<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______to_______
Commission File No.: 0-14685
GENICOM CORPORATION
(Exact name of registrant as specified in it charter)
DELAWARE 51-0271821
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
14800 CONFERENCE CENTER DRIVE
SUITE 400, WESTFIELDS
CHANTILLY, VIRGINIA 20151
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 802-9200
Indicate by a 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 and (2) has been subject to such
filing requirements for the past 90 days. Yes x No_
As of August 3, 1998, there were 11,559,197 shares of Common Stock of
the Registrant outstanding.
<PAGE> 2
FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets - June 28, 1998 and December 28, 1997 3
Consolidated Statements of Income - Three Months and Six Months Ended
June 28, 1998 and June 29, 1997 4
Consolidated Statements of Cash Flows - Six Months Ended
June 28, 1998 and June 29, 1997 5
Notes to Consolidated Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to Exhibits E-1
</TABLE>
<PAGE> 3
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
(In thousands, except share data) 1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,549 $ 4,622
Accounts receivable, less allowance for
doubtful accounts of $5,254 and $4,470 84,872 89,692
Other receivables 3,435 3,252
Inventories 68,883 67,553
Prepaid expenses and other assets 15,770 8,390
--------- ---------
TOTAL CURRENT ASSETS 179,509 173,509
Property, plant and equipment, net 41,178 36,146
Goodwill 16,883 33,800
Intangibles and other assets 5,416 6,594
--------- ---------
$ 242,986 $ 250,049
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,584 $ 6,391
Accounts payable and accrued expenses 77,536 84,578
Deferred income 14,816 16,350
--------- ---------
TOTAL CURRENT LIABILITIES 96,936 107,319
Long-term debt, less current portion 102,700 87,072
Other non-current liabilities 10,721 10,262
--------- ---------
TOTAL LIABILITIES 210,357 204,653
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 18,000,000 shares
authorized, 11,559,197 and 11,365,750 shares issued
and outstanding 116 114
Additional paid-in capital 28,930 26,959
Retained earnings 5,385 20,020
Foreign currency translation adjustment (1,802) (1,697)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 32,629 45,396
--------- ---------
$ 242,986 $ 250,049
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, SIX MONTHS ENDED,
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
(In thousands, except per share data) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES, NET:
Products $ 74,681 $ 69,568 $ 155,012 $ 135,202
Services 37,369 29,079 79,148 59,790
--------- --------- --------- ---------
112,050 98,647 234,160 194,992
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 53,691 46,959 110,651 91,915
Services 35,017 27,829 72,753 55,253
Selling, general and administration 21,782 15,668 42,053 32,785
Engineering, research and product
development 4,099 2,916 8,424 5,461
Write-off of goodwill 15,000 15,000
--------- --------- --------- ---------
129,589 93,372 248,881 185,414
--------- --------- --------- ----------
OPERATING (LOSS) INCOME (17,539) 5,275 (14,721) 9,578
Interest expense, net 2,737 1,659 5,330 3,032
--------- --------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (20,276) 3,616 (20,051) 6,546
Income tax (benefit) expense (5,470) 773 (5,414) 1,186
--------- --------- --------- ---------
NET (LOSS) INCOME $ (14,806) $ 2,843 $ (14,637) $ 5,360
========= ========= ========= =========
(Loss) earnings per common share (basic) $ (1.28) $ 0.26 $ (1.27) $ 0.49
========= ========= ========== =========
(Loss) earnings per common share (diluted) $ (1.28) $ 0.23 $ (1.27) $ 0.43
========= ========= ========= =========
Weighted average number of common shares
outstanding (basic) 11,555 11,016 11,510 11,007
========= ========= ========= =========
Weighted average number of common shares
and dilutive shares (diluted) 11,555 12,429 11,510 12,414
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED,
-------------------------
JUNE 28, JUNE 29,
(thousands) 1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(14,637) $ 5,360
Adjustments to reconcile net (loss) income to cash provided
by (used in) operating activities:
Depreciation 7,116 6,642
Amortization 4,274 2,296
Write-off of goodwill 15,000
Changes in assets and liabilities:
Accounts receivable 4,637 (889)
Inventories (1,330) (11,748)
Accounts payable and accrued expenses (4,470) (7,121)
Deferred income (1,534) (755)
Other (4,834) (4,466)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,222 (10,681)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (12,110) (7,235)
Other investing (1,638)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (13,748) (7,235)
-------- --------
Cash flows from financing activities:
Borrowings on long-term debt 21,613 22,567
Payments on long-term debt (7,792) (11,564)
Bank overdraft (2,172) 5,682
Financing costs (73) (165)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,576 16,520
-------- --------
Effect of exchange rate changes on cash and cash equivalents (123) (81)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,927 (1,477)
Cash and cash equivalents at beginning of period 4,622 5,866
-------- --------
Cash and cash equivalents at end of period $ 6,549 $ 4,389
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements of GENICOM Corporation and subsidiaries (the
"Company" or "GENICOM") contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the Company's
consolidated financial position as of June 28, 1998, and the results of
operations and cash flows for the periods indicated. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's
December 28, 1997 Annual Report. The results of operations for the six
months ended June 28, 1998, are not necessarily indicative of the
operating results to be expected for the full year.
2. Inventories are stated at the lower of cost, determined on the
first-in, first-out method, or market. Inventories consist of, in
thousands:
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 5,687 $ 9,295
Work in process 1,471 1,994
Finished goods 61,725 56,264
------- -------
$68,883 $67,553
======= =======
</TABLE>
6
<PAGE> 7
3. Earnings per share are based upon the weighted average number of common
shares and dilutive common share equivalents (using the treasury stock
method) outstanding during the period.
<TABLE>
<CAPTION>
(in thousands) Three Months Ended June 28, 1998
-------------------------------------------
<S> <C> <C> <C>
Income Shares Per Share
------------ ------------- -------------
BASIC EPS
Income available to shareholders $ (14,806) 11,555 $ (1.28)
------------ ------------- -------------
Weighted shares from stock options 0
-------------
DILUTED EPS $ (14,806) 11,555 $ (1.28)
------------ ------------- -------------
Three Months Ended June 29, 1997
-------------------------------------------
BASIC EPS
Income available to shareholders $ 2,843 11,016 $ 0.26
------------ ------------- -------------
Weighted shares from stock options 1,413
-------------
DILUTED EPS $ 2,843 12,429 $ 0.23
Six Months Ended June 28, 1998
-------------------------------------------
Income Shares Per Share
------------ ------------- -------------
BASIC EPS
Income available to shareholders $ (14,637) 11,510 $ (1.27)
------------ ------------- -------------
Weighted shares from stock options 0
-------------
DILUTED EPS $ (14,637) 11,510 $ (1.27)
------------ ------------- -------------
Six Months Ended June 29, 1997
-------------------------------------------
Income Shares Per Share
------------ ------------- -------------
BASIC EPS
Income available to shareholders $ 5,360 11,007 $ 0.49
------------ ------------- -------------
Weighted shares from stock options 1,407
-------------
DILUTED EPS $ 5,360 12,414 $ 0.43
------------ ------------- -------------
</TABLE>
4. Segment Information
The Company operates in the serial, line and page printer business
where it designs, manufactures and markets printers as well as the
related supplies and spare parts (Document Solutions company). The
Company's operation in services provides customers with a full range of
network information technology services with field services, depot
repair, parts and logistics and network products (Enterprising Service
Solutions company). The production and sales of relay products, a
product line the Company sold in November 1997, comprised less than 10%
of revenue, operating income and identifiable assets. This product line
is included in the Document Solutions segment for 1997. Revenue between
industry segments are not material.
7
<PAGE> 8
<TABLE>
<CAPTION>
Six Months Ended or As of
June 28, June 29,
(in thousands) 1998 1997
---- ----
<S> <C> <C>
REVENUE
Document Solutions $ 155,012 $ 135,202
Enterprising Service Solutions 79,148 59,790
--------- ---------
$ 234,160 $ 194,992
--------- ---------
OPERATING INCOME
Document Solutions $ 2,074 $ 16,215
Enterprising Service Solutions (16,795) (6,637)
--------- ---------
$ (14,721) $ 9,578
--------- ---------
DEPRECIATION AND AMORTIZATION
Document Solutions $ 3,416 $ 2,603
Enterprising Service Solutions 7,204 5,723
Corporate and other 770 612
--------- ---------
$ 11,390 $ 8,938
--------- ---------
ASSETS
Document Solutions $ 129,387 $ 122,524
Enterprising Service Solutions 81,532 58,198
Corporate and other 32,067 15,263
--------- ---------
$ 242,986 $ 195,985
--------- ---------
CAPITAL EXPENDITURES
Document Solutions $ 2,007 $ 1,219
Enterprising Service Solutions 6,937 3,586
Corporate and other 3,166 2,430
--------- ---------
$ 12,110 $ 7,235
--------- ---------
</TABLE>
5. Business Acquisitions
Novadyne Computer Systems, Incorporated
On November 14, 1997, the Company purchased selected assets of Novadyne
Computer Systems, Inc. for approximately $17.3 million including the
assumption of certain liabilities. The transaction was financed through
the Company's credit facility with NationsBank of Texas, N.A.
Pro Forma Financial Information
Presented below are the unaudited actual and pro forma statements of
operations as if the acquired operations had been integrated into the
Company effective December 30, 1996. Accounting adjustments have been
made in the pro forma financial information to include estimated costs
of the combinations and to reflect the integration and consolidation of
facilities and personnel. Included in such integration costs are
relocation costs associated with facilities and employee expenses. This
pro forma information has been prepared for comparative purposes only
and does not purport to be
8
<PAGE> 9
indicative of the results that actually would have been obtained if
the acquired operations had been conducted by the Company during the
periods presented, and is not intended to be a projection of future
results. Presentation is in thousands except for earnings per share
amounts.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
(proforma) (proforma)
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 112,050 $ 107,359 $ 234,160 $ 212,362
Pre-Tax (Loss) Income (20,276) 4,686 (20,051) 8,686
------------ ------------ ------------ ------------
Net (Loss) Income (14,806) 3,485 (14,637) 6,644
------------ ------------ ------------ ------------
(Loss) Earnings per share $ (1.28) $ 0.32 $ (1.27) $ 0.60
------------ ------------ ------------ ------------
Weighted average shares outstanding 11,555 11,016 11,510 11,007
------------ ------------ ------------ ------------
</TABLE>
Digital Equipment Corporation Agreements
On August 10, 1997, the Company purchased Digital Equipment
Corporation's Printing Systems Business and became Digital's exclusive
supplier of Digital-branded printer products. The multi-year agreement
also established a cooperative alliance where the Company will provide
a broad line of products, business planning, technical support and
distribution services to Digital's marketing channels in each of their
global geographies. The Company and Digital have also agreed to pursue
joint marketing programs for each other's capabilities, products and
services.
6. Commitments and Contingencies
Environmental matters:
The Company and the former owner of its Waynesboro, Virginia facility,
General Electric Company ("G.E."), have generated and managed hazardous
wastes at the facility for many years as a result of their use of
certain materials in manufacturing processes. The Company and the
United States Environmental Protection Agency ("EPA") have agreed to a
corrective action consent order (the "Order"), which became effective
on September 14, 1990. The Order requires the Company to undertake an
investigation of solid waste management units at its Waynesboro,
Virginia facility and to conduct a study of any necessary corrective
measures that may be required. The investigative work under the Order
was completed in December 1997 and the Company submitted a report to
the EPA. The EPA has not yet formally responded to the report, although
the EPA has stated informally that it may require additional
investigative work. Although not required by the Order, the Company has
agreed to install and operate an interim ground water stabilization
system, subject to EPA approval of the system design. The interim
groundwater stabilization program may be chosen as the final remedy for
the site, or additional corrective measures may eventually be required.
