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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM 10-K
(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1998
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
______________________ to ______________________.
Commission File No. 0-1424
ADC Telecommunications, Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0743912
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
12501 Whitewater Drive
Minnetonka, Minnesota 55343
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(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (612) 938-8080
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.20 par value
Common Stock Purchase Rights
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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.
/X/ Yes / / No
The aggregate market value of voting stock held by nonaffiliates of the
registrant, as of December 23, 1998, was approximately $4,340,539,594 (based on
the last sale price of such stock as reported by the Nasdaq Stock Market
National Market).
The number of shares outstanding of the registrant's common stock, $0.20
par value, as of December 23, 1998, was 135,113,707.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. / /
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part II of this Form 10-K is incorporated
herein by reference to portions of the Company's Annual Report to Shareholders
for the fiscal year ended October 31, 1998. The information required by Part
III of this Form 10-K is incorporated by reference to portions of the Company's
definitive proxy statement for its 1999 Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission on or before February 24,
1999.
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PART I
ITEM 1. BUSINESS
ADC Telecommunications, Inc. ("ADC" or the "Company") is a leading
global provider of hardware and software systems and integrated solutions
that enable customers to build and upgrade their communications networks to
support increasing user demand for voice, video and Internet/data services.
ADC's mission is to extend its leadership as a global supplier of systems and
solutions that enable communications service providers to serve their
customers with high-bandwidth connections. These systems and solutions are
used by communications service providers to offer faster, cost-effective and
integrated voice, video and Internet/data services in the local loop. The
local loop is the last mile of the communications network that runs from the
local service providers' offices through the network equipment that connects
to the end-user's residence or business.
Telephone companies, cable TV operators, wireless network providers and
other communications service providers are building the infrastructure
required to offer high-speed Internet access, data, video, telephony, and
other interactive multimedia services to residential and business customers.
The last mile of the communications network is expected to be the fastest
growing area for future communications equipment spending by communications
service providers.
The Company's products include hardware and software systems and
integrated solutions which the Company categorizes in the following four
groups:
- Broadband Connectivity Group;
- Business Broadband Group;
- Residential Broadband Group; and
- Integrated Solutions Group.
Broadband Connectivity products are designed for use in twisted-pair,
coaxial, fiber optic or wireless transmission networks. These products
provide the physical contact points for connecting different communications
system components and gaining access to communications system circuits. As a
result of these connections, customers can install, test, monitor, manage,
reconfigure, split and multiplex these circuits in the local loop portion of
global public and private networks. Broadband Connectivity products are sold
to both public and private global service providers.
Business Broadband products enable telephone companies to deliver voice,
video and Internet/data services to their business customers. These products
include transport and access systems that are used to deliver these services
over both copper and fiber networks.
Residential Broadband products include digital transport systems that
enable cable TV operators to transport high-speed digital signals for two-way
voice, data, Internet and video services to homes. These services are
delivered using fiber-optic and hybrid fiber/coaxial systems.
The Integrated Solutions products include consulting, software and
systems integration services to aid customers in integrating ADC and other
complementary products in communications networks. ADC provides services and
software primarily to telephone operating companies, cable TV operators,
other communications common carriers and users of private communications
networks. Software products include ADC Metrica performance management
software, ADC NewNet intelligent network and messaging software and
SoftXchange-TM- network management software.
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The Company's customers include: public network providers, Regional
Bell Operating Companies (RBOCs), post telephone and telegraph companies
(PTTs), other telephone companies, long distance carriers, wireless service
providers, cable TV operators, Internet service providers and other
international and domestic public network providers; private and governmental
network providers (such as various large business customers and governmental
agencies); and communications original equipment manufacturers (OEMs).
As used in this report, unless the context otherwise requires, the terms
"Company" and "ADC" refer to ADC Telecommunications, Inc. and its wholly
owned and majority owned subsidiaries; 1996, 1997 and 1998 refer to the
Company's fiscal years ended October 31, 1996, 1997 and 1998, respectively;
and 1999 refers to the Company's fiscal year ending October 31, 1999.
INDUSTRY BACKGROUND
Since the Company entered the communications equipment industry in the
1970s, the industry has grown and changed substantially. The factors driving
this growth and change consist primarily of the following: increased demand
for new, higher speed, higher capacity services such as Internet access,
digital video and advanced wireless services; continuous technological
development; the convergence of all voice, Internet/data and video network
traffic into integrated multimedia services over public and private networks;
and a changing regulatory and competitive environment. The Company believes
that these trends will continue to drive changes in the communications
equipment industry for the foreseeable future.
Increased demand for new, higher-speed, higher-capacity services such as
Internet access, digital video and advanced wireless services has in turn
resulted in substantial demands on network infrastructure over the past
decade. Networks increasingly are required to transmit large volumes of data
and video for the purpose of communicating information, conducting business
and delivering entertainment. In addition, both public and private network
customers are requesting the convergence of their voice, Internet/data and
video traffic into integrated multimedia services transmitted over one
network. Such demands have prompted the development and use of "broadband"
networks, which feature the improved reliability and increased speed of
transmission generally required for data and video transmission over the
network. Specifically, the industry term "broadband" refers to all
transmission speeds of T1 (1.544 million bits per second) and higher. Growth
in broadband network applications has resulted in increased infrastructure
investment by network operators in order to expand network capacity and
provide new applications and services to meet users' needs.
Several important technological developments have spurred the evolution
of the communications equipment industry. One important technological change
has been the deployment of fiber-optic transmission systems. In a fiber-
optic system, lasers transmit voice, Internet/data and video traffic in the
form of analog or digital coded light pulses through glass fibers. The
increasing shift to fiber-optic transmission systems has been principally due
to the ability of fiber optics to carry large volumes of information at high
speeds, its insensitivity to electromagnetic interference and the high
transmission quality made possible by the physical properties of light. As
technologies such as Synchronous Optical NETwork (SONET), Dense Wavelength
Division Multiplexing (DWDM) and 1550 nanometer laser transmission
technologies have evolved over the last several years, the capacity of
fiber-optic systems to transport information has increased significantly.
The development of cost-effective digital technology has also allowed
greater capacity (or speed) in network transmission and has resulted in an
increasing trend over the past decade to replace analog technology in copper,
fiber and wireless transmission networks. In analog technology, information
is converted to a voltage or current wave form for processing or
transmission. In digital technology, information is converted to digital
bits and then processed or transmitted using computer-based components.
High-speed digital technology developments such as SONET, cell-based
Asynchronous Transfer Mode (ATM) and Orthogonal Frequency Division
Multiplexing (OFDM) modulation technologies have enabled network providers to
transmit increasing amounts of data and video communications.
Another important technological change in the communications marketplace
is the use of integrated circuits in both public and private communications
networks, facilitating significantly more complex networks. Network
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equipment utilizing integrated circuits is increasingly performing the
high-speed switching, network performance monitoring, network management,
information compression, data translation and other complex functions
required to address expanding users' needs.
More recently, wireless technology developments have had an impact on
the communications equipment industry. There has been substantial growth in
wireless communications such as cellular telephone services and
satellite-based services, Personal Communications Services (PCS)
communications, Multichannel Multipoint Distribution Services (MMDS) and
Local Multipoint Distribution Services (LMDS) for wireless cable services and
wireless data and paging services. This growth has been driven by the
convenience of mobility and the limits of wireline infrastructure. In
particular, in countries without reliable or extensive wireline systems,
wireless service could ultimately provide the primary service platform for
both mobile and fixed communications applications, because of the potential
savings in installation time and cost. The Company believes that in future
years the continuing development of wireless communications technology could
substantially extend the reach of current communications networks.
Finally, over the last three years, Digital Subscriber Line (DSL)
technology and Digital Loop Carrier (DLC) technology advancements have
resulted in a resurgence of copper-based transmission of high bandwidth
services to business customers. The Company believes that in future years
the continuing development of DSL and DLC technologies could enable network
providers to transport residential broadband services over copper-based
systems in certain applications.
The evolution in technology and user needs has been accompanied by
changes in the domestic and international regulatory environment. Since the
consent decree resulting in the divestiture of the AT&T regional operating
companies in 1984, the RBOCs have been prevented from manufacturing equipment
for use in communications networks. As the RBOCs have embarked on aggressive
expansion plans, significant opportunities have been created for independent
communications equipment manufacturers such as the Company.
In February 1996, the U.S. Congress enacted the Telecommunications
Reform Act of 1996 (the "Telecommunications Act"), which opened competition
for local loop access services to local telephone operators, long distance
telephone companies, cable TV companies, electric utilities and potentially
others. The Telecommunications Act represents a fundamental change from the
Communications Act of 1934, which governed the U.S. telephone industry
structure prior to 1996 and which protected franchised monopolies in local
telephone service. The Telecommunications Act also allows the RBOCs to
provide long distance service and manufacture communications equipment under
certain circumstances, another significant change from the 1984 consent
decree which required divestiture of the AT&T regional operating companies.
The objective of the Telecommunications Act is to reduce regulation and
stimulate competition in communications services, which in turn is expected
to result in more rapid introduction of new technologies and services, better
quality of service, a broader range of service options, lower costs to
consumers and stimulation of the overall economy through an improved
information system infrastructure. The Company believes that Congress
intended for the competition among service providers to be both
services-based (I.E., the service provider buys and resells bandwidth) and
equipment-based (I.E., the service provider also operates the equipment).
Since the passage of the Telecommunications Act, the Federal
Communications Commission and the federal courts, as well as various state
governments and agencies, have initiated efforts to define and establish
rules for implementation of the new law. Although implementation of the
Telecommunications Act and the intended increase in competition has begun,
there have been a number of delays and continuing uncertainties. The Company
believes that the impact of the Telecommunications Act in reducing regulation
of and increasing competition in the U.S. communications industry will
take a number of years to unfold.
Outside the United States, the communications equipment market has also
expanded and changed significantly in recent years, as network users have
increasingly demanded access to voice, Internet/data and video communications
capabilities. Many countries without reliable or extensive wireline systems
are seeking to develop and enhance their communications infrastructure. This
growth in demand for network services and infrastructure has been accompanied
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by changes in the international regulatory environment. In many countries,
government operated communications monopolies are being converted to private
network services providers, and competition among such carriers is expected
to intensify. Policies of deregulation and privatization are currently being
followed in many countries, and these policies increase opportunities for
independent companies to supply products and services within both public
telephone system and private network markets for voice, Internet/data and
video communications.
The Company believes that "broadband global networking," or the emerging
series of worldwide broadband networks, represents a key enabling capability
for meeting the information needs of network users. The addition of
high-speed Internet/data and video traffic has driven the need for broadband
infrastructure and has enabled the creation of a wide range of new
applications, including broadband Internet access and e-mail, video on
demand, electronic commerce, distance learning, telecommuting, telemedicine
and high-speed imaging such as remote medical imaging. Although these
broadband networks have tremendous potential, bottlenecks are a frequent
problem in the local loop portion of the networks. The Company believes that
there is a large and growing market for products that can unlock the capacity
of the local loop by eliminating bottlenecks in the last mile of the
communications network.
STRATEGY
ADC's strategy is to capitalize on opportunities in the evolving global
communications market by providing hardware and software systems and
integrated solutions for its customers' voice, Internet/data and video
communications networks, primarily within the local loop or "last mile" of
the communications network. ADC's broad range of products addresses key
areas of the communications network infrastructure, and these products are
used to connect physical networks, access network services, transport network
traffic and manage networks. ADC's many product offerings address the
diverse needs of its customers within the local loop, including the RBOCs,
PTTs, other telephone companies, long distance carriers, wireless service
providers, cable TV operators, other public network providers, private
network providers and communications OEMs.
Key components of the Company's strategy include:
- FOCUS ON BROADBAND LOCAL LOOP OPPORTUNITIES. In recent years,
broadband requirements for both public and private networks have grown
significantly. In the public network local loop market, broadband
deployment has been driven by incumbent and competitive local exchange
carriers and cable TV operators seeking to establish the
infrastructure required to offer high-speed, integrated multimedia
Internet access, data, video, telephony and other multimedia
interactive services to residential and business customers over a
single network. In addition, both residential and business customers
are driving network requirements in the last mile by increasingly
demanding advanced wireless services. The Company believes that the
local loop presents some of the greatest market growth opportunities
and customer needs in the communications equipment industry today, and
ADC is focusing its development and marketing resources on products
that will "unlock the capacity of the local loop" by eliminating
bottlenecks and increasing the speed and efficiency in the last mile
of the network. ADC offers a broad line of communications equipment
that addresses customers' network needs in the local loop. In
addition, through a combination of internal core competency
development and external acquisition and partnering activities, ADC
has grown its systems integration and network management capabilities
to the level required to offer customers much more integrated,
end-to-end solutions to their network needs.
- LEVERAGE TECHNOLOGICAL CAPABILITIES ACROSS PRODUCT GROUPS. ADC has
developed substantial expertise in fiber optic, broadband copper,
video, wireless and broadband network management technologies,
software and systems integration services. The Company has built
these core competencies through internal development, acquisitions,
joint ventures and technology licensing arrangements. ADC's strategy
is to leverage these core competencies across its product groups in
order to develop new product architectures and network management
tools for its customers' evolving voice, Internet/data and video
network needs in various market areas. For example, the Company
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believes its recent acquisition of Teledata Communications Ltd.
("Teledata") will permit ADC to develop a broadband digital loop
carrier system using ADC's voice, video and Internet/data technologies
and Teledata's digital loop carrier technologies for both the U.S. and
international markets.
- EXPAND INTERNATIONAL PRESENCE. ADC believes that significant growth
in the communications equipment market will occur outside the United
States as a result of deregulation and the need of many foreign
countries to substantially expand or enhance their communications
services. ADC's strategy is to expand its international presence by
increasing its international sales and marketing resources, leveraging
its existing customer relationships, developing additional
international distribution channels and seeking strategic alliances
and acquisitions. A number of ADC's subsidiaries and several of its
strategic alliance partners have their principal operations or markets
outside the United States.
- SUPPLEMENT INTERNAL DEVELOPMENT EFFORTS WITH STRATEGIC ACQUISITIONS
AND ALLIANCES. Because of the dynamic nature of the communications
equipment industry, ADC has sought and intends to continue to seek
acquisitions and alliances that will: (i) add key technologies that
ADC can leverage across its businesses, (ii) broaden its product
offerings, (iii) permit the Company to enter attractive new markets
and (iv) expand or enhance its distribution channels. During 1998,
ADC announced the following acquisitions: (a) Teledata, a supplier of
advanced wireline and wireless customer access network equipment for
telephone operating companies; (b) W.E. Tech, Inc. ("W.E. Tech"), a
provider of systems integration services; (c) Princeton Optics, a
supplier of fiber optic components; (d) Hadax Electronics, Inc., a
company with remote network test and access products and technology;
and (e) TeleProcessing Products, Inc. ("TPI"), a provider of service
access solutions for business broadband applications.
The ability of the Company to implement its strategy effectively is
subject to many uncertainties, and there can be no assurance of any future
results of the Company's activities.
PRODUCT GROUPS
The Company's systems and integration solutions are divided in four
groups: (1) Broadband Connectivity; (2) Business Broadband; (3) Residential
Broadband; and (4) Integrated Solutions. Each of these groups is described
below.
BROADBAND CONNECTIVITY
Broadband Connectivity products are designed for use in twisted-pair,
coaxial, fiber optic or wireless transmission networks and are sold to both
public and private global service providers. ADC's broadband connectivity
products provide the physical contact points for connecting different
communications system components and gaining access to communications system
circuits for the purpose of installing, testing, monitoring, managing,
reconfiguring, splitting and multiplexing such circuits within global public
and private networks, generally in the local loop portion of such networks.
Broadband Connectivity products include network access/connection devices for
twisted-pair and coaxial networks, network access/connection devices for
fiber optic networks, modular fiber optic cable routing systems, outside
plant cabinets and other enclosures, and wireless infrastructure equipment
and subsystems. The Company's Broadband Connectivity products are sold to
the RBOCs, other telephone companies, long distance carriers, other public
network providers (including cable TV operators and wireless service
providers), international network operators, private network providers and
communications OEMs.
JACKS, PLUGS, PATCH CORDS, JACKFIELDS AND PATCH BAYS. Jacks and plugs
are the basic components used to gain access to copper communications
circuits for testing and maintenance. Patch cords are wires or cables with a
plug on each end. ADC incorporates its jacks, plugs and patch cords into its
own products and also sells them in component form, primarily to OEMs. A
jackfield is a module containing an assembly of jacks wired to terminal
blocks or
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connectors and used by communications companies to gain access to copper
communication circuits for testing or patching the circuits. When testing a
large number of circuits, series of jackfields are combined in specialized
rack assemblies called patch bays. ADC manufactures a range of jackfields
and patch bays in various configurations. Certain of these jackfields are
specialized for use in audio and visual transmission networks in the
broadcast industry.
DSX PRODUCTS. ADC manufactures digital signal cross-connect (DSX)
modules and bays, which are jackfields and patch bays designed to gain access
to and cross-connect digital copper circuits for voice, data and video
transmission. Since the introduction of DSX products in 1977, the Company has
continued to expand and refine its DSX product offerings. The Digital
Distribution Point (DDP) family of products within the DSX product group are
mechanical alternatives to hard-wiring equipment used for cable management
and circuit access with software based, electronic digital cross-connect
systems. With the acquisition of Hadax Electronics, ADC has added remote
test access capability to its DSX products. This capability enables service
providers to monitor high capacity circuit performance at unstaffed sites
such as carrier collocation points.
TERMINAL BLOCK AND FRAME PRODUCTS. ADC manufactures a wide variety of
terminal blocks which are molded plastic blocks with contact points used to
facilitate multiple wire interconnections. The Company's cross-connect
frames are terminal block assemblies used to connect the external wiring of a
communications network to the internal wiring of a telephone operating
company central office or to interconnect various pieces of equipment within
a telephone company central office or at a customer's premises.
VIDEO SIGNAL DISTRIBUTION PRODUCTS. ADC's series of Video Signal
Distribution (VSD) products are designed to meet the unique performance
requirements of Radio Frequency (RF) video transmission over coaxial cable.
This product family includes a series of splitter/combiner panels, a series
of video jacks and panels which monitor, patch and provide a test access
point and an analog video interface system panel designed for on-demand
testing.
FIBER OPTIC PATCH CORDS. Fiber optic patch cords are functionally
similar to copper patch cords and are the basic components used to gain
access to fiber communications circuits for testing, maintenance,
cross-connection and configuration purposes. The Company's LightTracer-TM-
fiber optic patch cords provide immediate identification of fiber optic
connections. ADC's new LX.5 fiber connector doubles the capacity of fiber
termination equipment by allowing two fibers to fit into the standard SC
adapter footprint. The Company incorporates its fiber optic patch cords and
cable assemblies into its own products and also sells them in component form.
FIBER DISTRIBUTION FRAMES. The Company's fiber distribution panels and
frames are functionally similar to copper jackfields and frames designed with
special considerations of fiber optic properties. They also provide
interconnection points between fiber optic cables entering a building and
fiber optic cables connected to fiber optic equipment within the building.
FIBER OPTIC COMPONENTS. ADC's Australian subsidiary, AOFR Pty. Ltd.,
sells fiber optic couplers which are passive connection devices used in fiber
optic transmission systems. Fiber optic couplers, which include optical
splitters and wavelength division multiplexers, enable efficient and
cost-effective deployment of broadband networks. ADC also sells Dense
Wavelength Division Multiplexing (DWDM) components such as splitters and
multiplexers which are designed with special considerations of fiber optic
properties. These products increase the channel capacity of fiber optic
cabling systems in multiples of four. ADC currently is selling four-channel
and eight-channel components and has recently introduced 16-channel and
32-channel components. ADC's acquisition of Princeton Optics broadened ADC's
optic components product line by adding optical isolators and circulators and
related technology. Isolators function as one-way optical check valves that
protect lasers and other elements from reflective light. Circulators are
devices that carry a light signal from one port to the next in the forward
direction only.
OTHER FIBER OPTIC PRODUCTS. The Company's FiberGuide-Registered
Trademark-system is a modular routing system which provides a segregated,
protected method of storing and routing fiber patch cords and cables within
buildings.
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WIRELESS INFRASTRUCTURE EQUIPMENT AND SUBSYSTEMS. ADC designs,
manufactures and markets radio frequency (RF) filters, SMARTop-TM- tower-top
amplifiers and other wireless base station and subscriber equipment
components and subsystems through its ADC Solitra Oy subsidiary located in
Finland. These products are sold primarily to wireless OEMs.
BROADBAND SOFTWARE INFRASTRUCTURE MANAGEMENT SOLUTIONS. ADC has
developed a number of software products which provide management of fiber
optic infrastructure connectivity, geographical tracking of equipment, cables
and other network elements in the telephone company central office, cable TV
company headend and outside plant portion of those networks.
CITYWIDE-TM- PRODUCTS. The Company's family of CityWide wireless
systems products includes the CityCell-Registered Trademark- and
CityLink-Registered Trademark- wideband digital microcells and repeaters for
adding and extending cellular communication coverage, both out-of-doors and
in-building. The CitySector-Registered Trademark- microcell is a sectorized
microcell offering 25 to 100 watts of RF power per sector. CityWide products
are transparent to analog or digital modulation, and products have been
commercially deployed by five of seven major U.S. cellular network providers.
The Company's analog wideband CityCell microcell utilizes T1 copper
transport rather than fiber transport. The Company has under development PCS
versions of its CityRFX-Registered Trademark- cellular indoor antenna
distribution systems. The Company also offers advanced intelligent network
solutions for its CityWide product family with the CityLink CDMA and GSM
repeaters as well as other GSM system products.
BUSINESS BROADBAND PRODUCTS
Business Broadband products enable carriers to deliver voice,
Internet/data and video services to their business customers. Products
include Loop Transport Platforms (including Soneplex-Registered Trademark-
and Cellworx-TM- products) as well as a broad family of public access devices
(including the Kentrox family of DSU/CSUs and ATM access concentrator
products, EZT1/EZT3-TM- multiplexers and Opera and ICX Integrated Access
Devices). Business Broadband products also include internetworking products
and data network management equipment.
SONEPLEX AND CELLWORX PRODUCTS. Soneplex is a carrier-class,
intelligent loop access platform enabling Incumbent Local Exchange Carriers
and Competitive Local Exchange Carriers to deliver T1/E1-based services over
copper or fiber facilities. Soneplex integrates functions and capabilities
that reduce a carrier's capital and operating costs of delivering T1/E1-based
services. Cellworx represents a next-generation OC-12/48 SONET/SDH transport
product which integrates ATM and SONET/SDH technologies. Where Soneplex is
centered on T1/E1-based service delivery, Cellworx is a broad-based service
delivery infrastructure product aimed at reducing a carrier's capital and
operating costs of delivering the full range of high speed to low speed
services over copper or fiber facilities.
In late 1998, ADC received its first international order for its new
Cellworx-TM- Service Transport Node (STN) from Dual Zentrum, a value-added
network integrator that has agreed to distribute Cellworx in the eastern part
of Germany. Cellworx, which is currently being tested in three separate
trials in the United States, is expected to reduce broadband service delivery
costs substantially compared to costs incurred in using existing SONET and
ATM products. Cellworx uses ATM technology to deliver and aggregate voice,
video and Internet/data traffic over SONET fiber ring architectures. Like
Soneplex, Cellworx extends communications services over fiber and copper
facilities using HDSL and ADSL.
CUSTOMER LOCATED AND CUSTOMER PREMISE DEVICES. ADC's Business Broadband
products include Customer Located Devices (which are part of the carrier's
network) as well as Customer Premise Devices (which are owned by the
carrier's business customer). These stand-alone products can work in
conjunction with Soneplex or Cellworx or with other vendors' transport
systems. They include T1/E1 multiplexers (offering a variety of voice, data
and video interfaces), T3/E3 multiplexers and ATM access concentrators.
PUBLIC NETWORK ACCESS EQUIPMENT. The Company manufactures a family of
Channel Service Unit (CSU) and Data Service Unit (DSU) products which are
used to digitally interconnect the public network and the private network.
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This equipment monitors circuits and provides system protection and other
network management functions. Certain of these products also enable the
customer to test the performance of its voice network and allow connection of
voice, data and video circuits. These products support T1, T3 (44.6 million
bits per second) and OC3 (155 million bits per second) services and a variety
of data protocols, including Frame Relay, Switched Multi-megabit Data Service
(SMDS), ATM, ISDN, HDSL and the Internet protocols. The Company's AAC-1-TM-
and AAC-3-TM- ATM access concentrators adapt, aggregate, multiplex and manage
all voice, data and video signals in various speeds, technologies and
protocols for transport over T1, E1, T3 and E3 speed ATM networks. The
Company sells several remote access and routing products, some of which are
specifically designed for Internet access. The Company has entered into
agreements with other ATM equipment suppliers providing for the joint
marketing of and integration of ADC's ATM adaptation and concentration
technologies into the ATM switching and routing products manufactured by such
companies. The Company's EZT, ICX and Opera products support a wide range of
customer interfaces and applications which enable service providers to
deliver many network services simultaneously in a cost-effective manner.
INTERNETWORKING PRODUCTS. Internetworking products include fiber optic
backbones used to transport high speed multiple voice, data and video signals
simultaneously over private networks and link Local Area Networks (LANs),
mainframes, minicomputers, personal computers, telephone systems and video
equipment with diverse protocols within private networks or over the public
network; intelligent wiring hub products which interconnect workstations,
personal computers and terminals, utilizing many different LAN protocols and
types of cables; and network management systems.
PATCHSWITCH SYSTEM AND PATCHMATE-TM- MODULE. The Company's PatchSwitch
system is a data network management product which provides access to and
monitors, tests and reconfigures digital data circuits and permits local or
remote switching to alternate circuits or backup equipment. This system is
modular, permitting the user to select and combine the particular functions
desired in a system. The PatchMate module is a manually operated
electromechanical device used to gain access to the network in order to
monitor, test and reconfigure digital data circuits.
RESIDENTIAL BROADBAND PRODUCTS
Residential Broadband products offer digital transport systems that
enable cable TV operators to economically transport high-speed digital
signals for two-way voice, video and Internet/data services to residences and
businesses, primarily through the Company's Homeworx-TM- access transport
platform and DV6000-TM- system. Residential Broadband products also include
equipment manufactured and supplied by ADC's Teledata subsidiary.
HOMEWORX ACCESS TRANSPORT PLATFORM. The Homeworx system has been
designed for deployment on video-only, telephony-only and integrated video,
telephony and data broadband networks provided by telephone operating
companies, cable TV operators and other communications common carriers.
Homeworx access transport platform utilizes Hybrid Fiber Coax (HFC)
technology.
On November 30, 1998, ADC and Cisco Systems ("Cisco") announced an
alliance to develop Internet Protocol (IP) telephony and data products for
cable TV operators using ADC's Homeworx-TM- system and Cisco's NetWorks
Internet technologies. ADC and Cisco are also jointly developing products
for the delivery of digital video and advanced data services. These products
will combine ADC's DV6000-TM- video transmission system and EtherRing-TM-
data transmission system with Cisco's networking products and technologies,
including the Cisco 12000 Gigabit Switch Router, the Catalyst 8500 Switch
router and Cisco's family of Universal Broadband Routers.
DV6000-TM- AND OTHER FIBER VIDEO DELIVERY EQUIPMENT. The Company's
DV6000 system transmits a variety of signal types using a high-speed,
uncompressed digital format (at speeds up to 10 billion bits per second, with
capacity of up to 64 channels) over fiber in the super trunking portions of
broadcast and interactive video networks. The Company also designs a line of
870 MHZ analog fiber optics transmitter and node products for the cable TV
industry. These products are being widely deployed in the US and around the
world by cable TV operators who are upgrading their plant to carry the full
suite of two-way service over Hybrid Fiber/Coaxial plant, including digital
interactive video, Internet/data and voice.
-9-
<PAGE>
TELEDATA PRODUCTS. In November 1998, ADC acquired Teledata. Teledata's
products enable telephone operating companies to enhance the capacity, reach
and functionality of the local loop. Teledata's product portfolio currently
consists of a family of digital loop carriers and wireless local loop access
solutions. Teledata's digital loop carriers include the following: the
BroadAccess-TM- family of compact and flexible future generation DLCs, which
provide voice and data services for digital networks of clusters of 60 to 480
subscribers and consist of the DCS-30 (formerly known as the TDLC 30), the
DCS-20F and the DCS-20T; the DCS-20E multiplexer and cross-connect system
that allows telephone operating companies to connect from 120 to 480
subscribers to the local exchange; the TIMUX access multiplexer that enables
the connection of groups of 30 to 150 subscribers to the local exchange; and
the CTLOOP digital "pair-gain" system that allows the connection of groups of
up to 10 subscribers to the local exchange without additional investment in
infrastructure. The ERC digital wireless local loop point to multi-point
system connects up to 960 subscribers using base stations, each of which
serves subscribers within a 50 kilometer radius.
WIRELESS CABLE AND BROADCAST TV TRANSMISSION EQUIPMENT. The Company
supplies the products to wireless cable and TV broadcast market through its
ITS subsidiary. ITS designs and manufactures television transmission
products for these markets, including transmitters, combiners, back-up
equipment and antennas to wireless cable operators for MMDS. ITS's wireless
products have enabled ADC to leverage the Homeworx platform into other
residential broadband applications.
INTEGRATED SOLUTIONS
ADC provides services that integrate both ADC and other complementary
products in communications networks. ADC also supplies systems integration
and network management software.
SYSTEMS INTEGRATION SERVICES. Systems integration services consist of
project management, technical consulting and design, implementation,
reliability, performance and training services. System integration services
support ADC as well as multi-vendor solutions. The Company provides its
systems integration services and software primarily to telephone operating
companies, cable TV companies, other common carriers and users of private
communications networks. In 1998, ADC acquired W.E. Tech in order to expand
its systems integration services business in North America.
SYSTEMS INTEGRATION PRODUCTS. ADC's systems integration products
consist of multimedia systems designed for integrated voice, Internet/data
and video applications, including distance learning, business, medical and
government networks. These products are sold primarily to telephone
operating companies, cable TV operators, other communications common carriers
and users of private telecommunications networks. ADC also provides
SoftXchange-TM- network management software and operations and business
support system services.
WIRELESS PERFORMANCE AND NETWORK MANAGEMENT SOFTWARE. Through ADC's
London-based subsidiary, ADC Metrica, the Company designs and sells
communications network performance management software. ADC Metrica's
software platforms are used in the infrastructure management systems of
wireless and wireline public network operators throughout the world.
INTELLIGENT NETWORK SOFTWARE. Through ADC NewNet, a wholly owned
subsidiary of ADC, the Company supplies intelligent network
telecommunications software, including Signaling Systems 7 (SS7) technology
and wireless intelligent network products (such as short messaging servers).
SALES AND MARKETING
ADC sells its products to customers in three primary markets: (i) the
United States public communications network market, which consists of all
five of the RBOCs, other telephone companies, long distance carriers,
wireless service providers, cable TV operators and other domestic public
network providers; (ii) the private and governmental voice, data and video
network market in the United States, such as various large business customers
and
-10-
<PAGE>
governmental agencies that own and operate their own voice, data and video
networks for internal use; and (iii) the international public and private
network market. The U.S. public, U.S. private and governmental and
international market segments accounted for 74%, 6% and 20%, respectively, of
the Company's net sales for the year ended October 31, 1998; 73%, 6% and 21%,
respectively, of the Company's net sales for the year ended October 31, 1997;
and 71%, 8% and 21%, respectively, of the Company's net sales for the year
ended October 31, 1996. The Company also sells product for each of these
customer groups to communications OEMs.
Purchases of products by public network providers and the OEMs which
supply such companies accounted for the largest portion of the Company's net
sales. The Company's business broadband and residential broadband
transmission systems and broadband connectivity products for public network
providers are primarily located in central transmission facilities (such as
telephone company network central offices, cable TV company network
supertrunks and headend offices, and wireless network global switching
centers and base stations, all of which contain the equipment used in
switching and transmitting incoming and outgoing circuits). Increasingly,
portions of the Company's business broadband and residential broadband
transmission systems are located in the public network outside plant
facilities (outside the central transmission buildings) and on customers'
premises. The Company's private and governmental network customers generally
purchase the Company's enterprise-wide communications systems and public
network access equipment for installation in the networks located at their
premises.
The Company also markets its products outside the United States
primarily to telephone operating companies and cable TV operators for public
communications networks located in Canada, Europe, the Pacific Rim, Australia
and Central and South America.
A majority of the Company's sales are made by a direct sales force, and
the Company maintains sales offices throughout the United States as well as
in Canada, Europe, the Pacific Rim, Australia and Central and South America.
The Company's products are sold in the United States by several sales offices
located throughout the country, as well as through dealer organizations and
distributors. The Company's products are sold outside the United States by
several field sales offices and by independent sales representatives and
distributors, as well as through United States public and private network
providers who also distribute outside the United States.
The Company has a customer service group that supports field sales
personnel and is responsible for application engineering, customer training,
entering orders and supplying delivery status information, and a field
service engineering group that provides on-site service to customers.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends on its ability to
adapt to the rapidly changing communications environment, to maintain its
significant expertise in core technologies and to continue to meet and
anticipate its customers' needs. The Company continually reviews and
evaluates technological changes affecting the communications market and
invests substantially in applications-based research and development. The
Company intends to continue an ongoing program of new product development
that combines internal development efforts with acquisitions, joint ventures
and licensing or marketing arrangements relating to new products and
technologies from sources outside the Company.
In recent years, increasingly significant portions of new communications
equipment purchased by public network providers and private network customers
have employed fiber-optic transmission, digital, integrated circuit, wireless
and broadband copper-based technologies for residential, business and
wireless local loop applications. In the future, these communications
network equipment purchasing trends will include increasingly sophisticated,
software-intensive, switching and network management systems. As a result,
the Company's internal and external product development activities are
primarily directed at the following areas: (i) the integration of fiber
optic technology into additional products; (ii) the continuing development of
its Homeworx system for telephony, data and integrated video, telephony and
Internet/data applications; (iii) the development of network systems
software; (iv) the continuing development of its Soneplex and Cellworx
systems for integrated voice, Internet/data and video applications; (v) the
continuing development of wireless products; (vi) the incorporation of ATM
technology into voice, data and video
-11-
<PAGE>
products for both public and private communications networks; and (vii) the
addition of video compression technology to its product line.
New product development often requires long-term forecasting of market
trends, development and implementation of new processes and technologies and
a substantial capital commitment. As a result of these and other factors,
development and customer acceptance of new products is inherently uncertain,
and there can be no assurance that such products will be developed on a
timely basis or achieve market acceptance.
COMPETITION
Competition in the communications equipment industry is intense, and the
Company believes that competition may increase substantially with the
deployment of broadband networks and regulatory changes. Many of the
Company's foreign and domestic competitors have more extensive engineering,
manufacturing, marketing, financial and personnel resources than those of the
Company. The Company's Broadband Connectivity products are competitive with
products offered by several other companies, including Lucent Technologies,
Siecor and Telect. The Company's principal competitors in the Business
Broadband market are Pairgain Technologies, Adtran and 3COM. The Company's
Residential Broadband products are competitive with the products offered by
numerous other companies, including General Instrument, Scientific-Atlanta
and ANTEC. In the Systems Integration services and product market, the
Company competes with Lucent Technologies, Nortel and Andersen Consulting.
In addition, the Company faces increasing competition from a number of other
smaller competitors, none of which is dominant at this time.
The rapid technological developments within the communications industry
have resulted in frequent changes to the Company's group of competitors. The
Company believes its success in competing with other manufacturers of
communications products depends primarily on its engineering, manufacturing
and marketing skills, the price, quality and reliability of its products and
its delivery and service capabilities. While the market for the Company's
products has not historically been characterized by significant price
competition, the Company may face increasing pricing pressures from current
and future competitors in certain or all of the markets for its products.
The Company believes that technological change, the increasing addition
of Internet/data, video and other services to integrated multimedia networks,
continuing regulatory change and industry consolidation or new entrants will
continue to cause rapid evolution in the competitive environment of the
communications equipment market, the full scope and nature of which are
difficult to predict at this time. Increased competition could result in
price reductions, reduced margins and loss of market share by the Company.
The Company believes industry regulatory change may create new opportunities
for suppliers of communications equipment. The Company expects, however,
that such opportunities may attract increased competition from others as
well. In addition, the Company expects that Lucent Technologies will
continue to be a major supplier to the RBOCs, and compete more extensively
outside the RBOC market. The Company also believes that the rapid
technological changes which characterize the communications industry will
continue to make the markets in which the Company competes attractive to new
entrants. There can be no assurance that the Company will be able to compete
successfully with its existing or new competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, operating results or financial condition.
MANUFACTURING AND SUPPLIES
The Company manufactures a wide variety of products which are
fabricated, assembled and tested in its own facilities or in subcontracted
facilities. In an effort to reduce costs, the Company also takes advantage
of off-shore assembly and sourcing. The manufacturing process for the
Company's electronic products consists primarily of assembly and testing of
electronic systems built from fabricated parts, printed circuit boards and
electronic components. The manufacturing process for the Company's
electromechanical products consists primarily of fabrication of jacks, plugs,
and other basic components from raw materials, assembly of components and
testing. The Company's sheet metal, plastic molding, stamping and machining
capabilities permit the Company to configure components to customer
specifications.
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<PAGE>
The Company purchases raw materials and component parts, consisting
primarily of copper wire, optical fiber, steel, brass, nickel-steel alloys,
gold, plastics, printed circuit boards, solid state components, discrete
electronic components and similar items, from several suppliers. Although a
few of the components used by the Company are single sourced, the Company has
experienced no significant difficulties to date in obtaining adequate
quantities of these raw materials and component parts. This circumstance
could change in the future, however, and the Company cannot be sure that the
quantity or quality of raw materials and component parts will be as readily
available in the future.
PROPRIETARY RIGHTS
The Company owns a number of United States and foreign patents relating
to its products. These patents, in the aggregate, constitute a valuable
asset of the Company. The Company, however, believes that its business is
not dependent upon any single patent or any group of related patents.
The Company has registered the initials ADC alone and in conjunction
with specific designs as trademarks in the United States and various foreign
countries.
EMPLOYEES
As of October 31, 1998, there were approximately 8,000 persons employed
by the Company. The Company considers relations with its employees to be
good.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain portions of this Form 10-K, including "Business" herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated herein by reference, contain various
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended. Forward-looking statements
represent the Company's expectations or beliefs concerning future events,
including the following: any statements regarding future sales and other
results of operations, any statements regarding the continuation of
historical trends, any statements regarding the sufficiency of the Company's
cash balances and cash generated from operating and financing activities for
the Company's future liquidity and capital resource needs, any statements
regarding the effect of regulatory changes and any statements regarding the
future of the communications industry or the Company's business. The Company
cautions that any forward-looking statements made by the Company in this
report or in other announcements made by the Company are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, the
factors set forth on Exhibit 99-a to this Form 10-K.
ITEM 2. PROPERTIES
The Company's corporate headquarters are currently located in four
leased buildings in Minnetonka, Minnesota comprising an aggregate of
approximately 286,400 square feet. Leases for the Company's headquarters
buildings expire at different times through 2001.
The Company owns a manufacturing facility and an adjacent
distribution facility in Shakopee, Minnesota that comprises approximately
372,000 square feet. The Company also owns approximately 89 acres of
undeveloped land in Eden Prairie, Minnesota.
The Company also owns and leases a variety of other facilities for
the Company's manufacturing, development, distribution, warehousing, sales
and other activities. These facilities, including sales offices, are located
in various countries, including the United States, Argentina, Australia,
Belgium, Canada, China, Finland, Germany, India, Israel, Korea, Malaysia,
Mexico, the Philippines, Singapore, Thailand, the United Kingdom and
Venezuela.
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<PAGE>
The Company believes that the facilities used in its operations and
currently under development are suitable for their respective uses and
adequate to meet the Company's current needs.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Office Officer Since Age
- ---- ------ ------------- ---
<S> <C> <C> <C>
William J. Cadogan Chairman of the Board of 1987 50
Directors, President, Chief
Executive Officer and Chief
Operating Officer
Lynn J. Davis Senior Vice President, 1984 51
President, Broadband
Connectivity Group
William L. Martin Senior Vice President, 1994 51
III President, Business Broadband
Group
Vivek Ragavan Senior Vice President, 1996 46
President, Residential
Broadband Group
John A. Schofield Senior Vice President, 1996 50
President, Integrated
Solutions Group
Robert W. Switz Senior Vice President, Chief 1994 52
Financial Officer
Darryl E. Ponder Vice President, Business 1997 38
Development
Charles T. Roehrick Vice President, Controller 1995 44
</TABLE>
The Company's executive officers were last elected as executive officers
by the Board of Directors on February 24, 1998. Messrs. Cadogan and Davis
have served in various capacities with the Company for more than five years.
Biographical information regarding the other named officers is set forth
below:
Mr. Martin joined the Company in September 1994. From 1990 until such
time, he was employed by Ascom Timeplex, a manufacturer of data and
telecommunications equipment, most recently as Vice President, Technical
Marketing. His previous positions included Vice President, China Business
Development and Vice President, U.S. Sales. From 1987 to 1990, he was the
Chief Executive Officer of Broadband Telesystems when that company was
acquired by Ascom Timeplex.
Mr. Ragavan joined the Company in January 1996. From November 1991
until such time, he was employed by General Instrument Corp., a manufacturer
of analog and digital settops and broadband transmission equipment, as Vice
President of Engineering. From January 1980 to November 1991, he was Vice
President of Engineering for COMSAT Technology Products, a manufacturer of
satellite based voice and data communications systems. Mr. Ragavan has
announced that he plans to resign from the Company in January 1999.
Mr. Schofield originally joined the Company in October 1992 and was
employed by the Company until July 1995. After holding the position of Vice
President, International Sales and Marketing of DSC Communications between
July and October of 1995, he returned to the Company in October 1995. Prior
to such time, he was Managing Director for Asia Pacific/Latin America. He
was Senior Vice President, Sales and Marketing at Telex Communications, Inc.,
a manufacturer and marketer of electronic audio communications devices, from
1990 to 1992. He held several Vice President positions at Memorex Telex
Corporation, a manufacturer and marketer of computer terminal and peripheral
equipment, most recently as Vice President and General Manager, Airline and
Systems Business Group.
Mr. Switz joined the Company in January 1994. Prior to such time, he
was employed by Burr-Brown Corporation, a manufacturer of precision
micro-electronics, from 1988, most recently as Vice President, Chief
Financial Officer and Director, Ventures and Systems Business.
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<PAGE>
Mr. Ponder joined the Company in November 1997. From January 1992 to
November 1997, he was employed by Alcatel, a manufacturer of
telecommunications and multimedia equipment. Mr. Ponder served in various
capacities with Alcatel, must recently in the position of Senior Director of
Marketing and Business Development.
Mr. Roehrick joined the Company in January 1995. Prior to such time he
was employed by Cray Research, Inc., a manufacturer of large scale computers,
most recently as Controller. From 1992 to 1993, he was Assistant Controller
of Cray Research, and from 1989 to 1991, he was Director of Accounting for
that company.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The section entitled "Quarterly Stock Prices" of the Company's
Annual Report to Shareholders for the fiscal year ended October 31, 1998 (the
"Annual Report") is incorporated herein by reference. This section is also
included on Exhibit 13-a to this Form 10-K, as filed with the Securities and
Exchange Commission (the "SEC" or the "Commission").
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The summary of certain consolidated statement of income and balance
sheet information for the eleven years ended October 31, 1998 included in the
Annual Report is incorporated herein by reference. This information is also
included on Exhibit 13-a to this Form 10-K, as filed with the SEC. Such
summary information should be read in conjunction with the consolidated
financial statements and notes thereto incorporated by reference in Item 14
of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview," "--Recent
Acquisitions and Related Charges," "Results of Operations," "Liquidation and
Capital Resources" and "Year 2000 Matters" in the Annual Report is
incorporated herein by reference. This section is also included in Exhibit
13-a to this Form 10-K, as filed with the SEC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Risk Management" in the Annual
Report is incorporated herein by reference. This section is also included in
Exhibit 13-a to this Form 10-K, as filed with the SEC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes thereto included in
the Annual Report are incorporated herein by reference. These financial
statements are also included on Exhibit 13-a to this Form 10-K, as filed with
the SEC.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement for its 1998 Annual Meeting of Shareholders to be filed with the
Commission on or before February 24, 1998 (the "Proxy Statement") are
incorporated herein by reference. The section entitled "Executive Officers
of the Registrant" in Item 4 of this Form 10-K is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the Proxy
Statement is incorporated herein by reference (except for the information set
forth under the subcaption "Compensation and Organization Committee Report on
Executive Compensation," which is not incorporated herein).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Company are part
of this report and are found on the pages of the Annual Report indicated
below and incorporated herein by this reference. These financial statements
are included on Exhibit 13-a to this Form 10-K, as filed with the SEC.
