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
For the fiscal year ended DECEMBER 31, 1998
|_| 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 0-15761
GLENAYRE TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 98-0085742
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5935 CARNEGIE BOULEVARD, CHARLOTTE, NORTH CAROLINA 28209
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(Address of principal executive offices) Zip Code
(704) 553-0038
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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COMMON STOCK, $.02 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. |X|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 5, 1999 was approximately $220 million. The number of shares
of the Registrant's common stock outstanding on March 5, 1999 was 62,125,452.
DOCUMENTS INCORPORATED BY REFERENCE:
Document Location in Form 10-K
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Proxy Statement for 1999 Annual Meeting of Stockholders Part III
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ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Glenayre Technologies, Inc. ("Glenayre" or the "Company") was incorporated
pursuant to the laws of the State of Delaware on September 21, 1987, and is the
successor to a corporation organized on April 7, 1945. The principal executive
offices of the Company are located at 5935 Carnegie Boulevard, Charlotte, NC
28209. The Company's telephone number is (704) 553-0038. The term "Glenayre" or
the "Company" as used hereinafter means Glenayre Technologies, Inc. or Glenayre
Technologies, Inc. and its subsidiaries.
Glenayre is a worldwide provider of telecommunications equipment and related
software used in the wireless personal communications service markets including
wireless messaging, voice processing, mobile data systems and point-to-point
wireless interconnection products. The Company designs, manufactures, markets
and services its products principally under the Glenayre name. These products
include switches, transmitters, receivers, controllers, software, paging devices
and other equipment used in personal communications systems (including paging,
voice messaging, cellular, and message management and mobile data systems),
microwave communication systems and radio telephone systems.
In December 1998, Glenayre sold its network management business which it had
been operating since the acquisition of CNET, Inc. ("CNET") in January 1997.
Under the terms of the sale agreement, the Company will receive proceeds from
the sale only if certain future revenue milestones are met by the acquirer.
These contingent amounts, which cannot exceed $1.0 million, will be recorded by
the Company when they are received. At the time of sale, the network management
business had net assets of approximately $5.2 million. A loss on disposal of
$7.9 million was reported in income from operations before income taxes in
connection with the sale for the year ended December 31, 1998. The loss on sale
consists of the write-offs of assets, facility closing costs, severance payments
to employees, certain transition costs associated with training employees of the
buyer and other charges related to the sale.
In October 1997, the Company acquired Open Development Corporation ("ODC"),
located in Norwood, Massachusetts. ODC is a developer of database management
platforms providing applications for calling cards and prepaid wireless markets.
In the fourth quarter 1998, the Company announced plans to close the ODC Norwood
facility and to integrate operating functions at other Glenayre facilities by
March 1999. This decision was made in response to significantly lower than
anticipated 1998 ODC product revenues than were projected at the date of
acquisition. Manufacturing of the ODC products will be performed by Glenayre's
Vancouver facility. Research and development functions along with administrative
functions will be relocated to the Company's Atlanta facility.
In September 1997, the Company announced plans to consider divesting Western
Multiplex Corporation ("MUX"), which constitutes the Company's Western Multiplex
Group, allowing Glenayre to focus on its core markets of paging and enhanced
messaging. MUX markets products for use in point-to-point microwave
communication systems and was acquired by Glenayre in April 1995. As of March
1999, an acceptable purchase agreement has not been negotiated.
However, the Company expects to pursue divesting this business over time.
NARRATIVE DESCRIPTION OF BUSINESS
The Company's operating activities are currently focused in three marketing
areas: paging products, mobile and fixed network products and microwave
communication.
PAGING PRODUCTS
Glenayre's Paging Products operations accounted for approximately 75%, 77% and
87% of net sales for 1998, 1997, and 1996, respectively and are sold into the
one-way and two-way paging marketplace. Paging products include switches,
transmitters, receivers, controllers and related software provided by the
Company's Wireless Messaging Group ("WMG") and two-way paging devices since the
acquisition of Wireless Access, Inc. ("WAI") in November 1997. Additionally, the
Company's major service and support groups are included in WMG. Glenayre
believes it has the leading market share in the United States and that it is a
leading participant internationally in the paging switch, controller and
transmitter market.
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Paging is a method of wireless telecommunication which uses an assigned radio
frequency to contact a paging subscriber anywhere within a service area. A
paging system is generally operated by a service provider which incurs the cost
of building and operating the system. Each service provider in the United States
licenses spectrum from the Federal Communications Commission ("FCC") and
elsewhere from the authorized government body to operate a paging frequency
within either a local, regional or national geographical area. Each paging
subscriber is assigned a distinct telephone number which a caller dials (either
directly or via the internet) to activate the subscriber's pager (a pocket-sized
radio receiver carried by the subscriber).
A paging system is comprised of four general elements: (i) the "Control Point",
(ii) the "Link Medium", (iii) the Paging Radio Frequency ("RF") Network, and
(iv) the End User Devices. Telephone calls for a subscriber are received
(typically via the public service telephone network) by a paging switch located
at the Control Point. The message (numeric or alphanumeric) is then forwarded to
the Link Medium via a data network. The information is then forwarded to the
Paging RF Network via means determined by the type of Link Medium deployed by
the paging operator (examples include satellite distribution, RF terrestrial,
wireline, microwave, etc.). This RF Network consists of a network of transmitter
base stations and controllers. The message is reformatted and converted to a
radio signal, which is then sent by the transmitters via antennae to the
subscriber's pager ("End User Devices"). The transmitters manufactured by
Glenayre are specifically designed to simulcast, which is the transmission of
the same signal by two or more transmitters on the same channel frequency at the
same time in an overlap area (a geographical region accessible by more than one
transmitter). The Company's equipment exhibits exceptional accuracy in
simulcasting performance, resulting in superior voice and data quality and
coverage area, and in superior reliability and exactitude of message reception.
The radio signal is received by the End User Device which causes the pager or
personal messaging device to emit a beep, vibrate, or otherwise notify the
subscriber that a message has been received and stored in the device. The device
then provides the subscriber with information from the caller in the form of a
voice, tone, numeric or alphanumeric message. This is typically termed "one-way"
paging since the initiator does not receive notification of message received or
any response from the target subscriber.
The two-way paging system is similar to one-way paging systems. The inherent
difference is that two-way paging systems close the loop from End User Device
back into the infrastructure equipment and/or back to the initiator of the
message. In order to effect this reverse path communications, (i) the End User
Devices must have an internal transmitter, (ii) the paging provider must deploy
a receiver network to obtain and transfer the data back into the system, and
(iii) there must be a reconciliation device which handles the traffic flow.
Glenayre provides (i) personal messaging devices which have both receiver and
transmitter, (ii) the industry standard receiver network equipment, and (iii) a
scalable, network flexible, reconciliation device. Once the End User Device
receives the radio signal from the transmitters via antennae, the two-way End
User Device then transmits information to the receiver RF Network via receiver
antennae. The information is reformatted and sent back into the two-way system
via means determined by the media deployed (typically high speed data networks).
This information path is unique to two-way paging (as opposed to one-way) and
can be used to locate the end user, acknowledge receipt of message and initiate
messaging from the user.
In addition, some two-way applications require a different type of transmitter
base station. Glenayre introduced a new line of state-of-the-art, digital signal
processing ("DSP") based linear transmitters in 1996. Since many of the two-way
license holders are also one-way paging providers, the Company deemed it
advisable to develop a field scalable RF product line which can be deployed in a
low end (and lower price configuration) initially to support either one-way or
two way applications, and grow (via field upgrade kits) as the provider's system
migrates to two-way and adds subscribers. In addition, Glenayre has developed
field kits which allow limited two-way operations with the Company's older RF
base station equipment which allows limited entry into the two-way market for
smaller service providers.
A pager has an advantage over a landline telephone in that the pager's reception
is not restricted to a single location. Pagers (or personal messaging devices)
also have advantages over a cellular portable telephone in that a pager is
smaller, has a much longer battery life, has excellent coverage and roaming
capability, is more robust and durable, more reliable (the device as well as the
service) and is easier and less expensive to use.
Two-way systems provide such services as device location, two-way acknowledgment
and custom response paging, remote mobile wireless e-mail, subscriber initiated
messaging, subscriber to subscriber messaging, advanced voice paging, machine
control and feedback, and other data services.
Glenayre's product offering to the two-way market includes a systems approach
providing a migration path from its existing one-way paging product line.
Glenayre offers its customers an end-to-end solution for two-way applications.
The Company has developed new technology-based products with state-of-the-art
architecture and technology which accommodates the advanced services expected to
be available through two-way service offerings. This systems approach includes
full product
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lines of radio frequency linear transmitters, advanced network controllers, the
fixed receiver network (to receive messaging from the end-user), switch
equipment, and network management tools.
The design of a paging system is customer specific and depends on (i) the number
of paging subscribers the service provider desires to accommodate, (ii) the
operating radio frequency, (iii) the geography of the service area, (iv) the
expected system growth and (v) specific features desired by the customer. Paging
equipment hardware and software developed by the Company may be used with all
types of paging services, including voice, tone, numeric (telephone number
display) or alphanumeric messaging (words and numbers display).
PAGING INFRASTRUCTURE PRODUCTS AND SERVICES:
SWITCHES. The smallest Glenayre switch, the GL3000ES, can serve as few as 100
subscribers and can be expanded incrementally to a capacity of 75,000
subscribers. Glenayre's large paging switches, the GL3000L and the GL3000XL,
support subscriber levels from 20,000 to over 1,000,000.
The GL3000 two-way switch is capable of being upgraded to support new two-way
voice and data services, while retaining support for existing one-way services
such as numeric and alphanumeric paging. Service providers can combine one-way
and two-way paging service on one switch.
The Company is involved at an early stage in the development of industry wide
technology standards and is familiar with developments in paging protocol
standards throughout the world. The Company works closely with its customers in
the design of large, complex paging networks. Glenayre believes that its
customers' purchasing decisions are based, in large part, on the quality and
technological capabilities of such networks. Glenayre believes that its switches
have the most advanced networking capability in the industry. This networking
capability allows the interconnection of multiple switches to offer a number of
wide-area capabilities (such as remote billing, roaming and database backup).
Glenayre believes that the advanced hardware and software features of its
switches ensure high reliability and high volume call processing.
Paging switches manufactured by the Company are constructed in modular fashion,
which permits expansion to accommodate growth and the addition of technological
enhancements. Paging switch enhancements and upgrades also require the purchase
of the Company's components and software. This results from the unique and
proprietary software incorporated in Glenayre switches, which the Company
believes represents a significant technological competitive advantage.
RF EQUIPMENT - TRANSMITTERS AND RECEIVERS. Transmitters are available in
frequency ranges of 137MHz to 960MHz and in power levels of 4 watts to 500 watts
(not including any power gain from the antennae). Radio link receivers are
available in frequency ranges of 66MHz to 960MHz. Satellite link receivers are
available for integration directly with the transmitters at both Ku- and C-band
frequencies.
Glenayre's GL-T8601(500 watts) and GL-T8501 (250 watts) transmitters are
designed to allow paging carriers to easily migrate their networks to compete in
the two-way paging market by providing a straightforward field upgrade to linear
transmitters. For paging carriers, the transmitters' migration path reduces the
risk of obsolescence and the costs of investing in new linear transmitter sites.
The T8601 and T8501 transmitters complement the T8500/8600 900MHz one-way
transmitters which have been the Company's core RF products since 1994.
Glenayre's GL-T9000 series of linear transmitters are designed to transmit both
ReFLEX and InFLEXion two-way formats and are capable of transmitting other
established protocols. The design of the GL-T9000 transmitter employs new and
advanced techniques including DSP modulation and linearization. The GL-T9000
product line is scalable; with the T9000 a service provider can start at a low
power level (supporting limited two-way applications and numbers of subscribers)
and then later upgrade in the field to a higher power level as the provider
enhances its services and increases its subscriber base. This minimizes initial
investment while still allowing the service provider to grow as the subscriber
base grows.
In addition to the two-way and 900MHz transmitter product lines, the Company
also provides transmitter and receiver equipment in the VHF (137MHz to 175MHz),
280MHz to 330MHz, and UHF (395MHz to 512MHz) bands. Due to the large volume of
transmitter base stations required in a large paging system, Glenayre's base
stations are designed to minimize the customer's total cost of ownership. As
such they are designed (i) to minimize costs associated with site rental and
ancillary fees, (ii) to provide for scalability and flexibility, (iii) for
reliability and facilitation of maintenance, (iv) for ease of programming and
configuration, (v) to provide maximal operational efficiency, (vi) with flexible
networking and communications capabilities, and (vii) to provide for custom
configurations where appropriate.
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The GL-R9000 series of receivers detects the responses returned from the two-way
subscriber devices. The GL-R9000 series of receivers takes advantage of
innovative DSP demodulation techniques that maximize receiver sensitivity.
Available in a one-rack unit size, it can support spatial diversity (enabling
sensitivity gains from two separate receive antennae at a fixed receiver site).
Glenayre provides these receivers both as part of the two-way base station
offering as well as in a stand alone configuration which is used for fill-in
locations to enhance geographical coverage. Glenayre believes that its receiver
network equipment is the industry standard in terms of performance, which
translates into lower system costs for the Company's customers.