It is not possible to reliably estimate the costs that any such
possible additional corrective measures would entail. However, if
additional corrective measures are required, the Company expects that
it will enter into discussion with EPA concerning their scope and a
further order for that purpose.
The Company has been notified by the EPA that it is one of 700
potentially responsible parties ("PRPs") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, for
necessary corrective action at a hazardous waste disposal site in
Greer, South Carolina. In
9
<PAGE> 10
prior years, the Company arranged for the transportation of wastes to
the site for treatment or disposal. During 1995, the PRPs entered into
an administrative consent order with EPA under which they will
undertake a remedial investigation and feasibility study which is
currently underway.
Atlantic Design:
December of 1995, the Company entered into a five year agreement which
was extended an additional year in June 1996 (renewable annually after
6 years) with Atlantic Design Company, Inc. ("ADC") a subsidiary of
Ogden Services Corporation, pursuant to which ADC acquired the
Company's manufacturing operations in McAllen, Texas and Reynosa,
Mexico. Under the agreement, ADC is committed to manufacturing a
significant part of the Company's impact printer products, printed
circuit boards, related supplies and spare parts, while the Company
retains design, intellectual and distribution rights with respect
thereto.
Ogden Services Corporation has divested certain ADC facilities and has
attempted to divest the Reynosa operations. The Company's contract with
ADC contains a clause requiring GENICOM's consent to the sale, which
consent cannot be unreasonably withheld. The Company has evaluated
preliminary information received from ADC concerning a potential buyer,
but, to the Company's knowledge, the sale of the Reynosa facility is
not imminent.
In August 1997, ADC filed a Demand for Arbitration with the American
Arbitration Association seeking a legal interpretation of the pricing
provisions in the agreement between ADC and the Company and the
recovery of an amount in dispute said to be approximately $2 million.
The Company filed a counterclaim against ADC for approximately $10
million alleging various breaches of the agreement. Ogden Services
Corporation and ADC filed counterclaims against the Company seeking
damages in excess of $10 million alleging additional various breaches
by the Company of the agreement.
On July 4, 1998, the Company, ADC and Ogden Services Corporation
settled the arbitration. Primary settlement terms included settlement
of all claims and counterclaims in the arbitration, a $2.1 million
payment to ADC for which the Company was fully reserved, a price
increase effective for shipments after August 15, 1998, and a guarantee
of orders for one year. ADC is continuing as a supplier for the
Company.
Other matters:
In the ordinary course of business, the Company is party to various
environmental, administrative and legal proceedings. In the opinion of
management, the Company's liability, if any, in all pending litigation
or other legal proceedings, other than those discussed above, will not
have a material effect upon the financial condition, results of
operations or liquidity of the Company.
7. The Company adopted SFAS 130, "Reporting Comprehensive Income", in the
first quarter of 1998. The Company's loss, if reported on a
comprehensive basis, would be $14,965,000 for the three months ended
June 28, 1998 and $14,716,000 for the six months ended June 28, 1998.
The Company had a loss in its foreign currency translation amount of
$212,000 from March 29, 1998 and $105,000 from December 28, 1997, with
after tax losses $159,000 and $79,000, respectively. For the second
quarter of 1997, the foreign currency translation loss was $42,000,
with an after tax loss of $33,000. For the six months ended June 29,
1997, the foreign currency translation loss was $181,000, with an after
tax loss of $148,000. The Company's comprehensive income for the second
10
<PAGE> 11
quarter of 1997 would have been $2.8 million and for the six months
ended June 29, 1997, $5.2 million.
8. On July 2, 1998, the Company and its banks amended the credit agreement
with NationsBank of Texas, N.A., as agent for the group of banks. The
amendment adjusts the Company's required financial covenants, limits
capital expenditures to a maximum of $27 million for 1998, adjusts the
borrowing base percentages allowing the Company increased borrowing
ability and adjusts the interest rate upwards 1.50% on the incremental
increased borrowing against the higher base.
9. Based upon recent review of certain long-lived assets, the Company
determined that the value of goodwill associated with the acquisitions
of Centronics, Printer Systems Corporation and Harris Adacom was
impaired. In accordance with FAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", during
the second fiscal quarter of 1998, the Company took a pre-tax charge
associated with this impairment of approximately $15 million. By
segment, service's pre-tax charge was $8.2 million and product's
pre-tax charge was $6.8 million.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition:
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
<S> <C> <C> <C> <C> <C> <C>
Revenues - Enterprising Service Solutions $ 37,369 $ 8,290 $ 29,079 $ 79,148 $ 19,358 $ 59,790
Revenues - Document Solutions 74,681 5,113 69,568 155,012 19,810 135,202
---------- ---------- ---------- ---------- ---------- ----------
Total Revenue $ 112,050 $ 13,403 $ 98,647 $ 234,160 $ 39,168 $ 194,992
---------- ---------- ---------- ---------- ---------- ----------
Percentage change 13.6% 20.1%
</TABLE>
Revenue in the second quarter of 1998 increased 13.6% from the second quarter of
1997 primarily due to the revenue growth in Document Solutions ("DSC") as a
result of the agreements with Digital Equipment Corporation ("DEC") and in
Enterprising Service Solutions ("ESSC") as a result of the acquisition of
certain assets of Novadyne Computer Systems. DSC revenue, excluding Relays, was
14.6% higher than the second quarter of 1997 as a result of the agreements with
DEC. ESSC revenue increased 28.5%. This increase was primarily the result of the
Novadyne acquisition and the final balance of a systems integration contract
with NASDAQ. The depot in Louisville, Kentucky began to recover some revenue
levels previously lost due to the transition of depot services from Bedford,
Massachusetts and Waynesboro, Virginia.
For 1998 year to date, revenue increased $39.2 million from 1997. DSC's revenue,
excluding Relays, increased $28.5 million or 22.6% primarily due to the
agreements with DEC. ESSC's revenue for 1998 increased $19.4 million or 32.4
percent compared to 1997 principally from the acquisition of certain assets of
Novadyne Computer Systems which increased revenues in field service, a contract
with NASDAQ for upgrading their computer network and increased integration
business in the Canadian subsidiary.
Relay revenues, which are included as part of Document Solutions in the above
table for 1997, were $4.4 million for the second quarter of 1997 and $8.7
million for the six months ended June 29, 1997. This product line was sold in
November of 1997.
<TABLE>
<CAPTION>
2ND QUARTER 4TH QUARTER 2ND QUARTER
(in millions) 1998 1997 1997
- ------------- ---- ---- ----
<S> <C> <C> <C>
Order Backlog $ 40.8 $ 44.8 $ 51.9
Change: 2nd Quarter of 1998 compared to
Amount (4.0) (11.1)
Percentage -8.9% -21.4%
</TABLE>
The decrease in order backlog from the second quarter of 1997 primarily reflects
the effect of the sale of the relay product line. The relay backlog was $8.1
million as of June 29, 1997. The decrease in the order backlog from the fourth
quarter of 1997 is principally due to a decrease in printer and supplies backlog
partially offset by the recording of ESSC annual contracts recorded in January.
The Company's backlog as of any particular date should not be the sole
measurement used in determining sales for any future period.
12
<PAGE> 13
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ------------- ---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Gross margin - Enterprising Service Solutions $ 2.4 $ 1.1 1.3 $ 6.4 $ 1.9 $ 4.5
Gross margin - Document Solutions 21.0 (1.6) 22.6 44.4 1.1 43.3
--------- -------- -------- -------- ------- ---------
Total gross margin $ 23.4 $ (0.5) 23.9 $ 50.8 $ 3.0 $ 47.8
--------- -------- -------- -------- ------- ---------
As a % of revenue 20.8% 24.2% 21.7% 24.5%
</TABLE>
Gross margin, as a percent of revenue, decreased from 24.2% in the second
quarter of 1997 to 20.8% in the second quarter of 1998. As a percent of revenue,
gross margin for DSC excluding Relays decreased to 28.1% for the quarter ending
June 28, 1998 from 32.8% for the quarter ending June 29, 1997. This decrease is
primarily the result of the lower volume of supplies sales which carry a larger
margin percentage than printers and a change in the sale mix of printers. For
ESSC, gross margin increased from 4.3% for the second three months of 1997 to
6.3% for 1998 reflecting some improvement in the operating efficiency of ESSC.
As a percent of revenue, gross margin for the six months ended June 28, 1998 was
21.7% as compared to 24.5% for the six months ended June 29, 1997. The gross
margin percentage for DSC for the first six months of 1998 decreased to 28.1%
from 32.8% in 1997 due to the second quarter reduction of supplies sales and the
sales mix in printer sales. ESSC's gross margin percentage increase slightly to
8.1% for year to date 1998 from 7.6% for the same period in 1997 reflecting some
operational efficiency improvements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ------------- ---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
Selling, general and administrative $ 21.8 $ 6.1 $ 15.7 $ 42.1 $ 9.3 $ 32.8
Engineering, research and product
development 4.1 1.2 2.9 8.4 3.0 5.4
Write-off of goodwill 15.0 15.0 -- 15.0 15.0 --
------- ------- ------- ------- ------- -------
Total $ 40.9 $ 22.3 $ 18.6 $ 65.5 $ 27.3 $ 38.2
------- ------- ------- ------- ------- -------
As a % of revenue 36.5% 18.9% 28.0% 19.6%
</TABLE>
The increase of $7.3 million in operating expenses, excluding the goodwill
write-off, from the second quarter of 1997 was primarily the result of increased
development and marketing costs to support new product introductions and higher
marketing costs in ESSC. Operating expenses increased, excluding the write-off
of goodwill as a percentage of revenue in the second quarter of 1998, to 23.1%
as compared to 18.9% in 1997.
For the first six months of 1998, operating expenses increased $12.3 million,
excluding the goodwill write-off, compared to 1997 primarily for the reasons
mentioned above.
During the second quarter of 1998, based upon review of long-lived assets, the
Company determined that the value of goodwill associated with the acquisitions
of Centronics, Printer Systems Corporation and Harris Adacom was impaired. In
accordance with FAS 121, during the second fiscal quarter of 1998, the Company
took a pre-tax charge associated with this impairment of approximately $15
million.
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<PAGE> 14
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ------------- ---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Interest expense, net $ 2.7 $ 1.0 $ 1.7 $ 5.3 $ 2.3 $ 3.0
Percentage change 58.8% 76.7%
</TABLE>
Interest expense increased $1.0 million in the second quarter of 1998 as
compared to the year-ago quarter primarily as a result of higher borrowings in
1998 due to higher debt need to support the working capital needs of the
business and higher development costs associated with new product introductions.
