<PAGE> 1
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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 September 27, 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 November 2, 1998, there were 11,573,868 shares of Common Stock of
the Registrant outstanding.
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<PAGE> 2
FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 27, 1998 and
December 28, 1997 3
Consolidated Statements of Income - Three Months and
Nine Months Ended September 27, 1998 and September 28, 1997 4
Consolidated Statements of Cash Flows - Nine Months Ended
September 27, 1998 and September 28, 1997 5
Notes to Consolidated Financial Statements 6 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
Index to Exhibits E-1
<PAGE> 3
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
GENICOM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 28,
(In thousands, except share data) 1998 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,523 $ 4,622
Accounts receivable, less allowance for
doubtful accounts of $6,058 and $4,470 88,704 89,692
Other receivables 1,223 3,252
Inventories 65,863 67,553
Prepaid expenses and other assets 15,862 8,390
-------------- --------------
TOTAL CURRENT ASSETS 178,175 173,509
Property, plant and equipment, net 41,687 36,146
Goodwill 16,218 33,800
Intangibles and other assets 5,228 6,594
-------------- --------------
$ 241,308 $ 250,049
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,762 $ 6,391
Accounts payable and accrued expenses 73,593 84,578
Deferred income 14,159 16,350
-------------- --------------
TOTAL CURRENT LIABILITIES 93,514 107,319
Long-term debt, less current portion 105,600 87,072
Other non-current liabilities 10,206 10,262
-------------- --------------
TOTAL LIABILITIES 209,320 204,653
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 18,000,000 shares
authorized, 11,562,217 and 11,365,750 shares issued
and outstanding 116 114
Additional paid-in capital 28,940 26,959
Retained earnings 4,775 20,020
Foreign currency translation adjustment (1,843) (1,697)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 31,988 45,396
-------------- --------------
$ 241,308 $ 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, NINE MONTHS ENDED,
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
(In thousands, except per share data) 1998 1997 1998 1997
============ ============= ============ =============
REVENUES, NET:
<S> <C> <C> <C> <C>
Products $ 73,400 $ 72,750 $ 228,415 $ 207,952
Services 35,680 29,939 114,828 89,729
---------- --------- ---------- ---------
109,080 102,689 343,243 297,681
---------- --------- ---------- ---------
OPERATING COSTS AND EXPENSES:
Cost of revenues:
Products 52,361 50,663 163,012 142,578
Services 32,016 28,252 104,769 83,505
Selling, general and administration 18,883 15,251 60,936 48,036
Engineering, research and
product development 3,767 3,816 12,191 9,277
Write-off of goodwill 15,000
---------- --------- ---------- ---------
107,027 97,982 355,908 283,396
---------- --------- ---------- ---------
OPERATING INCOME (LOSS) 2,053 4,707 (12,665) 14,285
Interest expense, net 2,887 1,868 8,217 4,900
---------- --------- ---------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (834) 2,839 (20,882) 9,385
Income tax (benefit) expense (225) 553 (5,639) 1,739
---------- --------- ---------- ---------
NET (LOSS) INCOME $ (609) $ 2,286 $ (15,243) $ 7,646
========== ========= ========== =========
(Loss) earnings per common share (basic) $ (0.05) $ 0.21 $ (1.32) $ 0.69
========== ========= ========== =========
(Loss) earnings per common share (diluted) $ (0.05) $ 0.18 $ (1.32) $ 0.61
========== ========= ========== =========
Weighted average number of common shares
outstanding (basic) 11,562 11,056 11,527 11,023
========== ========= ========== =========
Weighted average number of common shares
and dilutive shares (diluted) 11,562 12,660 11,527 12,472
========== ========= ========== =========
</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>
NINE MONTHS ENDED,
SEPTEMBER 27, SEPTEMBER 28,
(In thousands) 1998 1997
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (15,243) $ 7,646
Adjustments to reconcile net (loss) income to cash provided
by (used in) operating activities:
Depreciation 10,787 10,063
Amortization 5,899 3,812
Write-off of goodwill 15,000
Changes in assets and liabilities:
Accounts receivable 3,017 (13,293)
Inventories 1,690 (15,008)
Accounts payable and accrued expenses (8,414) (4,136)
Deferred income (2,191) (734)
Other (5,392) 306
------------------- -------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,153 (11,344)
------------------- -------------------
Cash flows from investing activities:
Additions to property, plant and equipment (16,460) (13,618)
Sale of equipment 350
Agreements with Digital Equipment Corporation (4,276)
Other investing (2,060) (397)
------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (18,520) (17,941)
------------------- -------------------