Depending upon frequency, antenna type and height, topography, and power,
Glenayre transmitter base station systems are designed to cover broadcast cells
with a diameter from 3 to 100 miles. Typical simulcast systems have broadcast
cells which vary from 3 to 15 miles in diameter. Glenayre transmitters are
designed specifically for the high performance and reliability required for the
high speed simulcast networks required by advanced one-way and two-way
applications.
Current technology allows a transmitter that is manufactured by Glenayre or by
its competitors to be used with the Company's paging switches. However, within a
single geographic paging network (comprised of a switch, a control system and a
number of transmitters installed in a specific geography) where transmitters
simulcast on a single frequency, all transmitters must be of the same make in
order to avoid substantial and expensive modifications that would be necessary
to assure the integrity of the paging system. The Company believes its large
installed base of transmitter equipment provides it with a significant
competitive advantage in selling products for system expansions to existing
customers.
CONTROLLERS. The Company currently offers or supports four products for
transmitter control: (i) the GL5000 control system is a medium-feature
transmitter control system used primarily in international markets; (ii) the
QT1000 TXC is a full-feature system providing automatic early notification of
system variances and automatic remote adjustment capabilities to ensure that all
transmitters in the system remain synchronized; (iii) the GL-C2000 product line
supports all existing digital paging formats and will support all currently
proposed "high speed" paging and messaging formats (including some two-way
applications) with data transmission rates from 200 to 6,400 bits per second
when coupled with the appropriate Glenayre RF hardware; and (iv) the GL-C9000,
in combination with the GL3100 RF Director, is designed to control two-way
transmitter systems, with high-speed voice and advanced data capabilities.
Additionally, the GL3100 RF Director provides reverse channel traffic handling
for two-way systems. The latter two controllers have advanced data handling and
flexible networking capabilities which lend themselves to advanced
communications networks.
Glenayre has extended the technology of its GL-C2000 transmitter controller to
control base stations used in two-way systems. The base station controller has
high-speed data capabilities and flexible linking options. The newest control
products of the GL-C2000 line were developed for field scalability to support
the changing needs of service providers as their offerings and subscriber base
grow. Additionally, Glenayre's RF Director is the central control point for a
two-way RF network. The RF Director has been designed to manage a high volume of
forward and reverse channel traffic and is available with optional full
redundancy.
Glenayre also provides a state of the art operations and maintenance control
(OMC) system which provides its customers a means by which to monitor, control,
and upgrade their one-way and two-way systems.
MESSAGE MANAGEMENT SYSTEMS. Glenayre's message management systems and operator
assisted paging systems combine its paging switch hardware with its proprietary
software. Glenayre's GL3930 and GL3960 alphanumeric switches are fully
compatible with the Company's paging switches and allow extensive data entry by
as few as 2 to as many as 300 telephone operators. Glenayre's alphanumeric
messaging products allow an operator at a telephone answering service or at a
paging or cellular provider to input, store and transmit messages containing
words and numbers by utilizing a paging switch encoder. Alphanumeric messages
can be sent by telephone, facsimile or computer and can be received by pagers,
portable computers, electronic organizers, facsimile equipment and similar
personal communication devices. Due to the continuing demand for lengthier
messages and the impact of such demand on available radio frequencies, most
service providers are migrating to the more efficient, higher speed digital
format. Consequently, Glenayre believes its sophisticated high speed switches
and software are particularly well suited for alphanumeric applications.
SERVICE AND SUPPORT. Glenayre provides service to customers on a regular basis
including installation, project management of turnkey systems, training, service
or extended warranty contracts with the Company. The Company believes that it is
essential to provide reliable service to customers in order to solidify customer
relationships and to be the vendor of choice when new
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services or system expansions are sought by a customer. This relationship is
further developed as customers come to depend upon the Company for installation,
system optimization, warranty and post-warranty services.
The Company has a warranty and maintenance program for both its hardware and
software products and maintains a large customer service network, known as the
Glenayre Care Group, throughout the world. Glenayre's standard warranty provides
its customers with repair or replacement of all defective Glenayre manufactured
equipment. The warranty is valid in the case of the majority of its transmitters
for two years, and in the case of all other products for one year from the later
of date of shipment or date of installation by a Glenayre qualified technician.
The major locations of the Glenayre Care Group are Vancouver, British Columbia;
Quincy, Illinois; Atlanta, Georgia; Amsterdam, Netherlands; and Singapore. The
Glenayre Care Group, the majority of the employees of which are technical
specialists, maintains the Company's installed base of equipment and is equipped
with an automated field service management system to provide more responsive
customer service.
COMPETITION. The Company is a leading worldwide supplier of switches,
transmitters, receivers, controllers and software, used in paging, voice
messaging and message management systems. While the services from the foregoing
products represent a significant portion of the wireless personal communications
systems industry today, the industry is expanding to include new enhanced
services and new markets. The wireless personal communications industry includes
equipment manufacturers that serve many of the same personal communications
services ("PCS") markets served by the Company. Certain of the Company's
competitors have significantly greater resources than the Company, and there can
be no assurance that Glenayre will be able to compete successfully in the
future. In addition, manufacturers of wireless telecommunications equipment,
including those in the cellular telephone and PCS industries, certain of which
are larger and have significantly greater resources than the Company, could
attempt to enter into the Company's markets and compete with Glenayre's products
and systems.
Competition in Glenayre's infrastructure equipment markets is based upon
quality, product features, technical performance capabilities, service and
price. While infrastructure equipment and systems of the type sold by Glenayre
typically represent less than one-quarter of a paging service provider's total
capital investment, such equipment and systems are nevertheless critical for the
operation of the pager devices and the paging network. Glenayre believes that it
compares favorably with its competitors due to its reputation for high-quality
and technically superior products and service, its willingness and ability to
support customer requests, and its ability to offer complete turnkey systems
customized to specifications provided by the customer.
The Company's determination of its competitive market position is based upon its
knowledge of sales of products of the type sold by the Company in the segment of
the wireless personal communications industry in which the Company competes,
information derived from its close working relationship with large paging
service providers and market information obtained from industry trade
publications and sources.
o UNITED STATES. The Company believes that it has the leading
market share (based on the number of units sold) of the United
States market for sales of one-way and two-way switches and
related equipment and software, and one-way and two-way
transmitters and controllers. It is the Company's belief that its
leadership position with respect to the sale of paging switches
in the United States substantially exceeds that of its principal
competitor in this market, which is Motorola, Inc. ("Motorola").
The Company believes that it captured the largest percentage of
sales of paging switches serving more than 10,000 subscribers in
each of the last three years.
The Company believes sales of its transmitter and controller
products exceeded sales of such products by Motorola in each of
the last three years. The Company believes, however, that
Motorola remains a substantial competitor in the transmitter
market. Other competitors in this market include smaller
manufacturers that primarily serve small local paging service
providers which represents a small segment of the total domestic
infrastructure market.
o INTERNATIONAL. The Company believes that it is one of the leading
participants in markets outside of the United States in the sale
of paging switches, paging transmitters and controllers (based on
the number of units sold). The Company believes that it sold the
most paging switches outside of the United States during each of
the last three years, exceeding sales by each of its two
principal competitors in this market, Motorola and L M Ericsson
Telephone Company ("Ericsson").
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The Company believes that the Company and Motorola have the
largest and approximately equivalent shares of the international
paging transmitter and controller market. Ericsson also is a
significant competitor in this market with what the Company
believes to be a substantially smaller share of the market than
either of Glenayre or Motorola.
PAGING MESSAGING DEVICES:
Since November 1997, the Company has provided two-way paging devices through its
subsidiary, Wireless Access, Inc. ("WAI") based in Santa Clara, California. WAI
designs, develops and markets innovative, low-power, two-way wireless data
messaging devices. The Company's products are based on Motorola's family of FLEX
two-way paging protocols which the Company believes will become the industry's
standard two-way wireless data messaging protocols. The two-way wireless data
messaging capability of the Company's devices will allow service providers to
reuse their RF spectrum and thereby offer expanded two-way alphanumeric wireless
data messaging services to significantly more users than would be possible with
a traditional one-way alphanumeric paging network.
ACCESSMATE(TM). The AccessMate allows wireless data messaging service providers
to offer customers expanded alphanumeric wireless data messaging services at
prices competitive with today's one-way paging service subscription prices. The
AccessMate is an entry-level two-way wireless data messaging device that has all
the functionality of today's alphanumeric pagers together with the ability to
allow service providers to efficiently manage their network capacity through
spectrum reuse. The AccessMate is approximately the same size as today's one-way
alphanumeric pagers with a four-line LCD display and more than 30 days of
battery life. The AccessMate allows a service provider to offer guaranteed
message receipt by storing and re-sending a message when the recipient's device
is turned off or out of the service area. AccessMate is Glenayre's first device
which utilizes the Company's proprietary integrated chipset. The Company
believes its integrated circuit chipset technology will enable the Company to
decrease the size of its devices while simultaneously reducing the cost and
power consumption of the devices.
ACCESSLINK-II (TM). The AccessLink-II allows wireless data messaging service
providers to offer customers full two-way paging service capabilities in a
device to be approximately the same size as today's one-way alphanumeric pagers
with a four-line LCD display and more than 30 days of battery life. As with the
AccessMate, the AccessLink-II allows a service provider to ensure guaranteed
message receipt by storing and re-sending a message when the recipient's device
is turned off or is out of the service area. In addition, the AccessLink-II
provides users with the ability to create custom replies and to originate
messages to another pager or to an e-mail address. The AccessLink-II also
utilizes the Company's proprietary integrated chipset. The AccessMate and
AccessLink-II are available for both the ReFlex-25 and the ReFlex-50 protocols
and went into commercial production in 1998. Key AccessLink-II features include:
o MESSAGE ORIGINATION. The AccessLink-II allows a user to create
and send custom messages from the device. A user is able to
create a message by selecting letters displayed on the onscreen
keyboard using an omni-directional keypad. In addition, a user
can send a preprogrammed or user-created message to another
AccessLink-II user, to an Internet e-mail user, to a one-way
alphanumeric pager, to a dial-in system which uses synthesized
voice technology to deliver a message or to a fax machine.
o INTERNET CONNECTIVITY. The AccessLink-II user can exchange
messages with Internet e-mail users. AccessLink users can have an
e-mail address defined by their service provider that allows them
to receive e-mail messages across the Internet. In addition,
AccessLink-II users can originate e-mail messages from the device
and send them to any Internet e-mail user's address.
o EASE OF USE. The AccessLink-II's easy-to-manipulate
omni-directional keypad and innovative user interface provide the
user with an easy means of creating, storing and sending
messages. All information is contained within folders, which can
be opened and closed with the omni-directional keypad. The
AccessLink-II's keypad can easily be operated one-handed and
allows the user to scroll through the display and move the cursor
to select options.
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o COMPUTER CONNECTIVITY. The AccessLink-II provides a infra-red,
IRDA compatible port for wireless connection to personal or palm
top computers. Once connected to the computer with the
appropriate applications software, a user can send and receive
messages with the AccessLink-II acting as a wireless modem.
o HIGH-POWERED TRANSMITTER. The AccessLink-II transmits at power
levels significantly above that of cellular phones. Achieving
this high-power level is critical for creating and sending long,
custom messages. The Company believes the AccessLink-II balances
the need to generate a high level of transmit power with the need
for extended battery life while utilizing a single AA battery.
INTEGRATED CIRCUIT ("IC") CHIPSETS. The Company has designed chipsets to contain
substantially all of the two-way wireless data messaging circuitry, including
circuitry which implements the appropriate two-way wireless data messaging
protocol. The Company's design philosophy is that its devices improve as the
Company increases the level of integration of the elements of its devices. The
Company has invested in the design of a first in a series of IC chipsets whose
goals are the continued reduction in size, cost and power consumption of its
mobile devices. As a result of utilizing a highly integrated transceiver
chipset, the Company believes its device design benefits through a reduction in
the number of components required on the circuit boards, a reduction in the
physical size of the mobile device, improved reliability and ruggedness of the
mobile device, increased battery life, and improved testability and
repeatability of the design.
COMPETITION. Motorola, the only other company that currently has a product that
operates in a ReFlex based two-way wireless data messaging network, has
historically dominated the market for paging devices, with sales of its products
representing over 80% of sales of all paging devices. Motorola and other
potential producers of devices for the two-way wireless data messaging market,
such as Uniden, Sony and Casio, have longer operating histories, significantly
greater financial, technological, management and marketing resources, greater
name recognition and larger installed customer bases than Glenayre. In addition,
each of these companies can devote greater resources to developing, marketing
and selling their products than Glenayre and may be able to respond more quickly
to new or emerging technologies and changes in customer needs. Additionally,
paging-like services are being offered using alternative messaging technologies
such as PCS. There can be no assurance that the Company will obtain market
acceptance of its products in the face of competing technologies or be
successful in introducing new products. The failure of Glenayre to compete
effectively could result in lower prices, reduced margins or loss of market
share, any of which could have an adverse effect on the Company.
