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As filed with the Securities and Exchange
Commission on September 9, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended June 30, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of Securities
Exchange Act of 1934 [No Fee Required] For the transition period from __________
to __________
Commission file number 0-16588
OCTEL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0029449
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1001 Murphy Ranch Road
Milpitas, California 95035-7912
(Address of principal executive offices)
Registrant's telephone number, including area code, is (408) 321-2000
Securities registered pursuant to Section 12(b) of the
Act: None Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $.001 par value
Common Share Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of August 30, 1996 was $1,330,854,963 based upon the last sale
price reported for such date on the Nasdaq National Market. For purposes of this
disclosure, shares of Common Stock held by persons who hold more than 5% of the
outstanding shares of Common Stock and Shares held by officers and directors of
the registrant have been excluded because such persons may be deemed to be
affiliates. This determination is not necessarily conclusive.
The number of shares of the registrant's Common Stock outstanding as of
August 30, 1996 was 52,244,196.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders of Octel
Communications Corporation tentatively scheduled to be held on November 14, 1996
are incorporated by reference in Part III of this Report on Form 10-K.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I........................................................................................................ 4
ITEM 1. BUSINESS......................................................................................... 4
Introduction............................................................................................ 4
Corporate Strategy...................................................................................... 5
Customer Base........................................................................................... 7
Products................................................................................................ 8
Sales, Customer Support and Warranties.................................................................. 11
Backlog................................................................................................. 12
Competition............................................................................................. 12
Manufacturing........................................................................................... 14
Research and Development................................................................................ 15
Government Regulation................................................................................... 16
Patents, Copyrights, Trademarks and Technology Licenses................................................. 16
Employees............................................................................................... 17
ITEM 2. PROPERTIES........................................................................................ 18
ITEM 3. LEGAL PROCEEDINGS................................................................................. 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................... 18
EXECUTIVE OFFICERS OF OCTEL COMMUNICATIONS CORPORATION........................................................ 18
PART II....................................................................................................... 21
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................. 21
ITEM 6. SELECTED FINANCIAL DATA........................................................................... 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 22
Results of Operations - Annual.......................................................................... 22
Net Revenues............................................................................................ 22
Cost of Systems and Services............................................................................ 24
Research and Development................................................................................ 24
Selling, General and Administrative..................................................................... 25
Non-recurring Charge for Acquired In-process Research and Development................................... 25
Integration Costs....................................................................................... 26
Interest and Other Income (Expense), Net................................................................ 26
Income Taxes............................................................................................ 26
Foreign Operations...................................................................................... 26
Dividends............................................................................................... 27
Results of Operations - Quarterly....................................................................... 27
Liquidity and Capital Resources......................................................................... 28
Factors That May Affect Future Results of Operations.................................................... 29
New Accounting Pronouncements........................................................................... 30
</TABLE>
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<TABLE>
<S> <C>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................................... 31
Index to Consolidated Financial Statements.............................................................. 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............. 51
PART III...................................................................................................... 51
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................ 51
ITEM 11. EXECUTIVE COMPENSATION............................................................................ 51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................... 51
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................... 51
PART IV....................................................................................................... 51
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.................................. 51
(a) 1. Consolidated Financial Statements and Financial Statement Schedule.......................... 51
2. Exhibits.................................................................................... 52
(b) Reports on Form 8-K............................................................................. 53
(c) Exhibits........................................................................................ 53
(d) Financial Statement Schedule.................................................................... 53
SIGNATURES.................................................................................................... 54
</TABLE>
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PART I
ITEM 1. BUSINESS
Octel Communications Corporation (Octel or the Company) is a world leader
in voice processing technology and voice messaging outsourcing services, with a
worldwide market share estimated to be 25%. Octel's voice processing technology
integrates with both telephone and data networks. The Company's broad array of
products and services allows users to communicate more effectively by making it
simple to deliver and exchange information over worldwide communications
networks. Over 40 million Octel mailboxes have been deployed in over 40
countries. The Company sells and supports hardware and software and is a major
provider of voice messaging services in both the public and private sectors. The
Company's products and services enable people to send voice and fax messages to
each other and to have their telephones and fax calls answered by a voice mail
system. Octel's 19,000 customers include many small- and medium-sized
businesses, large international corporations (including over 75% of the Fortune
50 and over 55% of the Fortune 500), universities, governments, major telephone
companies and many major cellular service providers worldwide.
The Company went public in February 1988 and was reincorporated in Delaware
in December 1989 as the successor to a California corporation and a related
corporation and research and development limited partnership first formed in
1982.
INTRODUCTION
Over the past few years, the communications environment has broadened
substantially. The demand for communications has influenced the creation of many
different options such as voice messaging, telephone answering,
telecommunications, fax, paging, overnight couriers, radio systems, electronic
mail (e-mail), postal delivery systems and the Internet for both business and
personal use. Because of information's great importance, communication tools are
more pervasive and important in people's lives than ever before. Furthermore,
with the passage of the Telecommunications Act of 1996, continued evolution of
the telecommunications industry can be expected. See "-- Government
Regulations."
The Company's customers use voice messaging technology to meet a number of
objectives, including management of information flow, increased efficiency,
improved customer service, enhanced business competitiveness, increased
operating flexibility and greater employee productivity. Voice messaging allows
the user to be accessible 24 hours a day. With fax processing capabilites,
subscribers can efficiently receive, store, retrieve and redirect fax documents
using any touch-tone phone.
Voice messaging has a number of advantages over e-mail and other
communication mediums. Voice messaging:
- - TAKES ADVANTAGE OF THE ACCESSABILITY OF TELEPHONES TO SEND AND RECEIVE
MESSAGES. Users can send or listen to voice messages from nearly any
telephone at any time. E-mail requires that users have access to a
computer. Computer access while traveling or at home can be inconvenient or
not readily available.
- IS SIMPLE, FAST AND CONVENIENT. Speech is one of our most basic skills.
Voice messaging allows users to take advantage of this skill and to convey
emotions, humor, subtlety and nuance in a message characteristics that are
much more difficult to duplicate in a written format. Furthermore, voice
messages are quick and easy to create and send.
- DOESN'T REQUIRE A "REAL-TIME" SCHEDULE. With messaging, one party sends a
message when it is convenient for them; the receiving party (or group)
listens to the message and responds at their convenience. There is no need
to arrange for a time that is mutually convenient for all parties, and so
communications need not be deferred until everyone is available. This
ability is especially useful when traveling or messaging across time zones.
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- - IS IDEALLY SUITED FOR MESSAGING TO GROUPS. In the developed parts of the
world, nearly everyone has a telephone. In developing regions, many people
are gaining access to phone lines through wireless services.
As a result, a single voice message can be distributed to a broad audience.
- USES FIXED LINE AND WIRELESS TELEPHONE NETWORKS TO SEND AND RECEIVE
MESSAGES. These networks are generally more pervasive and reliable than
data communications networks such as the Internet, on-line services and
in-house networks.
Voice messaging is increasingly available to small businesses and homes via
telephone and cellular service providers. Despite these advances, it is still
difficult to connect incompatible systems internally and externally and to
interconnect global sites. The Company believes this has been a barrier to
effective messaging. Over the past several years, the Company has endeavored to
develop a network that allows seamless voice messaging among disparate systems
and ultimately allows messaging to anyone with a telephone number and networking
capability. The introduction of OcteLink services in July 1995 is helping to
overcome these barriers. OcteLink provides ubiquitous message exchange
regardless of the voice processing system used or its location.
CORPORATE STRATEGY
Mission Statement
Octel is the voice messaging company. Management is committed to the
mission of enabling everyone in the world to voice message to and from every
home, every car, every mobile phone and every business.
To pursue its mission, the Company, throughout its history, has developed
its own technology and acquired companies to broaden its product line. The focus
of this pursuit has been on Global Messaging, or, allowing users to send and
receive messages anyplace, anytime through their preferred medium.
Broad Product Line
After becoming a publicly traded company in 1988, Octel pursued a strategy
of both vertical and horizontal integration. Having developed the broadest range
of voice processing systems in the industry, Octel acquired several companies
which expanded the range of its product and service offerings. In 1992, the
Company acquired Compass Technology, Inc. (now OPCPD), a software developer and
marketer of personal computer (PC) based voice processing systems. In 1992, the
Company also acquired Octel Network Services (ONS, formerly Tigon Corporation),
from Ameritech, a Regional Bell Operating Company based in Chicago, Illinois.
ONS specializes in the outsourcing and management of voice messaging systems.
In March 1994, the Company merged with VMX, Inc. (VMX), a designer,
manufacturer and marketer of integrated voice mail systems and software
products. The VMX product lines were integrated with Octel's product line in
early fiscal 1996. As part of the merger, the Company also acquired VMX's
subsidiary, Rhetorex, a designer and manufacturer of voice processing components
for PCs, including board-level hardware and operating system software.
The Company has also acquired certain intellectual and personal property
from other companies such as its fiscal 1992 acquisition of a provider of
interactive voice response technology in Israel and its fiscal 1995 acquisition
of certain assets of a French software company that provided voice processing
solutions for the Voice Information Services marketplace.
The key strengths of Octel's broad product and service offerings are its:
- - LARGE INSTALLED-BASE AND GLOBAL PRESENCE: With over 50,000 systems
installed at more than 19,000 customers in over 40 countries, Octel has a
large-installed base from which it may derive future revenues in the form
of upgrade options, replacement products and new technology enhancements.
- MULTIPLE CUSTOMER SOLUTIONS: Octel's solutions meet the needs of emerging
companies, small- to medium-sized businesses with satellite offices and
branch offices, and multinational corporations with large branch
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offices and subsidiaries worldwide. In July 1995, the Company consolidated
its Octel and VMX products into a single product family called the Octel
Overture Message Server family. These products are scalable, designed for
multi-application environments and support the most widely deployed
messaging software in the world. In addition to the Overture product
family, the Company also designs and sells the Sierra system, which is a
multi-application voice information processing system specifically designed
to meet the special needs of telephone companies and other VIS customers.
- - COMPATIBILITY WITH PRIVATE BRANCH EXCHANGE (PBX) SYSTEMS: Octel's voice
messaging systems work with nearly every brand of PBX system in the world.
- - UPGRADEABILITY: Octel's voice messaging solutions enable businesses of all
sizes to protect their technology investments and to expand and grow as
their needs change. For example, customers who invested in Octel's original
Aspen system eleven years ago can migrate to one of the Octel Overture
Message Servers without losing some important resources - their voice mail
database information, applications, software features, voice recordings and
messages. Furthermore, Octel's Capacity On Demand (COD) software allows
customers to enable additional message storage hours, system mailboxes and
fax capabilities on an as-needed basis.
- - ENTERPRISE-WIDE NETWORKING: As corporations move toward distributed,
enterprise-wide information systems, networking capabilities become even
more crucial. Via OctelNet, the Company's networking software application,
Octel customers on Octel systems at different locations can exchange
messages. Via "digital networking," customers can use their existing Local
Area Network (LAN) and Wide Area Network (WAN) infrastructure to transfer
voice messages between users. This capability serves to improve speed and
voice quality while leveraging existing technology investments to reduce
costs. In the future, it is anticipated that the integration of voice on
the information superhighway will allow voice and fax messages to be
accessed, manipulated and transferred just like any other digital data by
devices of all types - from desktop computers to personal digital
assistants. The Company's Digital Networking, announced in March 1995,
represents a key component of Octel's vision to bring voice processing to
enterprise networks worldwide. Octel is continuing to enhance its product
lines and plans to introduce digital networking on many product platforms
in the next few years.
- - OCTEL NETWORK SERVICES: ONS is one of the largest voice messaging
outsourcing organizations in the world. It manages an average of 6 million
minutes of messaging traffic each business day for approximately 1.5
million mailboxes. An increasing number of the Company's Global Business
Solutions (GBS) and Voice Information Services (VIS) customers are
recognizing the benefits of outsourcing the management of their voice
messaging networks. ONS provides complete voice messaging network
management services, which include system capacity, mailbox provisioning,
system administration and maintenance, 24-hour HelpLine services, project
management services and end-user training. In addition, ONS also offers
communications contingency services that use voice messaging solutions to
help companies communicate in the event of a disaster or other outage.
- - ATTRACTS STRONG DISTRIBUTION PARTNERS: Octel has a strong distribution
network to reach corporations, governments and institutions through a
combination of direct sales, independent distributors and original
equipment manufacturers (OEMs) in the United States and international
markets.
- - COMPLETE SOLUTION: The Company competes in two major markets: GBS for
corporations, institutions and governments and VIS for service providers.
Furthermore, Octel provides software, hardware, outsourcing and customer
services and support to customers in both GBS and VIS markets - giving the
Company a broad infrastructure to support customers' voice messaging needs
globally.
Octel's Messaging Strategy
In conjunction with the Company's mission of making voice messaging
available to every home, car, mobile phone and business, Octel has developed a
two-pronged global messaging strategy:
- - First, Octel is developing "unified messaging" products for voice, fax and
e-mail messaging. Unified messaging essentially unites voice, fax and
e-mail messaging together in a client/server architecture using standard PC
and LAN technology. This integration brings together several discrete
technologies into a single
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mailbox that provides user access from a telephone or a PC. In May 1995,
Octel announced the first component of its unified messaging technology.
Octel's first implementation of unified messaging will be available on
Microsoft Exchange, a LAN-based, enterprise-wide messaging architecture.
During fiscal 1996, the Company entered into contracts to perform beta
testing with several customers, including some current multinational
accounts as well as new customers in fiscal 1997.
- - Second, Octel's goal is to expand the messaging network beyond traditional
user boundaries. In July 1995, Octel introduced OcteLink - the world's
first "messaging post office" that allows the interconnection of virtually
any voice mail system, regardless of protocol, system size or geographic
location. OcteLink's global message exchange is intended to make it easier
to send or receive voice mail, fax and, in the future, e-mail messages.
This global messaging network is designed to link commercial, residential
and institutional customers worldwide. During fiscal 1996, the Company
entered into several contracts with service providers in North America.
Revenues from OcteLink commenced during the second quarter of fiscal 1996,
but have not been material to date.
Strategic Business Units
Octel has historically focused on two principal customer markets: Global
Business Solutions and Voice Information Services. The Company has continued to
broaden its product line to address these markets. Accordingly, in fiscal 1995,
the Company's management was reorganized around three Strategic Business Units
which are focused on serving the specific needs of the respective markets:
Global Business Solutions (GBS). GBS markets include small to large
corporations, institutions and government agencies worldwide. Octel's GBS group
provides a wide range of voice messaging hardware, software and services to this
market segment. Product sales to the corporate market include proprietary
systems designed to meet the communications needs of mid-sized to large-sized
domestic and international corporations, PC-based voice messaging systems for
branch offices and small businesses from OPCPD, and components to Value Added
Resellers (VARs) and OEMs from the Company's Rhetorex subsidiary.
Voice Information Services (VIS). Octel's VIS group provides a wide range of
voice processing hardware, software and services to voice information service
providers such as Regional Bell Operating Companies (RBOCs), independent
telephone companies, wireless communications companies and service bureaus
around the world. The VIS group also pursues opportunities in the international
market for "virtual telephone" applications. Such applications use the voice
mailbox as a substitute for simultaneous communication in those countries in
which basic telephone service is difficult or costly to obtain.
Both the GBS and VIS business units provide services to customers through the
Company's Customer Services Organization. See "-- Sales, Customer Support and
Warranties."
Services. This strategic business unit is comprised of ONS and OcteLink and
sells to customers in both the GBS and the VIS markets. The Company's ONS
division is a leading provider of voice information processing services and
private network management to organizations wishing to outsource their voice
processing needs. ONS operates its own independent voice processing network that
spans the United States and provides international links to Canada, Europe,
Japan, Australia and Latin America. OcteLink is a global message exchange
intended to make it easier to send or receive voice mail, fax and, in the
future, e-mail messages. This global messaging network is designed to link
commercial, residential and institutional customers worldwide.
CUSTOMER BASE
By the end of fiscal 1996, Octel had an installed-base of over 50,000
systems in over 40 countries, representing a total of over 40 million mailboxes.
No single customer accounted for more than 10% of the Company's total net
revenues for fiscal 1996, 1995 or 1994.
The Company's GBS customers account for over 11 million mailboxes
worldwide. Corporate customers include over 75% of the companies in the Fortune
50 group, including Amoco, General Electric, Hewlett-Packard and Prudential
Insurance.
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The Company's VIS customers are comprised of over 130 service providers in
25 countries, including six of the seven Regional Bell Operating Companies in
the United States and all major Canadian telephone companies. In Europe, Octel
is strong in providing voice processing services to Europe's Global System for
Mobile Communications (GSM) cellular network and its emerging business and
residential markets. VIS customers include AT&T Wireless (formerly McCaw
Cellular), Mannesmann Mobilfunk (Germany), Maxis (Malaysia), Mobile One
(Singapore), Piltel (Philippines), Radiolinja (Finland), Telcel (Mexico),
Telecom Italia (Italy), Telecom Mobile (New Zealand), and Vodacom (South
Africa). Octel has more than 30 million mailboxes deployed in the VIS market.
PRODUCTS
Octel's broad product family ranges from two-port systems for as few as 20
subscribers to 432-port systems for up to 120,000 subscribers in certain VIS
applications.
GBS Products
In fiscal 1995, Octel consolidated all Octel and VMX products into a single
product family via the introduction of the Octel Overture Message Server family.
The Overture 250 provides increased functionality and all Overture products
incorporate COD software. These message servers consolidate eleven different
products into a family of five servers and three software products designed to
provide customers with better price/performance, greater flexibility for system
expansion, enhanced management tools and Octel's 24-hour-per-day,
seven-day-per-week service and support. The new Octel Overture product line
offers common features, one of two caller interfaces for those calling into an
Octel system, a common pricing arrangement and a common networking scheme via
the OctelNet protocols and the new OcteLink global messaging networks.
The GBS offering currently includes the Octel Overture PC, Overture 200,
Overture 250, Overture 300 and Overture 350. Overture products feature one of
the following user interfaces: Octel Overture PC offers the Performer interface;
Octel Overture 200 and 300 products offer the Serenade interface; Octel Overture
250 and 350 products offer the Aria interface.
- - OCTEL OVERTURE PC is a PC-based system designed for small branch offices
and remote sites.
- - OCTEL OVERTURE 200 is a mid-level system designed for small-to-medium-sized
offices and branch sites.
- - OCTEL OVERTURE 250 is a mid-level system designed for medium-sized
businesses or large branch offices in the U.S., Canada and the United
Kingdom.
- - OCTEL OVERTURE 300 is a mid- to high-end system designed for larger
companies or institutions worldwide.
- - OCTEL OVERTURE 350 is a high-end system designed for Fortune 500 companies
in the United States and Canada.
- - SOFTWARE SETS: Octel Overture software products include Aria, Serenade and
Performer.
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System models and specifications include the following:
<TABLE>
<CAPTION>
Number of Number Hours of
Model Subscribers Served (1) of Ports Message Storage
----- ---------------------- -------- ---------------
<S> <C> <C> <C>
Octel Overture PC 2,000 + 4 - 16 12 +
Octel Overture 200 up to 5,000 4 - 64 5 - 540
Octel Overture 250 up to 15,000 4 - 72 5 - 485
Octel Overture 300 up to 10,000 4 - 128 5 - 1,085
Octel Overture 350 up to 30,000 12 - 144 5 - 725
</TABLE>
- --------
(1) The number of users actually supported will depend upon the specific
customer application.
As Octel focuses on high-value software applications, the Company has
shifted the value of its GBS product offerings from hardware to software. An
example of this software focus is Capacity-on-Demand (COD), a feature that
provides lower entry costs and greater scalability. With it, users can more
easily and cost-effectively expand the capacity of their message servers as
their needs change.
Octel has developed integrations which permit its systems to be compatible
with virtually all major brands of PBX telephone systems. Integration enables
the customer's voice message server to exchange data with telephone switches
from different manufacturers. Integration is necessary to permit several
important voice messaging features. It allows the caller to reach a subscriber's
mailbox directly without dialing the subscriber's extension or mailbox number
and allows message notification at the subscriber's telephone.
GBS systems and services revenues accounted for 52%, 59% and 61% of total
net revenues for fiscal 1996, 1995 and 1994, respectively.
VIS Products
Octel's high-capacity Sierra platform is designed to meet the special needs
of the RBOCs, independent telephone companies and other VIS providers by
supporting multiple voice processing applications from within a single platform.
Sierra is designed to be expandable to suit market growth and be capable of
handling a large number of subscribers. Sierra is also designed to meet
Bellcore's Network Equipment Building Systems (NEBS) standards. When configured
into a three-unit cluster, the Sierra currently supports up to 120,000
subscribers, 432 ports and 2,016 message storage hours. Sierra also utilizes the
COD feature discussed above.
Client/Server Architecture for Integrated Messaging. In order to make its
VIS product line more complete, Octel intends to expand the benefits,
performance and capabilities of its Sierra platform with a next-generation
client/server architecture, Intelligent Messaging Architecture (IMA). This phase
is intended to allow VIS service providers to build voice messaging "networks"
that support millions of messaging subscribers on a single platform.
This new architecture will allow the integration of new technologies into
networks. Octel's open architecture will be designed to provide for flexible,
integrated service creation for adding multiple new technologies or network
platforms. It will offer faster and less expensive service creation for large
subscriber bases, enabling service providers to create customized applications
more easily for various countries or communities of interest.
The architecture will consist of a UNIX/RISC-based application that serves
as a dedicated service creation environment, a new back-end database server for
running the new applications and a specialized Sierra Media Server that will
store and process voice and fax messages. All of the stand-alone elements are
based on object-oriented technology - thereby providing developers with an easy
to use point-and-click graphical environment that makes application development
far easier. Octel's new client/server architecture will offer:
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- - an open, flexible service creation environment
- - scalable integrated services
- - seamless, transparent network offerings
- - high-performance client/server database
The Company believes that the timely introduction and market acceptance of
its next-generation client/server architecture is a key factor in determining
the Company's success in the VIS market, and the Company is focusing significant
resources and talent on developing and bringing products using this architecture
to market. The release of IMA has been delayed from the original estimate of
late fiscal 1996 to allow for additional features and functionality and
completion of testing. There can be no assurance that introduction of products
using this architecture will not continue to be delayed, allowing competitors to
gain a market share advantage, or that such products will be successful in the
marketplace.
VIS systems and services revenues accounted for 35%, 28% and 29% of total
net revenues for fiscal 1996, 1995 and 1994, respectively.
Services
ONS. As one of the largest voice messaging outsourcing organizations in the
world, ONS delivers services for companies in 15 countries from its base of
operations in the United States and the United Kingdom. ONS manages an average
of 6 million minutes of messaging traffic each business day for approximately
1.5 million mailboxes. An increasing number of the Company's GBS and VIS
customers are recognizing the benefits of outsourcing the management of their
voice messaging networks. Customers may choose to outsource their voice
processing requirements completely through ONS rather than lease or buy
equipment. Some of the reasons companies are outsourcing include the customer's
desire to focus on its core business, manage risk, control costs, improve
overall quality, provide a guaranteed service level or to respond to a lack of
internal resources. ONS provides complete voice messaging network management
services, which include system capacity, mailbox provisioning, system
administration and maintenance, 24-hour HelpLine services, project management
services and end-user training. In addition, ONS also offers communications
contingency services that use voice messaging solutions to help companies
communicate in the event of a disaster or other outage. ONS customers include
large corporations, federal, state and local governments and not-for-profit
organizations. In addition, ONS also provides services to Ameritech, the RBOC in
the midwestern United States. Through international marketing partners, ONS
provides access from Australia, Europe, Japan and Latin America to its voice
processing network. ONS also provides complete voice processing services on a
private-label basis for resale by VIS providers.
OcteLink. In July 1995, Octel Services introduced OcteLink, the world's
first network that interconnects virtually any voice messaging system with
networking capability, regardless of protocol, system size or geographic
location. OcteLink makes possible a global network and an administrative,
service and support infrastructure that enables customers to link their voice
processing and other messaging systems to Octel's network easily. Messages are
sent to an OcteLink hub or "messaging post office" that processes and forwards
the message to the appropriate recipient. The OcteLink hubs are connected via
high-speed, digital data links designed for high-quality, rapid transport of
messages. These post office hubs connect voice processing and other messaging
systems, sort traffic and efficiently direct each message to its destination.
The hub acts as a multimedia gateway - accepting voice, fax and, in the future,
e-mail with delivery based on the recipient's terminal of choice: telephone
(hard-wired or cellular), PC, personal digital assistant (PDA), laptop or fax
machine.
OcteLink is based upon a strong existing infrastructure that has been built
by ONS, one of the world's largest voice messaging service and outsourcing
organizations.
OcteLink currently supports OctelNet and Audio Messaging Interchange
Specifications (AMIS) messaging protocols. Support for the Internet as a
delivery network is planned for the future as are additional voice mail and
communications protocols. Octel will also make its protocols available to other
vendors under licensing arrangements so that messages can be transmitted to and
from their systems more easily.
Although the Company believes OcteLink is a viable global messaging
network, there is currently no reliable data regarding the demand for such
services in multiple customer segments. Furthermore, there is no assurance that
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demand for a global messaging network will not be slow to materialize or that
potential competitors will not successfully introduce alternative solutions to
OcteLink that achieve better market acceptance.
Services revenues (consisting primarily of ONS) accounted for 13%, 13% and
10% of total net revenues for fiscal 1996, 1995 and 1994, respectively.
SALES, CUSTOMER SUPPORT AND WARRANTIES
The Company sells and supports its voice processing systems through direct
sales, independent distributors, VARs and OEM providers. This strategy reduces
Octel's dependence on any single sales channel and is designed to improve market
coverage and customer satisfaction for the Company's products. Direct sales
operations in the United States are conducted from approximately 40 field
offices and international direct sales operations are conducted from
approximately 15 offices. The Company's domestic GBS sales force is structured
into four geographic areas, with each group responsible for sales - distributor,
direct, and national account - within its area. A separate sales force is
focused on opportunities in the domestic VIS market. Sales outside the United
States are structured into three geographic territories - Canada, Europe and
Intercontinental, which includes Asia-Pacific and Latin America.
The Company believes that its network of distributors, VARs and OEM
providers represents an important part of its overall sales strategy and that
the loss of, or changes in the relationship with, or performance by, one or more
of these sales channels could have an adverse effect on the Company's revenues
and operating results. Distributors purchase products at discounts and,
accordingly, the Company's operating margins can vary depending upon the mix
between distributor and direct sales in any particular operating period. The
Company anticipates that this mix will fluctuate in future operating periods.
The Company offers a leasing alternative to its customers through its
leasing division, Octel Capital. Customers who wish to lease the Company's
products may do so using financing options available through the Company's sales
organization.
Sales outside the United States were approximately 29%, 25% and 24% of
total net revenues for fiscal 1996, 1995 and 1994, respectively. In fiscal 1996,
the majority of international sales were made in Canada, the United Kingdom,
Japan and France. In fiscal 1995 and 1994, the majority of international sales
were made in the United Kingdom and Canada. In fiscal 1996, the Company formed a
wholly owned subsidiaries in Mexico and Singapore to sell to customers in Latin
America and Asia-Pacific countries. In fiscal 1994, the Company formed wholly
owned subsidiaries in Japan and Hong Kong to sell to customers in Japan and
other Asia-Pacific countries.
The Company's Customer Services Organization is organized into three
functional areas, Maintenance & Support, Educational Services and Consulting &
Services. Maintenance & Support focuses on providing customers with the highest
system availability utilizing the latest call center technology and training.
Educational Services offers a broad array of training programs, both
classroom-based and Computer Based Training at locations in California,
Illinois, Pennsylvania, Canada and the United Kingdom, that allow customers to
leverage their investment in the Company's products. Consulting & Services offer
fee-based design services to develop sophisticated call processing business
solutions for the Company's GBS and VIS customers worldwide.
The Field Operations group includes field engineers, customer support
specialists and applications consultants who together provide installation and
implementation assistance to end-user customers, distributors and VIS service
providers. The Field Operations group also provides warranty and post warranty
maintenance and support services to direct customers worldwide, supplemented by
a network of spare parts depots throughout the United States and
internationally. The Company's system warranty period is generally for 12 months
from date of shipment (or, if the Company installs the system, generally for 12
months from the date of installation). The Company maintains and services its
products on a contractual basis after the initial product warranty has expired.
The Company's centralized Customer Services Centers, located in San Jose,
California and Fleet, United Kingdom, provide 24 hours per day support coverage
to respond to requests for problem identification and resolution utilizing over
500 customer service professionals worldwide.
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BACKLOG
The Company's backlog at June 30, 1996 was $78.1 million compared to $74.4
million at June 30, 1995. The Company measures its backlog as confirmed orders
for equipment, maintenance contracts and ONS services for the next six months.
An increasing portion of the backlog is from the services business, which is
more predictable than the GBS or VIS businesses and which reduces dependence
from quarter-to-quarter on systems business. Because of the possibility of
customer changes in delivery schedules or cancellation of orders, the Company's
backlog as of any particular date may not be indicative of actual revenues for
any future period. The Company believes that its backlog on a quarterly basis
will not generally be large enough to assure that its revenue targets for a
particular quarter will be met. Furthermore, a large percentage of any quarter's
shipments are booked in the last month of the quarter. Consequently, quarterly
revenues and operating results will depend on the volume and timing of new
orders received during a quarter, which are difficult to forecast. This is
particularly true in the VIS marketplace, where individual sales orders are
generally larger. Fourth quarter revenues are typically enhanced by sales
incentives provided to employees and promotion programs for customers, while
first and third quarter sales are traditionally not as strong. This seasonal
pattern is likely to continue.
COMPETITION
The voice information processing industry is highly competitive and the
Company believes that competition from new and existing competitors will
continue to intensify. The Company competes with different companies in the
different customer markets it serves and the principal competitive factors vary
depending on the customer market. The Company believes that competition to date
for the sale of voice information processing systems in its principal customer
markets has been based on product features, system performance, product quality
and reliability, price, service and post-sales support, and marketing and
distribution capabilities. The Company believes that it competes favorably with
respect to these competitive factors.
Global Business Solutions
In the corporate and institutional markets, Octel competes primarily with
two types of companies: PBX manufacturers including Lucent Technologies,
Northern Telecom Limited and Siemens Rolm Communications, Inc. and independent
voice processing manufacturers, such as Centigram Communications Corporation, as
well as PC-based system suppliers, including Active Voice Corporation and
Applied Voice Technology, Inc. (AVT).
The PBX manufacturers sell voice processing products that integrate
principally with their own PBXs. These companies have considerably greater
financial, technical, marketing and sales resources than the Company, and may
have a competitive advantage when customers are purchasing a voice processing
system at the same time they are purchasing a new PBX. They also benefit from
the large installed-base of their own brands of PBXs. PBX manufacturers have
intensified their competitiveness by focusing on low prices, providing single
source procurement and by selling voice processing equipment as a PBX peripheral
device with limited, core voice processing functionality such as telephone
answering and voice mail. The Company believes that its competitive strengths
compared to these PBX manufacturers are its multi-application voice processing
systems, the broad set of features incorporated into the Company's products,
including its multiple technology applications such as fax processing, a more
user friendly interface, the ability to integrate with the PBXs of multiple
manufacturers and networking. The Company also believes that development and
delivery of customer applications will increase in importance as a competitive
factor as customers demand not only core voice processing functionality, such as
telephone answering and voice messaging, but also inter-active voice response
(IVR), fax, audiotex and integration with computer networks. Nevertheless, the
Company's future operating results could be materially adversely affected with
respect to sales to customers for whom price is the primary criteria, even
though the Company's products may provide more features or capability.
The independent voice processing manufacturers (including Centigram, AVT
and Active Voice) also offer multiple integrations with PBXs. The Company
believes that its competitive strengths compared to these companies are its
large installed-base, strong support organization, broad set of system features,
strong financial condition and substantial cumulative investment in research and
development. The Company also believes that its direct and distributor channels
of distribution allow it to compete favorably with companies with only one
channel of distribution. Furthermore, the Company believes that its application
generators and application development specialists represent an
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<PAGE> 13
opportunity to provide applications tailored to meet the needs of vertical and
horizontal markets as well as providing unique solutions for individual
customers.
Indirect competitors may be able to compete more directly with the Company
in selling to larger corporate customers and VIS providers by increasing system
capacities and adding new system capabilities and applications. To the extent
the Company markets additional applications that enable interaction with host
computers, suppliers of such other systems as interactive voice response systems
will become more direct competitors.
The Company expects that new or enhanced products will be offered by its
principal existing competitors and new competitors, including large domestic and
international telecommunications and computer companies. The Company also
expects that computer software vendors such as Novell, Inc., Lotus Development
Corporation (a subsidiary of IBM) and Microsoft Corporation will continue to
develop enhanced messaging and networking software with voice and data
information processing applications.
A large number of voice processing companies compete primarily in the
market for smaller capacity systems (fewer than 16 ports) that are typically
sold to small businesses or to branch offices of larger companies; however, some
of these companies also use success in the smaller capacity systems market to
penetrate the large capacity systems market. Some of these competitors primarily
emphasize their automated attendant and call processing capabilities, while
others focus on voice messaging applications. In addition, a number of companies
produce personal computer add-on cards and software primarily aimed at
specialized applications or small user groups. The primary competitors for the
Company's PC products include other PC-based system suppliers such as Active
Voice and AVT. Certain PBX manufacturers, including Lucent Technologies and
Northern Telecom, also offer competitive products to small businesses which are
generally tailored to a specific brand of PBX. The market for smaller capacity
systems is characterized by intense competition on price and sales coverage. The
Company believes that as smaller businesses become more familiar with voice
processing and its benefits, enhanced feature content will become increasingly
important for small capacity systems. The Company believes that its PC-based
products compete favorably against products from other PC-based vendors and PBX
manufacturers because of their feature set and the Company's extensive dealer
network.
Competitors in the international corporate and institutional market segment
vary by country and include both United States and foreign companies. In the
past, international competition was less significant as markets outside of North
America were less developed and competitors were in the early stages of
developing their business strategies. As the international markets have
developed, competition from traditional competitors as well as local start-up
companies has increased. These competitors are primarily in the market for
smaller capacity systems, which present competitive risks similar to those
discussed above. Octel believes that factors in its favor in international
markets are the broad set of features in its existing products, including its
multiple technology applications, its large installed-base of multinational
companies and its strong financial condition. The Company's international
competitive position also benefits from the distribution alliances that the
Company has established with nearly 20 organizations, including Alcatel NV, a
division of Alcatel Alsthom, Bull S.A., Telefon AB LM Ericsson, Hitachi,
Italtel, J.S. Telecom, Mercury Communications, a subsidiary of the Cable &
Wireless Group, and Siemens AG.
Voice Information Services
In the VIS market, Octel currently competes with Boston Technology,
Centigram, Comverse, Digital Sound, Glenayre and Unisys. Octel anticipates that
this list of competitors will continue to change and evolve and that other
competitors may enter the market in the future.
Other telecommunications and computer companies, including some large
companies that currently supply network and corporate infrastructure equipment
to the RBOCs, and some companies with greater financial and technical resources
than the Company, are expected to enter the VIS market. As a result of the
Telecommunications Act of 1996, the RBOCs will be allowed to manufacture their
own voice processing equipment once they have satisfied certain regulatory
requirements. See "-- Government Regulations." The Company believes that
specific product requirements are becoming clearer as the RBOCs and other
telephone companies are gaining more experience with VIS. The Company continues
to develop enhancements to its Sierra product to address what the Company
believes are the emerging requirements of the telephone companies and other
service providers. However, there can be no assurance
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<PAGE> 14
that product requirements will not change as this market develops or that other
companies will not be faster or more successful in bringing comparable products
to market.
The Company believes that the key competitive factors in the VIS market are
likely to depend on the method of implementing voice information services used
by the specific VIS provider. In this market, the Company believes it benefits
from its greater experience in providing voice processing systems, its
installed-base, market development expertise and the reliability, capacity and
broad feature functionality of its products. In addition, against certain
competitors, the Company competes favorably on the basis of its strong financial
condition and its limited reliance on any single customer for its viability.
Competition in the international VIS market has primarily come from those
companies based in and currently competing in the United States. As in the
international GBS market, the primary competitors in international VIS markets
may change as the market for voice information services develops and additional
vendors are attracted. The Company believes that its strengths in the domestic
VIS market will be valuable to the Company in international VIS markets.
Current competitors or new market entrants in both the GBS and VIS markets
may introduce and commercially deliver new products with features and expanded
capabilities that could adversely affect the competitive position of the
Company's systems in some or all of its markets. In order to maintain its
competitive position, the Company must continue to develop and market new
products successfully and enhance its existing products, and there is no
assurance that the Company will be able to do so. Increased competitive
pressures could result in intensified price competition in the Company's
markets, which would adversely affect the Company's net revenues and net income.
Services
ONS competes both with other voice processing service providers and with
equipment manufacturers. Other services suppliers include independent companies
such as VoiceCom and VoiceTel. ONS also competes with equipment manufacturers if
the customer is uncertain whether to outsource its voice processing through a
service provider such as ONS or purchase equipment from a manufacturer. In
situations where a customer's capital budget is constrained or resources to
manage systems are not present, ONS' service solutions become attractive as
compared to equipment purchases. The Company believes that ONS competes
favorably in the outsourcing market because of its proven experience in the
business when it was known as Tigon Corporation, years of network development
and management and Octel's strong consolidated financial position.
Although no competitor has introduced a product that competes directly with
the OcteLink service, Lucent Technologies has announced a product with a smaller
scope but similar characteristics to OcteLink, designed for intra-enterprise
messaging for Lucent customers, whereas OcteLink is designed for
inter-enterprise messaging. In addition, in June 1996, four RBOCs announced the
formation of "The Messaging Alliance" (TMA). TMA will allow subscribers of each
member company's voice messaging service to send messages to users on other
members' systems. TMA members currently provide services to over four million
customers across the nation. Canada's Stentor Alliance has also announced
intentions to provide access to TMA using OcteLink mailboxes, increasing the
potential community by an additional three million mailboxes.
The Company expects the development of TMA will have an overall positive
effect on Octel because it supports the Company's strategy to provide voice
messaging worldwide. Furthermore, TMA is not expected to compete directly with
OcteLink because its target customers are residential and small business voice
mail users, whereas OcteLink focuses on commercial customers. Accordingly, TMA
is expected to complement OcteLink's services by increasing messaging among a
more diverse group of customers.
MANUFACTURING
The Company's manufacturing operations consist primarily of final assembly
and extensive test and quality control of materials, components, subassemblies
and systems. Most of the Company's high-end hardware and software product
designs are proprietary, except for some peripheral products. Other products,
such as PC products, are designed with a more open architecture. The Company
currently manufactures its Overture products in San Jose, California. Rhetorex
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<PAGE> 15
products are manufactured in Los Gatos, California and the Company's PC products
are manufactured in Sarasota, Florida.
The Company presently uses third parties to perform printed circuit board
assembly and sheet metal fabrication. Although the Company generally uses
standard parts and components for its products, certain components, including
power supplies and certain semiconductors, are presently available only from a
single source or from limited sources. The Company, to date, has been able to
obtain adequate supplies of these components in a timely manner from existing
sources or, when necessary, from alternative sources of supply. There can be no
assurance, however, that such supplies will be available in the future or, if
such supplies are available, that they will be available at reasonable prices.
The inability to develop such alternative sources if and as required in the
future, or to obtain sufficient sole or limited source components as required,
would adversely affect the Company's total net revenues and net income. During
fiscal 1996, the Company encountered quality control problems with disk drives
from one of its suppliers that required product retrofits. This problem did not
materially adversely affect operating results in fiscal 1996, and the Company
has obtained new sources for these disk drives. Nevertheless, the Company's
future operating results could be materially adversely affected by quality
control problems.
RESEARCH AND DEVELOPMENT
The Company believes that the continued timely development of new products
and enhancements to its existing products are essential to maintaining the
Company's market position, and this effort requires a high level of expenditures
by the Company for research and development. The Company has continued to
improve the features, capabilities, capacity and price/performance of its
product line while maintaining compatibility with its customers' existing
installations. The Company is currently involved in the development of new
products and enhancements to its existing products to increase performance,
reliability and manufacturability. The Company must continue to retain skilled
research and development personnel, particularly software and hardware engineers
who are generally in short supply. The Company, from time to time, has purchased
and anticipates that it will continue to purchase technology from third parties.
The Company releases performance enhancements and new features for its
products on an ongoing basis. As the functionality of the Company's systems
increases, the complexity of the software will also increase. Although the
Company performs rigorous testing prior to releasing its product designs,
products as complex as the Company's often contain undetected errors or "bugs"
when first released, and these errors are discovered only after the product has
been used by many different customers and in varying applications. Because of
the importance the Company places on product reliability, the Company has from
time to time temporarily delayed product shipments to complete "debugging"
efforts. In addition, the Company has been required, in a few instances and
primarily for VIS customers, to write custom software and to make design
modifications to satisfy customer application requirements. Identifying and
correcting errors and making required design modifications typically is
expensive and time-consuming and the Company expects such modifications to
increase in complexity with the increasing sophistication of the Company's
products. Despite extensive testing, there can be no assurance that errors will
not cause delays in product introductions and shipments, require design
modifications or impair customer satisfaction, which could adversely affect
operating results.
During fiscal 1996, 1995 and 1994, the Company spent $77.6 million, $73.1
million and $58.0 million, respectively, on research and development. The
Company expects to continue to increase expenditures on research and development
in fiscal 1997 in absolute terms and these expenses could increase as a
percentage of total net revenues. During fiscal 1996, 1995 and 1994, the Company
entered into development contracts with certain customers whereby the Company
performed development work on applications software using customer funds. During
fiscal 1996, $0.5 million ($1.0 million in fiscal 1995 and $0.8 million in
fiscal 1994) was recognized as revenue and $0.5 million ($1.0 million in fiscal
1995 and $0.8 million in fiscal 1994) was charged to cost of sales for projects
completed. No internal software development costs have been capitalized to date
under the provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed." See Note 2 to Consolidated Financial Statements.
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GOVERNMENT REGULATION
Voice messaging services and telecommunications equipment manufacturing are
regulated almost exclusively at the federal level. Other than routine equipment
registration, the Company is not subject to federal telecommunications
regulations. State regulatory authorities have sought to regulate some aspects
of intrastate telephone answering and voice messaging services offered by
telephone companies and may seek in the future to regulate such services offered
by independent service providers such as the Company. At present, however, the
Company is not subject to such state regulation.
The Telecommunications Act of 1996 (the Act) eliminated any oversight of
the activities of the seven RBOCs by the United States District Court for the
District of Columbia under the 1984 consent decree governing the breakup of
AT&T. The Federal Communications Commission and the United States Department of
Justice now have principal oversight of the RBOCs' activities.
The Act allows for some significant changes for the telecommunications
industry immediately and will have more effects in the future. Under the Act,
the RBOCs will be permitted to provide services that originate in one Local
Access and Transport Area (LATA) within their regions and terminate in another
once they comply with requirements to open their telephone networks and
in-region, local service markets to competition. The RBOCs are immediately
permitted to provide telecommunications services originating outside of their
regions that cross LATA boundaries. They are also immediately permitted to
provide "incidental" inter-LATA services anywhere.
Voice messaging services are included within the definition of incidental
services and the RBOCs may provide such services through separate affiliates
across LATA, state or regional boundaries. In offering voice messaging services,
the RBOCs remain subject to various regulatory requirements that ensure
nondiscriminatory access to RBOC customers and deter cross-subsidization by the
RBOCs.
Under the Act, the RBOCs will remain prohibited from manufacturing
telecommunications equipment until they are authorized to provide in-region
inter-LATA telecommunications services. This limitation does not apply to RBOC
affiliates, however. The RBOCs are still allowed to provide customer premises
equipment (CPE), and to acquire both CPE and telecommunications equipment for
their own use. In addition, RBOCs are permitted immediately to collaborate with
any manufacturer of telecommunications equipment, such as the Company, for the
design and development of hardware and/or software for such equipment, engage in
research related to manufacturing and enter into royalty agreements with
manufacturers of such equipment. The RBOCs are prohibited from discriminating in
favor of any affiliated entity in procuring telecommunications equipment.
PATENTS, COPYRIGHTS, TRADEMARKS AND TECHNOLOGY LICENSES
The Company relies on a combination of patent, copyright, trade secret and
trademark law, licensing and technical measures to protect its intellectual
property. There can be no assurance that the Company's efforts to protect its
intellectual property will be successful.
The Company holds 33 United States patents and has 14 patent applications
pending in the United States. The Company's issued patents expire on dates
ranging from 2000 to 2013. The Company also has patent applications pending in
many foreign countries. There can be no assurance that the Company will be able
to protect its technology or that competitors will not be able to develop
similar technology independently. No assurance can be given that patents will be
issued from any applications filed by the Company or that, if patents are
issued, the claims allowed will be sufficiently broad to protect the Company's
technology. In addition, no assurance can be given that any patents issued to
the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to the Company. In
spite of the possible strength of the Company's existing and future patents, the
Company believes that patents are of less significance in its industry than such
factors as innovation, technological expertise and distribution strength.
The Company licenses technology from Northern Telecom, Mitel Corporation
and ROLM to facilitate integration of Octel's products with those manufacturers'
PBXs. The Northern Telecom license is perpetual, the Mitel license expires in
1998 and the ROLM license expires in 2004. Royalty payments on these licenses
are not material.
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A number of companies, including competitors of the Company, hold patents
in the same general area as the technology used by the Company. The Company has
from time to time been notified and may be notified in the future that its
products may be infringing certain patents and other intellectual property
rights of others.
In April 1992, the Company filed suit, in United States District Court in
Northern California, against Theis Research, Inc. (Theis) for declaratory
judgment that the Company's products do not infringe three patents of Theis and
that those patents are invalid. In November 1992, Theis filed a counterclaim
against the Company alleging infringement of seven of Theis' patents.
Subsequently, Theis dismissed with prejudice the claims as to all but four of
the patents, and its claims as to one of the remaining four patents were
dismissed on summary judgment. During the first quarter of fiscal 1995, the
Company engaged in a jury trial regarding infringement of the three remaining
patents and the defense of patent invalidity. In October 1994, the jury returned
a verdict finding, among other things, that Octel was correct in its claim that
the three patents at issue were invalid. The Court entered judgment on the jury
verdict in January 1996, declaring Octel a "prevailing party" entitled to
recover its substantial costs in connection with the lawsuit. It is anticipated
that Theis will appeal the verdict.
In January 1994, Gilbarco, Inc. (Gilbarco) filed suit in the U.S. District
Court for the District of Colorado against the Company and one of the Company's
telephone company customers, U.S. West, alleging infringement of a Gilbarco
patent and seeking unspecified damages. The Company filed an answer to the
complaint denying any infringement of the patent and raising several affirmative
defenses, including an assertion that the patent is invalid and unenforceable.
In September 1994, the claims asserted against the Company were transferred to
the U.S. District Court for the Northern District of California and those claims
asserted against U.S. West were stayed and administratively closed pending the
outcome of the California action. Both parties filed motions for summary
judgment on a variety of issues, including a motion by Octel for summary
judgment declaring the Gilbarco patent unenforceable due to inequitable conduct
during the procurement of the patent. On February 12, 1996, the Court granted
Octel's motion for summary judgment (and denied Gilbarco's counter-motion) and
declared the patent unenforceable as a matter of law. The Court subsequently
entered judgment in favor of Octel and against Gilbarco in the underlying action
and awarded Octel its costs in connection with the lawsuit. Gilbarco's
subsequent challenge of the Court's ruling was denied and Gilbarco has filed a
notice of appeal of the final judgment invalidating their patent.
The Company believes, based upon information currently available, including
consultations with patent counsel, that the Company is not infringing any valid
patents of Theis or Gilbarco. The Company will vigorously defend the patent
infringement claims and any related claims for compensatory damages. While
litigation is inherently uncertain, the Company believes that the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial position.
The Company is currently evaluating several additional claims of third
parties. Based in part on industry practice and in part on discussions with
certain of such third parties, the Company believes that in most cases any
necessary licenses or rights could be obtained on commercially reasonable terms.
However, no assurance can be given that future licenses will be obtained on
acceptable terms, that costly litigation will not occur or that the Company will
receive a favorable decision in any litigation that may ensue. The failure to
obtain necessary licenses or other rights, or litigation arising out of such
claims, could have a material adverse affect on the Company's operations.
Octel, Octel Communications, the Octel logo, OctelNet, Aspen, Branch, Call
Performer Plus, D.I.A.L., Maxum, Sierra, Tigon and VMX are registered trademarks
of the Company. Aria, Digital Networking, OcteLink, Octel Overture Message
Server, Octel Overture, Octel Overture PC, Octel Overture 200, Octel Overture
250, Octel Overture 300, Octel Overture 350 and Serenade are trademarks of the
Company. All other product names are trademarks which belong to their respective
owners.
EMPLOYEES
The Company's success depends in part upon the continued contribution of
its officers and key personnel, many of whom would be difficult to replace. If
certain of these people were to leave the Company, the Company's operating
results could be adversely affected. At June 30, 1996, the Company employed
approximately 2,900 people on a full-time basis. During fiscal 1997, the Company
intends to hire additional personnel, especially in the international arena.
Many of the Company's employees are highly skilled, and the Company's continued
growth and success will depend in part upon its ability to attract and retain
such employees, who are in great demand, and on the ability of the Company's
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officers and key employees to manage successfully the growth of the Company
through use of appropriate management information systems and controls. The
Company has never had a work stoppage, no employees are represented by a labor
organization and the Company considers its employee relations to be good.
ITEM 2. PROPERTIES
The Company currently conducts all headquarters operations, except
manufacturing and customer support, in a five-building, 375,000 square foot
campus and an adjacent 44,000 square foot leased building in Milpitas,
California. Manufacturing and customer support operations are conducted in two
leased buildings in San Jose, California totaling 170,000 square feet. These
three leases expire at various dates ranging from 1997 to 1999. The Company also
leases over 40 sales and customer support offices throughout the United States
totaling 235,000 square feet. These leases expire at various dates through 2001.
The aggregate monthly rental expense for leased property in the United States,
excluding OPCPD, ONS and Rhetorex, is approximately $539,000, of which
approximately 48% was for facilities near the Milpitas campus.
OPCPD conducts all activities from a 35,000 square foot leased building in
Sarasota, Florida with a monthly rental expense of $42,000. The OPCPD lease
expires in 2005. ONS' principal offices are located in five buildings in Dallas,
Texas and consist of approximately 108,000 square feet under leases which expire
in 1997 and 1998. ONS also leases an additional 86,000 square feet of space for
27 operations centers and sales offices throughout the United States. The
aggregate monthly rental expense for all of ONS' facilities is approximately
$195,000, of which approximately 56% is for facilities at or near the Dallas
offices. Rhetorex conducts all activities from a 34,000 square foot leased
building in Los Gatos, California with a monthly rental expense of $35,000. This
lease expires in 2001.
The Company leases five offices in Canada totaling 18,000 square feet at a
monthly rental expense of approximately $23,000. The Company also leases five
offices in the United Kingdom, two offices in France and Italy and one office in
each of Germany, Israel, Hong Kong and Japan. Aggregate monthly rental expense
for these leases is $261,000. These leases expire at various dates through 2005
and the Company expects to be able to renew or replace such leases at the end of
their terms on a commercially reasonable basis.
On July 6, 1995, the Company entered into a one-year operating lease for a
parcel of undeveloped land adjacent to its Milpitas, California campus on which
additional offices may be constructed over the next three years. Monthly rent
expense varies based upon the London interbank offering rate (LIBOR). The lease
was extended for another one-year period in July 1996. See Note 13 to the
Consolidated Financial Statements.
The Company expects that it may require additional sales and customer
support locations during fiscal 1997 and believes that suitable space will be
available as needed on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
See "Business--Patents, Copyrights, Trademarks and Technology Licenses."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
EXECUTIVE OFFICERS OF OCTEL COMMUNICATIONS CORPORATION
The executive officers of the Company and their respective ages as of July
31, 1996 are as follows:
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ------ ------------------------------------------------------------------
<S> <C> <C>
Robert Cohn 47 Chairman of the Board and Chief Executive Officer
W. Michael West 46 President and Chief Operating Officer
David Ladd 49 Executive Vice President and Chief Technology Officer
Jean-Yves Dexmier 44 Senior Vice President and Chief Financial Officer
Charles E. Levine 43 Senior Vice President
Margaret Norton 42 Senior Vice President
Paul Scott 43 Senior Vice President
Donald L. Campodonico 51 Vice President
Derek S. Daley 41 Vice President, General Counsel and Secretary
Alex Gray 39 Vice President
Bruce Simpson 39 Vice President
John R. Viera 47 Vice President
</TABLE>
Mr. Cohn, a founder of the Company, served as its President and Chief
Executive Officer from the Company's inception in 1982 until October 1990, and
then resumed those positions in November 1993. During fiscal 1996, he
relinquished his position as President and now serves as Chairman of the Board
and Chief Executive Officer. Mr. Cohn has also served as a director from the
Company's inception and, in June 1990, the Board of Directors appointed Mr. Cohn
Chairman of the Board. Mr. Cohn holds a B.S. in Mathematics and Computer Science
from the University of Florida and an M.B.A. from Stanford University. Mr. Cohn
is also a director of Spectralink Corporation, a manufacturer of wireless phones
for business applications.
Mr. West was named as President and Chief Operating Officer for the Company
during fiscal 1996. Previously he served as Vice Chairman for the Company. Mr.
West joined the Company in September 1986 as Executive Vice President and was
responsible for sales and customer service. From 1979 to September 1986, Mr.
West was employed by ROLM, serving for three years during this period as
President of an operating subsidiary of ROLM and then as General Manager of its
National Sales Division. Mr. West attended Southern Illinois University.
Mr. Ladd joined the Company in March 1994 as Executive Vice President
following the Company's merger with VMX, Inc. and, as Chief Technology Officer,
is responsible for coordinating the Company's long-term technology direction
across all lines of business. At VMX, Mr. Ladd served as Executive Vice
President and a director from July 1988 until March 1994. Prior to joining VMX,
Mr. Ladd served as President and Executive Vice President of OPCOM, a
manufacturer of call processing systems that was merged into a wholly owned
subsidiary of VMX in July 1988. Mr. Ladd holds a B.A. in Engineering Physics
from the University of California-Berkeley and an M.A. in Mathematics from the
Stevens Institute of Technology.
Mr. Dexmier joined the Company in November 1995 as its Senior Vice
President and Chief Financial Officer. He is responsible for overseeing all of
the Company's worldwide financial operations, including finance, treasury,
investor relations, business development and real estate and facilities. Prior
to joining the Company, he served as Chief Financial Officer for Kenetech
Corporation from April 1995 to October 1995, a San Francisco-based wind energy
company. From May 1994 to March 1995, Mr. Dexmier served as Chief Financial
Officer for Air Liquide America Corporation, a $1 billion U.S. subsidiary of
France-based group Air Liquide, a worldwide leader in industrial gases. From
January 1991 to January 1994, Mr. Dexmier served as Chief Financial Officer for
Thomson Consumer Electronics, Inc., the then $3 billion subsidiary of Thomson
SA, a worldwide electronics manufacturer. Mr. Dexmier has a Ph.D. in Electronics
from the Ecole Nationale Superieure de l'Aeronautique et de l'Espace, an M.A. in
Economics and Finance from Ecole Polytechnique, France, and a B.S. in
Mathematics from the Lycee Pasteur. In addition, he attended the executive
management program at the University of Michigan School of Business
Administration.
Mr. Levine joined the Company in December 1994 as Vice President and
General Manager of Octel Services. Mr. Levine was subsequently named Senior Vice
President and General Manager of Octel Services. Prior to joining Octel, Mr.
Levine served as President and CEO of CFT Systems and as Products and Services
Vice President of AT&T's General Business Systems Division. Mr. Levine has also
held executive marketing positions with General Electric and Procter & Gamble.
Mr. Levine graduated from Trinity College with a major in Economics and received
his M.B.A. from Northwestern University.
19
<PAGE> 20
Ms. Norton joined the Company in February 1988 as a Group Product Manager
in Customer Premise Equipment (now GBS) Marketing and was subsequently promoted
to Director of CPE Marketing, Vice President of Marketing, to Vice President and
General Manager of VIS and Senior Vice President and General Manager, VIS, the
position she now holds. She holds a B.A. in Economics from the University of
Arizona and an M.B.A. from the University of Connecticut.
Mr. Scott joined the Company in 1984 as Markets Manager of the then OEM and
RBOC business. In 1991, Mr. Scott became General Manager for the Eastern region
of the GBS market. Mr. Scott was named Vice President in 1994 and then General
Manager and Vice President for U.S. Field Operations in February 1995, which
included all VIS/GBS sales and customer service responsibilities. In June 1996,
he was named as Senior Vice President of Worldwide Field Operations. Prior to
joining Octel, he spent seven years with AT&T in various sales and management
positions. Mr. Scott holds a B.A. and an M.A. in Political Science from
Northwestern University.
Mr. Campodonico joined the Company in July 1987 as its Director of
Manufacturing and is now Vice President of Organizational Development and
Training. Prior to joining the Company, he was employed by ROLM, serving for two
years as Vice President of Operations. Mr. Campodonico holds a B.S. in Business
Administration and an M.B.A.
from San Francisco State University.
Mr. Daley joined the Company in August 1988 as its General Counsel, was
elected Vice President in September 1989 and became Secretary of the Company in
October 1990. He is responsible for internal legal matters, legal compliance and
supervision of outside law firms employed by the Company. Prior to joining the
Company, Mr. Daley was an associate and then a partner in the law firm of
Wilson, Sonsini, Goodrich & Rosati from September 1985 to September 1988, and an
associate with the law firm of Brobeck, Phleger & Harrison from September 1980
to September 1985. Mr. Daley holds a B.S. in History and a J.D. from Stanford
University.
Mr. Gray joined the Company in December 1992 as Director - Information
Services. In June 1995, he was named as Vice President and Chief Information
Officer. In February 1996, Mr. Gray was named as Vice President Corporate
Operations. He is responsible for manufacturing, customer order administration,
information services and corporate quality. Prior to joining Octel, Mr. Gray
held positions as Director of Information Services for American President Lines
from September 1991 to November 1992 and NEXT Computer from July 1988 to August
1991. He also spent four years as a research and development engineer for
Hewlett-Packard. Mr. Gray holds a B.S. and an M.A. in Electrical Engineering
from Washington University in St. Louis, Missouri.
Mr. Simpson joined the Company in conjunction with the October 1992
acquisition of Tigon Corporation (now ONS). Mr. Simpson now serves as President
of ONS. Previously, Mr. Simpson was named President of Tigon in 1991 after
serving eighteen months as Vice President of Finance and Administration. Before
joining Tigon, he was Controller for Ameritech Development Corporation in
Chicago, Illinois. Mr. Simpson holds an M.B.A. and a B.S. in Accounting from
Northern Illinois University and is a Certified Public Accountant.
Mr. Viera joined the Company in February 1989 as Director of Organizational
Planning and was subsequently promoted to Director of Compensation, Director of
Human Resources and Vice President, Human Resources, the position he now holds.
He holds a B.S. in Business Administration from Golden Gate University and an
M.S. in Counseling Psychology from California State University, Hayward and is a
certified Senior Human Resources Professional by the International Human
Resources Professional Society. Prior to joining Octel, Mr. Viera held senior
Human Resources management positions with Xerox Corporation, Ford Motor Company,
Combustion Engineering and Avantek Inc.
All officers serve at the discretion of the Board of Directors. There are
no family relationships between directors or executive officers of the Company.
20
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Octel Communications Corporation Common Stock is traded on the
over-the-counter market and is quoted on The Nasdaq National Market under the
symbol OCTL. As of June 30, 1996, there were approximately 3,350 stockholders of
record. The following table sets forth for the periods indicated the high and
low closing prices, as adjusted for the 2-for-1 stock split effected on May 10,
1996, for Octel's Common Stock as reported by The Nasdaq National Market.
<TABLE>
<CAPTION>
Fiscal year 1996 High Low
-------------------------------------------------------- --------- ----------
<S> <C> <C>
Fourth quarter ended June 30, 1996 $25 3/4 $ 19 3/4
Third quarter ended March 31, 1996 24 1/8 13 1/4
Second quarter ended December 31, 1995 17 7/16 143 9/64
First quarter ended September 30, 1995 21 1/16 142 1/32
Fiscal year 1995 High Low
-------------------------------------------------------- --------- ----------
Fourth quarter ended June 30, 1995 $14 5/8 $ 9 7/16
Third quarter ended March 31, 1995 11 3/4 10
Second quarter ended December 31, 1994 101 3/16 9 3/16
First quarter ended September 30, 1994 12 1/8 8 1/16
</TABLE>
The Company has not paid cash dividends on its Common Stock to date and
does not plan to pay cash dividends to its stockholders in the foreseeable
future.
The Company believes factors such as quarter-to-quarter variances in
financial results and announcements of new products and new orders by the
Company or its competitors could cause the market price of the Company's Common
Stock to fluctuate substantially. In addition, the stock prices for many high
technology companies typically experience extreme price fluctuations, which
often are not related to changes in the operating performance of the specific
companies. Broad market fluctuations as well as general economic conditions,
such as a recessionary period or high interest rates, may adversely affect the
market price of the Company's Common Stock. Both the Company's Common Stock and
the stock market generally are at or near historic highs and there can be no
assurance that such valuations will continue or increase.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994 1993 1992
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Total net revenues $563,602 $472,592 $406,225 $338,478 $262,732
Operating income 76,534 42,745(1) 18,813(2) 37,122 29,526
Net income 50,784 31,132(1) 13,543(2) 29,567 26,383
Net income per common and
equivalent share (3):
Primary $ 0.95 $ 0.63(1) $ 0.27(2) $ 0.59 $ 0.54
Fully diluted $ 0.94 $ 0.61(1) $ 0.27(2) $ 0.59 $ 0.54
Weighted average common and
equivalent shares outstanding (3):
Primary 53,559 49,448 50,192 49,738 48,848
Fully diluted 53,787 51,456 50,192 49,738 48,848
BALANCE SHEET DATA
Working capital $197,865 $123,392 $132,773 $146,978 $162,171
Total assets 469,218 368,276 346,128 297,383 251,955
Long-term obligations 374 602 1,400 1,985 409
Stockholders' equity 364,992 274,943 256,192 229,681 202,386
</TABLE>
21
<PAGE> 22
- --------
(1) Includes non-recurring charges for the write-off of in-process research
and development of $4.7 million ($3.2 million net of taxes) and
integration costs of $2.8 million ($1.9 million net of taxes).
(2) Includes total non-recurring charges for the VMX merger and integration
costs of $24.1 million ($18.8 million net of taxes).
(3) As adjusted for the two-for-one stock split effected on May 10, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - ANNUAL
Net Revenues
The Company derives revenues from the sale of systems, performance of
services and generation of license fees from its three strategic business units:
GBS, VIS and Services. GBS consists of system sales, services and maintenance
contract sales to corporations and institutions, including universities and
governments. VIS consists of system sales and maintenance contract sales to
service providers such as telephone companies and wireless providers. Services
is comprised of ONS and OcteLink.
Total net revenues for GBS for fiscal 1996 were $292.3 million compared to
$281.0 million in fiscal 1995 and $249.0 million in fiscal 1994. Total net
revenues for VIS were $200.6 million in fiscal 1996 compared to $130.7 million
in fiscal 1995 and $118.7 million in fiscal 1994. Services sector revenue, which
is primarily related to ONS, was $70.7 million for fiscal 1996 compared to $60.9
million in fiscal 1995 and $38.5 million in fiscal 1994.
GBS and VIS systems revenues consist of software, hardware, upgrades and
expansions sold to corporations and other institutions, including telephone
companies and cellular service providers. Services revenues, as presented below,
include a range of voice processing and network management services provided by
ONS to customers in the GBS and VIS markets as well as the residential market
through a Regional Bell Operating Company. Services and licenses revenues also
include service contracts, applications development, spares sales and hardware
repair and maintenance provided by the GBS and VIS business units.
<TABLE>
<CAPTION>
Increase (Decrease)
Year Ended June 30, From Prior Year
------------------------------------------- ---------------------------
1996 1995 1994 1996 1995
-------------- ------------- -------------- ------------- -------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Systems $376.6 $314.3 $292.1 20% 8%
Services and licenses 187.0 158.3 114.1 18% 39%
------ ------ ------
Total net revenues $563.6 $472.6 $406.2 19% 16%
====== ====== ======
Percentage of Total Net Revenues
Systems 67% 67% 72% -- (5%)
Services and licenses 33% 33% 28% -- 5%
</TABLE>
The increase in total net revenues from fiscal 1995 to fiscal 1996 is due
primarily to an increase in the sale of higher priced systems and upgrades
partially offset by a decrease in new system sales volume. In addition, spares
sales and services provided by ONS contributed to the overall increase. The
growth in total net revenues from fiscal 1994 to fiscal 1995 resulted from
increases in the volume of services revenues generated by ONS, spares and
maintenance, the sale of systems to new and existing customers and the sale of
upgrades and expansions. Total domestic net revenues for fiscal 1996 were $402.0
million compared to $353.6 million in fiscal 1995 and $308.8 million in fiscal
1994. International net revenues totaled $161.6 million for fiscal 1996 compared
to $119.0 million in fiscal 1995 and $97.4 million in fiscal 1994. International
sales for fiscal 1996 were primarily to customers in Europe and Canada and, to a
lesser extent, Japan, Singapore and Australia.
22
<PAGE> 23
Systems
The increase in systems revenues from fiscal 1995 to fiscal 1996 is due
primarily to increases of 55% and 3% in VIS and GBS sales, respectively. The VIS
increase resulted mainly from a higher volume of both international and domestic
sales in fiscal 1996. International sales growth was primarily in Europe, Canada
and Japan. The increase in Europe is attributable to growth in the existing
customer base of the European wireless market. Canadian revenues improved as one
of Canada's largest VIS providers lifted its spending freeze. Domestically, the
Company experienced strong sales in the residential and wireless markets, which
the Company believes are large market opportunities. The Company and its VIS
customers, including the cellular companies, are working jointly to develop
programs to address these markets; however, there can be no assurance that such
efforts will be successful in generating additional sales in the future. For the
GBS business, revenues increased both domestically and internationally, however,
increases in Asia-Pacific were partially offset by decreases in Europe and
Canada. An overall decrease in new system sales volume was more than offset by
an increase in the sales of higher priced systems. In addition, both the
Company's PC division and Rhetorex subsidiary contributed to the overall
increase in GBS revenues. Finally, GBS sales benefited from the end of the
trade-in program for the Overture 250 product.
The increase in systems revenues from fiscal 1994 to fiscal 1995 was due to
increases in GBS and VIS revenues of 11% and 2%, respectively. Domestic GBS net
revenue growth was 12% and international revenues grew 6%. The increases were
due to greater sales of high-end systems offset by fewer low-end systems sales
compared to fiscal 1994. During fiscal 1995, international GBS sales were
principally in the United Kingdom and Canada. Domestic VIS net revenue decreased
4% whereas international revenues grew 9%. In the United States, the Company
sold to customers who provide telephone answering services, which experienced
slower growth than other VIS markets. Furthermore, the Company experienced a
decline in VIS market share from fiscal 1994 to fiscal 1995. The Company's
operations in the United Kingdom made a significant contribution to
international revenues as a result of new opportunities which were realized
during the year; however, this increase was offset by a decrease in Canada's VIS
revenues which were adversely affected by a capital spending freeze at one of
Canada's largest VIS providers.
The GBS market continues to be dependent upon the following: purchases by
existing customers of expansions and upgrades to support expanding corporate
voice messaging networks; purchases of new, integrated applications such as fax
processing by large organizations; sales to small business or branch offices of
large companies of less expensive voice messaging equipment; and purchases by
large organizations that have already adopted competitive voice processing
technology switching to the Company's products. Systems sales orders from VIS
customers are generally larger than GBS sales and VIS customers do not follow
consistent buying patterns; therefore, net revenue volume and mix in future
periods could be affected by the extent and timing of new orders from VIS
customers.
Services and licenses
The increase in services and licenses revenues from fiscal 1995 to fiscal
1996 is due primarily to the Company's larger installed-base of customers.
Additionally, ONS revenues increased 16%, reflecting both subscriber growth and
increased usage. Net services and licenses revenues increased from fiscal 1994
to fiscal 1995 as a result of growth in ONS revenues of 58% compared to fiscal
1994 resulting from increased services provided to one of the RBOCs which
provides residential services and from other new accounts added during the year.
Higher spares and hardware maintenance revenues due to the larger installed-base
also contributed to the overall increase in net service revenues from fiscal
1994 to fiscal 1995. The Company is continuing to focus resources on increasing
revenue from its services and licenses business and anticipates that services
and licenses revenues as a percentage of net revenues will continue to fluctuate
based on system sales.
The Company continues to monitor trends in the general economy that have
previously imposed budgetary constraints and, therefore, adversely affected the
ordering process of customers. The Company cannot predict how future domestic
and international economic trends may affect sales orders. The Company may
establish additional subsidiaries or joint ventures in the future in those
countries where it believes significant sales opportunities exist. Extensive
effort is required in the local government approval processes before the
Company's new products or modifications to existing products can be sold and
installed in each country. The Company continuously seeks local government
approvals in various selected countries.
23
<PAGE> 24
Cost of Systems and Services
<TABLE>
<CAPTION>
Increase (Decrease)
Year Ended June 30, From Prior Year
------------------------------------------- ---------------------------
1996 1995 1994 1996 1995
-------------- ------------- -------------- ------------- -------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Cost of systems $118.3 $103.5 $ 88.4 14% 16%
Cost of services and
licenses 113.4 89.8 72.4 26% 24%
------ ------ ------
Total cost of sales $231.7 $193.3 $161.8 20% 19%
====== ====== ======
Percentage of Net Revenues
Cost of systems 31% 33% 31% (2%) 2%
Cost of services and
licenses 61% 57% 63% 4% (6%)
Total cost of sales 41% 41% 40% -- 1%
</TABLE>
Total cost of sales as a percentage of total net revenues was flat from
fiscal 1995 to fiscal 1996 as the decrease in cost of systems as a percentage of
total net revenues was offset by an increase in cost of services as a percentage
of total net revenues. Total cost of sales as a percentage of total net revenues
increased from fiscal 1994 to fiscal 1995 due to the continued growth of
services and license revenues, which generally have a higher cost structure than
systems sales, and due to an increase in the cost of systems.