<TABLE>
<CAPTION>
Page Reference
in the Annual
Report to Shareholders
----------------------
<S> <C>
Management's Responsibility for Financial Reporting................. 26
Report of Independent Public Accountants............................ 26
Consolidated Statements of Income for the years ended
October 1998, 1997 and 1996....................................... 27
Consolidated Balance Sheets as of October 31, 1998 and 1997......... 28
Consolidated Statements of Shareowners' Investment for
the years ended October 31, 1998, 1997 and 1996................... 29
Consolidated Statements of Cash Flows for the years
ended October 31, 1998, 1997 and 1996............................. 30
Notes to Consolidated Financial Statements.......................... 31
Eleven-Year Financial Summary for the years ended October 31,
1988 through October 31, 1998 (Unaudited)......................... 42
</TABLE>
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Commission have been omitted as not required or not
applicable, or the information required has been included elsewhere by
reference in the financial statements and related notes.
3. Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3-a Restated Articles of Incorporation of ADC Telecommunications, Inc., as
amended. (Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 dated April 15, 1997.)
3-b Restated Bylaws of ADC Telecommunications, Inc., as amended.
(Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 dated April 15, 1997.)
4-a Form of certificate for shares of Common Stock of ADC
Telecommunications, Inc. (Incorporated by reference to Exhibit 4-a to
the Company's Form 10-Q for the quarter ended January 31, 1996.)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4-b Restated Articles of Incorporation of ADC Telecommunications, Inc., as
amended. (Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 dated April 15, 1997.)
4-c Restated Bylaws of ADC Telecommunications, Inc., as amended.
(Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 dated April 15, 1997.)
4-d Second Amended and Restated Rights Agreement, amended and restated as
of November 28, 1995, between ADC Telecommunications, Inc. and Norwest
Bank Minnesota, National Association (amending and restating the
Rights Agreement dated as of September 23, 1986, as amended and
restated as of August 16, 1989), which includes as Exhibit A thereto
the form of Right Certificate. (Incorporated by reference to Exhibit
4 to the Company's Form 8-K dated December 11, 1995.)
10-a* Stock Option and Restricted Stock Plan, restated as of January 26,
1988. (Incorporated by reference to Exhibit 10-a to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1988.)
10-b* Amendment to Stock Option and Restricted Stock Plan dated as of
September 26, 1989. (Incorporated by reference to Exhibit 10-e to the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1989.)
10-c* ADC Telecommunications, Inc. 1991 Stock Incentive Plan, as amended.
(Incorporated by reference to Exhibit 10-c to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1996).
10-d* Addendum dated February 24, 1998 to ADC Telecommunications, Inc. 1991
Stock Incentive Plan. (Incorporated by reference to Exhibit 10-Q to
the Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1998.)
10-e* Business Development Management Incentive Plan Document - Directors
and Above Fiscal Year 1997. (Incorporated by reference to Exhibit
10-a to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1997.)
10-f* Business Unit Management Incentive Plan Document - Directors and
Above Fiscal Year 1997. (Incorporated by reference to Exhibit 10-d
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1996.)
10-g* Corporate Management Incentive Plan Document - Directors and Above
Fiscal Year 1997. (Incorporated by reference to Exhibit 10-e to the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1996.)
10-h* International Management Incentive Plan Document Fiscal Year 1997.
(Incorporated by reference to Exhibit 10-f to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1998.)
10-i* Business Development Management Incentive Plan Fiscal Year 1998.
(Incorporated by reference to Exhibit 10-t of the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997.)
10-j* Business Unit Management Incentive Plan Fiscal Year 1998.
(Incorporated by reference to Exhibit 10-q to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997.)
10-k* Corporate Management Incentive Plan Fiscal Year 1998.
(Incorporated by reference to Exhibit 10-r to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997.)
10-l* International Management Incentive Plan Fiscal Year 1998.
(Incorporated by reference to Exhibit 10-s to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997.)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10-m* Business Unit Management Incentive Plan Fiscal Year 1999.
10-n* Corporate Management Incentive Plan Fiscal Year 1999.
10-o* Executive Incentive Exchange Plan Fiscal Year 1997. (Incorporated by
reference to Exhibit 10-q to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1996.)
10-p* Executive Incentive Exchange Plan Fiscal Year 1998. (Incorporated by
reference to Exhibit 10-u to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1997.)
10-q* Executive Incentive Exchange Plan Fiscal Year 1999.
10-r* Supplemental Executive Retirement Plan Agreement for William J.
Cadogan, dated as of November 1, 1990, between ADC Telecommunications,
Inc. and William J. Cadogan, as amended. (Incorporated by reference
to Exhibit 10-u to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1996.)
10-s* ADC Telecommunications, Inc. Change in Control Severance Pay Plan
Statement and Summary Plan Description. (Incorporated by reference to
Exhibit 10-q to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1989.)
10-t* First Amendment of ADC Telecommunications, Inc. Change in Control
Severance Pay Plan Statement and Summary Plan Description, effective
July 22, 1997. (Incorporated by reference to Exhibit 10-x to the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1997.)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10-u* Compensation Plan for Directors of ADC Telecommunications, Inc.,
restated as of December 31, 1988. (Incorporated by reference to
Exhibit 10-b to the Company's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1989.)
10-v* First Amendment of the Compensation Plan for Directors of ADC
Telecommunications, Inc. restated as of December 31, 1988.
(Incorporated by reference to Exhibit 10-s to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1989.)
10-w* ADC Telecommunications, Inc. Nonemployee Director Stock Option Plan,
as amended. (Incorporated by reference to Exhibit 10-aa to the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1997.)
10-x* ADC Telecommunications, Inc. Deferred Compensation Plan, dated as of
November 1, 1978, as amended. (Incorporated by reference to Exhibit
10-aa to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1996.)
10-y* Second Amendment of ADC Telecommunications, Inc. Deferred Compensation
Plan, dated effective March 12, 1996 and approved on April 1, 1997.
(Incorporated by reference to Exhibit 10-b to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1997.)
10-z* ADC Telecommunications, Inc. Pension Excess Plan, dated as of January
1, 1985, as amended. (Incorporated by reference to Exhibit 10-bb to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996.)
10-aa* Second Amendment of ADC Telecommunications, Inc. Pension Excess Plan,
dated effective March 12, 1996 and approved on April 1, 1997.
(Incorporated by reference to Exhibit 10-a to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1997.)
10-bb* ADC Telecommunications, Inc. 401(k) Excess Plan, dated as of September
1, 1990, as amended. (Incorporated by reference to Exhibit 10-cc to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996.)
10-cc* Third Amendment of ADC Telecommunications, Inc. 401(k) Excess Plan,
dated effective March 12, 1996 and approved on April 1, 1997.
(Incorporated by reference to Exhibit 10-c to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1997.)
10-dd Lease Agreement, dated August 21, 1990, between Minnetonka Corporate
Center I Limited Partnership and ADC Telecommunications, Inc.
(Incorporated by reference to Exhibit 10-x to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1990.)
10-ee Lease Agreement, dated October 26, 1990, between Lutheran Brotherhood
and ADC Telecommunications, Inc. (Incorporated by reference to
Exhibit 10-w to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990.)
10-ff Sublease Agreement, dated October 31, 1990, between Seagate
Technology, Inc. and ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 10-y to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1990.)
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10-gg Sublease, dated as of February 21, 1995, between Seagate Technology,
Inc. and ADC Telecommunications, Inc. (Incorporated by reference to
Exhibit 10-a of the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1995.)
10-hh Extension of Lease, dated December 7, 1995, between ADC
Telecommunications, Inc. and Lutheran Brotherhood (for the Company's
facility located at 5900 Clearwater Drive, Minnetonka Corporate
Center, Minnetonka, Minnesota). (Incorporated by reference to Exhibit
10-w to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1996.)
10-ii Extension of Lease, dated December 7, 1995, between ADC
Telecommunications, Inc. and Lutheran Brotherhood (for the Company's
facility located at 5950 Clearwater Drive, Minnetonka Corporate
Center, Minnetonka, Minnesota). (Incorporated by reference to Exhibit
10-x to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1996.)
10-jj Stock Purchase Agreement, dated July 1, 1996, by and between ADC
Telecommunications, Inc., ADC Mersum Oy and the Shareholders of ADC
Solitra Oy. (Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated July 1, 1996.)
10-kk Conduit Facility, Transfer and Revolving Credit Agreement, dated as of
November 24, 1998, by and among ADC Telecommunications, Inc., Windmill
Funding Corporation, Amsterdam Funding Corporation, ABN AMRO Bank
N.V., and certain other financial institutions.
13-a Portions of the 1998 Annual Report to Shareholders.
21-a Subsidiaries of the Company.
23-a Consent of Independent Public Accountants to the incorporation of
their report dated November 25, 1997, included in this Form 10-K, into
the Company's previously filed Registration Statements, File Nos.
2-83584, 33-22654, 33-40356, 33-40357, 33-52635, 33-52637, 33-58407,
33-58409, 33-59445, 333-02133, 333-04481, 333-07309, 333-15283,
333-25241, 333-25569, 333-25623, 333-32023, 333-37419, 333-37619,
and 333-66169.
24-a Power of Attorney.
27-a Financial Data Schedule for the fiscal year ended October 31, 1998.
27-b Restated Financial Data Schedule for the fiscal year ended October 31,
1997.
99-a Cautionary Statement regarding Forward-Looking Statements.
There have been excluded from the exhibits filed with this report instruments
defining the rights of holders of long-term debt of the Company where the
total amount of the securities authorized under such instruments does not
exceed 10% of the total assets of the Company. The Company hereby agrees to
furnish a copy of any such instruments to the Commission upon request.
(b) Current Report on Form 8-K dated September 16, 1998, filed on
September 16, 1998, in connection with the Company's press release
dated September 16, 1998 announcing the acquisition of Teledata
Communications, Ltd.
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
Current Report on Form 8-K dated November 5, 1998, filed on November
20, 1998, to report the consummation of the acquisition of Teledata
Communications, Ltd.
(c) See Exhibit Index and Exhibits attached to this Form 10-K.
(d) See Item 14(a)(3) above.
</TABLE>
_________________
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K.
-24-
<PAGE>
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.
ADC TELECOMMUNICATIONS, INC.
Dated: December 31, 1998 By: /s/ William J. Cadogan
----------------------------------
William J. Cadogan
Chairman of the Board, President
and Chief Executive Officer
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.
<TABLE>
<S> <C> <C>
/s/ William J. Cadogan Chairman of the Board, Dated: December 31, 1998
- ---------------------- President and
William J. Cadogan Chief Executive Officer
(principal executive officer)
/s/ Robert E. Switz Senior Vice President, Dated: December 31, 1998
- ---------------------- Chief Financial Officer
Robert E. Switz (principal financial officer)
/s/ Charles T. Roehrick Vice President, Controller Dated: December 31, 1998
- ---------------------- (principal accounting officer)
Charles T. Roehrick
James C. Castle* Director
Thomas E. Holloran* Director
B. Kristine Johnson* Director
Charles W. Oswald* Director
Alan E. Ross* Director
Jean-Pierre Rosso* Director
Donald M. Sullivan* Director
Warde F. Wheaton* Director
John D. Wunsch* Director
*By /s/ David F. Fisher Dated: December 31, 1998
- ------------------------
David F. Fisher
Attorney-in-Fact
</TABLE>
-25-
<PAGE>
ADC TELECOMMUNICATIONS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
EXHIBIT INDEX
--------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3-a Restated Articles of Incorporation of ADC Telecommunications, Inc., as
amended. (Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 dated April 15, 1997.)
3-b Restated Bylaws of ADC Telecommunications, Inc., as amended.
(Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 dated April 15, 1997.)
4-a Form of certificate for shares of Common Stock of ADC
Telecommunications, Inc. (Incorporated by reference to Exhibit 4-a to
the Company's Form 10-Q for the quarter ended January 31, 1996.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4-b Restated Articles of Incorporation of ADC Telecommunications, Inc., as
amended. (Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 dated April 15, 1997.)
4-c Restated Bylaws of ADC Telecommunications, Inc., as amended.
(Incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 dated April 15, 1997.)
4-d Second Amended and Restated Rights Agreement, amended and restated as
of November 28, 1995, between ADC Telecommunications, Inc. and Norwest
Bank Minnesota, National Association (amending and restating the
Rights Agreement dated as of September 23, 1986, as amended and
restated as of August 16, 1989), which includes as Exhibit A thereto
the form of Right Certificate. (Incorporated by reference to Exhibit
4 to the Company's Form 8-K dated December 11, 1995.)
10-a* Stock Option and Restricted Stock Plan, restated as of January 26,
1988. (Incorporated by reference to Exhibit 10-a to the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1988.)
10-b* Amendment to Stock Option and Restricted Stock Plan dated as of
September 26, 1989. (Incorporated by reference to Exhibit 10-e to the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1989.)
10-c* ADC Telecommunications, Inc. 1991 Stock Incentive Plan, as amended.
(Incorporated by reference to Exhibit 10-c to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1996).
10-d* Addendum dated February 24, 1998 to ADC Telecommunications, Inc. 1991
Stock Incentive Plan. (Incorporated by reference to Exhibit 10-Q to
the Company's Quarterly Report on Form 10-Q for the quarter ended
January 31, 1998.)
10-e* Business Development Management Incentive Plan Document - Directors
and Above Fiscal Year 1997. (Incorporated by reference to Exhibit
10-a to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1997.)
10-f* Business Unit Management Incentive Plan Document - Directors and
Above Fiscal Year 1997. (Incorporated by reference to Exhibit 10-d
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1996.)
10-g* Corporate Management Incentive Plan Document - Directors and Above
Fiscal Year 1997. (Incorporated by reference to Exhibit 10-e to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996.)
10-h* International Management Incentive Plan Document Fiscal Year 1997.
(Incorporated by reference to Exhibit 10-f to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1998.)
10-i* Business Development Management Incentive Plan Fiscal Year 1998.
(Incorporated by reference to Exhibit 10-t of the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997.)
10-j* Business Unit Management Incentive Plan Fiscal Year 1998.
(Incorporated by reference to Exhibit 10-q to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997.)
10-k* Corporate Management Incentive Plan Fiscal Year 1998.
(Incorporated by reference to Exhibit 10-r to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997.)
10-l* International Management Incentive Plan Fiscal Year 1998.
(Incorporated by reference to Exhibit 10-s to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1997.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10-m* Business Unit Management Incentive Plan Fiscal Year 1999.
10-n* Corporate Management Incentive Plan Fiscal Year 1999.
10-o* Executive Incentive Exchange Plan Fiscal Year 1997. (Incorporated by
reference to Exhibit 10-q to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1996.)
10-p* Executive Incentive Exchange Plan Fiscal Year 1998. (Incorporated by
reference to Exhibit 10-u to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1997.)
10-q* Executive Incentive Exchange Plan Fiscal Year 1999.
10-r* Supplemental Executive Retirement Plan Agreement for William J.
Cadogan, dated as of November 1, 1990, between ADC Telecommunications,
Inc. and William J. Cadogan, as amended. (Incorporated by reference
to Exhibit 10-u to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1996.)
10-s* ADC Telecommunications, Inc. Change in Control Severance Pay Plan
Statement and Summary Plan Description. (Incorporated by reference to
Exhibit 10-q to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1989.)
10-t* First Amendment of ADC Telecommunications, Inc. Change in Control
Severance Pay Plan Statement and Summary Plan Description, effective
July 22, 1997. (Incorporated by reference to Exhibit 10-x to the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1997.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10-u* Compensation Plan for Directors of ADC Telecommunications, Inc.,
restated as of December 31, 1988. (Incorporated by reference to
Exhibit 10-b to the Company's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1989.)
10-v* First Amendment of the Compensation Plan for Directors of ADC
Telecommunications, Inc. restated as of December 31, 1988.
(Incorporated by reference to Exhibit 10-s to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1989.)
10-w* ADC Telecommunications, Inc. Nonemployee Director Stock Option Plan,
as amended. (Incorporated by reference to Exhibit 10-aa to the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1997.)
10-x* ADC Telecommunications, Inc. Deferred Compensation Plan, dated as of
November 1, 1978, as amended. (Incorporated by reference to Exhibit
10-aa to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1996.)
10-y* Second Amendment of ADC Telecommunications, Inc. Deferred Compensation
Plan, dated effective March 12, 1996 and approved on April 1, 1997.
(Incorporated by reference to Exhibit 10-b to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1997.)
10-z* ADC Telecommunications, Inc. Pension Excess Plan, dated as of January
1, 1985, as amended. (Incorporated by reference to Exhibit 10-bb to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996.)
10-aa* Second Amendment of ADC Telecommunications, Inc. Pension Excess Plan,
dated effective March 12, 1996 and approved on April 1, 1997.
(Incorporated by reference to Exhibit 10-a to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1997.)
10-bb* ADC Telecommunications, Inc. 401(k) Excess Plan, dated as of September
1, 1990, as amended. (Incorporated by reference to Exhibit 10-cc to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996.)
10-cc* Third Amendment of ADC Telecommunications, Inc. 401(k) Excess Plan,
dated effective March 12, 1996 and approved on April 1, 1997.
(Incorporated by reference to Exhibit 10-c to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1997.)
10-dd Lease Agreement, dated August 21, 1990, between Minnetonka Corporate
Center I Limited Partnership and ADC Telecommunications, Inc.
(Incorporated by reference to Exhibit 10-x to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1990.)
10-ee Lease Agreement, dated October 26, 1990, between Lutheran Brotherhood
and ADC Telecommunications, Inc. (Incorporated by reference to
Exhibit 10-w to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1990.)
10-ff Sublease Agreement, dated October 31, 1990, between Seagate
Technology, Inc. and ADC Telecommunications, Inc. (Incorporated by
reference to Exhibit 10-y to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1990.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10-gg Sublease, dated as of February 21, 1995, between Seagate Technology,
Inc. and ADC Telecommunications, Inc. (Incorporated by reference to
Exhibit 10-a of the Company's Quarterly Report on Form 10-Q for the
quarter ended April 30, 1995.)
10-hh Extension of Lease, dated December 7, 1995, between ADC
Telecommunications, Inc. and Lutheran Brotherhood (for the Company's
facility located at 5900 Clearwater Drive, Minnetonka Corporate
Center, Minnetonka, Minnesota). (Incorporated by reference to Exhibit
10-w to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1996.)
10-ii Extension of Lease, dated December 7, 1995, between ADC
Telecommunications, Inc. and Lutheran Brotherhood (for the Company's
facility located at 5950 Clearwater Drive, Minnetonka Corporate
Center, Minnetonka, Minnesota). (Incorporated by reference to Exhibit
10-x to the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1996.)
10-jj Stock Purchase Agreement, dated July 1, 1996, by and between ADC
Telecommunications, Inc., ADC Mersum Oy and the Shareholders of ADC
Solitra Oy. (Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated July 1, 1996.)
10-kk Conduit Facility, Transfer and Revolving Credit Agreement, dated as of
November 24, 1998, by and among ADC Telecommunications, Inc., Windmill
Funding Corporation, Amsterdam Funding Corporation, ABN AMRO Bank
N.V., and certain other financial institutions.
13-a Portions of the 1998 Annual Report to Shareholders.
21-a Subsidiaries of the Company.
23-a Consent of Independent Public Accountants to the incorporation of
their report dated November 25, 1997, included in this Form 10-K, into
the Company's previously filed Registration Statements, File Nos.
2-83584, 33-22654, 33-40356, 33-40357, 33-52635, 33-52637, 33-58407,
33-58409, 33-59445, 333-02133, 333-04481, 333-07309, 333-15283,
333-25241, 333-25569, 333-25623, 333-32023, 333-37419, 333-37619,
and 333-66169.
24-a Power of Attorney.
27-a Financial Data Schedule for the fiscal year ended October 31, 1998.
27-b Restated Financial Data Schedule for the fiscal year ended October 31,
1997.
99-a Cautionary Statement regarding Forward-Looking Statements.
</TABLE>
<PAGE>
ADC TELECOMMUNICATIONS
BUSINESS UNIT
MANAGEMENT INCENTIVE PLAN DOCUMENT - DIRECTORS AND ABOVE
FISCAL YEAR 1999
<PAGE>
ADC TELECOMMUNICATIONS
BUSINESS UNIT
MANAGEMENT INCENTIVE PLAN DOCUMENT - DIRECTORS AND ABOVE
FISCAL YEAR 1999
I. PLAN NAME AND EFFECTIVE DATE
The name of this Plan is the ADC Telecommunications, Inc. ("Company"), Business
Unit Management Incentive Plan - Directors and Above, Fiscal Year ("FY") 1999,
effective November 1, 1998 through October 31, 1999.
II. PURPOSE
The purpose of the Plan is to provide, with full regard to the protection of
shareholder's investments, a direct financial incentive for eligible employees
to perform an effective leadership role and make a significant contribution to
the Company's established goals.
III. ADMINISTRATION
This Plan is administered by a Management Incentive Plan Committee ("Committee")
appointed and authorized by the Company's Board of Directors. Subject to the
complete and full discretion of the Board of Directors, the Committee is
authorized to make all decisions as required in administration of the Plan and
to exercise its discretion to define, interpret, construe, apply and make any
exceptions to the terms of the Plan.
IV. ELIGIBILITY
The Committee establishes rules of eligibility for participation in the Plan and
determines eligibility in accordance with those rules. For Fiscal Year 1999,
eligibility applies to all employees in Grades 18 and above, plus any Grade 16
and 17 directors. Participation is effective as of the date approved by the
Committee and is communicated to the participant by an incentive opportunity
statement ("Participant Form") specifying the target incentive level for the
position. No employee will become a participant in the Plan after May 1, 1999,
unless the employee is already a participant in another ADC Management Incentive
Plan.
<PAGE>
V. PLAN GOALS
The Plan reinforces the key financial goals which support ADC's long-term
strategic plans. The FY 1999 goal categories for Business Unit participants are
as follows:
Business Unit EVA Improvement*
ADC EVA Improvement
Business Unit Revenue (if applicable)
Key Business Unit Goal or Individual Contribution
The goal category weights and threshold, target, and maximum performance
levels are specified on the attached goal sheet.
* EVA Improvement is the dollar amount of planned year-over-year improvement
in EVA.
VI. INCENTIVE PAYOUT OPPORTUNITIES
A. The payout opportunity for meeting the Business Unit Revenue (if
applicable) and key Business Unit or Individual Contribution goals are as
follows:
<TABLE>
<CAPTION>
PAYOUTS
---------------------------------------------------
GOAL THRESHOLD TARGET MAXIMUM
---- --------- ------ -------
<S> <C> <C> <C>
Business Unit Revenue (if applicable) 0% of Target 100% 400% of Target
Key Business Unit Goal or 0% of Target 100% 200% of Target
Individual Contribution
</TABLE>
Results between threshold-target and target-maximum are interpolated.
B. The payout opportunity for meeting the ADC EVA Improvement goal and the
Business Unit EVA Improvement goal are as follows:
<TABLE>
<CAPTION>
GOAL THRESHOLD TARGET MAXIMUM
---- --------- ------ -------
<S> <C> <C> <C>
ADC EVA Improvement 0% of Target 100% 400% of Target
Business Unit EVA Improvement N/A 100% N/A
(capped at -100% of (unlimited upside)
target)
</TABLE>
Incentive amounts are interpolated based on leverage (the slope of the
line).
The specific incentive payout for the Business Unit EVA Improvement
goal is a function of a bonus bank concept which is described in
Section VII and Section VIII.
<PAGE>
VII. BONUS BANK DEFINITION
As mentioned earlier, the Plan offers unlimited upside and downside rewards
(capped at negative 100% of target) to participants for creating value. In order
to ensure that Business Unit EVA Improvements are sustainable over a multi-year
period, a bonus bank is created whereby exceptional performance (above 200% of
target) is credited to your account and poor performance (negative amounts below
0% of the target level) is deducted from your account.
The bonus bank does not apply to the ADC EVA Improvement goal. The specific
mechanics of the bonus bank are described below.
VIII. HOW THE BONUS BANK WORKS
A. A bonus bank account is created when:
- The current plan year EVA Improvement result is above 200% of target;
this is a positive bonus bank deposit.
- The current plan year EVA Improvement result is below 0% of the target
level; this is a negative deposit. Negative bonus bank deposits are capped
at -100% of the target.
B. The bonus bank operates in the manner shown on Attachment A
C. The bonus bank is a bookkeeping account and as such, amounts allocated to
a participant's bonus bank earn no interest, are unfunded, and do not
actually vest until they are paid out in in accordance with the Plan.
IX. MAXIMUM EVA IMPROVEMENT GOAL PAYOUT IN ANY PLAN YEAR
Notwithstanding the above, the maximum amount that may be paid in any one year
to a participant for the Business Unit EVA Improvement goal, including amounts
achieved for the current year and bonus bank amounts that vest in the current
year, may not exceed 400% of the Business Unit EVA Improvement target incentive
amount.
<PAGE>
X. CURRENT PLAN YEAR PAYMENT
Payments which become due and payable under this Plan for the current Plan year
include:
- - The amount achieved for the Revenue goal (if applicable).
- - The amount achieved for the key Business Unit or Individual Contribution
goal, PROVIDED ONE OF THE FOLLOWING GOALS IS MET: THRESHOLD REVENUE (IF
APPLICABLE), THRESHOLD ADC EVA IMPROVEMENT, OR 0% OF THE TARGET FOR THE
BUSINESS UNIT EVA IMPROVEMENT GOAL.
- - Current year EVA Improvement goal achievement up to 200% of target, if
there are no negative offsets, or up to 150% of target if a prior year
negative bonus bank exists.
- - Vested amount of EVA Improvement bonus bank account balance.
Payments which become due and payable under this Plan are made as soon as
administratively feasible following the close of the Company's Fiscal Year.
XI. CALCULATION OF INDIVIDUAL PAYMENTS AND BONUS BANK ACCOUNT BALANCES
A. The obligation to make payments under the Plan is determined by achievement
of goals as determined by the Board of Directors.
B. Calculations under this Plan are a function of:
1. Target incentive opportunity - expressed as a percentage of an
individual's FY 1999 earnings. The target % for each
participant is designated on the "Participant Form."
2. Participant's 1999 Fiscal Year base salary earnings.
3. Performance against the established goals.
C. Individual award calculations are shown by the following examples:
<PAGE>
Assume we have a Plan participant with the following facts:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Current Plan Year 1999
- --------------------------------------------------------------------------------
Grade 17
- --------------------------------------------------------------------------------
Base Salary Earnings $85,000
- --------------------------------------------------------------------------------
Target Incentive Opportunity 20% of base salary earnings or $17,000
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
GOAL WEIGHT TARGET INCENTIVE DOLLARS
- ---- ------ ------------------------
<S> <C> <C>
Business Unit EVA Improvement 40% $ 6,800
ADC EVA Improvement 20% $ 3,400
Business Unit Revenue 20% $ 3,400
Key Business Unit Goal 20% $ 3,400
-------
$17,000
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
GOAL ACHIEVEMENT (AS A % OF TARGET)
- -----------------------------------
<S> <C> <C> <C> <C> <C>
Business Unit EVA Improvement (50)% x $6,800 = ($3,400)*
ADC EVA Improvement 105% x $3,400 = $3,570
Business Unit Revenue 110% x $3,400 = $3,740
Key Business Unit Goal 100% x $3,400 = $3,400
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*BUSINESS UNIT EVA IMPROVEMENT INCENTIVE CALCULATIONS:
- - Bonus bank to carry forward-$(3,400)
TOTAL CURRENT YEAR INCENTIVE PAYOUT: $3, 750 (ADC EVA IMPROVEMENT) + $3,740
(REVENUE) + $3,400 (KEY BUSINESS UNIT GOAL) = $10,710
<PAGE>
Assume the same Participant has the following facts the next year:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Current Plan Year 2000
- --------------------------------------------------------------------------------
Grade 17
- --------------------------------------------------------------------------------
Base Salary Earnings $90,000
- --------------------------------------------------------------------------------
Target Incentive Opportunity 20% of base salary earnings or $18,000
- --------------------------------------------------------------------------------
EVA Bonus Bank $(3,400)
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GOAL WEIGHT TARGET INCENTIVE DOLLARS
- ---- ------ ------------------------
<S> <C> <C>
Business Unit EVA Improvement 40% $ 7,200
ADC EVA Improvement 20% $ 3,600
Business Unit Revenue 20% $ 3,600
Key Business Unit Goal 20% $ 3,600
-------
$18,000
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GOAL ACHIEVEMENT (AS A % OF TARGET)
- -----------------------------------
<S> <C> <C> <C> <C> <C>
Business Unit EVA Improvement 200% x $ 7,200 = $ 14,400*
ADC EVA Improvement 100% x $ 3,600 = $ 3,600
Business Unit Revenue 90% x $ 3,600 = $ 3,240
Key Business Unit Goal 110% x $ 3,600 = $ 3,960
- --------------------------------------------------------------------------------
</TABLE>
*BUSINESS UNIT EVA IMPROVEMENT INCENTIVE CALCULATIONS:
- - EVA Result:
200% x $7,200 = $14,400
- - Payout up to 150% of target:
150% x $7,200 = $10,800
- - 2 for 1 offset of prior year bank:
$(3,400) / 2 = $(1,700) (amount needed to pay off negative bank)
- - Remaining amount to be paid:
$14,400 - $10,800 - $1,700 = $1,900
- - Total Current Year EVAI Payout:
$10,800 + $1,900 = $12,700
- - End of year Bonus bank = $0
<PAGE>
TOTAL CURRENT YEAR INCENTIVE PAYOUT: $12,700 (BUSINESS UNIT EVA IMPROVEMENT)
+ $3,600 (ADC EVA IMPROVEMENT) + $3,240 (BUSINESS UNIT REVENUE) + $3,960
(KEY BUSINESS UNIT GOAL) = $23,500.
<PAGE>
XII. EFFECT OF CHANGE IN EMPLOYMENT STATUS
A. VOLUNTARY RESIGNATION AND RETIREMENT. A participant who voluntarily resigns
full-time employment or retires prior to the end of the Fiscal Year
receives no payment under the Plan for the current Plan year's performance
or any EVA bonus bank account balances being carried over. The participant
does not have any obligations with respect to any negative EVA bonus bank
account balances remaining at the end of the Plan year.
B. CHANGE BASED UPON UNSATISFACTORY JOB PERFORMANCE. A participant who is
involuntarily terminated or transferred to a position not eligible for this
Plan for reasons of unsatisfactory job performance receives no payment
under the Plan for the current Plan year's performance or any EVA bonus
bank account balances being carried over from prior Plan year(s). The
participant does not have any obligations with respect to any negative EVA
bonus bank account balances remaining at the end of the Plan year.
C. CHANGE BASED UPON JOB ELIMINATION. Subject to the approval of the
Committee, a participant who is involuntarily terminated or transferred to
a position not eligible for this Plan or another Management Incentive Plan
because of a job elimination may retain the right to a pro rata calculation
under this Plan for the current year's performance, plus a pro rata portion
of any EVA bonus bank balance that would otherwise have vested at the end
of the current Plan year, based upon the time served in the eligible
position during the Fiscal Year, provided at least three months was served
in the eligible position. Rights to any unvested EVA bonus bank account
balances at the end of the Plan year are forfeited. The participant does
not have any obligations with respect to any negative EVA bonus bank
account balances that remain after the pro rata calculation.
D. CHANGE BASED UPON PROMOTION OR DEMOTION TO ANOTHER ELIGIBLE PLAN JOB WITH
THE SAME MIP GOALS. A current participant who is promoted or demoted from
an eligible position under this Plan to another eligible position with the
same MIP goals during the Fiscal Year has a pro rata calculation of the
current year's performance awards based upon the time served in each
position during the Fiscal Year, provided at least three months were served
in each position. If a participant is in an eligible position for less than
three months during the Fiscal Year, the payment calculation is based on
the incentive level of the position served in the longest.
E. CHANGE IN JOBS WITHIN THE COMPANY BUT NOT ELIGIBLE FOR A MANAGEMENT
INCENTIVE PLAN. A participant who changes jobs within the Company but is
not eligible for this Plan, retains the right to a pro rata payout under
this Plan for the current year's performance, plus a pro rata portion of
any EVA bonus balance that would otherwise have vested at the end of the
current Plan year, based upon the time served in the eligible position
during the Fiscal Year, provided at least three months was served in the
eligible position. Rights to any unvested EVA bonus bank account balances
at the end of the Plan year are forfeited. The participant does not have
any obligations with respect to any negative EVA bonus bank account
balances that remain after the pro rata calculation.
<PAGE>
F. CHANGE BASED UPON A TRANSFER. A transfer is defined as a change in position
which results in the participant working under new MIP goals. How a
transfer payout is calculated is based on the quarter in which the
effective date occurs.
The guideline is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR QTR IMPACT ON MIP
OF EFFECTIVE DATE PAYOUT CALCULATION
----------------- ------------------
<S> <C>
1st Quarter Payout is based on the new MIP goals for the entire
fiscal year
2nd & 3rd Quarter The participant' payout for the
period prior to the effective date of the transfer
will be based on the old Plan. The participant's
payout after the effective date of the transfers
will be based on the overall MIP results of the
old goals or the new goals, whichever result in a
higher payout for the participant. For this
comparison, the calculation of the payout for the
old goals will be based on the same level of
payout the employee would have received if the
employee had not been transferred including their
prior salary and target incentive level.
4th Quarter Payout is based on the old MIP goals for the entire
fiscal year
</TABLE>
In all cases, any positive or negative bonus bank accounts transfer with
the individual in their entirety.
G. DEATH. If a participant dies during the Fiscal Year, the participant's
heirs as determined by will or applicable laws of descent and distribution
will have a pro rata calculation of the current year's performance, plus a
pro rata portion of any EVA bonus bank balance that would otherwise have
vested at the end of the current Plan year, based upon the time served in
the eligible position during the Fiscal Year. Rights to any unvested EVA
bonus bank account balances at the end of the current Plan year are
forfeited. The participant's heirs do not have any obligations with respect
to any negative EVA bonus bank account balances that remain after the pro
rata calculation.
XIII. COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986
If a current Plan year payout causes the participant's total cash compensation
to exceed one million dollars in the Fiscal Year, the participant must defer the
portion that exceeds the one million dollars in the ADC Telecommunications
Deferred Compensation Plan.
XIV. AMENDMENT OR TERMINATION OF PLAN
The Board of Directors reserves and retains the right to modify, rescind or
terminate this plan in whole or in part, at its sole discretion, and nothing in
this Plan limits this right in any way or creates any rights in any employee of
future participation in this Plan or any other plan, or constitutes any
guarantee of compensation or employment with ADC. Further, neither the Board of
Directors nor the Company has any obligation under this Plan or otherwise to
adopt this or any other plan in any future fiscal year.
<PAGE>
Attachment A
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT YEAR BONUS BANK DEPOSIT
PRIOR CUMULATIVE BONUS ----------------------------------------------------------------------------------------------------------
BANK ACCOUNT* NO BONUS BANK DEPOSIT POSITIVE BONUS BANK DEPOSIT NEGATIVE BONUS BANK DEPOSIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NO PRIOR ACCOUNT - Participant does not - Deposit goes into bonus bank - Deposit goes into bonus bank and is
have a bonus bank. and vests at a rate of 25% carried forward to the next plan year.
per year, beginning
immediately , then after 1
year, 2 years, and 3 years
respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
POSITIVE ACCOUNT - The amount that vests - Same as above in addition to - Negative amount offsets positive bonus
for the current plan paying for any prior year bank amount that is scheduled to vest
year is paid. deposit amount(s) that vest in the current plan year.
for the current plan year. - If there is a remaining positive amount
in the current plan year, that amount
is paid, or
- If there is a remaining negative
amount, that amount is carried forward
to the next plan year.
- ------------------------------------------------------------------------------------------------------------------------------------
NEGATIVE ACCOUNT - Up to 150% of target - Up to 150% of target of the - Deposit goes into bonus bank. The
of the current plan current plan year EVA deposit is added to prior bank amount,
year EVA Improvement Improvement result is paid. and is carried forward to the next plan
result is paid. No No reduction or offset of year.
reduction or offset of bonus bank.
bonus bank. - Between 150% and 200% of
- Between 150% and 200% target: offset applies at a
of target: offset 2 for 1 rate before any
applies at a 2 for 1 payout account. The
rate before any payout remaining amount, if any, is
occurs. The remaining paid immediately. If a
amount, if any, is negative amount remains, the
paid immediately, or negative amount from prior
- If a negative amount year(s) is carried forward to
remains after any the next plan year.
offset, the negative - Over 200% of target: offset
amount from prior applies as described above.
year(s) is carried If there are any remaining
forward to the next positive amounts, the amounts
plan year. subject to vesting schedule
described above (under
Positive Bonus Bank Deposit,
No Prior Account column)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Attachment A
* Cumulative Bonus Bank Account is the result of adding any negative and
unvested positive bonus bank deposits.
<PAGE>
ADC TELECOMMUNICATIONS
CORPORATE
MANAGEMENT INCENTIVE PLAN DOCUMENT - DIRECTORS AND ABOVE
FISCAL YEAR 1999
<PAGE>
ADC TELECOMMUNICATIONS
CORPORATE
MANAGEMENT INCENTIVE PLAN DOCUMENT - DIRECTORS AND ABOVE
FISCAL YEAR 1999
I. PLAN NAME AND EFFECTIVE DATE
The name of this Plan is the ADC Telecommunications, Inc. ("Company"), Corporate
Management Incentive Plan - Directors and Above, Fiscal Year ("FY") 1999,
effective November 1, 1998 through October 31, 1999.
II. PURPOSE
The purpose of the Plan is to provide, with full regard to the protection of
shareholder's investments, a direct financial incentive for eligible employees
to perform an effective leadership role and make a significant contribution to
the Company's established goals.
III. ADMINISTRATION
This Plan is administered by a Management Incentive Plan Committee ("Committee")
appointed and authorized by the Company's Board of Directors. Subject to the
complete and full discretion of the Board of Directors, the Committee is
authorized to make all decisions as required in administration of the Plan and
to exercise its discretion to define, interpret, construe, apply and make any
exceptions to the terms of the Plan.
IV. ELIGIBILITY
The Committee establishes rules of eligibility for participation in the Plan and
determines eligibility in accordance with those rules. For Fiscal Year 1999,
eligibility applies to all employees in Grades 18 and above, plus any Grade 16
and 17 directors. Participation is effective as of the date approved by the
Committee and is communicated to the participant by an incentive opportunity
statement ("Participant Form") specifying the target incentive level for the
position. No employee will become a participant in the Plan after May 1, 1999,
unless the employee is already a participant in another Management Incentive
Plan.
<PAGE>
V. PLAN GOALS
The Plan reinforces the key financial goals which support ADC's long-term
strategic plans. The FY 1999 goal categories and weights for Corporate
participants are as follows:
<TABLE>
<CAPTION>
GOAL WEIGHT
---- ------
<S> <C>
* ADC EVA Improvement 40% (with bonus bank)
* ADC EVA Improvement 20% (without bonus bank)
ADC Revenue 20%
** Individual Contribution 20%
----
TOTAL 100%
</TABLE>
The goal threshold, target, and maximum performance levels are specified
on the attached goal sheets.
* EVA Improvement is the dollar amount of planned year-over-year improvement
in EVA.
** The Individual Contribution goal measures your performance against
pre-determined objectives. The objectives are to be documented on the
attached "Individual Objective" form and require your Supervisor's and
Functional head's approval.
VI. INCENTIVE PAYOUT OPPORTUNITIES
A. The payout opportunity for meeting the ADC Revenue and Individual
Contribution goals are as follows:
<TABLE>
<CAPTION>
PAYOUTS
---------------------------------------------
GOAL THRESHOLD TARGET MAXIMUM
---- --------- ------ -------
<S> <C> <C> <C>
ADC Revenue 0% of Target 100% 400% of Target
Individual Contribution 0% of Target 100% 200% of Target
</TABLE>
Results between threshold-target and target-maximum are interpolated.
B. The payout opportunity for meeting the ADC EVA Improvement goal is as
follows:
<TABLE>
<CAPTION>
GOAL THRESHOLD TARGET MAXIMUM
---- --------- ------ --------
<S> <C> <C> <C>
ADC EVA Improvement 0% of Target 100% 400% of Target
(20% weight without bonus bank)
ADC EVA Improvement N/A 100% N/A
(40% weight with bonus bank) (capped at -100% of target) (unlimited upside)
</TABLE>
Incentive amounts are interpolated based on leverage (the slope of the
line).
The specific incentive payout for the ADC EVA Improvement goal (40%
weight) is a function of a bonus bank concept which is described in
Section VII and Section VIII.
<PAGE>
VII. BONUS BANK DEFINITION
As mentioned earlier, the Plan offers unlimited upside and downside rewards
(capped at negative 100% of target) to participants for creating value. In order
to ensure that EVA Improvements are sustainable over a multi-year period, a
bonus bank is created whereby exceptional performance (above 200% of target) is
credited to your account and poor performance (negative amounts below 0% of the
target level) is deducted from your account.
The bonus bank only applies to the ADC EVA Improvement goal with the 40% weight.
The specific mechanics of the bonus bank are described below.
VIII. HOW THE BONUS BANK WORKS
A. A bonus bank account is created when:
- - The current plan year EVA Improvement result is above 200% of target; this
is a positive bonus bank deposit.
- - The current plan year EVA Improvement result is below 0% of the target
level; this is a negative deposit. Negative bonus bank deposits are
capped at -100% of the target.
B. The bonus bank operates in the manner shown on Attachment A
C. The bonus bank is a bookkeeping account and as such, amounts allocated to
a participant's bonus bank earn no interest, are unfunded, and do not
actually vest until they are paid out in in accordance with the Plan.
IX. MAXIMUM EVA IMPROVEMENT GOAL PAYOUT IN ANY PLAN YEAR
Notwithstanding the above, the maximum amount that may be paid in any one year
to a participant due to the EVA Improvement goal (with a bonus bank), including
amounts achieved for the current year and bonus bank amounts that vest in the
current year, may not exceed 400% of the EVA Improvement target incentive
amount.
<PAGE>
X. CURRENT PLAN YEAR PAYMENT
Payments which become due and payable under this Plan for the current Plan year
include:
- - The amount achieved for the Revenue goal.
- - The amount achieved for the Individual Contribution goal, PROVIDED THE
THRESHOLD REVENUE DOLLAR AMOUNT IS MET OR 0% OF THE TARGET LEVEL FOR THE
EVA IMPROVEMENT GOAL IS MET.
- - Current year EVA Improvement goal achievement up to 200% of target if
there are no negative offsets, or up to 150% of target if a prior year
negative bonus bank exists.
- - Vested amount of EVA Improvement bonus bank account balance.
Payments which become due and payable under this Plan are made as soon as
administratively feasible following the close of the Company's Fiscal Year.
XI. CALCULATION OF INDIVIDUAL PAYMENTS AND BONUS BANK ACCOUNT BALANCES
A. The obligation to make payments under the Plan is determined by achievement
of goals as determined by the Board of Directors.
B. Calculations under this Plan are a function of:
1. Target incentive opportunity - expressed as a percentage of an
individual's FY 1999 earnings. The target % for each
participant is designated on the "Participant Form."
2. Participant's 1999 Fiscal Year base salary earnings.
3. ADC and individual performance against the established goals.
C. Individual award calculations are shown by the following examples:
<PAGE>
Assume we have a Plan participant with the following facts:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Current Plan Year 1999
- --------------------------------------------------------------------------------
Grade 17
- --------------------------------------------------------------------------------
Base Salary Earnings $85,000
- --------------------------------------------------------------------------------
Target Incentive Opportunity 20% of base salary earnings or $17,000
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
GOAL WEIGHT TARGET INCENTIVE DOLLARS
- ---- ------ ------------------------
<S> <C> <C>
ADC EVA Improvement (with bank) 40% $ 6,800
ADC EVA Improvement (without bank) 20% $ 3,400
ADC Revenue 20% $ 3,400
Individual Contribution 20% $ 3,400
-------
$17,000
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
GOAL ACHIEVEMENT (AS A % OF TARGET)
- -----------------------------------
<S> <C> <C> <C> <C> <C>
ADC EVA Improvement (with bank) -(50)% x $6,800 = -$(3,400)*
ADC EVA Improvement (without bank) 0% x $3,400 = $0
ADC Revenue 110% x $3,400 = $3,740
Individual Contribution 100% x $3,400 = $3,400
- --------------------------------------------------------------------------------
</TABLE>
*ADC EVA IMPROVEMENT (WITH BANK) INCENTIVE CALCULATIONS:
- - Bonus bank to carry forward -$3,400
TOTAL CURRENT YEAR INCENTIVE PAYOUT: $3,740 (REVENUE) + $3,400 (INDIVIDUAL
CONTRIBUTION) = $7,140
<PAGE>
Assume the same Participant has the following facts the next year:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Current Plan Year 2000
- --------------------------------------------------------------------------------
Grade 17
- --------------------------------------------------------------------------------
Base Salary Earnings $90,000
- --------------------------------------------------------------------------------
Target Incentive Opportunity 20% of base salary earnings or $18,000
- --------------------------------------------------------------------------------
EVA Bonus Bank -$(3,400)
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
GOAL WEIGHT TARGET INCENTIVE DOLLARS
- ---- ------ ------------------------
<S> <C> <C>
ADC EVA Improvement (with bank) 40% $ 7,200
ADC EVA Improvement (without bank) 20% $ 3,600
ADC Revenue 20% $ 3,600
Individual Contribution 20% $ 3,600
-------
$18,000
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
GOAL ACHIEVEMENT (AS A % OF TARGET)
- -----------------------------------
<S> <C> <C> <C> <C> <C>
ADC EVA Improvement (with bank) 200% x $ 7,200 = $14,400*
ADC EVA Improvement (without bank) 200% x $ 3,600 = $ 7,200
ADC Revenue 90% x $ 3,600 = $ 3,240
Individual Contribution 110% x $ 3,600 = $ 3,960
- --------------------------------------------------------------------------------
</TABLE>
*ADC EVA IMPROVEMENT (WITH BANK) INCENTIVE CALCULATIONS:
- - EVA Result:
200% x $7,200 = $14,400
- - Payout up to 150% of target:
150% x $7,200 = $10,800
- - 2 for 1 offset of prior year bank:
-($3,400) / 2 = -$(1,700) (amount needed to pay off negative bank)
- - Remaining amount to be paid:
$14,400 - $10,800 - $1,700 = $1,900
- - Total Current Year EVAI Payout:
$10,800 + $1,900 = $12,700
End of year Bonus bank = $0
TOTAL CURRENT YEAR INCENTIVE PAYOUT: $12,700 (ADC EVA IMPROVEMENT (WITH BANK))
+ $7,200 (ADC EVA IMPROVEMENT (WITHOUT BANK)) + $3,240 ( REVENUE) + $3,960
(INDIVIDUAL CONTRIBUTION) = $27,100.
