-cancelable operating leases on
automobiles, subsidiary locations, sales offices and service
facilities, which expire within one to five years. These leases
generally contain renewal options and provisions for payment by
the lessee of executory costs (taxes, maintenance and
insurance). In addition, the Corporation has a non-cancelable
operating lease with scheduled rent increases for its
engineering facility which expires in the year 2003. Included in
selling, general and administrative expenses for fiscal 1995 is
a gain of $650,000 resulting from the early termination of a
lease obligation for an industrial facility which had been
vacated in 1988 as part of a cost reduction program.
The following is a schedule of the future minimum payments on
such leases at September 30, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 and Thereafter
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5,195 $3,777 $2,957 $2,586 $2,327 $ 4,752
- ----------------------------------------------------------------------------
Total future minimum lease
payments $21,594
Less: future sublease income, non-cancelable through 2000 5,750
- ----------------------------------------------------------------------------
Net future rental expense $15,844
- ----------------------------------------------------------------------------
</TABLE>
-31-
<PAGE> 32
Net rental expense for the three most recent fiscal years was
(in thousands):
<TABLE>
<CAPTION>
Deferred
Rental Sublease Income
Expense Income Amortization Net
- --------------------------------------------------------------------------
<C> <S> <S> <S> <S>
1995 $ 8,406 $1,981 $ - $6,425
1994 7,650 1,538 - 6,112
1993 10,236 1,952 814 7,470
___________________________________________________________________________
</TABLE>
8. Stockholders' Equity
Authorized: 35,000,000 shares of Common Stock - par value $.10
per share; 35,000,000 shares of Class B Stock - par value
$.10 per share; 3,000,000 shares of Preferred Stock - par value
$.10 per share (of which no shares have been issued):
Transactions in capital stock during fiscal 1993, 1994 and 1995
were as follows (in thousands except share amounts):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Balance, 9/30/92 16,480,617 $1,648 $47,704 1,058,107 ($7,203) $452
Exercise of stock
options 444,561 44 1,995 23,951 (259) -
Employee stock
purchase plan 55,403 6 365 - - -
Foreign currency
translation
adjustment - - - - - (1,529)
- -----------------------------------------------------------------------------
Balance, 9/30/93 16,980,581 1,698 50,064 1,082,058 (7,462) (1,077)
Exercise of stock
options 448,617 45 2,122 (11,559) (106) -
Employee stock
purchase plan 54,541 5 806 (44,079) 306 -
Business acquisition - - 573 (184,647) 1,273 -
Private placement
offering 1,250,000 125 14,462 - - -
Foreign currency
translation
adjustment - - - - - 176
- -----------------------------------------------------------------------------
Balance, 9/30/94 18,733,739 1,873 68,027 841,773 (5,989) (901)
Exercise of stock
options 318,470 32 1,370 (61,151) 285 -
Employee stock
purchase plan - - 612 (106,948) 780 -
Underwritten public
offering 2,070,000 207 58,067 - - -
Foreign currency
translation
adjustment - - - - - (1,125)
- -----------------------------------------------------------------------------
Balance, 9/30/95 21,122,209 $2,112 $128,076 673,674 ($4,924) ($2,026)
- -----------------------------------------------------------------------------
</TABLE>
Class B Stock, under certain circumstances, has greater voting
power in the election of directors. However, Common Stock
is entitled to cash dividends, if and when paid, 11.11% higher
per share than Class B Stock. The Corporation has never paid
cash dividends, and dividends are not permitted by the
Corporation's principal loan agreement. Class B
Stock has limited transferability and is convertible into Common
Stock at any time on a share-for-share basis. At
September 30, 1995, 1994 and 1993, 2,217,836, 2,271,780 and
2,466,231 shares, respectively, of Class B Stock were
outstanding.
On December 22, 1994, the Corporation completed the sale
of 2,070,000 shares of common stock pursuant to an
underwritten public offering. The sales price was $29.875 per
common share before offering costs and commissions.
Net proceeds of approximately $58.1 million have been used to
reduce debt and to provide additional working capital for general
corporate purposes.
On May 27, 1994, the Corporation completed the sale of
1,250,000 shares of common stock through a private
placement offering. The sales price was $12.375 per common
share. Net proceeds of $14.6 million were used to reduce
debt and to provide additional working capital.
-32-
<PAGE> 33
9. Industry and Geographic Area Information
The Corporation operates solely in the data communications
industry, where it designs, assembles, markets, installs and
services products that enable users to build global, multimedia
communications networks. These products include network
management systems, multiplexers and data sets for a wide range
of industrial, commercial and service corporations, government
agencies, and domestic and international communications common
carriers.
Geographic area information for 1995, 1994 and 1993 is presented
below (in thousands):
<TABLE>
<CAPTION>
Western
Hemisphere
1995 United States (except U.S.) Europe Eliminations Consolidated
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $172,994-1 $21,035 $27,164 $ - $221,193
Transfers
between
geographic
areas 38,491 - 886 (39,377) -
- -----------------------------------------------------------------------------
Total revenues $211,485 $21,035 $28,050 $(39,377) $221,193
- -----------------------------------------------------------------------------
Operating
(loss) $(14,647) $(2,507) $ (980) $ - $(18,134)
- -----------------------------------------------------------------------------
General
corporate
expenses,
net (5,991)
- -----------------------------------------------------------------------------
Interest
expense (2,355)
- -----------------------------------------------------------------------------
Loss before
income taxes
and
accounting
changes $ (26,480)
- -----------------------------------------------------------------------------
Total assets $167,781 $ 8,944 $21,663 $ - $ 198,388
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
Western
Hemisphere
1994 United States (except U.S.) Europe Eliminations Consolidated
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $157,685-1 $27,860 $25,445 $ - $210,990
Transfers
between
geographic
areas 36,726 - 2,515 (39,241) -
- ----------------------------------------------------------------------------
Total revenues $194,411 $27,860 $27,960 $(39,241) $210,990
- ----------------------------------------------------------------------------
Operating
profit(loss) $ 6,242 $ (513) $ (30) $ - $ 5,699
- -----------------------------------------------------------------------------
General
corporate
expenses,
net (4,789)
Interest expense (3,780)
- -----------------------------------------------------------------------------
Loss before
income taxes
and
accounting
changes $ (2,870)
- -----------------------------------------------------------------------------
Total assets $149,983 $14,621 $15,660 $ - $ 180,264
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
Western
Hemisphere
1993 United States (except U.S.) Europe Eliminations Consolidated
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $160,508-1 $28,778 $22,561 $ - $211,847
Transfers
between
geographic
areas 28,882 - - (28,882) -
- -----------------------------------------------------------------------------
Total revenues $189,390 $28,778 $22,561 $(28,882) $211,847
- ----------------------------------------------------------------------------
Operating
profit(loss) $ 13,180 $ ( 25) $ 1,364 $ - $ 14,519
General
corporate
expenses,
net (5,396)
Interest expense (1,982)
- ---------------------------------------------------------------------------
Income
before
income
taxes $ 7,141
- -------------------------------------------------------------------------
Total assets $121,208 $ 8,018 $12,450 $ - $141,676
==========================================================================
</TABLE>
1 Includes export sales by domestic operations of $37,952,
$25,126 and $21,793 for fiscal 1995, 1994 and 1993, respectively.
-33-
<PAGE> 34
10. Employee Incentive Plans
Stock Option Plans
Officers and key employees may be granted incentive stock
options at an exercise price equal to or greater than the market
price on the date of grant and non-incentive stock options at an
exercise price equal to or less than the market price on the
date of grant. Once granted, options become exercisable in
whole or in part after the first year and generally expire
within ten years. Under the terms of these stock option plans,
the Corporation has reserved a total of 3,084,137 shares of
Common Stock in 1995 (2,997,837 in 1994).
The following summarizes activity in fiscal 1993, 1994 and 1995
under these stock option plans:
<TABLE>
<CAPTION>
Shares Option Price
<S> <C> <C>
Options outstanding, September 30, 1992
(909,236 exercisable) 2,136,180 $2.00 to $8.00
Options granted 824,200 3.62 to 14.50
Options exercised (444,561) 2.00 to 5.75
Options canceled or expired (70,802) 3.81 to 8.00
__________________________________________________________________________
Options outstanding, September 30, 1993
(873,394 exercisable) 2,445,017 $2.00 to $14.50
Options granted 660,097 8.63 to 19.94
Options exercised (473,992) 2.00 to 11.63
Options canceled or expired (84,925) 3.62 to 15.50
_________________________________________________________________________
Options outstanding, September 30, 1994
(871,075 exercisable) 2,546,197 $2.00 to $19.94
Options granted 254,100 9.94 to 30.13
Options exercised (387,695) 2.00 to 11.75
Options canceled or expired (283,868) 3.00 to 30.13
__________________________________________________________________________
Options outstanding, September 30, 1995
(809,511 exercisable) 2,128,734 $2.00 to $15.50
_________________________________________________________________________
</TABLE>
Stock Purchase Plan
The Corporation has a stock purchase plan to encourage employees
to participate in the Corporation's future growth. At September
30, 1995, 446,743 shares were reserved for purchase by employees
through payroll deductions regularly accumulated over six-month
payment periods. At the end of each payment period, Common
Stock is purchased at 85% of the market value of the stock on
the first or last day of the payment periods, whichever is
lower. However, the purchase of Common Stock under this plan is
prohibited if 85% of the market value of the Common Stock is
less than the book value per share. Note 8, "Stockholders'
Equity," presents the historical activity under this plan.
No charges are made to income for stock purchases or incentive
stock options granted or exercised under the stock purchase and
stock option plans. When shares are purchased under the stock
purchase plan or issued upon exercise of incentive stock
options, the excess of amounts paid over par value is credited
to capital in excess of par value.
Employee Retirement Savings and Deferred Profit Sharing Plan
Under the retirement savings provisions of the Corporation's
retirement plan, established under Section 401(k) of the
Internal Revenue Code, employees are generally eligible to
contribute to the
-34-
<PAGE> 35
plan after six months of continuous service, in amounts
determined by the plan. The Corporation contributes an
additional 50% of the employee contribution up to certain limits
(not to exceed 1.5% of total eligible compensation). Employees
become fully vested in the Corporation's contributions after
five years of continuous service, death, disability or upon
reaching age 65. The amounts charged to expense for the years
ended September 30, 1995, 1994 and 1993 were $866,300, $838,800
and $808,800, respectively.
The deferred profit sharing provisions of the plan include
retirement and other related benefits for substantially all of
the Corporation's full-time employees. Contributions under the
plan are funded annually and are based, at a minimum, upon a
formula measuring profitability in relation to revenues.
Additional amounts may be contributed at the discretion of the
Corporation. There were no contributions for either fiscal 1995
or fiscal 1994. The Corporation's contribution for fiscal 1993
was $357,050.
11. Leasing Subsidiary
The Corporation's consolidated financial statements include the
accounts of its wholly-owned leasing subsidiary, DataComm
Leasing Corporation. The leasing subsidiary purchases equipment
for lease to others from General DataComm, Inc., its sole
supplier.
The following represents the condensed financial information of
DataComm Leasing Corporation (in thousands):
<TABLE>
<CAPTION>
Financial Condition
September 30, 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Current assets $ 1,900 $ 2,276
Noncurrent assets 2,567 2,637
Due from General DataComm, Inc. 30,408 27,443
- ---------------------------------------------------------------------
Total assets $34,875 $32,356
- ---------------------------------------------------------------------
Current liabilities $ 1,168 $ 876
Noncurrent liabilities 173 23
Stockholder's equity 33,534 31,457
- ---------------------------------------------------------------------
Total liabilities and
stockholder's equity $34,875 $32,356
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Results of Operations
Years ended September 30, 1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $5,807 $6,713 $ 7,524
- -------------------------------------------------------------------------
Income before income taxes $2,371 $3,192 $ 5,206
=========================================================================
</TABLE>
Lease Financing Programs
DataComm Leasing Corporation maintains agreements with financial
institutions whereby certain finance lease receivables are
transferred with full recourse. The underlying equipment is
retained as collateral by DataComm Leasing Corporation.
Proceeds received by the leasing subsidiary from the transfer of
such receivables amounted to $2,613,000, $3,618,000 and
$4,193,000 for fiscal 1995, 1994 and 1993, respectively. The
balance of all transferred receivables which were due to be paid
by the original lessees under the remaining lease terms as of
September 30, 1995 and 1994 amounted to $5,208,000 and
$6,836,000, respectively.
-35-
<PAGE> 36
12. Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
In thousands except per share data
Fiscal 1995 First Second Third Fourth
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $58,222 $56,531 $ 48,092 $58,348
Inventory write-down and
other items - - 6,500 1,100
Gross profit 27,189 25,435 13,821 25,413
Operating income (loss) 719 (4,214) (16,480) (4,643)
Net income (loss) $ (805) $(5,033) $(16,598) $(5,194)
Earnings (loss) per
share-2 $ (0.04) $ (0.25) $(0.82) $ (0.25)
________________________________________________________________________
Fiscal 1994 First Second Third Fourth
- ------------------------------------------------------------------------
Revenues $48,050 $48,032 $54,903 $60,005
Gross profit 22,806 22,802 25,563 29,487
Operating income (loss) (851) (1,602) 575 2,539
Income (loss) before
cumulative effect
of accounting
changes (1,876) (810) (502) 1,293
Net income(loss)-1 $(2,309) $ (810) $ (502) $ 1,293
Earnings (loss) per
share before
before cumulative
effect
of accounting changes-2 $ (0.11) $ (0.05) $ (0.03) $ 0.07
Earnings (loss) per
share-2 $ (0.14) $ (0.05) $ (0.03) $ 0.07
===========================================================================
</TABLE>
1- First quarter 1994 net loss includes charges totaling
$(433), resulting from the adoption of Financial Accounting
Standards Nos. 106 and 112, effective October 1, 1993. As
originally reported, net loss for the first quarter was $(1,993),
or $(0.12) per share.
2- Earnings (loss) per share amounts for each quarter are
required to be computed independently and, in 1995 and
1994, did not equal the full-year loss-per-share amounts.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
-36-
<PAGE> 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors is incorporated by
reference from the section entitled "ELECTION OF DIRECTORS" in
the Corporation's Proxy Statement for 1996 Annual Meeting of
Stockholders, which Proxy Statement will be filed within 120
days after the end of the Corporation's fiscal year ended
September 30, 1995.
<TABLE>
<CAPTION>
Name Position Age
<S> <C> <C>
Charles P. Johnson Chairman of the Board of Directors 68
and Chief Executive Officer
Ross A. Belson President and Chief Operating Officer 59
Frederick R. Cronin Vice President, Technology and a Director 64
Robert S. Smith Vice President, Business Development 62
William S. Lawrence Vice President, Finance and Chief Financial
Officer 52
James R. Arcara Vice President, Corporate Operations 60
Dennis J. Nesler Vice President and Treasurer 52
Michael C. Thurk Senior Vice President, Marketing 43
Robert H. Dorion, Jr. Vice President, Human Resources 41
William G. Henry Corporate Controller 46
August J. Hof Vice President, Manufacturing Operations 45
V. Jay Damiano Senior Vice President, U.S. Sales 50
Howard S. Modlin Secretary and a Director 63
Mr. Charles P. Johnson, Chairman of the Board and Chief
Executive Officer, founded the Corporation in 1969.
Mr. Ross A. Belson, President and Chief Operating Officer, has
served in his present capacity since joining the Corporation in
August 1987. Before joining the Corporation, Mr. Belson held
executive positions at Adage and Lexidata.
Mr. Frederick R. Cronin, Vice President, Technology, has served
in executive capacities since the founding of the Corporation.
- 37 -
<PAGE> 38
Mr. Robert S. Smith, Vice President, Business Development, has
held positions of major responsibility within the Corporation
since its formation and has served in executive capacities since
February 1973.
Mr. William S. Lawrence, Vice President, Finance and Chief
Financial Officer, has served in his present capacity since
joining the Corporation in April 1977.
Mr. James R. Arcara, Vice President, Corporate Operations, has
held positions of major responsibility within the Corporation
since its formation and has served in executive capacities since
September 1978.
Mr. Dennis J. Nesler, Vice President and Treasurer since May
1987 and Treasurer since July 1981, joined the Corporation in
1979 as Vice President of the Corporation's wholly owned leasing
subsidiary, a capacity in which he still serves.
Mr. Michael C. Thurk, Senior Vice President, Marketing, joined
the Corporation in January 1994. Before that time, Mr. Thurk
held various positions within the networking business of Digital
Equipment Corporation, most recently as Vice President of the
Telecommunications Business segment.
Mr. Robert H. Dorion, Jr., Vice President, Human Resources,
joined the Corporation in May 1995 and was elected an officer of
the Corporation in June 1995. Before that time, Mr. Dorion held
progressively responsible human resource management roles with
Wang Laboratories and Morton International.
Mr. William G. Henry, Corporate Controller, has served in this
capacity since joining the Corporation in January 1984, and was
elected an officer in the Corporation in June 1989.
Mr. August J. Hof, Vice President, Manufacturing Operations
since June 1989, joined the Corporation in 1985 as Printed
Circuit Board Plant Manager.
Mr. V. Jay Damiano, Senior Vice President, U.S. Sales, was
elected an officer of the Corporation in August 1993. He joined
the Corporation in the sales organization in 1984 and has held
positions of increasing responsibility since that time.
Mr. Howard S. Modlin, Secretary, an attorney and partner of the
firm of Weisman, Celler, Spett & Modlin, has been Secretary and
counsel to the Corporation since its formation.
- 38 -
<PAGE> 39
ITEM 11. EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS WITH
MANAGEMENT
To be filed by amendment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
To be filed by amendment.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To be filed by amendment.
- 39 -
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial statements and schedules of the registrant and
its subsidiaries are listed in the accompanying "Index to Financial
Statements and Schedules" on page F-1 hereof and are filed as part of
this Report.
(2) All Exhibits.
3.1 Restated Certificate of Incorporation of the Corporation.1
3.2 Amended and Restated By-Laws of the Corporation.2
10.1 Transfer of Receivables Agreement between DataComm Leasing Corporation
and Sanwa Business Credit Corporation.3
10.2 1979 Employee Stock Purchase Plan.4
10.3 1983 Stock Option Plan.5
10.4 1984 Incentive Stock Option Plan.6
10.5 1985 Stock Option Plan.7
10.6 Amendment to the 1984 Incentive Stock Option Plan.8
10.7 Amendments to the 1984 Incentive Stock Option Plan.9
10.8 Retirement Savings and Deferred Profit Sharing Plan.10
10.9 Capital Equipment Financing Agreement between General DataComm, Inc.
and Center Capital Corporation.11
10.10 Capital Equipment Financing Agreement between General DataComm
Industries, Inc. and Hewlett Packard Company.12
10.11 Capital Equipment Financing Agreement between General
DataComm Industries, Inc. and General Electric Capital Corporation.13
10.12 1991 Stock Option Plan.14
10.13 Credit Agreement between General DataComm Industries, Inc. and The
Chase Manhattan Bank.15
10.14 Third Amended and Restated Revolving Credit and Security Agreement
between General DataComm Industries, Inc. et al. and The Bank of New
York Commercial Corporation et al.
11. Calculation of Earnings Per Share for the fiscal years ended September
30, 1993 through 1995, inclusive.
12. Calculation of Current Ratio.
13. Annual Report to Stockholders for the year ended September 30, 1995.
The 1995 Annual Report to Stockholders will be furnished for
the information of the Commission and is not deemed "filed."
(To be filed by amendment.)
21. List of subsidiaries.
1 Incorporated by reference from Form 10-Q for quarter ended June 30, 1988,
Exhibit 3.1.
Amendments thereto are filed as Exhibit 3.1 to Form 10-Q for quarter
ended March 31, 1990.
2 Incorporated by reference from Exhibit 3.2 to Form 10-K for year ended
September 30, 1987.
3 Incorporated by reference from Exhibit 10.1 to Form 10-Q for quarter
ended June 30, 1989.
-40-
<PAGE> 41
4 1979 Employee Stock Purchase Plan is incorporated by reference
from Part II of prospectus dated September 30, 1991, contained in
Form S-8, Registration Statement No. 33-43050.
5 Incorporated by reference from Exhibit 1(c) to Form S-8,Registration
Statement No. 2-92929. Amendments thereto are filed as Exhibit 10.3
to Form 10-Q for quarter ended December 31, 1987 and as Exhibit 10.3.1
to Form 10-Q for quarter ended June 30, 1991.
6 Incorporated by reference from Exhibit 1(a), Form S-8, Registration
Statement No. 2-92929. Amendment thereto is filed as Exhibit 10.2 to
Form 10-Q for quarter ended June 30, 1991.
7 Incorporated by reference from Exhibit 10a, Form S-8, Registration
Statement No. 33-21027.
Amendments thereto are incorporated by reference from Part II
of prospectus dated August 21, 1990, contained in Form S-8, Registration
Statement No. 33-36351 and as Exhibit 10.3.2 to Form 10-Q for quarter
ended June 30, 1991.
8 Incorporated by reference from Exhibit 10.19 to Form 10-K for year ended
September 30, 1987.
9 Incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter
ended December 31, 1987.
10 Incorporated by reference from Form S-8, Registration Statement No.
33-37266.
11 Incorporated by reference from Exhibit 10.2 to Form 10-Q for quarter
ended December 31, 1991 and Exhibit 28.2 to Form 10-Q for quarter ended
March 31, 1992.
12 Incorporated by reference from Exhibit 28.3 to Form 10-Q for quarter
ended March 31, 1992 and from Exhibit 28.3 to Form 10-Q for quarter
ended June 30, 1992.
13 Incorporated by reference from Exhibit 28.4 to Form 10-Q for quarter
ended June 30, 1992 and from Exhibit 28.4 to Form 10-Q for quarter
ended December 31, 1992.
14 Incorporated by reference from Form S-8, Registration Statement No.
33-53150, from Form S-8, Registration Statement No. 33-62716, from Form
S-8, Registration Statement No. 33-53201 and from Form S-8, Registration
Statement No. 33-59573.
15 Incorporated by reference from Exhibit 10.21 to Form 10-K for the year
ended September 30, 1993.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
- 41-
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GENERAL DATACOMM INDUSTRIES, INC.
By: __________________________________
William S. Lawrence
Vice President, Finance and Principal
Financial Officer
Dated: December 14, 1995
-42-
<PAGE> 43
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
Signature Title Date
__________________________ Chairman of the Board December 14, 1995
CHARLES P. JOHNSON and Chief Executive Officer
__________________________ Vice President, Finance December 14, 1995
WILLIAM S. LAWRENCE and Principal Financial
Officer
_________________________ Corporate Controller December 14, 1995
WILLIAM G. HENRY
__________________________ Director and Secretary December 14, 1995
HOWARD S. MODLIN
__________________________ Director December 14, 1995
LEE M. PASCHALL
__________________________ Director and December 14, 1995
FREDERICK R. CRONIN Vice President, Technology
__________________________ Director December 14, 1995
JOHN L. SEGALL
-43-
<PAGE> 44
General DataComm Industries, Inc.
and Subsidiaries
Index to Financial Statements and Schedules
Item 14(a)
Financial Statements and Schedules Included Page
Consolidated Balance Sheets at September 30,
1995 and 1994. 22
Consolidated Statements of Operations and Earnings Reinvested
(Deficit) for the Years Ended September 30, 1995, 1994 and 1993. 23
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1995, 1994 and 1993. 24
Notes to Consolidated Financial Statements 25
Report of Independent Accountants F-2
Consent of Independent Accountants F-3
Consolidated Financial Statement Schedules:
II.Valuation and qualifying accounts for the years
ended September 30, 1995, 1994 and 1993. F-4
Financial Statements and Scheduled Omitted
Financial statements and schedules other than those included
herein are omitted because they are not required or because the
required information is presented elsewhere in the financial
statements or notes thereto.
F-1
<PAGE> 45
Report of Independent Accountants
To the Stockholders and Board of Directors of General DataComm
Industries, Inc.
We have audited the consolidated financial statements and financial
statement schedule of General DataComm Industries, Inc. and Subsidiaries
listed in Intem 14(a) of this Form 10-K. These financial statements
and financial statement schedule are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based upon our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of General DataComm Industries,
Inc. and Subsidiaries as of September 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows
for the years ended September 30, 1995, 1994 and 1993, in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required
to be included therein.
As discussed in Notes 1 and 6 to the consolidated financial
statements, effective October 1, 1993, the Corporation changed
its methods of accounting for income taxes, post-employment
benefits and post-retirement benefits other than pensions.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
October 19, 1995, except for Note 5,
as to which the date is November 30, 1995.
<PAGE> 46
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of General Datacomm Industries, Inc. and Subsidiaries
on Form S-8 (File Nos. 2-92929, 33-21027, 33-36351, 33-37266,
33-43050, 33-53150, 33-62716, 33-53201 and 33-59573) and on Form
S-3 (File No. 33-54417) of our report, which includes an
explanatory paragraph for certain accounting changes, dated
October 19, 1995, except for Note 5, as to which the date is November
30, 1995, on our audits of the consolidated financial
statements and financial statement schedule of General Datacomm
Industries, Inc. and Subsidiaries as of September 30, 1995 and
1994 and for the years ended September 30, 1995, 1994 and 1993,
which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Stamford, Connecticut
December 14, 1995
F-3
<PAGE> 47
General DataComm Industries, Inc. and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts for the Years
ended September 30, 1995, 1994 and 1993
(In Thousands)
</TABLE>
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs an at End
of Period Expenses Deductions (b) of Period
<S> <C> <C> <C> <C>
1995
Allowance for
doubtful
receivables (a) $1,618 $ 252 $ 166 $1,704
1994
Allowance for
doubtful
receivables (a) $1,575 $ 339 $ 296 $1,618
1993
Allowance for
doubtful
receivables (a) $1,597 $ 504 $ 526 $1,575
____________________
</TABLE>
(a) Deducted from asset accounts.
(b) Uncollectible accounts written off, net of recoveries.
F-4
<PAGE> 48
Exhibit 10.14
THIRD AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT
THE BANK OF NEW YORK COMMERCIAL CORPORATION
(AS A LENDER AND AS AGENT)
AND
THE VARIOUS FINANCIAL INSTITUTIONS THAT BECOME LENDERS HEREUNDER
(LENDERS)
WITH
GENERAL DATACOMM INDUSTRIES, INC.
GENERAL DATACOMM, INC.
GDC REALTY, INC.
GDC NAUGATUCK, INC.
GENERAL DATACOMM INTERNATIONAL CORP.
GDC FEDERAL SYSTEMS, INC.