Systems
The decrease in cost of systems as a percentage of total systems revenues
from fiscal 1995 to fiscal 1996 is due primarily to product mix changes. VIS
revenues, which generally carry lower cost of sales as a percentage of total net
revenues than GBS revenues, increased as a percentage of total systems revenues.
The increase in cost of systems as a percentage of total systems revenues from
fiscal 1994 to fiscal 1995 was also due primarily to product mix changes.
Services and licenses
The increase in cost of services as a percentage of total services and
licenses revenues from fiscal 1995 to fiscal 1996 is due primarily to higher
employee-related costs associated with service contracts and hardware repair and
maintenance activities. ONS cost of services, as a percentage of total services
and licenses revenues, remained flat in fiscal 1996 compared to fiscal 1995. The
decrease in cost of services as a percentage of total services and licenses
revenues from fiscal 1994 to fiscal 1995 is primarily attributable to the
increase in ONS revenues, which have a lower cost structure as a percentage of
services and licenses revenues than hardware repair and maintenance.
During fiscal 1996, 1995 and 1994, the Company used sales promotions and
pricing programs, including price reductions and discounts, to stimulate demand
for the Company's products. If the Company is required to respond to economic or
competitive pressures through similar programs in the future, cost of systems
and services could increase as a percentage of total net revenues.
Research and Development
<TABLE>
<CAPTION>
Increase (Decrease)
Year Ended June 30, From Prior Year
------------------------------------------- ---------------------------
1996 1995 1994 1996 1995
-------------- ------------- -------------- ------------- -------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Expenses $77.6 $73.1 $58.0 6% 26%
Percentage of total
net revenues 14% 15% 14% (1%) 1%
</TABLE>
24
<PAGE> 25
The increase in research and development expenses in absolute dollars from
fiscal 1995 to fiscal 1996 is due primarily to the Company's increased spending
on employee-related costs for new product development, including Unified
Messaging, IMA and OcteLink, as well as new research activities for future
products and services. The increase in absolute dollars from fiscal 1994 to
fiscal 1995 is due primarily to the Company's increased spending on the
development of new products, such as the Overture 250, projects to meet customer
commitments, the adaptation of existing products and technology for
international markets, and the continued commitment to enhancements to existing
products. Fiscal 1995 and 1996 expenses also reflect research and development
expenses incurred by the development facility acquired by the Company in August
1994. Such expenses were not incurred in fiscal 1994. Additionally, the Company
incurred a one-time charge of approximately $1.2 million during fiscal 1995
related to a canceled contract for software development.
During fiscal 1996, 1995 and 1994, the Company entered into development
contracts with certain customers whereby the Company performed development work
on applications software using customer funds. During fiscal 1996, $0.5 million
($1.0 million in fiscal 1995 and $0.8 million in fiscal 1994) was recognized as
revenue and $0.5 million ($1.0 million in fiscal 1995 and $0.8 million in fiscal
1994) was charged to cost of sales for projects completed. No internal software
development costs have been capitalized to date under the provisions of
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." See Note 2 to
Consolidated Financial Statements.
The Company expects to continue to increase expenditures on research and
development in fiscal 1997 in absolute terms and these expenses could increase
as a percentage of total net revenues.
Selling, General And Administrative
<TABLE>
<CAPTION>
Increase (Decrease)
Year Ended June 30, From Prior Year
------------------------------------------- ---------------------------
1996 1995 1994 1996 1995
-------------- ------------- -------------- ------------- -------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Expenses $177.7 $155.9 $149.3 14% 4%
Percentage of total
net revenues 32% 33% 37% (1%) (4%)
</TABLE>
The increase in selling, general and administrative expenses from fiscal
1995 to fiscal 1996 in absolute dollars resulted primarily from payroll-related
expenses for international expansion. The increase was also due to higher
advertising and public relations expenses related to the introduction of the
Overture product line as well as increased depreciation and amortization
resulting from the Company's investment in an infrastructure which can support
the Company's future operations. The increase in selling, general and
administrative expenses from fiscal 1994 to fiscal 1995 resulted primarily from
payroll-related expenses for employees hired to support the growth of the
Company's expanded worldwide operations. The increases in fiscal 1995 were
partially offset by a reduction in legal expenses related to ongoing patent
litigation incurred during fiscal 1994, the absence of costs related to the
departure of the prior CEO which were incurred during fiscal 1994 and reduced
occupancy costs due to the consolidation of certain office facilities in fiscal
1995. Since fiscal 1994, the Company has continued to redeploy resources to
support the faster growing business segments, including the hiring of employees
to support new international subsidiaries and international sales opportunities.
Since the merger with VMX, the Company has analyzed organizational and
operational synergies that can be achieved and began to realize the benefits
from those synergies in fiscal 1995. The Company believes that additional
selling, general and administrative expenses will be required to maintain its
competitive position, including expanded international sales activities, and
expects that these expenses will increase in absolute terms and could increase
as a percentage of total net revenues. Additionally, the Company is currently
involved in patent litigation that may cause an increase in legal expenses in
the future. See "Business--Patents, Copyrights, Trademarks and Technology
Licenses."
Non-recurring Charge for Acquired In-process Research and Development
In August 1994, the Company purchased certain intellectual property and
fixed assets from another company for $5.1 million. Of the total purchase price,
$4.7 million was allocated to in-process research and development and $0.4
25
<PAGE> 26
million was allocated to property and equipment. The in-process research and
development was expensed in the first quarter of fiscal 1995.
Integration Costs
In connection with the VMX merger in fiscal 1994, the Company recorded
$18.3 million for integration costs related to the consolidation of facilities
and personnel. In fiscal 1995, an additional $2.8 million of integration costs
were incurred which related primarily to literature design for name change and
other modifications to literature for the merged Company and the consolidation
of processes and computer systems of the merged Company. Additional integration
costs of approximately $0.7 million were incurred during the first quarter of
fiscal 1996 as the consolidation of the two companies was substantially
completed. These costs were entirely offset by excess integration reserves which
were identified and reversed during the first quarter of fiscal 1996. No
additional integration costs were incurred since the first quarter of fiscal
1996.
Interest and Other Income (Expense), Net
Interest and other income (expense), net was consistent from fiscal 1995 to
fiscal 1996, but increased $4.4 million from fiscal 1994 to fiscal 1995. This
change was due primarily to merger related expenses of $3.6 million incurred in
fiscal 1994, which did not occur in either fiscal 1995 or 1996. During fiscal
1996, there were net foreign exchange losses of $0.1 million compared to gains
of $0.8 million in fiscal 1995 and losses of $0.4 million in fiscal 1994. Other
expenses in each fiscal year included costs of the Company's foreign exchange
hedging program and fees paid to the Company's investment advisors. The Company
continues to utilize its hedging program to mitigate the foreign exchange
financial exposure of foreign currency transactions. See Foreign Operations
section below.
Income Taxes
The Company's effective tax rate for fiscal 1996 was 36% compared to 32% in
fiscal 1995 and 22% in fiscal 1994. The effective rate was higher in fiscal 1996
due to the expiration of the U.S. federal research and development credit and
the smaller impact that certain tax benefits have on the effective tax rate. The
lower effective tax rate in fiscal 1994 was attributable to a combination of
factors. First, various tax assets of VMX that had been fully reserved were
recognized as a tax benefit. Additionally, the retroactive reinstatement of the
U.S. research and development credit for the fiscal year ended June 30, 1993 had
a favorable impact on the effective tax rate in fiscal 1994.
As of June 30, 1996, $11.8 million of domestic net operating loss
carryforwards were available. These net operating losses were accumulated by ONS
prior to being acquired by the Company. The net operating losses are available
for a limited amount of time and in annual limited amounts, expiring between
fiscal 1997 and 2001. A valuation allowance of $3.6 million has been recognized
to offset the deferred tax assets related to those carryforwards which are not
likely to be utilized.
The Company recorded worldwide pretax profits of $78.9 million in fiscal
1996, an increase from $45.6 million in fiscal 1995 and $17.3 million in fiscal
1994. Because of the profitability of the Company, tax benefits of the deferred
tax assets can be realized by offsetting the tax liability of prior periods.
Foreign Operations
The Company's foreign subsidiaries operate using local functional
currencies, except for Israel, which uses the U.S. Dollar as its functional
currency. Assets and liabilities denominated in foreign currencies are
translated at the exchange rate on the balance sheet date. Revenues, costs and
expenses are translated at average rates of exchange prevailing during the year.
Translation adjustments resulting from this process are accumulated as a
separate component of stockholders' equity. Realized and unrealized gains and
losses on foreign currency transactions and contracts are included in "Interest
and other income (expense), net." Gains on transactions hedged with foreign
currency options are recorded consistent with the hedged transaction.
Forward exchange contracts used by the Company require the Company to
exchange currencies at rates agreed upon at the inception of the contracts.
Although the gross amounts are used to express the volume of these transactions,
the amounts potentially subject to credit risk are limited to the difference
between the counterparty's obligation and the
26
<PAGE> 27
obligation of the Company. The hedge contracts reduce the exposure to
fluctuations in exchange rate movements because the gains and losses associated
with foreign currency balances and transactions are generally offset with the
gains and losses of the hedge contracts. Forward exchange contracts are used to
hedge foreign currency transactions in addition to assets and liabilities
denominated in non-local currencies. Foreign exchange option contracts are used
to hedge anticipated inventory purchases. The hedge contracts have varying
maturities with none exceeding twenty-four months. At June 30, 1996, the Company
held contracts to sell Japanese Yen, French Francs and Canadian Dollars and to
buy Pounds Sterling. The Company maintains policies for entering into foreign
exchange contracts and investments.
Dividends
The Company has not paid cash dividends on its Common Stock to date and
does not plan to pay cash dividends to its stockholders in the foreseeable
future. The Company presently intends to retain any earnings to finance its
business and to repurchase shares of its Common Stock under a program approved
by the Board of Directors.
See "--Liquidity and Capital Resources."
RESULTS OF OPERATIONS - QUARTERLY
The following table presents unaudited quarterly operating results and
certain items as a percentage of total net revenues for the Company's four
quarters in fiscal 1996. The Company believes that all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the selected quarterly information. This
information should be read in conjunction with the consolidated financial
statements included elsewhere herein. The operating results for any quarter are
not necessarily indicative of results for any subsequent period.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-----------------------------------------------------------------------------------------------------------------
SEPT. 30, 1995 DEC. 31, 1995 MARCH 31, 1996 JUNE 30, 1996
-----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Systems $ 71,959 63% $ 93,697 69% $ 93,752 67% $117,144 68%
Services and licenses 41,771 37% 43,000 31% 46,097 33% 56,182 32%
-----------------------------------------------------------------------------------------------------------------
Total net revenues 113,730 100% 136,697 100% 139,849 100% 173,326 100%
Costs and expenses:
Cost of systems 21,759 19% 28,726 21% 29,276 21% 38,573 22%
Cost of services and
licenses 25,587 22% 27,727 20% 28,953 21% 31,163 18%
Research and development 17,566 15% 19,747 14% 19,208 14% 21,099 12%
Selling, general and
administrative 39,178 34% 42,578 31% 43,936 31% 51,992 30%
-----------------------------------------------------------------------------------------------------------------
Total costs and expenses 104,090 92% 118,778 87% 121,373 87% 142,827 82%
-----------------------------------------------------------------------------------------------------------------
Operating income 9,640 8% 17,919 13% 18,476 13% 30,499 18%
Interest and other income,
net 649 1% 423 -- 670 -- 608 --
-----------------------------------------------------------------------------------------------------------------
Income before income taxes 10,289 9% 18,342 13% 19,146 14% 31,107 18%
Provision for income taxes 3,700 3% 6,600 5% 6,900 5% 10,900 6%
-----------------------------------------------------------------------------------------------------------------
Net income $ 6,589 6% $ 11,742 8% $ 12,246 9% $ 20,207 12%
=================================================================================================================
Net income per common and
equivalent share: $ 0.12 $ 0.22 $ 0.23 $ 0.37
-----------------------------------------------------------------------------------------------------------------
Number of shares used in
calculation: 53,138 52,308 53,514 55,044
=================================================================================================================
</TABLE>
- --------
Percentage amounts may not total due to rounding.
Lower total net revenues in the first quarter compared to the prior and
subsequent quarters are due primarily to a historically slow summer both
domestically and internationally. The increase in fourth quarter net revenues
compared to prior quarters resulted primarily from an increase in GBS system
sales. This increase was attributable to the June 30, 1996 expiration of the
Company's trade-in program for the Overture 250 product introduced in July 1995.
Total cost of sales, as a percentage of total net revenues, generally
remained consistent throughout the year. Fluctuations are attributable to
changes in revenue mix.
Operating margins fluctuated throughout the year primarily as a result of
revenues. In the fourth quarter, operating margin was affected by higher
selling, general and administrative expenses which resulted largely from
significant profit sharing bonuses for all employees.
27
<PAGE> 28
The quarterly effective tax rates reflect the provision required for the
annual rate of 36%.
The Company believes that its backlog on a quarterly basis will not
generally be large enough to assure that its revenue targets for a particular
quarter will be met. Furthermore, a large percentage of any quarter's shipments
have historically been booked in the last month of the quarter. Consequently,
quarterly revenues and operating results will depend on the volume and timing of
new orders received during a quarter, which is difficult to forecast. This is
particularly true in the VIS market, where individual sales orders are generally
larger. The Company offers products with base system list prices from
approximately $11,000 to over $1,250,000 depending on customer configurations
and requirements, and Octel generally has a higher gross margin on its fully
configured products. The Company provides discounts to distributors and
generally has a higher gross margin on direct sales. In addition, the Company's
services and licenses revenues generally have lower gross margins than systems
gross margins. As a result, the Company's revenues and gross margins will be
affected by the product, service and channel mix and timing of orders it
receives. The Company has not experienced any significant returns by customers
of any of its products.
Fourth quarter total net revenues are typically enhanced by sales
incentives to employees and promotional programs for customers; as a result,
first quarter sales are typically less than the immediately preceding fourth
quarter sales. The Company anticipates that this trend will continue in the
first quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents and short-term investments increased to
$75.7 million at June 30, 1996 from $52.6 million at June 30, 1995. Cash flows
from operations resulted in net cash provided of $51.4 million in fiscal 1996,
$46.8 million in fiscal 1995 and $49.4 million in fiscal 1994. In fiscal 1996,
cash from operations resulted primarily from net income of $50.8 million, which
included $39.7 million of non-cash expenses for depreciation and amortization,
offset by an increase in accounts receivable of $49.0 million. The increase in
accounts receivable is due primarily to an increase in fourth quarter total net
revenues of $37.8 million compared to the same quarter of fiscal 1995. Working
capital was $197.9 million, $123.4 million and $132.8 million at June 30, 1996,
1995 and 1994, respectively.
The primary uses of cash during fiscal 1996 were investment in property,
plant and equipment of $39.2 million ($56.9 million and $58.6 million in fiscal
1995 and 1994, respectively) and the repurchase of Common Stock for
approximately $8.9 million ($28.4 million and $5.8 million in fiscal 1995 and
1994, respectively) under the Company's stock repurchase program, both of which
aim to increase return to investors as compared to the return which would be
earned by investing the cash and generating interest at the low rates available
during fiscal 1996.
As of June 30, 1995, the Company had invested $48.7 million in the purchase
of land and the development of the Company's new corporate offices on that land.
The Company now occupies those facilities. Effective July 6, 1995, the Company
entered into a one-year operating lease agreement to lease undeveloped land on
which additional offices may be constructed adjacent to the existing corporate
offices over the next three years under a similar leasing arrangement. In June
1996, the operating lease was extended for another one-year period. Under the
terms of the operating lease, the Company is contingently liable under a 97%
first-loss clause for up to $9.9 million. See Note 13 to the Consolidated
Financial Statements. The Company also expects to purchase additional equipment
and make certain leasehold improvements during fiscal 1997; however, spending
levels are not expected to be at the levels they were in fiscal 1995 and 1994
because of the completion of the new corporate offices. The Company anticipates
that its property and equipment investments will eventually result in greater
efficiencies and increased flexibility for the Company.
On March 25, 1996, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on May 10, 1996 to stockholders of record on April 5, 1996.
Effective June 1996, the Company obtained a new $30 million bank revolving
line of credit which also allows the Company to obtain standby letters of
credit. Borrowings under the line are unsecured and bear interest at either an
adjusted LIBOR rate plus one and one-quarter percent or the greater of the
Bank's base rate or the Federal Funds Effective Rate plus one-half of one
percent, at the Company's discretion upon borrowing the funds. Borrowings under
the line are subject to certain financial covenants and restrictions on
indebtedness, equity distributions, financial guarantees, business combinations
and other related items. The Company was in compliance with these covenants and
had no borrowings under this line as of June 30, 1996. The line expires in June
1998.
28
<PAGE> 29
At June 30, 1996, the Company had $4.6 million of stand-by letters of
credit outstanding. The letters of credit are primarily to guarantee payments
for inventory purchases and facility lease payments. The majority of the Letters
of Credit are denominated in Pound Sterling, Japanese Yen, French Francs and
U.S. Dollars and expire on various dates through December 25, 1999.
In July 1994, the Company's Board of Directors approved the repurchase of
up to 3.5 million shares of its Common Stock over a period of approximately two
years. As of June 30, 1996, , the Company had repurchased approximately 3.2
million shares of its Common Stock at an average per share price of $11, net of
the impact of sales of put warrants. In June 1996, the Company's Board of
Directors approved the repurchase of an additional 3.5 million shares of its
Common Stock over an additional two-year period. The Company expects to continue
to repurchase its Common Stock under this program if warranted by market
conditions.
In connection with the VMX merger, the Company recorded integration costs
of $18.3 million in fiscal 1994. In addition to the integration costs recorded
in fiscal 1994, the Company incurred additional merger-related integration costs
during fiscal 1995 of $2.8 million, which were charged to operations. The
charges were recorded based on decisions made by management to consolidate
certain facilities and personnel. As of June 30, 1996, the balance of expected
future cash expenditures was immaterial.
The Company anticipates that cash flows from operations, existing cash and
cash equivalents balances, short-term investment balances and its existing $30
million bank revolving line of credit will be adequate to meet the Company's
cash requirements through the end of fiscal 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Various paragraphs of this Item 2 (Management's Discussion and Analysis of
Financial Condition and Results of Operations) contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth below and
elsewhere in this document.
The Company believes that in the future its results of operations could be
affected by factors such as market acceptance of new products and upgrades,
growth in the worldwide voice processing market, competition, expansion of
services by its VIS customers, the outcome of litigation and changes in general
economic conditions in any of the countries in which the Company does business.
The Company believes that the successful introduction of new and enhanced
products and services will be essential for it to maintain or improve its
competitive position. In July 1995, the Company introduced OcteLink - a global
"messaging post office" that could eventually allow the interconnection of
virtually any voice messaging system with networking capability, regardless of
protocol, system size or geographic location. Revenues from OcteLink commenced
during the second quarter of fiscal 1996 but have not been material to date and
are not expected to be material for fiscal 1997. The Company incurred additional
research and development and selling, general and administrative expenditures to
launch OcteLink and expects to incur additional costs in the future. Although
the Company believes OcteLink is a viable global messaging network, there is
currently no reliable data regarding the demand for such services. Furthermore,
demand for a global messaging network may be slow to materialize, may not
materialize or competitors may successfully introduce alternative solutions to
OcteLink that achieve better market acceptance.
The Company introduced the Overture Family of message servers in July 1995.
The Overture 250, which replaced the Aspen family, is a mid-level system within
the GBS product line designed for medium-sized businesses and large branch
offices. Until the fourth quarter of fiscal 1996, sales of the Overture 250 were
slightly below management expectations, however, fourth quarter sales of the
Overture 250 improved substantially. The Company issued credits under its
trade-in program to replace installed systems with the Overture 250. These
trade-in costs will not be repeated in fiscal 1997 because the program ended
June 30, 1996.
The Company is currently engaged in various new projects and product
development which are necessary to help maintain market share and Octel's
leadership position in the industry. Two of the more significant projects are
"unified
29
<PAGE> 30
messaging" products for voice, fax and electronic mail messaging and the
Company's next-generation client/server architecture for its Sierra platform,
Intelligent Messaging Architecture (IMA). Unified messaging essentially unites
voice, fax and e-mail together in a client/server architecture that uses
standard PC and LAN technology. This integration brings together several
discrete technologies into a single mailbox that provides user access from a
telephone or a PC. In May 1995, Octel announced the first component of its
unified messaging technology that will be available on Microsoft Exchange, a
LAN-based, enterprise-wide messaging architecture. Current expectations are for
revenue to commence in the latter half of fiscal 1997. IMA was originally
scheduled for first-phase release during the end of fiscal 1996; however,
shipment of this product has been delayed in order to allow for the release of a
more feature-rich product and to complete product development. The successful
introduction of these and other new products is dependent on a number of
factors, some of which are beyond the Company's control, including product
acceptance in the marketplace, introduction of competitive products by existing
or new competitors, changes in technology, price competition and other factors.
Any delay in introducing new products or failure of such products to achieve
substantial market share could significantly reduce future expected revenues or
result in the need for additional expenses to bring the product to market.
Furthermore, there can be no assurance that the Company will be successful in
introducing new products or that such products will generate significant
revenues or profits.
During the latter half of fiscal 1995, the Company adopted a new,
capacity-based pricing approach for its largest GBS system, the XC-1000. This
pricing approach was also adopted for Overture and Sierra system sales during
fiscal 1996. This approach allows customers to purchase systems with only part
of the equipment's capacity enabled and then have additional capacity enabled in
the future upon payment of additional fees. The Company has adopted contract
accounting (based upon percentage-of-completion) to recognize revenue in
connection with capacity on demand transactions when firm commitments to
purchase additional capacity exist. Under this method, revenues are recognized
as a function of the capacity provided to the customer and costs are recognized
proportionally to revenue recognized. Consequently, certain costs are deferred
in the Balance Sheet under the caption "Deposits and other assets." The adoption
of contract accounting did not have a material impact on results of operations
for fiscal 1996. While the Company believes that capacity-based pricing will
make it more competitive, difficulties in implementing this approach, delays or
adverse results due to renegotiation of sales and distribution agreements to
accommodate capacity-based pricing, or the failure to generate additional sales
could have an adverse effect on the Company's results of operations.
Due to the factors noted above and elsewhere in Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Company's future
earnings and Common Stock price may be subject to significant volatility,
particularly on a quarterly basis. Past financial performance should not be
considered a reliable indicator of future performance and investors should not
use historical trends to anticipate results or trends in future periods. Any
shortfall in revenue or earnings from the levels anticipated by securities
analysts could have an immediate and significant effect on the trading price of
the Company's Common Stock in any given period. Additionally, the Company may
not learn of such shortfalls until late in a fiscal quarter, which could result
in an even more immediate and adverse effect on the trading price of the
Company's Common Stock. Both the Company's Common Stock and the stock market
generally have been at or near historic highs and there can be no assurance that
such valuations will continue or increase. Finally, the Company participates in
a highly dynamic industry which often results in volatility of the Company's
Common Stock price.
The Company has been and may in the future continue to be required to
litigate enforcement of its intellectual property or commercial rights or to
defend itself in litigation arising out of claims by third parties. Such
litigation, even if the Company is ultimately victorious, can be extremely
expensive and may have a material adverse effect on the Company's results of
operations in any particular period. Litigation may also occupy management
resources that would otherwise be available to address other aspects of the
Company's business. See "Business--Patents, Copyrights, Trademarks and
Technology Licenses."
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 will be effective
for fiscal years beginning after December 15, 1995, and will require that the
Company either recognize in its consolidated financial statements costs related
to its employee stock-based compensation plans, such as stock option and stock
purchase plans, or make pro forma disclosures of such costs in a footnote to the
consolidated financial statements.
30
<PAGE> 31
The Company will continue to use the intrinsic value based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to
account for all of its employee stock-based compensation plans. Therefore, in
its consolidated financial statements for fiscal 1997, the Company will make the
required pro forma disclosures in a footnote to the consolidated financial
statements. SFAS No. 123 is not expected to have a material effect on the
Company's consolidated results of operations or financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Consolidated Balance Sheets ......................................... 32
Consolidated Statements of Income ................................... 33
Consolidated Statements of Stockholders' Equity ..................... 34
Consolidated Statements of Cash Flows ............................... 35
Notes to Consolidated Financial Statements .......................... 36
Independent Auditors' Report ........................................ 50
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts ..................... 55
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable.
31
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,492 $ 24,521
Short-term investments 51,257 28,054
Accounts receivable, net of allowance for doubtful
accounts of $3,750 and $2,938 166,918 109,321
Accounts receivable from related parties -- 6,270
Inventories 40,411 31,151
Prepaid expenses and other 18,639 16,806
--------- ---------
Total current assets 301,717 216,123
Property, plant and equipment, net 136,916 128,753
Deposits and other assets 30,585 23,400
--------- ---------
Total $ 469,218 $ 368,276
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 18,399 $ 21,157
Accrued compensation and employee benefits 34,801 28,188
Income taxes payable 9,755 7,921
Accrued and other liabilities 40,897 35,465
--------- ---------
Total current liabilities 103,852 92,731
Long-term obligations 374 602
Commitments and contingencies (Notes 2, 8, 9, 13, and 15) -- --
Stockholders' equity:
Preferred stock, $.001 par value--authorized, 5.0 million
shares; none outstanding -- --
Common stock, $.001 par value--1996 - authorized, 100.0
million shares; outstanding, 51.4 million shares, 1995
authorized, 50.0 million shares; outstanding 47.7 million
shares 232,250 183,193
Notes receivable from employees (4,152) (1,347)
Retained earnings 138,239 96,039
Unrealized loss on marketable securities (net of deferred
taxes of $66 and $86) (107) (94)
Accumulated translation adjustments (1,238) (501)
Treasury stock at cost: 1996, none, 1995, 0.2 million shares -- (2,347)
--------- ---------
Total stockholders' equity 364,992 274,943
========= =========
Total $ 469,218 $ 368,276
========= =========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
NET REVENUES:
Systems $ 376,552 $ 314,343 $ 292,090
Services and licenses 187,050 158,249 114,135
--------- --------- ---------
Total net revenues 563,602 472,592 406,225
COSTS AND EXPENSES:
Cost of systems 118,334 103,541 89,423
Cost of services and licenses 113,430 89,787 72,379
Research and development 77,620 73,089 58,038
Selling, general and administrative 177,684 155,857 149,314
Non-recurring charge for in-process research
and development -- 4,725 --
Integration costs -- 2,848 18,258
--------- --------- ---------
Total costs and expenses 487,068 429,847 387,412
--------- --------- ---------
Operating income 76,534 42,745 18,813
Interest and other income (expense), net 2,350 2,887 (1,470)
--------- --------- ---------
Income before income taxes 78,884 45,632 17,343
Provision for income taxes 28,100 14,500 3,800
--------- --------- ---------
NET INCOME $ 50,784 $ 31,132 $ 13,543
========= ========= =========
NET INCOME PER COMMON AND EQUIVALENT SHARE:
Primary $ 0.95 $ 0.63 $ 0.27
========= ========= =========
Fully diluted $ 0.94 $ 0.61 $ 0.27
========= ========= =========
Weighted average common and equivalent
shares used in computation:
Primary 53,559 49,448 50,192
========= ========= =========
Fully diluted 53,787 51,456 50,192
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 34
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
NOTES GAIN (LOSS)
COMMON STOCK RECEIVABLE ON ACCUMULATED
--------------------- FROM SALE DEFERRED RETAINED MARKETABLE TRANSLATION
SHARES AMOUNT OF STOCK COMPENSATION EARNINGS SECURITIES ADJUSTMENTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1993 46,515,126 $156,870 $ (56) $(55) $ 73,322 -- $ (400) $229,681
Sale of common stock under ESPP 653,720 5,224 -- -- -- -- -- 5,224
Sale of common stock, net of stock
surrendered 1,635,842 11,256 -- -- (121) -- -- 11,135
Repurchases of common stock -
cancelled (464,000) (1,759) -- -- (4,008) -- -- (5,767)
Deferred compensation
amortization -- -- -- 55 -- -- -- 55
Tax benefit of stock option
transactions -- 2,765 -- -- -- -- -- 2,765
Payment on notes receivable -- -- 56 -- -- -- -- 56
Unrealized loss on marketable
securities -- -- -- -- -- $(540) -- (540)
Translation adjustments -- -- -- -- -- -- 40 40
Net income -- -- -- -- 13,543 -- -- 13,543
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1994 48,340,688 174,356 -- -- 82,736 (540) (360) 256,192
Sale of common stock under ESPP 738,052 5,966 -- -- -- -- -- 5,966
Sale of common stock, net of stock
surrendered 1,186,180 6,870 -- -- -- -- -- 6,870
Repurchases of common stock -
cancelled (2,401,200) (8,207) -- -- (17,829) -- -- (26,036)
Repurchases of common stock -
held in treasury (210,000) (733) -- -- (1,614) -- -- (2,347)
Proceeds from sale of put -- 1,768 -- -- -- -- -- 1,768
warrants
Tax benefit of stock option
transactions -- 2,440 -- -- -- -- -- 2,440
Notes receivable from employees -- -- (1,347) -- -- -- -- (1,347)
Unrealized gain on marketable
securities -- -- -- -- -- 446 -- 446
Translation adjustments -- -- -- -- -- -- (141) (141)
Net income -- -- -- -- 31,132 -- -- 31,132
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1995 47,653,720 182,460 (1,347) -- 94,425 (94) (501) 274,943
Sale of common stock under ESPP 479,670 6,041 -- -- -- -- -- 6,041
Sale of common stock, net of stock
surrendered 3,932,868 31,059 -- -- -- -- -- 31,059
Repurchases of common stock -
cancelled (600,000) (2,225) -- -- (6,678) -- -- (8,903)
Shares cancelled (16,724) (6) -- -- (292) -- -- (298)
Proceeds from sale of put warrants -- 1,762 -- -- -- -- -- 1,762
Tax benefit of stock option
transactions -- 13,159 -- -- -- -- -- 13,159
Notes receivable from employees -- -- (3,216) -- -- -- -- (3,216)
Payment on notes receivable -- -- 411 -- -- -- -- 411
Unrealized loss on marketable
securities -- -- -- -- -- (13) -- (13)
Translation adjustments -- -- -- -- -- -- (737) (737)
Net income -- -- -- -- 50,784 -- -- 50,784
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1996 51,449,534 $232,250 $(4,152) -- $138,239 $(107) $(1,238) $364,992
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 35
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,784 $ 31,132 $ 13,543
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 39,723 30,660 34,219
Amortization of (discount) premium on marketable
securities (81) 187 294
Deferred income taxes 5,514 1,537 (13,909)
Deferred compensation -- -- 55
Purchased in-process research and development -- 4,725 --
Changes in assets and liabilities:
Accounts receivable (48,950) (23,112) (13,572)
Inventories (13,018) (1,946) (449)
Prepaid expenses and other (5,770) (3,274) (1,633)
Trade payables (2,981) 4,866 46
Accrued compensation and employee benefits 6,415 3,052 4,860
Accrued and other liabilities 19,811 (1,023) 25,964
--------- --------- ---------
Net cash provided by operating activities 51,447 46,804 49,418
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock under employee stock plans, net 33,884 11,618 16,480
Repurchases of common stock (8,903) (28,383) (5,767)
Proceeds from sale of financial instruments-put warrants 1,762 1,768 --
Payment on notes receivable 411 -- 56
Repayment of long-term obligations (362) (831) (605)
--------- --------- ---------
Net cash provided by (used for) financing activities 26,792 (15,828) 10,164
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (228,371) (37,516) (128,869)
Sales and maturities of short-term investments 205,256 78,421 133,115
Property, plant and equipment additions, net (39,243) (56,857) (58,648)
Changes in deposits and other assets (15,176) (2,537) (13,970)
Acquisition of intellectual and personal property -- (5,061) --
--------- --------- ---------
Net cash used for investing activities (77,534) (23,550) (68,372)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (734) (794) 103
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (29) 6,632 (8,687)
CASH AND CASH EQUIVALENTS:
Beginning of year 24,521 17,889 26,576
--------- --------- ---------
End of year $ 24,492 $ 24,521 $ 17,889
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company designs, manufactures and markets voice information processing
systems consisting of software, hardware, upgrades and expansions, for
corporations and other institutions, including telephone and cellular service
providers. The Company also provides voice processing and networking services to
customers in the voice information services market and the residential market
through a Regional Bell Operating Company. The Company's principal markets for
its products and services are primarily in the United States, Europe, Canada and
Asia-Pacific.
The consolidated financial statements include the Company and its wholly
owned subsidiaries. Intercompany balances and transactions are eliminated in
consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts in the fiscal 1995 and 1994 consolidated financial
statements have been reclassified to conform to the fiscal 1996 presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
Cash equivalents consist of all highly liquid debt instruments purchased
with a maturity of three months or less.
Short-term investments
Under the provisions of SFAS 115, the Company classifies its investments in
certain debt and equity securities as "available-for-sale." Such investments are
recorded at fair value, with unrealized gains and losses reported as a separate
component of stockholders' equity. Interest income is recorded using an
effective interest rate, with the associated premium or discount amortized to
"Interest and other income (expense), net." The cost of securities sold is based
upon the specific identification method.
Foreign currency translation
The Company's foreign subsidiaries operate using local functional
currencies, except for Israel, which uses the U.S. Dollar as its functional
currency. Assets and liabilities denominated in foreign currencies are
translated at the exchange rate on the balance sheet date. Revenues, costs and
expenses are translated at average rates of exchange prevailing during the year.
Translation adjustments resulting from this process are accumulated as a
separate component of stockholders' equity. Realized and unrealized gains and
losses on foreign currency transactions and contracts are included in "Interest
and other income (expense), net." Gains on transactions hedged with foreign
currency options are recorded consistent with the hedged transaction.
Financial instruments and risk concentration
The forward exchange contracts used by the Company require the Company to
exchange currencies at rates agreed upon at the inception of the contracts.
Although the gross amounts are used to express the volume of these transactions,
the amounts potentially subject to credit risk are limited to the difference
between the counterparty's obligation and the obligation of the Company. The
hedge contracts reduce the exposure to fluctuations in exchange rate movements
because the gains and losses associated with foreign currency balances and
transactions are generally offset with the gains and losses of the hedge
contracts. Forward exchange contracts are used to hedge foreign currency
transactions in addition to assets and liabilities denominated in non-local
currencies. Foreign exchange option contracts are used to hedge anticipated
inventory purchases. The hedge contracts have varying maturities with none
exceeding twenty-four months. At June 30, 1996, the Company held contracts to
sell Japanese Yen, French Francs and Canadian Dollars and to buy Pounds
Sterling. The Company maintains policies for entering into foreign exchange
contracts and investments.
36
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, short-term
investments, accounts receivable and financial instruments used in hedging
activities. The Company's cash equivalents and short-term investments are
primarily in U.S. government obligations and municipal notes and bonds that have
maturities ranging from 1996 through 2003. The Company believes no significant
concentration of credit risk exists with respect to these financial instruments.
Balances due from international customers account for 30 percent of the total
accounts receivable at June 30, 1996 (32 percent at June 30, 1995).
Additionally, distributors and VIS customers comprise 14 percent and 38 percent
of total accounts receivable, respectively (13 percent and 38 percent in 1995,
respectively). Generally, the Company requires no collateral from customers. The
Company believes that any credit risks are substantially mitigated by the
Company's credit evaluation process.
Fair value of financial instruments
For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
accrued expenses, the carrying amounts approximate fair value due to their short
maturities. Consequently, such instruments are not included in the following
table. The following table provides information regarding the estimated fair
values of off-balance sheet financial instruments determined based on quoted
market prices of comparable instruments (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
---------------------- ----------------------
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------------------- ----------------------
<S> <C> <C> <C> <C>
Forward exchange contracts:
Sell foreign currency $17,185 $16,959 $10,112 $10,097
Buy foreign currency 3,085 3,083 3,174 3,184
Foreign currency options:
Puts 2,953 2,802 -- --
</TABLE>
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Development costs
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After technological
feasibility is established, any additional costs would be capitalized in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed."
The Company has not capitalized any software development costs, as the Company's
current process for developing this software is essentially completed
concurrently with the establishment of technological feasibility.
In fiscal 1996, 1995 and 1994, the Company entered into contracts for
funded software development projects. These contracts are contractual services
as defined by Statement of Financial Accounting Standards No. 68, "Research and
Development Arrangements." The Company defers development costs and revenue for
these projects and such deferred costs are expensed to cost of sales when the
related revenue is recognized. The Company maintains all rights related to the
funded projects. During fiscal 1995, the Company incurred a one-time charge of
approximately $1.2 million related to a cancelled contract for software
development.
As of June 30, 1996, there were no deferred costs related to these
contracts ($0.5 million and $2.9 million at June 30, 1995 and 1994,
respectively). There were no prepayments recorded as a liability at June 30,
1996 ($0.2 million and $1.0 million at June 30, 1995 and 1994, respectively). In
fiscal year 1996, $0.5 million was expensed to cost of sales and $0.5 million
recognized as revenue for contracts ($1.0 million was expensed to cost of sales
and recognized as revenue in 1995 and $0.8 million was expensed to cost of sales
and recognized as revenue in 1994).
37
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Acquired in-process research and development
In August 1994, the Company purchased certain intellectual and personal
property from another company for $5.1 million. Of the total purchase price,
$4.7 million was allocated to in-process research and development and $0.4
million was allocated to property and equipment. The in-process research and
development was expensed in the first quarter of fiscal 1995.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings 40 years
Machinery & equipment 2 - 10 years
Furniture & fixtures 5 years
Leasehold improvements Life of lease
</TABLE>
Intangible assets
The Company has acquired various technology licenses and enters into other
agreements requiring pre-payments. The cost of the licenses and other agreements
is amortized from the date that the related product is commercially available
over periods based on anticipated future revenue streams from the related
products not exceeding 36 months. As of June 30, 1996 and 1995, $3.3 million and
$2.5 million, respectively, were included in the balance sheet caption "Deposits
and other assets" for such assets.
Revenue recognition
Revenue is generally recognized upon shipment to distributors and end
users. The Company also enters into contracts which allow customers to purchase
systems with only part of the equipment's capacity enabled and then have
additional capacity enabled in the future upon payment of additional fees
(capacity on demand). When firm commitments to purchase additional capacity
exist, revenue is recognized based on the percentage-of-completion method. Under
this method, revenues are recognized as a function of the capacity provided to
the customer and costs are recognized proportionally to revenue recognized. As
of June 30, 1996 and 1995, deferred costs related to capacity on demand
contracts were $1.6 million and $0, respectively, and were included in the
balance sheet caption "Deposits and other assets".
Revenues on service contracts are primarily recognized ratably over the
contract period.
Returns and allowances
The Company does not generally reserve for returns because, historically,
the Company has not experienced any significant returns of any of its products
by customers.
Warranty costs
The Company generally warrants its products for one year after delivery to
the purchaser or after Company performed installation. Provision for estimated
warranty costs is recorded at the time of sale.
Income taxes
The Company accounts for income taxes using the asset and liability method
whereby deferred assets and liabilities are recorded for differences between the
book and tax carrying amounts of balance sheet items. Deferred liabilities or
assets at the end of each period are determined using the tax rate expected to
be in effect when the taxes are actually paid or recovered. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits that are not expected to be realized. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
38
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net income per common and equivalent share
Primary and fully diluted net income per common and equivalent share are
computed based upon the weighted average number of common and equivalent shares
from stock options and put warrants (using the treasury stock method) and shares
subscribed under the Employee Stock Purchase Plan (ESPP).
On March 25, 1996, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on May 10, 1996 to stockholders of record on April 5, 1996. All
references to number of shares (except authorized shares) and per share amounts
have been restated.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 will be effective
for fiscal years beginning after December 15, 1995, and will require that the
Company either recognize in its consolidated financial statements costs related
to its employee stock-based compensation plans, such as stock option and stock
purchase plans, or make pro forma disclosures of such costs in a footnote to the
consolidated financial statements.
The Company will continue to use the intrinsic value based method of
Accounting Principles Board Opinion No. 25, as allowed under SFAS No. 123, to
account for all of its employee stock-based compensation plans. Therefore, in
its consolidated financial statements for fiscal 1997, the Company will make the
required pro forma disclosures in a footnote to the consolidated financial
statements. SFAS No. 123 is not expected to have a material effect on the
Company's consolidated results of operations or financial position.
3. INVESTMENTS
At June 30, 1996, all cash equivalents and short-term investments were
considered available-for-sale securities and consisted of the following (in
thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ACCRUED ESTIMATED
COST GAINS LOSSES INTEREST FAIR VALUE
------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Government securities $ 8,470 $ 3 $(194) $ (87) $ 8,192
Municipal notes/bonds 47,236 38 (20) (352) 46,902
------- --- ----- ----- -------
$55,706 $41 $(214) $(439) $55,094
======= === ===== ===== =======
</TABLE>
At June 30, 1995, all cash equivalents and short-term investments were
considered available-for-sale securities and consisted of the following (in
thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ACCRUED ESTIMATED
COST GAINS LOSSES INTEREST FAIR VALUE
------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Government securities $12,117 $-- $(180) $ (82) $11,855
Municipal notes/bonds 22,200 41 (41) (376) 21,824
------- --- ----- ----- -------
$34,317 $41 $(221) $(458) $33,679
======= === ===== ===== =======
</TABLE>
At June 30, 1996 and 1995, these securities were classified on the balance
sheet as follows (in thousands):
39
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash equivalents $ 4,276 $ 6,083
Short-term investments 51,257 28,054
------- -------
$55,533 $34,137
======= =======
</TABLE>
The cost and estimated fair value of available-for-sale debt securities as
of June 30, 1996, by contractual maturity, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
------- ----------
<S> <C> <C>
Due in one year or less $36,818 $36,619
Due in one to five years 13,253 12,810
Due in five to ten years 2,935 2,965
Due thereafter 2,700 2,700
------- -------
$55,706 $55,094
======= =======
</TABLE>
For the year ended June 30, 1996, the Company had $265.4 million in
proceeds from sales of available-for-sale investments. Gross realized gains and
losses on those sales were immaterial. For the year ended June 30, 1995, the
Company had $212.3 million in proceeds from sales of available-for-sale
investments, $0.3 million of gross realized gains and $0.4 million of gross
realized losses on those sales.
4. BUSINESS COMBINATIONS -- POOLING OF INTERESTS METHOD
VMX, Inc.
On March 31, 1994, Octel Acquisition Corporation, a wholly owned subsidiary
of Octel, was merged with and into VMX, Inc. (VMX), with VMX being the surviving
corporation and a wholly owned subsidiary of Octel. In the transaction,
approximately 10.8 million shares of Octel's common stock were issued in
exchange for all of the outstanding common stock of VMX. The merger was
accounted for as a pooling of interests, and accordingly, the accompanying
financial statements have been restated to include the accounts and operations
of VMX for all periods prior to the merger. Effective in the quarter ended March
31, 1994, VMX recorded $2.2 million in charges to operations to conform certain
changes in estimates and accounting policies to those of Octel.
VMX provided integrated messaging and call processing systems, software and
services that combined voice, data and image for business communications,
worldwide.
Separate results of the combining entities for the periods prior to the
merger were as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 1994
-----------------
<S> <C>
NET REVENUES:
Octel $ 216,662
VMX 74,270
Less intercompany sales (1,233)
---------
$ 289,699
=========
NET INCOME:
Octel $ 16,724
VMX 4,844
Intercompany transactions 10
Merger related costs and
adjustments (net of tax benefits) (18,755)
---------
$ 2,823
=========
</TABLE>
40
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the merger, approximately $3.6 million of merger
expenses were incurred and charged to "Interest and other income (expense), net"
during the third quarter of fiscal 1994. These non-recurring expenses included
investment banking fees of $2.6 million, legal and accounting fees of $0.6
million and other miscellaneous expenses of $0.4 million.
Also in connection with the merger, the Company recorded integration costs
in the third quarter of fiscal 1994 of $18.3 million related to costs associated
with consolidating facilities and personnel. Included in such integration costs
were building lease termination fees and moving costs in connection with
redundant facilities, employee severance, relocation expenses, and the write-off
of leasehold improvements and assets impaired as a direct result of the merger.
Additional expenses of $2.8 million were incurred in fiscal 1995, relating
primarily to literature design for name change and other modifications to
literature for the merged company and the consolidation of processes and
computer systems of the merged company. Additional integration costs of
approximately $0.7 million were incurred during the first quarter of fiscal 1996
as the consolidation of the two companies was substantially completed. These
costs were entirely offset by excess integration reserves which were identified
and reversed during the first quarter. No additional integration costs were
incurred since the first quarter of fiscal 1996.
5. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1995
------------------------
<S> <C> <C>
Finished goods $ 7,236 $ 5,009
Work-in-process 11,218 8,586
Raw materials 21,957 17,556
------- -------
Total inventories $40,411 $31,151
======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
Computers and electronic equipment $ 140,024 $ 129,396
Buildings and improvements 36,521 35,761
Furniture and fixtures 20,653 16,443
Leasehold improvements 12,427 6,273
Land 12,258 12,258
Other machinery and equipment 4,897 5,596
--------- ---------
Total 226,780 205,727
Accumulated depreciation and amortization (89,864) (76,974)
--------- ---------
Property, plant and equipment, net $ 136,916 $ 128,753
========= =========
</TABLE>
41
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1995
-------------------
<S> <C> <C>
Unearned revenue and deposits $16,105 $10,876
Amounts due to distributors 6,640 3,059
Property and sales taxes 5,884 3,127
Warranty reserves 3,641 3,230
Reserves for acquisition related expenses -- 4,817
Other 8,627 10,356
------- -------
Accrued and other liabilities $40,897 $35,465
======= =======
</TABLE>
Other liabilities primarily consist of legal and rent accruals.
8. LINE OF CREDIT AND LETTERS OF CREDIT
Effective June 1996, the Company obtained a new $30 million bank revolving
line of credit which also allows the Company to obtain standby letters of
credit. Borrowings under the line are unsecured and bear interest at either an
adjusted LIBOR rate plus one and one-quarter percent or the greater of the
Bank's base rate or the Federal Funds Effective Rate plus one-half of one
percent, at the Company's discretion upon borrowing the funds. Borrowings under
the line are subject to certain financial covenants and restrictions on
indebtedness, equity distributions, financial guarantees, business combinations
and other related items. The Company was in compliance with these covenants and
had no borrowings under this line as of June 30, 1996. The line expires in June
1998.
At June 30, 1996, the Company had $4.6 million of stand-by letters of
credit outstanding. The letters of credit are primarily to guarantee payments
for inventory purchases and facility lease payments. The majority of the Letters
of Credit are denominated in Pound Sterling, Japanese Yen, French Francs and
U.S. Dollars and expire on various dates through December 25, 1999.
9. STOCKHOLDERS' EQUITY
In July 1990, the Company's Board of Directors approved a common shares
rights agreement and declared a dividend distribution, payable to stockholders
of record on August 15, 1990, of one Common Stock purchase right for each
outstanding share of its Common Stock. Initially, each right entitles the
stockholder to buy one newly issued share of the Company's Common Stock at an
exercise price of $40. The rights become exercisable (unless postponed by action
of the disinterested directors) on the earlier of: (1) ten days following a
public announcement that a person or group has acquired, or obtained the right
to acquire, beneficial ownership of 21% or more of the outstanding Common Stock
or (2) ten days following the commencement or announcement of a tender offer or
exchange offer, the consummation of which would result in the beneficial
ownership by a person or group of 21% or more of the Company's outstanding
Common Stock.
If the Company is acquired in a merger or other business combination
transaction without approval by the Company's Board of Directors, each right not
held by the acquiring person would entitle its holder to purchase $80 worth of
the common stock of the acquiring company for $40. If any person or group
acquires 21% or more of the Company's Common Stock without approval by the
Company's Board of Directors, each right not held by the acquiring person would
entitle its holder to purchase $80 worth of the Company's Common Stock for $40.
The rights are redeemable at the Company's option for $0.005 per right.
Additionally, the exercise price, number of rights and number of common shares
that may be acquired are subject to adjustment from time to time to prevent
dilution. The rights expire on July 31, 2000. At June 30, 1996 substantially all
shares of Common Stock are subject to this agreement.
42
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Stock
In July 1994, the Company's Board of Directors approved the repurchase of
up to 3.5 million shares of its Common Stock over a period of approximately two
years. In June 1996, the Company's Board of Directors approved the repurchase of
an additional 3.5 million shares of its Common Stock over an additional two-year
period. Since inception of the repurchase program, the Company repurchased 3.2
million shares at an average price of $11 per share, net of put warrant
proceeds. As of June 30, 1996, all of the repurchased shares have been reissued
under employee stock plans.
In connection with its stock repurchase program, the Company has sold put
warrants in a series of private placements, with the intention of reducing the
cost of the stock repurchase program. The put warrants entitle the holder to
sell one share of common stock to the Company for each warrant held, at a
specified price, if the holder exercises the warrant. The activity for fiscal
1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
PUT WARRANTS OUTSTANDING
-------------------------------------------
CUMULATIVE
PROCEEDS NUMBER OF POTENTIAL
RECEIVED WARRANTS OBLIGATION
------------ ---------- ------------
<S> <C> <C> <C>
June 30, 1993 $ 977,000 600,000 $ 7,293,000
Exercises -- (400,000) (5,143,000)
Expirations -- (200,000) (2,150,000)
------------ ---------- ------------
June 30, 1994 977,000 -- --
Sales 1,768,000 2,286,000 25,082,000
Exercises -- (766,000) (8,436,000)
Expirations -- (1,000,000) (10,547,000)
------------ ---------- ------------
June 30, 1995 2,745,000 520,000 6,099,000
Sales 1,762,000 1,438,000 24,724,000
Exercises -- -- --
Expirations -- (1,958,000) (30,823,000)
------------ ---------- ------------
June 30, 1996 $ 4,507,000 -- $ --
============ ========== ============
</TABLE>
In November 1995, the Company increased the number of shares of Common
Stock reserved for issuance under its 1987 Employee Stock Purchase Plan from
3,300,000 to 4,250,000. Eligible employees may authorize payroll deductions of
up to 10% of their compensation to purchase shares at the lower of 85% of the
fair market value of the Common Stock as of the date of grant (first day of an
offering period, or for newly hired employees, the date their participation
begins) or the last day of the six-month offering period. In fiscal 1996,
480,000 shares were purchased at an average price of $12.59 (738,000 in fiscal
1995 at an average price of $8.08 and 654,000 in fiscal 1994 at an average price
of $7.99).
During fiscal 1994, the Company increased the number of shares of Common
Stock reserved for issuance under its 1995 Incentive Stock Plan (formerly the
1985 Incentive Stock Plan) from 12,600,000 to 19,200,000. In November 1994, the
Company increased shares of Common Stock reserved for issuance under the
Directors' Stock Option Plan from 400,000 to 700,000. Under the plans, stock
options may be granted to employees, consultants and directors to purchase
Common Stock at not less than fair market value at the date of grant. Options
become exercisable as determined by the Board of Directors, generally over five
years. However, options granted after June 1, 1994 become exercisable over four
years. Options granted before November 1988 expire ten years from date of grant,
while those granted after that date expire five and one-half years from date of
grant, or within six months after becoming fully exercisable, whichever is
sooner. At June 30, 1996, a total of 558,702 shares were available for future
grants under the plans.
In June 1994, the Board of Directors approved a repricing of stock options
for certain employees, excluding senior management and officers. The employees
had the option of either maintaining their existing options or cancelling any
options with exercise prices greater than $8.63 and receiving new options
representing 90% of the options being cancelled. The new options' vesting
commencement date was reset to June 22, 1994 and the new options vest at the
rate of 25% each year over four years. The options expire five and one-half
years from the grant date. The vested options may only be exercised when the
fair market value of the Company's Common Stock equals or exceeds the
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
original option exercise price; however, after five years and three months from
June 22, 1994, the options may be exercised regardless of the fair market value
of the Company's Common Stock for up to three months. Options for up to
3,149,434 shares were qualified for the repricing. Under this repricing, options
for approximately 2,506,000 shares were cancelled and options for approximately
2,240,000 shares were granted. Fiscal 1994 activity has been adjusted in the
table below to reflect the repricing.
Information regarding outstanding stock options is as follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE TOTAL
---------- --------------- ------------
<S> <C> <C> <C>
Outstanding at June 30, 1993 10,652,526 $ .03 - 18.13 $ 86,837,513
Granted 9,311,280 8.60 - 25.00 112,453,499
Cancelled (4,301,840) 1.25 - 18.13 (48,031,089)
Exercised (1,651,190) .03 - 12.50 (11,386,983)
---------- -------------- ------------
Outstanding at June 30, 1994 14,010,776 .03 - 25.00 139,872,940
Granted 2,553,660 8.13 - 14.56 27,055,260
Cancelled (1,709,540) .28 - 18.13 (17,942,164)
Exercised (1,206,606) .03 - 12.50 (7,038,525)
---------- -------------- ------------
Outstanding at June 30, 1995 13,648,290 .03 - 25.00 141,947,511
Granted 2,797,564 14.59 - 25.50 49,174,274
Cancelled (1,527,480) .03 - 25.50 (17,322,963)
Exercised (3,934,943) .06 - 18.13 (31,519,883)
---------- -------------- ------------
Outstanding at June 30, 1996 10,983,431 $ .03 - 25.50 $142,278,939
========== ============== ============
</TABLE>
At June 30, 1996, options to purchase 3,097,348 shares were exercisable.
At June 30, 1996, the Company had reserved shares of Common Stock for
issuance as follows:
<TABLE>
<S> <C>
Issuance under Incentive Stock Plan and Directors' Stock Option Plan 11,542,133
Issuance under Employee Stock Purchase Plan 502,171
----------
12,044,304
==========
</TABLE>
During fiscal 1996, certain employees exercised stock options in exchange
for notes. Notes receivable from the sale of stock bear interest at variable
rates ranging from 5.05% to 7.43% and are due at various dates through May 1999.
The notes are secured, in part, by the stock issued upon exercise of the stock
options.
10. RELATED PARTY TRANSACTIONS
During fiscal 1996, 1995 and 1994, the Company had sales of approximately
$11.0 million, $26.0 million and $28.4 million, respectively, to companies in
which a member of the Company's Board of Directors was also an officer through
November 1995, and to a company that owned approximately 0 percent, 3.8 percent
and 6.5 percent of the Company's Common Stock at June 30, 1996, 1995 and 1994,
respectively. These companies were not considered related parties as of June 30,
1996 and thus amounts due from these companies at June 30, 1996 are included in
"Accounts receivable." Amounts due from these companies at June 30, 1995 were
$6.3 million.
44
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net consists of (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest and investment income $ 2,660 $ 2,514 $ 3,216
Loss on sale of short-term investments, net (12) (105) (11)
Interest expense (119) (155) (267)
Foreign exchange gains (losses), net (103) 774 (370)
Merger expenses -- -- (3,592)
Other expense, net (76) (141) (446)
------- ------- -------
Total interest and other income (expense), net $ 2,350 $ 2,887 $(1,470)
======= ======= =======
</TABLE>
Cash payments for interest were $0.1 million, $0.2 million and $0.3 million
in fiscal 1996, 1995 and 1994, respectively.
12. INCOME TAXES
In accordance with the provisions of SFAS No. 109, the assets acquired and
liabilities assumed in the purchase of ONS in October 1992 were remeasured. The
result of applying SFAS No. 109 to the purchase of ONS was to recognize deferred
tax assets and deferred tax liabilities for the future tax consequences of the
deductible and taxable temporary differences between the assigned fair values of
the assets and liabilities and the tax bases. In addition, a deferred tax asset
has been recognized for the tax benefit of ONS' net operating loss carryforwards
existing at the date of acquisition. A valuation allowance was recognized to
reduce the deferred tax asset to the amount more likely than not to be realized.
Goodwill, originally recorded as the difference between the purchase price and
the values assigned to identifiable assets and liabilities, including deferred
tax assets (net of valuation allowance) and deferred tax liabilities was reduced
by $6.8 million when the $6.8 million tax benefit was realized. In fiscal 1994,
the final purchase price allocation adjustment was made which had the effect of
increasing deferred tax assets by approximately $0.9 million.
As of June 30, 1996, the Company had net operating loss carryforwards of
$11.8 million, resulting from the acquisition of ONS, that expire beginning in
fiscal 1997 and ending in fiscal 2001. As mentioned above, a valuation allowance
of $3.6 million has been recognized to offset the deferred tax assets related to
those carryforwards by the tax effect of the amount of the net operating loss
carryforwards which are not likely to be utilized. If realized, the tax benefit
for those reserved items will be applied as a reduction of income tax expense.
The major components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
45
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Reserves and accrued liabilities $ 5,180 $ 7,179
Net operating loss carryforwards acquired in purchase business
combination 4,602 4,602
Inventory capitalization 2,792 1,169
Accumulated depreciation 2,527 5,193
Technology purchase 1,700 1,830
Accrued vacation 1,677 2,170
Profit in inventory 1,503 1,011
Accounts receivable allowance 1,305 1,438
Tax credit carryforwards 970 1,669
Accrued commissions and compensation 113 478
Other 504 258
-------- --------
Total gross deferred tax assets 22,873 26,997
Valuation allowance (3,637) (3,637)
-------- --------
Deferred tax assets 19,236 23,360
-------- --------
DEFERRED TAX LIABILITIES:
Amortization of spare parts inventory (6,688) (2,117)
Deferred revenue (2,611) (5,121)
State taxes (398) (519)
Amortization of purchased software -- (51)
Other (341) (945)
-------- --------
Total gross deferred tax liabilities (10,038) (8,753)
-------- --------
Net deferred tax assets $ 9,198 $ 14,607
======== ========
</TABLE>
At June 30, 1996 and 1995, a net current deferred tax asset of $3.9 million
and $6.7 million, respectively, has been included in the balance sheet caption
"Prepaid expenses and other," and a net long-term deferred tax asset of $5.3
million and $7.9 million, respectively, has been included in the balance sheet
caption "Deposits and other assets."
Income before income taxes includes the following components (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income before income taxes:
Domestic $69,518 $38,097 $14,375
Foreign 9,366 7,535 2,968
------- ------- -------
Total $78,884 $45,632 $17,343
======= ======= =======
</TABLE>
46
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes, attributable to income before income taxes,
consists of (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income tax provision (benefit)
Current:
Federal $ 21,349 $ 9,588 $ 8,123
State 3,214 2,429 3,313
Foreign 3,231 2,475 1,454
-------- -------- --------
Total current 27,794 14,492 12,890
-------- -------- --------
Deferred:
Federal 896 26 (7,980)
State 301 (18) (1,110)
Foreign (891) -- --
-------- -------- --------
Total deferred 306 8 (9,090)
-------- -------- --------
Provision for income taxes $ 28,100 $ 14,500 $ 3,800
======== ======== ========
</TABLE>
The reconciliation of the statutory federal income tax rate to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income and franchise taxes net of federal income tax
effect 2.9 3.4 8.2
Research tax credits (1.7) (2.5) (8.3)
Foreign Sales Corporation (1.5) (2.2) (4.7)
Tax exempt income (0.6) (1.7) (4.1)
Net operating loss carryforwards -- -- (6.0)
Other 1.5 (0.2) 1.8
---- ---- ----
Effective tax rate 35.6% 31.8% 21.9%
==== ==== ====
</TABLE>
Cash payments for income taxes were $7.4 million, $5.7 million and $5.8
million in fiscal 1996, 1995 and 1994, respectively.
13. LEASES
Manufacturing and administrative facilities are leased under operating
leases through 2005 with certain renewal options. At June 30, 1996, future
minimum annual payments under operating leases are as follows (in thousands):
47
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
1997 $11,477
1998 11,047
1999 7,922
2000 4,967
2001 2,641
Thereafter 2,781
-------
Total minimum lease payments $40,835
=======
</TABLE>
Rent expense was $12.3 million, $9.8 million, and $12.3 million in fiscal
1996, 1995 and 1994, respectively.
On July 6, 1995, the Company entered into a one year operating lease for a
parcel of undeveloped land adjacent to its current campus on which additional
offices may be constructed over the next three years. This lease provides for
monthly payments which vary based on the London interbank offering rate (LIBOR)
and requires the Company to maintain certain financial covenants similar to its
credit facilities. Future minimum lease payments under this lease are not
included in the above table. In addition, this lease provides the Company with
the option at the end of the lease of either acquiring the property at its
original cost or arranging for the property to be acquired. The Company is
contingently liable to the lessor under a 97% first-loss clause for up to $9.9
million. In June 1996, the lease was extended for another one-year period.
14. EXPORT SALES
Export revenues to nonaffiliated customers primarily in Europe and Canada,
and to a lesser extent in Japan, Singapore and Australia, aggregated $161.6
million in fiscal 1996. Export revenues were $119.0 million and $97.4 million in
fiscal 1995 and 1994, respectively.
15. LITIGATION
Theis Research, Inc.
In April 1992, the Company filed suit, in United States District Court in
Northern California, against Theis Research, Inc. (Theis) for declaratory
judgment that the Company's products do not infringe three patents of Theis and
that those patents are invalid. In November 1992, Theis filed a counterclaim
against the Company alleging infringement of seven of Theis' patents.
Subsequently, Theis dismissed with prejudice the claims as to all but four of
the patents, and its claims as to one of the remaining four patents were
dismissed on summary judgment. During the first quarter of fiscal 1995, the
Company engaged in a jury trial regarding infringement of the three remaining
patents and the defense of patent invalidity. In October 1994, the jury returned
a verdict finding, among other things, that Octel was correct in its claim that
the three patents at issue were invalid. The Court entered judgment on the jury
verdict in January 1996, declaring Octel a "prevailing party" entitled to
recover its substantial costs in connection with the lawsuit. It is anticipated
that Theis will appeal the verdict.
Gilbarco, Inc.
In January 1994, Gilbarco, Inc. (Gilbarco) filed suit in the U.S. District
Court for the District of Colorado against the Company and one of the Company's
telephone company customers, U.S. West, alleging infringement of a Gilbarco
patent and seeking unspecified damages. The Company filed an answer to the
complaint denying any infringement of the patent and raising several affirmative
defenses, including an assertion that the patent is invalid and unenforceable.
In September 1994, the claims asserted against the Company were transferred to
the U.S. District Court for the Northern District of California and those claims
asserted against U.S. West were stayed and administratively closed pending the
outcome of the California action. Both parties filed motions for summary
judgment on a variety of issues, including a motion by Octel for summary
judgment declaring the Gilbarco patent unenforceable due to inequitable conduct
during the procurement of the patent. On February 12, 1996, the Court granted
Octel's motion for summary judgment (and denied Gilbarco's counter-motion) and
declared the patent unenforceable as a matter of law. The Court subsequently
entered judgment in favor of Octel and against Gilbarco in the underlying action
and awarded Octel its
48
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
costs in connection with the lawsuit. Gilbarco's subsequent challenge of the
Court's ruling was denied and Gilbarco has filed a notice of appeal of the final
judgment invalidating their patent.
The Company believes, based upon information currently available, including
consultations with patent counsel, that the Company is not infringing any valid
patents of Theis or Gilbarco. The Company will vigorously defend the patent
infringement claims and any related claims for compensatory damages. While
litigation is inherently uncertain, the Company believes that the ultimate
resolution of these matters will not have a material adverse effect on the
Company's financial position.
The Company is currently evaluating several additional claims of third
parties. Based in part on industry practice and in part on discussions with
certain of such third parties, the Company believes that in most cases any
necessary licenses or rights could be obtained on commercially reasonable terms.
However, no assurance can be given that future licenses will be obtained on
acceptable terms, that costly litigation will not occur or that the Company will
receive a favorable decision in any litigation that may ensue. The failure to
obtain necessary licenses or other rights, or litigation arising out of such
claims, could have a material adverse affect on the Company's operations.
16. QUARTERLY RESULTS (unaudited)
The following table presents unaudited quarterly operating results for each
of the Company's eight fiscal quarters in the period ended June 30, 1996.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL 1996
Total net revenues $113,730 $136,697 $139,849 $173,326
Gross profit 66,384 80,244 81,620 103,590
Net income 6,589 11,742 12,246 20,207
Net income per common and
equivalent share $ 0.12 $ 0.22 $ 0.23 $ 0.37
FISCAL 1995
Total net revenues $105,745 $116,240 $115,042 $135,565
Gross profit 63,617 68,539 65,670 81,438
Net income (1) 3,814 8,759 6,091 12,468
Net income per common and
equivalent share (1) $ 0.08 $ 0.18 $ 0.12 $ 0.25
</TABLE>
- -----------------------
(1) Includes total non-recurring charges during the first quarter for
in-process research and development and integration costs of $5.0
million ($3.4 million net of taxes) and integration costs in each of
the subsequent quarters of $0.8 million, $1.3 million and $0.6 million,
respectively ($0.5 million, $0.9 million and $0.4 million net of taxes,
respectively).
Per share amounts may not total due to rounding.
49
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Octel Communications Corporation
We have audited the accompanying consolidated balance sheets of Octel
Communications Corporation and subsidiaries as of June 30, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
Index at Item 8. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Octel Communications
Corporation and subsidiaries as of June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
Palo Alto, California
July 25, 1996
50
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors of the Company required by this Item is
incorporated by reference to the Proxy Statement for the Company's Annual
Meeting of Stockholders, tentatively scheduled to be held on November 14, 1996,
under the heading "Election of Directors--Nominees."
The information regarding executive officers required by this Item is
incorporated by reference to the section in Part I hereof entitled "Executive
Officers of Octel Communications Corporation."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, tentatively
scheduled to be held on November 14, 1996, under the heading "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, tentatively
scheduled to be held on November 14, 1996, under the heading "Security Ownership
of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, tentatively
scheduled to be held on November 14, 1996, under the heading "Certain
Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See Index to Consolidated Financial Statements at Item 8 on page
31 of this report.
51
<PAGE> 52
2. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.0 Certificate of Incorporation of the Company. (1)
3.1 Bylaws of the Company. (2)
10.0* 1995 Incentive Stock Plan, as amended, and forms of Incentive
Stock Option Agreement thereunder.
10.1* 1987 Employee Stock Purchase Plan and form of Subscription
Agreement. (6)
10.2* 1988 Directors' Stock Option Plan and form of Stock Option
Agreement. (8)
10.3* Fiscal Year 1996 Senior Employee and Management Bonus Plan.
10.10 Interface License Agreement (IMS-Link Interface) dated
December 2, 1983 between Northern Telecom Inc. and the
Company. (3)
10.10A Interface License Agreement (Digital Set Interface) dated
March 16, 1990 between Northern Telecom Inc. and the
Company. (5)
10.10B License Agreement dated February 1, 1989 between Mitel
Corporation and the Company. (5)
10.10C License Agreement dated August 1, 1990 between ROLM Systems
and the Company. (5)
10.11 Form of Indemnification Agreement as entered into by the
Company with its directors and officers. (4)
10.12 Amended and Restated Registration Rights Agreement dated March
12, 1987 between the Company and the holders of Series A,
Series B, Series C and Series D Preferred Stock, as amended by
the form of Amendment of Registration Rights Agreement with
respect to Initial Public Offering. (3)
10.15 Credit Agreement dated June 30, 1996 between The First
National Bank of Boston, Bank of America National Trust and
Savings Association and the Company.
10.16 Amended and Restated Common Shares Rights Agreement dated as
of August 29, 1996 between the Company and The First National
Bank of Boston. (10)
10.17* Executive Officer Employment Letter--David J. Ladd. (7)
10.18 Lease of Land Agreement dated July 6, 1995 between Sumitomo
Bank Leasing and Finance, Inc. and the Company. (9)
10.18A Amendment to Lease of Land Agreement dated June 20, 1996
between Sumitomo Bank Leasing and Finance, Inc. and the
Company.
11.0 Statement re computation of 1996 per share earnings.
21.0 Subsidiaries of the Company.
23.0 Consent of Independent Auditors (KPMG Peat Marwick LLP).
24.0 Power of Attorney (see page 54).
27.0 Financial Data Schedule.
* Designates management contracts or compensatory plans, contracts or
arrangements required to be filed as exhibits pursuant to Item 14(c) of Form
10-K.
(1) Incorporated by reference to the exhibit filed with the Company's Form
10-Q filed with the Securities and Exchange Commission on May 15, 1996.
(2) Incorporated by reference to the exhibit filed with the Company's Form
8-B filed with the Securities and Exchange Commission on February 12,
1990.
(3) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (No. 33-19777), as amended, which
became effective February 26, 1988.
(4) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1990.
(5) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1991.
52
<PAGE> 53
(6) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-8 (No. 33-65083) filed on December
15, 1995.
(7) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
(8) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-8 (No. 33-57031) filed on December 22,
1994.
(9) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
(10) Incorporated by reference to the exhibit filed with the Company's Form
8-A/A filed on August 30, 1996.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during fiscal 1996.
(c) EXHIBITS
See Item 14(a) above.
(d) FINANCIAL STATEMENT SCHEDULE
See Item 14(a) above.
53
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OCTEL COMMUNICATIONS CORPORATION
Dated: September 9, 1996 By: /s/ ROBERT COHN
----------------------------------
Robert Cohn, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert Cohn and Derek S. Daley, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for the
undersigned in any and all capacities, to sign any amendments to this Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or any
substitute or substitutes, may do or cause to be done by virtue hereof
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT COHN Chairman of the Board and Chief Executive September 9, 1996
- ---------------------------------- Officer (Principal Executive Officer)
(Robert Cohn)
/s/ W. MICHAEL WEST President and Chief Operating Officer September 9, 1996
- ----------------------------------
(W. Michael West)
/s/ JEAN-YVES DEXMIER Senior Vice President and Chief Financial September 9, 1996
- ---------------------------------- Officer (Principal Financial Officer and
(Jean-Yves Dexmier) Principal Accounting Officer)
/s/ ANSON M. BEARD, JR. Director September 9, 1996
- ----------------------------------
(Anson M. Beard, Jr.)