<PAGE>
XII. EFFECT OF CHANGE IN EMPLOYMENT STATUS
A. VOLUNTARY RESIGNATION AND RETIREMENT. A participant who voluntarily resigns
full-time employment or retires prior to the end of the Fiscal Year
receives no payment under the Plan for the current Plan year's performance
or any EVA bonus bank account balances being carried over. The participant
does not have any obligations with respect to any negative EVA bonus bank
account balances remaining at the end of the Plan year.
B. CHANGE BASED UPON UNSATISFACTORY JOB PERFORMANCE. A participant who is
involuntarily terminated or transferred to a position not eligible for this
Plan for reasons of unsatisfactory job performance receives no payment
under the Plan for the current Plan year's performance or any EVA bonus
bank account balances being carried over from prior Plan year(s). The
participant does not have any obligations with respect to any negative EVA
bonus bank account balances remaining at the end of the Plan year.
C. CHANGE BASED UPON JOB ELIMINATION. Subject to the approval of the
Committee, a participant who is involuntarily terminated or transferred to
a position not eligible for this Plan or another Management Incentive Plan
because of a job elimination may retain the right to a pro rata calculation
under this Plan for the current year's performance, plus a pro rata portion
of any EVA bonus bank balance that would otherwise have vested at the end
of the current Plan year, based upon the time served in the eligible
position during the Fiscal Year, provided at least three months was served
in the eligible position. Rights to any unvested EVA bonus bank account
balances at the end of the Plan year are forfeited. The participant does
not have any obligations with respect to any negative EVA bonus bank
account balances that remain after the pro rata calculation.
D. CHANGE BASED UPON PROMOTION OR DEMOTION TO ANOTHER ELIGIBLE PLAN JOB WITH
THE SAME MIP GOALS. A current participant who is promoted or demoted from
an eligible position under this Plan to another eligible position with the
same MIP goals during the Fiscal Year has a pro rata calculation of the
current year's performance awards based upon the time served in each
position during the Fiscal Year, provided at least three months were served
in each position. If a participant is in an eligible position for less than
three months during the Fiscal Year, the payment calculation is based on
the incentive level of the position served in the longest.
E. CHANGE IN JOBS WITHIN THE COMPANY BUT NOT ELIGIBLE FOR A MANAGEMENT
INCENTIVE PLAN. A participant who changes jobs within the Company but is
not eligible for this Plan, retains the right to a pro rata payout under
this Plan for the current year's performance, plus a pro rata portion of
any EVA bonus balance that would otherwise have vested at the end of the
current Plan year, based upon the time served in the eligible position
during the Fiscal Year, provided at least three months was served in the
eligible position. Rights to any unvested EVA bonus bank account balances
at the end of the Plan year are forfeited. The participant does not have
any obligations with respect to any negative EVA bonus bank account
balances that remain after the pro rata calculation.
<PAGE>
F. CHANGE BASED UPON A TRANSFER. A transfer is defined as a change in position
which results in the participant working under new MIP goals. How a
transfer payout is calculated is based on the quarter in which the
effective date occurs. The guideline is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR QTR IMPACT ON MIP
OF EFFECTIVE DATE PAYOUT CALCULATION
----------------- ------------------
<S> <C>
1st Quarter Payout is based on the new MIP goals for the entire
fiscal year
2nd & 3rd Quarter The participant' payout for the period prior to the
effective date of the transfer will be based on the old
Plan. The participant's payout after the effective date
of the transfers will be based on the overall MIP
results of the old goals or the new goals, whichever
result in a higher payout for the participant. For this
comparison, the calculation of the payout for the old
goals will be based on the same level of payout the
employee would have received if the employee had not
been transferred including their prior salary and target
incentive level.
4th Quarter Payout is based on the old MIP goals for the entire
fiscal year
</TABLE>
In all cases, any positive or negative bonus bank accounts transfer with
the individual in their entirety.
G. DEATH. If a participant dies during the Fiscal Year, the participant's
heirs as determined by will or applicable laws of descent and distribution
will have a pro rata calculation of the current year's performance, plus a
pro rata portion of any EVA bonus bank balance that would otherwise have
vested at the end of the current Plan year, based upon the time served in
the eligible position during the Fiscal Year. Rights to any unvested EVA
bonus bank account balances at the end of the current Plan year are
forfeited. The participant's heirs do not have any obligations with respect
to any negative EVA bonus bank account balances that remain after the pro
rata calculation.
XIII. COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986
If a current Plan year payout causes the participant's total cash compensation
to exceed one million dollars in the Fiscal Year, the participant must defer the
portion that exceeds the one million dollars in the ADC Telecommunications
Deferred Compensation Plan.
XIV. AMENDMENT OR TERMINATION OF PLAN
The Board of Directors reserves and retains the right to modify, rescind or
terminate this plan in whole or in part, at its sole discretion, and nothing in
this Plan limits this right in any way or creates any rights in any employee of
future participation in this Plan or any other plan, or constitutes any
guarantee of compensation or employment with ADC. Further, neither the Board of
Directors nor the Company has any obligation under this Plan or otherwise to
adopt this or any other plan in any future fiscal year.
<PAGE>
Attachment A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
CURRENT YEAR BONUS BANK DEPOSIT
PRIOR CUMULATIVE BONUS ------------------------------------------------------------------------------------------------
BANK ACCOUNT* NO BONUS BANK DEPOSIT POSITIVE BONUS BANK NEGATIVE BONUS BANK DEPOSIT
DEPOSIT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NO PRIOR ACCOUNT - Participant does not have - Deposit goes into bonus - Deposit goes into bonus bank and is
a bonus bank. bank and vests at a carried forward to the next plan year.
rate of 25% per year,
beginning immediately,
then after 1 year, 2
years, and 3 years
respectively.
- -----------------------------------------------------------------------------------------------------------------------------
POSITIVE ACCOUNT - The amount that vests for - Same as above in - Negative amount offsets positive bonus
the current plan year is addition to paying for bank amount that is scheduled to vest in
paid. any prior year deposit the current plan year.
amount(s) that vest for - If there is a remaining positive amount in
the current plan year. the current plan year, that amount is
paid, or
- If there is a remaining negative amount,
that amount is carried forward to the next
plan year.
- -----------------------------------------------------------------------------------------------------------------------------
NEGATIVE ACCOUNT - Up to 150% of target of - Up to 150% of target of - Deposit goes into bonus bank. The deposit
the current plan year EVA the current plan year is added to prior bank amount, and is
Improvement result is EVA Improvement result carried forward to the next plan year.
paid. No reduction or is paid. No reduction
offset of bonus bank. or offset of bonus
- Between 150% and 200% of bank.
target: offset applies - Between 150% and 200%
at a 2 for 1 rate before of target: offset
any payout occurs. The applies at a 2 for 1
remaining amount, if any, rate before any payout
is paid immediately, or account. The remaining
- If a negative amount amount, if any, is paid
remains after any offset, immediately. If a
the negative amount from negative amount
prior year(s) is carried remains, the negative
forward to the next plan amount from prior
year. year(s) is carried
forward to the next
plan year.
- Over 200% of target:
offset applies as
described above. If
there are any remaining
positive amounts, the
amounts subject to
vesting schedule
described above (under
Positive Bonus Bank
Deposit, No Prior
Account column)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Attachment A
* Cumulative Bonus Bank Account is the result of adding any negative and
unvested positive bonus bank deposits.
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXECUTIVE INCENTIVE EXCHANGE PLAN
FISCAL YEAR 1999
<PAGE>
ADC TELECOMMUNICATIONS, INC.
EXECUTIVE INCENTIVE EXCHANGE PLAN
FISCAL YEAR 1999
I. PLAN NAME AND EFFECTIVE DATE
The name of this Plan is the ADC Telecommunications, Inc. ("Company") Executive
Incentive Exchange Plan - Fiscal Year 1999 ("FY 1999"), effective November 1,
1998 through October 31, 1999.
II. PURPOSE
The purpose of the Plan is to provide exceptional rewards for exceptional
performance of eligible executives, align executive rewards with shareholder
interests, and provide an incentive for retention.
III. ADMINISTRATION
This Plan will be administered by the same Committee ("Committee") appointed and
authorized by the Company's Board of Directors to administer the Company's 1991
Stock Incentive Plan. The Committee is authorized to make all decisions as
required in administration of the Plan and to exercise its discretion to define,
interpret, construe, apply, and make any exceptions to the terms of the Plan.
IV. STOCK OPTION ISSUANCE
All stock options issued under this Plan will be granted under the Company's
1991 Stock Incentive Plan and/or its successor plans.
V. ELIGIBILITY
The Committee will establish rules of eligibility for participation in the Plan
in accordance with the 1991 Stock Incentive Plan and determine eligibility in
accordance with those rules. Eligibility is limited to Corporate and Divisional
Vice Presidents who receive approval from the Chief Executive Officer for
participation in the Fiscal Year Plan. All Plan participants must also be
participants under the Company's Management Incentive Plan ("MIP"). No employee
will become a participant after November 1, 1998.
VI. PLAN GOALS AND ACHIEVEMENT
All goals and objectives under this Plan shall be identical to the goals and
objectives stated in each participant's MIP. Total payouts are calculated in the
same fashion as payouts made under the applicable MIP.
<PAGE>
VII. EXCHANGE ELECTION
Prior to the beginning of FY 1999, participants may irrevocably elect to
exchange up to 50% of their FY 1999 MIP award for options to purchase common
stock of the Company. Such elections may be made in 10% increments up to a
maximum of 50% of the cash MIP award. No exchange will be made if the portion
elected for exchange is less than One Hundred Dollars ($100.00).
VIII. EXCHANGE DATE
Exchanges made under this Plan will be made as soon as administratively feasible
following the close of FY 1999 and as soon as MIP awards are approved.
IX. EXCHANGE CALCULATION
The MIP award that will be used to calculate the exchange to options will be the
incentive amount eligible to be paid for the fiscal year excluding any amounts
allocated to bonus bank accounts as defined in the Management Incentive Plan.
The dollar amount of the MIP award elected to be exchanged will first be
multiplied by an exchange factor ("Factor") of six (6). This amount is then
divided by the Black-Scholes value of an option to purchase one share of ADC
common stock on the last day of FY 1998 to determine the number of option shares
to be received by the participant.
This Black-Scholes value will reflect the vesting characteristics of the options
to be granted under this Plan and other characteristics as appropriate, and as
such may differ from the Black-Scholes value applied for other options granted
under other Company plans. The final number of shares will be rounded down if
necessary to the nearest whole share.
This exchange causes payment of the MIP cash incentive amount exchanged to be
forfeited, except as described under Section XIV.
X. NATURE OF OPTIONS TO BE GRANTED
All options granted under this Plan will be nonqualified stock options, that are
not "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
XI. TERM AND VESTING OF OPTIONS
All options granted under this Plan will have a term and method of exercise as
determined by the Committee. The term will be 10 years from the date of grant.
Options will vest in three (3) equal annual installments, beginning one (1) year
after the grant date.
<PAGE>
XII. EXERCISE PRICE OF OPTIONS
The exercise price of the stock options granted under this plan will be the Fair
Market Value of the Company's common stock on the last business day of the
fiscal year and be determined in accordance with the 1991 Stock Incentive Plan.
XIII. STOCK OPTION GRANT DATE
The effective date of the stock options granted under the Plan will be the last
business day of the fiscal year.
XIV. EFFECT OF CHANGE IN EMPLOYMENT STATUS ON CURRENT YEAR ELECTIONS
(CHANGES DURING THE PLAN YEAR)
A. TERMINATION OF EMPLOYMENT. A participant who terminates employment
prior to the end of FY 1999 will relinquish all rights to the grant of
any stock option under this plan and will forfeit the MIP cash
equivalent amount as defined in his/her irrevocable exchange election.
B. CHANGE IN JOB STATUS BASED UPON A DEMOTION. A participant who is
demoted from an eligible position under this Plan to an ineligible
position will exchange the pro-rata portion of cash MIP award that is
calculated according to the time served in the eligible position during
FY 1999, provided at least three months was served in the eligible
position.
C. DEATH. If a participant dies during FY 1999, the participant's heirs as
determined by will or applicable laws of descent and distribution will
have no right to receive any stock options under this plan. Heirs will
receive instead the cash equivalent of the pro-rata MIP award that is
calculated according to the MIP Plan, but not subject to the Factor.
XV. EFFECT OF CHANGE IN EMPLOYMENT STATUS OCCURRING AFTER FY 1999 ON
EXCHANGES MADE IN FY 1999
All stock options already awarded under this Plan will vest fully upon a
participant's death, disability, or voluntary retirement. For purposes of this
Plan, retirement from the Company shall be defined as having attained age 55
with 10 years of service with the Company ("early retirement"), or age 65 with 5
years of service with the Company ("normal retirement").
If a participant terminates for any other reason, termination provisions will be
applied. For each grant or exchange already made, if the participant terminates
prior to the vesting of the first one third of the options, all options and the
MIP cash equivalent amount will be immediately forfeited. If the participant
terminates after the first one third of the options have vested, all vested
options will remain exercisable for a period of one (1) year. All unvested
options will be forfeited, and no cash equivalent will be provided.
<PAGE>
XVI. EFFECT OF CHANGE IN CONTROL ON EXCHANGES ALREADY MADE
In the event of a change in control of the Company as referenced in stock option
agreements issued pursuant to this Plan, all unvested options will immediately
vest in full.
XVII. AMENDMENT OR TERMINATION OF PLAN
The Board of Directors reserves and retains the right to modify, rescind or
terminate this plan in whole or in part, at its sole discretion, and nothing in
this Plan limits this right in any way or creates any rights in any employee in
future participation in this Plan or any other Plan, or constitutes any
guarantee of compensation or employment with ADC. Further, neither the Board of
Directors nor the Company has any obligation under this Plan or otherwise to
adopt this or any other plan in any future fiscal year.
<PAGE>
ATTACHMENT I
EXCHANGE EXAMPLE
<TABLE>
<CAPTION>
ASSUMPTIONS
- -----------
<S> <C>
Annual earnings for FY 1999: $100,000
Exchange election: 50% of MIP award
MIP award: $30,000
*FMV of stock on 10/30/98: $30.00
Black-Scholes factor for option on 10/30/98: .60 (actual factor will vary)
Black-Scholes value of option on 10/30/98: $30.00 x .60 = $18.00
*Exercise price of option (10/29/99): $35.00
Grant date: October 29, 1999
</TABLE>
*Last business day of the fiscal year
EXCHANGE CALCULATION
MIP Award X Exchange Election X Exchange Factor =
-----------------------------------------------
Black-Scholes Value of Option on 10/30/98
$30,000 X 50% X 6 =
------------------
$30.00 x .60
$90,000 =
--------
$18.00
5000 options at an exercise price of $35.00 per share
VESTING
1,666 shares vest on 10/29/00
1,667 shares vest on 10/29/01
1,667 shares vest on 10/29/02
PROJECTED VALUE OF AWARD
- - Assume 10% annual stock price appreciation
- - Assumed stock price 10/29/04 = $56.37
- - 5 year gain: $56.37 - $35.00 (exercise price) = $21.37
- - Projected value: 5000 x $21.37 = $106,850 vs. $15,000 original amount
exchanged
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Conduit Facility, Transfer and Revolving Credit Agreement
Dated as of November 24, 1998
among
ADC Telecommunications, Inc., as Borrower
Windmill Funding Corporation, as a Conduit,
Amsterdam Funding Corporation, as a Conduit,
ABN AMRO Bank N.V.,
as Agent, as a Liquidity Provider and as the Enhancer
and
the other financial institutions party hereto,
as Committed Lenders
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Heading Page
<S> <C> <C>
Article I Definitions 7
Section 1.1. Certain Defined Terms. 7
Section 1.2. Other Interpretive Provisions 28
Section 1.3. Accounting Principles 29
Article II Uncommitted Conduit Facility 29
Section 2.1. Conduit Facilities 30
Section 2.2. Manner of Borrowing 30
Section 2.3. Interest Rates and Payments 30
Section 2.4. Maturity Dates; Prepayments 31
Section 2.5. The Participating Interests. 31
Article III Sales from Amsterdam; Allocations 32
Section 3.1. Required Purchases from Amsterdam 32
Article IV The Committed Credits 34
Section 4.1. Amounts and Terms of Commitments 34
Section 4.2 Subject Bank Loans. 34
Section 4.3. Loan Accounts 34
Section 4.4. Procedure for Committed Borrowing 35
Section 4.5. Conversion and Continuation Elections for Loans 36
Section 4.6. Voluntary Termination or Reduction of Commitments 37
Section 4.7. Optional Prepayments 37
Section 4.8. Repayment 37
Section 4.9. Interest 38
Section 4.10. Fees 38
Section 4.11. Commitment of Fees and Interest 39
Section 4.12. Payments by the Borrower 39
Section 4.13. Assumed Payments 40
Section 4.14. Sharing of Payments, Etc. 40
Section 4.15. Extension of Liquidity Termination Date 41
Article V Taxes, Yield Protection and Illegality 42
Section 5.1. Taxes 42
Section 5.2. Illegality 43
Section 5.3. Increased Costs and Reduction of Return 43
Section 5.4. Funding Losses 44
Section 5.5. Inability to Determine Rates 45
Section 5.6. Certificates of Lenders 45
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Section 5.7. Survival 45
Article VI Conditions Precedent 45
Section 6.1. Conditions to Effectiveness of this Agreement 46
Section 6.2. Conditions to All Committed Loans 47
Article VI Representations and Warranties 47
Section 7.1. Corporate Existence and Power 48
Section 7.2. Corporate Authorization; No Contravention 48
Section 7.3. Governmental Authorization 48
Section 7.4. Binding Effect 48
Section 7.5. Litigation 48
Section 7.6. No Default 49
Section 7.7. ERISA Compliance 49
Section 7.8. Use of Proceeds, Margin Regulations 50
Section 7.9. Title to Properties 50
Section 7.10. Taxes 50
Section 7.11. Financial Condition 50
Section 7.12. Environmental Matters 50
Section 7.13. Regulated Entities 51
Section 7.14. No Burdensome Restrictions 51
Section 7.15. Copyrights, Patents, Trademarks and Licenses, Etc. 51
Section 7.16. Subsidiaries 52
Section 7.17. Insurance 52
Section 7.18. Swap Obligations 52
Section 7.19. Full Disclosure 52
Section 7.20. Year 2000 Compatibility 52
Article VIII Affirmative Covenants 53
Section 8.1. Financial Statements 53
Section 8.2. Certificates, Other Information 53
Section 8.3. Notices 54
Section 8.4. Preservation of Corporate Existence, Etc. 55
Section 8.5. Maintenance of Property 56
Section 8.6. Insurance 56
Section 8.7. Payment of Obligations 56
Section 8.8. Compliance with Laws 57
Section 8.9. Compliance with ERISA 57
Section 8.10. Inspection of Property and Books and Records 57
Section 8.11. Environmental Laws 57
Section 8.12. Use of Proceeds 57
Section 8.13. Further Assurances 58
Section 8.14. Year 2000 Compatibility 58
Article IX Negative Covenants 58
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C> <C>
Section 9.1. Limitation on Liens 58
Section 9.2. Disposition of Assets 60
Section 9.3. Consolidations and Mergers 60
Section 9.4. Loans and Investments 61
Section 9.5. Limitation on Indebtedness 62
Section 9.6. Transactions with Affiliates 62
Section 9.7. Use of Proceeds 62
Section 9.8. Contingent Obligations 62
Section 9.9. Lease Obligations 63
Section 9.10. Restricted Payments 63
Section 9.11. ERISA 64
Section 9.12. Change in Business 64
Section 9.13. Accounting Changes 64
Section 9.14. Negative Pledges, Restrictive Agreements, etc. 64
Section 9.15. Ability to Amend; Restrictive Agreements. 64
Article X Financial Tests 65
Section 10.1. Net Worth 65
Section 10.2. Funded Debt to EBITDA Ratio 65
Section 10.3. EBITDA to Interest Expense Ratio 65
Article XI Events of Default 65
Section 11.1. Event of Default 65
Section 11.2. Remedies 68
Section 11.3. Rights Not Exclusive 68
Section 11.4. Allocations and Distributions 68
Article XII The Agent 69
Section 12.1. Appointment and Authorization: Agent 69
Section 12.2. Delegation of Duties 69
Section 12.3. Liability of Agent 69
Section 12.4. Reliance by Age 70
Section 12.5. Notice of Default 70
Section 12.6. Credit Decision 70
Section 12.7. Indemnification of Agent 71
Section 12.8. Agent in Individual Capacity 71
Section 12.9. Successor Agent 71
Section 12.10. Withholding Tax 72
Article XII Miscellaneous 73
Section 13.1. Amendments and Waiver 73
Section 13.2. Notices 74
Section 13.3. No Waiver: Cumulative Remedies 75
Section 13.4. Costs and Expenses 75
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
Section 13.5. Borrower Indemnification 75
Section 13.6. Payments Set Aside 76
Section 13.7. Successors and Assigns 76
Section 13.8. Participations; Assignments 76
Section 13.9. Confidentiality 78
Section 13.10. Set-off 78
Section 13.11. Notification of Addresses, Lending Offices, Etc. 78
Section 13.12. Counterparts 79
Section 13.13. Severability 79
Section 13.14. No Third Parties Benefited 79
Section 13.15. Governing Law and Jurisdiction 79
Section 13.16. Waiver of Jury Trial 79
Section 13.18. Entire Agreement 80
Section 13.19. Agreement Not to Petition 80
Section 13.20. Excess Funds 80
Section 13.21. Rating Agency Approval 80
SCHEDULES
Schedule 4.1 Commitments 93
Schedule 7.5 Litigation 94
Schedule 7.7 ERISA 95
Schedule 7.11 Permitted Liabilities 96
Schedule 7.12 Environmental Matters 97
Schedule 7.16 Subsidiaries and Minority Interests 98
Schedule 7.17 Insurance Matters 102
Schedule 9.1 Permitted Liens 103
Schedule 9.5 Permitted Indebtedness 104
Schedule 9.8 Contingent Obligations 105
Schedule 13.2 Lending Offices; Addresses for Notices 106
EXHIBITS
Exhibit A Form of Conduit Note A-117
Exhibit B Form of Conduit Borrowing Request B-119
Exhibit C Form of Assignment Conduit to Committed Lender C-121
Exhibit D Form of Notice of Borrowing D-125
Exhibit E Form of Notice of Conversion/Continuation E-127
Exhibit F Form of Compliance Certificate F-128
Exhibit G-1 Form of Legal Opinion of Borrower's General Counsel G-1-131
Exhibit G-2 Form of Legal Opinion of Borrower's Outside Counsel G-2-132
Exhibit H Form of Committed Loan Note H-133
</TABLE>
-5-
<PAGE>
-6-
<PAGE>
CONDUIT FACILITY, TRANSFER AND
REVOLVING CREDIT AGREEMENT
This Conduit Facility, Transfer and Revolving Credit Agreement is
entered into as of November 24, 1998, among ADC Telecommunications, Inc., a
Minnesota corporation (the "BORROWER"), Windmill Funding Corporation, a Delaware
Corporation ("WINDMILL"), Amsterdam Funding Corporation, a Delaware Corporation
("AMSTERDAM"), the several financial institutions from time to time party to
this Agreement (collectively, the "LIQUIDITY PROVIDERS" and individually, a
"LIQUIDITY PROVIDER") and ABN AMRO Bank N.V., in its individual capacity as a
Liquidity Provider and as the Enhancer and in its capacity as agent for the
Lenders (the "AGENT").
Whereas, each Conduit may, from time to time, in its sole discretion
make uncommitted loans to the Borrower, upon the terms and conditions set forth
in this Agreement; and
Whereas, the Committed Lenders have agreed to make available to the
Borrower a committed revolving credit facility, upon the terms and conditions
set forth in this Agreement;
Now, Therefore, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. CERTAIN DEFINED TERMS. The following terms have the
following meanings:
"ABN AMRO" means ABN AMRO Bank N.V., in its individual capacity, and its
successors and assigns.
"ACQUISITION" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary) PROVIDED that the Borrower or the Subsidiary is the
surviving entity.
"ADDITIONAL LIQUIDITY PROVIDER" is defined in Section 4.15(b).
"ADMINISTRATION AGREEMENT" means, for Amsterdam, the Administration
Agreement, dated as of August 13, 1996, between Lord Securities Corporation, as
the Management Company for Amsterdam, and ABN AMRO Bank N.V., as the
Administrator for Amsterdam and, for Windmill, the Second Amended and Restated
Administration Agreement, dated as of November 15, 1994, between Lord Securities
Corporation, as the Management Company for
-7-
<PAGE>
Windmill, and ABN AMRO Bank N.V., as the Administrator for Windmill.
"ADVANCE" means for any Conduit, the amount of funds it advances to the
Borrower on a Borrowing Date for an Interest Period.
"AFFILIATE" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"AGENT" means ABN AMRO Bank N.V., in its capacity as agent for the
Lenders hereunder, and any successor agent appointed pursuant to Section 12.9.
"AGENT-RELATED PERSONS" means the Agent, together with its respective
Affiliates, and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
"AGENT'S PAYMENT OFFICE" means the address for payments set forth on
Schedule 13.2 or such other address as the Agent may from time to time specify.
"AGREEMENT" means this Conduit Facility, Transfer and Revolving Credit
Agreement, as amended, modified or supplemented from time to time.
"AGGREGATE COMMITMENT" means the aggregate of all Committed Lenders'
Commitments.
"AGGREGATE UNUSED COMMITMENT" means the aggregate of each Committed
Lender's Unused Commitment.
"AMSTERDAM" is defined in the preamble.
"AMSTERDAM AGGREGATE COMMITMENT" means, as of any date, the sum of
(i) the portions of the Commitments of Windmill Committed Lenders that are not
Windmill Commitments as of such date plus (ii) the Commitments of all other
Committed Lenders.
"AMSTERDAM COMMITMENT" means, as of any date, (i) for a Windmill
Committed Lender, its Commitment minus its Windmill Commitment and (ii) for any
other Committed Lender, its Commitment.
"AMSTERDAM COMMITTED LENDERS" means (i) the Amsterdam Enhancer,
(ii) each Liquidity Provider that is not a Windmill Committed Lender, and
(iii) to the extent of its Commitment minus the sum of its Windmill Commitment
and the principal amount of its outstanding Loans, each Liquidity Provider that
is a Windmill Committed Lender.
"AMSTERDAM ENHANCER" means ABN AMRO as issuer of the Program LOC for
-8-
<PAGE>
Amsterdam.
"AMSTERDAM PERMITTED INVESTMENTS" means (a) evidences of indebtedness,
maturing within thirty (30) days after the date of purchase thereof, issued by,
or guaranteed by the full faith and credit of, the federal government of the
USA, (b) repurchase agreements with banking institutions or broker-dealers
registered under the Securities Exchange Act of 1934 the short-term unsecured
obligations of which are rated at least "A-1" (or the equivalent) by S&P and at
least "P-1" (or the equivalent) by Moody's which are fully secured by
obligations of the kind specified in clause (a), (c) money market funds
(i) rated not lower than the highest rating category from Moody's and "AAA m" or
"AAAm-g," from S&P or (ii) which are otherwise acceptable to the Rating Agencies
or (d) commercial paper issued by any corporation incorporated under the laws of
the USA and rated at least "A-1" (or the equivalent) by S&P and at least "P-1"
(or the equivalent) by Moody's.
"AMSTERDAM RATABLE SHARE" means, as of any date, for each Amsterdam
Committed Lender, such Lender's Amsterdam Commitment divided by the Amsterdam
Aggregate Commitment. If, however, on the date any payment for any Put is to be
made by the Amsterdam Committed Lenders, the sum of the outstanding Amsterdam
Interest in Advances acquired from Amsterdam of the Amsterdam Enhancer plus
Program Unreimbursed Draw Amount of the Amsterdam Enhancer is in excess of its
Amsterdam Ratable Share of the outstanding Amsterdam Interest and Program
Unreimbursed Draw Amount of all Amsterdam Committed Lenders, then for purposes
of such Put the Amsterdam Ratable Share of each Amsterdam Committed Lender shall
be replaced with a percentage equal for each Amsterdam Committed Lender to
(a) its Amsterdam Commitment minus its Amsterdam Interest acquired from
Amsterdam and, in the case of the Amsterdam Enhancer, its Program Unreimbursed
Draw Amount before such Put (its "EXISTING LOAN AMOUNT") divided by (b) the
Amsterdam Aggregate Commitment minus the sum of the Existing Loan Amounts of all
Amsterdam Committed Lenders.
"APPLICABLE MARGIN" means a margin, expressed in basis points per annum,
based on the Funded Debt to EBITDA Ratio set forth in Section 10.2, as follows:
<TABLE>
<CAPTION>
Conduit Loan LIBOR
Funded Debt to Program Fee Commitment Fee Commitment Fee Rate Margin
EBITDA Ratio
<S> <C> <C> <C> <C>
less than 1.0:1 17.5 12.5 17.5 45.0
greater than or equal to 57.5
1.0:1 but less than 2.0:1 17.5 15 20.0
greater than or equal to
2.0:1 17.5 17.5 22.5 70.0
</TABLE>
In addition, for the first 180 days after the Closing Date, the LIBOR
Rate Margin shall be the greater of 60.0 basis points (which includes the 15
basis point Facility Utilization margin referred to in the next sentence) and
the LIBOR Rate Margin set forth above. In addition, as to any LIBOR Rate
Committed Loan, a 15 basis point Facility Utilization margin shall be added to
the then applicable LIBOR Rate Margin expressed above if the Facility
Utilization is greater than 50%. "FACILITY UTILIZATION" means, for any day, the
utilization of the Commitments for such day (or if such day is not a Business
Day the immediately preceding Business Day) as calculated by
-9-
<PAGE>
the Agent after giving effect to any Loans or Advances made or repaid on such
date. For purposes hereof, the Commitments shall be deemed utilized on any
given day to the extent of the aggregate outstanding principal amount of the
Loans and the Matured Value of all outstanding Advances on such day.
"ATTORNEY COSTS" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the reasonable
allocated cost of internal legal services and all disbursements of internal
counsel.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, ET SEQ.), and any successor statute thereto.
"BANKRUPTCY EVENT" means, for any Person, that (a) such Person shall
make a general assignment for the benefit of creditors or any proceeding shall
be instituted by or against such Person seeking to adjudicate it bankrupt or
insolvent, or seeking the liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry or an order for relief or the appointment of a receiver,
trustee or other similar official for it or any substantial part of its property
or (b) such Person shall take any corporate action to authorize any of the
actions set forth in clause (a) of this definition.
"BASE RATE" means, for any day, the higher of: (a) 0.50% per annum above
the latest Federal Funds Rate; and (b) the rate of interest in effect for such
day as publicly announced from time to time by ABN AMRO in Chicago, Illinois, as
its "prime lending rate." The "PRIME LENDING RATE" shall mean the rate
announced by ABN AMRO from time to time as its prime lending rate for commercial
loans within the United States (but is not intended to be the lowest rate of
interest) charged by ABN AMRO in connection with extensions of credit to
debtors. Any change in the "prime lending rate" announced by ABN AMRO shall
take effect at the opening of business on the day specified in the public
announcement of such change.
"BASE RATE COMMITTED LOAN" means a Committed Loan that bears interest
based on the Base Rate.
"BASE RATE LOAN" means a Base Rate Committed Loan or a Base Rate
Transfer Loan.
"BASE RATE TRANSFER LOAN" means a Transfer Loan that bears interest
based on the Base Rate.
"BORROWER" is defined in the preamble.
"BORROWING" means a borrowing hereunder consisting of Loans of the same
Type made to the Borrower on the same day by the Lenders and may be a Committed
Borrowing having, other than in the case of Base Rate Loans, the same Interest
Period.
"BORROWING AMOUNT" is defined in Section 2.2(a).
-10-
<PAGE>
"BORROWING DATE" means any date on which a Committed Borrowing occurs
under Section 4.4 or an Advance is made under Section 2.2.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City, New York or Chicago, Illinois are
authorized or required by law to close and, if the applicable Business Day
relates to any LIBOR Rate Committed Loan, means such a day on which dealings are
carried on in the applicable London dollar interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case regarding
capital adequacy of any bank or institutional lender or of any Person
controlling a bank or institutional lender.
"CERCLA" has the meaning specified in the definition of "ENVIRONMENTAL
LAWS."
"CHANGE OF CONTROL" of the Borrower means (i) the acquisition by any
Person, entity or "GROUP," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act (excluding for this purpose, the Borrower or its Subsidiaries,
or any employee benefit plan of the Borrower or its Subsidiaries which acquires
beneficial ownership of voting securities of the Borrower) of beneficial
ownership (within the meaning of Rule l3d-3 promulgated under the Exchange Act)
of 25% or more of either the then outstanding shares of common stock or the
combined voting power of the Borrower's then outstanding voting securities
entitled to vote generally in the election of directors; or (ii) individuals
who, as of the Closing Date, constitute the Board of Directors (as of the date
hereof the "INCUMBENT BOARD") cease for any reason to constitute at least a
majority of the Board of Directors, PROVIDED that any Person becoming a director
subsequent to the Closing Date whose election, or nomination for election by the
Borrower's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
Person were a member of the Incumbent Board; or (iii) approval by the
stockholders of the Borrower of a reorganization, merger or consolidation, in
each case, with respect to which Persons who were the stockholders of the
Borrower immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 25% of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated Borrower's then outstanding voting securities; or (iv) a
liquidation or dissolution of the Borrower (other than pursuant to the United
States Bankruptcy Code) or the conveyance, transfer or leasing of all or
substantially all of the assets of the Borrower.
"CLOSING DATE" means the date on which all conditions precedent set
forth in Section 6.1 are satisfied or waived by all Lenders (or, in the case of
Section 6.1(e), waived by the Person entitled to receive such payment).
"CODE" means the Internal Revenue Code of 1986 (and any successor
statute thereto), and regulations promulgated thereunder.
"COMMITTED BORROWING" means a Borrowing hereunder consisting of
(i) Loans made on
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<PAGE>
the same day by the Committed Lenders ratably according to their respective
Pro Rata Shares and, in the case of LIBOR Rate Committed Loans, having the
same Interest Periods or (ii) a Committed Loan made by a Subject Bank
pursuant to Section 4.2.
"COMMITTED LOAN" means a Loan by a Committed Lender to the Borrower
under Section 4.1 or by a Subject Bank pursuant to Section 4.2, and may be a
LIBOR Rate Committed Loan or a Base Rate Committed Loan (each, a "TYPE" of
Committed Loan).
"COMMITTED LOAN NOTE" has the meaning specified in Section 4.3.
"COMMITTED LENDERS" means the Enhancer and the Liquidity Providers.
"COMMITMENT" has the meaning specified in Section 4.1.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of Exhibit F.
"CONDUIT NOTE" is defined in Section 2.1.
"CONDUIT PORTION" means a percentage of the Unused Commitment of each
Liquidity Provider equal to the Matured Value of all outstanding Advances
divided by the sum of the Matured Value of all outstanding Advances plus the
principal amount of all outstanding Loans unless no Loans or Advances are
outstanding in which case such percentage shall be equal to 100%.
"CONDUITS" means Windmill and Amsterdam, collectively.
"CONDUIT TERMINATION DATE" means, for each Conduit, the earliest of
(a) the Business Day designated by the applicable Conduit at any time to the
Agent and (b) five days prior to the Liquidity Termination Date.
"CONSENT DATE" is defined in Section 4.15(a).
"CONTINGENT OBLIGATION" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "PRIMARY OBLIGATIONS") of another Person (the "PRIMARY
OBLIGOR"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof (each, a "GUARANTY OBLIGATION"); (b) with respect to any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase any
materials, supplies or other property
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from, or to obtain the services of, another Person if the relevant contract
or other related document or obligation requires that payment for such
materials, supplies or other property, or for such services, shall be made
regardless of whether delivery of such materials, supplies or other property
is ever made or tendered, or such services are ever performed or tendered; or
(d) in respect of any Swap Contract. The amount of any Contingent Obligation
shall, in the case of Guaranty Obligations, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof, and in the case
of other Contingent Obligations other than in respect of Swap Contracts,
shall be equal to the maximum reasonably anticipated liability in respect
thereof and, in the case of Contingent Obligations in respect of Swap
Contracts, shall be equal to the Swap Termination Value.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"CONVERSION/CONTINUATION DATE" means any date on which, under
Section 4.5, the Borrower either: (a) converts Committed Loans of one Type to
another Type; or (b) continues as Committed Loans of the same Type, but with a
new Interest Period, Committed Loans having Interest Periods expiring on such
date.
"CP DEALER" means, at any time, each Person that a Conduit then engages
as a placement agent or commercial paper dealer.
"CP NOTES" means the commercial paper notes issued by the applicable
Conduit to fund its Interests in the Advances.
"CP RATE" means, for any Interest Period for an Advance, a rate per
annum equal to the weighted average of the rates at which CP Notes having a term
equal to such Interest Period may be sold by any CP Dealer selected by the
applicable Conduit, as agreed between each such CP Dealer and such Conduit. If
such rate is a discount rate, the CP Rate shall be the rate resulting from the
applicable Conduit's converting such discount rate to an interest-bearing
equivalent rate. The CP Rate shall include all costs and expenses to the
applicable Conduit of issuing the related CP Notes, including all dealer
commissions and note issuance costs in connection therewith.
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"DEPOSITARY AGREEMENT" means, with respect to Windmill, the Second
Amended and Restated Depositary Agreement dated as of November 15, 1994 between
Windmill and The Chase Manhattan Bank, as Depositary for Windmill and, with
respect to Amsterdam, the Depositary Agreement dated as of August 13, 1996
between Amsterdam and The Chase Manhattan Bank, as Depositary for Amsterdam.
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"DOLLARS", "DOLLARS" and "$" each mean lawful money of the United
States.
"DOWNGRADING EVENT" is defined in Section 13.8(c).
"EBITDA" means, for any applicable period, Net Income for such period,
plus, to the extent deducted in determining Net Income for such period, the
aggregate amount of (i) Interest Expense, (ii) federal, state, local and foreign
income taxes and (iii) depletion, depreciation and amortization of tangible and
intangible assets.
"ENHANCER" means the Amsterdam Enhancer and the Windmill Enhancer.
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon the presence, placement, discharge, emission or release (including
intentional and unintentional, negligent and nonnegligent, sudden or nonsudden,
accidental or nonaccidental, placement, spills, leaks, discharges, emissions or
releases) of any Hazardous Material at, in, or from property, whether or not
owned by the Borrower.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters; including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972,
the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery
Act, the Toxic Substances Control Act, and the Emergency Planning and Community
Right-to-Know Act.
"ENVIRONMENTAL PERMITS" is defined in Section 7.12(b).
"EQUITY SWAP" means transactions entered into by the Borrower in April
1998 (for 2,000,000 shares of the Borrower's stock) and October 1998 (for
500,000 and 95,000 shares of the Borrower's stock) in which: (1) the Borrower
sold put options that entitle the holder of the options to sell the above shares
of the Borrower's common stock to the Borrower at certain predetermined prices,
and (2) the Borrower purchased call options that entitle the Borrower to buy
the above shares of its common stock at certain predetermined prices. The
options will be settled with shares of the Borrower's common stock having a
value equal to the difference between the exercise price and the market value at
the time of exercise.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
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"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Borrower or any ERISA Affiliate.
"EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in the
definition of "LIBOR Rate."
"EVENT OF DEFAULT" means any of the events or circumstances specified in
Section 11.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"EXISTING LIQUIDITY TERMINATION DATE" is defined in Section 4.15.
"FACE AMOUNT" means the face amount of CP Notes issued on a discount
basis or, for CP Notes not issued on a discount basis, the principal amount of
such CP Notes together with interest thereon to stated maturity.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
"FEE LETTER" has the meaning specified in Section 4.10(a).
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"FUNDED DEBT" of a Person means "Indebtedness" of such Person of the
types described in clauses (a), (b), (c), and (d) of the definition thereof,
together with all Indebtedness of the type described in such clauses secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien upon or in property (including accounts
and contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"FURTHER TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges
(including, without limitation, net income taxes and franchise taxes), and all
liabilities with respect thereto, imposed by any jurisdiction on account of
incremental amounts payable or paid pursuant to Section 5.1.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GUARANTY OBLIGATION" has the meaning specified in the definition of
"Contingent Obligation."
"HAZARDOUS MATERIALS" means all those substances that are regulated by,
or which may form the basis of liability under, any Environmental Law, including
any substance identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all obligations with
respect to capital leases; (f) all indebtedness referred to in clauses (a)
through (e) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon
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or in property (including accounts and contracts rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; and (g) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (a)
through (e) above. For all purposes of this Agreement, the Indebtedness of
any Person shall include all recourse Indebtedness of any partnership in
which such Person is a general partner and shall exclude all obligations (or
any portion of such obligations) which is (i) incidentally incurred by the
Borrower and its Subsidiaries (other than a Subsidiary described in clause
(ii) below) in connection with the securitization of assets that constitutes
the sale of such assets under applicable accounting rules or (ii) incurred by
a Subsidiary that is formed for the sole purpose of a securitization
transaction described in clause (i) above.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section 13.5.
"INDEMNIFIED PERSON" has the meaning specified in Section 13.5.
"INDEPENDENT AUDITOR" has the meaning specified in Section 8.1(a).
"INSOLVENCY PROCEEDING" means, with respect to any Person, (a) any case,
action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, windingup or relief of debtors, or
(b) any general assignment for the benefit of creditors, composition,
marshalling of assets for creditors, or other, similar arrangement in respect of
its creditors generally or any substantial portion of its creditors; undertaken
under U.S. Federal, state or foreign law, including the Bankruptcy Code.
"INTEREST" means, for each Lender and any Advance, the undivided
ownership interest it holds through the Agent equal to such Lender's Percentage
Factor in such Advance, which interest shall be for each Committed Lender, a
Transfer Loan.
"INTEREST EXPENSE" means, for any applicable period, the aggregate
consolidated interest expense (both cash and noncash and determined without
regard to original issue discount) of the Borrower and its Subsidiaries for such
period PLUS, without duplication, any interest expense which would have accrued
during such period if all Indebtedness which existed immediately after the
consummation of any merger to which the Borrower is a party or of any
Acquisition by the Borrower or its Subsidiaries, in each case, during such
period was in existence on the first day of such period, as determined in
accordance with GAAP, including, to the extent allocable to interest expense in
accordance with GAAP, (i) all other fees paid or owed with respect to the
issuance or maintenance of Contingent Obligations (including letters of credit
of the Borrower and its Subsidiaries), (ii) net costs or benefits payable under
Swap Contracts of the Borrower and its Subsidiaries and (iii) the portion of any
payments made in respect of obligations in respect of capitalized leases of the
Borrower and its Subsidiaries allocable to interest expense.
"INTEREST PAYMENT DATE" means, (i) for any Advance, any Transfer Loan or
any LIBOR Rate Committed Loan, the last day of its Interest Period and (ii) as
to any Base Rate Committed Loan, the last Business Day of each calendar quarter,
PROVIDED, HOWEVER, that if any Interest Period for a LIBOR Rate Committed Loan
exceeds three months the date that falls three months
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after the beginning of such Interest Period and after each Interest Payment
Date thereafter is also an Interest Payment Date.