Interest expense for the six months ended June 28, 1998 increased $2.3 million
compared to the same period in 1997 for the above reasons.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
2ND QTR. 2ND QTR. 2ND QTR. 2ND QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ------------- ---- ------ ---- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Income tax expense $ (5.5) $ (6.3) $ 0.8 $ (5.4) $ (6.6) $ 1.2
Effective tax rate 27.0% 21.4% 27.0% 18.1%
</TABLE>
The Company's effective tax rate for the second quarter and the first six months
of 1998 was 27.0 percent. The tax rate is being affected by the anticipated
utilization of foreign operating losses. During the first six months of 1997,
the Company reversed part of its valuation allowance for its foreign deferred
tax assets.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
2ND QUARTER 2ND QUARTER
(in millions) 1998 1997
- ------------- ---- ----
<S> <C> <C>
Cash provided by (used in) operations $ 4.2 $ (10.7)
Cash used in investing activities (13.7) (7.2)
Cash provided by financing activities 11.6 16.5
</TABLE>
<TABLE>
<CAPTION>
2ND QUARTER 4TH QUARTER
(in millions) 1998 1997
- ------------- ---- ----
<S> <C> <C>
Working capital $ 82.4 $ 66.2
Inventories 68.9 67.6
Debt obligations 107.3 93.5
Debt to equity ratio 3.3 to 1 2.1 to 1
</TABLE>
14
<PAGE> 15
Cash provided by operations changed $14.9 million from the first half of 1997
principally due to the write-off of goodwill in the second quarter of 1998. The
Company's working capital increased $16.2 million as of June 28, 1998 as
compared to December 28, 1997 due primarily to a $7.4 million increase in
prepaid and other assets driven by negative taxes payable and a $7.0 million
decrease in accounts payable and accrued expenses. Debt increased significantly
with the proceeds used to support the working capital needs of the business, the
acquisition of certain assets of Novadyne Computer Systems, and the operating
loss. The Company had approximately $175,000 available for borrowing under its
credit facilities as of June 28, 1998.
On July 2, 1998, the Company and its banks amended the credit agreement with
NationsBank of Texas, N.A., as agent for the group of banks. The amendment
adjusts the Company's required financial covenants, limits capital expenditures
to a maximum of $27 million for 1998, adjusts the borrowing base percentages
allowing the Company increased borrowing ability and adjusts the interest rate
upwards 1.50% on the incremental increased borrowing against the higher base.
In August 1997, Atlantic Design Company, Inc. ("ADC") filed a Demand for
Arbitration (see "Note 6" for a discussion of the ADC agreement) with the
American Arbitration Association seeking a legal interpretation of the pricing
provisions in the agreement between ADC and the Company and the recovery of an
amount in dispute said to be approximately $2 million. The Company filed a
counterclaim against ADC for approximately $10 million alleging various breaches
of the agreement. Ogden Services Corporation and ADC filed counterclaims against
the Company seeking damages in excess of $10 million alleging additional various
breaches by the Company of the agreement.
On July 4, 1998, the Company, ADC and Ogden Services Corporation settled the
arbitration. Primary settlement terms included settlement of all claims and
counterclaims in the arbitration, a $2.1 million payment to ADC for which the
Company was fully reserved, a price increase effective for shipments after
August 15, 1998, and a guarantee of orders for one year. ADC is continuing as a
supplier for the Company.
GENICOM provides an array of services and products addressing different niches
of the information processing industry, competing against a wide range of
companies from large multinationals to small domestic entrepreneurs. Except for
the historical information contained herein, the matters discussed in this 10Q
include forward-looking statements that involve a number of risks and
uncertainties. Terms such as "believes", "expects", "plans", "intends",
"estimates", or "anticipates", and variations of such words and similar
expressions are intended to identify such forward looking statements. There are
certain important factors and risks, including the change in hardware and
software technology, economic conditions in the North American, Western European
and Asian markets, the anticipation of growth of certain market segments and the
positioning of the Company's products and services in those segments, certain
service customers whose business is declining, seasonality in the buying cycles
of certain of the Company's customers, the timing of product announcements, the
release of new or enhanced products and services, the introduction of
competitive products and services by existing or new competitors, access to and
development of product rights and technologies, the management of growth, the
integration of acquisitions, including but not limited to the Company's
acquisition of certain assets of Novadyne Computer Systems as of November 14,
1997, the Company's ability to reach an appropriate level of operating
efficiency in the services group, GENICOM's ability to attract and retain highly
skilled technical, managerial and sales and marketing personnel, possible
litigation related to the Company's operations, including litigation arising
under various environmental laws, and the other risks detailed from time to time
in the Company's SEC reports, including reports on Form 10K, that could cause
results to differ materially from those anticipated by the statements contained
herein.
15
<PAGE> 16
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item. 3 Defaults Upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
a) The Company's annual meeting of stockholders was held May 20, 1998.
c) At said annual meeting, stockholders elected the Company's three directors,
amended the Company's 1997 Stock Option Plan, approved the 1998 Employee
Ownership Participation Plan, approved the 1998Non-Employee Director Stock
Option Plan and approved the appointment of Cooper & Lybrand L.L.P. as the
Company's independent accountants.
Directors
<TABLE>
<CAPTION>
Director Votes for Withheld Broker Non-Votes
-------- --------- -------- ----------------
<S> <C> <C> <C>
Don E. Ackerman 9,821,388 47,490 0
John Hill 9,818,488 50,390 0
Paul T. Winn 9,821,378 47,500 0
</TABLE>
<TABLE>
<CAPTION>
Stock Option Plan
<S> <C> <C>
Abstentions or
Votes for Votes against Broker Non-Votes
5,669,384 641,073 61,417
Employee Ownership Participation Plan
Abstentions or
Votes for Votes against Broker Non-Votes
6,259,313 139,770 43,492
Non-Employee Director Stock Option Plan
Abstentions or
Votes for Votes against Broker Non-Votes
5,735,269 659,170 48,138
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
Accountants
Abstentions or
Votes for Votes against Broker Non-Votes
<S> <C> <C>
9,851,045 10,317 7,516
</TABLE>
Item 5. Other Information:
The SEC has adopted Rule 14a-4(c), effective June 29, 1998, which determines how
proxies designated by public corporations may use discretionary voting authority
on stockholder proposals made at annual meetings. Under this rule, the Company
will have unrestricted use of discretionary voting authority if it does not
receive prior written notice of an intent to submit a proposal at the meeting.
For the Company's 1999 annual meeting, this notice must be received by February
27, 1999.
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 Third Amendment to Amended and Restated
Credit Agreement dated May 7, 1998
10.2 Fourth Amendment to Amended and Restated
Credit Agreement and Waiver dated July 1,
1998
10.3 Settlement Agreement between Genicom
Corporation, Atlantic Design Company, Inc.
and Ogden Services Corporation dated July 4,
1998 (portions of this document have been
omitted pursuant to a request for
confidential treatment)
10.4# Genicom Corporation Retirement Income
Agreement with Paul T. Winn
27.1 Financial Data Schedule
</TABLE>
# Management contracts or compensatory plan
b) Reports on Form 8-K:
On June 28, 1998, the Company filed an 8-K regarding the settlement of
the Atlantic Design Company, Inc. and Ogden Service Corporation
arbitration, the amending of its credit facility with NationsBank, as
agent for a group of banks, and the write-off of $15 million of
goodwill related to historical acquisitions.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENICOM Corporation
-------------------
Registrant
Date: August 10, 1998
/s/James C. Gale
-------------------------------------
Signature
James C. Gale
Senior Vice President and Chief
Financial Officer
(Mr. Gale is a Chief Financial
Officer and has been duly
authorized to sign on behalf of the
Registrant)
18
<PAGE> 19
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------------- ---------------------------------------------------------------------- ----------------------
<S> <C> <C>
10.1 Third Amendment to Amended and Restated Credit Agreement dated May
7, 1998
10.2 Fourth Amendment to Amended and Restated Credit Agreement dated July
1, 1998
10.3 Settlement Agreement between Genicom Corporation, Atlantic Design
Company, Inc. and Ogden Services Corporation dated July 4, 1998
10.4 Genicom Corporation Retirement Income Agreement with Paul T. Winn
27.1 Financial Data Schedule Filed only with
EDGAR version
</TABLE>
<PAGE> 1
May 15, 1998 Exhibit 10.1
Genicom Corporation
14800 Conference Center Drive
Suite 400
Chantilly, Virginia 22021-3806
Attn: James C. Gale
RE: Amended and Restated Credit Agreement dated as of September 5, 1997
(the "Credit Agreement") among Genicom Corporation, the other Credit
Parties party thereto, the Lenders party thereto and NationsBank of
Texas, N.A., as Agent
Gentlemen:
Reference is made to the Credit Agreement described above, the defined terms of
which are incorporated herein by reference.
You have requested that the Credit Agreement be amended to adjust the
calculation of fees for the issuance of trade letters of credit under the
existing Letter of Credit subfacility made available to the Borrower pursuant to
the Credit Agreement.
Accordingly, on behalf of all of the Lenders, we hereby agree with you to amend
Subsection (b)(ii) of Section 3.5 of the Credit Agreement in its entirety to
read as follows:
(b) Letter of Credit Fees
*****************
(ii) Trade Letter of Credit Issuance Fee. In consideration of
the issuance of trade Letters of Credit hereunder, the
Borrower promises to pay to the Agent for the account of
each Lender a fee (the "Trade Letter of Credit Fee")
computed at a per annum rate for each day from the date
of issuance to the date of expiration of 1% on such
Lender's Revolving Commitment Percentage of the
available undrawn amount of each such trade Letter of
Credit (such Trade Letter of Credit Fee in respect of
any trade Letter of Credit not to be less than $100 in
the aggregate for all the Lenders). The Trade Letter of
Credit Fee will be payable quarterly in arrears on the
last day of each March, June, September and December for
the immediately preceding quarter (or portion thereof).
Except as modified hereby, all of the terms and provisions of the Credit
Agreement and the other Credit Documents shall remain in full force and effect.
This letter agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia.
<PAGE> 2
This letter agreement may be executed in one or more counterparts, each of which
constitute an original, and all of which taken together shall constitute a
single document.
Sincerely,
NATIONSBANK OF TEXAS, N.A.
By /s/ Sharon Ellis
Name Sharon Ellis
Title Vice President
ACCEPTED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN:
GENICOM CORPORATION
By James C. Gale
Title: Senior Vice President
<PAGE> 3
ACKNOWLEDGED AND CONSENTED TO AS OF THE DATE FIRST ABOVE WRITTEN
GENICOM INTERNATIONAL HOLDINGS CORPORATION
By /s/ James C. Gale
Title: President
GENICOM INTERNATIONAL SALES CORPORATION
By /s/ James C. Gale
Title: President
DELMARVA TECHNOLOGIES CORPORATION
By /s/ James C. Gale
Title: President
RASTEK CORPORATION
By /s/ James C. Gale
Title: President and Treasurer
ENTERPRISING SERVICE SOLUTIONS CORPORATION
By /s/ James C. Gale
Title: Vice President
PRINTER SYSTEMS CORPORATION
By /s/ James C. Gale
Title: Vice President
THE PRINTER CONNECTION, INC.
By /s/ James C. Gale
Title: Vice President
<PAGE> 4
PRINTER SYSTEMS INTERNATIONAL, LTD.
By /s/ James C. Gale
Title: Vice President
<PAGE> 1
Exhibit 10.2
FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND WAIVER
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
WAIVER (this "Amendment"), dated as of July 2, 1998, is by and among Genicom
Corporation (the "Borrower"), the subsidiaries of the Borrower identified on the
signature pages hereto (the "Guarantors"), the several lenders identified on the
signature pages hereto (each a "Lender" and, collectively, the "Lenders") and
NationsBank, N.A., as agent for the Lenders (in such capacity, the "Agent").