/s/ LEO J. CHAMBERLAIN Director September 9, 1996
- ----------------------------------
(Leo J. Chamberlain)
/s/ DEBORAH A. COLEMAN Director September 9, 1996
- ----------------------------------
(Deborah A. Coleman)
/s/ NATHANIEL de ROTHSCHILD Director September 9, 1996
- ----------------------------------
(Nathaniel de Rothschild)
/s/ DAG TELLEFSEN Director September 9, 1996
- ----------------------------------
(Dag Tellefsen)
</TABLE>
54
<PAGE> 55
OCTEL COMMUNICATIONS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING CHARGED TO AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1994:
Allowance for doubtful accounts $2,365,000 $ 607,000 $ 307,000 $2,665,000
Warranty 2,538,000 3,393,000 2,975,000 2,956,000
Year ended June 30, 1995:
Allowance for doubtful accounts $2,665,000 $ 498,000 $ 225,000 $2,938,000
Warranty 2,956,000 5,816,000 5,542,000 3,230,000
Year ended June 30, 1996:
Allowance for doubtful accounts $2,938,000 $ 965,000 $ 153,000 $3,750,000
Warranty 3,230,000 7,242,000 6,831,000 3,641,000
</TABLE>
55
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
NUMBER ----------- ----
-------
<S> <C> <C>
3.0 Certificate of Incorporation of the Company. (1)
3.1 Bylaws of the Company. (2)
10.0* 1995 Incentive Stock Plan, as amended, and forms of Incentive
Stock Option Agreement thereunder. 58
10.1* 1987 Employee Stock Purchase Plan and form of Subscription
Agreement. (6)
10.2* 1988 Director's Stock Option Plan and form of Stock Option
Agreement. (8)
10.3* Fiscal Year 1996 Senior Employee and Management Bonus Plan. 81
10.10 Interface License Agreement (IMS-Link Interface) dated December
2, 1983 between Northern Telecom Inc. and the Company. (3)
10.10A Interface License Agreement (Digital Set Interface) dated March
16, 1990 between Northern Telecom Inc. and the Company. (5)
10.10B License Agreement dated February 1, 1989 between Mitel
Corporation and the Company. (5)
10.10C License Agreement dated August 1, 1990 between ROLM Systems and
the Company. (5)
10.11 Form of Indemnification Agreement as entered into by the
Company with its directors and officers. (4)
10.12 Amended and Restated Registration Rights Agreement dated
March 12, 1987 between the Company and the holders of Series
A, Series B, Series C and Series D Preferred Stock, as
amended by the form of Amendment of Registration Rights
Agreement with respect to Initial Public Offering. (3)
10.15 Credit Agreement dated June 30, 1996 between The First
National Bank of Boston, Bank of America National Trust and
Savings Association and the Company. 88
10.16 Amended and Restated Common Shares Rights Agreement dated as of
August 29, 1996 between the Company and The First National Bank
of Boston. (10)
10.17* Executive Officer Employment Letter--David J. Ladd. (7)
10.18 Lease of Land Agreement dated July 6, 1995 between Sumitomo
Bank Leasing and Finance, Inc. and the Company. (9)
10.18A Amendment to Lease of Land Agreement dated June 20, 1996
between Sumitomo Bank Leasing and Finance, Inc. and the
Company. 289
11.0 Statement re computation of 1996 per share earnings. 300
21.0 Subsidiaries of the Company. 301
23.0 Consent of Independent Auditors (KPMG Peat Marwick LLP). 302
24.0 Power of Attorney (see page 54).
27.0 Financial Data Schedule.
</TABLE>
* Designates management contracts or compensatory plans, contracts or
arrangements required to be filed as exhibits pursuant to Item 14(c) of Form
10-K.
(1) Incorporated by reference to the exhibit filed with the Company's Form
10-Q filed with the Securities and Exchange Commission on May 15, 1996.
(2) Incorporated by reference to the exhibit filed with the Company's Form
8-B filed with the Securities and Exchange Commission on February 12,
1990.
56
<PAGE> 57
(3) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (No. 33-19777), as amended, which
became effective February 26, 1988.
(4) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1990.
(5) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1991.
(6) Incorporated by referenced to the exhibit filed with the Company's
Registration Statement on Form S-8 (No. 33-65083) filed on December 15,
1995.
(7) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
(8) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-8 (No.33-57031) filed on December 22,
1994.
(9) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1995.
(10) Incorporated by reference to the exhibit filed with the Company's Form
8-A/A filed on August 30, 1996.
<PAGE> 1
Exhibit 10.0
OCTEL COMMUNICATIONS CORPORATION
1995 INCENTIVE STOCK PLAN
As amended June 1995
1. Purposes of the Plan. The purposes of this Incentive Stock
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the Employees
and Consultants of the Company and to promote the success of the Company's
business.
Options granted hereunder may be either "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, or
"nonstatutory stock options," at the discretion of the Board and as reflected
in the terms of the written option agreement. The Board may also grant Stock
Purchase Rights under this Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Committee, if one has been
appointed, or the Board of Directors of the Company, if no Committee is
appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "Common Stock" shall mean the Common Stock of the
Company.
(d) "Company" shall mean Octel Communications
Corporation, a Delaware corporation.
(e) "Committee" shall mean the Committee appointed by
the Board of Directors in accordance with paragraph (a) of Section 4 of the
Plan, if one is appointed.
(f) "Consultant" shall mean any person who is engaged by
the Company or any subsidiary to render consulting services and is compensated
for such consulting services, and any director of the Company whether
compensated for such services or not; provided that if and in the event the
Company registers any class of any equity security pursuant to Section 12 of
the Exchange Act, the term Consultant shall thereafter not include directors
who are not compensated for their services or are paid only a director's fee by
the Company.
(g) "Continuous Status as an Employee or Consultant"
shall mean the absence of any interruption or termination of service as an
Employee or Consultant. Continuous Status as an Employee or Consultant shall
not be considered interrupted in the case of sick leave, military leave, or any
other leave of absence approved by the Board; provided that such leave is for a
period of not more than 90 days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.
(h) "Employee" shall mean any person, including officers
and directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
(i) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
<PAGE> 2
(j) "Incentive Stock Option" shall mean an Option
intended to qualify as an incentive stock option within the meaning of Section
422 of the Code.
(k) "Option" shall mean a stock option granted pursuant
to the Plan.
(l) "Optioned Stock" shall mean the Common Stock subject
to an Option.
(m) "Optionee" shall mean an Employee or Consultant who
receives an Option.
(n) "Parent" shall mean a "parent corporation", whether
now or hereafter existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this 1995 Incentive Stock Plan.
(p) "Purchaser" shall mean an Employee or Consultant who
exercises a Stock Purchase Right.
(q) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 11 of the Plan.
(r) "Stock Purchase Right" shall mean a right, other
than an Option, to purchase Common Stock pursuant to the Plan.
(s) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 425(f) of the Code.
(t) "Tax Date" shall mean the date that the amount of tax
to be withheld by the Company is to be determined.
3. Stock Subject to the Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares which may be
optioned and/or sold under the Plan is 9,600,000 shares of Common Stock. The
Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. Repurchased shares shall not become
available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Administration With Respect to Directors and
Officers. With respect to grants of Options or Stock Purchase Rights to
Employees who are also officers or directors of the Company, the Plan shall be
administered by (A) the Board if the Board may administer the Plan in
compliance with Rule 16b-3 promulgated under the Exchange Act or any successor
thereto ("Rule 16b-3") with respect to a plan intended to qualify thereunder as
a discretionary plan, or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted in such a manner as to permit
the Plan to comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such Committee shall
continue to serve in its designated
-2-
<PAGE> 3
capacity until otherwise directed by the Board. From time to time the Board
may increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder
as a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted
by Rule 16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Consultants
and Other Employees. With respect to grants of Options or Stock Purchase
Rights to Employees or Consultants who are neither directors nor officers of
the Company, the Plan shall be administered by (A) the Board or (B) a Committee
designated by the Board, which Committee shall be constituted in such a manner
as to satisfy the legal requirements relating to the administration of
incentive stock option plans, if any, of Delaware corporate and securities laws
and of the Code (the "Applicable Laws"). Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Board. Subject to the provisions of
the Plan, the Board shall have the authority, in its discretion: (i) to grant
Incentive Stock Options, in accordance with Section 422 of the Code,
"non-statutory stock options," or Stock Purchase Rights; (ii) to determine,
upon review of relevant information and in accordance with Section 7(b) of the
Plan, the fair market value of the Common Stock; (iii) to determine the
exercise price per share of Options or Stock Purchase Rights to be granted,
which exercise price shall be determined in accordance with Section 7(a) of the
Plan; (iv) to determine the Employees or Consultants to whom, and the time or
times at which, Options or Stock Purchase Rights shall be granted and the
number of shares to be represented by each Option or Stock Purchase Right; (v)
to interpret the Plan; (vi) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and provisions
of each Option or Stock Purchase Right granted (which need not be identical)
and, with the consent of the holder thereof, modify or amend each Option or
Stock Purchase Right; (viii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option, consistent with the provisions of
Section 5 of the Plan; (ix) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option or Stock
Purchase Right previously granted by the Board; and (x) to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
(c) Effect of Board's Decision. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees, Purchasers and any other holders of any Options or Stock
Purchase Rights granted under the Plan.
5. Eligibility.
(a) Options and Stock Purchase Rights may be granted only
to Employees or Consultants. Incentive Stock Options may be granted only to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if he is otherwise eligible, be granted an additional
Option or Options or Stock Purchase Right or Rights.
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(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
fair market value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionees
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
fair market value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee,
Purchaser or holder of a Stock Purchase Right any right with respect to
continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with his right or the Company's right to
terminate his employment or consulting relationship at any time.
(e) The following limitations shall apply to grants of
Options and Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal
year of the Company, Options and Stock Purchase Rights to purchase more than
150,000 Shares.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 11.
(iii) If an Option or Stock Purchase Right is
canceled in the same fiscal year of the Company in which it was granted (other
than in connection with a transaction described in Section 11), the canceled
Option or Stock Purchase Right will be counted against the limit set forth in
Section V(e)(i). For this purpose, if the exercise price of an Option or Stock
Purchase Right is reduced, the transaction will be treated as a cancellation of
the Option or Stock Purchase Right and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon approval
by the stockholders of the Company in November 1995 as described in Section 17
of the Plan. It shall continue in effect for a term of ten (10) years
thereafter unless sooner terminated under Section 13 of the Plan.
7. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option or Stock Purchase Right shall be such
price as is determined by the Board, but shall be subject to the following:
(i) In the case of any Incentive Stock Option
granted to any Employee, the per Share exercise price shall be no less than
100% of the fair market value per Share on the date of grant.
(ii) In the case of any Option, other than an
Incentive Stock Option, or any Stock Purchase Right, the per Share exercise
price shall be no less than 85% of the fair market value per Share on the date
of grant.
(iii) In the case of any Option granted to any
person who, at the time of the grant of such Option, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
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Company or any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the fair market value per Share on the date of grant.
(iv) In the case of any Option or Stock Purchase
Right granted on or after the effective date of registration of any class of
equity security of the Company pursuant to Section 12 of the Exchange Act and
prior to six months after the termination of such registration, the per Share
exercise price shall be no less than 100% of the fair market value per Share on
the date of grant.
(b) The fair market value shall be determined by the
Board in its discretion; provided, however, that where there is a public market
for the Common Stock, the fair market value per Share shall be the mean of the
bid and asked prices of the Common Stock for the date of grant of the Option or
Stock Purchase Right, as reported in The Wall Street Journal (or, if not so
reported, as otherwise reported by The Nasdaq National Market) or, in the event
the Common Stock is listed on a stock exchange, the fair market value per Share
shall be the closing price on such exchange on the date of grant of the Option
or Stock Purchase Right, as reported in The Wall Street Journal.
(c) Subject to compliance with applicable provisions of
Section 16(b) of the Exchange Act, (or other applicable law), the consideration
to be paid for the Shares to be issued upon exercise of an Option or Stock
Purchase Right, including the method of payment, shall be determined by the
Board (and, in the case of an Incentive Stock Option, shall be determined at
the time of grant) and may consist entirely of (i) cash, (ii) check, (iii)
promissory note, (iv) other Shares which (X) in the case of Shares acquired
upon exercise of an Option either have been owned by the Optionee for more than
six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (Y) have a fair market value on the date of
exercise equal to the aggregate exercise price of the Shares as to which said
Option or Stock Purchase Right shall be exercised, (v) authorization for the
Company to retain from the total number of Shares as to which the Option or
Stock Purchase Right is exercised that number of Shares having a fair market
value on the date of exercise equal to the exercise price for the total number
of Shares as to which the Option is exercised, (vi) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required to
pay the exercise price, (vii) by delivering an irrevocable subscription
agreement for the Shares which irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery
of the subscription agreement, (viii) any combination of the foregoing methods
of payment, (ix) or such other consideration and method of payment for the
issuance of Shares to the extent permitted under applicable laws. In making
its determination as to the type of consideration to accept, the Board shall
consider whether acceptance of such consideration may be reasonably expected to
benefit the Company (Section 153 of the Delaware General Corporation Law).
8. Options.
(a) Term of Option. The term of each Incentive Stock
Option shall be ten (10) years from the date of grant thereof or such shorter
term as may be provided in the Stock Option Agreement. The term of each Option
that is not an Incentive Stock Option shall be ten (10) years and one (1) day
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Option granted to an
Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, (i) if the Option is an Incentive Stock
Option, the term of the Option shall be five (5) years from the date of grant
thereof or shorter time as may be provided in the Stock Option Agreement, or
(ii) if the Option is not an Incentive Stock Option, the term of the Option
shall be five (5) years and one (1) day from the date of grant thereof or such
shorter time as may be provided in the Stock Option Agreement.
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<PAGE> 6
(b) Exercise of Option.
(i) Procedure for Exercise; Rights as a
Stockholder. Any Option granted hereunder shall be exercisable at such times
and under such conditions as determined by the Board, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan; provided, however, that an Incentive
Stock Option granted prior to January 1, 1987 shall not be exercisable while
there is outstanding any incentive stock option which was granted, before the
granting of such Incentive Stock Option, to the same Optionee to purchase stock
of the Company, any Parent or Subsidiary, or any predecessor corporation of
such corporations. For purposes of this provision, an incentive stock option
shall be treated as outstanding until such option is exercised in full or
expires by reason of lapse of time.
An Option may be exercisable over a period of time or may be
immediately exercisable as determined by the Board and may grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the Optionee's employment with the Company for any reason (including death or
disability). The purchase price for shares repurchased pursuant to the
repurchase option shall be the original price paid by the Optionee and may be
paid by cancellation of any indebtedness of the Optionee to the Company. The
repurchase option shall lapse at such a rate as the Board may determine.
Notwithstanding any other provisions of this Plan, no Option
may be exercised after the expiration of the term of the Option as set forth in
the Stock Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 7(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date
the stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter shall be available, both for purposes
of the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(ii) Termination of Status as an Employee or
Consultant. If an Employee or Consultant ceases to serve as an Employee or as
a Consultant (as the case may be), he may exercise his Option at such times and
to such extent as determined by the Board at the time of grant of the Option;
provided that, in the case of an Incentive Stock Option, the Option may be
exercised only within thirty (30) days (or such other period of time not
exceeding three (3) months as determined by the Board at the time of grant of
the option) after the date he ceases to be an Employee of the Company, and only
to the extent that he was entitled to exercise it at the date of such
termination. To the extent that the Employee was not entitled to exercise such
Incentive Stock Option at the date of such termination, or if he does not
exercise such Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate.
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<PAGE> 7
(iii) Disability. Notwithstanding the provisions
of Section 8(b)(ii) above, in the event an Employee or Consultant is unable to
continue his employment or consulting relationship (as the case may be) with
the Company as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may, but only within three (3) months (or
such other period of time not exceeding one (1) year as is determined by the
Board at the time of grant of the Option) from the date of termination,
exercise his Option to the extent he was entitled to exercise it at the date of
such termination. To the extent that he was not entitled to exercise the
Option at the date of termination, or if he does not exercise such Option
(which he was entitled to exercise) within the time specified herein, the
Option shall terminate.
(iv) Death of Optionee. In the event of the death
of an Optionee, such Optionee's Option may be exercised at such times and to
such extent as determined by the Board at the time of grant of the Option;
provided that, in the case of an Incentive Stock Option, in the event of the
death of an Optionee:
(A) during the term of the Option who is
at the time of his death an Employee or Consultant of the Company and
who shall have been in Continuous Status as an Employee or Consultant
since the date of grant of the Option, the Option may be exercised, at
any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of death; or
(B) within thirty (30) days (or such
other period of time not exceeding three (3) months as is determined
by the Board at the time of grant of the Option) after the termination
of Continuous Status as an Employee, the Option may be exercised, at
any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
(v) Rule 16b-3. Options granted to persons
subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and
shall contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
9. Stock Purchase Rights.
(a) Rights to Purchase. After the Board of Directors
determines that it will offer an Employee or Consultant the right to purchase
Shares under the Plan, it shall advise the offeree in writing of the terms,
conditions and restrictions relating to the offer, including the number of
Shares that such person shall be entitled to purchase, and the time within
which such person must accept such offer, which shall in no event exceed thirty
(30) days from the date upon which the Board of Directors or its Committee made
the determination to grant the Stock Purchase Right. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Board of Directors.
(b) Issuance of Shares. Forthwith after payment
therefor, the Shares purchased shall be duly issued; provided, however, that
the Board may require that the Purchaser make adequate provision for any
Federal and State withholding obligations of the Company as a condition to such
purchase.
(c) Repurchase Option. Unless the Board of Directors or
its Committee determines otherwise, the Restricted Stock Purchase Agreement
shall grant the Company a repurchase option exercisable upon the voluntary
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<PAGE> 8
or involuntary termination of the Purchaser's employment with the Company for
any reason (including death or disability). The purchase price for shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original price paid by the Purchaser and may be paid by cancellation of any
indebtedness of the Purchaser to the Company. The repurchase option shall
lapse at such a rate as the Board of Directors may determine.
(d) Other Provisions. The Restricted Stock Purchase
Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board of Directors.
(e) Rights as a Stockholder. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
the shares as to which a Stock Purchase Right has been exercised, no right to
vote or to receive dividends or any other rights as a stockholder shall exist
with respect to shares of Common Stock subject to a Stock Purchase Right,
notwithstanding the exercise of a Stock Purchase Right. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 11 of the
Plan.
(f) Shares Available Under the Plan. Exercise of a Stock
Purchase Right in any manner shall result in a decrease in the number of Shares
that thereafter shall be available, both for purposes of the Plan and for sale
under the Stock Purchase Right, by the number of Shares as to which the Stock
Purchase Right is exercised. Shares repurchased by the Company pursuant to
Section 9(c) hereof shall not be available for reissuance under the Plan.
10. Limited Transferability of Options and Stock Purchase Rights.
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution, or pursuant to a gift to a member of
the optionee's immediate family or a trust for the benefit of a member of the
optionee's immediate family provided such donee is subject to the terms and
conditions of the option including continued employment of the optionee,
options and Stock Purchase Rights and may be exercised, during the lifetime of
the optionee or holder of a Stock Purchase Right, only by such optionee or
holder of a Stock Purchase Right or a permitted donee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject
to any required action by the stockholders of the Company, the number of shares
of Common Stock covered by each outstanding Option and Stock Purchase Right,
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options or Stock Purchase Rights
have yet been granted or which have been returned to the Plan upon cancellation
or expiration of an Option or Stock Purchase Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Stock Purchase
Right, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
In the event of the proposed dissolution or liquidation of the
Company, any outstanding Options or Stock Purchase Rights shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board. The Board may, in the exercise of its sole discretion
in such instances, declare that
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<PAGE> 9
any Option or Stock Purchase Right shall terminate as of a date fixed by the
Board, and may give each Optionee or holder of a Stock Purchase Right the right
to exercise his Option or Stock Purchase Right as to all or any part of the
Common Stock subject to such Option or Stock Purchase Right, including Shares
as to which the Option or Stock Purchase Right would not otherwise be
exercisable.
In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger of the Company with or into another
corporation, Options and Stock Purchase Rights shall be assumed or equivalent
options or rights shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation. In the event that such
successor corporation refuses to assume the Option or Stock Purchase Right or
to substitute an equivalent option or stock purchase right, the Board shall, in
lieu of such assumption or substitution, provide for the Optionee to have the
right to exercise the Option or Stock Purchase Right as to all of the Common
Stock subject to such Option or Stock Purchase Right, including Shares as to
which the Option or Stock Purchase Right would not otherwise be exercisable.
If the Board makes an Option or Stock Purchase Right fully exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Optionee or holder of a Stock Purchase Right that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock
Purchase Right will terminate upon the expiration of such period. The Board
may provide in individual Option Agreements for the repurchase of Options in
return for a cash payment by the Company upon the occurrence of a merger, sale
of all or substantially all assets of the Company, tender offer or other
transaction or series of related transactions resulting in a change of
ownership of more than 50% of the voting securities of the Company.
12. Time of Granting Options or Stock Purchase Rights. The date
of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Board makes the determination granting such Option or Stock
Purchase Right. Notice of the determination shall be given to each Employee to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law
or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such
amendment or termination of the Plan shall not affect Options or Stock Purchase
Rights already granted and such Options and Stock Purchase Rights shall remain
in full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Board and the Optionee, Purchaser
or holder of a Stock Purchase Right, which agreement must be in writing and
signed by the Company and the Optionee, Purchaser or holder of the Stock
Purchase Right.
14. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
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As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
16. Option and Stock Purchase Agreements. Options shall be
evidenced by written Stock Option Agreements in such form as the Board shall
approve. Upon the exercise of Stock Purchase Rights, a Purchaser shall execute
a Restricted Stock Purchase Agreement in such form as the Board of Directors
shall approve.
17. Stockholder Approval. Continuance of the Plan shall be
subject to approval by the stockholders. If such stockholder approval is
obtained at a duly held stockholders' meeting, it may be obtained by the
affirmative vote of the holders of a majority of the issued and outstanding
shares of the Company. If and in the event that the Company registers any
class of any equity security pursuant to Section 12 of the Exchange Act, the
approval of such stockholders of the Company shall be:
(a) (i) solicited substantially in accordance with
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder, or (ii) solicited after the Company has furnished in writing to the
holders entitled to vote substantially the same information concerning the Plan
as that which would be required by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is furnished;
and
(b) obtained at or prior to the first annual meeting of
stockholders held subsequent to the first registration of any class of equity
securities of the Company under Section 12 of the Exchange Act.
If such stockholder approval is obtained by written consent,
it must be obtained by the unanimous written consent of all stockholders of the
Company.
18. Information to Optionees and Holders of Stock Purchase Rights.
The Company shall provide to each Optionee and each holder of a Stock Purchase
Right, during the period for which such Optionee or holder of a Stock Purchase
Right has one or more Options or Stock Purchase Rights outstanding, copies of
all annual reports and other information which are provided to all stockholders
of the Company. The Company shall not be required to provide such information
if the issuance of Options and Stock Purchase Rights under the Plan is limited
to key employees whose duties in connection with the Company assure their
access to equivalent information.
19. Stock Withholding to Satisfy Withholding Tax Obligations.
(a) Withholding. At the discretion of the Board,
Purchasers and Optionees may satisfy withholding obligations as provided in
this Section 19. When a Purchaser or an Optionee incurs tax liability in
connection with a Stock Purchase Right or an Option, which tax liability is
subject to tax withholding under applicable tax laws, and the Purchaser or
Optionee is obligated to pay the Company an amount required to be withheld
under
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<PAGE> 11
applicable tax laws, the Purchaser or Optionee may satisfy the withholding tax
obligation by electing to have the Company withhold from the Shares to be
issued in connection with the Stock Purchase Right or the Shares to be issued
upon exercise of the Option, if any, that number of Shares having a fair market
value equal to the amount required to be withheld. The fair market value of
the Shares to be withheld shall be determined on the Tax Date.
(b) Form of Election. All elections by a Purchaser or an
Optionee to have Shares withheld for this purpose shall be made in writing in a
form acceptable to the Secretary of the Company and shall be subject to the
following restrictions:
(i) the election must be made on or prior to the
applicable Tax Date;
(ii) once made, the election shall be irrevocable
as to the particular Shares of the Option or Right as to which the election is
made;
(iii) all elections shall be subject to the consent
or disapproval of the Board;
(iv) if the Purchaser or Optionee is subject to
Section 16 of the Exchange Act, the election must comply with the applicable
provisions of the rules promulgated under Section 16(b) of the Exchange Act and
shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to the Plan transactions.
(c) Section 83. In the event the election to have Shares
withheld is made by a Purchaser or Optionee and the Tax Date is deferred under
Section 83 of the Code because no election is filed under Section 83(b) of the
Code, the Purchaser or Optionee shall receive the full number of Shares with
respect to which the Stock Purchase Right or Option is exercised but such
Purchaser or Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
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Exhibit 10.0
(continued)
OCTEL COMMUNICATIONS CORPORATION [Usual]
INCENTIVE STOCK OPTION AGREEMENT
OCTEL COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Company"), has granted to ______________________________ (the "Optionee"),
an option (the "Option") to purchase a total of______________________________
(___________________) shares of Common Stock (the "Shares"), at the price
determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the 1985 Incentive Stock Plan, as amended (the
"Plan"), adopted by the Company which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings herein.
1 . Nature of the Option. This Option is intended to qualify as
an Incentive Stock Option as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Exercise Price. The exercise price is $______ for each share
of Common Stock, which price is not less than the fair market value per share of
the Common Stock on the date of grant.
3 . Exercise of Option. This Option shall be exercisable during
its term, in accordance with the provisions of Section 8 of the Plan and
subject to Section 6 hereof, as follows:
(a) Right to Exercise.
(i) Subject to (ii)-(ix) of this subsection 3(a),
below, this Option shall be exercisable cumulatively over four (4) years at the
rate of 25% of the Shares annually with the first 25% to be exercisable on
_____________, the second 25% to be exercisable on _______________, the third
25% to be exercisable on _______________, and the fourth 25% to be exercisable
on _______________, provided, however, that in the event the Optionee is unable
to continue his employment with the Company as a result of his death or total
and permanent disability (as defined in Section 22(e)(3) of the Code), the
Option shall be exercisable cumulatively at the rate of 1/3 of the Shares
annually over three (3) years, with the first one-third to be exercisable on
_____________, the second one-third to be exercisable on ___________, and the
third one-third to be exercisable on _______________.
(ii) In the event of (A) a merger involving the
Company in which the Company is not the survivor (except a merger with an
affiliate of the Company) or (B) the sale of all, or substantially all, of the
assets of the Company (except a sale to an affiliate of the Company) this
Option shall either be exchanged for a substitute Option or accelerated and
immediately exercisable according to the provisions of Section 11 of the Plan.
(iii) This Option may not be exercised for a
fraction of a share.
(iv) In the event of Optionee's death, disability,
or termination of employment, the timing for exercise of the Option is governed
by Sections 7, 8 or 9 of this Agreement, subject to the limitations in
subsections 3(a)(vii) and (viii).
(v) Optionee's right to exercise this Option, as
described in subsection 3(a)(i) above, shall be suspended during any approved
leave of absence, except to the extent this Option is otherwise exercisable as
of the commencement of such leave. Upon an Employee's return following a leave
of absence, the dates set forth in subsection 3(a)(i) shall be adjusted to
delay exercisability by the duration of the leave of absence. In no event may
the Option be exercised later than the time specified in Section 11 of this
Agreement.
<PAGE> 13
(vi) Optionee's right to exercise this Option, as
described in subsection 3(a)(i) above, shall be suspended in the event that
Optionee's hours regularly worked fall below twenty (20) hours per week (the
"Reduction"), except to the extent this Option is otherwise exercisable as of
the commencement of the Reduction. When the Reduction ends, the dates set
forth in subsection 3(a)(i) shall be adjusted to delay exercisability by the
duration of the Reduction. In no event may the Option be exercised later than
the time specified in Section 11 of this Agreement.
(vii) In no event may this Option be exercised
after the date of expiration of the term of this Option as set forth in Section
11 below.
(viii) The exercise of this Option as an Incentive
Stock Option is limited to any time or times which, when this Option is
aggregated with all other Incentive Stock Options granted to Optionee by the
Company or any Parent or Subsidiary, results in Shares having an aggregate fair
market value (determined for each Shares as of the date of grant of the Option
covering such share) of $100,000 or less becoming first available for purchase
upon exercise of one or more Incentive Stock Options during any calendar year.
In the event that this Option becomes exercisable for Shares in excess of such
$100,000 limitation, this Option shall be, at the election of the Optionee,
treated as a nonstatutory option with respect to such excess.
(ix) NOTHING IN THIS AGREEMENT SHALL EFFECT IN ANY
MANNER WHATSOEVER THE RIGHT OR POWER OF THE COMPANY TO TERMINATE THE OPTIONEE'S
EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE COMPANY FOR ANY REASON, WITH OR
WITHOUT CAUSE. NOTHING IN THIS AGREEMENT CONSTITUTES AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED EMPLOYMENT OR A CONSULTING RELATIONSHIP FOR THE EXERCISE
PERIOD OR FOR ANY PERIOD AT ALL.
(b) Method of Exercise. This Option shall be exercisable
by written notice in the form attached hereto which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may
be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the exercise price. This Option shall be deemed
exercised upon receipt by the Company of such written notice accompanied by the
exercise price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes, the Shares shall
be considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event the Shares
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended, at the time this Option is
exercised, Optionee shall, concurrently with the exercise of all or any portion
of this Option, deliver to the Company his Investment Representation Statement
in the form attached hereto as Exhibit A, and shall read the applicable rules
of the Commissioner of Corporations attached to such Investment Representation
Statement.
5. Method of Payment. Payment of the exercise price shall be by
any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
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<PAGE> 14
(b) check;
(c) delivery of a promissory note (the "Note") of
Optionee in the amount of the exercise price together with the execution and
delivery by the Optionee of the Security Agreement attached hereto as Exhibit
B; the Note shall be in the form attached hereto as Exhibit C, shall contain
the terms and be payable as set forth therein, shall bear interest at a rate
not less than the rate required to insure that there will be no "unstated
interest" with respect to the purchase of shares under this Option, pursuant to
Section 483 of the Code and the regulations in effect thereunder at the time of
such purchase, and shall be secured by a pledge of the Shares purchased by the
Note pursuant to the Security Agreement;
(d) surrender of other Shares of Common Stock of the
Company which have been held for six (6) months or more and which are of a
value equal to the exercise price of the Shares as to which the Option is being
exercised; or
(e) delivery of a properly executed exercise notice
together with irrevocable instructions to the Optionee's broker to deliver
promptly to the Company the amount of sale or loan proceeds required to pay the
exercise price.
6. Restrictions on Exercise. This Option may not be exercised
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G")
as promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
7. Termination of Continuous Status as an Employee.
(a) In the event of termination of Employee's Continuous
Status as an Employee, he may, but only within 90 days after the date he ceases
to be an Employee of the Company, exercise this Option to the extent that he
was entitled to exercise it at the date of such termination as provided in
paragraph 3(a). To the extent that he was not entitled to exercise this
Option at the date of such termination, or if he does not exercise this Option
within the time specified herein, the Option shall terminate.
(b) A leave of absence for a period of 90 days or less or
a reduction in the number of hours regularly worked by Optionee to fewer than
twenty (20) hours per week will not terminate an Employee's Continuous Status,
but will suspend the exercisability of the Option as set forth in subsections
3(a)(v) and (vi).
(c) In the event that the Optionee has paid the purchase
price hereunder by delivery of a Note, and before the Note is paid in full the
Optionee ceases to be an Employee or Consultant, the Company shall have the
right to accelerate the due date of the Note, and the whole unpaid balance of
principal and interest on the Note shall become immediately due.
8. Disability of Optionee. Notwithstanding the provisions of
Section 7 above, if Optionee is unable to continue his employment with the
Company as a result of his total and permanent disability (as defined in
Section 22(e)(3) of the Code), he may, but only within six (6) months from the
date of termination of employment, exercise his Option to the extent he was
entitled to exercise it at the date of such termination as provided in
paragraph 3(a). To the extent that he was not entitled to exercise the Option
at the date of termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
-3-
<PAGE> 15
9. Death of Optionee. In the event of the death of Optionee:
(a) during the term of this Option and while an Employee
of the Company and having been in Continuous Status as an Employee since the
date of grant of the Option, the Option may be exercised, at any time within
six (6) months following the date of death, by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
death; or
(b) within 30 days after the termination of Optionee's
Continuous Status as an Employee, the Option may be exercised, at any time
within six (6) months following the date of death, by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination.
10. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him.
The terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
11. Term of Option. This Option may not be exercised after the
later to occur of (a) the date six (6) months after the Option becomes fully
exercisable or (b) five (5) years and six (6) months (five (5) years if
Optionee owns, immediately before the Option is granted, stock representing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or of any Parent or Subsidiary) from the date of grant of this
Option, and may be exercised during such term only in accordance with the Plan
and the terms of this Option.
12. Early Disposition of Stock. Optionee understands that if he
disposes of any Shares received under this Option within two (2) years after
the date of this Agreement or within one (1) year after such Shares were
transferred to him, he will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an amount
generally measured by the difference between the price paid for the Shares and
the lower of the fair market value of the Shares on the date of the exercise or
the fair market value on the date of disposition. The amount of such ordinary
income may be measured differently if the Optionee is an officer, director, or
10% stockholder of the Company or if the shares are subject to a substantial
risk of forfeiture at the time they were transferred to Optionee. Optionee
hereby agrees to notify the Company in writing within 30 days after the date of
any such disposition. Optionee understands that if he disposes of such Shares
at any time after the expiration of such two-year and one-year holding
periods, any gain on such sale will be taxed at capital gain rates.
OCTEL COMMUNICATIONS CORPORATION,
a Delaware corporation
By:______________________________
Treasurer
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<PAGE> 16
Optionee acknowledges receipt of a copy of the Plan and certain
information related thereto, a copy of which is annexed hereto, and represents
that he is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under the Plan.
Optionee further acknowledges that he has read and is familiar with the terms
of the Plan and this Agreement and has read and understands Sections 3(a)(ix)
and 7(b), and has had an opportunity to obtain the advice of counsel prior to
executing this Agreement.
Dated:______________________________
______________________________
Optionee
-5-
<PAGE> 17
Notice to Optionee:
Exhibits A, B and C to this Agreement have been omitted to save paper.
They are available from Stock Administration upon request.
<PAGE> 18
OCTEL COMMUNICATIONS CORPORATION [NSO---
Usual]
NONSTATUTORY STOCK OPTION AGREEMENT
OCTEL COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Company"), has granted to______________________________ (the"Optionee"), an
option (the "Option") to purchase a total of______________________________
(_______________) shares of Common Stock (the "Shares"), at the price
determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the 1985 Incentive Stock Plan, as amended (the
"Plan"), adopted by the Company which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings herein.
1. Nature of the Option. This option is a Nonstatutory Stock
Option and is not intended to qualify as an incentive stock option as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Exercise Price. The exercise price is $_______ for each share
of Common Stock, which price is not less than the fair market value per share of
the Common Stock on the date of grant.
3 . Exercise of Option. This Option shall be exercisable during
its term, in accordance with the provisions of Section 8 of the Plan and
subject to Section 6 hereof, as follows:
(a) Right to Exercise.
(i) Subject to (ii)-(viii) of this subsection 3(a),
below, this Option shall be exercisable cumulatively over four (4) years at the
rate of 25% of the Shares annually with the first 25% to be exercisable on
_______________, the second 25% to be exercisable on ___ ___________, the third
25% to be exercisable on _______________ and the fourth 25% to be exercisable
on _______________, provided, however, that in the event the Optionee is unable
to continue his employment with the Company as a result of his death or total
and permanent disability (as defined in Section 22(e)(3) of the Code), the
Option shall be exercisable cumulatively at the rate of 1/3 of the Shares
annually over three (3) years, with the first one-third to be exercisable on
_______________, the second one-third to be exercisable on, and the third
one-third to be exercisable on _______________.
(ii) In the event of (A) a merger involving the Company in
which the Company is not the survivor (except a merger with an affiliate of the
Company) or (B) the sale of all, or substantially all, of the assets of the
Company (except a sale to an affiliate of the Company) this Option shall either
be exchanged for a substitute Option or accelerated and immediately exercisable
according to the provisions of Section 11 of the Plan.
(iii) This Option may not be exercised for a fraction of a
share.
(iv) In the event of Optionee's death, disability, or
termination of employment, the timing for exercise of the Option is governed by
Sections 7, 8 or 9 of this Agreement, subject to the limitations in subsections
3(a)(vii) and (viii).
(v) Optionee's right to exercise this Option, as
described in subsection 3(a)(i) above, shall be suspended during any approved
leave of absence, except to the extent this Option is otherwise exercisable as
of the commencement of such leave. Upon an Employee's return following a leave
of absence, the dates set forth in subsection 3(a)(i) shall be adjusted to
delay exercisability by the duration of the leave of absence. In no event may
the Option be exercised later than the time specified in Section 11 of this
Agreement.
<PAGE> 19
(vi) Optionee's right to exercise this Option, as
described in subsection 3(a)(i) above, shall be suspended in the event that
Optionee's hours regularly worked fall below twenty (20) hours per week (the
"Reduction"), except to the extent this Option is otherwise exercisable as of
the commencement of the Reduction. When the Reduction ends, the dates set
forth in subsection 3(a)(i) shall be adjusted to delay exercisability by the
duration of the Reduction. In no event may the Option be exercised later than
the time specified in Section 11 of this Agreement.
(vii) In no event may this Option be exercised after the
date of expiration of the term of this Option as set forth in Section 11 below.
(viii) NOTHING IN THIS AGREEMENT SHALL EFFECT IN ANY MANNER
WHATSOEVER THE RIGHT OR POWER OF THE COMPANY TO TERMINATE THE OPTIONEE'S
EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE COMPANY FOR ANY REASON, WITH OR
WITHOUT CAUSE. NOTHING IN THIS AGREEMENT CONSTITUTES AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED EMPLOYMENT OR A CONSULTING RELATIONSHIP FOR THE EXERCISE
PERIOD OR FOR ANY PERIOD AT ALL.
(b) Method of Exercise. This Option shall be exercisable by
written notice in the form attached hereto which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the exercise price and any additional amount
required pursuant to Section 12(a). This Option shall be deemed exercised upon
receipt by the Company of such written notice accompanied by the exercise price
and any additional amount required pursuant to Section 12(a).
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes, the Shares shall
be considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event the Shares
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended, at the time this Option is
exercised, Optionee shall, concurrently with the exercise of all or any portion
of this Option, deliver to the Company his Investment Representation Statement
in the form attached hereto as Exhibit A, and shall read the applicable rules
of the Commissioner of Corporations attached to such Investment Representation
Statement.
5. Method of Payment. Payment of the exercise price shall be by
any of the following, or a combination thereof, at the election of the
Optionee.
(a) cash;
(b) check;
(c) delivery of a promissory note (the "Note") of
Optionee in the amount of the exercise price together with the execution and
delivery by the Optionee of the Security Agreement attached hereto as Exhibit
B; the Note shall be in the form attached hereto as Exhibit C, shall contain
the terms and be payable as set forth therein, shall bear interest at a rate
not less than the rate required to insure that there will be no "unstated
interest" with
-2-
<PAGE> 20
respect to the purchase of shares under this Option, pursuant to Section 483 of
the Code and the regulations in effect thereunder at the time of such purchase,
and shall be secured by a pledge of the Shares purchased by the Note pursuant
to the Security Agreement;
(d) surrender of other Shares of Common Stock of the
Company which have been held for six (6) months or more and which are of a
value equal to the exercise price of the Shares as to which the Option is being
exercised; or
(e) delivery of a properly executed exercise notice
together with irrevocable instructions to the Optionee's broker to deliver
promptly to the Company the amount of sale or loan proceeds required to pay the
exercise price.
6. Restrictions on Exercise. This Option may not be exercised if
the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G")
as promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
7. Termination of Continuous Status as an Employee.
(a) In the event of termination of Employee's Continuous
Status as an Employee, he may, but only within 90 days after the date he ceases
to be an Employee of the Company, exercise this Option to the extent that he
was entitled to exercise it at the date of such termination as provided in
paragraph 3(a). To the extent that he was not entitled to exercise this Option
at the date of such termination, or if he does not exercise this Option within
the time specified herein, the Option shall terminate.
(b) A leave of absence for a period of 90 days or less or
a reduction in the number of hours regularly worked by Optionee to fewer than
twenty (20) hours per week will not terminate an Employee's Continuous Status,
but will suspend the exercisability of the Option as set forth in subsections
3(a)(v) and (vi).
(c) In the event that the Optionee has paid the purchase
price hereunder by delivery of a Note, and before the Note is paid in full the
Optionee ceases to be an Employee or Consultant, the Company shall have the
right to accelerate the due date of the Note, and the whole unpaid balance of
principal and interest on the Note shall become immediately due.
8. Disability of Optionee. Notwithstanding the
provisions of Section 7 above, if Optionee is unable to continue his employment
with the Company as a result of his total and permanent disability (as defined
in Section 22(e)(3) of the Code), he may, but only within six (6) months from
the date of termination of employment, exercise his Option to the extent he was
entitled to exercise it at the date of such termination as provided in
paragraph 3(a). To the extent that he was not entitled to exercise the Option
at the date of termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
-3-
<PAGE> 21
9. Death of Optionee. In the event of the death of Optionee:
(a) during the term of this Option and while an Employee
of the Company and having been in Continuous Status as an Employee since the
date of grant of the Option, the Option may be exercised, at any time within
six (6) months following the date of death, by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
death; or
(b) within 30 days after the termination of Optionee's
Continuous Status as an Employee, the Option may be exercised, at any time
within six (6) months following the date of death, by Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination.
10. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him.
The terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
11. Term of Option. This Option may not be exercised after the
later to occur of (a) the date six (6) months after the Option becomes fully
exercisable or (b) five (5) years and six (6) months (five (5) years if
Optionee owns, immediately before the Option is granted, stock representing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or of any Parent or Subsidiary) from the date of grant of this
Option, and may be exercised during such term only in accordance with the Plan
and the terms of this Option.
12. Tax Consequences. Set forth below is a brief summary as of
the date of this Agreement of some of the federal and state tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercise of Nonqualified Stock Option. There will be
a regular federal income tax liability and a state income tax liability upon
the exercise of the Option. The Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the fair market value of the Shares on the date of exercise over the
exercise price. If Optionee is an employee, the Company will be required to
withhold from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise. Optionee hereby agrees to pay to
the Company any such amount that the Company shall be required to collect at
the time of exercise of the Option.
(b) Disposition of Shares. If Shares are held for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal and state income tax purposes.
OCTEL COMMUNICATIONS CORPORATION,
a Delaware corporation
By:______________________________
Treasurer
-4-
<PAGE> 22
Optionee acknowledges receipt of a copy of the Plan and certain
information related thereto, a copy of which is annexed hereto, and represents
that he is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under the Plan.
Optionee further acknowledges that he has read and is familiar with the terms
of the Plan and this Agreement and has read and understands Sections 3(a)(viii)
and 7(b), and has had an opportunity to obtain the advice of counsel prior to
executing this Agreement.
Dated:______________________________
______________________________
Optionee
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<PAGE> 23
Notice to Optionee:
Exhibits A, B and C to this Agreement have been omitted to save paper. They
are available from Stock Administration upon request.
<PAGE> 1
Exhibit 10.3
[OCTEL LOGO]
PRIVATE & CONFIDENTIAL
FY 1996
SENIOR EMPLOYEE AND MANAGEMENT BONUS PLAN
OCTEL COMMUNICATIONS CORPORATION
Effective July 1, 1995
<PAGE> 2
FY 1996
SENIOR EMPLOYEE AND MANAGEMENT BONUS PLAN
TABLE OF CONTENTS
_____________________________________________________________________________
1. Plan Objectives
-Purpose
-Plan Design
-Plan Administration
2. Plan Eligibility
-General Eligibility Requirements
-New Hires or Promotions
-Termination of Employment
-Minimum Required Performance Levels
3. Bonus Opportunity Target
-General
-Percentage of Base Salary
-New Hires or Promotions
-Inter-Company Transfers / Intra-Company
Transfers
-Demotions or Reclassifications
4. Bonus Mix
5. Performance Measures
6. Performance Modifiers
7. Performance Monitoring
8. Timing of Bonus Award Payouts
9. Miscellaneous
EXHIBIT A Financial Plan Documents
EXHIBIT B Individual Backsheet Calculations
- - CONFIDENTIAL -
<PAGE> 3
FY 1996 OCTEL COMMUNICATIONS CORPORATION
SENIOR EMPLOYEE AND MANAGEMENT BONUS PLAN
________________________________________________________________________________
1.0 PLAN OBJECTIVES
1.1 Purpose
The purpose of the Senior Employee and Management Bonus Plan (the "Bonus Plan")
is to provide performance incentives for Octel Communications Corporation (the
"Company") management and other senior level employees, who, in the execution
of their job responsibilities, are in a position to significantly influence the
performance level of the Company.
1.2 Plan Design
The Bonus Plan is designed to drive the achievement of:
. Strategic Business Unit (SBU) results;
. Regional targets;
. Corporate-wide financial goals and strategic projects;
and
. Outstanding customer satisfaction.
Performance targets by individual are directly related to those items that can
be generally affected by the Bonus Plan Participant.
1.3 Plan Administration
The Bonus Plan is approved by the Board of Directors at the beginning of each
fiscal year. Subject to the review and approval of the Chairman and CEO (the
"CEO"), Executive Staff members will have responsibility to review and approve:
a) Participation levels,
b) Target Bonuses,
c) Functional Objectives,
d) Year-End Evaluations, and
e) Communication to employees regarding the Bonus Plan.
- - CONFIDENTIAL -
<PAGE> 4
2.0 PLAN ELIGIBILITY
2.1 General Eligibility Requirements
In general, employees in jobs defined by job classification E12 or above are
eligible to participate in the Bonus Plan. Exceptions to the policy may be
approved by Human Resources and the Executive Staff member.
2.2 New Hires or Promotions
Employees hired or promoted into bonus eligible jobs during the fiscal year are
eligible to participate in the Bonus Plan. For new hires and promotions, bonus
awards are prorated to reflect the amount of time, and earnings, associated
with being in the bonus eligible job. See Section 3.0 - Bonus Opportunity
Target.
2.3 Termination of Employment
To be eligible to receive a bonus under the Plan, the Participant must be
employed by the Company on the last working day of the period for which the
bonus is to be paid (i.e., December 31st; June 30th).
A prorated payment of the bonus may be made, at the discretion of Human
Resources and the Executive Staff member, if the Participant is not actively
employed due to death or disability.
The Company also reserves the right to withhold payment of any or all of the
bonus if a Participant is on a leave of absence for longer than nine months
during the fiscal year. This will be reviewed on a case-by-case basis.
2.4 Minimum Required Performance Levels
Further, regardless of Company performance, no bonus will be paid to a
Participant if the Participant is not meeting general job requirements (a
rating of "good" or better) as determined by Management at the end of the
period. If the Participant does not receive a bonus because the foregoing
minimum requirements are not met, the Participant may nevertheless be eligible
to receive an incentive payment under the Company's Profit Sharing Plan,
provided that the eligibility requirements of that plan are met.
3.0 BONUS OPPORTUNITY TARGET
3.1 General
A target bonus is determined for each Participant based on the responsibility
level and appropriate target total compensation level for the Participant at
the beginning of each fiscal year. All Officer, Director and President target
bonuses are subject to the review and approval of the
- - CONFIDENTIAL -
<PAGE> 5
Board of Directors. All other bonus targets are subject to the review and
approval of the Executive Staff Members.
3.2 Percentage of Base Salary
Target bonuses for all participants will be expressed as a percentage of gross
base salary paid during the fiscal year. For purposes of the Plan, "gross base
salary" includes base salary actually paid to the Participant during the period
(before taxes and other deductions). Excluded from "gross base salary" are any
other bonus payments made in the current fiscal year (e.g., previous year's
management bonus, "hire on" bonus, etc.).
3.3 New Hires or Promotions
Employees hired or promoted into a bonus eligible position during the fiscal
year will have a target bonus set at the minimum of the appropriate target
bonus range. Since the target bonus percentage applies only to base salary
paid during the eligibility period, the bonus will be automatically prorated.
3.4 Inter-Company Transfers/ Intra-Company Transfers
Bonus calculations for Participants that transfer during the fiscal year will
be determined considering the Participant's bonus plan in place at the end of
the performance period. Prorated calculations to consider the bonus award that
would have been earned while at different organizations will not be performed.
Participants may be reassigned to a new bonus plan at the beginning of the
fiscal half year. Semi-Annual Bonus payments will be based on the Plan
assigned at the end of the period. The Annual Bonus payment will be based
solely on the Plan in place at the end of the fiscal year.
3.5 Demotions or Reclassifications
Employees downgraded to non-eligible bonus positions during the fiscal year
will have their bonus participation reviewed on a case-by-case basis. Since
the reason for the downgrade could be voluntary or involuntary due to
individual performance or business necessity, the handling of the bonus will be
subject to the review and approval of Executive Staff members.
- - CONFIDENTIAL -
<PAGE> 6
4.0 BONUS MIX
The Bonus Plan consists of:
Two Semi-annual Bonuses: Based on SBU-specific, region-specific
and/or Corporate financial targets.
One Annual Bonus: Reflects annual SBU-, region -,
function - specific business and customer
satisfaction targets and is paid according
to quantifiable results.
5.0 PERFORMANCE MEASURES
Performance measures are selected, tailored, and defined as appropriate for
each organization. Specific targets are set from which actual performance will
be measured. Performance measures selected are designed to measure
SBU-specific, region-specific and/or overall corporate results.
Performance measures are determined with input from each Executive Staff member
and the CEO and are subject to the review and approval of the Board of
Directors. The actual financial levels of performance are determined by
Finance and approved by the Board of Directors.
Specific details regarding Plan targets and measures for FY 1996 are
illustrated in Exhibit A (following this Plan) and varies by organization and
individual. All performance measures are subject to change at the discretion
of management.
6.0 PERFORMANCE MODIFIERS
Performance modifiers are used as multipliers in the Plan to quantify a
particular result (i.e., below, equal or above plan). The modifiers are
used to define the degree of the slope from one level to the next and are
designed to reward above level performance and modify bonus payouts for below
plan achievement. In addition, minimum performance thresholds are established
so that no bonus is payable if performance is below the threshold. Specific
details regarding the modifiers and minimum thresholds are detailed in Exhibit
A following this Plan.
7.0 PERFORMANCE MONITORING
Performance results will be monitored throughout the year. If warranted,
adjustments to performance objectives may be made where appropriate, subject to
the review and approval of the Executive Staff and the CEO.
- - CONFIDENTIAL -
<PAGE> 7
8.0 TIMING OF BONUS AWARD PAYOUTS
Bonuses will be distributed to Participants as soon as practical after the
close of the reporting period corresponding to the period when the bonus was
earned, as follows:
<TABLE>
<CAPTION>
--------------------------------------------
BONUS ACTUAL PAYOUT
--------------------------------------------
<S> <C>
First Half Bonus February '96
--------------------------------------------
Second Half Bonus August '96
--------------------------------------------
Annual Bonus August '96
--------------------------------------------
</TABLE>
9.0 MISCELLANEOUS
9.1 Plan Amendment or Termination
The Bonus Plan is reviewed at the beginning of each fiscal year. The Bonus
Plan is subject to the review, modification, and renewal by the Board of
Directors at any time. Individual Plan details are subject to review and
modification by the Executive Staff members at any time.
The Plan may be amended or terminated by the Company at any time, except that
amendment or termination will not affect bonus payments made prior to such
amendment or termination.
9.2 Bonus Payment Discretion
All bonus payments under the Plan are subject to the discretion of the Company,
and prior to distribution, pursuant to the provisions of the Plan, bonus
payments may be reduced or eliminated entirely if business considerations of
the Company so require.
9.3 Termination of Employment
Participation in the Plan does not constitute an agreement to employ the
Participant for any length of time, and shall not restrict the Company's right
to terminate the employment of the Participant for any reason and at any time.
9.4 Board of Director Discretion
The Board of Directors may, at its discretion, modify funding of the Plan if,
in its judgment, factors causing under-achievement (or over-achievement),
vis-a-vis Company goals were due to circumstances not fully related to the
performance of the Plan Participants. In such cases, pro-rata bonuses for all
or some of the Plan Participants may be authorized.
- - CONFIDENTIAL -
<PAGE> 1
Exhibit 10.15
U.S. $30,000,000
CREDIT AGREEMENT
DATED AS OF JUNE 30, 1996
____________________
BY AND AMONG
OCTEL COMMUNICATIONS CORPORATION,
THE BANKS HEREIN NAMED AS THE BANKS
AND
THE FIRST NATIONAL BANK OF BOSTON, AS AGENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C> <C>
SECTION I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION II DESCRIPTION OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.1 The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Notice and Manner of Borrowing or Conversion of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.4 Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(a) Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Reduction of Commitment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 The Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.7 Duration of Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.8 Interest Rates and Payments of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.9 Changed Circumstances; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.10 Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.11 Payments and Prepayments of the Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.12 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.13 Overdue Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.14 Payments Not at End of Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.15 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION III CONDITIONS OF LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.1 Conditions Precedent to Initial Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2 Conditions Precedent to All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Corporate Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Valid Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.4 Consents or Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.5 Title to Properties; Absence of Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.7 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.8 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.11 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.13 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.14 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.16 Compliance With Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION V AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.1 Financial Statements and Other Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 Maintenance and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.4 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.5 Inspection by the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.6 Maintenance of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.7 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(c) Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION VI NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.2 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.3 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.5 Merger; Consolidation; Sale or Lease of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.6 Acquisitions and Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.7 Subsidiary Stock Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.8 Equity Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.9 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION VII DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION VIII AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.1 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.2 Representations and Warranties; No Responsibility for Inspection . . . . . . . . . . . . . . . . . . . . . 39
8.3 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.4 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.5 Right to Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.6 Resignation and Appointment of Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.7 Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.8 No Obligations of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(a) General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(b) Survival; Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.4 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.5 Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.6 No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.8 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.9 Binding Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10 Assignments, Participations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.12 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.13 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.14 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.15 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
iii.
<PAGE> 5
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Notice of Borrowing or Conversion
EXHIBIT C Form of Report of Chief Financial Officer
EXHIBIT D Form of Opinion of Counsel to Borrower
iv.
<PAGE> 6
CREDIT AGREEMENT
DATED AS OF JUNE 30, 1996
THIS CREDIT AGREEMENT("AGREEMENT") is made as of June 30, 1996, by and
among OCTEL COMMUNICATIONS CORPORATION ("BORROWER"), a Delaware corporation
having its chief executive office at 1001 Murphy Ranch Road, Milpitas,
California 95035-7912, THE FIRST NATIONAL BANK OF BOSTON, a national banking
association ("FNBB"), having its head office at 100 Federal Street, Boston,
Massachusetts 02110, and each other lender whose name is set forth on the
signature pages hereof or which may hereafter execute and deliver an instrument
of assignment with respect to this Agreement (individually, the "BANK," and
collectively, the "BANKS") and FNBB, as Agent.
SECTION I
DEFINITIONS
1.1 DEFINITIONS.
All capitalized terms used in this Agreement or in the Note or
in any certificate, report or other document made or delivered pursuant to this
Agreement (unless otherwise defined therein) shall have the meanings assigned
to them below:
ACQUISITION. Any transaction, or any series of related transactions,
by which any Borrower or any of its Subsidiaries directly or indirectly (a)
acquires any ongoing business or all or substantially all of the assets of any
firm, partnership, joint venture, corporation or division thereof, whether
through purchase of assets, merger or otherwise, or (b) acquires (in one
transaction or as the most recent transaction in a series of transactions)
control of at least a majority of the stock of a corporation having ordinary
voting power for the election of directors, or (c) acquires control of fifty
percent (50%) or more of the ownership interest in any partnership or joint
venture.
ADJUSTED LIBOR RATE. Applicable to any Interest Period, shall mean a
rate per annum determined pursuant to the following formula:
ALR = [ LIBOR ]*
[ 1.00 - RP ]
ALR = Adjusted LIBOR Rate
LIBOR = London Interbank Offered Rate
RP = Reserve Percentage
* The amount in brackets shall be rounded upwards, if
necessary, to the next higher 1/100 of 1%.
<PAGE> 7
Where : "London Interbank Offered Rate" applicable to any LIBOR Loan
for any Interest Period means the rate of interest determined
by Agent to be the prevailing rate per annum at which deposits
in U.S. dollars are offered to FNBB by first-class banks in
the interbank eurodollar market in which it regularly
participates on or about 10:00 a.m. (Boston time) two Business
Days before the first day of such Interest Period in an amount
approximately equal to the principal amount of the LIBOR Loan
to which such Interest Period is to apply for a period of time
approximately equal to such Interest Period.
"Reserve Percentage" applicable to any Interest Period means
the maximum reserve percentage (expressed as a decimal),
whether or not applicable to any Bank, under regulations
issued from time to time by the Board of Governors of the
Federal Reserve System for determining the maximum reserve
requirement (including, without limitation, any basic,
supplemental, emergency or marginal reserve requirement) with
respect to "Eurocurrency liabilities" as that term is defined
under such regulations.
The Adjusted LIBOR Rate shall be adjusted automatically as of the effective
date of any change in the Reserve Percentage.
AFFECTED LOANS. See Section 2.9(a).
AGENT. The First National Bank of Boston, solely in its capacity as
Agent.
AGREEMENT. This Agreement, as the same may be supplemented or amended
from time to time.
APPLICABLE MARGIN and APPLICABLE FEE. The margin or fee set forth
below which corresponds to the Level based on EBITDA as of the end of any
fiscal quarter:
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III
<S> <C> <C> <C>
Adjusted LIBOR Rate 0.60 0.75 1.00
Base Rate 0.00 0.00 0.00
Letter of Credit Fee 0.60 0.75 1.00
Commitment Fee 0.18 0.20 0.25
</TABLE>
Changes in the Applicable Margin or Applicable Fee shall be effective as of the
first day of the fiscal quarter following the quarter for which EBITDA has been
determined and shall be based on the report of Borrower's Chief Financial
Officer required to be submitted pursuant to
2.
<PAGE> 8
Section 5.1(c) hereof. For purposes of determining the Applicable Margin or
Applicable Fee, "Level" shall mean the level indicated below corresponding to
the applicable ratio of Consolidated Total Liabilities to EBITDA:
<TABLE>
<CAPTION>
RATIO OF CONSOLIDATED
TOTAL LIABILITIES TO EBITDA
<S> <C>
Level I Less than or equal to 0.75 to 1:00
Level II Greater than 0.75 but less than or equal to 1.10 to 1:00
Level III Greater than 1.10 to 1:00
</TABLE>
BANK OR BANKS. FNBB and each other lender which may hereafter execute
and deliver an instrument of assignment with respect to this Agreement.
BASE RATE. The greater of (i) the rate of interest announced from
time to time by FNBB at its head office as its Base Rate, and (ii) the Federal
Funds Effective Rate plus 1/2 of 1% per annum (rounded upwards, if necessary,
to the next 1/8 of 1%).
BASE RATE LOAN. Any Loan bearing interest determined with reference
to the Base Rate.
BORROWER. Octel Communications Corporation.
BUSINESS DAY. (i) For all purposes other than as covered by clause
(ii) below, any day other than a Saturday, Sunday or legal holiday on which
banks in Boston, Massachusetts and San Francisco, California are open for the
conduct of a substantial part of their commercial banking business; and (ii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, LIBOR Loans, any day that is a Business Day
described in clause (i) and that is also a day for trading by and between banks
in U.S. Dollar deposits in the London interbank eurodollar market.
CODE. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
COMMITMENT. The amount set forth next to the name of such Bank on
SCHEDULE 1 now or hereafter attached hereto (and as adjusted from time to
time).
COMMITMENT AMOUNT. $30,000,000 in the aggregate, or any lesser
amount, including zero, resulting from a termination or reduction of such
amount in accordance with Section 2.5 or Section 7.2.
CONSOLIDATED CURRENT LIABILITIES. At any date as of which the amount
thereof shall be determined, all amounts that should, in accordance with
generally accepted accounting
3.
<PAGE> 9
principles, be included as current liabilities on the consolidated balance
sheet of Borrower and its Subsidiaries as at such date, plus, to the extent not
already included therein, all Loans and all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination.
CONSOLIDATED TANGIBLE NET WORTH. At any date as of which the amount
thereof shall be determined, the Consolidated Total Assets of Borrower and its
Subsidiaries minus (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, (c) all reserves not already deducted from assets, (d)
any write-up in the book value of assets resulting from any revaluation thereof
subsequent to the date of the financial statements referred to in Section 4.6
and (e) the value of any minority interests in Subsidiaries and minus (ii)
Consolidated Total Liabilities.
CONSOLIDATED TOTAL ASSETS. At any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with generally
accepted accounting principles, be classified as assets on the balance sheet of
Borrower and its Subsidiaries.
CONSOLIDATED TOTAL LIABILITIES. At any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
generally accepted accounting principles, be classified as liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, including in any
event all Indebtedness.
CONTINGENT LIABILITIES. As applied to Borrower and its Subsidiaries,
(i) any Guarantee of Borrower or its Subsidiaries; and (ii) any direct or
indirect obligation or liability, contingent or otherwise, of Borrower or its
Subsidiaries, (a) in respect of any letter of credit or similar instrument
issued for the account of Borrower or its Subsidiaries as to which such entity
is otherwise liable for reimbursement of drawings, (b) to purchase any
materials, supplies or other property from, or to obtain the services of,
another person or entity if the relevant contract or other related document or
obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether delivery of
such materials, supplies or other property is ever made or tendered, or such
services are ever performed or tendered, or (c) in respect of any Rate Contract
that is not entered into in connection with a bona fide hedging operation that
provides offsetting benefits to Borrower or any of its Subsidiaries. The
amount of any Contingent Obligation shall (subject, in the case of Guarantees,
to the last sentence of the definition of "Guarantee") be deemed equal to the
maximum reasonably anticipated liability in respect thereof, and shall, with
respect to item (ii)(c) of this definition, be marked to market on a current
basis.
CONTROLLED GROUP. All trades or businesses (whether or not
incorporated) under common control that, together with Borrower, are treated as
a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of
ERISA.
DEED OF TRUST. That certain Deed of Trust, Financing Statement,
Security Agreement and Fixture Filing (With Assignment of Rents and Leases),
dated as of July 6, 1995, by
4.
<PAGE> 10
Borrower to Chicago Title Insurance Company, as trustee, for the benefit of
Sumitomo Bank Leasing and Finance, Inc.
DEFAULT. An Event of Default or event or condition that, but for the
requirement that time elapse or notice be given, or both, would constitute an
Event of Default.
DESIGNATED DEPOSIT ACCOUNT. A demand deposit account maintained by
Borrower with FNBB.
DISCLOSURE LETTER. That letter of even date herewith of Borrower
disclosing certain exceptions to the representations and warranties set forth
herein.
EBITDA. At any date as of which the amount thereof shall be
determined, net income plus the sum of interest expense, provision for taxes
based on income, depreciation and amortization of intangible assets all to the
extent included in determining net income, on a consolidated basis for Borrower
and its consolidated Subsidiaries, all as determined according to generally
accepted accounting principles for the prior four fiscal quarters ending on the
date of determination.
EFFECTIVE DATE. The later of July 1, 1996, or the date all
commitments made and loans outstanding under that Credit Agreement dated June
30, 1994, by and among the parties hereto, shall have terminated and been
repaid.
ENCUMBRANCES. See Section 6.4.
ENVIRONMENTAL LAWS. Any and all applicable foreign, federal, state
and local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or hereafter
enacted or promulgated), of all governmental agencies, bureaus or departments
which may now or hereafter have jurisdiction over Borrower or any of its
Subsidiaries and all applicable judicial and administrative and regulatory
decrees, judgments and orders, including common law rulings and determinations,
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of emissions, discharges, releases or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants whether solid,
liquid or gaseous in nature, into the environment or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of such Hazardous Materials, chemical substances,
pollutants or contaminants.
ERISA. The Employee Retirement Income Security Act of 1974 and the
rules and regulations thereunder, collectively, as the same may from time to
time be supplemented or amended and remain in effect.
EVENT OF DEFAULT. Any event described in Section 7.1.
5.
<PAGE> 11
EXISTING CAMPUS. Borrower's existing headquarters facility located at
1001 Murphy Ranch Road in Milpitas, California, which is owned by Borrower.
FEDERAL FUNDS EFFECTIVE RATE. For any day, a fluctuating interest
rate per annum equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by Agent.
FINAL PAYMENT DATE. June 30, 1999.
GUARANTEES. As applied to Borrower and its Subsidiaries, all
guarantees, arrangements having the economic effect of guarantees endorsements
or other contingent or surety obligations with respect to obligations of others
whether or not reflected on the consolidated balance sheet of Borrower and its
Subsidiaries, including any obligation to furnish funds, directly or indirectly
(whether by virtue of partnership arrangements, by agreement to keep-well or
otherwise), through the purchase of goods, supplies or services, or by way of
stock purchase, capital contribution, advance or loan, termination of leases,
or to enter into a contract for any of the foregoing, for the purpose of
payment of obligations of any other person or entity. The amount of any
Guarantee shall be deemed equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee is made or, if not stated
or if indeterminable, the maximum reasonably anticipated liability in respect
thereof.
HAZARDOUS MATERIAL. Any substance (i) the presence of which requires
or may hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "controlled industrial waste"
or "pollutant" or "contaminant" under any present or future Environmental Law
or amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) and any applicable local statutes and the regulations promulgated
thereunder; (iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, the United States, any state
of the United States, or any political subdivision thereof to the extent any of
the foregoing has or had jurisdiction over Borrower and any of its
Subsidiaries; or (iv) without limitation, which contains gasoline, diesel fuel
or other petroleum products, asbestos or polychlorinated biphenyls ("PCB's").
INDEBTEDNESS. As applied to Borrower and its Subsidiaries, (i) all
obligations for borrowed money or other extensions of credit whether or not
secured or unsecured, absolute or contingent, including, without limitation,
unmatured reimbursement obligations with respect to letters of credit and all
obligations representing the deferred purchase price of property, other than
accounts payable arising in the ordinary course of business, (ii) all
obligations evidenced by bonds, notes, debentures or other similar instruments,
(iii) all obligations secured by any
6.
<PAGE> 12
mortgage, pledge, security interest or other lien on property owned or acquired
by Borrower or any of its Subsidiaries whether or not the obligations secured
thereby shall have been assumed, (iv) that portion of all obligations arising
under capital leases that is required to be capitalized on the consolidated
balance sheet of Borrower and its Subsidiaries, (v) all Guarantees, (vi) all
net obligations with respect to Rate Contracts, (vii) all obligations that are
immediately due and payable out of the proceeds of or production from property
now or hereafter owned or acquired by Borrower or any of its Subsidiaries, and
(viii) all off-balance sheet interest bearing debt, including, without
limitation, all scheduled obligations under the Lease.
INTEREST PERIOD. With respect to each LIBOR Loan, the period
commencing on the date of the making or continuation of or conversion to such
LIBOR Loan and ending one, two, three, six or twelve months thereafter, as
Borrower may elect in the applicable Notice of Borrowing or Conversion;
provided that:
(I) any Interest Period (other than an
Interest Period determined pursuant to clause (iii) below) that would
otherwise end on a day that is not a Business Day shall be extended to
the next succeeding Business Day unless, in the case of LIBOR Loans,
such Business Day falls in the next calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day;
(II) any Interest Period applicable to a
LIBOR Loan that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period) shall, subject
to clause (iii) below, end on the last Business Day of a calendar
month;
(III) any Interest Period during the
Revolving Credit Period that would otherwise end after the Final
Payment Date shall end on the Final Payment Date;
(IV) notwithstanding clause (ii) above,
no Interest Period applicable to a LIBOR Loan shall have a duration of
less than one month, and if any Interest Period applicable to such
Loans would be for a shorter period, such Interest Period shall not be
available hereunder.
INVESTMENT. As applied to Borrower and its Subsidiaries, the purchase
or acquisition of any share of capital stock, partnership interest, joint
venture interest, evidence of indebtedness or other equity security of any
other person or entity, any loan, advance or extension of credit to, or
contribution to the capital of, any other person or entity, any real estate
held for sale or investment, any commodities futures contracts held other than
in connection with bona fide hedging transactions, any other investment in any
other person or entity, and the making of any commitment or acquisition of any
option to make an Investment.
JOINT VENTURE. A corporation, partnership, joint venture or other
similar arrangement (whether created pursuant to contract or conducted through
a separate entity) now or hereafter formed or maintained by Borrower or any of
its subsidiaries with another person or entity in order to conduct a common
venture or enterprise with such person or entity.
7.
<PAGE> 13
LEASE. That certain Lease of the Land, dated as of July 6, 1995, by
and between Sumitomo Bank Leasing and Finance, Inc. and Borrower together with
a contemplated lease of land and/or facilities to be constructed on property
now or hereafter leased by Borrower.
LETTER OF CREDIT. Any letter of credit issued pursuant to Section 2.3
of this Agreement, and "Letters of Credit" means all such letters of credit,
collectively.
LIBOR LOAN. Any Loan bearing interest at a rate determined with
reference to the Adjusted LIBOR Rate.
LOAN. A loan made to Borrower by the Banks pursuant to Section 2.1(a)
of this Agreement, and "Loans" means all of such loans, collectively.
LOAN DOCUMENTS. Any and all of this Agreement, the Note, and any and
all other agreements, documents and instruments executed and delivered by or on
behalf or in support of Borrower to Agent or any Bank or their authorized
designee evidencing or otherwise relating to the Loans and the Letters of
Credit, on behalf of Banks, as the same may from time to time be amended,
modified, supplemented or renewed.
MAJORITY BANKS means at any time Banks then holding in excess of 50%
of the then aggregate unpaid principal amount of the Loans, or, if no such
principal amount is then outstanding, Banks then having in excess of 50% of the
Commitments.
MATERIAL ADVERSE EFFECT. (i) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, or
condition (financial or otherwise) of Borrower and its Subsidiaries taken as a
whole, which reasonably could result in a material impairment of the ability of
Borrower to perform under any Loan Document and avoid any Event of Default; or
(ii) a material adverse effect upon the legality, validity, binding effect or
enforceability of any Loan Document.
NOTE. A promissory note of Borrower, substantially in the form of
EXHIBIT A hereto, evidencing the obligation of Borrower to Agent to repay the
Loans.
NOTICE OF BORROWING OR CONVERSION. See Section 2.2.
OBLIGATIONS. Any and all obligations of Borrower to the Banks and/or
Agent arising in connection with this Agreement or the other Loan Documents of
every kind and description, direct or indirect, absolute or contingent, primary
or secondary, due or to become due, now existing or hereafter arising,
regardless of how they arise or by what agreement or instrument, if any, and
including obligations to perform acts and refrain from taking action as well as
obligations to pay money.