"INTEREST PERIOD" means (I) with respect to an Advance under Article II,
the period commencing on the date an Advance is made and ending 1-270 days
thereafter; PROVIDED, HOWEVER, that: (a) an Interest Period for an Advance that
would extend beyond the Conduit Termination Date may not be selected; and (b)
whenever the last day of any Interest Period for an Advance would otherwise be a
day that is not a Business Day, the last day of such Interest Period shall be
extended to the next succeeding Business Day; and
(II) as to any LIBOR Rate Committed Loan, the period commencing on the
Borrowing Date that such Loan is disbursed or on the Conversion/Continuation
Date on which such Loan is converted into or continued as a LIBOR Rate Committed
Loan, and ending on the date one, two, three or six months thereafter (and any
other period that is 12 months or less and is consented to by all Lenders in the
given instance) as selected by the Borrower in its Notice of Borrowing or Notice
of Conversion/Continuation, as the case may be PROVIDED that:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) no Interest Period for any LIBOR Rate Committed Loan
shall extend beyond November 24, 2003; and
(III) as to any Transfer Loan, the last day of the Interest Period for
the Advance relating to such Transfer Loan.
"INVESTMENT" means, for each Lender, for any Advance, the difference of
(a) (i) in the case of a Conduit, the principal amount of such Advance and
(ii) in the case of a Committed Lender, the aggregate amount of any payments or
exchanges made by, or on behalf of, such Committed Lender to such Conduit to
acquire an Interest in the principal amount of such Advance minus (b) all
amounts (including for each Conduit amounts received from Committed Lenders)
received or exchanged and applied by the Agent or such Lender to reduce such
Lender's Interest in the principal amount of such Advance; PROVIDED, HOWEVER,
that such Lender's Investment shall be restored to the extent any amounts so
received or exchanged and applied are rescinded or must be returned for any
reason.
"IRS" means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.
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"JOINT VENTURE" means a corporation, partnership, limited liability
company, joint venture or other similar legal arrangement (whether created by
contract or conducted through a separate legal entity) now or hereafter formed
by the Borrower or any of its Subsidiaries with another Person in order to
conduct a common venture or enterprise with such Person.
"LENDER" means, collectively, the Conduits and the Committed Lenders.
"LENDING OFFICE" means, as to any Lender, the office or offices of such
Lender specified as its "Lending Office" or "Domestic Lending Office" or "LIBOR
Lending Office," as the case may be, on Schedule 13.2, or such other office or
offices as the Lender may from time to time notify the Borrower and the Agent.
"LIBOR RATE" means, for any Interest Period, with respect to LIBOR Rate
Committed Loans comprising part of the same Borrowing, the rate of interest per
annum (rounded upward to the next 1/16th of 1%) determined by the Agent as
follows:
LIBOR Rate = LIBOR
-----
1 .00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day (that is
applicable to any Lender) under regulations issued from time to time by
the FRB for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to as "EUROCURRENCY
LIABILITIES"); and
"LIBOR" means the rate of interest per annum determined by the
Agent as the rate of interest at which dollar deposits in the
approximate amount of the Loans to be made or continued as LIBOR Rate
Committed Loans, or converted into a LIBOR Rate Committed Loan, and for
the relevant Interest Period therefor as quoted on the Telerate Page
3750 (as defined herein) as of 11:00 a.m. (London time) on the day two
(2) Business Days before the commencement of such Interest Period. If
Telerate Page 3750 is not available, such rate of interest shall be that
quoted by the Reference Bank and having a maturity comparable to such
Interest Period as would be offered to major banks in the London
interbank market at their request at approximately 11:00 a.m. (London
time) two Business Days prior to the commencement of such Interest
Period.
The LIBOR Rate shall be adjusted automatically as to all LIBOR
Rate Committed Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"LIBOR RATE COMMITTED LOAN" means a Committed Loan that bears interest
based on the LIBOR Rate.
"LIEN" means any security interest, mortgage, deed of trust, pledge,
hypothecation,
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assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preferential arrangement of any kind or nature whatsoever in
respect of any property (including those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, or the filing of any financing
statement naming the owner of the asset to which such lien relates as debtor,
under the UCC or any comparable law) and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor
under an operating lease.
"LIQUIDITY PROVIDER" means each of the institutions listed as a
Liquidity Provider on Schedule 4.1.
"LIQUIDITY TERMINATION DATE" means the earliest to occur of (a)
November 23, 1999, as such date may be extended from time to time pursuant to
Section 4.15 and (b) the date on which the Commitments of the Committed Lenders
terminate in accordance with the provisions of this Agreement.
"LOAN" means a Committed Loan or a Transfer Loan.
"LOAN DOCUMENTS" means this Agreement, any Notes, the Fee Letter, and
all other documents delivered to the Agent or any Lender in connection with the
transactions contemplated by this Agreement.
"LOAN PORTION" means a percentage of the Unused Commitment of each
Liquidity Provider equal to the principal amount of all Loans divided by the sum
of the Matured Value of all outstanding Advances plus the principal amount of
all outstanding Loans unless no Loans or Advances are outstanding in which case
such percentage shall be equal to 0%.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation U of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries taken
as a whole; or (b) a material adverse effect upon the legality, validity,
binding effect or enforceability against the Borrower of any Loan Document.
"MATURED VALUE" means, of any Advance, the sum of (a) the principal
amount of such Advance plus (b) all unpaid interest which is then scheduled to
become due thereon (whether or not then due).
"MATURITY DATE" is defined in Section 2.4
"MAXIMUM PRINCIPAL AMOUNT" is defined in Section 2.1.
"MAXIMUM WINDMILL COMMITMENT" means the Commitments of all Windmill
Committed Lenders less the outstanding principal amount of all Loans made by the
Windmill Committed Lenders (deducting from such principal amount of such Loans
the amount of participating
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interests in such principal amount of such Loans purchased by other Committed
Lenders under Section 2.5).
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a "multiemployer plan," within the meaning
of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"NET INCOME" means, for any applicable period, the aggregate of all
amounts which, in accordance with GAAP, would be included as net income (or net
loss) on a consolidated statement of income of the Borrower and its Subsidiaries
for such period, PLUS, without duplication, the net income (or net loss) for
such period attributable to the assets or capital stock of any Person which was
the subject of a merger with the Borrower or of an Acquisition by the Borrower
or its Subsidiaries during such period; PROVIDED, HOWEVER, that "NET INCOME"
shall exclude (i) the effect of any extraordinary or other nonrecurring noncash
gains or losses outside the ordinary course of business and (ii) any writeup in
the value of any asset (to the extent such writeup exceeds any writedown taken
in connection with the same transaction or event which gave rise to such
writeup).
"NET ISSUANCE PROCEEDS" means, as to any issuance of debt or equity by
any Person, cash proceeds and noncash proceeds received or receivable by such
Person in connection therewith, net of reasonable outofpocket costs and expenses
paid or incurred in connection therewith in favor of any Person not an Affiliate
of such Person, such costs and expenses not to exceed 5% of the gross proceeds
of such issuance.
"NET WORTH" means, as of any date of determination, total consolidated
assets of the Borrower as of such date MINUS total consolidated liabilities of
the borrower as of such date.
"NON-EXTENDING LIQUIDITY PROVIDER" is defined in Section 4.15.
"NOTICE OF BORROWING" means a notice in substantially the form of
Exhibit D.
"NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially the
form of Exhibit E.
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Borrower to
any Lender, the Agent or any Indemnified Person, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising.
"ORGANIZATION DOCUMENTS" means as to any Person which is (i) a
corporation, the certificate or articles of incorporation and bylaws of such
Person, (ii) a limited liability company, the limited liability company
agreement or similar agreement of such Person, (iii) a partnership, the
partnership agreement or similar agreement of such Person, or (iv) any other
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form of entity or organization, the organizational documents analogous to the
foregoing.
"OTHER TAXES" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies (which
are understood not to include income taxes) which arise from any payment made
hereunder or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
"PARTICIPANT" has the meaning specified in Section 13.8(a).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under ERISA.
"PENSION PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains, or
to which it makes, is making, or is obligated to make contributions, or in the
case of a multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five (5) plan
years.
"PERCENTAGE" means, for any Committed Lender, the fraction expressed as
a percentage, obtained by dividing (i) the Commitment of such Committed Lender
by (ii) the Aggregate Commitment.
"PERCENTAGE FACTOR" means, for each Lender and each Advance in which it
holds an Investment, the quotient (expressed as a percentage) of (a) the sum of
such Lender's Investment in the Advance divided by (b) the outstanding principal
amount of such Advance.
"PERMITTED LIENS" has the meaning specified in Section 9.1.
"PERMITTED SWAP OBLIGATIONS" means all obligations (contingent or
otherwise) of the Borrower or any Subsidiary existing or arising under Swap
Contracts, PROVIDED that each of the following criteria is satisfied: (a) such
obligations are (or were) entered into by such Person in the ordinary course of
business for the purpose of directly mitigating risks associated with
liabilities, commitments or assets held or reasonably anticipated by such
Person, or changes in the value of securities issued by such Person in
conjunction with a securities repurchase program not otherwise prohibited
hereunder, and not for purposes of speculation or taking a "market view"; and
(b) such Swap Contracts do not contain any provision ("walk-away" provision)
exonerating the non-defaulting party from its obligation to make payments on
outstanding transactions to the defaulting party.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making, or is obligated to
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make contributions and includes any Pension Plan.
"PRO RATA SHARE" means, as to any Committed Lender at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth decimal
place) at such time of such Lender's Unused Commitment divided by the Aggregate
Unused Commitment except that, with respect to a Committed Borrowing made by a
Subject Bank pursuant to Section 4.2, "PRO RATA SHARE" means 100% of such
Committed Borrowing.
"PROGRAM LOC" means, for Amsterdam, the irrevocable transferable letter
of credit No. S579017, dated June 11, 1997, issued by the Amsterdam Enhancer at
the request of Amsterdam, and each letter of credit issued in substitution or
replacement therefor and, for Windmill, the irrevocable transferable letter of
Credit No. S550115, dated November 3, 1995, issued by the Windmill Enhancer at
the request of Windmill, and each letter of credit issued in substitution or
replacement therefor.
"PROGRAM UNREIMBURSED DRAW AMOUNT" means the sum of all draws in
connection herewith under the applicable Program LOC which have not been
reimbursed (whether through the payment of cash or the exchange of assets),
together with all interest thereon and all other amounts, if any, payable in
connection therewith.
"PURCHASE AMOUNT" means, for each Committed Lender for any Put of an
Advance, such Committed Lender's Purchased Percentage for such Put multiplied by
the sum of (a) (i) for the Enhancer, the amount of the applicable Investment of
the Conduit in such Advance being transferred pursuant to such Put and (ii) for
each Liquidity Provider, the lesser of (A) the amount of the applicable
Investment of the Conduit in such Advance being transferred pursuant to such Put
and (B) the product of (1) the quotient of the amount of the applicable
Investment of the Conduit in such Advance being transferred pursuant to such Put
divided by the applicable Investment of the Conduit in such Advance (before
giving effect to such Put) multiplied by (2) the applicable Conduit's Investment
in such Advance at such time (or, if the Agent cannot determine the applicable
Conduit's Investment at such time, at the most recent prior time at which the
Agent can determine the applicable Conduit's Investment) outstanding from the
Borrower if it is a Qualified Borrower as determined below plus (b) all unpaid
interest owed to, or which may become payable to, the applicable Conduit under
such Advance (whether or not then due or payable) to the maturity of such
Advance. The applicable Conduit shall calculate the Purchase Amount for each
Advance subject to a Put on the date of such Put based on the status of a
Borrower as a Qualified Borrower as most recently determined by ABN AMRO in
connection with an Advance made to such Borrower. Regardless whether such
determination was complete or accurate, such calculation shall be conclusive and
binding absent manifest error.
"PURCHASED PERCENTAGE" means, for any Put, for each Committed Lender,
its Windmill Ratable Share or Amsterdam Ratable Share, as applicable, or such
lesser percentage as is necessary to prevent the Purchase Price of such Lender
from exceeding the portion of its Commitment then allocated to Amsterdam or
Windmill hereunder, as applicable (unless, in the case of the Enhancer, it
elects not to reduce its Purchased Percentage in whole or in part).
"PURCHASING LIQUIDITY PROVIDER" is defined in Section 13.8(b).
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"PUT" is defined in Section 3.1.
"QUALIFIED BORROWER" means ABN AMRO determines the Borrower is of
investment grade credit quality as of the date an Advance is made to the
Borrower based upon financial information available to ABN AMRO for the Borrower
and/or the credit rating assigned by one or more nationally recognized rating
agencies to the unsecured debt obligations of Borrower. The status of the
Borrower as a Qualified Borrower shall be redetermined by ABN AMRO each time an
Advance is made to Borrower. In making each such determination ABN AMRO, in its
capacity as referral agent, shall determine that ABN AMRO, in its capacity as a
commercial lender for its own account applying its normal lending standards,
would be willing to finance the purpose of such Advance on the same terms, at an
appropriate bank funding rate, as the requested Advance as a borrowing
consistent with the Borrower's existing and planned business activities.
"RATING AGENCY" means Moody's, S&P and any other rating agency which a
Conduit chooses to rate its commercial paper notes.
"RATING CRITERIA" means (i) with respect to an Amsterdam Committed
Lender, the short-term rating of such Amsterdam Committed Lender is at least A-1
from S&P and P1 from Moody's, and (ii) with respect to a Windmill Committed
Purchaser, the short-term rating of such Windmill Committed Purchaser is at
least A-1+ from S&P and P1 from Moody's.
"RATINGS" means the ratings by the Rating Agencies of a Conduit's
commercial paper notes.
"REFERENCE BANK" means ABN AMRO and any other Lender from time to time
designated by the Required Lenders as a Reference Bank.
"REPLACEMENT LIQUIDITY PROVIDER" is defined in Section 13.8(c).
"REPORTABLE EVENT" means any of the events set forth in Section 4043(c)
of ERISA or the regulations thereunder, other than any such event for which the
30day notice requirement under ERISA has been waived in regulations issued by
the PBGC.
"REQUIRED LENDERS" means, at any time when there is more than one
Committed Lender, at least two Committed Lenders having in excess of 66 2/3% of
the Commitments or, if the Commitments have been terminated, at least two
Committed Lenders then holding in excess of 66 2/3% of the then aggregate unpaid
principal amount of the Loans. If at any time there is only one Committed
Lender, then Required Lender means such Committed Lender. For purposes of this
definition, prior to the termination of the Commitments, each Subject Bank shall
be deemed to have a Commitment equal to the outstanding principal amount of its
Loans.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
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"RESPONSIBLE OFFICER" means the chief executive officer, chief financial
officer, treasurer or president of the Borrower, or any other officer having
substantially the same authority and responsibility and each other person
notified to the Agent in a writing from a Responsible Officer.
"S&P" means Standard & Poor's Ratings Group.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"SIGNIFICANT EVENT" means the occurrence of any one or more of the
following:
(a) (i) the Borrower fails to observe or perform in any
material respect any term, covenant or agreement under any Loan Document
related to the Borrower, and such failure remains unremedied for ten
(10) Business Days or (ii) (A) the Borrower fails to make any payment
under any Note or other Loan Document when due from the Borrower or
(B) any representation, warranty, certification or statement made, or
deemed to be made, by the Borrower, or pursuant to, any Loan Document
shall prove to have been incorrect in any material respect when made or
deemed made; or
(b) A Bankruptcy Event occurs with respect to the Borrower;
or
(c) there occurs a material adverse change in (i) the
creditworthiness, financial condition, business, operations or prospects
of the Borrower or (ii) the ability of the Borrower to perform its
obligations under any Loan Document; or
(d) the financial condition of the Borrower is materially
different from the most recent written projections of such financial
condition given by the Borrower to the Agent; or
(e) (i) the Borrower's senior short-term unsecured debt (if
rated by the relevant Rating Agency at the time the most recent Advance
was made to such Borrower) is not rated at least "A-2" by S&P or not
rated at least "P-2" by Moody's (or S&P or Moody's has withdrawn such
rating), (ii) the Borrower's senior long-term, unsecured debt (if rated
by the relevant Rating Agency at the time the most recent Advance was
made to Borrower) is rated less than BBB- by S&P or less than Baa3 by
Moody's (or S&P or Moody's has withdrawn such rating), or (iii) if the
Borrower had no rated debt outstanding at the time the most recent
Advance was made to the Borrower, ABN AMRO determines that the
Borrower's credit is no longer of investment grade quality; or
(f) the Borrower fails to satisfy any condition precedent to
the borrowing of a Committed Loan set forth in Section 6.2 or any "EVENT
OF DEFAULT" shall occur and be continuing under this Agreement.
"SPECIAL TRANSACTION SUBACCOUNT" means the special transaction
subaccount established for this Agreement pursuant to the applicable Conduit's
depositary agreement.
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"SUBJECT BANK" is defined in Section 4.2.
"SUBJECT BANK EVENT" is defined in Section 4.2.
"SUBJECT BANK LOAN" means any Loan made by a Subject Bank pursuant to
Section 4.2.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than 50% of the voting stock, membership interests or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Borrower.
"SURETY INSTRUMENTS" means all letters of credit (other than commercial
letters of credit), bankers' acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"SWAP CONTRACT" means any agreement, whether or not in writing, relating
to any transaction that is a rate swap, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap or option, bond,
note or bill option, interest rate option, forward foreign exchange transaction,
cap, collar or floor transaction, currency swap, crosscurrency rate swap,
swaption, currency option or any other, similar transaction (including any
option to enter into any of the foregoing) or any combination of the foregoing,
and, unless the context otherwise clearly requires, any master agreement
relating to or governing any or all of the foregoing.
"SWAP PROVIDER" means any Lender, or any Affiliate of any Lender, that
is at the time of determination party to a Swap Contract with the Borrower or
any Subsidiary.
"SWAP TERMINATION VALUE" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
marktomarket value(s) for such Swap Contracts, as reasonably determined by the
Borrower based upon one or more midmarket or other readily available quotations
provided by any recognized dealer in such Swap Contracts (which may include any
Lender).
"TAXES" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each Lender and the
Agent, respectively, franchise taxes or taxes imposed on or measured by its
gross income, net income or capital gains by the jurisdiction (or any political
subdivision thereof) under the laws of which such Lender or the Agent, as the
case may be, is organized or is otherwise doing business or maintains a lending
office or other permanent establishment.
"TELERATE PAGE 3750" means the display designated as "Page 3750" on the
Telerate
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Service (or other such page as may replace Page 3750 on that service or such
other service as may be nominated by the British Bankers' Association as the
information vendor for the purpose of displaying British Bankers' Association
Interest Settlement Rates for U.S. Dollar deposits).
"TRANSFER LOAN" means a Loan deemed made by a Committed Lender to the
Borrower (through the purchase of an Interest in an Advance) under Article III.
"TRANSFER SUPPLEMENT" is defined in Section 13.8(b).
"TYPE" has the meaning specified in the definition of "Committed Loan."
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"UNITED STATES" and "U.S." each means the United States of America.
"UNUSED COMMITMENT" is defined in Section 4.1.
"WHOLLY-OWNED SUBSIDIARY" means any corporation in which (other than
directors' qualifying shares, shares or other ownership interests issued to
satisfy local ownership requirements and shares or other ownership interests
issued for similar legal purposes) 100% of the capital stock of each class
having ordinary voting power, and 100% of the capital stock of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Borrower, or by one or more of the
other WhollyOwned Subsidiaries, or both.
"WINDMILL" is defined in the preamble.
"WINDMILL AGGREGATE COMMITMENTS" means, as of any date for all Windmill
Committed Lenders, the Commitments of all Windmill Committed Lenders.
"WINDMILL COMMITTED LENDERS" means the Windmill Enhancer and each
Liquidity Provider having a short-term debt rating of A-1+ from S&P and P-1 from
Moody's.
"WINDMILL COMMITMENTS" means, for each Windmill Committed Lender
(i) (a) its Commitment multiplied by (b) the Matured Value of all Advances held
by Windmill as of such date divided by (ii) the Windmill Aggregate Commitments.
"WINDMILL ENHANCER" means ABN AMRO as issuer of the Program LOC for
Windmill.
"WINDMILL PERMITTED INVESTMENTS" means (a) evidences of indebtedness,
maturing within thirty (30) days after the date of purchase thereof, issued by,
or guaranteed by the full faith and credit of, the federal government of the
USA, (b) repurchase agreements with banking institutions or broker-dealers
registered under the Securities Exchange Act of 1934 the short-term
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unsecured obligations of which are rated at least "A-1+" (or the equivalent)
by S&P and at least "P-1" (or the equivalent) by Moody's which are fully
secured by obligations of the kind specified in clause (a), (c) money market
funds (i) rated not lower than the highest rating category from Moody's and
"AAA m" or "AAAm-g," from S&P or (ii) which are otherwise acceptable to the
Rating Agencies or (d) commercial paper issued by any corporation
incorporated under the laws of the USA and rated at least "A-1+" (or the
equivalent) by S&P and at least "P-1" (or the equivalent) by Moody's.
"WINDMILL RATABLE SHARE" means, as of any date, for each Windmill
Committed Lender, such Lender's Windmill Commitment divided by the lesser of the
Windmill Aggregate Commitment and the Matured Value of all Advances held by
Windmill as of such date. If, however, on the date any payment for any Put is
to be made by the Windmill Committed Lenders, the sum of the outstanding
Windmill Interest of the Windmill Enhancer plus Program Unreimbursed Draw Amount
of the Windmill Enhancer is in excess of its Windmill Ratable Share of the
outstanding Windmill Interest and Program Unreimbursed Draw Amount of all
Windmill Committed Lenders, then for purposes of such Put the Windmill Ratable
Share of each Windmill Committed Lender shall be replaced with a percentage
equal for each Windmill Committed Lender to (a) its Windmill Commitment minus
its Windmill Interest acquired from Windmill and, in the case of the Windmill
Enhancer, its Program Unreimbursed Draw Amount before such Put (its "EXISTING
LOAN AMOUNT") divided by (b) the Windmill Aggregate Commitment minus the sum of
the Existing Loan Amounts of all Windmill Committed Lenders.
SECTION 1.2. OTHER INTERPRETIVE PROVISIONS. (a) The meanings of
defined terms are equally applicable to the singular and plural forms of the
defined terms.
(b) The words "hereof," "herein," "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and clause, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding," and the word "through"
means "to and including."
(iv) The term "property" includes any kind of property or asset,
real, personal or mixed, tangible or intangible.
(c) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any
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statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation.
(d) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(e) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms. Unless otherwise expressly provided,
any reference to any action of the Agent or the Lenders by way of consent,
approval or waiver shall be deemed modified by the phrase "in its/their sole
discretion."
(f) This Agreement and the other Loan Documents are the result of
negotiations among, and have been reviewed by, counsel to the Agent, the
Borrower and the other parties hereto, and are the products of all parties.
Accordingly, they shall not be construed against the Lenders, or the Agent
merely because of the Agent's, or the Lenders' involvement in their preparation.
SECTION 1.3. ACCOUNTING PRINCIPLES. (a) Unless the context otherwise
clearly requires, all accounting terms not expressly defined herein shall be
construed, and all financial computations required under this Agreement shall be
made, in accordance with GAAP, consistently applied.
(b) In the event that GAAP changes during the term of this Agreement such
that the covenants contained in Article X would then be calculated in a
different manner or with different components or with components which are
calculated differently, (i) the parties hereto agree to enter into negotiations
with respect to amendments to this Agreement to conform those covenants as
criteria for evaluating the Borrower's and its Subsidiaries' financial condition
to substantially the same criteria as were effective prior to such change in
GAAP, and (ii) the Borrower shall be deemed to be in compliance with the
affected covenants contained in Article X during the 90 days following any
change in GAAP if and to the extent that the Borrower would have been in
compliance herewith under GAAP as in effect immediately before such change;
PROVIDED, HOWEVER, that this paragraph shall not be deemed to require the
Borrower, the Agent or the Lenders to agree to modify any provision of this
Agreement or any of the other Loan Documents to reflect any such change to GAAP
and, if, after such 90 days, the parties, in their sole discretion, fail to
reach agreement on such modifications, the terms of this Agreement will remain
unchanged and the compliance by the Borrower with the covenants contained in
Article X will be calculated in accordance with GAAP as in effect immediately
before such change.
(c) References herein to "fiscal year" and "fiscal quarter" refer to such
fiscal periods of the Borrower.
ARTICLE II
UNCOMMITTED CONDUIT FACILITY
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SECTION 2.1. CONDUIT FACILITIES. Subject to the terms and conditions set
forth herein, each Conduit may, at its sole discretion make Advances to the
Borrower. The principal amount of Advances made by the Conduits, in the
aggregate, to the Borrower shall not exceed $333,300,000 (the "MAXIMUM PRINCIPAL
AMOUNT") MINUS the aggregate outstanding principal amount of Loans. In addition,
no Conduit shall make an Advance if the sum of (a) the Matured Value of all
outstanding Advances and (b) the aggregate principal amount of all outstanding
Loans would thereby exceed the Aggregate Commitment, and Windmill will not make
an Advance if the Matured Value of all outstanding Advances held by Windmill
would thereby exceed the Maximum Windmill Commitment. At no time will any
Conduit have any obligation to make an Advance hereunder. Each Advance held by
a Conduit shall be evidenced by a single promissory note of the Borrower in the
form attached hereto as Exhibit A (the "CONDUIT NOTE") payable to the order of
the Agent for the benefit of the applicable Conduit and the Committed Lenders.
SECTION 2.2. MANNER OF BORROWING. (a) In order to request an Advance
hereunder, the Borrower must provide to the Agent an irrevocable written request
(including by telecopier or other facsimile communication) substantially in the
form of Exhibit B, by 10:00 a.m. (Chicago time) three Business Days before the
requested Borrowing Date (which must be a Business Day), specifying the
requested amount (the "BORROWING AMOUNT") of such Advance, which must be in a
minimum amount of $1,000,000 and multiples thereof and any requested Interest
Period for such Advance. If (i) the Agent determines that the Borrower is a
Qualified Borrower at the time such Advance is made, (ii) no Significant Event
has occurred and is continuing, and (iii) a Conduit determines, in its sole
discretion, to make the requested Advance, such Conduit shall transfer to the
Agent on the requested Borrowing Date the amount of such Advance it is willing
to make. The Agent shall transfer to the Borrower the proceeds of any Advance
delivered by the applicable Conduit as described above. Following each such
funding of an Advance, the Agent shall deliver to the Borrower a confirmation of
the principal amount, interest rate and Interest Period of such Advance.
Whenever the Borrower requests an Advance, the Agent shall determine whether
Windmill or Amsterdam shall make such Advance or whether Windmill and Amsterdam
shall each make an Advance, with the aggregate amount of such Advances not to
exceed the requested Borrowing Amount. Each request for an Advance hereunder
shall constitute a representation or warranty by the Borrower hereunder, as of
the date of such request, that (i) no Significant Event shall exist or result
from such Advance and (ii) that the conditions set forth in Sections 6.2(b) and
(c) would be satisfied if such Advance were a Committed Loan.
(b) The Borrower hereby authorizes the Agent to rely upon the telephone or
written instructions of any person the Agent in good faith believes is a
Responsible Officer, and in all cases the Borrower shall be bound thereby in the
same manner as if such person were authorized or such signature were genuine.
SECTION 2.3. INTEREST RATES AND PAYMENTS. (a) Each Advance from a
Conduit shall accrue interest at the CP Rate applicable to the Interest Period
for such Advance. In its request for an Advance the Borrower may request the
duration of the Interest Period for such Advance, but the Agent shall establish
each Interest Period for an Advance to correspond to the maturity of the
commercial paper issued to fund such Advance. In no event may any Interest
Period extend beyond the Conduit Termination Date.
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(b) The Borrower shall pay interest on each Advance on each Interest
Payment Date for such Advance.
SECTION 2.4. MATURITY DATES; PREPAYMENTS. The principal due on each
Advance made hereunder shall be due and payable on the last day of its Interest
Period (its "MATURITY DATE"). No Advance hereunder may be prepaid. In no event
will an Advance from a Conduit be considered repaid unless and until the
applicable Conduit has been paid all interest scheduled to accrue on such
Advance to the end of its Interest Period.
Section 2.5. THE PARTICIPATING INTERESTS. Each Committed Lender, by its
acceptance hereof, severally agrees to purchase from each other Committed Lender
that has made a Transfer Loan, and each Committed Lender making such Transfer
Loans hereby agrees to sell to each such Committed Lender (a "PARTICIPATING
BANK"), an undivided percentage participating interest in each Transfer Loan
made by Committed Lenders to the extent required hereunder. Such participating
interests shall be purchased and sold to the extent necessary to cause the
amount of each Participating Bank's participating interest in the Transfer Loans
relating to a single Advance to be an amount such that each Committed Lender
owns after the sale of such participating interests its Percentage of such
Transfer Loans. Upon any purchase of an Advance by the Committed Lenders
pursuant to Section 3.1, each Participating Bank shall, not later than the
Business Day it receives a request therefor from the Agent (given directly or
through the Agent) to such effect, if such request is received before 1:00 P.M.
(New York City time), or not later than the following Business Day, if such
request is received after such time, pay to the Agent for the account of the
Committed Lenders making such Transfer Loans (ratably, in accordance with the
amount of such Transfer Loans made by such Committed Lenders) an amount equal to
its Percentage of such unpaid or recaptured Transfer Loans less any Purchase
Price already paid by such Committed Lender in connection with such Advance
together with interest on such amount accrued from the date the payment creating
such Transfer Loan was made by the Committed Lenders to the date of such payment
by such Participating Bank at a rate per annum equal to (i) from the date the
related payment was made by the Committed Lenders making such Transfer Loans to
the date two (2) Business Days after payment by such Participating Bank is due
hereunder, the Federal Funds Rate for each such day and (ii) from the date two
(2) Business Days after such payment is due from such Participating Bank to the
date such payment is made by such Participating Bank, the Base Rate in effect
for each such day. Each such Participating Bank shall thereafter be entitled to
receive its Percentage of each payment received in respect of the relevant
Transfer Loans and of interest paid thereon, with each Committed Lender making
such Transfer Loans retaining its Percentage.
The several obligations of the Participating Banks under this Section 2.5
to each Committed Lender making such Transfer Loans shall be absolute,
irrevocable and unconditional under any and all circumstances whatsoever and
shall not be subject to any set-off, counterclaim or defense to payment which
any Participating Bank may have or have had against the Borrower, any Committed
Lender or any other Person whatsoever. Without limiting the generality of the
foregoing, such obligations shall not be affected by any Default or Event of
Default or by any reduction or termination of any Commitment of any Committed
Lender that is not a Subject Bank at the time such Transfer Loans are due and
payable hereunder. The Agent shall be entitled to offset amounts received for
the account of Committed Lenders under this Section against
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unpaid amounts due from Committed Lenders hereunder (whether as fundings of
participations, indemnities or otherwise) but shall not be entitled to offset
against amounts owed to the Agent by any Committed Lender arising outside
this Agreement.
ARTICLE III
SALES FROM CONDUITS; ALLOCATIONS
SECTION 3.1. REQUIRED PURCHASES FROM CONDUITS. (a) From time to time a
Conduit may, and on the Conduit Termination Date or by the Business Day
following the date on which the Agent and the Conduits learn of a Significant
Event affecting the Borrower which is continuing, the Conduits shall sell any
percentage designated by each Conduit of its Interest in the Advances to the
Amsterdam Committed Lenders or Windmill Committed Lenders, as appropriate
(each, a "PUT"); PROVIDED, HOWEVER, that, if the Put occurs due to the Conduit
Termination Date or a Significant Event the designated percentage shall be one
hundred percent (100%) of the Conduit's Interest in all Advances to the Borrower
or such lesser percentage as is necessary to obtain the maximum available
Purchase Amounts for the applicable Conduit Interest in the Advances to the
Borrower from the applicable Committed Lenders. Immediately upon notice from a
Conduit to the Agent of a Put, the Agent shall deliver to the applicable
Committed Lenders a notification of assignment in the form of Exhibit C (with
such changes therein as are acceptable to the Agent) and each such Committed
Lender shall purchase from the applicable Conduit for its Purchase Amount(s) its
Windmill Ratable Share or Amsterdam Ratable Share, as the case may be, of the
Conduit Interest designated by such Conduit. Until used to pay CP Notes issued
by the applicable Conduit to fund its interest in the applicable Advances, the
Purchase Amount paid by the Committed Lenders in connection with any Put shall
be invested in Windmill Permitted Investments and Amsterdam Permitted
Investments, as applicable. All earnings on such Windmill Permitted Investments
and Amsterdam Permitted Investments shall be for the account of, and shall be
promptly remitted to, the Borrower. Such Interest in an Advance acquired by a
Committed Lender shall be the principal amount of a Base Rate Transfer Loan owed
to such Lender evidenced by the Conduit Note held by such Lender with an
Interest Period equal to the remaining term of the Advance in which such
Committed Lender acquired an Interest from the applicable Conduit. Each Base
Rate Transfer Loan shall be due and payable at the end of its Interest Period,
but may, subject to the terms and conditions set forth herein, be refunded with
a Committed Loan or may be prepaid at any time. Any Advance (or portion
thereof) acquired by the Committed Lenders from a Conduit, together with any
interest that accrues thereon, is owed solely to such Committed Lenders and such
Conduit's interest in such Advance (or portion thereof) so transferred is fully
discharged through such transfer.
(b) Any sale of any Conduit Interest from a Conduit to any Committed
Lender shall be without recourse, representation or warranty except for the
representation and warranty that such Interest is being sold by such Conduit
free and clear of any Adverse Claim created or granted by such Conduit.
(c) Each Committed Lender shall transfer to the Agent's Payment Office, by
not later than 1:00 p.m. (Chicago time) on the date such funds are requested, an
amount equal to such
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Committed Lender's Purchase Amount for each Advance in which it is acquiring
an Interest; PROVIDED, HOWEVER, that the applicable Enhancer shall be
entitled to exchange (which exchange may occur after all draws have been made
on the applicable Program LOC in connection with the Put) up to an equal
Dollar amount of the Program Unreimbursed Draw Amount at the time of such
exchange for all or part of such Enhancer's Purchase Amount. If, on the last
day of an Interest Period for an Advance, the Committed Lenders would not be
obligated to fund a Loan to the Borrower in a principal amount at least equal
to the Matured Value of the Advance maturing on such date, the Committed
Lenders will make available to the Agent the amount owed on such Advance that
day in payment of the Purchase Amount for a Put. Any payment received from
the Borrower on such date in repayment of such Advance shall be treated as a
payment of the Interest held by the Committed Lenders in such Advance. In
addition, so long as the Committed Lenders are obligated to make Loans to the
Borrower on the last day of an Interest Period for an Advance, if the
Borrower is no longer a Qualified Borrower or the applicable Conduit is
otherwise not making an Advance to refund its outstanding Advance on such
date, the Committed Lenders shall make a Loan to the Borrower by paying a
Purchase Amount to the Conduit in the amount of the Matured Value of its
Advance, and any repayment of such outstanding Advance by the Borrower shall
be treated as a payment to the Committed Lenders. To the extent the Borrower
does not repay the Matured Value of such Advance on such date, the unpaid
amount shall be outstanding as a Loan from the Committed Lenders. In no
event shall any payment made to a Conduit on the last day of an Interest
Period for an Advance be treated as a repayment by the Borrower of such
Advance held by the Conduit unless (a) the Borrower has chosen to repay such
Advance and not requested that it be refunded either by a new Advance or by a
Loan and (b) the Borrower remains a Qualified Borrower and otherwise fulfills
all conditions to the obligation of the Committed Lenders to make Loans equal
to at least the Matured Value of such Advance on the last day of its Interest
Period. The Agent shall maintain records showing the Interests held by each
Conduit and by the Committed Lenders in accordance with the provisions of
this Section 3.1, which records shall be conclusive for all purposes in
determining the Interests held in each Advance.
(d) The aggregate amount paid or exchanged by each Committed Lender
pursuant to Sections 3.1(b) and 3.1(c) for any purchase of an Interest in an
Advance shall be allocated among clauses (a) and (b) of the definition of
Purchase Amount proportionately in accordance with the amount of each such
component in such clauses.
(e) The proceeds from each Put received by a Conduit shall be transferred
into its Special Transaction Subaccount and used solely to pay that portion of
the outstanding CP Notes of the applicable Conduit issued to fund or maintain
the Conduit Interest in the Advance(s) subject to such Put.
(f) The obligation of each Committed Lender to make any purchase from a
Conduit pursuant to this Section 3.1 shall be the several and not joint
obligation of each Committed Lender and shall be absolute and unconditional;
PROVIDED, HOWEVER, that no Committed Lender shall have an obligation to make any
such purchase if at the time thereof (i) the applicable Conduit shall have
voluntarily commenced any proceeding or filed any petition under any bankruptcy,
insolvency or similar law seeking the dissolution, liquidation or reorganization
of such Conduit or (ii) involuntary proceedings or an involuntary petition shall
have been
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commenced or filed against such Conduit under any bankruptcy, insolvency or
similar law seeking the dissolution, liquidation or reorganization of such
Conduit and such proceeding or petition shall not have been dismissed or
stayed for a period of thirty (30) days, or any of the actions sought in such
proceeding or petition (including the entry of an order for relief against,
or the appointment of a receiver, trustee, custodian or other similar
official for, such Conduit or for any substantial part of such Conduit's
property) shall occur.
ARTICLE IV
THE COMMITTED CREDITS
SECTION 4.1. AMOUNTS AND TERMS OF COMMITMENTS. Each Committed Lender
severally agrees, on the terms and conditions set forth herein, to make Loans to
the Borrower from time to time on any Business Day during the period from the
Closing Date to the Liquidity Termination Date, in an aggregate outstanding
amount not to exceed at any time the amount set forth on Schedule 4.1 (such
amount as the same may be reduced under Section 4.6 or as a result of one or
more assignments under Section 13.8, the Lender's "COMMITMENT"); PROVIDED,
HOWEVER, that, any Committed Borrowing shall not exceed the Aggregate Unused
Commitment; and FURTHER PROVIDED, that the aggregate principal amount of all
Committed Loans made by a Lender on any day shall not at any time exceed such
Lender's Commitment minus such Lender's Percentage of the sum of (i) the
outstanding principal amount of all Loans (other than Subject Bank Loans) and
(ii) the Matured Value of all outstanding Advances (the Committed Lender's
"UNUSED COMMITMENT"). Within the limits of each Lender's Unused Commitment, and
subject to the other terms and conditions hereof, the Borrower may borrow under
this Section 4.1, prepay under Section 4.7 and, prior to the Liquidity
Termination Date, reborrow under this Section 4.1.
SECTION 4.2 SUBJECT BANK LOANS. In the event that (i) a decline in
or withdrawal of the short-term rating of a Liquidity Provider causes the
Rating Criteria to cease to be satisfied or (ii) a Liquidity Provider is a
Non-extending Liquidity Provider under Section 4.15 (any such event being a
"SUBJECT BANK EVENT" and any such Liquidity Provider, a "SUBJECT BANK"), and
such Liquidity Provider is not replaced pursuant to Section 13.8 within 25
days of such Subject Bank Event, then the Borrower may, by delivery of a
Notice of Borrowing to the Agent, require such Subject Bank to make a Subject
Bank Loan in an amount equal to the excess of such Subject Bank's Commitment
over the then outstanding aggregate principal balance of such Subject Bank's
Loans.
SECTION 4.3. LOAN ACCOUNTS. (a) The Committed Loans made by each Lender
shall be evidenced by one or more accounts or records maintained by such Lender
in the ordinary course of business. The accounts or records maintained by each
Lender shall be conclusive absent manifest error of the amount of the Committed
Loans made by the Committed Lenders to the Borrower for the account of the
Borrower, and the interest and payments thereon. Any failure so to record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of the Borrower hereunder to pay any amount actually owing with
respect to the Committed Loans.
(b) Upon the request of any Committed Lender made through the Agent, the
Committed
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Loans made by such Committed Lender may be evidenced by one or more notes in
the form of Exhibit H ("COMMITTED LOAN NOTES") instead of or in addition to
loan accounts. Each such Committed Lender may endorse on the schedules
annexed to its Note(s) the date, amount and maturity of each Committed Loan
made by it and the amount of each payment of principal made by the Borrower
with respect thereto. Each such Committed Lender is irrevocably authorized
by the Borrower to endorse its Note(s) and each Committed Lender's record
shall be conclusive absent manifest error; PROVIDED, HOWEVER, that the
failure of a Committed Lender to make, or an error in making, a notation
thereon with respect to any Committed Loan shall not limit or otherwise
affect the actual obligations of the Borrower hereunder or under any such
Note to such Committed Lender.
SECTION 4.4. PROCEDURE FOR COMMITTED BORROWING. (a) Each Committed
Borrowing shall be made upon the Borrower's irrevocable telephonic notice,
confirmed in writing, delivered to the Agent in the form of a Notice of
Borrowing (which notice must be received by the Agent prior to 11:30 a.m. New
York City time) (i) three Business Days prior to the requested Borrowing Date,
in the case of LIBOR Rate Committed Loans; and (ii) on the requested Borrowing
Date, in the case of Base Rate Committed Loans, specifying:
(A) the amount of the Committed Borrowing, which shall be (i) in the
case of Base Rate Committed Loans, in an aggregate minimum amount of
$1,000,000 or an integral multiple of $100,000 in excess thereof (or in the
case of a Subject Bank, if less, the amount of such Subject Bank's
Commitment less the then outstanding principal balance of such Subject
Bank's Loans) and (ii) in the case of LIBOR Rate Committed Loans, in an
aggregate minimum amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof;
(B) the requested Borrowing Date, which shall be a Business Day;
(C) the Type of Loans comprising the Committed Borrowing; and
(D) if such Committed Borrowing is to be a LIBOR Rate Committed Loan,
the duration of the Interest Period applicable to such Committed Loan
included in such notice. If the Notice of Borrowing fails to specify the
duration of the Interest Period for any such Committed Borrowing, such
Interest Period shall be one month.
(b) The Agent will promptly notify each Lender of its receipt of any
Notice of Borrowing and of the amount of such Lender's Pro Rata Share of that
Committed Borrowing.
(c) Each Lender will make the amount of its Pro Rata Share of each
Committed Borrowing available to the Agent for the account of the Borrower at
the Agent's Payment Office by 1:00 p.m. New York City time (in the case of a
LIBOR Rate Committed Loan) or 2:30 p.m. New York City time (in the case of a
Base Rate Committed Loan) on the Borrowing Date requested by the Borrower in
funds immediately available to the Agent. The proceeds of all such Committed
Loans will then be made available to the Borrower by the Agent by wire transfer
by 4:00 p.m. New York City time on the Borrowing Date in accordance with written
instructions provided to the Agent by the Borrower of like funds in United
States dollars as received by the
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Agent.
(d) After giving effect to any Committed Borrowing, unless the Agent shall
otherwise consent, there may not be more than ten different Interest Periods in
effect in respect of all Committed Loans then outstanding.
SECTION 4.5. CONVERSION AND CONTINUATION ELECTIONS FOR LOANS. (a) The
Borrower may, upon irrevocable written notice to the Agent in accordance with
Section 4.5(b):
(i) with respect to any Base Rate Committed Loans, elect, as of any
Business Day, to convert any such Base Rate Committed Loans, or any part
thereof, in an amount not less than $5,000,000 or that is in an integral
multiple of $1,000,000 in excess thereof into LIBOR Rate Committed Loans;
or
(ii) with respect to any LIBOR Rate Committed Loans, elect, as of the
last day of the applicable Interest Period, to (x) continue any LIBOR Rate
Committed Loans having Interest Periods expiring on such day, or any part
thereof, in an amount not less than $5,000,000 or that is in an integral
multiple of $1,000,000 in excess thereof or (y) convert any LIBOR Rate
Committed Loans having Interest Periods expiring on such date, or any part
thereof, in an amount not less than $1,000,000 or that is an integral
multiple of $100,000 in excess thereof into Base Rate Committed Loans.
(b) The Borrower shall deliver a Notice of Conversion/Continuation to be
received by the Agent not later than 11:30 a.m. (New York City time) at least
(i) three Business Days in advance of the Conversion/Continuation Date, if the
Committed Loans are to be converted into or continued as LIBOR Rate Committed
Loans; and (ii) on the Business Day of the Conversion/Continuation Date, if the
Loans are to be converted into Base Rate Committed Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Committed Loans to be converted or
continued;
(C) the Type of Committed Loans resulting from the proposed
conversion or continuation; and
(D) in the case of continuations of or conversions into LIBOR Rate
Committed Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period, the Borrower has failed
to select timely a new Interest Period applicable to LIBOR Rate Committed Loans,
or if any Event of Default then exists, the Borrower shall be deemed to have
elected to convert the relevant LIBOR Rate Committed Loans into Base Rate
Committed Loans effective as of the expiration date of such Interest Period.
(d) The Agent will promptly notify each Committed Lender of its receipt of
a Notice of
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Conversion/Continuation, or, if no timely notice is provided by the Borrower,
the Agent will promptly notify each Committed Lender of the details of any
automatic conversion. All conversions and continuations shall be made
ratably according to the respective outstanding principal amounts of the
Committed Loans with respect to which the notice was given held by each
Committed Lender.
(e) Unless the Required Lenders otherwise consent, during the existence of
an Event of Default, the Borrower may not elect to have a Committed Loan
converted into or continued as a LIBOR Rate Committed Loan.