Competition in the Company's End User Device markets is based upon quality,
product features, technical performance, capabilities, service and price, in
addition to battery life, size, ease of use, appearance, durability, and
reliability. End User Devices represent a much more significant ratio (than
infrastructure) of a paging provider's total capital investment.
MARKETING AND SALES, CUSTOMERS. The Company markets to paging carriers primarily
in the United States through a direct sales force. To date, the Company's
two-way and guaranteed message delivery device revenues have been primarily from
Skytel, PageNet, and PageMart.
MOBILE AND FIXED NETWORK PRODUCTS
Mobile and fixed network products from the Company's Integrated Network Group
accounted for approximately 17%, 16% and 6% of net sales for 1998, 1997 and
1996, respectively and is comprised of the Company's INTELLIGIS product line
which includes the MVP System and the openMEDIA platform. By integrating these
two platforms, the Company believes it will be in a strong position to serve
both fixed and wireless service provider needs for revenue generation. The MVP
System and the openMEDIA platform provide network operators with the enhanced
services, prepaid wireless and calling card products needed to increase revenues
from the current customer base and to acquire new subscribers. By combining
these two platforms into a single product, the Company believes it will be able
to offer a unique and powerful platform to help carriers reduce their
operational costs and become more profitable.
MVP SYSTEM. Glenayre's MVP(R) Modular Voice Processing system is an enhanced
services platform that enables cellular, PCS, wireline and paging network
operators to offer their subscribers value-added services that enhance and
complement their core communication products.
The MVP platform's flexibility allows service providers to choose the number and
combination of enhanced services to offer, including voice, fax, and data
messaging, short message service, automatic call return, continuous calling and
8
<PAGE>
CONSTANT TOUCH(TM) Service, a single number service. With the MVP System,
subscribers can place calls by using a telephone keypad or by using the
subscriber's voice alone.
The MVP system's scaleable architecture provides service providers with an
efficient growth path for their subscriber base. The MVP system can start out
small and grow to handle over 1,000,000 subscribers. Additionally, the MVP
platform interfaces into the myriad of trunk interfaces provided by central
office switches, cellular switches, paging terminals, telephone answering
systems and inter exchange carrier ("IXC") switches, even integrating into
different telecommunication networks simultaneously. It also has the capability
of integrating into various Intelligent Networks around the world.
The MVP system provides voice messaging with intelligent message notification.
Subscribers are notified, via their pager or phone handset, when they receive a
new message in their mailbox. The MVP system communicates the number and type of
message received, including urgent and fax messages.
The MVP system's Auto Call Back feature allows the subscriber to return calls
with a keystroke. When the caller leaves a message, the MVP system captures the
caller's telephone number, either by Automatic Number Identification or by the
caller manually entering the caller's number. When the subscriber listens to the
message, the callback number plays as part of the voice message. At any time,
the subscriber can press a button and the caller's phone number is dialed by the
MVP system. After the call is completed, the subscriber is returned to the
subscriber's voice mailbox.
Fax messaging permits faxes to be sent directly to a subscriber's voice mailbox.
The subscriber is notified that a fax message has been received in the
subscriber's voice mailbox. The fax is stored in memory and can be printed from
any fax machine when the subscriber is ready to retrieve it.
CONSTANT TOUCH, Glenayre's single number application, gives subscribers control
of their communications. With CONSTANT TOUCH, subscribers combine all personal
and business telephone numbers (pager, home, office, cellular and fax) into a
single number that will reach them anywhere. By incorporating any or all of a
subscriber's telephone numbers, callers only have to use one number to reach the
subscriber.
When a caller dials the subscriber's CONSTANT TOUCH number, the system prompts
them to speak their name and enter their telephone number. The MVP system then
calls a series of preprogrammed numbers to notify the subscriber that a caller
is holding. The MVP plays the caller's name, "introducing" the caller. The
subscriber can choose to connect with the subscriber's caller or forward the
caller to the subscriber's voice mailbox or assistant.
A major development project for the MVP system over the next few years is speech
recognition. Glenayre has developed a new voice dialing application allowing
subscribers to place calls using only their voice. The subscriber speaks a name
or telephone number and the MVP system places the call. Glenayre expects to
develop additional speech recognition products, as well as incorporate speech
recognition technology into the voice mailbox.
Additionally, Glenayre is developing products to take advantage of the benefit
from the integration of fixed and wireless networks. This technology called
Unified Messaging will give the MVP system the ability to incorporate voice,
data, fax and e-mail, into a subscriber's mailbox. Unified Messaging will give
service providers the ability to offer an integrated voice mailbox that combines
the product offerings of the fixed and wireless network through Internet
technology. With Unified Messaging, subscribers point and click on a graphical
user interface to access their voice, data or other message types. This product
is scheduled for general release in the third quarter of 1999.
The Company believes that by providing multiple voice and data applications on a
single platform, the MVP system gives service providers a means to generate
additional revenue and increase subscriber loyalty.
NETWORK MANAGEMENT SYSTEMS. During 1998, the Company began development of an
Operational and Management Control System (OMC). OMC is an external system that
monitors the MVP Systems and provides service providers with a sophisticated
alarming, provisioning and statistical information relating to the performance
of the MVP Systems in a carriers network. This system will enable wireless and
wireline operators to continually evolve their businesses beyond the
competition. The benefits that Glenayre customers enjoy are reduced costs,
improved customer retention, enhanced technological leadership and improved time
to market.
9
<PAGE>
OPENMEDIA. Glenayre's openMEDIA Prepaid Wireless application offers a powerful
feature set specifically designed for wireless operators throughout the world.
The Prepaid Wireless application allows carriers the ability to offer their core
wireless service in a network based prepaid offering. With Prepaid Wireless,
carriers can sell their service offering before customers use it. This helps
with fraud and allows carriers to tap into huge markets of new subscribers. The
Company is developing new releases of its Prepaid Wireless application to
include advanced features such as voice-activated "hands-free" dialing, inbound
call screening, advanced cellular-to-cellular call rating, nationwide cellular
roaming and Intelligent Network Solutions.
Glenayre's openMEDIA Platform is a client/server-based software platform from
which multiple telecommunications applications can be run across shared network
and database resources. The openMEDIA Platform provides an interface between
telephony and computing resources, including switches, voice response units
("VRUs"), databases, billing systems and network management software. The
platform facilitates the generation of call flows and insulates application
developers from low-level programming of hardware components. openMEDIA's
modular, client/server architecture permits the replacement and
interchangeability of network hardware components and ensures the reusability of
common software modules as Glenayre develops new applications. The openMEDIA
Platform provides the following key features: rapid service creation,
modularity, high volume and scalability, network connectivity and fast call
setup, real-time call management, external interfaces and disaster recovery and
reliability.
The Company sees an opportunity for a tight integration between the MVP System
and the openMEDIA Platform. Development efforts include the IntelligisSP, which
is a new platform that integrates the openMEDIA applications with the full suite
of enhanced services offered on the MVP System. In addition, the Company is
developing a new architecture for the openMEDIA applications. The architecture
is called Service Creation Environment (SCE) and is intended to provide carriers
with a much simpler interface to develop new applications and expand their
service offering. The openMEDIA platform is also developing the protocols and
signaling formats for the integration into various Intelligent Networks.
COMPETITION. For sales of MVP systems, the Company competes in the United States
and internationally primarily with Centigram Communications Corporation,
Comverse Technologies, Inc., Lucent/Octel Communications Corporation and Unisys
Corporation.
For sales of Prepaid Wireless products and services, the Company competes in the
United States and internationally primarily with Brite Voice Systems, Inc.,
Comverse Technologies, Inc. and Precision Systems, Inc.
MARKETING AND SALES. The Company markets to cellular, PCS, wireline, prepaid
wireless and paging network operators primarily in the U.S. through a direct
sales force. Glenayre has also entered into several Original Equipment
Manufacturing ("OEM") agreements with companies that will market and distribute
the Intelligis product line throughout the world.
MICROWAVE COMMUNICATION PRODUCTS
The Company's Western Multiplex Group designs, manufactures and markets products
for use in point-to-point microwave communications systems which accounted for
approximately 8%, 7% and 8% of net sales for 1998, 1997 and 1996, respectively.
These products include the microwave radios themselves, both in analog and
digital transmission formats, and analog baseband products. Glenayre also
provides cellular and PCS operators with wireless cell site and base station
interconnect infrastructure. The Company's products are sold to communications
service providers, including cellular, specialized mobile radio ("SMR") and
inter-exchange common carriers; industrial companies, including utilities,
railroads and petroleum producers; federal, state and local governmental
entities; and users of wireless data communications.
For sales of microwave radio products, the Company competes in the United States
and internationally primarily with Alcatel Alsthom, California Microwave
Corporation, Digital Microwave Corporation, Ericsson, Harris Corporation, P-Com,
Inc. and Siemens A.G.
CUSTOMERS
Glenayre sells to a range of customers worldwide. In the United States,
customers include the regional Bell operating companies, public and private
radio common carriers, private carrier paging operators, PCS carriers and
cellular carriers. Internationally,
10
<PAGE>
customers include public telephone and telegraph companies, paging and cellular
carriers as well as private telecommunication service providers servicing
cellular, PCS and paging.
Sales to a single customer totaled approximately 10%, 11% and 15% of 1998, 1997
and 1996 net sales, respectively. An additional customer accounted for 12% of
net sales in 1998. Although a single customer accounted for more than 10% of the
Company's net sales in each of the prior three years, the dependence on any one
customer is mitigated by the large number of entities in the Company's customer
base. The amount of business with any customer in a reporting period is
determined by the timing of the development and expansion of existing customers'
and new customers' systems.
MARKETING AND SALES
The Company markets its products and services in the United States and
internationally primarily through a direct sales force. Glenayre also utilizes
distributors and agents to sell its products in certain countries and geographic
regions to markets outside of the Company's core markets. Glenayre maintains
sales offices throughout the United States.
In an effort to better serve its international customers, Glenayre has
established sales offices outside of the United States in various locations
worldwide, including:
Manila, Philippines Singapore
New Delhi, India Toronto, Canada
Vancouver, Canada Hong Kong
Mexico City, Mexico Milton Keynes, England
Guangzhou, China Beijing, China
Dubai, United Arab Emirates Amsterdam, Netherlands
Sao Paulo, Brazil Taipei, Taiwan
Seoul, Korea Shanghai, China
Tokyo, Japan
Glenayre has staffed each of these offices with either local or expatriate
multilingual personnel. The Company expects to add new offices and personnel
outside of the United States to meet the increasing demand for its products in
international markets. See Note 9 to the Company's Consolidated Financial
Statements for information relating to export sales.
As part of the Company's integrated marketing and sales efforts, Glenayre
encourages and facilitates a philosophy of open communication between the
Company and its customers. Toward that end, the Company often invites customer
representatives to meet with Glenayre's engineers and marketing personnel to
collaborate in the development of new and enhanced products.
The competitive telecommunications market often requires customer financing
commitments. These commitments may be in the form of guarantees, secured debt or
lease financing. See Notes 3 and 13 to the Company's Consolidated Financial
Statements.
INTERNATIONAL BUSINESS RISKS
Approximately 37% of 1998 net sales were generated in markets outside of the
United States. International sales are subject to the customary risks associated
with international transactions, including political risks, local laws and
taxes, the potential imposition of trade or currency exchange restrictions,
tariff increases, transportation delays, difficulties or delays in collecting
accounts receivable, and, to a lesser extent, exchange rate fluctuations.
Although a substantial portion of 1998 international sales of the Company's
products and services were negotiated in U.S. dollars, there can be no assurance
that the Company will be able to maintain such a high percentage of U.S.
dollar-denominated international sales. Should the Company's level of
international sales denominated in U.S. dollars decline, currency hedging
transactions would be undertaken to mitigate its currency exchange fluctuation
risk. The Company also acts to mitigate certain risks associated with
international transactions through the purchase of political risk insurance and
the use of letters of credit.
11
<PAGE>
RESEARCH AND DEVELOPMENT
The Company believes that a strong commitment to research and development is
essential to the continued growth of its business. Glenayre has consistently
developed innovative products and product improvements for the wireless personal
communications services industry and has often been the first to bring such
products to market. One of the key components of the Company's development
strategy is the promotion of a close relationship between its product
development staff, internally with Glenayre's manufacturing and marketing
personnel, and externally with Glenayre's customers. Utilizing this strategy,
Glenayre expects to develop and bring to market customer-driven products in a
timely manner.
The Company has extensive expertise in the technologies required to develop
wireless communications systems and products including digital signal processing
("DSP"), voice processing (both FM and linear), real-time software, networking
and network management software, high-speed digital logic, high and low power
radio frequency, protocol development, data network and system design.
Additionally, the Company has a core competence in Application Specific
Integrated Circuit (ASIC) development and implementation through its WAI
subsidiary. The Company believes that by having a research and development staff
with expertise in these key areas, it is well positioned to develop enhancements
for its existing products as well as new personal communication products.
Investment in advanced computer-aided design tools for simulation and analysis
has allowed Glenayre to reduce the time for bringing new products to market.