(BORROWERS)
As of November 30, 1995
<PAGE> 49
TABLE OF CONTENTS
A. AMENDMENT AND RESTATEMENT 1
I.DEFINITIONS 2
1.1.Accounting Terms 2
1.2.General Terms 2
1.3.Uniform Commercial Code Terms 21
1.4.Terms Generally 21
II. ADVANCES, PAYMENTS 21
2.1.(a)Revolving Advances 21
(b)Discretionary Rights 22
(c)Foreign Receivables 22
(d)Use of Revolving Advances 22
2.2.Procedure for Revolving Advances Borrowing 23
2.3.Manner of Borrowing and Payment 25
2.4.Maximum Advances 27
2.5.Repayment of Advances 27
2.6.Repayment of Excess Advances 28
2.7.Statement of Account 28
2.8.Letters of Credit 29
2.9.Issuance of Letters of Credit 29
2.10.Requirements For Issuance of Letters of
Credit 29
2.11.Additional Payments 31
2.12.Defaulting Lender 31
III. INTEREST AND FEES 32
3.1.Interest 32
3.2.Letter of Credit Fees 33
3.3.Fees 33
(a)Unused Line Fee 33
(b)Amendment Fee 33
3.4.(a)Collateral Evaluation Fee 33
3.5.Computation of Interest and Fees. 34
3.6.Maximum Charges 34
3.7.Increased Costs 34
3.8.Basis For Determining Interest Rate
Inadequate or Unfair 35
3.9.Capital Adequacy 36
3.10.Survival 36
IV. COLLATERAL: GENERAL TERMS 36
4.1.Security Interest in the Collateral 36
4.2.Perfection of Security Interest 37
4.3.Disposition of Collateral 37
4.4.Preservation of Collateral 37
4.5.Ownership of Collateral 38
4.6.Defense of Agent's and Lenders' Interests 38
4.7.Books and Records 39
4.8.Financial Disclosure 39
4.9.Compliance with Laws 39
4.10.Inspection of Premises 40
4.11.Insurance 40
4.12.Failure to Pay Insurance 41
4.13.Payment of Taxes 41
4.14.Payment of Leasehold Obligations 42
<PAGE> 50
4.15.Receivables 42
(a)Nature of Receivables 42
(b)Solvency of Customers 42
(c)Locations of Borrowers 43
(d)Collection of Receivables 43
(e)Notification of Assignment of Receivables 43
(f)Power of Agent to Act on Borrowers'Behalf 43
(g)No Liability 44
(h)Establishment of a Lockbox Account, Dominion
Account 44
(i)Adjustments 45
4.16.Inventory 45
4.17.Maintenance of Equipment 45
4.18.Exculpation of Liability 46
4.19.Environmental Matters 46
4.20.Financing Statements 48
V.REPRESENTATIONS AND WARRANTIES 48
5.1.Authority 48
5.2.Formation and Qualification 49
5.3.Survival of Representations and Warranties 49
5.4.Tax Returns 49
5.5.Financial Statements 49
5.6.Corporate Name 50
5.7.O.S.H.A. and Environmental Compliance 50
5.8.Solvency; No Litigation, Violation,
Indebtedness or Default 51
5.9.Patents, Trademarks, Copyrights and Licenses 52
5.10.Licenses and Permits 52
5.11.Default of Indebtedness 52
5.12.No Default 53
5.13.No Burdensome Restrictions 53
5.14.No Labor Disputes 53
5.15.Margin Regulations 53
5.16.Investment Company Act 53
5.17.Disclosure 53
5.18.Swaps 53
5.19.Conflicting Agreements 54
5.20.Application of Certain Laws and Regulations 54
5.21.Business and Property of Borrowers 54
VI.AFFIRMATIVE COVENANTS 54
6.1.Payment of Fees 54
6.2.Conduct of Business and Maintenance of Existence
and Assets 55
6.3.Violations 55
6.4.Government Receivables 55
6.5.Tangible Net Worth 55
6.6.Total Liabilities to Tangible Net Worth 56
6.7.Fixed Charge Coverage Ratio 56
6.8. 57
6.9.Working Capital 57
6.10.Execution of Supplemental Instruments 57
6.11.Payment of Indebtedness 57
6.12.Standards of Financial Statements 58
6.13 Intellectual Property 58
<PAGE> 51
6.14.Guarantees 58
VII. NEGATIVE COVENANTS 58
7.1.Merger, Consolidation, Acquisition and Sale
of Assets 58
7.2.Creation of Liens 59
7.3.Guarantees 59
7.4.Investments 60
7.5.Loans 60
7.6.Capital Expenditures 61
7.7.Dividends 61
7.8.Indebtedness 61
7.9.Nature of Business 62
7.10.Transactions with Affiliates 62
7.11.Leases 62
7.12.Subsidiaries 62
7.13 Fiscal year and Accounting Changes
7.14.Pledge of Credit 63
7.15.Compliance with ERISA 63
7.16.Prepayment of Indebtedness 63
7.17.DataComm Leasing 63
7.18.Amendment of Certificates of Incorporation,
By-Laws 63
VIII. CONDITIONS PRECEDENT 63
8.1.Conditions to Initial Advances 64
(a)Note 64
(b)Filings, Registrations and
Recordings 64
(c)Corporate Proceedings of Borrowers
and Guarantors 64
(d)Incumbency Certificates of Borrowers
and Guarantors 64
(e) Good Standing Certificates 64
(f) Legal Opinion 65
(g) No Litigation 65
(h)Financial Condition Opinions 65
(i) Collateral Examination 66
(j)Fees 66
(k)Financial Statements 66
(l)Insurance 66
(m)Leasehold Agreements 66
(n)Guarantees, Guarantor Security
Agreements, Pledge Agreements, Stock and
Other Documents 66
(o)Pledge Agreements 66
(p)Third Party 67
(q)Payment Instructions 67
(r)Consents 67
(s)No Adverse Material Change 67
(t)Blocked Accounts 67
(u)Undrawn Availability 67
(x)Other 67
8.2.Conditions to Each Advance 68
(a)Representations and Warranties 68
(b)No Default 68
(c)Maximum Advances 68
IX. INFORMATION AS TO BORROWERS 68
<PAGE> 52
9.1.Disclosure of Material Matters 68
9.2.Schedules 69
9.3.Environmental Reports 69
9.4.Litigation 69
9.5.Material Occurrences 69
9.6.Government Receivables 70
9.7.Annual Financial Statements 70
9.8.Monthly and Quarterly Financial Statements 70
9.9.Other Reports 71
9.10.Additional Information 71
9.11.Projected Operating Budget 71
9.12.Variances From Operating Budget 72
9.13.Notice of Suits, Adverse Events 72
9.14.ERISA Notices and Requests 72
9.15.Additional Documents 73
X. EVENTS OF DEFAULT 73
XI.LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT 76
11.1.Rights and Remedies 76
11.2.Agent's Discretion 77
11.3.Setoff 77
11.4.Rights and Remedies not Exclusive 77
11.5.Breach of Section 6.7 77
XII. WAIVERS AND JUDICIAL PROCEEDINGS 77
12.1.Waiver of Notice 77
12.2.Delay 78
12.3.Jury Waiver 78
XIII. EFFECTIVE DATE AND TERMINATION 78
13.1.Term 78
13.2.Termination 78
XIV.REGARDING AGENT 79
14.1.Appointment 79
14.2.Nature of Duties 80
14.3.Lack of Reliance on Agent and Resignation 80
14.5.Reliance 81
14.6.Notice of Default 81
14.7.Indemnification 81
14.8.Agent in its Individual Capacity 82
14.9.Delivery of Documents 82
14.10.Borrowers' Undertaking to Agent 82
XV.BORROWING AGENCY PROVISIONS 82
15.1.Appointment 83
15.2.Joint and Several Obligations 83
15.3.Waiver of Subrogation 84
XVI.MISCELLANEOUS 84
16.1.Governing Law 84
16.2.Entire Understanding 84
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16.3.Successors and Assigns; Participations;
New Lenders 86
16.4.Application of Payments 87
16.5.Indemnity. 88
16.6.Notice 88
16.7.Severability 89
16.8.Expenses 89
16.9.Injunctive Relief 90
16.10.Consequential Damages 90
16.11.Captions 90
16.13.Construction 90
16.14.Confidentiality 90
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LIST OF EXHIBITS AND SCHEDULES
Exhibits
Exhibit 2.1(a) Revolving Note
Exhibit 2.8 Letter of Credit Agreement
Exhibit 5.5(b) Projected Cash Flow and Balance
Sheets
Exhibit 16.3 Commitment Transfer Supplement
Schedules
Schedule 1.2 Permitted Liens
Schedule 4.5 Equipment and Inventory
Locations
Schedule 4.15(c) Locations of Borrowers
Schedule 5.2(a) States of Formation and Qualification
Schedule 5.2(b) Borrowers' Subsidiaries and Ownership
Schedule 5.4 Federal Tax Identification Numbers
Schedule 5.6 Corporate Name
Schedule 5.8(b) Pending Litigation/Indebtedness
Schedule 5.8(d) Pension Plans
Schedule 5.9(a) Patents, Trademarks, Copyrights and
Licenses
Schedule 5.9(b) Challenges re Patents, Trademarks,
Copyrights and Licenses
Schedule 5.9(c) Source Code Escrow Agreement
Schedule 5.10 Licenses and Permits
Schedule 5.13 Restrictions
Schedule 5.14 Labor Disputes
Schedule 5.17 Disclosure
Schedule 7.3 Guarantees
Schedule 7.4 Investments
Schedule 7.8 Indebtedness
Schedule 7.10 Transactions with Affiliates
<PAGE> 55
THIRD AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT
Third Amended and Restated Revolving Credit and Security
Agreement dated as of November 30, 1995 among GENERAL DATACOMM
INDUSTRIES, INC., a corporation organized under the laws of the
State of Delaware, GENERAL DATACOMM, INC., a corporation
organized under the laws of the State of Delaware, GDC REALTY,
INC., a corporation organized under the laws of the State of
Texas, GDC NAUGATUCK, INC., a corporation organized under the
laws of the State of Delaware, GENERAL DATACOMM INTERNATIONAL
CORP., a corporation organized under the laws of the State of
Delaware, GDC FEDERAL SYSTEMS, INC. (formerly known as GENERAL
DATACOMM SYSTEMS, INC.), a corporation organized under the laws
of the State of Delaware (each a "Borrower" and jointly and
severally, the "Borrowers"), the undersigned financial
institutions and the various financial institutions which in
accordance with Section 16.3 become Lenders hereunder (each a
"Lender" and collectively, "Lenders") and THE BANK OF NEW YORK
COMMERCIAL CORPORATION ("BNYCC"), a New York corporation, as
agent for Lenders (BNYCC in such capacity, or as the case may
be, its successor pursuant to the terms of Section 14.3,
"Agent").
BACKGROUND
Borrowers, The Bank of New York ("BNY"), IBJ Schroder Bank
& Trust Company ("IBJS"), People's Bank ("People's") (BNY, IBJS
and People's are collectively referred to as the "Existing
Lenders") and BNY, as agent for the Existing Lenders are parties
to a Second Amended and Restated Revolving Credit, Term Loan and
Security Agreement dated as of June 1, 1994 (as the same has
been amended, modified or supplemented from time to time, the
"Original Loan Agreement").
Existing Lenders, pursuant to an Assignment dated as of
November 30, 1995 (the "Assignment"), have assigned all of their
rights and obligations under the Original Loan Agreement to
Lenders.
By execution of this Agreement, Borrowers and Lenders wish
to amend and restate the Original Loan Agreement on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
and undertakings herein contained, the parties hereto hereby
agree as follows:
A. AMENDMENT AND RESTATEMENT
As of the date of this Agreement, the terms,
conditions, covenants, agreements, representations and
warranties contained in
<PAGE> 56
the Original Loan Agreement shall be
deemed amended and restated in their entirety as follows and the
Original Loan Agreement shall be consolidated with and into and
superseded by this Agreement; provided, however, that nothing
contained in this Agreement shall impair, limit or affect the
Liens heretofore granted, pledged and/or assigned as security
for Borrowers' obligations under the Original Loan Agreement.
I. DEFINITIONS.
1.1.Accounting Terms. As used in this Agreement
or any certificate, report or other document made or delivered
pursuant to this Agreement, accounting terms not defined in
Section 1.2 or elsewhere in this Agreement and accounting terms
partly defined in Section 1.2 to the extent not defined, shall
have the respective meanings given to them under GAAP as of the
Closing Date.
1.2.General Terms. For purposes of this
Agreement the following terms shall have the following meanings:
"Advances" shall mean and include the Revolving
Advances and the issuance of Letters of Credit.
"Advance Rates" shall have the meaning set forth
in Section 2.1(a).
"Affiliate" of any Person shall mean (a) any
Person (other than a Subsidiary) which, directly or indirectly,
is in control of, is controlled by, or is under common control
with such Person, or (b) any Person who is a director or officer
(i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above. For purposes
of this definition, control of a Person shall mean the power,
direct or indirect, (x) to vote 20% or more of the securities
having ordinary voting power for the election of directors of
such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by contract or
otherwise.
"Agent" shall have the meaning set forth in the
Introductory Section to this Agreement and any successor Agent
appointed in accordance with Section 14.3.
"Alternate Base Rate" shall mean, for any day, a
rate per annum equal to the higher of (i) the Prime Rate in
effect on such day and (ii) the Federal Funds Rate in effect on
such day plus 1/2 of 1%.
"Assignment" shall have the meaning set forth in
the Background Section to this Agreement.
"Authority" shall have the meaning set forth in
Section 4.19(d).
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"Balance Sheet" shall have the meaning set forth
in Section 5.5(a). "Bank"
shall mean The Bank of New York and any successor thereto.
"Blocked Accounts" shall have the meaning set
forth in Section 4.15(h).
"BNY" shall have the meaning set forth in the
Background Section to this Agreement.
"BNYCC" shall have the meaning set forth in the
Background Section to this Agreement.
"BNYCC Assignment" shall mean the Assignment
dated December 1, 1993 from BNYCC in favor of BNY.
"Borrowers" shall mean, jointly and severally,
GDC, GDC, Inc., GDC International, GDC Realty, GDC Naugatuck,
GDC Systems and all permitted successors and assigns.
"Borrowing Agent" shall mean GDC.
"Business Day" shall mean (i) with respect to
Eurodollar Loans, any day on which commercial banks are open for
domestic and international business, including dealings in
Dollar deposits, in London, England and New York, New York, and
(ii) with respect to all other matters, any day other than a day
on which commercial banks in New York are authorized or required
by law to close.
"CERCLA" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended, 42 U.S.C. 9601 et seq.
"Change of Control" shall mean (a) the occurrence
of any event (whether in one or more transactions) which results
in a transfer of control of any Borrower (other than GDC) or any
Guarantor to a Person who is not an Original Owner or Borrower
or (b) any merger or consolidation of any Borrower or any
Guarantor with a Person who is not a Borrower or any sale of all
or substantially all of the property or assets of any Borrower
or any Guarantor other than to a Borrower. For purposes of this
definition, "control of any Borrower or any Guarantor" shall
mean the power, direct or indirect (x) to vote 50% or more of
the securities having ordinary voting power for the election of
directors of such Borrower or such Guarantor or (y) to direct or
cause the direction of the management and policies of such
Borrower or such Guarantor by contract or otherwise.
"Charges" shall mean all taxes, charges, fees,
imposts, levies and other assessments, including, without
limitation, all net income, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits,
inventory, capital
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stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance,
stamp, occupation and property taxes, custom duties, fees,
assessments and charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional
amounts, imposed by any taxing or other authority, domestic or
foreign (including, without limitation, the PBGC or any
environmental agency or superfund), upon the Collateral, any
Borrower or any of its Affiliates.
"Chase" shall mean The Chase Manhattan Bank, N.A.
"Chase Agreements" shall mean the Credit
Agreement dated as of September 23, 1993 among General Lord, the
banks which are signatories thereto and Chase, as agent for such
banks, the Open-End Mortgage Deed, Assignment of Leases and
Rents and Security Agreement dated as of September 23, 1993
between GDC and Chase and the Open-End Mortgage Deed, Assignment
of Leases and Rents and Security Agreement dated as of September
23, 1993 between Chase and GDC Naugatuck.
"Claims" shall mean all security interests,
liens, claims or encumbrances held or asserted by any Person
against any or all of the Collateral, other than (A) Charges and
(B) Permitted Encumbrances.
"Closing Date" shall mean November 30, 1995 or
such other date as may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of
1986, as amended from time to time together with the regulations
promulgated thereunder.
"Collateral" shall mean and include:
(a)all Receivables;
(b)all Equipment (but excluding
those items of Equipment the purchase of which were financed
pursuant to the agreements described on Schedule 1.2 to the
extent (i) such agreements prohibit the granting of a junior
Lien in such Equipment and such prohibition has not been waived
by the holder of such Lien and (ii) the applicable Borrower's
obligations under such agreement have not been paid);
(c)all General Intangibles;
(d)all Inventory;
(e)all Subsidiary Stock;
(f)all of each Borrower's right,
title and interest in and to (i) its goods and other property
including, but not limited to, all merchandise returned or
rejected by Customers, relating to or securing any of the
Receivables; (ii) its rights as
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a consignor, consignee, unpaid
vendor, mechanic, artisan, or other lienor, including stoppage
in transit, setoff, detinue, replevin, reclamation and
repurchase; (iii) all additional amounts due to any Borrower
from any Customer relating to the Receivables; (iv) all other
property, including warranty claims, relating to any goods
securing this Agreement; (v) its contract rights, rights of
payment which have been earned under a contract right,
instruments, documents, chattel paper, warehouse receipts,
deposit accounts, money and securities; (vi) if and when
obtained by any Borrower, all real and personal property of
third parties in which such Borrower has been granted a lien or
security interest as security for the payment or enforcement of
Receivables; and (vii) all other goods, personal property or
real property now owned or hereafter acquired in which any
Borrower has expressly granted a security interest or may in the
future grant a security interest to Agent hereunder, or in any
amendment or supplement hereto, or under any other agreement
between Agent and any Borrower;
(g)all of Borrowers' ledger
sheets, ledger cards, files, correspondence, records, books of
account, business papers, computers, computer software (whether
owned by any Borrower or in which it has an interest), computer
programs, tapes, disks and documents relating to clauses (a),
(b), (c), (d), (e) and/or (f) of this definition; and
(h)all proceeds and products of
clauses (a), (b), (c), (d), (e), (f) and (g) of this definition
in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds),
certificates of deposit, insurance proceeds (including hazard,
flood and credit insurance), negotiable instruments and other
instruments for the payment of money, chattel paper, security
agreements or documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds.
Notwithstanding the foregoing, "Collateral" shall not
include (1) Real Property; (2) any of the rents, royalties,
issues, profits, revenues, income and other benefits of Real
Property; or (3) any leases of Real Property.
"Commitment Percentage" of any Lender shall mean
the percentage set below such Lender's name on the signature
page hereof as same may be adjusted upon any assignment by a
Lender pursuant to Section 16.3(c).
"Commitment Transfer Supplement" shall mean a
document in the form of Exhibit 16.3, properly completed and
otherwise in form and substance satisfactory to Agent by which
the Purchasing Lender thereunder purchases and assumes a portion
of the obligation of Lenders to make or participate in Advances
under this Agreement.
"Consents" shall mean all filings with and all
licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental and transactional
authorities and other
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third parties, domestic or foreign,
necessary for the validity or enforceability of any of the
Documents, to carry on Borrowers' or Guarantors' businesses or
execute, deliver or perform their obligations under this
Agreement or any of the other Documents, including, without
limitation, any consents required under all applicable federal,
state or other applicable law or regulation.
"Controlled Group" shall mean all members of a
controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which,
together with any Borrower, are treated as a single employer
under Section 414(b) or 414(c) of the Code.
"Current Assets" at a particular date, shall mean
all cash, cash equivalents, accounts and inventory of GDC and
its Subsidiaries on a consolidated basis and all other items
which would, in conformity with GAAP as of the Closing Date, be
included under current assets on a balance sheet of GDC and its
Subsidiaries on a consolidated basis as at such date; provided,
however, that such amounts shall not include (a) any amounts for
any Indebtedness owing by any Subsidiary or Affiliate of GDC or
any of its Subsidiaries to GDC or its Subsidiaries, unless such
Indebtedness arose in connection with the sale of goods or
rendition of services in the ordinary course of business and
would otherwise constitute current assets in conformity with
GAAP, (b) any shares of stock issued by an Affiliate or
Subsidiary of GDC or any of its Subsidiaries, or (c) the cash
surrender value of any life insurance policy.
"Current Liabilities" at a particular date, shall
mean all amounts which would, in conformity with GAAP as of the
Closing Date, be included under current liabilities on a balance
sheet of GDC and its Subsidiaries on a consolidated basis, as at
such date, but in any event including, without limitation, the
amounts of (a) all Indebtedness of GDC and its Subsidiaries
payable on demand, or, at the option of the Person to whom such
Indebtedness is owed, not more than twelve (12) months after
such date, (b) any payments in respect of any Indebtedness of
GDC and its Subsidiaries (whether installment, serial maturity,
sinking fund payment or otherwise) required to be made not more
than twelve (12) months after such date, (c) all reserves in
respect of liabilities or Indebtedness payable on demand or, at
the option of the Person to whom such Indebtedness is owed, not
more than twelve (12) months after such date, the validity of
which is not contested at such date, (d) all accruals for
federal or other taxes measured by income payable within a
twelve (12) month period and (e) Revolving Advances outstanding.
"Customer" shall mean and include the account
debtor with respect to any of the Receivables and/or the
prospective purchaser of goods, services or both with respect to
any contract or contract right, and/or any party who enters into
or proposes to enter into any contract or other arrangement with
any Borrower, GDC Canada or GDC United Kingdom, pursuant to
which such Borrower, GDC Canada or
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GDC United Kingdom is to
deliver any personal property or perform any services.
"DataComm Leasing" shall mean
DataComm Leasing Corporation, a Delaware corporation.
"DataComm Rental" shall mean DataComm Rental
Corporation, a Delaware corporation.
"Defaulting Lender" shall have the meaning set
forth in Section 2.12.
"Default Rate" shall have the meaning set forth
in Section 3.1.
"Depository Accounts" shall have the meaning set
forth in Section 4.15(h).
"Documents" shall have the meaning set forth in
Section 8.1(c).
"Dollar" and the sign "$" shall mean lawful money
of the United States of America.
"Dollar Equivalent" shall mean, with respect to
any amount denominated in a currency other than Dollars, the
amount of Dollars obtained by converting the amount of such
currency into Dollars at the spot rate for the purchase of
Dollars with such currency, as quoted by Bank at approximately
11:00 a.m. (New York time) on the date of determination thereof.
"Domestic Loan" shall mean any Revolving Advance
with interest being charged based upon the Alternate Base Rate.
"EBITDA" for any period, shall mean for GDC and
its Subsidiaries on a consolidated basis (a) Net Income for such
period, plus (b) interest and taxes for such period, plus (c)
the sum of depreciation and amortization for such period.
"Eligible Foreign Receivables" shall mean each
Foreign Receivable arising in the ordinary course of Borrowers'
business and which Agent, in its sole credit judgment, which
discretion shall be exercised in a reasonable manner, shall deem
to be eligible, based on such considerations as Agent may from
time to time deem appropriate.
"Eligible Inventory" shall mean and include
Inventory consisting of finished goods (excluding demonstration
inventory and field spares which are included in machinery and
equipment), valued at the lower of cost or market value,
determined on a first-in-first-out basis, which is not, in
Agent's reasonable opinion, obsolete, slow moving or
unmerchantable and which Agent, in its sole discretion, which
discretion shall be exercised in a reasonable manner, shall not
deem ineligible Inventory, based on
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such considerations as Agent
may from time to time deem appropriate including, without
limitation, whether such Inventory is subject to a perfected,
first priority security interest in favor of Agent and whether
such Inventory conforms to all standards imposed by any
governmental agency, division or department thereof which has
regulatory authority over such goods or the use or sale thereof.
"Eligible Receivables" shall mean each Receivable
arising in the ordinary course of Borrowers' businesses and
which Agent, in its sole credit judgment, which discretion shall
be exercised in a reasonable manner, shall deem to be eligible,
based on such considerations as Agent may from time to time deem
appropriate. A Receivable shall not be deemed eligible unless
such Receivable is subject to Agent's perfected security
interest and no other Lien other than Permitted Encumbrances,
and is evidenced by an invoice, bill of lading or other
documentary evidence satisfactory to Agent. In addition, no
Receivable shall be an Eligible Receivable if:
(a)it arises out of a sale made by any Borrower
to an Affiliate of such Borrower or any other Borrower or to a
Person controlled by an Affiliate of such Borrower or any other
Borrower;
(b)it is due or unpaid more than sixty (60) days
from original due date or one hundred and twenty (120) days
after the original invoice date;
(c)twenty-five percent (25%) or more of the
Receivables from such Customer are not deemed Eligible
Receivables. Such percentage may, in Agent's sole discretion,
which discretion shall be exercised in a reasonable manner, be
increased or decreased from time to time;
(d)any covenant, representation or warranty
contained in this Agreement with respect to such Receivable has
been breached;
(e)the applicable Customer is also any Borrower's
creditor or supplier, or such Customer has disputed liability,
or such Customer has made any claim with respect to any other
Receivable due from such Customer to any Borrower, or such
Receivable otherwise is or may become subject to any right of
setoff by such Customer;
(f)the applicable Customer shall (i) apply for,
consent to or suffer the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or call a
meeting of its creditors, (ii) admit in writing its inability,
or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general
assignment for the benefit of creditors, (iv) commence a
voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (v) be adjudicated a bankrupt or
insolvent, (vi) file a petition seeking to take advantage of any
other law providing for
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the relief of debtors, (vii) acquiesce
to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws,
or (viii) take any action for the purpose of effecting any of
the foregoing;
(g)the related sale by a Borrower is to a
Customer outside the continental United States of America,
Canada or the United Kingdom, the related sale by GDC Canada is
to a Customer outside of Canada and the related sale by GDC
United Kingdom is to a Customer outside the United Kingdom
unless such sale is on letter of credit, guaranty or acceptance
terms, or is covered by credit insurance in each case acceptable
to Agent in its sole discretion or is otherwise acceptable to
Agent in its sole discretion;
(h)the sale to the applicable Customer is on a
bill-and-hold, guaranteed sale, sale-and-return, sale on
approval, consignment or any other repurchase or return basis or
is evidenced by chattel paper;
(i)Agent believes, in its sole judgment, that
collection of such Receivable is insecure or that such
Receivable may not be paid by reason of the applicable
Customer's financial inability to pay;
(j)the applicable Customer is the United States
of America, any state or any department, agency or
instrumentality of any of them and Agent has requested that the
applicable Borrower assign its right to payment of such
Receivable to Agent pursuant to the Assignment of Claims Act of
1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41
U.S.C. Sub-Section 15) or otherwise comply with other
applicable statutes or ordinances and the applicable Borrower
fails to do so;
(k)except with respect to the goods giving rise
to such Receivable have not been shipped and delivered to and
accepted by the applicable Customer or the services giving rise
to such Receivable have not been performed by the applicable
Borrower and accepted by the applicable Customer or such
Receivable otherwise does not represent a final sale;
(l)the Receivables of the applicable Customer
exceed a credit limit determined by Agent, in its sole
discretion, which discretion shall be exercised in a reasonable
manner to the extent such Receivable exceeds such limit;
(m)such Receivable is subject to any offset,
deduction, defense, dispute, or counterclaim;
(n)any Borrower has made any agreement with the
applicable Customer for any deduction therefrom, except for
discounts or allowances made in the ordinary course of business
for prompt payment all of which discounts or allowances are
reflected in the calculation of the face value of each
respective invoice related thereto;
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(o)except where such Customer
has agreed to pay for such merchandise or services within the
normal course of business, shipment of the merchandise or the
rendition of services has not been completed or accepted by the
applicable Customer;
(p)any return, rejection or repossession of the
related merchandise has occurred;
(q)such Receivable is not payable to a Borrower,
GDC Canada or GDC United Kingdom; or
(r)such Receivable is not otherwise satisfactory
to Agent as determined in good faith by Agent in the exercise of
its discretion in a reasonable manner.
For purposes of this definition only, the term "Borrowers"
shall include GDC United Kingdom and GDC Canada.
"Environmental Complaint" shall have the meaning
set forth in Section 4.19(d).
"Environmental Laws" shall mean all federal,
state, foreign and local environmental, land use, zoning,
health, chemical use, safety and sanitation laws, statutes,
ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or
disposal of Hazardous Substances and the rules, regulations,
policies, guidelines, interpretations, decisions, orders and
directives of federal, state, foreign and local governmental
agencies and authorities with respect thereto.
"Equipment" shall mean and include all of
Borrowers' goods (excluding Inventory) whether now owned or
hereafter acquired and wherever located including, without
limitation, all equipment, machinery, apparatus, motor vehicles,
fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions
thereto.
"ERISA" shall have the meaning set forth in
Section 5.8(d).
"Eurodollar Loan" shall mean any Revolving
Advance with interest being charged based upon the Eurodollar
Rate.
"Eurodollar Rate" shall mean for any Eurodollar
Loan for the then current Interest Period relating thereto the
rate per annum (such Eurodollar Rate to be adjusted to the next
higher 1/100 of one percent) equal to the quotient of (a) LIBOR,
divided by (b) a number equal to 1.00 minus the aggregate of the
rates (expressed as a decimal) of reserve requirements on the
day that is two (2) Business Days prior to the beginning of such
Interest Period (including, without limitation, basic,
supplemental, marginal and emergency reserves) under any
regulation promulgated by the Board of Governors of the Federal
Reserve System (or any other
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governmental authority having
jurisdiction over Bank) as in effect from time to time dealing
with reserve requirements prescribed for eurocurrency funding
including any reserve requirements with respect to "eurocurrency
liabilities" under Regulation D of the Board of Governors of the
Federal Reserve System.
"Eurotech" shall mean General DataComm France
S.A.R.L., formerly known as Eurotech France S.A.R.L., a
corporation organized under the laws of France.
"Event of Default" shall mean any of the events
set forth in Article X.
"Existing Lenders" shall have the meaning set
forth in the Background Section to this Agreement.
"Federal Funds Rate" shall mean, for any day, the
weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or if such
day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or if such rate is not
so published for any day which is a Business Day, the average of
quotations for such day on such transactions received by the
Bank from three Federal funds brokers of recognized standing
selected by the Bank.
"Fixed Charge Coverage Ratio", with respect to
any fiscal period, shall mean the ratio of (a) EBITDA for such
period minus capital expenditures for GDC and its Subsidiaries
on a consolidated basis for such period plus purchase money
indebtedness related to capital expenditures for such period to
(b) the sum of all cash expended by GDC and its Subsidiaries on
a consolidated basis to make interest and scheduled principal
payments on Indebtedness and income taxes.
"Foreign Receivables" shall mean collectively,
those Receivables of Borrowers arising from sales to Customers
outside the continental United States, Canada and the United
Kingdom which are not on letter of credit, guaranty or
acceptance terms or covered by credit insurance acceptable to
Agent in its sole discretion.
"Foreign Receivables Maximum Amount" shall mean
$5,000,000.
"Formula Amount" shall have the meaning set forth
in Section 2.1(a).
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from time
to time.
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"GDC" shall mean General
DataComm Industries, Inc., a Delaware corporation.
"GDC Advanced" shall mean General DataComm
Advanced Research Centre Limited, a corporation organized under
the laws of England and Wales and registered there with number
1708198.
"GDC Australia" shall mean General DataComm Pty
Limited, a corporation organized under the laws of Australia.
"GDC Brazil" shall mean General DataComm do
Brasil Ltda S.C., a corporation organized under the laws of
Brazil.
"GDC Canada" shall mean General DataComm Ltd., a
corporation organized under the laws of Canada.
"GDC China" shall mean General DataComm China
Ltd., a Delaware corporation.
"GDC France" shall mean General DataComm
S.A.R.L., a corporation organized under the laws of France.
"GDC Germany" shall mean General DataComm
Industries, GmbH, a corporation organized under the laws of
Germany.
"GDC, Inc." shall mean General DataComm, Inc., a
Delaware corporation.
"GDC International" shall mean General DataComm
International Corp., a Delaware corporation.
"GDC Mexico" shall mean General DataComm de
Mexico, S.A. de C.V., a corporation organized under the laws of
Mexico.
"GDC Naugatuck" shall mean GDC Naugatuck, Inc., a
Delaware corporation.
"GDC Netherlands" shall mean General
DataCommunications Industries B.V., a corporation organized
under the laws of the Netherlands.
"GDC Realty" shall mean GDC Realty, Inc., a Texas
corporation.
"GDC Russia" shall mean General DataComm CIS, a
corporation organized under the laws of the Russian Federation.
"GDC Singapore" shall mean General DataComm PTE
Ltd., a corporation organized under the laws of Singapore.
"GDC Systems" shall mean GDC Federal Systems,
Inc., formerly known as General DataComm Systems Inc., a
Delaware corporation.
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"GDC United Kingdom" shall
mean General DataComm Limited, a corporation organized under the
laws of England and registered there with number 1450294.
"GDC Venezuela" shall mean General DataComm de
Venezuela, C.A., a corporation organized under the laws of
Venezuela.
"General Intangibles" shall mean and include all
of Borrowers' general intangibles, whether now owned or
hereafter acquired including, without limitation, all choses in
action, causes of action, corporate or other business records,
inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control
procedures, trademarks, trade names, service marks, trade
secrets, goodwill, copyrights, design rights, registrations,
licenses, franchises, customer lists, tax refunds, tax refund
claims, computer programs, claims under guaranties, security
interests and other security held by or granted to Borrowers to
secure payment of any of the Receivables by a Customer, rights
of indemnification and other intangible property of every kind
and nature (other than Receivables).
"General Lord" shall mean General-Lord Realty
Corporation, a Delaware corporation.
"Governmental Body" shall mean any nation or
government, any state or other political subdivision thereof or
any entity exercising the legislative, judicial, regulatory or
administrative functions of or pertaining to a government.
"Guarantees" shall mean, collectively, the
guarantees of the Obligations of Borrowers executed by each
Guarantor in favor of BNYCC which pursuant to the BNYCC
Assignment have been assigned (or the benefit of which has
otherwise been transferred to Agent for the benefit of Lenders)
to Existing Lenders and which pursuant to the Assignment have
been assigned (or the benefit of which has otherwise been
transferred to Agent for the benefit of Lenders) to Lenders, all
reaffirmations thereof and any other guarantee hereafter
executed in favor of Lenders and/or Agent guaranteeing the
Obligations of Borrowers.
"Guarantors" shall mean, collectively, GDC
Advanced, GDC Canada, GDC United Kingdom, Eurotech, GDC Mexico,
DataComm Rental, GDC Australia, GDC France and each other
Subsidiary of GDC which hereafter executes a Guarantee in favor
of Lenders.