(f) After giving effect to any conversion or continuation of Committed
Loans, unless the Agent shall otherwise consent, there may not be more than ten
different Interest Periods in effect in respect of all Committed Loans then
outstanding.
SECTION 4.6. VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. The
Borrower may, upon not less than three Business Days' prior notice to the Agent,
terminate the Commitments, or permanently reduce the Commitments by an aggregate
minimum amount of $5,000,000 or any multiple of $1,000,000 in excess thereof;
unless after giving effect thereto and to any prepayments of Committed Loans
made on the effective date thereof, the outstanding principal amount of all
Loans plus the Matured Value of all outstanding Advances would exceed the
Aggregate Commitment then in effect. Once reduced in accordance with this
Section, the Commitments may not be increased. Any reduction of the Aggregate
Commitment shall be applied to each Lender according to its Pro Rata Share. All
accrued commitment fees to, but not including, the effective date of any
reduction or termination of Commitments shall be paid on the next quarter end
date.
SECTION 4.7. OPTIONAL PREPAYMENTS. Subject to Section 5.4, the Borrower
may, at any time or from time to time, upon not less than three Business Days'
irrevocable notice by 11:30 a.m. New York City time (or on the same Business
Day's irrevocable notice by 1:30 p.m. New York City time in the case of Base
Rate Loans) to the Agent, ratably prepay Loans in whole or in part, in minimum
amounts of $5,000,000 or any multiple of $1,000,000 in excess thereof (in the
case of LIBOR Rate Loans) or in minimum amounts of $1,000,000 or any multiple of
$100,000 in excess thereof (in the case of Base Rate Committed Loans). Such
notice of prepayment shall specify the date and amount of such prepayment and
the Type(s) of Committed Loans to be prepaid. The Agent will promptly notify
each Committed Lender of its receipt of any such notice, and of such Committed
Lender's Pro Rata Share of such prepayment. If such notice is given by the
Borrower, the Borrower shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified therein,
together with accrued interest to each such date on the amount prepaid (in the
case of LIBOR Rate Committed Loans only) and any amounts required pursuant to
Section 5.4. If requested by the Borrower in connection with a potential
prepayment, the Agent shall promptly provide a reasonable good faith estimate of
the amounts which would be payable under Section 5.4 in connection with such
potential prepayment.
SECTION 4.8. REPAYMENT. The Borrower shall repay to the Lenders on
November 24, 2003 the aggregate principal amount of Committed Loans outstanding
on such date. Committed
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Loans repaid after the Liquidity Termination Date may not be reborrowed.
SECTION 4.9. INTEREST. (a) Each Committed Loan shall bear interest on
the outstanding principal amount thereof from the applicable Borrowing Date at a
rate per annum equal to the LIBOR Rate PLUS the Applicable Margin or the Base
Rate, as the case may be (and subject to the Borrower's right to convert to
other Types of Loans under Section 4.5).
(b) Interest on each Committed Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any
prepayment of Committed Loans under Section 4.9 for the portion of the Committed
Loans so prepaid (for LIBOR Rate Committed Loans only) and upon payment
(including prepayment) in full thereof and, during the existence of any Event of
Default, interest shall be paid on demand of the Agent at the request or with
the consent of the Required Lenders.
(c) Notwithstanding clause (a) of this Section, while any Event of Default
exists or after acceleration, the Borrower shall pay interest (after as well as
before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Obligations to the Committed Lenders, at a
rate per annum which is determined by adding 2% per annum to the Applicable
Margin then in effect for Loans with respect to the Liquidity Providers and 2%
per annum to the Applicable Margin then in effect for Loans with respect to the
Enhancer and, in the case of Obligations not subject to an Applicable Margin, at
a rate per annum equal to the Base Rate plus 2%; PROVIDED, HOWEVER, that, on and
after the expiration of any Interest Period applicable to any LIBOR Rate
Committed Loan outstanding on the date of occurrence of such Event of Default or
acceleration, the principal amount of such Loan shall, during the continuation
of such Event of Default or after acceleration, bear interest at a rate per
annum equal to the Base Rate plus 2% per annum for loans with respect to the
Liquidity Provider and 2% per annum with respect to Loans of the Enhancer.
(d) Anything herein to the contrary notwithstanding, the obligations of
the Borrower to any Lender hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Lender would be contrary to the provisions of
any law applicable to such Lender limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Lender, and in such
event the Borrower shall pay such Lender interest at the highest rate permitted
by applicable law.
SECTION 4.10. FEES.
(a) FEE LETTER. The Borrower shall pay the fees to the Agent and
Enhancer, as required by the letter agreement between the Borrower and the Agent
dated November 24, 1998 (such letter agreement referred to as the "FEE LETTER").
(b) COMMITMENT FEES. The Borrower shall pay to the Agent for the account
of each Liquidity Provider a commitment fee on each Liquidity Provider's average
daily Conduit Portion multiplied by the average daily Unused Commitment of such
Liquidity Provider, computed on a quarterly basis in arrears on the last
Business Day of each calendar quarter, at the rate set forth in
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the definition of Applicable Margin for the Conduit Commitment Fee. The
Borrower shall pay to the Agent for the account of each Liquidity Provider a
commitment fee on each Liquidity Provider's average daily Loan Portion
multiplied by the average daily Unused Commitment of such Liquidity Provider,
computed on a quarterly basis in arrears on the last Business Day of each
calendar quarter, at the rate set forth in the definition of Applicable
Margin for the Loan Commitment Fee. The Borrower shall pay to the Agent for
the account of the Liquidity Providers a program fee on the sum of such
Liquidity Providers' Amsterdam Ratable Share and Windmill Ratable Share of
the average daily outstanding Advances, computed on a quarterly basis in
arrears on the last Business Day of each calendar quarter as calculated by
the Agent, at the rate set forth in the definition of Applicable Margin for
Program Fees. Such fees shall accrue from the Closing Date to the Liquidity
Termination Date and shall be due and payable quarterly in arrears on the
last Business Day of each calendar quarter through the Liquidity Termination
Date, commencing with the calendar quarter ending December 31, 1998 with the
final payment to be made on the Liquidity Termination Date. The fees
provided in this clause shall accrue at all times after the abovementioned
commencement date, including at any time during which one or more conditions
in Article VI are not met.
SECTION 4.11. COMPUTATION OF FEES AND INTEREST. (a) All computations
of interest for Base Rate Loans when the Base Rate is determined by ABN
AMRO's "prime lending rate" shall be made on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed. All other
computations of fees and interest shall be made on the basis of a 360-day
year and actual days elapsed (which results in more interest being paid than
if computed on the basis of a 365- or 366-day year). Interest and fees shall
accrue during each period during which interest or such fees are computed
from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error.
(c) If any Reference Bank's Commitment terminates (other than on
termination of all the Commitments), or for any reason whatsoever the Reference
Bank ceases to be a Lender hereunder, that Reference Bank shall thereupon cease
to be a Reference Bank, and the LIBOR Rate shall be determined on the basis of
the rates as notified by the remaining Reference Banks.
(d) Each Reference Bank shall use its best efforts to finish quotations of
rates to the Agent as contemplated hereby. If any of the Reference Banks fails
to supply such rates to the Agent upon its request, the rate of interest shall
be determined on the basis of the quotations of the remaining Reference Bank(s).
SECTION 4.12. PAYMENTS BY THE BORROWER. (a) All payments to be made by
the Borrower shall be made without setoff, recoupment or counterclaim. Except
as otherwise expressly provided herein, all payments by the Borrower shall be
made to the Agent for the account of the Lenders at the Agent's Payment Office,
and shall be made in dollars and in immediately available funds, no later than
11:00 a.m. (New York City time) on the date specified herein. Any payment
received by the Agent later than 11:00 a.m. (New York City time) shall be deemed
to have been received on the following Business Day and any applicable interest
or fee shall continue to accrue.
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(b) Subject to the provisions set forth in the definition of "INTEREST
PERIOD" herein, whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
(c) Unless the Agent receives notice from the Borrower prior to the date
on which any payment is due to the Lenders that the Borrower will not make such
payment in full as and when required, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Borrower has not made
such payment in full to the Agent, each Lender shall repay to the Agent on
demand such amount distributed to such Lender, together with interest thereon at
the Federal Funds Rate for each day from the date such amount is distributed to
such Lender until the date repaid.
SECTION 4.13. ASSUMED PAYMENTS. Unless the Agent shall have received
notice from the applicable Committed Lender before the date of any Put or of any
Committed Loan that such Lender will not make available to the Agent the amount
it is scheduled to remit as part of such Put or Committed Loan, the Agent may
assume such Committed Lender has made such amount available to the Agent when
due (an "ASSUMED PAYMENT") and, in reliance upon such assumption, the Agent may
(but shall have no obligation to) make available such amount to the appropriate
Person. If and to the extent that any Committed Lender shall not have made its
Assumed Payment available to the Agent, such Committed Lender hereby agrees to
pay the Agent forthwith on demand such unpaid portion of such Assumed Payment up
to the amount of funds actually paid by the Agent, together with interest
thereon for each day from the date of such payment by the Agent until the date
the requisite amount is repaid to the Agent, at a rate per annum equal to the
Federal Funds Rate plus 2%.
SECTION 4.14. SHARING OF PAYMENTS, ETC.. If, other than as expressly
provided elsewhere herein, any Lender shall obtain on account of the Loans and
Advances in its favor any payment (whether voluntary, involuntary, through the
exercise of any right of setoff, or otherwise) in excess of its ratable share
(or other share contemplated hereunder), such Lender shall immediately (a)
notify the Agent of such fact, and (b) purchase from the other Lenders such
participations in the Loans and Advances made by them as shall be necessary to
cause such purchasing Lender to share the excess payment pro rata with each of
them according to their respective ratable share (or other share contemplated
hereunder); PROVIDED, HOWEVER, that if all or any portion of such excess payment
is thereafter recovered from the purchasing Lender, such purchase shall to that
extent be rescinded and each other Lender shall repay to the purchasing Lender
the purchase price paid therefor, together with an amount equal to such paying
Lender's ratable share (according to the proportion of (i) the amount of such
paying Lender's required repayment to (ii) the total amount so recovered from
the purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of setoff, but subject to Section 13.10) with respect to
such participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. The
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Agent will keep records (which shall be conclusive and binding in the absence
of manifest error) of participations purchased under this Section and will in
each case notify the Lenders following any such purchases or repayments.
SECTION 4.15. EXTENSION OF LIQUIDITY TERMINATION DATE.
(a) The Borrower may, by notice to the Agent (which shall promptly
notify the Committed Lenders) not less than 30 days and not more than 60 days
prior to the Liquidity Termination Date then in effect hereunder (the
"EXISTING LIQUIDITY TERMINATION DATE"), request that the Liquidity Providers
extend the Existing Liquidity Termination Date for an additional 364 days
from the Consent Date (as defined below); PROVIDED that in no event shall the
Liquidity Termination Date be extended beyond November 19, 2003. Each
Liquidity Provider, acting in its sole discretion, shall, by notice to the
Borrower and the Agent given on or before the date (herein, the "CONSENT
DATE") that is 30 days prior to the Existing Liquidity Termination Date
(except that, if such date is not a Business Day, the Consent Date shall be
the next succeeding Business Day), advise the Borrower whether or not such
Liquidity Provider agrees to such extension; PROVIDED that any notice
agreeing to such extension that is given prior to the Consent Date may be
revoked before the Consent Date, but on the Consent Date such notice shall
become irrevocable; and PROVIDED FURTHER that each Liquidity Provider that
determines not to extend the Liquidity Termination Date (a "NON-EXTENDING
LIQUIDITY PROVIDER") shall notify the Agent (which shall notify the other
Liquidity Providers) of such fact promptly after such determination (but in
any event no later than the Consent Date) and any Liquidity Provider that
does not advise the Borrower on or before the Consent Date shall be deemed to
be a Non-extending Liquidity Provider. The election of any Liquidity
Provider to agree to such extension shall not obligate any other Liquidity
Provider to so agree.
(b) The Borrower shall have the right on or before the Existing Liquidity
Termination Date to replace each Non-extending Liquidity Provider with, and
otherwise add to this Agreement, one or more other banks (which may include any
Liquidity Provider, each prior to the Existing Liquidity Termination Date an
"ADDITIONAL LIQUIDITY PROVIDER") pursuant to Section 13.8 hereof. The Borrower
shall also have the right at any time to replace a Subject Bank with another
Liquidity Provider pursuant to Section 13.8 hereof.
(c) If the Borrower requests pursuant to subsection (a) above that the
Liquidity Termination Date be extended and the Enhancer and Liquidity Providers
having Commitments totaling at least 66 2/3% of the Commitments of all Liquidity
Providers as of the Existing Liquidity Termination Date shall have consented to
such extension pursuant to subsection (a) above, then, effective as of the
Existing Liquidity Termination Date, the Existing Liquidity Termination Date
shall be extended to the date falling 364 days after the Consent Date (except
that, if such date is not a Business Day, such Liquidity Termination Date as so
extended shall be the next preceding Business Day) and each Additional Liquidity
Provider shall thereupon become a "LIQUIDITY PROVIDER" for all purposes of this
Agreement. Even if the Existing Liquidity Termination Date is extended as
aforesaid, the Commitment of each Non-extending Liquidity Provider shall,
subject to Section 4.2, terminate on the Existing Liquidity Termination Date.
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ARTICLE V
TAXES, YIELD PROTECTION AND ILLEGALITY
SECTION 5.1. TAXES. (a) Any and all payments by the Borrower to each
Lender or the Agent under this Agreement and any other Loan Document shall be
made free and clear of, and without deduction or withholding for, any Taxes. In
addition, the Borrower shall pay all Other Taxes.
(b) If the Borrower shall be required by law to deduct or withhold any
Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, then:
(i) the sum payable shall be increased as necessary so that, after
making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section),
such Lender or the Agent, as the case may be, receives and retains an
amount equal to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) the Borrower shall make such deductions and withholdings;
(iii) the Borrower shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) the Borrower shall also pay to each Lender or the Agent for the
account of such Lender, at the time interest is paid, Further Taxes in the
amount that the respective Lender specifies as necessary to preserve the
aftertax yield the Lender would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed.
(c) The Borrower agrees to indemnify and hold harmless each Lender and the
Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further
Taxes (except, in each case, to the extent arising from a Lender's failure to
provide an appropriately completed and accurate (in all material respects) form
under Section 12.10) in the amount that the respective Lender specifies as
necessary to preserve the aftertax yield such Lender would have received if such
Taxes, Other Taxes or Further Taxes had not been imposed, and any liability
(including penalties, interest, additions to tax and expenses) arising therefrom
or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes
were correctly or legally asserted; PROVIDED, that if requested in writing by
the Borrower (with such request to include a reaffirmation of the
indemnification provisions hereunder), such Lender shall, at the sole cost and
expense of the Borrower (such costs and expenses to be subject to reimbursement
by the Lender on a basis which is proportionate to the amount of the refund paid
to the Lender, on the one hand, and the amount of the refund paid to the
Borrower, on the other hand), provide reasonable cooperation in attempting to
obtain a refund of such Taxes, Other Taxes or Further Taxes. Payment under this
indemnification shall be made within 30 days after the date the applicable
Lender or the Agent makes written demand therefor.
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(d) Within 30 days after the date of any payment by the Borrower of Taxes,
Other Taxes or Further Taxes, the Borrower shall furnish to each Lender or the
Agent the original or a certified copy of a receipt evidencing payment thereof,
or other evidence of payment satisfactory to such Lender or the Agent.
(e) If the Borrower is required to pay any amount to any Lender or the
Agent pursuant to clause (b) or (c) of this Section, then such Lender shall use
reasonable efforts (consistent with legal and regulatory restrictions) to change
the jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Borrower which may thereafter accrue, if such change in the sole
judgment of such Lender is not otherwise disadvantageous to such Lender.
SECTION 5.2. ILLEGALITY. (a) If any Lender determines that the
introduction of any Requirement of Law, or any change in any Requirement of Law,
or in the interpretation or administration of any Requirement of Law, has made
it unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for any Lender or its applicable Lending Office to
make LIBOR Rate Committed Loans then, on notice thereof by the Lender to the
Borrower through the Agent, any obligation of that Lender to make LIBOR Rate
Committed Loans shall be suspended until the Lender notifies the Agent and the
Borrower that the circumstances giving rise to such determination no longer
exist. While such obligation is so suspended, any LIBOR Rate Committed Loans
requested by the Borrower shall be deemed for purposes of such Lender to be a
request for a Base Rate Committed Loan, which Base Rate Committed Loan shall be
deemed to have the same Interest Period as the LIBOR Rate Committed Loan
actually requested.
(b) If a Lender determines that it is unlawful for such Lender to maintain
any LIBOR Rate Committed Loan, the Borrower shall, upon its receipt of notice of
such fact and demand from such Lender (with a copy to the Agent), prepay in full
such LIBOR Rate Committed Loan of that Lender then outstanding, together with
interest accrued thereon, either on the last day of the Interest Period thereof,
if the Lender may lawfully continue to maintain such LIBOR Rate Committed Loans
to such day, or immediately, if the Lender may not lawfully continue to maintain
such LIBOR Rate Committed Loan. If the Borrower is required to so prepay any
LIBOR Rate Committed Loan then concurrently with such prepayment, the Borrower
shall borrow from the affected Lender, in the amount of such repayment, a Base
Rate Committed Loan which Base Rate Committed Loan shall be deemed to have the
same Interest Period as the LIBOR Rate Committed Loan which is concurrently
repaid.
(c) Before giving any notice to the Agent under this Section, the affected
Lender shall designate a different Lending Office with respect to its LIBOR Rate
Committed Loans if such designation will avoid the need for giving such notice
or making such demand and will not, in the judgment of the Lender, be illegal or
otherwise disadvantageous to the Lender.
SECTION 5.3. INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Lender
reasonably determines that, due to either (i) the introduction of or any change
(other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the LIBOR Rate or in respect of the
assessment rate payable by any Lender to the FDIC for insuring U.S. deposits) in
or in the interpretation of any law or regulation or (ii) the compliance by that
Lender
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with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law) not due to an adverse change
in the financial condition of such Lender, there shall be any increase in the
cost to such Lender of agreeing to make or making, funding or maintaining any
LIBOR Rate Committed Loans, then the Borrower shall be liable for, and shall
from time to time, upon demand (with a copy of such demand to be sent to the
Agent), pay to the Agent for the account of such Lender, additional amounts as
are sufficient to compensate such Lender for such increased costs; PROVIDED,
that the Borrower's obligation to pay any amount under this Section shall be
limited to amounts attributable to the period commencing thirty days prior to
the date on which the Agent gave the Borrower notice of the event entitling it
to such payment.
(b) If any Lender shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Lender (or
its Lending Office) or any corporation controlling the Lender (not due to an
adverse change in the financial condition of such Lender) with any Capital
Adequacy Regulation, affects or would affect the amount of capital required or
expected to be maintained by the Lender or any corporation controlling the
Lender and (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) determines that the amount of such
capital is increased after the date hereof as a consequence of its Commitment,
loans, credits or obligations under this Agreement, then, upon demand of such
Lender to the Borrower through the Agent, the Borrower shall pay to the Lender,
from time to time as specified by the Lender, additional amounts sufficient to
compensate the Lender for such increase; PROVIDED, that the Borrower's
obligation to pay any amount under this Section shall be limited to amounts
attributable to the period commencing thirty days prior to the date on which the
Agent gave the Borrower notice of the event entitling it to such payment.
SECTION 5.4. FUNDING LOSSES. The Borrower shall reimburse each Lender
and hold each Lender harmless from any loss or expense which the Lender may
sustain or incur as a consequence of:
(a) the failure of the Borrower to make on a timely basis any payment
of principal of any LIBOR Rate Committed Loan due to the Borrower's failure
to comply with the conditions set forth in Section 6.2;
(b) the failure of the Borrower to borrow a LIBOR Committed Loan,
continue or convert a Committed Loan into a LIBOR Committed Loan after the
Borrower has given (or is deemed to have given) a Notice of Borrowing or a
Notice of Conversion/Continuation;
(c) the failure of the Borrower to make any prepayment of any LIBOR
Committed Loan in accordance with any notice delivered under Section 4.7;
(d) the prepayment or other payment (including after acceleration
thereof) of a LIBOR Rate Committed Loan on a day that is not the last day
of the relevant Interest
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Period; or
(e) the automatic conversion under Section 5.5 of any LIBOR Rate
Committed Loan to a Base Rate Committed Loan on a day that is not the last
day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Committed Loans, as the case
may be, or from fees payable to terminate the deposits from which such funds
were obtained. For purposes of calculating amounts payable by the Borrower to
the Lenders under this Section, each LIBOR Rate Committed Loan made by a Lender
(and each related reserve, special deposit or similar requirement) shall be
conclusively deemed to have been funded at the LIBOR used in determining the
LIBOR Rate for such LIBOR Rate Committed Loan by a matching deposit or other
borrowing in the interbank eurodollar market for a comparable amount and for a
comparable period, whether or not such LIBOR Rate Committed Loan is in fact so
funded.
SECTION 5.5. INABILITY TO DETERMINE RATES. If any Reference Bank or the
Required Lenders determine that for any reason adequate and reasonable means do
not exist for determining the LIBOR Rate for any requested Interest Period with
respect to a proposed LIBOR Rate Committed Loan, or that the LIBOR Rate
applicable pursuant to Section 4.9(a) for any requested Interest Period with
respect to a proposed LIBOR Rate Committed Loan does not adequately and fairly
reflect the cost to such Lenders of funding such Loan, the Agent will promptly
so notify the Borrower and each Lender. Thereafter, the obligation of the
Lenders to make or maintain LIBOR Rate Committed Loans hereunder shall be
suspended until the Agent upon the instruction of the Required Lenders revokes
such notice in writing. Upon receipt of such notice, the Borrower may at least
3 days prior to date of the proposed Borrowing or Conversion/Continuation revoke
any Notice of Borrowing or Notice of Conversion/Continuation then submitted by
it by written notice to Agent. If the Borrower does not revoke such Notice, the
Lenders shall make, convert or continue the Committed Loans, as proposed by the
Borrower, in the amount specified in the applicable notice submitted by the
Borrower, but such Committed Loans shall be made, converted or continued as Base
Rate Committed Loans instead of LIBOR Rate Committed Loans.
SECTION 5.6. CERTIFICATES OF LENDERS. Any Lender claiming reimbursement
or compensation under this Article V shall deliver to the Borrower (with a copy
to the Agent) a certificate setting forth in reasonable detail the amount
payable to such Lender hereunder and the basis for, and calculation of, such
claim and such certificate shall be conclusive and binding on the Borrower in
the absence of manifest error.
SECTION 5.7. SURVIVAL. The agreements and obligations of the Borrower in
this Article V shall survive the payment of all other Obligations.
ARTICLE VI
CONDITIONS PRECEDENT
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SECTION 6.1. CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT. The
obligation of each Committed Lender hereunder is subject to the condition that
the Agent shall have received on or before the Closing Date all of the
following, in form and substance reasonably satisfactory to the Agent and each
Committed Lender, and in sufficient copies for each Lender:
(a) THIS AGREEMENT AND NOTES. This Agreement and (to the extent
required under Sections 2.2 and 4.3) the Notes executed by each party
thereto;
(b) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of directors of the
Borrower authorizing the transactions contemplated hereby, certified as of
the Closing Date by the Secretary or an Assistant Secretary of the
Borrower; and
(ii) A certificate of the Secretary or Assistant Secretary of the
Borrower certifying the names and true signatures of the officers of the
Borrower authorized to execute, deliver and perform, as applicable, this
Agreement, and all other Loan Documents to be delivered by it hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following
documents:
(i) the articles or certificate of incorporation and the bylaws
of the Borrower as in effect on the Closing Date, certified by the
Secretary or Assistant Secretary of the Borrower as of the Closing Date;
and
(ii) a good standing certificate for the Borrower from the
Secretary of State (or similar, applicable Governmental Authority) of its
state of incorporation as of a recent date;
(d) LEGAL OPINIONS. An opinion of the Borrower's general counsel
addressed to the Agent and the Lenders, substantially in the form of
Exhibit G1 and an opinion of Dorsey & Whitney LLP, outside counsel to
Borrower, addressed to the Agent and the Lenders, substantially in the form
of Exhibit G-2;
(e) PAYMENT OF FEES. Evidence of payment by the Borrower of all
accrued and unpaid fees, costs and expenses to the extent then due and
payable on the Closing Date, together with Attorney Costs of ABN AMRO to
the extent invoiced prior to or on the Closing Date, plus such additional
amounts of Attorney Costs as shall constitute ABN AMRO's reasonable
estimate of Attorney Costs incurred or to be incurred by it through the
closing proceedings (PROVIDED that such estimate shall not thereafter
preclude final settling of accounts between the Borrower and ABN AMRO).
(f) CERTIFICATE. A certificate signed by a Responsible Officer,
dated as of the Closing Date, stating that:
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(i) the representations and warranties contained in Article VII
are true and correct on and as of such date, as though made on and as of
such date;
(ii) no Default or Event of Default exists or would result from
the initial Borrowing;
(iii) there has occurred since October 31, 1997, no event or
circumstance that has resulted or could reasonably be expected to result in
a Material Adverse Effect; and
(g) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as the Agent or any Lender may reasonably request.
SECTION 6.2. CONDITIONS TO ALL COMMITTED LOANS. The obligation of each
Lender to make any Committed Loan to be made by it or to continue or convert any
Committed Loan under Section 4.5 is subject to the satisfaction of the following
conditions precedent on the relevant disbursement date or
Conversion/Continuation Date:
(a) NOTICE, APPLICATION. As to any Committed Loan, the Agent shall
have received (with, in the case of the initial Loan only, a copy for each
Lender) a Notice of Borrowing or a Notice of Conversion/Continuation, as
applicable.
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. As to the making
of any Committed Loan, the representations and warranties in Article VII
(other than the representation set forth in Section 7.11(b)) shall be true
and correct on and as of such Borrowing Date with the same effect as if
made on and as of such disbursement date (except to the extent such
representations and warranties expressly refer to an earlier date, in which
case they shall be true and correct as of such earlier date); and
(c) NO EXISTING DEFAULT. No Default or Event of Default shall exist
or shall result from such Borrowing or no Event of Default shall exist or
shall result from such continuation or conversion.
Each Notice of Borrowing and Notice of Conversion/Continuation submitted by the
Borrower hereunder shall constitute a representation and warranty by the
Borrower hereunder, as of the date of each such notice and as of each
disbursement date or Conversion/Continuation Date, as applicable, that the
applicable conditions in this Section 6.2 are satisfied. Nothing in this
Section 6.2 limits the obligations (including those in Section 3.1) of each
Committed Lender to any Conduit.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each Lender that:
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SECTION 7.1. CORPORATE EXISTENCE AND POWER. The Borrower and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under the
Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and in
good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification or license; and
(d) is in compliance with all Requirements of Law; except, in each
case referred to in clause (c) or clause (d), to the extent that the
failure to do so could not reasonably be expected to have a Material
Adverse Effect.
SECTION 7.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by the Borrower of this Agreement and each other Loan
Document, have been duly authorized by all necessary corporate action, and do
not and will not:
(a) contravene the terms of any of the Borrower's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual
Obligation to which the Borrower or any of its Subsidiaries is a party or
any order, injunction, writ or decree of any Governmental Authority to
which such Person or its property is subject; or
(c) violate any Requirement of Law.
SECTION 7.3. GOVERNMENTAL AUTHORIZATION No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Borrower of
this Agreement or any other Loan Document.
SECTION 7.4. BINDING EFFECT. This Agreement and each other Loan Document
constitutes the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
SECTION 7.5. LITIGATION. Except as specifically disclosed in Schedule
7.5, there are no actions, suits, proceedings, claims or disputes pending, or to
the best knowledge of the Borrower, threatened, at law, in equity, in
arbitration or before any Governmental Authority, against the Borrower, its
Subsidiaries or any of their respective properties which:
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(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Borrower or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect. No
injunction, writ, temporary restraining order or any order of any nature
has been issued by any court or other Governmental Authority purporting to
enjoin or restrain the execution, delivery or performance of this Agreement
or any other Loan Document, or directing that the transactions provided for
herein or therein not be consummated as herein or therein provided.
SECTION 7.6. NO DEFAULT. No Default or Event of Default exists or would
result from the incurring of any Obligations by the Borrower. As of the Closing
Date, neither the Borrower nor any Subsidiary is in default under or with
respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a Material
Adverse Effect, or that would, if such default had occurred after the Closing
Date, create an Event of Default under Section 11.1(e).
SECTION 7.7. ERISA COMPLIANCE. Except as specifically disclosed in
Schedule 7.7:
(a) Each Plan is in compliance with the applicable provisions of
ERISA, the Code and other federal or state law except for such
noncompliance as could not, individually or in the aggregate, have a
Material Adverse Effect. Each Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable determination letter
from the IRS and to the best knowledge of the Borrower, nothing has
occurred which would cause the loss of such qualification. The Borrower
and each ERISA Affiliate has made all required contributions to any Plan
subject to Section 412 of the Code, and no application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the
Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably
be expected to result in a Material Adverse Effect. There has been no
prohibited transaction or violation of the fiduciary responsibility rules
with respect to any Plan which has resulted or could reasonably be expected
to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any material Unfunded Pension Liability;
(iii) neither the Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any material liability under Title IV of ERISA
with respect to any Pension Plan (other than premiums due and not
delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any material
liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201
or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the
Borrower nor any ERISA Affiliate has engaged
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in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA; PROVIDED that the aggregate of all such amounts in cases of
clauses (ii), (iii) and (iv) cannot exceed $5,000,000.
SECTION 7.8. USE OF PROCEEDS, MARGIN REGULATIONS. The proceeds of the
Loans are to be used solely for the purposes set forth in and permitted by
Section 8.12 and Section 9.7. Neither the Borrower nor any Subsidiary is
generally engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.
SECTION 7.9. TITLE TO PROPERTIES. The Borrower and each Subsidiary have
good record and marketable title in fee simple to, or valid leasehold interests
in, all real property necessary or used in the ordinary conduct of their
respective businesses, except for such defects in title as could not,
individually or in the aggregate, have a Material Adverse Effect. As of the
Closing Date, the property of the Borrower and its Subsidiaries is subject to no
Liens, other than Permitted Liens.
SECTION 7.10. TAXES. The Borrower and its Subsidiaries have filed all
Federal and other material tax returns and reports required to be filed, and
have paid all Federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties, income or
assets otherwise due and payable, except those which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP. There is no proposed tax assessment against
the Borrower or any Subsidiary that would, if made, have a Material Adverse
Effect.
SECTION 7.11. FINANCIAL CONDITION. (a) The audited consolidated financial
statements (and footnotes thereto) of the Borrower and its Subsidiaries dated
October 31, 1997, and the unaudited financial statements (and footnotes thereto)
of the Borrower and its Subsidiaries dated July 31, 1998, in each case together
with the related consolidated statements of income or operations, shareholders'
equity and cash flows for the fiscal period ended on that date:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein;
(ii) fairly present the financial condition of the Borrower and its
Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(iii) except as specifically disclosed in Schedule 7.11, show all
material indebtedness and other material liabilities, direct or contingent,
of the Borrower and its consolidated Subsidiaries as of the date thereof,
including liabilities for material taxes, material commitments and
Contingent Obligations.
(b) Since July 31, 1998, there has been no Material Adverse Effect.
SECTION 7.12. ENVIRONMENTAL MATTERS. (a) Except as specifically disclosed
in Schedule 7.12, the ongoing operations of the Borrower and each of its
Subsidiaries comply in all respects with all Environmental Laws, except such
noncompliance which would not (if enforced
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in accordance with applicable law) result in liability in excess of
$5,000,000 in the aggregate.
(b) Except as specifically disclosed in Schedule 7.12, the Borrower and
each of its Subsidiaries have obtained all licenses, permits, authorizations and
registrations required under any Environmental Law ("ENVIRONMENTAL PERMITS") and
necessary for their respective ordinary course operations, all such
Environmental Permits are in good standing, and the Borrower and each of its
Subsidiaries are in compliance with all material terms and conditions of such
Environmental Permits.
(c) Except as specifically disclosed in Schedule 7.12, none of the
Borrower, any of its Subsidiaries or any of their respective present property or
operations, is subject to any outstanding written order from or agreement with
any Governmental Authority, nor subject to any judicial or docketed
administrative proceeding, respecting any Environmental Law, Environmental Claim
or Hazardous Material which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect.
(d) Except as specifically disclosed in Schedule 7.12, there are no
Hazardous Materials or other conditions or circumstances existing with respect
to any property of the Borrower or any Subsidiary, or arising from operations
prior to the Closing Date, of the Borrower or any of its Subsidiaries that would
reasonably be expected to give rise to Environmental Claims with a potential
liability of the Borrower and its Subsidiaries in excess of $5,000,000 in the
aggregate for any such condition, circumstance or property. In addition, (i)
neither the Borrower nor any Subsidiary has any underground storage tanks (x)
that are not properly registered or permitted under applicable Environmental
Laws, or (y) that are leaking or disposing of Hazardous Materials offsite, and
(ii) the Borrower and its Subsidiaries have notified all of their employees of
the existence, if any, of any health hazard arising from the conditions of their
employment (which is either material or for which notification is required by
applicable law) and have met all notification requirements under Title III of
CERCLA and all other Environmental Laws.
SECTION 7.13. REGULATED ENTITIES. None of the Borrower, any Person
controlling the Borrower, or any Subsidiary, is an "Investment Company" within
the meaning of the Investment Company Act of 1940. The Borrower is not subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
SECTION 7.14. NO BURDENSOME RESTRICTIONS. Neither the Borrower nor any
Subsidiary is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organization Document, or any Requirement of Law, which
could reasonably be expected to have a Material Adverse Effect.
SECTION 7.15. COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The
Borrower or its Subsidiaries own or are licensed or otherwise have the right to
use all of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorizations and other rights that are reasonably
necessary for the operation of their respective businesses, without conflict
with the rights of any other Person except where such failure to own or license
would not
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reasonably be expected to have a Material Adverse Effect. To the best
knowledge of the Borrower, no material slogan or other advertising device,
product, process, method, substance, part or other material now employed, or
now contemplated to be employed, by the Borrower or any Subsidiary infringes
upon any rights held by any other Person. Except as specifically disclosed
in Schedule 7.5, no claim or litigation regarding any of the foregoing is
pending or threatened in writing, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or
code is pending or, to the knowledge of the Borrower, proposed, which, in
either case, could reasonably be expected to have a Material Adverse Effect.
SECTION 7.16. SUBSIDIARIES. As of the date hereof, the Borrower has no
Subsidiaries other than those specifically disclosed in part (a) of Schedule
7.16 hereto and has no equity investments in any other corporation or entity
other than those specifically disclosed in part (b) of Schedule 7.16.
SECTION 7.17. INSURANCE. Except as specifically disclosed in Schedule
7.17, the properties of the Borrower and its Subsidiaries are insured with
financially sound and reputable insurance companies not Affiliates of the
Borrower, in such amounts, with such deductibles and covering such risks as are
customarily carried by companies engaged in similar businesses and owning
similar properties in localities where the Borrower or such Subsidiary operates.
SECTION 7.18. SWAP OBLIGATIONS. Neither the Borrower nor any of its
Subsidiaries has incurred any outstanding obligations under any Swap Contracts,
other than Permitted Swap Obligations.
SECTION 7.19. FULL DISCLOSURE. None of the representations or warranties
made by the Borrower or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Borrower to the Lenders prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
SECTION 7.20. YEAR 2000 COMPATIBILITY. The Borrower and its Subsidiaries
are reviewing the areas within their business and operations which could be
adversely affected by, and have developed or are developing a program to address
on a timely basis, the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower and its Subsidiaries in their business
operations may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date on or after December 31,
1999), and are making related appropriate inquiry of material suppliers and
vendors. Based on such review and program the Borrower believes that, to the
best of its information, the "Year 2000 Problem" will not have a Material
Adverse Effect on the Borrower.
ARTICLE VIII
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AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Advance
or Loan or other Obligation shall remain unpaid or unsatisfied, unless the
Required Lenders and Conduits waive compliance in writing:
SECTION 8.1. FINANCIAL STATEMENTS. The Borrower shall deliver to the
Agent, in form and detail satisfactory to the Agent and the Required Lenders,
with sufficient copies for each Lender:
(a) as soon as available, but not later than 90 days after the end of
each fiscal year (commencing with the fiscal year ended October 31, 1998),
a copy of the audited consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such year and the related consolidated
statements of income or operations, shareholders' equity and cash flows for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, and accompanied by the opinion of Arthur Andersen
LLP or another nationallyrecognized independent public accounting firm
("INDEPENDENT AUDITOR") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years; it being understood that if the Borrower's annual report filed on
Form 10K with the SEC contains the information and the report required
above, delivery of such 10K shall be sufficient for purposes of satisfying
the foregoing. Such opinion shall not be qualified or limited because of a
restricted or limited examination by the Independent Auditor of any
material portion of the Borrower's or any Subsidiary's records; and
(b) as soon as available, but not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year (commencing
with the fiscal quarter ended January 31, 1999), a copy of the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as of the
end of such quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the first
day and ending on the last day of such quarter, and certified by a
Responsible Officer as fairly presenting, in accordance with GAAP (subject
to ordinary, good faith yearend audit adjustments), the financial position
and the results of operations of the Borrower and the Subsidiaries; it
being understood that if the Borrower's quarterly report filed on Form 10Q
with the SEC contains the information required above, delivery of such 10Q
shall be sufficient for purposes of satisfying the foregoing.
SECTION 8.2. CERTIFICATES, OTHER INFORMATION. The Borrower shall furnish
to the Agent, with sufficient copies for each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 8.1(a) a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
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(b) concurrently with the delivery of the financial statements
referred to in Sections 8.1(a) and (b), a Compliance Certificate executed
by a Responsible Officer;
(c) promptly, copies of all financial statements and reports that the
Borrower sends to its shareholders, and copies of all financial statements
and regular, periodical or special reports (including Forms 10K, 10Q and
8K) that the Borrower or any Subsidiary may make to, or file with, the SEC;
(d) promptly, such additional information regarding the business,
financial or corporate affairs of the Borrower or any Subsidiary as the
Agent or any Lender may from time to time reasonably request.
SECTION 8.3. NOTICES. The Borrower shall promptly notify the Agent and
each Lender:
(a) of the occurrence of any Default, Event of Default or Significant
Event, and of the occurrence or existence of any event or circumstance
which with the passage of time would become a Default, Event of Default or
Significant Event;
(b) of (i) any breach or nonperformance of, or any default under, any
Contractual Obligation of the Borrower or any of its Subsidiaries which
would reasonably be expected to result in a Material Adverse Effect; and
(ii) any dispute, litigation, investigation, proceeding or suspension which
may exist at any time between the Borrower or any of its Subsidiaries and
any Governmental Authority which, if adversely determined, would reasonably
be expected to have a Material Adverse Effect;
(c) of the commencement of, or entry of judgment or disposition of,
any litigation or proceeding affecting the Borrower or any Subsidiary (i)
in which the amount of damages claimed is $10,000,000 (or its equivalent in
another currency or currencies) or more, (ii) in which injunctive or
similar relief is sought and which, if adversely determined, would
reasonably be expected to have a Material Adverse Effect, or (iii) in which
the relief sought is an injunction or other stay of the performance of this
Agreement or any Loan Document;
(d) upon, but in no event later than 15 days after, becoming aware of
any and all Environmental Claims and other enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or
threatened against the Borrower or any Subsidiary or any of their
respective properties pursuant to any applicable Environmental Laws that
could reasonably be expected to have a Material Adverse Effect;
(e) of any other litigation or proceeding affecting the Borrower or
any of its Subsidiaries which the Borrower would be required to report to
the SEC pursuant to the Exchange Act, within four days after reporting the
same to the SEC;
(f) of the occurrence of any of the following events affecting the
Borrower or any ERISA Affiliate (but in no event more than 15 days after
such event), and deliver to the Agent and each Lender a copy of any notice
with respect to such event that is filed
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with a Governmental Authority and any notice delivered by a Governmental
Authority to the Borrower or any ERISA Affiliate with respect to such
event:
(i) an ERISA Event which could give rise to a liability of the
Borrower or an ERISA Affiliate in excess of $500,000;
(ii) a material increase in the Unfunded Pension Liability of any
Pension Plan;
(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by the Borrower or any ERISA
Affiliate; or
(iv) the adoption of any amendment to a Plan subject to Section
412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability;
(g) of any material change in accounting policies or financial
reporting practices by the Borrower or any of its consolidated
Subsidiaries;
(h) upon the request from time to time of the Agent, the Swap
Termination Values, together with a description of the method by which such
amounts were determined, relating to any thenoutstanding Swap Contracts to
which the Borrower or any of its Subsidiaries is party; and
(i) of any change in any rating by any Rating Agency of the long-term
unsecured indebtedness of the Borrower.
Each notice under this Section shall be accompanied by a written statement
by a Responsible Officer setting forth details of the occurrence referred to
therein, and stating what action the Borrower or any affected Subsidiary
proposes to take with respect thereto and at what time. Each notice under
Section 8.3(a) shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
SECTION 8.4. PRESERVATION OF CORPORATE EXISTENCE, ETC. Subject to
Section 9.3, the Borrower shall, and shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises
necessary or desirable in the normal conduct of its business, except in
connection with transactions permitted by Section 9.3 and sales of assets
permitted by Section 9.2, the nonpreservation of which could reasonably be
expected to have a Material Adverse Effect;
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(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the nonpreservation of which could
reasonably be expected to have a Material Adverse Effect.
SECTION 8.5. MAINTENANCE OF PROPERTY. The Borrower shall maintain, and
shall cause each Subsidiary to maintain, and preserve all its property which is
used or useful in its business in good working order and condition, ordinary
wear and tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect. The Borrower and each Subsidiary
shall use the standard of care typical in the industry in the operation and
maintenance of its facilities.
SECTION 8.6. INSURANCE. The Borrower shall maintain, and shall cause
each of its Subsidiaries to maintain, with financially sound and reputable
independent insurers, insurance with respect to its properties and business
against loss or damage of the kinds customarily insured against by Persons
engaged in the same or similar business, of such types and in such amounts as
are customarily carried under similar circumstances by such other Persons;
including workers' compensation insurance, public liability and property and
casualty insurance. Upon request of the Agent or any Lender, the Borrower shall
furnish the Agent, with sufficient copies for each Lender, at reasonable
intervals (but not more than once per calendar year) a certificate of a
Responsible Officer of the Borrower (and, if requested by the Agent, any
insurance broker of the Borrower) setting forth the nature and extent of all
insurance maintained by the Borrower and its Subsidiaries in accordance with
this Section (and which, in the case of a certificate of a broker, were placed
through such broker).
SECTION 8.7. PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause
each Subsidiary to, pay and discharge as the same shall become due and payable,
all their respective material obligations and material liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Borrower or such
Subsidiary;
(b) all lawful claims which, if unpaid, could by law become a Lien
upon its property unless the same are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are
being maintained by the Borrower or such Subsidiary; and
(c) all indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement
evidencing such Indebtedness.
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SECTION 8.8. COMPLIANCE WITH LAWS. The Borrower shall comply, and shall
cause each Subsidiary to comply, in all material respects with all Requirements
of Law of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
SECTION 8.9. COMPLIANCE WITH ERISA. The Borrower shall, and shall cause
each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (b) cause each Plan which is qualified under Section
401(a) of the Code to maintain such qualification; and (c) make all required
contributions to any Plan subject to Section 412 of the Code.
SECTION 8.10. INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Borrower
shall maintain and shall cause each Subsidiary to maintain proper books of
record and account, in which full, true and correct entries in conformity with
GAAP consistently applied shall be made of all financial transactions and
matters involving the assets and business of the Borrower and such Subsidiary;
PROVIDED, HOWEVER, that the books of record and account for any newly acquired
Subsidiary organized under a jurisdiction outside of the United States, its
possessions and territories shall not be required to be kept in accordance with
GAAP until 12 months after the Acquisition of such Subsidiary by the Borrower.
Subject to the requirements set forth in Section 13.9, the Borrower shall
permit, and shall cause each Subsidiary to permit, representatives and
independent contractors of the Agent or any Lender to visit and inspect any of
their respective properties, to examine their respective corporate, financial
and operating records, and make copies thereof or abstracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
officers, and independent public accountants, all at the expense of the Borrower
and at such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Borrower; PROVIDED,
HOWEVER, when an Event of Default exists the Agent or any Lender (A) may do any
of the foregoing at the expense of the Borrower at any time during normal
business hours and without advance notice and (B) may directly contact
directors.
SECTION 8.11. ENVIRONMENTAL LAWS. (a) The Borrower shall, and shall cause
each Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws, except to the extent that the aggregate
of all such instances of noncompliance could not, individually or in the
aggregate, result in liability in excess of $5,000,000.