Cash flows from financing activities:
Borrowings on long-term debt 29,904 56,905
Payments on long-term debt (12,005) (35,996)
Bank overdraft (2,172) 5,682
Financing costs (468) (1,468)
------------------- -------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 15,259 25,123
------------------- -------------------
Effect of exchange rate changes on cash and cash equivalents 9 (290)
------------------- -------------------
Net increase (decrease) in cash and cash equivalents 1,901 (4,452)
Cash and cash equivalents at beginning of period 4,622 5,866
------------------- -------------------
Cash and cash equivalents at end of period $ 6,523 $ 1,414
=================== ===================
</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 September 27, 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 nine
months ended September 27, 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>
SEPTEMBER 27, DECEMBER 28,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 3,274 $ 9,295
Work in process 1,208 1,994
Finished goods 61,381 56,264
------------ ------------
$ 65,863 $ 67,553
============ ============
</TABLE>
6
<PAGE> 7
3. In 1998, the Company adopted SFAS No. 128, "Earnings Per Share". Basic
net income per common share has been computed by dividing net income by
the weighted-average number of common shares outstanding during the
period. Diluted net income per common share has been computed by
dividing net income by the weighted average number of common shares
outstanding plus an assumed increase in common shares outstanding for
dilutive securities. Dilutive securities consist of options to acquire
Common Stock for a specified price. Net income per common share amounts
for all periods presented have been restated to conform to SFAS No. 128.
<TABLE>
<CAPTION>
(in thousands) Three Months Ended September 27, 1998
--------------------------------------------------------
Income Shares Per Share
----------- ---------------- -----------------
<S> <C> <C> <C>
BASIC EPS
Income available to shareholders $ (609) 11,562 $ (0.05)
----------- ---------------- -----------------
Weighted shares from stock options 0
----------------
DILUTED EPS $ (609) 11,562 $ (0.05)
----------- ---------------- -----------------
Three Months Ended September 28, 1997
--------------------------------------------------------
BASIC EPS
Income available to shareholders $ 2,286 11,056 $ 0.21
----------- ---------------- -----------------
Weighted shares from stock options 1,604
----------------
DILUTED EPS $ 2,286 12,660 $ 0.18
----------- ---------------- -----------------
Nine Months Ended September 27, 1998
--------------------------------------------------------
Income Shares Per Share
----------- ---------------- -----------------
BASIC EPS
Income available to shareholders $ (15,243) 11,527 $ (1.32)
----------- ---------------- -----------------
Weighted shares from stock options 0
----------------
DILUTED EPS $ (15,243) 11,527 $ (1.32)
----------- ---------------- -----------------
Nine Months Ended September 28, 1997
--------------------------------------------------------
Income Shares Per Share
----------- ---------------- -----------------
BASIC EPS
Income available to shareholders $ 7,646 11,023 $ 0.69
----------- ---------------- -----------------
Weighted shares from stock options 1,449
----------------
DILUTED EPS $ 7,646 12,472 $ 0.61
----------- ---------------- -----------------
</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 professional services, help desk/technical
support, logistics management and on-site and off-site maintenance support
(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 is not material.
7
<PAGE> 8
\
<TABLE>
<CAPTION>
Nine Months Ended or as of
September 27, September 28,
(in thousands) 1998 1997
----------------- -----------------
<S> <C> <C>
REVENUE
Document Solutions $ 228,415 $ 207,952
Enterprising Service Solutions 114,828 89,729
----------------- -----------------
$ 343,243 $ 297,681
----------------- -----------------
OPERATING (LOSS)/INCOME *
Document Solutions $ 7,168 $ 24,358
Enterprising Service Solutions (19,833) (10,073)
----------------- -----------------
$ (12,665) $ 14,285
----------------- -----------------
DEPRECIATION AND AMORTIZATION
Document Solutions $ 4,832 $ 4,283
Enterprising Service Solutions 10,578 8,641
Corporate and other 1,276 951
----------------- -----------------
$ 16,686 $ 13,875
----------------- -----------------
ASSETS
Document Solutions $ 130,352 $ 141,148
Enterprising Service Solutions 83,121 60,061
Corporate and other 27,835 17,059
----------------- -----------------
$ 241,308 $ 218,268
----------------- -----------------
CAPITAL EXPENDITURES
Document Solutions $ 2,812 $ 2,297
Enterprising Service Solutions 8,655 7,288
Corporate and other 4,993 4,033
----------------- -----------------
$ 16,460 $ 13,618
----------------- -----------------
</TABLE>
*Includes $6.8 million and $8.2 million goodwill write-off for
Document Solutions and Enterprising Service Solutions, respectively.