"Guarantor Security Agreements" shall mean,
collectively, the General Security Agreement dated as of March
6, 1992 executed by GDC Canada in favor of BNYCC, the General
Assignment of Accounts Receivable dated as of March 6, 1992
executed by GDC Canada in favor of BNYCC, the Trust Deed dated
as of March 6, 1992 executed by GDC Canada and Montreal Trust
Company, the Debenture dated as of March 6, 1992 executed by GDC
United Kingdom and BNYCC, each of which has been assigned to BNY
as Agent for the Existing Lenders pursuant to the BNYCC
Assignment and each of which has been
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assigned to Agent for the
benefit of Lenders pursuant to the Assignment (or the benefit of
which has otherwise been transferred to Agent for the benefit of
Lenders), the Deed of Supplemental Debenture dated November 30,
1993 between GDC United Kingdom, BNY and BNYCC, the Deed of
Supplemental Debenture dated June 1, 1994 between GDC United
Kingdom and BNY, and the Debenture dated July 11, 1995 between
GDC Advanced and BNY, each of which has been assigned to Agent
for the benefit of Lenders pursuant to the Assignment (or the
benefit of which has otherwise been transferred to Agent for the
benefit of Lenders) and such other security agreements delivered
by any Guarantor in favor of Agent for the benefit of Lenders,
and all other documents relating to the foregoing as amended,
modified and supplemented and reaffirmed from time to time.
"Hazardous Discharge" shall have the meaning set
forth in Section 4.19(d).
"Hazardous Substance" shall mean, without
limitation, any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation,
polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or
toxic substances or related materials as defined in CERCLA, the
Hazardous Materials Transportation Act, as amended (49 U.S.C.
Sections 1801, et seq.), RCRA, Articles 15 and 27 of the New
York State Environmental Conservation Law or any other
applicable Environmental Law and in the regulations adopted
pursuant thereto.
"Hazardous Wastes" shall mean and include all
waste materials subject to regulation under CERCLA, RCRA or
applicable state law, or any other applicable Federal and state
laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Incipient Event of Default" shall mean an event
which, with the giving of notice or passage of time or both,
would constitute an Event of Default.
"Indebtedness" of a Person at a particular date
shall mean all obligations of such Person which in accordance
with GAAP would be classified upon a balance sheet as
liabilities (except capital stock and surplus earned or
otherwise) and in any event, without limitation by reason of
enumeration, shall include all indebtedness, debt and other
similar monetary obligations of such Person whether direct or
guaranteed, all premiums, if any, due at the required prepayment
dates of such indebtedness, all indebtedness secured by a Lien
on assets owned by such Person, whether or not such indebtedness
actually shall have been created, assumed or incurred by such
Person. Any indebtedness of such Person resulting from the
acquisition by such Person of any assets subject to any Lien
shall be deemed, for the purposes hereof, to be the equivalent
of the creation, assumption and incurring of the indebtedness
secured thereby, whether or not actually so created, assumed or
incurred.
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"Interest Period"
shall mean the period provided for any Eurodollar Loan pursuant
to Section 2.2(b).
"Inventory" shall mean all of Borrowers' now
owned or hereafter acquired goods, merchandise and other
personal property, wherever located, to be furnished under any
contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might
be used or consumed in any Borrower's business or used in
selling or furnishing such goods, merchandise and other personal
property, and all documents of title or other documents
representing them.
"Inventory Advance Rate" shall have the meaning
set forth in Section 2.1(a)(ii).
"Inventory Maximum Amount" shall mean $11,000,000.
"Lender" and "Lenders" shall have the meaning set
forth in the Introductory Section to this Agreement and shall
include any Transferee, successor or assign of any Lender.
"Lender Default" shall have the meaning set forth
in Section 2.12.
"Lending Office" shall mean, for each Lender and
Agent and for each type of Advance, the lending office of such
Lender or Agent (or for an affiliate of such Lender or Agent)
designated as such for such type of Advance on its signature
page hereof or such other office of such Lender or Agent (or of
an affiliate of such Lender or Agent) as such Lender or Agent
may from time to time specify to Agent and Borrowing Agent as
the office by which its Advances of such type are to be made and
maintained.
"Letter of Credit Agreement" shall have the
meaning set forth in Section 2.8.
"Letter of Credit Fees" shall have the meaning
set forth in Section 3.2.
"Letters of Credit" shall have the meaning set
forth in Section 2.8.
"LIBOR" shall mean for any Eurodollar Loan for
the then current Interest Period relating thereto, the rate per
annum quoted by the Bank three (3) Business Days prior to the
first day of such Interest Period for the offering by the Bank
to prime commercial banks in the London interbank eurodollar
market of Dollar deposits, in immediately available funds on the
first day of such Interest Period for a period equal to such
Interest Period and in an amount equal to the amount of such
Eurodollar Loan.
"Lien" shall mean any mortgage, deed of trust,
pledge, hypothecation, assignment, security interest, lien,
Charge, Claim
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or encumbrance, or preference, priority or other
security agreement or preferential arrangement held in respect
of any asset of any kind or nature whatsoever including, without
limitation, any conditional sale or other title retention
agreement, any lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement
to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Material Adverse Effect" shall mean a material
adverse effect on any of the Collateral or the collateral
covered by the Guarantor Security Agreements or on the business,
assets, operations or financial condition of the applicable
Person or Persons.
"Maximum Revolving Advance Amount" shall mean
$25,000,000.
"Multiemployer Plan" shall mean a "multiemployer
plan" as defined in Section 4001(a)(3) of ERISA under which a
Borrower is an employer.
"Net Income", for any period, shall mean, the net
income of GDC and its Subsidiaries on a consolidated basis for
such period as determined in accordance with GAAP as of the
Closing Date.
"Net Worth", at a particular date, shall mean all
amounts which would be included under shareholders' equity on a
balance sheet of GDC and its Subsidiaries on a consolidated
basis as at such date determined in accordance with GAAP as of
the Closing Date.
"Non-Defaulting Lenders" shall have the meaning
set forth in Section 2.12.
"Note" and "Notes" shall have the meanings set
forth in Section 2.1(a).
"Obligations" shall mean and include any and all
of Borrowers' and Guarantors' Indebtedness and/or liabilities to
Agent or Lenders or any corporation that directly or indirectly
controls or is controlled by or is under common control with
Agent or any Lender, of every kind, nature and description,
direct or indirect, secured or unsecured, joint, several, joint
and several, absolute or contingent, due or to become due, now
existing or hereafter arising, contractual or tortious,
liquidated or unliquidated, under this Agreement or any other
Document, and all obligations of any Borrower or any Guarantor
to Agent or any Lender to perform acts or refrain from taking
any action under this Agreement or any other Document.
"Original Loan Agreement" shall have the meaning
given to such term in the Background Section to this Agreement.
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"Original Owners" shall mean GDC with respect
to GDC, Inc., DataComm Service, GDC Realty, GDC International,
GDC Systems, DataComm Rental, GDC Canada, GDC United Kingdom,
Eurotech, GDC Mexico, GDC Netherlands, GDC Australia, GDC France
GDC Venezuela, GDC Singapore, GDC Advanced, GDC Brazil, GDC
Russia and GDC Germany; GDC Realty with respect to GDC
Naugatuck; and GDC International with respect to GDC China.
"Other Documents" shall mean the Notes, the
Pledge Agreements and any and all other agreements, instruments
and documents, including, without limitation, patent and
trademark assignments, guaranties, pledges, powers of attorney,
consents, and all other writings heretofore, now or hereafter
executed by any Borrower and/or delivered to Agent or any Lender
in respect of the transactions contemplated by this Agreement.
"Parent" of any Person shall mean a corporation
or other entity owning, directly or indirectly, at least 50% of
the shares of stock or other ownership interests having ordinary
voting power to elect a majority of the directors of such
Person, or other Persons performing similar functions for any
such Person.
"Payment Office" shall mean initially 1290 Avenue
of the Americas, New York, New York 10104; thereafter, such
other office of Agent, if any, which it may designate by notice
to Borrowing Agent to be the Payment Office.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any successor thereto.
"Permitted Encumbrances" shall mean (a) Liens in
favor of Agent for the benefit of Lenders; (b) Liens for taxes,
assessments or other governmental charges not delinquent, or
being contested in good faith and by appropriate proceedings and
with respect to which proper reserves have been taken by
Borrowers in conformity with GAAP; provided, that no such Lien
shall have any effect on the priority of the Liens in favor of
Agent or a stay of enforcement of any such Lien shall be in
effect; (c) Liens disclosed in the financial statements referred
to in Section 5.5, the existence of which Agent has consented to
in writing; (d) deposits or pledges to secure obligations under
worker's compensation, social security or similar laws, or under
unemployment insurance; (e) deposits or pledges to secure bids,
tenders, contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds
and other obligations of like nature arising in the ordinary
course of Borrowers' businesses; (f) judgment Liens that have
been stayed or bonded and mechanics', worker's, materialmen's,
carrier's or other like Liens arising in the ordinary course of
Borrowers' businesses with respect to obligations which are not
due or which are being contested in good faith by any Borrower;
(g) Liens placed upon fixed assets hereafter acquired to secure
a portion of the purchase price thereof, provided that (x) any
such Lien shall not encumber any other property of any Borrower
and (y) the aggregate amount of
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Indebtedness of GDC and its
Subsidiaries on a consolidated basis secured by such Liens
incurred as a result of such purchases during any fiscal year
shall not exceed the amount provided for in Section 7.6; (h)
encumbrances inherent to the granting of licenses by any
Borrower to third parties in the ordinary course of business and
(i) Liens disclosed on Schedule 1.2.
"Person" shall mean an individual, a partnership,
a corporation, a business trust, a joint stock company, a trust,
an unincorporated association, a joint venture, a governmental
authority or any other entity of whatever nature.
"Plan" shall mean any employee benefit plan
within the meaning of Section 3(3) of ERISA, established or
maintained by any Borrower or any member of the Controlled Group
or any such plan to which any Borrower or any member of the
Controlled Group is required to contribute on behalf of any of
its employees.
"Pledge Agreements" shall mean collectively, the
Pledge Agreements, Mortgages of Shares, Deeds of Supplemental
Debentures executed and delivered by GDC and GDC Realty in favor
of BNYCC which pursuant to the BNYCC Assignment have been
assigned to Agent for the benefit of Existing Lenders and which
pursuant to the Assignment been assigned to Agent for the
benefit of Lenders (or the benefit of which has otherwise been
transferred to Agent for the benefit of Lenders), the Mortgage
of Shares dated July 11, 1995 between Charles P. Johnson and
BNY, the Mortgage of Shares dated July 11, 1995 between GDC and
BNY and the Mortgage of Shares dated July 11, 1995 between GDC
International and BNY which pursuant to the Assignment have been
assigned to Agent for the benefit of Lenders (or the benefit of
which has otherwise been transferred to Agent for the benefit of
Lenders) and any other pledges, mortgages, deeds or any other
security agreements hereafter executed by GDC or any of its
Subsidiaries in favor of Agent for the benefit of Lenders, as
amended, modified, supplemented and reaffirmed from time to time
with respect to the Subsidiary Stock together with the
certificates evidencing the Subsidiary Stock and undated stock
powers duly executed in blank with respect thereto.
"Prime Rate" shall mean the prime commercial
lending rate of the Bank as publicly announced to be in effect
from time to time, such rate to be adjusted automatically,
without notice, on the effective date of any change in such
rate. This rate of interest is determined from time to time by
the Bank as a means of pricing some loans to its customers and
is neither tied to any external rate of interest or index nor
does it necessarily reflect the lowest rate of interest actually
charged by the Bank to any particular class or category of
customers of the Bank.
"Projections" shall have the meaning set forth in
Section 5.5(b).
"Purchasing Lender" shall have the meaning set
forth in Section 16.3.
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"RCRA"
shall mean the Resource Conservation and Recovery Act, 42 U.S.C.
6901 et seq., as the same may be amended from time to time.
"Real Property" shall mean all real property
owned or leased by any Borrower and any fixtures (other than
trade fixtures) which are attached to and necessary to the
operation of the buildings or other improvements located on such
real property.
"Receivables" shall mean and include all of
Borrowers' accounts, contract rights, instruments, documents,
chattel paper, general intangibles relating to accounts, drafts
and acceptances, and all other forms of obligations owing to
Borrowers arising out of or in connection with the sale or lease
of Inventory or the rendition of services, all guarantees and
other security therefor, whether secured or unsecured, now
existing or hereafter created, and whether or not specifically
sold or assigned to Agent hereunder.
"Receivables Advance Rate" shall have the meaning
set forth in Section 2.1(a)(i).
"Register" shall have the meaning set forth in
Section 16.3(d).
"Releases" shall have the meaning set forth in
Section 5.7(c)(i).
"Reportable Event" shall mean a reportable event
described in Section 4043(b) of ERISA or the regulations
promulgated thereunder.
"Required Lenders" shall mean Lenders owed at
least sixty six and two thirds percent (66 2/3%) of the Advances
as of the most recent Settlement Date.
"Revolving Advances" shall mean Advances made
pursuant to Section 2.1 and may consist of Domestic Loans and
Eurodollar Loans.
"Revolving Interest Rate" shall mean an interest
rate per annum equal to (a) with respect to Domestic Loans, the
sum of the Alternate Base Rate plus three quarters percent
(.75%) and (b) with respect to Eurodollar Loans, the sum of the
Eurodollar Rate plus two and three-quarters percent (2.75%).
"Settlement Date" shall mean the Closing Date and
thereafter Wednesday of each Week unless such day is not a
Business Day in which case it shall be the next succeeding
Business Day.
"Subsidiary" of any Person shall mean a
corporation or other entity of whose shares of stock or other
ownership interests having ordinary voting power (other than
stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of
the directors of such
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corporation, or other Persons performing
similar functions for such entity, are owned, directly or
indirectly, by such Person.
"Subsidiary Stock" shall mean all of the issued
and outstanding shares of stock of GDC, Inc., GDC Realty, GDC
International, GDC Systems, GDC Canada, GDC United Kingdom,
Eurotech, GDC Mexico, DataComm Rental, GDC Australia, GDC
France, GDC Singapore, GDC Venezuela, GDC Brazil, GDC Russia,
GDC Germany and GDC Advanced owned by GDC, all of the issued and
outstanding shares of stock of GDC Naugatuck owned by GDC Realty
and all of the issued and outstanding shares of stock of GDC
China owned by GDC International.
"Tangible Net Worth" at a particular date shall
mean Net Worth at such date minus the goodwill and capitalized
development software of GDC and its Subsidiaries on a
consolidated basis at such date as determined in accordance with
GAAP as of the Closing Date minus all other intangible assets of
GDC and its Subsidiaries on a consolidated basis at such date as
determined in accordance with GAAP as of the Closing Date.
"Term" shall have the meaning set forth in
Section 13.1.
"Termination Date" shall have the meaning set
forth in Section 13.1.
"Total Liabilities" at a particular date shall
mean all Indebtedness of GDC and its Subsidiaries on a
consolidated basis at such date as determined in accordance with
GAAP as of the Closing Date.
"Toxic Substance" shall mean and include any
material present on the Real Property which has been shown to
have significant adverse effect on human health and which is
subject to regulation under the Toxic Substances Control Act
(TSCA), 15 U.S.C. 2601 et seq., applicable state law, or any
other applicable Federal or state laws now in force or hereafter
enacted relating to toxic substances. "Toxic Substance"
includes but is not limited to asbestos, polychlorinated
biphenyls (PCBs) and lead-based paints.
"Transferee" shall have the meaning set forth in
Section 16.3(b).
"Undrawn Availability" shall mean on the Closing
Date an amount equal to (a) the lesser of (i) the Formula Amount
or (ii) the Maximum Revolving Advance Amount, minus (b) the sum
of the outstanding amount of Advances after giving effect to the
Advances made on the Closing Date.
"Week" shall mean the time period commencing with
a Wednesday and ending on the following Tuesday.
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"Working Capital", at a
particular date, shall mean the excess, if any, of Current
Assets over Current Liabilities at such date.
1.3.Uniform Commercial Code Terms. All terms
used herein and defined in the Uniform Commercial Code as
adopted in the State of New York shall have the meaning given
therein unless otherwise defined herein.
1.4.Terms Generally. Unless the context shall
otherwise require, all references in this Agreement to Articles,
Sections, subsections, Exhibits and Schedules shall be deemed to
be references to Articles, Sections and subsections of, and
Exhibits and Schedules to, this Agreement. Any pronoun used
shall be deemed to cover all genders. Whenever appropriate in
the context, terms used herein in the singular also include the
plural and vice versa. All references to statutes and related
regulations shall include any amendments of same and any
successor statutes and regulations. All references to any
instruments or agreements including, without limitation,
references to any of the other Documents shall include any and
all modifications or amendments thereto and all extensions or
renewals thereof. In addition, references to, "Liens in favor
of Agent", "Agent's security interest in the Collateral" and
similar formulations shall mean such Liens or security interests
of Agent for the benefit of itself and Lenders.
II. ADVANCES, PAYMENTS.
2.1.(a)Revolving Advances. Subject to the terms
and conditions set forth in this Agreement, each Lender,
severally and not jointly, will make Revolving Advances to
Borrowing Agent in aggregate amounts outstanding at any time not
greater than such Lender's Commitment Percentage of the lesser
of x) the Maximum Revolving Advance Amount less the aggregate
amount of outstanding Letters of Credit or y) an amount equal to
the sum of:
(i) up to 85%, subject to the provisions of Section
2.1(b) ("Receivables Advance Rate"), of the Dollar amount of
Eligible Receivables (other than Eligible Foreign Receivables)
payable in Dollars and the Dollar Equivalent of Eligible
Receivables (other than Eligible Foreign Receivables)
which are not payable in Dollars, less such reserves as Agent
may reasonably deem proper and necessary, plus
(ii) up to the Receivables Advance Rate of the
Dollar amount of Eligible Foreign Receivables payable in Dollars
and the Dollar Equivalent of Eligible Foreign Receivables
which are not payable in Dollars, less such reserves as Agent
may reasonably deem proper and necessary, provided, however,
that the aggregate amount of Revolving Advances against Eligible
Foreign Receivables outstanding at any time shall not exceed the
Foreign Receivable Maximum Amount, plus
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(iii) the
lesser of (x) up to 40%, subject to the provisions of Section
2.1(b) ("Inventory Advance Rate"), of the value of the Eligible
Inventory less such reserves as Agent may reasonably deem proper
and necessary (the Receivables Advance Rate and the Inventory
Advance Rate shall be referred to, collectively, as the "Advance
Rates") and (y) the Inventory Maximum Amount, plus
(iv) the product of (a) the aggregate amount of
outstanding Letters of Credit consisting of documentary trade
Letters of Credit times (b) the Inventory Advance Rate, minus
(v) the aggregate amount of outstanding Letters of
Credit, minus
(vi) the amount by which the amount of cash in
DataComm Leasing exceeds $1,000,000.
The amounts derived from Sections 2.1(a)(i) plus (ii) plus
(iii) plus (iv) minus (vi) at any time and from time to time
shall be referred to as the "Formula Amount". The Revolving
Advances of each Lender shall be evidenced by a secured
promissory note or notes (each a "Note", and collectively, the
"Notes") in substantially the form attached hereto as Exhibit
2.1(a).
(b)Discretionary Rights. The Advance Rates may be
increased or decreased by Agent at the request of the Required
Lenders at any time and from time to time in the exercise of
their reasonable discretion upon either the occurrence and
during the continuance of an Event of Default or Incipient Event
of Default or an increase in dilution with respect to the
Receivables. Agent shall give Borrowing Agent and Lenders five
(5) days prior written notice of Lenders' intention to decrease
or increase Advance Rates. Upon the occurrence and during the
continuance of an Event of Default, Agent may at any time and
from time to time in the exercise of its reasonable discretion,
decrease the Foreign Receivables Maximum Amount. Borrowers and
Lenders consent to any such increases or decreases and
acknowledge that decreasing the Advance Rates or decreases in
the Foreign Receivables Maximum Amount may limit or restrict
Advances requested by Borrowing Agent and/or require prepayment
in accordance with Section 2.6.
(c)Foreign Receivables. In the
event Agent receives collections of Receivables in a currency
other than Dollars, Agent shall credit to Borrowers' account the
Dollar Equivalent of such foreign currency. Borrowers shall
indemnify and hold harmless Agent and Lenders from any loss or
damage arising as a result of a deficiency in the amount so
collected.
(d)Use of Revolving Advances.
During the Term, Borrowers may use the Revolving Advances by
borrowing, prepaying and reborrowing, all in accordance with the
terms and conditions hereof.
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2.2.Procedure for Revolving
Advances Borrowing.
(a)Borrowing Agent may notify
Agent prior to 11:00 a.m. on a Business Day of its request to
incur, on such Business Day, a Domestic Loan hereunder. Should
any amount required to be paid as interest hereunder, or as fees
or other charges under this Agreement or any Other Document, or
with respect to any other Obligation, become due, the same shall
be deemed a request for a Domestic Loan as of the date such
payment is due, in the amount required to pay in full such
interest, fee, charge or Obligation under this Agreement or any
Other Document, and such request shall be irrevocable.
(b)In the event Borrowing Agent
on behalf of Borrowers desires to obtain a Eurodollar Loan, it
shall give Agent at least three (3) Business Days' prior written
notice specifying (i) the date of the proposed borrowing (which
shall be a Business Day), (ii) the type of borrowing and the
amount to be borrowed, which amount shall be an integral
multiple of $100,000 and shall not be less than $500,000, and
(iii) the duration of the first Interest Period therefor.
Interest Periods for Eurodollar Loans shall be for one, two,
three or six month periods. The aggregate number of outstanding
Eurodollar Loans shall not exceed four (4) at any time. In no
case may Borrowing Agent obtain Eurodollar Loans, whether
pursuant to a notice of borrowing or a request for conversion or
continuation, (i) within one month prior to the last day of the
Term, or (ii) if any Event of Default or Incipient Event of
Default shall have occurred and be continuing.
(c)Each Interest Period for a
Eurodollar Loan shall commence on the date such Eurodollar Loan
is made and shall end on such date as Borrowing Agent may elect
as set forth in Section 2.2(b)(iii), provided that:
(i) any Interest Period which would otherwise
end on a day which is not a Business Day shall end on the next
preceding or succeeding Business Day as is Bank's custom in the
market to which such Eurodollar Loan relates; and
(ii) no Interest Period shall end after the
last day of the Term; and
(iii) any Interest Period which begins on a day
for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall
(subject to clause (i) above) end on the last day of such
calendar month.
Borrowing Agent shall elect the initial Interest
Period applicable to a Eurodollar Loan by notice of borrowing
given to Agent by Borrowing Agent pursuant to Section 2.2(b) or
by notice of conversion or continuation given to Agent by
Borrowing Agent
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pursuant to Section 2.2(d) or (e), as the case
may be. Borrowing Agent shall give irrevocable written notice
to Agent of its intention to extend or continue a Eurodollar
Loan for an additional Interest Period not less than three (3)
Business Days prior to the last day of the then current Interest
Period applicable to such Eurodollar Loan. If Agent does not
receive timely notice of the requested extension, any Eurodollar
Loan shall convert to a Domestic Loan, subject to Section 2.2(e).
(d)If Borrowing Agent desires to
continue a Eurodollar Loan, Borrowing Agent shall make such
request to Agent (and Agent shall so notify Lenders) in writing
at least three (3) Business Days prior to the last day of the
then current Interest Period applicable to such outstanding
Eurodollar Loan, which request may only be made if no Event of
Default or Incipient Event of Default shall have occurred and be
continuing.
(e)Provided that no Event of
Default or Incipient Event of Default shall have occurred and be
continuing and subject to the conditions set forth in this
Section 2.2(e), Borrowing Agent may, (i) on the last Business
Day of the then current Interest Period applicable to any
Eurodollar Loan, convert such outstanding Eurodollar Loan into a
Domestic Loan and (ii) from time to time, convert any
outstanding Domestic Loan into a Eurodollar Loan in the same
aggregate principal amount. If Borrowing Agent desires to
convert a Domestic Loan or Eurodollar Loan as aforesaid,
Borrowing Agent shall give Agent (and Agent shall so notify
Lenders) not less than three (3) Business Days' prior written
notice, specifying the date of such conversion, the Domestic
Loan or Eurodollar Loan to be converted and, if the conversion
is from a Domestic Loan to a Eurodollar Loan, the duration of
the first Interest Period therefor. After giving effect to each
such conversion there shall be no more than four (4) Eurodollar
Loans outstanding.
(f)In the event that any
prepayment of a Eurodollar Loan is required or permitted on a
date other than the last Business Day of the then current
Interest Period with respect thereto, Borrowers shall indemnify
Agent and Lenders therefor in accordance with Section 2.2(g).
(g)Each Borrower shall indemnify
Agent and Lenders and hold Agent and Lenders harmless from and
against any and all losses and expenses that Agent and Lenders
may sustain or incur as a consequence of any prepayment or
conversion of, or any default by any Borrower in the payment of
the principal of or interest on, any Eurodollar Loan or failure
by any Borrower to complete a borrowing of, a prepayment of, a
continuation of or conversion to a Eurodollar Loan after notice
thereof has been given, including (but not limited to) any
interest or other amounts payable by Agent or Lenders to lenders
of funds obtained by them in order to make or maintain their
Eurodollar Loans hereunder. A certificate as to any additional
amounts payable pursuant to the
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foregoing sentence submitted by
Agent or any Lender to Borrowing Agent shall be conclusive
absent manifest error.
(h)Notwithstanding any other
provision hereof, if any applicable law, treaty, regulation or
directive, or any change therein or in the interpretation or
application thereof, shall make it unlawful for any Lender (for
purposes of this subsection (h), the term "Lender" shall include
any Lender, its respective Lending Office and such other office
or branch where any Lender or any corporation or bank
controlling such Lender makes or maintains any Eurodollar Loans)
to make or maintain its Eurodollar Loans, the obligation of
Lenders to make or maintain Eurodollar Loans hereunder shall
forthwith be cancelled and Borrowers shall, if any affected
Eurodollar Loans are then outstanding, promptly upon request
from Agent, either pay all such affected Eurodollar Loans or
convert such affected Eurodollar Loans into Revolving Advances
of another type. If any such payment or conversion of any
Eurodollar Loan is made on a day that is not the last Business
Day of the Interest Period applicable to such Eurodollar Loan,
Borrowers shall pay Lenders, upon Agent's request, such amount
or amounts as may be necessary to compensate Lenders for any
loss or expense sustained or incurred by Lenders in respect of
such Eurodollar Loan as a result of such payment or conversion,
including (but not limited to) any interest or other amounts
payable by Lenders to lenders of funds obtained by Lenders in
order to make or maintain such Eurodollar Loan. A certificate
as to any additional amounts payable pursuant to the foregoing
sentence submitted by any Lender to Borrowing Agent shall be
conclusive absent manifest error.
2.3.Manner of Borrowing and Payment.
(a)All Advances shall be
disbursed from whichever office or other place Agent may
designate from time to time and, together with any and all other
Obligations of Borrowers to Agent or Lenders, shall be charged
to Borrowers' account on Agent's books. During the Term,
Borrowers may use the Revolving Advances by borrowing, prepaying
and reborrowing, all in accordance with the terms and conditions
of this Agreement. The proceeds of each Revolving Advance
requested by Borrowing Agent or deemed to have been requested by
Borrowers under Section 2.2(a), 2.5(c), 2.8 or 2.11 shall, with
respect to requested Revolving Advances to the extent Lenders
make such Revolving Advances, be made available to Borrowing
Agent on the day so requested by way of credit to Borrowing
Agent's operating account at Bank, or such other bank as
Borrowing Agent may designate following notification to Agent,
in federal funds or other immediately available funds. With
respect to Revolving Advances deemed to have been requested, the
proceeds of such Revolving Advances shall be disbursed to Agent
to be applied to the outstanding Obligations giving rise to such
deemed request.
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(b)Each borrowing of Revolving Advances shall be advanced
according to the applicable Commitment Percentages of Lenders.
(c)Each payment (including each
prepayment) by Borrowers on account of the principal of and
interest on any Note, shall be applied to the Revolving Advances
pro rata according to the applicable Commitment Percentages of
Lenders.
(d)(i)Notwithstanding anything
to the contrary contained in Sections 2.3(b) and (c), commencing
with the first Business Day following the Closing Date, each
borrowing of Revolving Advances shall be advanced by Agent and
each payment by any Borrower on account of Revolving Advances
shall be applied first to those Revolving Advances made by
Agent. On or before 1:00 P.M., New York time, on each
Settlement Date commencing with the first Settlement Date
following the Closing Date, Agent and Lenders shall make certain
payments as follows: (I) if the aggregate amount of new
Revolving Advances made by Agent during the preceding Week (if
any) exceeds the aggregate amount of repayments applied to
outstanding Revolving Advances during such preceding Week, then
each Lender shall provide Agent with funds in an amount equal to
its applicable Commitment Percentage of the difference between
(w) such Revolving Advances and (x) such repayments and (II) if
the aggregate amount of repayments applied to outstanding
Revolving Advances during such Week exceeds the aggregate amount
of new Revolving Advances made during such Week, then Agent
shall provide each Lender with funds in an amount equal to its
applicable Commitment Percentage of the difference between (y)
such repayments and (z) such Revolving Advances.
(ii)Each
Lender shall be entitled to earn interest at the applicable
Revolving Interest Rate on outstanding Revolving Advances which
it has funded.
(iii)
Promptly following each Settlement Date, Agent shall submit to
each Lender a certificate with respect to payments received and
Advances made during the Week immediately preceding such
Settlement Date. Such certificate of Agent shall be conclusive
in the absence of manifest error.
(e)If any Lender or any
Transferee (a "benefitted Lender") shall at any time receive any
payment of all or part of its Advances, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily
or involuntarily or by set-off), in a greater proportion than
any such payment to and Collateral received by any other Lender,
if any, in respect of such other Lender's Advances, or interest
thereon, and such greater proportionate payment or receipt of
Collateral is not expressly permitted hereunder, such benefitted
Lender shall purchase for cash from the other Lenders such
portion of each such other Lender's Revolving Advances, or shall
provide such other Lender with the benefits of any such
Collateral, or the proceeds thereof, as shall be necessary to
cause such benefitted Lender to share the excess
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payment or
benefits of such Collateral or proceeds ratably with each other
Lender; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such
benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such
recovery, but without interest thereon unless such benefitted
Lender is required to pay interest on such amounts to the Person
recovering such payment, in which case with interest thereon,
computed at the same rate, and on the same basis, as the
interest that such benefitted Lender is required to pay. Each
Lender so purchasing a portion of another Lender's Advances may
exercise all rights of payment (including, without limitation,
rights of setoff) with respect to such portion as fully as if
such Lender were the direct holder of such portion.