Capitalized terms used herein which are not defined herein and which are defined
in the Credit Agreement shall have the same meanings as therein defined.
W I T N E S S E T H
WHEREAS, the Borrower, the Guarantors, the Lenders and the Agent
entered into that certain Amended and Restated Credit Agreement dated as of
September 5, 1997, as amended by that First Amendment to Amended and Restated
Credit Agreement dated as of October 31, 1997, as amended by that Second
Amendment to Amended and Restated Credit Agreement dated as of March 12, 1998,
as amended by that letter agreement dated May 5, 1998 (as so amended, the
"Existing Credit Agreement").
WHEREAS, the parties have agreed to amend the Existing Credit Agreement
and waive certain Defaults as set forth herein.
NOW, THEREFORE, in consideration of the agreements hereinafter set
forth, and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
PART I
DEFINITIONS
1. Certain Definitions. Unless otherwise defined herein or the context
otherwise requires, the following terms used in this Amendment, including its
preamble and recitals, have the following meanings:
"Amended Credit Agreement" means the Existing Credit Agreement
as amended hereby.
"Amendment No. 4 Effective Date" is defined in Part IV.
2. Other Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Amendment, including its preamble and
recitals, have the meanings provided in the Amended Credit Agreement.
<PAGE> 2
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 4
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with this Part II. Except as so amended, the Existing Credit Agreement and all
other Credit Documents shall continue in full force and effect.
1. Amendments to Section 1.1.
(a) The following definitions appearing in Section 1.1 of the Existing
Credit Agreement are amended in their entireties to read as follows:
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Eurodollar Loan which is a
Revolving Loan, Tranche A Term Loan, Tranche B Term Loan or Foreign
Currency Loan or for any Base Rate Loan which is a Revolving Loan,
Tranche A Term Loan or Tranche B Term Loan, the applicable rate of the
Unused Fee for any day for purposes of Section 3.5(a) or the applicable
rate of the Standby Letter of Credit Fee for any day for purposes of
Section 3.5(b)(i), the appropriate applicable percentage corresponding
to the Pricing Consolidated Funded Debt Coverage Ratio in effect as of
the most recent Calculation Date:
<TABLE>
<CAPTION>
Applicable Applicable
Percentage for Percentage for Applicable
Eurodollar Eurodollar Percentage for Applicable
Pricing Consolidated Loans which are Percentage for Eurodollar Percentage for
Funded Debt Revolving Loans, Tranche Home Rate Loans which are Base Rate
Pricing Coverage A Term Loans or Foreign Loans which are Tranche B Term Loans which are
Level Ratio Currency Loans Loans Loans Tranche B Term Loans
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I Greater than or equal
to 4.50 to 1.00 3.00% 1.75% 3.50% 2.25%
- --------------------------------------------------------------------------------------------------------------------------
II Greater than or equal
to 3.502.75%.00 but
less than 41.50 to 2.75% 1.50% 3.25% 2.00%
- --------------------------------------------------------------------------------------------------------------------------
III Greater than or equal
to 3.002.50%.00 but
less than 31.25 to 1.00 2.50% 1.25% 3.00% 1.75%
- --------------------------------------------------------------------------------------------------------------------------
IV Greater than or equal
to 2.502.25%.00 but
less than 31.00 to 1.00 2.25% 1.00% 3.00% 1.75%
- --------------------------------------------------------------------------------------------------------------------------
V Greater than or equal
to 2.002.00%.00 but
less than 20.75 to 1.00 2.00% 0.75% 3.00% 1.75%
- --------------------------------------------------------------------------------------------------------------------------
VI Less than 2.00 to 1.00 1.75% 0.50% 3.00% 1.75%
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Pricing Consolidated
Funded Debt Applicable Applicable
Pricing Coverage for Standby Letter of Percentage for
Level Ratio Credit Fee Unused Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
I Greater than or equal
to 4.50 to 1.00 3.00% 0.50%
- --------------------------------------------------------------------------------
II Greater than or equal
to 3.502.75%.00 but
less than 41.50 to 2.75% 0.50%
- --------------------------------------------------------------------------------
III Greater than or equal
to 3.002.50%.00 but
less than 31.25 to 1.00 2.50% 0.50%
- --------------------------------------------------------------------------------
IV Greater than or equal
to 2.502.25%.00 but
less than 31.00 to 1.00 2.25% 0.50%
- --------------------------------------------------------------------------------
V Greater than or equal
to 2.002.00%.00 but
less than 20.75 to 1.00 2.00% 0.375%
- --------------------------------------------------------------------------------
VI Less than 2.00 to 1.00 1.75% 0.375%
================================================================================
</TABLE>
The initial Applicable Percentages shall be based on Pricing
Level II until the first Applicable Percentage Change Date for the
Calculation Date occurring on September 28, 1997. Thereafter,
determination of the appropriate Applicable Percentages based on the
Pricing Consolidated Funded Debt Coverage Ratio shall be made on each
Calculation Date upon receipt by the Agent at the Agency Services
Address of the Required Financial Information for such Calculation
Date. The Pricing Consolidated Funded Debt Coverage
-2-
<PAGE> 3
Ratio in effect as of a Calculation Date shall establish the Applicable
Percentages that shall be effective as of the date designated by the
Agent as the Applicable Percentage Change Date. The Agent shall
determine the Applicable Percentages as of the Calculation Date
occurring on September 28, 1997 and on each Calculation Date thereafter
and shall promptly notify the Borrower and the Lenders of the
Applicable Percentages so determined and of the Applicable Percentage
Change Date. Such determinations by the Agent of the Applicable
Percentages shall be conclusive absent demonstrable error. If the
Borrower fails to provide the Required Financial Information for a
Calculation Date to the Agent at the Agency Services Address, the
Applicable Percentages shall be based on Pricing Level I until such
time as the Required Financial Information is provided whereupon the
Pricing Level shall be determined by the then current Pricing
Consolidated Funded Debt Coverage Ratio. Notwithstanding anything to
the contrary contained herein, if on any Calculation Date occurring on
or after January 3, 1999, the Consolidated Senior Funded Debt Coverage
Ratio exceeds 4.0 to 1.0, the Applicable Percentages determined in
accordance with the pricing grid above shall be increased by 1.0%.
"Borrowing Base" means (i) as of any day prior to November 1,
1998, the sum of (a) 85% of Eligible Receivables and (b) 55% of
Eligible Inventory, in each case as set forth in the most recent
Borrowing Base Report delivered to the Agent and the Lenders in
accordance with the terms of Section 7.1(e); provided, however, that
the amount determined pursuant to clause (b) above shall not exceed 50%
of the total Borrowing Base, (ii) as of any day on or after November 1,
1998 and prior to January 3, 1999, the sum of (a) 85% of Eligible
Receivables and (b) 45% of Eligible Inventory, in each case as set
forth in the most recent Borrowing Base Report delivered to the Agent
and the Lenders in accordance with the terms of Section 7.1(e);
provided, however, that the amount determined pursuant to clause (b)
above shall not exceed 50% of the total Borrowing Base and (iii) as of
any day on or after January 3, 1999, the Original Borrowing Base.
"Consolidated EBITDA" means, for any period, the sum of (i)
Consolidated Net Income for such period, plus (ii) an amount which, in
the determination of Consolidated Net Income for such period, has been
deducted for (A) Consolidated Interest Expense, (B) total federal,
state, local and foreign income, value added and similar taxes and (C)
depreciation and amortization expense, all as determined in accordance
with GAAP; provided, however, Consolidated EBITDA shall exclude (x) up
to $1,739,000 in non-cash charges incurred during the fourth fiscal
quarter of 1997 in connection with the acquisition of certain assets of
the printer division of Digital Equipment Corporation and (y) up to
$15,000,000 in a non-cash write-off against the Borrower's intangible
assets incurred during the second fiscal quarter of 1998.
"Consolidated Fixed Charge Coverage Ratio" means (a) as of the
end of any period prior to and including January 3, 1999, the ratio of
(i) Consolidated EBITDA for the applicable period to (ii) Consolidated
Interest Expense for the applicable period plus Consolidated Scheduled
Funded Indebtedness Payments for the applicable period plus Restricted
Payments by the Borrower and its Subsidiaries on a consolidated basis
for the applicable period, and (b) as of the end of any period after
January 3, 1999, the ratio of (i) Consolidated EBITDA for the
applicable period minus Consolidated Capital Expenditures
-3-
<PAGE> 4
for the applicable period, to (ii) Consolidated Interest Expense for
the applicable period plus Consolidated Scheduled Funded Indebtedness
Payments for the applicable period plus Restricted Payments by the
Borrower and its Subsidiaries on a consolidated basis for the
applicable period.
"Consolidated Funded Debt Coverage Ratio" means (a) for the
purpose of determining compliance with the financial covenant contained
in Section 7.11(b) hereof as of any Calculation Date occurring on or
prior to January 3, 1999, the ratio of (i) Funded Indebtedness of the
Borrower and its Subsidiaries on a consolidated basis as of such
Calculation Date, to (ii) Consolidated EBITDA for the four-quarter
period ended as of such Calculation Date, and (b) for the purpose of
determining compliance with the financial covenant contained in Section
7.11(b) hereof as of any Calculation Date occurring after January 3,
1999, the ratio of (i) Funded Indebtedness of the Borrower and its
Subsidiaries on a consolidated basis as of such Calculation Date, to
(ii) Consolidated EBITDA for the four-quarter period ended as of such
Calculation Date minus Consolidated Capital Expenditures for the
four-quarter period ended as of such Calculation Date.
"Consolidated Net Income" means, for any period, net income
(excluding extraordinary items) after taxes for such period of the
Borrower and its Subsidiaries on a consolidated basis, as determined in
accordance with GAAP.
"Net Proceeds" means cash proceeds received by the Borrower or
any of its Subsidiaries from time to time in connection with any Asset
Disposition, Debt Issuance or Equity Transaction, net of the actual
costs (excluding intercompany items) and taxes incurred by such Person
in connection with and attributable to such Asset Disposition, Debt
Issuance or Equity Transaction, as applicable.
"Permitted Investments" means Investments which are either (i)
cash and Cash Equivalents; (ii) accounts receivable created, acquired
or made by the Borrower or any of its Subsidiaries in the ordinary
course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments consisting of stock,
obligations, securities or other property received by the Borrower or
any of its Subsidiaries in settlement of accounts receivable (created
in the ordinary course of business) from bankrupt obligors; (iv)
Investments existing as of the Closing Date and set forth in Schedule
1.1A, (v) additional Investments in any Subsidiary of the Borrower
which is a Guarantor; (vi) subject to the terms of Section 7.15(b),
Investments in Subsidiaries of the Borrower which are not Guarantors
existing as of June 15, 1998 and additional Investments in all such
Subsidiaries not to exceed an aggregate amount of $1,000,000 per year;
(vii) Guaranty Obligations permitted by Section 8.1; (viii)
acquisitions permitted by Section 8.4(c); (ix) transactions permitted
by Section 8.8; and (x) loans to directors, officers, employees,
agents, customers or suppliers that do not exceed an aggregate
principal amount of $1,000,000 at any one time outstanding.