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
8
<PAGE> 9
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 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 Nine Months Ended
--------------------------------------- ---------------------------------------
(proforma) (proforma)
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 109,080 $ 111,374 $ 343,243 $ 323,736
Pre-Tax (Loss) Income (834) 3,909 (20,882) 9,756
----------------- ----------------- ----------------- ----------------
Net (Loss) Income (609) 2,928 (15,243) 9,572
----------------- ----------------- ----------------- ----------------
(Loss) Earnings per share $ (0.05) $ 0.26 $ (1.32) $ 0.87
----------------- ----------------- ----------------- ----------------
Weighted average shares outstanding 11,562 11,056 11,527 11,023
----------------- ----------------- ----------------- ----------------
</TABLE>
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
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:
In 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
9
<PAGE> 10
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. The Company filed a counterclaim against ADC.
Ogden Services Corporation and ADC then filed counterclaims against the
Company. 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 $639,000 for the three months ended
September 27, 1998 and $15.4 million for the nine months ended September
27, 1998. The Company had a loss in its foreign currency translation
amount of $41,000 from June 28, 1998 and $146,000 from December 28,
1997, with after tax losses of $30,000 and $107,000, respectively. For
the third quarter of 1997, the foreign currency translation loss was
$219,000, with an after tax loss of $176,000. For the nine months
ended September 28, 1997, the foreign currency translation loss was
$400,000, with an after tax loss of $326,000. The Company's
comprehensive income for the third quarter of 1997 would have been $2.2
million and for the nine months ended September 28, 1997, $7.3 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 adjusted the Company's required financial covenants until the
end of 1998, limited capital expenditures to a maximum of $27 million
for 1998, adjusted the borrowing base percentages until the end of 1998
allowing the Company increased borrowing ability and adjusted the
interest rate upwards 1.50% on the incremental increased borrowing
against the higher base.
On November 12, 1998, the credit agreement was again amended. The
amendment extends the increased borrowing base percentages through
February 15, 1999 and adjusts the financial covenants for the fourth
quarter of 1998. The Company was in compliance with the financial
covenants of the
10
<PAGE> 11
amended credit agreement as of September 27, 1998 and based on current
projections, anticipates it will be in compliance with the adjusted
financial covenants for the fourth quarter.
In order to be in compliance with certain covenants in the credit
agreement in 1999, the Company will likely require additional amendments.
Inability of the Company to reach agreement with the banking syndicate on
amendments or to arrange alternative financing could have a material
adverse effect on the Company.
9. Based upon a second quarter 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, Enterprising Service Solutions' pre-tax charge was
$8.2 million and Document Solutions' pre-tax charge was $6.8 million.
10. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company
will be required to adopt this new accounting standard by January 1,
2000. Management does not anticipate early adoption. The Company
believes that the effect of adoption of SFAS No. 133 will not be
material.
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
-------------------------------------------------------
3RD QTR. 3RD QTR.
(in millions) 1998 CHANGE 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues - Enterprising Service Solutions $ 35,680 $ 5,741 $ 29,939
Revenues - Document Solutions 73,400 650 72,750
---------- --------- -----------
Total Revenue $ 109,080 $ 6,391 $ 102,689
---------- --------- -----------
Percentage change 6.2%
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NINE MONTHS ENDED
---------------------------------------------------
3RD QTR. 3RD QTR.
(in millions) 1998 CHANGE 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues - Enterprising Service Solutions $ 114,828 $ 25,099 $ 89,729
Revenues - Document Solutions 228,415 20,463 207,952
---------- --------- ---------
Total Revenue $ 343,243 $ 45,562 $ 297,681
---------- --------- ---------
Percentage change 15.3%
- -----------------------------------------------------------------------------------------------
</TABLE>
Revenue in the third quarter of 1998 increased 6.2% from the third 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
0.9% higher than the third quarter of 1997 as a result of the agreements with
DEC. ESSC revenue increased 19.2%. This increase was primarily the result of the
Novadyne acquisition and to a lesser extent, increased depot revenue as a result
of new customers.
For 1998 year to date, revenue increased $45.6 million from 1997. DSC's revenue,
excluding Relays, increased $32.6 million or 9.8% primarily due to the
agreements with DEC. ESSC's revenue for 1998 increased $25.1 million or 28.0%
compared to 1997 principally from the acquisition of certain assets of Novadyne
Computer Systems which increased revenues in field service, secondarily, 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 $3.4 million for the third quarter of 1997 and $12.2
million for the nine months ended September 28, 1997. This product line was sold
in November of 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
3RD QUARTER 4TH QUARTER 3RD QUARTER
(in millions) 1998 1997 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Order Backlog $ 35.9 $ 44.8 $ 60.5
Change: 3rd Quarter of 1998 compared to
Amount (8.9) (24.6)
Percentage -19.9% -40.7%
- ------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in order backlog from the third quarter of 1997 primarily reflects
the effect of a decline in printer backlog and the sale of the relay product
line. In August 1997, the Company, with the commencement of the DEC agreements,
recorded a significant amount of initial backlog related to those agreements.