The majority of the Company's research and development staff are engineers or
computer science professionals. Glenayre's research and development efforts are
located in its Vancouver, British Columbia, Canada; Sunnyvale, California;
Atlanta, Georgia; and Santa Clara, California facilities. Total research and
development costs for the Company were $52 million, $40 million and $29 million
or 13%, 9% and 7% of net sales for 1998, 1997 and 1996, respectively. The
Company devotes substantial resources to research and development in order to
develop new products, improve existing products and support ongoing custom
feature and enhancement development. The availability of research and
development funds depends upon the Company's revenues and profitability.
Reductions in such expenditures could impair the Company's ability to innovate
and compete.
NEW PRODUCTS AND UPGRADES. The principal new products and enhancements
introduced by the Company in 1998 related to its Paging Products included the
following: (i) Customer revenue features on the GL3000 switch including dial-out
and enhanced meet-me as well as a rating engine to support prepaid billing for
these services, (ii) full two-way support for ReFLEX25 networks including the
GL3000 switch, GL3100 RF Director and the GL3200 Internet gateway, (iii)
products to provide IP based linking between switches and base stations, (iv)
GL3400 Call Analysis System for capturing call detail records, (v) multi-channel
functionality on T9000 linear transmitters and (vi) ReFlex 50 version of the
Access Link-II and ReFlex 25 and ReFlex 50 versions of the Access Mate devices
providing two-way paging in a more compact size and utilizing the Company's
proprietary integrated chipset.
The principal new products and enhancements introduced by the Integrated Network
Group in 1998 included the following: (i) a new 4240 MVP system which allows for
increased trunking and call capacity and is compliant with an industry
recognized network equipment building system, (ii) web server and modifications
to an existing fax platform to support the worldwide web server, (iii) a
cellular messaging protocol to send messages and page notifications, (iv)
additional software applications to support non-Glenayre voicemail systems, (v)
a significant increase in MVP voice storage (message) capacity and (vi)
enhancements to voice activated dialing.
Additionally, in 1998, the Company's Western Multiplex Group introduced: (i)
several additions to the LYNXsc family of license-free spread spectrum digital
radios, including 4E1 capacity at 5.8 GHz, and 2T1 at 2.4 GHz, (ii) Lynx.mini2,
a new low cost fractional capacity platform covering 64 - 512 kbps operating at
2.4GHz, (iii) the full release of WM 6/45 licensed radio operating at 6GHz and
providing a throughput capacity of 45Mbs, with Simple Network Management
Protocol and internal IP router and (iv) a 4E1 capacity licensed radio operating
at 1.5 GHz to be used for long range spur applications.
MANUFACTURING
Glenayre currently manufactures its Paging Products at Company facilities in
Quincy, Illinois and Vancouver, British Columbia, Canada except for its two-way
paging devices which are assembled by a third-party manufacturer. The Integrated
Network Group's MVP System and openMedia Platform are manufactured at the
Vancouver facility. Additionally, the Company's Western Multiplex Group
manufactures its analog and digital microwave radios and accessories at its
facility in Sunnyvale, California. The Company's manufacturing capabilities
reside in assembling sub-assemblies and final systems that are configured to its
customers' specifications. The components and assemblies used in the Company's
products include
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electronic components such as resistors, capacitors, transistors and
semiconductors such as field programmable gate arrays, digital signal processors
and microprocessors; mechanical materials such as cabinets in which the systems
are built; and peripherals, including disk drives. The components and parts used
in the Company's products are generally available from multiple sources. Some
components, especially those utilizing the latest technology, may only be
available from one source. In those instances where components are purchased
from a single source, the supplier and the specific component are reviewed both
prior to initial specification and then frequently afterward for stability and
performance. Although the Company believes that single sourced components could
either be obtained from another source or redesigned, temporary delays or
increased costs in obtaining these materials may be experienced. Additionally,
as necessary, the Company purchases sufficient quantities of certain components
which have long-lead requirements in the world market. The Company performs
standard procedures to test, tune and verify products prior to shipment to the
customer.
The Company believes in setting high standards of quality throughout all its
operations. The Company has certification to the ISO 9001 international standard
for quality assurance in areas including design, manufacture, assembly and
service for the Quincy, Illinois; Vancouver, British Columbia; Sunnyvale,
California; and Atlanta, Georgia facilities. All two-way paging products are
manufactured by Avex Electronics in Huntsville, Alabama. Avex is an ISO 9000,
9001 and 9002 certified contract manufacturer. ISO is a worldwide federation of
national standards bodies which have united to develop internationally accepted
quality systems standards so that customers and manufacturers have a system in
place that provides a known quality. The standards set by ISO cover every facet
of quality from management responsibility to service and delivery. Management
believes that adhering to the stringent ISO 9001 procedures not only creates
efficiency in its operations, but also positions Glenayre to meet the exacting
standards required by its customers.
The Company utilizes Materials Resource Planning ("MRP") systems for production
planning in its manufacturing locations and state-of-the-art workstations for
its engineering functions. During 1998, Glenayre implemented a new business
operating system that links a significant portion of the Company's business
functions. The Company's present facilities are believed to be adequate for
current manufacturing needs.
PATENTS AND TRADEMARKS
The Company owns or licenses numerous patents used in its current operations.
The Company believes that while these patents are useful to the Company, they
are not critical or valuable on an individual basis, and that the collective
value of the intangible property of the Company is comprised of its patents,
blueprints, specifications, technical processes and cumulative employee
knowledge. Although the Company attempts to protect its proprietary technology
through a combination of trade secrets, patent law, non-disclosure agreements
and technical measures, such protection may not preclude competitors from
developing products with functionality features similar to the Company's
products. The laws of certain foreign countries in which the Company sells or
may sell its products, including South Korea, People's Republic of China,
Taiwan, Saudi Arabia, Thailand, Dubai, India and Brazil, do not protect the
Company's proprietary rights in the products to the same extent as do the laws
of the United States. Although the Company believes that its products and
technology do not infringe on the proprietary rights of others, the Company is
currently party to certain infringement claims, and there can be no assurance
that third parties will not assert additional infringement claims against the
Company in the future. If such litigation resulted in the Company's inability to
use the technology, the Company might be required to expend substantial
resources to develop alternative technology or to license the prior technology.
There can be no assurance that the Company could successfully develop
alternative technology or license the prior technology on commercially
reasonable terms. The Company does not believe, however, that an adverse
resolution of the pending claims would have a material adverse effect on the
Company.
The Company considers its registered trademarks and servicemarks to be valuable
assets. The Company protects these marks through registrations in the United
States and various countries throughout the world. The Company's marks include
"GLENAYRE ", the Glenayre logo, "CONSTANT TOUCH" AND "MVP".
BACKLOG
The Company's firm backlog at December 31, 1998 and 1997 was approximately $123
million and $139 million, respectively. In general, the Company expects to
commence shipment of the orders in the backlog within six months of their
respective backlog dates. Approximately 70% of orders on hand at December 31,
1998 are expected to be shipped during 1999. The orders not being shipped in
1999 are primarily due to the timing of delivery as requested by customers. This
is a forward looking estimate which is subject to substantial change based on
the timing of installation of systems by the Company's paging service provider
customers and the market acceptance of personal communication products by the
customers of such paging service providers.
13
<PAGE>
GOVERNMENT REGULATION
Many of Glenayre's products operate on radio frequencies or connect to public
telecommunications networks. Radio frequency and telecommunications network
equipment is regulated in the United States and in many international markets.
The Company generally must obtain regulatory approvals in connection with the
manufacture and sale of its products, and by the service providers that operate
the Company's products. There is no assurance that the Company and its customers
will continue to be able to obtain appropriate regulatory approvals. The
enactment by national, provincial, or local governments of new laws or
regulations or a change in the interpretation of existing regulations could
affect the market for the Company's products. However, the Company believes that
global privatization and deregulation of telecommunications industries have
increased demand for the Company's products. Such changes, while providing new
opportunities, also complicate the administrative and technical procedures for
placing products into these markets. In addition, the scope to which the
Company's products are subject to regulation has increased. The Company has
implemented programs to address the technical, administrative, and legal
challenges of this dynamic global regulatory environment.
EMPLOYEES
At December 31, 1998, the Company and its subsidiaries employed approximately
2,200 persons. The Company believes its employee relations to be good.
ITEM 2. PROPERTIES
The following table sets forth certain information regarding the Company's
principal facilities:
<TABLE>
<CAPTION>
Size Owned Lease
Location (Square Feet) or Leased Expiration Date Uses
-------- -------------- --------- --------------- ----
<S> <C> <C> <C> <C> <C>
Vancouver, 233,291 142,244 owned Manufacturing,
British Columbia 91,047 leased 1999-2002 service, accounting,
purchasing and
training facilities,
research and
development.
Quincy, Illinois 162,356 154,256 owned Manufacturing,
8,100 leased 2000 service, sales,
accounting, purchasing
and training
facilities.
Sunnyvale, California 45,709 leased 2006 Manufacturing,
service, sales,
accounting,
purchasing, research
and development.
Santa Clara, California 51,200 leased 2000 Service, sales,
accounting,
purchasing, research
and development,
administration.
Atlanta, Georgia 75,000 owned Sales, service,
research and
development, and
training facilities.
Charlotte, North 45,000 owned Corporate
Carolina headquarters,
marketing, accounting
and finance, sales,
service and
training facilities.
Singapore 42,000 owned Service, sales,
accounting and
training facilities.
</TABLE>
In addition to its sales offices listed above, Glenayre also maintains sales
offices throughout the United States and internationally. See
"Business--Marketing and Sales." During the first quarter of 1999 Glenayre
halted the construction in progress on a 110,000 square foot expansion of its
Vancouver facilities. Revised plans to complete only a parking facility and a
16,000 square foot first level are currently being implemented. The total cost
of this expansion is now expected to be approximately $11.7 million and
14
<PAGE>
will be completed during 1999. Approximately $6.3 million and $900,000 paid
toward architecture, engineering and construction costs relating to the new
expansion are included in capital expenditures for the years ended December 31,
1998 and 1997, respectively. Commitments of approximately $2.5 million relating
to the termination of the construction contract are included in the estimated
$4.5 million total costs to complete.
ITEM 3. LEGAL PROCEEDINGS
On January 31, 1997 an amended class action complaint consolidating two lawsuits
filed in the fourth quarter of 1996 (the "Complaint") was filed in the United
States District Court for the Southern District of New York against the Company
and certain of its executive officers and directors. The Complaint was dismissed
in November 1997, but the plaintiffs were granted the right to amend and refile.
An amended Complaint was refiled December 19, 1997 and dismissed on December 29,
1998 without the right to refile. The dismissal was appealed by the plaintiffs
to the United States Court of Appeals for the Second Circuit on January 28,
1999. On February 20, 1997, a shareholder's derivative complaint (the
"Shareholder's Complaint") was filed in the United States District Court for the
Southern District Court of New York against certain current and former directors
and against the Company, as a nominal defendant, alleging that the directors
breached their fiduciary obligations to the Company by subjecting the Company to
the class action referred to above. As the derivative action is based on
allegations that the class action has merit, it is likely to remain in
suspension until the appeal is resolved. Additionally, the Company is currently
involved in various other disputes and legal actions related to its business
operations. In the opinion of the Company, the ultimate resolution of these
actions will not have a material effect on the Company's financial position, or
future results of operations or cash flows.
Additionally, the Company is party to several intellectual property claims and
disputes related to its business operations. The Company believes that the
ultimate resolution of these claims and disputes will not have a material effect
on the Company's financial position or future results of operations. However, if
such litigation resulted in the Company's inability to use technology, the
Company might be required to expend substantial resources to develop alternative
technology or to license such technology on commercially reasonable terms.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"GEMS." The table below sets forth the high and low sale prices for the
Company's common stock on The Nasdaq Stock Market for the periods indicated.
<TABLE>
<CAPTION>
Price Range of
Common Stock
------------
High Low
---- ---
<S> <C> <C>
Year Ended December 31, 1998
First Quarter.......................................... $14.250 $10.000
Second Quarter......................................... 17.000 10.188
Third Quarter.......................................... 12.250 6.375
Fourth Quarter......................................... 7.938 3.969
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended December 31, 1997
First Quarter.......................................... $23.125 $9.750
Second Quarter......................................... 16.875 8.000
Third Quarter.......................................... 21.500 13.625
Fourth Quarter......................................... 16.813 9.344
</TABLE>
At March 5, 1999 there were approximately 2,200 holders of record of the
Company's common stock.
The Company has not paid cash dividends since 1982 and does not anticipate
paying cash dividends in the foreseeable future. The Company expects to utilize
future earnings to finance the development and expansion of its business.
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data of Glenayre presented below
for each of the five years in the period ended December 31, 1998 has been
derived from the Company's audited Consolidated Financial Statements. The
Company has been in the telecommunications equipment and related software
business since November 10, 1992 and previously was engaged in the real estate
development business and in oil and gas pipeline construction. The Company
acquired Western Multiplex Corporation ("MUX"), a manufacturer of microwave
radio systems, on April 25, 1995. The Company made three acquisitions in 1997:
(i) CNET, Inc., a developer of software including network management tools on
January 9, 1997, (ii) Open Development Corporation ("ODC"), a developer of
database management platforms providing applications for calling cards on
October 15, 1997, and (iii) Wireless Access, Inc. ("WAI"), a developer and
marketer of two-way paging devices on November 3, 1997. The results of the
acquired companies are included from the dates of acquisition by the Company.