(b) The following new definitions are added to Section 1.1 of the Existing
Credit Agreement in the appropriate alphabetical order to read as follows:
-4-
<PAGE> 5
"Consolidated Senior Funded Debt Coverage Ratio" means, as of
any Calculation Date, the ratio of (i) Senior Funded Indebtedness of
the Borrower and its Subsidiaries on a consolidated basis as of such
Calculation Date, to (ii) Consolidated EBITDA for the four-quarter
period ended as of such Calculation Date minus Consolidated Capital
Expenditures for the four-quarter period ended as of such Calculation
Date.
"Debt Issuance" means the issuance of any Indebtedness for
borrowed money by the Borrower or any of its Subsidiaries.
"Original Borrowing Base" means, as of any day, the sum of (a)
80% of Eligible Receivables and (b) 40% of Eligible Inventory, in each
case as set forth in the most recent Original Borrowing Base Report
delivered to the Agent and the Lenders in accordance with the terms of
Section 7.1(e); provided, however, that the amount determined pursuant
to clause (b) above shall not exceed 50% of the total Original
Borrowing Base.
"Pricing Consolidated Funded Debt Coverage Ratio" means, as
of any Calculation Date, the ratio of (i) Funded Indebtedness of the
Borrower and its Subsidiaries on a consolidated basis as of such
Calculation Date, to (ii) Consolidated EBITDA for the four-quarter
period ended as of such Calculation Date minus Consolidated Capital
Expenditures for the four-quarter period ended as of such Calculation
Date.
"Senior Funded Indebtedness" means, with respect to any
Person, total Funded Indebtedness (other than Subordinated
Indebtedness).
"Subordinated Indebtedness" means, any Indebtedness incurred
by the Borrower after July 1, 1998 which by its terms is specifically
subordinated in right of payment to the prior payment of the
obligations of the Credit Parties under this Credit Agreement and the
other Credit Documents on terms and conditions satisfactory to the
Required Lenders.
2. Amendment to Section 3.1. Section 3.1 of the Existing Credit Agreement is
hereby amended in its entirety to read as follows:
3.1 Default Rate/ Original Borrowing Base Fee.
(a) Default Rate. Upon the occurrence, and during the continuance, of
an Event of Default, the principal of and, to the extent permitted by law,
interest on the Loans and any other amounts owing hereunder or under the other
Credit Documents shall bear interest, payable on demand, at a per annum rate 2%
greater than the rate which would otherwise be applicable (or if no rate is
applicable, whether in respect of interest, fees or other amounts, then 2%
greater than the Base Rate).
(b) Original Borrowing Base Rate.
At the time of delivery of the Original Borrowing Base Report as
required by Section 7.1(e) hereof for each month ending on or prior to January
3, 1999, the Borrower promises to immediately pay additional interest at a rate
of 1.50% per annum on the amount (to the extent positive) equal to the amount by
which on such day (i) the sum of the aggregate principal amount
-5-
<PAGE> 6
of outstanding Revolving Loans plus the Dollar Amount (as determined as of the
most recent Determination Date) of the aggregate principal amount of outstanding
Foreign Currency Loans plus the aggregate principal amount of outstanding
Swingline Loans plus LOC Obligations outstanding exceeds (ii) the Original
Borrowing Base.
3. Amendment to Section 3.3(b). Section 3.3(b) of the Existing Credit
Agreement is hereby amended in its entirety to read as follows:
(b) Mandatory Prepayments.
(i) If at any time the sum of the aggregate principal
amount of outstanding Revolving Loans plus the Dollar Amount
(as determined as of the most recent Determination Date) of
the aggregate principal amount of outstanding Foreign Currency
Loans plus the aggregate principal amount of outstanding
Swingline Loans plus LOC Obligations outstanding shall exceed
the lesser of (a) the Revolving Committed Amount and (b) the
Borrowing Base, the Borrower promises to prepay immediately
the outstanding principal balance on the Revolving Loans in an
amount sufficient to eliminate such excess.
(ii) If on any Determination Date the Dollar Amount
of the aggregate Foreign Currency Loans outstanding exceeds
(as the result of fluctuations in applicable foreign exchange
rates or otherwise) the then Foreign Currency Committed
Amount, the Borrower promises to make a mandatory prepayment
to the Agent in an aggregate Dollar Amount equal to the excess
of
(x) the amount equal to the Dollar Amount of
the aggregate Foreign Currency Loans outstanding
over
(y) the Foreign Currency Committed Amount.
(iii) Immediately upon the occurrence of any Asset
Disposition Prepayment Event, the Borrower shall prepay the
Loans in an aggregate amount equal to the Net Proceeds of the
related Asset Disposition not applied (or caused to be
applied) by the Borrower during the related Application Period
to the purchase, acquisition or construction of Alternative
Assets as contemplated by the terms of Section 8.4(b)(v).
(iv) Within 120 days after the end of each fiscal
year of the Borrower and its Subsidiaries (commencing with the
fiscal year ending December 28, 1997), the Borrower shall
prepay the Loans in an aggregate amount equal to 75% of the
Excess Cash Flow for such prior fiscal year.
(v) Immediately upon receipt by the Borrower or any
of its Subsidiaries of proceeds from any Debt Issuance, the
Borrower shall prepay the Loans in an aggregate
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<PAGE> 7
amount equal to 100% of the Net Proceeds of such Debt Issuance
to the Lenders (such prepayment to be applied as set forth in
clause (vii) below).
(vi) Immediately upon receipt by the Borrower or any
of its Subsidiaries of proceeds from any Equity Transaction,
the Borrower shall prepay the Loans in an aggregate amount
equal to 100% of the Net Proceeds of such Equity Transaction
to the Lenders (such prepayment to be applied as set forth in
clause (vii) below); provided, however, that no such
prepayment shall be required pursuant to this clause (vi) in
connection with Net Proceeds received solely from Equity
Issuances made in connection with the exercise by employees of
the Borrower of their rights under employee stock ownership
plans or employee stock option plans administered by the
Borrower.
(vii) All prepayments made pursuant to this Section
3.3(b) shall (i) be subject to Section 3.12, (ii) in the case
of prepayments made pursuant to Section 3.3(b)(iii), (iv), (v)
or (vi), be applied first pro rata to the Tranche A Term Loan
and the Tranche B Term Loan (ratably to the remaining
principal installments thereof, in inverse order of maturity)
and then to the Revolving Loans (with a corresponding
reduction in the Revolving Committed Amount), (iii) subject to
the terms of clause (ii) above, be applied first to Base Rate
Loans, if any, and then to Eurodollar Loans in direct order of
Interest Period maturities and (iv) be accompanied by interest
on the principal amount prepaid through the date of
prepayment.
4. Amendment to Section 7.1(b). A new clause (iii) is added to Section
7.1(b) of the Existing Credit Agreement to read as follows:
(iii) Cash Position Forecast/Report. As soon as
available, and in any event within 15 days after the close of
each fiscal month, a forecast of cash inflows and outflows of
the Borrower and its cash sweep of Subsidiaries for the next 8
weeks together with a statement of actual cash position of the
Borrower for the 4 weeks then ended, all such financial
information described above to be in reasonable form and
detail and reasonably acceptable to the Agent, and accompanied
by a certificate of the chief financial officer or treasurer
of the Borrower to the effect that such forecasts and
statement of actual cash position have been prepared using
reasonable assumptions and projections where required.
5. Amendment to Section 7.1(e). Section 7.1(e) of the Existing Credit
Agreement is hereby amended in its entirety to read as follows:
(e) Borrowing Base/Original Borrowing Base Reports. (i) Within 15
days after the end of each calendar month, a Borrowing Base Report and
an Original Borrowing Base Report, each as of the end of the
immediately preceding month and (ii) as soon as available after the
request of the Required Lenders, a Borrowing Base Report as of the date
of such request. Each of the Borrowing Base Report and the Original
Borrowing Base Report shall be substantially in the form of Schedule
7.1(e) and certified by the chief financial officer or treasurer of the
Borrower to be true and correct as of the date thereof.
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<PAGE> 8
6. Amendment to Section 7.11. Section 7.11 of the Existing Credit
Agreement is hereby amended in its entirety to read as follows:
7.11 Financial Covenants.
(a) Consolidated Tangible Net Worth. Consolidated Tangible Net
Worth at all times shall be no less than:
(i) as of the last day of the third fiscal quarter
for the fiscal year 1997, the sum of $12,500,000, increased by
an amount equal to 100% of the proceeds received from all
Equity Transactions occurring after the Closing Date;
(ii) as of the last day of the fourth fiscal quarter
for the fiscal year 1997 and the last day of the first fiscal
quarter for the fiscal year 1998, the sum of $6,000,000,
increased by an amount equal to (A) 50% of the Consolidated
Net Income (without deduction for any losses) for each fiscal
quarter commencing with the fourth fiscal quarter for the
fiscal year 1997 through and including the fiscal quarter then
ended, plus (B) 100% of the proceeds received from all Equity
Transactions occurring after the Closing Date;
(iii) as of the last day of the second fiscal quarter
for the fiscal year 1998, the sum of $7,000,000, increased by
an amount equal to (A) 50% of the Consolidated Net Income
(without deduction for any losses) for each fiscal quarter
commencing with the fourth fiscal quarter for the fiscal year
1997 through and including the fiscal quarter then ended, plus
(B) 100% of the proceeds received from all Equity Transactions
occurring after the Closing Date;
(iv) as of the last day of the third fiscal quarter
for the fiscal year 1998, the sum of $8,000,000, increased by
an amount equal to (A) 50% of the Consolidated Net Income
(without deduction for any losses) for each fiscal quarter
commencing with the fourth fiscal quarter for the fiscal year
1997 through and including the fiscal quarter then ended, plus
(B) 100% of the proceeds received from all Equity Transactions
occurring after the Closing Date;
(v) as of the last day of the fourth fiscal quarter
for the fiscal year 1998, the sum of $10,000,000, increased by
an amount equal to (A) 50% of the Consolidated Net Income
(without deduction for any losses) for each fiscal quarter
commencing with the fourth fiscal quarter for the fiscal year
1997 through and including the fiscal quarter then ended, plus
(B) 100% of the proceeds received from all Equity Transactions
occurring after the Closing Date; and
(vi) as of the last day of the first fiscal quarter
for the fiscal year 1999 and the last day of each fiscal
quarter thereafter, the sum of $12,500,000, increased by an
amount equal to (A) 50% of the Consolidated Net Income
(without deduction for any losses) for each fiscal quarter
commencing with the fourth fiscal quarter for the fiscal year
1997 through and including the fiscal quarter then ended, plus
(B)
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<PAGE> 9
100% of the proceeds received from all Equity Transactions
occurring after the Closing Date.