(f)Unless Agent shall have been
notified by telephone, confirmed in writing, by any Lender that
such Lender will not make the amount which would constitute its
Commitment Percentage of any Advances available to Agent, Agent
may (but shall not be obligated to) assume that such Lender
shall make such amount available to Agent and, in reliance upon
such assumption, make available to Borrowers a corresponding
amount. Agent will promptly notify Borrowing Agent of its
receipt of any such notice from a Lender. If such amount is
made available to Agent on a date after the date such Advance is
made, such Lender shall pay to Agent on demand an amount equal
to the product of (i) the daily average Federal Funds Rate
(computed on the basis of a year of 365 days) during such period
as determined by Agent, times (ii) such amount, times (iii) the
number of days from and including the date of such Advance is
made to the date on which such amount becomes immediately
available to Agent. A certificate of Agent submitted to any
Lender with respect to any amounts owing under this paragraph
(f) shall be conclusive, in the absence of manifest error. If
such amount is not in fact made available to Agent by such
Lender within three (3) Business Days after the date such
Advance is made, Agent shall be entitled to recover such amount,
with interest thereon at the Revolving Interest Rate applicable
to such Advance hereunder, on demand from Borrowers; provided,
however, that Agent's right to such recovery shall not prejudice
or otherwise adversely affect Borrowers' rights (if any) against
such Lender.
2.4.Maximum Advances. The aggregate balance of
Advances outstanding at any time shall not exceed the lesser of
(a) the Maximum Revolving Advance Amount or (b) the Formula
Amount.
2.5.Repayment of Advances.
(a)The Revolving Advances shall
be due and payable in full on the last day of the Term subject
to earlier prepayment as herein provided.
(b)Each Borrower recognizes that
the amounts evidenced by checks, notes, drafts or any other
items of payment
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relating to and/or proceeds of Collateral may
not be collectible by Agent on the date received. In
consideration of Agent's agreement to conditionally credit
Borrowers' account as of the Business Day on which Agent
receives those items of payment, each Borrower agrees that, in
computing the charges under this Agreement, all items of payment
shall be deemed applied by Agent on account of the Obligations
one (1) Business Day after confirmation to Agent by the Blocked
Account bank or Depository Account bank, as provided for in
Section 4.15(h) hereof, that such items of payment have been
collected in good funds and finally credited to Agent's account.
Agent is not, however, required to credit Borrowers' account for
the amount of any item of payment which is unsatisfactory to
Agent and Agent may charge Borrowers' account for the amount of
any item of payment which is returned to Agent unpaid.
(c)All payments of principal,
interest and other amounts payable hereunder, or under any of
the Other Documents shall be made to Agent at the Payment Office
not later than 1:00 P.M. (New York time) on the due date
therefor. Such payments shall be made in lawful money of the
United States of America in federal or other funds immediately
available to Agent. Any payments received after 1:00 p.m., New
York time, shall be deemed made on the next Business Day. Agent
shall have the right to effectuate payment on any and all
Obligations due and owing hereunder by charging Borrowers'
account as a Domestic Loan or by making Revolving Advances as
provided in Section 2.2.
(d)Borrowers shall pay
principal, interest, and all other amounts payable hereunder, or
under any Other Documents or any related agreement, without any
deduction whatsoever, including, but not limited to, any
deduction for any setoff or counterclaim.
2.6.Repayment of Excess Advances. The aggregate
balance of Advances outstanding at any time in excess of the
maximum amount of Advances permitted hereunder shall be
immediately due and payable without the necessity of any demand,
at the Payment Office, whether or not an Incipient Event of
Default or Event of Default has occurred.
2.7.Statement of Account. Agent shall maintain,
in accordance with its customary procedures, a loan account in
the name of Borrowers in which shall be recorded the date and
amount of each Advance made by Lenders and the date and amount
of each payment in respect thereof; provided, however, the
failure by Agent to record the date and amount of any Advance
shall not adversely affect any Lender. For each month, Agent
shall send to Borrowing Agent a statement showing the accounting
for the Advances made, payments made or credited in respect
thereof, and other transactions between Lenders and Borrowers,
during such month. The monthly statements shall be deemed
correct and binding upon Borrowers in the absence of manifest
error and shall constitute an account stated between Lenders and
Borrowers unless Agent receives a written statement of
Borrowers' specific exceptions thereto
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within thirty (30) days
after such statement is received by Borrowing Agent. The
records of Agent with respect to the loan account shall be prima
facie evidence of the amounts of Advances and other charges
thereto and of payments applicable thereto.
2.8.Letters of Credit. Subject to the terms and
conditions hereof, Agent shall issue or cause the issuance of
documentary trade letters of credit and standby letters of
credit for the account of one or more Borrowers (collectively,
"Letters of Credit"); provided, however, that Agent will not be
required to issue or cause to be issued any Letters of Credit to
the extent that the face amount of such Letters of Credit for
the account of one or more Borrowers would cause the sum of (i)
the outstanding Revolving Advances plus (ii) outstanding Letters
of Credit (with the requested Letter of Credit being deemed to
be outstanding for purposes of this calculation) to exceed the
lesser of (x) the Maximum Revolving Advance Amount or (y) the
Formula Amount (which is calculated as if the requested Letter
of Credit has been issued). The amount of all outstanding
Letters of Credit shall not exceed $5,000,000 at any time. The
amount of all outstanding documentary trade letters of credit
shall not exceed $2,500,000 at any time. All disbursements or
payments related to Letters of Credit shall be deemed to be
requests for Domestic Loans. Letters of Credit that have not
been drawn upon shall not bear interest. Letters of Credit shall
be subject to the terms and conditions set forth in the Letter
of Credit and Security Agreement attached hereto as Exhibit 2.8
(the "Letter of Credit Agreement").
2.9.Issuance of Letters of Credit.
(a)Borrowing Agent may request
Agent to issue or cause the issuance of a Letter of Credit by
delivering to Agent, at the Payment Office, the Letter of Credit
Agreement together with Bank's standard form of Letter of Credit
Application completed to the satisfaction of Agent, and such
other certificates, documents and other papers and information
as Agent may reasonably request.
(b)Each Letter of Credit shall,
among other things, (i) provide for the payment of sight drafts
when presented thereunder in accordance with the terms thereof
and when accompanied by the documents described therein and (ii)
have an expiry date not later than eighteen (18) months in the
case of Letters of Credit which are standby Letters of Credit
and twelve (12) months in the case of Letters of Credit other
than standby Letters of Credit after such Letter of Credit's
date of issuance and in no event later than twelve (12) months
after the last day of the Term. Each Letter of Credit
Agreement, Letter of Credit Application and Letter of Credit
shall be subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, and any amendment or revision
thereof and, to the extent not inconsistent therewith, the laws
of the State of New York.
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2.10.Requirements For
Issuance of Letters of Credit.
(a)In connection with the
issuance of any Letter of Credit, Borrowers shall indemnify, and
save and hold harmless, Agent and each Lender from any loss,
cost, expense or liability, including, without limitation,
payments made by Agent or any Lender, and expenses and
reasonable attorneys' fees incurred by Agent or any Lender,
arising out of, or in connection with, any Letter of Credit
issued or to be issued for any Borrower. Borrowers shall be
bound by Agent's or any issuing or accepting bank's regulations
and good faith interpretations of any Letter of Credit issued
for any Borrower's account, although this interpretation may be
different from such Borrower's own, and neither Agent nor any
Lender, nor the bank which opened such Letter of Credit, nor any
of its correspondents shall be liable for any error, negligence,
or mistakes, whether of omission or commission, in following
Borrowing Agent's instructions or those contained in any Letter
of Credit or of any modifications, amendments or supplements
thereto or in issuing or paying any Letter of Credit, except for
Agent's or such Lender's or such correspondents' gross (not
mere) negligence or willful misconduct.
(b)Borrowing Agent shall
authorize and direct any bank which issues a Letter of Credit to
name any Borrower as the "Account Party" therein and to deliver
to Agent all instruments, documents, and other writings and
property received by such bank pursuant to such Letter of Credit
and to accept and rely upon Agent's instructions and agreements
with respect to all matters arising in connection with such
Letter of Credit, the application therefor or any acceptance
thereof.
(c)In connection with all
Letters of Credit issued or caused to be issued by Agent under
this Agreement, each Borrower hereby appoints Agent, or its
designee, as its attorney, with full power and authority (i) to
sign and/or endorse such Borrower's name upon any warehouse or
other receipts, letter of credit applications and acceptances;
(ii) to sign such Borrower's name on bills of lading; (iii) to
clear Inventory through the United States of America Customs
Department ("Customs") in the name of such Borrower or Agent or
Agent's designee, and to sign and deliver to Customs officials
powers of attorney in the name of such Borrower for such
purpose; and (iv) to complete in such Borrower's name or Agent's
name, or in the name of Agent's designee, any order, sale or
transaction, to obtain the necessary documents in connection
therewith, and to collect the proceeds thereof. Neither Agent
nor its attorneys will be liable for any acts or omissions or
for any error of judgment or mistakes of fact or law, except for
Agent's or its attorney's gross (not mere) negligence or willful
misconduct. This power, being coupled with an interest, is
irrevocable as long as any Letters of Credit remain outstanding.
(d)Each Lender shall be deemed
to have irrevocably purchased an undivided participation in
Agent's credit support enhancement provided to the issuing bank
of any Letter of
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Credit and each Revolving Advance made as a
consequence of the issuance of a Letter of Credit and all
disbursements thereunder in an amount equal to such Lender's
applicable Commitment Percentage times the outstanding amount of
the Letters of Credit and disbursements thereunder. In the
event that at the time a disbursement is made with respect to a
Letter of Credit, the unpaid balance of Revolving Advances
exceeds or would exceed, with the making of such disbursement,
the lesser of (i) the Maximum Revolving Advance Amount or (ii)
the Formula Amount minus, in each case, the aggregate amount of
outstanding Letters of Credit, and such disbursement is not
reimbursed by Borrowers within two (2) Business Days, Agent
shall promptly notify each Lender and upon Agent's demand each
Lender shall pay to Agent such Lender's proportionate share of
such unreimbursed disbursement together with such Lender's
proportionate share of Agent's unreimbursed costs and expenses
relating to such unreimbursed disbursement. Upon receipt by
Agent of a repayment from any Borrower of any amount disbursed
by Agent for which Agent had already been reimbursed by Lenders,
Agent shall deliver to each Lender that Lender's pro rata share
of such repayment. Each Lender's participation commitment shall
continue until the last to occur of any of the following events:
(A) Agent ceases to be obligated to issue Letters of Credit
hereunder; (B) no Letter of Credit issued hereunder remains
outstanding and uncancelled or (C) all Persons (other than the
applicable Borrower) have been fully reimbursed for all payments
made under or relating to Letters of Credit.
2.11.Additional Payments. Any sums expended by
Agent due to any Borrower's failure to perform or comply with
its obligations under this Agreement or any Other Document
including, without limitation, any Borrower's obligations under
Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1, may be charged to
Borrowers' account as a Domestic Loan and added to the
Obligations.
2.12.Defaulting Lender.
(a)Notwithstanding anything to
the contrary contained herein, in the event any Lender (x) has
refused (which refusal constitutes a breach by such Lender of
its obligations under this Agreement) to make available its
portion of any Revolving Advance or (y) notifies either Agent or
any Borrower that it does not intend to make available its
portion of any Revolving Advance (if the actual refusal would
constitute a breach by such Lender of its obligations under this
Agreement) (each, a "Lender Default"), all rights and
obligations hereunder of such Lender (a "Defaulting Lender") as
to which a Lender Default is in effect and of the other parties
hereto shall be modified to the extent of the express provisions
of this Section 2.12 while such Lender Default remains in effect.
(b)Revolving Advances shall be
incurred pro rata from Lenders (the "Non-Defaulting Lenders)
which are not Defaulting Lenders based on their respective
Commitment Percentages, and no Commitment Percentage of any
Lender or any pro rata share of any
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Revolving Advances required
to be advanced by any Lender shall be increased as a result of
such Lender Default. Amounts received in respect of principal
of Revolving Advances shall be applied to reduce Revolving
Advances of each Lender pro rata based on the aggregate of the
outstanding Revolving Advances of all Lenders at the time of
such application; provided that, such amount shall not be
applied to any Revolving Advances of a Defaulting Lender at any
time when, and to the extent that, the aggregate amount of
Revolving Advances of any Non-Defaulting Lender exceeds such
NonDefaulting Lender's Commitment Percentage of all Revolving
Advances then outstanding.
(c)A Defaulting Lender shall not
be entitled to give instructions to Agent or to approve,
disapprove, consent to or vote on any matters relating to this
Agreement and the Other Documents. All amendments, waivers and
other modifications of this Agreement and the Other Documents
may be made without regard to a Defaulting Lender and, solely
for purposes of the definition of "Required Lenders", a
Defaulting Lender shall be deemed not to be a Lender and not to
have Revolving Advances outstanding.
(d)Other than as expressly set
forth in this Section 2.12, the rights and obligations of a
Defaulting Lender (including the obligation to indemnify Agent)
and the other parties hereto shall remain unchanged. Nothing in
this Section 2.12 shall be deemed to release any Defaulting
Lender from its obligations under this Agreement and the Other
Documents, shall alter such obligations, shall operate as a
waiver of any default by such Defaulting Lender hereunder, or
shall prejudice any rights which any Borrower, Agent or any
Lender may have against any Defaulting Lender as a result of any
default by such Defaulting Lender hereunder.
(e)In the event a Defaulting
Lender retroactively cures to the satisfaction of Agent the
breach which caused a Lender to become a Defaulting Lender, such
Defaulting Lender shall no longer be a Defaulting Lender and
shall be treated as a Lender under this Agreement.
III. INTEREST AND FEES.
3.1.Interest. Interest on Revolving Advances
shall be payable in arrears with respect to Domestic Loans, on
the last day of each month, and with respect to Eurodollar
Loans, at the end of each Interest Period. Interest charges
shall be computed on the principal amount of Revolving Advances
outstanding at the end of each day at a rate per annum equal to
the Revolving Interest Rate. Whenever, subsequent to the date of
this Agreement, the Alternate Base Rate is increased or
decreased, the Revolving Interest Rate shall be similarly
changed without notice or demand of any kind by an amount equal
to the amount of such change in the Alternate Base Rate during
the time such change or changes remain in effect. Upon and
after the occurrence of an Event of Default, and during the
continuation thereof, the Obligations shall bear interest at the
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applicable Revolving Interest Rate plus two percent (2%) per
annum (the "Default Rate").
3.2.Letter of Credit Fees.
Borrowers shall pay Agent for the ratable benefit
of Lenders (A) for issuing or causing the issuance of a standby
Letter of Credit, a fee computed at a rate per annum of one and
one-half percent (1.50%) on the undrawn face amount thereof from
time to time and (B) for issuing or causing the issuance of a
Letter of Credit that is not a standby Letter of Credit, a fee
computed at a rate per annum equal to one percent (1.0%) on the
undrawn face amount thereof from time to time (the fees set
forth in (A) and (B) referred to as "Letter of Credit Fees").
Such fees and charges shall be payable (i) in the case of any
Letter of Credit, on its opening, (ii) in the case of a standby
Letter of Credit, (A) monthly thereafter in advance and (B) upon
each increase in the face amount thereof and (iii) in the case
of any Letter of Credit that is not a standby Letter of Credit,
at the time of each increase in the face amount thereof.
Borrowers shall also pay to Agent when such charges are incurred
by Agent or any issuing bank, Agent's or any issuing bank's
other customary charges payable in connection with Letters of
Credit, as in effect from time to time (which charges have
heretofore been furnished to Borrowing Agent and any changes in
such charges shall be furnished to Borrowing Agent by Agent upon
request). Any such charge in effect at the time of a particular
transaction shall be the charge for that transaction,
notwithstanding any subsequent change in Agent's or any issuing
bank's prevailing charges for that type of transaction. All
Letter of Credit Fees payable hereunder shall be deemed earned
in full on the date when the same are due and payable hereunder
and shall not be subject to rebate or proration upon the
termination of this Agreement for any reason.
3.3.Fees
(a)Unused Line Fee. If, for any
month during the term of this Agreement, the average daily
outstanding amount of the Advances for each day of such month
does not equal the Maximum Revolving Advance Amount, then
Borrowers shall pay to Agent for the ratable benefit of Lenders
a fee at a rate equal to 0.375% per annum on the amount by which
the Maximum Revolving Advance Amount exceeds such average daily
outstanding amount. Such fee shall be payable to Agent in
arrears on the last day of each month.
(b)Amendment Fee. Upon
execution of this Agreement, Borrowers shall pay Agent a fee in
the amount of $75,000.
3.4.(a)Collateral Evaluation Fee. Borrowers
shall pay Agent a collateral evaluation fee equal to $3,000 per
month commencing on the first day of the month following the
Closing Date and on the first day of each month thereafter
during the Term; provided, however if the amount of Advances
outstanding at any time
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during any month exceeds $5,000,000 then
the collateral evaluation fee shall be increased to $5,000 per
month for the following month. The collateral evaluation fee
shall be deemed earned in full when same is due and payable
hereunder and shall not be subject to rebate or proration upon
termination of this Agreement for any reason.
(b)Collateral Monitoring Fee.
Borrowers shall pay to Agent and/or any Lender on the first day
of each month following any month in which Agent and/or such
Lender performs any monitoring function, monitoring fees in an
amount equal to $600.00 per day for each person employed to
perform such monitoring plus all reasonable out-of-pocket costs
and disbursements incurred by Agent and/or such Lender in the
performance of such monitoring; provided, however, monitoring
fees shall only be paid to a Lender which performs such
monitoring function jointly with Agent.
3.5.Computation of Interest and Fees. Interest
and fees hereunder shall be computed on the basis of a year of
360 days for the actual number of days elapsed. If any payment
to be made hereunder becomes due and payable on a day other than
a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be
payable at the applicable Revolving Interest Rate during such
extension.
3.6.Maximum Charges. In no event whatsoever
shall interest and other charges charged hereunder exceed the
highest rate permissible under law which a court of competent
jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that Agent or any
Lender has received interest and other charges hereunder in
excess of such highest rate, such excess interest shall be first
applied to any unpaid principal balance owed by Borrowers, and
if the then remaining excess interest is greater than the
previously unpaid principal balance, the applicable recipient
shall promptly refund such excess amount to Borrowers and the
provisions hereof shall be deemed amended to provide for such
permissible rate.
3.7.Increased Costs. In the event that any
applicable law, treaty or governmental regulation, or any change
therein or in the interpretation or application thereof, or
compliance by Agent or any Lender (for purposes of this Section
3.7, the term "Lender" shall include any Lender, any Lending
Office and any corporation or bank controlling any Lender) with
any request or directive (whether or not having the force of
law) from any central bank or other financial, monetary or other
regulatory authority, shall:
(a)subject Agent or any Lender
to any tax of any kind whatsoever with respect to this Agreement
or change the basis of taxation of payments to Agent or any
Lender of principal, fees, interest or any other amount payable
hereunder or under any of the other Documents (except for
changes in the rate of tax on the net income of Agent or any
Lender imposed by the jurisdiction where its principal office is
located);
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(b)impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held
by, or deposits in or for the account of, advances or loans by,
or other credit extended by, any office of Agent or any Lender,
including (without limitation) pursuant to Regulation D of the
Board of Governors of the Federal Reserve System; or
(c)impose on Agent or any Lender
any other condition with respect to this Agreement or any of the
other Documents;
and the result of any of the foregoing is to increase the cost
to Agent or any Lender of making, renewing or maintaining its
Advances hereunder (or its interest therein) by an amount that
Agent or such Lender reasonably deems to be material or to
reduce the amount of any payment (whether of principal, interest
or otherwise) in respect of any of the Advances by an amount
that Agent or such Lender deems to be material, then, in any
such case Borrowers shall promptly pay Agent or such Lender,
upon its demand, such additional amount as will compensate Agent
or such Lender for such additional cost or such reduction, as
the case may be. Agent or such Lender shall certify the amount
of such additional cost or reduced amount to Borrowing Agent and
such certification shall be conclusive absent manifest error.
3.8.Basis For Determining Interest Rate
Inadequate or Unfair. In the event that any Lender shall have
determined that:
(a)reasonable means do not exist
for ascertaining the Eurodollar Rate for any Interest Period; or
(b)deposits in Dollars in the
relevant amount and for the relevant maturity are not available
in the London interbank eurodollar market or Eurocurrency
market, as the case may be, with respect to an outstanding
Eurodollar Loan, a proposed Eurodollar Loan, or a proposed
conversion of a Domestic Loan into a Eurodollar Loan;
then such Lender shall give Agent and Borrowing Agent prompt
written, telephonic or telegraphic notice of such determination.
If such notice is given, (i) any such requested Eurodollar Loan
shall be made as a Domestic Loan, unless Borrowing Agent shall
notify Agent, no later than 10:00 a.m. (New York time) three (3)
Business Days prior to the date of such proposed borrowing, that
the request for such borrowing shall be cancelled or made as an
unaffected type of Eurodollar Loan, and (ii) any Eurodollar Loan
or Domestic Loan which was to have been converted to an affected
type of Eurodollar Loan, shall be continued as or converted into
a Domestic Loan or, if Borrowing Agent shall notify Agent, no
later than 10:00 a.m. (New York time) three (3) Business Days
prior to the proposed conversion, shall be maintained as or
converted to an unaffected type of Eurodollar Loan. Until such
notice has been withdrawn, Lenders shall have no obligation to
make an affected type of Eurodollar Loan or maintain outstanding
affected Eurodollar
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Loans and Borrowers shall not have the right
to convert a Revolving Advance into an affected Eurodollar Loan.
3.9.Capital Adequacy.
(a)In the event that Agent or
any Lender shall have reasonably determined that any applicable
law, rule, regulation or guideline regarding capital adequacy,
or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Agent or any Lender
(for purposes of this Section 3.9, the term "Lender" shall
include any Lender and any corporation or bank controlling any
Lender) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect
of reducing the rate of return on Agent's or any Lender's
capital as a consequence of its obligations hereunder to a level
below that which Agent or such Lender could have achieved but
for such adoption, change or compliance (taking into
consideration Agent and each Lender's policies with respect to
capital adequacy) by an amount deemed by Agent or any Lender to
be material, then, from time to time, Borrowers shall pay upon
demand to Agent or such Lender such additional amount or amounts
as will compensate Agent or such Lender for such reduction. In
determining such amount or amounts, Agent or such Lender may use
any reasonable averaging or attribution methods. The protection
of this Section 3.9 shall be available to Agent and each Lender
regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation
or condition.
(b)A certificate of Agent or any
Lender setting forth such amount or amounts as shall be
necessary to compensate Agent or such Lender with respect to
Section 3.9(a) when delivered to Borrowing Agent shall be
conclusive absent manifest error.
3.10.Survival. The obligations of Borrowers
under Sections 2.2(g), 2.2(h), 2.10, 3.7, 3.8, 3.9 and 15.1
shall survive termination of this Agreement and the Other
Documents and payment in full of the Obligations.
IV. COLLATERAL: GENERAL TERMS
4.1.Security Interest in the Collateral. To
secure the prompt payment and performance to Agent and each
Lender of the Obligations, each Borrower hereby acknowledges and
confirms that Agent for the ratable benefit of each Lender has
and shall continue to have a Lien on all Collateral heretofore
granted by such Borrower pursuant to the Original Loan Agreement
and to the extent not otherwise granted thereunder assigns and
pledges to Agent for the ratable benefit of each Lender, and
grants to Agent for the ratable benefit of each Lender a
continuing security interest in and to, all of the Collateral,
whether now owned or existing or hereafter acquired or arising
and wheresoever located. Each
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Borrower shall mark its books and
records as may be necessary or appropriate to evidence, protect
and perfect Agent's aforesaid security interest and shall cause
its financial statements to reflect such security interest.
4.2.Perfection of Security Interest. Borrowers
shall take all action that may be necessary or desirable, or
that Agent may reasonably request, so as at all times to
maintain the validity, perfection, enforceability and priority
of Agent's security interest hereunder in the Collateral or to
enable Agent to protect, exercise or enforce its rights
hereunder and in the Collateral, including, but not limited to,
(i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords' or mortgagees' lien
waivers, (iii) delivering to Agent, endorsed or accompanied by
such instruments of assignment as Agent may specify, and
stamping or marking, in such manner as Agent may specify, any
and all chattel paper, instruments, letters of credit and
advices thereof and documents evidencing or forming a part of
the Collateral, (iv) entering into warehousing, lockbox and
other custodial arrangements satisfactory to Agent, and (v)
executing and delivering financing statements, instruments of
pledge, mortgages, notices and assignments, in each case in form
and substance reasonably satisfactory to Agent, relating to the
creation, validity, perfection, maintenance or continuation of
Agent's security interest under the Uniform Commercial Code or
other applicable law. All charges, expenses and fees Agent may
incur in doing any of the foregoing, and any local taxes
relating thereto, shall be charged to Borrowers' account as a
Domestic Loan and added to the Obligations, or, at Agent's
option, shall be paid to Agent immediately upon demand.
4.3.Disposition of Collateral. Each Borrower
will safeguard and protect all Collateral for Agent's and
Lenders' general account and make no disposition thereof whether
by sale, lease or otherwise except (a) the sale or lease of
Inventory in the ordinary course of business and (b) the
disposition or transfer of obsolete or worn-out Equipment in the
ordinary course of business.
4.4.Preservation of Collateral. Following the
occurrence and during the continuance of an Event of Default, in
addition to the rights and remedies set forth in Section 11.1,
Agent: (a) may at any time take such steps as Agent deems
necessary to protect Agent's and Lenders' interest in and to
preserve the Collateral, including the hiring of such security
guards or the placing of other security protection measures as
Agent may deem appropriate; (b) may employ and maintain at any
Borrower's premises a custodian who shall have full authority to
do all acts necessary to protect Agent's and Lenders' interests
in the Collateral; (c) may lease warehouse facilities to which
Agent may move all or part of the Collateral; (d) may use any
Borrower's owned or leased lifts, hoists, trucks and other
facilities or equipment for handling or removing the Collateral;
and (e) shall have, and is hereby granted, a right of ingress
and egress to the places where the Collateral is located, and
may proceed over and through any of
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such Borrower's owned or
leased property. Each Borrower shall cooperate fully with all
of Agent's efforts to preserve the Collateral and will take such
actions to preserve the Collateral as Agent may reasonably
direct. All of Agent's reasonable expenses of preserving the
Collateral, including any expenses relating to the bonding of a
custodian, shall be charged to Borrowers' account as a Domestic
Loan and added to the Obligations.
4.5.Ownership of Collateral. With respect to the
Collateral, at the time the Collateral becomes subject to
Agent's security interest hereunder: (a) each Borrower shall be
the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first priority security interest
in each and every item of its respective Collateral to Agent for
the benefit of Lenders; and, except for Permitted Encumbrances
the Collateral shall be free and clear of all Liens whatsoever;
(b) each document and agreement executed by any Borrower or
delivered to Agent or any Lender in connection with this
Agreement shall be true and correct in all material respects;
(c) all signatures and endorsements of any Borrower that appear
on such documents and agreements shall be genuine and such
Borrower shall have full capacity to execute same; and (d) the
Equipment and Inventory of each Borrower shall be located as set
forth on Schedule 4.5 and shall not be removed from such
location(s) without the prior written consent of Agent except
with respect to (i) the sale or lease of Inventory in the
ordinary course of business and (ii) the sale of Equipment to
the extent permitted in Section 4.3.
4.6.Defense of Agent's and Lenders' Interests.
Until (a) indefeasible payment and performance in full of all of
the Obligations and (b) termination of this Agreement, Agent's
and Lenders' interests in the Collateral shall continue in full
force and effect. During such period no Borrower shall, without
Agent's prior written consent, pledge, sell (except Inventory in
the ordinary course of business and Equipment to the extent
permitted in Section 4.3), lease (except Inventory in the
ordinary course of business), assign, transfer, create or suffer
to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way, except for Permitted Encumbrances, any
part of the Collateral. Borrowers shall defend Agent's and
Lenders' interests in the Collateral against any and all Persons
whatsoever. At any time following demand by Agent for payment
of all Obligations in accordance with the terms of this
Agreement, Agent shall have the right to take possession of the
indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation: labels,
stationery, documents, instruments and advertising materials.
If Agent exercises this right to take possession of the
Collateral, Borrowers shall, upon demand, assemble it in the
best manner possible and make it available to Agent at a place
reasonably convenient to Agent. In addition, with respect to
all Collateral, Agent and Lenders shall be entitled following
the occurrence of an Event of Default to all of the rights and
remedies set forth herein and further provided by the Uniform
Commercial Code or other applicable law. At any time following
the occurrence
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and during the continuance of an Event of
Default, Borrowers shall, upon demand, and Agent may, at its
option, instruct all suppliers, carriers, forwarders, warehouses
or others receiving or holding cash, checks, Inventory,
documents or instruments in which Agent for the benefit of
Lenders holds a security interest to deliver same to Agent
and/or subject to Agent's order and if they shall come into any
Borrower's possession, they, and each of them, shall be held by
such Borrower in trust as Agent's and Lenders' trustee, and such
Borrower will immediately deliver them to Agent in their
original form together with any necessary endorsement.
4.7.Books and Records. Each Borrower shall (a)
keep proper books of record and account in which full, true and
correct entries will be made of all dealings or transactions of
or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges,
levies and claims; and (c) on a reasonably current basis set up
on its books, from its earnings, allowances against doubtful
Receivables, advances and investments and all other proper
accruals (including without limitation by reason of enumeration,
accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of
properties), which should be set aside from such earnings in
connection with its business. All determinations pursuant to
this Section 4.7 shall be made in accordance with, or as
required by, GAAP consistently applied in the opinion of such
independent public accountant as shall then be regularly engaged
by Borrowers.
4.8.Financial Disclosure. Borrowers hereby
irrevocably authorize and direct all accountants and auditors
employed by Borrowers at any time during the term of this
Agreement to exhibit and deliver to Agent and each Lender copies
of any of Borrowers' financial statements, trial balances or
other accounting records of any sort in each such accountant's
or auditor's possession, and to disclose to Agent and each
Lender any information such accountants may have concerning
Borrowers' financial status and business operations. Each
Borrower hereby authorizes all federal, state and municipal
authorities to furnish to Agent and each Lender copies of
reports or examinations relating to any Borrower, whether made
by a Borrower or otherwise; however, Agent and each Lender will
attempt to obtain such information or materials directly from
Borrowers prior to obtaining such information or materials from
such accountants or authorities.
4.9.Compliance with Laws. Each Borrower shall
comply with all acts, rules, regulations and orders of any
legislative, administrative or judicial body or official
applicable to the Collateral or any part thereof or to the
operation of any Borrower's business the non-compliance with
which would have a material adverse effect on the Collateral, or
the operations, business or condition (financial or otherwise)
of any Borrower. Any Borrower may, however, contest or dispute
any acts, rules, regulations, orders and directions of those
bodies or officials in any reasonable manner, provided that any
related Lien is inchoate
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or stayed and sufficient reserves are
established to the reasonable satisfaction of Agent to protect
Agent's lien on or security interest in the Collateral. The
Collateral at all times shall be maintained in accordance with
the requirements of all insurance carriers which provide
insurance with respect to the Collateral so that such insurance
shall remain in full force and effect.