PBGC. The Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
PERMITTED ENCUMBRANCES. See Section 6.4.
8.
<PAGE> 14
PLAN. At any time, an employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by Borrower or any member
of the Controlled Group for employees of Borrower or any member of the
Controlled Group or (ii) if such Plan is established, maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which Borrower or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five Plan years made contributions.
QUALIFIED INVESTMENTS. As applied to Borrower and its Subsidiaries,
investments in (i) notes, bonds or other obligations of the United States of
America or any agency thereof that as to principal and interest constitute
direct obligations of or are guaranteed by the United States of America; (ii)
certificates of deposit or other deposit instruments or accounts or commercial
paper of FNBB; (iii) certificates of deposit or other deposit instruments or
accounts of banks or trust companies organized under the laws of the United
States or any state thereof that have capital and surplus of at least
$100,000,000, (iii) commercial paper that is rated not less than prime-one or
A-1 or their equivalents by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or their successors, and (iv) any repurchase
agreement secured by any one or more of the foregoing; (v) any Investments
permitted by Borrower's written and then current investment policy, as amended
from time to time, provided that such investment policy (and any such
amendments thereto) has been approved in writing by Requisite Banks, such
approval not to be unreasonably withheld.
RATE CONTRACTS. Interest rate and currency swap agreements, cap,
floor and collar agreements, interest rate insurance, currency spot and forward
contracts and other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
REQUIREMENT OF LAW. As to any person or entity, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
governmental authority, in each case applicable to or binding upon the person
or entity or any of its property is subject.
REQUISITE BANKS. At any time Banks then holding at least 70% of the
then aggregate unpaid principal amount of the Loans, or, if no such principal
amount is then outstanding, Banks then having at least 70% of the Commitments.
RESPONSIBLE OFFICER. The Chief Executive Officer, the Chief Financial
Officer, the President or Treasurer of Borrower or any other officer reporting
directly to any of them.
REVOLVING CREDIT PERIOD. The period beginning on the date of this
Agreement and extending through and including the Revolving Credit Termination
Date or such earlier date on which the Commitments to make Loans are terminated
or the Commitment Amount is reduced to zero in accordance with the terms
hereof.
REVOLVING CREDIT TERMINATION DATE. June 30, 1999.
9.
<PAGE> 15
SHARE REPURCHASE PROGRAM. Any Share Repurchase Program of Borrower
presented to, and approved by, the Board of Directors of Borrower, as such
program shall be amended and modified from time to time.
SUBSIDIARY. Any corporation, association, joint stock company,
business trust or other similar organization of which 50% or more of the
ordinary voting power for the election of a majority of the members of the
board of directors or other governing body of such entity is held or controlled
by Borrower or a Subsidiary of Borrower; or any other such organization the
management of which is directly or indirectly controlled by Borrower or a
Subsidiary of Borrower through the exercise of voting power or otherwise; or
any joint venture, whether incorporated or not, in which Borrower has a 50%
ownership interest.
SUBORDINATED DEBT. Any Indebtedness of Borrower that is subordinated
to the Obligations on terms approved in writing by Agent and Requisite Banks,
which approval may be given or withheld in their sole and absolute discretion.
1.2 ACCOUNTING TERMS. All terms of an accounting character shall
have the meanings assigned thereto by generally accepted accounting principles
applied on a basis consistent with the financial statements referred to in
Section 4.6 of this Agreement, modified to the extent, but only to the extent,
that such meanings are specifically modified herein.
SECTION II
DESCRIPTION OF CREDIT
2.1 THE LOANS.
(A) Subject to the terms and conditions hereof,
each Bank severally agrees to make Loans to Borrower up to the amount of its
Commitment, from and after the Effective Date and from time to time until the
close of business on the Revolving Credit Termination Date, in such sums as
Borrower may request, provided that the aggregate principal amount of all Loans
at any one time outstanding hereunder shall not exceed the Commitment Amount
less the aggregate principal amount undrawn under Letters of Credit then
outstanding (the "MAXIMUM AVAILABILITY"). Borrower may borrow, prepay pursuant
to Section 2.11 and reborrow, from the date of this Agreement until the
Revolving Credit Termination Date, the full amount of the Commitment Amount or
any lesser sum that is at least $1,000,000 and an integral multiple of
$100,000. Any Loan not repaid by the Final Payment Date shall be due and
payable on the Final Payment Date.
(B) Provided that no Default shall have occurred
and be continuing, Borrower may convert all or any part (in integral multiples
of $100,000) of any outstanding Loan into a Loan of any other type provided
for in this Agreement in the same aggregate principal amount, on any Business
Day (which, in the case of a conversion of a LIBOR Loan, shall be the last day
of the Interest Period applicable to such LIBOR Loan). Borrower shall give
Agent prior notice of each such conversion (which notice shall be effective
upon receipt) in accordance with Section 2.2.
10.
<PAGE> 16
(C) The obligation of Banks to make Loans and
issue or participate in Letters of Credit hereunder shall be limited at any
time to the Maximum Availability. Nothing contained in this Agreement shall
under any circumstance be deemed to require any Bank to make any Loan or
participate in the issuance of any Letter of Credit hereunder which, in the
aggregate principal amount, taking into account the making of such Loan or
participation in such Letter of Credit, exceeds such Bank's Commitment.
2.2 NOTICE AND MANNER OF BORROWING OR CONVERSION OF LOANS.
(A) Whenever Borrower desires to obtain or
continue a Loan hereunder or convert an outstanding Loan into a Loan of another
type provided for in this Agreement, Borrower shall notify Agent (which notice
shall be irrevocable) by telefax, telegraph or telephone received no later than
10:00 a.m. Boston time on the date one Business Day before the day on which the
requested Loan is to be made or continued as or converted to a Base Rate Loan,
and received no later than 10:00 a.m. Boston time on the date three (3)
Business Days before the day on which the requested Loan is to be made or
continued as or converted to a LIBOR Loan. Such notice shall specify (i) the
effective date and amount of each Loan or portion thereof to be continued or
converted, subject to the limitations set forth in Section 2.1, (ii) the
interest rate option to be applicable thereto, and (iii) the duration of the
applicable Interest Period, if any (subject to the provisions of the definition
of Interest Period and Section 2.7). Each such notification (a "NOTICE OF
BORROWING OR CONVERSION") shall be immediately followed by a written
confirmation thereof by Borrower in substantially the form of EXHIBIT B hereto,
provided that if such written confirmation of a notice given by telefax,
telegraph or telephone differs in any material respect from the action taken by
Agent, the records of Agent shall control absent manifest error.
(B) Agent shall promptly notify each Bank as to
the content of each Notice of Borrowing or Conversion and Agent's determination
as to whether conditions to the making of the Loan have been satisfied. Not
later than 12:00 noon, Boston time, on the date of such borrowing, each Bank
shall make available its pro rata share of such borrowing in immediately
available funds, by wiring the proceeds thereof to Agent for the account of
Borrower. Upon satisfaction of the applicable conditions precedent set forth
in Section 3, the amount of the Loan shall be credited in immediately available
funds to the Designated Deposit Account.
LETTERS OF CREDIT.
(A) Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
set forth herein, at any time and from time to time from the date hereof
through the Business Day immediately prior to the Revolving Credit Termination
Date, FNBB shall issue for the account of Borrower such standby letters of
credit ("LETTERS OF CREDIT") as Borrower may request, which request shall be
made by delivering to Agent a duly executed letter of credit application on
FNBB's standard form; provided that each such Letter of Credit (i) is
denominated in U.S. Dollars, (ii) supports an obligation maturing before the
Revolving Credit Termination Date, (iii) requires drawings based on sight
drafts, and (iv) is issuable without violating any Requirement of Law.
Notwithstanding anything to the contrary contained in this Agreement, upon
issuing any such Letter of Credit, the aggregate
11.
<PAGE> 17
principal amount undrawn under all Letters of Credit then outstanding shall not
exceed the Commitment Amount less the amount of all Loans then outstanding. No
Letter of Credit shall have an expiration date that is later than the earlier
of the Revolving Credit Termination Date or that date one year following the
date of issuance thereof.
(B) Unless otherwise expressly provided therein,
each beneficiary named by Borrower with respect to a Letter of Credit issued
hereunder shall be permitted to make full or partial draws under such Letter of
Credit. Upon the making of any draw under a Letter of Credit by such
beneficiary, the full amount of such draw shall be immediately due and payable
by Borrower to FNBB. FNBB shall immediately notify Borrower, Banks and Agent
of the amount of such draw and, upon receipt of such notice, each Bank shall be
deemed to have purchased a participation from FNBB in the original principal
amount of such Letter of Credit equal to an amount proportionate to such Bank's
pro rata share of the Commitment Amount.
(C) Upon receipt of notice from FNBB that
Borrower has not reimbursed FNBB for any payment made by FNBB under a Letter of
Credit hereunder, Agent shall, with notice to all Banks, cause a Base Rate Loan
to be made by Banks in an aggregate amount equal to the amount drawn under the
Letter of Credit (plus any unpaid commission). The proceeds of such Base Rate
Loan shall be applied to reimburse each Bank for such Bank's pro rata share of
the payment required to be made by FNBB under the Letter of Credit. In the
event that a Base Rate Loan shall be made to Borrower pursuant to this Section,
such Base Rate Loan shall be deemed to have been made as of the date of the
draw under the respective Letter of Credit and, except as contemplated in
Section 2.13 below, interest shall accrue thereon at the same rate as provided
for other Base Rate Loans under this Agreement.
(D) Without limiting Borrower's rights as set
forth in Section 2.3(e) below, the obligation of Borrower to immediately
reimburse FNBB for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement and such Letters of Credit, under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(I) Any lack of validity or
enforceability of the Letter of Credit, the obligation supported by the Letter
of Credit or any other agreement or instrument relating thereto (collectively,
the "RELATED DOCUMENTS");
(II) Any amendment or waiver of or any
consent to or departure from all or any of the Related Documents;
(III) The existence of any claim, set-off,
defense or other rights which Borrower may have at any time against any
beneficiary or any transferee of the Letter of Credit (or any persons or
entities for whom any such beneficiary or any such transferee may be acting),
Banks, Agent or any other person, whether in connection with the Loan
Documents, the Related Documents or any unrelated transaction;
12.
<PAGE> 18
(IV) Any breach of contract or other
dispute between Borrower and any beneficiary or any transferee of the Letter of
Credit (or any persons or entities for whom such beneficiary or any such
transferee may be acting), Banks, Agent or any other person;
(V) Any draft, statement or any other
document presented under the Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(VI) Any delay, extension of time,
renewal, compromise or other indulgence or modification granted or agreed to by
FNBB, with or without notice to or approval by Borrower in respect of any of
Borrower's indebtedness under this Agreement; or
(VII) Any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing.
(E) Borrower assumes all risks of the acts or
omissions of any beneficiary and any transferee of each Letter of Credit;
provided, however, this assumption with respect to Agent and Banks, including
FNBB, is not intended to, and shall not, preclude Borrower's pursuing such
rights and remedies as it may have against any such beneficiary or transferee
of a Letter of Credit at law or under any other agreement. Neither Agent, nor
any Bank, including FNBB, nor any of their officers or directors shall be
liable or responsible for: (i) the use which may be made of any Letter of
Credit or for any acts or omissions of any beneficiary and any transferee of
any Letter of Credit in connection therewith; (ii) the validity, sufficiency or
genuineness of documents, or of any endorsement(s) thereon, even if such
documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; or (iii) any other circumstances whatsoever
in making or failing to make payment under the Letter of Credit; provided,
however, notwithstanding anything to the contrary contained in the preceding
clauses (i), (ii) and (iii), Borrower shall have a claim against FNBB, and FNBB
shall be liable to Borrower for any direct damages, but not for any
consequential or punitive damages, suffered by Borrower which Borrower proves
were caused by FNBB's willful failure to pay under a Letter of Credit after the
presentation to it by any beneficiary (or person to whom such Letter of Credit
has been transferred in accordance with its terms) of a sight draft and
certificate strictly complying with the terms and conditions of such Letter of
Credit. In furtherance and not in limitation of the foregoing, FNBB may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
2.4 FEES AND COMMISSIONS.
(A) COMMITMENT FEE. Borrower shall pay to Agent for the
account of each Bank during the Revolving Credit Period a commitment fee
computed at a rate equal to the Applicable Fee times the average daily amount
of the unused portion of the Commitment Amount for the applicable period.
Commitment fees shall be payable quarterly in arrears, on the last day of June,
September, December and March of each year beginning September 30, 1996 for the
period beginning on the date hereof, and on the Final Maturity Date. Letters
of Credit issued hereunder shall be considered utilization for the purposes of
this Section 2.4(a).
13.
<PAGE> 19
(B) AGENT'S FEE. Borrower shall pay to Agent for Agent's
own account an agency fee in the amount and at the times set forth in a letter
agreement between Borrower and Agent dated the date hereof.
(C) COMMISSIONS. Borrower shall pay to Agent a
nonrefundable commission fee with respect to each Letter of Credit issued
hereunder equal to the Applicable Fee times the principal amount of such Letter
of Credit due and payable upon issuance, for the account of Banks according to
their pro rata portion of the Commitment Amount, plus a fee equal to one-eighth
of one percent (1/8 of 1%) times the principal amount of such Letter of Credit
for the account of FNBB as issuer of the Letter of Credit.
2.5 REDUCTION OF COMMITMENT AMOUNT. Borrower may from time to
time by written notice delivered to the Bank at least five Business Days prior
to the date of the requested reduction, reduce by integral multiples of
$5,000,000 any unborrowed portion of the Commitment Amount, provided that the
effect of such reduction shall not cause the principal amount of the Loans and
the undrawn amount of the Letters of Credit then outstanding to exceed the
Commitment Amount as so reduced. No reduction of the Commitment Amount shall
be subject to reinstatement.
2.6 THE NOTE.
(A) The Loans shall be evidenced by the Note, payable to
the order of Agent for the account of Banks in the Commitment Amount and having
a final maturity of the Final Payment Date. The Note shall be dated as of the
date hereof and shall have the blanks therein appropriately completed.
(B) Agent shall, and is hereby irrevocably authorized by
Borrower to, enter on the schedule forming a part of the Note or otherwise in
its records appropriate notations evidencing the date and the amount of each
Loan, the interest rate applicable thereto and the date and amount of each
payment of principal made by Borrower with respect thereto; and in the absence
of manifest error, such notations shall constitute conclusive evidence thereof.
Agent is hereby irrevocably authorized by Borrower to attach to and make a part
of the Note a continuation of any such schedule as and when required. No
failure on the part of Agent to make any notation as provided in this
subsection (b) shall in any way affect any Loan or the rights or obligations of
Banks or Borrower with respect thereto.
(C) Upon the request of any Bank made through the Agent,
the Loans made by such Bank may be evidenced by one or more notes in favor of
each Bank and Borrower shall, upon redelivery of the Note to Borrower,
substitute such notes in lieu of the Note. After such substitution, each Bank
shall endorse on the schedules annexed to the note(s) in its favor the date,
amount and maturity of each Loan made by it and the amount of each payment of
principal made by Borrower with respect thereto. Each Bank is irrevocably
authorized by Borrower to endorse the note(s) in its favor and each Bank's
record shall be conclusive absent manifest error; provided, however, that the
failure of a Bank to make, or an error in making, a notation thereon with
respect to any Loan shall not limit or otherwise affect the obligations of
Borrower
14.
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hereunder or under any such note to such Bank. After the substitution of notes
in favor of the Note as contemplated in this Agreement, each reference herein
to the Note shall refer to all such notes issued in substitution therefor.
2.7 DURATION OF INTEREST PERIODS.
(A) Subject to the provisions of the definition of
Interest Period, the duration of each Interest Period applicable to a Loan
shall be as specified in the applicable Notice of Borrowing or Conversion.
Subject to Section III, Borrower shall have the option to elect a subsequent
Interest Period to be applicable to such Loan by giving notice of such election
to the Bank received no later than 10:00 a.m. Boston time on the date one
Business Day before the end of the then applicable Interest Period if such Loan
is to be continued as or converted to a Base Rate Loan and three Business Days
before the end of the then applicable Interest Period if such Loan is to be
continued as or converted to a LIBOR Loan.
(B) If Agent does not receive a notice of election of
duration of an Interest Period for a LIBOR Loan pursuant to subsection (a)
above within the applicable time limits specified therein, or if, when such
notice must be given, a Default exists, Borrower shall be deemed to have
elected to convert such Loan in whole into a Base Rate Loan on the last day of
the then current Interest Period with respect thereto.
(C) Notwithstanding the foregoing, Borrower may not
select an Interest Period that would end, but for the provisions of the
definition of Interest Period, after the Final Maturity Date.
2.8 INTEREST RATES AND PAYMENTS OF INTEREST.
(A) Each Base Rate Loan shall bear interest on the
outstanding principal amount thereof at a rate per annum equal to the Base
Rate. Such interest shall be payable on the last day of each quarter
commencing June 30, 1996, and when such Loan is due (whether at maturity, by
reason of acceleration or otherwise).
(B) Each LIBOR Loan shall bear interest on the
outstanding principal amount thereof, for each Interest Period applicable
thereto, at a rate per annum equal to the Adjusted LIBOR Rate plus the
Applicable Margin. Such interest shall be payable for such Interest Period on
the last day thereof and when such LIBOR Loan is due (whether at maturity, by
reason of acceleration or otherwise) and, if such Interest Period is longer
than three months, at intervals of three months after the first day thereof.
2.9 CHANGED CIRCUMSTANCES; TAXES.
(A) In the event that:
(I) on any date on which the Adjusted LIBOR Rate
would otherwise be set, Agent or any Bank shall have determined in
good faith (which determination shall
15.
<PAGE> 21
be final and conclusive) that adequate and fair means do not exist for
ascertaining the London Interbank Offered Rate, or
(II) at any time Agent or any Bank shall have
determined in good faith (which determination shall be final and
conclusive) that:
(A) the making or continuation of or
conversion of any Loan to a LIBOR Loan has been made impracticable or
unlawful by (1) the occurrence of a contingency that materially and
adversely affects the London interbank eurodollar market or the market
for certificates of deposit maintained by dealers in New York City of
recognized standing or (2) compliance by any Bank in good faith with
any applicable law or governmental regulation, guideline or order or
interpretation or change thereof by any governmental authority charged
with the interpretation or administration thereof or with any request
or directive of any such governmental authority (whether or not having
the force of law); or
(B) the Adjusted LIBOR Rate shall no
longer represent the effective cost to any Bank for U.S. dollar
deposits in the interbank market for deposits in which it regularly
participates;
then, and in any such event, Agent shall forthwith so notify Borrower thereof.
Until such Bank notifies Borrower that the circumstances giving rise to such
notice no longer apply, the obligation of Agent to allow selection by Borrower
of the type of Loan affected by the contingencies described in this Section
2.9(a) (herein called "AFFECTED LOANS") shall be suspended. If at the time
Agent so notifies Borrower, Borrower has previously given Agent a Notice of
Borrowing or Conversion with respect to one or more Affected Loans but such
Loans have not yet gone into effect, such notification shall be deemed to be
void and Borrower may borrow Loans of a non-affected type by giving a
substitute Notice of Borrowing or Conversion pursuant to Section 2.2 hereof.
Upon such date as shall be specified in such notice (which shall not
be earlier than the date such notice is given) Borrower shall, with respect to
the outstanding Affected Loans, prepay the same, together with interest thereon
and any amounts required to be paid pursuant to Section 2.14, and may borrow a
Loan of another type in accordance with Section 2.1 hereof by giving a Notice
of Borrowing or Conversion pursuant to Section 2.2 hereof.
(B) In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or by any
governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(I) subjects Agent or any Bank to any tax with
respect to payments of principal or interest or any other amounts
payable hereunder by Borrower or otherwise with respect to the
transactions contemplated hereby (except for taxes on the overall net
income of any Bank imposed by the United States of America or any
political subdivision thereof), or
16.
<PAGE> 22
(II) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement
against assets held by, or deposits in or for the account of, or loans
by, any Bank (other than such requirements as are already included in
the determination of the Adjusted LIBOR Rate), or
(III) imposes upon any Bank any other condition
with respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to such Bank,
reduce the income receivable by such Bank or impose any expense upon such Bank
with respect to any Loans, such Bank shall notify Borrower thereof. Borrower
agrees to pay to such Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by such Bank of a statement in the
amount and setting forth the Bank's calculation thereof, which statement shall
be deemed true and correct absent manifest error; provided, however, that
Borrower shall not be liable for any such amount attributable to any period
prior to the date one hundred eighty (180) days prior to the date of such
statement.
(C)(I) Any and all payments by Borrower to each Bank
or Agent under this Agreement shall be made free and clear of, and without
deduction or withholding for, any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank and Agent, such taxes (including
income taxes or franchise taxes) as are imposed on or measured by each Bank's
net income by the jurisdiction under the laws of which such Bank or Agent, as
the case may be, is organized or maintains an office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"TAXES").
(II) In addition, Borrower shall pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents (hereinafter referred to as "OTHER
TAXES").
(III) Borrower shall indemnify and hold harmless
each Bank and Agent for the full amount of Taxes or Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.9(c)) paid by such Bank or Agent and any liability (including
penalties, interest, additions to tax and expenses, except for, in the event
such Bank or Agent fails to deliver notice of such assertion of Taxes or Other
Taxes to Borrower within ninety (90) days after it has received notice of such
assertion or imposition of Taxes or Other Taxes, any such penalties, interest
or expenses which would not have arisen but for the failure of such Bank or
Agent to so notify Borrower of such assertion or imposition of Taxes or Other
Taxes) arising therefrom or with respect thereto, whether or not such Taxes or
Other Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days from the date such Bank or Agent
makes written demand therefor.
17.
<PAGE> 23
(IV) If the Borrower shall be required by law to
deduct or withhold any Taxes or Other Taxes from or in respect of any sum
payable hereunder to any Bank or the Agent, then:
(A) the sum payable shall be increased
as necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.9(c)) such Bank or
Agent, as the case may be, receives an amount equal to the sum it would have
received had no such deductions been made;
(B) Borrower shall make such deductions;
and
(C) Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(V) Within 30 days after the date of payment by
Borrower of Taxes or Other Taxes, Borrower shall furnish to Agent the original
or a certified copy of a receipt evidencing payment thereof, or other evidence
of payment satisfactory to Agent.
2.10 CAPITAL REQUIREMENTS. If after the date hereof any Bank
determines that (i) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for banks or bank holding companies,
or any change in the interpretation or application thereof by any governmental
authority charged with the administration thereof, or (ii) compliance by such
Bank or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Bank's or such
holding company's capital as a consequence of such Bank's commitment to make
Loans hereunder to a level below that which such Bank or such holding company
could have achieved but for such adoption, change or compliance (taking into
consideration such Bank's or such holding company's then existing policies with
respect to capital adequacy and assuming the full utilization of such entity's
capital) by any amount deemed by such Bank to be material, then such Bank shall
notify Borrower thereof. Borrower agrees to pay to such Bank the amount of
such reduction in the return on capital as and when such reduction is
determined, upon presentation by such Bank of a statement in the amount and
setting forth such Bank's calculation thereof, which statement shall be deemed
true and correct absent manifest error; provided, however, that Borrower shall
not be liable for any such amount attributable to any period prior to the date
one hundred eighty (180) days prior to the date of such statement. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
2.11 PAYMENTS AND PREPAYMENTS OF THE LOANS. Loans that are LIBOR
Loans may be prepaid without premium or penalty on the last day of any Interest
Period applicable thereto and, subject to payment of amounts required pursuant
to Section 2.14, may be prepaid at any other time, in each case upon three
Business Days' irrevocable notice. Loans that are Base Rate Loans may be
prepaid at any time, without premium or penalty, upon one Business Day's
irrevocable notice. If such notice is given by Borrower, Borrower shall make
such prepayment and the payment amount specified in such notice shall be due
and payable on the date specified therein, together with accrued interest to
each such date on the amount prepaid and any amounts
18.
<PAGE> 24
required pursuant to Section 2.14. No prepayment of the Loans during the
Revolving Credit Period shall affect the Commitment Amount or impair Borrower's
right to borrow as set forth in Section 2.1.
2.12 METHOD OF PAYMENT. All payments and prepayments of principal
and all payments of interest, fees and other amounts payable hereunder shall be
made by Borrower to Agent for the account of each Bank at 100 Federal Street,
Boston, Massachusetts in immediately available funds, on or before 2:00 p.m.
(Boston time) on the due date thereof, free and clear of, and without any
deduction or withholding for, any taxes or other payments and without set-off,
recoupment or counterclaim. Agent may, and Borrower hereby authorizes Agent
to, debit the amount of any payment not made by such time to the Designated
Deposit Account of Borrower with Agent. Agent will promptly distribute to each
Bank its share of such payment according to each Bank's Commitment (or other
applicable share as expressly provided herein) of such principal, interest,
fees or other amounts, in like funds as received. Any payment which is
received by Agent later than 2:00 p.m. (Boston time) shall be deemed to have
been received on the immediately succeeding Business Day and any applicable
interest or fee shall continue to accrue.
2.13 OVERDUE PAYMENTS. Overdue principal (whether at maturity, by
reason of acceleration or otherwise) and, to the extent permitted by applicable
law, overdue interest and fees or any other amounts payable hereunder or under
the Note shall bear interest from and including the due date thereof until
paid, compounded daily and payable on demand, at a rate per annum equal to (a)
if such due date occurs prior to the end of an Interest Period, 2% above the
interest rate applicable to such Loan for such Interest Period until the
expiration of such Interest Period, and thereafter, 2% above the Base Rate; and
(b) in all other cases, 2% above the rate then applicable to Base Rate Loans.
2.14 PAYMENTS NOT AT END OF INTEREST PERIOD. If Borrower for any
reason makes any payment of principal with respect to any LIBOR Loan on any day
other than the last day of an Interest Period applicable to such LIBOR Loan, or
fails to borrow or continue or convert to a LIBOR Loan after giving a Notice of
Borrowing or Conversion pursuant to Section 2.2, Borrower shall pay to Agent
for the account of each Bank an amount computed pursuant to the following
formula:
L = (R - T) x P x D
---------------
360
L = amount payable to Agent for the account of the Banks
R = interest rate on such Loan
T = effective interest rate per annum at which any
readily marketable bond or other obligation of the
United States, selected at FNBB's sole discretion,
maturing on or near the last day of the then
applicable Interest Period of such Loan and in
approximately the same amount as such Loan can be
purchased by FNBB on the day of such payment of
principal or failure to borrow or continue or convert
P = the amount of principal prepaid or the amount of the
requested Loan
19.
<PAGE> 25
D = the number of days remaining in the Interest Period
as of the date of such payment or the number of days
of the requested Interest Period
Borrower shall pay such amount upon presentation by Agent of a statement
setting forth the amount and Agent's calculation thereof pursuant hereto, which
statement shall be deemed true and correct absent manifest error.
2.15 COMPUTATION OF INTEREST AND FEES. All calculations of
interest and fees under this Agreement and the Note for any period (a) shall
include the first day of such period and exclude the last day of such period
and (b) shall be calculated on the basis of a year of 360 days for actual days
elapsed, except that during any period any Loan bears interest based upon the
Base Rate, such interest shall be calculated on the basis of a year of 365 or
366 days, as appropriate, for actual days elapsed. If the due date for any
payment of principal is extended by operation of law, interest shall be payable
for such extended time. If any payment required by this Agreement becomes due
on a day that is not a Business Day such payment may be made on the next
succeeding Business Day (subject to clause (i) of the definition of Interest
Period), and such extension shall be included in computing interest in
connection with such payment.
SECTION III
CONDITIONS OF LOAN
3.1 CONDITIONS PRECEDENT TO INITIAL LOAN. The effectiveness of
the Commitment of the Banks and the obligation of the Banks to make the initial
Loan and to issue the first Letter of Credit hereunder is subject to the
condition precedent that the Banks shall have received prior to 5:00 p.m. on
June 28, 1996, in form and substance satisfactory to the Banks and their
respective counsel, the following:
(A) this Agreement and the Note, duly executed by
Borrower;
(B) a certificate of the Secretary or an Assistant
Secretary of Borrower with respect to resolutions of its Board of Directors
authorizing the execution and delivery of this Agreement and the Loan Documents
and identifying the officer(s) authorized to execute, deliver and take all
other actions required under this Agreement and the Loan Documents, and
providing specimen signatures of such officers;
(C) the certificate of incorporation of Borrower and all
amendments and supplements thereto, filed in the office of the Secretary of
State of the state of its incorporation, each certified by said Secretary of
State as being a true and correct copy thereof;
(D) the Bylaws of Borrower and all amendments and
supplements thereto, certified by its Secretary or an Assistant Secretary as
being a true and correct copy thereof;
(E) a certificate of the Secretary of State of as to
legal existence and good standing in the state of its incorporation and listing
all documents on file in the office of said Secretary of State;
20.
<PAGE> 26
(F) a certificate of the California Franchise Tax Board
and the Delaware Secretary of State as to the tax good standing of Borrower;
(G) an opinion addressed to Agent from Wilson, Sonsini,
Goodrich & Rosati in the form of EXHIBIT D hereto;
(H) certified copies, dated close to the date hereof, of
requests for copies or information (Form UCC-3 or equivalent), or certificates,
dated close to the date hereof, satisfactory to Banks, of a UCC Reporter
Service, listing all effective financing statements which name Borrower and/or
each of Borrower's domestic Subsidiaries as debtor and which are filed in the
appropriate offices in the State of California, together with copies of such
financing statements, and accompanied by written evidence (including UCC
termination statements) satisfactory to Banks that the Encumbrances indicated
in any such financing statements are either permitted hereunder or have been
terminated or released;
(I) payment from Borrower of the commitment and facility
fees set forth in Section 2.4 hereof;
(J) payment from Borrower of an amount equal to the
aggregate of Agent's and Banks' good faith estimate of all fees (including
reasonable attorneys' fees), costs, expenses and other disbursements incurred
by Agent and Banks in connection with this Agreement and the transactions
contemplated hereunder, including, without limitation, the negotiation and
preparation of this Agreement and the other Loan Documents, which payment shall
be subject to post-closing adjustment following receipt by Agent of all final
invoices;
(K) the Disclosure Letter, duly executed by Borrower;
(L) a copy of Borrower's current written investment
policy certified by Borrower's Chief Financial Officer as being a true and
correct copy thereof;
(M) an executed original of letter agreement regarding
Agent's fee contemplated under Section 2.4(b);
(N) an executed original of the Report of Chief Financial
Officer in the form of EXHIBIT C hereto dated as of the date of such initial
loan showing Borrower's financial condition as of the last day of the quarter
most recently ended; and
(O) such other documents, and completion of such other
matters, as counsel for the Banks may deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the
Banks to make each Loan, including the initial Loan, or continue or convert
Loans to Loans of another type, or to issue, extend or modify any Letter of
Credit, is further subject to the following conditions:
(A) timely receipt by Agent of the Notice of Borrowing or
Conversion as provided in Section 2.2 or letter of credit application as
provided in Section 2.3;
21.
<PAGE> 27
(B) the representations and warranties contained in
Section IV shall be true and accurate in all material respects on and as of the
date of such Notice of Borrowing or Conversion and on the effective date of the
making, continuation or conversion of each Loan or issuance of each Letter of
Credit as though made at and as of each such date (except to the extent that
such representations and warranties expressly relate to an earlier date), and
no Default shall have occurred and be continuing, or would result from such
Loan or Letter of Credit;
(C) the resolutions referred to in Section 3.1(b) shall
remain in full force and effect; and
(D) no change shall have occurred in any law or
regulation or interpretation thereof that, in the opinion of counsel for Agent
or any Bank, would make it illegal or against the policy of any governmental
agency or authority for the Banks to make Loans or issue Letters of Credit
hereunder.
The making of each Loan and issuance of each Letter of Credit shall be
deemed to be a representation and warranty by Borrower on the date of the
making, continuation or conversion of such Loan and issuance of such Letter of
Credit as to the accuracy of the facts referred to in subsection (b) of this
Section 3.2.
SECTION IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement and to make
Loans and issue Letters of Credit hereunder, Borrower represents and warrants
to the Banks that:
4.1 ORGANIZATION AND QUALIFICATION. Each of Borrower and its
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and as presently contemplated and (c) is duly qualified and in good
standing as a foreign corporation and is duly authorized to do business in each
jurisdiction where the nature of its properties or business requires such
qualification except where the failure to so qualify cannot reasonably be
expected to have a Material Adverse Effect.
4.2 CORPORATE AUTHORITY. The execution, delivery and performance
of this Agreement and the Loan Documents and the transactions contemplated
hereby are within the corporate power and authority of Borrower and have been
authorized by all necessary corporate proceedings, and do not and will not (a)
require any consent or approval of the stockholders of Borrower, (b) contravene
any provision of the charter documents or by-laws of Borrower or any law, rule
or regulation applicable to Borrower, (c) contravene any provision of, or
constitute an event of default or event that, but for the requirement that time
elapse or notice be given, or both, would constitute an event of default under,
any other agreement, instrument, order or undertaking binding on Borrower, or
(d) result in or require the imposition of any Encumbrance on any of the
properties, assets or rights of Borrower.
22.
<PAGE> 28
4.3 VALID OBLIGATIONS. This Agreement and the Loan Documents and
all of their respective terms and provisions are the legal, valid and binding
obligations of Borrower, enforceable in accordance with their respective terms
except as limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights generally, and except
as the remedy of specific performance or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
4.4 CONSENTS OR APPROVALS. The execution, delivery and
performance of this Agreement and the Loan Documents and the transactions
contemplated herein do not require any approval or consent of, or filing or
registration with, any governmental or other agency or authority, or any other
party.
4.5 TITLE TO PROPERTIES; ABSENCE OF ENCUMBRANCES. Each of
Borrower and its Subsidiaries has good and marketable title to all of the
properties, assets and rights of every name and nature now purported to be
owned by it, including, without limitation, such properties, assets and rights
as are reflected in the financial statements referred to in Section 4.6 (except
such properties, assets or rights as have been disposed of in the ordinary
course of business since the date thereof), free from all Encumbrances except
Permitted Encumbrances.
4.6 FINANCIAL STATEMENTS. Borrower has furnished Agent its
consolidated balance sheet as of June 30, 1995 and its consolidated statements
of income, changes in stockholders' equity and cash flow for the fiscal year
then ended, and related footnotes, audited and certified by KPMG Peat Marwick.
Borrower has also furnished Agent its consolidated balance sheet as of March
31, 1996 and its consolidated statements of income, changes in stockholders'
equity and cash flow for the nine months then ended, certified by the chief
financial officer of Borrower but subject, however, to normal, recurring
year-end adjustments that shall not in the aggregate be material in amount.
All such financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods specified and present fairly the consolidated financial position of
Borrower and its Subsidiaries as of such dates and the results of the
consolidated operations of Borrower and its Subsidiaries for such periods.
There are no liabilities, contingent or otherwise, as of the respective dates
of such financial statements not disclosed in such financial statements that
involve a material amount.
4.7 CHANGES. Since the date of the most recent financial
statements referred to in Section 4.6, there have been no changes in the
assets, liabilities, financial condition, or business of Borrower or any of its
Subsidiaries other than changes in the ordinary course of business, the effect
of which has not, in the aggregate, been materially adverse.
4.8 DEFAULTS. As of the date of this Agreement, no Default
exists.
4.9 TAXES. Borrower and each Subsidiary have filed all federal,
state and other tax returns required to be filed, and all taxes, assessments
and other governmental charges due from Borrower and each Subsidiary have been
fully paid or Borrower or such Subsidiary has established on its books reserves
adequate for the payment of all federal, state and other tax liabilities.
23.
<PAGE> 29
4.10 LITIGATION. Except as set forth in the Disclosure Letter,
there is no litigation, arbitration, proceeding or investigation pending, or,
to the knowledge of any Responsible Officer of Borrower or any Subsidiary,
threatened, against Borrower or any Subsidiary that, if adversely determined,
could result in a forfeiture of all or any substantial part of the property of
Borrower or its Subsidiary or could otherwise have a Material Adverse Effect.
4.11 USE OF PROCEEDS. Borrower does not own any "margin security",
as that term is defined in Regulations G and U of the Federal Reserve Board,
and the proceeds of the Loans and draws under Letters of Credit under this
Agreement will be used only for the purposes contemplated hereunder. None of
the Loans or Letters of Credit will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security, for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans or Letters of Credit under this Agreement to be considered a "purpose
credit" within the meaning of Regulations G, T, U or X.
4.12 SUBSIDIARIES. As of the date of this Agreement, all the
Subsidiaries of Borrower are listed on SCHEDULE 4.12 hereto. Borrower or a
Subsidiary of Borrower is the owner, free and clear of all Encumbrances, of all
of the issued and outstanding stock of each such Subsidiary other than shares
of Borrower's foreign Subsidiaries issued to directors to meet foreign
ownership requirements. All shares of such stock have been validly issued and
are fully paid and nonassessable, and no rights to subscribe to any additional
shares have been granted, and no options, warrants or similar rights are
outstanding.
4.13 INVESTMENT COMPANY ACT. Neither Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
4.14 COMPLIANCE WITH ERISA. Borrower and each member of the
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the applicable provisions of ERISA and the Code,
and have not incurred any liability to the PBGC or a Plan under Title IV of
ERISA; and no "prohibited transaction" or "reportable event" (as such terms are
defined in ERISA) has occurred with respect to any Plan.
4.15 ENVIRONMENTAL MATTERS.
(A) Borrower and each of its Subsidiaries have obtained
all permits, licenses and other authorizations which are required under all
Environmental Laws, except to the extent failure to have any such permit,
license or authorization would not have a Material Adverse Effect. Borrower
and each of its Subsidiaries are in compliance in all material respects with
the terms and conditions of all such permits, licenses and authorizations, and
are also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law or in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply
would not
24.
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have a material adverse effect on the business, financial condition or
operations of Borrower and its Subsidiaries.
(B) No notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no investigation or review is pending
or threatened by any governmental or other entity with respect to any alleged
failure by Borrower or any of its Subsidiaries to have any permit, license or
authorization required in connection with conduct of its business or with
respect to any Environmental Laws, including, without limitation, Environmental
Laws relating to the generation, treatment, storage, recycling, transportation,
disposal or release of any Hazardous Materials, except to the extent that such
notice, complaint, penalty or investigation did not or could not result in the
remediation of any property owned or used by Borrower or any of its
Subsidiaries costing in excess of $100,000 per occurrence or $100,000 in the
aggregate.
(C) To the best of Borrower's knowledge no material oral
or written notification of a release of a Hazardous Material has been filed by
or on behalf of Borrower or any of its Subsidiaries and no property now or
previously owned, leased or used by Borrower or any of its Subsidiaries is
listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended, or on any similar state list of sites requiring investigation or
clean-up.
(D) There are no liens or encumbrances arising under or
pursuant to any Environmental Laws on any of the real property or properties
owned, leased or used by Borrower or any of its Subsidiaries and no
governmental actions have been taken or are in process which could subject any
of such properties to such liens or encumbrances or, as a result of which
Borrower would be required to place any notice or restriction relating to the
presence of Hazardous Materials at any property owned by it in any deed to such
property.
(E) Neither Borrower nor any of its Subsidiaries, nor, to
the best knowledge of Borrower, any previous owner, tenant, occupant or user of
any property owned, leased or used by Borrower or any of its Subsidiaries, has
(i) engaged in or permitted any operations or activities upon or any use or
occupancy of such property, or any portion thereof, for the purpose of or in
any way involving the handling, manufacture, treatment, storage, use,
generation, release, discharge, refining, dumping or disposal (whether legal or
illegal, accidental or intentional) of any Hazardous Materials on, under, in or
about such property, except to the extent commonly used in day-to-day
operations of such property and in such case only, in compliance with all
Environmental Laws, or (ii) transported any Hazardous Materials to, from or
across such property except to the extent commonly used in day-to-day
operations of such property and, in such case, in compliance with, all
Environmental Laws; nor to the best knowledge of Borrower have any Hazardous
Materials migrated from other properties upon, about or beneath such property,
nor, to the best knowledge of Borrower, are any Hazardous Materials presently
constructed, deposited, stored or otherwise located on, under, in or about such
property except to the extent commonly used in day-to-day operations of such
property and, in such case, in compliance with, all Environmental Laws.
25.
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4.16 COMPLIANCE WITH OTHER LAWS. Except with respect to the
matters set forth in Section 4.14 and 4.15 above, Borrower and each of its
Subsidiaries are in compliance in all material respects with the requirements
of all applicable laws, rules, regulations, orders, writs, judgments, decrees,
determinations and awards of any governmental agency, non-compliance with which
would have a Material Adverse Effect.
SECTION V
AFFIRMATIVE COVENANTS
So long as the Banks have any commitment to lend hereunder or any
Loan, Letter of Credit or other Obligation hereunder remains outstanding, and
unless Requisite Banks shall otherwise consent in writing, Borrower covenants
as follows:
5.1 FINANCIAL STATEMENTS AND OTHER REPORTING REQUIREMENTS.
Borrower shall furnish to the Banks in form and detail satisfactory to Agent
and Requisite Banks:
(A) as soon as available, but in any event within 95 days
after the end of each of its fiscal years, a consolidated and consolidating
balance sheet as of the end of, and a related consolidated and consolidating
statements of income, changes in stockholders' equity and cash flow for, such
year, audited and certified by KPMG Peat Marwick or other independent certified
public accountant acceptable to the Banks) in the case of such consolidated
statements, and certified by the chief financial officer in the case of such
consolidating statements; and, concurrently with such financial statements, a
copy of said certified public accountant's management report;
(B) as soon as available, but in any event within 45 days
after the end of each of its fiscal quarters, a consolidated and consolidating
balance sheet as of the end of, and a related consolidated and consolidating
statements of income and cash flow for, the period then ended, certified by the
chief financial officer of Borrower but subject, however, to normal, recurring
year-end adjustments that shall not in the aggregate be material in amount;
(C) concurrently with the delivery of each financial
statement pursuant to subsections (a) and (b) of this Section 5.1, a report in
substantially the form of EXHIBIT C hereto signed on behalf of Borrower by its
chief financial officer;
(D) promptly after the receipt thereof by Borrower,
copies of any final reports submitted to Borrower by independent public
accountant in connection with any interim review of the accounts of Borrower
made by such accountant;
(E) promptly after the same are available, copies of all
proxy statements, financial statements and reports as Borrower shall send to
its stockholders generally and copies of all final registration statements
(other than on form S-8 or other registration statements relating to option
plans) and material reports (in each case without exhibits) as Borrower may
file with the Securities and Exchange Commission;
26.
<PAGE> 32
(F) if and when Borrower gives or is required to give
notice to the PBGC of any "Reportable Event" (as defined in Section 4043 of
ERISA) with respect to any Plan that might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that any member of the
Controlled Group or the plan administrator of any Plan has given or is required
to give notice of any such Reportable Event, a copy of the notice of such
Reportable Event given or required to be given to the PBGC;
(G) immediately upon a Responsible Officer becoming aware
of the existence of any condition or event that constitutes a Default, written
notice thereof specifying the nature and duration thereof and the action being
or proposed to be taken with respect thereto;
(H) promptly upon a Responsible Officer becoming aware of
any litigation or of any investigative proceedings by a governmental agency or
authority commenced or threatened against Borrower or any of its Subsidiaries
of which it has notice, the outcome of which would or might have a Material
Adverse Effect, written notice thereof and the action being or proposed to be
taken with respect thereto;
(I) promptly upon a Responsible Officer becoming aware of
any investigative proceedings by a governmental agency or authority commenced
or threatened against Borrower or any of its Subsidiaries regarding any
potential violation of Environmental Laws or any spill, release, discharge or
disposal of any Hazardous Material, written notice thereof and the action being
or proposed to be taken with respect thereto; and
(J) from time to time, such other financial data and
information about Borrower or its Subsidiaries as any of the Banks may
reasonably request.
5.2 CONDUCT OF BUSINESS. Borrower shall and shall cause its
Subsidiaries to:
(A) duly observe and comply with all applicable laws and
valid requirements of any governmental authorities relative to its corporate
existence, rights and franchises, to the conduct of its business and to its
property and assets (including without limitation all Environmental Laws and
ERISA), and shall maintain and keep in full force and effect all licenses and
permits necessary to the proper conduct of its business except where failure to
do so cannot be expected to have a Material Adverse Effect;
(B) maintain its corporate existence, provided, however,
that the corporate existence of any Subsidiary may be terminated if, in the
good faith judgment of the Board of Directors of Borrower, such termination is
in the best interests of Borrower and its Subsidiaries taken as a whole; and
(C) remain engaged substantially in the business of
manufacturing, marketing and supporting voice information processing systems
and software and activities reasonably related or incidental thereto.
5.3 MAINTENANCE AND INSURANCE. Borrower shall maintain and cause
its Subsidiaries to maintain its properties in good repair, working order and
condition as required for the normal
27.
<PAGE> 33
conduct of its business. Borrower shall at all times maintain and cause its
Subsidiaries to maintain liability and casualty insurance covering their
respective properties and assets, with financially sound and reputable insurers
in such amounts as the respective officers in the exercise of their reasonable
judgment deem to be adequate.
5.4 TAXES. Borrower shall pay or cause to be paid all taxes,
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due;
provided that this covenant shall not apply to any tax, assessment or charge
that is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been established and are being
maintained in accordance with generally accepted accounting principles if no
lien shall have been filed to secure such tax, assessment or charge.
5.5 INSPECTION BY THE BANK. Borrower shall permit Agent, the
Banks or their designees, at any reasonable time, and upon reasonable notice
(or if a Default shall have occurred and is continuing, at any time and without
prior notice), to (i) visit and inspect the properties of Borrower and its
Subsidiaries, (ii) examine and make copies of and take abstracts from the books
and records of Borrower and its Subsidiaries, and (iii) discuss the affairs,
finances and accounts of Borrower and its Subsidiaries with their appropriate
officers, employees and accountants. In handling such information, each of
Agent and the Banks shall exercise the same degree of care that it exercises
with respect to its own proprietary information of the same types to maintain
the confidentiality of any non-public information thereby received or received
pursuant to subsections 5.1(a), (b), or (c) except that disclosure of such
information may be made (i) to the subsidiaries or affiliates of Agent and the
Banks in connection with their present or prospective business relations with
Borrower, (ii) to prospective transferees or purchasers of an interest in the
Loans, (iii) as required by law, regulation, rule or order, subpoena, judicial
order or similar order and (iv) as may be required in connection with the
examination, audit or similar investigation of Agent or the Banks.
5.6 MAINTENANCE OF BOOKS AND RECORDS. Borrower shall keep and
Borrower shall cause its Subsidiaries to keep adequate-books and records of
account, in which true and complete entries will be made reflecting all of its
business and financial transactions, and such entries will be made in
accordance with generally accepted accounting principles consistently applied
and applicable law.
5.7 FINANCIAL COVENANTS. Borrower agrees and understands that the
following financial covenants shall be subject to quarterly compliance (as
measured on the last day of each fiscal quarter of Borrower), and in each case
review by Banks of the respective fiscal quarter's consolidated financial
statements delivered to Agent by Borrower pursuant to Section 5.1:
(A) QUICK RATIO. Borrower shall maintain a ratio of (i)
the sum of cash, short term Qualified Investments and accounts receivable on a
consolidated basis to (ii) Consolidated Current Liabilities plus, to the extent
not already included as Consolidated Current Liabilities, the principal amount
of Loans and the principal amount undrawn under Letters of Credit then
outstanding of at least 1.00:1.00.
28.
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(B) PROFITABILITY.
(I) Borrower shall not in any fiscal
quarter have an operating and/or net loss on a consolidated basis greater than
ten percent (10%) of Borrower's Consolidated Tangible Net Worth as of the end
of such fiscal quarter; and
(II) Borrower shall not have an operating
and/or net loss on a consolidated basis over any two consecutive fiscal
quarters (considered as a single period) greater than ten percent (10%) of
Borrower's Consolidated Tangible Net Worth as of the end of such fiscal
quarter.
(III) Borrower shall not have an operating
and/or net loss on a consolidated basis in any three consecutive fiscal
quarters as measured quarterly for that fiscal quarter and each of the
immediately preceding two fiscal quarters.
(IV) Borrower shall not have an operating
and/or net loss on a consolidated basis over any four consecutive fiscal
quarters (considered as a single period).
For the purposes of calculating operating and net losses under this Section
5.7(b), up to $25,000,000 (in the aggregate from and after the date hereof) of
expenses attributable to non-cash charges taken in connection with Acquisitions
otherwise permitted hereunder shall be excluded.
(C) LEVERAGE RATIO. Borrower shall maintain a ratio of
Consolidated Total Liabilities (including the undrawn amount of all outstanding
Letters of Credit) to Consolidated Tangible Net Worth not to exceed 0.75:1.00.
(D) CONSOLIDATED TANGIBLE NET WORTH. Borrower shall
maintain Consolidated Tangible Net Worth of at least $291,000,000, PLUS (i) a
minimum of 75% of quarterly net income (after taxes) for each fiscal quarter
after March 31, 1996 in which net income shall be positive, PLUS (ii) 100% of
any new equity raised after March 31, 1996, MINUS (iii) 100% of the cost of
repurchases by Borrower of its capital stock after March 31, 1996 in an
aggregate amount of up to $25,000,000, and MINUS (iv) up to $25,000,000 of
expenses attributable to non-cash charges taken in connection with Acquisitions
otherwise permitted hereunder.
5.8 USE OF PROCEEDS. Borrower will use the proceeds of the Loans
and the Letters of Credit for general corporate purposes and not in
contravention of any Requirement of Law. Without limiting the foregoing,
Borrower will not take or permit any agent acting on its behalf to take any
action which might cause this Agreement or any document or instrument delivered
pursuant hereto to violate any regulation of the Federal Reserve Board.
5.9 FURTHER ASSURANCES. At any time and from time to time
Borrower shall, and shall cause each of its Subsidiaries to, execute and
deliver such further instruments and take such further action as may reasonably
be requested by Agent or Requisite Banks to effect the purposes of this
Agreement and the Loan Documents.
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SECTION VI
NEGATIVE COVENANTS
So long as the Banks have any commitment to lend hereunder or any
Loan, Letter of Credit or other Obligation remains outstanding, and unless
Requisite Banks shall otherwise consent in writing, Borrower covenants as
follows:
6.1 INDEBTEDNESS. Neither Borrower nor any of its Subsidiaries
shall create, incur, assume, guarantee or be or remain liable with respect to
any Indebtedness other than the following:
(A) Indebtedness of Borrower or any of its Subsidiaries
to the Banks or any of their affiliates;
(B) Indebtedness existing as of the date of this
Agreement and disclosed on SCHEDULE 6.1 hereto, in the financial statements
referred to in Section 4.6 and other Indebtedness of a type set forth on
Schedule 6.1 hereto;
(C) Indebtedness secured by Permitted Encumbrances;
(D) Indebtedness arising from a purchase money mortgage
or other purchase money financing of the Existing Campus, provided, however,
that such Indebtedness shall not exceed the appraised value of the Existing
Campus at the time such mortgage or other financing is made;
(E) Indebtedness incurred in favor of Banks after notice
to Agent and all other Banks hereunder;
(F) Guarantees permitted under Section 6.2;
(G) Except as such may be limited by Section 6.9 below,
Indebtedness of any wholly owned Subsidiary to Borrower, Indebtedness of
Borrower to any Subsidiary and Indebtedness of any Subsidiary to any other
Subsidiary;
(H) Indebtedness incurred by Borrower or by wholly owned
Subsidiaries of Borrower to finance leases of Borrower's products in the
ordinary course of business;
(I) Indebtedness constituting royalty obligations to
licensors incurred in the ordinary course of business;
(J) Indebtedness under the Lease up to a maximum of
$40,000,000 of total obligations payable at any time upon any termination
thereof;
(K) other Indebtedness of Borrower or any Subsidiary
which, when taken together with all outstanding Contingent Liabilities
permitted hereunder only by virtue of Section
30.
<PAGE> 36
6.2(h), does not at any time exceed an aggregate outstanding principal amount
equal to ten percent (10%) of Consolidated Tangible Net Worth as of the end of
the preceding fiscal quarter; and
(L) extensions, refinancings, modifications, amendments
and restatements of any of items of indebtedness set forth in (a) through (j)
above, provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
6.2 CONTINGENT LIABILITIES. Neither Borrower nor any of its
Subsidiaries shall create, incur, assume or remain liable with respect to any
Contingent Liabilities other than the following:
(A) Guarantees in favor of the Banks or any of their
affiliates;
(B) Guarantees existing on the date of this Agreement and
disclosed on SCHEDULE 6.2 hereto or in the financial statements referred to in
Section 4.6;
(C) Guarantees resulting from the endorsement of
negotiable instruments for collection in the ordinary course of business;
(D) Guarantees with respect to surety, appeal performance
and return-of-money and other similar obligations incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed money)
not exceeding in the aggregate at any time $5,000,000;
(E) Guarantees of normal trade debt relating to the
acquisition of goods and supplies;
(F) Contingent Liabilities undertaken pursuant to
Borrower's Share Repurchase Program;
(G) Except as such may be limited by Section 6.9 below,
Contingent Liabilities of any Subsidiary with respect to the obligations of
Borrower, Contingent Liabilities of Borrower with respect to the obligations of
any wholly owned Subsidiary and Contingent Liabilities of any Subsidiary with
respect to the obligations of any other Subsidiary;
(H) Contingent Liabilities which, when taken together
with all outstanding Indebtedness permitted hereunder only by virtue of Section
6.1(k), does not exceed an amount equal to ten percent (10%) of Consolidated
Tangible Net Worth as of the end of the preceding fiscal quarter.
6.3 SALE AND LEASEBACK. Neither Borrower nor any of its
Subsidiaries shall enter into any arrangement, directly or indirectly, whereby
it shall sell or transfer any property owned by it in order to lease such
property or lease other property that Borrower or any of its Subsidiaries
intends to use for substantially the same purpose as the property being sold or
transferred; except that Borrower may enter into a sale and leaseback of (a)
the Existing Campus
31.
<PAGE> 37
as part of the long term financing thereof, and (b) personal property the
maximum consideration of which shall not exceed a total of $5,000,000 for all
such leases incurred after the date hereof.
6.4 ENCUMBRANCES. Neither Borrower nor any of its Subsidiaries
shall create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance, including the lien or retained
security title of a conditional vendor upon or with respect to any of its
property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right to
receive income, including the sale or discount of accounts receivable with or
without recourse, except the following ("PERMITTED ENCUMBRANCES"):
(A) Encumbrances in favor of the Banks or any of their
affiliates;
(B) Encumbrances existing as of the date of this
Agreement and disclosed on SCHEDULE 6.4 hereto;
(C) liens for taxes, fees, assessments and other
governmental charges to the extent that payment of the same may be postponed or
is not required in accordance with the provisions of Section 5.4;
(D) landlords' and lessors' liens in respect of rent not
in default or liens in respect of pledges or deposits under workmen's
compensation, unemployment insurance, social security laws, or similar
legislation (other than ERISA) or in connection with appeal and similar bonds
incidental to litigation; mechanics', laborers' and materialmen's and similar
liens, if the obligations secured by such liens are not then delinquent; liens
securing the performance of bids, tenders, contracts (other than for the
payment of money); and statutory obligations incidental to the conduct of its
business and that do not in the aggregate materially detract from the value of
its property or materially impair the use thereof in the operation of its
business;
(E) judgment liens that shall not have been in existence
for a period longer than 30 consecutive days after the creation thereof or, if
a stay of execution shall have been obtained, for a period longer than 30
consecutive days after the expiration of such stay;
(F) rights of lessors under capital and off-balance sheet
leases including, without limitation, those rights of the lessor under the
Lease;
(G) Encumbrances in respect of (i) any purchase money
mortgage or other purchase money financing of the Existing Campus to the extent
permitted in Section 6.1 above and (ii) any purchase money obligations for
tangible property used in its business that at any time shall not exceed
$2,000,000 in the aggregate, provided, however, that in each case (i) and (ii)
above any such Encumbrances shall not extend to property and assets of Borrower
or any such Subsidiary not financed by such a purchase money obligation other
than accessions, additions, replacements and proceeds, including proceeds of
insurance;
(H) easements, rights of way, restrictions and other
similar charges or Encumbrances relating to real property and not interfering
in a material way with the ordinary conduct of its business;
32.
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(I) Encumbrances in favor of customs and revenue
authorities arising in a matter of law to secure payment of customs duties in
connection with the importation of goods and Encumbrances on insurance proceeds
in favor of insurance companies with respect to the financing of insurance
premiums;
(J) Encumbrances which constitute rights of set-off of a
customary nature or bankers' liens with respect to amounts on deposit, whether
arising by operation of law or by contract, in connection with arrangements
entered into with banks or investment firms in the ordinary course of business;
(K) Encumbrances, not otherwise permitted hereunder,
which Encumbrances do not in the aggregate exceed $500,000 at any time;
(L) Encumbrances created in connection with Indebtedness
permitted under Section 6.1(h) above; and
(M) Encumbrances on its property or assets created in
connection with the refinancing of Indebtedness secured by Permitted
Encumbrances on such property, provided that the amount of Indebtedness secured
by any such Encumbrance shall not be increased as a result of such refinancing
and no such Encumbrance shall extend to property and assets of Borrower or any
Subsidiary not encumbered prior to any such refinancing.
6.5 MERGER; CONSOLIDATION; SALE OR LEASE OF ASSETS. Neither
Borrower nor any of its Subsidiaries shall
(A) sell, lease or otherwise dispose of assets or
properties (valued at the lower of cost or market) in the aggregate in excess
of five percent (5%) of Consolidated Total Assets in any fiscal year other than
(i) sales of inventory in the ordinary cause of business; (ii) sales of used,
worn-out or surplus assets in the ordinary course of business; (iii) sales of
equipment to the extent that such equipment is exchanged for credit against the
purchase price of similar replacement equipment or the proceeds of such sale
are applied to the purchase price of such replacement equipment within ninety
(90) days of the date Borrower shall have provided Agent written notice of its
intent to sell specifically identified equipment and so apply the purchase
price; and (iv) sales of assets to Borrower, or
(B) liquidate or merge or consolidate into or with, or
acquire all or substantially all of the assets of, any other person or entity,
provided, however, that (i) any Subsidiary may merge or consolidate into or
with Borrower if no Default has occurred and is continuing or would result from
such merger or consolidation and Borrower, if a party to such merger or
consolidation, is the surviving company, (ii) any Subsidiary may merge or
consolidate with any other wholly owned Subsidiary; and (iii) any Subsidiary
may be liquidated if, in the good faith judgment of the Board of Directors or
Borrower, such termination is in the best interests of Borrower and its
Subsidiaries taken as a whole.
33.
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6.6 ACQUISITIONS AND JOINT VENTURES. Borrower shall not, and
shall not permit any of the Subsidiaries to, make any Acquisition or Joint
Venture, provided, however, Borrower and its Subsidiaries may make any
Acquisition or Joint Venture if
(A) no Default has occurred and is then continuing or is
projected to result from such Acquisition or Joint Venture;
(B) the aggregate consideration (including, without
limitation, the dollar value of all cash and debt and the fair market value of
all securities) paid in connection with any such Acquisition or Joint Venture
after the date hereof does not cause the total consideration paid or exchanged
for such transactions to exceed thirty-five percent (35%) of Consolidated
Tangible Net Worth as of the end of the fiscal quarter ending immediately prior
to the closing of such Acquisition or Joint Venture, giving full effect on such
closing date to all consideration to be paid or exchanged after the closing
date of all such transactions;
(C) from and after the date the aggregate consideration
paid in connection with Acquisitions and Joint Ventures after the date hereof
exceeds ten percent (10%) of Consolidated Tangible Net Worth and with respect
to any Acquisition or Joint Venture which would cause such consideration to
exceed such amount, at least twenty days prior to the making of such
Acquisition or Joint Venture, Borrower shall provide written notice to Agent
demonstrating compliance with all covenants contained in this Agreement after
giving effect to the Acquisition or Joint Venture and on a projected basis
thereafter; and
(D) in connection with any Acquisition, the prior written
approval of the board of directors of the acquiree is obtained.
6.7 SUBSIDIARY STOCK ISSUANCE. Borrower shall not permit any of
its Subsidiaries to issue any additional shares of its capital stock or other
equity securities, any options therefor or any securities convertible thereto
other than to Borrower or any wholly owned Subsidiary (or to other persons in
connection with the issuance of directors shares or shares to satisfy the local
ownership requirements of foreign countries). Neither of Borrower nor any of
its Subsidiaries shall sell, transfer or otherwise dispose of any of the
capital stock or other equity securities of a Subsidiary, except (i) to
Borrower or any of its wholly-owned Subsidiaries, or (ii) in connection with a
transaction permitted by Section 6.5.
6.8 EQUITY DISTRIBUTIONS. Borrower shall not pay any dividends on
any class of its capital stock or make any other distribution or payment on
account of or in redemption, retirement or purchase of such capital stock;
provided, however, that this Section shall not apply to (i) the issuance,
delivery or distribution by Borrower of shares of its common stock pro rata to
its existing shareholders, (ii) the purchase or redemption by Borrower of its
capital stock with the proceeds of the issuance of additional shares of capital
stock, or (iii) the purchase or redemption by Borrower of its capital stock
pursuant to Borrower's Share Repurchase Program.
6.9 INVESTMENTS. Neither Borrower nor any of its Subsidiaries
shall make or maintain any Investments other than
34.
<PAGE> 40
(A) Investments by Borrower in Subsidiaries existing on
the date hereof, additional Investments by Borrower in wholly-owned
Subsidiaries aggregating an amount not in excess of ten percent (10%) of
Borrower's Consolidated Tangible Net Worth as of the end of the fiscal quarter
of Borrower most recently ended, Investments by Subsidiaries in Borrower and
Investments by Subsidiaries in other Subsidiaries;
(B) Qualified Investments;
(C) Investments existing on the date of this Agreement
disclosed on SCHEDULE 6.9;
(D) Investments consisting of the endorsements of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business;
(E) Investments by Borrower or a Subsidiary as part of a
transaction permitted by Sections 6.2 and 6.6;
(F) Investments consisting of receivables owing to
Borrower or its Subsidiaries and advances to customers or suppliers, in each
case, if created, acquired or made in the ordinary course of business;
(G) Investments consisting of (i) compensation or
employee, officers and directors of Borrower or its Subsidiaries so long as the
Board of Directors of Borrower determines that such compensation is in the best
interests of Borrower, (ii) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business, (iii)
loans to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries, (iv) other loans to officers and
employees approved by the Board of Directors;
(H) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(I) Investments pursuant to or arising under currency
agreements or interest rate agreements;
(J) Investments consisting of notes receivable of, or
prepaid royalties and other credit extensions to, customers and suppliers in
the ordinary course of business;
(K) Deposit accounts; and
(L) Other investments of a type not described in (a)
through (k) above to the extent all such Investments, when taken together with
Investments of the type described in Section 6.9(a), shall not at any time
exceed ten percent (10%) of Consolidated Tangible Net Worth as of the end of
the fiscal quarter most recently ended.
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6.10 ERISA. Neither of Borrower nor any member of the Controlled
Group shall permit any Plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code, (ii) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether
or not waived, or (iii) terminate any Plan in a manner that could result in the
imposition of a lien or encumbrance on the assets of Borrower or any of its
Subsidiaries pursuant to Section 4068 of ERISA.
SECTION VII
DEFAULTS
7.1 EVENTS OF DEFAULT. There shall be an Event of Default
hereunder if any of the following events occurs:
(A) Borrower shall fail to pay when due (i) any amount of
principal of any Loans, or (ii) any amount of interest thereon or any fees or
expenses payable hereunder or under the Note within three (3) days of the due
date therefor; or
(B) Borrower shall fail to perform any term, covenant or
agreement contained in Sections 5.1(a), (b), and (g), 5.5, 5.7 through 5.9 or
6.1 through 6.10; or
(C) Borrower shall fail to perform any covenant contained
in Sections 5.1(f), 5.1(h), 5.2 or 5.6, and such failure shall continue for 30
days; or
(D) Borrower shall fail to perform any term, covenant or
agreement (other than in respect of subsections 7.l(a) through (c) hereof)
contained in this Agreement and such default shall continue for 30 days after
notice thereof has been sent to Borrower by Agent; or
(E) any representation or warranty of Borrower made in
this Agreement or in the Loan Documents or any other documents or agreements
executed in connection with the transactions contemplated by this Agreement or
in any certificate delivered hereunder shall prove to have been false in any
material respect upon the date when made or deemed to have been made; or
(F) there shall occur any change in the assets,
liabilities, financial condition, business of Borrower and its Subsidiaries,
which change shall have a Material Adverse Effect; or
(G) Borrower or any of its Subsidiaries shall fail to pay
at maturity, or within any applicable period of grace, any obligations in
excess of $5,000,000 in the aggregate for borrowed monies or advances or for
the use of real or personal property, or fail to observe or perform any term,
covenant or agreement evidencing or securing such obligations for borrowed
monies or advances or relating to such use of real or personal property, the
result of which failure is to permit the holder or holders of such Indebtedness
to cause such Indebtedness to become due prior to its stated maturity upon
delivery of required notice, if any; or
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(H) Borrower or any of its Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar official of itself or of
all or a substantial part of its property, (ii) be generally not paying its
debts as such debts become due, (iii) make a general assignment for the benefit
of its creditors, (iv) take any action or commence any case or proceeding under
any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, or any other law providing for the relief
of debtors, (v) fail to contest in a timely or appropriate manner, or acquiesce
in writing to, any petition filed against it in an involuntary case under any
bankruptcy or other law, (vii) take any action under the laws of its
jurisdiction of incorporation or organization similar to any of the foregoing,
or (viii) take any corporate action for the purpose of effecting any of the
foregoing; or
(I) a proceeding or case shall be commenced, without the
application or consent of Borrower or any of its Subsidiaries in any court of
competent jurisdiction, seeking (i) the liquidation, reorganization,
dissolution, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets, or (iii) similar relief in
respect of it, under any law relating to bankruptcy, insolvency,
reorganization, winding-up or composition or adjustment of debts or any other
law providing for the relief of debtors, and such proceeding or case shall
continue undismissed, or unstayed and in effect, for a period of 30 consecutive
days; or an order for relief shall be entered in an involuntary case under any
bankruptcy law against Borrower or such Subsidiary; or action under the laws of
the jurisdiction of incorporation or organization of Borrower or any of its
Subsidiary similar to any of the foregoing shall be taken with respect to
Borrower and shall continue unstayed and in effect for any period of 30
consecutive days; or
(J) a judgment or order for the payment of money shall be
entered against Borrower or any of its Subsidiary by any court, or a warrant of
attachment or execution or similar process shall be issued or levied against
property of Borrower or such Subsidiary, that in the aggregate exceeds
$2,000,000 in value and such judgment, order, warrant or process shall continue
undischarged or unstayed for 30 consecutive days; or
(K) Borrower or any member of the Controlled Group shall
fail to pay when due any amount that it shall have become liable to pay to the
PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a
Plan or Plans shall be filed under Title IV of ERISA by Borrower, any member of
the Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of any such Plan or
Plans against Borrower and such proceedings shall not have been dismissed
within 30 days thereafter; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any such Plan or
Plans must be terminated.
7.2 REMEDIES. Upon the occurrence of an Event of Default
described in subsections 7.1(h) and (i), immediately and automatically, and
upon the occurrence of any other Event of Default, at any time thereafter while
such Event of Default is continuing, at Majority Banks' option and upon
Majority Banks' declaration:
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(A) the Banks' Commitments to make any further Loans or
issue any further Letters of Credit hereunder shall terminate;
(B) the unpaid principal amount of the Loans together
with accrued interest and all other Obligations hereunder shall become
immediately due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived;
(C) Agent or the Banks may demand that Borrower (i)
deposit cash with Agent in an amount equal to the amount of any Letters of
Credit remaining undrawn, as collateral security for the repayment of any
future drawings under such Letters of Credit, and Borrower shall forthwith
deposit and pay such amounts, and (ii) pay in advance all fees and commissions
scheduled to be paid or payable over the remaining terms of such Letters of
Credit; and
(D) Agent and the Banks may exercise any and all rights
they have under this Agreement, the Loan Documents or any other documents or
agreements executed in connection herewith, or at law or in equity, and proceed
to protect and enforce Agent's and the Banks' rights by any action at law, in
equity or other appropriate proceeding.
SECTION VIII
AGENT
8.1 APPOINTMENT, POWERS AND IMMUNITIES.
(A) Each Bank hereby appoints FNBB as Agent hereunder and
under the other Loan Documents and each Bank hereby irrevocably authorizes
Agent to act hereunder and thereunder as Agent of such Bank. Agent agrees to
act as such upon the express conditions contained in this Section 8. In
performing its functions and duties under this Agreement and under the other
Loan Documents, Agent shall act solely as Agent of Banks and does not assume
and shall not be deemed to have assumed any obligation towards or relationship
of agency or trust with or for Borrower.
(B) Each Bank irrevocably authorizes Agent to take such
action on such Bank's behalf and to exercise such powers hereunder as are
specifically delegated to Agent by the terms hereof, together with such powers
as are reasonably incidental thereto. Agent shall have only those duties which
are specified in this Agreement and it may perform such duties by or through
its agents, representatives or employees. In performing its duties hereunder
on behalf of Banks, Agent shall exercise the same care which it would exercise
in dealing with loans made or letters of credit issued for its own account, but
it shall not be responsible to any Bank for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of all or
any of the Loan Documents, or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statement or
in any financial or other statements, instruments, reports, certificates or any
other documents furnished or delivered in connection herewith or therewith by
Agent to any Bank or by or on behalf of Borrower to Agent or any Bank, or be
required to ascertain or inquire as to the performance or observance of any
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of the terms, conditions, provisions, covenants or agreements contained herein
or therein or as to the use of the proceeds of the Loans or amounts drawn under
the Letters of Credit. Unless the officers of Agent acting in their capacity
as officers of Agent on Borrower's account have actual knowledge thereof or
have been notified in writing thereof by Banks, Agent shall not be required to
ascertain or inquire as to the existence or possible existence of any Event of
Default. Neither Agent nor any of its officers, directors, employees,
representatives or agents shall be liable to Banks for any action taken or
omitted hereunder or under any of the other Loan Documents or in connection
herewith or therewith unless caused by its or their gross negligence or willful
misconduct. No provision of this Agreement or of any other Loan Document shall
be deemed to impose any duty or obligation on Agent to perform any act or to
exercise any power in any jurisdiction in which it shall be illegal, or shall
be deemed to impose any duty or obligation on Agent to perform any act or
exercise any right or power if such performance or exercise (i) would subject
Agent to a tax in a jurisdiction where it is not then subject to a tax or (ii)
would require Agent to qualify to do business in any jurisdiction where it
presently is not so qualified. Without prejudice to the generality of the
foregoing, no Bank shall have any right of action whatsoever against Agent as a
result of Agent acting or (where so instructed) refraining from acting under
this Agreement or under any of the other Loan Documents in accordance with the
instructions, request or consent of Requisite Banks and any action taken or
failure to act, pursuant to such instructions, request or consent shall be
binding on all Banks. Agent shall be entitled to refrain from exercising any
power, discretion or authority vested in it under this Agreement unless and
until it has obtained the written instructions of Requisite Banks. The agency
hereby created shall in no way impair or affect any of the rights and powers
of, or impose any duties or obligations upon Agent in its individual capacity.