The relay backlog was $6.8 million as of September 28, 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 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
-------------------------------------------------
3RD QTR. 3RD QTR.
(in millions) 1998 CHANGE 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin - Enterprising Service Solutions $ 3.7 $ 2.0 $ 1.7
Gross margin - Document Solutions 21.0 (1.1) 22.1
------- --------- --------
Total gross margin $ 24.7 $ 0.9 $ 23.8
------- --------- --------
As a % of revenue 22.7% 23.2%
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
NINE MONTHS ENDED
---------------------------------------------
3RD QTR. 3RD QTR.
(in millions) 1998 CHANGE 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross margin - Enterprising Service Solutions $ 10.1 $ 3.9 $ 6.2
Gross margin - Document Solutions 65.4 - 65.4
------- ------- ----------
Total gross margin $ 75.5 $ 3.9 $ 71.6
------- ------- ----------
As a % of revenue 22.0% 24.1%
- ----------------------------------------------------------------------------------------------
</TABLE>
Gross margin, as a percent of revenue, decreased from 23.2% in the third quarter
of 1997 to 22.7% in the third quarter of 1998. As a percent of revenue, gross
margin for DSC excluding Relays decreased to 28.7% for the quarter ending
September 27, 1998 from 31.2% for the quarter ending September 28, 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 sales mix of
printers. For ESSC, gross margin increased from 5.6% for the third quarter of
1997 to 10.3% for 1998 reflecting improvement in the operating efficiency of
ESSC.
As a percent of revenue, gross margin for the nine months ended September 27,
1998 was 22.0% as compared to 24.1% for the nine months ended September 28,
1997. The gross margin percentage for DSC excluding Relays for the first nine
months of 1998 decreased to 28.6% from 32.1% in 1997 due to a reduction of
supplies sales and the sales mix in printer sales. ESSC's gross margin
percentage increased slightly to 8.8% for year to date 1998 from 6.9% for the
same period in 1997 reflecting operational efficiency improvements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------- --------------------------------------------
3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
<S> <C> <C> <C> <C> <C> <C>
Selling, general and administrative $ 18.9 $ 3.6 $ 15.3 $ 60.9 $ 12.9 $ 48.0
Engineering, research and product
development 3.8 - 3.8 12.2 2.9 9.3
Write-off of goodwill 15.0 15.0 -
-------- --------- ------ ------- --------- ---------
Total $ 22.7 $ 3.6 $ 19.1 $ 88.1 $ 30.8 $ 57.3
-------- --------- ------ ------- --------- ---------
As a % of revenue 20.8% 18.6% 25.7% 19.2%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase of $3.6 million in operating expenses from the third quarter of
1997 was primarily the result of increased marketing costs to support new
product introductions and higher marketing costs in ESSC. Operating expenses
increased as a percentage of revenue in the third quarter of 1998, to 20.8% as
compared to 18.6% in 1997.
For the first nine months of 1998, operating expenses increased $15.8 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.
13
<PAGE> 14
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------------------ ---------------------------------------------
3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense, net $ 2.9 $ 1.0 $ 1.9 $ 8.2 $ 3.3 $ 4.9
Percentage change 52.6% 67.3%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest expense increased $1.0 million in the third 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
secondarily higher development costs associated with new product introductions.
In addition, with the new amendment to the credit agreement in July 1998,
Genicom was paying a slightly higher interest rate for its debt than in 1997.
Interest expense for the nine months ended September 28, 1998 increased $3.3
million compared to the same period in 1997 for the above reasons.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------------- ----------------------------------------------
3RD QTR. 3RD QTR. 3RD QTR. 3RD QTR.