(b) Upon the written request of the Agent or any Lender, the Borrower
shall submit and cause each of its Subsidiaries to submit, to the Agent with
sufficient copies for each Lender, at the Borrower's sole cost and expense, at
reasonable intervals, a report providing an update of the status of any
environmental, health or safety compliance, hazard or liability issue identified
in any notice or report required pursuant to Section 8.3(d), that could,
individually or in the aggregate, result in liability in excess of $5,000,000.
SECTION 8.12. USE OF PROCEEDS. The Borrower shall use the proceeds of the
Loans and Advances for corporate purposes not in contravention of any Loan
Document.
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SECTION 8.13. FURTHER ASSURANCES. The Borrower shall ensure that all
written information, exhibits and reports furnished to the Agent or the Lenders
do not and will not contain any untrue statement of a material fact and do not
and will not omit to state any material fact or any fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which made, and will promptly disclose to the Agent and the Lenders and correct
any defect or error that may be discovered therein or in any Loan Document or in
the execution, acknowledgement or recordation thereof.
SECTION 8.14. YEAR 2000 COMPATIBILITY. Statements of financial
performance and compliance certificates required to be provided by the Borrower
and/or its Subsidiaries to the Agent herein shall: (i) include a statement that
the Year 2000 remediation efforts of the Borrower and its Subsidiaries are
proceeding as scheduled and; (ii) indicate whether an auditor, regulator, or
third party consultant has issued a management letter or other communication
regarding the Year 2000 exposure, program or progress of the Borrower and/or its
Subsidiaries.
ARTICLE IX
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Advance
or Loan or other Obligation shall remain unpaid or unsatisfied, unless the
Required Lenders waive compliance in writing:
SECTION 9.1. LIMITATION ON LIENS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, directly or indirectly, make, create, incur,
assume or suffer to exist any Lien upon or with respect to any part of its
property, whether now owned or hereafter acquired, other than the following
("PERMITTED LIENS"):
(a) any Lien existing on property of the Borrower or any Subsidiary
on the Closing Date and set forth in Schedule 9.1 securing Indebtedness
outstanding on such date including any continuations thereof, or concurrent
replacements or substitutions therefor (or in the case of filings which
inadvertently lapsed, nonconcurrent refilings), in respect of such
Indebtedness or Indebtedness incurred to refinance such Indebtedness (which
Lien shall not extend to categories, types, classes or items of collateral
not previously serving as collateral for such Indebtedness or the
Indebtedness so refinanced);
(b) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the
extent that nonpayment thereof is permitted by Section 8.7 PROVIDED that no
notice of lien has been filed or recorded under the Code;
(c) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of
business which are not delinquent or remain payable without penalty or
which are being contested in good faith and by appropriate proceedings,
which proceedings have the effect of preventing the
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forfeiture or sale of the property subject thereto;
(d) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
social security legislation;
(e) Liens on the property of the Borrower or its Subsidiary securing
(i) the nondelinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) contingent obligations
on surety and appeal bonds, and (iii) other nondelinquent obligations of a
like nature; in each case, incurred in the ordinary course of business,
PROVIDED all such Liens in the aggregate would not (even if enforced) cause
a Material Adverse Effect;
(f) Liens consisting of judgment or judicial attachment liens;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the businesses of the Borrower and
its Subsidiaries;
(h) Liens arising solely by virtue of any statutory or common law
provision relating to bankers' liens, rights of setoff or similar rights
and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; PROVIDED that (i) such deposit account is
not a dedicated cash collateral account and is not subject to restrictions
against access by the Borrower in excess of those set forth by regulations
promulgated by the FRB, and (ii) such deposit account is not intended by
the Borrower or any Subsidiary to provide collateral to the depository
institution;
(i) purchase money security interests on any property acquired or
held by the Borrower or its Subsidiaries, securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring such property; PROVIDED that (i) any such Lien attaches to such
property concurrently with or within 20 days after the acquisition thereof,
(ii) such Lien attaches solely to the property so acquired in such
transaction, and (iii) the principal amount of the Indebtedness secured
thereby does not exceed 100% of the cost of such property;
(j) Liens securing obligations in respect of capital leases on assets
subject to such leases, PROVIDED that such capital leases are otherwise
permitted hereunder;
(k) Liens securing obligations in respect of the Equity Swap,
PROVIDED, that the aggregate fair market value of all property subject to
such Liens does not exceed $35,000,000; and
(l) other Liens not of the type described in the foregoing clauses
(a) through (j); PROVIDED, that (i) both before and after giving effect to
the creation of such Lien no
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Default or Event of Default shall have occurred and be continuing and
(ii) the aggregate amount of Indebtedness and/or other liabilities
secured by such Liens shall at no time exceed $25,000,000.
SECTION 9.2. DISPOSITION OF ASSETS. The Borrower shall not, and shall
not suffer or permit any Subsidiary to, directly or indirectly, sell, assign,
lease, convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing,
except:
(a) dispositions of inventory, or used, wornout or surplus equipment,
all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to
the purchase price of such replacement equipment;
(c) dispositions of equipment by the Borrower or any Subsidiary to
the Borrower or any Subsidiary pursuant to reasonable business
requirements;
(d) sales of financial assets by the Borrower or any Subsidiary in a
transaction that constitutes the sale of such assets under applicable
accounting rules; and
(e) dispositions not otherwise permitted hereunder which are made for
fair market value; PROVIDED, that (i) at the time of any disposition, no
Default or Event of Default shall exist or shall result from each such
disposition, (ii) the aggregate value of all assets so sold by the Borrower
and its Subsidiaries, together, shall not exceed in any fiscal year 20.0%
of Net Worth as of the last day of the most recent fiscal period for which
financial statements have been delivered pursuant to Section 8.1(a) or (b),
as the case may be.
SECTION 9.3. CONSOLIDATIONS AND MERGERS. The Borrower shall not, and
shall not suffer or permit any Subsidiary to, merge, consolidate with or into,
or convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to or in favor of any Person, except:
(a) the Borrower may merge with any Person; PROVIDED that (i) the
Borrower shall be the continuing or surviving corporation, (ii) both before
and after giving effect to the consummation of such merger no Default or
Event of Default shall have occurred and be continuing and (iii) if such
merger had been consummated on the last day of the most recent fiscal
period for which financial statements have been delivered pursuant to
Section 8.1(a) or (b), as the case may be, no Default or Event of Default
would have occurred as a result thereof;
(b) any Subsidiary may merge with the Borrower, PROVIDED that the
Borrower
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shall be the continuing or surviving corporation, or with any one
or more Subsidiaries, PROVIDED that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall
be the continuing or surviving corporation;
(c) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Borrower or another
WhollyOwned Subsidiary; and
(d) the merger of any Subsidiary with any Person in connection with a
disposition of assets permitted by Section 9.2(d).
SECTION 9.4. LOANS AND INVESTMENTS. The Borrower shall not purchase or
acquire, or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit or contribution to or any other investment in, any Person including any
Affiliate of the Borrower (together, "INVESTMENTS"), except for:
(a) Investments held by the Borrower or Subsidiary in the form of
cash equivalents;
(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(c) extensions of credit by the Borrower to any of its Subsidiaries
or by any of its Subsidiaries to another of its Subsidiaries;
(d) Investments incurred in order to consummate Acquisitions, and
Investments in other Persons which do not constitute Acquisitions
("MINORITY INVESTMENTS") not otherwise prohibited herein (other than the
allowance for Investments in Joint Ventures under Section 9.4(e) which
shall be in addition hereto), PROVIDED that (i) both before and after
giving effect to the consummation of such Acquisition or the making of such
Minority Investment no Default or Event of Default shall have occurred and
be continuing, (ii) any such Acquisitions and Minority Investments are
undertaken in accordance with all applicable Requirements of Law; (iii) the
prior, effective written consent or approval to any such Acquisition of the
board of directors or equivalent governing body of the acquired Person is
obtained, (iv) the Company that is the subject or whose assets are the
subject of such Acquisition shall be in a line of business substantially
similar to a line of business of the Borrower and its Subsidiaries and
(v) if such Investment had been consummated on the last day of the most
recent fiscal period for which financial statements have been delivered
pursuant to Section 8.1(a) or (b), as the case may be, no Default or Event
of Default would have occurred as a result thereof;
(e) Investments in Joint Ventures;
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(f) investments constituting Permitted Swap Obligations or payments
or advances under Swap Contracts relating to Permitted Swap Obligations;
(g) Investments listed on part (b) of Schedule 7.16; and
(h) Investments in Wholly-Owned Subsidiaries.
SECTION 9.5. LIMITATION ON INDEBTEDNESS. The Borrower shall not, and
shall not suffer or permit any Subsidiary to, create, incur, assume, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 9.8;
(c) Indebtedness existing on the Closing Date and set forth in
Schedule 9.5;
(d) other Indebtedness not of the type described in the foregoing
clauses (a) through (c);
PROVIDED, that in the case of Indebtedness of the type described in the
foregoing clause (d), (i) both before and after giving effect to the incurrence
of such Indebtedness no Default or Event of Default shall have occurred and be
continuing and (ii) if such Indebtedness were incurred on the last day of the
most recent fiscal period for which financial statements have been delivered
pursuant to Section 8.1(a) or (b), as the case may be, no Default or Event of
Default would have occurred as a result thereof, PROVIDED FURTHER, that the
aggregate principal amount of Indebtedness of Subsidiaries arising under the
foregoing clause (d) shall at no time exceed $25,000,000.
SECTION 9.6. TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and
shall not suffer or permit any Subsidiary to, enter into any transaction with
any Affiliate of the Borrower, except upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate of the
Borrower or such Subsidiary.
SECTION 9.7. USE OF PROCEEDS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, use any portion of any Loan or Advance
proceeds, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance indebtedness of the Borrower or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.
SECTION 9.8. CONTINGENT OBLIGATIONS. The Borrower shall not, and shall
not suffer or permit any Subsidiary to, create, incur, assume or suffer to exist
any Contingent Obligations except:
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(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Surety Instruments issued for the account of the Borrower or any
of its Subsidiaries in the ordinary course of business;
(c) Permitted Swap Obligations;
(d) Contingent Obligations of the Borrower and its Subsidiaries
existing as of the Closing Date and listed in Schedule 9.8; and
(e) other Contingent Obligations; PROVIDED that at the time such
Contingent Obligations are incurred, the Borrower and its Subsidiaries
would be permitted pursuant to Section 9.5 to incur Indebtedness in an
aggregate principal amount equal to the amount of such Contingent
Obligations (as determined in accordance with the definition of Contingent
Obligation).
SECTION 9.9. LEASE OBLIGATIONS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, create or suffer to exist any obligations
for the payment of rent for any property under lease or agreement to lease,
except for:
(a) leases of the Borrower and of Subsidiaries in existence on the
Closing Date and any renewal, extension or refinancing thereof;
(b) operating leases entered into by the Borrower or any Subsidiary
after the Closing Date in the ordinary course of business; and
(c) capital leases other than those permitted under clause (a) of
this Section, entered into by the Borrower or any Subsidiary after the
Closing Date to finance the acquisition of equipment; PROVIDED that the
Indebtedness arising from such capital leases is not otherwise prohibited
hereunder.
SECTION 9.10. RESTRICTED PAYMENTS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital stock, or
purchase, redeem or otherwise acquire for value any shares of its capital stock
or any warrants, rights or options to acquire such shares, now or hereafter
outstanding or following consummation of any Acquisition make any "earn-out"
payment of assets, properties, cash, rights, obligations or securities in
connection with such Acquisition; except that the Borrower and any Wholly-Owned
Subsidiary may:
(a) declare and make dividend payments or other distributions payable
solely in its common stock;
(b) purchase, redeem or otherwise acquire shares of its common stock
or warrants or options to acquire any such shares with the proceeds
received from the substantially concurrent issue of new shares of its
common stock; and
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(c) declare or pay cash dividends to its stockholders, purchase,
redeem or otherwise acquire shares of its capital stock or warrants, rights
or options to acquire any such shares for cash and make "earn-out" payments
in connection with Acquisitions; PROVIDED that (i) both before and after
giving effect thereto no Default or Event of Default shall have occurred
and be continuing and (ii) if such declaration, payment, purchase,
redemption or other acquisition were made on the last day of the most
recent fiscal period for which financial statements have been delivered
pursuant to Section 8.1(a) or (b), as the case may be, no Default or Event
of Default would have occurred as a result thereof.
SECTION 9.11. ERISA. The Borrower shall not, and shall not suffer or
permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably be expected to result in liability of the
Borrower in an aggregate amount in excess of $5,000,000; or (b) engage in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
SECTION 9.12. CHANGE IN BUSINESS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, engage in any material line of business
substantially different from those lines of business carried on by the Borrower
and its Subsidiaries on the date hereof.
SECTION 9.13. ACCOUNTING CHANGES. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, make any significant change in accounting
treatment or reporting practices, except for changes in accounting treatment or
reporting practices (a) required by GAAP and (b) of newly acquired businesses
which are made to bring such businesses into conformity with the Borrower's
accounting treatment or reporting practices; the Borrower shall not change the
fiscal year of the Borrower or of any Subsidiary.
SECTION 9.14. NEGATIVE PLEDGES, RESTRICTIVE AGREEMENTS, ETC. The Borrower
will not, and will not permit any of its Subsidiaries to, enter into any
agreement (excluding this Agreement and any other Loan Document) prohibiting:
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired, other than
upon any properties or assets subject to Liens described in Sections 9.1(i)
and (j) and entered into as part of the financing secured by such Liens; or
(b) the ability of any Subsidiary of the Borrower to make any
payments, directly or indirectly, to the Borrower by way of dividends,
advances, repayments of loans or advances, reimbursements of management and
other intercompany charges, expenses and accruals or other returns on
investments, or any other agreement or arrangement which restricts the
ability of any such Subsidiary to make any payment, directly or indirectly,
to the Borrower, except on the ability of any special purpose Subsidiary
created solely to effect a sale of financial assets entered into as part of
such sale.
SECTION 9.15. ABILITY TO AMEND; RESTRICTIVE AGREEMENTS. The Borrower will
not, and will not permit any of its Subsidiaries to, enter into, or accept
obligations under, any agreement (a) prohibiting (including subjecting to any
condition) the ability of the Borrower, or any of its
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Subsidiaries to amend, supplement or otherwise modify this Agreement or any
other Loan Document or (b) containing any provision that would contravene any
provision of this Agreement or any other Loan Document.
ARTICLE X
FINANCIAL TESTS
So long as any Lender shall have any Commitment hereunder, or any Advance
or Loan or other Obligation shall remain unpaid or unsatisfied, unless the
Required Lenders and Conduits waive compliance in writing:
SECTION 10.1. NET WORTH. The Borrower shall not permit at any time Net
Worth to be less than the sum of (a) $600,607,200 (80% of Net Worth as of
October 31, 1997), PLUS (b) for each fiscal year, commencing with the fiscal
year ending October 31, 1998, 50% of positive net income for such fiscal year,
PLUS (c) with respect to the issuance or sale of capital stock of the Borrower
or the conversion of Indebtedness of the Borrower into equity of the Borrower,
in each case occurring after the date hereof, 50% of the aggregate Net Issuance
Proceeds received by the Borrower from such issuance or sale of capital stock
plus 50% of the principal amount of any Indebtedness so converted if such
issuance, sale or conversion occurs at a time when the Borrower shall have no
Rating or at a time when the Borrower's Rating is lower than BBB- and Baa3,
respectively; such covenant to be calculated as of the end of each fiscal
quarter.
SECTION 10.2. FUNDED DEBT TO EBITDA RATIO. The Borrower shall not permit,
as of the end of any fiscal quarter, the ratio of (a) the aggregate principal
amount of Funded Debt of the Borrower and its Subsidiaries to (b) EBITDA for the
four consecutive fiscal quarters then ending, to exceed 3.0:1.
SECTION 10.3. EBITDA TO INTEREST EXPENSE RATIO. The Borrower shall not
permit for any period consisting of four consecutive fiscal quarters then ending
the ratio of EBITDA for such period to Interest Expense for such period to be
less than 4.0:1.
ARTICLE XI
EVENTS OF DEFAULT
SECTION 11.1. EVENT OF DEFAULT. Any of the following shall constitute an
"Event of Default":
(a) NON-PAYMENT. The Borrower fails to make any payment of principal
when due or to make, within 5 days after the same becomes due, payment of
any interest, fee or any other amount payable hereunder or under any other
Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty by
the Borrower or any Subsidiary made herein or deemed remade, in any other
Loan Document,
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or which is contained in any certificate, document or financial
or other statement by the Borrower, any Subsidiary, or any Responsible
Officer, furnished at any time under this Agreement, or in or under
any other Loan Document, is incorrect in any material respect on or
as of the date made herein or deemed remade; or
(c) SPECIFIC DEFAULTS. The Borrower fails to perform or observe any
term, covenant or agreement contained in any of Section 8.9, 8.10 or 8.12
or in Article IX or Article X;
(d) OTHER DEFAULTS. The Borrower or any Subsidiary party thereto
fails to perform or observe any other covenant or material term contained
in this Agreement or any other Loan Document, and such default shall
continue unremedied for a period of 20 days after the earlier of (i) the
date upon which a Responsible Officer knew or reasonably should have known
of such failure or (ii) the date upon which written notice thereof is given
to the Borrower by the Agent or any Lender; or
(e) CROSS-DEFAULT. (i) The Borrower or any Subsidiary:
(A) fails to make any payment in respect of any Indebtedness or
Contingent Obligation (other than in respect of Swap Contracts), having an
aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than $ 10,000,000 when due (whether
by scheduled maturity, required prepayment, acceleration, demand, or
otherwise) and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such
failure; or
(B) fails to perform or observe any other condition or covenant, or
any other event shall occur or condition exist, under any agreement or
instrument relating to any such Indebtedness or Contingent Obligation, and
such failure continues after the applicable grace or notice period, if any,
specified in the relevant document on the date of such failure if the
effect of such failure, event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders or beneficiary or beneficiaries) to cause such Indebtedness to be
declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect
thereof to be demanded; or
(ii) there occurs under any Swap Contract an Early Termination Date
(as defined in such Swap Contract) resulting from (1) any event of default
under such Swap Contract as to which the Borrower or any Subsidiary is the
Defaulting Party (as defined in such Swap Contract) or (2) any Termination
Event (as so defined) as to which the Borrower or any Subsidiary is an
Affected Party (as so defined), and, in either event, the Swap Termination
Value owed by the Borrower or such Subsidiary as a result thereof is
greater than $10,000,000; or
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(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower or any
Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due,
subject to applicable grace periods, if any, whether at stated maturity or
otherwise; (ii) voluntarily ceases to conduct its business in the ordinary
course; (iii) commences any Insolvency Proceeding with respect to itself;
or (iv) takes any action to effectuate or authorize any of the foregoing;
or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower or any Subsidiary,
or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a material part of the Borrower's
or any Subsidiary's properties, and any such proceeding or petition
shall not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully
bonded within 60 days after commencement, filing or levy; (ii) the
Borrower or any Subsidiary admits the material allegations of a petition
against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) the Borrower or any Subsidiary acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for
itself or a material portion of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Borrower under Title IV of ERISA to
the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in
excess of $5,000,000; or (ii) the aggregate amount of Unfunded Pension
Liability among all Pension Plans at any time exceeds $5,000,000; or
(iii) the Borrower or any ERISA Affiliate shall fail to pay when due, after
the expiration of any applicable grace period, any installment payment with
respect to its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan in an aggregate amount in excess of $5,000,000; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against
the Borrower or any Subsidiary involving in the aggregate a liability (to
the extent not covered by independent third party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $10,000,000 or more, and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a
period of 20 days after the entry thereof; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary noninterlocutory
judgment, order or decree is entered against the Borrower or any Subsidiary
which does or would reasonably be expected to have a Material Adverse
Effect, and there shall be any period of 20 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(k) CHANGE OF CONTROL. There occurs any Change of Control.
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SECTION 11.2. REMEDIES. If any Event of Default occurs, the Agent shall,
at the request of, or may, with the consent of, the Required Lenders,
(a) declare the commitment of each Lender to make Committed Loans to
be terminated, whereupon such commitments and obligation shall be
terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and
payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrower; and
(c) exercise on behalf of itself and the Lenders all rights and
remedies available to it and the Lenders under the Loan Documents or
applicable law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in clause (f)
or (g) of Section 11.1 with respect to the Borrower (in the case of clause
(g)(i) upon the expiration of the 60-day period mentioned therein), (i) the
obligation of each Lender to make Committed Loans shall automatically terminate
and the unpaid principal amount of all outstanding Loans and all interest and
other amounts as aforesaid shall automatically become due and payable without
further act of the Agent or any Lender. Nothing in this Section 11.2 limits the
obligations (including those in Section 3.1) of each Committed Lender to any
Conduit.
SECTION 11.3. RIGHTS NOT EXCLUSIVE. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers, privileges or remedies provided by law or in equity,
or under any other instrument, document or agreement now existing or hereafter
arising.
SECTION 11.4. ALLOCATIONS AND DISTRIBUTIONS. On each day during the
continuance of an Event of Default described in Sections 11.(a), (f) or (g) that
a payment is received hereunder, such payment shall be allocated and distributed
as follows:
(i) FIRST, to the payment of any outstanding reasonable costs and
expenses incurred by the Agent in protecting, preserving or enforcing
rights, or otherwise performing its role, under the Loan Documents (such
funds to be retained by the Agent for its own account unless it has
previously been reimbursed for such costs and expenses by the Committed
Lenders, in which event such amounts shall be remitted to the Committed
Lenders to reimburse them for payments theretofore made to the Agent);
(ii) SECOND, to the Conduits, the Liquidity Providers and Enhancer
(PRO RATA based on the Matured Value of the Conduits Investments in all
outstanding Advances, the principal amount of all outstanding Loans owed to
the Liquidity Providers and the outstanding principal amount of Committed
Loans owed to the Enhancer) until all such Advances and Loans and interest
thereon owned to the Conduits, Liquidity Providers and Enhancer has been
paid in full;
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(iii) THIRD, to the Enhancer in payment of principal and interest
owed on Transfer Loans until such amounts have been paid in full;
(iv) FOURTH, to the Lenders until all other amounts owed to the
Lenders by the Borrower in connection with the Loan Documents have been
paid in full; and
(v) FIFTH, to the Agent until all other amounts owed to the Agent by
the Borrower in connection with the Loan Documents have been paid in full.
ARTICLE XII
THE AGENT
SECTION 12.1. APPOINTMENT AND AUTHORIZATION: "AGENT". Each Lender hereby
irrevocably (subject to Section 12.9) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
SECTION 12.2. DELEGATION OF DUTIES. The Agent may execute any of
its duties under this Agreement or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Agent shall
not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
SECTION 12.3. LIABILITY OF AGENT. None of the Agent-Related Persons shall
(i) be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by the Borrower or any
Subsidiary or Affiliate of the Borrower, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of the Borrower or any
other
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party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall 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, this Agreement or any other
Loan Document, or to inspect the properties, books or records of the Borrower
or any of the Borrower's Subsidiaries or Affiliates.
SECTION 12.4. RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Borrower), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance with a
request or consent of the Required Lenders and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Lenders.
For purposes of determining compliance with the conditions specified in
Section 6.1 each Lender that has executed this Agreement shall be deemed to have
consented to, approved or accepted or to be satisfied with, each document or
other matter either sent by the Agent to such Lender for consent, approval,
acceptance or satisfaction, or required thereunder to be consented to or
approved by or acceptable or satisfactory to the Lenders.
SECTION 12.5. NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders, as applicable, unless
the Agent shall have received written notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". The Agent will notify the
Lenders of its receipt of any such notice. The Agent shall take such action
with respect to such Default or Event of Default as may be requested by the
Required Lenders in accordance with Article XI; PROVIDED, HOWEVER, that unless
and until the Agent has received any such request, the Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable or in the
best interest of the Lenders.
SECTION 12.6. CREDIT DECISION. Each Lender acknowledges that none of
the Agent-Related Persons has made any representation or warranty to it, and
that no act by the Agent hereinafter taken, including any review of the
affairs of the Borrower and its Subsidiaries, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender.
Each Lender represents to the Agent that it has, independently and without
reliance upon any Agent Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property,
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financial and other condition and creditworthiness of the Borrower and its
Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Borrower and its Subsidiaries
hereunder. Each Lender also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Lenders by the
Agent, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrower which may come into the possession of any of
the Agent-Related Persons.
SECTION 12.7. INDEMNIFICATION OF AGENT. Whether or not the
transactions contemplated hereby are consummated, the Committed Lenders shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed
by or on behalf of the Borrower and without limiting the obligation of the
Borrower to do so), PRO RATA, from and against any and all Indemnified
Liabilities; PROVIDED, HOWEVER, that no Committed Lender shall be liable for
the payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Committed Lender shall
reimburse the Agent upon demand for its ratable share of any reasonable costs
or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any
document contemplated by or referred to herein, to the extent that the Agent
is not reimbursed for such expenses by or on behalf of the Borrower. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Agent.
SECTION 12.8. AGENT IN INDIVIDUAL CAPACITY. ABN AMRO and its Affiliates
may make loans to accept deposits from, acquire equity interests in and
generally engage in any kind of banking, financial advisory, underwriting or
other business with the Borrower and its Subsidiaries and Affiliates as though
ABN AMRO were not the Agent hereunder and without notice to or consent of the
Lenders. The Lenders acknowledge that, pursuant to such activities, ABN AMRO or
its Affiliates may receive information regarding the Borrower or its Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Borrower or such Subsidiary) and acknowledge that the Agent shall
be under no obligation to provide such information to them. With respect to its
Loans, ABN AMRO shall have the same rights and powers under this Agreement as
any other Lender and may exercise the same as though it were not the Agent, and
the terms "Lender" and "Lenders" include ABN AMRO in its individual capacity.
SECTION 12.9. SUCCESSOR AGENT. The Agent may, and at the request of the
Required Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If
the Agent resigns under
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this Agreement, the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders, with the prior consent of the Borrower
(which consent shall not be unreasonably withheld). If no successor agent is
appointed prior to the effective date of the resignation of the Agent, the
Agent may appoint, after consulting with the Lenders and with the prior
consent of the Borrower (which consent shall not be unreasonably withheld), a
successor agent from among the Lenders. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed
to all the rights, powers and duties of the retiring Agent and the term
"AGENT" shall mean such successor agent and the retiring Agents appointment,
powers and duties as Agent shall be terminated. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article XII and
Sections 13.4 and 13.5 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement.
SECTION 12.10. WITHHOLDING TAX. (a) If any Lender is a "foreign
corporation, partnership or trust" within the meaning of the Code and such
Lender claims exemption from, or a reduction of, U.S. withholding tax under
Sections 1441 or 1442 of the Code, such Lender agrees with and in favor of the
Agent and Borrower to deliver to the Agent and Borrower:
(i) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under this
Agreement;
(ii) if such Lender claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Lender, two
properly completed and executed copies of IRS Form 4224 before the payment
of any interest is due in the first taxable year of such Lender and in each
succeeding taxable year of such Lender during which interest may be paid
under this Agreement; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agree to promptly notify the Agent and Borrower of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Lender or any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of the Borrower to such Lender, such Lender agree
to notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrower to such Lender, as applicable.
To the extent of such percentage amount, the Agent will treat such Lender's IRS
Form l001 as no longer valid.
(c) If any Lender claiming exemption from United States withholding tax by
filing IRS
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Form 4224 with the Agent sells, assigns, grants a participation in, or
otherwise transfers all or part of the Obligations of the Borrower to such
Lender, as applicable, such Lender agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441
and 1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable withholding
tax, the Agent may withhold from any interest payment to such Lender an amount
equivalent to the applicable withholding tax after taking into account such
reduction. However, if the forms or other documentation required by clause (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax imposed by
Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United States or
other jurisdiction asserts a claim that the Agent did not properly withhold tax
from amounts paid to or for the account of any Lender (because the appropriate
form was not delivered or was not properly executed, or because such Lender
failed to notify the Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders under this clause
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by the Borrower or any applicable Subsidiary therefrom,
shall be effective unless the same shall be in writing and signed by the
Required Lenders and the Conduits (or by the Agent at the written request of the
Required Lenders and the Conduits) and the Borrower and acknowledged by the
Agent, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; PROVIDED,
HOWEVER, that no such waiver, amendment, or consent shall, unless in writing and
signed by all the Lenders and the Borrower and acknowledged by the Agent, do any
of the following:
(a) increase or extend the Commitment of any Lender (or reinstate any
Commitment terminated pursuant to Section 11.2);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts
due to the Lenders (or any of them) hereunder or under any other Loan
Document;
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(c) reduce the principal of, or the rate of interest specified herein
on any Loan or Advance, or (subject to clause (ii) below) any fees or other
amounts payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans or Advance which is required for the
Lenders or any of them to take any action hereunder or change the
definition of Required Lenders or Purchase Amount; or
(e) amend this Section, or Section 4.15, or any provision herein
providing for consent or other action by all Lenders;
and, PROVIDED FURTHER, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Required Lenders or all the
Lenders, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document.
SECTION 13.2. NOTICES. (a) All notices, requests, consents, approvals,
waivers and other communications shall be in writing (including, unless the
context expressly otherwise provides, by facsimile transmission, PROVIDED that
any matter transmitted by the Borrower by facsimile shall be immediately
confirmed by a telephone call to the recipient at the number specified, in the
case of the Borrower, on its signature page hereto, and in the case of the other
parties hereto, on Schedule 13.2 and mailed, faxed or delivered, to the address
or facsimile number specified for notices, in the case of the Borrower, on its
signature page hereto, and in the case of the other parties hereto, on Schedule
13.2; or, as directed to the Borrower or the Agent, to such other address as
shall be designated by such party in a written notice to the other parties, and
as directed to any other party, at such other address as shall be designated by
such party in a written notice to the Borrower and the Agent.
(b) All such notices, requests and communications shall, when transmitted
by overnight delivery, or faxed, be effective when delivered for overnight
(next-day) delivery, or transmitted in legible form by facsimile machine,
respectively, or if mailed, upon the third Business Day after the date deposited
into the U.S. mail, or if delivered, upon delivery; except that notices pursuant
to Article II, III, IV or XII to the Agent shall not be effective until actually
received by the Agent.
(c) Any agreement of the Agent and the Lenders herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of the Borrower. The Agent and the Lenders shall be entitled to rely on
the authority of any Person purporting to be a Person authorized by the Borrower
to give such notice and the Agent and the Lenders shall not have any liability
to the Borrower or other Person on account of any action taken or not taken by
the Agent or the Lenders in reliance upon such telephonic or facsimile notice.
The obligation of the Borrower to repay the Loans and Advances shall not be
affected in any way or to any extent by any failure by the Agent or the Lenders
to receive written confirmation of any telephonic or facsimile notice or the
receipt by the Agent or the Lenders of a confirmation which is at variance with
the terms understood by the Agent or the Lenders to be contained in the
telephonic or facsimile notice.
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SECTION 13.3. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of the Agent or any Lender, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.
SECTION 13.4. COSTS AND EXPENSES. The Borrower shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse ABN AMRO (including in its capacity as Agent)
within five Business Days after demand (subject to Section 6.1(e)) for all
reasonable costs and expenses incurred by ABN AMRO (including in its
capacity as Agent) in connection with the development, preparation,
delivery, administration and execution of, and any amendment, supplement,
waiver or modification to (in each case, whether or not consummated), this
Agreement, any Loan Document and any other documents prepared in connection
herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including reasonable Attorney Costs
incurred by ABN AMRO (including in its capacity as Agent) with respect
thereto; and
(b) pay or reimburse the Agent and each Lender within five Business
Days after demand for all reasonable costs and expenses (including Attorney
Costs) incurred by them in connection with the enforcement, attempted
enforcement, or preservation of any rights or remedies under this Agreement
or any other Loan Document during the existence of an Event of Default or a
Significant Event or after acceleration of the Loans or Advances (including
in connection with any "workout" or restructuring regarding the Loans or
Advances, and including in any Insolvency Proceeding or appellate
proceeding).
SECTION 13.5. BORROWER INDEMNIFICATION. (a) Whether or not the
transactions contemplated hereby are consummated, the Borrower shall
indemnify, defend and hold the Agent-Related Persons, each Lender and each of
its respective officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "INDEMNIFIED PERSON") harmless from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including
Attorney Costs) of any kind or nature whatsoever which may at any time
(including at any time following repayment of the Loans or Advances, the
termination, resignation or replacement of the Agent or replacement of any
Lender) be imposed on, incurred by or asserted against any such Person in any
way relating to or arising out of this Agreement or any document contemplated
by or referred to herein, or the transactions contemplated hereby, or any
action taken or omitted by any such Person under or in connection with any of
the foregoing, including with respect to any investigation, litigation or
proceeding (including any Insolvency Proceeding or appellate proceeding)
related to or arising out of this Agreement, the Loans or the Advances or the
use of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES");
PROVIDED, that the Borrower shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities to the extent
resulting from the gross negligence or willful misconduct of such Indemnified
Person. The agreements in this Section shall survive payment of all other
Obligations.
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(b) SURVIVAL; DEFENSE. The obligations in this Section shall survive
payment of all other Obligations. At the election of any Indemnified Person,
the Borrower shall defend such Indemnified Person using legal counsel selected
by the Borrower and reasonably satisfactory to such Indemnified Person in such
Person's sole discretion, at the sole cost and expense of the Borrower. All
amounts owing under this Section shall be paid within 30 days after demand.
SECTION 13.6. PAYMENTS SET ASIDE. To the extent that the Borrower makes a
payment to the Agent or the Lenders, or the Agent or the Lenders exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by the
Agent or such Lender in its discretion) to be repaid to a trustee, receiver or
any other party, in connection with any Insolvency Proceeding or otherwise, then
(a) to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Lender severally agrees to pay to the Agent upon demand its pro rata share
of any amount so recovered from or repaid by the Agent.
SECTION 13.7. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Agent and each Lender.
SECTION 13.8. PARTICIPATIONS; ASSIGNMENTS.
(a) PARTICIPATIONS. Any Lender may sell to one or more Persons (each a
"PARTICIPANT") participating interests in the interests of such Lender
hereunder. Such Lender shall remain solely responsible for performing its
obligations hereunder, and the Borrower and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations hereunder. Each Participant shall be entitled to the benefits of
Section 13.5 and shall have the right of setoff through is participation in
amounts owing hereunder to the same extent as if it were a Lender hereunder,
which right of setoff is subject to such Participant's obligation to share with
the Lender as provided in Section 4.13 and, PROVIDED, HOWEVER, that no Lender
shall transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other Loan
Document except to the extent such amendment or waiver would (i) extend the
final scheduled maturity of any Loan in which such participant is participating,
or reduce the rate or extend the time of payment of interest or fees thereon
(except in connection with a waiver of applicability of any post-default
increase in increase rates) or reduce the principal amount thereof, or increase
the amount of the participant's participation over the amount thereof then in
effect (it being understood that a waiver of any Default shall not constitute a
change in the terms of such participation, and that an increase in any
Commitment or Loan shall be permitted without the consent of any participant if
the participant's participation is not increased as a result thereof) or (ii)
consent to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement.
(b) ASSIGNMENTS BY LIQUIDITY PROVIDERS. Any Liquidity Provider (with the
consent of the Borrower prior to the occurrence of an Event of Default, which
shall not be unreasonably
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withheld) may assign to one or more Persons ("PURCHASING LIQUIDITY
PROVIDERS"), reasonably acceptable to the Agent, any portion of its
Commitment as a Liquidity Provider and Loans pursuant to a supplement hereto
(a "TRANSFER SUPPLEMENT") in form satisfactory to the Agent executed by each
such Purchasing Liquidity Provider, such selling Liquidity Provider and the
Agent; PROVIDED, HOWEVER, that notwithstanding the foregoing, any Liquidity
Provider may make such an assignment to an Affiliate or wholly-owned
Subsidiary which satisfies the Rating Criteria without the consent of the
Borrower or the Agent. Any such assignment by a Liquidity Provider must be
for an amount of at least Five Million Dollars. Each Purchasing Liquidity
Provider shall pay a fee of Three Thousand Five Hundred Dollars to the Agent.
Any partial assignment shall be an assignment of an identical percentage of
such selling Liquidity Provider's Loans and its Commitment as a Liquidity
Provider. Upon the execution and delivery to the Agent of the Transfer
Supplement and payment by the Purchasing Liquidity Provider to the selling
Liquidity Provider of the agreed purchase price, such selling Liquidity
Provider shall be released from its obligations hereunder to the extent of
such assignment and such Purchasing Liquidity Provider shall for all purposes
be a Liquidity Provider party hereto and shall have all the rights and
obligations of a Liquidity Provider hereunder to the same extent as if it
were an original party hereto with a Commitment as a Liquidity Provider and
outstanding Loans. At the time of each assignment pursuant to this Section
13.8(b) to a Person which is not already a Lender hereunder and which is not
a United States person (as such term is defined in Section 701(a)(30) of the
Code) for Federal income tax purposes, the respective assignee Lender shall
provide to the Borrower and the Agent the appropriate Internal Revenue
Service Forms described in Section 12.10. To the extent that an assignment
of all or any portion of a Lender's Commitments would, at the time of such
assignment, result in increased costs under Section 5.1, 5.2 or 5.3 or
withholding taxes under Section 12.10 from those being charged by the
respective assigning Lender prior to such assignment, then the Borrower shall
not be obligated to pay such increased costs (although the Borrower shall be
obligated to pay any other increased costs of the type described above
resulting from changes after the date of the respective assignment).
(c) REPLACEABLE LIQUIDITY PROVIDERS. If any Liquidity Provider (a
"REPLACEABLE LIQUIDITY PROVIDER") shall (i) petition the Borrower for any
amounts under Section 5.1, 5.2 or 5.3 or invoke the provisions of Section 5.5,
(ii) (A) if such Liquidity Provider is a Windmill Committed Lender and Windmill
has any outstanding Advances, cease to have a short-term debt rating of at least
"A-1+" by S&P and "P-1" by Moody's or (B) cease to have a short-term debt rating
of at least "A-1" by S&P and "P-1" by Moody's (each a "DOWNGRADING EVENT"),
(iii) fail to consent to (A) any extension of the Liquidity Termination Date
requested by the Borrower or (B) any amendment to, or waiver of, any provision
of this Agreement or (iv) become a Subject Bank, then, in each case, the
Borrower may designate a replacement financial institution (a "REPLACEMENT
LIQUIDITY PROVIDER"), with the Agent's consent (which consent shall not be
unreasonably withheld), to which such Replaceable Liquidity Provider shall,
subject to its receipt of an amount equal to the principal and interest on its
Subject Bank Loans (plus, any amount that would have been payable pursuant to
Section 5.4), promptly assign all of its rights, obligations and Liquidity
Provider Commitment hereunder, together with all of its other outstanding Loans,
to the Replacement Liquidity Provider in accordance with Section 13.8(b).
(d) OPINIONS OF COUNSEL. If required by the Agent or to maintain the
Ratings, each Transfer Supplement must be accompanied by an opinion of counsel
or an officer's certificate of
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the assignee as to such matters as the Agent may reasonably request.
SECTION 13.9. CONFIDENTIALITY. Each Lender agrees to take and to cause
its Affiliates to take normal and reasonable precautions and exercise due care
to maintain the confidentiality of all non-public information identified as
"confidential" or "secret" by the Borrower and provided to it by the Borrower or
any Subsidiary, or by the Agent on the Borrower's or such Subsidiary's behalf,
under this Agreement or any other Loan Document, and neither it nor any of its
Affiliates shall use any such information other than in connection with or in
enforcement of this Agreement and the other Loan Documents or in connection with
other business now or hereafter existing or contemplated with the Borrower or
any Subsidiary; except to the extent such information (i) was or becomes
generally available to the public other than as a result of disclosure by any
Lender, or (ii) was or becomes available on a non-confidential basis from a
source other than the Borrower, PROVIDED, that such source is not bound by a
confidentiality agreement with the Borrower known to such Lender; PROVIDED,
HOWEVER, that any Lender may disclose such information (A) at the request or
pursuant to any requirement of any Governmental Authority exercising supervisory
jurisdiction over such Lender in connection with an examination of such Lender
by any such authority; (B) after having given notice to the Borrower and a
reasonable opportunity, in light of the circumstances (unless such notice or
opportunity is prohibited by applicable law), for the Borrower to obtain a
confidentiality agreement or protective order (substantially similar to the
requirements herein), as applicable (I) pursuant to subpoena or other court
process; (II) when required to do so in accordance with the provisions of any
applicable Requirement of Law; (III) to the extent reasonably required in
connection with any litigation or proceeding to which the Agent, any Lender or
their respective Affiliates may be party relating to the Borrower, any
Subsidiary or the transactions contemplated by this Agreement; (C) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document; (D) to such Lender's independent auditors and
other professional advisors; (E) to any Participant or Assignee, actual or
potential, PROVIDED, that such Person agrees in writing to keep such information
confidential to the same extent required of the Lenders hereunder; (F) as to any
Lender or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Borrower or any
Subsidiary is party or is deemed party with such Lender or such Affiliate; and
(G) to its Affiliates.
SECTION 13.10. SET-OFF. In addition to any rights and remedies of the
Lenders provided by law, if an Event of Default exists, each Lender is
authorized at any time and from time to time, without prior notice to the
Borrower, any such notice being waived by the Borrower to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Lender to or for the credit or the
account of the Borrower against any and all Obligations owing to such Lender,
now or hereafter existing, irrespective of whether or not the Agent or such
Lender shall have made demand under this Agreement or any Loan Document and
although such Obligations may be contingent or unmatured. Each Lender agrees
promptly to notify the Borrower and the Agent after any such set-off and
application made by such Lender; PROVIDED, HOWEVER, that the failure to give
such notice shall not affect the validity of such set-off and application.
SECTION 13.11. NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each
Lender shall notify
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the Agent and the Borrower in writing of any changes in the address to which
notices to such Lender should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Agent or the
Borrower shall reasonably request.
SECTION 13.12. COUNTERPARTS. This Agreement may be executed in any number
of separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
SECTION 13.13. SEVERABILITY. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
SECTION 13.14. NO THIRD PARTIES BENEFITED. This Agreement is made and
entered into for the sole protection and legal benefit of the Borrower, the
Lenders, the Agent and the Agent-Related Persons, and their permitted successors
and assigns, and no other Person shall be a direct or indirect legal beneficiary
of, or have any direct or indirect cause of action or claim in connection with,
this Agreement or any of the other Loan Documents.
SECTION 13.15. GOVERNING LAW AND JURISDICTION. (a) This agreement and the
notes shall be governed by, and construed in accordance with, the law of the
state of New York; PROVIDED that the Agent and the Lender shall retain all
rights arising under federal law.
(b) Any legal action or proceeding with respect to this Agreement or any
other Loan Document may be brought in the courts of the State of New York or of
the United States for the Southern District of New York, and by execution and
delivery of this Agreement, each of the Borrower, the Agent and the Lenders
consents, for itself and in respect of its property, to the non-exclusive
jurisdiction of those courts. Each of the Borrower, the Agent and the Lenders
irrevocably waives any objection, including any objection to the laying of venue
or based on the grounds of FORUM NON CONVENIENS, which it may now or hereafter
have to the bringing of any action or proceeding in such jurisdiction in respect
of this Agreement or any document related hereto. The Borrower, the Agent and
the Lenders each waive personal service of any summons, complaint or other
process, which may be made by any other means permitted by New York law.
SECTION 13.16. WAIVER OF JURY TRIAL. The Borrower, the Lenders and the
Agent each waive their respective rights to a trial by jury of any claim or
cause of action based upon or arising out of or related to this Agreement, the
other Loan Documents, or the transactions contemplated hereby or thereby, in any
action, proceeding or other litigation of any type brought by any of the parties
against any other party or any agent-related person, participant or assignee,
whether with respect to contract claims, tort claims, or otherwise. The
Borrower, the Lenders and the Agent each agree that any such claim or cause of
action shall be tried by a court trial without a jury without limiting the
foregoing, the parties further agree that their respective right to a trial by
jury is waived by operation of this section as to any action, counterclaim or
other proceeding which seeks, in whole or in part, to challenge the validity or
enforceability of this Agreement or the other Loan Documents or any provision
hereof or thereof. This waiver shall apply to any
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subsequent amendments, renewals, supplements or modifications to this
Agreement and the other Loan Documents.
SECTION 13.18. ENTIRE AGREEMENT. This Agreement, together with the other
Loan Documents, embodies the entire agreement and understanding among the
Borrower, the Lenders and the Agent, and supersedes all prior or contemporaneous
agreements and understandings of such Persons, verbal or written, relating to
the subject matter hereof and thereof.
SECTION 13.19. AGREEMENT NOT TO PETITION. Each party hereto agrees, for
the benefit of the holders of the privately or publicly placed indebtedness for
borrowed money for any Conduit, not, prior to the date which is one (1) year and
one (1) day after the payment in full of all such indebtedness, to acquiesce,
petition or otherwise, directly or indirectly, invoke, or cause such Conduit to
invoke, the process of any Governmental Authority for the purpose of (a)
commencing or sustaining a case against such Conduit under any federal or state
bankruptcy, insolvency or similar law (including the Bankruptcy Code), (b)
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official for such Conduit or any substantial part of its property,
or (c) ordering the winding up or liquidation of the affairs of such Conduit.