The Selected Consolidated Financial Data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the other
financial data included elsewhere herein.
<TABLE>
<CAPTION>
(In thousands, except per share data)
Year Ended December 31,
-------------------------------------------
1998* 1997* 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales .............................. $399,942 $451,679 $390,246 $321,404 $172,107
Income (loss) before change in
accounting principle and
extraordinary item.................. (37,158) 34,794 70,444 76,448 33,095
Discontinued operations................. --- --- --- --- 388
Change in accounting principle ......... --- (688) --- --- ---
Net income (loss) ...................... (39,770) 6,251 70,444 76,448 33,483
PER SHARE DATA
Per Weighted Average Common Share:
Income (loss) before accounting change
and extraordinary items............... (0.65) 0.11 1.16 1.31 0.60
Net income (loss) ...................... (0.65) 0.10 1.16 1.31 0.61
Per Common Share-Assuming Dilution:
Income (loss) before accounting change
and extraordinary items .............. (0.65) 0.11 1.11 1.22 0.56
Net income (loss) ...................... (0.65) 0.10 1.11 1.22 0.57
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $154,472 $161,454 $279,031 $223,487 $135,209
Total assets............................... 561,795 590,161 521,210 447,580 284,961
Long-term debt, including current portion.. 823 3,747 879 2,147 2,019
Stockholders' equity....................... 462,153 492,359 455,861 390,694 245,435
</TABLE>
- -------------------------------------
*The results for 1998 were impacted by a $26.7 million write-off of goodwill and
other intangibles related to the ODC acquisition and a $7.9 million loss on sale
of the Company's network management business. The results for 1997 were impacted
by a $38.7 million charge for purchased research and development related to the
ODC and WAI acquisitions and a $5.2 million write-off of goodwill related to the
CNET acquisition. See Note 1 to the Company's Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Glenayre designs, manufactures, markets and services telecommunications
equipment and software used in wireless personal communication systems
throughout the world specifically focused in three primary marketing areas: (i)
paging products including infrastructure equipment from the Wireless Messaging
Group ("WMG") and Wireless Access two-way paging devices, (ii) mobile and fixed
network products from the Integrated Network Group ("ING") including voice mail
systems and database management systems and (iii) microwave communications
products from the Western Multiplex Group.
Glenayre acquired three companies in the year ended December 31, 1997. In
November 1997, the Company acquired Wireless Access, Inc. ("WAI"), a developer
and marketer of two-way paging devices. Glenayre acquired Open Development
Corporation, a developer of database management systems providing applications
for calling cards in October 1997. In December 1998, the Company wrote off
goodwill and other intangibles related to the October 1997 acquisition of ODC.
In January 1997, the Company acquired CNET, Inc., a developer of software
including network management tools. In December 1998, the Company sold this
network management business. The operating results of the three acquired
companies are included in the consolidated results of Glenayre since the
acquisition dates. In September 1997, the Company announced plans to consider
divesting Western Multiplex Corporation ("MUX"), allowing Glenayre to focus on
its core markets of paging and enhanced messaging. MUX markets products for use
in point-to-point microwave communication systems and was acquired by Glenayre
in April 1995. As of March 1999, an acceptable purchase agreement had not been
negotiated. However, the Company expects to pursue divesting this business over
time.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of net
sales represented by certain line items from Glenayre's consolidated statements
of operations:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Net sales 100% 100% 100%
Cost of sales 53 48 46
------ ------- -----
Gross profit 47 52 54
Operating expenses
Selling, general and administrative 27 22 21
Research and development 13 9 7
Charge for purchased research and development -- 9 --
Depreciation and amortization 10 5 4
Write-off of goodwill and other intangibles 7 1 --
Loss on sale of business 2 -- --
------ ------- -----
Total operating expenses 59 46 32
------ ------- -----
Operating income (loss) (11) 6 22
Interest, net 2 2 3
Other, net * * *
------- -------- -------
Income (loss) before income taxes and accounting change . (9) 8 25
Provision for income taxes 1 6 7
------ ------- -----
Income (loss) before accounting change (10) 2 18
Accounting change (net of income tax benefit) -- * --
------ ------- -----
Net income (loss) (10)% 1% 18%
====== ====== =====
</TABLE>
- -------------------
*less than 0.5%
The following table sets forth for the periods indicated net sales represented
by the Company's primary marketing areas:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Paging products $299,315 $348,789 $337,091
Mobile and fixed network products 67,724 70,619 24,911
Microwave communication 32,903 32,271 28,244
-------- -------- --------
$399,942 $451,679 $390,246
======== ======== ========
(PERCENTAGE OF NET SALES)
Paging products 75% 77% 87%
Mobile and fixed network products 17 16 6
Microwave communication 8 7 7
-------- -------- --------
100% 100% 100%
======== ======== ========
</TABLE>
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
NET SALES. Net sales for 1998 decreased 11% to $399.9 million as compared to
$451.7 million in 1997, which increased 16% from $390.2 million in 1996.
International sales decreased to $148.2 million in 1998 as compared to $227.2
million in 1997 and $154.3 million in 1996 and accounted for 37%, 50%, and 40%
of net sales for 1998, 1997, and 1996, respectively.
The decrease in sales for 1998 as compared to 1997 resulted primarily from a
decrease in deliveries of the Company's paging infrastructure and MVP product to
the Pacific Rim market caused by currency destabilization in certain Asian
countries. This decrease is being partially offset by the inclusion of a full
year of revenues of WAI and ODC products.
The increase in the Company's 1997 net sales compared to 1996 was primarily due
to the increased delivery of Glenayre's MVP products to both the domestic and
international markets. The 1997 implementation of a more aggressive
international strategy helped reverse the significant decrease in the MVP
product line growth rate experienced in 1996.
18
<PAGE>
The Company expects shipments to be slow in the first half of 1999, but are
expected to increase in the last half of 1999. This is a forward looking
statement which is subject to the factors discussed in the cautionary statement
attached as Exhibit 99 to this Form 10-K. There can be no assurance that the
Company's sales levels or growth will remain at or exceed historical levels in
any future period.
GROSS PROFIT. Gross profit was 47% in 1998 compared to 52% in 1997 and 54% in
1996. The declines in gross profit percentages in 1998 and 1997 were primarily
due to a lower sales volume of paging switch infrastructure equipment and the
inclusion of two-way paging device sales and ODC sales which realize lower
margins. Additionally, the Company's paging device manufacturer incurred
significant charges for rework on the Company's paging devices in the fourth
quarter of 1998 and experienced product start up problems in the second quarter
of 1998. The Company believes it has implemented solutions to these pager device
issues and anticipates it will increase pager device production yields in the
first half of 1999.
The Company anticipates its gross profit percentage to be approximately 50%
1999. However, Glenayre's gross profit margins may be affected by several
factors including (i) the mix of products sold, (ii) the price of products sold,
and (iii) increases in material costs and other components of cost of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expenses were $107.2 million, $100.6 million, and $80.4 million for 1998, 1997,
and 1996, respectively. The increase for 1998 as compared to 1997 was primarily
due to restructuring expenses incurred in 1998 for cost reduction activities
related to the global reduction of the Company's workforce (see Note 8 of the
Company's Consolidated Financial Statements) and the inclusion of CNET, ODC, and
WAI operating expenses since their dates of acquisition in 1997. These expenses
in 1998 are partially offset by a reduction in employee incentive, bonus and
sales commission expenses. The increase in 1997 versus 1996 was due primarily to
the addition of sales, marketing, technical support and administrative personnel
and general increases in employee costs and purchased services.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expenses increased to
$52.0 million in 1998 compared to $40.4 million in 1997 and $29.0 million in
1996. The 1998 increase was primarily due to (i) restructuring expenses incurred
in the first quarter of 1998 for severance and other employee related costs
associated with streamlining the Company's paging infrastructure research and
development workforce, and (ii) facility exit costs and employee related costs
incurred in the fourth quarter of 1998 for the relocation and integration of the
ODC facility to the Company's Atlanta facility (see Note 8 to the Company's
Consolidated Financial Statements). The 1998 and 1997 increases were also
impacted by the research and development activities of CNET, ODC, and WAI since
their dates of acquisition in 1997. These increases were partially offset by a
decrease in the Company's use of temporary contract service engineers as well as
lower employee incentive and bonus expenses incurred in 1998. The Company relies
on its research and development programs related to new products and the
improvement of existing products for growth in net sales. Research and
development costs are expensed as incurred. Research and development expenses as
a percentage of net sales increased to 13% in 1998 from 9% in 1997 and 7% in
1996. Glenayre expects spending for research and development in 1999 to decrease
as a percentage of net sales to approximately 10% to 11% with absolute dollars
changing in relation to net sales reflecting the Company's continued focus on
the development and timely introduction of new products.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT. Purchased research and
development costs of $38.7 million were expensed in 1997. These costs include
$16.4 million and $22.3 million for the purchase of technology under development
associated with ODC's database management products and with WAI's two-way paging
device expertise, respectively. The ODC acquisition provides the technology for
Glenayre to further strengthen its position as a worldwide provider in the
enhanced service platform market. The WAI acquisition gives Glenayre the
expertise in advanced pagers and integrated circuit design to offer some of the
most advanced, complete paging systems available.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased to $40.1 million in 1998 compared to $22.4 million in 1997 and $13.5
million in 1996. The Company spent $29.9 million, $32.9 million and $43.0
million in 1998, 1997, and 1996, respectively, in order to provide the equipment
and capacity necessary to meet the growth of its business. Additionally,
goodwill and other intangibles acquired through the businesses purchased
amounted to $113.2 million in 1997. The increases in depreciation and
amortization expense were due to these significant fixed and intangible asset
purchases. Glenayre anticipates equipment purchases in 1999 to be approximately
$25 million and is expected to increase depreciation expense in 1999 compared to
1998. Glenayre anticipates amortization expense for 1999 to be lower than 1998
(see "Write-off of Goodwill and Other Intangibles").
19
<PAGE>
WRITE-OFF OF GOODWILL AND OTHER INTANGIBLES. In 1998, the Company wrote off
$25.3 million of goodwill and $1.4 million of other intangibles related to its
acquisition of ODC, a total of $26.7 million, compared to the 1997 write-off of
$5.2 million of goodwill related to its acquisition of CNET.
At the time of the acquisition in the fourth quarter 1997, ODC targeted three
principal markets, including prepaid wireless, prepaid wireline, and postpaid
calling to deliver its platform products for database management by telephony
network operators. Operating projections utilized in establishing the negotiated
purchase price of the ODC business included expected revenue from all three of
these markets. Throughout 1998, the Company attempted to capitalize on the
accessibility of all three of these markets as part of the integration of the
ODC business. However, the Company's attempts to deliver the ODC products into
the prepaid wireline and postpaid calling markets were not productive. In the
fourth quarter 1998, after incurring significant operating losses from the ODC
business, management decided to focus on the prepaid wireless market. Management
made this strategic change away from the prepaid wireline and postpaid calling
markets due to the following reasons which were not readily apparent during the
acquisition process: (i) an insufficent internal resource knowledge base related
to these markets to compete at a reasonable operating profit level; (ii) due to
a high level of vendor specific customization, the data management products in
these markets require more capital and manpower resources than anticipated to
develop, deploy and maintain; (iii) the business environment is more aligned to
system integration rather than standardized product offerings; and (iv) the
channels of distribution are weak. Management believes that its future
concentration related to ODC products should continue to be primarily in the
prepaid wireless market due to (i) Glenayre's core knowledge base established in
the wireless market; (ii) distribution channels are in place; and (iii) this
market allows for a standardized product and support. Given this strategic
change, the Company anticipates that the future forecasted results for the ODC
products will be significantly less than had been anticipated at the time of the
Company's acquisition of ODC. As a result of this strategic change, the ODC
operating facility is being closed in March 1999 with research and development
and administrative functions relocating to the Company's Atlanta facility. ODC's
products will be manufactured at Glenayre's Vancouver facility. After making
these changes, the Company evaluated the ongoing value of the noncurrent assets
of ODC. Based on this evaluation, the Company determined that assets,
principally goodwill and other intangibles, with a carrying value of $30.9
million were impaired and wrote them down by $26.7 million to their fair value.
Fair value was based on estimated future discounted cash flows to be generated
by ODC.
In the first quarter 1997, the Company acquired CNET, a developer of network
management systems for the global wireless communications industry. During 1997,
revenue goals projected during the acquisition process were not achieved and
significant operating losses were incurred. In the fourth quarter of 1997,
Company management identified significant adverse changes in the market size for
CNET's existing products. These changes were primarily due to fewer than
anticipated end uses of a network management tool and significant on-going
development costs of radio frequency propagation software. Due to the above
changes, the Company revised its projections in the fourth quarter of 1997 and
determined that its projected results would not fully support the future
amortization of the goodwill balance. In accordance with the Company's policy,
management assessed the recoverability of goodwill using an undiscounted cash
flow projection based on the remaining amortization period of six years. Based
on this projection, the cumulative undiscounted cash flow over the remaining
amortization period was insufficient to fully recover the CNET goodwill balance
of $8.1 million. At December 31, 1997, the Company wrote off the short-fall of
$5.2 million. (See LOSS ON SALE OF BUSINESS below.)