4.10.Inspection of Premises. At all reasonable
times Agent or any Lender shall have full access to and the
right to audit, check, inspect and make abstracts and copies
from Borrowers' books, records, audits, correspondence and all
other papers relating to the Collateral and the operation of any
Borrower's business. Agent, any Lender and their respective
agents may enter upon any Borrower's premises at any time during
business hours and at any other reasonable time, and from time
to time, for the purpose of inspecting the Collateral and any
and all records pertaining thereto and the operation of any
Borrower's business.
4.11.Insurance. Borrowers shall bear the full
risk of any loss of any nature whatsoever with respect to the
Collateral. At Borrowers' own cost and expense in amounts and
with carriers acceptable to Agent, Borrowers shall (a) keep all
its insurable properties and properties in which Borrowers have
an interest insured against the hazards of fire, flood and
sprinkler leakage, those hazards covered by extended coverage
insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar
to Borrowers' including, without limitation, business
interruption insurance; (b) maintain a bond in such amounts as
is customary in the case of companies engaged in businesses
similar to Borrowers' insuring against larceny, embezzlement or
other criminal misappropriation of an insured's officers and
employees who may either singly or jointly with others at any
time have access to the assets or funds of any Borrower either
directly or through authority to draw upon such funds or to
direct generally the disposition of such assets; (c) maintain
public and product liability insurance against claims for
personal injury, death or property damage suffered by others;
(d) maintain all such worker's compensation or similar insurance
as may be required under the laws of any state or jurisdiction
in which any Borrower is engaged in business; (e) furnish Agent
with (i) copies of all policies and evidence of the maintenance
of such policies by the renewal thereof at least thirty (30)
days before any expiration date, and (ii) appropriate loss
payable endorsements in form and substance satisfactory to
Agent, naming Agent as a co-insured and loss payee as its
interests may appear with respect to all insurance coverage
referred to in clauses (a) and (b) above, and providing (A) that
all proceeds to which Borrowers are entitled to thereunder shall
be payable to Agent and Borrowers, jointly, (B) that Agent's and
Lenders' interest shall not be affected by any act or neglect of
the named insured or owner of the property described in such
policy, and (C) that such policy and loss payable clauses may
not be cancelled, amended or terminated unless at least thirty
(30) days' prior written notice is given to Agent. In the event
of any loss thereunder, the carriers named therein hereby are
directed
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by Agent, Lenders and Borrowers to make payment for
such loss to Borrowers and Agent jointly. If any insurance
losses are paid by check, draft or other instrument payable to
any Borrower and Agent jointly, Agent may endorse such
Borrower's name thereon and do such other things as Agent may
deem advisable to reduce the same to cash. Agent is hereby
authorized to adjust and compromise claims under insurance
coverage referred to in clauses (a) and (b) above which
authority may be utilized by Agent only after the occurrence and
during the continuation of an Event of Default. Borrowers shall
obtain Agent's consent to any adjustment or settlement relating
to claims in excess of $100,000 other than claims relating to
product shipment damage or losses provided that Agent will not
unreasonably withhold its consent to such adjustments and
settlements. All loss recoveries received by Agent upon any
such insurance may be applied to the Obligations, in such order
as Agent in its sole discretion shall determine. Any surplus
shall be paid by Agent to Borrowers or applied as may be
otherwise required by law. Any deficiency thereon shall be paid
by Borrowers to Agent for the account of itself and Lenders, on
demand. Anything hereinabove to the contrary notwithstanding,
and subject to the fulfillment of the conditions set forth
below, Agent shall remit to Borrowers for the purpose of
repairing, replacing or restoring the insured property which was
the subject of the loss, insurance proceeds received by Agent
during any calendar year under insurance policies procured and
maintained by Borrowers which insure Borrowers' insurable
properties to the extent such insurance proceeds do not exceed
$3,000,000 in the aggregate during such calendar year or
$2,000,000 per occurrence. In the event the amount of insurance
proceeds received by Agent for any occurrence exceeds $2,000,000
or in the event Borrowers have previously received (or, after
giving effect to any proposed remittance by Agent to Borrowers
would receive) insurance proceeds which equal or exceed
$3,000,000 in the aggregate during any calendar year, then Agent
may, in its sole discretion, which discretion shall be exercised
in a reasonable manner, either remit the insurance proceeds to
Borrowers upon Borrowers providing Agent with evidence
reasonably satisfactory to Agent that the insurance proceeds
will be used by Borrowers to repair, replace or restore the
insured property which was the subject of the insurable loss, or
apply the proceeds to the Obligations, as aforesaid. The
agreement of Agent to remit insurance proceeds in the manner
above provided shall be subject in each instance to satisfaction
of each of the following conditions: (x) no Event of Default
shall then have occurred and be continuing, and (y) Borrowers
shall use such insurance proceeds to repair, replace or restore
the insurable property which was the subject of the insurable
loss and for no other purpose.
4.12.Failure to Pay Insurance. If Borrowers fail
to obtain insurance as hereinabove provided, or to keep the same
in force, Agent, if Agent so elects, may obtain such insurance
and pay the premium therefor for Borrowers' account, and charge
Borrowers' account therefor as a Domestic Loan and such expenses
so paid shall be part of the Obligations.
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4.13.Payment of Taxes.
Borrowers will pay, when due, all Charges or Claims lawfully
levied or assessed upon Borrowers or any of the Collateral
including, without limitation, real and personal property taxes,
assessments and charges and all franchise, income, employment,
social security benefits, withholding, and sales taxes. If any
Charge (other than taxes on the net income of Agent or any
Lender imposed by the jurisdiction where its principal office is
located) by any governmental authority is or may be imposed on
or as a result of any transaction between Borrowers, Agent and
Lenders which Agent or any Lender may be required to withhold or
pay or if any Charges remain unpaid after the date fixed for
their payment, or if any Claim shall be made which, in Agent's
reasonable opinion, may possibly create a valid Lien on the
Collateral, Agent may upon five (5) days prior notice to
Borrowers pay the Liens, Charges or Claims and Borrowers hereby
indemnify and hold harmless Agent and each Lender in respect
thereof. Agent will not pay any Liens, Charges or Claims to the
extent that Borrowers have contested or disputed those Liens,
Charges and Claims in good faith, by expeditious protest,
administrative or judicial appeal or similar proceeding provided
that any related tax lien is stayed and sufficient reserves are
established to the reasonable satisfaction of Agent to protect
Agent's security interest in or Lien on the Collateral. The
amount of any payment by Agent under this Section 4.13 shall be
charged to Borrowers' account as a Domestic Loan and added to
the Obligations and, until Borrowers shall furnish Agent and
Lenders with an indemnity therefor (or supply Agent with
evidence satisfactory to Agent that due provision for the
payment thereof has been made), Agent and Lenders may hold
without interest any amounts standing to Borrowers' credit and
Agent shall retain its security interest in any and all
Collateral held by Agent.
4.14.Payment of Leasehold Obligations. Each
Borrower shall at all times pay, when and as due, its rental
obligations under all leases under which it is a tenant, and
shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect.
4.15.Receivables.
(a)Nature of Receivables. Each
of the Receivables shall be a bona fide and valid account
representing a bona fide indebtedness incurred by the Customer
therein named, for a fixed sum as set forth in the invoice
relating thereto (provided immaterial or unintentional invoice
errors shall not be deemed to be a breach hereof) with respect
to an absolute sale or lease and delivery of goods upon stated
terms of the applicable Borrower, or work, labor or services
theretofore rendered by such Borrower as of the date each
Receivable is created. Each Receivable shall be due and owing
in accordance with such Borrower's standard terms of sale
without dispute, setoff or counterclaim except as may be stated
on the accounts receivable schedules delivered by Borrowing
Agent to Agent.
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(b)Solvency of Customers. Each Customer, to the best of
Borrowers' knowledge, as of the date each Receivable is created,
is and will be solvent and able to pay all Receivables on which
such Customer is obligated in full when due or with respect to
such Customers of Borrowers who are not solvent, the applicable
Borrower has set up on its books and in its financial records
bad debt reserves adequate to cover such Receivables.
(c)Locations of Borrowers. Each
Borrower's chief executive office is located at the address set
forth in Schedule 4.15(c). Until written notice is given to
Agent by Borrowing Agent of any other office at which any
Borrower keeps its records pertaining to Receivables, all such
records shall be kept at such executive office.
(d)Collection of Receivables.
Upon notice from Agent which may be given at any time following
the occurrence and during the continuance of an Event of
Default, Borrowers will, at Borrowers' sole cost and expense,
but on Agent's behalf and for Agent's account, collect as
Agent's and Lenders' property and in trust for Lenders all
amounts received on Receivables, and shall not commingle such
collections with Borrowers' funds or use the same except to pay
Obligations. Borrowers shall, upon request, deliver to Agent in
original form and on the date of receipt thereof, all checks,
drafts, notes, money orders, acceptances, cash and other
evidences of Indebtedness.
(e)Notification of Assignment of
Receivables. At any time following the occurrence and during the
continuance of an Event of Default, Agent shall have the right
to send notice of the assignment of, and Agent's security
interest in, the Receivables to any and all Customers or any
third party holding or otherwise concerned with any of the
Collateral and, thereafter, Agent shall have the sole right to
collect the Receivables, take possession of the Collateral, or
both. Agent's actual collection expenses, including, but not
limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any
collection personnel used for collection, may be charged to
Borrowers' account as a Domestic Loan and added to the
Obligations.
(f)Power of Agent to Act on
Borrowers' Behalf. Agent shall have the right to receive,
endorse, assign and/or deliver in the name of Agent or any
Borrower any and all checks, drafts and other instruments for
the payment of money relating to the Receivables, and each
Borrower hereby waives notice of presentment, protest and
non-payment of any instrument so endorsed. Each Borrower hereby
constitutes Agent or Agent's designee as such Borrower's
attorney with power (i) to endorse such Borrower's name upon any
notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral; (ii) to sign such Borrower's
name on any invoice or bill of lading relating to any of the
Receivables, drafts against Customers, assignments and
verifications of Receivables; (iii) to send verifications of
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Receivables to any Customer; (iv) to sign such Borrower's name
on all financing statements or any other documents or
instruments deemed necessary or appropriate by Agent to
preserve, protect, or perfect Agent's and Lenders' interest in
the Collateral and to file same; (v) to demand payment of the
Receivables; (vi) to enforce payment of the Receivables by legal
proceedings or otherwise; (vii) to exercise all of such
Borrower's rights and remedies with respect to the collection of
the Receivables and any other Collateral; (viii) to settle,
adjust, compromise, extend or renew the Receivables; (ix) to
settle, adjust or compromise any legal proceedings brought to
collect Receivables; (x) to prepare, file and sign such
Borrower's name on a proof of claim in bankruptcy or similar
document against any Customer; (xi) to prepare, file and sign
such Borrower's name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the
Receivables; and (xii) to do all other acts and things necessary
to carry out this Agreement. Agent shall only exercise the
powers conferred by clauses (v), (vi), (vii), (viii) and (ix)
following the occurrence and during the continuation of an Event
of Default. All acts of said attorney or designee are hereby
ratified and approved, and said attorney or designee shall not
be liable for any acts of omission or commission nor for any
error of judgment or mistake of fact or of law, unless done
maliciously or with gross (not mere) negligence; this power
being coupled with an interest is irrevocable while any of the
Obligations remain unpaid. Agent shall have the right at any
time following the occurrence and during the continuation of an
Event of Default, to change the address for delivery of mail
addressed to any Borrower to such address as Agent may designate.
(g)No Liability. Neither Agent
nor any Lender shall, under any circumstances or in any event
whatsoever, have any liability for any error or omission or
delay of any kind occurring in the settlement, collection or
payment of any of the Receivables or any instrument received in
payment thereof, or for any damage resulting therefrom except
for its willful misconduct. Following the occurrence and during
the continuation of an Event of Default, Agent may, without
notice or consent from Borrowers, sue upon or otherwise collect,
extend the time of payment of, compromise or settle for cash,
credit or upon any terms any of the Receivables or any other
securities, instruments or insurance applicable thereto and/or
release any obligor thereof. Agent is authorized and empowered
to accept following the occurrence and during the continuance of
an Event of Default the return of the goods represented by any
of the Receivables, without notice to or consent by Borrowers,
all without discharging or in any way affecting Borrowers'
liability hereunder. Any liability under this Section 4.15(g)
shall be subject to the limitations contained in Section 16.10.
(h)Establishment of a Lockbox
Account, Dominion Account. All proceeds of Collateral shall, at
the direction of Agent, be deposited by Borrowers into lockbox
accounts, dominion accounts or such other "blocked accounts"
("Blocked Accounts") as
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Agent may require pursuant to an
arrangement with such banks as may be selected by Borrowers and
be acceptable to Agent. Borrowers shall issue to any such bank,
an irrevocable letter of instruction directing said bank to
transfer such funds so deposited to Agent, either to any account
maintained by Agent at said bank or by wire transfer to
appropriate account(s) of Agent. All funds deposited in any
Blocked Account shall immediately become the property of Lenders
and Borrowers shall obtain the agreement by such bank to waive
any offset rights against the funds so deposited. Neither Agent
nor any Lender assumes any responsibility for any Blocked
Account arrangement, including, without limitation, any claim of
accord and satisfaction or release with respect to deposits
accepted by any bank thereunder. Alternatively, Agent may
establish depository accounts ("Depository Accounts") in the
name of Agent at a bank or banks for the deposit of such funds
and Borrowers shall deposit all proceeds of Collateral or cause
same to be deposited, in kind, in such Depository Accounts in
lieu of depositing same to the Blocked Accounts. Borrowers
shall cause all collections and proceeds of Receivables received
by GDC Canada and GDC United Kingdom in excess of such amounts
which are retained by GDC Canada and GDC United Kingdom in order
to meet their respective working capital requirements, to be
deposited by GDC Canada and GDC United Kingdom, respectively, in
the Blocked Accounts and Borrowers shall direct any bank where
any Blocked Account is located to transfer such funds so
deposited to Agent. In the event Agent requests that all
collections and proceeds of collections of Receivables received
by GDC Canada and GDC United Kingdom be deposited by GDC Canada
and GDC United Kingdom in the Blocked Accounts, Borrowers will
cause such collections and proceeds to be deposited in the
Blocked Accounts and Borrowers shall direct any bank where any
Blocked Account is located to transfer such funds so deposited
to Agent.
(i)Adjustments. No Borrower
will, without Agent's consent, compromise or adjust any
Receivables (or extend the time for payment thereof) or accept
any returns of merchandise or grant any additional discounts,
allowances or credits thereon except for those compromises,
adjustments, returns, discounts, credits and allowances as have
been heretofore customary in the business of Borrowers.
4.16.Inventory. All Inventory has been, and will
be, produced by Borrowers, to the extent applicable, in
accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations and orders thereunder.
4.17.Maintenance of Equipment. The Equipment
shall be maintained in good operating condition and repair
(reasonable wear and tear excepted) and all necessary
replacements of and repairs thereto shall be made so that the
value and operating efficiency of the Equipment shall be
maintained and preserved. No Borrower shall use or operate the
Equipment in violation of any law, statutes, ordinances, codes,
rules or regulations. Borrowers shall have the
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right to sell Equipment only to the extent set forth in Section 4.3.
4.18.Exculpation of Liability. Except as
specifically provided in this Agreement, nothing herein
contained shall be construed to constitute Agent or any Lender
as any Borrower's agent for any purpose whatsoever, nor shall
Agent or any Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of
the cause thereof. Neither Agent nor any Lender, whether by
anything herein or in any assignment or otherwise, assumes any
Borrower's obligations under any contract or agreement assigned
to Agent or any Lender, and neither Agent nor any Lender shall
be responsible in any way for the performance by any Borrower of
any of the terms and conditions thereof.
4.19.Environmental Matters.(a) Borrowers will
ensure that the Real Property remains in compliance with all
applicable Environmental Laws and they will not place or permit
to be placed any Hazardous Substances on any Real Property
except as not prohibited by applicable law or appropriate
governmental authorities.
(b)Borrowers will establish and
maintain a system to assure and monitor continued compliance
with all applicable Environmental Laws which system shall
include periodic reviews of such compliance.
(c)Borrowers will (i) employ in
connection with the use of the Real Property appropriate
technology necessary to maintain compliance with any applicable
Environmental Laws and (ii) dispose of any and all Hazardous
Waste generated at the Real Property only at facilities and with
carriers that maintain valid permits under RCRA and any other
applicable Environmental Laws. Borrowers shall use their best
efforts to obtain certificates of disposal, such as hazardous
waste manifest receipts, from all treatment, transport, storage
or disposal facilities or operators employed by Borrowers in
connection with the transport or disposal of any Hazardous Waste
generated at the Real Property.
(d)In the event any Borrower
obtains, gives or receives notice of any Release or threat of
Release of a reportable quantity of any Hazardous Substances at
any Real Property (any such event being hereinafter referred to
as a "Hazardous Discharge") or receives any notice of violation,
request for information, notification that it is potentially
responsible for investigation or cleanup of environmental
conditions at any Real Property, demand letter or complaint,
order, citation, or other written notice with regard to any
Hazardous Discharge or violation of Environmental Laws affecting
the Real Property or any Borrower's interest therein (any of the
foregoing is referred to herein as an "Environmental Complaint")
from any Person or entity, including any state agency
responsible in whole or in part for environmental matters in the
state in which the Real Property is located or the United States
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Environmental Protection Agency (any such person or entity
hereinafter the "Authority"), then such Borrower shall, within
five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which such Borrower is
aware giving rise to such Hazardous Discharge or Environmental
Complaint. Such information is to be provided to allow Agent to
protect its security interest in the Collateral and is not
intended to create nor shall it create any obligation upon Agent
or Lenders with respect thereto.
(e)Borrowers shall promptly
forward to Agent copies of any request for information,
notification of potential liability, or demand letter relating
to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned,
operated or used by any Borrower to dispose of Hazardous
Substances and shall continue to forward copies of
correspondence between such Borrower and the applicable
Authority regarding such claims to Agent until the claim is
settled. Borrowers shall promptly forward to Agent copies of
all documents and reports concerning a Hazardous Discharge at
any Real Property that any Borrower is required to file under
any Environmental Laws. Such information is to be provided
solely to allow Agent to protect Agent's security interest in
the Collateral.
(f)Borrowers shall respond
promptly to any Hazardous Discharge or Environmental Complaint
and take all necessary action in order to safeguard the health
of any Person and to avoid subjecting the Collateral or Real
Property to any Lien. If any Borrower shall fail to respond
promptly to any Hazardous Discharge or Environmental Complaint
or any Borrower shall fail to comply with any of the
requirements of any Environmental Laws, Agent on behalf of
Lenders may, but without the obligation to do so, for the sole
purpose of protecting Agent's and Lenders' interest in
Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real
Property) and take such actions as Agent (or such third parties
as directed by Agent) deem reasonably necessary or advisable, to
clean up, remove, mitigate or otherwise deal with any such
Hazardous Discharge or Environmental Complaint. All reasonable
costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums
paid in connection with any judicial or administrative
investigation or proceedings, fines and penalties, together with
interest thereon from the date expended at the Default Rate for
Domestic Loans shall be paid upon demand by Borrowers, and until
paid shall be added to and become a part of the Obligations
secured by the Liens created by the terms of this Agreement or
any other agreement between Agent, any Lender and any Borrower.
(g)Promptly upon the reasonable
written request of Agent from time to time, Borrowers shall
provide Agent, at Borrowers' expense, with an environmental site
assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable
opinion of Agent, to assess with
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a reasonable degree of
certainty the existence of a Hazardous Discharge and the
potential costs in connection with abatement, cleanup and
removal of any Hazardous Substances found on, under, at or
within any Real Property. Any report or investigation of such
Hazardous Discharge proposed and acceptable to an appropriate
Authority that is charged to oversee the clean-up of such
Hazardous Discharge shall be acceptable to Agent. If such
estimates, individually or in the aggregate, exceed $100,000,
Agent shall have the right to require Borrowers to post a bond,
letter of credit or other security reasonably satisfactory to
Agent to secure payment of these costs and expenses.
(h)Borrowers shall defend and
indemnify Agent, Lenders and their respective employees, agents,
directors and officers and hold Agent, Lenders and their
respective employees, agents, directors and officers harmless
from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees,
suffered or incurred by Agent, any Lender or any of their
respective employees, agents, directors and officers under or on
account of any Environmental Laws, including, without
limitation, the assertion of any Lien thereunder, with respect
to any Hazardous Discharge, the presence of any Hazardous
Substances affecting any Real Property, whether or not the same
originates or emerges from any Real Property or any contiguous
real estate, including any loss of value of any Real Property as
a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous
Discharge resulting from actions on the part of Agent or any
Lender. Borrowers' obligations under this Section 4.19 shall
arise upon the discovery of the presence of any Hazardous
Substances at any Real Property, whether or not any federal,
state, or local environmental agency has taken or threatened any
action in connection with the presence of any Hazardous
Substances. Borrowers' obligations and the indemnifications
hereunder shall survive the termination of this Agreement.
4.20.Financing Statements. Except for the
financing statements which have been assigned to Agent, filed by
Agent and described on Schedule 1.2, no financing statement
covering any of the Collateral or any proceeds thereof is on
file in any public office.
V. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants as follows:
5.1.Authority. Each Borrower has full power,
authority and legal right to enter into this Agreement and the
Other Documents executed or to be executed by it and to perform
all of its respective Obligations hereunder and thereunder. The
execution, delivery and performance hereof and of the Other
Documents (a) are within each Borrower's respective corporate
powers, have been duly authorized, are not in contravention of
law,
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any judgment or the terms of such Borrower's by-laws,
certificate of incorporation or other applicable documents
relating to such Borrower's formation or to the conduct of such
Borrower's business or of any material agreement or undertaking
to which such Borrower or any of its Subsidiaries is a party or
by which such Borrower or any of its Subsidiaries is bound, and
(b) will not conflict with or result in any breach of any of the
provisions of or constitute a default under or result in the
creation of any Lien except Permitted Encumbrances upon any
asset of any Borrower or any of its Subsidiaries under the
provisions of any agreement, charter document, instrument,
by-law, or other instrument to which any Borrower or any of its
Subsidiaries is a party or by which it may be bound.
5.2.Formation and Qualification. (a) Each
Borrower is duly incorporated and in good standing under the
laws of the state listed opposite its name on Schedule 5.2(a)
and is qualified to do business and is in good standing in the
states listed opposite its name on Schedule 5.2(a) which
constitute all states in which qualification and good standing
are necessary for each Borrower to conduct its business and own
its property and where the failure to so qualify would have a
Material Adverse Effect on Borrowers, GDC Canada and GDC United
Kingdom or their businesses taken as a whole. Each Borrower has
delivered to Agent true and complete copies of its certificate
of incorporation and by-laws and will promptly notify Agent of
any amendment or changes thereto.
(b)The only Subsidiaries of each
Borrower are listed on Schedule 5.2(b). GDC Netherlands does
not conduct any business. GDC beneficially owns the percentage
listed on Schedule 5.2(b) next to each Subsidiary of the capital
stock of Subsidiary.
5.3.Survival of Representations and Warranties.
All representations and warranties of each Borrower contained in
this Agreement and the Other Documents shall be true at the time
of such Borrower's execution of this Agreement and the Other
Documents, and shall survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the
transactions described therein or related thereto.
5.4.Tax Returns. Each Borrower's federal tax
identification number is listed opposite its name on Schedule
5.4. Each Borrower has filed all federal, state and local tax
returns and other reports it is required by law to file and has
paid all taxes, assessments, fees and other governmental charges
that are due and payable. Federal, state and local income tax
returns of Borrowers have been examined and reported upon by the
appropriate taxing authority or closed by applicable statute and
satisfied for all fiscal years prior to and including the fiscal
year ending September 30, 1983. The provision for taxes on the
books of Borrowers are adequate for all years not closed by
applicable statutes, and for their current fiscal year, and no
Borrower has knowledge of any deficiency or additional
assessment in connection therewith not provided for on its
books.
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5.5.Financial Statements.
(a)The balance sheet of GDC and
its Subsidiaries on a consolidated basis as of September 30,
1995 (the "Balance Sheet") furnished to Lenders fairly presents
the financial condition of GDC and its Subsidiaries on a
consolidated basis as of such date and has been prepared in
accordance with GAAP, consistently applied. The Balance Sheet
has been certified as fairly presenting the financial condition
of GDC and its Subsidiaries as of September 30, 1995 by the
Chief Financial Officer and Controller of GDC. All financial
statements referred to in this Section 5.5(a), including the
related schedules and notes thereto, have been prepared in
accordance with GAAP, except as may be disclosed in such
financial statements.
(b)The twelve-month cash flow
projections of GDC and its Subsidiaries on a consolidated basis
for the period beginning on October 1, 1995 and ending on
September 30, 1996 and their projected balance sheets as of the
Closing Date, copies of which are annexed hereto as Exhibit
5.5(b) (the "Projections") were certified by the Chief Financial
Officer and Controller of GDC, are based on underlying
assumptions which provide a reasonable basis for the projections
contained therein and reflect Borrowers' judgment based on
present circumstances of the most likely set of conditions and
course of action for the projected period.
5.6.Corporate Name. Except as set forth on
Schedule 5.6, no Borrower has been known by any other corporate
name in the past five years or sells Inventory under any other
name nor has any Borrower been the surviving corporation of a
merger or consolidation or acquired all or substantially all of
the assets of any Person during the preceding five (5) years.
5.7.O.S.H.A. and Environmental Compliance.
(a)Each Borrower has duly
complied with, and its facilities, business, assets, property,
leaseholds and Equipment are in compliance in all material
respects with, the provisions of the Federal Occupational Safety
and Health Act, the Environmental Protection Act, RCRA, CERCLA
and all other Environmental Laws; and there have been no
outstanding citations, notices or orders of non-compliance
issued to any Borrower or relating to its business, assets,
property, leaseholds or equipment under any such laws, rules or
regulations.
(b)Each Borrower has been issued
all required federal, state and local licenses, certificates and
permits relating to all applicable Environmental Laws.
(c)(i) There are no visible signs
of releases, spills, discharges, leaks or disposal (collectively
referred to as "Releases") of Hazardous Substances at, upon,
under or within any Real Property; (ii) there are no underground
storage tanks or polychlorinated biphenyls on any Real Property;
(iii) none of the
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Real Property has been used as a treatment,
storage or disposal facility of Hazardous Waste; and (iv) no
Hazardous Substances are present on any Real Property, excepting
such quantities as are handled in accordance with all applicable
manufacturer's instructions and governmental regulations and in
proper storage containers and as are necessary for the operation
of the commercial business of Borrowers or of their tenants.
5.8.Solvency; No Litigation, Violation,
Indebtedness or Default. (a) GDC and its Subsidiaries on a
consolidated basis are solvent, able to pay their debts as they
mature, have capital sufficient to carry on their businesses and
all businesses in which they are about to engage, and (i) as of
the Closing Date, the fair saleable value of their assets
(calculated on a going concern basis) are in excess of the
amount of their liabilities and (ii) immediately subsequent to
the Closing Date, the fair saleable value of their assets
(calculated on a going concern basis) will be in excess of the
amount of their liabilities.
(b)Except as disclosed in
Schedule 5.8(b), no Borrower has (i) pending or to the best of
Borrowers' knowledge, threatened litigation, actions or
proceedings which (x) if adversely determined would, in
Borrowers' reasonable opinion, be likely to have a Material
Adverse Effect on Borrowers, GDC Canada and GDC United Kingdom
taken as a whole, or the Collateral taken as a whole, or the
ability of such Borrower to perform this Agreement, or (y)
questions the validity or enforceability of any of the
Documents, and (ii) any liabilities or Indebtedness for borrowed
money other than the Obligations.
(c)No Borrower is in violation
of any applicable statute, regulation or ordinance in any
respect where such violation would have a Material Adverse
Effect on Borrowers, GDC Canada and GDC United Kingdom taken as
a whole, nor is any Borrower in violation of any order of any
court, governmental authority or arbitration board or tribunal.
(d)No Borrower or any member of
the Controlled Group maintains or contributes to any Plan other
than those listed on Schedule 5.8(d). No Borrower or any member
of the Controlled Group has received notice that it is not in
full compliance with any of the requirements of the Employee
Retirement Income Security Act of 1974, as amended from time to
time and the rules and regulations promulgated thereunder
("ERISA"), or its regulations, and (i) no Borrower or any member
of the Controlled Group has engaged in any Prohibited
Transactions as defined in Section 406 of ERISA or Section 4975
of the Code, (ii) each Borrower and each member of the
Controlled Group has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its Plans
and no funding requirements have been postponed or delayed,
(iii) no Borrower or any member of the Controlled Group has
knowledge of any event or occurrence which would cause the PBGC
to institute proceedings under Title IV of ERISA to terminate or
appoint a trustee to administer any Plan, (iv) there exists no
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event described in Section 4043 of ERISA, excluding subsections
4043(b)(2) and 4043(b)(3) thereof, for which the thirty (30) day
notice period contained in 29 CFR 2615.3 has not been waived,
(v) no Borrower or any member of the Controlled Group has any
fiduciary responsibility for investments with respect to any
plan existing for the benefit of persons other than its
employees or former employees, (vi) no Borrower has withdrawn,
completely or partially, from any Multiemployer Plan so as to
incur liability under the Multiemployer Pension Plan Amendments
Act of 1980 and (vii) no Reportable Event (as such term is
defined in ERISA) has occurred.
5.9.Patents, Trademarks, Copyrights and Licenses.
All patents, patent applications, patent licenses, trademarks,
trademark applications, trademark licenses, service marks,
service mark applications, service mark licenses, copyrights,
copyright applications, copyright licenses, tradenames, assumed
names, trade secrets and licenses owned or utilized by each
Borrower are set forth on Schedule 5.9(a), have been, to the
best of Borrowers' knowledge, duly registered or filed with the
governmental authorities set forth on Schedule 5.9(a) and
constitute all of the intellectual property rights which are
useful or necessary for the operation of its business; there is
no objection to or pending challenge to the validity of any such
material patent, trademark, service mark, copyright, tradename,
trade secret or license and no Borrower is aware of any grounds
for any challenge, except as set forth in Schedule 5.9(b). Each
patent, patent application, patent license, trademark, trademark
application, trademark license, service mark, service mark
application, service mark license, copyright, copyright
application and copyright license owned or held by each Borrower
and all trade secrets used by each Borrower consists of original
material or property developed by Borrowers or was lawfully
acquired by Borrowers from the proper and lawful owner thereof.
Each of such items which are necessary for the operation of the
businesses of Borrowers and Guarantors is being maintained so as
to preserve the value thereof from the date of creation or
acquisition thereof, subject only to Permitted Encumbrances.
With respect to software used by Borrowers, Borrowers are in
possession of the source and object codes related to each piece
of software or are the beneficiary of a source code escrow
agreement, each such source code escrow agreement being listed
on Schedule 5.9(c) .