8.2 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR
INSPECTION. Each Bank represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Borrower in
connection with the making of the Loans and issuance of the Letters of Credit
hereunder and has made and shall continue to make its own appraisal of the
creditworthiness of Borrower. Agent shall have no duty or responsibility
either initially or on a continuing basis to make any such investigation or any
such appraisal on behalf of Banks or to provide any Bank with any credit or
other information (other than information obtained under the provisions of this
Agreement which Agent shall make available to each Bank upon request by such
Bank) with respect thereto whether coming into its possession before the date
hereof or any time or times thereafter and shall further have no responsibility
with respect to the accuracy of or the completeness of the information provided
to Banks. With respect to its participation in the Loans and the Letters of
Credit hereunder, Agent shall have the same rights and powers hereunder as any
other Bank and may exercise the same rights and powers as though it were not
performing the duties and functions delegated to it hereunder and the term
"Bank" or "Banks" or any similar term shall unless the context clearly
indicates otherwise include Agent in its individual capacity. Agent and each
of its affiliates may accept deposits from, lend money to and generally engage
in any kind of business with Borrower as if it were not Agent.
8.3 RELIANCE BY AGENT.
(A) Agent may consult with counsel, and any opinion or
legal advice of such counsel who are not employees of Agent or Borrower or any
affiliate of Borrower shall be full
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and complete authorization and protection in respect of any action taken or
suffered by Agent hereunder or under any other Loan Documents in accordance
therewith.
(B) Agent may rely, and shall be fully protected in
acting, upon any resolution, statement, certificate, instrument, opinion,
report, notice, request, consent, order, bond or other paper or document that
it has no reason to believe to be other than genuine and to have been signed or
presented by the proper party or parties or, in the case of cables, telecopies
and telexes, to have been sent by the proper party or parties. In the absence
of its gross negligence or willful misconduct, Agent may conclusively rely, as
to the truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to Agent and conforming to
the requirements of this Agreement or any of the other Loan Documents.
(C) Agent shall not be under any obligation to exercise
any of the rights or powers granted to Agent by this Agreement and the other
Loan Documents at the request or direction of Requisite Banks unless Agent
shall have been provided by Requisite Banks with adequate security and
indemnity against the costs, expenses and liabilities that may be incurred by
it in compliance with such request or direction.
8.4 DELEGATION OF DUTIES. Agent may execute any of the powers
hereof and perform any duty hereunder either directly or by or through agents
or attorneys-in-fact. Agent shall be entitled to advice of counsel concerning
all matters pertaining to such powers and duties. Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it without gross negligence or willful misconduct on the part of
Agent.
8.5 RIGHT TO INDEMNITY. Each of Banks severally, but not jointly,
agrees (a) to indemnify and hold Agent (and any person acting on behalf of
Agent) harmless from and against and (b) promptly on receipt by each Bank of
Agent's statement, to reimburse Agent, according to such Bank's pro rata share
of the Commitment Amount, to the extent Agent shall not otherwise have been
reimbursed by Borrower on account of and for, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, the fees and disbursements of counsel
and other advisors) or disbursements of any kind of nature whatsoever with
respect to Agent's performance of its duties under this Agreement and the other
Loan Documents; provided, however, that no Bank shall be liable for the payment
to Agent of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from Agent's gross negligence or willful misconduct. Such
reimbursement shall not in any respect release Borrower from any liability or
obligation. If any indemnity furnished to Agent for any purpose shall, in the
opinion of Agent, be insufficient or become impaired, Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished.
8.6 RESIGNATION AND APPOINTMENT OF SUCCESSOR AGENT. Agent may,
and at the request of Majority Banks shall, resign by giving thirty (30) days'
prior written notice thereof to Banks and Borrower; provided, however, that the
retiring Agent shall continue to serve until a successor Agent shall have been
selected and approved pursuant to this Section 8.6. Upon any
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<PAGE> 46
such notice or request, Majority Banks shall appoint a successor agent for the
Banks. If no successor agent is appointed prior to the effective date of the
resignation of the Agent, the Agent may appoint, after consulting with Banks
and Borrower, a successor Agent from among the Banks. Upon the acceptance of
any appointment as an Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Section
8 shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Agent under this Agreement.
8.7 CONFLICTS. FNBB and its affiliates may accept deposits from,
lend money to, act as trustee under indentures of, act as merchant banker in
any transaction for, and generally engage in any kind of business with,
Borrower and any person who may do business with or own securities of Borrower,
all as if FNBB were not Agent and without any duty to account therefor to Banks
or to disclose to Banks confidential information which FNBB may receive from
Borrower in connection with such other activity or business.
8.8 NO OBLIGATIONS OF BORROWER. Nothing contained in this Section
8 shall be deemed to impose upon Borrower any obligation in respect of the due
and punctual performance by Agent of its obligations to Banks under any
provision of this Agreement, and Borrower shall have no liability to Agent or
any Bank in respect of any failure by Agent or any Bank to perform any of their
respective obligations to each other under this Agreement. Without limiting
the generality of the foregoing sentence, where any provision of this Agreement
relating to the payment of any amounts due and owing under the Loan Documents
provides that such payments shall be made by Borrower to Agent for the account
of Banks, Borrower's obligations to Banks in respect of such payments shall be
deemed to be satisfied upon the making of such payments to Agent in the manner
provided by this Agreement.
SECTION IX
MISCELLANEOUS
9.1 NOTICES. Unless otherwise specified herein, all notices
hereunder to any party hereto shall be in writing and shall be deemed to have
been given when delivered by hand, when properly deposited in the mails postage
prepaid, when sent by telex, answerback received, or electronic facsimile
transmission with electronic confirmation of receipt, or when sent by telegraph
or overnight courier, addressed to such party at its address indicated below:
If to Borrower at 1001 Murphy Ranch Road
Milpitas, California 95035-7912
Telephone: (408) 321-2000
Facsimile: (408) 321-6522
Attention: Jean-Yves Dexmier
Senior Vice President
and Chief Financial
Officer
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If to Agent at BANK OF BOSTON
435 Tasso Street, Suite 250
Palo Alto, California 94301
Telephone: (415) 853-0390
Facsimile: (415) 853-1425
Attention: Maia D. Heymann
Vice President
BANK OF BOSTON
100 Federal Street
Boston, Massachusetts 02110
Telephone: (617) 434-7349
Facsimile: (617) 434-0819
Attention: Division Executive
With copies to: COOLEY GODWARD CASTRO
HUDDLESON & TATUM
Five Palo Alto Square
Palo Alto, California 94306
Telephone: (415) 843-5000
Facsimile: (415) 857-0663
Attention: Joseph A. Scherer, Esq.
If to any Bank, at its address specified on the signature pages
hereto, or at any other address specified by such party in writing.
9.2 EXPENSES. Borrower will pay on demand all expenses of Agent
in connection with the preparation, waiver or amendment of this Agreement, the
Loan Documents or other documents executed in connection therewith, and all
expenses of Agent and each of the Banks in connection with the administration,
default on or collection of the Loans or other Obligations or administration,
default, collection in connection with Agent's or any Bank's exercise,
preservation or enforcement of any of its rights, remedies or options
thereunder, including, without limitation, fees of outside legal counsel or the
allocated costs of in-house legal counsel, accounting, consulting, brokerage or
other similar professional fees or expenses, and any fees or expenses
associated with any travel or other costs relating to any appraisals or
examinations conducted in connection with the Obligations,and the amount of all
such expenses shall, until paid, bear interest at the rate applicable to
principal hereunder (including any default rate).
9.3 INDEMNIFICATION.
(a) GENERAL INDEMNITY. Borrower shall pay, indemnify,
and hold each Bank, Agent and each of their respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "INDEMNIFIED
PERSON") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
or disbursements (including reasonable attorneys' fees and costs of outside
counsel and allocated costs of internal counsel) of any kind or nature
whatsoever with respect to the
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execution, delivery, enforcement, performance and administration of this
Agreement and any other Loan Documents, or the transactions contemplated hereby
and thereby, and with respect to any investigation, litigation or proceeding
(including any proceeding in bankruptcy or appellate proceeding) related to
this Agreement or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"INDEMNIFIED LIABILITIES"); provided, that Borrower shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such Indemnified
Person.
(b) SURVIVAL; DEFENSE. The obligations in this Section
9.3 shall survive payment of all other Obligations. At the election of any
Indemnified Person, Borrower shall defend such Indemnified Person using legal
counsel satisfactory to such Indemnified Person in such person's sole
discretion, at the sole cost and expense of Borrower. All amounts owing under
this Section 9.3 shall be paid within thirty (30) days after demand.
9.4 SET-OFF.
(A) Regardless of the adequacy of other means of obtaining
repayment of the Obligations, any deposits, balances or other sums credited by
or due from the head offices of Agent, Banks or any of their branch offices to
Borrower may, at any time and from time to time after the occurrence of an
Event of Default hereunder, without notice to Borrower or compliance with any
other condition precedent now or hereafter imposed by statute, rule of law, or
otherwise (all of which are hereby expressly waived) be set off, appropriated,
and applied by Agent and the Banks against any and all obligations of Borrower
to Agent and the Banks or any of their affiliates in such manner as the head
offices of the Banks or any of their branch offices in their sole discretion
may determine, and Borrower hereby grants Agent and the Banks a continuing
security interest in such deposits, balances or other sums for the payment and
performance of all such obligations.
(B) Unless otherwise expressly provided herein, all interest,
fees and principal payments on the Loans to the Borrower hereunder are to be
divided among the Banks in the same proportion as each Bank's pro rata share of
the Commitment Amount. Any sums obtained from the Borrower or any Subsidiary
by any Bank by reason of the exercise of its rights of set-off or banker's lien
or otherwise shall be shared among all the Banks in the same proportion and
applied first to Obligations of the Borrower under this Agreement. Nothing in
this Section 9.4(b) shall be deemed to require the sharing by the Banks of
collections (other than by set-off or banker's lien) with respect to any other
Obligations of the Borrower or any Subsidiary to any Bank.
9.5 TERM OF AGREEMENT. This Agreement shall continue in full
force and effect so long as the Banks have any Commitment to make Loans or
issue Letters of Credit hereunder or any Loan or Letter of Credit or any
Obligation hereunder shall be outstanding.
9.6 NO WAIVERS. No failure or delay by Agent or the Banks in
exercising any right, power or privilege hereunder or under the Note or under
any other documents or agreements executed in connection herewith shall operate
as a waiver thereof; nor shall any single or partial
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exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein and in
the Loan Documents provided are cumulative and not exclusive of any rights or
remedies otherwise provided by agreement or law.
9.7 GOVERNING LAW. This Agreement and the Loan Documents shall be
deemed to be contracts made under seal and shall be construed in accordance
with and governed by the laws of the State of California (without giving effect
to any conflicts of laws provisions contained therein).
9.8 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by Borrower therefrom, shall be effective unless the
same shall be in writing and signed by the Requisite Banks, Borrower and
acknowledged by the Agent, and then such waiver shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing
and signed by all Banks, Borrower and acknowledged by the Agent, do any of the
following:
(A) increase or extend the Commitment of any Bank (or
reinstate any Commitment terminated pursuant to subsection 7.2(a)) or subject
any Bank to any additional obligations;
(B) postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to the Banks (or any of them)
hereunder or under any Loan Document;
(C) reduce the principal of, or the rate of interest
specified herein on any Loan, or of any fees or other amounts payable hereunder
or under any Loan Document;
(D) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be required for the
Banks or any of them to take any action hereunder;
(E) amend this Section 9.8 or Section 9.4(b); or
(F) discharge any guarantor of the Obligations, or
release all or substantially all of any collateral for the Obligations except
as otherwise may be provided in the Loan Documents or except where the consent
of the Requisite Banks only is specifically provided for;
and, provided further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Requisite Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document.
9.9 BINDING EFFECT OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of Borrower and the Banks and their respective
successors and assigns; provided that Borrower may not assign or transfer its
rights or obligations hereunder. The Banks may sell, transfer or grant
participations in the Note without the prior written consent of Borrower,
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and Borrower agrees that, in addition to such rights as a Bank may grant
pursuant to Section 9.10 below, any transferee or participant shall be entitled
to the benefits of Sections 2.9, 2.10, 2.14, 5.5, 9.3 and 9.4 to the same
extent as if such transferee or participant were a Bank hereunder; provided
that notwithstanding any such transfer or participation, Borrower may, for all
purposes of this Agreement, treat such Banks as the persons entitled to
exercise all rights hereunder and under the Note and to receive all payments
with respect thereto.
9.10 ASSIGNMENTS, PARTICIPATIONS, ETC.
(A) Any Bank may, with the written consent of Borrower
(at all times other than during the existence of an Event of Default) and
Agent, which consents shall not be unreasonably withheld, at any time assign
and delegate to one or more financial institutions (provided that no written
consent of Borrower or Agent shall be required in connection with any
assignment and delegation by a Bank to an affiliate of such Bank) (each an
"ASSIGNEE") all, or any ratable part of all, of the Loans, the Commitments and
the other rights and obligations of such Bank hereunder, in a minimum amount of
$5,000,000.00 (provided that FNBB may assign and delegate such rights and
obligations to any of its affiliates in a minimum amount of $1,000,000.00);
provided, however, that (i) Borrower and Agent may continue to deal solely and
directly with such Bank in connection with the interest so assigned to an
Assignee until (A) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Assignee,
shall have been given to Borrower and Agent by such Bank and the Assignee; (B)
such Bank and its Assignee shall have delivered to Borrower and Agent an
Assignment and Acceptance in form and substance acceptable to Agent
("ASSIGNMENT AND ACCEPTANCE") and (C) the assignor Bank or Assignee has paid to
Agent Agent's customary fee as agreed to by the assignor Bank, provided that no
processing fee shall be charged for any assignment to a Bank or a Bank's
affiliate.
(B) From and after the date that Agent notifies the
assignor Bank that it has received an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and Acceptance,
shall have the rights and obligations of a Bank under the Loan Documents, and
(ii) the assignor Bank shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Loan Documents.
(C) Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance, this Agreement
shall be deemed to be amended to the extent, but only to the extent, necessary
to reflect the addition of the Assignee and the resulting adjustment of the
Commitments arising therefrom. The Commitment allocated to each Assignee shall
reduce such Commitment of the assigning Bank pro tanto.
(D) Any Bank may at any time sell to one or more
commercial banks or other persons not affiliates of Borrower (a "PARTICIPANT")
participating interests in any Loans, the Commitment of that Bank and the other
interests of that Bank (the "ORIGINATING BANK") hereunder and under the other
Loan Documents; provided, however, that (i) the originating
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Bank's obligations under this Agreement shall remain unchanged, (ii) the
originating Bank shall remain solely responsible for the performance of such
obligations, (iii) Borrower and Agent shall continue to deal solely and
directly with the originating Bank in connection with the originating Bank's
rights and obligations under this Agreement and the other Loan Documents, and
(iv) no Bank shall transfer or grant any participating interest under which the
Participant shall have rights to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Document, except to
the extent such amendment, consent or waiver would otherwise require unanimous
consent of the Banks.
(E) Notwithstanding any other provision in this
Agreement, any Bank may at any time create a security interest in, or pledge,
all or any portion of its rights under and interest in this Agreement and the
Note held by it in favor of any Federal Reserve Bank in accordance with
Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and
such Federal Reserve Bank may enforce such pledge or security interest in any
manner permitted under applicable law.
9.11 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
9.12 PARTIAL INVALIDITY. The invalidity or unenforceability of any
one or more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
9.13 CAPTIONS. The captions and headings of the various sections
and subsections of this Agreement are provided for convenience only and shall
not be construed to modify the meaning of such sections or subsections.
9.14 WAIVER OF JURY TRIAL. AGENT, BANKS AND BORROWER AGREE THAT
NONE OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING
OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH
ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY AGENT,
BANKS AND BORROWER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER AGENT NOR BANKS NOR BORROWER HAS AGREED WITH OR REPRESENTED TO ANY
OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
9.15 ENTIRE AGREEMENT. This Agreement, the Note and the documents
and agreements executed in connection herewith constitute the final agreement
of the parties hereto and supersede any prior agreement or understanding,
written or oral, with respect to the matters contained herein and therein.
46.
<PAGE> 52
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
BORROWER OCTEL COMMUNICATIONS CORPORATION
By: /s/ JAMES F. ENGLE
-------------------------------
Printed Name: James F. Engle
Title: V.P. Treasurer
AGENT THE FIRST NATIONAL BANK OF BOSTON
By:
-----------------------------
Printed Name:
Title:
BANKS THE FIRST NATIONAL BANK OF BOSTON
By:
-------------------------------
Printed Name:
Title:
Address for Notices:
Bank of Boston
435 Tasso Street, Suite 250
Palo Alto, California 94301
Telephone: (415) 853-0568
Facsimile: (415) 853-1425
Attention: Maia D. Heymann
Vice President
Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Telephone: (617) 434-7349
Facsimile: (617) 434-0819
Attention: Division Executive
<PAGE> 53
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
BORROWER OCTEL COMMUNICATIONS CORPORATION
By:
-------------------------------
Printed Name:
Title:
AGENT THE FIRST NATIONAL BANK OF BOSTON
By: /s/ MAIA D. HEYMANN
------------------------------
Printed Name: Maia D. Heymann
Title: Vice President
BANKS THE FIRST NATIONAL BANK OF BOSTON
By: /s/ MAIA D. HEYMANN
-------------------------------
Printed Name: Maia D. Heymann
Title: Vice President
Address for Notices:
Bank of Boston
435 Tasso Street, Suite 250
Palo Alto, California 94301
Telephone: (415) 853-0568
Facsimile: (415) 853-1425
Attention: Maia D. Heymann
Vice President
Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Telephone: (617) 434-7349
Facsimile: (617) 434-0819
Attention: Division Executive
<PAGE> 54
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ DEBRA STAIGER
----------------------------
Printed Name: Debra Staiger
Title: Vice President
Address for Notices:
Bank of America
The Mid-Cap Technology Group #3537
530 Lytton Avenue, 2nd Floor
Palo Alto, California 94301
Telephone: (415) 853-4480
Facsimile: (415) 853-4476
Attention: Debra Staiger
Domestic and Offshore Lending
Office
1850 Gateway Boulevard
Concord, California 94520
Telephone: (510) 675-7153
Facsimile: (510) 675-7519
Attention: Jodie Leopardi
<PAGE> 55
SCHEDULE 1
COMMITMENT AMOUNT
<TABLE>
<CAPTION>
BANK COMMITMENT
---- ----------
<S> <C>
First National Bank of Boston $20,000,000.00
Bank of America National Trust
and Savings Association $10,000,000.00
</TABLE>
<PAGE> 56
Exhibit 10.15
(continued)
OCTEL COMMUNICATIONS CORPORATION
CREDIT AGREEMENT
JUNE 30,1996
SCHEDULE 4.12 - SUBSIDIARIES OF THE COMPANY
<TABLE>
<S> <C> <C> <C>
1. OCTEL Communications LIMITED 8. OCTEL PC PRODUCTS DIVISION
ADDRESS: Octel House, Ancells Road (FORMERLY COMPASS TECHNOLOGY
Fleet, Hampshire GU13 8UN ADDRESS: 1819 Main Street
England Sarasota, Florida 34236
2. OCTEL COMMUNICATIONS SERVICES LIMITED 9. OCTEL NETWORK SERVICES (FORMERLY
ADDRESS: Octel House, Ancells Road THE TIGON CORPORATION)
Fleet, Hampshire GU13 8UN ADDRESS: 17080 Dallas Parkway
England Dallas, Texas 75248-1986
3. OCTEL COMMUNICATIONS S.A. 10. OCTEL COMMUNICATIONS K.K.
ADDRESS: 21 Boulevard de la Madeleine ADDRESS: Aoyama Bldg.
Immeuble des Trois Quartiers 2-3 Kita-aoyama I-chome
Cedex, Paris F-75001 Minato-ku, Tokyo
France Japan
4. OCTEL COMMUNICATIONS GMBH 11. OCTEL COMMUNICATIONS PACIFIC,
ADDRESS: Garmischer Strasse 10 LTD.
D-80339 Munich ADDRESS: 35th Floor, Central Plaza
Germany 18 Harbor Road, Wanchai
Hong Kong
5. OCTEL Communications CANADA Inc. 12. RHETOREX, INCORPORATED
ADDRESS: 181 Bay Street, Suite 2100 ADDRESS: 200 East Hacienda Ave.
Toronto, Ontario Campbell, California 95008
M5J2T3 Canada
6. OCTEL COMMUNICATIONS ISRAEL) LTD. 13. Rhetorex EUROPE LIMITED
ADDRESS: 1-C Yoni Netanyahu ADDRESS: Suite M1, Ground Floor
Or-Yehud 60376 North Wing, Centennial Court
Israel Easthampstead Road, Bracknell
Berkshire RG12 1JA
England
7. OCTEL COMMUNICATIONS INTERNATIONAL CORPORATION 14. OCTEL COMMUNICATIONS ASIA PTE LTD
AGENT'S ADDRESS: 5 Kronprindsens Gade ADDRESS: 37 Mount Sinai Rise #03-2
P.O. Box 8560 Leighwoods, Singapore 276956
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00801 15. OCTEL COMMUNICATIONS LATIN
AMERICA S.A. DE C.V.
ADDRESS: Mexico City
Federal District
</TABLE>
<PAGE> 57
OCTEL COMMUNICATIONS CORPORATION
CREDIT AGREEMENT
JUNE 30,1996
SCHEDULE 6.1 - INDEBTEDNESS:
Indebtedness secured by Encumbrances permitted under Section 6.4 of
the Credit Agreement (other than Encumbrances referenced in clause (k) of such
Section 6.4).
<PAGE> 58
OCTEL COMMUNICATIONS CORPORATION
CREDIT AGREEMENT
JUNE 30,1996
SCHEDULE 6.2 - GUARANTEES:
<TABLE>
<CAPTION>
Subsidiary Description Amount (USD)
<S> <C> <C>
Octel Communications Ltd (U.K.) Building lease $ 1,250,214
Octel Network Services Tokai Financial - Equip leases $ 3,000,000 (1)
Octel Network Services Real estate lease $ 1,096,000
</TABLE>
(1) Master lease - remaining balance due is $687,837.
<PAGE> 59
OCTEL COMMUNICATIONS CORPORATION
CREDIT AGREEMENT
JUNE 30, 1996
SCHEDULE 6.4 - ENCUMBRANCES:
<TABLE>
<CAPTION>
Entity Secured Party Collateral Amount
<S> <C> <C> <C>
Octel Communications Corp Sumitomo Bank L&F Real Estate $10,196,988
Octel Communications Corp Sumitomo Bank L&F Real Estate $ 5,500,000(1)
Octel Communications Corp Matsushita Electric Industrial Equipment $ 932,100
Octel Communications Corp BA Credit Corp Equipment $ *
Octel Communications Corp IBM Corporation Equipment $ 172,844
Octel Communications Corp Prime Leasing, Inc. Equipment $ *
Octel Communications Corp Fireman's Fund Insurance Insurance $ 150,000
Octel Communications Ltd. Stokely Park Landlord Real Estate $ 189,282
Octel Communications S.A. Societe DIDIT Bottin Real Estate $ 30,309
Octel Network Services Ameritech Credit Corp Equipment $ *
Octel Network Services Tokai Financial - (Masterlease) Equipment $ 687,837
Rhetorex, Inc. Cupertino National Bank Equipment $ 24,518
</TABLE>
* Blanket lease line filing for Octel Capital (a captive leasing operation of
Octel Communications Corp)
(1) Proposed as of 6/30/96.
<PAGE> 60
OCTEL COMMUNICATIONS CORPORATION
CREDIT AGREEMENT
JUNE 30,1996
SCHEDULE 6.9 - INVESTMENTS
Per detailed schedules attached
<PAGE> 61
DETAIL.XLS
OCTEL COMMUNICATIONS CORPORATION
WP&G INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
<TABLE>
<CAPTION>
ORIGINAL
INTEREST PURCHASE MATURITY INTERIM CALLALBE CALLALBE TERM DAYS TO
SECURITY RATE DATE DATE CALL DATE AT AMT IN MOS. MATURITY
- -------- -------- --------- --------- --------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
CASH (BANK OF CAL)
TAX-EXEMPT SECURITIES:
OHIO STATE BLDG AUTH 8.400% 5-Aug-93 1-Apr-97 10/1/95 103 515,000 18 1,335
PHOENIX AZ STREET HIGHWAY 7.200% 23-Aug-93 1-Jul-97 7/1/95 102 397,800 24 1,408
BRAZOS TX EDUC AUTH 4.500% 24-Aug-93 1-Jun-96 33 1,012
CHI IL OHARE INTL AIRPORT 4.700% 24-Aug-93 1-Jan-97 40 1,226
MINNEAPOLIS MN 7.250% 29-Sep-93 1-Oct-97 10/1/97 100 48 1,463
AUSTIN TX LTD TAX 7.000% 29-Oct-93 1-Sep-97 46 1,403
AMES, IW ELEC REVENUE 6.000% 18-Jan-94 1-Jan-97 7/1/95 100 1,270,000 18 1,079
NEB HI EDUC LOAN PROG 5.800% 29-Mar-94 1-Dec-97 12/1/97 100 570,000 44 1,343
KY ST HI EDUC LOAN 6.050% 20-Apr-94 1-Dec-96 31 956
MA ST HOUS FINANCE AG 7.900% 29-Apr-94 1-Aug-98 8/1/98 102 102,000 51 1,555
ALTOONA PA SCH DIST 10.000% 11-May-94 15-Jun-98 6/15/98 100 360,000 49 1,496
TX VETRNS LAND 7.000% 9-Aug-94 1-Dec-99 12/1/96 100 750,000 36 1,940
OHIO HOUSING FIN AG. 7.150% 3-Oct-94 1-Mar-01 9/1/99 102 178,500 18 2,341
CAMPBELL CO WY 4.500% 15-Sep-95 28-Jun-96 100 1,000,000 10 287
CITY OF BURNSVILLE 5.580% 27-Sep-95 1-Mar-96 100 165,000 5 156
MILWAUKEE WISCONSIN 5.400% 3-Jan-96 1-Sep-96 100 0 8 242
WILL CTY IL PROPERTY 5.950% 20-Feb-96 1-Dec-96 100 200,000 10 285
CALIFORNIA DEPT OF WATER 7.000% 12-Mar-96 1-Dec-96 1-May-96 101.50 304,500 9 264
GREENVILLE CNTY SO CAROLINA 4.500% 9-Apr-96 1-Feb-97 10 298
MONTANA ST BD OF INVS 3.350% 11-Apr-96 1-Mar-01 60 1,785
ARLINGTON TX INDPEN. 0.000% 16-Apr-96 15-Feb-97 10 305
TARRANT CNTY TX GEN OBL 5.250% 24-Apr-96 15-Jan-01 15-Jan-97 100 230,000 58 1,727
GALENA PART TX IND SCH DIST 7.400% 25-Apr-96 15-Aug-96 100 230,000 4 112
CITY OF WACO 4.500% 16-May-96 1-Feb-97 9 261
GRAND RIVER DAM AUTH. 7.200% 21-May-96 1-Jun-98 1-Jun-97 100 345,000 25 741
BUTLER CNTY OHIO EDR 3.850% 21-May-96 1-Feb-13 203 6,100
PERRY OHIO LOCAL SCHOOL 4.100% 30-May-96 1-Jun-97 12 367
TAX-EXEMPT TOTALS
TAXABLE INVESTMENTS:
TAXABLE TOTALS
PORTFOLIO TOTALS
</TABLE>
<TABLE>
<CAPTION>
BEG. END. BEG. BAL. END BAL.
FACE FACE AT COST AT COST
SECURITY VALUE PURCHASES SALES VALUE (PRIN. ONLY) PURCHASES SALES (PRIN. ONLY)
- -------- ---------- --------- -------- ---------- ------------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
CASH (BANK OF CAL) 825,268 825,268 825,268
---------- --------- -------- ---------- ---------- --------- ------- ----------
0 0 0 825,268 0 0 0 825,268
TAX-EXEMPT SECURITIES:
OHIO STATE BLDG AUTH 500,000 500,000 559,775 559,775
PHOENIX AZ STREET HIGHWAY 390,000 390,000 411,645 411,645
BRAZOS TX EDUC AUTH 1,000,000 1,000,000 1,000,000 1,000,000
CHI IL OHARE INTL AIRPORT 1,250,000 1,250,000 1,265,388 1,265,388
MINNEAPOLIS MN 250,000 250,000 255,800 255,800
AUSTIN TX LTD TAX 905,000 905,000 1,004,061 1,004,061
AMES, IW ELEC REVENUE 1,270,000 1,270,000 1,306,106 1,306,106
NEB HI EDUC LOAN PROG 415,000 415,000 423,246 423,246
KY ST HI EDUC LOAN 1,000,000 1,000,000 1,027,830 1,027,830
MA ST HOUS FINANCE AG 100,000 100,000 105,110 105,110
ALTOONA PA SCH DIST 360,000 360,000 398,200 398,200
TX VETRNS LAND 750,000 750,000 793,185 793,185
OHIO HOUSING FIN AG. 170,000 170,000 176,375 176,375
CAMPBELL CO WY 250,000 250,000 250,855 250,855
CITY OF BURNSVILLE 165,000 165,000 165,000 165,000
MILWAUKEE WISCONSIN 100,000 100,000 101,090 101,090
WILL CTY IL PROPERTY 200,000 200,000 203,764 203,764
CALIFORNIA DEPT OF WATER 300,000 300,000 305,367 305,367
GREENVILLE CNTY SO CAROLINA 1,100,000 1,100,000 1,100,638 1,100,638
MONTANA ST BD OF INVS 1,100,000 1,100,000 1,092,377 1,092,377
ARLINGTON TX INDPEN. 270,000 270,000 261,139 261,139
TARRANT CNTY TX GEN OBL 230,000 230,000 231,978 231,978
GALENA PART TX IND SCH DIST 320,000 320,000 323,078 323,078
CITY OF WACO 0 750,000 705,000 0 707,150 707,150
GRAND RIVER DAM AUTH. 0 345,000 345,000 0 355,826 355,826
BUTLER CNTY OHIO EDR 0 255,000 255,000 0 255,000 255,000
PERRY OHIO LOCAL SCHOOL 0 350,000 350,000 0 350,851 1 350,851
0 0 0 0
0 0 0 0
---------- --------- -------- ---------- ---------- --------- ------- ----------
TAX-EXEMPT TOTALS 12,395,000 1,655,000 0 14,050,000 12,762,006 1,668,827 0 14,430,833
---------- --------- -------- ---------- ---------- --------- ------- ----------
TAXABLE INVESTMENTS:
0 (0)
0 0 0 0
---------- --------- -------- ---------- ---------- --------- ------- ----------
TAXABLE TOTALS 0 0 0 0 (0) 0 0 0
---------- --------- -------- ---------- ---------- --------- ------- ----------
PORTFOLIO TOTALS 12,395,000 1,655,000 0 14,875,268 12,762,006 1,668,827 0 15,256,101
========== ========= ======== ========== ========== ========= ======= ==========
</TABLE>
<PAGE> 62
DETAILS.XLS
OCTE COMMUNICATIONS CORPORATION
WP&G INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
<TABLE>
<CAPTION>
PURCH. COST
SALES ACCAMORT ACCMRTADJ LESS: SALES
SECURITY PROCEEDS SOLD SEC SOLD SEC PROCEEDS
- ---------------------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
CASH (BANK OF CAL)
-------- -------- -------- ---------
0 0 0 0
TAX-EXEMPT SECURITIES:
OHIO STATE BLDG AUTH
PHOENIX AZ STREET HIGHWAY
BRAZOS TX EDUC AUTH
CHI IL OHARE INTL AIRPORT
MINNEAPOLIS MN
AUSTIN TX LTD TAX
AMES,IW ELEC REVENUE
NEB HI EDUC LOAN PROG
KY ST HI EDUC LOAN
MA ST HOUS FINANCE AG
ALTOONA PA SCH DIST
TX VETRNS LAND
OHIO HOUSING FIN AG.
CAMPBELL CO WY
CITY OF BURNSVILLE
MILWAUKEE WISCONSIN
WILL CTY IL PROPERTY
CALIFORNIA DEPT OF WATER
GREENVILLE CNTY SO CAROLINA
MONTANA ST BD OF INVS
ARLINGTON TX INDPEN.
TARRANT CNTY TX GEN OBL
GALENA PARK TX IND SCH DIST
CITY OF WACO
GRAND RIVER DAM AUTH
BUTLER CNTY OHIO EDR
PERRY OHIO LOCAL SCHOOL
-------- -------- -------- ---------
TAX-EXEMPT TOTALS 0 0 0 0
-------- -------- -------- ---------
TAXABLE INVESTMENTS:
-------- -------- -------- ---------
TAXABLE TOTALS 0 0 0 0
-------- -------- -------- ---------
PORTFOLIO TOTALS 0 0 0 0
======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
INTEREST
-------------------------------------------------------
OPENING PURCHASED PAYMENTS CURRENT ENDING TOTAL
SECURITY ACCRUED INTEREST RECEIVED INCOME ACCRUED BALANCE
- ---------------------------- ------- --------- -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
CASH (BANK OF CAL) 825,268
------- --------- -------- ------- ------- ---------
0 0 825,268
TAX-EXEMPT SECURITIES:
OHIO STATE BLDG AUTH 3,500 3,500 7,000 566,775
PHOENIX AZ STREET HIGHWAY 9,360 2,340 11,700 423,345
BRAZOS TX EDUC AUTH 18,750 3,750 22,500 1,022,500
CHI IL OHARE INTL AIRPORT 19,583 4,896 24,479 1,289,866
MINNEAPOLIS MN 1,510 1,510 3,021 258,821
AUSTIN TX LTD TAX 10,558 5,279 15,837 1,019,898
AMES,IW ELEC REVENUE 25,400 6,350 31,750 1,337,856
NEB HI EDUC LOAN PROG 10,029 2,006 12,035 435,281
KY ST HI EDUC LOAN 25,208 5,042 30,250 1,058,080
MA ST HOUS FINANCE AG 1,975 658 2,633 107,743
ALTOONA PA SCH DIST 13,600 3,000 16,600 414,800
TX VETRNS LAND 21,875 4,375 26,250 819,435
OHIO HOUSING FIN AG. 2,026 1,013 3,039 179,414
CAMPBELL CO WY 7,094 938 8,032 258,887
CITY OF BURNSVILLE 767 767 1,535 166,535
MILWAUKEE WISCONSIN 900 450 1,350 102,440
WILL CTY IL PROPERTY 4,958 992 5,950 209,714
CALIFORNIA DEPT OF WATER 8,750 1,750 10,500 316,867
GREENVILLE CNTY SO CAROLINA 12,375 4,125 16,500 1,117,138
MONTANA ST BD OF INVS 6,142 3,071 9,213 1,101,590
ARLINGTON TX INDPEN. 0 0 0 261,139
TARRANT CNTY TX GEN OBL 3,555 1,006 4,561 236,539
GALENA PARK TX IND SCH DIST 4,933 2,039 6,971 330,049
CITY OF WACO 0 3,966 1,322 5,288 712,438
GRAND RIVER DAM AUTH 0 11,730 690 12,420 368,247
BUTLER CNTY OHIO EDR 0 3,000 272 3,272 258,272
PERRY OHIO LOCAL SCHOOL 0 8,331 40 8,371 359,222
0 0 0 0
0 0 0 0
------- --------- -------- ------- ------- ----------
TAX-EXEMPT TOTALS 212,852 27,026 0 61,181 301,058 14,731,892
------- --------- -------- ------- ------- ----------
TAXABLE INVESTMENTS:
0 0
(0) 0 0
------- --------- -------- ------- ------- ----------
TAXABLE TOTALS 0 0 0 0 0 0
------- --------- -------- ------- ------- ----------
PORTFOLIO TOTALS 212,852 27,026 0 61,181 301,058 15,557,160
======= ========= ======== ======= ======= ==========
</TABLE>
<PAGE> 63
DETAIL XLS
OCTEL COMMUNICATIONS CORPOR
WP&G INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
<TABLE>
<CAPTION>
AMORTIZATION
----------------------------------------------------
DISCOUNT/ DIST/(PREM) BEG. ACCUM MAY TOTAL
SECURITY (PREMIUM) OVER CALL AMT AMORT. AMORT. AMORT.
-------- ---------- ------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
CASH (BANK OF CAL)
-------- ------- -------- ------- --------
0 0 0 0 0
TAX EXEMPT SECURITIES:
OHIO STATE BLDG AUTH (59,775) (44,775) (44,775) (1,344) (46,119)
PHOENIX AZ STREET HIGHWAY (21,645) (13,845) (15,081) (714) (15,795)
BRAZOS TX EDUC AUTH 0 0 0 0 0
CHI IL OHARE INTL AIRPORT (15,388) (12,300) (389) (12,689)
MINNEAPOLIS MN (5,800) (5,800) (5,800) 0 (5,800)
AUSTIN TX LTD TAX (99,061) (64,535) (2,189) (66,724)
AMES, IW ELEC REVENUE (36,106) (36,106) 0 (36,106)
NEB HI EDUC LOAN PROG (8,246) (6,085) (190) (6,275)
KY ST HI EDUC LOAN (27,830) (21,571) (902) (22,473)
MA ST HOUS FINANCE AG (5,110) (3,110) (2,405) (102) (2,507)
ALTOONA PA SCH DIST (38,200) (18,385) (792) (19,177)
TX VETRNS LAND (43,185) (32,197) (1,584) (33,781)
OHIO HOUSING FIN AG. (6,375) (2,126) (1,566) (84) (1,650)
CAMPBELL COL WY (855) (679) (92) (771)
CITY OF BURNSVILLE 0 0 0 0 0
MILWAUKEE WISCONSIN (1,090) 0 (529) (140) (669)
WILL CITY IL PROPERTY (3,764) (3,764) (894) (414) (1,308)
CALIFORNIA DEPT OF WATER (5,367) (867) (996) (630) (1,626)
GREENVILLE CNTY SO CAROLINA (638) 0 (370) (268) (638)
MONTANA ST BD OF INVS 0 0 0 0 0
ARLINGTON TX INDEPEN. 0 0 0 0 0
TARRANT CNTY TX GEN OBL (1,978) (1,978) (8) (235) (243)
GALENA PARK TX IND SCH DIST (3,078) 0 0 (892) (892)
CITY OF WACO (2,150) 0 0 (124) (124)
GRAND RIVER DAM AUTH. (10,826) (10,826) 0 (288) (288)
BUTLER CNTY OHIO EDR 0 0 0 0 0
PERRY OHIO LOCAL SCHOOL (851) 0 0 (2) (2)
0 0 0 0
0 0 0 0
-------- ------- -------- ------- --------
TAX EXEMPT TOTALS (397,318) (87,091) (264,282) (11,375) (275,657)
-------- ------- -------- ------- --------
TAXABLE INVESTMENTS:
0 (0) 0 (0)
0 0 0 0
-------- ------- -------- ------- --------
TAXABLE TOTALS 0 0 (0) 0 (0)
-------- ------- -------- ------- --------
PORTFOLIO TOTALS (397,318) (87,091) (264,282) (11,375) (275,658)
======== ======= ======== ======= ========
<CAPTION>
TOTAL
TOTAL BOOK PURCH & TOTAL
SECURITY PURCHASES INCOME BK INCOME SALES
-------- --------- ------- --------- ------
<S> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
CASH (BANK OF CAL)
--------- ------ -------- ------
0 0 0 0.00
TAX EXEMPT SECURITIES:
OHIO STATE BLDG AUTH 0 3,500 3,500 0
PHOENIX AZ STREET HIGHWAY 0 2,340 2,340 0
BRAZOS TX EDUC AUTH 0 3,750 3,750 0
CHI IL OHARE INTL AIRPORT 0 4,896 4,896 0
MINNEAPOLIS MN 0 1,510 1,510 0
AUSTIN TX LTD TAX 0 5,279 5,279 0
AMES, IW ELEC REVENUE 0 6,350 6,350 0
NEB HI EDUC LOAN PROG 0 2,006 2,006 0
KY ST HI EDUC LOAN 0 5,042 5,042 0
MA ST HOUS FINANCE AG 0 580 580 0
ALTOONA PA SCH DIST 0 3,000 3,000 0
TX VETRNS LAND 0 4,375 4,375 0
OHIO HOUSING FIN AG. 0 1,013 1,013 0
CAMPBELL COL WY 0 938 938 0
CITY OF BURNSVILLE 0 767 767 0
MILWAUKEE WISCONSIN 0 450 450 0
WILL CITY IL PROPERTY 0 992 992 0
CALIFORNIA DEPT OF WATER 0 1,750 1,750 0
GREENVILLE CNTY SO CAROLINA 0 4,125 4,125 0
MONTANA ST BD OF INVS 0 3,071 3,071 0
ARLINGTON TX INDEPEN. 0 0 0 0
TARRANT CNTY TX GEN OBL 0 1,006 1,006 0
GALENA PARK TX IND SCH DIST 0 2,039 2,039 0
CITY OF WACO 711,116 1,322 712,438 0
GRAND RIVER DAM AUTH. 367,556 690 368,246 0
BUTLER CNTY OHIO EDR 258,000 272 258,272 0
PERRY OHIO LOCAL SCHOOL 359,181 40 359,221 0
0 0 0 0
0 0 0 0
--------- ------ --------- -------
TAX EXEMPT TOTALS 1,695,853 61,181 1,757,034 0
--------- ------ --------- -------
TAXABLE INVESTMENTS:
0 0 0 0
0 0 0 0
--------- ------ --------- -------
TAXABLE TOTALS 0 0 0 0
--------- ------ --------- -------
PORTFOLIO TOTALS 1,695,853 61,181 1,757,034 0
========= ====== ========= =======
</TABLE>
<PAGE> 64
DETAIL.XLS
OCTEL COMMUNICATIONS CORPOR
WP&G INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
<TABLE>
<CAPTION>
---------------------- BOOK VALUE TO MARKET VALUE ANALYSIS -----------------
PREVIOUS ACCUM.
PURCHASE ACCUM UNREALIZED CURRENT CURRENT UNREALIZED NEW
SECURITY COST AMORT. GAINS(LOSS) BOOK VALUE MKT VALUE ADJUSTMENT GAINS(LOSS) BOOK VALUE
-------- -------- ------ ----------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DD=AA+BB=CC
CASH & CASH EQUIVALENTS:
CASH (BANK OF CAL)
TAX-EXEMPT SECURITIES:
OHIO STATE BLDG AUTH 559,775 (46,119) 5,035 518,691 520,090 1,399 6,434 520,090
PHOENIX AZ STREET HIGHWAY 411,645 (15,795) 2,422 398,272 397,028 (1,244) 1,178 397,028
BRAZOS TX EDUC AUTH 1,000,000 0 1,200 1,001,200 1,001,080 (120) 1,080 1,001,080
CHI IL OHARE INTL AIRPORT 1,265,388 (12,689) 2,945 1,255,643 1,251,813 (3,830) (885) 1,251,813
MINNEAPOLIS MN 255,800 (5,800) 2,035 252,035 254,210 2,175 4,210 254,210
AUSTIN TX LTD TAX 1,004,061 (66,724) 642 937,979 942,367 4,388 5,030 942,367
AMES, IW ELEC REVENUE 1,306,106 (36,106) 13,526 1,283,526 1,276,375 (7,151) 6,375 1,276,375
NEB HI EDUC LOAN PROG 423,246 (6,275) 1,954 418,925 425,931 7,006 8,960 425,931
KY ST HI EDUC LOAN 1,027,830 (22,473) 7,527 1,012,884 1,012,940 56 7,583 1,012,940
MA ST HOUS FINANCE AG 105,110 (2,507) 2,092 104,695 104,172 (523) 1,569 104,172
ALTOONA PA SCH DIST 398,200 (19,177) 309 379,332 378,032 (1,300) (991) 378,032
TX VETRNS LAND 793,185 (33,781) 752 760,156 764,333 4,177 4,929 764,333
OHIO HOUSING FIN AG. 176,375 (1,650) 3,134 177,858 175,081 (2,777) 357 175,081
CAMPBELL CO WY 250,855 (771) 164 250,248 250,298 50 214 250,298
CITY OF BURNSVILLE 165,000 0 0 165,000 165,000 0 0 165,000
MILWAUKEE WISCONSIN 101,090 (669) 0 100,421 100,721 (369) (369) 100,721
WILL CITY IL PROPERTY 203,764 (1,308) 0 202,456 202,858 (906) (906) 202,858
CALIFORNIA DEPT OF WATER 305,367 (1,626) 0 303,741 304,506 (861) (861) 304,506
GREENVILLE CNTY SO CAROLINA 1,100,638 (638) 0 1,100,000 0 (1,100,000) (1,100,000) 0
MONTANA ST BD OF INVS 1,092,377 0 0 1,092,377 0 (1,092,377) (1,092,377) 0
ARLINGTON TX INDEPEN. 261,139 0 0 261,139 0 (261,139) (261,139) 0
TARRANT CNTY TX GEN OBL 231,978 (243) 0 231,735 0 (231,735) (231,735) 0
GALENA PARK TX IND SCH DIST 323,078 (892) 0 322,186 0 (322,186) (322,186) 0
CITY OF WACO 707,150 (124) 0 707,026 0 (707,026) (707,026) 0
GRAND RIVER DAM AUTH. 355,826 (288) 0 355,538 0 (355,538) (355,538) 0
BUTLER CNTY OHIO EDR 255,000 0 0 255,000 0 (255,000) (255,000) 0
PERRY OHIO LOCAL SCHOOL 350,851 (2) 0 350,849 0 (350,849) (350,849) 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
---------- -------- ------ ---------- --------- ---------- ---------- ---------
TAX-EXEMPT TOTALS 14,430,833 (275,657) 43,736 14,198,912 9,526,835 (4,675,680) (4,631,944) 9,526,835
---------- -------- ------ ---------- --------- ---------- ---------- ---------
TAXABLE INVESTMENTS:
0 0
0 0
---------- -------- ------ ---------- --------- ---------- ---------- ---------
TAXABLE TOTALS 0 0 0 0 0 0 0 0
---------- -------- ------ ---------- --------- ---------- ---------- ---------
PORTFOLIO TOTALS 14,430,833 (275,657) 43,736 14,198,912 9,526,835 (4,675,680) (4,631,944) 9,526,835
========== ======== ====== ========== ========= ========== ========== =========
</TABLE>
<PAGE> 65
OCTEL COMMUNICATIONS CORPORATION
P&R INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
DETAIL.XLS
<TABLE>
<CAPTION>
ORIGINAL
INTEREST PURCHASE MATURITY INTERIM TERM DAYS TO
SECURITY RATE DATE DATE CALL DATE IN MOS. MATURITY
- ---------------------------------- -------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
TAX-EXEMPT SECURITIES ACCOUNT 1069
CASH & CASH EQUIVALENTS:
TOTAL CASH & EQUIVEL. 0 0
SHORT TERM INVESTMENTS:
AMT-LA PFS SER92A-2 5.300% 6/8/94 9/1/96 26.5 816
DE ST GO SER C BD 4.500% 8/31/93 7/1/97 46 1400
ILL ST S/T REV BD 4.500% 2/10/94 6/15/97 40 1221
OH ST HWY SER T GO 4.800% 6/30/94 5/15/96 22.5 685
TX FR Worth GO BD 5.750% 1/14/94 3/1/96 25.5 777
WY LINCO VRDN 4.700% 9/18/95 7/1/17 265 7957
AL MCINTS VRDN 3.850% 3/1/96 7/1/04 98 3044
LA LOOPS VRDN 3.350% 3/1/96 9/1/08 147 4567
WY SUBL D VRDN 4.150% 4/30/98 7/1/17 258 7732
AL PHEN D VRDN 5.900% 4/30/98 6/1/28 391 11720
WY KEMR D VRDN 3.445% 5/15/98 11/1/14 225 6744
TX NHED W VRDN 3.400% 5/21/98 3/1/15 229 6858
IL OHAR W VRDN 3.500% 5/21/98 1/1/15 227 6799
TX GULF VRDN 3.600% 5/21/95 10/1/17 272 8169
IN JASP D VRDM 3.600% 5/21/96 4/1/19 278 8350
MA STBANS NT 5.000% 5/24/96 6/1/99 37 1103
OHIO CLVD WR 4.450% 5/30/96 1/1/99 32 946
NV ST GO 5.000% 5/31/96 5/1/99 36 1065
0.000% 0 0
0.000% 0 0
0.000% 0 0
SHORT TERM TAX-EXEMPT TOTALS
TAX-EXEMPT TOTALS
TAXABLE INVESTMENTS ACCT 1068
CASH & CASH EQUIVALENTS:
CASH OR (STIF) 0.000%
0
TOTAL CASH & CASH EQUIVELENTS
SHORT TERM INVESTMENTS
U.S. TREASURY NOTE 7.625% 16-Apr-93 30-Apr-96 36 1110
U.S. TREASURY NOTE 5.750% 28-Sep-93 15-Aug-03 118.5 3608
TOTAL SHORT TERM INVEST.
TAXABLE TOTALS
PORTFOLIO TOTALS
</TABLE>
<TABLE>
<CAPTION>
BEG. END BEG. BAL. END BAL.
FACE FACE AT COST AT COST
SECURITY VALUE PURCHASES SALES VALUE (PRIN. ONLY) PURCHASES SALES (PRIN. ONLY)
- ---------------------------------- ---------- --------- ---------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A B C D=A+B-C E F G H=E+F-G
TAX-EXEMPT SECURITIES ACCOUNT 1069
CASH & CASH EQUIVALENTS: 0 0
TOTAL CASH & EQUIVEL.
SHORT TERM INVESTMENTS:
AMT-LA PFA SER92A-2 2,000,000 2,000,000 2,030,040 2,030,040
DE ST GO SER C BD 0 0 0 0
ILL ST S/T REV BD 2,500,000 2,500,000 2,574,225 2,574,225
OH ST HWY SER T GO 1,000,000 (1,000,000) 0 1,013,010 (1,013,010) 0
TX FR Worth GO BD 0 0 0 0
WY LINCO VRDN 0 0 0 0
AL MCINTS VRDN 1,200,000 1,200,000 1,200,000 1,200,000
LA LOOPS VRDN 1,500,000 1,500,000 1,500,000 1,500,000
WY SUBL D VRDN 600,000 600,000 600,000 600,000
AL PHEN D VRDN 1,000,000 1,000,000 1,000,000 1,000,000
WY KEMR D VRDN 0 1,100,000 (1,100,000) 0 0 1,100,000 (1,100,000) 0
TX NHED W VRDN 0 1,000,000 1,000,000 0 1,000,000 1,000,000
IL OHAR W VRDN 0 1,000,000 1,000,000 0 1,000,000 1,000,000
TX GULF VRDN 0 1,000,000 (1,000,000) 0 0 1,000,000 (1,000,000) 0
IN JASP D VRDM 0 1,000,000 (1,000,000) 0 0 1,000,000 (1,000,000) 0
MA STBANS NT 0 1,000,000 1,000,000 0 1,015,360 1,015,360
OHIO CLVD WR 0 700,000 700,000 0 700,000 700,000
NV ST GO 0 1,300,000 1,300,000 0 1,319,656 1,319,656
0 0 0 0
0 0 0 0
0 0 0 0
---------- --------- ---------- ---------- --------- --------- ---------- ----------
SHORT TERM TAX-EXEMPT TOTALS 9,800,000 6,100,000 (2,100,000) 13,800,000 9,917,275 8,135,016 (4,113,010) 13,939,281
---------- --------- ---------- ---------- --------- --------- ---------- ----------
TAX-EXEMPT TOTALS 9,800,000 6,100,000 (2,100,000) 13,800,000 9,917,275 8,135,016 (4,113,010) 13,939,281
TAXABLE INVESTMENTS ACCT 1068
CASH & CASH EQUIVALENTS:
CASH OR (STIF) 57,409 57,409 88,582 57,409
0 0 0 0
---------- --------- ---------- ---------- --------- --------- ---------- ----------
TOTAL CASH & CASH EQUIVELENTS 57,409 0 0 57,409 0 0 0 57,409
SHORT TERM INVESTMENTS
U.S. TREASURY NOTE 1,595,000 (1,595,000) 0 1,744,531 (1,744,531) 0
U.S. TREASURY NOTE 2,565,000 2,565,000 2,659,584 2,659,584
---------- --------- ---------- ---------- ---------- --------- ---------- ----------
TOTAL SHORT TERM INVEST. 4,160,000 0 (1,595,000) 2,565,000 4,404,116 0 (1,744,531) 2,659,585
---------- --------- ---------- ---------- ---------- --------- ---------- ----------
TAXABLE TOTALS 4,160,000 0 (1,595,000) 2,622,409 4,404,116 0 (1,744,531) 2,716,994
---------- --------- ---------- ---------- ---------- --------- ---------- ----------
PORTFOLIO TOTALS 13,960,000 6,100,000 (3,695,000) 16,422,409 14,321,391 8,135,016 (5,857,541) 16,656,275
========== ========= ========== ========== ========== ========= ========== ==========
</TABLE>
<PAGE> 66
OCTEL COMMUNICATIONS CORPORATION
P&R INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
DETAIL.XLS
<TABLE>
<CAPTION>
PURCH. COST
SALES ACC AMORT ACC MRT ADJ. LESS: SALES
SECURITY PROCEEDS SOLD SEC SOLD SEC PROCEEDS
-------- ---------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
I J=V K=CC L=E OR F-I
TAX-EXEMPT SECURITIES ACCOUNT 1069
CASH & CASH EQUIVALENTS:
TOTAL CASH & EQUIVEL.
SHORT TERM INVESTMENTS
AMT-LA PFS SER92A-2
DE ST GO SER C BD
ILL ST S/T REV BD
OH ST HWY SER T GO (1,000,000) (12,721) (13,010)
TX FR Worth GO BD
WY LINCO VRDN
AL MCINTS VRDN
LA LOOPS VRDN
WY SUBL D VRDN
AL PHEN D VRDN
WY KEMR D VRDN (1,100,000) 0
TX NHED W VRDN
IL OHAR W VRDN
TX GULF VRDN (1,000,000)
IN JASP D VRDM
MA STBANS NT
OHIO CLVD WR
NV ST GO
---------- ------- -------- -------
SHORT TERM TAX-EXEMPT TOTALS (3,100,000) (12,721) 0 (13,010)
---------- ------- -------- -------
TAX-EXEMPT TOTALS (3,100,000) (12,721) 0 (13,010)
TAXABLE INVESTMENTS ACCT 1068
CASH & CASH EQUIVALENTS:
CASH OR (STIF)
---------- ------- -------- -------
TOTAL CASH & CASH EQUIVALENTS 0 0 0 0
SHORT TERM INVESTMENTS:
U.S. TREASURY NOTE
U.S. TREASURY NOTE
---------- ------- -------- -------
TOTAL SHORT TERM INVEST. 0 0 0 0
---------- ------- -------- -------
TAXABLE TOTALS 0 0 0 0
---------- ------- -------- -------
PORTFOLIO TOTALS (3,100,000) (12,721) 0 (13,010)
========== ======= ======== =======
Net Realized Gain/(Loss) (289)
=======
</TABLE>
<TABLE>
<CAPTION>
/------------- INTEREST -----------/
OPENING PURCHASED PAYMENTS CURRENT ENDING TOTAL
SECURITY ACCRUED INTEREST RECEIVED INCOME ACCRUED BALANCE
-------- ------- --------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
M N O P Q=M+N-O+P R=H+Q
TAX-EXEMPT SECURITIES ACCOUNT 1069
CASH & CASH EQUIVALENTS:
TOTAL CASH & EQUIVEL. 0
SHORT TERM INVESTMENTS
AMT-LA PFS SER92A-2 17,666 8,833 26,500 2,056,540
DE ST GO SER C BD 0 0 0 0
ILL ST S/T REV BD 42,500 9,375 51,875 2,626,100
OH ST HWY SER T GO 22,133 (24,000) 1,867 0 0
TX FR Worth GO BD 0 0 0 0
WY LINCO VRDN (0) 0 (0) (0)
AL MCINTS VRDN 3,626 (3,626) 3,786 3,786 1,203,786
LA LOOPS VRDN 4,403 (4,403) 4,975 4,974 1,504,974
WY SUBL D VRDN 1,835 (1,835) 1,922 1,922 601,922
AL PHEN D VRDN 3,054 (3,054) 3,190 3,190 1,003,190
WY KEMR D VRDN 0 1,564 (3,206) 1,641 (0) (0)
TX NHED W VRDN 0 8,049 1,131 9,181 1,009,181
IL OHAR W VRDN 0 2,163 1,082 3,245 1,003,245
TX GULF VRDN 0 1,982 (2,911) 928 (0) (0)
IN JASP D VRDM 0 2,037 (2,322) 285 0 0
MA STBANS NT 0 17,917 972 18,889 1,034,249
OHIO CLVD WR 0 2,509 87 2,596 702,596
NV ST GO 0 5,417 0 5,417 1,325,073
0 0 0 0
0 0 0 0
0 0 0 0
------- ------ ------- ------ ------- ----------
SHORT TERM TAX-EXEMPT TOTALS 95,217 41,638 (45,357) 40,074 131,573 14,070,854
------- ------ ------- ------ ------- ----------
TAX-EXEMPT TOTALS 95,217 41,638 (45,357) 40,074 131,573 14,070,854
TAXABLE INVESTMENTS ACCT 1068
CASH & CASH EQUIVALENTS:
CASH OR (STIF) 0 57,409
0 0 0
------- ------ -- --- ------ ------- ---------
TOTAL CASH & CASH EQUIVALENTS 0 0 0 0 0 57,409
SHORT TERM INVESTMENTS:
U.S. TREASURY NOTE (0) (0) 0
U.S. TREASURY NOTE 30,794 12,561 43,355 2,702,939
------- ------ ------- ------ ------- ----------
TOTAL SHORT TERM INVEST. 30,794 0 0 12,561 43,355 2,702,939
------- ------ ------- ------ ------- ----------
TAXABLE TOTALS 30,794 0 0 12,561 43,355 2,760,349
------- ------ ------- ------ ------- ----------
PORTFOLIO TOTALS 126,011 41,638 (45,357) 52,635 174,927 16,831,202
======= ====== ======= ====== ======= ==========
</TABLE>
<PAGE> 67
OCTEL COMMUNICATIONS CORPORA FOR SEC REPORTING
P&R INVESTMENT PORTFOLIO
AS OF MAY 31, 1996 DETAIL.XLS
<TABLE>
<CAPTION>
AMORTIZATION
------------------------------------ TOTAL
DISCOUNT/ BEG. ACCUM CURRENT MO TOTAL TOTAL BOOK PURCH & TOTAL
SECURITY (PREMIUM) AMORT. AMORT. AMORT. PURCHASES INCOME BK INCOME SALES
- ---------------------------- ---------- ----------- ---------- --------- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S=D-II T U=S/#Mos V=T+U W=F+N X=P+L Y=W+X Z=I+O
TAX-EXEMPT SECURITIES ACCOUN
CASH & CASH EQUIVALENTS:
TOTAL CASH & EQUIVEL. 0 0 0 0 0 0 0
SHORT TERM INVESTMENTS
AMT-LA PFA SER92A-2 (30,040) (25,505) (1,134) (26,639) 0 8,833 8,833 0
DE ST GO SER C BD 0 0 0 0 0 0 0 0
ILL ST S/T REV BD (74,225) (49,175) (1,856) (51,030) 0 9,375 9,375 0
OH ST HWY SER T GO 0 (12,721) 12,721 0 0 (11,143) (11,143) (1,024,000)
TX FR Worth GO BD 0 (0) 0 (0) 0 0 0 0
WY LINCO VRDN 0 0 0 0 0 0 0 0
AL MCINTS VRDN 0 0 0 0 0 3,786 3,786 (3,626)
LA LOOPS VRDN 0 0 0 0 0 4,975 4,975 (4,403)
WY SUBL D VRDN 0 0 0 0 0 1,922 1,922 (1,835)
AL PHEN D VRDN 0 0 0 0 0 3,190 3,190 (3,054)
WY KEMR D VRDN 0 0 0 0 1,101,564 1,641 1,103,205 1,096,794
TX NHED W VRDN 0 0 0 0 1,008,049 1,131 1,009,181 0
IL OHAR W VRDN 0 0 0 0 1,002,163 1,082 1,003,245 0
TX GULF VRDN 0 0 0 0 1,001,982 928 1,002,910 997,089
IN JASP D VRDM 0 0 0 0 1,002,037 285 1,002,322 (2,322)
MA STBANS NT (15,360) 0 (418) (418) 1,003,277 972 1,034,249 0
OHIO CLVD WR 0 0 0 0 702,509 87 702,596 0
NV ST GO (19,656) 0 (554) (554) 1,325,073 0 1,325,073 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
-------- -------- ------ -------- --------- ------- --------- ----------
SHORT TERM TAX-EXEMPT TOTALS (139,281) (87,401) 8,760 (78,641) 8,176,654 27,064 8,203,718 1,054,643
-------- -------- ------ -------- --------- ------- --------- ----------
TAX-EXEMPT TOTALS (139,281) (87,401) 8,760 (78,641) 8,176,654 27,064 8,203,718 1,054,643
TAXABLE INVESTMENTS ACCT 1068
CASH & CASH EQUIVALENTS:
CASH OR (STIF)
0 0 0 0
TOTAL CASH & CASH EQUIVELENTS ---------------------------------------------
0 0 0 0
SHORT TERM INVESTMENTS:
U.S. TREASURY NOTE (0) (0) (0) 0 0 0 0
U.S. TREASURY NOTE (94,584) (24,133) (798) (24,931) 0 12,561 12,561 0
-------- -------- ------ -------- --------- ------- --------- ----------
TOTAL SHORT TERM INVEST. (94,585) (24,133) (798) (24,931) 0 12,561 12,561 0
-------- -------- ------ -------- --------- ------- --------- ----------
TAXABLE TOTALS (94,585) (24,133) (798) (24,931) 0 12,561 12,561 0
-------- -------- ------ -------- --------- ------- --------- ----------
PORTFOLIO TOTALS (233,866) (111,534) 7,962 (103,572) 8,176,654 39,625 8,216,279 1,054,643
======== ======== ====== ======== ========= ======= ========= ==========
</TABLE>
<PAGE> 68
DETAIL.XLS
OCTEL COMMUNICATIONS CORPORATION
P&R INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
<TABLE>
<CAPTION>
------------ BOOK VALUE TO MARKET VALUE ANALYSIS -------
PREVIOUS ACCUM.
PURCHASE ACCUM UNREALIZED CURRENT CURRENT UNREALIZED NEW
SECURITY COST AMORT. GAINS(LOSS) BOOK VALUE MKT VALUE ADJUSTMENT GAINS(LOSS) BOOK VALUE
- ---------------------------- -------- ------ ----------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AA=II BB=V CC DD=AA+BB+CC EE FF=EE-DD GG=CC+FF HH=DD+FF
TAX-EXEMPT SECURITIES ACCOUN
CASH & CASH EQUIVALENTS:
TOTAL CASH & EQUIVEL. 0 0 0 0 0 0 0 0
SHORT TERM INVESTMENTS
AMT-LA PFA SER92A-2 2,030,040 (26,639) 29,832 2,033,233 2,013,940 (19,293) 10,539 2,013,940
DE ST GO SER C BD 0 0 4,817 4,817 0 (4,817) 0 0
ILL ST S/T REV BD 2,574,225 (51,030) 35,021 2,558,216 2,420,825 (37,391) (2,370) 2,520,825
OH ST HWY SER T GO 0 0 4,700 4,700 1,001,710 997,010 1,001,710 1,001,710
TX FR Worth GO BD 0 (0) (85,289) (85,289) 0 85,289 0 0
WY LINCO VRDN 0 0 9,253 9,253 0 (9,253) 0 0
AL MCINTS VRDN 1,200,000 0 0 1,200,000 1,200,000 0 0 1,200,000
LA LOOPS VRDN 1,500,000 0 0 1,500,000 1,500,000 0 0 1,500,000
WY SUBLD VRDN 600,000 0 0 600,000 0 (600,000) (600,000) 0
AL PHEN D VRND 1,000,000 0 0 1,000,000 0 (1,000,000) (1,000,000) 0
WY KEMR D VRDN 0 0 0 0 0 0 0 0
TX NHED W VRDN 1,000,000 0 0 1,000,000 0 (1,000,000) (1,000,000) 0
IL OHAR W VRDN 1,000,000 0 0 1,000,000 0 (1,000,000) (1,000,000) 0
TX GULF VRDN 0 0 0 0 0 0 0 0
IN JASP D VRDM 0 0 0 0 0 0 0 0
MA STBANS NT 1,015,360 (418) 0 1,014,942 0 (1,014,942) (1,014,942) 0
OHIO CLVD WR 700,000 0 0 700,000 0 (700,000) (700,000) 0
NY ST GO 1,319,656 (554) 0 1,319,102 0 (1,319,102) (1,319,102) 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
---------- ------- ------- ---------- ---------- ---------- ---------- ----------
SHORT TERM TAX-EXEMPT TOTALS 13,939,281 (78,641) (1,666) 13,858,974 8,236,475 (5,622,499) (5,624,165) 8,236,475
---------- ------- ------- ---------- ---------- ---------- ---------- ----------
TAX-EXEMPT TOTALS 13,939,281 (78,641) (1,666) 13,858,974 8,236,475 (5,622,499) (5,624,165) 8,236,475
TAXABLE INVESTMENTS ACCT 1068
CASH & CASH EQUIVALENTS:
CASH OR (STIF)
TOTAL CASH & CASH EQUIVALENTS
SHORT TERM INVESTMENTS:
U.S. TREASURY NOTE 1,744,531 (0) (3,655) 1,740,876 1,602,145 (138,731) (142,386) 1,602,145
U.S. TREASURY NOTE 2,659,584 (24,931) (40,169) 2,594,484 2,476,828 (117,654) (157,824) 2,476,830
---------- -------- ------- ---------- ---------- ---------- ---------- ----------
TOTAL SHORT TERM INVEST. 0 (24,931) (43,824) 4,335,360 4,078,973 (256,385) (300,210) 4,078,975
---------- -------- ------- ---------- ---------- ---------- ---------- ----------
TAXABLE TOTALS 0 (24,931) (43,824) 4,335,360 4,078,973 (256,385) (300,210) 4,078,975
---------------------------------------------------------------------------------------------------
PORTFOLIO TOTALS 13,939,281 (101,572) (45,490) 18,194,334 12,315,448 (5,878,884) (5,924,375) 12,315,450
===================================================================================================
</TABLE>
<PAGE> 69
DETAIL.XLS
OCTEL COMMUNICATIONS CORPORATION
IN HOUSE INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
FINAL
<TABLE>
<CAPTION>
ORIGINAL BEG.
INTEREST PURCHASE MATURITY TERM DAYS TO FACE
SECURITY RATE DATE DATE IN MOS. MATURITY VALUE PURCHASES SALES
-------- -------- -------- -------- ------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
MUNICIPAL ADV-90 DAY AAA 3.495% 4/8/96 7/7/96 90 1,800,000
MUNIYIELD 7 DAY AAA 4.050% 4/24/96 5/1/96 7 3,000,000 (3,000,000)
MI MUNIVEST-7 DAY AAA 3.875% 4/26/96 5/3/96 7 1,000,000 (1,000,000)
MY MUNIYIELD-7 DAY AAA 3.850% 4/26/96 5/3/96 7 3,000,000 (3,000,000)
MUNI ADVANTAGE 28 DAY 3.850% 4/30/96 5/28/96 28 3,000,000 (3,000,000)
MUNI NY INSD FD 11 3.850% 4/26/96 5/3/96 7 0 3,000,000 (3,000,000)
NUVEEN PRM INCOME MUNI 4.000% 5/1/96 5/8/96 7 0 2,000,000 (2,000,000)
MUNI NY INSD FD 11 3.750% 5/3/96 5/10/96 7 0 3,000,000 (3,000,000)
NUVEEN PRM INCOME MUNI 3.660% 5/5/96 5/15/96 10 0 3,000,000 (3,000,000)
MUNI NY INSD FD 11 3.640% 5/10/96 5/17/96 7 0 3,000,000 (3,000,000)
NUVEEN PRM INCOME MUNI 3.750% 5/15/96 5/22/96 7 0 3,000,000 (3,000,000)
MUNI NY INSD FD 11 3.700% 5/17/96 5/25/96 8 0 3,000,000 (3,000,000)
NUVEEN PRM INCOME MUNI 3.635% 5/22/96 5/29/96 7 0 3,000,000 (3,000,000)
MUNI NY INSD FD 11 3.570% 5/25/96 5/31/96 6 0 3,000,000 (3,000,000)
NUVEEN PRM INCOME MUNI 3.625% 5/29/96 6/5/96 7 0 3,000,000
MUNI NY INSD FD 11 3.400% 5/31/96 7/7/96 37 0 3,000,000
TAURUS MUNI NY-28 DAY 3.670% 5/15/96 6/11/96 27 0 3,000,000
MUNI ADV 120 DAY 3.689% 5/28/96 8/26/96 90 0 3,000,000
0 0
0 0
0 0
0 0
0 0
0 0
---------- ---------- -----------
TAX-EXEMPT SECURITIES: 11,800,000 38,000,000 -36,000,000
0
---------- ---------- -----------
TAXABLE TOTALS 0 0 0
---------- ---------- -----------
PORTFOLIO TOTALS 11,800,000 38,000,000 (36,000,000)
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
END BEG. BAL. END BAL.