(in millions) 1998 CHANGE 1997 1998 CHANGE 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense $ (0.2) $ (0.8) $ 0.6 $ (5.6) $ (7.3) $ 1.7
Effective tax rate 27.0% 19.5% 27.0% 18.5%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's effective tax rate for the third quarter and the first nine months
of 1998 was 27.0%. The tax rate is being affected by the anticipated utilization
of foreign operating losses. During the first nine months of 1997, the Company
reversed part of its valuation allowance for its foreign deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Nine Months Ended
--------------------------------------------------------
3RD QUARTER 3RD QUARTER
(in millions) 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in) operations $ 5.2 $ (11.3)
Cash used in investing activities (18.5) (17.9)
Cash provided by financing activities 15.3 25.1
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
3RD QUARTER 4TH QUARTER
(in millions) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Working capital $ 84.7 $ 66.2
Inventories 65.9 67.6
Debt obligations 111.4 93.5
Debt to equity ratio 3.5 to 1 2.1 to 1
- -------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
Cash provided by operations increased $16.5 million from the first nine months
of 1997 principally due to the stabilization of inventory. In 1997, inventory
increased to support the higher level of revenue in 1997 compared to 1996. The
Company's working capital increased $18.5 million as of September 27, 1998 as
compared to December 28, 1997 due primarily to a $7.5 million increase in
prepaid and other assets driven by taxes receivable and a $11.0 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 $6.1 million available for borrowing under
its credit facilities as of September 27, 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
adjusted the Company's required financial covenants, limited capital
expenditures to a maximum of $27 million for 1998, adjusted the borrowing base
percentages allowing the Company increased borrowing ability and adjusted the
interest rate upwards 1.50% on the incremental increased borrowing against the
higher base.
On November 12, 1998, the credit agreement was again amended. The amendment
extends the increased borrowing base percentages through February 15, 1999 and
adjusts the financial covenants for the fourth quarter of 1998. The Company was
in compliance with the financial covenants of the amended credit agreement as of
September 27, 1998 and based on current projections, anticipates it will be in
compliance with the adjusted financial covenants for the fourth quarter.
In order to be in compliance with certain covenants in the credit agreement in
1999, the Company will likely require additional amendments. Inability of the
Company to reach agreement with the banking syndicate on amendments or to
arrange alternative financing could have a material adverse effect on the
Company.
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. The Company filed a counterclaim against ADC. Ogden Services
Corporation and ADC then filed counterclaims against the Company. 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.
Year 2000
GENICOM is taking an active approach to address computer issues associated with
the onset of the new millennium - specifically, the impact of possible failure
of computer systems and computer driven equipment due to the rollover to the
year 2000. The Year 2000 problem is pervasive and complex as virtually every IT
and non-IT system could be affected in some way by the rollover of the two-digit
year value from 99 to 00. The issue is whether computer systems or embedded
technology will properly recognize date sensitive information when the year
changes to 2000. IT and non-IT systems that do not properly recognize such
information could generate erroneous data or causes failures.
If not properly addressed, the Year 2000 problem could result in failures in
Company computer systems or items with embedded systems or the computer systems
or equipment of third parties with whom the Company deals with worldwide. Any
such failures of the Company's and/or third parties IT and non-IT systems could
have a material impact on the Company's ability to conduct business.
15
<PAGE> 16
Since 1996, the Company has been identifying and seeking to minimize its
exposure to the Year 2000 problem. In 1996, the Company began expending
significant funds under contracts with EDS to replace the majority of its
internal computer system. During this process, the Company has required third
party vendors to make representations that the components of the new systems and
related software are Year 2000 compliant. The replacement equipment is scheduled
to completely installed and tested by the end of the second quarter of 1999. As
a result, the Company does not anticipate Year 2000 problems with its internal
systems. The approximately $16 million cost of the replacement system is being
capitalized by the Company.
Management has also considered whether the Year 2000 problem will affect the
products or services provided by the Company to its customers. Because the
Company's printer products do not contain date sensitive embedded software and
do not manipulate, calculate, convert, compare, sequence or present any date
data, these products should not present Year 2000 compliance issues. The Company
does, though its Enterprising Service Solutions company, resell and install
computer software that could be susceptible to Year 2000 problems. The Company's
practice is to disclaim responsibility for Year 2000 compliance relating to
third party software.
At this time GENICOM is actively working to ensure that foreseeable Year 2000
related computer problems related to Company computer systems and products are
effectively addressed. The Company does not expect that the commitment of
resources to study and correct internally any Year 2000 problems to result in
the delay of its projects or product development.
The Company is currently developing a plan to review vendor and customer
compliance as well as items that may be affected by embedded systems such as
manufacturing and telephone equipment. This plan is expected to be completed
shortly after year end. The plan will include inquiries of vendors and customers
related to their Year 2000 compliance. The cost of implementing the plan or the
financial impact of customers, vendors, or embedded systems that are not
compliant has yet to be determined. Once the Company has sufficient information
available to do so, it intends to analyze its most reasonably likely worst case
scenario and develop contingency plans.