5.10.Licenses and Permits. Except as set forth
in Schedule 5.10, each Borrower (a) is in compliance with and
(b) has procured and is now in possession of, all material
licenses or permits required by any applicable federal, state,
provincial or local law or regulation for the operation of its
business in each jurisdiction wherein it is now conducting or
proposes to conduct business and where the failure to procure
such licenses or permits would have a Material Adverse Effect on
the Borrowers, GDC Canada and GDC United Kingdom taken as a
whole.
5.11.Default of Indebtedness. No Borrower is in
default in the payment of the principal of or interest on any
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Indebtedness for borrowed money or under any instrument or
agreement under or subject to which any Indebtedness for
borrowed money has been issued and no event has occurred under
the provisions of any such instrument or agreement which with or
without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.
5.12.No Default. No Borrower is in default in
the payment or performance of any of its material contractual
obligations.
5.13.No Burdensome Restrictions. Except as set
forth in Schedule 5.13, no Borrower is a party to any contract
or agreement the performance of which would have a Material
Adverse Effect on Borrowers, GDC Canada and GDC United Kingdom
taken as a whole. No Borrower has agreed or consented to cause
or permit in the future (upon the happening of a contingency or
otherwise) any of its property, whether now owned or hereafter
acquired, to be subject to a Lien which is not a Permitted
Encumbrance.
5.14.No Labor Disputes. No Borrower is involved
in any labor dispute; there are no strikes or walkouts or union
organization of any Borrower's employees threatened or in
existence and no labor contract is scheduled to expire during
the Term other than as set forth on Schedule 5.14.
5.15.Margin Regulations. No Borrower is engaged,
nor will it engage, principally or as one of its important
activities, in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation
U or Regulation G of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.
No part of the proceeds of any Advance will be used for
"purchasing" or "carrying" "margin stock" as defined in
Regulation U of such Board of Governors.
5.16.Investment Company Act. No Borrower is an
"investment company" registered or required to be registered
under the Investment Company Act of 1940, as amended, nor is it
controlled by such a company.
5.17.Disclosure. No representation or warranty
made by any Borrower in this Agreement or in any financial
statement, report, certificate or Other Document contains any
untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein
not misleading. Except as set forth in Schedule 5.17, there is
no fact known to any Borrower or which reasonably should be
known to any Borrower excluding matters of general economic or
political nature which Borrowers have not disclosed to Agent in
writing with respect to the transactions contemplated by this
Agreement which would have a Material Adverse Effect on
Borrowers, GDC Canada and GDC United Kingdom taken as a whole.
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5.18.Swaps. No Borrower is a
party to, nor will it be a party to, any swap agreement whereby
such Borrower has agreed or will agree to swap interest rates or
currencies unless the same provides that damages upon
termination following an event of default thereunder are payable
on an unlimited "two-way basis" without regard to fault on the
part of either party.
5.19.Conflicting Agreements. No provision of any
mortgage, indenture, contract, agreement, statute, rule,
regulation, judgment, decree or order binding on any Borrower or
affecting the Collateral conflicts with, or requires any Consent
which has not already been obtained for, or would in any way
prevent the execution, delivery, performance, validity or
enforceability of, the terms of this Agreement or any of the
Other Documents.
5.20.Application of Certain Laws and Regulations.
No Borrower is subject to any statute, rule or regulation which
regulates the incurrence of any Indebtedness, including without
limitation, statutes, rules or regulations relative to common or
interstate carriers or to the sale of electricity, gas, steam,
water, telephone, telegraph or other public utility services.
5.21.Business and Property of Borrowers. Upon
and after the Closing Date, Borrowers do not propose to engage
in any business other than designing, producing, marketing,
leasing, installing and servicing communication equipment and
information networks, systems and activities necessary to
conduct the foregoing. On the Closing Date, Borrowers will own
all the property and possess all of the rights and Consents
necessary for the conduct of the business of Borrowers.
VI. AFFIRMATIVE COVENANTS.
Each Borrower shall, until payment in full of the
Obligations and termination of this Agreement:
6.1.Payment of Fees. Pay to Agent on demand all
usual and customary fees and expenses which Agent incurs in
connection with (a) the forwarding of proceeds of Advances and
(b) the establishment and maintenance of any Blocked Accounts or
Depository Accounts as provided for in Section 4.15(h). Agent
may, without making demand, charge the account of Borrowers for
all such fees and expenses, provided that an invoice detailing
the nature of such charges is sent to Borrowing Agent in
accordance with Agent's customary procedures.
6.2.Conduct of Business and Maintenance of
Existence and Assets. (a) Conduct continuously and operate
actively its business according to good business practices and
maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear
and tear excepted and except as may be disposed of in accordance
with the terms of this
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Agreement), including, without
limitation, all necessary licenses, patents, copyrights,
tradenames, trade secrets, service marks, and trademarks and
take all actions necessary to enforce and protect the validity
of any intellectual property right or other right included in
the Collateral; (b) keep in full force and effect its existence
and comply in all material respects with the laws and
regulations governing the conduct of its business where the
failure to do so would have a Material Adverse Effect on
Borrowers, GDC Canada and GDC United Kingdom taken as a whole;
and (c) make all such reports and pay all such franchise and
other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights,
licenses, leases, powers and franchises under the laws of the
United States or any political subdivision thereof where the
failure to do so would have a Material Adverse Effect on
Borrowers, GDC Canada and GDC United Kingdom taken as a whole.
6.3.Violations. Promptly notify Agent in writing
of any violation of any law, statute, regulation or ordinance of
any governmental entity, or of any agency thereof, applicable to
any Borrower which would be likely to have a Material Adverse
Effect on Borrowers, GDC Canada and GDC United Kingdom taken as
a whole.
6.4.Government Receivables. Upon Agent's
request, take all steps necessary to protect Agent's and
Lenders' interest in the Collateral under the Federal Assignment
of Claims Act or other applicable statutes and deliver to Agent
appropriately endorsed, any instrument or chattel paper
connected with any Receivable arising out of contracts between
any Borrower and the United States, or any department, agency or
instrumentality thereof.
6.5.Tangible Net Worth. Cause to be maintained
at the end of each fiscal quarter a Tangible Net Worth in an
amount not less than the amount set opposite such fiscal quarter
end below:
FISCAL QUARTER ENDING MINIMUM TANGIBLE NET WORTH
September 30, 1995 $81,000,000
December 31, 1995 and at the the sum of (i) the minimum Tangible
end of each fiscal quarter Net Worth required at the end of the
thereafter immediately preceding fiscal quarter plus
(ii) the product of (x) 75% times (y)
Net Income (if positive) during the
fiscal quarter then ended (excluding net
additions to capitalized software) plus
(iii) the product of (x) 75% times
(y) the sum of additional equity contributed
to GDC (excluding stock options and stock
purchase plan payments) and the
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amount
of subordinated debt proceeds received
by GDC and its Subsidiaries on a
consolidated basis during such fiscal quarter.
6.6.Total Liabilities to Tangible Net Worth.
Cause to be maintained as of the end of each fiscal quarter a
ratio of Total Liabilities to Tangible Net Worth of not greater
than the ratio set opposite such fiscal quarter end below:
RATIO OF TOTAL LIABILITIES
FISCAL QUARTER END TO TANGIBLE NET WORTH
December 31, 1995 1.0 to 1.0
March 31, 1996 1.0 to 1.0
June 30, 1996 1.0 to 1.0
September 30, 1996 1.0 to 1.0
December 31, 1996 1.0 to 1.0
March 31, 1997 .95 to 1.0
June 30, 1997 .95 to 1.0
September 30, 1997 .95 to 1.0
December 31, 1997 .95 to 1.0
March 31, 1998 .90 to 1.0
June 30, 1998 .90 to 1.0
September 30, 1998 .90 to 1.0
6.7.Fixed Charge Coverage Ratio. (a) Cause to be
maintained as of the end of each fiscal quarter a Fixed Charge
Coverage Ratio for the immediately preceding fiscal quarter
equal to or greater than the ratio set opposite such fiscal
quarter end below:
FIXED CHARGE
FISCAL QUARTER ENDING COVERAGE RATIO
December 31, 1995 (1.63) to 1.00
(b) cause to be maintained as of the end of each fiscal
quarter a Fixed Charge Coverage Ratio for the immediately
preceding six (6) month period equal to or greater than the
ratio set opposite such fiscal quarter end below:
FIXED CHARGE
SIX MONTHS ENDING COVERAGE RATIO
March 31, 1996 (0.58) to 1.00
June 30, 1996 0.40 to 1.00
September 30, 1996 1.10 to 1.00
December 31, 1996 1.10 to 1.00
March 31, 1997 1.20 to 1.00
June 30, 1997 1.20 to 1.00
September 30, 1997 1.30 to 1.00
December 31, 1997 1.30 to 1.00
March 31, 1998 1.40 to 1.00
June 30, 1998 1.40 to 1.00
September 30, 1998 1.50 to 1.00
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6.8. Cause Net Income (loss) for each
fiscal period set forth below to be less than (more than) the
amount set opposite such fiscal period below:
FISCAL PERIOD NET INCOME (LOSS)
October 1, 1995 - December 31, 1995 ($5,000,000)
October 1, 1995 - March 31 1996 ($5,000,000)
January 1, 1996 - June 30, 1996 ($1,000,000)
April 1, 1996 - September 30, 1996 $2,000,000
October 1, 1995 - September 30, 1996 $1
October 1, 1996 - December 31, 1996 $1,000,000
October 1, 1996 - March 31 1997 $2,000,000
January 1, 1997 - June 30, 1997 $3,000,000
April 1, 1997 - September 30, 1997 $5,000,000
October 1, 1996 - September 30, 1997 $1
October 1, 1997 - December 31, 1997 $2,000,000
October 1, 1997 - March 31 1998 $3,000,000
January 1, 1998 - June 30, 1998 $4,000,000
April 1, 1998 - September 30, 1998 $6,000,000
October 1, 1997 - September 30, 1998 $1
6.9.Working Capital. Cause to be maintained as
of the end of each fiscal quarter, Working Capital in an amount
not less than the amount set opposite such fiscal quarter end
below.
FISCAL QUARTER END WORKING CAPITAL
December 31, 1995 $44,561,000
March 31, 1996 $43,249,000
June 30, 1996 $46,640,000
September 30, 1996 $53,695,000
December 31, 1996 $56,100,000
March 31, 1997 $58,600,000
June 30, 1997 $61,100,000
September 30, 1997 $65,395,000
December 31, 1997 $67,400,000
March 31, 1998 $71,400,000
June 30, 1998 $75,400,000
September 30, 1998 $83,230,000
6.10.Execution of Supplemental Instruments.
Execute and deliver to Agent from time to time, upon demand,
such supplemental agreements, statements, assignments and
transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may reasonably
request, in order that the full intent of this Agreement may be
carried into effect.
6.11.Payment of Indebtedness. Pay, discharge or
otherwise satisfy at or before maturity (subject, where
applicable, to specified grace periods and, in the case of trade
payables, to normal payment practices) all its obligations and
liabilities of whatever nature, except when the amount or
validity thereof is
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currently being contested in good faith by
appropriate proceedings and Borrowers shall have provided for
such reserves as Agent may reasonably deem proper and necessary,
subject at all times to any applicable subordination arrangement
in favor of Lenders.
6.12.Standards of Financial Statements. Cause
all financial statements referred to in Sections 9.7, 9.8, 9.9,
9.10, 9.11, 9.12 and 9.13 as to which GAAP is applicable to be
complete and correct in all material respects (subject, in the
case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods
reflected therein (except as concurred in by such reporting
accountants or officer, as the case may be, and disclosed
therein).
6.13.Intellectual Property. Promptly notify
Agent if any Borrower or Guarantor shall obtain rights to or
become entitled to the benefit of any patent, patent
application, patent license, trademark, trademark application,
trademark license, copyright, copyright application, copyright
license, service mark, service mark application, service mark
license, tradename, assumed name, trade secret or license
("Intellectual Property") that is not set forth on Schedule
5.9(a) and upon the written request of Agent, the applicable
Borrower shall, or Borrowers shall cause the applicable
Guarantor to, duly execute and deliver to Agent all such further
agreements, instruments and documents, in such form and
substance as Agent shall reasonably require, and take such
further action as Agent may reasonably request, to grant Agent a
first priority perfected security interest in such Intellectual
Property.
6.14.Guarantees. Cause GDC Venezuela, GDC
Singapore, GDC China, GDC Brazil, GDC Russia and GDC Germany to
deliver to Agent, no later than thirty (30) days following the
request of Agent, a valid, binding and enforceable Guarantee of
the Obligations of Borrowers in favor of Lenders, in form and
substance satisfactory to Agent, together with such resolutions,
opinions of counsel and such other related documents as Agent
shall require.
VII. NEGATIVE COVENANTS.
No Borrower shall, until satisfaction in full of
the Obligations and termination of this Agreement:
7.1.Merger, Consolidation, Acquisition and Sale
of Assets.
(a)Enter into any merger,
consolidation or other reorganization with or into any other
Person or acquire all or a substantial portion of the assets or
stock of any Person or permit any other Person to consolidate
with or merge with it except that any Borrower may merge or
consolidate with another Borrower provided that the surviving
corporation duly assumes all
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Obligations hereunder and executes
any documents and agreements requested by Agent in connection
therewith.
(b)Sell, lease, transfer or
otherwise dispose of any of its properties or assets, except in
the ordinary course of its business.
7.2.Creation of Liens. (a) Create or suffer to
exist any Lien upon or against or transfer any of its property
or assets now owned or hereafter acquired, except (i) Permitted
Encumbrances and (ii) Liens in favor of Chase as agent for
itself and other financial institutions under the Chase
Agreements, (b) permit GDC United Kingdom to create or suffer to
exist any Lien upon or against the real property of GDC United
Kingdom in Wokingham, England other than the Lien created on
January 17, 1995 in favor of Barclays Bank plc, (c) permit GDC
Advanced to create or suffer to exist any Lien upon or against
the real property of GDC Advanced in Basildon, Essex, England,
other than the Lien created on September 23, 1993 in favor of
Barclays Bank plc and the Lien created on November 6, 1992 in
favor of Barclays Bank plc and (d) permit GDC Canada to create
or suffer to exist any Lien upon any of its assets.
7.3.Guarantees. Become liable upon the
obligations of any person, firm or corporation by assumption,
endorsement or guaranty thereof or otherwise (other than to
Lenders pursuant to this Agreement or the other Documents)
except (a) as disclosed on Schedule 7.3, (b) the endorsement of
checks or negotiable instruments in the ordinary course of
business, (c) guarantees by GDC of the obligations of any of its
Subsidiaries under lease arrangements for real property entered
into in the ordinary course of business, provided, that the
aggregate amount of indebtedness covered by such guarantees does
not at any time exceed the amount of rental payments permitted
under Section 7.11, (d) guarantees by Borrowers of the
obligations of GDC or its Subsidiaries under leases of personal
property, excluding capital equipment subject to (f) below, in
the ordinary course of business, provided, that the aggregate
amount of indebtedness covered by such guarantees does not
exceed $5,000,000 at any time outstanding, (e) guarantees by
Borrowers relating to the issuance of bid or performance bonds
required to be issued by any Borrower or any Guarantor,
provided, that the aggregate amount so guaranteed does not
exceed $5,000,000 at any time outstanding, (f) guarantees by GDC
of the obligations of other Borrowers under capital equipment
financing arrangements, provided, that such financing
arrangements are permitted hereunder and the aggregate amount of
indebtedness covered by such guarantees does not exceed the
amount of capital expenditures permitted pursuant to Section
7.6, (g) non-financial support agreements by GDC relating to its
Subsidiaries, provided, that such support agreements are
substantially similar to the support agreement issued by GDC
dated June 30, 1989 in favor of Sanwa Business Credit
Corporation, (h) guarantees of the obligations of another
Borrower, and (i) guarantees by Borrowers of the obligations of
any Guarantor not otherwise covered by subsections (a) through
(h) above,
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provided, that the aggregate amount of indebtedness
covered by such guarantees does not in the aggregate exceed
$500,000 at any time outstanding.
7.4.Investments. Purchase or acquire obligations
or stock of, or any other interest in, any Person, except (a)
obligations issued or guaranteed by the United States of America
or any agency thereof, (b) commercial paper with maturities of
not more than 180 days and a published rating of not less than
A-1 or P-1 (or the equivalent rating), (c) certificates of
deposit and bankers' acceptances having maturities of not more
than 180 days and repurchase agreements backed by United States
government securities of a commercial bank if (i) such bank has
a combined capital and surplus of at least $500,000,000, or (ii)
its debt obligations, or those of a holding company of which it
is a Subsidiary, are rated not less than A (or the equivalent
rating) by a nationally recognized investment rating agency, (d)
U.S. money market funds that invest solely in obligations issued
or guaranteed by the United States of America or an agency
thereof, (e) investments made by any Borrower in another
Borrower by way of contributions to capital or loans or
advances, (f) investments made by GDC in GDC Canada, GDC
Advanced or GDC United Kingdom after the date hereof by way of
contributions to capital or loans or advances, so long as, after
giving effect to any such transaction, the aggregate amount of
all such investments in GDC Canada, GDC Advanced and GDC United
Kingdom together with all such loans and advances permitted by
Section 7.5 shall not exceed $2,500,000 at any time, (g)
investments made by Borrowers in any Guarantor other than GDC
Canada, GDC United Kingdom and GDC Advanced by way of
contributions to capital or loans or advances, so long as, after
giving effect to any such transaction, the aggregate amount of
all such investments in all Guarantors other than GDC Canada,
GDC Advanced and GDC United Kingdom together with all such loans
and advances permitted by Section 7.5 shall not exceed
$1,000,000 at any time, (h) promissory notes accepted in
settlement of overdue obligations of Customers of Borrowers, GDC
Canada and GDC United Kingdom provided that written notice is
given to Agent in the event the aggregate amount of such notes
equals or exceeds $100,000 and all such notes are assigned to
Agent for the benefit of Lenders and (i) those investments
existing on the Closing Date which are disclosed on Schedule
7.4. For purposes of this Section 7.4, the reinvestment by GDC
or retention by any Guarantor of the earnings of any Guarantor
shall not be deemed an investment by GDC in such Guarantor and
any Receivable due GDC from any Guarantor shall not be
considered an investment in such Guarantor unless such
Receivable remains unpaid more than one hundred and eighty (180)
days from the original invoice date. Reimbursement of expenses
in the ordinary course of business is not to be considered an
investment for purposes of this Section 7.4.
7.5.Loans. Make advances, loans or extensions of
credit to any Person, including without limitation, any Parent,
Subsidiary or Affiliate of it except with respect to (a) the
extension of commercial trade credit in connection with the sale
of
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Inventory in the ordinary course of its business, (b) loans
by any Borrower to another Borrower, (c) loans by Borrowers to
any Guarantor provided that the aggregate amount of all
advances, loans and extensions of credit together with all
investments permitted by Section 7.4 by Borrowers to (i) GDC
Canada, GDC Advanced and GDC United Kingdom after the date
hereof shall not exceed $2,500,000 at any time, and (ii)
Guarantors other than GDC United Kingdom, GDC Canada and GDC
Advanced shall not exceed $1,000,000 at any time, (d) loans by
Borrowers to employees (other than travel and other advances
permitted by subsection (e) of this Section 7.5) in the ordinary
course of business provided that such loans do not exceed the
aggregate amount of $1,250,000 at any time outstanding for
Borrowers, Guarantors and the other Subsidiaries of GDC, (e)
travel and other advances (other than loans to employees
permitted by subsection (d) of this Section 7.5) to employees in
the ordinary course of business provided that such advances do
not exceed the aggregate amount of $500,000 at any time
outstanding for Borrowers, (f) loans and advances to suppliers
in the ordinary course of business provided that such loans and
advances do not exceed the aggregate amount of $500,000 at any
time outstanding for Borrowers, Guarantors and the other
Subsidiaries of GDC, (g) notes accepted in settlement of overdue
obligations of Customers of Borrowers, GDC Canada and GDC United
Kingdom provided that written notice is given to Agent in the
event the aggregate amount of such notes equal or exceeds
$100,000 and all such notes are assigned to Agent, and (h) to
the extent not covered by (a) through (g) above, loans and
advances permitted by Section 7.4. Reimbursement of expenses in
the ordinary course of business is not to be considered an
advance, loan or extension of credit for purposes of this
Section 7.5.
7.6.Capital Expenditures. Contract for, purchase
or make any expenditure or commitments for fixed or capital
assets (including capitalized leases but excluding that portion
of research and development expenditures which are capitalized)
in any fiscal year which shall cause the aggregate expenditures
of all of GDC and its Subsidiaries on a consolidated basis to
exceed $15,000,000 in the fiscal year ending September 30, 1996,
$18,500,000 in the fiscal year ending September 30, 1997, and
$22,250,000 in the fiscal year ending September 30, 1998.
7.7.Dividends. Declare, pay or make any dividend
or distribution on any shares of the common stock or preferred
stock of GDC (other than dividends or distributions payable in
its stock, or split-ups or reclassifications of its stock) or
set aside or apply any of its funds, property or assets for or
to the purchase, redemption or other retirement of any common or
preferred stock, or of any options to purchase or acquire any
such shares of common or preferred stock of GDC.
7.8.Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness for borrowed money except in
respect of (i) Indebtedness to Lenders under this Agreement and
the Other Documents; (ii) Indebtedness incurred for capital
expenditures permitted under Section 7.6; (iii) intercompany
Indebtedness of
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Borrowers to each other; (iv) Indebtedness to
DataComm Leasing which shall not be reduced below $25,000,000;
(v) Indebtedness existing on the Closing Date which is disclosed
on Schedule 7.8; and (vi) Indebtedness incurred by GDC and GDC
Naugatuck in an aggregate amount not to exceed $11,025,000 under
the Chase Agreements.
7.9.Nature of Business. Substantially change the
nature of the business in which it is presently engaged, or
except as specifically permitted hereby purchase or invest
(other than as permitted by Section 7.4), directly or
indirectly, in any assets or property other than in the ordinary
course of business for assets or property which are useful in,
necessary for and are to be used in its business as presently
conducted.
7.10.Transactions with Affiliates. Directly or
indirectly, purchase, acquire or lease any property from, or
sell, transfer or lease any property to, or otherwise deal with,
any Affiliate of it except (a) transactions in the ordinary
course of business, on an arm's-length basis and on terms no
less favorable than terms which would have been obtainable from
a Person other than an Affiliate of it, (b) transactions with
another Borrower, GDC Canada, GDC United Kingdom, GDC Mexico,
Eurotech, GDC Advanced, GDC Australia and GDC France provided
that such transactions would not have an adverse effect on the
business, assets, operations, financial condition of Borrowers
and Guarantors taken as a whole and (c) transactions described
on Schedule 7.10.
7.11.Leases. Enter as lessee into any lease
arrangement for real or personal property (unless capitalized
and permitted under Section 7.6) if after giving effect thereto,
aggregate annual rental payments for all leased property of GDC
and its Subsidiaries on a consolidated basis would exceed
$11,500,000 in any one fiscal year.
7.12.Subsidiaries.
(a)Form any Subsidiary or cause
or permit GDC Netherlands to conduct business unless such
Subsidiary (i) expressly joins this Agreement as a borrower and
becomes jointly and severally liable for the Obligations or (ii)
guarantees the Obligations and grants Agent for the benefit of
Lenders a first priority security interest (subject to Permitted
Encumbrances) in all of its assets, and in each case Agent shall
have received all agreements and documents, including, without
limitation, such legal opinions as Agent may reasonably require,
except that GDC may own GDC Venezuela, GDC Brazil, GDC Germany,
GDC Singapore, GDC Russia and GDC China without the necessity of
(x) complying with clauses (i) and (ii) above, subject, however,
to the provisions of Section 6.14, and (y) form any other
Subsidiary without the necessity of complying with clauses (i)
and (ii) above, if the aggregate amount of investments,
advances, loans or capital contributions to such Subsidiary by
Borrowers and all subsidiaries of Borrowers after the Closing
Date does not exceed $250,000.
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(b)Enter into any partnership, joint
venture or similar arrangement except for partnerships, joint
ventures and similar arrangements entered into in the ordinary
course of business provided that the aggregate amount invested
in or loaned to such partnerships, joint ventures and similar
arrangements by GDC and its Subsidiaries after the Closing Date
does not exceed $750,000.
7.13.Fiscal Year and Accounting Changes. Change
its fiscal year end from September 30 or make any change (i) in
accounting treatment and reporting practices except as required
by GAAP or (ii) in tax reporting treatment except as required by
law.
7.14.Pledge of Credit. Now or hereafter pledge
Agent's or any Lender's credit on any purchases or for any
purpose whatsoever or use any portion of any Advance in or for
any business other than Borrower's business as conducted on the
date of this Agreement.
7.15.Compliance with ERISA. (i) Terminate, or
permit any member of a Controlled Group to terminate, or take
any other action with respect to, any Plan (including, without
limitation, a substantial cessation of operations within the
meaning of Section 4068(f) of ERISA) which would result in any
material liability of any Borrower or any member of a Controlled
Group, to the PBGC or to any Plan, or (ii) permit the occurrence
of any "reportable event" (as defined in Title IV of ERISA) or
any other event or condition, which presents a risk of such a
termination by the PBGC or any Plan, or (iii) withdraw or effect
a partial withdrawal from a Multiemployer Plan, or permit any
member of a Controlled Group which is an employer under a
Multiemployer Plan to do so, or (iv) permit the present value of
all benefit liabilities under all Plans (other than
Multiemployer Plans) to exceed the current value of the assets
of such Plans allocable to such benefit liabilities or (v)
permit any unfunded benefit liabilities within the meaning of
Section 4001(a)(18) of ERISA allocable to any Borrower or any
member of a Controlled Group, or (vi) engage or permit any
member of a Controlled Group to engage in any prohibited
transaction which would result in a civil penalty or excise tax
described in Section 406 of ERISA or Section 4975 of the Code.
7.16.Prepayment of Indebtedness. At any time,
directly or indirectly, prepay any Indebtedness for borrowed
money (other than to Lenders), or repurchase, redeem, retire or
otherwise acquire any Indebtedness.
7.17.DataComm Leasing. At any time, directly or
indirectly, make any cash remittance which brings the
intercompany payable due to DataComm Leasing below $25,000,000.
7.18.Amendment of Certificates of Incorporation,
ByLaws. Amend, modify or waive any term or material provision
of its Certificate of Incorporation, By-Laws, or memorandum or
articles of association unless required by law to do so.
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VIII. CONDITIONS PRECEDENT.
8.1.Conditions to Initial Advances. The
agreement of Lenders and Agent to make the initial Advances
requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lenders, immediately prior to or
concurrently with the making of such Advances, of the following
conditions precedent:
(a)Note. Agent shall have
received for each Lender a Note duly executed and delivered by
an authorized officer of each Borrower;
(b)Filings, Registrations and
Recordings. Each document (including, without limitation, any
Uniform Commercial Code financing statement) required by this
Agreement, the Guarantor Security Agreements, any related
agreement or under law or reasonably requested by Agent to be
filed, registered or recorded in order to create, in favor of
Agent for the benefit of Lenders, a perfected security interest
in or lien upon the Collateral or the collateral covered by the
Guarantor Security Agreements shall have been properly filed,
registered or recorded in each jurisdiction in which the filing,
registration or recordation thereof is so required or requested,
and Agent shall have received an acknowledgment copy, or other
evidence satisfactory to it, of each such filing, registration
or recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto;
(c)Corporate Proceedings of
Borrowers and Guarantors. Agent shall have received a copy of
the resolutions, in form and substance reasonably satisfactory
to Agent, of the Board of Directors of each Borrower and each
Guarantor authorizing (i) the execution, delivery and
performance, as the case may be, of this Agreement, the Other
Documents, the Guarantees and the Guarantor Security Agreements
(collectively the "Documents") and (ii) the granting by Borrower
and Guarantors, as the case may be, of the security interests in
and liens upon the Collateral and the other collateral described
in the Documents, in each case certified by the Secretary or an
Assistant Secretary of such Borrower or Guarantor, as the case
may be, as of the Closing Date; and, such certificate shall
state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded and are in full force
and effect as of the date of such certificate;
(d)Incumbency Certificates of
Borrowers and Guarantors. Agent shall have received a
certificate of the Secretary, an Assistant Secretary or other
authorized officer of each Borrower and each Guarantor, dated
the Closing Date, as to the incumbency and signature of the
officers of such Borrower or such Guarantor executing the
Documents together with evidence of the incumbency of such
Secretary or Assistant Secretary;
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(e) Good Standing Certificates. Agent shall have received good
standing certificates for each Borrower and each Guarantor dated
not more than thirty (30) days prior to the Closing Date, issued
by the Secretary of State or other appropriate official of such
Borrower's or such Guarantor's jurisdiction of incorporation and
its principal office, if any;
(f) Legal Opinion. Agent shall
have received the executed legal opinion of Weisman, Celler,
Spett & Modlin, counsel to Borrowers and those Guarantors
located in the United States of America, in form and substance
satisfactory to Lenders which shall cover such matters incident
to the transactions contemplated by this Agreement, the Other
Documents, and those Guarantees and Guarantor Security
Agreements executed and delivered by those Guarantors located in
the United States of America, as Agent may reasonably require;
(g) No Litigation. (i)No
litigation, investigation or proceeding before or by any
arbitrator or governmental authority shall be continuing or, to
the best of Borrowers' knowledge, threatened against any
Borrower or any Guarantor or against the officers or directors
of any Borrower or any Guarantor (A) in connection with the
Documents or any of the transactions contemplated thereby and
which, in the reasonable opinion of Agent, is deemed material or
(B) which if adversely determined, would, in the reasonable
opinion of Agent, have a Material Adverse Effect on Borrowers,
GDC Canada and GDC United Kingdom taken as a whole; and (ii) no
injunction, writ, restraining order or other order of any nature
shall have been issued by any Governmental Body which has a
Material Adverse Effect on Borrowers, GDC Canada and GDC United
Kingdom taken as a whole, or which is inconsistent with the due
consummation of the transactions contemplated by the Documents.
(h)Financial Condition Opinions.
Agent shall have received executed Officers Certificates
satisfactory in form and substance to it, certifying the
solvency of GDC and its Subsidiaries and as to GDC and its
Subsidiaries' financial resources and their ability to meet
their obligations and liabilities as they become due; and to the
effect that as of the Closing Date and after giving effect to
the transactions contemplated by the Documents:
(i)the
assets of GDC and its Subsidiaries on a consolidated basis, at a
fair valuation, exceed the total liabilities (including
contingent, subordinated, unmatured and unliquidated
liabilities) of GDC and its Subsidiaries on a consolidated basis;
(ii)current projections which are based on underlying
assumptions providing a reasonable basis for the projections and
reflecting Borrowers' judgment based on present circumstances of
the most likely set of conditions and GDC's and its
Subsidiaries' most likely course of action for the period
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projected, demonstrate that GDC and its Subsidiaries on a
consolidated basis will have sufficient cash flow to enable them
to pay their debts as they mature; and
(iii)GDC
and its Subsidiaries on a consolidated basis do not have an
unreasonably small capital base with which to engage in their
anticipated business.