(b) Consolidated Funded Debt Coverage Ratio. The Consolidated
Funded Debt Coverage Ratio at each Calculation Date shall be no greater
than the following proportions:
Period Ratio
------ -----
As of the last day of 5.25 to 1.00
the third fiscal quarter
of fiscal year 1997
As of the last day of the 6.50 to 1.00
fourth fiscal quarter of
fiscal year 1997
As of the last day of the 6.25 to 1.00
first fiscal quarter of fiscal
year 1998 of the Borrower
and its Subsidiaries
As of the last day of 4.00 to 1.00
the second fiscal quarter
of fiscal year 1998 of
the Borrower and its
Subsidiaries
As of the last day of 4.50 to 1.00
the third fiscal quarter
of fiscal year 1998 of
the Borrower and its
Subsidiaries
As of the last day of 4.25 to 1.00
the fourth fiscal quarter
of fiscal year 1998 of
the Borrower and its
Subsidiaries
As of the last day of 3.50 to 1.00
the first fiscal quarter
of fiscal year 1999 of
the Borrower and its
Subsidiaries
-9-
<PAGE> 10
As of the last day of 3.25 to 1.00
the second fiscal quarter
of fiscal year 1999 of
the Borrower and its
Subsidiaries
As of the last day of 3.00 to 1.00
the third fiscal quarter
of fiscal year 1999
of the Borrower and its
Subsidiaries and thereafter
(c) Consolidated Fixed Charge Coverage Ratio. The Consolidated
Fixed Charge Coverage Ratio at each Calculation Date shall be no less than the
following proportions:
Period Ratio
------ -----
For the period occurring 1.25 to 1.00
from the Closing Date
through the last
day of the first fiscal
quarter of fiscal year 1998
of the Borrower and its
Subsidiaries
For the period occurring 2.00 to 1.00
from the first day of the
second fiscal quarter of
fiscal year 1998 through
the last day of the
second fiscal quarter of fiscal
year 1998 of the Borrower
and its Subsidiaries
For the period occurring 1.75 to 1.00
from the first day of the
third fiscal quarter of
fiscal year 1998 through
the last day of the
third fiscal quarter of fiscal
year 1998 of the Borrower
and its Subsidiaries
For the period occurring 1.85 to 1.00
from the first day of the
fourth fiscal quarter of
-10-
<PAGE> 11
fiscal year 1998 through
the last day of the
fourth fiscal quarter of fiscal
year 1998 of the Borrower
and its Subsidiaries
For the period occurring 1.75 to 1.00
from the first day of the
first fiscal quarter of
fiscal year 1999 of the
Borrower and its
Subsidiaries and thereafter
(d) Consolidated Debt to Capitalization Ratio. The
Consolidated Debt to Capitalization at each Calculation Date shall be
no greater than the following proportions:
Period Ratio
------ -----
For the period occurring 0.75 to 1.00
from the Closing Date
through the last
day of the first fiscal
quarter of fiscal year 1998
of the Borrower and its
Subsidiaries
For the period occurring 0.79 to 1.00
from the first day of the
second fiscal quarter of
fiscal year 1998 of the
Borrower and its
Subsidiaries through
the last day of the
fourth fiscal quarter of fiscal
year 1998 of the Borrower
and its Subsidiaries
For the period occurring 0.65 to 1.00
from the first day of the
first fiscal quarter of
fiscal year 1999 of the
Borrower and its
Subsidiaries through
the last day of the
fourth fiscal quarter of fiscal
year 1999 of the Borrower
-11-
<PAGE> 12
and its Subsidiaries
For the period occurring 0.60 to 1.00
from the first day of the
first fiscal quarter of
fiscal year 2000 of the
Borrower and its
Subsidiaries and
thereafter
(e) Consolidated Capital Expenditures. Consolidated Capital
Expenditures for the four fiscal quarter period ending at each
Calculation Date shall not exceed:
For the period ending $27,500,000
on the last day of
the second fiscal quarter of
fiscal year 1998 of the
Borrower and its
Subsidiaries
For the period ending $27,500,000
on the last day of
the third fiscal quarter of
fiscal year 1998 of the
Borrower and its
Subsidiaries
For the period ending $27,000,000
on the last day of
the fourth fiscal quarter of
fiscal year 1998 of the
Borrower and its
Subsidiaries and thereafter
7. New Section 7.16. A new section 7.16 is hereby added to the Existing
Credit Agreement immediately following Section 7.15 thereof which shall read as
follows:
7.16 BORROWER DEPOSIT ACCOUNTS.
The Borrower shall maintain its domestic depository accounts with one
or more Lenders.
8. Amendment to Section 8.4. Subsection (c) of Section 8.4 of the
Existing Credit Agreement is hereby amended in its entirety to read as follows:
8.4 Consolidation, Merger, Sale or Purchase of Assets, etc.
The Borrower will not, nor will it permit any of its Subsidiaries to:
-12-
<PAGE> 13
**********
(c) enter into any Acquisition transaction (in a single
transaction or a series of related transactions) except (i) as
otherwise permitted by Section 8.4(a) and Section 8.5, (ii) for the
acquisition of Property in the ordinary course of business for fair
consideration and (iii) for the purchase on or before December 15, 1997
of the NCS Assets pursuant to the terms of the NCS Purchase Agreement.
9. Amendment to Section 9.1(c). Section 9.1(c) of the Existing Credit
Agreement is hereby amended in its entirety to read as follows:
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of
any term, covenant or agreement contained in Sections 7.2,
7.9, 7.11, 7.12, 7.14, 7.15, or 8.1 through 8.14, inclusive,
or
(ii) default in the due performance or observance by
it of any term, covenant or agreement contained in Section
7.1(e) and such default shall continue unremedied for a period
of at least 7 Business Days after the earlier of a responsible
officer of a Credit Party becoming aware of such default or
notice thereof by the Agent; or
(iii) default in the due performance or observance by
it of any term, covenant or agreement (other than those
referred to in subsections (a), (b), (c)(i) or (c)(ii) of this
Section 9.1) contained in this Credit Agreement and such
default shall continue unremedied for a period of at least 30
days after the earlier of a responsible officer of a Credit
Party becoming aware of such default or notice thereof by the
Agent; or
10. Schedule 7.1(e). Schedule 7.1(e) is hereby replaced with new
Schedule 7.1(e) in the form of Exhibit A attached hereto.
PART III
WAIVER
The Agent and the Required Lenders hereby waive through July 15, 1998
the requirement that the Borrower deliver a Borrowing Base Report for the
calendar month ended May 31, 1998 on or before June 15, 1998 as provided in
Section 7.1(e) of the Credit Agreement. The Agent and the Required Lenders
further agree that the failure to deliver such Borrowing Base Report by June 15,
1998 shall not constitute a Default under the Credit Agreement. This is a
one-time waiver and will expire without further notice on July 15, 1998. The
failure of the Borrower to deliver such Borrowing Base Report by July 15, 1998
shall constitute an Event of Default.
PART IV
CONDITIONS TO EFFECTIVENESS
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<PAGE> 14
1. Amendment No. 4 Effective Date. This Amendment shall be and become
effective as of the date hereof (the "Amendment No. 4 Effective Date") when all
of the conditions set forth in this Part IV shall have been satisfied, and
thereafter this Amendment shall be known, and may be referred to, as "Amendment
No. 4."
2. Execution of Counterparts of Amendment. The Agent shall have
received counterparts (or other evidence of execution, including telephonic
message, satisfactory to the Agent) of this Amendment, which collectively shall
have been duly executed on behalf of each of the Borrower, the Guarantors and
the Required Lenders.
3. Corporate Existence. The Agent shall have received all documents it
may reasonably request relating to the existence and good standing of each of
the Credit Parties, the corporate or other necessary authority for and the
validity of this Amendment, and any other matters relevant thereto, all in form
and substance reasonably satisfactory to the Agent.
4. Legal Opinion. The Agent shall have received a legal opinion of
McGuire, Woods, Battle & Boothe, counsel for the Credit Parties in form and
substance reasonably satisfactory to the Agent.
5. Officer's Certificate. The Agent shall have received a certificate
executed by the chief financial officer of the Borrower as of the Amendment No.
4 Effective Date stating that, immediately after giving effect to this Amendment
and the transactions contemplated hereby, (i) each of the Credit Parties is
Solvent, (ii) no Default or Event of Default (other than any Default or Event of
Default that has been waived) exists and (iii) the representations and
warranties set forth in the Existing Credit Agreement are true and correct in
all material respects.
6. Material Adverse Change. Except as otherwise previously disclosed in
writing to the Lenders, no material adverse change shall have occurred since
December 29, 1996 in the condition (financial or otherwise), business or
management of the Borrower or of the Borrower and its Subsidiaries taken as a
whole.
7. Amendment Fee. The Agent shall have received for the account of each
Lender an amendment fee of 0.25% on such Lender's Commitment.
8. Other Items. The Agent shall have received such other documents,
agreements or information which may be reasonably requested by the Agent.
-14-
<PAGE> 15
PART III
MISCELLANEOUS
1. Representations and Warranties. Borrower hereby represents and
warrants to the Agent and the Lenders that, after giving effect to this
Amendment, (a) no Default or Event of Default exists under the Credit Agreement
or any of the other Credit Documents which has not been waived and (b) the
representations and warranties set forth in Section 6 of the Existing Credit
Agreement are, subject to the limitations set forth therein, true and correct in
all material respects as of the date hereof (except for those which expressly
relate to an earlier date).
2. Cross-References. References in this Amendment to any Part are,
unless otherwise specified, to such Part of this Amendment.
3. Instrument Pursuant to Existing Credit Agreement. This Amendment is
a Credit Document executed pursuant to the Existing Credit Agreement and shall
(unless otherwise expressly indicated therein) be construed, administered and
applied in accordance with the terms and provisions of the Existing Credit
Agreement.
4. References in Other Credit Documents. At such time as this Amendment
No. 4 shall become effective pursuant to the terms of Part IV, all references in
the Credit Documents to the "Credit Agreement" shall be deemed to refer to the
Credit Agreement as amended by this Amendment No. 4.
5. Counterparts. This Amendment may be executed by the parties hereto
in several counterparts, each of which shall be deemed to be an original and all
of which shall constitute together but one and the same agreement.
6. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE COMMONWEALTH OF VIRGINIA WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
7. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
[The remainder of this page has been left blank intentionally]
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<PAGE> 16
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
duly executed on the date first above written.
BORROWER:
GENICOM CORPORATION
By /s/ James C. Gale
Title: Senior Vice President
GUARANTORS:
GENICOM INTERNATIONAL HOLDINGS CORPORATION
By /s/ James C. Gale
Title: President
GENICOM INTERNATIONAL SALES CORPORATION
By /s/ James C. Gale
Title: President
DELMARVA TECHNOLOGIES CORPORATION
By /s/ James C. Gale
Title: President
RASTEK CORPORATION
By /s/ James C. Gale
Title: President and Treasurer
<PAGE> 17
ENTERPRISING SERVICE SOLUTIONS CORPORATION
By /s/ James C. Gale
Title: Vice President
PRINTER SYSTEMS CORPORATION
By /s/ James C. Gale
Title: Vice President
THE PRINTER CONNECTION, INC.
By /s/ James C. Gale
Title: Vice President
PRINTER SYSTEMS INTERNATIONAL, LTD.
By /s/ James C. Gale
Title: Vice President
<PAGE> 18
LENDERS:
NATIONSBANK, N.A. (formerly NationsBank of
Texas, N.A.), individually as a Lender
and in its capacity as Agent
By /s/ Yousuf Omar
Title: Senior Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By /s/ David D. Yewer
Title: Vice President
By /s/ Christina T. Schoen
Title: Senior Vice Presidnet
DEEPROCK & COMPANY
By: Eaton Vance Management,
as Investment Advisor
By /s/ Payson F. Swaffield
Title: Vice President
CRESTAR BANK
By /s/ Nancy R. Petrash
Title: Senior Vice President
THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.