The write-off of ODC goodwill and other intangibles will reduce amortization
expense in 1999 as compared to 1998 by approximately $4.9 million. The write-off
in 1997 reduced the CNET goodwill amortization expense in 1998 as compared to
1997 by approximately $850,000.
LOSS ON SALE OF BUSINESS. In December 1998, Glenayre sold its network management
business which it had been operating since January 1997. For the year ended
December 31, 1998, a loss on disposal of $7.9 million was reported in loss from
operations before income taxes in connection with the sale. The loss on sale
consists of the write-offs of assets, facility closing costs, severance payments
to employees, certain transition costs associated with training employees of the
buyer and other charges related to the sale. See Note 1 to the Company's
Consolidated Financial Statements.
INTEREST INCOME, NET. Interest income, net decreased to $8.2 million in 1998
compared to $10.4 million in 1997 and $9.7 million in 1996. The decrease in 1998
compared to 1997 was primarily due to a decrease in cash and cash equivalents
partially offset by higher average balances in customer notes receivable. The
increase in 1997 compared to 1996 was primarily due to higher balances in notes
receivable along with higher average interest rates earned. The Company expects
that the level of interest income, net in 1999 will vary in accordance with the
level of secured debt financing commitments exercised by Glenayre's customers.
20
<PAGE>
OTHER, NET. The decrease in expense for 1998 as compared to 1997 was primarily
due to expenses recorded in 1997 related to a realignment of certain domestic
sales, management, and engineering personnel in order to enhance organizational
efficiencies. Additionally, in 1997, the significant decline in relation to the
U.S. dollar of currencies of certain countries, including Canada, Singapore and
Taiwan, created unrealized translation expense as a result of the remeasurement
of the net assets of the Company's foreign operations from the local denominated
currency to the functional currency for consolidation. The translation loss or
gain recorded was not significant in 1998 but is expected to vary in 1999
depending on the amount of net assets in a foreign country and exchange rate
fluctuations.
PROVISION FOR INCOME TAXES. The 1998 effective tax rate differed from the
combined U.S. federal and state statutory tax rate of approximately 40% due
primarily to the nondeductible goodwill amortization and the write-off of ODC
goodwill. The difference between the 1997 and 1996 effective tax rates and the
combined federal and state statutory tax rate is primarily the result of (i) the
utilization of the Company's net operating losses ("NOLs"), (ii) lower tax rates
on earnings indefinitely reinvested in certain non-U.S. jurisdictions and (iii)
the application of Statement of Financial Accounting Standards No. 109
ACCOUNTING FOR INCOME TAXES, ("SFAS 109"), in computing the Company's tax
provision.. The difference between the effective tax rates in each of the years
is primarily the result of an increase in nondeductible goodwill amortization as
well as a variance between the adjustments in each year for realization of tax
benefits of net operating loss carryforwards for financial statement purposes in
accordance with SFAS 109. These adjustments are primarily due to revisions
during each year to the estimated future taxable income during the Company's
loss carryforward period. See Note 7 to the Company's Consolidated Financial
Statements.
Glenayre had a significantly lower book tax rate as compared with the statutory
tax rate in 1996 as a result of reductions in the valuation allowance
attributable to the Company's NOLs established prior to 1988 ("prior NOLs"). The
prior NOLs had a balance of $70 million as of December 31, 1996 and were fully
utilized during 1997. At December 31, 1998, the Company had approximately $33
million of NOLs related to companies acquired during 1997 ("acquired NOLs").
However, due to certain restrictions limiting the Company's future use of the
acquired NOLs, the potential benefit of the acquired NOLs has been fully
reserved.
The book tax rate is expected to increase to approximately 43% in 1999 due to
the increase in nondeductible goodwill amortization. However, the actual book
tax rate may be different from the Company's estimate due to various issues
including (i) future tax legislation, (ii) the changes in the amount of
international business by the Company, (iii) the utilization of U.S. Research
and Development tax credits, (iv) changes in federal, state or international tax
rates, (v) the availability of foreign sales corporation benefits and (vi) the
actual utilization of the acquired NOLs.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The Company changed its
accounting policy in 1997 pursuant to Emerging Issues Task Force No. 97-13
("EITF No. 97-13") for the project to implement a new business operating system
that Glenayre began in 1996 and completed in the second quarter of 1998.
Previously all direct costs relating to the project were capitalized, including
the portion related to business process reengineering. In accordance with EITF
No. 97-13, the unamortized balance of these reengineering costs as of November
1997 of approximately $1.1 million, or $688,000 after tax benefit was written
off.
FINANCIAL CONDITION AND LIQUIDITY
LIQUIDITY AND CAPITAL RESOURCES. At December 31, 1998, Glenayre's principal
sources of liquidity included $12.3 million of cash and cash equivalents and a
$50 million bank line of credit that expires in October 1999. There were
borrowings under the line of credit ranging from $1 to $29 million in 1998.
However, no borrowings were outstanding as of December 31, 1998. The decrease in
cash and cash equivalents of $8.8 million for 1998 is principally due to the
purchases of plant and equipment amounting to $29.9 million, offset by $16.5
million of funds provided by operations. The cash provided by operating
activities was primarily due to net income (before certain non-cash charges
including depreciation and amortization, the write-off of goodwill and other
intangibles and the loss on sale of the network management business) offset by
significant increases in notes receivable. Additionally, the decrease in cash is
being partially offset by cash received from the issuance of common stock (or
the result of stock option exercises) of $7.4 million. Notes receivable
increased $20.1 million for 1998 due to additional requests from customers for
financing primarily related to the sales of paging and voice mail products.
Approximately 78% of the notes receivable balance as of December 31, 1998
consists of receivables from three customers. One customer, who accounts for
$48.2 million, has a limited operating history, is highly leveraged and is
engaged in the buildout of a major narrowband personal communications services
network in the newly introduced market of advanced voice and text paging. This
customer's ability to complete its network buildout and continue ongoing
operations is dependent on
21
<PAGE>
continued financing support from its vendors and financial institutions and its
ability to access other capital markets. As of December 31, 1998, the principal
due dates of the amounts owing from this customer range from March 2000 to
December 2002. Deferred income taxes increased $6.6 million primarily due to
research and development credit carrryforwards and temporary differences.
In 1996, the Board of Directors of the Company authorized a repurchase program
to buy back 2.5 million shares of the Company's common stock. No shares were
repurchased under this program in 1997 or 1998. Additionally, in 1996, the
Company began the implementation of a new operating business system. This
business system became fully operational by the second quarter of 1998; $3.5
million of costs were incurred and capitalized in 1998 related to this
implementation.
The Company's cash and cash equivalents generally consist of high-grade
commercial paper, bank certificates of deposit, Treasury bills, notes or agency
securities guaranteed by the U.S. Government, and repurchase agreements backed
by U.S. Government securities with original maturities of three months or less.
The Company expects to use its cash and cash equivalents and bank line of credit
for working capital and other general corporate purposes, including the
expansion and development of its existing products and markets and the expansion
into complementary businesses. Additionally, the competitive telecommunications
market often requires customer financing commitments. These commitments may be
in the form of guarantees, secured debt or lease financing. At December 31,
1998, the Company had agreements to finance and arrange financing for
approximately $73 million of paging and voice mail products. Further, at
December 31, 1998, the Company had committed, subject to customers meeting
certain conditions and requirements, to finance approximately $6 million for
similar systems. The Company cannot currently predict the extent to which these
commitments will be utilized, since certain customers may be able to obtain more
favorable terms using traditional financing sources. From time to time, the
Company also arranges for third-party investors to assume a portion of its
commitments. If exercised, the financing arrangements will be secured by the
equipment sold by Glenayre.
During 1997 Glenayre began the construction phase for a 110,000 square foot
expansion of its Vancouver facility to be used primarily for research and
development and service. The total cost of the expansion was expected to be
approximately $19.0 million and was to be paid throughout the construction
period in 1998 and 1999. However, during the first quarter 1999, the Company
halted the construction in progress on the facility and revised plans to
complete only a parking facility and a 16,000 square foot first level at an
estimated total cost of $11.7 million Approximately $900,000 and $6.3 million
paid toward architecture, engineering and construction costs related to the new
expansion are included in capital expenditures for the year ended December 31,
1997 and 1998, respectively. Commitments of approximately $2.5 million relating
to the termination of the construction contract are included in the estimated
$4.5 million total costs to complete.
The Company believes that funds generated from continuing operations, together
with its current cash reserves and bank line of credit, will be sufficient to
(i) support the short-term and long-term liquidity requirements for current
operations (including annual capital expenditures and customer financing
commitments) and (ii) to repurchase shares as discussed above. Company
management believes that, if needed, it can establish additional borrowing
arrangements with lending institutions.
INCOME TAX MATTERS. For 1998, Glenayre's actual cash outlay for taxes was
limited to U.S. alternative minimum tax and foreign and state income taxes
primarily due to the availability of foreign sales corporation benefits and the
utilization of research and development tax credits. In 1997 and prior years,
the Company had a favorable income tax position principally because of the
existence of a significant amount of U.S. tax net operating loss carryforwards
established prior to 1988. These tax loss carryforwards were available to
shelter U.S. taxable income generated by the Company. Therefore, the Company's
actual cash outlay for income taxes in 1997 and prior years was limited to U.S.
alternative minimum tax and foreign and state income taxes. The remainder of
prior NOLs were utilized in 1997.
As described in Note 7 to the Company's Consolidated Financial Statements, the
Company at December 31, 1998 had U.S. NOLs aggregating $33 million related to
1997 acquisitions of ODC and WAI. However, the ability to utilize the acquired
NOLs to offset future income is subject to restrictions and there can be no
assurance that they will be utilized in 1999 or future periods. Additionally, as
the volume of international sales grows, the percentage of worldwide income
taxable in international jurisdictions may increase in the future. As a result,
the cash tax rate may be significantly higher in 1999 compared to 1998 and
recent years.
The Company has recorded a deferred tax asset of $21 million, net of a valuation
allowance of $16 million, at December 31, 1998, in accordance with SFAS 109.
This amount represents management's best estimate of the amount of NOLs and
other future deductions that are more likely than not to be realized as offsets
to future taxable income. The factors that affect the amount of U.S. taxable
income in the future, in relation to reported income before income taxes,
include primarily the amount
22
<PAGE>
of employee stock options exercised and the portion of such income taxable in
jurisdictions outside the U.S., both of which reduce the amount of income
subject to U.S. tax, and therefore reduce the utilization of existing net
operating loss carryforwards.
YEAR 2000 COMPLIANCE. Until recently, computer programs were generally written
using two digits rather than four to define the applicable year. Accordingly,
such programs may be unable to distinguish properly between the Year 1900 and
Year 2000. This could result in system failures or data corruption for the
Company, its customers or suppliers which could cause disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in business activities or to receive information, services, raw materials
and supplies, or payment from suppliers, customers or business partners or any
other companies with which the Company conducts business.
The Company has developed a comprehensive plan intended to address Year 2000
issues. As part of the plan, the Company has selected a team to identify,
evaluate and implement remediation efforts aimed at making the Company's
information technology, non-information technology systems and products Year
2000 ready prior to December 31, 1999. During 1998, the team completed its
assessment of the Company's information technology, non-technology systems, and
products and established milestones and detailed plans so that the Company's
research programs, products and internal infrastructure are reviewed and the
necessary changes made.
The Company's information technology remediation efforts related to internal
operating systems is complete for the Charlotte, Quincy, Vancouver and Atlanta
facilities. The Company's efforts in 1999 will consist of remediation efforts at
WAI, which are anticipated to be completed in the second quarter of 1999. The
Company has also prioritized and completed the significant steps of its
non-information technology systems plan. The Company's remaining remediation
efforts relate to non-information technology systems and products which are
expected to be completed during fiscal 1999. If the Company's remaining
remediation efforts are not completed on a timely basis, the Year 2000 issue
could have an adverse effect on the Company's operations and customers.
Based upon the remediation efforts completed, the Company does not believe a
formal contingency plan will be required. Individual locations or business units
will develop informal contingency plans in the event that they do not expect to
be fully Year 2000 compliant within the current time estimates. To date, the
cost of the Company's Year 2000 assessment and remediation efforts has not been
material to the Company's results of operations or liquidity. The total
expenditures as of December 31, 1998 to remediate the Company's Year 2000
issues, inclusive of its ongoing systems initiatives is approximately $200,000
and is related primarily to product Year 2000 readiness assessments and minor
infrastructure upgrades. 1999 expenditures are not expected to exceed $500,000.
The Company is funding the expenditures related to the Year 2000 plan with cash
flows from operations. The capitalization or expense of the foregoing
expenditures will be determined using current authoritative guidance.