For purposes of this subsection (i), the "fair valuation" of the
assets of GDC and its Subsidiaries shall be determined on the
basis of the amount which may be realized within a reasonable
time, either through collection or sale of such assets at market
value, conceiving the latter as the amount which could be
obtained for the property in question within such period by a
capable and diligent businessman from an interested buyer who is
willing to purchase under ordinary selling conditions;
(i)Collateral Examination.
Agent shall have completed Collateral examinations and received
appraisals, the results of which shall be satisfactory in form
and substance to Agent, of the Receivables, Inventory, General
Intangibles, and Equipment and all books and records in
connection therewith;
(j)Fees. Agent shall have
received all fees payable to Agent and Lenders on or prior to
the Closing Date pursuant to Article III;
(k)Financial Statements. Agent
shall have received a copy of the Balance Sheet and Projections
which shall be satisfactory in all respects to Lenders;
(l)Insurance. Agent shall have
received in form and substance satisfactory to Agent, certified
copies of Borrowers' casualty insurance policies, together with
loss payable endorsements on Agent's standard form of loss payee
endorsement naming Agent as loss payee, and certified copies of
Borrowers' liability insurance policies, together with
endorsements naming Agent as a co-insured;
(m)Leasehold Agreements. Agent
shall have received landlord, mortgagee or warehouseman
agreements satisfactory to Agent with respect to all premises
leased by Borrowers at which Inventory is located;
(n)Guarantees, Guarantor
Security Agreements, Pledge Agreements, Stock and Other
Documents. Agent shall have received affirmations of the
Guarantees, the Guarantor Security Agreements, the Pledge
Agreements and all other Documents, duly executed by each party
thereto each in form and substance satisfactory to Agent;
(o)Pledge Agreements. Agent
shall have received Pledge Agreements with respect to the stock
of GDC Singapore, GDC Venezuela, GDC China, GDC Russia and GDC
Germany duly executed by
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each party thereto, each in form and
substance satisfactory to Agent together with the stock
certificates evidencing such Subsidiary Stock and stock powers
executed in blank;
(p)Third Party. Agent shall
have reviewed and found satisfactory in form and substance all
material third party contracts to which any Borrower or any
Guarantor is a party including, without limitation, executive
compensation and deferred payment agreements and lease, union,
labor and customer supply agreements;
(q)Payment Instructions. Agent
shall have received written instructions from Borrowing Agent
directing the application of proceeds of the initial Advances
made pursuant to this Agreement;
(r)Consents. Agent shall have
received any and all Consents necessary to permit the
effectuation of the transactions contemplated by the Documents;
and Agent shall have received such Consents and waivers of such
third parties as might assert claims with respect to the
Collateral, as Agent and its counsel shall deem necessary;
(s)No Adverse Material Change.
Since September 30, 1995, there shall not have occurred (i) any
material adverse change in: the business, financial condition,
prospects or results of operations of Borrowers and Guarantors
taken as a whole, or the existence or value of any Collateral or
any collateral covered by the Guarantor Security Agreements; or
(ii) any event, condition or state of facts which would
reasonably be expected to have a Material Adverse Effect on
Borrowers and Guarantors taken as a whole;
(t)Blocked Accounts. Lender
shallhave received duly executed agreements establishing the
Blocked Accounts with financial institutions acceptable to
Lender for collection or servicing of the Receivables and
proceeds of the Collateral;
(u)Undrawn Availability. After
the making of the initial Advances, if any, on the Closing Date,
Borrowers shall have Undrawn Availability of not less than
$23,000,000;
(v)Net Worth.Agent shall have
received an executed Officers Certificate satisfactory in form
and substance to it certifying that after giving effect to the
transactions contemplated by this Agreement, GDC and its
Subsidiaries on a consolidated basis have a Net Worth of at
least $110,000,000 as of September 30, 1995;
(w)Assignment.Agent shall have
received the Assignment in form and substance satisfactory to it
duly executed by each of Existing Lender and BNY as agent for
the Existing Lenders; and
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(x) Other. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection
with the transactions contemplated by the Documents shall be
reasonably satisfactory in form and substance to Agent and its
counsel.
8.2.Conditions to Each Advance. The agreement of
Lenders and Agent to make any Advance requested to be made on
any date (including, without limitation, the initial Advance),
is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a)Representations and
Warranties. Each of the representations and warranties made by
each Borrower and each Guarantor in or pursuant to this
Agreement and any of the other Documents, and each of the
representations and warranties contained in any certificate,
document or financial or other statement furnished at any time
under or in connection with this Agreement or any of the other
Documents shall be true and correct in all material respects on
and as of such date as if made on and as of such date except for
such matters which do not otherwise constitute an Event of
Default that are disclosed to Agent and Lenders;
(b)No Default. No Event of
Default or Incipient Event of Default shall have occurred and be
continuing on such date, or would exist after giving effect to
the Advances requested to be made on such date; provided,
however that Agent, in its sole discretion, may continue to make
Advances, including Advances against Eligible Foreign
Receivables, notwithstanding the existence of an Event of
Default or Incipient Event of Default and any Advances so made
shall not be deemed a waiver of any such Event of Default or
Incipient Event of Default; and
(c)Maximum Advances. After
giving effect to any Advance, the aggregate Advances shall not
exceed the maximum amount of Advances permitted hereunder.
Each request for an Advance by Borrowing Agent hereunder shall
constitute a representation and warranty by each Borrower as of
the date of such Advance that the conditions contained in this
Section 8.2 shall have been satisfied.
IX. INFORMATION AS TO BORROWERS.
Each Borrower shall, until satisfaction in full of the
Obligations and the termination of this Agreement:
9.1.Disclosure of Material Matters. Promptly
upon learning thereof, report to Agent all matters materially
affecting any Borrower's or any Guarantor's financial condition
or the value, enforceability or collectibility of any material
portion of the Collateral or any collateral covered by the
Guarantor Security
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Agreements including, without limitation, any
Borrower's or any Guarantor's reclamation or repossession of, or
the return to any Borrower, GDC Canada or GDC United Kingdom of,
a material amount of goods or claims or disputes asserted by any
Customer or other obligor.
9.2.Schedules. Deliver to Lenders on or before
the twentieth (20th) day of each month as and for the prior
month (a) accounts receivable agings, (b) accounts payable
schedules and (c) Inventory reports. In addition, Borrowing
Agent will deliver to Agent at such intervals as Agent may
require: (i) confirmatory assignment schedules, (ii) copies of
Customer invoices, (iii) evidence of shipment or delivery, and
(iv) such further schedules, documents and/or information
regarding the Collateral and the collateral covered by the
Guarantor Security Agreements as Agent may require including,
without limitation, trial balances and test verifications.
Borrowing Agent shall deliver to Agent on a weekly basis
statements setting forth the amount of cash in DataComm Leasing.
Borrowing Agent shall deliver to Agent on a daily basis
statements setting forth the amount of collections received by
each of GDC Canada and GDC United Kingdom with respect to
Receivables and the amount of cash controlled by each of GDC
Canada and GDC United Kingdom. Agent shall have the right to
confirm and verify all Receivables by any manner and through any
medium it considers advisable and do whatever it may deem
reasonably necessary to protect its and Lenders' interests
hereunder. The items to be provided under this Section are to be
in form satisfactory to Lenders and executed by Borrowing Agent
and delivered to Agent or Lenders from time to time solely for
Agent's convenience in maintaining records of the Collateral and
the collateral covered by the Guarantor Security Agreements, and
Borrowing Agent's failure to deliver any of such items to Agent
shall not affect, terminate, modify or otherwise limit Agent's
Lien with respect to the Collateral and the collateral covered
by the Guarantor Security Agreements.
9.3.Environmental Reports. Furnish Agent,
concurrently with the delivery of the financial statements
referred to in Section 9.7, with a certificate of each Borrower,
signed by the Administrative Vice-President of such Borrower,
stating, to the best of his knowledge, that such Borrower is in
compliance in all material respects with all federal, state and
local laws relating to environmental protection and control and
occupational safety and health. To the extent such Borrower is
not in compliance with the foregoing laws, the certificate shall
set forth with specificity all areas of non-compliance and the
proposed action such Borrower will implement in order to achieve
full compliance.
9.4.Litigation. Promptly notify Agent and
Lenders in writing of any litigation, suit or administrative
proceeding affecting any Borrower or any Guarantor, whether or
not the claim is covered by insurance, which would be likely to
have a Material Adverse Effect on Borrowers, GDC Canada and GDC
United Kingdom taken as a whole.
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9.5.Material Occurrences. Promptly notify Agent and Lenders
in writing upon learning of the occurrence of (a) any Event of
Default or Incipient Event of Default; (b) any event of default
or any event which with the giving of notice, lapse of time or
both, would constitute an event of default under any of the
Chase Agreements; (c) any event, development or circumstance
whereby any financial statements or other reports furnished to
Agent or any Lender fail in any material respect to present
fairly, in accordance with GAAP consistently applied, the
financial condition or operating results of GDC and its
Subsidiaries as of the date of such statements; (d) any
accumulated retirement plan funding deficiency which, if such
deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Code, could subject any Borrower
to a tax imposed by Section 4971 of the Code; (e) each and every
default by any Borrower or any Guarantor which might result in
the acceleration of the maturity of any Indebtedness, including
the names and addresses of the holders of such Indebtedness with
respect to which there is a default existing or with respect to
which the maturity has been or could be accelerated, and the
amount of such Indebtedness; and (f) any other development in
the business or affairs of any Borrower or any Guarantor which
might reasonably be expected to have a Material Adverse Effect
on Borrowers, GDC Canada and GDC United Kingdom taken as a
whole; in each case describing the nature thereof and the action
such Borrower or Guarantor proposes to take with respect thereto.
9.6.Government Receivables. Notify Agent
immediately if Receivables which exceed $500,000 in the
aggregate arise out of contracts between any Borrower and the
United States, or any department, agency or instrumentality
thereof.
9.7.Annual Financial Statements. Furnish Agent
and each Lender within ninety (90) days after the end of each
fiscal year of GDC, financial statements of GDC and its
Subsidiaries on a consolidated basis including, but not limited
to, statements of income and stockholders' equity and cash flow
from the beginning of the current fiscal year to the end of such
fiscal year and the balance sheet as at the end of such fiscal
year, all prepared in accordance with GAAP applied on a basis
consistent with prior practices, and in reasonable detail and
reported upon without qualification by an independent certified
public accounting firm selected by GDC and reasonably
satisfactory to Agent (the "Accountants"). The report of such
accounting firm shall be accompanied by a statement of such
accounting firm certifying that in making the examination upon
which such report was based either no information came to their
attention which to their knowledge constituted an Event of
Default or if such information came to their attention,
specifying any such Event of Default and such report shall
contain or have appended thereto calculations which set forth
compliance with the requirements or restrictions imposed by
Sections 6.5, 6.6, 6.7, 6.8, 6.9 and 7.6.
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9.8.Monthly and Quarterly
Financial Statements. Furnish Agent and each Lender within
thirty (30) days after the end of each month and within forty
five (45) days after the end of each month ending a fiscal
quarter, an unaudited balance sheet of GDC and its Subsidiaries
and unaudited statements of income and stockholders' equity and
cash flow of GDC and its Subsidiaries on a consolidated and
consolidating basis subject to normal year end adjustments
fairly reflecting results of operations from the beginning of
the fiscal year to the end of such month or quarter and for such
month or quarter, and setting forth, in comparative form, the
figures for the previous year prepared on a basis consistent
with prior practices. The reports shall be accompanied by a
certificate of Borrowers, signed by the Chief Financial Officer
or Controller of Borrowers, which shall state whether an Event
of Default has occurred and, if an Event of Default has
occurred, specifying its nature, when it occurred, whether it is
continuing and the action proposed to be taken with respect to
such Event of Default, shall certify the outstanding amount of
the intercompany payable due to DataComm Leasing as of the end
of such month or quarter and shall have appended, together with
the reports due at the end of a quarter, calculations which set
forth compliance with the requirements or restrictions imposed
by Sections 6.5, 6.6, 6.7, 6.8, 6.9 and 7.6.
9.9.Other Reports. Furnish Agent and each Lender
as soon as available, but in any event within ten (10) days
after the issuance thereof, with (i) copies of any proxy
statements, financial statements, reports and returns as
Borrowers shall send to their stockholders, (ii) copies of all
notices sent pursuant to the Chase Agreements, and (iii) copies
of any regular, periodic and special reports or registration
statements which any Borrower files with the Securities and
Exchange Commission or any governmental authority which may be
substituted therefor, or any national securities exchange.
9.10.Additional Information. Furnish Agent and
each Lender with such additional information as Agent or any
Lender shall reasonably request in order to enable Agent and
each Lender to determine whether the terms, covenants,
provisions and conditions of this Agreement and the Other
Documents have been complied with by Borrowers including,
without limitation and without the necessity of any request by
Agent or any Lender, (a) copies of all environmental audits and
reviews, (b) at least thirty (30) days prior thereto, notice of
any Borrower's opening of any new office or place of business
where any Collateral may be located or any books or records
relating to any Collateral may be located or any Borrower's
closing of any existing office or place of business where any
Collateral may be located or any books or records relating to
any Collateral may be located, and (c) promptly upon any
Borrower's learning thereof, notice of any labor dispute to
which any Borrower may become a party, any strikes or walkouts
relating to any of its plants or other facilities, and the
expiration of any labor contract to which any Borrower is a
party or by which any Borrower is bound.
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9.11.Projected Operating Budget. Furnish Agent, no
less than thirty (30) days prior to the beginning of each of
Borrowers' fiscal years commencing with fiscal year beginning on
October 1, 1996, a month by month projected operating budget and
cash flow of GDC and its Subsidiaries on a consolidated and
consolidating basis for such fiscal year (including an income
statement for each month and a balance sheet as at the end of
the last month in each fiscal quarter), such projections to be
accompanied by a certificate signed by GDC's Chief Financial
Officer or Controller to the effect that such projections have
been prepared on the basis of sound financial planning practice
consistent with past budgets and financial statements and that
such officer believes the material assumptions on which such
projections were prepared are reasonable.
9.12.Variances From Operating Budget. Furnish
Agent and each Lender, concurrently with the delivery of the
financial statements referred to in Section 9.7 and each monthly
report, a written report summarizing all material variances from
budgets submitted by Borrowers pursuant to Section 9.11 and a
discussion and analysis by management with respect to such
variances.
9.13.Notice of Suits, Adverse Events. Furnish
Agent and each Lender with prompt notice of (i) any lapse or
other termination of any Consent issued to any Borrower or any
Guarantor by any Governmental Body or any other Person that is
material to the operation of the business of Borrowers, GDC
Canada and GDC United Kingdom taken as a whole, (ii) any refusal
by any Governmental Body or any other Person to renew or extend
any such Consent; and (iii) copies of any periodic or special
reports filed by any Borrower or any Guarantor with any
Governmental Body or Person, if such reports indicate any
material change in the business, operations, affairs or
condition of Borrowers, GDC Canada and GDC United Kingdom taken
as a whole, or if copies thereof are requested by Agent or any
Lender, and (iv) copies of any material notices and other
communications from any Governmental Body or Person which
specifically relate to any Borrower or any Guarantor.
9.14.ERISA Notices and Requests. Furnish Agent
with immediate written notice in the event that (i) any Borrower
or any member of the Controlled Group shall fail to make any
payments when due and payable under any Plan or Multiemployer
Plan, or (ii) any Borrower or any member of the Controlled Group
shall receive notice from the Internal Revenue Service or the
Department of Labor that such Borrower or any member of the
Controlled Group shall have failed to meet the minimum funding
requirements of any Plan or Multiemployer Plan, and include
therewith a copy of such notice, or (iii) any Borrower or any
member of the Controlled Group gives or is required to give
notice to the PBGC of any Reportable Event in respect of any
Plan or Multiemployer Plan which might constitute grounds for a
termination of such Plan or Multiemployer Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan or
Multiemployer Plan has given or is required to give notice of
any such Reportable Event, or (iv) a notice of intent to
terminate
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any Plan is filed with the PBGC, or (v) proceedings
are instituted by the PBGC under Section 4042 of ERISA to
terminate or to appoint a trustee to administer any Plan or any
Borrower or any member of the Controlled Group receives a notice
from a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan, or (vi) any
Borrower or any member of the Controlled Group withdraws in a
complete or partial withdrawal from any Multiemployer Plan or
any Plan which is a "multiple employer plan" within the meaning
of Section 4063 of ERISA, or incurs any withdrawal liability
under Section 4204 of ERISA, or (vii) any prohibited transaction
occurs involving the assets of any Plan, or (viii) any Borrower
or any member of the Controlled Group receives a notice from a
Multiemployer Plan that such Multiemployer Plan is in
reorganization or insolvent pursuant to Section 4241 or 4245 of
ERISA or that such Multiemployer Plan intends to terminate or
has terminated under Section 4041A of ERISA, or (ix) any
Borrower or any member of the Controlled Group receives a notice
from a Multiemployer Plan of the institution of a proceeding by
a fiduciary of a Multiemployer Plan against any Borrower or any
member of the Controlled Group to enforce Section 515 of ERISA,
or (x) the adoption of an amendment to any Plan that could
result in the termination of such Plan pursuant to Section
4041(e) or (f) of ERISA or require any Borrower or any member of
the Controlled Group to provide security to such Plan pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA, or
(xi) any Borrower or any member of the Controlled Group fails to
make a required installment or other payment to any Plan if such
failure would result in the imposition of a Lien on the property
of any Borrower pursuant to Section 4.12(n) of the Code or (xii)
the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower or any member of
the Controlled Group was not previously contributing, or (xiii)
the receipt by any Borrower or any member of the Controlled
Group of any favorable or unfavorable determination letter from
the Internal Revenue Service regarding the qualification of a
Plan under Section 401(a) of the Code.
9.15.Additional Documents. Execute and deliver
to Agent and each Lender, upon request, such documents and
agreements as Agent or any Lender may, from time to time,
reasonably request to carry out the purposes, terms or
conditions of this Agreement or any other Document.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events
shall constitute an "Event of Default":
(a)failure by any Borrower to pay any principal
or interest on the Obligations when due, whether at maturity or
by reason of acceleration pursuant to the terms of this
Agreement or by notice of intention to prepay, or by required
prepayment or failure to pay any other liabilities or make any
other payment, fee or charge provided for herein when due and in
the event the
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aggregate balance of Advances outstanding at any
time is in excess of the amounts permitted hereunder such
default shall continue unremedied for more than five (5) days
after notice thereof shall have been given to Borrowing Agent by
Agent;
(b)any representation or warranty made or deemed
made by any Borrower or any Guarantor in this Agreement, any
other Document or any related agreement or in any certificate,
document or financial or other statement furnished at any time
in connection herewith or therewith shall prove to have been
misleading in any material respect on the date when made or
deemed to have been made or when furnished;
(c)failure by any Borrower to (i) furnish
financial information when due or when requested and such
request is not satisfied within twenty (20) days after Borrowing
Agent receives notice from Agent of such request, or (ii) permit
the inspection of its books or records;
(d)issuance of a notice of Lien, Charge, Claim,
levy, assessment, injunction or attachment against a material
portion of any Borrower's property which is not stayed or lifted
within forty five (45) days;
(e)failure or neglect of any Borrower to perform,
keep or observe any term, provision, condition, or covenant
herein contained, or contained in any other agreement or
arrangement, now or hereafter entered into between any Borrower,
Agent and/or any Lender other than the failure or neglect of any
Borrower to perform, keep or observe any term, provision,
condition or covenant contained in Sections 4.6, 4.7, 6.1, 6.4,
9.4 or 9.6 which is cured within fifteen (15) days from the
occurrence of such failure or neglect;
(f)any judgment is rendered or judgment liens
filed against any Borrower or any Guarantor for an amount in
excess of $250,000 which within thirty (30) days of such
rendering or filing is not either satisfied, stayed, bonded or
discharged of record;
(g)any Borrower shall (i) apply for, consent to
or suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property, (ii) make a general
assignment for the benefit of creditors, (iii) commence a
voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or
insolvent, (v) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vi) acquiesce
to, or fail to have dismissed, within forty five (45) days, any
petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of
effecting any of the foregoing;
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(h)any Borrower shall admit
in writing its inability, or be generally unable, to pay its
debts as they become due or cease operations of its present
business;
(i)any Subsidiary or any Guarantor shall (i)
apply for, consent to or suffer the appointment of, or the
taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its
property, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations
of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in
effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a
petition seeking to take advantage of any other law providing
for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within forty five (45) days, any petition filed
against it in any involuntary case under such bankruptcy laws,
or (viii) take any action for the purpose of effecting any of
the foregoing;
(j)any Lien created hereunder or provided for
hereby or under any related agreement for any reason ceases to
be or is not a valid and perfected Lien having, subject to
Permitted Encumbrances, a first priority interest with respect
to Receivables, Inventory and General Intangibles and having the
same priority as Agent had on the Closing Date with respect to
Equipment;
(k)a default of the obligations of any Borrower
or any Guarantor under any other agreement to which it is a
party shall occur which has a Material Adverse Effect on
Borrowers, GDC Canada and GDC United Kingdom taken as a whole
which default is not cured within any applicable grace period;
(l)termination, breach or default of any
Guarantee or Guarantor Security Agreement or similar agreement
executed and delivered to Agent and/or any Lender in connection
with the Obligations of Borrowers, or if any Guarantor attempts
to terminate, challenges the validity of, or its liability
under, any such Guarantee or Guarantor Security Agreement or
similar agreement;
(m)any Change of Control;
(n)any material provision of this Agreement or
any other Document shall, for any reason, cease to be valid and
binding on any Borrower or any Guarantor, or any Borrower or any
Guarantor shall so claim in writing;
(o)any portion of the Collateral shall be seized
or taken by a Governmental Body, or any Borrower or the title
and rights of any Borrower or any Original Owner which is the
owner of any material portion of the Collateral shall have
become the subject matter of litigation which would be likely
to, in the
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reasonable opinion of Required Lenders, upon final
determination, result in impairment or loss of the security
provided by this Agreement or the Other Documents; or
(p)an event or condition specified in Section
7.15 or 9.14 shall occur or exist with respect to any Plan and,
as a result of such event or condition, together with all other
such events or conditions, any Borrower or any member of the
Controlled Group shall incur, or in the opinion of Required
Lenders be reasonably likely to incur, a liability to a Plan or
the PBGC (or both) which, in the reasonable judgment of Required
Lenders, would be likely to have a material adverse effect upon
the Collateral or the ability of Borrowers to perform their
Obligations under this Agreement.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1.Rights and Remedies. Upon the occurrence of
an Event of Default pursuant to Article X(g) all Obligations
shall be immediately due and payable and this Agreement and the
obligation of Lenders and Agent to make Advances shall be deemed
terminated; and, upon the occurrence of any of the other Events
of Default and at any time thereafter (such Event of Default not
having previously been cured), at the option of Required Lenders
all Obligations shall be immediately due and payable and
Required Lenders shall have the right to terminate this
Agreement and to terminate the obligation of Lenders and Agent
to make Advances. Upon the occurrence of any Event of Default,
Agent shall have the right to exercise any and all other rights
and remedies provided for herein, under the Uniform Commercial
Code and at law or equity generally, including, without
limitation, the right to foreclose the security interests
granted herein and to realize upon any Collateral by any
available judicial procedure and/or to take possession of and
sell any or all of the Collateral with or without judicial
process and Agent may enter any Borrower's premises or other
premises without legal process and without incurring liability
to any Borrower therefor, and Agent may thereupon, or at any
time thereafter, in its discretion without notice or demand,
take the Collateral and remove the same to such place as Agent
may deem advisable and Agent may require each Borrower to make
the Collateral available to Agent at a convenient place. With
or without having the Collateral at the time or place of sale,
Agent may sell the Collateral, or any part thereof, at public or
private sale, at any time or place, in one or more sales, at
such price or prices, and upon such terms, either for cash,
credit or future delivery (without assumption of any credit
risk), as Agent may elect. Except as to that part of the
Collateral which is perishable or threatens to decline speedily
in value or is of a type customarily sold on a recognized
market, Agent shall give Borrowing Agent reasonable notification
of such sale or sales, it being agreed that in all events
written notice mailed to Borrowing Agent at least five (5)
Business Days prior to such sale or sales is reasonable
notification. At any such sale Agent or any Lender may bid for
and become the purchaser, and Agent or any Lender or any other
purchaser at any such sale thereafter
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shall hold the Collateral
sold absolutely free from any claim or right of whatsoever kind,
including any right or equity of redemption and such right and
equity are hereby expressly waived and released by each
Borrower. In connection with the exercise of the foregoing
remedies, Agent is granted permission to use all of Borrowers'
trademarks, service marks, trade styles, trade names, patents,
patent applications, licenses, franchises and other proprietary
rights which are used in connection with (a) Inventory for the
purpose of disposing of such Inventory and (b) Equipment for the
purpose of completing the manufacture of unfinished goods. The
proceeds realized from the sale of any Collateral shall be
applied as follows: first, to the reasonable costs, expenses and
attorneys' fees and expenses incurred by Agent for collection
and for acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral; second, to interest due
upon any of the Obligations; and, third, to the principal of the
Obligations. If any deficiency shall arise, Borrowers shall
remain liable to Agent and Lenders therefor.
11.2.Agent's Discretion. Agent shall have the
right in its sole discretion to determine which rights, Liens,
security interests or remedies Agent may at any time pursue,
relinquish, subordinate, or modify or to take any other action
with respect thereto and such determination will not in any way
modify or affect any of Agent's or Lenders' rights hereunder.
11.3.Setoff. In addition to any other rights
which Agent or any Lender may have under applicable law, upon
the occurrence of an Event of Default, Agent and each Lender
shall have a right to apply any Borrower's property held by
Agent and such Lender to reduce the Obligations.
11.4.Rights and Remedies not Exclusive. The
enumeration of the foregoing rights and remedies is not intended
to be exhaustive and the exercise of any right or remedy shall
not preclude the exercise of any other right or remedies, all of
which shall be cumulative and not alternative.
11.5.Breach of Section 6.7. In the event that
any Borrower shall breach any covenant set forth in Section 6.7
hereof, if Agent or Lenders waiver such breach, the maximum
amount that Agent and Lenders agree to charge Borrowers for each
waiver granted by Agent or Lenders is $5,000. Notwithstanding
the foregoing, this Section shall in no manner act as any waiver
of a breach of Section 6.7 or any other provision of this
Agreement nor shall it be deemed a consent by Agent or Lenders
to the breach of Section 6.7 or any other provision of this
Agreement.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1.Waiver of Notice. Each Borrower hereby
waives notice of non-payment of any of the Receivables, demand,
presentment, protest and notice thereof with respect to any and
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all instruments, notice of acceptance hereof, notice of loans or
advances made, credit extended, Collateral received or
delivered, or any other action taken in reliance hereon, and all
other demands and notices of any description, except such as are
expressly provided for herein.
12.2.Delay. No delay or omission on Agent's or
any Lender's part in exercising any right, remedy or option
shall operate as a waiver of such or any other right, remedy or
option or of any default. Any partial exercise of any right,
remedy or option by Agent or any Lender shall not operate as a
waiver of any subsequent full or partial exercise of any right,
remedy or option by Agent or any Lender.
12.3.Jury Waiver. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE
AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1.Term. This Agreement, which shall inure to
the benefit of and shall be binding upon the respective
successors and permitted assigns of Agent, each Borrower and
each Lender, shall become effective on the date hereof and shall
continue in full force and effect until November 30, 1998 (the
"Term") unless sooner terminated as herein provided. Borrowing
Agent may terminate this Agreement at any time upon forty five
(45) days' prior written notice to Agent ("Termination Date")
upon payment in full of the Obligations; provided, however, that
Borrowers shall pay an early termination fee in an amount equal
to (x) $400,000 if the termination date occurs from the Closing
Date to and including the date immediately preceding the first
anniversary of the Closing Date, (y) $300,000 if the termination
date occurs from the first anniversary of the Closing Date to
and including the date immediately preceding the second
anniversary of the Closing Date and (z) $200,000 if the
termination date occurs from the second anniversary of the
Closing Date to and including the date immediately preceding the
third anniversary of the Closing Date.
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13.2.Termination. The
termination of this Agreement shall not affect any of
Borrowers', Agent's or any Lender's rights, or any of the
Obligations having their inception prior to the effective date
of such termination, and the provisions hereof shall continue to
be fully operative until all transactions entered into, rights
or interests created and Obligations have been fully disposed
of, concluded or liquidated. The Liens and rights granted to
Agent for the benefit of Lenders hereunder and the financing
statements filed hereunder shall continue in full force and
effect, notwithstanding the termination of this Agreement or the
fact that Borrowers' account may from time to time be
temporarily in a zero or credit position, until (i) all of the
Obligations of Borrowers have been paid or performed in full
after the termination of this Agreement or Borrowers have
furnished Agent and Lenders with an indemnification satisfactory
to Agent and Lenders with respect thereto and (ii) Borrowers
have caused cash to be deposited and maintained in an account
with Agent, as cash collateral, in an amount equal to the
aggregate face amount of all outstanding Letters of Credit, and
Borrowers hereby irrevocably authorize Agent, in its discretion,
on Borrowers' behalf and in Borrowers' name, to open such an
account and to make and maintain deposits therein, or in an
account opened by Borrowers, in the amounts required to be made
by Borrowers, unless such outstanding Letters of Credit have
been surrendered by their beneficiaries to Agent. Accordingly,
each Borrower waives any rights which it may have under Section
9-404(1) of the Uniform Commercial Code to demand the filing of
termination statements with respect to the Collateral, and Agent
shall not be required to send such termination statements to any
Borrower, or to file them with any filing office, unless and
until this Agreement shall have been terminated in accordance
with its terms and all Obligations paid in full in immediately
available funds. All representations, warranties, covenants,
waivers and agreements contained herein shall survive
termination hereof until all Obligations are repaid or performed
in full or longer as provided herein.
XIV. REGARDING AGENT.
14.1.Appointment. Each Lender hereby irrevocably
designates BNYCC to act as Agent for such Lender under the
Documents. Each Lender hereby irrevocably authorizes Agent to
take such action on its behalf under the provisions of the
Documents and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or
required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold
all Collateral and the collateral covered by the Guarantor
Security Agreements, payments of principal and interest, fees
(except the fees set forth Sections 3.3(b) and 3.4), charges and
collections received pursuant to the Documents, for the ratable
benefit of Lenders. Agent may perform any of its duties
hereunder or under the other Documents by or through its agents
or employees. As to any matters not expressly provided for by
this Agreement or any of the other
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Documents (including without
limitation, collection of any Note) Agent shall not be required
to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the
instructions of the Lenders or the Required Lenders, as
applicable and such instructions shall be binding upon Lenders;
provided, however, that Agent shall not be required to take any
action which exposes Agent to liability or which is contrary to
the Documents or applicable law unless Agent is furnished with
an indemnification reasonably satisfactory to Agent with respect
thereto.