By_____________________________
Title:
<PAGE> 19
FLOATING RATE PORTFOLIO
By: INVESCO Senior Secured
Management, Inc., as attorney-in-fact
By /s/ Kathleen A. Lenarcic
Title: Authorized Agent
KZH HOLDING CORPORATION III
By /s/ Virginia Conway
Title: Authorized Agent
MORGAN STANLEY SENIOR FUNDING, INC.
By /s/ Christopher A. Pucillo
Title: Vice President
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By /s/ Payson F. Swaffield
Title: Vice President
CERES FINANCE LTD.
By /s/ David Egglish
Title: Director
AERIES FINANCE LTD.
By /s/ Andrew Wignall
Title: Director
<PAGE> 20
BANK OF SCOTLAND
By
Title:
NATIONAL CITY BANK OF KENTUCKY
By /s/ Glenn S. Nord
Title: Vice President
<PAGE> 1
Exhibit 10.3
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT AND FILED SEPARATELY WITH THE COMMISSION
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT between Genicom Corporation, on the one
hand, and Atlantic Design Company, Inc. and Ogden Services Corporation, on the
other hand, dated July 4, 1998 (the "Agreement").
The parties agree to settle fully and completely the matters that are
the subject of the arbitration proceeding presently pending between the parties
relating to the Services Agreement dated as of December 18, 1995, as amended
(the "Services Agreement"), and the pricing for the Model #3870 Eagle printer
and print ribbon and spares related to the Eagle printer (the "Eagle Printer")
that Genicom desires to add to the Products that may be purchased by Genicom
under the Services Agreement, on the following terms:
1. Genicom shall pay ADC $2.1 million, to be paid as follows: $1.0
million by July 9, 1998; $700,000 by July 31, 1998; and $400,000 by August 31,
1998. In the event Genicom fails to pay any of such amounts when due, and fails
to cure within three business days of receipt of notice thereof, then ADC may,
in addition to its right to enforce Genicom's payment obligations contained in
this paragraph, at its
<PAGE> 2
option, terminate the Services Agreement and, in such event, Genicom, upon ADC's
written request, shall comply with and pay the sums referred to in the
Reacquisition Conditions.
2. [The material at this point has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission]
3. [The material at this point has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission]
3. With respect to Genicom initiated ECNs and ECOs implemented by ADC
after the date of this Agreement, any incremental cost increases resulting
directly therefrom will be passed on to Genicom in the form of price increases
on a dollar-for-dollar basis; 75% of any decremental cost decreases resulting
directly therefrom will be passed on to Genicom in the form of price decreases,
with 25% of any such decremental cost decreases inuring to the benefit of ADC;
provided, however, with respect to ECNs, ECOs and ECO-Vs initiated by ADC after
the date of this Agreement, 75% of the decremental cost decreases resulting
directly therefrom will inure to the benefit of ADC, with 25% of any decremental
cost decreases resulting directly therefrom to be passed on to Genicom in the
form of price decreases. The implementation date for such ECNs, ECOs and ECO-Vs
shall be agreed concurrently with the setting of pricing. There will be no price
adjustments for ECNs, ECOs or ECO-Vs implemented prior to the date of this
Agreement.
4. Genicom guarantees that for the twelve months beginning July 1,
1998 (the "Guarantee Period"), Genicom will place purchase orders that obligate
ADC
2
<PAGE> 3
to expend, to meet Genicom's production requirements, no fewer than the lower of
(1) 696,000 man-hours or (2) 80% of the actual annualized man-hours expended by
ADC on Genicom production during the first six months of 1998 (i.e., 80% of the
actual hours for the first six months times two) (the "Guaranteed Hours"). If
ADC does not expend the Guaranteed Hours during the Guarantee Period, Genicom
shall pay ADC within 30 days of receipt of an invoice an amount equal to the
product of Six Dollars per man-hour and the difference between the Guaranteed
Man Hours and actual numbers of man-hours expended by ADC during the Guarantee
Period. The Guaranteed Hours will be adjusted for any decline in man-hours over
the Guarantee Period caused as a result of any request by ADC to not supply
particular products under the Services Agreement.
5. [The material at this point has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission]
6. Genicom agrees to cooperate in all reasonable ways in any efforts
by ADC or Ogden to sell ADC or assets of ADC, including entering into
appropriate proprietary and confidentiality provisions in accordance with any
reasonable requests of ADC. The foregoing agreement shall not modify any rights
of Genicom under Sections 21.04 and 22 of the Services Agreement.
7. [The material at this point has been omitted pursuant to a request
for confidential treatment and filed separately with the Commission]
8. The parties hereby stipulate to dismiss with prejudice all claims
and counterclaims asserted in the pending arbitration, and will take appropriate
steps,
3
<PAGE> 4
including the filing of a Stipulation of Dismissal, to so notify the Arbitrator.
9. Within 60 days of the execution of this Agreement, ADC shall
invoice Genicom (to the extent it has not already done so) for all product that
has been shipped pursuant to Genicom purchase orders prior to the date of the
execution of this Agreement. Genicom shall pay all such invoices within 30 days.
ADC agrees that it will not invoice Genicom or otherwise seek payment for any
products shipped prior to the date of execution of this Agreement if invoices
for such products are not rendered within 60 days of execution of this
Agreement. Genicom will notify ADC within seven days from receipt of any
invoices that it believes are not made pursuant to Genicom purchase orders, and
the parties will work together to reconcile any such invoices within 30 days.
The provisions of this paragraph are without prejudice to any of Genicom's
rights to contest the accuracy of the invoices.
10. Genicom and ADC shall jointly explore strategic and pricing issues,
including the competitiveness of the pricing of products provided to Genicom and
the profitability of ADC's Genicom business.
11. Genicom hereby opts, and ADC hereby approves, that Genicom has
exercised its option pursuant to Section 8.03 of the Services Agreement to
provide repair services, and be reimbursed for its costs of repair within the
meaning of that Section 8.03 of the Services Agreement.
12. Any disputes arising out of or relating to this Settlement
Agreement, including the enforcement thereof, shall be subject to the
arbitration provisions of Section 20 of the Services Agreement except that, if
he is available, the
4
<PAGE> 5
parties agree to Louis Craco, Esq. as the arbitrator. Any arbitration relating
to Genicom's payment obligations, and only such obligations, set forth in
paragraph 1 of this Agreement shall be held no later than 15 days after the
initiation of such arbitration and without any discovery being taken.
13. The provisions of this Agreement shall be considered amendments to
the Services Agreement. In all other respects, the Services Agreement remains in
effect. Capitalized terms used herein which are not defined herein shall have
the meaning assigned to such terms in the Services Agreement. In the event of an
inconsistency between the provisions of the Services Agreement and this
Agreement, this Agreement shall control.
14. This Agreement may be executed by facsimile signature, in several
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
ATLANTIC DESIGN COMPANY, INC.
By:\s\ Philip G. Husby
Name: Philip G. Husby
Title: Vice President
GENICOM CORPORATION
By: \s\ H.L. McIlroy
Name: Harold L. McIlroy
Title: Chief Operating Officer
Document Solutions
GUARANTOR:
OGDEN SERVICES CORPORATION
By: \s\ Philip G. Husby
Name: Philip G. Husby
Title: Vice President
5
<PAGE> 1
Exhibit 10.4
GENICOM CORPORATION
RETIREMENT INCOME AGREEMENT
WITH MR. PAUL T. WINN
<PAGE> 2
TABLE OF CONTENTS
Page
Section 1. Purpose...................................................... 1
Section 2. Definitions.................................................. 1
Section 3. SRI Formula.................................................. 3
Section 4. SRI Eligibility.............................................. 3
Section 5. Payment of SRI .............................................. 4
Section 6. Form of SRI Payment.......................................... 4
Section 7. No Competition............................................... 4
Section 8. Pre-Retirement Survivor Annuity Coverage..................... 5
Section 9. Effective Date............................................... 5
Section 10. Unfunded Agreement.......................................... 5
Section 11. Non-Guarantee of Employment................................. 6
Section 12. Amendment................................................... 6
Section 13. Non-Assignability........................................... 6
Section 14. Withholding of Taxes........................................ 6
Section 15. Successor Company........................................... 6
Section 16. Governing Law............................................... 6
i
<PAGE> 3
GENICOM CORPORATION
RETIREMENT INCOME AGREEMENT WITH
MR. PAUL T. WINN
AGREEMENT between PAUL T. WINN (the "Executive") and GENICOM
CORPORATION ("GENICOM").
Section 1. Purpose. The purpose of this Agreement is to provide
supplemental retirement income to Mr. Paul T. Winn, President & Chief Executive
Officer of GENICOM Corporation ("GENICOM") whose regular retirement benefits are
in the opinion of the Board of Directors insufficient in comparison to his
Terminal Compensation, as hereinafter defined.
Section 2. Definitions. The following terms will have the following
meanings unless otherwise clearly required by the context:
(a) "Actuarial Equivalent" will mean an equivalent value
determined by an actuary employed by GENICOM based on the actuarial assumptions
provided in Exhibit A, as it may be revised from time to time.
(b) "Agreement" will mean this GENICOM Corporation Retirement
Income Agreement with Mr. Paul T. Winn, as amended from time to time.
(c) "Cause" will mean: (i) the Executive's material
misappropriation with respect to the business or assets of GENICOM, (ii) the
Executive's conviction, guilty plea or nolo contendere of a felony involving
moral turpitude, (iii) the Executive's use of drugs or alcohol that interferes
materially with the Executive's performance of his duties for a substantial
period, or (iv) any act determined by a majority of GENICOM's Board of Directors
to materially and adversely affect the business, affairs or reputation of
GENICOM. In connection with any consideration by the Board of whether Cause
exists, the Executive shall have the opportunity to make a presentation to the
Board and any determination by the Board shall be made in good faith.
(d) "Change of Control" will mean the occurrence of any of the
following events:
(i) A third person, including a "group" as defined in
Section 13(d)(3) of the Act, becomes, or obtains the right
to become, the beneficial owner of the common stock of the
Company ("Company Stock") having 25% or more of the combined
voting power of the then outstanding securities of the
Company that may be cast for the election of directors to
the Board of the Company. An acquisition shall be excluded
if made by the Company, a subsidiary or a Company employee
benefit plan;
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(ii) A reorganization, merger or consolidation in which the
beneficial owners of the Company Stock and voting securities of the
Company immediately prior thereto do immediately thereafter
beneficially own, directly or indirectly, more than 75% of the
outstanding shares of common stock and the combined voting power of the
outstanding voting securities of the corporation resulting from such
organization, merger or consolidation;.
(iii) A complete liquidation or dissolution of the Company or the
sale or other disposition of all or substantially all of the assets of
the Company.
(e) "Compensation" will mean the actual periodic salary
compensation and annual bonuses payable in cash, including amounts deducted
therefrom such as, but not limited to, deductions for withheld taxes, paid to
the Executive by GENICOM for personal services, as reported on IRS form W-2.
Compensation will not include any compensation from stock options or the amount
paid in 1998 to the Executive in connection with taxes incurred on the exercise
of stock options. In computing Compensation, any payment for accumulated
vacation that is paid after termination of employment, severance or similar
payments will be excluded.
(f) "Disabled" or "Disability" will mean the inability of a
Participant to perform his normal duties with the Company or any similar duties
due to a physical or mental condition that is expected to last indefinitely. The
Committee shall determine whether a Disability exists and such determination
shall be conclusive.