The Company cannot estimate or predict the potential adverse consequences, if
any, that could result from a third party failure to effectively address this
issue or failure of certain equipment and is unable to predict if those parties
noncompliance or equipment failure will have a material adverse effect on
earnings.
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 changes 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
Company's ability to reach an appropriate level of operating efficiency in the
services group, Year 2000 issues, the ability of the Company to amend its credit
agreement or obtain alternative financing arrangements in 1999 if necessary,
GENICOM's ability to attract and retain highly skilled technical, managerial and
sales and marketing personnel, possible litigation related to the
16
<PAGE> 17
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.
17
<PAGE> 18
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:
Not applicable.
Item 5. Other Information:
Not applicable.
Item 6. Exhibits and Reports on Form 8-K:
a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
---------- ---------------------------------------------------------
<S> <C> <C>
27.1 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K:
Not applicable.
18
<PAGE> 19
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: November 12, 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)
19
<PAGE> 20
GENICOM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1998
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------------- ------------------------------------ -------------------------------
<S> <C> <C>
10.1 Fifth Amendment to Amended and
Restated Credit Agreement dated
as of October 30, 1998
27.1 Financial Data Schedule Filed only with
EDGAR version
</TABLE>
E-1
<PAGE> 1
FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment"), dated as of October 30, 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").
WITNESSETH
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 and as amended by
that Fourth Amendment to Amended and Restated Credit Agreement and Waiver dated
as of July 2, 1998 (as so amended, the "Existing Credit Agreement").
WHEREAS, the parties have agreed to amend the Existing Credit
Agreement 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. 5 Effective Date" is defined in Part III.
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. 5 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. 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 set forth below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Applicable
Applicable Percentage for Applicable
Percentage for Base Rate Loans Percentage Applicable
Eurodollar Loans which are for Percentage
which are Revolving Eurodollar for Base Applicable
Revolving Loans, Loans, Loans which Rate Loans Percentage Applicable
Tranche A Term Swingline Loans are Tranche which are for Standby Percentage
Loans or Foreign or Tranche A B Term Tranche B Letter of for Unused
Currency Loans Term Loans Loans Term Loans Credit Fee Fee
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.50% 2.25% 3.50% 2.25% 3.00% 0.50%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
"Borrowing Base" means (i) as of any day prior to
February 15, 1999, 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, and (ii) as of any day on or after February
15, 1999, the Original Borrowing Base; provided further,
however, that for purposes of determining the Borrowing Base
on February 15, 1999 and the need for a prepayment under
Section 3.3(b)(i), Eligible Receivables and Eligible Inventory
will be as they existed on January 3, 1999.
"Interest Payment Date" means (i) as to any Base Rate
Loan, the last day of each calendar month and the Maturity
Date, and (ii) as to any Eurodollar Loan, the last day of each
calendar month, the last day of each Interest Period for such
Loan and the Maturity Date. If an Interest Payment Date falls
on a date which is not a Business Day, such Interest Payment
Date shall be deemed to be the next succeeding Business Day,
except that in the case where the last day of an Interest
Period for a Eurodollar Loan falls on a
2
<PAGE> 3
date which is not a Business Day and where the next succeeding
Business Day falls in the next succeeding calendar month, then
on the next preceding Business Day.
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. 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).
3. Amendment to Section 3.3(b)(iii). Section 3.3(b)(iii)
of the Existing Credit Agreement is hereby amended to add the following
sentence at the end of such section:
Notwithstanding anything to the contrary contained herein, (x)
immediately upon receipt by the Borrower or any of its
Subsidiaries of proceeds from the sale of the Borrower's
facility located in Waynesboro, Virginia ("Waynesboro Sale"),
the Borrower shall prepay the Loans in an amount equal to the
Net Proceeds of the Waynesboro Sale to the Lenders (such
prepayment to be applied as set forth in clause (vii) below)
and (y) immediately upon receipt by the Borrower or any of its
Subsidiaries of any United States federal and state income tax
refunds, the Borrower shall prepay the Loans in an aggregate
amount equal to 100% of such income tax refunds (such
prepayment to be applied as set forth in clause (vii) below).
4. Amendment to Section 3.5(a). Section 3.5(a) of the
Existing Credit Agreement is hereby amended to add the following sentence to
the end of such Section to read as follows::
Notwithstanding anything to the contrary contained herein,
beginning November 30, 1998, the Unused Fee shall be due and
payable in arrears on the last day of each calendar month
(and any date that the Revolving Committed Amount is reduced
as provided in Section 3.4(a) and the Maturity Date) for the
immediately preceding month (or portion thereof) each such
month or portion thereof for which the Unused Fee is payable
hereunder being herein referred to as an "Unused Fee
Calculation Period"); provided however, the accrued and unpaid
Unused Fee for the period beginning October 1, 1998 until
November 30, 1998 shall be due and payable on November 30,
1998.