14.2.Nature of Duties. Agent shall have no
duties or responsibilities except those expressly set forth in
the Documents. Neither Agent nor any of its officers, directors,
employees or agents shall be (i) liable for any action taken or
omitted by them as such hereunder or thereunder or in connection
herewith or therewith, unless caused by their gross negligence
(but not mere negligence) or willful misconduct, or (ii)
responsible in any manner to any Lender for any recitals,
statements, representations or warranties made by any Borrower,
any Guarantor or any officer thereof contained in any of the
Documents or in any certificate, report, statement or other
document referred to or provided for in, or received by Agent
under or in connection with, any of the Documents or for the
value, validity, effectiveness, genuineness, enforceability or
sufficiency of any of the Documents or for any failure of any
Borrower or any Guarantor to perform its obligations hereunder
or thereunder. Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions
of, any of the Documents, or to inspect the properties, books or
records of any Borrower or any Guarantor. The duties of Agent
as respects the Advances shall be mechanical and administrative
in nature; Agent shall not have by reason of any Document a
fiduciary relationship in respect of any Lender; and nothing in
any of the Documents, expressed or implied, is intended to or
shall be so construed as to impose upon Agent any obligations in
respect of any of the Documents except as expressly set forth
herein or therein.
14.3.Lack of Reliance on Agent and Resignation.
Independently and without reliance upon Agent or any other
Lender, each Lender has made and shall continue to make (i) its
own independent investigation of the financial condition and
affairs of each Borrower and each Guarantor in connection with
the making and the continuance of the Advances hereunder and the
taking or not taking of any action in connection herewith and/or
in connection with the other Documents, and (ii) its own
appraisal of the creditworthiness of each Borrower and each
Guarantor. Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with
any credit or other information with respect thereto, whether
coming into its possession before making of the Advances or at
any time or times thereafter except as shall be provided by any
Borrower or any Guarantor pursuant to the terms hereof or any of
the other Documents. Agent may resign on
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sixty (60) days'
written notice to each Lender and upon such resignation, the
Required Lenders will promptly designate a successor Agent
reasonably satisfactory to Borrowers. Any such successor Agent
shall succeed to the rights, powers and duties of Agent, and the
term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as
Agent shall be terminated, without any other or further act or
deed on the part of such former Agent. After any Agent's
resignation as Agent, the provisions of this Article XIV shall
inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent.
14.4.Certain Rights of Agent. If Agent shall
request instructions from Lenders with respect to any act or
action (including failure to act) in connection with any of the
Documents, Agent shall be entitled to refrain from such act or
taking such action unless and until Agent shall have received
instructions from the Lenders or Required Lenders, as
applicable; and Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing,
Lenders shall not have any right of action whatsoever against
Agent as a result of its acting or refraining from acting
hereunder or under any other Document in accordance with the
instructions of the Lenders or Required Lenders, as applicable.
14.5.Reliance. Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, order or other document or
telephone message believed by it to be genuine and correct and
to have been signed, sent or made by the proper person or
entity, and, with respect to all legal matters pertaining to the
Documents and its duties hereunder and thereunder, upon advice
of counsel selected by it. Agent may employ agents and
attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by
Agent with reasonable care.
14.6.Notice of Default. Agent shall not be
deemed to have knowledge or notice of the occurrence of any
Incipient Event of Default or Event of Default or any default
under any of the other Documents, unless Agent has received
notice from a Lender or Borrower referring to this Agreement or
the other Documents, describing such Incipient Event of Default
or Event of Default and stating that such notice is a "notice of
default". In the event that Agent receives such a notice, Agent
shall give notice thereof to Lenders. Agent shall take such
action with respect to such Incipient Event of Default or Event
of Default as shall be reasonably directed by the Lenders or
Required Lenders, as applicable; provided, that, unless and
until Agent shall have received such directions, Agent may (but
shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Incipient Event of
Default or Event of Default as it shall deem advisable in the
best interests of Lenders.
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14.7.Indemnification. To the
extent Agent is not reimbursed and indemnified by Borrowers and
without limiting Borrowers' obligation to do so, each Lender
will reimburse and indemnify Agent in proportion to its
respective portion of the Advances (or, if no Advances are
outstanding, according to its Commitment Percentage), from and
against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against Agent in performing
its duties hereunder or under any other Documents, or in any way
relating to or arising out of this Agreement or any of the other
Documents; provided that, Lenders shall not be liable for any
portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from Agent's gross negligence (but not
mere negligence) or willful misconduct.
14.8.Agent in its Individual Capacity. With
respect to the obligation of BNYCC to lend under this Agreement
and the Advances made by it, BNYCC shall have the same rights
and powers hereunder and under any of the other Documents as any
other Lender and as if it were not performing the duties as
Agent specified herein or therein; and the term "Lender" or any
similar term shall, unless the context clearly otherwise
indicates, include BNYCC in its individual capacity as a Lender.
BNYCC may engage in business with Borrowers, Guarantors and
Affiliates of any Borrower or any Guarantor as if it were not
performing the duties specified herein or in any of the other
Documents, and may accept fees and other consideration from any
Borrower, any Guarantor or any Affiliate of any Borrower or any
Guarantor for services in connection with this Agreement and the
other Documents or otherwise without having to account for the
same to Lenders.
14.9.Delivery of Documents. To the extent Agent
receives documents and information from any Borrower or any
Guarantor pursuant to the terms of this Agreement, any Guarantor
Security Agreement or any other Document, Agent will promptly
furnish such documents and information to any Lender upon the
written request of such Lender to the extent such Lender does
not otherwise receive such documents and information directly
from such Borrower or such Guarantor.
14.10.Borrowers' Undertaking to Agent. Without
prejudice to their respective obligations to Lenders under the
other provisions of this Agreement and the Other Documents, each
of the Borrowers hereby undertakes with Agent to pay to Agent
from time to time on demand all amounts from time to time due
and payable by it for the account of Agent or the Lenders or any
of them pursuant to this Agreement or the Other Documents to the
extent not already paid. Any payment made pursuant to any such
demand shall pro tanto satisfy the relevant Borrower's
obligations to make payments for the account of the Lenders or
the relevant one or more of them pursuant to this Agreement and
the Other Documents.
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XV. BORROWING AGENCY PROVISIONS.
15.1.Appointment. (a)Each Borrower hereby
irrevocably designates Borrowing Agent as its attorney and agent
to borrow, sign and endorse notes, and execute and deliver all
instruments, documents, writings and further assurances now or
hereafter required hereunder, on behalf of each Borrower, and
does hereby authorize Agent to pay over or credit all loan
proceeds hereunder in accordance with the advance request made
by Borrowing Agent.
(b)It is understood and agreed
by each Borrower that the handling of this credit facility in
the manner set forth in this Agreement is solely as an
accommodation to Borrowers and at their request. Neither Agent
nor any Lender shall incur any liability to Borrowers as a
result thereof. To induce Agent and Lenders to do so and in
consideration thereof, each Borrower hereby agrees to indemnify
Agent and each Lender and to hold Agent and each Lender harmless
from and against any and all liabilities, expenses, losses,
damages and claims of damage or injury asserted against Agent or
any Lender by any Person arising from or incurred by reason of
Agent's or such Lender's handling of the financing arrangements
of the Borrowers as provided herein, reliance by Agent and
Lenders on any request or instruction from Borrowing Agent or
any other action taken by Agent or any Lender with respect to
this Section 15.1 except due to the gross (not mere) negligence
or willful misconduct of the indemnified party.
(c)Each Borrower represents and
warrants to Agent and Lenders that (i) the Borrowers have one or
more common shareholders (other than GDC whose stock is publicly
held), directors and officers, (ii) the businesses and corporate
activities of the other Borrowers are closely related to, and
substantially benefit, the business and corporate activities of
such Borrower, (iii) the financial and other operations of the
Borrowers are performed on a combined basis as if the Borrowers
constituted a consolidated corporate group, (iv) such Borrower
has received substantial economic benefit from entering into
this Agreement and shall receive substantial economic benefit
from the application of each Advance hereunder, in each case
whether or not such Advance is used directly by such Borrower,
and (v) all extensions of credit hereunder requested by the
Borrowing Agent are for the exclusive and indivisible benefit of
all Borrowers as though, for purposes of this Agreement and the
Other Documents and the allocation of any Collateral thereunder,
the Borrowers constituted a single entity.
15.2.Joint and Several Obligations. Each
Borrower further agrees that all Obligations shall be joint and
several, and that each Borrower shall make payment upon any of
the Obligations upon their maturity by acceleration or
otherwise, and that such obligation and liability on the part of
each Borrower shall in no way be affected by any extensions,
renewals and forbearances granted by Agent or any Lender to any
other Borrower or any Guarantor, failure of Agent or any Lender
to give any Borrower
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notice of borrowing or any other notice,
any failure of Agent or any Lender to pursue or preserve its
rights against the other Borrowers or any Guarantor, the release
by Agent or any Lender of any Collateral or any collateral
covered by the Guarantor Security Agreements now or hereafter
acquired from any Borrower or any Guarantor, failure of Agent or
any Lender to realize upon such Collateral or any collateral
covered by the Guarantor Security Agreements in a commercially
reasonably manner, and that such agreement by each Borrower to
pay upon any notice issued pursuant hereto is unconditional and
unaffected by prior recourse by Agent or any Lender to the other
Borrowers, any Guarantor, any Collateral or any collateral
covered by the Guarantor Security Agreements or the lack thereof.
15.3.Waiver of Subrogation. Each Borrower
expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other
claim which such Borrower may now or hereafter have against any
Borrower or other Person directly or contingently liable for the
obligations hereunder, or against or with respect to any
Borrower's or any other Person's property (including, without
limitation, any property which is Collateral), arising from the
existence or performance of this Agreement or any Other Document.
XVI. MISCELLANEOUS.
16.1.Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applied to contracts to be performed wholly
within the State of New York. Any judicial proceeding brought
by or against any Borrower with respect to any of the
Obligations, this Agreement or any Other Document or any related
agreement may be brought in any court of competent jurisdiction
in the State of New York, United States of America, and, by
execution and delivery of this Agreement, each Borrower accepts
for itself and in connection with its properties, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid
courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement or any Other
Document. Nothing herein shall affect the right to serve
process in any manner permitted by law or shall limit the right
of Agent or Lenders to bring proceedings against any Borrower in
the courts of any other jurisdiction. Each Borrower waives any
objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. Any
judicial proceeding by any Borrower against Agent or any Lender
involving, directly or indirectly, any matter or claim in any
way arising out of, related to or connected with this Agreement
or any Other Document or any related agreement, shall be brought
only in a federal or state court located in the City of New
York, State of New York.
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16.2.Entire Understanding.
(a) This Agreement, the Other Documents and the other documents
executed concurrently herewith contain the entire understanding
between Borrowers, Agent and each Lender and supersede all prior
agreements and understandings, if any, relating to the subject
matter hereof and thereof. Any promises, representations,
warranties or guarantees not herein contained and hereafter made
shall have no force and effect unless in writing, signed by each
Borrower's, Agent's and each Lender's respective officers.
Neither this Agreement nor any portion or provisions hereof may
be changed, modified, amended, waived, supplemented, discharged,
cancelled or terminated orally or by any course of dealing, or
in any manner other than by an agreement in writing in
accordance with Section 16.2(b). Each Borrower acknowledges
that it has been advised by counsel in connection with the
execution of this Agreement and the Other Documents and is not
relying upon oral representations or statements inconsistent
with the terms and provisions of this Agreement or any Other
Document. In the event a conflict exists between the terms and
provisions of this Agreement and the terms and provisions of any
of the Other Documents, the terms and provisions of this
Agreement shall control.
(b)Required Lenders or Agent with the consent in
writing of the Required Lenders, and Borrowers may, subject to
the provisions of this Section 16.2(b), from time to time enter
into written supplemental agreements to this Agreement or any of
the other Documents, for the purpose of adding or deleting any
provisions or otherwise changing, varying or waiving in any
manner the rights of Lenders, Agent, Borrowers or Guarantors
hereunder or thereunder or the conditions, provisions or terms
hereof or thereof or waiving any Event of Default, but only to
the extent specified in such written agreements; provided,
however, that no such supplemental agreement shall, without the
consent of all Lenders:
(i)increase the Commitment Percentage of any Lender;
(ii)increase the Maximum
Revolving Advance Amount;
(iii)extend the maturity of
any Note or the due date for any amount payable hereunder, or
decrease the rate of interest or reduce any fee payable by
Borrowers to Lenders pursuant to this Agreement;
(iv)alter the definition of
the term Required Lenders or alter, amend or modify this Section
16.2(b);
(v)release
any Collateral during any calendar year having an aggregate
value in excess of $1,000,000; or
(vi)change the rights and
duties of Agent.
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Any such supplemental agreement shall apply equally to each of
the Lenders and shall be binding upon Borrowers, Lenders and
Agent and all future holders of the Obligations. In the case of
any waiver, Borrowers, Agent and Lenders shall be restored to
their former positions and rights, and any Event of Default
waived shall be deemed to be cured and not continuing, but no
waiver of a specific Event of Default shall extend to any
subsequent Event of Default (whether or not the subsequent Event
of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.
16.3.Successors and Assigns; Participations; New
Lenders.
(a)This Agreement shall be
binding upon and inure to the benefit of each Borrower, Agent,
each Lender, all future holders of the Obligations and their
respective successors and assigns, except that no Borrower may
assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of Agent.
(b)Each Borrower acknowledges
that in the regular course of commercial banking business one or
more Lenders may at any time and from time to time sell
participating interests in the Advances and its commitment to
make or participate in Advances to other financial institutions
(each such transferee or purchaser of a participating interest,
a "Transferee"). Each Transferee may exercise all rights of
payment (including, without limitation, rights of set-off) with
respect to the portion of such Advances held or participated in
by it or other Obligations payable hereunder as fully as if such
Transferee were the direct holder thereof provided that
Borrowers shall not be required to pay to any Transferee more
than the amount which it would have been required to pay to the
Lender which granted an interest in its Advances or other
Obligations payable hereunder to such Transferee had such Lender
retained such interest in the Advances hereunder or other
Obligations payable hereunder and in no event shall Borrowers be
required to pay any such amount arising from the same
circumstances and with respect to the same Advances or other
Obligations payable hereunder to both Lender and such
Transferee. Each Borrower hereby grants to any Transferee a
continuing security interest in any deposits, moneys or other
property actually or constructively held by such Transferee as
security for such Transferee's interest in the Advances.
(c)Any Lender may sell, assign
or transfer all or any part of its rights and obligations under
this Agreement and the other Documents to (x) one or more of its
affiliates or in connection with the sale or transfer of such
Lender's loan portfolio, or (y) with Agent's prior written
consent, which consent will not be unreasonably withheld, to
additional banks or financial institutions (each a "Purchasing
Lender"), in minimum amounts of not less than $2,500,000,
pursuant to a Commitment Transfer Supplement, executed by a
Purchasing Lender, the transferor Lender,
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and Agent and
delivered to Agent for recording. Upon such execution,
delivery, acceptance and recording, from and after the transfer
effective date determined pursuant to such Commitment Transfer
Supplement, (i) the Purchasing Lender thereunder shall be a
party hereto and, to the extent provided in such Commitment
Transfer Supplement, have the rights and obligations of a Lender
with a Commitment Percentage as set forth therein, and (ii) the
transferor Lender thereunder shall, to the extent provided in
such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer
Supplement creating a novation for that purpose. Such
Commitment Transfer Supplement shall be deemed to amend this
Agreement to the extent, and only to the extent, necessary to
reflect the addition of such Purchasing Lender and the resulting
adjustment of the Commitment Percentages arising from the
purchase by such Purchasing Lender of all or a portion of the
rights and obligations of the transferor Lender under this
Agreement and the other Documents. Borrowers hereby consent to
the addition of such Purchasing Lender and the resulting
adjustment of the Commitment Percentages arising from the
purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this
Agreement and the Other Documents. Borrowers shall execute and
deliver such further documents and do such further acts and
things in order to effectuate the foregoing.
(d)Agent shall maintain at its
address a copy of each Commitment Transfer Supplement delivered
to it and a register (the "Register") for the recordation of the
Advances owing to or participated in by each Lender from time to
time. The entries in the Register shall be conclusive, in the
absence of manifest error, and Borrowers, Agent and Lenders may
treat each Person whose name is recorded in the Register as the
owner of the Advance recorded therein for the purposes of this
Agreement. The Register shall be available for inspection by
the Borrowers or any Lender at any reasonable time and from time
to time upon reasonable prior notice. Agent shall receive a fee
in the amount of $2,500 payable by the applicable Purchasing
Lender upon the effective date of each transfer or assignment to
such Purchasing Lender.
(e)Borrowers authorize each
Lender to disclose to any Transferee or Purchasing Lender and
any prospective Transferee or Purchasing Lender any and all
financial information in such Lender's possession concerning
Borrowers which has been delivered to such Lender by or on
behalf of Borrowers pursuant to this Agreement or any other
Document or in connection with such Lender's credit evaluation
of Borrowers. Each such Transferee or Purchasing Lender shall
agree to preserve the confidentiality of non-public information
in accordance with the terms of this Agreement.
16.4.Application of Payments. Agent shall have
the continuing and exclusive right to apply or reverse and
re-apply any payment and any and all proceeds of Collateral to
any portion of the Obligations. To the extent that any Borrower
makes a payment
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or Agent or any Lender receives any payment or
proceeds of the Collateral for any Borrower's benefit, which are
subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, custodian or any other party
under any bankruptcy law, common law or equitable cause, then,
to such extent, the Obligations or part thereof intended to be
satisfied shall be revived and continue as if such payment or
proceeds had not been received by Agent or such Lender.
16.5.Indemnity. Each Borrower shall indemnify
and hold harmless Agent, each Lender and their respective
employees, agents, directors and officers from and against any
and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of
any kind or nature whatsoever (including, without limitation,
fees and disbursements of counsel) which may be imposed on,
incurred by, or asserted against Agent or any Lender in any
litigation, proceeding or investigation instituted or conducted
by any governmental agency or instrumentality or any other
Person with respect to any aspect of, or any transaction
contemplated by, or referred to in, or any matter related to,
this Agreement, whether or not Agent or any Lender is a party
thereto, except to the extent that any of the foregoing arises
out of the gross (not mere) negligence or willful misconduct of
the party being indemnified. The obligations of Borrowers under
this Section 16.5 shall survive termination of this Agreement
and the Other Documents and payment in full of the Obligations.
16.6.Notice. Any notice or request hereunder may
be given to Borrowers or to Agent or any Lender at their
respective addresses set forth below or at such other address as
may hereafter be specified in a notice designated as a notice of
change of address under this Section. Any notice or request
hereunder shall be given by (a) hand delivery, (b) overnight
courier, (c) registered or certified mail, return receipt
requested, (d) telex or telegram, subsequently confirmed by
registered or certified mail, or (e) telecopy to the number set
out below (or such other number as may hereafter be specified in
a notice designated as a notice of change of address) with
telephone communication to a duly authorized officer of the
recipient confirming its receipt and subsequently confirmed by
registered or certified mail. Notices and requests shall, in
the case of those by (x) overnight courier or telegram, be
deemed to have been given when delivered to the overnight
courier or delivered to the telegraph office addressed as
provided in this Section and (y) registered or certified mail,
be deemed to have been given when deposited in the United States
mail addressed as provided in this Section. Notwithstanding the
foregoing, any notice to be given under Article II will not be
deemed delivered until actual receipt by Agent or Lenders.
-88-
<PAGE> 143
(A) If to Agent or BNYCC, at: The Bank of New York
Commercial Corporation
1290 Avenue of the Americas
New York, New York 10104
Attention: Michael Lustbader
Telephone: (212) 408-4085
FAX: (212) 408-4313
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attention: Steven J. Seif, Esq./
Miriam L. Cohen, Esq.
Telephone: (212) 736-1000
FAX: (212) 594-7167
(B) If to a Lender other than BNYCC, as specified on the
signature pages hereof or in the relevant Commitment
Transfer Supplement, as the case may be.
(C) If to Borrowers, at: General DataComm Industries, Inc.
1579 Straits Turnpike
Middlebury, Connecticut 06762-1299
Attention: William S. Lawrence/Dennis Nesler
Telephone: (203) 574-1118
FAX: (203) 598-7133
with a copy to: Weisman, Celler, Spett & Modlin
445 Park Avenue
New York, New York 10022
Attention: Howard Modlin, Esq./Gerald
Gordon, Esq.
Telephone: (212) 371-5400
FAX: (212) 371-5407
16.7.Severability. If any part of this Agreement
is contrary to, prohibited by, or deemed invalid under
applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be
invalidated thereby and shall be given effect so far as possible.
16.8.Expenses. All costs and expenses including,
without limitation, reasonable attorneys' fees and disbursements
incurred by Agent, Agent on behalf of Lenders and Lenders (a) in
all efforts made to enforce payment of any Obligation or effect
collection of any Collateral or any collateral covered by any
one or more of the Guarantor Security Agreements, or (b) in
connection with the entering into, modification, amendment,
administration and enforcement of this Agreement or any of the
other Documents or any consents or waivers hereunder and all
related agreements, documents and instruments, or (c) in
instituting, maintaining, preserving, enforcing and foreclosing
on Agent's security interest in or Lien
-89-
<PAGE> 144
on any of the Collateral
or any collateral covered by any one or more of the Guarantor
Security Agreements, whether through judicial proceedings or
otherwise, or (d) in defending or prosecuting any actions or
proceedings arising out of or relating to Agent's or any
Lender's transactions with any Borrower or any Guarantor, or (e)
in connection with any advice given to Agent or any Lender with
respect to its rights and obligations under this Agreement, the
other Documents and all related agreements, or (f) in
syndicating the Advances to be made under this Agreement but
only to the extent Agent involves its syndications department,
may be charged to Borrowers' account as a Domestic Loan and
shall be part of the Obligations.
16.9.Injunctive Relief. Each Borrower recognizes
that, in the event any Borrower fails to perform, observe or
discharge any of its obligations or liabilities under this
Agreement or any Other Document, any remedy at law may prove to
be inadequate relief to Lenders; therefore, Agent, if Required
Lenders so request, shall be entitled to seek temporary and
permanent injunctive relief in any such case without the
necessity of proving actual damages.
16.10.Consequential Damages. Neither Agent, any
Lender nor any agent or attorney for Agent or any Lender shall
be liable to any Borrower for consequential damages arising from
any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations.
No Borrower or any agent or attorney for any Borrower shall be
liable to Agent or any Lender for consequential damages arising
from any breach of this Agreement.
16.11.Captions. The captions at various places
in this Agreement are intended for convenience only and do not
constitute and shall not be interpreted as part of this
Agreement. 16.12.Counterparts, Telecopied
Signatures. This Agreement may be executed in any number of and
by different parties hereto on separate counterparts, all of
which, when so executed shall be deemed an original, but all
such counterparts shall constitute one and the same instrument.
Any signature delivered by a party by facsimile transmission
shall be deemed an original signature hereto.
16.13.Construction. The parties acknowledge that
each party and its counsel have reviewed this Agreement and that
the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any
amendments, schedules or exhibits hereto.
16.14.Confidentiality. Agent, each Lender and
any Transferee shall hold all non-public information obtained by
Agent or such Lender pursuant to the requirements of this
Agreement in accordance with Agent's and such Lender's customary
procedures for handling confidential information of this nature;
provided,
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<PAGE> 145
however, Agent and each Lender may disclose such
confidential information (a) to its examiners, affiliates,
outside auditors, counsel and other professional advisors, (b)
to any Transferee, any prospective Transferee or any prospective
Purchasing Lender, and (c) as required or requested by any
governmental agency or representative thereof or pursuant to
legal process or in connection with any suit involving Agent,
any Lender or any Transferee; provided, however that in no event
shall Agent or any Lender be obligated to return any materials
furnished by any Borrower other than those documents and
instruments in possession of Agent or any Lender in order to
perfect its Lien in the Collateral and provided that the
Obligations have been paid in full and this Agreement has been
terminated.
Each of the parties has signed this Agreement as of the
30th day of November, 1995.
GENERAL DATACOMM INDUSTRIES, INC.
GENERAL DATACOMM, INC.
GDC REALTY, INC.
GDC NAUGATUCK, INC.
GENERAL DATACOMM INTERNATIONAL CORP.
GDC FEDERAL SYSTEMS, INC.
By:________________________________
Dennis J. Nesler, the Vice-President of each of the foregoing
corporations
1579 Straits Turnpike
Middlebury, Connecticut 06762-1299
THE BANK OF NEW YORK COMMERCIAL CORPORATION
By:_______________________________
Ryan Peak, Vice-President
1290 Avenue of the Americas
New York, New York 10104
Commitment Percentage: 100%
THE BANK OF NEW YORK COMMERCIAL CORPORATION, as Agent
By:_______________________________
Ryan Peak, Vice-President
-91-
<PAGE> 146
STATE OF NEW YORK ) ) ss.
COUNTY OF NEW YORK )
On this 30th day of November, 1995, before me personally
came Dennis J. Nesler, to me known, who, being by me duly sworn,
did depose and say that he is the Vice-President of each of
GENERAL DATACOMM INDUSTRIES, INC., GENERAL DATACOMM, INC., GDC
REALTY, INC., GDC NAUGATUCK, INC., GENERAL DATACOMM
INTERNATIONAL CORP. and GDC FEDERAL SYSTEMS, INC., the
corporations described in and which executed the foregoing
instrument and that he signed his name thereto by order of the
board of directors of said corporations.
______________________________
NOTARY PUBLIC
STATE OF NEW YORK ) ) ss. COUNTY
OF NEW YORK )
On this 30th day of November, 1995, before me personally
came Ryan Peak, to me known, who, being by me duly sworn, did
depose and say that he is the Vice President of THE BANK OF NEW
YORK COMMERCIAL CORPORATION, the corporation described in and
which executed the foregoing instrument and that he signed his
name thereto by order of the board of directors of said
corporation.
- -----------------
NOTARY PUBLIC
-92-
<PAGE> 147
Exhibit 11
General DataComm Industries, Inc. and Subsidiaries
Calculation of Earnings (Loss) per Share (In Thousands Except
per Share Data)
<TABLE>
<CAPTION>
Years Ended September 30 1995 1994 1993
<S> <C> <C> <C>
Primary Earnings (Loss) Per Share:
Weighted average number of common
shares outstanding 19,772 16,659 15,641
Assumed exercise of certain
stock options and warrants - - 1,233
--------------------------------
19,772 16,659 16,874
================================
Income (loss) before cumulative effect of
accounting changes $(27,630) $(1,895) $6,116
Cumulative effect of changes in accounting
for post-retirement and post-employment
benefits -- (433) -
--------------------------------
Net income (loss) $(27,630) $(2,328) $ 6,116
==================================
Earnings (loss) per share:
Income (loss) before cumulative
effect of accounting changes $ (1.40) $(0.11) $ 0.36
Cumulative effect of changes in
accounting for post-retirement
and post-employment
benefits -- (0.03) -
----------------------------------
Earnings (loss) per share $ (1.40) $ (0.14) $ 0.36
Fully Diluted Earnings (Loss) Per Share:
Weighted average number of common shares
outstanding 19,772 16,659 15,641
Assumed exercise of certain stock options
and warrants - - 1,425
----------------------------------
19,772 16,659 17,066
==================================
Income (loss) before cumulative effect of
accounting changes $(27,630) $(1,895) $ 6,116
Cumulative effect of changes in
accounting and for post-retirement
and post-employment benefits - (433) -
-----------------------------------
Net income (loss) $(27,630) $(2,328) $ 6,116
===================================
Earnings (loss) per share:
Income (loss) before cumulative
effect of accounting changes $ (1.40) $ (0.11) $ 0.36
Cumulative effect of changes in
accounting for post-retirement
and post-employment benefits -- (0.03) -
----------------------------------
Earnings (loss) per share $ (1.40) $ (0.14) $ 0.36
F-5
</TABLE>
<PAGE> 148
Exhibit 12
General DataComm Industries, Inc. and Subsidiaries
Calculation of Current Ratio
<TABLE>
<CAPTION>
Years Ended September 30 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Current Assets $116,100 $104,032 $79,481 $82,123 $90,756
Current Liabilities 52,813 47,619 41,236 38,656 53,819
Current Ratio 2.2:1 2.2:1 1.9:1 2.1:1 1.7:1
F-6
</TABLE>
<PAGE> 149
Exhibit 21
General DataComm Industries, Inc.
List of Subsidiaries
<TABLE>
<CAPTION>
Percentage
State or of Voting
Jurisdiction of Securities
Subsidiaries Incorporation Owned
<S> <C> <C>
General DataComm, Inc. Delaware 100%
GDC Federal Systems, Inc. Delaware 100%
DataComm Leasing Corporation Delaware 100%
DataComm Rental Corporation (1) Delaware 100%
General DataComm Ltd. Canada 100%
General DataComm Limited United Kingdom 100%
General DataComm International
Corporation Delaware 100%
General DataCommunications,
Industries, B.V. (1) Netherlands 100%
GDC Realty, Inc. Texas 100%
GDC Naugatuck, Inc. Delaware (2)
General DataComm Pty. Limited Australia 100%
General DataComm SARL France 100%
General DataComm de Mexico
S.A. de C.V. Mexico 100%
General DataComm France SARL France 100%
General DataComm Pte Ltd. Singapore 100%
General DataComm de
Venezuela, C.A. (1) Venezuela 100%
General DataComm Advanced Research
Centre Limited United Kingdom 95% (3)
General DataComm Industries GmbH Germany 100%
General DataComm CIS Russia 100%
General DataComm China, Ltd. Delaware (4)
General DataComm do Brasil Ltda,
S.C. Brazil 100%
</TABLE>
_________________
(1) Currently inactive.
(2) Wholly owned by GDC Realty, Inc.
(3) 5% owned by General DataComm International Corporation.
(4) Wholly owned by General DataComm International Corporation.
F-7
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-19
<PERIOD-END> SEP-30-19
<CASH> 18,443
<SECURITIES> 0
<RECEIVABLES> 43,033
<ALLOWANCES> 2,181
<INVENTORY> 44,958
<CURRENT-ASSETS> 9,666
<PP&E> 126,959
<DEPRECIATION> 80,237
<TOTAL-ASSETS> 198,388
<CURRENT-LIABILITIES> 52,813
<BONDS> 23,435
<COMMON> 2,112
0
0
<OTHER-SE> 114,973
<TOTAL-LIABILITY-AND-EQUITY> 198,388
<SALES> 178,092
<TOTAL-REVENUES> 221,193
<CGS> 104,506
<TOTAL-COSTS> 129,335
<OTHER-EXPENSES> 115,983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,355
<INCOME-PRETAX> (26,480)
<INCOME-TAX> 1,150
<INCOME-CONTINUING> (27,630)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,630)
<EPS-PRIMARY> (1.40)
<EPS-DILUTED> (1.40)
</TABLE>