FACE AT COST AT COST SALES ACCAMORT
SECURITY VALUE (PRIN. ONLY) PURCHASES SALES (PRIN. ONLY) PROCEEDS SOLD SEC
-------- -------- ------------ --------- ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
MUNICIPAL ADV-90 DAY AAA 1,800,000 1,800,000 1,800,000
MUNIYIELD 7 DAY AAA 0 3,000,000 (3,000,000) 0 (3,000,000)
MI MUNIVEST-7 DAY AAA 0 1,000,000 (1,000,000) 0 (1,000,000)
MY MUNIYIELD-7 DAY AAA 0 3,000,000 (3,000,000) 0 (3,000,000)
MUNI ADVANTAGE 28 DAY 0 3,000,000 (3,000,000) 0 (3,000,000)
MUNI NY INSD FD 11 0 0 3,000,000 (3,000,000) 0 (3,000,000)
NUVEEN PRM INCOME MUNI 0 0 2,000,000 (2,000,000) 0 (2,000,000)
MUNI NY INSD FD 11 0 0 3,000,000 (3,000,000) 0 (3,000,000)
NUVEEN PRM INCOME MUNI 0 0 3,000,000 (3,000,000) 0 (3,000,000)
MUNI NY INSD FD 11 0 0 3,000,000 (3,000,000) 0 (3,000,000)
NUVEEN PRM INCOME MUNI 0 0 3,000,000 (3,000,000) 0 (3,000,000)
MUNI NY INSD FD 11 0 0 3,000,000 (3,000,000) 0 (3,000,000)
NUVEEN PRM INCOME MUNI 0 0 3,000,000 (3,000,000) 0 (3,000,000)
MUNI NY INSD FD 11 0 0 3,000,000 (3,000,000) 0 (3,000,000)
NUVEEN PRM INCOME MUNI 3,000,000 0 3,000,000 3,000,000
MUNI NY INSD FD 11 3,000,000 0 3,000,000 3,000,000
TAURUS MUNI NY-28 DAY 3,000,000 0 3,000,000 3,000,000
MUNI ADV 120 DAY 3,000,000 0 3,000,000 3,000,000
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
0 0 0
---------- ---------- ---------- ----------- ---------- ----------- -----------
TAX-EXEMPT SECURITIES: 13,800,000 11,800,000 38,000,000 -36,000,000 13,800,000 -36,000,000
0 0 0
---------- ---------- ---------- ----------- ---------- ----------- -----------
TAXABLE TOTALS 0 0 0 0 0 0 0
---------- ---------- ---------- ----------- ---------- ----------- -----------
PORTFOLIO TOTALS 13,800,000 11,800,000 38,000,000 (36,000,000) 13,800,000 (36,000,000) 0
========== ========== ========== =========== ========== =========== ===========
Net Realized Gain/(Loss) 0
===========
</TABLE>
<PAGE> 70
DETAIL.XLS
OCTEL COMMUNICATIONS CORPOR
IN HOUSE INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
FINAL
<TABLE>
<CAPTION>
INTEREST
PURCH COST -------------------------------------------------------
ACCMRTADJ LESS: SALES OPENING PURCHASED PAYMENTS CURRENT ENDING TOTAL
SECURITY SOLD SEC PROCEEDS ACCRUED INTEREST RECEIVED INCOME ACCRUED BALANCE
-------- --------- ----------- ------- --------- -------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS: 0
MUNICIPAL ADV-90 DAY AAA 3,792 5,417 9,209 1,809,209
MUNIYEILD 7 DAY AAA 1,997 (2,330) 334 0 0
MI MUNIVEST-7 DAY AAA 424 (743) 320 0 0
MY MUNIYIELD-7 DAY AAA 1,266 (2,215) 950 0 0
MUNI ADVANTAGE 28 DAY 316 (8,746) 8,430 (0) (0)
MUNI NY INSD FD 11 (0) (2,215) 2,215 (0) (0)
NUVEEN PRM INCOME MUNI (0) (1,534) 1,534 (0) (0)
MUNI NY INSD FD 11 (0) (2,158) 2,158 (0) (0)
NUVEEN PRM INCOME MUNI (0) (2,106) 2,106 (0) (0)
MUNI NY INSD FD 11 (0) (2,094) 2,094 (0) (0)
NUVEEN PRM INCOME MUNI (0) (2,158) 2,158 (0) (0)
MUNI NY INSD FD 11 (0) (2,432) 2,432 (0) (0)
NUVEEN PRM INCOME MUNI (0) (2,092) 2,092 (0) (0)
MUNI NY INSD FD 11 (0) (1,761) 1,761 (0) (0)
NUVEEN PRM INCOME MUNI (0) 604 604 3,000,604
MUNI NY INSD FD 11 (0) 567 567 3,000,567
TAURUS MUNI NY-28 DAY (0) 4,893 4,893 3,004,893
MUNI ADV 120 DAY (0) 615 615 3,000,615
(0) (0) (0)
(0) (0) (0)
(0) (0) (0)
(0) (0) (0)
(0) (0) (0)
(0) (0) (0)
------------------------ ------- --------- ------- ------ ------ ----------
TAX EXEMPT SECURITIES: 0 7,785 0 (32,584) 40,680 15,883 13,815,883
(0) 0 0
------------------------ ------- --------- -------- ------- ------- ----------
TAXABLE TOTALS 0 0 0 (0) 0 0 0 0
------------------------ ------- --------- -------- ------- ------- ----------
PORTFOLIO TOTALS 0 0 7,784 0 (32,584) 40,680 15,883 13,815,883
======================== ======= ========= ======== ======= ======= ==========
</TABLE>
<PAGE> 71
DETAIL.XLS
OCTEL COMMUNICATIONS CORPORATION
IN HOUSE INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
<TABLE>
<CAPTION>
FINAL /----------AMORTIZATION---------/ TOTAL
DISCOUNT/ DIST/(PREM) BEG. ACCUM NOV TOTAL TOTAL BOOK PURCH & TOTAL
SECURITY (PREMIUM) OVER CALL AMT AMORT. AMORT. AMORT. PURCHASES INCOME BK INCOME SALES
-------- --------- ------------- ---------- ------ ------ ----------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH & CASH EQUIVALENTS:
MUNICIPAL ADV-90 DAY AAA 0 0 0 0 0 5,417 5,417 5,417
MUNIYIELD 7 DAY AAA 0 0 0 0 0 334 334 (3,002,330)
MI MUNIVEST-7 DAY AAA 0 0 0 0 0 320 320 (1,000,743)
MY MUNIYIELD-7 DAY AAA 0 0 0 0 0 950 950 (3,002,215)
MUNI ADVANTAGE 28 DAY 0 0 0 0 0 8,430 8,430 (3,008,746)
MUNI NY INSD FD 11 0 0 0 0 3,000,000 2,215 3,002,215 (3,002,215)
NUVEEN PRM INCOME MUNI 0 0 0 0 2,000,000 1,534 2,001,534 (2,001,534)
MUNI NY INSD FD 11 0 0 0 0 3,000,000 2,158 3,002,158 (3,002,158)
NUVEEN PRM INCOME MUNI 0 0 0 0 3,000,000 2,106 3,002,106 (3,002,106)
MUNI NY INSD FD 11 0 0 0 0 3,000,000 2,094 3,002,094 (3,002,094)
NUVEEN PRM INCOME MUNI 0 0 0 0 3,000,000 2,158 3,002,158 (3,002,158)
MUNI NY INSD FD 11 0 0 0 0 3,000,000 2,432 3,002,432 (3,002,432)
NUVEEN PRM INCOME MUNI 0 0 0 0 3,000,000 2,092 3,002,092 (3,002,092)
MUNI NY INSD FD 11 0 0 0 0 3,000,000 1,761 3,001,761 (3,001,761)
NUVEEN PRM INCOME MUNI 0 0 0 0 3,000,000 604 3,000,604 0
MUNI NY INSD FD 11 0 0 0 0 3,000,000 567 3,000,567 0
TAURUS MUNI NY-28 DAY 0 0 0 0 3,000,000 4,893 3,004,893 0
MUNI ADV 120 DAY 0 0 0 0 3,000,000 615 3,000,615 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
--------- ------------- ---------- ------ ------ ----------- ------ ----------- -----------
TAX-EXEMPT SECURITIES: 0 0 0 0 0 38,000,000 40,680 38,040,680 (36,027,167)
0 0 0 0 0 0
0 0 0 0 0 0 0 0
--------- ------------- ---------- ------ ------ ----------- ------ ----------- -----------
TAXABLE TOTALS 0 0 0 0 0 0 0 0 0
---------------------------------------------------- -----------------------------------------------
PORTFOLIO TOTALS 0 0 0 0 0 38,000,000 40,680 38,040,680 (36,027,167)
==================================================== ===============================================
</TABLE>
Page 3
<PAGE> 72
DETAIL.XLS
OCTEL COMMUNICATIONS CORPOR
IN HOUSE INVESTMENT PORTFOLIO
AS OF MAY 31, 1996
FINAL
<TABLE>
<CAPTION>
BOOK VALUE TO MARKET VALUE ANALYSIS
/------------------------------------------------------------/
PREVIOUS ACCUM.
PURCHASE ACCUM UNREALIZED CURRENT CURRENT UNREALIZED NEW
SECURITY COST AMORT. GAIN/(LOSS) BOOK VALUE MKT VALUE ADJUSTMENT GAIN/(LOSS) BOOK VALUE
-------- -------- ------ ---------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DD=AA+BB+CC
CASH & CASH EQUIVALENTS:
MUNICIPAL ADV-90 DAY AAA 0 0 0 0 0 0 0 0
MUNIYEILD 7 DAY AAA 0 0 0 0 0 0 0 0
MI MUNIVEST-7 DAY AAA 0 0 0 0 0 0 0 0
MY MUNIYEILD-7 DAY AAA 0 0 0 0 0 0 0 0
MUNI ADVANTAGE 28 DAY 0 0 0 0 0 0 0 0
MUNI NY INSD FD 11 0 0 0 0 0 0 0 0
NUVEEN PRM INCOME MUNI 0 0 0 0 0 0 0 0
MUNI NY INSD FD 11 0 0 0 0 0 0 0 0
NUVEEN PRM INCOME MUNI 0 0 0 0 0 0 0 0
MUNI NY INSD FD 11 0 0 0 0 0 0 0 0
NUVEEN PRM INCOME MUNI 0 0 0 0 0 0 0 0
MUNI NY INSD FD 11 0 0 0 0 0 0 0 0
NUVEEN PRM INCOME MUNI 0 0 0 0 0 0 0 0
MUNI NY INSD FD 11 0 0 0 0 0 0 0 0
NUVEEN PRM INCOME MUNI 0 0 0 0 0 0 0 0
MUNI NY INSD FD 11 0 0 0 0 0 0 0 0
TAURUS MUNI NY-28 DAY 0 0 0 0 0 0 0 0
MUNI ADV 120 DAY 0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
TAX EXEMPT SECURITIES
0 0 0 516,735 516,735 516,735 516,735
0 0 0 0 0 0 0 0
-------- ------ ---------- ---------- --------- ---------- ----------- ----------
TAXABLE TOTALS 0 0 0 0 516,735 516,735 516,735 516,735
-------- ------ ---------- ---------- --------- ---------- ----------- ----------
PORTFOLIO TOTALS 0 0 0 0 0 0 0 0
======== ====== ========== ========== ========= ========== =========== ==========
</TABLE>
<PAGE> 73
Exhibit 10.15
(continued)
EXHIBIT A
OCTEL COMMUNICATIONS CORPORATION
PROMISSORY NOTE
U.S.$30,000,000.00 Milpitas, California
June 30, 1996
OCTEL COMMUNICATIONS CORPORATION, a Delaware corporation ("Borrower"),
for value received, hereby unconditionally promises to pay to the order of THE
FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association as agent
on behalf of the Banks ("Agent"), in lawful money of the United States of
America, the principal amount of Thirty Million Dollars ($30,000,000.00)
payable on the dates and in the manner set forth below.
This Note is the promissory note (the "Note") referred to in that
certain Credit Agreement dated as of June 30, 1996 (as the same may from time
to time be amended, modified, supplemented or restated, the "Credit
Agreement"), by and among (i) Borrower; (ii) FNBB and each other lender whose
name is set forth on the signature pages of the Credit Agreement or which may
hereafter execute and deliver an instrument of assignment with respect to the
Credit Agreement (collectively, the "Banks"); and (iii) Agent. All terms
defined in the Credit Agreement shall have the same definitions when used
herein, unless otherwise defined herein.
All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America in immediately
available funds at the head office of Agent for the account of the Banks.
1. PRINCIPAL PAYMENTS. The aggregate outstanding principal
amount of all Loans made pursuant to the Credit Agreement shall be due and
payable in full on the Final Payment Date.
2. INTEREST RATE. Borrower promises to pay interest on the sum
of the daily unpaid principal balance of all Loans outstanding on each day in
lawful money of the United States of America, from the date of this Note until
all such principal amounts shall have been indefeasibly repaid in full, which
interest shall be payable at the rates per annum and on the dates specified in
the Credit Agreement.
3. APPLICATION OF PAYMENTS; ACCELERATION. Payments on this Note
shall be applied in the manner set forth in the Credit Agreement. Without
limiting the generality of Section 1 of this Note, provisions in the Credit
Agreement for acceleration of the maturity of the principal amount hereof upon
the happening of certain stated events and also for prepayments of all or
portions of the principal balance thereof prior to the Final Payment Date, on
the terms and conditions therein stated, shall supersede provisions to the
contrary herein.
1.
<PAGE> 74
All Loans evidenced by this Note made by the Banks to Borrower
pursuant to the Credit Agreement shall be recorded by Agent on its books and
records. The failure of Agent to record any Loan or any prepayment or
repayment made on account of the principal balance hereof shall not limit or
otherwise affect the obligation of Borrower under this Note and under the
Credit Agreement to principal, interest and other amounts due and payable
thereunder.
Any principal repayment or interest payment on the Loans not paid when
due shall bear interest and be subject to additional charges as follows:
(A) Overdue principal (whether at maturity, by reason of
acceleration or otherwise) and, to the extent permitted by applicable law,
overdue interest and fees or any other amounts payable hereunder or under the
Note shall bear interest from and including the due date thereof until paid,
compounded daily and payable on demand, at a rate per annum equal to (i) if
such due date occurs prior to the end of an Interest Period, 2% above the
interest rate applicable to such Loan for such Interest Period until the
expiration of such Interest Period, and thereafter, 2% above the Base Rate; and
(ii) in all other cases, 2% above the rate then applicable to Base Rate Loans.
(B) If a payment of principal or interest hereunder is
not made within 30 days of its due date, Borrower will also pay on demand a
late payment charge equal to 5 % of the amount of such payment.
4. DEFAULT. Borrower's failure to pay timely any of the
principal amount due under this Note on the date the same becomes due and
payable or any accrued interest or other amounts due under this Note on the
date the same becomes due and payable or within three (3) business days
thereafter shall constitute a default under this Note. Upon the occurrence of a
default hereunder or an Event of Default under the Credit Agreement, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of the Banks, be immediately due and payable to the Banks, pursuant to
the Credit Agreement and applicable law.
5. WAIVER. Borrower hereby waives diligence, presentment,
protest, demand and notice of dishonor, protest, demand and notice of every
kind and, to the full extent permitted by law, the right to plead any and all
statutes of limitations as a defense to any demands hereunder.
Borrower promises to pay all reasonable costs and expenses, incurred
in the collection and enforcement of this Note, including, without limitation,
reasonable attorneys' fees, costs and other expenses, including without
limitation, the allocated cost of internal counsel.
6. GOVERNING LAW. This Note shall be deemed a contract made
under seal and shall be governed by, and construed and enforced in accordance
with, the laws of the State of California, (without giving effect to any
conflicts of laws provisions contained therein).
7. SUCCESSORS AND ASSIGNS. The provisions of this Note shall
inure to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof.
2.
<PAGE> 75
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
OCTEL COMMUNICATIONS CORPORATION,
a Delaware corporation
By:
--------------------------------
-----------------------------------
Printed Name:
-----------------------------------
3.
<PAGE> 76
EXHIBIT B
NOTICE OF BORROWING OR CONVERSION
_______________, 199_
The First National Bank of Boston, as Agent
100 Federal Street
Boston, Massachusetts 02110
Attention:_________________
RE: CREDIT AGREEMENT DATED AS OF JUNE 30, 196 MAY FROM TIME TO TIME BE
AMENDED, MODIFIED, SUPPLEMENTED OR RESTATED, THE "CREDIT AGREEMENT"),
BY AND AMONG (I) OCTEL COMMUNICATIONS CORPORATION ("BORROWER"); (II)
THE FIRST NATIONAL BANK OF BOSTON ("FNBB") AND EACH OTHER LENDER WHOSE
NAME IS SET FORTH ON THE SIGNATURE PAGES OF THE CREDIT AGREEMENT OR
WHICH MAY HEREAFTER EXECUTE AND DELIVER AN INSTRUMENT OF ASSIGNMENT
WITH RESPECT TO THE CREDIT AGREEMENT (COLLECTIVELY, THE "BANKS"); AND
(III) FNBB AS AGENT ("AGENT")
Ladies and Gentlemen:
Reference is made to the Credit Agreement. The capitalized terms used in this
Borrowing Notice which are defined in the Credit Agreement have the same
meaning herein as given to them therein.
Borrower and the undersigned authorized officer of Borrower hereby certify
that:
1. All representations and warranties of Borrower stated in
Section IV of the Credit Agreement are true, accurate and complete in all
material respects as of the date hereof; provided, however, that those
representations and warranties expressly referring to another date shall be
deemed to be made as of such date;
2. As of the date hereof, no Default or Event of Default has
occurred and is continuing; and
3. The information set forth on Schedule 1 hereto, which Schedule
is incorporated herein by this reference, is true and correct.
1.
<PAGE> 77
IN WITNESS WHEREOF, this Notice of Borrowing or Conversion is executed
by the undersigned this ____ day of ____________, 199_.
OCTEL COMMUNICATIONS CORPORATION,
a Delaware corporation
By:
--------------------------------
Printed Name:
----------------------
Title:
-----------------------------
ACCEPTED AND APPROVED:
THE FIRST NATIONAL BANK OF BOSTON,
as Agent
By:
-------------------------------
Printed Name:
---------------------
Title:
----------------------------
Date:
-----------------------------
2.
<PAGE> 78
SCHEDULE 1
TO
NOTICE OF BORROWING OR CONVERSION
DATED ____________, 199_
LOANS
<TABLE>
<S> <C> <C>
1. Current principal amount of Loans outstanding under the Credit $__________
Agreement.
2. Current principal amount undrawn under outstanding Letters of Credit $__________
under the Credit Agreement.
3. Amount available for borrowing: ($30,000,000 minus Line 1 minus Line 2) $__________
(A) Principal amount of Loan requested for this advance (must $__________
not be greater than Line 3).
(B) Requested Funding Date. __________
(C) Requested Rate (LIBOR Loan[ ] or Base Rate Loan[ ])__________
(D) If LIBOR Loan, Interest Period
requested __________
(E) Principal amount of Loans outstanding plus principal amount $__________
undrawn under Letters of Credit outstanding after giving
effect to this advance
</TABLE>
1.
<PAGE> 79
EXHIBIT C
OCTEL COMMUNICATIONS CORPORATION
REPORT OF CHIEF FINANCIAL OFFICER
OCTEL COMMUNICATIONS CORPORATION (the "Company") hereby certifies
that:
This Report of Chief Financial Officer (the "Report") is furnished
pursuant to Section 5.1(c) of the Credit Agreement (the "Credit Agreement")
dated as of June 30, 1996 by and between the Company and The First National
Bank of Boston ("FNBB"), and the other Banks party thereto (collectively,
"Banks") and FNBB as agent for Banks (the "Credit Agreement"). Unless
otherwise defined herein, the terms used in this Report have the meanings given
to them in the Credit Agreement.
As required by Section 5.1(a) and (b) of the Credit Agreement,
consolidated and consolidating financial statements of the Company and its
Subsidiaries for the [year/quarter] ended _________, 19__ (the "Financial
Statements") prepared in accordance with generally accepted accounting
principles consistently applied accompany this Report. The Financial
Statements present fairly the consolidated financial position of the Company
and its Subsidiaries as at the date thereof and the consolidated and
consolidating results of operations of the Company and its Subsidiaries for the
period covered thereby (subject only to normal recurring year-end adjustments
in the case of quarterly statements).
The figures set forth in Schedule A hereto for determining compliance
by the Company with the financial covenants contained in the Credit Agreement
are true and complete as of the date hereof.
The activities of the Company and its Subsidiaries during the period
covered by the Financial Statements have been reviewed by the Chief Financial
Officer or by employees or agents under his immediate supervision. Based on
such review, to the best knowledge and belief of the Chief Financial Officer,
and as of the date of this Report, no Default has occurred.*
WITNESS my hand this ______ day of ________________, 19__.
OCTEL COMMUNICATIONS CORPORATION
By:
-----------------------------
Title:
-------------------------
- -----------------
* If a Default has occurred, this paragraph is to be modified with an
appropriate statement as to the nature thereof, the period of existence thereof
and what action the Company has taken, is taking, or proposes to take with
respect thereto.
1.
<PAGE> 80
Exhibit 10.15
(continued)
SCHEDULE A
TO
EXHIBIT C
FINANCIAL COVENANTS
QUICK RATIO (SECTION 5.7(A))
<TABLE>
<S> <C>
REQUIRED: 1.00:1.00
-----------------
ACTUAL:
(I) Sum of cash, short term Qualified Investment and accounts receivable $
----------------
(II) Consolidated Current Liabilities $
----------------
(III) To the extent not included in Line (ii),
the principal amount of Loans and the principal
amount undrawn under Letters of Credit outstanding $
----------------
(IV) Line (ii) plus Line (iii) $
----------------
(V) Quick Ratio: Line (i) divided by Line (iv) :1.00
-----------------
</TABLE>
PROFITABILITY (SECTION 5.7(B))
<TABLE>
<S> <C> <C>
(I) REQUIRED: No operating or net loss in any quarters exceeding 10% of Consolidated Tangible Net Worth
(II) REQUIRED: No operating or net loss in any two quarter period > 10% of Consolidated Tangible Net Worth.
(III) REQUIRED: No operating or net loss in each of three consecutive quarters
(IV) REQUIRED: No operating or net loss in any four quarter period.
</TABLE>
ACTUAL:
<TABLE>
<S> <C>
Consolidated net income at [date of quarter ending three $
----- quarters previous] ----------------
Consolidated net income at [date of quarter ending two $
----- quarters previous] ----------------
</TABLE>
1.
<PAGE> 81
<TABLE>
<S> <C>
Consolidated net income at______ $_______________
[date of prior quarter end]
Consolidated net income at______ $_______________
[date of most recent quarter end]
Consolidated operating income at______ $_______________
[date of quarter ending three quarters previous]
Consolidated operating income at______ $_______________
[date of quarter ending two quarters previous]
Consolidated operating income at______ $_______________
[date of prior quarter end]
Consolidated operating income at______ $_______________
[date of most recent quarter end]
</TABLE>
LEVERAGE RATIO (SECTION 5.7(C))
<TABLE>
<S> <C>
REQUIRED: Not to exceed 0.75:1.00
-----------------------
</TABLE>
<TABLE>
<CAPTION>
ACTUAL:
<S> <C> <C>
(I) CONSOLIDATED TOTAL LIABILITIES $
(including the undrawn amount of all outstanding ---------------
Letters of Credit)
(II) CONSOLIDATED TANGIBLE NET WORTH $
---------------
(III) LEVERAGE RATIO: Line (i) divided by Line (ii) :1.00
----------------
</TABLE>
CONSOLIDATED TANGIBLE NET WORTH (SECTION 5.7(D))
<TABLE>
<CAPTION>
REQUIRED:
<S> <C> <C>
(I) BEGINNING BALANCE $291,000,000
(II) PLUS: 75% of consolidated
quarterly net income (after
taxes) for each fiscal quarter
after March 31, 1996 in which net
income shall be positive $
-----------
</TABLE>
2.
<PAGE> 82
<TABLE>
<S> <C> <C>
(III) PLUS: 100% of net cash proceeds
from sale of equity securities
after March 31, 1996 $
----------------
(IV) MINUS: 100% of the cost of
repurchases by Borrower of its
capital stock after March 31, 1996
in an aggregate amount of up to
$25,000,000 $
----------------
(V) MINUS: Expenses attributable to
non-cash charges taken in
connection with permitted Acquisition
($25,000,000 maximum) $
----------------
(VI) REQUIRED AMOUNT: $
---------------
</TABLE>
<TABLE>
<CAPTION>
ACTUAL:
<S> <C> <C>
(I) CONSOLIDATED TOTAL ASSETS OF COMPANY $
--------------
(II) LESS: excluded items* $( )
-------------
(III) LESS: Consolidated Total Liabilities $( )
--------------
(IV) CONSOLIDATED TANGIBLE NET WORTH: $
---------------
</TABLE>
__________________________________
* Excluded items are: (a) goodwill, (b) book value, net of any
reserves, of intangible assets, including unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research
and development expenses, except prepaid expenses, (c) reserves not already
deducted from assets, (d) any write-up in the book value of assets resulting
from any revaluation thereof subsequent to the date of the financial statement
and (e) value of minority interests in Subsidiaries.
3.
<PAGE> 83
LIMITATION ON ACQUISITIONS AND JOINT VENTURES (SECTION 6.6(B))
REQUIRED: Aggregate consideration paid in connection with Acquisitions
and Joint Ventures after June 30, 1996 does not cause the
total consideration paid or exchanged for such transactions to
exceed thirty-five (35%) of Consolidated Tangible Net Worth as
of the end of the fiscal quarter ending immediately prior to
the closing of such Acquisition or Joint Venture, giving full
effect on such closing date to all consideration to be paid or
exchanged after the closing date of all such transactions
<TABLE>
<CAPTION>
ACTUAL:
<S> <C> <C>
(I) AGGREGATE CONSIDERATION PAID IN CONNECTION WITH
ACQUISITIONS AND JOINT VENTURES
AFTER JUNE 30, 1996 $
---------------
(II) 35% OF CONSOLIDATED TANGIBLE NET WORTH $
---------------
(III) AGGREGATE CONSIDERATION AVAILABLE FOR
ACQUISITIONS AND JOINT VENTURES:
LINE (II) LESS LINE (I) $
---------------
</TABLE>
Note: When Line (i) exceeds 10% of Consolidated Tangible Net Worth,
Borrower's prior notice and demonstration of compliance is
required under Section 6.6(c).
WITNESS my hand this ________________ day of ________________, 19__.
OCTEL COMMUNICATIONS CORPORATION
By:
--------------------------------
Title:
-----------------------------
4.
<PAGE> 84
Exhibit 10.5
(continued)
EXHIBIT D
June __, 1996
The First National Bank of Boston,
as Agent
100 Federal Street
Boston, Massachusetts 02110
and
The Banks Listed on Annex A hereto
Re: Credit Agreement, dated as of June 30, 1996, among Octel
Communications Corporation, the Banks named therein, and
The First National Bank of Boston, as Agent for the Banks
Ladies and Gentlemen:
We have acted as special counsel to Octel Communications Corporation,
a Delaware corporation (the "Company"), in connection with the execution and
delivery of that certain Credit Agreement, dated as of June 30, 1996 (the
"Credit Agreement"), among the Company, the Banks named therein and The First
National Bank of Boston, as Agent for the Banks. Capitalized terms used herein
which are not defined in the Credit Agreement shall have the respective
meanings set forth in the Credit Agreement, unless otherwise defined herein.
This opinion is being furnished to you pursuant to Section 3.1(g) of the Credit
Agreement.
In rendering the opinions expressed below, we have examined executed
originals or copies of the following documents:
(a) the Credit Agreement;
(b) a letter agreement, dated as of the date hereof, by and between
the Company and the Agent with respect to certain fees payable
in connection with the Credit Agreement (the "Fee Letter");
(c) the Note of the Company, dated as of June 30, 1996, executed in
favor of The First National Bank of Boston, as Agent (the
"Note");
<PAGE> 85
The First National Bank of Boston
as Agent, and the Banks Listed on Annex A
June __, 1996
Page 2
(d) a certificate of the Secretary of the Company, dated as of the
date hereof, executed and delivered to you pursuant to Section
3.1(b) of the Credit Agreement, as to, among other things; (i)
the incumbency and signature of certain officers of the Company;
(ii) the Certificate of Incorporation of the Company; (iii) the
bylaws of the Company; and (iv) the adoption of certain
resolutions by the directors of the Company;
(e) records of the proceedings of the Board of Directors of the
Company during or by which resolutions were adopted relating to
matters covered by this opinion;
(f) a copy of the Certificate of Incorporation of the Company,
certified as of June __, 1996 by the Secretary of State of the
State of Delaware;
(g) (i) a certificate of the Secretary of State of the State of
Delaware, dated June __, 1996, with respect to the corporate and
tax good standing of the Company as a corporation incorporated
under the laws of the State of Delaware; (ii) a certificate of
the Secretary of State of the State of California, dated June
__, 1996, with respect to the standing of the Company as a
foreign corporation qualified to do business in the State of
California; (iii) and a certificate of the Franchise Tax Board
of the State of California, dated as of June __, 1996, as to the
tax status of the Company in the State of California;
(h) the records of actions by the Company's board of directors,
committees thereof and shareholders since June 30, 1994, as set
forth in the minute books of the Company;
(i) certificates of certain officers of the Company as to certain
factual matters (copies of which have been delivered to the
Banks);
(j) the other documents delivered by the Company to the Banks on the
date hereof in connection with the closing of the transactions
covered hereby; and
(k) each of the documents and agreements listed on Annex B hereto
(the "Reviewed Agreements") which the Company has certified to
us constitute all the documents listed as exhibits to the
Company's most recent Annual Report on Form 10-K or Quarterly
Reports on Form 10-Q pursuant to the requirements of clause (10)
of Item 601(b) of Regulation S-K (other than those which have
expired, terminated or are otherwise no longer in effect) and
all of the documents which would be required to be listed as
exhibits pursuant to the requirements of clause (10) of Item
601(b) of Regulation S-K as exhibits to an
<PAGE> 86
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June ___, 1996
Page 3
Annual Report on Form 10-K or Quarterly Report on Form 10-Q of
the Company if such report were filed as of the date hereof
(other than those which have expired, terminated or are
otherwise no longer in effect).
With respect to any documents submitted for our review we have assumed
that all signatures are genuine, all documents submitted as originals are
authentic, all documents submitted as copies conform to the original documents
and that all documents, books and records made available to us by the Company
are accurate and complete. The Credit Agreement, the Fee Letter and the Note
are sometimes referred to herein as the "Transaction Documents."
We have also relied upon and obtained from public officials and officers
and representatives of the Company such other certificates and assurances as we
consider necessary for the purposes of rendering this opinion. With respect to
certain matters of fact we have relied upon, with your permission, the
representations and warranties of the Company set forth in the Credit Agreement
(but only to the extent they relate to factual matters), the Certificate of the
Secretary of the Company referenced in paragraph (d) above and the certificates
of certain officers of the Company referred to in paragraph (i) above.
As used in this opinion, the expression "to our knowledge" or "known to
us" with reference to matters of fact means that during the course of our
representation of the Company in connection with the Transaction Documents no
information has come to the attention of the attorneys of our firm involved in
this engagement or any of the other attorneys of our firm listed on Annex C
hereto (which includes the primary attorneys currently performing services on
behalf of the Company) which would give them actual knowledge of the existence
or absence of such facts; however, except to the extent expressly set forth
herein, we have made no independent investigation to determine the existence or
absence of such facts, and any limited inquiry undertaken by us during the
preparation of this opinion should not be regarded as such an investigation. No
inference as to our knowledge of the existence or absence of any facts
underlying any opinion given "to our knowledge" should be drawn from the fact of
our representation of the Company.
On the basis of the foregoing and in reliance thereon, and based upon
examination of questions of law as we have deemed appropriate, and subject to
the assumptions, exceptions, qualifications and limitations set forth therein,
we advise you that in our opinion:
1. The Company is a corporation duly incorporated and validly
existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power to own or hold
under lease its properties. The Company is a corporation duly
qualified to do business and in good standing as a foreign
corporation in the State of California.
<PAGE> 87
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June ___, 1996
Page 4
2. The Company has the requisite corporate power and authority to
enter into the Transaction Documents and to carry on its
business as now conducted and to carry out the transactions
contemplated thereby.
3. The execution and delivery by the Company, and the performance
by the Company of its obligations under each of the Transaction
Documents, and the consummation of the transactions contemplated
thereby, have been duly authorized by all necessary corporate
action by the Company.
4. Each of the Transaction Documents to which Company is a party
has been duly executed and delivered and constitutes a valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms.
5. The execution and delivery of each of the Transaction Documents,
the borrowings of Loans in accordance with the Credit Agreement,
repayment of any such Loans by the Company and the undertaking
of the covenants set forth in the Credit Agreement do not (a)
violate or conflict with any provision of the Certificate of
Incorporation or the Bylaws of the Company, (b) violate any
provision of any law, rule or regulation, or (c) result in a
breach of, constitute an event of default under, constitute an
event which, with the passage of time, giving of notice or both
would constitute an event of default under, or permit the
acceleration of any obligation owed under any Reviewed
Agreement.
6. No governmental consents, approvals, authorizations,
registrations, declarations or filings are required to be made
or obtained by the Company (on its behalf) for the due
authorization, execution and delivery by the Company of the
Transaction Documents, the borrowing of Loans in accordance with
the Credit Agreement or the repayment of any such Loans by the
Company.
7. The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
8. Except as set forth on the Disclosure Letter to the Credit
Agreement, to our knowledge, there is no litigation, proceeding
or investigation pending or overtly threatened in writing
against Company or any Subsidiary which we believe is reasonably
likely to have a material
<PAGE> 88
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June ___, 1996
Page 5
adverse effect on the business of the Company and its
Subsidiaries, taken as a whole.
The opinions set forth above are subject to the following exceptions,
qualifications and limitations:
A. We express no opinion as to any matter relating to laws of any
jurisdiction other than the laws of the State of California, the
General Corporation Law of the state of Delaware and the federal
laws of the United States, as such are in effect on the date
hereof. As you know, we are not licensed to practice law in the
State of Delaware and, accordingly, our opinions as to the
General Corporation Law of the State of Delaware are based
solely on our review of the official statutes of Delaware.
B. We express no opinion as to (i) the effect of any bankruptcy,
insolvency, reorganization, arrangement, moratorium or other
similar laws relating to or affecting the rights of creditors
generally, or (ii) the effect of general principles of equity,
including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance, injunctive relief or
other equitable relief, whether considered in a proceeding in
equity or at law.
C. We express no opinion (i) regarding the rights or remedies
available to any party for violations or breaches of any
provisions which are immaterial or for violations or breaches of
any provisions the enforcement of which a court determines would
be unreasonable under the then existing circumstances, (ii)
regarding the rights or remedies available to any party insofar
as such party may take discretionary action which is arbitrary,
unreasonable or capricious, or is not taken in good faith or in
a commercially reasonable manner, whether or not such action is
permitted under the Transaction Documents, (iii) as to the
effect of the exercise of judicial discretion, whether in a
proceeding in equity or at law, (iv) regarding the
enforceability of any provision deemed to be "unconscionable"
within the meaning of Section 1670.5 of the California Civil
Code, or (v) regarding the enforceability of any provision
authorizing the exercise of any remedy without reasonable notice
and opportunity to cure.
D. We express no opinion as to the legality, validity, binding
nature or enforceability of (i) any provisions in the
Transaction Documents providing for the payment or reimbursement
of costs or expenses or indemnifying a party, to the extent such
provisions may be held unenforceable as contrary to public
<PAGE> 89
The First National Bank of Boston,
as Agent and the Banks Listed on Annex A
June ___ , 1996
Page 6
policy, (ii) any provision of any Transaction Documents insofar
as it provides for the payment or reimbursement of costs and
expenses or indemnification for claims, losses or liabilities in
excess of a reasonable amount determined by any court or other
tribunal, (iii) any provisions regarding the Banks' ability to
collect attorneys' fees and costs in an action involving the
Transaction Documents, if the Banks are not the prevailing party
in such action (we call your attention to the effect of Section
1717 of the California Civil Code, which provides that, where a
contract permits one party thereto to recover attorneys' fees,
the prevailing party in any action to enforce any provision of
the contract shall be entitled to recover its reasonable
attorneys' fees), (iv) any provisions of any Transaction
Documents imposing penalties or forfeitures, late payment
charges or any increase in interest rate, upon delinquency in
payment or the occurrence of a default to the extent they
constitute a penalty or forfeiture or are otherwise contrary to
public policy, (v) any right of set-off, or (vi) any provision
of the Transaction Documents to the effect that a statement,
certificate, determination or record shall be deemed conclusive
absent manifest error (or similar effect), including, without
limitation, that any such statement, certificate, determination
or record shall be prima facie evidence of a fact, or any
provision of the Transaction Documents, insofar as it provides
that notice is not actually received may be binding on any
party.
E. We express no opinion with respect to the legality, validity,
binding nature or enforceability of (i) any vague or broadly
stated waiver, including without limitation, the waivers of
diligence, presentment, demand, protest or notice (ii) any
waivers or consents (whether or not characterized as a waiver or
consent in the Transaction Documents) relating to the rights of
the Company or duties owing to them existing as a matter of law,
including, without limitation, waivers of the benefits of
statutory or constitutional provisions, to the extent such
waivers or consents are found by courts to be against public
policy or which are ineffective pursuant to California statutes
and judicial decisions, or (iii) any waivers of any statute of
limitations to the extent such waivers are in excess of four
years beyond the statutory period.
F. We express no opinion with respect to the legality, validity,
binding nature or enforceability of any provision of the
Transaction Documents to the effect that rights or remedies are
not exclusive, that every right or remedy is cumulative and may
be exercised in addition to any other right or remedy, that the
election of some particular remedy or remedies does not preclude
recourse to one or more other remedies or that failure to
exercise or delay in exercising rights or remedies will not
operate as a waiver of any such right or remedy.
<PAGE> 90
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June , 1996
Page 7
G. We express no opinion as to any provision of the Transaction
Documents requiring written amendments or waivers of such
documents insofar as it suggests that oral or other
modifications, amendments or waivers could not be effectively
agreed upon by the parties or that the doctrine of promissory
estoppel might not apply.
H. We have assumed that there are not agreements or understandings
between or among the Company, a Bank, the agent or third parties
which would expand, modify or otherwise affect the terms of the
Transaction Documents or the respective rights or obligations of
the parties thereunder and that the Transaction Documents
correctly and completely set forth the intent of all parties
thereto.
I. We have assumed that all parties to the Transaction Documents
(other than the Company) have filed all required franchise tax
returns, if any, and paid all required taxes, if any, under the
California Revenue & Taxation Code.
J. We have assumed that the Credit Agreement has been duly
authorized, executed and delivered by the Agent and each of the
Banks and that the Agent and each of the Banks have full power,
authority and legal right to enter into and perform the terms
and conditions of the Credit Agreement on their parts to be
performed and that the Credit Agreement constitutes legal, valid
and binding obligations of the Agent and each of the Banks,
enforceable against them in accordance with its terms.
K. We express no opinion as to the applicability or effect of
compliance or non-compliance by the Banks with any state,
federal or other laws applicable to the Banks or to the
transactions contemplated by the Transaction Documents because
of the nature of their business, including their legal or
regulatory status.
L. We have assumed that each Bank is either (i) a "Bank" as defined
in and operating under that certain act known as the "Bank Act"
approved March 1, 1909, as amended, (ii) a bank created and
operating under and pursuant to the laws of the State of
California or of the United States or (iii) a foreign bank
complying with the criteria set forth in Section 17816 of the
California Financial Code, ass amended, and that the Banks are
therefore exempt from the restrictions of Section 1 of Article
XV of the California Constitution and related statutes relating
to rates of interest upon the loan of money.
<PAGE> 91
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June , 1996
Page 8
M. We express no opinion regarding compliance or non-compliance (or
the effect thereof) with applicable anti-fraud provisions of
federal or state securities laws, or with respect to the "Blue
Sky" laws of any state other than the State of California.
N. Our opinions set forth in paragraph 1 as to valid existence, due
qualification and good standing are based solely on the
certificates referenced in paragraph (g) above (copies of which
have bene furnished to you).
O. This opinion speaks only at and as of its date and is based
solely on the facts and circumstances known to us at and as of
such date. We express no opinion as to the effect on the Banks'
rights under the Transaction Documents of any statute, rule,
regulation or other law which is enacted or becomes effective
after, or of any court decision which changes the law relevant
to such rights which is rendered after, the date of this opinion
or the conduct of the parties following the closing of the
contemplated transaction. In addition, in rendering this
opinion, we assume no obligation to revise or supplement this
opinion should the present laws of the jurisdictions mentioned
herein be changed by legislative action, judicial decision or
otherwise.
P. Our opinions in clause (b) of paragraph 5 above are intended to
express our opinion that the execution, delivery and performance
by the Company of the Transaction Documents are neither
prohibited by, nor do they subject the Company to a fine,
penalty or similar sanction that would be materially adverse to
the Company under any law, rule or regulation of the State of
California or federal law that a lawyer practicing in the State
of California exercising customary professional diligence would
reasonably recognize to be applicable to the Company and the
transactions contemplated by the Transaction Documents;
accordingly, our opinions set forth above are limited to the
foregoing.
<PAGE> 92
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June , 1996
Page 9
This opinion is made with the knowledge and understanding that you (but
no other person) may rely thereon in entering into the Credit Agreement and is
solely for your benefit, and this opinion may not be quoted to or relied upon
by any person other than you, except that (i) this opinion may be disclosed to
bank regulatory and other governmental authorities having jurisdiction over you
requesting (or requiring) such disclosure and (ii) this opinion may be
disclosed to and relied upon by Assignees if the assignments relating thereto
are permitted under and made in accordance with the Credit Agreement; provided
that in no event does this opinion extend to any issue or matter related to any
such assignment or arising from or out of any such assignment (as distinct from
the subject transaction).
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 93
ANNEX A
The First National Bank of Boston
Bank of America National Trust and Savings Association
<PAGE> 94
ANNEX B
REVIEWED AGREEMENTS
-------------------
1. Equity Option Contract, dated October 21, 1992, between Goldman Sachs &
Co. and the Company.
2. Master Agreement for Equity and Index Options, dated July 28, 1994,
between Swiss Bank Corporation and the Company.
3. Lease dated September 17, 1985 for facilities located at 890 Tasman
Drive (1390 McCarthy Blvd.), Milpitas, California, as amended by
Amendment No. 1, dated February 13, 1986; Amendment No. 2, dated August
20, 1986; and Amendment No. 3, dated December 22, 1986.
4. Sublease dated November 24, 1987 for facilities located at 850 Tasman
Drive, Milpitas, California.
5. Lease dated January 12, 1989 for facilities located at 1401 McCarthy
Blvd., Milpitas, California.
6. Lease dated January 12, 1989 for facilities located at 700 Tasman Drive,
Milpitas, California.
7. Lease dated January 12, 1989 for facilities located at 540 Alder Drive,
Milpitas, California.
8. Sublease dated June 28, 1989 for facilities located at 800 Tasman Drive,
Milpitas, California.
9. Interface License Agreement (IMS-Link Interface) dated December 2, 1983
between Northern Telecom Inc. and the Company.
10. Interface License Agreement (Digital Set Interface) dated March 16, 1990
between Northern Telecom Inc. and the Company.
11. License Agreement dated February 1, 1989 between Mitel Corporation and
the Company.
12. License Agreement dated August 1, 1990 between ROLM Systems and the
Company.
13. Form of Indemnification Agreement as entered into by the Company with
its directors and officers.
14. Amended and Restated Registration Rights Agreement dated March 12, 1987
between the Company and the holders of Series A, Series B, Series C and
Series D Preferred Stock, as
<PAGE> 95
amended by the form of Amendment of Registration Rights Agreement with
respect to Initial Public Offering.
15. Common Stock Purchase Agreement between the Company and Hewlett-Packard
Company dated as of August 1, 1988 (including a Registration Rights
Agreement between the parties attached thereto as Exhibit A).
16. Amendment to Common Stock Purchase Agreement dated as of October 1, 1990
between the Company and Hewlett-Packard Company.
17. Common Shares Rights Agreement dated as of July 25, 1990 between the
Company and Bank of America NT & SA.
18. Employment agreement between the Company and Robert Cohn effective
October 6, 1990.
19. Employment agreement between the Company and Douglas Chance dated
October 13, 1990.
20. Memorandum regarding the promissory note for loan to Douglas Chance
dated November 9, 1990.
21. Lease of Land Agreement dated July 6, 1995 between Sumitomo Bank Leasing
and Finance, Inc. and the Company.
<PAGE> 96
ANNEX C
Mark E. Bonham
Christopher F. Boyd
Robert P. Feldman
Barry E. Taylor
Craig D. Norris
Warren Chao
Bradford C. O'Brien
Susan P. Reinstra
Ron E. Shulman
Timothy J. Sparks
<PAGE> 97
OCTEL COMMUNICATIONS CORPORATION
PROMISSORY NOTE
U.S.$30,000,000.00 Milpitas, California
June 30, 1996
OCTEL COMMUNICATIONS CORPORATION, a Delaware corporation ("Borrower"),
for value received, hereby unconditionally promises to pay to the order of THE
FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association as agent
on behalf of the Banks ("Agent"), in lawful money of the United States of
America, the principal amount of Thirty Million Dollars ($30,000,000.00)
payable on the dates and in the manner set forth below.
This Note is the promissory note (the "Note") referred to in that
certain Credit Agreement dated as of June 30, 1996 (as the same may from time
to time be amended, modified, supplemented or restated, the "Credit
Agreement"), by and among (i) Borrower; (ii) FNBB and each other lender whose
name is set forth on the signature pages of the Credit Agreement or which may
hereafter execute and deliver an instrument of assignment with respect to the
Credit Agreement (collectively, the "Banks"); and (iii) Agent. All terms
defined in the Credit Agreement shall have the same definitions when used
herein, unless otherwise defined herein.
All payments of principal and interest in respect of this Note shall
be made in lawful money of the United States of America in immediately
available funds at the head office of Agent for the account of the Banks.
1. PRINCIPAL PAYMENTS. The aggregate outstanding principal
amount of all Loans made pursuant to the Credit Agreement shall be due and
payable in full on the Final Payment Date.
2. INTEREST RATE. Borrower promises to pay interest on the sum
of the daily unpaid principal balance of all Loans outstanding on each day in
lawful money of the United States of America, from the date of this Note until
all such principal amounts shall have been indefeasibly repaid in full, which
interest shall be payable at the rates per annum and on the dates specified in
the Credit Agreement.
3. APPLICATION OF PAYMENTS; ACCELERATION. Payments on this Note
shall be applied in the manner set forth in the Credit Agreement. Without
limiting the generality of Section 1 of this Note, provisions in the Credit
Agreement for acceleration of the maturity of the principal amount hereof upon
the happening of certain stated events and also for prepayments of all or
portions of the principal balance thereof prior to the Final Payment Date, on
the terms and conditions therein stated, shall supersede provisions to the
contrary herein.
1.
<PAGE> 98
All Loans evidenced by this Note made by the Banks to Borrower
pursuant to the Credit Agreement shall be recorded by Agent on its books and
records. The failure of Agent to record any Loan or any prepayment or repayment
made on account of the principal balance hereof shall not limit or otherwise
affect the obligation of Borrower under this Note and under the Credit
Agreement to principal, interest and other amounts due and payable thereunder.
Any principal repayment or interest payment on the Loans not paid when
due shall bear interest and be subject to additional charges as follows:
(A) Overdue principal (whether at maturity, by reason of
acceleration or otherwise) and, to the extent permitted by applicable law,
overdue interest and fees or any other amounts payable hereunder or under the
Note shall bear interest from and including the due date thereof until paid,
compounded daily and payable on demand, at a rate per annum equal to (i) if
such due date occurs prior to the end of an Interest Period, 2% above the
interest rate applicable to such Loan for such Interest Period until the
expiration of such Interest Period, and thereafter, 2% above the Base Rate;
and (ii) in all other cases, 2% above the rate then applicable to Base Rate
Loans.
(B) If a payment of principal or interest hereunder is
not made within 30 days of its due date, Borrower will also pay on demand a
late payment charge equal to 5% of the amount of such payment.
4. DEFAULT. Borrower's failure to pay timely any of the
principal amount due under this Note on the date the same becomes due and
payable or any accrued interest or other amounts due under this Note on the
date the same becomes due and payable or within three (3) business days
thereafter shall constitute a default under this Note. Upon the occurrence of
a default hereunder or an Event of Default under the Credit Agreement, all
unpaid principal, accrued interest and other amounts owing hereunder shall, at
the option of the Banks, be immediately due and payable to the Banks, pursuant
to the Credit Agreement and applicable law.
5. WAIVER. Borrower hereby waives diligence, presentment,
protest, demand and notice of dishonor, protest, demand and notice of every
kind and, to the full extent permitted by law, the right to plead any and all
statutes of limitations as a defense to any demands hereunder.
Borrower promises to pay all reasonable costs and expenses, incurred
in the collection and enforcement of this Note, including, without limitation,
reasonable attorneys' fees, costs and other expenses, including without
limitation, the allocated cost of internal counsel.
6. GOVERNING LAW. This Note shall be deemed a contract made
under seal and shall be governed by, and construed and enforced in accordance
with, the laws of the State of California, (without giving effect to any
conflicts of laws provisions contained therein).
7. SUCCESSORS AND ASSIGNS. The provisions of this Note shall
inure to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof.
2.
<PAGE> 99
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
OCTEL COMMUNICATIONS CORPORATION,
a Delaware corporation
By: James F. Engle
--------------------------------
James F. Engle
V.P. Treasurer
--------------------------------
Printed Name
--------------------------------
<PAGE> 100
OCTEL COMMUNICATIONS CORPORATION
CERTIFICATE OF SECRETARY
I, the undersigned, Derek S. Daley, certify, as of June 28, 1996, that
I am the Secretary of Octel Communications Corporation, a Delaware corporation
(the "COMPANY"), and that I have been duly elected and am presently serving in
such capacity in accordance with the Bylaws of the Company. I hereby further
certify as Secretary of the Company as follows:
1 . Attached as EXHIBIT A to this Certificate is a true and correct
copy certified by the Secretary of the State of Delaware of the Company's
Certificate of Incorporation. No amendment or other document relating to or
affecting the Certificate of Incorporation of the Company has been filed with
the office of the Delaware Secretary of State since December 15, 1989, and no
action has been taken by the Company or its stockholders, directors or officers
in contemplation of the liquidation or dissolution of the Company.
2. Attached as EXHIBIT B to this Certificate is a true and
correct copy of the Bylaws of the Company in full force and effect since
January 1, 1994 up to and including the date hereof.
3. Attached as EXHIBIT C to this Certificate are true and correct
copies of the resolutions adopted by the Board of Directors of the Company at a
meeting on June 6, 1996 with respect to the revolving line of credit
transactions between the Company and the First National Bank of Boston and the
Bank of America (the "Resolutions"). Such Resolutions, which constitute all
the resolutions adopted by such Board of Directors with respect to such
transaction have not been modified, amended, rescinded or revoked, and are in
full force and effect on the date hereof.
[This space left blank intentionally]
<PAGE> 101
4. The following person has been duty elected and now holds the
office of the Company indicated below and the signature appearing opposite such
officer's name is the genuine signature of such person:
Name Office Signature
James F. Engle Treasurer James F. Engle
IN WITNESS WHEREOF, the undersigned has executed this certificate as
of the date first written above.
/s/ DEREK S. DALEY
-------------------------
Derek S. Daley
Secretary
The undersigned hereby certifies that Derek S. Daley is the duly
elected, qualified, and acting Secretary of the Company and that the above
signature is his genuine signature.
IN WITNESS WHEREOF, the undersigned has executed this certificate as
of the date first written above.
/s/ JAMES F. ENGLE
-------------------------
James F. Engle
Treasurer
-2-
<PAGE> 102
EXHIBIT A
Certificate of Incorporation
<PAGE> 103
PAGE 1
State of Delaware
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "OCTEL COMMUNICATIONS CORPORATION", FILED IN THIS OFFICE ON THE
TWENTY-FIRST DAY OF MARCH, A.D. 1996, AT 4:30 O'CLOCK P.M.
[SEAL]
/s/ EDWARD J. FREEL
-------------------------------
Edward J. Freel,
Secretary of State
2129873 8100 AUTHENTICATION: 7994123
960179227 DATE: 06-19-96
<PAGE> 104
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 3/21/1996
960082662 - 2129873
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
OCTEL COMMUNICATIONS CORPORATION
Octel Communications Corporation, a Delaware corporation, hereby
certifies as follows:
The Certificate of Incorporation for Octel Communications Corporation
(the "Corporation") was filed in the office of the Secretary of State of the
State of Delaware on June 22, 1987. The Certificate of Incorporation was
amended and restated on December 15, 1989 and is hereby amended and restated
pursuant to Section 242 and Section 245 of the Delaware General Corporation Law.
All amendments to the Certificate of Incorporation reflected herein have been
duly authorized and adopted by the Corporation's Board of Directors and
stockholders in accordance with the provisions of Sections 242 and 245.
This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of the
Corporation. The teXt of the Certificate of Incorporation is amended hereby to
read in its entirety as set forth on Exhibit A attached hereto:
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Robert Cohn, the Chief Executive Officer of the Corporation, and
attested by Derek S. Daley, the Secretary of the Corporation. The signatures
below shall constitute the affirmation or acknowledgment, under penalties of
perjury, that the facts herein stated are true.
Dated: March 21, 1996
/s/ ROBERT COHN
---------------------------
Robert Cohn
Chief Executive Officer
ATTEST:
/s/ DEREK S. DALEY
- ---------------------------
Derek S. Daley
Secretary
<PAGE> 105
EXHIBIT A
FIRST: The name of the Corporation is Octel Communications Corporation
(the "Corporation")
SECOND: The address of the Corporation's registered office in the State of
Delaware is 15 East North Street, Dover, Kent County, Delaware
19901. The name of its registered agent at such address is
Paracorp Incorporated.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: Section 1. The total number of shares which the Corporation shall
have authority to issue is 105,000,000 shares of capital stock.
Section 2. Of such authorized shares, one hundred million
(100,000,000) shares shall be designated "Common Stock," and have a
par value of $.001.
Section 3. Of such authorized shares, five million (5,000,000)
shares shall be designated "Preferred Stock," and have a par value
of $.001. The Preferred Stock may be issued from time to time in
one or more series. The Board of Directors of the Corporation is
authorized to determine or alter the powers, preferences, and
rights and the qualifications, limitations or restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock,
and within the limitations or restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease
(but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to
the issue of shares of that series, to determine the designation of
any series, and to fix the number of shares of any series. In case
the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and
before voting begins or unless the Bylaws of the Corporation shall
so provide.
SEVENTH: The number of directors which constitute the whole Board of
Directors of the Corporation shall be designated in the Bylaws of
the Corporation.
<PAGE> 106
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make,
alter, amend or repeal the Bylaws of the Corporation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as it may hereafter be amended, no
director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
TENTH: At the election of directors of the Corporation, each holder of
stock of any class or series shall be entitled to as many votes as
shall equal the number of votes which (except for such provision as
to cumulative voting) he would be entitled to cast for the election
of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of
such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them as he may
see fit, so long as the name of the candidate for director shall
have been placed in nomination prior to the voting and the
stockholder, or any other holder of the same class or series of
stock, has given notice at the meeting prior to the voting of the
intention to cumulate votes.
ELEVENTH: Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
<PAGE> 107
EXHIBIT B
BYLAWS
------
<PAGE> 108
AMENDMENT TO BYLAWS OF
OCTEL COMMUNICATIONS CORPORATION
(effective November 16, 1995)
The second sentence of Article 3.2 of the Bylaws of Octel
Communications Corporation, in accordance with the approval of the Board of
Directors, is hereby amended as follows:
The exact number of directors shall be set at seven (7) until changed,
within the limits specified above, by a bylaw amending this Section 3.2, duly
adopted by the board of directors or by the stockholders.
<PAGE> 109
AMENDMENT TO BYLAWS OF
OCTEL COMMUNICATIONS CORPORATION
January 26, 1995
The second sentence of Article 3.2 of the Bylaws of Octel
Communications Corporation, in accordance with the approval of the Board of
Directors is hereby amended as follows:
The exact number of directors shall be set at nine (9) until changed,
within the limits specified above, by a bylaw amending this Section 3.2, duly
adopted by the board of directors or by the stockholders.
<PAGE> 110
AMENDMENT TO BYLAWS OF
OCTEL COMMUNICATIONS CORPORATION
July 28, 1994
Article 3.9 of the Bylaws of Octel Communications Corporation, in
accordance with the approval of the Board of Directors, is hereby amended as
follows:
3.9 QUORUM
At all meetings of the board of directors, a majority
of the directors then in office shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the board of directors, except
as may be otherwise-specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
<PAGE> 111
BYLAWS
OF
OCTEL COMMUNICATIONS CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation in the State of Delaware
shall be in the City of Dover, County of Kent, State of Delaware. The name of
the registered agent of the corporation at such location is Paracorp
Incorporated.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Wednesday of November in each year at 9:00 a.m. However, if such day falls on
a legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, by the president, or by
the chief executive officer, or by one or more stockholders holding shares in
the aggregate entitled to cast not less than ten percent of the votes at that
meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, chief
executive officer, any vice president or the secretary of the corporation. No
business may be transacted at such special meeting otherwise than specified in
such notice. The officer receiving the request shall cause notice to be
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Sections 2.4 and 2.5, that a meeting will be held at the time
requested by the person or persons who called the meeting, not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the request.
If the notice is not given within twenty (20) days after the receipt of the
request, the person or persons
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requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as Limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and
shall be sent or otherwise given in accordance with Section 2.5 of these bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent
of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairman of the meeting or
(ii) the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provisions of the statutes or of the
Certificate of Incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of the question.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provision of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as
may be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
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At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock of any class or series who elects to cumulate votes shall be
entitled to as many votes as equals the number of votes which (absent this
provision as to cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of such votes for
a single director or may distribute them among the number to be voted for, or
for any two or more of them, as he may see fit, so long as the name of the
candidate for director shall have been placed in nomination prior to the voting
and the stockholder, or any other holder of the same class or series of stock,
has given notice at the meeting prior to the voting of the intention to
cumulate votes.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or
these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the
General Corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such
section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix, in advance, a record date, which
shall be not more than sixty (60) nor less than ten (10) days before the date
of such meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
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(ii) The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting,
when no prior action by the board of directors is necessary, shall be
the day on which the first written consent is expressed.
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed
by the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The List shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. Such
list shall presumptively determine the identity of the stockholders entitled to
vote at the meeting and the number of shares held by each of them.
2.14 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order
of business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be not less than five
(5) nor more than nine (9). The exact number of directors shall be seven (7)
until changed, within the limits specified above, by a
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bylaw amending this Section 3.2. duly adopted by the board of directors or by
the stockholders. The indefinite number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by a
duly adopted amendment to the certificate of incorporation or by an amendment
to this bylaw duly adopted by the vote or written consent of the holders of a
majority of the stock issued and outstanding and entitled to vote.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in this section in the filling of other vacancies.
A vacancy created by the removal of a director by the vote or written
consent of the stockholders or by a court order may be filled only by the vote
of a majority of the outstanding shares entitled to vote thereon represented at
a duly held meeting at which a quorum is present, or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the stockholders and until a
successor has been elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting
from any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum. or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or these
bylaws, or may apply to the Court of Chancery for a decree summarily ordering
an election as provided in Section 211 of the General Corporation Law of
Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly
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created directorships, or to replace the directors chosen by the directors then
in office as aforesaid, which election shall be governed by the provisions of
Section 211 of the General Corporation Law of Delaware as far as applicable.
A director elected or appointed to fill a vacancy shall serve until
the next annual meeting of stockholders or until a successor shall be elected
and qualified.
3.5 PLACE OF MEETINGS;MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special. either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to
fix the time or place of such first meeting of the newly elected board of
directors, or in the event such meeting is not held at the time and place so
fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written
waiver signed by all of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by telegram, it shall be delivered personally or
by telephone or to the telegraph company at least forty-eight (48) hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.9 QUORUM
At all meeting of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the board of directors, except otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum is not present at any meeting of the board of directors, then the
directors present thereat may adjourn the meeting from time to time, without
notice other thin announcement at the meeting, until a quorum is present.
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3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of
the board of directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or
these bylaws, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any,
of attendance of each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefore.
Members of special or standing committees may be allowed Like compensation for
attending committee meetings.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that, so long as stockholders of the corporation are entitled to cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his or her removal would be
sufficient to elect him or her if then cumulatively voted at an election of the
entire Board of Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist
of one or more of the directors of the corporation. The board may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the bylaws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers that may
require it, but no such committee shall have the power or authority to (i)
amend the certificate of incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors as provided in Section
151(a) of the General Corporation Law of Delaware, fix any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders
the sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those bylaws as are necessary to substitute the committee and
its members for the board of directors and its members; provided, however, that
the time of regular meetings of committees may also be called by resolution of
the board of directors and that notice of special meetings of committees shall
also be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at
the discretion of the board of directors, a chairman of
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the board, one or more assistant vice presidents, assistant secretaries,
assistant treasurers, and any such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these bylaws. Any number of
offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be chosen by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to
appoint, such other officers and agents as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the Board of Directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
Board of Directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and
shall, subject to the control of the Board of Directors, have general
supervision, direction, and control of the business and the officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence or nonexistence of a chairman of the board, at all meetings of the
Board of Directors. He shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the Board of Directors of
these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a vice president designated by the Board of Directors, shall perform
all the duties of the president and when so acting shall have all the powers
of, and be
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subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may
be prescribed for them respectively by the Board of Directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and shareholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names
of all shareholders and their addresses. the number and classes of shares held
by each, the number and date of certificates evidencing such shares, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required to be given by law
or by these bylaws. He shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by these bylaws.
5.10 TREASURER
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors. whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the Board of
Directors or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is determined by the stockholders
or Board of Directors (or if there be no such determination, then in the order
of their election), shall, in the absence of the treasurer or in the event of
his or her inability or refusal to act, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such other
powers as the Board of Directors or the stockholders may from time to time
prescribe.
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5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from
time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
REQUEST of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise. or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or " agent" of the corporation
(other than a director or officer) includes any person (i) who is or was an
employee or agent of the corporation, (ii) who is or was serving at the request
of the corporation as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (iii) who was an employee or agent
of a corporation which was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
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records and to make Copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other waiting that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether
a director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and
records, the stock ledger, and the stock List and to make copies or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president. the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all tights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority
granted herein may be exercised either by such person directly or by any other
person authorized to do so by proxy or power of attorney duly executed by such
person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the corporation, and only the
persons so authorized shall sign or endorse those instruments.
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8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation: such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the
board of directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by the chairman or
vice-chairman of the board of directors, or the president or vice-president,
and by the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the
designations, the preferences, and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a Previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The
corporation may issue a new certificate of stock or uncertificated shares in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the corporation may require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate or uncertificated
shares.
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8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision. the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions
contained in the certificate of incorporation, may declare and pay dividends
upon the shares of its capital stock pursuant to the General Corporation Law of
Delaware. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of
the corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL
The corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock
of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
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ARTICLE IX
AMENDMENT'S
The original or other bylaws of the corporation may be adopted,
amended or repealed by the stockholders entitled to vote: provided, however,
that the corporation may, in its certificate of incorporation, confer the power
to adopt, amend or repeal bylaws upon the directors. The fact that such power
has been so conferred upon the directors shall not divest the stockholders of
the power, nor limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the Board of
Directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation
entitled to vote thereon votes for the proposed dissolution, then a certificate
stating that the dissolution has been authorized in accordance with the
provisions of Section 275 of the General Corporation Law of Delaware and
setting forth the names and residences of the directors and officers shall be
executed, acknowledged, and filed and shall become effective in accordance
with Section 103 of the General Corporation Law of Delaware. Upon such
certificate's becoming effective in accordance with Section 103 of the General
Corporation Law of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution
consent in writing, either in person or by duly authorized attorney, to a
dissolution, no meeting of directors or stockholders shall be necessary. The
consent shall be filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such consent's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved. If the consent is signed by an
attorney, then the original power of attorney or a photocopy thereof shall be
attached to and filed with the consent. The consent filed with the Secretary
of State shall have attached to it the affidavit of the secretary or some other
officer of the corporation stating that the consent has been signed by or on
behalf of all the stockholders entitled to vote on a dissolution; in addition,
there shall be attached to the consent a certification by the secretary or some
other officer of the corporation setting forth the names and residences of the
directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may
appoint one or more persons to be custodians and, if the corporation is
insolvent, to be receivers, of and for the corporation when:
(i) at any meeting held for the election of directors
the stockholders are so divided that they have failed to elect
successors to directors whose terms have expired qualification
of their successors; or
(ii) the business of the corporation is suffering
or is threatened with irreparable injury because the directors
are so divided respecting the management of the affairs of the
corporation that the required vote for action by the board of
directors cannot be obtained and the stockholders are unable
to terminate this division; or
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(iii) the corporation has abandoned its business
and has failed within a reasonable time to take steps to
dissolve, Liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
OCTEL COMMUNICATIONS CORPORATION
(A Delaware Corporation)
The undersigned hereby certifies that he is the duly elected,
qualified and acting Secretary of Octel Communications Corporation, a Delaware
corporation, and that the foregoing Bylaws, comprising sixteen (16) pages, were
adopted as the Bylaws of the corporation on November 30, 1989, by resolution of
the Board of Directors.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 30th day of November, 1989.
/s/ ROBERT G. SWEIFACH
------------------------------
Robert G. Sweifach, Secretary
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EXHIBIT C
RESOLUTIONS
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WHEREAS: The officers of the Company have made a presentation to this Board of
the principal terms and conditions of a proposed $30,000,000 revolving credit
facility with The First National Bank of Boston, Bank of America National Trust
and Savings Association and such other banks and financial institutions as may
provide a part of the facility from time to time (collectively, the "Banks"),
with The First National Bank of Boston acting as agent for the Banks (in such
capacity, "Agent"), which revolving credit facility would replace the facility
currently existing with the Agent and such Banks, and this Board has reviewed
the term sheet attached to these resolutions and discussed the terms and
conditions of the proposed revolving credit facility with the officers of the
Company.
WHEREAS: On the basis of the Board's review of the principal terms and
provisions of the proposed revolving credit facility, this Board deems it
advisable and in the best interests of this Company and its shareholders that a
$30,000,000 revolving credit facility be entered into with Agent and the Banks,
substantially in accordance with the terms and conditions presented to the
Board, with such changes thereto as may be approved by any Authorized Officer
(as defined below).
NOW, THEREFORE, BE IT RESOLVED: That this Board hereby determines that it is in
the best interests of this Company and its shareholders for the Company to
enter into a revolving credit facility with Agent and the Banks, on
substantially the terms and conditions presented to the Board with such changes
as may be approved by any Authorized Officer, which terms and provisions are
hereby approved in all respects, and from time to time to borrow the aggregate
principal amount (or cause letters of credit to be issued) thereunder of up to
$30,000,000 at any one time outstanding.
RESOLVED FURTHER: That the Chairman of the Board, the President, the Chief
Financial Officer, the Treasurer and the Controller of this Company
(collectively, the "Authorized Officers"), be, and each of them hereby
individually is, authorized and empowered to execute and deliver, in the name
and on behalf of this Company a form of credit agreement (together with the
exhibits and schedules thereto, the "Credit Agreement") (including certificates
and letter agreements, if any, to be delivered in connection therewith),
together with any related promissory notes presented to the Board, with,
containing substantially the terms and conditions such changes as may be
approved by any Authorized Officer, in such form and with such additions and
changes to any or all of such terms and conditions as such Authorized Officer
executing such Credit Agreement on behalf of this Company may approve as
necessary, desirable or proper, such Authorized Officer's approval thereof to
be conclusively evidenced by the execution and delivery of any such agreement
or instrument.
<PAGE> 130
RESOLVED, FURTHER: That the Authorized Officers be, and each of them hereby
individually is, authorized and empowered to borrow or cause to be issued
letters of credit from time to time up to the amounts permitted or provided
under the Credit Agreement pursuant to these resolutions.
RESOLVED, FURTHER: That the Authorized Officers and any Vice President,
Secretary or any Assistant Secretary of this Company be, and each of them
hereby is, authorized in the name and on behalf of this Company from time to
time to take such additional actions and to execute and deliver such additional
certificates, instruments, notices and documents, and from time to time to
amend the Credit Agreement and any such other instrument or document in such
manner as may be required or as such officers, or any one or more of them, may
deem necessary, advisable or proper in order to carry out and perform the
obligations of this Company under the Credit Agreement in the form executed on
behalf of this Company pursuant to these resolutions, or under any other
instrument or document executed pursuant to or in connection with such
agreement, and from time to time to amend the Credit Agreement and any such
other instrument or document in such manner; all such actions to be performed
in such manner, and all such certificates, instruments, notices and documents
to be executed and delivered in such form, as the officer or officers
performing or executing the same shall approve, such officer's or officers'
approval thereof to be conclusively evidenced by the performance of any such
action or the execution and delivery of any such certificate, instrument,
notice or document.
RESOLVED, FURTHER: That any acts of any officer or officers of the Company and
of any person or persons designated and authorized to act by any officer of the
Company which acts would have been authorized by the foregoing Resolutions
except that such acts were taken prior to the adoption of such Resolutions, are
hereby severally ratified, confirmed, approved and adopted as the acts of the
Company.
RESOLVED, FURTHER: That the Secretary and each Assistant Secretary of the
Company is hereby severally authorized and empowered to certify to the passage
of the foregoing Resolutions.
-2-
<PAGE> 131
PAGE 1
[State of Delaware
Office of the Secretary of State
Letterhead]
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY "OCTEL COMMUNICATIONS CORPORATION" IS DULY INCORPORATED UNDER
THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL
CORPORATE EXISTENCE SO FAR AS THE RECORDS OF THIS OFFICE SHOW, AS OF THE
TWENTIETH DAY OF JUNE, A.D. 1996.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED
TO DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID
TO DATE.