5. Amendment to Section 3.5(b)(i). The last sentence of
Section 3.5(b)(i) of the Existing Credit Agreement is hereby amended in its
entirety to read as follows::
The Standby Letter of Credit Fee will be payable monthly in
arrears on the last day of each calendar month, beginning
November 30, 1998, for the immediately preceding month (or a
portion thereof); provided however, the accrued and unpaid
Standby Letter of Credit Fee
3
<PAGE> 4
for the period beginning October 1, 1998 until November 30,
1998 shall be due and payable on November 30, 1998.
6. Amendment to Section 3.5(b)(iii)(A). Section
3.5(b)(iii)(A) of the Existing Credit Agreement is hereby amended in its
entirety to read as follows::
(A) a standby Letter of Credit fronting fee of 0.125% on the
average daily maximum amount available to be drawn under each
standby Letter of Credit computed at a per annum rate for each
day from the date of issuance to the date of expiration, such
fronting fee to be payable monthly in arrears on the last day
of each calendar month, beginning November 30, 1998, for the
immediately preceding month (or a portion thereof); provided
however, the accrued and unpaid fronting fee payable hereunder
for the period beginning October 1, 1998 until November 30,
1998 shall be due and payable on November 30, 1998,
7. Amendment to Section 7.1. A new subsection (m) is
added to Section 7.1 of the Existing Credit Agreement to read as follows:
(m) Flash Reports. As soon as available, and in
any event within 15 days after the close of each fiscal month,
a flash report containing (i) a comparison of the Borrower's
financial condition and performance with the plan presented by
the Borrower at the October 21, 1998 meeting of the Borrower
and the Lenders, and (ii) an analysis of the Borrower's
accounts payable and the status of the Borrower's vendor
relationships, all in reasonable form and detail satisfactory
to the Lenders and prepared by the Borrower and independent
consultants of recognized national standing reasonably
acceptable to the Lenders.
8. Amendment to Section 7.11. Sections 7.11(b) and (c)
of the Existing Credit Agreement are hereby amended in their entirety to read
as follows:
(b) Consolidated Funded Debt Coverage Ratio. The
Consolidated Funded Debt Coverage Ratio at each Calculation Date shall be no
greater than the following proportions:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
As of the last day of 5.25 to 1.00
the third fiscal quarter
of fiscal year 1997 of the
Borrower and its Subsidiaries
As of the last day of the 6.50 to 1.00
fourth fiscal quarter of
fiscal year 1997 of the
Borrower and its Subsidiaries
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
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 4.50 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
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
</TABLE>
5
<PAGE> 6
(c) Consolidated Fixed Charge Coverage Ratio. The
Consolidated Fixed Charge Coverage Ratio at each Calculation Date shall be no
less than the following proportions:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
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 1.50 to 1.00
from the first day of the
fourth fiscal quarter of
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
</TABLE>
6
<PAGE> 7
9. New Sections 7.17 and 7.18. New Sections 7.17 and 7.18 are
hereby added to the Existing Credit Agreement immediately following Section
7.16 thereof which shall read as follows:
7.17 Meetings Regarding Flash Reports; Review Plan.
Upon delivery of the flash reports required under Section
7.1(m), the Borrower and the consultants involved in the
preparation of such flash reports shall immediately meet with
the Lenders to discuss such reports. The Borrower shall cause
such consultants to conduct any and all due diligence
necessary to (i) review the plan presented by the Borrower at
the October 21, 1998 meeting of the Borrower and the Lenders
and (ii) discuss and recommend any changes to such plan, if
necessary,with the Lenders on or before February 15, 1999.
7.18 Collateral Review. Borrower will, and will cause
each of its Subsidiaries to, permit representatives of the
Agent and the Lenders to conduct reviews of all assets of the
Borrower and its Subsidiaries, wherever such assets may be
located, which do not constitute Collateral. At the
reasonable request of the Agent or any Lender, Borrower will,
and will cause each of its Subsidiaries to, execute and
deliver any documents, instruments or agreements or take any
other actions requested by the Agent or any Lender to cause
any or all of its real (whether leased or owned) property or
personal property, wherever located, and which the Agent or
any such Lender shall reasonably require to be Collateral, to
be subject at all times to first priority, perfected and, in
the case of real property (whether leased or owned), title
insured Liens in favor of the Agent for the benefit of the
Lenders.