SECTION 13.20. EXCESS FUNDS. Any Conduit shall be required to make payment
of the amounts required to be paid pursuant hereto only if such Conduit has
Excess Funds (as defined below). If a Conduit does not have Excess Funds, the
excess of the amount due hereunder over the amount paid shall not constitute a
"CLAIM" (as defined in Section 101(5) of the Bankruptcy Code) against such
Conduit until such time as such Conduit has Excess Funds. If a Conduit does not
have sufficient Excess Funds to make any payment due hereunder, then such
Conduit may pay a lesser amount and make additional payments that in the
aggregate equal the amount of deficiency as soon as possible thereafter. The
term "EXCESS FUNDS" means the excess of (a) the aggregate projected value of the
applicable Conduit's assets and other property (including cash and cash
equivalents), over (b) the sum of (i) the sum of all scheduled payments of
principal, interest and other amounts payable on publicly or privately placed
indebtedness of such Conduit for borrowed money, plus (ii) the sum of all other
liabilities, indebtedness and other obligations of such Conduit for borrowed
money or owed to any credit or liquidity provider, together with all unpaid
interest then accrued thereon, plus (iii) all taxes payable by such Conduit to
the Internal Revenue Service, plus (iv) all other indebtedness, liabilities and
obligations of such Conduit then due and payable, but the amount of any
liability, indebtedness or obligation of such Conduit shall not exceed the
projected value of the assets to which recourse for such liability, indebtedness
or obligation is limited. Excess Funds shall be calculated once each Business
Day.
SECTION 13.21. RATING AGENCY APPROVAL. Unless otherwise expressly stated
in this Agreement, no (a) material amendment, waiver, supplement or other
modification of this Agreement or (b) assignment, termination, resignation or
removal under this Agreement, shall be effective unless a written statement is
obtained from each of the Rating Agencies that the rating of the indebtedness
for borrowed money issued or sold by Windmill or Amsterdam will not be
downgraded or withdrawn or suspended as a result of such amendment, waiver,
supplement, modification, assignment, termination, resignation or removal.
Windmill and Amsterdam shall provide each Rating Agency with at least ten (10)
Business Days prior notice (or such shorter
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notice as to which such Rating Agency may from time to time agree either
verbally or in writing) of each amendment, waiver, supplement or other
modification to this Agreement and each assignment, termination, resignation
or removal under this Agreement and shall provide a copy of the form of any
proposed material amendment, waiver, supplement or other modification.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York by their proper and duly authorized
officers as of the day and year first above written.
ADC Telecommunications, Inc.
By /s/ Gokul Hemmady
---------------------------------------
Title: Vice President & Treasurer
---------------------------------------
Address for notice:
12501 Whitewater Drive
Minnetonka, MN 55343
Attn: Gokul Hemmady
Telephone Number: (612) 946-3333
Facsimile Number: (612) 946-3477
Windmill Funding Corporation, as a Conduit
By /s/ Andrew L. Stidd
---------------------------------------
Its: President
---------------------------------------
Amsterdam Funding Corporation, as a Conduit
By /s/ Andrew L. Stidd
---------------------------------------
Its: President
---------------------------------------
ABN AMRO Bank N.V., as Agent
By /s/ W. Robert Poff
---------------------------------------
Title: Vice President
---------------------------------------
By /s/ Jon R. Bottorff
---------------------------------------
Title: Senior Vice President
---------------------------------------
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ABN AMRO Bank N.V., as a Liquidity Provider
By /s/ W. Robert Poff
---------------------------------------
Title: Vice President
---------------------------------------
By /s/ Jon R. Bottorff
---------------------------------------
Title: Senior Vice President
---------------------------------------
ABN AMRO Bank N.V., as the Enhancer
By /s/ W. Robert Poff
---------------------------------------
Title: Vice President
---------------------------------------
By /s/ Jon R. Bottorff
---------------------------------------
Title: Senior Vice President
---------------------------------------
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Banca Commerciale Italiana,
Chicago Branch
By /s/ ILLEGIBLE SIGNATURE
---------------------------------------
Title: Senior Vice President &
Branch Manager
---------------------------------------
By /s/ ILLEGIBLE SIGNATURE
---------------------------------------
Title: Vice President
---------------------------------------
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Banque Nationale de Paris
By /s/ Arnaud Collin du Bocage
---------------------------------------
Title: Executive Vice President &
General Manager
---------------------------------------
By /s/ Jo Ellen Bender
---------------------------------------
Title: Senior Vice President &
Manager
---------------------------------------
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Comerica Bank
By /s/ Timothy O'Rourke
---------------------------------------
Title: Vice President
---------------------------------------
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The First National Bank of Chicago
By /s/ Scott Moreen
---------------------------------------
Title: Vice President
---------------------------------------
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First Union National Bank
By /s/ Paul Menconi
---------------------------------------
Title: Senior Vice President
---------------------------------------
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Firstar Bank of Minnesota, N.A.
By /s/ Karen S. Paris
---------------------------------------
Title: Vice President
---------------------------------------
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M&I Marshall and Ilsley Bank
By /s/ Robert Nielsen
---------------------------------------
Title: Senior Vice President
---------------------------------------
By /s/ ILLEGIBLE SIGNATURE
---------------------------------------
Title: Vice President
---------------------------------------
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The Northern Trust Company
By /s/ Keith O'Donnell
---------------------------------------
Title: Commercial Banking Officer
---------------------------------------
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Norwest Bank Minnesota,
National Association
By /s/ Molly S. Van Metro
---------------------------------------
Title: Vice President
---------------------------------------
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Exhibit 13-a
------------
PORTIONS OF 1998 ANNUAL REPORT TO SHAREHOLDERS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ADC Telecommunications, Inc. ("ADC") offers a broad range of systems
and solutions that enable its customers to create and upgrade their
communications networks to support increasing user demand for voice,
Internet/data and video services. Telephone companies, cable TV operators,
wireless service providers and other communications service providers are
building the infrastructure required to offer high-speed Internet access,
data, video, telephony and other interactive multimedia services to
residential and business customers. Broader network bandwidths are required
for these services, and ADC's development efforts and product offerings are
focused on "unlocking the capacity of the local loop" by eliminating
bottlenecks and increasing the speed and efficiency of communications
networks. The local loop is the last mile of the communications network from
the local service providers' offices through the network equipment that
connects to the end-user's residence or business.
ADC offers hardware and software systems, and integrated solutions
within the following four product groups: Broadband Connectivity Group, Business
Broadband Group, Residential Broadband Group and Integrated Solutions Group.
Each of these groups is described below.
BROADBAND CONNECTIVITY products are designed for use in
twisted-pair, coaxial, fiber-optic or wireless transmission networks and are
sold to both public and private global service providers. ADC's Broadband
Connectivity products provide the physical contact points for connecting
different communications system components and gaining access to
communications system circuits for the purpose of installing, testing,
monitoring, managing, reconfiguring, splitting and multiplexing such circuits
within the local loop portion of global public and private networks. ADC's
Broadband Connectivity products are sold to the Regional Bell Operating
Companies, other telephone companies, long distance carriers, other public
network providers (including cable TV operators and wireless services
providers), international network operators, private network providers and
original equipment manufacturers (OEM). Broadband Connectivity products
include network access/connection devices for twisted-pair and coaxial
networks, network access/connection devices for fiber-optic networks, modular
fiber-optic cable routing systems, outside plant cabinets and other
enclosures, and wireless infrastructure equipment. Broadband Connectivity
products also include ADC's family of CityWide-TM- wireless systems products,
which consist of wideband digital microcells and repeaters for extending
cellular communication coverage, both in buildings and outdoors. Other system
offerings include GSM Mobile and CDPD data networks.
BUSINESS BROADBAND products enable carriers to deliver voice,
Internet/data and video services to their business customers. Products
include Interoffice and Loop Transport Platforms (including Soneplex(R) and
Cellworx-TM-products) as well as a broad family of access devices often sold
with these platforms to provide complete service delivery solutions. Soneplex
is a carrier-class, intelligent loop access platform enabling Incumbent Local
Exchange Carriers and Competitive Local Exchange Carriers to deliver
T1/E1-based services over copper or fiber facilities. Soneplex integrates
functions and capabilities that reduce a carrier's total cost of delivering
T1/E1-based services. Cellworx is a next-generation OC-12/48 SONET/SDH
transport element integrating ATM and SONET/SDH technologies. While Soneplex
is centered on T1/E1-based service delivery, Cellworx is a broad-based
service delivery infrastructure product aimed at reducing a carrier's capital
and operating costs of delivering a full range of high-speed and low-speed
services over copper (HDSL, ADSL and others) or fiber facilities. Business
Broadband products also include access devices, consisting of Customer
Located Devices (which are part of the carrier's network) as well as Customer
Premise Devices (which are owned by the carrier's business customer). These
products can work alone or in conjunction with Soneplex or Cellworx products
or with other vendors' transport systems. They include DSU/CSUs, T1/E1
multiplexers (offering a variety of voice, data and video interfaces), T3/E3
multiplexers and ATM access concentrators.
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RESIDENTIAL BROADBAND products offer digital transport systems that
enable cable TV operators to economically transport high-speed digital
signals for two-way voice, video and Internet/data services to residences and
businesses, primarily through ADC's Homeworx-TM- access transport platform and
DV6000-TM- system. ADC's Homeworx access transport platform utilizes
Hybrid Fiber/Coaxial (HFC) technology. The Homeworx system has been designed
for deployment on video-only, telephony-only and integrated video, telephony
and data broadband networks provided by telephone operating companies, cable
TV operators and other communications common carriers. ADC's DV6000 system
transmits a variety of signal types using a high-speed, uncompressed digital
format over fiber in the super trunking portions of broadcast and interactive
video networks. The DV6000 system and related MPEG-based products are also
used to provide a wide range of video transport and interactive distance
learning services for government, campus and other broadcast markets. ADC
also provides a line of analog fiber-optics transmitter and node products for
the cable TV industry. These products are deployed in the United States and
internationally by cable TV operators that are upgrading their equipment to
carry two-way service over HFC systems, including digital interactive video,
Internet/data and voice services.
INTEGRATED SOLUTIONS products consist of project management,
technical consulting and design, implementation, reliability, performance and
training services, and software systems, which support multi-division and
multi-vendor solutions. ADC provides services and software primarily to
telephone operating companies, cable TV operators, other common carriers and
users of private communications networks. Software is provided through ADC's
subsidiaries, ADC NewNet, ADC Metrica and ADC Apex. ADC NewNet is a developer
of intelligent network communications software, including Signaling Systems 7
(SS7) technology, wireless intelligent network products (such as short
messaging servers) and products compliant with the Communications Assistance
to Law Enforcement Act (CALEA). ADC Metrica designs and sells communications
network performance management software to wireline and wireless service
providers. ADC Apex provides SoftXchange-TM- network management software and
operations and business support system services.
Historically, ADC's principal product offerings generally consisted
of copper-based and fiber-optic-based products designed to address the needs
of its customers for transmission and connectivity on traditional telephony
networks. With the growth of multimedia applications and the related
development of enhanced voice, Internet/data and video services, ADC's more
recent product offerings and research and development efforts have
increasingly focused on emerging technologies and hardware, software and
service offerings for broadband communications applications. The market for
broadband communications hardware and software systems, and integrated
solutions is evolving and rapidly changing. ADC's growth is dependent in part
on its ability to successfully develop and commercially introduce new
products in each of its product groups addressing this market and also
dependent on the growth of the market. The
-2-
<PAGE>
growth in the market for such broadband communications products is dependent
on a number of factors, including the amount of capital expenditures by
communications service providers, regulatory and legal developments, changes
to capital expenditure rates by communications service providers (which could
result from the ongoing consolidation of customers in these markets as well
as the addition of new customer entrants to the market) and end-user demands
for integrated voice, Internet/data, video and other communications services.
There can be no assurance that ADC's new or enhanced products and services
will meet with market acceptance or be profitable.
ADC's operating results may fluctuate significantly from quarter to
quarter due to several factors. ADC is growing through acquisition and
expansion, and results of operations described in this report may not be
indicative of results to be achieved in future periods. ADC's expense levels are
based in part on management's expectations of future revenues. Although
management has and will continue to take measures to adjust expense levels, if
revenue levels in a particular period fluctuate, operating results may be
adversely affected. In addition, ADC's results of operations are subject to
seasonal factors. ADC historically has experienced a stronger demand for its
products in the fourth fiscal quarter, primarily as a result of customer budget
cycles and Company year-end incentives, and has experienced a weaker demand for
its products in the first fiscal quarter, primarily as a result of the number of
holidays in late November, December and early January and a general industry
slowdown during that period. There can be no assurance that these historical
seasonal trends will continue in the future.
ACQUISITIONS AND RELATED CHARGES SUBSEQUENT TO YEAR-END
In November 1998, ADC acquired Teledata Communications Ltd.
("Teledata") for approximately $200 million in cash plus stock options valued
at $7.9 million, and Hadax Electronics, Inc. ("Hadax") for approximately $25
million in cash. ADC also strategically restructured its product groups,
which resulted in the elimination of a distinct Wireless Systems Group.
Beginning on the acquisition dates, Teledata and Hadax will be included in
the Residential Broadband Group and the Broadband Connectivity Group,
respectively. Also, as a result of the strategic restructuring, the mobile
systems products are included in the Broadband Connectivity Group and
software products supplied by ADC Metrica and ADC NewNet are included in the
Integrated Solutions Group. ADC expects to take charges for purchased
research and development expenses and restructuring costs in the range of $47
million to $50 million, on an after-tax basis, during the first quarter of
fiscal 1999 in connection with the two acquisitions and the strategic
restructuring.
RESULTS OF OPERATIONS
The percentage relationships to net sales of certain income and expense
items for the three years ended October 31, 1998, and the percentage changes in
these income and expense items between years are contained in the following
table:
<TABLE>
<CAPTION>
Percentage
Increase (Decrease)
Percentage of Net Sales Years Ended Between Years
----------------------------------------- -----------------------------------
1998 vs. 1997 vs.
1998 1997 1996 1997 1996
----------- ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 18.5% 40.6%
Cost of Product Sold (53.4) (53.4) (53.0) 18.5 41.7
----------- ----------- ------------ --------------- ---------------
Gross Profit 46.6 46.6 47.0 18.5 39.4
Expenses:
Research and Development (10.0) (10.5) (10.9) 12.5 36.2
Selling and administration (19.5) (19.0) (19.4) 20.9 37.9
Goodwill amortization (0.8) (0.9) (0.6) 16.4 91.3
Non-recurring charges - (2.0) - - -
----------- ----------- ------------ --------------- ---------------
Operating Income 16.3 14.2 16.1 36.2 24.4
Other Income, Net:
Interest 0.4 0.6 1.3 (32.9) (33.6)
Other (0.3) (0.2) (0.9) (74.7) 63.2
----------- ----------- ------------ --------------- ---------------
Income Before Income Taxes 16.4 14.6 16.5 32.7 24.4
Provision for Income Taxes (5.8) (5.3) (5.9) 29.1 24.4
----------- ----------- ------------ --------------- ---------------
Net Income 10.6% 9.3% 10.6% 34.8% 24.4%
=========== =========== ============ =============== ===============
</TABLE>
-3-
<PAGE>
NET SALES: The following table sets forth ADC's net sales for the three
years ended October 31, 1998 for each of the functional product groups (dollars
in thousands):
<TABLE>
<CAPTION>
Percentage Increase
Net Sales for the Years Ended October 31, Between Years
------------------------------------------------------------------ --------------------
1998 1997 1996
--------------------- --------------------- -------------------- --------------------
Net Net 1998 vs 1997 vs
Product Group Sales % Sales % Net Sales % 1997 1996
---------- --------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Broadband Connectivity $ 649,954 47.1% $ 543,375 46.6% $ 403,384 48.7% 19.6% 34.7%
Business Broadband 346,896 25.2 321,469 27.6 251,288 30.3 7.9 27.9
Residential Broadband 197,528 14.3 181,254 15.6 135,508 16.4 9.0 33.8
Integrated Solutions 185,300 13.4 118,352 10.2 37,829 4.6 56.6 212.9
---------- --------- ---------- --------- --------- --------- --------- ---------
TOTAL $1,379,678 100.0% $1,164,450 100.0% $ 828,009 100.0% 18.5% 40.6%
========== ========= ========== ========= ========= ========= ========= =========
</TABLE>
Net sales were $1.38 billion, $1.16 billion and $828 million for the
years ended October 31, 1998, 1997 and 1996, reflecting 18.5%, 40.6% and 41.2%
increases, respectively, over the prior years. These increases in total net
sales reflected growth in net sales in all product groups.
During the years ended October 31, 1998, 1997 and 1996, net sales of
Broadband Connectivity products increased 19.6%, 34.7% and 36.7%,
respectively, over the prior year periods. The increases primarily reflect
strong growth in shipments for both copper and fiber connectivity systems
(which are deployed in telephone, cable television, Internet, broadcast,
wireless and private communications networks) and contributions from ADC
Solitra which was acquired during the third quarter of 1996. ADC believes
that future sales of Broadband Connectivity products will continue to account
for a substantial portion of ADC's revenues, although net sales of these
products may decline as a percentage of total net sales primarily due to the
ongoing evolution of technologies in the communications marketplace.
Net sales from the Business Broadband Group increased 7.9%, 27.9%
and 29.4% during the years ended October 31, 1998, 1997 and 1996,
respectively. This growth was driven primarily by an increase in sales of
transport systems and service access systems to incumbent and competitive
local exchange telephone companies. The increased sales were partially offset
by slower growth in sales of Data Service Units/Channel Service Units
(DSU/CSUs) and ATM access concentrators. ADC is upgrading the functionality
of these products, and has recently announced the release of three new
network access solutions products.
Net sales from the Residential Broadband Group increased 9.0%, 33.8%
and 39.8% during the years ended October 31, 1998, 1997 and 1996,
respectively. Sales increased primarily as a result of the continued rollout
of ADC's Homeworx cable telephony systems and strong sales growth of its
DV6000 digital video transport systems. These sales increases were partially
offset by lower sales of other optical transport systems, which were at
all-time high sales levels in 1997.
Integrated Solutions Group revenues of $185.3 million in 1998
represented a 56.6% increase from $118.4 million in 1997. The sales increase
was driven by an expanding customer base, internal growth and the acquisition
of W.E. Tech, Inc. in January 1998. Revenues were 212.9% higher in 1997 than
the $37.8 million reported by the Integrated Solutions Group in 1996. The
emergence of approximately 1,500 new U.S. carriers in the last three years
and the increasing consolidation of large telecommunication companies is
creating strong demand for ADC's Integrated Solutions products and services.
As a result of more complex networks, a growing number of service providers
are contracting with ADC for operations support systems, business support
systems, network management services and software integration, as well as the
traditional network engineering and equipment installation services.
Increased sales of ADC Metrica and ADC NewNet software products also
contributed to the growth of Integrated Solutions.
-4-
<PAGE>
GROSS PROFIT: During the years ended October 31, 1998, 1997 and 1996,
gross profit percentages were 46.6%, 46.6% and 47.0%, respectively. ADC
anticipates that its future gross profit percentage will continue to be affected
by product mix, timing of new product introductions and manufacturing volume,
among other factors.
OPERATING EXPENSES: Total operating expenses for the years October 31,
1998, 1997 and 1996 were $417.6 million, $377.0 million and $256.0 million,
representing 30.3%, 32.4% and 30.9% of net sales, respectively. The increase in
operating expenses as a percentage of net sales during 1997 reflects the $22.7
million of non-recurring charges recorded during the quarter ended January 31,
1997. Such charges primarily represent the write-off of purchased research and
development resulting from the acquisition of the wireless infrastructure group
from Pacific Communication Sciences, Inc., as well as expenses related to a
consolidation and streamlining of ADC's West Coast operations. Operating
expenses before non-recurring charges for the year ended October 31, 1997 were
$354.3 million, representing 30.4% of net sales. The dollar increases in
operating expenses before non-recurring charges during each of the three years
ended October 31, 1998 were due primarily to expanded operations associated with
higher revenue levels.
Research and development expenses were $137.9 million, $122.6 million
and $90.0 million for the years ended October 31, 1998, 1997 and 1996,
respectively, reflecting increases of 12.5% during 1998 and 36.2% during 1997.
These increases reflect substantial product development and product introduction
expenses in each of ADC's four product groups.
ADC believes that, given the rapidly changing technological and
competitive environment in the communications equipment industry, continued
commitment to product development efforts will be required for ADC to remain
competitive. Accordingly, ADC intends to continue to allocate substantial
resources to product development for each of its four product groups. However,
ADC recognizes the need to balance the cost of product development with expense
control and remains committed to carefully managing the rate of increase of such
expenses.
Selling and administrative expenses were $268.0 million, $221.6 million
and $160.7 million for the years ended October 31, 1998, 1997 and 1996,
respectively, reflecting increases of 20.9% during 1998 and 37.9% during 1997.
These increases reflect selling activities associated with new product
introductions and additional personnel costs related to expanded operations.
Several of ADC's acquisitions have been accounted for as purchase
transactions in which the initial purchase prices exceeded the fair value of the
acquired assets. The amortization of goodwill from new acquisitions resulted in
increased goodwill amortization expense of $11.7 million in 1998 and $10.0
million in 1997, compared to $5.2 million in the year ended October 31, 1996.
See Note 5 to the Consolidated Financial Statements included in this report for
a discussion of acquisitions.
OTHER INCOME, NET: For the years ended October 31, 1998, 1997 and 1996,
net interest income represented net interest on cash balances. See "Liquidity
and Capital Resources" below for a discussion of cash levels. Other expense for
the years ended October 31, 1998, 1997 and 1996 primarily represented foreign
exchange gains and losses and ADC's share of net operating results of its
investments accounted for on an equity basis.
INCOME TAXES: See Note 8 to the Consolidated Financial Statements
included in this report for a reconciliation of the federal statutory tax rate
to an effective tax rate of 35.0% in 1998 and 36.0% in 1997 and 1996. In
addition to the non-deductible goodwill amortization included in operating
expenses each period, these rates reflect the beneficial impact of tax credits.
NET INCOME: Net income was $146.7 million (or $1.08 per diluted
share) for the year ended October 31, 1998, an increase of 34.8% over $108.8
million (or $0.81 per diluted share) for the year ended October 31, 1997. The
non-recurring pretax charges of $22.7 million reduced net income by $14.5
million after tax or $0.11 per share during 1997.
-5-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, primarily short-term investments in
commercial paper with maturities of less than 90 days, increased $177.9 million
during 1998. The increase reflected approximately $200 million borrowed under an
interim credit facility for acquisition payments and $82.1 million of cash
provided by operations. This increase was offset by property and equipment
additions of $94.5 million and acquisition payments of $26.1 million. Cash and
cash equivalents decreased $73.4 million during fiscal 1997. The major elements
of this decrease were acquisition payments of $33.9 million and property and
equipment additions of $119.0 million, which were partially offset by $79.7
million of cash provided by operations.
At October 31, 1998, ADC had a $306 million interim credit facility
for general corporate purposes. On October 27, 1998, ADC drew $200 million
under the facility in connection with its pending acquisition of Teledata.
This amount remained outstanding at October 31, 1998 at an interest rate
equal to the commercial paper interest rate plus 25 basis points (5.27% at
October 31, 1998). The facility was subsequently replaced with an unsecured,
five-year $340 million revolving credit facility. Under this five-year
revolving credit facility, borrowings carry an initial interest rate equal to
the commercial paper interest rate plus 25 basis points. This credit facility
also requires ADC to maintain certain financial ratios.
Management believes that current cash on hand, cash generated from
operating activities, and available credit facilities will be adequate to fund
working capital requirements and planned capital expenditures for 1999
(approximately $35.4 million was committed for capital expenditures as of
October 31, 1998). However, ADC may seek additional sources of financing for its
capital needs, additional working capital, potential investments or acquisitions
or otherwise.
YEAR 2000 MATTERS
Many currently installed computer systems and software are coded to
accept only two-digit entries in the date code fields. These date code fields
will need to accept four-digit entries to distinguish 21st century dates from
20th century dates. This problem could result in system failures or
miscalculations causing disruptions of business operations (including, among
other things, a temporary inability to process transactions, send invoices or
engage in other similar business activities). As a result, many companies'
computer systems and software will need to be upgraded or replaced in order to
comply with Year 2000 requirements. The potential global impact of the Year 2000
problem is not known, and, if not corrected in a timely manner, could affect ADC
and the U.S. and world economy generally.
ADC's product development processes currently contain steps to include
Year 2000 readiness verification for all current and future products. Most of
ADC's existing products are currently Year 2000 ready, and ADC believes that
readiness for all of its products will be achieved prior to January 1, 2000.
ADC has formed a project team (consisting of representatives from its
information technology, finance, business development, manufacturing, product
development, sales, marketing and legal departments) to address internal and
external Year 2000 issues. ADC's internal financial, manufacturing and other
computer systems are being reviewed to assess and minimize Year 2000 issues.
ADC's assessment of internal systems includes its information technology ("IT")
as well as non-IT systems (which systems may contain embedded technology in
manufacturing or process control equipment containing microprocessors or other
similar circuitry). ADC's Year 2000 readiness program includes the following
phases: identifying systems that may be modified or replaced; carrying out
modifications to existing systems or convert to new systems; and conducting
validation testing of various systems and applications to determine their
readiness. ADC is currently in the second phase of this program for its
corporate-level IT systems and in the first phase for other systems.
The amount of work required to address Year 2000 issues is not expected
to be extensive. ADC has replaced certain of its financial and operational
systems in the last several years, and management believes that the new
equipment and software substantially address Year 2000 issues. However, ADC may
be required to modify some of its existing hardware and software.
-6-
<PAGE>
ADC retained a consulting firm to assess ADC's corporate-level IT
system and engineering design system readiness for Year 2000. The firm concluded
that more than 75% of these hardware and software systems are Year 2000 ready.
ADC is assessing the other hardware and software used by ADC and its business
units for Year 2000 readiness. ADC estimates that it will complete its Year 2000
readiness program for all of its significant internal systems by October 31,
1999.
ADC retained the same consulting firm to assess ADC's engineering
design systems readiness for Year 2000. The firm concluded that 80% of ADC's
engineering application software is or is in the process of becoming Year 2000
ready and 75% of the engineering hardware is or is in the process of becoming
Year 2000 ready.
In addition, ADC is requesting assurances from its major suppliers that
they are addressing the Year 2000 issue and that products and services purchased
by ADC from such suppliers will function properly in the year 2000. Also,
contacts are being made with ADC's major customers. These actions are intended
to help mitigate the possible external impact of the Year 2000 problem. However,
it is impossible to fully assess the potential consequences in the event service
interruptions from suppliers occur or in the event that there are disruptions in
such infrastructure areas as utilities, communications, transportation, banking
and government.
The total estimated cost for resolving ADC's Year 2000 issues is
approximately $3.5 million, of which approximately $1.5 million has been
spent through October 31, 1998. The total cost estimate includes the cost of
replacing systems in cases where ADC has accelerated plans to replace such
systems, which are not Year 2000 ready. Estimates of Year 2000 costs are
based on numerous assumptions, and there can be no assurance that the
estimates are correct or that actual costs will not be materially greater
than anticipated.
Based on its assessments to date, ADC believes it will not
experience any material disruption as a result of Year 2000 issues in
internal manufacturing processes, information processing, or interfacing with
major customers, or with processing orders and billing. However, if certain
critical third-party providers, such as those providers supplying
electricity, water or telephone service, experience difficulties resulting in
disruption of service to ADC, a shutdown of certain of ADC's operations at
individual facilities could occur for the duration of the disruption. ADC is
developing a contingency plan (in the event of a Year 2000 disruption) to
provide for continuity of processing based on the outcome of testing its Year
2000 readiness program and the results of surveying its major suppliers and
customers. Assuming no major disruption in service from utility companies or
other critical third-party providers, ADC believes that it will be able to
manage its total Year 2000 transition without any material effect on ADC's
results of operations or financial condition.
The most reasonably likely worst-case scenario of failure by ADC or
its suppliers or customers to resolve Year 2000 issues could potentially be a
temporary slowdown or cessation of manufacturing operations at one or more of
ADC's facilities, and/or a temporary inability on the part of ADC to timely
process orders and to deliver finished products to customers. Delays in
meeting customers' orders could potentially affect the timing of billings to
and payments received from customers and could result in complaints, charges
or claims. Customers' Year 2000 issues could potentially also delay the
timing of payments to ADC.
EURO CONVERSION
On January 1, 1999, several member countries of the European Union will
establish fixed conversion rates, and adopt the Euro as their new common legal
currency. Beginning on such date, the Euro will trade on currency exchanges and
the legacy currencies will remain legal tender in the participating countries
for a transition period between January 1, 1999 and January 1, 2002.
During the transition period, parties can elect to pay for goods and
services and transact business using either the Euro or a legacy currency.
Between January 1, 2002 and July 1, 2002, the participating countries will
introduce Euro currency coins and withdraw all legacy currencies.
-7-
<PAGE>
The Euro conversion may affect cross-border competition by creating
cross-border price transparency. ADC is assessing its pricing and marketing
strategy in order to insure that ADC remains competitive in a broader European
market. ADC is also modifying its information technology systems to allow for
transactions to take place in both the legacy currencies and the Euro and the
eventual elimination of the legacy currencies. In addition, ADC is reviewing
whether certain existing contracts will need to be modified. ADC's currency risk
and risk management for operations in participating countries may be reduced as
the legacy currencies are converted to the Euro. ADC will continue to evaluate
issues involving introduction of the Euro. Based on current information and
assessments, ADC does not expect that the Euro conversion will have a material
adverse effect on its results of operations or financial condition.
RISK MANAGEMENT
ADC is exposed to market risk from changes in foreign currency exchange
rates, which could impact ADC's results of operations and financial condition.
To a limited extent, ADC manages its exposure to these market risks through the
use of short-term foreign currency forward contracts. ADC has historically
hedged accounts receivable in foreign currencies, but may in the future hedge
anticipated transactions with customers to further manage risk of fluctuations
in currency exchange rates. See Note 9 to the Consolidated Financial Statements
included in this report. ADC uses forward contracts as risk management tools and
not for speculative purposes. While ADC manages exposure to foreign currency
fluctuations relating to customer transactions, the decline in value of
currencies may adversely affect future product sales because ADC's products may
become more expensive for customers to purchase in their local currency.
ADC also has exposure to adverse market changes in the value of its
Common Stock, because ADC has sold put options and purchased call options to
sell and purchase shares of ADC Common Stock. These agreements were entered into
in connection with ADC's stock repurchase program. See Note 7 to the
Consolidated Financial Statements included in this report.
QUARTERLY STOCK PRICE
ADC's Common Stock, $0.20 par value, is traded on the Nasdaq Stock
Market under the symbol "ADCT." The following table sets forth the high and low
sale prices for each quarter during the years ended October 31, 1998 and 1997,
as reported on that market.
<TABLE>
<CAPTION>
Fiscal Year Ended October 31, 1998 Low High
- ------------------------------------------------------------------------------
<S> <C> <C>
First Quarter 16 3/4 43 5/8
Second Quarter 19 5/8 32 1/8
Third Quarter 26 5/8 37 11/16
Fourth Quarter 15 3/4 34 13/16
- ------------------------------------------------------------------------------
<CAPTION>
Fiscal Year Ended October 31, 1997 Low High
- ------------------------------------------------------------------------------
<S> <C> <C>
First Quarter 30 1/8 40 1/4
Second Quarter 21 1/4 37 3/4
Third Quarter 26 45
Fourth Quarter 29 5/16 40
- ------------------------------------------------------------------------------
</TABLE>
No cash dividends have been declared or paid during the past five years.
ADC currently anticipates that it will retain any future earnings for use in
business and does not anticipate paying any cash dividends in the foreseeable
future. As of October 31, 1998, there were approximately 5,364 holders of
record of the Common Stock.
-8-
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report, including Management's Discussion and Analysis
of Financial Condition and Results of Operations as well as the Letter to
Shareowners and the discussion of ADC's business, contains various
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements represent ADC's
expectations or beliefs concerning future events, including the following:
any statements regarding future sales and other results of operations, any
statements regarding the continuation of historical trends, any statements
regarding the sufficiency of ADC's cash balances and cash generated from
operating and financing activities for ADC's future liquidity and capital
resource needs, any statements regarding the effect of regulatory changes and
any statements regarding the future of the communications industry or ADC's
business. ADC cautions that any forward-looking statements made by ADC in
this report or in other announcements made by ADC are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitations, the
factors set forth on Exhibit 99 to ADC's Annual Report on Form 10-K for the
year ended October 31, 1998.
-9-
<PAGE>
Management's Responsibility for Financial Reporting
The management of ADC Telecommunications is responsible for the preparation,
integrity and objectivity of all financial statements and other information
contained in this Annual Report. To ensure reliability of financial data, ADC
has established and maintains an internal control system which provides
reasonable assurance that financial reports do not contain any material
misstatement.
The Audit Committee of the board of directors is responsible for reviewing and
evaluating the overall performance of the Company's financial reporting and
accounting practices. The Committee meets periodically and independently with
management, internal auditors and the independent public accountants to discuss
the Company's internal accounting controls, auditing and financial matters. The
internal auditors and independent public accountants have unrestricted access to
the Audit Committee.
We believe that the financial statements and related notes in this report are
presented fairly in all material respects, and that they were prepared according
to generally accepted accounting principles.
William J. Cadogan Robert E. Switz
Chairman, President, Chief Senior Vice President,
Executive Officer Chief Financial Officer
-10-
<PAGE>
Report of Independent Public Accountants
To ADC Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of ADC
TELECOMMUNICATIONS, INC. AND SUBSIDIARIES as of October 31, 1998 and 1997, and
the related consolidated statements of income, shareowners' investment and cash
flows for each of the three years in the period ended October 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
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 financial statements referred to above present
fairly, in all material respects, the financial position of ADC
Telecommunications, Inc. and Subsidiaries as of October 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended October 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
November 25, 1998
-11-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended October 31 (In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Sales $ 1,379,678 $ 1,164,450 $ 828,009
Cost of Product Sold 736,537 621,811 438,847
--------------- --------------- ---------------
Gross Profit 643,141 542,639 389,162
--------------- --------------- ---------------
Expenses:
Research and development 137,912 122,638 90,038
Selling and administration 268,007 221,624 160,705
Goodwill amortization 11,656 10,013 5,235
Non-recurring charges -- 22,700 --
--------------- --------------- ---------------
Total expenses 417,575 376,975 255,978
--------------- --------------- ---------------
Operating Income 225,566 165,664 133,184
Other Income, Net 168 4,393 3,479
--------------- --------------- ---------------
Income before Income Taxes 225,734 170,057 136,663
Provision for Income Taxes 79,007 61,220 49,200
--------------- --------------- ---------------
Net Income $ 146,727 $ 108,837 $ 87,463
=============== =============== ===============
Earnings per Share - Basic $ 1.09 $ 0.83 $ 0.68
=============== =============== ===============
Earnings per Share - Diluted $ 1.08 $ 0.81 $ 0.67
=============== =============== ===============
Average Common Shares Outstanding - Basic 134,327 131,673 128,314
=============== =============== ===============
Average Common Shares Outstanding - Diluted 136,307 134,356 130,903
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-12-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31 (In Thousands) 1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 287,700 $ 109,794
Accounts receivable, net of reserves of $5,744 and $4,803 365,989 246,241
Inventories, net of reserves of $22,516 and $20,961 175,763 168,379
Prepaid income taxes and other assets 33,418 25,053
------------ -----------
Total current assets 862,870 549,467
Property and Equipment, net 256,961 215,677
Other Assets, Principally Goodwill 180,756 171,159
------------ -----------
$ 1,300,587 $ 936,303
============ ===========
LIABILITIES AND SHAREOWNERS' INVESTMENT
Current Liabilities:
Accounts payable $ 67,150 $ 62,879
Accrued liabilities 115,559 118,870
Note payable 200,000 --
Current maturities of long-term debt 735 650
------------ -----------
Total current liabilities 383,444 182,399
Long-Term Debt, Less Current Maturities 2,769 3,109
------------ -----------
Total liabilities 386,213 185,508
------------ -----------
Shareowners' Investment:
Common stock, $0.20 par value; authorized 300,000 shares;
issued and outstanding 134,897 and 133,508 shares 26,979 26,702
Paid-in capital 265,048 243,743
Retained earnings 632,410 485,683
Cumulative translation adjustment (8,423) (4,612)
Deferred compensation (1,640) (721)
------------ -----------
Total shareowners' investment 914,374 750,795
------------ -----------
$ 1,300,587 $ 936,303
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-13-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREOWNERS' INVESTMENT
For The Years Ended October 31 (In Thousands)
<TABLE>
<CAPTION>
Common Stock Cumulative
----------------------- Paid-in Retained Translation Deferred
Shares Amount Capital Earnings Adjustment Compensation
---------- ---------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1995 62,737 $ 12,547 $ 219,266 $ 280,662 $ (715) $ (894)
Stock issued for business acquisitions 1,911 382 198 5,415 -- --
Stock issued for employee benefit plans 529 106 12,802 -- -- (1,490)
Reduction of deferred compensation -- -- -- -- -- 781
Translation adjustments -- -- -- -- 947 --
Net income -- -- -- 87,463 -- --
---------- ---------- ---------- ------------- --------------
BALANCE, OCTOBER 31, 1996 65,177 13,035 232,266 373,540 232 (1,603)
Stock split effected in the form of a
stock dividend 65,177 13,035 (13,035) -- -- --
Stock issued for business acquisitions 2,239 448 15,066 3,306 -- --
Stock issued for employee benefit plans 915 184 9,446 -- -- (80)
Reduction of deferred compensation -- -- -- -- -- 962
Translation adjustments -- -- -- -- (4,844) --
Net income -- -- -- 108,837 -- --
---------- ---------- ---------- ---------- ------------- --------------
BALANCE, OCTOBER 31, 1997 133,508 26,702 243,743 485,683 (4,612) (721)
Stock issued for business acquisition 60 12 1,679 -- -- (1,691)
Stock issued for employee benefit plans 1,329 265 19,626 -- -- --
Reduction of deferred compensation -- -- -- -- -- 772
Translation adjustments -- -- -- -- (3,811) --
Net income -- -- -- 146,727 -- --
---------- ---------- ---------- ---------- ------------- --------------
BALANCE, OCTOBER 31, 1998 134,897 $ 26,979 $ 265,048 $ 632,410 $ (8,423) $ (1,640)
========== ========== ========== ========== ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-14-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended October 31 (In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 146,727 $ 108,837 $ 87,463
Adjustments to reconcile net income to net cash
from operating activities:
Non-recurring charges -- 22,700 --
Depreciation and amortization 65,109 49,843 33,794
Reduction in deferred compensation 772 962 781
Decrease in deferred income taxes (2,173) (6,789) (3,448)
Other 4,495 (93) 28
Changes in assets and liabilities:
Accounts receivable (117,988) (72,693) (45,767)
Inventories (6,869) (34,441) (35,100)
Prepaids and other assets (8,788) (7,863) (3,048)
Accounts payable 4,100 5,921 15,104
Accrued liabilities (3,307) 13,329 13,650
-------------- -------------- --------------
Total cash from operating activities 82,078 79,713 63,457
-------------- -------------- --------------
INVESTING ACTIVITIES:
Property and equipment additions, net (94,549) (119,030) (69,057)
Acquisition payments (26,070) (33,917) (49,291)
Long-term investments (1,433) (3,523) (7,268)
-------------- -------------- --------------
Total cash used for investing activities (122,052) (156,470) (125,616)
-------------- -------------- --------------
FINANCING ACTIVITIES:
Decrease in long-term debt (264) (5,279) (4,897)
Common stock sold 19,891 9,534 11,696
Borrowings under credit facility 200,000 -- --
-------------- -------------- --------------
Total cash from financing activities 219,627 4,255 6,799
-------------- -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,747) (925) 90
-------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 177,906 (73,427) (55,270)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 109,794 183,221 238,491
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 287,700 $ 109,794 $ 183,221
============== ============== ==============
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 75,275 $ 55,209 $ 46,129
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-15-
<PAGE>
ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of ADC Telecommunications, Inc. (a Minnesota corporation) and
all significant subsidiaries in which ADC has more than a 50% equity
ownership (collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated in consolidation.
CASH EQUIVALENTS: Cash equivalents primarily represent short-term investments
in commercial paper with original maturities of three months or less. The
carrying amounts of these investments approximate their fair value due to
their short maturities.
INVENTORIES: Inventories include material, labor and overhead and are stated
at the lower of first-in, first-out cost or market.
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost and
depreciated using the straight-line method over estimated useful lives of
three to thirty years or, in the case of leasehold improvements, over the
term of the lease, if shorter. Both straight-line and accelerated methods of
depreciation are used for income tax purposes.
GOODWILL: The excess of the cost of acquired businesses over the fair value
of the net assets acquired is amortized on a straight-line basis ranging from
five to twenty-five years. Management periodically assesses the amortization
period and recoverability of the carrying amount of goodwill based upon an
estimate of future cash flows from related operations.
RESEARCH AND DEVELOPMENT COSTS: The Company's general policy is to expense
all research and development costs in the period incurred.
INCOME TAXES: The Company utilizes the liability method of accounting for
income taxes. Deferred tax liabilities or assets are recognized for the
expected future tax consequences of temporary differences between the book
and tax bases of assets and liabilities.
REVENUE RECOGNITION: Revenue is recognized when all significant contractual
obligations have been satisfied and collection of the resulting receivable is
reasonably assured. Revenue from product sales of hardware and software is
recognized at time of delivery and acceptance, and after consideration of all
terms and conditions of the customer contract.
FOREIGN CURRENCY TRANSLATION: The Company converts assets and liabilities of
foreign operations to their U.S. dollar equivalents at rates in effect at the
balance sheet date and records translation adjustments in Shareowners'
Investment in the balance sheet. Income statements of foreign operations are
translated from the operations' functional currency to U.S. dollar
equivalents at the exchange rate on the transaction dates. Foreign exchange
transaction gains and losses are reported in "Other Income, Net."
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
NEW ACCOUNTING PRONOUNCEMENTS: SFAS No. 130 - Reporting Comprehensive Income
was issued during June 1997 and establishes standards for reporting and
display of comprehensive income and its components in the financial
statements. ADC will adopt this standard in fiscal 1999. The adoption of SFAS
No. 130 will
-16-
<PAGE>
not have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
SFAS No. 131 - Disclosures about Segments of an Enterprise and Related
Information was issued during June 1997 and establishes standards for the
manner in which public business enterprises report information about
operating and geographic segments in annual financial statements and requires
that those enterprises report selected information about operating segments
in interim financial reports. This pronouncement is effective for fiscal
years beginning after December 15, 1997. Financial statement disclosures for
prior periods are required to be restated. Because this pronouncement relates
only to financial statement disclosure, the adoption of SFAS No. 131 will
have no impact on the Company's consolidated results of operations, financial
position or cash flows.
SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities
was issued during June 1998 and establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires the recognition of all derivatives as either assets or liabilities
in the statement of financial position and the measurement of those
instruments at fair value. This pronouncement is effective for all fiscal
quarters of fiscal years ending after June 15, 1999. The adoption of SFAS No.
133 will not have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
(2) CONSOLIDATED INCOME STATEMENT INFORMATION
International Sales
International sales were $278.2 million, $247.4 million and $172.2 million
during 1998, 1997 and 1996, respectively.
Other Income, Net:
(In Thousands) 1998 1997 1996
----------- ----------- ---------
Interest income $ 5,290 $ 7,369 $ 10,906
Interest expense (610) (393) (402)
Other expense, net (4,512) (2,583) (7,025)
----------- ----------- ---------
$ 168 $ 4,393 $ 3,479
=========== =========== =========
NON-RECURRING CHARGES: During the first quarter of 1997, the Company recorded
a non-recurring charge of $22.7 million. This charge primarily represented
the write-off of purchased research and development from the acquisition of
the Wireless Infrastructure Group of Pacific Communications Sciences, Inc.
("PCSI"), as well as expenses related to the consolidation of the Company's
West Coast operations.
-17-
<PAGE>
(3) CONSOLIDATED BALANCE SHEET INFORMATION
(In Thousands) 1998 1997
----------- -----------
Inventories:
Purchased materials and manufactured products $ 156,006 $ 154,403
Work-in-process 19,757 13,976
----------- -----------
$ 175,763 $ 168,379
=========== ===========
Property and equipment:
Land and buildings $ 104,759 $ 66,441
Machinery and equipment 336,529 304,797
Furniture and fixtures 37,242 30,687
----------- -----------
478,530 401,925
Less accumulated depreciation and amortization (221,569) (186,248)
----------- -----------
$ 256,961 $ 215,677
=========== ===========
Goodwill:
Goodwill $ 176,831 $ 151,104
Less accumulated amortization (41,825) (30,169)
----------- -----------
$ 135,006 $ 120,935
=========== ===========
Accrued liabilities:
Accrued compensation and benefits $ 55,328 $ 54,881
Accrued income taxes 24,817 27,684
Other accrued liabilities 35,414 36,305
----------- -----------
$ 115,559 $ 118,870
=========== ===========
(4) NOTE PAYABLE
At October 31, 1998, the Company had a $306 million interim credit facility
for general corporate purposes. On October 27, 1998, in connection with its
pending acquisition of Teledata Communications, Ltd. (Teledata), the Company
began drawing funds under the facility. The outstanding balance at October
31, 1998 of $200 million carries an interest rate equal to the commercial
paper interest rate plus 25 basis points (5.27% at October 31, 1998). The
facility was subsequently replaced with an unsecured five year $340 million
revolving credit facility. Under the five year credit facility, borrowings
carry an initial interest rate equal to the commercial paper interest rate
plus 25 basis points. The facility also requires the Company to maintain
certain financial ratios.