[SEAL] /s/ EDWARD J. FREEL
-------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7994745
DATE: 06-20-96
2129873 8300
960180131
<PAGE> 132
STATE OF CALIFORNIA
[SEAL]
SECRETARY OF STATE
CERTIFICATE OF STATUS
FOREIGN CORPORATION
I, BILL JONES, Secretary of State of the State of California, hereby certify:
That on the 17th day of November, 1989,
OCTEL COMMUNICATIONS CORPORATION
a corporation organized and existing under the laws of Delaware, complied with
the requirements of California law in effect on that date for the purpose of
qualifying to transact intrastate business in this State; and
That the above corporation is entitled to transact intrastate business in the
State of California as of the date of this certificate, however, subject to any
licensing requirements otherwise imposed by the laws of this State; and
That no information is available in this office of the financial condition,
business activity or practices of this corporation.
[GREAT SEAL OF THE STATE OF CALIFORNIA]
IN WITNESS WHEREOF, I execute this
certificate and affix the Great Seal
of the State of California this 20th
day of June, 1996
/s/ BILL JONES
---------------------------------
Secretary of State
<PAGE> 133
[LOGO]
STATE OF CALIFORNIA
==============================================================================
FRANCHISE TAX BOARD
P.O. BOX 942857
SACRAMENTO, CA 94257-0540
In Reply Refer To: 357/MAJ
Date : 06/19/96
MC CORD COMPANY
1201 K Street, Suite 1980
Sacramento, CA 95814
Corporation Name : OCTEL COMMUNICATIONS CORPORATION
Corporation Number: 1652899
[X] 1. The above corporation is in good standing with this agency.
[ ] 2. Information on record with this agency indicates the above
corporation is not qualified to transact business in California.
[ ] 3. The above corporation was incorporated or qualified on
______________________________.
[ ] 4. The above corporation has an unpaid liability of $_______________
for income year ended _______________.
[ ] 5. Our records do not show that the above corporation filed
franchise tax returns for the income years ended _______________.
[ ] 6. The above corporation was _____________ effective ______________.
[ ] 7. The above corporation's current address on record with this
agency is:
___________________________________________
___________________________________________
___________________________________________
[ ] 8. We have no current information on the above corporation.
Comments _______________________________________________________________
________________________________________________________________________
________________________________________________________________________
[SIG]
---------------------------------
REPRESENTATIVE
TELEPHONE ASSISTANCE
________________________________________________________________________________
Our regular toll-free telephone service is available from 7:00 a.m. until 8:00
p.m. Monday through Friday from the first working day in January through April
15. The best times to call are between 7:00 and 10:00 in the morning and
between 6:00 and 8:00 in the evening. Service is also available from 8:00 a.m.
through 5:00 p.m. on the two Saturdays prior to April 15. After April 15,
service is available Monday through Friday, between 8:00 a.m. and 6:00 p.m.
From within the United States, call................... 1-800-852-5711
From outside the United States, call (not toll-free).. 1-916-845-6500
For hearing impaired with TDD, call................... 1-800-822-6268
FTB 4263A (REV 5-95)
<PAGE> 134
OFFICER'S CERTIFICATE
June 28, 1996
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Ladies and Gentlemen:
In connection with the $30,000,000 Credit Agreement (the "Credit
Agreement") by and among Octel Communications Corporation, a Delaware
corporation (the "Company"), the Banks named therein, and First National Bank
of Boston ("FNBB"), as Agent for the Banks. Capitalized terms used herein have
the meanings set forth in the Credit Agreement unless otherwise defined herein.
For the purposes of the opinion letter to be rendered by you to FNBB, the
undersigned, as an officer and on behalf of the Company, does hereby certify
that the following statements are true, correct and complete as of the above
date:
1. I, Derek S. Daley, am the duly appointed, qualified and
acting Secretary of the Company. I am actively involved in the business
operations of the Company and am generally familiar with all of the corporate
and business affairs of the Company and its subsidiaries.
2. I have examined a draft of the proposed opinion letter which
your firm intends to submit to FNBB, a copy of which is attached hereto as
Exhibit A. I hereby confirm as true, complete and correct all the factual
statements.
3. We intend the Credit Agreement to be a legal, valid and
binding obligation of the Company. We are not aware of any reasons why the
Credit Agreement would not be enforceable by FNBB against the Company
substantially in accordance with its terms, except as may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting the enforcement of creditors' rights generally, and except as noted
in the other qualification as set forth in your proposed opinion letter
attached hereto as Exhibit A. We are not aware of any reason why the Credit
Agreement might not be valid in its entirety or subject to any limitations on
the remedies and rights of parties thereto. The Company is not now involved as
a debtor in any form of bankruptcy, insolvency, receivership or similar
proceeding, and no such proceedings have been threatened against the Company.
4. To my knowledge, except as has been disclosed in filings with
the SEC, there are no actions, suits or proceedings pending or threatened in
writing against the Company before any court or arbitrator or any governmental
body, agency or official which would have a material adverse effect on the
consolidated financial position of the Company or its results of operations or
impair the Company's ability to perform its obligations under the Credit
Agreement or challenge the validity or
<PAGE> 135
enforceability of the Credit Agreement or prevent the consummation of the
transactions contemplated in connection therewith.
5. Attached hereto as Exhibit B is a true, correct and complete
copy of the Certificate of Incorporation, as amended of the Company (the
"Certificate of Incorporation"), as in effect on the date hereof. No amendment
or other modification to the Certificate of Incorporation of the Company has
been approved by the Board of Directors or shareholders of the Company or any
committee of or designated by the Board of Directors, no amendment or other
document has been filed with the Secretary of State of the State of Delaware,
and no steps have been taken by the Board of Directors to authorize or effect
any further amendment or other modification thereto.
6. Attached hereto as Exhibit C is a true, correct and complete
copy of the Bylaws of the Company as in effect on the date hereof.
7. I have performed all investigations, examined all records and
documents, and made all inquiries reasonably necessary or appropriate to
obtain sufficient actual knowledge to support the statements made in this
Officer's Certificate.
8. I fully understand the above statement that I am making herein
and that you will be relying significantly on the completeness and accuracy
of such statements in rendering your opinions.
OCTEL COMMUNICATIONS
CORPORATION
By: /s/ DEREK S. DALEY
----------------------------
Derek S. Daley, Secretary
<PAGE> 136
EXHIBIT A
<PAGE> 137
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
June 28, 1996
The First National Bank of Boston,
as Agent
100 Federal Street
Boston, Massachusetts 02110
and
The Banks Listed on Annex A hereto
Re: Credit Agreement, dated as of June 30, 1996, among Octel
Communications Corporation, the Banks named therein, and The First
National Bank of Boston, as Agent for the Banks
Ladies and Gentlemen:
We have acted as special counsel to Octel Communications Corporation,
a Delaware corporation (the "Company"), in connection with the execution and
delivery of that certain Credit Agreement, dated as of June 30, 1996 (the
"Credit Agreement"), among the Company, the Banks named therein and The First
National Bank of Boston, as Agent for the Banks. Capitalized terms used herein
which are defined in the Credit Agreement shall have the respective meanings
set forth in the Credit Agreement, unless otherwise defined herein. This
opinion is being furnished to you pursuant to Section 3.1(g) of the Credit
Agreement.
In rendering the opinions expressed below, we have examined executed
originals or copies of the following documents:
(a) the Credit Agreement;
(b) a letter agreement, dated as of the date hereof, by and
between the Company and the Agent with respect to certain fees
payable in connection with the Credit Agreement (the "Fee
Letter");
(c) the Note of the Company, dated as of June 30, 1996, executed
in favor of The First National Bank of Boston, as Agent (the
"Note");
<PAGE> 138
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June 28, 1996
Page 2
(d) a certificate of the Secretary of the Company, dated as of the
date hereof, executed and delivered to you pursuant to Section
3.1(b) of the Credit Agreement, as to, among other things:
(i) the incumbency and signature of certain officers of the
Company, (ii) the Certificate of Incorporation of the Company;
(iii) the bylaws of the Company; and (iv) the adoption of
certain resolutions by the directors of the Company.
(e) records of the proceedings of the Board of Directors of the
Company during or by which resolutions were adopted relating
to matters covered by this opinion;
(f) a copy of the Certificate of Incorporation of the Company,
certified as of June 19, 1996, by the Secretary of State of
the State of Delaware;
(g) (i) a certificate of the Secretary of State of the State of
Delaware, dated June 20, 1996, with respect to the corporate
and tax good standing of the Company as a corporation
incorporated under the laws of the State of Delaware; (ii) a
certificate of the Secretary of State of the State of
California, dated June 20, 1996, with respect to the standing
of the Company as a foreign corporation qualified to do
business in the State of California; (iii) and a certificate
of the Franchise Tax Board of the State of California, dated
as of June 19, 1996, as to the tax status of the Company in
the State of California;
(h) the records of actions by the Company's board of directors,
committees thereof and stockholders since June 30, 1994, as
set forth in the minute books of the Company;
(i) certificates of certain officers of the Company as to certain
factual matters (copies of which have been delivered to the
Banks);
(j) the other documents delivered by the Company to the Banks on
the date hereof in connection with the closing of the
transactions covered hereby; and
(k) each of the documents and agreements listed on Annex B hereto
(the "Reviewed Agreements") which the Company has certified to
us constitute all the documents listed as exhibits to the
Company's most recent Annual Report on Form 10-K or Quarterly
Reports on Form 10-Q pursuant to the requirements of clause
(10) of Item 601(b) of Regulation S-K (other than those which
have expired, terminated or are otherwise no longer in effect)
and all of the documents which would be required to be listed
as exhibits pursuant to the
<PAGE> 139
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June 28, 1996
Page 3
requirements of clause (10) of Item 601(b) of Regulation S-K
as exhibits to an Annual Report on Form 10-K or Quarterly
Report on Form 10-Q of the Company if such report were filed
as of the date hereof (other than those which have expired,
terminated or are otherwise no longer in effect).
With respect to any documents submitted for our review we have assumed
that all signatures are genuine, all documents submitted as originals are
authentic, all documents submitted as copies conform to the original documents
and that all documents, books and records made available to us by the Company
are accurate and complete. The Credit Agreement, the Fee Letter and the Note
are sometimes referred to herein as the "Transaction Documents."
We have also relied upon and obtained from public officials and
officers and representatives of the Company such other certificates and
assurances as we consider necessary for the purposes of rendering this opinion.
With respect to certain matters of fact we have relied upon, with your
permission, the representations and warranties of the Company set forth in the
Credit Agreement (but only to the extent they relate to factual matters), the
Certificate of the Secretary of the Company referenced in paragraph (d) above
and the certificates of certain officers of the Company referred to in
paragraph (i) above.
As used in this opinion, the expression "to our knowledge" or "known
to us" with reference to matters of fact means that during the course of our
representation of the Company in connection with the Transaction Documents no
information has come to the attention of the attorneys of our firm involved in
this engagement or any of the other attorneys of our firm listed on Annex C
hereto (which includes the primary attorneys currently performing services on
behalf of the Company) which would give them actual knowledge of the existence
or absence of such facts; however, except to the extent expressly set forth
herein, we have made no independent investigation to determine the existence or
absence of such facts, and any limited inquiry undertaken by us during the
preparation of this opinion should not be regarded as such an investigation.
No inference as to our knowledge of the existence or absence of any facts
underlying any opinion given "to our knowledge" should be drawn from the fact
of our representation of the Company.
On the basis of the foregoing and in reliance thereon, and based upon
examination of questions of law as we have deemed appropriate, and subject to
the assumptions, exceptions, qualifications and limitations set forth herein we
advise you that in our opinion:
1. The Company is a corporation duly incorporated and validly
existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power to own or hold
under lease its properties. The Company is a
<PAGE> 140
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June 28, 1996
Page 4
corporation duly qualified to do business and in good standing
as a foreign corporation in the State of California.
2. The Company has the requisite corporate power and authority to
enter into the Transaction Documents and to carry on its
business as now conducted and to carry out the transactions
contemplated thereby.
3 . The execution and delivery by the Company, and the performance
by the Company of its obligations under each of the
Transaction Documents, and the consummation of the
transactions contemplated thereby, have been duly authorized
by all necessary corporate action by the Company.
4. Each of the Transaction Documents to which Company is a party
has been duly executed and delivered and constitutes a valid
and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
5. The execution and delivery of each of the Transaction
Documents, the borrowings of Loans in accordance with the
Credit Agreement, repayment of any such Loans by the Company
and the undertaking of the covenants set forth in the Credit
Agreement do not (a) violate or conflict with any provision of
the Certificate of Incorporation or the Bylaws of the Company,
(b) violate any provision of any law, rule or regulation, or
(c) result in a breach of, constitute an event of default
under, constitute an event which, with the passage of time,
giving of notice or both would constitute an event of default
under, or permit the acceleration of any obligation owed under
any Reviewed Agreement.
6. No governmental consents, approvals, authorizations,
registrations, declarations or filings are required to be made
or obtained by the Company (on its behalf) for the due
authorization, execution and delivery by the Company of the
Transaction Documents, the borrowing of Loans in accordance
with the Credit Agreement or the repayment of any such Loans
by the Company.
7. The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
<PAGE> 141
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June 28, 1996
Page 5
8. Except as set forth on the Disclosure Letter to the Credit
Agreement, to our knowledge, there is no litigation,
proceeding or investigation pending or overtly threatened in
writing against Company or any Subsidiary which we believe is
reasonably likely to have a material adverse effect on the
business of the Company and its Subsidiaries, taken as a
whole.
The opinions set forth above are subject to the following exceptions,
qualifications and limitations.
A. We express no opinion as to any matter relating to laws of any
jurisdiction other than the laws of the State of California,
the General Corporation Law of the state of Delaware and the
federal laws of the United States, as such are in effect on
the date hereof. As you know, we are not licensed to practice
law in the State of Delaware and, accordingly, our opinions as
to the General Corporation Law of the State of Delaware are
based solely on our review of the official statutes of
Delaware.
B. We express no opinion as to (i) the effect of any bankruptcy,
insolvency, reorganization, arrangement, moratorium or other
similar laws relating to or affecting the rights of creditors
generally, or (ii) the effect of general principles of equity,
including without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance, injunctive relief or
other equitable relief, whether considered in a proceeding in
equity or at law.
C. We express no opinion (i) regarding the rights or remedies
available to any party for violations or breaches of any
provisions which are immaterial or for violations or breaches
of any provisions the enforcement of which a court determines
would be unreasonable under the then existing circumstances,
(ii) regarding the rights or remedies available to any party
insofar as such party may take discretionary action which is
arbitrary, unreasonable or capricious, or is not taken in good
faith or in a commercially reasonable manner, whether or not
such action is permitted under the Transaction Documents,
(iii) as to the effect of the exercise of judicial discretion,
whether in a proceeding in equity or at law, (iv) regarding
the enforceability of any provision deemed to be
"unconscionable" within the meaning of Section 1670.5 of the
California Civil Code, or (v) regarding the enforceability of
any provision authorizing the exercise of any remedy without
reasonable notice and opportunity to cure.
<PAGE> 142
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June 28, 1996
Page 6
D. We express no opinion as to the legality, validity, binding
nature or enforceability of (i) any provisions in the
Transaction Documents providing for the payment or
reimbursement of costs or expenses or indemnifying a party, to
the extent such provisions may be held unenforceable as
contrary to public policy, (ii) any provision of any
Transaction Documents insofar as it provides for the payment
or reimbursement of costs and expenses or indemnification for
claims, losses or liabilities in excess of a reasonable amount
determined by any court or other tribunal, (iii) any
provisions regarding the Banks' ability to collect attorneys'
fees and costs in an action involving the Transaction
Documents, if the Banks are not the prevailing party in such
action (we call your attention to the effect of Section 1717
of the California Civil Code, which provides that, where a
contract permits one party thereto to recover attorneys' fees,
the prevailing party in any action to enforce any provision of
the contract shall be entitled to recover its reasonable
attorneys fees), (iv) any provisions of any Transaction
Documents imposing penalties or forfeitures, late payment
charges or any increase in interest rate, upon delinquency in
payment or the occurrence of a default to the extent they
constitute a penalty or forfeiture or are otherwise contrary
to public policy, (v) any rights of set-off, or (vi) any
provision of the Transaction Documents to the effect that a
statement, certificate, determination or record shall be
deemed conclusive absent manifest error (or similar effect),
including, without limitation, that any such statement,
certificate, determination or record shall be prima facie
evidence of a fact, or any provision of the Transaction
Documents, insofar as it provides that a notice that is not
actually received may be binding on any party.
E. We express no opinion with respect to the legality, validity,
binding nature or enforceability of (i) any vague or broadly
stated waiver, including without limitation, the waivers of
diligence, presentment, demand, protest or notice, (ii) any
waivers or consents (whether or not characterized as a waiver
or consent in the Transaction Documents) relating to the
rights of the Company or duties owing to them existing as a
matter of law, including, without limitation, waivers of the
benefits of statutory or constitutional provisions, to the
extent such waivers or consents are found by courts to be
against public policy or which are ineffective pursuant to
California statutes and judicial decisions, or (iii) any
waivers of any statute of limitations to the extent such
waivers are in excess of four years beyond the statutory
period.
F. We express no opinion with respect to the legality, validity,
binding nature or enforceability of any provision of the
Transaction Documents to the effect that
<PAGE> 143
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June 28, 1996
Page 7
rights or remedies are not exclusive, that every right or
remedy is cumulative and may be exercised in addition to any
other right or remedy, that the election of some particular
remedy or remedies does not preclude recourse to one or more
other remedies or that failure to exercise or delay in
exercising rights or remedies will not operate as a waiver of
any such right or remedy.
G. We express no opinion as to any provision of the Transaction
Documents requiring written amendments or waivers of such
documents insofar as it suggests that oral or other
modifications, amendments or waivers could not be effectively
agreed upon by the parties or that the doctrine of promissory
estoppel might not apply.
H. We have assumed that there are no agreements or understandings
between or among the Company, a Bank, the Agent or third
parties which would expand, modify or otherwise affect the
terms of the Transaction Documents or the respective rights or
obligations of the parties thereunder and that the Transaction
Documents correctly and completely set forth the intent of all
parties thereto.
I. We have assumed that all parties to the Transaction Documents
(other than the Company) have filed all required franchise tax
returns, if any, and paid all required taxes, if any, under
the California Revenue & Taxation Code.
J. We have assumed that the Credit Agreement has been duly
authorized, executed and delivered by the Agent and each of
the Banks and that the Agent and each of the Banks have full
power, authority and legal right to enter into and perform the
terms and conditions of the Credit Agreement on their parts to
be performed and that the Credit Agreement constitutes legal,
valid and binding obligations of the Agent and each of the
Banks, enforceable against them in accordance with its terms.
K. We express no opinion as to the applicability or effect of
compliance or noncompliance by the Banks with any state,
federal or other laws applicable to the Banks or to the
transactions contemplated by the Transaction Documents because
of the nature of their business, including their legal or
regulatory status.
L. We have assumed that each Bank is either (i) a "Bank" as
defined in and operating under that certain act known as the
"Bank Act" approved March 1,
<PAGE> 144
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June 28, 1996
Page 8
1909, as amended, (ii) a bank created and operating under and
pursuant to the laws of the State of California or of the
United States or (iii) a foreign bank complying with the
criteria set forth in Section 1716 of the California Financial
Code, as amended, and that the Banks are therefore exempt from
the restrictions of Section 1 of Article XV of the California
Constitution and related statutes relating to rates of
interest upon the loan of money.
M. We express no opinion regarding compliance or non-compliance
(or the effect thereof) with applicable anti-fraud provisions
of federal or state securities laws, or with respect to the
"Blue Sky" laws of any state other than the State of
California.
N. Our opinions set forth in paragraph 1 as to valid existence,
due qualification and good standing are based solely on the
certificates referenced in paragraph (g) above (copies of
which have been furnished to you).
O. This opinion speaks only at and as of its date and is based
solely on the facts and circumstances known to us at and as of
such date. We express no opinion as to the effect on the
Banks' fights under the Transaction Documents of any statute,
rule, regulation or other law which is enacted or becomes
effective after, or of any court decision which changes the
law relevant to such rights which is rendered after, the date
of this opinion or the conduct of the parties following the
closing of the contemplated transaction. In addition, in
rendering this opinion, we assume no obligation to revise or
supplement this opinion should the present laws of the
jurisdictions mentioned herein be changed by legislative
action, judicial decision or otherwise.
P. Our opinions in clause (b) of paragraph 5 above are intended
to express our opinion that the execution, delivery and
performance by the Company of the Transaction Documents are
neither prohibited by, nor do they subject the Company to a
fine, penalty or similar sanction that would be materially
adverse to the Company under any law, rule or regulation of
the State of California or federal law that a lawyer
practicing in the State of California exercising customary
professional diligence would reasonably recognize to be
applicable to the Company and the transactions contemplated by
the Transaction Documents; accordingly, our opinions set forth
above are limited to the foregoing.
<PAGE> 145
The First National Bank of Boston,
as Agent, and the Banks Listed on Annex A
June 28, 1996
Page 9
This opinion is made with the knowledge and understanding that you
(but no other person) may rely thereon in entering into the Credit Agreement
and is solely for your benefit, and this opinion may not be quoted to or relied
upon by any person other than you, except that (i) this opinion may be
disclosed to bank regulatory and other governmental authorities having
jurisdiction over you requesting (or requiring) such disclosure and (ii) this
opinion may be disclosed to and relied upon by Assignees if the assignments
relating thereto are permitted under and made in accordance with the Credit
Agreement; provided that in no event does this opinion extend to any issue or
matter related to any such assignment or arising from or out of any such
assignment (as distinct from the subject transaction).
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI, P.C.
<PAGE> 146
ANNEX A
The First National Bank of Boston
Bank of America National Trust and Savings Association
<PAGE> 147
ANNEX B
REVIEWED AGREEMENTS
1. Equity Option Contract, dated October 21, 1992, between Goldman Sachs
& Co. and the Company.
2. Master Agreement for Equity and Index Options, dated July 28, 1994,
between Swiss Bank Corporation and the Company.
3. Lease dated September 17, 1985 for facilities located at 890 Tasman
Drive (1390 McCarthy Blvd.), Milpitas, California, as amended by
Amendment No. 1, dated February 13, 1986; Amendment No. 2, dated
August 20, 1986; and Amendment No. 3, dated December 22, 1986.
4. Sublease dated November 24, 1987 for facilities located at 850 Tasman
Drive, Milpitas, California.
5. Lease dated January 12, 1989 for facilities located at 1401 McCarthy
Blvd., Milpitas, California.
6. Lease dated January 12, 1989 for facilities located at 700 Tasman
Drive, Milpitas, California.
7. Lease dated January 12, 1989 for facilities located at 520 Alder
Drive, Milpitas, California.
8. Sublease dated June 28, 1989 for facilities located at 800 Tasman
Drive, Milpitas, California.
9. Interface License Agreement (IMS-Link Interface) dated December 2,
1983 between Northern Telecom Inc. and the Company.
10. Interface License Agreement (Digital Set Interface) dated March 16,
1990 between Northern Telecom Inc. and the Company.
11. License Agreement dated February 1, 1989 between Mitel Corporation and
the Company.
12. License Agreement dated August 1, 1990 between ROLM Systems and the
Company.
13. Form of Indemnification Agreement as entered into by the Company with
its directors and officers.
14. Amended and Restated Registration Rights Agreement dated March 12,
1987 between the Company and the holders of Series A, Series B, Series
C and Series D Preferred Stock, as
<PAGE> 148
amended by the form of Amendment of Registration Rights Agreement with
respect to Initial Public Offering.
15. Common Stock Purchase Agreement between the Company and
Hewlett-Packard Company dated as of August 10, 1988 (including a
Registration Rights Agreement between the parties attached thereto as
Exhibit A).
16. Amendment to Common Stock Purchase Agreement dated as of October 1,
1990 between the Company and Hewlett-Packard Company.
17. Common Shares Rights Agreement dated as of July 25, 1990 between the
Company and Bank of America NT & SA.
18. Employment agreement between the Company and Robert Cohn effective
October 6, 1990.
19. Employment agreement between the Company and Douglas Chance dated
October 13, 1990.
20. Memorandum regarding and promissory note for loan to Douglas Chance
dated November 9, 1990.
21. Lease of Land Agreement dated July 6, 1995 between Sumitomo Bank
Leasing and Finance, Inc. and the Company.
<PAGE> 149
ANNEX C
Mark E. Bonham
Christopher F. Boyd
Warren Chao
Robert P. Feldman
Andrew J. Hirsch
Craig D. Norris
Bradford C. O'Brien
Susan P. Reinstra
Ron E. Shulman
Timothy J. Sparks
Barry E. Taylor
<PAGE> 150
[LOGO]
June 21, 1996
The First National Bank of Boston, Agent
High Technology Division
435 Tasso Street, Suite 250
Palo Alto, CA 94301
Attn: Maia D. Heymann
Re: CREDIT AGREEMENT
Dear Ms. Heymann:
This Disclosure Letter (as defined in Section 1.1 of that certain
Credit Agreement dated as of June 30, 1996 by and among Octel Communications
Corporation ("Octel"), First National Bank of Boston, as Agent ("Bank of
Boston"), and each other lender a party to such agreement (the "Credit
Agreement") is delivered to you pursuant to the requirements of the Credit
Agreement.
The disclosures set forth below describe facts, events or situations
that Octel desires to give notice of to lenders pursuant to the Credit
Agreement. Such facts, events or situations are listed under section headings
corresponding to the section of the Credit Agreement where they appear to be
most relevant; however, all disclosures set forth below shall be deemed to have
been given with respect to any applicable section of the Credit Agreement.
Section 4.10 Litigation
Octel wishes to notify the lenders pursuant to the Credit Agreement of
the following pending or threatened litigation that, if adversely determined,
could result in a forfeiture of all or any substantial part of the property of
Octel or its subsidiaries or could otherwise have a Material Adverse Affect (as
defined in the Credit Agreement) on Octel or any of its subsidiaries. We note
that for purposes of preparation of this letter, we have assumed an adverse
determination, as required by the language of Section 4.10, whether or not
Octel believes such determination is likely.
a. Octel v. Theis Research, Inc. In April 1992, Octel filed suit,
in California, against Theis Research, Inc. ("Theis") for declaratory judgment
that Octel's products do not infringe three patents of Theis and that those
patents are invalid. In November 1992, Theis filed a counterclaim against the
Company alleging infringement of seven of Theis' patents. Subsequently, Theis
dismissed with prejudice the claims as to all but four of the patents, and its
claims as to one of the remaining four patents were dismissed on summary
judgment. During the first quarter of fiscal 1995, the Company engaged in a
jury trial regarding infringement of the three remaining patents and the
defense of patent invalidity. In October 1994, the jury returned a verdict
finding, among other things, that Octel was correct in its claim that the three
patents at issue were invalid. The Court entered judgment on the jury verdict
in January 1996, declaring Octel a "prevailing party" entitled to recover its
substantial costs in connection with the lawsuit. It is anticipated that Theis
will appeal the verdict.
<PAGE> 151
b. Gilbarco Inc. v. Octel. In January 1994, Gilbarco Inc.
("Gilbarco") filed suit in the U.S. District Court for the District of Colorado
against Octel and one of Octel's telephone company customers, U.S. West,
alleging infringement of a Gilbarco patent and seeking unspecified damages.
Octel filed an answer to the complaint denying any infringement of the patent
and raising several affirmative defenses, including an assertion that the
patent is invalid and unenforceable. In September 1994, the claims asserted
against Octel were transferred to the U.S. District Court for the Northern
District of California and those claims asserted against U.S. West were stayed
and administratively closed pending the outcome of the California action. Both
parties filed motions for summary judgment on a variety of issues, including a
motion by Octel for summary judgment declaring the Gilbarco patent
unenforceable due to inequitable conduct during the procurement of the patent.
On February 12, 1996, the Court granted Octel's motion for summary judgment
(and denied Gilbarco's counter-motion) and declared the patent unenforceable as
a matter of law. The Court subsequently entered judgment in favor of Octel and
against Gilbarco in the underlying action and awarded Octel its costs in
connection with the lawsuit. Gilbarco's subsequent challenge of the Court's
ruling was denied and it is now expected that Gilbarco will appeal the final
judgment invalidating their patent.
Octel believes, based on information currently available, that Octel
is not infringing any valid patents of Theis or Gilbarco. Octel will
vigorously defend the patent infringement claims and any related claims for
compensatory damages. While litigation is inherently uncertain, Octel believes
that the ultimate resolution of these matters will not have a material adverse
effect on its financial position.
OCTEL COMMUNICATIONS CORPORATION
/s/ JAMES F. ENGLE
-------------------------------
James F. Engle
Vice President and Treasurer
Page 2
<PAGE> 152
OCTEL COMMUNICATIONS CORPORATION
INVESTMENT POLICY
I. PURPOSE
The purpose of this investment policy is to establish guidelines for
the management of the Company's investable funds. Investable funds
will be managed in a manner that assures maximum safety and liquidity
while maximizing return within appropriate risk constraints. The
Company will assume only the level of investment risk deemed
appropriate for a non-financial corporation chiefly concerned with its
primary business operations. Funds will be invested in a range of
maturities, governed by the requirements of short, intermediate and
long-range cash forecasts and continuing evaluation of market
conditions, to ensure adequate liquidity and risk diversification.
II. INVESTMENT PORTFOLIO COMPOSITION
The overall Investment Portfolio will be comprised of two separate
investment pools, each designed to meet specific liquidity objectives
as defined below:
A. LIQUID INVESTMENT POOL: A designated portion of the overall
Investment Portfolio devoted to meeting the daily working
capital requirements of the Company and its subsidiaries. The
size of the Liquid Investment Pool will be determined by a
rolling thirty (30) day forecast of operating cash
requirements. The thirty (30) day forecast will be based upon
cash flow estimates from current levels of receivables and
payables, operating expense levels, capital expenditures, and
other special cash requirements that may arise.
B. CORE INVESTMENT POOL: The remaining portion of the overall
Investment Portfolio not required for daily working capital
requirements of the Company. The Core Investment Pool will
consist of an appropriate level of short, intermediate and
long-term maturities designed to balance the overall
Investment Portfolio to an appropriate constant duration
(weighted average of cash flows) given short, intermediate and
long-range cash forecasts, market conditions and general
business conditions. Core Investments will be managed to
allow for sufficient liquidity for uncertain cash flows during
any twelve (12) month period.
III. INVESTMENT CRITERIA
First and foremost, the investment of all Company funds will adhere to
the following investment objectives:
First: Preservation of capital (credit quality)
Second: Liquidity (convertibility into cash)
Third: Yield (rate of return)
<PAGE> 153
Page 2
To meet the objectives above, the Company and its subsidiaries will
invest excess funds as follows:
A. The Liquid Investment Pool will consist of demand and/or
interest bearing bank deposits and short-term, investment
grade, marketable securities with maximum maturities of thirty
(30) days. Approved securities for the Liquid Investment Pool
include the following:
Demand Deposits Accounts*
Money Market Accounts*
Certificates of Deposit*
U.S. Treasury Securities
U.S. Gov't Agency Discount Notes
Canada Gov't Short Term Notes**
Canadian Provincial Yankee Bonds
(with a minimum of an A rating)
United Kingdom Gov't Short Term Notes**
Japan Gov't Short Term Notes**
Germany Gov't Short Term Notes**
France Gov't Short Term Notes**
Repurchase Agreements
Commercial Paper
Bankers Acceptances
Overnight Eurodollar Time Deposits
Variable Rate Demand Notes
Tax-Exempt Money Market Funds
*Only with an authorized bank
**Sovereign debt or direct obligations of the Central
Government
Only as much excess funds as required to satisfy any possible
compensating balance arrangement or to meet cash needs within five (5)
business days will be maintained in Demand Deposit Accounts. All
remaining excess funds not maintained in Demand Deposit Accounts and
comprising the Liquid Investment Pool will be invested in appropriate
money market or short-term securities as defined above.
Repurchase Agreements will be made only with primary government
dealers, will specify only U.S. Treasuries as collateral, and will
require that 102% collateral be delivered.
<PAGE> 154
Page 3
B. The Core Investment Pool will consist of investment grade,
marketable securities greater than thirty (30) days and less
than ten (10) years with a constant duration (weighted average
of cash flows) not to exceed two (2) years.
For securities which have put or reset dates or trade based on
their average maturity, the put date, reset date, or average
maturity will be used instead of the final maturity date for
compliance with the maturity limitation guidelines.
Approved securities and permitted concentrations for the Core
Investment Pool include the following:
<TABLE>
<S> <C>
U.S. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
Federal Agency Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Tax-Exempt State and Municipal Notes and Bonds . . . . . . . . . . . . . . . . . . . . . . . . *
Tax-Exempt Put Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Tax-Exempt Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Marketable Certificates of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Eurodollar Certificates of Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Bank Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Bankers Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Taxable Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Asset-backed Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Floating Rate Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
* Permitted concentrations of tax-exempt
securities are limited according to the
Company's alternative minimum tax position
which will be analyzed annually.
A maximum of 40% of the Investment Portfolio is permitted to
be in sovereign securities of foreign issuers with no more
than 20% invested with issuers of any one country.
All investments will be investment grade securities as
specified by security type and meet the Company's requisite
quality standards as outlined below:
1) All securities will be rated at least "A" by
Moody's, Standard & Poors and/or Fitch.
2) Tax-exempt instruments will be rated at a
minimum of A1/P1.
If any security held is subsequently downgraded below the
rating specified above, the Treasury Department will take
appropriate action as deemed necessary under the
circumstances.
<PAGE> 155
Page 4
No single issuer will represent more than 10% of the overall
Investment Portfolio, except for U.S. Treasury and Federal
Agency Securities which can be up to 100% of the overall
Investment Portfolio. Corporate and tax-exempt issues will be
readily marketable and well diversified. In addition,
tax-exempt securities escrowed in or collateralized with U.S.
Government and its Agencies will be exempt from the 10%
limitation and from any rating restrictions.
IV. PROHIBITED INVESTMENTS
Because of inherent risk conditions which violate the investment
guidelines of this policy, the following securities are expressly
prohibited from inclusion in the Investment Portfolio:
o Collateralized Mortgage Obligations
o Repackaged Zero-Coupon Bonds
o Mortgage-Backed Pass-Through Bonds
o Interest Only (IO's)
Any securities not listed in Section III of this Investment
Policy.
V. INVESTMENT RESPONSIBILITY
The overall responsibility for the Investment Portfolio rests with the
Treasurer. In his absence, decisions may be made by the Chief
Financial Officer or Corporate Controller. Treasury may manage the
Investment Portfolio in-house, permit the Investment Advisors to
manage it or a combination of both.
The Corporate Controller has the responsibility to maintain proper
internal accounting controls over investment transactions and to
establish, maintain and enforce proper accounting treatment of
invested funds in accordance with generally accepted accounting
principles.
The Treasurer is permitted to delegate the management of certain
Liquid Investments to the Foreign Controllers and delegate the
management of the Core Investments to one or more outside Investment
Advisors. The Treasurer has the authority to approve Foreign
Controller investment purchases that exceed maturities of thirty (30)
days if repatriation issues result in a build-up of excess funds. The
Foreign Controllers and Investment Advisor(s) will, at all times, make
investment decisions governed by the letter and the spirit of this
Investment Policy.
In addition, the Treasurer is permitted to authorize individuals
within the Company to approve security purchases and sales on behalf
of the Company and its subsidiaries. The following specifies the
dollar limit that authorized individuals may approve for any
individual transaction:
Up to $ 3 million Any Authorized Individual
Up to $ 10 million Treasurer or Corporate Controller
Over $ 10 million Chief Financial Officer
<PAGE> 156
Page 5
The following Investment Advisors, Investment Banks and Banking
Institutions may be used to purchase or sell securities for the
Investment Portfolio:
BankAmerica Corporation
BA Securities, Inc. (a BankAmerica Corporation subsidiary)
Alex Brown & Sons, Inc.
Goldman Sachs & Co.
Hambrecht & Quist LLC
Morgan Stanley & Company
Oppenheimer & Co., Inc.
Payden and Rygel
Swiss Bank Corporation
The First National Bank of Boston
Weiss, Peck and Greer
VI. SAFEKEEPING
Safekeeping for all marketable securities will be at Bank of America
or another authorized institution offering custodial account services.
A review of the safekeeping institution(s) will be conducted annually
and monthly reports will be maintained and monitored by Treasury.
VII. REPORTING AND REVIEW
The activity and performance of the Investment Portfolio will be
reported and reviewed as follows:
1) The Investment Portfolio will be reported and reviewed
quarterly with the Chief Financial Officer and Corporate
Controller. The format will be a summary report, prepared by
Treasury, which includes information on the types of
securities owned and the associated maturities, yields, and
concentrations. The report will be segregated into the Liquid
Investment Pool and the Core Investment Pool.
Treasury will maintain trade and credit files on all
investments purchased in-house and will have ready access to
the Investment Advisors' credit files on an as needed basis.
The following information must be included in the trade and
credit files for all investments purchased in-house:
o Trade ticket with proper approvals
o Broker trade confirmation
o Security prospectus (except U.S. Treasury & Federal
Agency Securities)
2) The Investment Portfolio will be reported quarterly to the
Board of Directors of the Company.
<PAGE> 157
Page 6
3) This Investment Policy and the Investment Portfolio will be
reviewed on an annual basis with the Board of Directors of the
Company.
<PAGE> 158
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
A S S E T S
JUNE 30,
1995 1994
--------- ---------
<S> <C> <C>
Current assets:
Cash and equivalents $ 24,521 $ 17,889
Short-term investments 28,054 68,463
Accounts receivable, net of allowance for doubtful
accounts of $2,938 and $2,665 110,679 90,013
Accounts receivable from related parties 6,270 2,159
Inventories 31,151 28,920
Prepaid expenses and other 15,448 13,865
--------- ---------
Total current assets 216,123 221,309
Property, plant and equipment, net 128,753 95,076
Deposits and other assets 23,400 29,743
--------- ---------
Total $ 368,276 $ 346,128
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 21,157 $ 16,250
Accrued compensation and employee benefits 28,188 25,010
Income taxes payable 7,921 2,616
Accrued and other liabilities 35,465 44,660
--------- ---------
Total current liabilities 92,731 88,536
Long-term obligations 602 1,400
Commitments and contingencies (Notes 2, 9, 10, 14, 16 and 18) -- --
Stockholders' equity:
Preferred stock, $.001 par value--authorized 5.0 million shares; none
outstanding -- --
Common stock, $.001 par value--authorized 5.0 million shares; none
outstanding: 1995, 23.8 million shares, 1994, 24.2 million shares 183,193 174,356
Notes receivable from employees (1,347) --
Retained earnings 96,039 82,736
Unrealized loss on marketable securities (net of deferred taxes of $86 and $330) (94) (540)
Accumulated translation adjustments (501) (360)
Treasury stock at cost: 1995, 0.1 million shares, 1994, none (2,347) --
--------- ---------
Total stockholders' equity 274,943 256,192
--------- ---------
Total $ 368,276 $ 346,128
========= =========
</TABLE>
See notes to consolidated financial statements.
45
<PAGE> 159
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
NET REVENUES:
Systems $ 314,343 $ 292,090 $ 254,860
Services and license 158,249 114,135 83,618
--------- --------- ---------
Total net revenues 472,592 406,225 338,478
COSTS AND EXPENSES:
Cost of systems 103,541 89,423 74,856
Cost of services 89,787 72,379 54,521
Research and development 74,644 58,325 44,420
Selling, general and administrative 154,302 149,027 127,559
Non-recurring charge for in-process
research and development 4,725 -- --
Integration costs 2,848 18,258 --
--------- --------- ---------
Total costs and expenses 429,847 387,412 301,356
--------- --------- ---------
Operating income 42,745 18,813 37,122
Interest and other income (expense), net 2,887 (1,470) 4,294
--------- --------- ---------
Income before income taxes and cumulative effect of
accounting change 45,632 17,343 41,416
Provision for income taxes 14,500 3,800 11,734
--------- --------- ---------
Income before cumulative effect of accounting change 31,132 13,543 29,682
Cumulative effect of accounting change -- -- 115
--------- --------- ---------
NET INCOME $ 31,132 $ 13,543 $ 29,567
========= ========= =========
INCOME PER COMMON AND EQUIVALENT SHARE:
Primary:
Income before cumulative effect of accounting change $ 1.26 $ 0.54 $ 1.19
Cumulative effect of accounting change -- -- --
--------- --------- ---------
NET INCOME $ 1.26 $ 0.54 $ 1.19
========= ========= =========
Fully diluted:
Income before cumulative effect of accounting change $ 1.21 $ 0.54 $ 1.19
Cumulative effect of accounting change -- -- --
--------- --------- ---------
NET INCOME $ 1.21 $ 0.54 $ 1.19
========= ========= =========
Weighted average number of common and equivalent
shares used in computation:
Primary 24,724 25,096 24,869
========= ========= =========
Fully diluted 25,728 25,096 24,869
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
46
<PAGE> 160
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
NOTES GAIN (LOSS)
COMMON STOCK RECEIVABLE ON ACCUMULATED
--------------------- FROM SALE DEFERRED RETAINED MARKETABLE TRANSLATION
SHARES AMOUNT OF STOCK COMPENSATION EARNINGS SECURITIES ADJUSTMENTS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1992 22,777,556 $149,429 $ (162) $ (271) $ 53,231 $ -- $ 159 $ 202,386
Pooling of interests
adjustments 456,320 353 -- -- 37 -- -- 390
Sale of common stock under
Employee Stock Purchase Plan 251,645 4,037 -- -- -- -- -- 4,037
Sales of common stock, net of
stock surrendered 375,993 3,524 -- -- (35) -- -- 3,489
Proceeds from sale of put
warrants -- 977 -- -- -- -- -- 977
Repurchases of common stock -
retired (603,951) (3,625) -- -- (9,478) -- -- (13,103)
Deferred compensation
amortization -- -- -- 216 -- -- -- 216
Tax benefit of stock option
transactions -- 2,175 -- -- -- -- -- 2,175
Payment on notes receivable -- -- 106 -- -- -- -- 106
Translation adjustments -- -- -- -- -- -- (559) (559)
Net income -- -- -- -- 29,567 -- -- 29,567
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1993 23,257,563 156,870 (56) (55) 73,322 -- (400) 229,681
Sale of common stock under
Employee Stock Purchase Plan 326,860 5,224 -- -- -- -- -- 5,224
Sales of common stock, net of
stock surrendered 817,921 11,256 -- -- (121) -- -- 11,135
Repurchases of common stock -
retired (232,000) (1,759) -- -- (4,008) -- -- (5,767)
Deferred compensation
amortization -- -- -- 55 -- -- -- 55
Tax benefit of stock option
transactions -- 2,765 -- -- -- -- -- 2,765
Payment on notes receivable -- -- 56 -- -- -- -- 56
Unrealized loss on marketable
securities -- -- -- -- -- $ (540) -- (540)
Translation adjustments -- -- -- -- -- -- 40 40
Net income -- -- -- -- 13,543 -- -- 13,543
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1994 24,170,344 174,356 -- -- 82,736 (540) (360) 256,192
Sale of common stock under
Employee Stock Purchase Plan 369,026 5,966 -- -- -- -- -- 5,966
Sales of common stock, net of
stock surrendered 593,090 6,870 -- -- -- -- -- 6,870
Repurchases of common stock -
retired (1,200,600) (8,207) -- -- (17,829) -- -- (26,036)
Repurchases of common stock -
held in treasury (105,000) (733) -- -- (1,614) -- -- (2,347)
Proceeds from sale of put
warrants -- 1,768 -- -- -- -- -- 1,768
Tax benefit of stock option
transactions -- 2,440 -- -- -- -- -- 2,440
Notes receivable from
employees -- -- (1,347) -- -- -- -- (1,347)
Unrealized gain on marketable
securities -- -- -- -- -- 446 -- 446
Translation adjustments -- -- -- -- -- -- (141) (141)
Net income -- -- -- -- 31,132 -- -- 31,132
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, June 30, 1995 23,826,860 $182,460 $(1,347) -- $ 94,425 $ (94) $ (501) $ 274,943
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
47
<PAGE> 161
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,132 $ 13,543 $ 29,567
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 30,660 34,219 22,287
Amortization of premium on marketable securities 187 294 --
Deferred income taxes 1,537 (13,909) 1,948
Deferred compensation -- 55 216
Purchased in-process research and development 4,725 -- --
Changes in assets and liabilities:
Accounts receivable (24,005) (13,572) (20,891)
Inventories (1,946) (449) 1,438
Prepaid expenses and other (2,381) (1,633) (239)
Trade payables 4,866 46 (1,441)
Accrued compensation and employee benefits 3,052 4,860 3,507
Accrued and other liabilities (1,023) 25,964 3,451
-------- -------- --------
Net cash provided by operating activities 46,804 49,418 39,843
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock under employee stock plans, net 11,618 16,480 7,543
Repurchases of common stock (28,383) (5,767) (13,103)
Proceeds from sale of financial instruments-put warrants 1,768 -- 977
Issuance of common stock -- -- 18
Payment on notes receivable -- 56 106
Repayment of long-term obligations (831) (605) (1,257)
-------- -------- --------
Net cash provided by (used for) financing activities (15,828) 10,164 (5,716)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (37,516) (128,869) (256,016)
Sales and maturities of short-term investments 78,421 133,115 250,965
Property, plant and equipment additions, net (56,857) (58,648) (30,775)
Changes in deposits and other assets (2,537) (13,970) (15,576)
Acquisition of intellectual and personal property (5,061) -- --
Net cash used in business acquisitions -- -- (9,391)
-------- -------- --------
Net cash used for investing activities (23,550) (68,372) (60,793)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (794) 103 214
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 6,632 (8,687) (26,452)
CASH AND EQUIVALENTS:
Beginning of year 17,889 26,576 53,028
-------- -------- --------
End of year $ 24,521 $ 17,889 $ 26,576
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
48
<PAGE> 162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The Company designs, manufactures and markets voice information
processing systems. The Company also provides voice processing and networking
services. The consolidated financial statements include the Company and its
wholly owned subsidiaries. Intercompany balances and transactions are
eliminated in consolidation. Certain prior years' costs previously reported as
selling, general and administrative have been reclassified to cost of services
to conform to the fiscal 1995 presentation.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
Cash equivalents consist of all highly liquid debt instruments
purchased with a maturity of three months or less.
Short-term investments
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). The Company adopted the
provisions of SFAS 115 for investments held as of June 30, 1994. Under the
provisions of SFAS 115, the Company has classified its investments in certain
debt securities as "available-for-sale." Such investments are recorded at fair
value, with unrealized gains and losses reported as a separate component of
stockholders' equity. Interest income is recorded using an effective interest
rate, with the associated premium or discount amortized to "Interest and other
income (expense), net." The cost of securities sold is based upon the specific
identification method. In accordance with the provisions of SFAS 115, prior
period financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect as of June 30, 1994 of adopting
SFAS 115 was to decrease stockholders' equity by $0.5 million to reflect the net
unrealized loss on investments classified as "available-for-sale" and previously
recorded at cost. See Note 3.
Foreign currency translation
The Company's foreign subsidiaries operate using local functional
currencies, except for Israel, which uses the U.S. Dollar as its functional
currency. Accordingly, assets and liabilities denominated in foreign
currencies are translated at the exchange rate on the balance sheet date.
Revenues, costs and expenses are translated at average rates of exchange
prevailing during the year. Translation adjustments resulting from this
process are accumulated as a separate component of stockholders' equity.
Realized and unrealized gains and losses on foreign currency transactions and
hedge contracts are included in interest and other income (expense), net.
Financial instruments and risk concentration
The forward hedge contracts discussed above require the Company to
exchange currencies at rates agreed upon at the inception of the contracts.
Although the gross amounts are used to express the volume of these
transactions, the amounts potentially subject to credit risk are limited to the
difference between the counterparty's obligation and the obligation of the
Company. The contracts do not subject the Company to significant market risk
from exchange rate movements because the contracts offset foreign currency
balances and transactions being hedged. The Company maintains policies for
entering into foreign exchange contracts and investments.
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, short-term
investments, accounts receivable and financial instruments used in hedging
activities. The Company's cash equivalents and short-term investments are
primarily in U.S. government obligations and municipal notes and bonds that
have maturities ranging from 1995 through 2003. The Company believes no
significant concentration of credit risk exists with respect to these financial
instruments. Balances due from international
49
<PAGE> 163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
customers account for 32 percent of the total accounts receivable at June 30,
1995 (35 percent at June 30, 1994). Additionally. distributors and VIS
customers comprise 13 percent and 38 percent of total accounts receivable,
respectively (18 percent and 40 percent in 1994, respectively). Generally, the
Company requires no collateral from customers. The Company believes that any
credit risks are substantially mitigated by the Company's credit evaluation
process.
Fair value of financial instruments
For certain of the Company's financial instruments, including cash and
equivalents, short-term investments, accounts receivable. accounts payable and
accrued expenses, the carrying amounts approximate fair value due to their
short maturities. Consequently, such instruments are not included in the
following table. The following table provides information regarding the
estimated fair values of off balance sheet financial instruments determined
based on quoted market prices of comparable instruments (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
--------------------------- ------------------------
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Forward exchange contracts:
Sell foreign currency $10,112 $10,097 $17,917 $17,763
Buy foreign currency 3,174 3,184 - -
</TABLE>
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Development costs
Development costs incurred in the research and development of new
software products and enhancements to existing software products are expensed
as incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs would be
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased or
Otherwise Marketed." The Company has not capitalized any software development
costs, as the Company's current process for developing this software is
essentially completed concurrently with the establishment of technological
feasibility. In connection with the VMX merger, certain costs formerly
capitalized by VMX were written off to conform accounting practices during
fiscal 1994.
In fiscal 1995, 1994 and 1993, the Company entered into contracts for
funded software development projects. These contracts are contractual services
as defined by Statement of Financial Accounting Standards No. 68, "Research and
Development Arrangements." The Company defers development costs and revenue for
these projects and such deferred costs are expensed to cost of sales when the
related revenue is recognized. The Company maintains all rights related to the
funded projects. During fiscal 1995, the Company incurred a one-time charge of
approximately $1.2 million related to a cancelled contract for software
development. As of June 30, 1995, all current projects are expected to be
completed substantially in accordance with the related contract.
As of June 30, 1995, $O.5 million of costs related to these contracts
were deferred ($2.9 million and $1.9 million at June 30, 1994 and 1993,
respectively). Prepayments recorded as a liability were $0.2 million at June
30, 1995 ($1.0 million and $0.1 million were recorded at June 30, 1994 and
1993, respectively). In fiscal year 1995, $1.0 million was expensed to cost of
sales and $1.0 million recognized as revenue for contracts ($0.8 million was
expensed to cost of sales and recognized as revenue in 1994 and $0.3 million
was expensed to cost of sales and recognized as revenue in 1993).
50
<PAGE> 164
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Acquired in-process research and development
In August 1994, the Company purchased certain intellectual and personal
property from another company for $5.1 million. Of the total purchase price,
$4.7 million was allocated to in-process research and development and $0.4
million was allocated to property and equipment. The in-process research and
development was expensed in the first quarter of fiscal 1995.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the following estimated useful
lives:
Buildings 40 years
Machinery & equipment 2 - 10 years
Furniture & fixtures 5 years
Leasehold improvements Life of lease
Intangible assets
Goodwill represents the excess of acquisition cost, including reserves
for certain acquisition-related expenses, over the fair value of the net assets
acquired and was being amortized on a straight-line basis over ten years.
Goodwill of $1.7 million was included in the balance sheet caption "Deposits
and other assets" as of June 30, 1994. During fiscal 1995, the balance in
Goodwill was eliminated in connection with the reversal of remaining
acquisition reserves that were no longer required.
The Company has acquired various technology licenses and enters into
other agreements requiring prepayments. The cost of the licenses and other
agreements is amortized from the date that the related product is commercially
available over periods based on anticipated future revenue streams from the
related products not exceeding 36 months. As of June 30, 1995 and 1994, $2.5
million and $3.3 million, respectively, were included in the balance sheet
caption "Deposits and other assets" for such assets.
Revenue recognition
Revenue is recognized upon shipment to distributors and upon
installation for end users. Revenue is also recognized upon shipment to end
users for orders from businesses which have previously installed the Company's
products, and upon shipment of upgrades and expansions to larger capacity
systems.
Revenues on service contracts are primarily recognized ratably over the
contract period.
Returns and allowances
The Company does not generally reserve for returns because,
historically, the Company has not experienced any significant returns of any of
its products by customers.
Warranty costs
The Company warrants its products for one year after delivery to the
purchaser or after Company performed installation. Provision for estimated
warranty costs is recorded at the time of sale.
Income taxes
Effective July 1, 1992, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, the liability method is used in
accounting for income taxes. Under this method, deferred tax assets and
51
<PAGE> 165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
As permitted by SFAS No. 109, the Company elected to record the
cumulative effect of adopting this pronouncement as a change in accounting
principle as of July 1, 1992, the result of which was a reduction in fiscal
1993 net income of $0.1 million. This charge represents the writedown of net
deferred tax assets and liabilities from the tax rates in effect when they
arose to current statutory tax rates.
Net income per common and equivalent share
Primary and fully diluted net income per common and equivalent share
are computed based upon the weighted average number of common and equivalent
shares from stock options and put warrants (using the treasury stock method)
and shares subscribed under the Employee Stock Purchase Plan.
3. INVESTMENTS
At June 30, 1995, all cash equivalents and short-term investments were
considered available-for-sale securities and consisted of the following (in
thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ACCRUED ESTIMATED
COST GAINS LOSSES INTEREST FAIR VALUE
------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Government securities $12,117 $ -- $(180) $ (82) $11,855
Municipal notes bonds 22,200 41 (41) (376) 21,824
------- ---- ----- ----- -------
$34,317 $ 41 $(221) $(458) $33,679
======= ==== ===== ===== =======
</TABLE>
At June 30, 1994, all cash equivalents and short-term investments were
considered available-for-sale securities and consisted of the following (in
thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ACCRUED ESTIMATED
COST GAINS LOSSES INTEREST FAIR VALUE
------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Government securities $ 9,803 $ 9 $(455) $(103) $ 9,256
Municipal notes bonds 60,598 17 (441) (891) 59,281
------- ---- ----- ----- -------
$70,401 $ 41 $(896) $(994) $68,537
======= ==== ===== ===== =======
</TABLE>
At June 30, 1995 and 1994, these securities were classified on the
balance sheet as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Cash equivalents $ 6,083 $ 1,068
Short-term investments 28,054 68,463
------- -------
$34,137 $69,531
======= =======
</TABLE>
The cost and estimated fair value of available-for-sale debt securities
as of June 30, 1995, by contractual maturity, consisted of the following (in
thousands):
52
<PAGE> 166
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
---- ----------
<S> <C> <C>
Due in one year or less $15,573 $15,457
Due in one to three years 14,778 14,476
Due thereafter 3,966 3,746
------- -------
$34,317 $33,679
======= =======
</TABLE>
For the year ended June 30, 1995, the Company had $212.3 million in
proceeds from sales of available-for-sale investments, $0.3 million of gross
realized gains and $0.4 million of gross realized losses on those sales.
4. BUSINESS COMBINATIONS -- POOLING OF INTERESTS METHOD
VMX, Inc.
On March 31, 1994, Octel Acquisition Corporation, a wholly owned
subsidiary of Octel, was merged with and into VMX, Inc. (VMX), with VMX being
the surviving corporation and a wholly owned subsidiary of Octel. In the
transaction, approximately 5.4 million shares of Octel's common stock were
issued in exchange for all of the outstanding common stock of VMX. The merger
was accounted for as a pooling of interests, and accordingly, the accompanying
financial statements have been restated to include the accounts and operations
of VMX for all periods prior to the merger. Effective in the quarter ended
March 31, 1994, VMX recorded $2.2 million in charges to operations to conform
certain changes in estimates and accounting policies to those of Octel.
VMX provided integrated messaging and call processing systems, software
and services that combined voice, data and image for business communications,
worldwide.
Separate results of the combining entities for the periods prior to the
merger were as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31, 1994 JUNE 30, 1993
----------------- -------------
<S> <C> <C>
NET REVENUES:
Octel $216,662 $249,549
VMX 74,270 90,463
Less intercompany sales (1,233) (1,534)
-------- --------
$289,699 $338,478
======== ========
NET INCOME:
Octel $ 16,724 $ 22,553
VMX 4,844 7,036
Intercompany transactions 10 (22)
Merger related costs and
adjustments (net of tax benefits) (18,755) --
-------- --------
$ 2,823 $ 29,567
======== ========
</TABLE>
In connection with the merger, approximately $3.6 million of merger
expenses were incurred and charged to interest and other income (expense), net
during the third quarter of fiscal 1994. These non-recurring expenses included
investment banking fees of $2.6 million, legal and accounting fees of $0.6
million and other miscellaneous expenses of $0.4 million.
Also in connection with the merger, the Company recorded integration
costs in the third quarter of fiscal 1994 of $18.3 million related to costs
associated with consolidating facilities and personnel. Included in such
integration costs were building lease termination fees and moving costs in
connection with redundant facilities, employee
53
<PAGE> 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
severance, relocation expenses, and the write-off of leasehold improvements and
assets impaired as a direct result of the merger. The balance in these
reserves of $4.6 million at June 30, 1995 is included in Accrued and other
liabilities" on the balance sheet. Additional expenses of $2.8 million were
incurred in fiscal 1995, relating primarily to literature design for name
change and other modifications to literature for the merged company and the
consolidation of processes and computer systems of the merged company.
Rhetorex, Inc.
In March 1993, the Company issued the equivalent of 346,218 shares of
its Common Stock in exchange for all of the outstanding capital stock of
Rhetorex, Inc. (Rhetorex). which has been accounted for as a pooling of
interests. In addition the Company assumed Rhetorex stock options which
represented options to purchase 3,779 shares of the Company's Common Stock
subsequent to the transaction. Rhetorex designs and manufactures high
performance voice processing components and software for personal computers.
Compass Technology, Inc.
Effective August 12, 1992, the Company consummated a business
combination with Compass Technology, Inc. (now Octet PC Products Division
(OPCPD)) which was accounted for as a pooling of interests. OPCPD develops and
markets voice processing applications software for PC-based systems. To effect
the combination, approximately 460,000 shares of common stock were issued in
exchange for substantially all equity securities of OPCPD. The net assets of
OPCPD amounted to $0.5 million at June 30, 1992.
5. BUSINESS COMBINATION - PURCHASE METHOD
On October 21, 1992, the Company acquired Tigon Corporation (now Octet
Network Services (ONS)) from Ameritech. ONS, is a provider of voice processing
and networking services primarily in the United States. The purchase price of
$12 million was paid in cash. The acquisition was accounted for as a purchase
and the results of ONS' operations were combined with those of the Company from
the date of acquisition. Goodwill of $7.5 million, representing the excess of
acquisition cost, including reserves for certain acquisition related expenses,
over the $10.3 million estimated fair value of the net assets acquired, was
recorded at the date of acquisition, prior to the adoption of SFAS No. 109. As
discussed in Note 13 below, the assets and liabilities assumed in the
acquisition of ONS were remeasured in connection with the adoption of SFAS No.
109 by the Company. The gross balance of goodwill at June 30, 1994 was $2.1
million, which reflects the change for the SFAS No. 109 remeasurement and the
final purchase price allocation adjustment of $1.3 million made prior to the
end of the one year anniversary date of the acquisition. Goodwill amortization
expense for fiscal 1995, 1994 and 1993 was $0.2 million, $0.3 million and
$0.1 million respectively. During fiscal 1995, the balance in Goodwill was
eliminated in connection with the reversal of remaining acquisition reserves
that were no longer required.
6. INVENTORIES
Inventories consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1995 1994
--------------------------
<S> <C> <C>
Finished goods $5,009 $ 5,864
Work-in-process 8,586 12,248
Raw materials 17,556 10,808
-------- -------
Total inventories $31,151 $28,920
======== =======
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of (in thousands):
54
<PAGE> 168
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1994
--------------------
<S> <C> <C>
Computers and electronic equipment $129,396 $85,545
Buildings 35,761 28,613
Furniture and fixtures 16,443 14,317
Land 12,258 12,258
Leasehold improvements 6,273 6,867
Other machinery and equipment 5,596 11,780
-------- -------
Total 205,727 159,380
Accumulated depreciation and amortization (76,974) (64,304)
-------- -------
Property, plant and equipment, net $ 128,753 $95,076
========= =======
</TABLE>
8. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities consist of (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1995 1994
--------------------
<S> <C> <C>
Unearned revenue and deposits $10,876 $9,240
Integration reserves 4,583 12,516
Warranty reserve 3,230 2,956
Amounts due to distributors 3,059 3,595
Reserves for acquisition related expenses - 4,817
Other 13,717 11,536
------- -------
Accrued and other liabilities $35,465 $44,660
======= =======
</TABLE>
Other liabilities primarily consist of property and sales taxes,
amounts due to direct customers and other liabilities.
9. LINE OF CREDIT AND LETTERS OF CREDIT
Effective June 1994, the Company obtained a $30 million bank revolving
line of credit which also allows the Company to obtain standby letters of
credit. Borrowings under the line are unsecured and bear interest at either an
adjusted LIBOR rate plus one and one-quarter percent or the greater of the
Bank's base rate or the Federal Funds Effective Rate plus one-half of one
percent, at the Company's discretion upon borrowing the funds. Borrowings
under the line are subject to certain financial covenants and restrictions on
indebtedness, equity distributions, financial guarantees, business combinations
and other related items. The Company was in compliance with these covenants
and had no borrowings under this line as of June 30, 1995. The line expires in
June 1996.
At June 30, 1995, the Company had $1.8 million of stand-by letters of
credit outstanding. The letters of credit are primarily to guarantee payments
for inventory purchases and facility lease payments. The majority of the
Letters of Credit are denominated in Japanese Yen, U.S. Dollars and French
Francs and expire on various dates through July 1, 1998.
10. STOCKHOLDERS' EQUITY
In July 1990, the Company's Board of Directors approved a common
shares rights agreement and declared a dividend distribution, payable to
stockholders of record on August 15, 1990, of one Common Stock purchase right
for each outstanding share of its Common Stock. Initially, each right entitles
the stockholder to buy one newly issued share of the Company's Common Stock at
an exercise price of $80. The rights become exercisable (unless
55
<PAGE> 169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
postponed by action of the disinterested directors) on the earlier of: (1) ten
days following a public announcement that a person or group has acquired, or
obtained the right to acquire, beneficial ownership of 21% or more of the
outstanding Common Stock or (2) ten days following the commencement or
announcement of a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 21% or more of
the Company's outstanding Common Stock.
If the Company is acquired in a merger or other business combination
transaction without approval by the Company's Board of Directors, each right
not held by the acquiring person would entitle its holder to purchase $160
worth of the common stock of the acquiring company for $80. If any person or
group acquires 21% or more of the Company's Common Stock without approval by
the Company's Board of Directors, each right not held by the acquiring person
would entitle its holder to purchase $160 worth of the Company's Common Stock
for $80.
The rights are redeemable at the Company's option for $0.01 per right.
Additionally, the exercise price, number of rights and number of common shares
that may be acquired are subject to adjustment from time to time to prevent
dilution. The rights expire on July 31, 2000. At June 30, 1995 substantially
all shares of Common Stock are subject to this agreement.
Common Stock
During fiscal 1992, a stock repurchase program was approved by the
Board of Directors whereby the Company may repurchase such shares of its Common
Stock on the open market as may reasonably be required for exercises under the
1984 Incentive Stock Option Plan and issuances under the 1987 Employee Stock
Purchase Plan. In July 1994, the Company's Board of Directors approved the
repurchase of up to 3.5 million shares of its Common Stock over a period of
approximately two years. During fiscal 1995, 1994 and 1993, the Company
repurchased 1,305,600 shares, 232,000 shares, and 603,951 shares,
respectively. Average prices paid during these periods (exclusive of any put
warrant proceeds) were $22 per share, $25 per share and $22 per share,
respectively. As of June 30, 1995, approximately 1 million of the repurchased
shares have been reissued under employee stock plans with the balance to be
reissued under such plans in fiscal 1996.
During fiscal 1993 and 1995, in connection with its stock repurchase
program, the Company sold put warrants in a series of private placements, with
the intention of reducing the cost of the stock repurchase program. The put
warrants entitle the holder to sell one share of common stock to the Company for
each warrant held, at a specified price, if the holder exercises the warrant.
The activity for fiscal 1995, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
PUT WARRANTS OUTSTANDING
------------------------------------------------------
CUMULATIVE NUMBER OF POTENTIAL
PROCEEDS RECEIVED WARRANTS OBLIGATION
----------------- --------- ----------
<S> <C> <C> <C>
June 30, 1992 -- -- --
Sales $ 977,000 500,000 $11,043,000
Expirations -- (200,000) (3,750,000)
---------- --------- -----------
June 30, 1993 977,000 300,000 7,293,000
Exercises -- (200,000) (5,143,000)
Expirations -- (100,000) (2,150,000)
---------- --------- -----------
June 30, 1994 977,000 -- --
Sales 1,768,000 1,143,000 25,082,000
Exercises -- (383,000) (8,436,000)
Expirations -- (500,000) (10,547,000)
---------- --------- -----------
June 30, 1995 $2,745,000 260,000 $ 6,099,000
========== ========= ===========
</TABLE>
In November 1994, the Company increased the number of shares of Common
Stock reserved for issuance under its 1987 Employee Stock Purchase Plan from
1,250,000 to 1,650,000. Eligible employees may authorize payroll
56
<PAGE> 170
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
deductions of up to 10% of their compensation to purchase shares at the lower
of 85% of the fair market value of the Common Stock as of the date of grant
(first day of an offering period, or for newly hired employees, the date their
participation begins) or the last day of the six-month offering period. In
fiscal 1995, 369,000 share were purchased at an average price of $16.17
(327,000 in fiscal 1994 at an average price of $15.98 and 252,000 in fiscal
1993 at an average price of $16.04).
During fiscal 1994, the Company increased the number of shares of
Common Stock reserved for issuance under its 1985 Incentive Stock Plan from
6,300,000 to 9,600,000. In November 1994, the Company increased shares of
Common Stock reserved for issuance under the Directors' Stock Option Plan from
200,000 to 350,000. Under the plans, stock options may be granted to
employees, consultants and directors to purchase Common Stock at not less than
fair market value at the date of grant. Options become exercisable as
determined by the Board of Directors, generally over five years. However,
options granted after June 1, 1994 become exercisable over four years. Options
granted before November 1988 expire ten years from date of grant, while those
granted after that date expire five and one-half years from date of grant, or
within six months after becoming fully exercisable, whichever is sooner. At
June 30, 1995, a total of 957,541 shares were available for future grants under
the plans.
In June 1994, the Board of Directors approved a repricing of stock
options for certain employees, excluding senior management and officers. The
employees had the option of either maintaining their existing options or
cancelling any options with exercise prices greater than $17.25 and receiving
new options representing 90% of the options being cancelled. The new options'
vesting commencement date was reset to June 22, 1994 and the new options will
vest at the rate of 25% each year over four years. The options expire five and
one-half years from the grant date. The vested options may only be exercised
when the fair market value of the Company's Common Stock equals or exceeds the
original option exercise price; however, after five years and three months from
June 22, 1994, the options may be exercised regardless of the fair market value
of the Company's Common Stock for up to three months. Options for up to
1,574,717 shares were qualified for the repricing. Under this repricing,
options for approximately 1,253,000 shares were cancelled and options for
approximately 1,120,000 shares were granted. Fiscal 1994 activity has been
adjusted in the table below to reflect the repricing.
Information regarding outstanding stock options is as follows:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE TOTAL
--------- --------------- ------------
<S> <C> <C> <C>
Outstanding at June 30, 1992 3,995,808 $ .05 - 36.25 $ 51,751,035
Granted 2,022,418 11.25 - 27.25 43,628,690
Cancelled (314,800) .75 - 36.25 (4,964,760)
Exercised (377,163) .50 - 22.88 (3,577,452)
--------- -------------- ------------
Outstanding at June 30, 1993 5,326,263 .05 - 36.25 86,837,513
Granted 4,655,640 17.20 - 50.00 112,453,499
Cancelled (2,150,920 2.50 - 36.25 (48,031,089)
Exercised (825,595) .05 - 25.00 (11,386,983)
--------- -------------- ------------
Outstanding at June 30, 1994 7,005,388 .05 - 50.00 139,872,940
Granted 1,276,830 16.25 - 29.13 27,055,260
Cancelled (854,770) .55 - 36.25 (17,942,164)
Exercised (603,303) .05 - 25.00 (7,038,525)
--------- -------------- ------------
Outstanding at June 30, 1995 6,824,145 $ .05 - 50.00 $141,947,511
========= ============== ============
</TABLE>
At June 30, 1995, options to purchase 2,195,647 shares were exercisable.
57
<PAGE> 171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At June 30, 1995, the Company has reserved shares of Common Stock for
issuance as follows:
<TABLE>
<S> <C>
Issuance under Incentive Stock Plan and Directors' Stock Options Plan 7,781,686
Issuance under Employee Stock Purchase Plan 31,841
---------
7,813,527
=========
</TABLE>
During fiscal 1995, certain employees exercised stock options in
exchange for notes. Notes receivable from the sale of stock bear interest at
variable rates ranging from 6.62% to 7.43% and are due at various dates through
1998. The notes are secured, in part, by the stock issued upon exercise of the
stock options.
In October 1990, the Board of Directors authorized a restricted stock
purchase of 60,000 shares for $.001 per share by an individual who was an
officer of the Company. Deferred compensation, representing the difference
between $.001 per share and the fair market value of the shares at the date of
issuance, was amortized over the three-year vesting period. In fiscal 1994 and
1993, $55,000 and $216,000, of deferred compensation was amortized,
respectively.
11. RELATED PARTY TRANSACTIONS
During fiscal 1995, 1994 and 1993, the Company had sales of
approximately $26.0 million, $28.4 million and $23.6 million, respectively, to
companies in which a member of the Company's Board of Directors is also an
officer to a company that owned approximately 3.8 percent, 6.5 percent and 9.0
percent of the Company's Common Stock at June 30, 1995, 1994 and 1993,
respectively. Amounts due from these companies at June 30, 1995 and 1994 were
$6.3 million and $2.2 million, respectively.
12. INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net consists of (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Interest and investment income $ 2,514 $ 3,216 $ 3,915
Gain (loss) on sale of short-term investments, net (105) (11) 1,276
Interest expense (155) (267) (56)
Foreign exchange gains (losses), net 744 (370) 210
Merger expenses -- (3,592) (439)
Other expense, net (141) (446) (612)
------- ------- -------
Total interest and other income (expense), net $ 2,887 $(1,470) $ 4,294
======= ======= =======
</TABLE>
Cash payments for interest were $0.2 million, $0.3 million and $0.1
million in fiscal 1995, 1994 and 1993, respectively.