PART III
CONDITIONS TO EFFECTIVENESS
1. Amendment No. 5 Effective Date. This Amendment shall be
and become effective as of the date hereof (the "Amendment No. 5 Effective
Date") when all of the conditions set forth in this Part III shall have been
satisfied, and thereafter this Amendment shall be known, and may be referred
to, as "Amendment No. 5."
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.
7
<PAGE> 8
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. 5 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 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. Fees and Expenses. All out-of-pocket fees and expenses of
Agent or any Lender in connection with the Credit Documents, including this
Amendment, including legal and other professional fees and expenses incurred on
or prior to the date of this Amendment, including, without limitation, the fees
and expenses of Winstead Sechrest & Minick P.C, shall have been paid.
8. Settlement Agreement. The Agent shall have received a
copy, certified by the chief financial officer of the Borrower as true and
complete, of the executed settlement agreement by and between the Borrower and
Electronic Data Systems Corporation, pertaining to the commercialization of
accounts payable, and of each other document or instrument executed in
connection therewith.
9. UCC-1 Financing Statements; Landlord's Waivers; Security
Agreements. The Agent shall have received (i) duly executed UCC financing
statements for each appropriate jurisdiction as is necessary, in the Agent's
sole discretion, to perfect the Agent's security agreement in the Collateral;
(ii) duly executed patent or trademark filings as requested by the Agent in
order to perfect the Agent's security interest in the Collateral; and (iii)
updated and complete schedules to the Security Agreement.
10. Other Items. The Agent shall have received such other
documents, agreements or information which may be reasonably requested by the
Agent.
PART IV
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).
8
<PAGE> 9
2. Releases. In consideration of Lenders' agreements herein
and certain other good and valuable consideration, the Borrower and each
Guarantor hereby expressly acknowledge and agree that none of them has any
setoffs, counterclaims, adjustments, recoupments, defenses, claims or actions
of any character, whether contingent, non-contingent, liquidated, unliquidated,
fixed, matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured, known or unknown, against any Lender or the Agent or any grounds or
cause for reduction, modification or subordination of the obligations of
Borrower or any Guarantor under the Credit Documents or any liens or security
interests of any Lender or the Agent in each case which arose on or prior to
the date hereof. To the extent Borrower or any Guarantor may possess any such
setoffs, counterclaims, adjustments, recoupments, claims, actions, grounds or
causes, each of the Borrower and Guarantors hereby waives, and hereby releases
each Lender and Agent from, any and all of such setoffs, counterclaims,
adjustments, recoupments, claims, actions, grounds and causes, such waiver and
release being with full knowledge and understanding of the circumstances and
effects of such waiver and release and after having consulted counsel with
respect thereto.
3. Cross-References. References in this Amendment to any Part
are, unless otherwise specified, to such Part of this Amendment.
4. 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.
5. References in Other Credit Documents. At such time as this
Amendment No. 5 shall become effective pursuant to the terms of Part III, 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. 5.
6. 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.
7. 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.
8. Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
9
<PAGE> 10
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
Title: President
RASTEK CORPORATION
By /s/James C. Gale
Title: President and Treasurer
ENTERPRISING SERVICE SOLUTIONS
<PAGE> 11
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
LENDERS:
-------
NATIONSBANK, N.A. (formerly NationsBank
of Texas, N.A.), individually as a Leader
and in its capacity as Agent
By /s/Jay Wampler
Title: Vice President
<PAGE> 12
CREDITANSTALT CORPORATE FINANCE, INC.
By
----------------------------------
Title:
By
----------------------------------
Title:
DEEPROCK & COMPANY
By: Eaton Vance Management, as Investment
Advisor
By
----------------------------------
Title:
CRESTAR BANK
By
----------------------------------
Title:
THE RIGGS NATIONAL BANK OF
WASHINGTON, D.C.
By
----------------------------------
Title:
FLOATING RATE PORTFOLIO
By: Chancellor LGT Senior Secured
Management, Inc., as attorney-in-fact
By
----------------------------------
Title:
<PAGE> 13
KZH HOLDING CORPORATION III
By
----------------------------------
Title:
TORONTO DOMINION (TEXAS), INC.
By
----------------------------------
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By
----------------------------------
Title:
CERES FINANCE LTD.
By
----------------------------------
Title:
AERIES FINANCE LTD.
By
----------------------------------
Title:
BANK OF SCOTLAND
By
----------------------------------
Title:
<PAGE> 14
NATIONAL CITY BANK OF KENTUCKY
By
----------------------------------
Title:
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