The Company is also communicating with its significant suppliers, customers and
business partners to coordinate Year 2000 conversion efforts. Currently, the
Company is unaware of any material exposures or contingencies in regards to
these parties. However, the Company cannot reasonably estimate the potential
impact on its financial position, results of operations or cash flows in the
event these parties do not become Year 2000 compliant on a timely basis.
INFLATION. For the three fiscal years ended December 31, 1998, the Company does
not believe inflation has had a material effect on its results of operations.
FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-K, the Company's Annual Report to Stockholders, any Form 10-Q or
any Form 8-K of the Company or any other written or oral statements made by or
on behalf of the Company include forward-looking statements reflecting the
Company's current views with respect to future events and financial performance.
Although certain cautionary statements have been made in this Form 10-K relating
to factors which may affect future operating results, a more detailed discussion
of these factors is set forth in Exhibit 99 to this Form 10-K.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries as of
December 31, 1998, 1997 and 1996 and for each of the three years in the period
ended December 31, 1998, as well as the report of independent auditors thereon,
are set forth on the following pages. The index to such financial statements and
required financial statement schedules is set forth below and at Item 14(a) of
this Annual Report on Form 10-K.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
(i) Financial Statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP Independent Auditors ........................................... 25
Consolidated Balance Sheets at December 31, 1998 and 1997 .................................. 26
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 . 27
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998,
1997 and 1996 ............................................................................ 28
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 . 29
Notes to Consolidated Financial Statements ................................................. 31
(ii) Supplemental Schedules:
(For the years ended December 31, 1998, 1997 and 1996)
Schedule II - Valuation and Qualifying Accounts .......................................... 58
</TABLE>
All other schedules are omitted because they are not applicable or not
required.
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders
Glenayre Technologies, Inc.
We have audited the consolidated balance sheets of Glenayre Technologies, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Glenayre Technologies, Inc. and subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed more fully in Note 1, the Company has modified the methods used to
value acquired in-process research and development recorded and written off in
connection with the Company's 1997 acquisitions of Open Development Corporation
and Wireless Access, Inc. and, accordingly, has restated the consolidated
financial statements for the fiscal year ended December 31, 1997 to reflect this
change.
ERNST & YOUNG LLP
Charlotte, North Carolina
February 15, 1999
25
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................................... $ 12,283 $ 21,076
Accounts receivable, net ..................................... 153,773 152,231
Notes receivable ............................................. 12,810 8,684
Inventories .................................................. 46,502 49,302
Deferred income taxes ........................................ 15,906 13,943
Prepaid expenses and other current assets .................... 5,630 6,810
-------- --------
Total current assets ....................................... 246,904 252,046
Notes receivable, net ........................................... 69,041 53,050
Property, plant and equipment, net .............................. 109,661 103,641
Goodwill ........................................................ 119,626 164,080
Deferred income taxes ........................................... 5,679 1,088
Other assets .................................................... 10,884 16,256
-------- --------
TOTAL ASSETS .................................................... $561,795 $590,161
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................................. $ 31,968 $ 27,133
Accrued liabilities ........................................... 60,258 61,358
Other current liabilities ..................................... 206 2,101
-------- --------
Total current liabilities ................................... 92,432 90,592
Other liabilities ............................................... 7,210 7,210
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding ................ -- --
Common stock, $.02 par value; authorized: 200,000,000 shares;
outstanding: 1998-62,064,290 shares; 1997-60,650,761 shares 1,241 1,213
Contributed capital ........................................... 343,251 333,715
Retained earnings ............................................. 117,661 157,431
-------- --------
Total stockholders' equity .................................. 462,153 492,359
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $561,795 $590,161
======== ========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
NET SALES ........................................... $ 399,942 $ 451,679 $ 390,246
--------- --------- ---------
COSTS AND EXPENSES:
Cost of sales .................................. 211,255 217,793 180,468
Selling, general and administrative expense .... 107,181 100,619 80,428
Research and development expense ............... 52,024 40,425 28,983
Charge for purchased research and development .. -- 38,700 --
Depreciation and amortization expense .......... 40,086 22,368 13,482
Write-off of goodwill and other intangibles .... 26,705 5,183 --
Loss on sale of business ....................... 7,858 -- --
--------- --------- ---------
Total costs and expenses ....................... 445,109 425,088 303,361
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS ....................... (45,167) 26,591 86,885
--------- --------- ---------
OTHER INCOME (EXPENSES):
Interest income ................................ 8,780 10,577 9,805
Interest expense ............................... (591) (227) (151)
Other, net ..................................... (180) (2,147) 112
--------- --------- ---------
Total other income ............................. 8,009 8,203 9,766
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE ........................................ (37,158) 34,794 96,651
PROVISION FOR INCOME TAXES .......................... 2,612 27,855 26,207
--------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE .................... (39,770) 6,939 70,444
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (NET OF INCOME TAX BENEFIT OF $362) ..... -- (688) --
--------- --------- ---------
NET INCOME (LOSS) ................................... $ (39,770) $ 6,251 $ 70,444
========= ========= =========
INCOME (LOSS) PER WEIGHTED AVERAGE COMMON
SHARE:
Income (loss) before cumulative effect of change in
accounting principle .............................. $ (0.65) $ 0.11 $ 1.16
Cumulative effect of change in accounting principle . -- (0.01) --
--------- --------- ---------
Net income (loss) per weighted average common share . $ (0.65) $ 0.10 $ 1.16
========= ========= =========
INCOME (LOSS) PER COMMON SHARE--ASSUMING
DILUTION:
Income (loss) before cumulative effect of change in .
accounting principle .............................. $ (0.65) $ 0.11 $ 1.11
Cumulative effect of change in accounting principle . -- (0.01) --
--------- --------- ---------
Net income (loss) per common share--assuming dilution $ (0.65) $ 0.10 $ 1.11
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Total
------------------- Contributed Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995 60,045 $ 1,201 $ 297,017 $ 92,476 $ 390,694
Net income 70,444 70,444
Stock options exercised 1,393 28 14,061 14,089
Utilization of net operating loss
carryforwards 10,027 (10,027) --
Tax benefit of stock options exercised 16,947 16,947
Repurchase of common stock (1,570) (32) (36,281) (36,313)
------- ------- ------- ------- --------
Balances, December 31, 1996 59,868 1,197 301,771 152,893 455,861
Net income 6,251 6,251
Stock options exercised 470 10 2,516 2,526
Shares issued and options assumed
in connection with business
acquisitions 313 6 26,461 26,467
Utilization of net operating loss
carryforwards 1,713 (1,713) --
Tax benefit of stock options exercised 1,254 1,254
------ ------- ------- -------- -------
Balances, December 31, 1997 60,651 1,213 333,715 157,431 492,359
Net loss (39,770) (39,770)
Stock options exercised 1,413 28 7,328 7,356
Tax benefit of stock options exercised 2,208 2,208
------- -------- --------- --------- ---------
Balances, December 31, 1998 62,064 $ 1,241 $ 343,251 $ 117,661 $ 462,153
======== ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (39,770) $ 6,251 $ 70,444
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 40,086 22,368 13,482
Changes in deferred income taxes (6,554) 18,164 5,392
Loss on disposal of equipment 1,166 254 82
Loss on sale of business 7,858 -- --
Charge for purchased research and development -- 38,700 --
Write-off of goodwill and other intangibles 26,705 5,183 --
Tax benefit of stock options exercised 2,208 1,254 16,947
Other noncash expenses -- -- 121
Changes in operating assets and liabilities, net of
effects of business dispositions and acquisitions:
Accounts receivable (2,892) (27,922) (30,586)
Notes receivable (20,427) (38,084) (388)
Inventories 2,800 7,083 (415)
Prepaids and other current assets 1,140 2,172 (768)
Other assets 384 (1,127) (559)
Accounts payable 4,842 1,168 3,905
Accrued liabilities (2,923) 8,532 4,619
Other liabilities 1,878 720 1,207
------- ------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 16,501 44,716 83,483
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (29,949) (32,889) (43,017)
Proceeds from sale of equipment 180 46 123
Maturities of short-term investments -- 164,103 171,812
Purchases of short-term investments -- (86,087) (205,774)
Acquisitions, net of cash acquired -- (123,646) --
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (29,769) (78,473) (76,856)
------- ------- -------
</TABLE>
29
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(TABULAR AMOUNTS IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term borrowings (2,881) (1,478) (1,279)
Issuance of common stock 7,356 2,526 14,150
Common stock repurchases -- -- (36,313)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,475 1,048 (23,442)
-------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,793) (32,709) (16,815)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 21,076 53,785 70,600
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 12,283 $ 21,076 $ 53,785
======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 606 $ 114 $ 140
Income taxes 5,277 6,290 6,183
</TABLE>
SUPPLEMENTAL INFORMATION OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
On January 9, 1997, the Company acquired CNET, Inc. ("CNET"). In connection with
this acquisition the Company paid $1,194,000 (including $194,000 in acquisition
costs) and issued common stock valued at $6,541,000 for assets with a fair value
of $11,853,000 and assumed liabilities of $4,118,000.
On October 15, 1997, the Company acquired Open Development Corporation ("ODC").
In connection with this acquisition the Company paid $44,742,000 (including
$1,355,000 in acquisition costs) and assumed options to purchase common stock
valued at $3,289,000 for assets and in-process research and development with a
fair value of $59,040,000 and assumed liabilities of $11,009,000.
On November 3, 1997, the Company acquired Wireless Access, Inc. ("WAI"). In
connection with this acquisition the Company paid $83,779,000 (including
$1,939,000 in acquisition costs) and assumed options to purchase common stock
valued at $16,636,000 for assets and in-process research and development with a
fair value of $108,801,000 and assumed liabilities of $8,386,000.
See notes to consolidated financial statements.
30
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. BUSINESS ACQUISITIONS
(A) CNET, INC. ACQUISITION AND SUBSEQUENT SALE
On January 9, 1997, the Company completed the acquisition of CNET, Inc.
("CNET"), located in Plano, Texas. CNET develops and provides integrated
operational support systems, network management, traffic analysis, and radio
frequency propagation software products and services for the global wireless
communications industry. CNET licenses its products to cellular, paging and
personal communications services operators and wireless equipment manufacturers
worldwide. The purchase price of $7.7 million consisted of 369,983 shares of the
Company's common stock (including 56,620 shares issuable upon exercise of stock
options) valued at $6.5 million, $1.0 million in cash and $194,000 in
acquisition costs. The Company's consolidated financial statements for the year
ended December 31, 1997 include the operating results of CNET for the period
January 9, 1997 to December 31, 1997. The acquisition was accounted for as a
purchase business combination with the purchase price allocated, as follows:
Current assets.......................... $ 1,752
Equipment............................... 412
Goodwill................................ 9,343
Other non-current assets................ 346
Liabilities assumed..................... (4,118)
------
$ 7,735
=======
In the fourth quarter of 1997, Company management identified significant adverse
changes in the market size for CNET's existing products. These changes were
primarily due to fewer than anticipated end uses of the network management tool
and significant on-going development costs of the radio frequency propagation
software. These conditions led to operating results and forecasted future
results that were substantially less than had been anticipated at the time of
the Company's acquisition of CNET.
Due to the above changes, the Company revised its projections in the fourth
quarter of 1997 and determined that its projected results would not fully
support the future amortization of the goodwill balance. In accordance with the
Company's policy, management assessed the recoverability of goodwill using an
undiscounted cash flow projection based on the remaining amortization period of
six years. Based on this projection, the cumulative undiscounted cash flow over
the remaining amortization period was insufficient to fully recover the CNET
goodwill balance of $8.1 million. At December 31, 1997, the Company wrote off
the short-fall of $5.2 million.
In December 1998, the Company sold its network management business which it had
been operating since the acquisition of CNET in January 1997. Under the terms of
the sale agreement, the Company will receive proceeds from the sale only if
certain future revenue milestones are met by the acquirer. These contingent
amounts, which cannot exceed $1.0 million, will be recorded by the Company when
they are received. At the time of sale, the network management business had net
assets of approximately $5.2 million. A loss on disposal of $7.9 million was
reported in income from operations before income taxes in connection with the
sale for the year ended December 31, 1998. The loss on sale consists of the
write-offs of assets, facility closing costs, severance payments to employees,
certain transition costs associated with training employees of the buyer and
other charges related to the sale.
(B) OPEN DEVELOPMENT CORPORATION ACQUISITION
On October 15, 1997, the Company completed the acquisition of Open Development
Corporation ("ODC"), located in Norwood, Massachusetts. ODC is a developer of
database management platforms and products for telecommunications providers. The
purchase price of $48.0 million consisted of 242,066 shares issuable upon
exercise of stock options of the Company's common stock valued at $3.3 million,
$43.4 million in cash and $1.3 million in
31
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
acquisition costs. The Company's consolidated financial statements for the year
ended December 31, 1997 include the operating results of ODC for the period
October 15, 1997 to December 31, 1997. The acquisition was accounted for as a
purchase business combination with the purchase price allocated, as follows:
Current assets $ 2,979
Equipment 3,808
Goodwill 30,581
Purchased research and development
charged to operations 16,400
Other intangibles 3,700
Deferred tax asset 996
Other non-current assets 576
Liabilities assumed (11,009)
--------
$ 48,031
========
Actual 1998 revenue and earnings from ODC's products were significantly lower
than anticipated at the date of acquisition, which significantly impacted the
Company's 1998 results. These lower than anticipated results were primarily
attributed to a strategic change in market strategy during 1998 for ODC's
products. This strategic change was from a multiple market approach for the
prepaid wireless, prepaid wireline, and postpaid calling markets to a single
market approach focused solely on the prepaid wireless market, thus eliminating
two markets in which the products were expected to be sold. Operating
projections prepared prior to the acquisition included revenue related to all
three of these markets. Management believes that its future concentration for
the ODC products should continue to be primarily in the prepaid wireless market.