(g) "Disability Benefit" will mean the value of the Executive's
disability benefits payable under the Federal Social Security Act plus the value
of any disability benefits payable to the Executive under any long-term
disability insurance or program paid for by GENICOM.
(h) "Elective Contributions" will have the same meaning as that
term is defined in Treasury Regulation Section 1.401(k)-1(g)(3).
(i) "Executive's 401(k) Account" will mean the Executive's total
vested benefit in the 401(k) Plan.
(j) "401(k) Benefit" will mean the Actuarial Equivalent of the
value of the benefits payable to the Executive at termination, retirement, death
or permanent disability (as those terms are used in the 401(k) Plan) that are
attributable to GENICOM Contributions and the earnings thereon. Earnings
attributable to GENICOM Contributions will be determined by multiplying the
total earnings realized in the Executive's 401(k) Account by a ratio. The ratio
will be determined by dividing the GENICOM Contributions made to the Executive's
401(k) Account by the total contributions made to the Executive's 401(k)
Account. The date the Executive terminates employment with GENICOM, retires,
dies or becomes
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permanently disabled will be the date for determining total earnings realized in
the Executive's 401(k) Account. The 401(k) Benefit will be calculated in the
form of an Actuarial Equivalent annual single life annuity.
(k) "401(k) Plan" will mean the GENICOM Retirement and Savings
Plan and any other tax-qualified retirement plan or plans sponsored by GENICOM.
(l) "GENICOM Contributions" will mean contributions made by
GENICOM to the Executive's accounts in the 401(k) Plan including any matching
contributions, profit sharing contributions or forfeitures, but excluding
Elective Contributions.
(m) "Social Security Retirement Benefit" will mean the value of
one-half of the Executive's primary insurance amount under the Federal Social
Security Act payable at the Executive's Social Security Retirement Age (as
defined in Internal Revenue Code Section 415(b)(8)), and/or any other comparable
primary insurance amount payable under another governmental retirement program.
The Social Security Retirement Benefit will be calculated in the form of an
Actuarial Equivalent annual single life annuity.
(n) "SRI" will mean the basic supplemental retirement income
payable to the Executive under Section 3(a) of this Agreement.
(o) "Terminal Compensation" will mean an amount equal to one-third
(1/3) of the Executive's Compensation for the three (3) calendar years for which
the Executive received the largest amount of Compensation during the five (5)
consecutive calendar years completed immediately prior to the Executive's
termination, retirement, Disability or death.
(p) "Vested Percentage" will mean the percentage equal to five
percent (5%) times the number of full calendar quarters that have been completed
since April 1, 1998, with the first such calendar quarter ending June 30, 1998,
provided that the Vested Percentage shall be one hundred percent (100%) if the
Executive dies or is Disabled or upon a Change of Control.
Section 3. SRI Formula. The SRI payable to the Executive will equal an
amount in the form of an annual single life annuity determined as follows:
(a) The basic SRI amount (calculated as payable at age 65) is (i)
Seventy Percent (70%) of the Executive's Terminal Compensation reduced by the
sum of the annual amount of: (x) the 401(k) Benefit, (y) the Social Security
Retirement Benefit and (z) the Disability Benefit; times (ii) the Executive's
Vested Percentage. If the basic SRI amount is reduced by a Disability Benefit,
the basic SRI amount shall be increased at any time in the future by the amount
of the Disability Benefit if the Executive ceases to receive the Disability
Benefit for any reason.
(b) If the Executive commences distributions before age 65 for any
reason, the SRI will be the Actuarial Equivalent of the amount calculated under
Section 3(a). The Executive's age will be calculated in years and full months.
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(c) For purposes of offsetting or reducing inflation, the SRI
payments made to the Executive or his surviving spouse will be increased
annually on July 1 by a percentage to reflect the increase in the cost of goods
and services over the previous calendar year and determined in accordance with
the national Consumer Price Index for all goods and services.
(d) The SRI payable to the Executive will also be reduced by any
severance payments made to the Executive under his employment agreement with
GENICOM dated March 26, 1990 or any successor agreement. This SRI reduction will
only apply for periods during which the severance payments are made to the
Executive.
Section 4. SRI Eligibility. The Executive will be eligible to receive
the SRI under the following conditions:
(a) Prior to attaining age 55, the Executive will be eligible to
receive the SRI:
(i) if the Executive is terminated by GENICOM without
Cause, or
(ii) after a Change of Control, upon the Executive's
termination of employment with GENICOM for any reason,
including death, Disability, voluntary termination by the
Executive, or termination by GENICOM for Cause.
(b) Upon attaining age 55, the Executive will be eligible to
receive the vested portion of the SRI upon termination of employment with
GENICOM for any reason, including death, Disability, voluntary termination by
the Executive, or termination by GENICOM for Cause, except for a termination by
GENICOM for Cause prior to a Change of Control.
Section 5. Payment of SRI. One-twelfth (1/12th) of the annual SRI, as
adjusted under Section 3(c), will be payable on the first day of each month
following the Executive's termination, retirement, death or Disability.
Section 6. Form of SRI Payment.
(a) The SRI will be payable as a monthly straight life annuity.
(b) In lieu of the form described in Section 6(a), the Executive
may elect to receive the Actuarial Equivalent of the SRI in a joint and 50%
survivor annuity for the lives of the Executive and his surviving spouse. Under
this form of payment, the Executive will receive reduced payments for his
lifetime and, after his death, a survivor annuity will be payable for the
lifetime of his surviving spouse equal to 50% of the amount of the annuity
payments that were payable to the Executive. If the Executive's spouse dies
after SRI payments begin but before the Executive dies, the SRI will continue to
be paid to the Executive in the same amount that was payable before the death of
his spouse.
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(c) The Executive will be provided suitable forms for the making
of elections under Section 6(b). To be valid, an election or revocation of an
election of the joint and 50% survivor annuity optional benefit form (i) must be
signed by the Executive, (ii) must designate a specific alternate form of
benefit, and (iii) except for an initial election upon participation, will not
be effective until six (6) months after the date of the election. Any election
will remain in effect until six (6) months after a subsequent election is filed
by the Executive.
(d) In lieu of the form described in Section 6(a) or (b), upon a
Change of Control, the Board of Directors of GENICOM, in its sole discretion,
may elect to pay the Executive the Actuarial Equivalent of the SRI in a single
lump sum payment. The lump sum payment may be made at any time within two years
after the Change of Control. After payment of a lump sum to the Executive,
GENICOM will have no further liability to the Executive or his surviving spouse
under this Agreement
Section 7. No Competition. Notwithstanding the provisions of Sections
3, 4, 5 and 6, no SRI will be payable to the Executive if his employment with
GENICOM terminated prior to the date on which the Executive attains the age of
sixty-five (65) years, or to the surviving spouse of the Executive, if within
two (2) years after such termination of employment the Executive, without the
approval of GENICOM as expressed in a resolution by its Board of Directors,
renders services for compensation as an officer, consultant, employee or
otherwise to any corporation or other entity in direct or indirect competition
with GENICOM or any GENICOM subsidiary, or enter into any business or occupation
on a self-employed basis which is in direct or indirect competition with GENICOM
or any GENICOM Subsidiary provided, however, that nothing contained in this
Section 7 will be deemed to require the repayment by the Executive of any SRI
paid to him prior to the time he commences rendering such services or enters
into such business or occupation. This Section 7 shall not apply if the
Executive is terminated by GENICOM without Cause after a Change of Control.
Section 8. Pre-Retirement Survivor Annuity Coverage. The Executive can
elect to have a pre-retirement survivor annuity benefit paid to his surviving
spouse if the Executive dies before the commencement of the SRI payments. If the
Executive is age 55 or older at the time of his death while still in service
with GENICOM or dies after a Change of Control while in service with GENICOM
before age 55, the pre-retirement survivor annuity benefit paid to his surviving
spouse will be the same as the monthly payment which would have been initially
payable pursuant to Section 6 if the Executive had terminated on the date of his
death, had elected to receive the SRI in the form of a joint and 50% survivor
annuity for the lives of the Executive and his surviving spouse, and had died
immediately following such termination. If the Executive dies prior to age 55
while still in service with GENICOM and there has not been a Change of Control,
no pre-retirement survivor annuity benefit will be paid to his surviving spouse.
The pre-retirement survivor annuity benefit will be paid to his surviving spouse
on the first day of each month following the later of the (i) the first month in
which the Executive could have retired and received a SRI payment, or (ii) the
month in which the Executive dies. If the Executive elects pre-retirement
survivor annuity coverage under this Section 8, the SRI payable to the Executive
will be reduced by the Actuarial Equivalent value of the cost of providing
pre-retirement survivor
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annuity coverage. The Executive may elect to have a pre-retirement survivor
annuity benefit paid to his surviving spouse by making an election in the form
and manner described in Section 6(c) for electing the joint and 50% survivor
annuity form of payment.
Section 9. Effective Date. The effective date of the Agreement is
October 23, 1997, the date of approval by the Board of Directors of GENICOM.
Section 10. Unfunded Agreement. There is no fund associated with this
Agreement, except as specifically provided in this Section 10. GENICOM will be
required to make payments only as they become due and payable under the
Agreement. Neither the Executive nor his surviving spouse will have any right,
other than the right of an unsecured general creditor, against GENICOM in
respect to the payments which may be payable, to the Executive or his surviving
spouse hereunder. GENICOM agrees to establish a grantor trust to fund its
liability to the Executive. GENICOM shall contribute to the trust assets that
shall be held therein, subject to the claims of GENICOM's creditors in the event
of GENICOM's insolvency until paid to the Executive or his surviving spouse in
such manner and at such times as specified in this Agreement or until all
obligations to the Executive or his surviving spouse under this Agreement has
been terminated. Neither the Executive nor his surviving spouse will have any
right to receive any payment under this Agreement except as and to the extent
expressly provided in this Agreement.
Section 11. Non-Guarantee of Employment. Nothing contained in this
Agreement will be construed as a contract of employment between GENICOM and the
Executive, or as a right of the Executive to be continued in employment or as a
limitation of the right of GENICOM to deal with the Executive, as to his hiring,
discharge, layoff, compensation, and all other conditions of employment in all
respects as though this Agreement did not exist.
Section 12. Amendment. This Agreement may only be amended by a written
instrument signed by the Executive and GENICOM.
Section 13. Non-Assignability. The payments made under this Agreements
will not be subject to alienation, assignment, pledge, garnishment, execution or
levy of any kind and any attempt to cause any such benefits to be so subjected
will not be recognized.
Section 14. Withholding of Taxes. All amounts payable hereunder will be
reduced for the amounts required to be withheld pursuant to any applicable
governmental law or regulation with respect to taxes or any similar provisions.
Section 15. Successor Company. In the event of the dissolution, merger,
consolidation, or reorganization of GENICOM, the successor will have all of the
powers, duties and responsibilities of GENICOM under this Agreement.
Section 16. Governing Law. This Agreement will be construed and
enforced in accordance with, and governed by, the laws of the Commonwealth of
Virginia.
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IN WITNESS WHEREOF, GENICOM Corporation and Paul T. Winn have caused
this Agreement to be executed the 9th day of March, 1998.
GENICOM CORPORATION
By: /s/ Don Ackerman
(Signature of Officer of Corporation)
------------------------------------------------
PAUL T. WINN
9
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