13. INCOME TAXES
Effective July 1, 1992, the Company adopted SFAS No. 109. As permitted
by SFAS No. 109, the Company elected to record the cumulative effect of
adopting this pronouncement as a change in accounting principle as of July 1,
1992, the result of which was a reduction in fiscal 1993 net income of $0.1
million.
In accordance with the provisions of SFAS No. 109, the assets acquired
and liabilities assumed in the purchase of ONS in October 1992 were
remeasured. The result of applying SFAS No. 109 to the purchase of ONS was to
recognize deferred tax assets and deferred tax liabilities for the future tax
consequences of the deductible and taxable temporary differences between the
assigned fair values of the assets and liabilities and the tax bases. In
addition, a deferred tax asset has been recognized for the tax benefit of ONS'
net operating loss carryforwards existing at the date of acquisition. A
valuation allowance was recognized to reduce the deferred tax asset to the
amount more likely than not to be realized. Goodwill, originally recorded, was
reduced by $6.8 million to the difference between the
58
<PAGE> 172
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchase price and the values assigned to identifiable assets and liabilities,
including deferred tax assets (net of valuation allowance) and deferred tax
liabilities. In fiscal 1994, the final purchase price allocation adjustment
was made (see Note 5) which had the effect of increasing deferred tax assets by
approximately $0.9 million.
As of June 30, 1995, the Company had net operating loss carryforwards
of $11.8 million, resulting from the acquisition of ONS, that expire beginning
of fiscal 1997 and ending in fiscal 2001. As mentioned above, a valuation
allowance of $3.6 million has been recognized to offset the deferred tax assets
related to those carryforwards by the tax effect of the amount of the net
operating loss carryforwards which are not likely to be utilized. If realized,
the tax benefit for those reserved items will be applied as a reduction of
income tax expense.
The major components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1995 1994
------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Reserves and accrued liabilities $ 7,179 $ 12,583
Accumulated depreciation 5,193 4,522
Net operating loss carryforwards acquired in purchase
business combination 4,602 4,966
Accrued vacation 2,170 1,375
Technology purchase 1,830 --
Tax credit carryforwards 1,669 1,634
Accounts receivable allowance 1,438 1,012
Inventory capitalization 1,169 577
Profit in inventory 1,011 --
Accrued commissions and compensation 478 492
Other 258 724
-------- --------
Total gross deferred tax assets 26,997 27,885
Valuation allowance (3,637) (3,637)
-------- --------
Deferred tax assets 23,360 24,248
-------- --------
DEFERRED TAX LIABILITIES:
Deferred revenue (5,121) (3,524)
Amortization of spare parts inventory (2,117) (2,781)
State taxes (519) (523)
Amortization of purchased software (51) (752)
Profit in inventory -- (715)
Other (945) (398)
-------- --------
Total gross deferred tax liabilities (8,753) (8,693)
-------- --------
Net deferred tax assets $ 14,607 $ 15,555
======== ========
</TABLE>
At June 30, 1995 and 1994, a net current deferred tax asset of $6.7
million and $7.5 million, respectively, has been included in the balance sheet
caption "Prepaid expenses and other," and a net long-term deferred tax asset of
$7.9 million and $8.1 million, respectively, has been included in the balance
sheet caption "Deposits and other assets."
59
<PAGE> 173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income before income taxes and cumulative effect of accounting change
includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes and cumulative effect
of accounting change:
Domestic $ 38,097 $ 14,375 $ 39,684
Foreign 7,535 2,968 1,732
-------- -------- --------
Total $ 45,632 $ 17,343 $ 41,416
======== ======== ========
</TABLE>
The provision for income taxes, attributable to income before income
taxes and cumulative effect of accounting change, consists of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Income tax provision (benefit)
Current:
Federal $ 9,588 $ 8,123 $ 6,210
State 2,429 3,313 2,148
Foreign 2,475 1,454 1,274
-------- -------- --------
Total current 14,492 12,890 9,632
======== ======== ========
Deferred:
Federal 26 (7,980) 1,773
State (18) (1,110) 329
-------- -------- --------
Total deferred 8 (9,090) 2,102
-------- -------- --------
Provision for income taxes $ 14,500 $ 3,800 $ 11,734
======== ======== ========
</TABLE>
The reconciliation of the statutory federal income tax rate to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 34.0%
State income and franchise taxes net of federal income tax effect 3.4 8.2 4.6
Research tax credits (2.5) (8.3) --
Foreign Sales Corporation (2.2) (4.7) (2.8)
Tax exempt income (1.7) (4.1) (1.0)
Net operating carryforwards -- (6.0) (5.7)
Other (0.2) 1.8 (0.8)
-------- -------- --------
Effective tax rate 31.8% 21.9% 28.3%
======== ======== ========
</TABLE>
Cash payments for income taxes were $5.7 million, $5.8 million and
$13.1 million in fiscal 1995, 1994 and 1993, respectively.
14. LEASES
Manufacturing and administrative facilities are leased under operating
leases through 2005 with certain renewal options. At June 30, 1995, future
minimum annual payments under operating leases are as follows (in thousands):
60
<PAGE> 174
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
1996 $ 11,251
1997 9,316
1998 8,375
1999 5,877
2000 3,057
Thereafter 3,704
--------
Total minimum lease payments $ 41,580
========
</TABLE>
Rent expense was $9.8 million, $12.3 million, and $11.2 million in
fiscal 1995, 1994 and 1993, respectively.
On July 6, 1995, the Company entered into a one year operating lease
for a parcel of undeveloped land adjacent to its current campus on which
additional offices may be constructed over the next three years. This lease
provides for monthly payments which vary based on the London interbank offering
rate (LIBOR) and requires the Company to maintain certain financial covenants
similar to its credit facilities. Future minimum lease payments under this
lease are not included in the above table. In addition, this lease provides
the Company with the option at the end of the lease of either acquiring the
property at its original cost or arranging for the property to be acquired. The
Company is contingently liable to the lessor under a 97% first-loss clause for
up to $9.9 million at July 6, 1996.
15. EXPORT SALES
Export revenues to nonaffiliated customers primarily in Europe and
Canada, and to a lesser extent in New Zealand, Japan, Hong Kong and China,
aggregated $119.0 million in fiscal 1995. Export revenues were $97.4 million
and $80.7 million in fiscal 1994 and 1993, respectively.
16. LITIGATION
Theis Research Inc.
In April 1992, the Company filed suit, in California, against Theis
Research, Inc. ("Theis") for declaratory judgment that the Company's products
do not infringe three patents of Theis and that those patents are invalid. In
November 1992, Theis filed a counterclaim against the Company alleging
infringement of seven of Theis' patents. Subsequently, Theis dismissed with
prejudice the claims as to all but four of the patents. During the first
quarter of fiscal 1995, the Company engaged in a jury trial regarding
infringement of the three remaining patents and the defense of patent
invalidity. In October 1994, the jury returned a verdict finding, among other
things, that Octel was correct in its claim and that the three patents at issue
were invalid. Post-trial motions are pending and, if no settlement between the
parties is reached, it is anticipated that Theis will appeal the verdict.
Gilbarco, Inc.
In January 1994, Gilbarco, Inc. ("Gilbarco") filed suit in the U.S.
District Court for the District of Colorado against the Company and one of the
Company's telephone company customers, U.S. West, alleging infringement of a
Gilbarco patent and seeking unspecified damages. The Company filed an answer
to the complaint denying any infringement of the patent and raising several
affirmative defenses, including an assertion that the patent is invalid and
unenforceable. In September 1994, the claims asserted against the Company were
transferred to the U.S. District Court for the Northern District of California
and those claims asserted against U.S. West were stayed and administratively
closed pending the outcome of the California action. Fact discovery in the
case has been completed, expert discovery is scheduled for completion in
December 1995 and a trial date has been set for March 19, 1996. The Company is
currently planning to file one or more motions before the trial which could
dispose of some or all of the claims asserted against it.
61
<PAGE> 175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company believes, based upon information currently available,
including consultations with patent counsel, that the Company is not infringing
any valid patents of Theis or Gilbarco. The Company will vigorously defend the
patent infringement claims and any related claims for compensatory damages.
Legal expenses related to ongoing patent litigation were approximately $0.9
million in fiscal 1995. While litigation is inherently uncertain, the Company
believes that the ultimate resolution of these matters will not have a material
adverse effect on the Company's financial position.
17. QUARTERLY RESULTS (unaudited)
The following table presents unaudited quarterly operating results for
each of the Company's eight fiscal quarters in the period ended June 30, 1995.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1995
Total net revenues $105,745 $116,240 $115,042 $135,565
Gross profit 63,617 68,539 65,670 81,438
Net income(1) 3,814 8,759 6,091 12,468
Net income per common
and equivalent share:
Primary and fully diluted(1) $ 0.15 $ 0.36 $ 0.25 $ 0.50
FISCAL 1994
Total net revenues $ 91,623 $100,879 $ 97,197 $116,526
Gross profit(2) 54,840 61,101 56,495 71,987
Net income (loss) 5,960 8,467 (11,604)(3) 10,720
Net income loss) per common
and equivalent share:
Primary and fully diluted $ 0.24 $ 0.34 $ (0.49)(3) $ 0.43
</TABLE>
- ---------------
(1) Includes total non-recurring charges during the first quarter for
in-process research and development and integration costs of $5.0 million
($3.4 million net of taxes) and integration costs in each of the subsequent
quarters of $0.8 million, $1.3 million and $0.6 million, respectively ($0.5
million, $0.9 million and $0.4 million net of taxes, respectively).
(2) Certain fiscal 1994 costs previously reported as selling, general and
administrative expenses have been reclassified to cost of services to
conform to the fiscal 1995 presentation.
(3) Includes total non-recurring charges for the VMX merger and integration
costs of $24.1 million ($18.8 million net of taxes).
62
<PAGE> 176
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Octel Communications Corporation
We have audited the accompanying consolidated balance sheets of Octel
Communications Corporation and subsidiaries as of June 30, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1995. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
Index at Item 8. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Octel Communications
Corporation and its subsidiaries as of June 30, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG PEAT MARWICK LLP
Palo Alto, California
July 25, 1995
63
<PAGE> 177
- ---------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996, or
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from____________to____________
Commission File Number 0-16588
OCTEL COMMUNICATIONS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0029449
---------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
1001 MURPHY RANCH ROAD
MILPITAS, CALIFORNIA 95035-7912
(Address of principal executive offices)
Registrant's telephone number, including area code, is (408) 321-2000
---------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
The number of shares outstanding of the registrant's Common Stock on
April 30, 1996 was 50,758,668. (See Note 4 to notes to condensed consolidated
financial statements.)
- --------------------------------------------------------------------------------
This document consists of 19 pages of which this is Page 1.
<PAGE> 178
OCTEL COMMUNICATIONS CORPORATION
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31,1996
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - March 31, 1996 and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements
of Operations - three and nine months ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements
of Cash Flows - nine months ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
-2-
<PAGE> 179
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCTEL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA - UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
---------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 28,933 $ 24,521
Short-term investments 22,653 28,054
Accounts receivable net of allowance for doubtful accounts
of $3,593 at March 31, 1996 and $2,938 at June 30, 1995 133,985 110,679
Accounts receivable from related parties -- 6,270
Inventories 57,317 31,151
Prepaid expenses and other 18,860 15,448
-------- -------
Total current assets 261,748 216,123
Property, plant and equipment, net of accumulated
depreciation and amortization of $81,635 at
March 31, 1996 and $76,974 at June 30, 1995 132,578 128,753
Deposits and other assets 22,958 23,400
-------- --------
Total $417,284 $368,276
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 21,722 $ 21,157
Accrued compensation and employee benefits 28,880 28,188
Income taxes payable 2,985 7,921
Accrued and other liabilities 37,206 35,465
-------- --------
Total current liabilities 90,793 92,731
Long-term obligations 325 602
Stockholders' equity:
Preferred stock, $.001 par value - authorized,
5.0 million shares; none outstanding -- --
Common stock, $.001 par value - Mar. 31, 1996 - authorized,
100.0 million shares; outstanding, 50.1 million shares,
June 30, 1995 - authorized, 50.0 million shares;
outstanding, 47.7 million shares (Note 4) 214,098 183,193
Notes receivable from employees (4,500) (1,347)
Retained earnings 117,999 96,039
Treasury stock at cost: 0.2 million shares at June 30, 1995 -- (2,347)
Other (1,431) (595)
-------- --------
Total stockholders' equity 326,166 274,943
-------- --------
Total $417,284 $368,276
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE> 180
OCTEL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES:
Systems $ 93,752 $ 74,653 $259,408 $223,096
Services and license 46,097 40,389 130,868 113,931
-------- -------- -------- --------
Total net revenues 139,849 115,042 390,276 337,027
COSTS AND EXPENSES:
Cost of systems 29,276 25,981 79,761 73,488
Cost of services 28,953 23,391 82,267 65,713
Research and development 19,208 18,313 56,521 53,438
Selling, general and administrative 43,936 38,197 125,692 112,347
Non-recurring charge for acquired
in-process research and
development - - - 4,725
Integration costs - 1,252 - 2,261
-------- -------- -------- --------
Total costs and expenses 121,373 107,134 344,241 311,972
-------- -------- -------- --------
Operating income 18,476 7,908 46,035 25,055
Interest and other income, net 670 683 1,742 2,209
-------- -------- -------- --------
Income before income taxes 19,146 8,591 47,777 27,264
Provision for income taxes 6,900 2,500 17,200 8,600
-------- -------- -------- --------
NET INCOME $12,246 $6,091 $30,577 $18,664
======== ======== ======== ========
NET INCOME PER COMMON
AND EQUIVALENT SHARE (Note 4) $0.23 $0.12 $0.58 $0.38
======== ======== ======== ========
Weighted average number of
common shares and equivalents
used in computation (Note 4) 53,514 49,458 53,012 49,648
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 181
OCTEL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,577 $18,664
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 25,040 23,164
Amortization of premium on marketable securities 43 195
Deferred income taxes 5,183 (504)
Non-recurring charge for acquired in-process
research and development -- 4,725
Changes in working capital:
Accounts receivable (17,014) (4,237)
Inventories (23,390) (4,607)
Prepaid expenses and other (5,622) (2,552)
Trade payables 552 2,126
Accrued compensation and employee benefits 504 (3,402)
Income taxes payable and accrued and other liabilities 5,104 (755)
--------- ---------
Net cash provided by operating activities 20,977 32,817
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, net 20,166 5,953
Repurchases of common stock (8,903) (25,320)
Proceeds from payment of employees' notes receivable 50 --
Proceeds from sale of financial instruments - put warrants 1,762 1,408
Repayments of long-term obligations (271) (741)
--------- ---------
Net cash provided by/(used for) financing activities 12,804 (18,700)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (24,182) (29,967)
Sales and maturities of short-term investments 29,595 65,979
Property, plant and equipment additions (26,445) (42,196)
Changes in deposits and other assets (7,977) (1,885)
Acquisition of intellectual and personal property -- (5,054)
--------- ---------
Net cash used for investing activities (29,009) (13,123)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (360) (493)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,412 501
--------- ---------
CASH AND CASH EQUIVALENTS:
Beginning of period 24,521 17,889
--------- ---------
End of period $ 28,933 $ 18,390
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 182
OCTEL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(MARCH 31, 1996 AND 1995 - UNAUDITED)
1. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting
of normal recurring adjustments) necessary to present fairly the
financial position of the Company as of March 31, 1996, the results of
operations for the three and nine months ended March 31, 1996 and 1995
and cash flows for the nine months ended March 31, 1996 and 1995.
The financial statements and notes are presented as permitted by Form
10-Q and do not contain certain information included in the Company's
annual financial statements and related notes.
Certain fiscal 1995 costs previously reported as research and
development expenses have been reclassified to selling, general and
administrative expenses to conform to the fiscal 1996 presentation.
2. Short-term investments
At March 31, 1996 and June 30, 1995, all cash equivalents and
short-term investments were classified as "available-for-sale" and
consisted of the following (in thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ACCRUED ESTIMATED
COST GAINS LOSSES INTEREST FAIR VALUE
---- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
At March 31, 1996:
U.S. Government securities $ 11,448 $ 2 $(159) $(70) $ 11,221
Municipal notes/bonds 24,481 44 (12) (250) 24,263
-------- --- ----- ----- --------
$ 35,929 $46 $(171) $(320) $ 35,484
======== === ===== ===== ========
At June 30, 1995:
U.S. Government securities $ 12,117 $ - $(180) $ (82) $ 11,855
Municipal notes/bonds 22,200 41 (41) (376) 21,824
-------- --- ----- ----- --------
$ 34,317 $41 $(221) $(458) $ 33,679
======== === ===== ===== ========
</TABLE>
These securities were classified on the balance sheet as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1995
-------------- -------------
<S> <C> <C>
Cash equivalents $13,151 $ 6,083
Short-term investments 22,653 28,054
------- -------
$35,804 $34,137
======= =======
</TABLE>
The cost and estimated fair value of available-for-sale debt
securities by contractual maturity, consisted of the following (in
thousands):
-6-
<PAGE> 183
OCTEL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(MARCH 31, 1996 AND 1995 - UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1995
---------------------- ----------------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Due in less than one year $ 23,478 $ 23,325 $ 15,573 $ 15,457
Due in one to three years 5,627 5,543 14,778 14,476
Due thereafter 6,824 6,616 3,966 3,746
-------- -------- -------- --------
$ 35,929 $ 35,484 $ 34,317 $ 33,679
======== ======== ======== ========
</TABLE>
For the three and nine months ended March 31, 1996, the Company had
$54.0 million and $149.8 million in proceeds from sales of
available-for-sale investments, respectively. Gross realized gains
and gross realized losses on those sales were not material. For the
three and nine months ended March 31, 1995, the Company had $25.7
million and $154.8 million in proceeds from sales of
available-for-sale investments, respectively. Gross realized gains
and gross realized losses on those sales were not material.
3. Inventories consist of (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
--------- --------
<S> <C> <C>
Finished goods $ 8,649 $ 5,009
Work-in-process 14,981 8,586
Raw materials 33,687 17,556
------- -------
Total $57,317 $31,151
======= =======
</TABLE>
4. Net income per common and equivalent share is computed using the
weighted average number of common and dilutive common equivalent
shares from stock options (using the treasury stock method) and shares
subscribed under the Employee Stock Purchase Plan.
On March 25, 1996, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on May 10, 1996 to stockholders of record on April 5,
1996. All references to number of shares (except authorized shares)
and per share amounts have been restated.
5. Line of credit and letters of credit
Effective June 1994, the Company obtained a $30.0 million bank
revolving line of credit which also allows the Company to obtain
stand-by letters of credit. Borrowings under the line are unsecured
and bear interest at either an adjusted London interbank offering rate
("LIBOR") plus one and one-quarter percent or the greater of the
Bank's base rate or the Federal Funds Effective Rate plus one-half of
one percent, at the Company's discretion upon borrowing the funds.
Borrowings under the line are subject to certain financial covenants
and restrictions on indebtedness, financial guarantees, business
combinations and other
-7-
<PAGE> 184
OCTEL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(MARCH 31, 1996 AND 1995 - UNAUDITED)
related items. The Company was in compliance with these covenants and
had no borrowings under this line as of March 31, 1996. The Company
expects to renew its existing line which expires in June 1996.
On March 31, 1996, the Company had $1.2 million of stand-by letters of
credit outstanding. The letters of credit are primarily to guarantee
payments for inventory purchases and facility lease payments. The
majority of the letters of credit are denominated in Japanese Yen,
Pounds Sterling and French Francs and expire on various dates through
December 25, 1999.
6. Lease commitment
On July 6, 1995, the Company entered into a one-year operating lease
for a parcel of undeveloped land adjacent to its current campus in
Milpitas, California on which additional offices may be constructed
over the next three years. This lease provides for monthly payments
which vary based on the LIBOR and requires the Company to maintain
certain financial covenants similar to its credit facilities. In
addition, this lease provides the Company with the option at the end
of the lease term of either renewing the lease, acquiring the property
at its original cost or arranging for the property to be acquired.
The Company is contingently liable to the lessor for a maximum of $9.9
million.
7. Interest and other income, net consists of the following (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest and investment income $ 512 $ 682 $1,781 $1,803
Loss on sale of short-term investments, net - - (7) (19)
Foreign exchange gains, net 262 116 87 664
Other income (expense), net (104) (115) (119) (239)
----- ----- ------ ------
Total $ 670 $ 683 $1,742 $2,209
===== ===== ====== ======
</TABLE>
8. Integration costs
In connection with the VMX merger, the Company recorded integration
costs in fiscal 1994 of $18.3 million related to costs associated with
consolidating facilities and personnel. The balance in the related
reserves of $0.4 million is included in Accrued and other liabilities
on the balance sheet at March 31, 1996. Additional expenses of
approximately $2.3 million were incurred during the first nine months
of fiscal 1995, relating primarily to literature design for name
change and other modifications to literature for the merged Company
and the consolidation of processes and computer systems of the merged
Company. Additional integration costs of approximately $0.7 million
were incurred during the first quarter of fiscal 1996 as the
consolidation of the two companies was substantially completed. These
costs were entirely offset by excess integration reserves which were
identified and reversed during the first quarter. No additional
integration costs were incurred since the first quarter of fiscal
1996.
-8-
<PAGE> 185
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NET REVENUES
The Company derives revenues from the sale of systems, performance of
services and generation of license fees from its three strategic business
units, Global Business Solutions ("GBS"), Voice Information Services ("VIS")
and Services (comprised of Octel Network Services and OcteLink). GBS consists
of system sales, services and maintenance contracts to corporations and
institutions including universities and governments. VIS consists of system
sales and maintenance contracts to service providers like telephone companies
and wireless providers.
Total net revenues for GBS for the third quarter of fiscal 1996 were
$64.3 million compared to $63.9 million in the same period last year. For the
first nine months of fiscal 1996, total net GBS revenues decreased from $200.5
million in fiscal 1995 to $193.9 million in fiscal 1996. Total net revenues
for VIS increased from $35.2 million in the third quarter of fiscal 1995 to
$57.9 million in the third quarter of fiscal 1996. For the first nine months
of the year, total net VIS revenues increased from $91.6 million in fiscal 1995
to $144.4 million in fiscal 1996. Services sector revenue, which is primarily
related to Octel Network Services ("ONS"), was $17.6 million for the third
quarter of fiscal 1996 compared to $16.0 million in the third quarter of fiscal
1995. For the first nine months of fiscal 1996, ONS revenue increased to $51.9
million from $44.9 million in the same period last year.
Systems revenues consist of software, hardware, upgrades and
expansions sold to corporations and other institutions, including telephone and
cellular companies. Service revenues, as presented below, include a range of
voice processing and network management services provided by ONS to customers
in the GBS and VIS markets as well as the residential market through a Regional
Bell Operating Company. Services and license revenues also include service
contracts, applications development, spares sales and hardware repair and
maintenance provided by the GBS and VIS business units.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ----------------------------------
MARCH 31, MARCH 31, INCREASE/ MARCH 31, MARCH 31, INCREASE/
1996 1995 (DECREASE) 1996 1995 (DECREASE)
-------- -------- ---------- -------- -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Systems $ 93.7 $74.6 26% $259.4 $223.1 16%
Services and license 46.1 40.4 14% 130.9 113.9 15%
------ ------ ------ ------
Total net revenues $139.8 $115.0 22% $390.3 $337.0 16%
====== ====== ====== ======
Percentage of Total Net Revenues
Systems 67% 65% 2% 66% 66% --
Services and license 33% 35% (2)% 34% 34% --
</TABLE>
Systems
The growth in systems revenues for the third quarter of fiscal 1996
over the third quarter of fiscal 1995 was attributable to revenue increases in
the VIS business, offset by a slight decrease in the systems portion of the GBS
business. The VIS increase was due primarily to an increase in
-9-
<PAGE> 186
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
international sales (primarily in Europe, Canada and Asia-Pacific), and, to a
lesser extent, an increase in domestic sales. For the GBS business, higher
domestic sales were more than offset by lower international sales. The GBS
domestic increase was positively affected by increases in revenues by the
Company's PC division and Rhetorex subsidiary. However, these increases were
partially offset by a decrease in new system sales volume. The lower
international GBS revenue resulted primarily from decreases in Europe and
Canada, partially offset by an increase in the Asia-Pacific market. Lower than
expected Overture 250 sales, which replaced the Aspen family, contributed to
the decrease in domestic GBS system sales. Although the Company is committed
to improving the results of GBS system sales, there can be no assurance that
such improvements will not be slower to materialize than expected, or that such
improvements will occur.
The systems revenue increase in the first nine months of fiscal 1996
is due primarily to increased VIS systems revenues attributable to the sale of
systems expansions and software upgrades, partially offset by a decrease in GBS
systems revenues. VIS revenues were higher for both domestic and international
markets for the first nine months of fiscal 1996 compared to the same period
for fiscal 1995 whereas GBS experienced decreases in each of these markets for
the same period. Revenue in future quarters could be affected by the extent
and timing of new orders from VIS providers. Such orders are typically
significant in size and, therefore, either a single order or a small number of
orders can have a significant impact on the amount and source of revenue in any
given quarter.
Services and license
Services and license revenues grew in the third quarter and first nine
months of fiscal 1996 as compared to the same periods in the prior year
primarily as a result of the Company's larger installed base of customers.
Additionally, ONS revenues increased, reflecting both subscriber growth and
increased usage. The Company is continuing to focus resources on increasing
revenue from its services and license business and anticipates that services
and license revenue as a percentage of net revenues will continue to fluctuate
based on system sales.
COST OF SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------- ----------------------------------
MARCH 31, MARCH 31, INCREASE/ MARCH 31, MARCH 31, INCREASE/
1996 1995 (DECREASE) 1996 1995 (DECREASE)
-------- -------- ---------- -------- -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Cost of systems $29.3 $26.0 13% $ 79.8 $ 73.5 9%
Cost of services 28.9 23.4 24% 82.2 65.7 25%
----- ----- ------ ------
Total cost of sale $58.2 $49.4 18% $162.0 $139.2 16%
===== ===== ====== ======
Percentage of Net Revenues
Cost of systems 31% 35% (4%) 31% 33% (2%)
Cost of services 63% 58% 5% 63% 58% 5%
Total cost of sales 42% 43% (1%) 42% 41% 1%
</TABLE>
-10-
<PAGE> 187
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Total cost of sales, as a percentage of total net revenues, decreased
for the third quarter and increased for the first nine months of fiscal 1996 as
compared to the same periods in fiscal 1995. The changes are due primarily to
a reduction in cost of systems offset by increases in cost of services.
Systems
The decreases in cost of systems as a percentage of total systems
revenues in the third quarter and first nine months of fiscal 1996 compared to
the same periods in the prior year were due primarily to product mix changes.
VIS revenues, which generally carry lower cost of sales as a percentage of
total net revenues than GBS revenues, increased as a percentage of total
systems revenues from the third quarter and first nine months of fiscal 1995
compared to the same periods of fiscal 1996.
Services and license
The increase in cost of services as a percentage of total services and
license revenues in the third quarter and first nine months of fiscal 1996
compared to the same periods of fiscal 1995 was due primarily to higher
employee-related costs associated with service contracts and hardware repair
and maintenance activities. ONS cost of services as a percentage of total
services and license revenues also increased, but to a lesser extent, from the
third quarter and first nine months of fiscal 1995 to the same periods of
fiscal 1996. ONS cost of services for the third quarter of fiscal 1996 was
affected by upfront costs incurred to build an infrastructure to serve new
customers. The change for the first nine months of fiscal 1996 compared to the
same period of fiscal 1995 was partially affected by the inclusion of revenue
for a significant one-time customer conversion to ONS services which had little
associated cost of services in fiscal 1995.
On a quarter-to-quarter basis, the channel and product mix of sales
can fluctuate significantly. Such fluctuations can have a positive or negative
impact on operating margins. These fluctuations are difficult to predict.
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------- ----------------------------------
MARCH 31, MARCH 31, INCREASE/ MARCH 31, MARCH 31, INCREASE/
1996 1995 (DECREASE) 1996 1995 (DECREASE)
-------- -------- ---------- --------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Expenses $ 19.2 $18.3 5% $56.5 $53.4 6%
Percentage of revenues 14% 16% (2%) 14% 16% (2%)
</TABLE>
The increase in absolute dollars spent on research and development for
both the third quarter and first nine months of fiscal 1996 is primarily due to
the Company's increased spending on employee-related costs for new product
development, including OcteLink. In addition, in the third quarter of fiscal
1995, the Company incurred a one-time charge of approximately $1.2 million
related to a cancelled contract for software development. There were no such
charges during fiscal
-11-
<PAGE> 188
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
1996. Because of the Company's commitment to the development and implementation
of technology and products that help maintain market share and position Octel
for industry leadership, the Company believes that continued investments in
research and development expenses are likely to increase in absolute terms and,
depending on revenue in any given period, could increase as a percentage of
total net revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ---------------------------------
MARCH 31, MARCH 31, INCREASE/ MARCH 31, MARCH 31, INCREASE/
1996 1995 (DECREASE) 1996 1995 (DECREASE)
-------- -------- ---------- -------- -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Expenses $43.9 $38.2 15% $125.7 $112.3 12%
Percentage of revenues 31% 33% (2%) 32% 33% (1%)
</TABLE>
The increase for both the third quarter and first nine months of
fiscal 1996 in selling, general and administrative expenses in absolute dollars
resulted primarily from payroll-related expenses for employees hired to support
the growth of the Company's services business and international operations.
The Company believes that additional selling, general and administrative
expenses will be required to maintain its competitive position, including
expanded international sales activities, and expects that these expenses will
increase in absolute terms and, depending on revenue in any given period, could
increase as a percentage of net revenues. Additionally, the Company is
currently involved in litigation that may cause an increase in legal expenses
in the future. (See Item 1 "Legal Proceedings" in Part II.)
NON-RECURRING CHARGE FOR ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In August 1994, the Company purchased certain intellectual property
and fixed assets from another company for $5.1 million. Of the total purchase
price, $4.7 million was allocated to in-process technology and $0.4 million was
allocated to property and equipment. The in-process technology was expensed in
the first quarter of fiscal 1995.
INTEGRATION COSTS
In connection with the VMX merger in fiscal 1994, the Company recorded
additional integration costs of $2.3 million in the first nine months of fiscal
1995. The integration costs related primarily to literature design for name
change and other modifications to literature for the merged company and the
consolidation of processes and computer systems of the merged company.
Additional integration costs of approximately $0.7 million were incurred during
the first quarter of fiscal 1996 as the consolidation of the two companies
was substantially completed. These costs were entirely offset by excess
integration reserves which were identified and reversed during the first
quarter of fiscal 1996. No additional integration costs were incurred since
the first quarter of fiscal 1996.
-12-
<PAGE> 189
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
INTEREST AND OTHER INCOME, NET
Interest and other income, net for the third quarter of fiscal 1996
decreased slightly compared to the third quarter of fiscal 1995. For the first
nine months of fiscal 1996, interest and other income, net decreased $0.5
million from the same period of fiscal 1995. Interest and investment income
for the third quarter of fiscal 1996 decreased compared to the third quarter of
fiscal 1995 primarily due to lower average cash and investment balances. This
decrease was partially offset by an increase in net foreign exchange gains
during the comparable periods. The decrease for the first nine months of
fiscal 1996 compared to the same period of fiscal 1995 was due primarily to a
decrease in net foreign exchange gains.
INCOME TAXES
The Company's effective tax rate was 36 percent in the third quarter
and first nine months of fiscal 1996, respectively, as compared to 29 percent
and 32 percent in the corresponding periods of fiscal 1995. The effective rate
was higher in fiscal 1996 due to the expiration of the U.S. federal research
and development credit and the smaller impact that certain tax benefits have on
the effective tax rate. The Company expects its effective tax rate for fiscal
1996 to decrease slightly if the proposed legislation which extends the
research and development tax credit is enacted prior to the end of the fiscal
year.
FACTORS THAT MAY EFFECT FUTURE RESULTS OF OPERATIONS
Various paragraphs of this Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Actual results could differ materially from those projected in
the forward-looking statements as a result of the factors set forth below and
elsewhere in this document.
The Company believes that in the future its results of operations
could be affected by factors such as market acceptance of new products and
upgrades, growth in the worldwide voice processing market, competition,
expansion of services by its VIS customers, the outcome of litigation and
changes in general economic conditions in any of the countries in which the
Company does business.
The Company believes that the successful introduction of new and
enhanced products and services will be essential for it to maintain or improve
its competitive position. The Company's backlog on a quarterly basis will not
generally be large enough to assure that the Company will meet its revenue
targets for a particular quarters. Furthermore, a large percentage of any
quarter's shipments have traditionally been booked in the last month of the
quarter. Consequently, quarterly revenues and operating results will depend on
the volume and timing of new orders received during a quarter, which is
difficult to forecast.
In July 1995, the Company introduced OcteLink - a global "messaging
post office" that could eventually allow the interconnection of virtually any
voice messaging system with networking
-13-
<PAGE> 190
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
capability, regardless of protocol, system size or geographic location.
Revenues from OcteLink commenced during the second quarter of fiscal 1996 but
have not been material to-date and are not expected to be material for the
fiscal year. The Company has incurred additional research and development and
selling, general and administrative expenditures to launch OcteLink and expects
to incur additional costs in future quarters. Although the Company believes
OcteLink is a viable global messaging network, there is currently no reliable
data regarding the demand for such services. Furthermore, demand for a global
messaging network may be slow to materialize, may not materialize or
competitors may successfully introduce alternative solutions to OcteLink that
achieve better market acceptance.
The Company introduced the Overture Family of message servers in July
1995. The Overture 250, which replaced the Aspen family, is a mid-level system
within the GBS product line designed for medium-sized businesses and large
branch offices. To date, sales of the Overture 250 have been slightly below
management expectations. Additionally, the Company has issued credits under
its trade-in program, which extends through the end of fiscal 1996, to replace
installed systems with the Overture 250. These trade-in costs could negatively
affect gross margins.
The Company is currently engaged in various new projects and product
development which are necessary to help maintain market share and Octel's
leadership position in the industry. Two of the more significant projects are
"unified messaging" products for voice, fax and electronic mail messaging and
the Company's next-generation client/server architecture for its Sierra
platform, Intelligent Messaging Architecture ("IMA."). Unified messaging
essentially unites voice, fax and e-mail together in a client/server
architecture that uses standard PC and LAN technology. This integration brings
together several discrete technologies into a single mailbox that provides user
access from a telephone or a PC. In May 1995, Octel announced the first
component of its unified messaging technology that will be available on
Microsoft Exchange, a LAN-based, enterprise-wide messaging architecture. Current
expectations are for revenue to commence in fiscal 1997. IMA was originally
scheduled for first-phase release during the latter part of the fourth quarter
of fiscal 1996; however, shipment of this product has been delayed until the
beginning of the third quarter of fiscal 1997 in order to allow for the release
of a more feature-rich product. The successful introduction of these and other
new products is dependent on a number of factors, some of which are beyond the
Company's control, including product acceptance in the marketplace, introduction
of competitive products by existing or new competitors, changes in technology,
price competition and other factors. Any delay in introducing new products or
failure of such products to achieve substantial market share could significantly
reduce future expected revenues and/or result in the need for additional
expenses to bring the product to market. Furthermore, there can be no assurance
that the Company will be successful in introducing new products or that such
products will generate significant revenues or profits.
During the latter half of fiscal 1995, the Company adopted a new,
capacity-based pricing approach for its largest GBS system, the XC-1000. This
pricing approach was also adopted for the Overture and Sierra systems during
fiscal 1996. This approach allows customers to purchase systems with only part
of the equipment's capacity enabled and then have additional capacity enabled
in the future upon payment of additional fees. The Company has adopted
contract accounting (based upon percentage-of-completion) to recognize revenue
in connection with capacity on demand transactions when firm commitments to
purchase additional capacity exist. Under this method, revenues are recognized
as a function of the capacity provided to the customer
-14-
<PAGE> 191
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
and costs are recognized proportionally to revenue recognized. Costs in excess
of billings are deferred in the Balance Sheet. The adoption of contract
accounting did not have a material impact on results for the third quarter or
first nine months of fiscal 1996. The Company believes that delays in expected
revenue in fiscal 1996 have occurred as a result of renegotiating contracts
with certain customers and distributors to accommodate this pricing approach.
While the Company believes that this approach will make it more competitive,
difficulties in implementing this approach, delays or adverse results due to
renegotiation of sales and distribution agreements to accommodate capacity-
based pricing or the failure to generate additional sales could have an adverse
effect on the Company's results of operations.
Due to the factors noted above and elsewhere in Management's
Discussion and Analysis of financial condition and results of operations, the
Company's future earnings and Common Stock price may be subject to significant
volatility, particularly on a quarterly basis. Past financial performance
should not be considered a reliable indicator of future performance and
investors should not use historical trends to anticipate results or trends in
future periods. Any shortfall in revenue or earnings from the levels
anticipated by securities analysts could have an immediate and significant
adverse effect on the trading price of the Company's Common Stock in any given
period. Additionally, the Company may not learn of such shortfalls until late
in a fiscal quarter, which could result in an even more immediate and adverse
effect on the trading price of the Company's Common Stock. The Company's
Common Stock and technology stocks in general have been at or near historic
highs in recent weeks and there can be no assurance that such valuations will
continue or increase. Finally, the Company participates in a highly dynamic
industry which often results in volatility of the Company's Common Stock price.
The Company has been and may in the future continue to be required to
litigate enforcement of its intellectual property or commercial rights or to
defend itself in litigation arising out of claims by third parties. Such
litigation, even if the Company is ultimately victorious, can be extremely
expensive and may have a material adverse effect on the Company's results of
operations in any particular period. Litigation may also occupy management
resources that would otherwise be available to address other aspects of the
Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and short-term investments in
the first nine months of fiscal 1996 decreased $1.0 million from June 30, 1995.
Cash flows from operations resulted in a net source of cash of $21.0 million in
the first nine months of fiscal 1996 and $32.8 million in the first nine months
of fiscal 1995. The decrease from the prior year was due primarily to
increases in inventory and accounts receivable offset by higher net income and
the timing of payment of certain liabilities. The increase in inventory
resulted primarily from the Company's preparation for fourth quarter sales,
which have historically been higher than other preceding quarters, a change in
vendors during the second quarter of fiscal 1996 and continued product
transitions. The Company is taking action to reduce inventory to a more
acceptable level over the next six months. In the event that fourth quarter
sales do not meet planned levels, inventory will be higher than target levels
which could potentially result in excess inventory.
The primary sources of cash during the first nine months of fiscal
1996 resulted from net income of $30.6 million, which included $25.0 million of
non-cash expenses for depreciation and
-15-
<PAGE> 192
OCTEL COMMUNICATIONS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
amortization, and cash provided by the sale of Common Stock, resulting from the
exercise of stock options, of $20.2 million. The primary uses of cash during
the first nine months of fiscal 1996 were investment in property, plant and
equipment of $26.4 million, increases in inventory of $23.4 million and the
repurchase of Common Stock for $7.1 million, net of put warrant proceeds of
$1.8 million. The Company expects to purchase additional equipment and make
certain leasehold improvements during the remainder of fiscal 1996. The
Company anticipates that its property, plant and equipment investments will
result in greater efficiencies and increased flexibility for the Company.
On March 25, 1996, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on May 10, 1996 to stockholders of record on April 5, 1996.
In July 1994, the Company's Board of Directors approved the repurchase
of up to 3.5 million shares (pre-split) of its Common Stock over a period of
approximately two years. As of March 31, 1996, the Company had repurchased
approximately 3.2 million shares (post-split) of its Common Stock under this
program at an average per share price of approximately $11 (post-split),
including, the impact of put warrant proceeds. The Company expects to continue
to repurchase its Common Stock under this program.
Effective July 6, 1995, the Company entered into a one-year operating
lease agreement to lease undeveloped land on which additional offices may be
constructed adjacent to the existing corporate offices over the next three
years under a similar leasing arrangement. Under the terms of the operating
lease, the Company is contingently liable for up to $9.9 million. Cash
payments under the operating lease totaled $0.5 million during the first nine
months of fiscal 1996.
In connection with the VMX merger, the Company recorded $18.3 million
of integration reserves in fiscal 1994. Expenditures charged against the
reserve totaled approximately $4.1 million for the first six months of fiscal
1996 as the consolidation of the Company's manufacturing facilities was
completed. The balance of the integration reserves was $0.4 million at March
31, 1996.
The Company anticipates that cash flows from operations, its existing
cash and cash equivalents balance, its short-term investment balance and its
existing $30 million bank revolving line of credit (which expires in June 1996
but is expected to be renewed), will be adequate to meet the Company's cash
requirements through the end of fiscal 1997.
-16-
<PAGE> 193
OCTEL COMMUNICATIONS CORPORATION
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Theis Research, Inc.
In April 1992, the Company filed suit, in California, against Theis
Research, Inc. ("Theis") for declaratory judgment that the Company's products do
not infringe three patents of Theis and that those patents are invalid. In
November 1992, Theis filed a counterclaim against the Company alleging
infringement of seven of Theis' patents. Subsequently, Theis dismissed with
prejudice the claims as to all but four of the patents, and its claims as to one
of the remaining four patents were dismissed on summary judgment. During the
first quarter of fiscal 1995, the Company engaged in a jury trial regarding
infringement of the three remaining patents and the defense of patent
invalidity. In October 1994, the jury returned a verdict finding, among other
things, that Octel was correct in its claim that the three patents at issue were
invalid. The Court entered judgment on the jury verdict in January 1996,
declaring Octel a "prevailing party" entitled to recover its substantial costs
in connection with the lawsuit. It is anticipated that Theis will appeal the
verdict.
Gilbarco Inc.
In January 1994, Gilbarco Inc. ("Gilbarco") filed suit in the U.S.
District Court for the District of Colorado against the Company and one of the
Company's telephone company customers, U.S. West, alleging infringement of a
Gilbarco patent and seeking unspecified damages. The Company filed an answer
to the complaint denying any infringement of the patent and raising several
affirmative defenses, including an assertion that the patent is invalid and
unenforceable. In September 1994, the claims asserted against the Company were
transferred to the U.S. District Court for the Northern District of California
and those claims asserted against U.S. West were stayed and administratively
closed pending the outcome of the California action. Both parties filed
motions for summary judgment on a variety of issues, including a motion by
Octel for summary judgment declaring the Gilbarco patent unenforceable due to
inequitable conduct during the procurement of the patent. On February 12,
1996, the Court granted Octel's motion for summary judgment (and denied
Gilbarco's counter-motion) and declared the patent unenforceable as a matter of
law. The Court subsequently entered in favor of Octel and against Gilbarco in
the underlying action and awarded Octel its costs in connection with the
lawsuit. Gilbarco's subsequent challenge of the Court's ruling was denied and
it is now expected that Gilbarco will appeal the final judgment invalidating
their patent.
The Company believes, based on information currently available, that
the Company is not infringing any valid patents of Theis or Gilbarco. The
Company will vigorously defend the patent infringement claims and any related
claims for compensatory damages. While litigation is inherently uncertain, the
Company believes that the ultimate resolution of these matters will not have a
material adverse effect on the Company's financial position.
-17-
<PAGE> 194
OCTEL COMMUNICATIONS CORPORATION
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit No. Description
----------- -----------
<S> <C>
3.0 Certificate of Incorporation of the Company
11.0 Statement re computation of earnings per share
27.0 Financial Data Schedule
</TABLE>
(b) Report on Form 8-K
No report on Form 8-K was filed by the Company during its fiscal
quarter ended March 31, 1996.
-18-
<PAGE> 195
OCTEL COMMUNICATIONS CORPORATION
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.
OCTEL COMMUNICATIONS CORPORATION
Dated: May 15, 1996
/s/ JEAN-YVES DEXMIER
----------------------------------------
Jean-Yves Dexmier, Senior Vice President
and Chief Financial Officer
-19-
<PAGE> 196
DATE (MM/DD/YY)
ACORD CERTIFICATE OF LIABILITY INSURANCE PAGE 1 OF 1 17-JUN-1996
PRODUCER 10342 THIS CERTIFICATE IS ISSUED AS A MATTER
Willis Corroon Corporation of San Jose OF INFORMATION ONLY AND CONFERS NO
1735 Technology Dr. #500 RIGHTS UPON THE CERTIFICATE HOLDER.
San Jose CA 95110 THIS CERTIFICATE DOES NOT AMEND, EXTEND
(408) 452-7555 OR ALTER THE COVERAGE AFFORDED BY THE
POLICIES BELOW.
---------------------------------------
COMPANIES AFFORDED COVERAGE
---------------------------------------
Janet Corrigan Company American Guarantee & Liability
A Insurance Company
- --------------------------------------------------------------------------------
INSURED Company Zurich Insurance Company
Octel Communications Corporation B
Attn: Risk Mgmt. Dept. ---------------------------------------
1001 Murphy Ranch Road Company Lloyds Underwriters at London
Mail Stop 0802 C Sponsoring
Milpitas CA 95035 ---------------------------------------
Company Industrial Indemnity Company
D
- --------------------------------------------------------------------------------
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT
TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED
BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES. LIMIT SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
- --------------------------------------------------------------------------------
CO POLICY EFFECTIVE POLICY EXPIRATION
LTR TYPE OF INSURANCE POLICY NUMBER DATE (MM/DD/YY) DATE (MM/DD/YY)
- --------------------------------------------------------------------------------
A [X] COMMERCIAL GENERAL LIABILITY
[ ] CLAIMS MADE [X] OCCUR
GL0825603001 01-MAR-1996 01-MAR-1997
[ ] OWNER'S & CONTRACTOR'S PROT
- --------------------------------------------------------------------------------
LIMITS
- ----------------
GENERAL AGGREGATE $2,000,000
PRODUCTS-COMP/OP AGG $2,000,000
PERSONAL & ADV INJURY $1,000,000
EACH OCCURRENCE $1,000,000
FIRE DAMAGE (Any one fire) $1,000,000
MED EXP (Any one person) $ 10,000
- --------------------------------------------------------------------------------
B AUTOMOBILE LIABILITY BAP820968801 01-MAR-1996 01-MAR-1997
[X] ANY AUTO
[ ] ALL OWNED AUTOS
[ ] SCHEDULED AUTOS
[X] HIRED AUTOS
[X] NON-OWNED AUTOS
- --------------------------------------------------------------------------------
LIMITS
- ----------------
COMBINED SINGLE LIMIT $1,000,000
BODILY INJURY (Per person)
BODILY INJURY (Per accident)
PROPERTY DAMAGE
- --------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY EA ACCIDENT $
[ ] ANY AUTO OTHER THAN AUTO ONLY:
[ ] EACH ACCIDENT $
AGGREGATE $
- --------------------------------------------------------------------------------
B EXCESS LIABILITY AE03654307 01-MAR-1996 01-MAR-1997
[ ] UMBRELLA FORM
[X] OTHER THAN UMBRELLA FORM
- --------------------------------------------------------------------------------
LIMITS
- ----------------
EACH OCCURRENCE $25,000,000
AGGREGATE $25,000,000
- --------------------------------------------------------------------------------
D WORKERS COMPENSATION AND
EMPLOYERS' LIABILITY CJ9614837 01-JUL-1996 01-JUL-1997
THE PROPRIETOR/PARTNERS/ [ ] INCL
EXECUTIVE OFFICERS ARE: [ ] EXCL
- --------------------------------------------------------------------------------
WC STATUTORY LIMITS OTHER
- --------------------------------------
EL EACH ACCIDENT $1,000,000
EL DISEASE-POLICY LIMIT $1,000,000
EL DISEASE-EA EMPLOYEE $1,000,000
- --------------------------------------------------------------------------------
C OTHER
WORLDWIDE TRANSPORTATION MC1040 01-MAY-1996 01-MAY-1997
POLICY INCLUDING STOCK
THROUGH PUT
- --------------------------------------------------------------------------------
$3,000,000 In Transit Worldwide - STOCK THROUGH PUT:
$27,000,000 - @455 E. Trimble, SJ - $3,000,000 @ Bekins Warehouse
$5,000,000 - @ Unnamed location
- --------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
Re: Evidence of insurance coverages
- --------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION EXCEPT 10 DAYS NONPAYMENT
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE
Bank of Boston CANCELLED BEFORE THE EXPIRATION DATE THEREOF,
435 Tasso Street THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30
Palo Alto CA 94301 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER
NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH
NOTICE SHALL DISPOSE NO OBLIGATION OR LIABILITY
OF ANY KIND UPON THE COMPANY, ITS AGENTS OR
REPRESENTATIVES.
- --------------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ CLAIRE HOWARD
-------------------------------
- --------------------------------------------------------------------------------
<PAGE> 197
June 30, 1996
Octel Communications Corporation
1001 Murphy Ranch Road
Milpitas, California 95035-7912
Attention: Jean-Yves Dexmier
RE: AGENCY FEE
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of June 30, 1996 (the "Credit
Agreement") by and among Octel Communications corporation, a Delaware
corporation ("Borrower"), the Banks party thereto and The First National Bank
of Boston as agent ("Agent") on behalf and for the benefit of the Banks,
pursuant to which the Banks have agreed, according to their respective
Commitments, to extend to the Borrower a $30,000,000 revolving line of credit
according to the terms and subject to the conditions set forth in the Credit
Agreement. Capitalized terms not defined herein shall have the meanings given
them in the Credit Agreement.
Pursuant to Section 2.4(b) Borrower has agreed to pay to Agent for Agent's own
account an agency fee in the amount and at the times set forth herein.
Borrower hereby agrees to pay to Agent an agency fee as follows:
(a) On June 30, 1996, $15,000,
(b) On June 30, 1997, $12,500,
(c) On June 30, 1998, $12,500;
provided, however, that in the event a Loan is made during the four fiscal
quarters following any of the foregoing dates, the dollar figure corresponding
to such date and each dollar figure corresponding to a date thereafter shall be
increased to $20,000 and the increased amount applicable to such prior date
shall be paid on the date that such Loan is made.
<PAGE> 198
Octel Communications Corporation
June 30, 1996
Page 2
Please confirm the Borrower obligations set forth above by causing an
authorized representative to execute this letter agreement on the applicable
signature lines below.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ MAIA D. HEYMANN
--------------------------------
Printed Name: Maia D. Heymann
----------------------
Title: Vice President
-----------------------------
ACCEPTED AND AGREED TO:
OCTEL COMMUNICATIONS CORPORATION
By:
--------------------------------
Printed Name:
---------------------
Title:
-----------------------------
<PAGE> 199
Octel Communications Corporation
June 30, 1996
Page 2
Please confirm the Borrower obligations set forth above by causing an
authorized representative to execute this letter agreement on the applicable
signature lines below.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
By:
--------------------------------
Printed Name:
---------------------
Title:
-----------------------------
ACCEPTED AND AGREED To:
OCTEL COMMUNICATIONS CORPORATION
By: /s/ JAMES F. ENGLE
--------------------------------
Printed Name: James F. Engle
----------------------
Title: V.P. Treasurer
------------------------------
<PAGE> 200
$30,000,000 REVOLVING CREDIT FACILITY
PROVIDED BY
THE FIRST NATIONAL BANK OF BOSTON
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
TO
OCTEL COMMUNICATIONS CORPORATION ("BORROWER")
CLOSING DOCUMENT CHECK LIST
CLOSING DATE: JUNE 28, 1996
ITEM
1. Credit Agreement with Schedules and Exhibits.
2. Promissory Note.
3. Certificate of the Secretary of Borrower.
4. Good-standing certificate of the Secretary of State of Delaware.
5. Certificate of Status of Foreign Corporation of the California
Secretary of State.
6. Certificate of the California Franchise Tax Board.
7. Opinion of Wilson, Sonsini, Goodrich & Rosati addressed to Agent.
8. Disclosure Letter.
9. Borrower's current investment policy, certified by Borrower's Chief
Financial Officer.
10. Financial Statements
A. Audited financial statements of Borrower for year ended
6/30/95.
B. Form 10-Q of Borrower for quarter period ending 3/31/96.
11. Certificate of Insurance.
12. Agent's Fee Letter
1.
<PAGE> 1
Exhibit 10.18A
FIRST AMENDMENT TO LEASE OF THE LAND
THIS FIRST AMENDMENT TO LEASE OF THE LAND ("First Amendment") is made
and entered into as of June_____, 1996, by and between SUMITOMO BANK LEASING
AND FINANCE, INC., a Delaware corporation ("Landlord") , and OCTEL
COMMUNICATIONS CORPORATION, a Delaware corporation ("Tenant")
THIS FIRST AMENDMENT IS ENTERED INTO upon the basis of the following
facts, understandings and intentions.
A. Landlord and Tenant entered into that certain Lease of the
Land dated as of July 6, 1995 ("Lease") , pursuant to which Landlord leased to
Tenant certain Land located in Milpitas, California, as shown on Exhibit A
attached hereto and incorporated herein by this reference ("Premises"). Any
capitalized terms used but not defined in this First Amendment which are
defined in the Lease shall have the meaning ascribed in the Lease.
B. Landlord and Tenant may enter into a second lease of the land
pursuant to which Landlord will lease to Tenant 7.5 acres of land located in
Milpitas, California which is adjacent to the Premises ("Adjacent Property
Lease").
C. Landlord and Tenant have agreed to amend the Lease as set
forth herein to extend the term of the Lease and cross default the Lease with
the Adjacent Property Lease.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
1. Extension of Term. The Expiration Date of the Lease as set
forth in Section 1.6 of the Lease is hereby extended from July 5, 1996 to June
20, 1997.
2. Cross Default. Tenant hereby agrees that if Landlord and
Tenant enter into the Adjacent Property Lease during the Term of the Lease, the
occurrence of an event which would give Landlord the right under the terms of
the Adjacent Property Lease and a deed of trust executed by Tenant, as trustor,
to Landlord, as beneficiary, in connection With the Adjacent Property Lease
("Adjacent Property Deed of Trust"), to exercise the remedies set forth in
Section 1951.2 or 1951.4 of the California Civil Code, whichever is applicable,
cause a receiver to be appointed to take possession and control of the premises
described in the Adjacent Property Lease, terminate the Adjacent Property
Lease, or exercise any other rights and remedies of Landlord that arise as a
result of a default by Tenant under the Adjacent Property Lease or the Adjacent
Property Deed of Trust, shall constitute an Event of Default under the Lease
<PAGE> 2
entitling Landlord to exercise Landlord's rights and remedies under the Lease
and/or the SBLF Deed of Trust.
3. LANDLORD'S REMEDIES. The reference to "Section 16.2" in the
fourth line of Section 16.3(b) of the Lease is hereby deleted and replaced with
"Section 16.3(a)".
4. COUNTERPARTS. This First Amendment may be executed in any
number of counterparts, each of which shall he deemed to be an original and all
of which together shall comprise but a single instrument.
5. REPRESENTATIONS AND WARRANTIES. Tenant represents and warrants
(1) that no Event of Default exists under the Lease as of the date hereof; and
(2) Tenant has the full right and authority to enter into this First Amendment
and the persons signing this First Amendment have full power and authority to
bind Tenant.
6. EXISTING LEASE. Except to the extent specifically amended
hereby, all terms and conditions of the Lease remain in full force and effect.
(Signatures begin on next page)
2
<PAGE> 3
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment as of the date and year first written above.
"TENANT"
OCTEL COMMUNICATION,
DELAWARE CORPORATION
By: /s/ MICHAEL WEST
-----------------------------
Name: Michael West
Its: President and COO
(Signatures continue on next page)
3
<PAGE> 4
"LANDLORD"
SUMITOMO BANK, LEASING-AND FINANCE,
INC., a Delaware corporation
By:
---------------------------------
Name:----------------------------
Its:-----------------------------
4
<PAGE> 5
Exhibit A
All that certain Real Property in the City of Milpitas, County of Santa Clara,
State of California, being all of Parcel 1 as shown on that certain Parcel Map
filed in Book 535 of Maps at Pages 3 and 4 and a portion of Parcel 1 as shown
on that certain Parcel Map filed in Book 584 of Maps at Pages 13 and 14,
described as follows:
Beginning at a point on the Southwesterly right-of-way line of Murphy Ranch
Road at the Easterly corner of Parcel 1, as shown on that certain Parcel Map
filed in Book 535 of Maps at Pages 3 and 4;
Thence along said right-of-way line the following four courses:
North 33 degrees 17'44" West 87.74 feet to the beginning of a curve to the left;
Along said curve having a radius of 2370.00 feet through a central angle of
70 degrees 8'55" an arc distance of 295.70 feet;
North 40 degrees 26'39" West 708.15 feet to the beginning of curve to the right;
Along said curve having a radius of 830.00 feet through a central angel of
0 degrees 41'54" an arc distance of 10.12 feet;
Thence South 52 degrees 22'26" West 678.21 feet to the Southwesterly line of
Parcel 1 as shown on that certain Parcel Map filed in Book 584 of Maps at Pages
13 and 14;
Thence along said Southwesterly line of said Parcel 1 and the Southwesterly and
Southeasterly line of Parcel 1 shown on that certain Parcel Map filed in Book
535 of Maps at Pages 3 and 4 the following five courses:
South 41 degrees 07'49" East 286.15 feet to the beginning of a curve to the
left;
Along said curve having a radius of 560.00 feet through a central angle of 33
degrees 46'49" an arc distance of 330.16 feet to a point of reverse curvature;
Along a curve to the right having a radius of 500.00 feet through a central
angel of 33 degrees 50'40" an arc distance of 295.35 feet to a point of compound
curvature;
Along a curve to the right having a radius of 1000.00 feet through a central
angle of 7 degrees 00'59" an arc distance of 122.46 feet and North 66 degrees
02'22" East 484.64 feet to the Point of Beginning.
5
<PAGE> 6
Together with those rights to plant, cultivate, irrigate, harvest and retain
crops and to construct, maintain, use, repair, replace and re-new fences,
roads, streets, earth fills, sewers, water pipes, gas pipes, electric power
lines, telephone lines and telegraph lines as disclosed by the Deed to the City
and County of San Francisco, A Municipal Corporation, recorded March 19, 1951
in Book 2174 at Page 389, Official Records of Santa Clara County, excluding
therefrom any portion thereof lying Northeasterly of the Southwesterly line of
Magnolia Drive as shown on the hereinabove Parcel Maps.
6
<PAGE> 7
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Sumitomo Bank Leasing and Finance, Inc.
c/o Graham & James LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
Attention: Bruce W. Hyman, Esq.
FIRST AMENDMENT TO MEMORANDUM OF LEASE OF THE LAND
THIS FIRST AMENDMENT TO MEMORANDUM OF LEASE OF THE LAND ("Memorandum
of Lease") is executed as of June _______, 1996, by and between SUMITOMO BANK
LEASING AND FINANCE, INC., a Delaware corporation ("Landlord"), and OCTEL
COMMUNICATIONS CORPORATION, a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have executed that certain lease
("Lease") dated as of July 6, 1995, as amended by the First Amendment to Lease
of the Land executed concurrently herewith (the "Amendment to Lease") (the
"Lease" and "Amendment to Lease" are hereinafter collectively referred to as
the "Lease"), covering a fee interest in certain land located on the real
property located in the City of Milpitas, Santa Clara County, California as
more particularly described in Schedule 1 attached hereto and incorporated
herein by this reference ("Land") and the improvements which may come to be
located on said Land (the Land and improvements are referred to herein as the
"Premises"); and
WHEREAS, Landlord and Tenant recorded a Memorandum of Lease of the
Land on July 7, 1995, as document no. 12939853 in the Official Records of Santa
Clara County, California:
NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant
hereby declare as follows:
1. Demise. Landlord hereby leases the Premises to Tenant and
Tenant hereby leases the Premises from Landlord, subject to the terms,
covenants and conditions contained in the Lease.
2. Expiration Date. Pursuant to the Lease the Expiration Date as
been extended to June 20, 1997.
3. Option to Purchase. Tenant has an option to purchase the
Premises, as more particularly described in the Lease, at any time during the
Term (including any extension thereof).
1.
<PAGE> 8
4. Restrictions on Encumbrances. Landlord is prohibited from recording
against the Premises liens (including, without limitation, deeds of trust),
encumbrances, and other matters that would constitute exceptions to title, and
from amending or modifying any of the foregoing that may exist now or during
the Term, as more particularly described in the Lease.
5. Restrictions on Transfers by Landlord. Subject to certain
exceptions, Landlord may transfer its interest in the Premises to a third party
subject to the restrictions which are set forth with more particularity in the
Lease.
6. Counterparts. This Memorandum of Lease may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall comprise but a single instrument.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum
of Lease as of the date and year first written above.
TENANT: OCTEL COMMUNICATIONS CORPORATION
a Delaware Corporation
By /s/ Michael West
------------------------------
Name Michael West
Its President and COO
Witnessed by:
/s/ Julie Kay Wright
- ----------------------------
(Signatures continued on next page)
(All signatures must be acknowledged)
<PAGE> 9
LANDLORD: SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware
corporation
By
------------------------------
Name
----------------------------
Its
-----------------------------
(All signatures must be acknowledged)
3.
<PAGE> 10
Schedule 1
All that certain Real Property in the City of Milpitas, County of Santa Clara,
State of California, being all of Parcel 1 as shown on that certain Parcel Map
filed in Book 535 of Maps at Pages 3 and 4 and a portion of Parcel 1 as shown
on that certain Parcel Map filed in Book 584 of Maps at Pages 13 and 14,
described as follows:
Beginning at a point on the Southwesterly right-of-way line of Murphy Ranch
Road at the Easterly corner of Parcel 1, as shown on that certain Parcel Map
filed in Book 535 of Maps at Pages 3 and 4;
Thence along said right-of-way line the following four courses:
North 33 degrees 17'44" West 87.74 feet to the beginning of a curve to the left;
Along said curve having a radius of 2370.00 feet through a central angle of
7 degrees 08'55" an arc ID distance of 295.70 feet;
North 40 degrees 26'39" West 708.15 feet to the beginning of curve to the right;
Along said curve having a radius of 830.00 feet through a central angle of
0 degrees 41'54" an arc distance of 10.12 feet;
Thence South 52 degrees 22'26" West 678.21 feet to the Southwesterly line of
Parcel 1 as shown on that certain Parcel Map filed in Book 584 of Maps at Pages
13 and 14;
Thence along said Southwesterly line of said Parcel 1 and the Southwesterly and
Southeasterly line of Parcel 1 shown on that certain Parcel Map filed in Book
535 of Maps at Pages 3 and 4 the following five courses:
South 41 degrees 07'49" East 286.15 feet to the beginning of a curve to the
left;
Along said curve having a radius of 560.00 feet through a central angle of 33
degrees 46'49" an arc distance of 330.16 feet to a point of reverse curvature;
Along a curve to the right having a radius of 500.00 feet through a central
angel of 33 degrees 50'40" an arc distance of 295.35 feet to a point of compound
curvature;
Along a curve to the right having a radius of 1000.00 feet through a central
angle of 7 degrees 00'59" an arc distance of 122.46 feet and North 66 degrees
02'22" East 484.64 feet to the Point of Beginning.
Together with those rights to plant, cultivate, irrigate, harvest and retain
crops and to construct maintain, use, repair, replace and re-new fences,
roads, streets, earth fills, sewers, water pipes, gas pipes, electric power
lines, telephone lines and telegraph lines as disclosed by the Deed to the City
and County of San Francisco, A Municipal Corporation, recorded March 19, 1951
in Book 2174 at Page 389, Official Records of Santa Clara County, excluding
therefrom any portion thereof lying Northeasterly of the Southwesterly line of
Magnolia Drive as shown on the hereinabove Parcel Maps.
4.
<PAGE> 11
SUBSCRIBING-WITNESS CERTIFICATE ("WITNESS JURAT
State of CALIFORNIA
------------------------------
County of SANTA CLARA
------------------------------
On this the 2 day of July 19 96, before me,
the undersigned Notary Public, personally appeared JULIA KAY WRIGHT NAME OF
SUBSCRIBING WITNESS
[ ] personally known to me - OR - ______________________________ who is
NAME OF PERSON (CREDIBLE WITNESS) WHO
IDENTIFIES SUBSCRIBING WITNESS
personally known to me, to be the person whose name is subscribed to the within
instrument as a witness thereto, who, being by me duly sworn, deposes and says
that ___________ (he/she) was present and saw MICHAEL WEST
NAME OF ABSENT PRINCIPAL SIGNER
the same person described in and whose name is subscribed to the within and
annexed instrument as a party thereto, execute the same, and that said affiant
subscribed ________ (his/her) name to the within instrument as a witness at the
request of
MICHAEL WEST
- ---------------------------------
NAME OF PRINCIPAL SIGNER (AGAIN)
- ---------------------------------
SIGNATURE OF NOTARY
OPTIONAL
Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.
CAPACITY CLAIMED BY SIGNER (PRINCIPAL) DESCRIPTION OF ATTACHED DOCUMENT
[ ] INDIVIDUAL First Amendment to Memorandum
[X] CORPORATE OFFICER of Lease of the Land
PRESIDENT AND CEO ---------------------------------
- --------------------------------- TITLE OR TYPE OF DOCUMENT
TITLE(S)
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL 4
---------------------------------
[ ] ATTORNEY-IN-FACT NUMBER OF PAGES
[ ] TRUSTEE(S)
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER:--------------------------------- June 1996
--------------------------------------- -----------------------------
--------------------------------------- DATE OF DOCUMENT
ABSENT SIGNER (PRINCIPAL) IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
OCTEL COMMUNICATIONS CORP
- --------------------------------------------
- -------------------------------------------- ---------------------------------
SIGNER(S) OTHER THAN NAMED ABOVE
C 1993 NATIONAL NOTARY ASSOCIATION . 8236 Remmet Ave., P.O. Box 7184 - Canoga
Park, CA 91309-71 84,
<PAGE> 1
Exhibit 11.0
OCTEL COMMUNICATIONS CORPORATION
AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
PRIMARY NET INCOME PER SHARE
Net income $ 50,784 $ 31,132 $13,543
======== ======== =======
Weighted average shares outstanding 49,694 47,406 47,218
Dilutive effect of outstanding stock options (as determined by
the application of the treasury stock method) 4,224 2,042 2,974
Other (359) - -
-------- -------- --------
53,559 49,448 50,192
======== ======== ========
Primary diluted net income per common and
equivalent share $ 0.95 $ 0.63 $ 0.27
======== ======== ========
FULLY DILUTED NET INCOME PER SHARE
Net income $ 50,784 $ 31,132 $ 13,543
======== ======== ========
Weighted average shares outstanding 49,694 47,406 47,218
Dilutive effect of outstanding stock options (as determined by
the application of the treasury stock method) 4,439 4,050 2,974
Other (346) - -
-------- -------- --------
53,787 51,456 50,192
======== ======== ========
Fully diluted net income per common and
equivalent share $ 0.94 $ 0.61 $ 0.27
======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 21.0
OCTEL COMMUNICATIONS CORPORATION
SUBSIDIARIES OF THE COMPANY
<TABLE>
<S> <C>
1. OCTEL COMMUNICATIONS LIMITED 9. OCTEL COMMUNICATIONS K.K.
ADDRESS: Octel House, Ancells Road ADDRESS: Kamiyacho Mori Building
Fleet, Hampshire GU13 8UN 4-3-20 Toranoman 4-Chrome
United Kingdom Minato-ku 105, Tokyo
Japan
2. OCTEL COMMUNICATIONS SERVICES LIMITED 10. OCTEL COMMUNICATIONS PACIFIC, LTD.
ADDRESS: Octel House, Ancells Road ADDRESS: Suite 3901,39/F, Central Plaza
Fleet, Hampshire GU13 8UN 18 Harbour Road, Wanchai
United Kingdom Hong Kong
3. OCTEL COMMUNICATIONS S.A. 11. OCTEL COMMUNICATIONS ASIA PTE, LTD.
55/63 Rue Anatole France ADDRESS: 22 Raffles Place #26-05
92532 Levallois-Perret Cedex Clifford Centre
France Singapore 048621
4. OCTEL COMMUNICATIONS GmbH 12. COMPASS TECHNOLOGY, INC. dba OCTEL
ADDRESS: Garmischer Strasse 10 PC PRODUCTS DIVISION
D-80339 Munich ADDRESS: 1819 Main Street
Germany Sarasota, Florida 34236
5. OCTEL COMMUNICATIONS CANADA INC. 13. RHETOREX, INCORPORATED
ADDRESS: 4110 Yonge Street, Suite 506 ADDRESS: 200 East Hacienda Ave.
Willowdale, Ontario M2P 2B7 Campbell, California 95008
Canada
6. OCTEL COMMUNICATIONS (ISRAEL) LTD. 14. RHETOREX EUROPE LIMITED
ADDRESS: 1-C Yoni Netanyahu ADDRESS: Suite M1, Ground Floor
Or-Yehuda 60376 North Wing, Centennial Court
Israel Easthampstead Road, Bracknell
Berkshire RG12 1JA
United Kingdom
7. OCTEL COMMUNICATIONS INTERNATIONAL 15. VMX CREDIT CORPORATION
CORPORATION ADDRESS: 1001 Murphy Ranch Road
ADDRESS: 5144 Dronningens Gade, Suite 300 Milpitas, California 95035-7912
Charlotte Amalie, St. Thomas
U.S. Virgin Islands 00802
8. OCTEL COMMUNICATIONS LATIN AMERICA 16. VMX U.K. LTD.
S.A. de C.V. ADDRESS: Octel House, Ancells Road
ADDRESS: Calle Orion No. 166 Fleet, Hampshire GU13 8UN
Col. Prado Churubusco United Kingdom
Mexico 04230 D. F.
Mexico
</TABLE>
<PAGE> 1
Exhibit 23.0
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Octel Communications Corporation:
We consent to incorporation by reference in the registration statement Nos.
33-22121, 33-33568 and 33-38888 on Form S-3 and Nos. 33-26343, 33- 49046 and
33-56510 on Form S-8 of Octel Communications Corporation and subsidiaries of
our report dated July 25, 1996, relating to the consolidated balance sheets of
Octel Communications Corporation and subsidiaries as of June 30, 1996, and
1995, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended June 30,
1996, and the related financial schedule, which report appears in the June 30,
1996 annual report on Form 10-K of Octel Communications Corporation.
/s/ KPMG PEAT MARWICK LLP
Palo Alto, California
September 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
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