(5) ACQUISITIONS
On November 2, 1998 the Company completed the acquisition of Hadax
Electronics, Inc. (Hadax), for approximately $25 million in cash. Hadax is a
provider of remote test and access equipment. The acquisition will be treated
as a purchase and is expected to result in a non-recurring charge of $7.4
million for purchased research and development expense. The inclusion of
Hadax financial data prior to the acquisition date would not have materially
affected reported results.
On November 5, 1998 the Company completed the acquisition of Teledata
through the purchase of all outstanding common shares of Teledata for
approximately $200 million in cash plus stock options valued at $7.9 million.
Teledata designs, develops, manufactures, markets and supports advanced
wireline and wireless customer access network equipment for telephone
operating companies worldwide. The acquisition will be accounted for as a
purchase, and will result in the recognition of goodwill and other intangible
assets of approximately $65 million. The acquisition is also expected to
result in a non-recurring charge for purchased research and development
expense of approximately $37 million.
-18-
<PAGE>
The results of operations of Teledata and Hadax will be included with
those of ADC for periods subsequent to October 31, 1998. Teledata had
consolidated revenues of $63.6 million and a net loss of $1.6 million for the
twelve month period ended September 30, 1998. The unaudited pro forma
combined condensed balance sheet of ADC and Teledata as of October 31, 1998
after giving effect to certain pro forma adjustments is as follows (in
thousands):
ASSETS
(Unaudited)
---------------
Current assets $ 755,006
Property and equipment, net 267,607
Other assets 276,642
---------------
$ 1,299,255
===============
LIABILITIES AND
SHAREOWNERS' EQUITY
Current liabilities $ 411,329
Long-term debt 2,769
Shareowners' equity 885,157
---------------
$ 1,299,255
===============
The unaudited pro forma combined results of operations of ADC and
Teledata for the year ended October 31, 1998 after giving effect to certain
pro forma adjustments are as follows (in thousands, except earnings per
share):
(unaudited)
---------------
Revenue $ 1,443,264
Net Income $ 133,029
Net income per common share - diluted
basis $ 0.98
The foregoing unaudited pro forma results of operations reflect the
amortization of intangible assets related to the acquisition of Teledata.
Estimated lives ranging from 5 to 15 years were used for amortization of
intangible assets.
During fiscal 1996 to 1998 the Company made several acquisitions of
telecommunications equipment, software and service companies. These
acquisitions are summarized as follows (dollars in thousands):
Company Date Transaction Value
- ----------------------------- -------------------- ----------------------
W.E. Tech, Inc. January 1998 $16,000
NewNet, Inc. October 1997 $52,500
Apex Group, Inc. March 1997 $26,000
Wireless Infrastructure
Group of PCSI December 1996 $23,000
Solitra Oy July 1996 $44,000
Metrica Systems Limited May 1996 $36,000
Skyline Technology, Inc. April 1996 $12,000
Da Tel Fibernet, Inc. March 1996 $14,000
Information Transmission
Systems Corp. March 1996 $34,000
The inclusion of the above acquisitions for periods prior to the date of
acquisition would not have materially affected results of operations.
Goodwill associated with these acquisitions is being amortized using the
straight line method over periods ranging from ten to fifteen years.
-19-
<PAGE>
(6) EMPLOYEE BENEFIT PLANS
PENSION PLAN: Until January 5, 1998, the Company maintained a defined benefit
plan covering a majority of its employees. The plan was funded in accordance
with the requirements of Federal laws and regulations. Plan assets consisted
of fixed income securities and a managed portfolio of equity securities.
During 1997, the Board approved the termination of the defined benefit
plan. The termination of the defined benefit plan was effective January 5,
1998, with the actual settlement of the plan on September 30, 1998 at which
time all eligible employee obligations were settled through the purchase of
non-participating annuity contracts to cover vested benefits or by making
lump-sum cash payments to plan participants.
RETIREMENT SAVINGS PLAN: Substantially all employees are eligible to
participate in the Company's Retirement Savings Plan. The Company matches
employee contributions to the Plan up to 6% of wages and depending on Company
performance, may voluntarily make an additional contribution up to 70% on 6%
of wages. Employees are fully vested in all contributions. The Company's
contributions to the plan were $12.4 million, $8.2 million and $7.4 million
during 1998, 1997, and 1996, respectively. A portion of the Company's cash
contributions is invested in the Company's common stock by the Plan's trustee.
STOCK AWARD PLANS: The Company maintains a Stock Incentive Plan to grant
certain stock awards, including stock options at fair market value and
restricted shares, to key employees of the Company. A maximum of 22,419,008
stock awards can be granted under this plan; 7,020,621 shares were available
for stock awards as of October 31, 1998. The Company also maintains a
Nonemployee Director Stock Option Plan in order to enhance the ability to
attract and retain the services of experienced and knowledgeable outside
directors. This plan provides for granting of a maximum of 840,000
non-qualified stock options at fair market value. As of October 31, 1998,
313,400 shares were available for option grants under this plan. In addition,
a total of 427,422 shares have been reserved under plans adopted in
conjunction with certain acquisitions.
The following schedule summarizes activity in the plans:
<TABLE>
<CAPTION>
Stock Options
----------------------------
Weighted
Average Restricted
Exercise Stock
Shares Price (Shares)
------------ ---------- -----------
<S> <C> <C> <C>
Outstanding at October 31, 1996 5,208,076 $ 11.75 108,586
Granted 6,803,318 $ 36.47 2,466
Exercised (821,761) $ 9.18 --
Restrictions Lapsed -- (15,891)
Canceled (525,146) $ 33.57 (2,600)
------------ -----------
Outstanding at October 31, 1997 10,664,487 $ 26.67 92,561
Granted 3,623,124 $ 31.75 60,000
Exercised (1,068,032) $ 8.36 --
Restrictions Lapsed -- -- (63,395)
Canceled (1,261,184) $ 35.78 (4,383)
------------ ---------- -----------
Outstanding at October 31, 1998 11,958,395 $ 28.73 84,783
============ ========== ===========
Exercisable at October 31, 1998 4,933,753 $ 20.56
============ ==========
</TABLE>
During 1996, options for 963,514 shares were exercised at a weighted
average exercise price of $6.60 per share.
During 1997, the Company adopted SFAS No. 123 "Accounting for
Stock-Based Compensation" which encourages, but does not require, a fair
value based method of accounting for employee stock options or similar equity
instruments. As permitted under the new standard, the Company has continued
to account for employee stock options using the intrinsic value method
outlined in Accounting Principles Board Opinion No. 25,
-20-
<PAGE>
"Accounting for Stock Issued to Employees." Accordingly, no compensation
expense has been recognized by the Company for its Stock Incentive Plan or
its Non-employee Director Stock Option Plan.
If compensation expense for the Company's stock-based compensation plans
had been determined based on the fair value at the grant dates consistent
with the method of SFAS No. 123, the Company's net income and earnings per
share would have decreased to the pro forma amounts indicated below:
(In Thousands, Except Per Share Amounts) 1998 1997 1996
----------- ---------- ----------
Net income
As reported $ 146,727 $ 108,837 $ 87,463
Pro forma $ 117,221 $ 89,681 $ 85,793
Basic Earnings Per Share
As reported $ 1.09 $ 0.83 $ 0.68
Pro forma $ 0.87 $ 0.68 $ 0.67
Diluted Earnings Per Share
As reported $ 1.08 $ 0.81 $ 0.67
Pro forma $ 0.86 $ 0.67 $ 0.66
The weighted-average fair value per option at the date of grant for
options granted in 1998, 1997 and 1996 was $15.46, $17.34 and $11.24,
respectively. The fair value was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions:
1998 1997 1996
--------- --------- ---------
Risk-free interest rate 5.19% 6.41% 6.27%
Expected dividend yield -- -- --
Expected volatility factor 68.6% 44.7% 38.7%
Expected option term 4.6 years 7.0 years 7.0 years
(7) CAPITAL STOCK
AUTHORIZED STOCK: The Company is authorized to issue 300,000,000 shares of
$0.20 par value common stock and 10,000,000 shares of no par value preferred
stock. There are no shares of preferred stock issued.
STOCK SPLIT: On September 24, 1996, the Company declared a two-for-one stock
split effected in the form of a 100% stock dividend paid November 1, 1996.
All references in the accompanying financial statements and notes to earnings
per share, average common shares outstanding, stock award plan data and
related share prices have been adjusted to reflect the split.
EARNINGS PER SHARE: Basic earnings per common share is computed by dividing
net income by the weighted average number of common shares outstanding during
the year. Diluted earnings per share is computed by dividing net income by
the sum of the weighted average number of common shares outstanding plus all
additional common shares that would have been outstanding if potentially
dilutive common shares related to stock options had been issued. The
following table reconciles the number of shares utilized in the earnings per
share calculations:
-21-
<PAGE>
<TABLE>
<CAPTION>
(In Thousands Except Earnings Per Share) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 146,727 $ 108,837 $ 87,463
Earnings per share - basic $ 1.09 $ 0.83 $ 0.68
Earnings per share - diluted $ 1.08 $ 0.81 $ 0.67
Weighted average common shares outstanding (basic) 134,327 131,673 128,314
Effect of dilutive securities - stock options 1,980 2,683 2,589
Weighted average common shares outstanding (diluted) 136,307 134,356 130,903
</TABLE>
During fiscal 1998, outstanding options to purchase 7.6 million shares
of common stock but were not included in the computation of diluted earnings
per share because the exercise price of the options was greater than the
average market price of the common shares.
SHAREOWNER RIGHTS PLAN: The Company has adopted a Shareholder Rights Plan
which provides that if any person or group acquires 15% or more of the
Company's common stock, each right not owned by such person or group will
entitle its holder to purchase, at the Right's then current purchase price
($62.50 for each one-half share of the Company's common stock at October 31,
1998), common stock of the Company having a value of twice the Right's
purchase price. The Rights would not be triggered, however, if the
acquisition of 15% or more of the Company's common stock is pursuant to a
tender offer or exchange for all outstanding shares of the Company's common
stock which is determined by the board of directors to be fair and in the
best interests of the Company and its stockholders. The Rights are redeemable
at $0.01 per share any time prior to the time they become exercisable. The
Rights will expire on November 28, 2005, if not previously redeemed or
exercised.
STOCK REPURCHASE PROGRAM: In April 1998, the Company announced a stock
repurchase program under which the Company may purchase up to 6.7 million
shares of common stock in open market transactions as market and business
conditions warrant. The Company may also utilize forward repurchase
agreements, "equity collar" arrangements using call and put options, or other
arrangements as part of this stock repurchase program.
In connection with the stock repurchase program, the Company sold put
options to independent third parties that entitle holders of the options to
sell shares of Company common stock to the Company. Additionally, the Company
purchased call options (which are subject to caps) from the same parties that
entitle the Company to buy shares of its common stock. These put and call
options at October 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Shares Call Price Put Price Cap Expiration Date
- --------------- ------------- ----------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
2,000,000 $31.8000 $29.3000* $44.5000 September 15, 1999
500,000 $21.9400 $20.4100 $40.8200 October 4, 1999
95,000 $17.9500 $16.7000 $33.4000 October 20, 1999
1,000,000 $18.2949 $17.5631 $45.7372 October 4, 2000
1,000,000 $17.7028 $16.9947 $44.2571 October 12, 2000
1,000,000 $18.3773 $17.6422 $45.9433 October 24, 2000
</TABLE>
- -------------
*Subject to a floor of $8.00.
The premiums received for the put options equaled the premiums paid for
the call options. The options will be settled with shares of common stock
having a value equal to the difference between the exercise price and market
value at the time of exercise. The dilutive effect of such options on
earnings per share for the periods through October 31, 1998 was not material.
-22-
<PAGE>
(8) INCOME TAXES
The components of the provision for income taxes are as follows:
(In Thousands) 1998 1997 1996
----------- ----------- --------------
Current taxes payable:
Federal $ 70,339 $ 53,890 $ 44,483
Foreign 4,341 7,523 2,078
State 6,500 6,596 6,087
----------- ----------- --------------
81,180 68,009 52,648
Deferred (2,173) (6,789) (3,448)
----------- ----------- --------------
Total provision $ 79,007 $ 61,220 $ 49,200
=========== =========== ==============
The provision for foreign income taxes is based upon foreign pretax
earnings of approximately $7.4 million, $19.0 million and $8.3 million during
1998, 1997 and 1996, respectively.
The effective income tax rate differs from the Federal statutory rate as
follows:
1998 1997 1996
----------- ----------- ------------
Federal statutory rate 35% 35% 35%
Research and development
tax credits (2) (2) (1)
Goodwill amortization 1 1 1
State income taxes, net 2 2 3
FSC exempt income (1) (1) --
Other, net -- 1 (2)
----------- ----------- -----------
Effective income tax rate 35% 36% 36%
=========== =========== ===========
Deferred tax assets (liabilities) of the Company as of October 31 are
comprised of the following:
(In Thousands) 1998 1997
----------- ---------
Current deferred tax assets:
Asset valuation reserves $ 8,276 $ 5,320
Accrued liabilities 13,000 11,895
Other 664 179
----------- ---------
Total $ 21,940 $ 17,394
=========== =========
Non-current deferred tax assets (liabilities):
Intangibles $ 20,841 $ 21,394
Depreciation (3,987) (1,731)
Other 165 (271)
----------- ---------
Total $ 17,019 $ 19,392
=========== =========
(9) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES: A portion of the Company's operations are conducted using
leased equipment and facilities. These leases are noncancelable and renewable
with expiration dates ranging through the year 2006. The rental expense
included in the accompanying consolidated statements of income was $14.4
million, $11.7 million, and $7.3 million for 1998, 1997, and 1996,
respectively.
-23-
<PAGE>
The following is a schedule of future minimum rental payments required
under all noncancelable operating leases as of October 31, 1998:
(In Thousands)
1999 $13,247
2000 12,654
2001 10,155
2002 6,892
2003 and thereafter 15,891
-------
$58,839
=======
CONTINGENCIES: There are no legal proceedings pending against or involving
the Company which, in the opinion of management, will have a material adverse
effect on the Company's financial position or results of operations.
CHANGE OF CONTROL: The board of directors has approved the extension of
certain employee benefits, including salary continuation to key employees, in
the event of a change of control of the Company. The board has retained the
flexibility to cancel such provisions under certain circumstances.
FOREIGN CURRENCY HEDGING: Foreign currency forward contracts are used to
manage economic exposure to fluctuations in currency exchange rates,
principally Canadian Dollars and Great Britain Pounds. Such contracts had a
total notional amount of $19.8 million at October 31, 1998. Gains and losses
on foreign currency forward contracts are recognized in other income.
(10) QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1998 First Second Third Fourth
(Unaudited, in Thousands, Quarter Quarter Quarter Quarter Total
Except Earnings Per Share) ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 286,396 $ 334,635 $ 362,496 $ 396,151 $ 1,379,678
------------ ------------ ----------- ------------ ------------
Gross Profit 133,550 156,967 168,855 183,769 643,141
------------ ------------ ----------- ------------ ------------
Income Before Income Taxes 39,091 52,828 62,474 71,341 225,734
Provision for Income Taxes 13,682 18,489 21,867 24,969 79,007
------------ ------------ ----------- ------------ ------------
Net Income $ 25,409 $ 34,339 $ 40,607 $ 46,372 $ 146,727
============ ============ =========== ============ ============
Average Common Shares
Outstanding - Basic 133,719 134,275 134,525 134,784 134,327
============ ============ =========== ============ ============
Earnings Per Share - Basic $ 0.19 $ 0.26 $ 0.30 $ 0.34 $ 1.09
Average Common Shares
Outstanding - Diluted 136,914 136,283 136,826 136,649 136,307
============ ============ =========== ============ ============
Earnings Per Share - Diluted $ 0.19 $ 0.25 $ 0.30 $ 0.34 $ 1.08
============ ============ =========== ============ ============
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
1997 First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 256,777 $ 279,199 $ 293,312 $ 335,162 $ 1,164,450
------------ ------------ ------------ ------------ -------------
Gross Profit 117,669 129,323 137,046 158,601 542,639
------------ ------------ ------------ ------------ -------------
Income Before Income Taxes 16,243 45,096 51,182 57,536 170,057
Provision for Income Taxes 5,848 16,235 18,425 20,712 61,220
------------ ------------ ------------ ------------ -------------
Net Income $ 10,395 $ 28,861 $ 32,757 $ 36,824 $ 108,837
============ ============ ============ ============ =============
Average Common Shares
Outstanding - Basic 130,445 131,009 131,820 133,405 131,673
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
Earnings Per Share - Basic $ 0.08 $ 0.22 $ 0.25 $ 0.28 $ 0.83
Average Common Shares
Outstanding - Diluted 133,730 133,827 134,862 136,358 134,356
============ ============ ============ ============ =============
Earnings Per Share - Diluted $ 0.08 $ 0.22 $ 0.24 $ 0.27 $ 0.81
============ ============ ============ ============ =============
</TABLE>
-25-
<PAGE>
ELEVEN-YEAR FINANCIAL SUMMARY
Years Ended October 31
(Dollars In thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
NET SALES $1,379,678 1,164,450 828,009 586,222 448,735
International Sales $ 278,154 247,409 172,212 106,416 67,113
Gross Profit $ 643,141 542,639 389,162 284,128 227,287
Research and Development Expense $ 137,912 122,638 90,038 66,460 48,974
Selling and Administrative Expense $ 268,007 221,624 160,705 130,297 110,799
Goodwill amortization $ 11,656 10,013 5,235 3,133 3,135
OPERATING INCOME $ 225,566 165,664 133,184 80,324 64,379
Income before income taxes and ex. item $ 225,734 170,057 136,663 86,229 64,321
Income Taxes $ 79,007 61,220 49,200 31,043 23,800
NET INCOME $ 146,727 108,837 87,463 55,186 39,071
EARNINGS PER SHARE - DILUTED $ 1.08 0.81 0.67 0.46 0.34
FINANCIAL RATIOS
Gross Margin 46.6% 46.6% 47.0% 48.5% 50.7%
Operating Margin 16.3% 14.2% 16.1% 13.7% 14.3%
Pre-tax Income Margin 16.4% 14.6% 16.5% 14.7% 14.3%
Effective Tax Rate 35.0% 36.0% 36.0% 36.0% 37.0%
Net Margin 10.6% 9.3% 10.6% 9.4% 8.7%
Return on Average Shareowners' Equity 17.6% 15.9% 15.5% 14.2% 16.1%
Current Ratio 2.25 3.01 3.52 5.03 2.96
CASH FLOW DATA
Total Cash from Operating Activities $ 82,078 79,713 63,457 44,259 58,201
Depreciation and Amortization $ 65,109 49,843 33,794 26,341 23,366
Capital Expenditures $ 94,549 119,030 69,057 32,456 21,788
YEAR-END DATA
Cash and Cash Equivalents $ 287,700 109,794 183,221 238,491 49,512
Current Assets $ 862,870 549,467 499,501 447,747 199,368
Current Liabilities $ 383,444 182,399 142,079 88,961 67,353
Working Capital $ 479,426 367,068 357,422 358,786 132,015
Property and Equipment, Net $ 256,961 215,677 131,080 78,686 66,132
Total Assets $1,300,587 936,303 768,765 601,083 334,684
Long-term Debt $ 2,769 3,109 6,913 -- 410
Shareowners' Equity $ 914,374 750,795 617,470 510,866 264,758
Number of Employees 8,032 5,924 4,620 2,984 2,644
INVESTOR INFORMATION
Stock Price - Close $ 23.00 33.13 34.19 20.00 11.78
- High $ 43.63 45.00 35.13 24.69 11.94
- Low $ 15.75 21.25 14.25 9.88 7.75
Price Earnings Ratio at Year-end 21.3 40.9 51.2 43.3 34.2
Book Value Per Share $ 6.78 5.62 4.74 4.07 2.37
Registered Shareowners at
year end $ 5,364 4,442 2,973 2,664 2,172
Shares Outstanding at Year-end (000's) $ 134,897 133,508 130,354 125,474 111,552
Average Shares Outstanding
- Diluted (000's) $ 136,307 134,356 130,903 119,580 113,308
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
NET SALES $366,118 316,496 293,839 259,802 196,388
International Sales $ 58,919 49,347 37,960 41,623 31,277
Gross Profit $187,546 161,422 145,225 126,000 88,624
Research and Development Expense $ 40,988 36,063 32,315 25,462 17,360
Selling and Administrative Expense $ 93,311 82,966 74,369 62,793 48,580
Goodwill amortization $ 2,798 2,720 1,953 920 267
OPERATING INCOME $ 50,449 35,873 36,588 36,825 22,417
Income before income taxes and ex. item $ 49,737 34,726 36,405 38,172 26,245
Income Taxes $ 18,101 13,700 14,380 15,269 9,842
NET INCOME $ 31,636 21,026 22,025 22,903 16,403
EARNINGS PER SHARE - DILUTED $ 0.28 0.19 0.20 0.21 0.16
FINANCIAL RATIOS
Gross Margin 51.2% 51.0% 49.4% 48.5% 45.1%
Operating Margin 13.8% 11.3% 12.5% 14.2% 11.4%
Pre-tax Income Margin 13.6% 11.0% 12.4% 14.7% 13.4%
Effective Tax Rate 36.4% 39.5% 39.5% 40.0% 37.5%
Net Margin 8.6% 6.6% 7.5% 8.8% 8.4%
Return on Average Shareowners' Equity 15.7% 12.3% 15.1% 18.7% 16.1%
Current Ratio 2.60 2.88 2.95 2.75 3.18
CASH FLOW DATA
Total Cash from Operating Activities $ 29,448 34,755 37,167 35,026 17,900
Depreciation and Amortization $ 20,587 19,878 17,954 14,306 10,691
Capital Expenditures $ 21,243 15,780 24,567 13,734 9,595
YEAR-END DATA
Cash and Cash Equivalents $ 16,324 20,484 30,109 25,978 17,576
Current Assets $142,531 115,355 119,530 102,525 75,914
Current Liabilities $ 54,901 40,071 40,525 37,335 23,864
Working Capital $ 87,630 75,284 79,005 65,190 52,050
Property and Equipment, Net $ 62,876 57,945 57,808 45,384 42,545
Total Assets $280,054 240,762 247,169 181,665 143,831
Long-term Debt $ 810 14,110 43,634 4,841 4,691
Shareowners' Equity $220,394 182,188 158,374 134,013 110,470
Number of Employees 2,462 2,303 2,428 2,111 1,896
INVESTOR INFORMATION
Stock Price - Close $ 9.13 4.53 3.05 2.05 1.92
- High $ 11.00 4.75 5.41 3.25 2.23
- Low $ 4.53 2.56 2.03 1.91 1.38
Price Earnings Ratio at Year-end 32.4 23.7 15.1 9.6 12.4
Book Value Per Share $ 1.99 1.67 1.47 1.26 1.04
Registered Shareowners at year end 1,633 1,608 1,621 1,758 1,831
Shares Outstanding at Year-end (000's) 110,788 108,880 107,432 106,312 105,744
Average Shares Outstanding - Diluted
(000's) 112,296 109,985 108,794 107,390 105,735
</TABLE>
<TABLE>
<CAPTION>
10 Year 5 Year
----------- -----------
Compound Compound
Growth Rate Growth Rate
1988 1988-1998 1993-1998
---------- ----------- ------------
<S> <C> <C> <C>
OPERATING RESULTS
NET SALES $179,852 22.6% 30.4%
International Sales $ 26,116 26.7% 36.4%
Gross Profit $ 82,425 22.8% 27.9%
Research and Development Expense $ 17,401 23.0% 27.5%
Selling and Administrative Expense $ 40,921 20.7% 23.5%
Goodwill amortization -- -- --
OPERATING INCOME $ 24,103 25.1% 34.9%
Income before income taxes and ex. item $ 24,931 24.6% 35.3%
Income Taxes $ 7,978 25.8% 34.3%
NET INCOME $ 16,953 24.1% 35.9%
EARNINGS PER SHARE - DILUTED $ 0.16 21.0% 31.0%
FINANCIAL RATIOS
Gross Margin 45.8%
Operating Margin 13.4%
Pre-tax Income Margin 13.9%
Effective Tax Rate 32.0%
Net Margin 9.4%
Return on Average Shareowners' Equity 20.0%
Current Ratio 4.39
CASH FLOW DATA
Total Cash from Operating Activities $ 26,596 11.9% 22.8%
Depreciation and Amortization $ 9,112 21.7% 25.9%
Capital Expenditures $ 13,486 21.5% 34.8%
YEAR-END DATA
Cash and Cash Equivalents $ 39,875 -- --
Current Assets $ 82,150 26.5% 43.4%
Current Liabilities $ 18,733 35.2% 47.5%
Working Capital $ 63,417 22.4% 40.5%
Property and Equipment, Net $ 36,927 21.4% 32.5%
Total Assets $119,694 26.9% 36.0%
Long-term Debt $ 2,925 -- --
Shareowners' Equity $ 93,645 25.6% 32.9%
Number of Employees 1,680 16.9% 26.7%
INVESTOR INFORMATION
Stock Price - Close $ 1.45 32.5% 20.3%
- High $ 3.00
- Low $ 1.34
Price Earnings Ratio at Year-end 8.5
Book Value Per Share $ 0.89
Registered Shareowners at year end (000's) n/a
Shares Outstanding at Year-end 104,832
Average Shares Outstanding - Diluted (000's) 105,070
</TABLE>
<PAGE>
EXHIBIT 21-a
Subsidiaries
The following list of Subsidiaries of Borrower identifies the current names of
the Subsidiary and the state or other jurisdiction or incorporation or
organization.
(a) Wholly-owned subsidiaries:
ADC APEX, INC.
Maryland
ADC BROADBAND COMMUNICATIONS, INC.
Delaware
ADC BROADBAND WIRELESS GROUP, INC.
Pennsylvania
ADC DE JUAREZ, S. DE R. L. DE C.V.
Mexico
ADC DE MEXICO, S.A. DE C.V.
Mexico
ADC EUROPE N.V.
Belgium
ADC INTERNATIONAL, INC.
Barbados
ADC INTERNATIONAL OUS, INC.
Minnesota
ADC OUS HOLDINGS, LLC.
Delaware
ADC MERSUM OY
Finland
ADC MERSUM US, INC.
Minnesota
ADC METRICA
United Kingdom
ADC MICROCELLULAR SYSTEMS LTD.
United Kingdom
ADC NEWNET, INC.
Minnesota
ADC SOLITRA OY
Finland
<PAGE>
ADC SOLITRA, INC.
Minnesota
ADC SYSTEMS INTEGRATION, INC.
Georgia
ADC TELECOM CANADA INC.
Canada
ADC TELECOMMUNICATIONS (HOLDINGS) PTY. LIMITED
Australia
ADC TELECOMMUNICATIONS PTY. LIMITED
Australia
ADC TELECOMMUNICATIONS SALES, INC.
Minnesota
ADC TELECOMMUNICATIONS GMBH
Germany
ADC TELECOMMUNICATIONS SINGAPORE PTE. LIMITED
Singapore
ADC TELECOMMUNICATIONS U.K. LTD.
United Kingdom
ADC TELECOMMUNICACIONES VENEZUELA, S.A.
Venezuela
ADC TELECOMUNICACOES DO BRASIL LTDA
Brazil
ADC WIRELESS SYSTEMS, INC.
Minnesota
ADC WIRELESS SYSTEMS HOLDING COMPANY, INC.
Minnesota
AOFR PTY LIMITED
Australia
FIBERMUX CORPORATION
California
ITS SERVICE COMPANY, INC.
Pennsylvania
KENTROX INDUSTRIES, INC.
Delaware
METRICA, INC.
Delaware
<PAGE>
PCS SOLUTIONS CANADA, INC.
British Columbia
PCS SOLUTIONS, LLC
Delaware
PRINCETON OPTICS, INC.
New Jersey
SKYLINE TECHNOLOGY, INC.
California
TPO LIMITED
Delaware
ADC TELEDATA COMMUNICATIONS LTD.
Israel
TELEDATA COMMUNICATIONS INC.
Delaware
TDC TELEDATA COMMUNICATION GMBH
Germany
TELEDATA MANUFACTURING AUSTRALIA PTY. LTD.
Australia
TELEDATA HOLDINGS AUSTRALIA PTY LTD.
Australia
TDC (UK) LIMITED
United Kingdom
TELEDATA COMMUNICATION HELLAS LLC
Greece
TELEDATA COMMUNICATIONS DO BRASIL LTD.
Brazil
T.D.C. HOLDINGS B.V.
Netherlands
TELEDATA COMMUNICATIONS (PHILIPPINES), INC.
Philippines
(a) Majority owned subsidiaries, joint ventures and minority investments
ADC TELECOMMUNICATIONS EQUIPMENT CO., LTD. (50% owned JV)
People's Republic of China
CODENOLL TECHNOLOGY CORP. (70% owned)
Delaware
<PAGE>
EFFICIENT NETWORKS, INC. (8% owned)
G-CONNECT LTD. (65% owned)
Israel
FUTURE WIRELESS LTD. (77% owned)
Israel
HT COMMUNICATIONS (19% owned)
MIND C.T.I. LTD. (15% owned)
Israel
NANJING ADC BROADBAND COMMUNICATIONS CO. LTD. (80% owned JV)
OPTIVISION, INC. (30% owned)
OPTIGAIN, INC. (19% owned)
Delaware
PARAGON, INC. (10% owned)
TDSOFT LTD. (55% owned)
Israel
T-LINK LTD. (53% owned)
Israel
TELEDATA COMMUNICATION AUSTRALIA PTY. LTD.
Australia
<PAGE>
EXHIBIT 23-A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated November 25, 1998, included in this Form 10-K, and
incorporated by reference into the Company's previously filed Registration
Statements, File Nos. 2-83584, 33-22654, 33-40356, 33-40357, 33-52635,
33-52637, 33-58407, 33-58409, 33-59445, 333-02133, 333-04481, 333-07309,
333-15283, 333-25241, 333-25569, 333-25623, 333-32023, 333-37419, 333-37619
and 333-66169.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
December 31, 1998
<PAGE>
EXHIBIT 24-a
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of William J. Cadogan, Robert E. Switz and David
F. Fisher, with full power to each to act without the other, his or her true and
lawful attorney-in-fact and agent with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
the Annual Report on Form 10-K of ADC Telecommunications, Inc. (the "Company")
for the Company's fiscal year ended October 31, 1998, and any or all amendments
to said Annual Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and to file the same with such other authorities as necessary,
granting unto each such attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that each such
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 31st day
of December, 1998, by the following persons.
/s/ William J. Cadogan /s/ James C. Castle
- ------------------------- --------------------------
William J. Cadogan James C. Castle, Ph.D.
/s/ Thomas E. Holloran /s/ B. Kristine Johnson
- ------------------------- --------------------------
Thomas E. Holloran B. Kristine Johnson
/s/ Charles W. Oswald /s/ Alan E. Ross
- ------------------------- --------------------------
Charles W. Oswald Alan E. Ross
/s/ Jean-Pierre Rosso /s/ Donald M. Sullivan
- ------------------------- --------------------------
Jean-Pierre Rosso Donald M. Sullivan
/s/ Warde F. Wheaton /s/ John D. Wunsch
- ------------------------- --------------------------
Warde F. Wheaton John D. Wunsch
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES FOR THE
YEAR ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 287,700
<SECURITIES> 0
<RECEIVABLES> 365,989<F1>
<ALLOWANCES> 5,744
<INVENTORY> 175,763<F2>
<CURRENT-ASSETS> 862,870
<PP&E> 478,530
<DEPRECIATION> 221,569
<TOTAL-ASSETS> 1,300,587
<CURRENT-LIABILITIES> 383,444
<BONDS> 0
0
0
<COMMON> 26,979
<OTHER-SE> 887,395
<TOTAL-LIABILITY-AND-EQUITY> 1,300,587
<SALES> 1,379,678
<TOTAL-REVENUES> 1,379,678
<CGS> 736,537
<TOTAL-COSTS> 736,537
<OTHER-EXPENSES> 417,575
<LOSS-PROVISION> 1,275
<INTEREST-EXPENSE> 610
<INCOME-PRETAX> 225,734
<INCOME-TAX> 79,007
<INCOME-CONTINUING> 146,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,727
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.08
<FN>
<F1>AMOUNT IS NET OF ALLOWANCE FOR BAD DEBTS AND RETURNS AND ALLOWANCES.
<F2>AMOUNT IS NET OF OBSOLESCENCE RESERVES.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES FOR THE
YEAR ENDED OCTOBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 109,794
<SECURITIES> 0
<RECEIVABLES> 246,241<F1>
<ALLOWANCES> 4,803
<INVENTORY> 168,379<F2>
<CURRENT-ASSETS> 549,467
<PP&E> 401,925
<DEPRECIATION> 186,248
<TOTAL-ASSETS> 936,303
<CURRENT-LIABILITIES> 182,399
<BONDS> 0
0
0
<COMMON> 26,702
<OTHER-SE> 724,093
<TOTAL-LIABILITY-AND-EQUITY> 936,303
<SALES> 1,164,450
<TOTAL-REVENUES> 1,164,450
<CGS> 621,811
<TOTAL-COSTS> 621,811
<OTHER-EXPENSES> 376,975
<LOSS-PROVISION> 2,181
<INTEREST-EXPENSE> 393
<INCOME-PRETAX> 170,057
<INCOME-TAX> 61,220
<INCOME-CONTINUING> 108,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,837
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.81
<FN>
<F1>AMOUNT IS NET OF ALLOWANCE FOR BAD DEBTS AND RETURNS AND ALLOWANCES.
<F2>AMOUNT IS NET OF OBSOLESCENCE RESERVES.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99-a
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
ADC Telecommunications, Inc. ("ADC") desires to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 and is filing this cautionary statement in connection with such act.
This Form 10-K and ADC's Annual Report to Shareholders, any Form 10-Q or Form
8-K of ADC or any other written or oral statements made by or on behalf of
ADC may include forward-looking statements which reflect ADC's current views
with respect to future events and financial performance. The words
"believe," "expect," "anticipate," "intends," "estimate," "forecast,"
"project" and similar expressions identify forward-looking statements.
ADC wishes to caution you that any forward-looking statements made by or on
behalf of ADC are subject to uncertainties and other factors that could cause
actual results to differ materially from such statements. These uncertainties
and other factors include, but are not limited to the factors listed under the
caption "Risk Factors" below (many of which have been discussed in prior SEC
filings by ADC). Though ADC has attempted to list comprehensively these
important factors, ADC wishes to caution investors that other factors may in the
future prove to be important in affecting ADC's results of operations. New
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can ADC assess the impact of each such factor
on the business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any
forward-looking statements.
You are further cautioned not to place undue reliance on such forward-
looking statements as they speak only of ADC's views as of the date the
statement was made. ADC undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
RISK FACTORS
RAPID TECHNOLOGICAL CHANGE AND IMPORTANCE OF NEW PRODUCTS
The telecommunications equipment industry is characterized by rapid
technological change. In our industry, we also face evolving industry
standards, changing market conditions and frequent new product introductions
and enhancements. The introduction of products using new technologies or the
adoption of new industry standards can make existing products or products
under development obsolete or unmarketable. In order to grow and remain
competitive, we will need to anticipate changes in technology and industry
standards and successfully to develop and introduce new products on a timely
basis will be a significant factor in our ability to grow and remain
competitive. New product development often requires long-term forecasting of
market trends, development and implementation of new technologies and
processes and a substantial capital commitment. ADC has recently invested,
and we will continue to invest, substantial resources for the development of
new products. Development and customer acceptance of new products is
inherently uncertain. As a result, we cannot predict whether we will
successfully develop new products on a timely basis or whether the products
we develop will be commercially successful. If we fail to anticipate or
respond on a cost-effective and timely basis to technological developments,
changes in industry standards or customer requirements, or if we have any
significant delays in product development or introduction, our business,
operating results and financial condition could be affected in a material
adverse way.
UNCERTAIN MARKET FOR BROADBAND NETWORK PRODUCTS
In the past, our principal product offerings have been copper-based and
fiber-optic-based products designed to connect and transmit information on
traditional telephony networks. With the growth of multimedia applications
and the development of enhanced voice, video and Internet/data services,
ADC's recent product offerings and research and development efforts have been
and are focused on new technologies and hardware, software and service
offerings for the broadband telecommunications applications. The market for
broadband telecommunications hardware, software
<PAGE>
and services is rapidly changing. Our future growth is dependent in part on
its ability to successfully develop and commercially introduce new products
for this market. Our future will also depend on the growth of this market.
The growth in the market for broadband telecommunications products is
dependent on a number of factors. These factors include the amount of
capital expenditures by public network providers, regulatory and legal
developments, changes to capital expenditure rates by other network providers
(which could result from consolidation of customers in the market as well as
the addition of new customers to the market) and end-user demand for
integrated voice, video, Internet/data and other network services. We cannot
predict whether the market for broadband telecommunications products will
develop rapidly. Also, we cannot predict technological trends or new
products in this market. In addition, to the extent this market develops,
ADC cannot predict whether its products will meet with market acceptance or
be profitable. We may not be able to compete successfully, and competitive
pressures may materially and adversely affect our business, operating results
and financial condition.
COMPETITION
Competition in the telecommunications equipment industry is intense. We
believe that competition may increase substantially with the increased use of
broadband networks and recent regulatory changes. Many of ADC's foreign and
domestic competitors have more extensive engineering, manufacturing, marketing,
financial and personnel resources than we have. We believe our success in
competing with other manufacturers of telecommunications products will depend
primarily on our engineering, manufacturing and marketing skills, the price,
quality and reliability of its products, and its delivery and service
capabilities. We anticipate increasing pricing pressures from current and
future competitors. In addition, we believe that technological change, the
increasing addition of Internet/data, video and other services to networks,
continuing regulatory change and industry consolidation or new entrants will
continue to cause rapid evolution in the competitive environment. The full
scope and nature of these changes is difficult to predict at this time.
Increased competition could result in price reductions, reduced margins and loss
of market share by ADC. We cannot predict whether we will be able to compete
successfully with our existing products or with new competitors. Competitive
pressures faced by ADC could materially and adversely affect our business,
operating results and financial condition.
FLUCTUATIONS IN OPERATING RESULTS
Our operating results vary significantly from quarter to quarter. These
fluctuations are the result of the volume and timing of orders from and
shipments to major customers, the timing of and the ability to obtain new
customer contracts and the timing of new product announcements. Our quarterly
results also vary due to the availability of product by ADC or its competitors,
overall level of capital expenditures by public network providers, market
acceptance of new and enhanced versions of ADC's products, variations in the mix
of products ADC sells or its sales channels, and the availability and cost of
key components. Many of these factors are affected by the changing competitive
environment in which our customers operate. Competition may be affected by
consolidation among telecommunications service providers. In addition, we are
growing through acquisition and expansion, and our recent results of operations
may not be a good predictor of our results in future periods. Our expense
levels are based in part on expectations of future revenues. If revenue levels
in a particular period are lower than expected, our operating results will be
adversely affected. In addition, our results of operations are also subject to
seasonal factors. We historically have had stronger demand for our products in
the fourth fiscal quarter, primarily as a result of our year-end incentives and
customer budget cycles. We have experienced weaker demand for our products in
the first fiscal quarter, primarily as a result of the number of holidays in
late November, December and early January and a general industry slowdown during
that period. We cannot predict if historical seasonal trends will continue in
the future.
CHANGING REGULATORY ENVIRONMENT
The telecommunications industry is subject to regulation in the United
States and other countries. Our business
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is dependent upon the continued growth of the telecommunications industry in
the United States and internationally. Federal and state regulatory agencies
regulate most of ADC's domestic customers. In early 1996, the U.S.
Telecommunications Act of 1996 (the "Telecommunications Act") was enacted.
The Telecommunications Act lifted certain restrictions on the ability of
companies, including the Regional Bell Operating Companies and other
customers of ADC, to compete with one another. The Telecommunications Act
also made other significant changes in the regulation of the
telecommunications industry. While we believe that the changes could
increase our opportunities to provide solutions for our customers' voice,
data and video needs, this result is dependent on the reaction of our
existing and prospective customers to these new regulatory trends. To date,
increased competition among telecommunications service providers as
contemplated by the Telecommunications Act has not been fully realized, and
we cannot predict the timing and intensity of new competition. The effect on
the market for our products is difficult to predict, and we do not know
whether competition in our product market will not intensify as a result of
the changes in regulation. Changes in current or future laws or regulations
in the United States or elsewhere could materially and adversely affect our
business.
INTERNATIONAL OPERATIONS
Our export sales accounted for 20% of our net sales in fiscal 1998 and 21%
of our net sales in each of fiscal 1997 and 1996. We expect export sales to
increase as a percentage of net sales in the future. In addition to sales and
distribution in numerous countries, we own or subcontract operations located in
Australia, China, Finland, Israel, Mexico and the United Kingdom. Due to our
export sales and our international manufacturing operations, ADC is subject to
the risks of conducting business internationally. These risks include
unexpected changes in or impositions of legislative or regulatory requirements,
fluctuations in the U.S. dollar, and tariffs and other barriers and
restrictions. Other potential risks include longer payment cycles, greater
difficulty in accounts receivable collection, potentially adverse taxes, and the
burdens of complying with a variety of foreign laws and telecommunications
standards. We are also subject to general geopolitical risks, such as political
and economic instability and changes in diplomatic and trade relationships. ADC
maintains business operations and has sales in many international markets,
including Asia and Latin America. Economic conditions in many of these markets,
and in particular in Asia and Latin America, represent significant risks to ADC.
We cannot predict whether our sales and business operations in these markets
will be adversely affected by these conditions. Instability in foreign markets,
particularly in Asia and Latin America, could negatively impact our results of
operations. Potential turmoil in the Middle East could also negatively impact
our results of operations and asset valuation for our recently acquired
subsidiary, Teledata Communications, Ltd., located in Herzliya, Israel. In
addition to the effect of international economic instability on foreign sales,
domestic sales to U.S. customers having significant foreign operations could be
adversely impacted by these economic conditions. We cannot predict whether or
not these factors will not materially and adversely affect our operations in the
future. In addition, the laws of certain foreign countries may not protect our
proprietary technology to the same extent as do the laws of the United States.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Our future success depends in part upon its proprietary technology.
Although we attempt to protect our proprietary technology through patents,
copyrights and trade secrets, our future success will depend upon product
development, technological expertise and distribution channels. We cannot
predict whether we can protect our technology, or whether competitors can
develop similar technology independently. We have received and may continue to
receive from third parties, including some of our competitors, notices claiming
that we are infringing third-party patents or other proprietary rights. We
cannot predict that we will prevail in any litigation over third-party claims,
or that we would license any valid and infringed patents on commercially
reasonable terms. Furthermore, litigation, regardless of its outcome, could
result in substantial cost to and diversion of effort by ADC. Any litigation or
successful infringement claims by third parties could materially and adversely
affect our business, operating results and financial condition.
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YEAR 2000 MATTERS
Many currently installed computer systems and software are coded to accept
only two digit entries in date code fields. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations, causing
disruptions of business operations (including a temporary inability to process
transactions, send invoices or engage in other business activities). As a
result, many companies' computer systems and software will need to be upgraded
or replaced in order to comply with Year 2000 requirements. The potential
global impact of the Year 2000 problem is not known, and, if not corrected in a
timely manner, could affect ADC and the U.S. and world economy generally. Our
product development processes currently contain steps to include Year 2000
readiness verification for all current and future products. We believe that
most of our products are currently Year 2000 ready. A few of our products,
which contain Year 2000 issues, will be phased out prior to the year 2000. A
few other ADC products contain minor Year 2000 issues that do not affect
performance or service. Although there can be no assurance, we believe that
readiness for our other products that are not Year 2000 ready will be achieved
prior to January 1, 2000.
VOLATILITY OF STOCK PRICE
Based on the trading history of our Common Stock, we believe factors have
caused and are likely to continue to cause the market price of the Common Stock
to fluctuate substantially. These factors include such as announcements of new
products by ADC or its competitors, quarterly fluctuations in our financial
results, customer contract awards, developments in telecommunications regulation
and general conditions in the telecommunications equipment industry and general
economic conditions and general conditions in financial markets. In addition,
telecommunications equipment company stocks have experienced significant price
and volume fluctuations that are often unrelated to the operating performance of
such companies. This market volatility may adversely affect the market price of
the Common Stock.
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