Given this strategic change, the Company anticipates that the future forecasted
results for the ODC products will be significantly less than had been
anticipated at the time of the Company's acquisition of ODC. As a result of this
strategic change, the ODC Norwood, Massachusetts operating facility is being
closed in the first quarter 1999 with research and development and
administrative functions relocating to the Company's Atlanta facility. ODC's
products will be manufactured at Glenayre's Vancouver facility.
After making these changes, the Company evaluated the ongoing value of the
noncurrent assets of ODC. Based on this evaluation, the Company determined that
assets, principally goodwill and other intangibles, with a carrying value of
$30.9 million were impaired and wrote them down by $26.7 million to their fair
value. Fair value was based on estimated future discounted cash flows to be
generated by ODC.
(C) WIRELESS ACCESS, INC. ACQUISITION
On November 3, 1997, the Company completed the acquisition of Wireless Access,
Inc. ("WAI"), located in Santa Clara, California. WAI develops and markets
two-way paging devices. The purchase price of $100.4 million consisted of
1,341,916 shares issuable upon exercise of stock options of the Company's common
stock valued at $16.6 million, $81.9 million in cash and $1.9 million in
acquisition costs. The Company's consolidated financial statements for the
32
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
year ended December 31, 1997 include the operating results of WAI for the period
November 3, 1997 to December 31, 1997. The acquisition was accounted for as a
purchase business combination with the purchase price allocated, as follows:
Current assets $ 13,076
Equipment 1,354
Goodwill 59,500
Purchased research and development
charged to operations 22,300
Other intangibles 10,035
Deferred tax asset 2,536
Liabilities assumed (8,386)
-------------
$ 100,415
=========
Pro forma results of operations assuming the acquisitions of CNET, ODC, and WAI
had occurred as of January 1, 1996 have not been presented because their effect
on net sales and net income would not be significant.
During the fourth quarter 1998 and the first quarter 1999, the Company and the
Staff of the Securities and Exchange Commission (the "Staff") had communication
with respect to the methods used to value acquired in-process technology
recorded and written off at the date of acquisition. As a result, the Company
has modified the methods used to value acquired in-process technology in
connection with the Company's 1997 acquisitions of ODC and WAI and has restated
its 1997 financial statements.
The amounts allocated to purchased research and development for ODC and WAI were
determined through established valuation techniques in the high-technology
communications industry, were based on adjusted after-tax cash flows that give
explicit consideration to the Staff views on in-process research and development
as set forth in its September 15, 1998 letter to the American Institute of
Certified Public Accountants, and were expensed upon acquisition, because
technological feasibility had not been established and no future alternative
uses existed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Glenayre is a worldwide provider of telecommunications equipment and related
software used in the wireless personal communications service markets including
wireless messaging, voice processing, mobile data systems and point-to-point
wireless interconnection products. The Company designs, manufactures, markets
and services its products principally under the Glenayre name. These products
include switches, transmitters, receivers, controllers, software, paging devices
and other equipment used in personal communications systems (including paging,
voice messaging, cellular, and message management and mobile data systems),
microwave communication systems and radio telephone systems.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
33
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
CONSOLIDATION
The consolidated financial statements include the accounts of Glenayre
Technologies, Inc. and its subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation.
OPERATING CYCLE
Assets and liabilities related to long-term contracts are included in current
assets and current liabilities in the consolidated balance sheets, as they will
be liquidated in the normal course of contract completion.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. These investments
generally consist of high-grade commercial paper, bank certificates of deposits,
Treasury bills, notes or agency securities guaranteed by the U.S. Government and
repurchase agreements backed by U.S. Government securities.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are large diversified entities with
operations throughout the U.S. and Company policy is designed to limit exposure
to any one institution. The Company performs periodic evaluations of the
relative credit standing of those financial institutions that are considered in
the Company's investment strategy.
INVENTORIES
Inventories are valued at the lower of average cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally using the straight-line method based on the
estimated useful lives of the related assets (buildings, 20-40 years; furniture,
fixtures and equipment, 3-7 years).
GOODWILL
Goodwill represents the excess of cost over assigned fair market value of net
assets acquired and is being amortized on a straight-line basis over estimated
useful lives ranging from 7 to 30 years. Goodwill is shown net of accumulated
amortization of $29.1 million and $18.0 million at December 31, 1998 and 1997,
respectively. The carrying amount of goodwill is reviewed if facts and
circumstances suggest that it may be impaired. If this review indicates that
goodwill will not be recoverable, as determined based on the expected future
undiscounted cash flow of the entity acquired over the remaining amortization
period, the carrying amount of the goodwill is reduced by the estimated
shortfall. In addition, the Company assesses long-lived assets for impairment
under FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED Of. Under those rules, goodwill
associated with assets acquired in a purchase business combination is included
in impairment evaluations when events or circumstances exist that indicate the
carrying amount of those assets may not be recoverable.
34
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOREIGN CURRENCY TRANSLATION
The accounts of foreign subsidiaries have been translated into U.S. dollars
using the current exchange rate in effect at the balance sheet date for monetary
assets and liabilities; and for non-monetary items, the exchange rates in effect
when acquired. Revenues and expenses are translated into U.S. dollars using
average exchange rates, except for depreciation, which is translated at the
exchange rate in effect when the related assets were acquired. The resulting
gains or losses on currency translations, which are not significant, are
included in the consolidated statements of income.
REVENUE RECOGNITION
The Company recognizes revenues at the time products are shipped (except for
certain long-term contracts described below) and collection of the resulting
receivable is deemed probable by the Company. Existing customers may purchase
product enhancements and upgrades after such enhancements or upgrades are
developed by the Company. The Company has no obligations to customers after the
date products, product enhancements and upgrades are shipped, except for product
warranties as described below.
The Company recognizes fees from installation and repair services when such
services are provided to customers. Revenues derived from contractual
postcontract support services are recognized ratably over the one-year contract
period of required support.
The Company uses the percentage-of-completion method to recognize revenues on
certain long-term telecommunications hardware and installation contracts.
Earnings are accrued based on the completion of key contract performance
requirements. As long-term contracts extend over one or more years, revisions in
cost and profit estimates are reflected in the accounting period in which the
facts that require the revision become known. At the time a loss on a contract
becomes known, the entire amount of the estimated ultimate loss is accrued.
SOFTWARE COSTS
Product related computer software development costs are expensed as incurred.
Such costs are required to be expensed until the point of technological
feasibility is established. Costs which may otherwise be capitalized after such
point are generally not significant and are therefore expensed as incurred.
Pursuant to Emerging Issues Task Force Issue No. 97-13 ("EITF No. 97-13"),
issued in November 1997, the Company changed its accounting policy in the fourth
quarter of 1997, regarding a project to implement a new business operating
system that it began in 1996 and completed in the second quarter of 1998. Prior
to the fourth quarter of 1997, substantially all direct costs relating to the
project were capitalized, including the portion related to business process
reengineering. Under EITF No. 97-13, the unamortized balance of these
reengineering costs as of November 20, 1997 of approximately $1,050,000, or
$688,000 after tax benefit ($.01 per share), was written off as a one-time,
non-cash, cumulative effective adjustment in the fourth quarter of 1997.
ESTIMATED WARRANTY COSTS
The Company warrants its telecommunications products other than certain
transmitters for one year after sale. The majority of the Company's transmitters
and paging devices are warranted for two years after sale. A provision for
estimated warranty costs is recorded at the time of sale.
35
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
STOCK-BASED COMPENSATION
The Company grants stock options and issues shares under option plans and an
employee stock purchase plan as described in Note 12 to the Company's
Consolidated Financial Statements. The Company accounts for stock option grants
and shares sold under the employee stock purchase plan in accordance with APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and, accordingly,
records compensation expense for options granted and sales made at prices that
are less than fair market value at the date of grant or sale. No compensation
expense is recognized for options granted to employees with an exercise price
equal to the fair value of the shares at the date of grant.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
SFAS 109, ACCOUNTING FOR INCOME TAXES.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, trade accounts and notes
receivable, and other current and long-term liabilities approximates their
respective fair values.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
On December 31, 1998, the Company adopted FASB Statement No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). The new
rules establish revised standards for public companies relating to the reporting
of financial and descriptive information about their operating segments in
financial statements. The adoption of SFAS 131 did not have a material effect on
Glenayre's primary financial statements, but did affect the disclosure of
segment information contained elsewhere herein. See Note 9 to the Company's
Consolidated Financial Statements.
On December 31, 1998, the Company adopted FASB Statement No. 132, EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS ("SFAS 132"). SFAS
132 revises employers' disclosures about pension and other postretirement
benefit plans. The adoption of SFAS 132 will have no impact on the Company's
consolidated results of operations, financials position or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is required
to be adopted in years beginning after June 15, 1999. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the financial
position of the Company.
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts receivable at December 31, 1998 and 1997 consist of:
1998 1997
-------- --------
Trade receivables $ 154,342 $ 151,949
Retainage receivables 1,256 1,028
Other 4,005 3,796
--------- ---------
159,603 156,773
Less: allowance for doubtful accounts (5,830) (4,542)
--------- ---------
$ 153,773 $ 152,231
========= =========
36
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Trade receivables at December 31, 1998 and 1997 included unbilled costs and
estimated earnings under contracts in the amount of approximately $30.5 million
and $8.3 million, respectively. Unbilled amounts are invoiced upon reaching
certain milestones.
Notes receivable at December 31, 1998 and 1997 consist of:
1998 1997
---- ----
Current ....... $ 12,810 $ 8,684
Non-current ... 74,518 57,092
-------- --------
87,328 65,776
Less: reserves (5,477) (4,042)
-------- --------
$ 81,851 $ 61,734
======== ========
Concentrations of credit risk with respect to accounts receivable are generally
limited due to the large number of entities comprising the Company's customer
base. However, as of December 31, 1998 principally all of the Company's
receivables are concentrated in the telecommunications industry. Further,
approximately 78% of notes receivable as of December 31, 1998 consist of
receivables from three customers, one of which accounts for $48.2 million, has a
limited operating history, is highly leveraged and is engaged in the buildout of
a major narrowband personal communications services network in the newly
introduced market of advanced voice and text paging. Due to significant start-up
expenses incurred by this one customer, Glenayre agreed to long-term financing
agreements. As of December 31, 1998, the principal due dates of the amounts
owing from this one customer range from March 2000 to December 2002. This
customer's ability to complete its network buildout and continue on-going
operations is dependent on continued financing support from its vendors and
financial institutions and its ability to access other capital markets.
Approximately 78% of notes receivable are from customers located in the U.S.
with the remaining balance predominately from customers located in the Pacific
Rim and South America. Generally, all notes receivable are secured by the
related equipment.
4. INVENTORIES
Inventories at December 31, 1998 and 1997 consist of:
1998 1997
---- ----
Raw materials................ $26,046 $25,970
Work in process.............. 11,818 10,813
Finished goods............... 8,638 12,519
------- -------
$46,502 $49,302
======= =======
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1997 consist of:
1998 1997
----- ----
Land ......................... $ 3,746 $ 3,746
Buildings .................... 47,829 41,320
Equipment .................... 109,370 91,179
Leasehold improvements ....... 2,376 2,586
--------- ---------
163,321 138,831
Less: Accumulated depreciation (53,660) (35,190)
--------- ---------
$ 109,661 $ 103,641
========= =========
37
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1998 and 1997 consist of:
1998 1997
----- ----
Accrued project costs ..... $9,805 $13,290
Accrued warranty costs .... 7,951 3,814
Accrued payroll costs ..... 14,170 16,288
Accrued restructuring costs 4,323 --
Accrued income taxes ...... 5,090 4,134
Other accruals ............ 18,919 23,832
------- -------
$60,258 $61,358
======= =======
7. INCOME TAXES
The Company's income tax provision consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current provision:
United States Federal ................................. $ (445) $ 25,544 $ 12,978
Charge equivalent to tax benefit of stock
option exercises .................................... 2,208 1,254 16,947
Foreign ............................................... 4,006 3,802 2,432
State and local ....................................... (96) 2,160 3,032
-------- ------- -------
Total current ....................................... 5,673 32,760 35,389
-------- ------- -------
Deferred provision (benefit):
Before valuation allowance adjustment ................. (2,861) (3,192) 845
Adjustment to federal net operating loss carryforward.. 664 -- --
Adjustment to state net operating loss carryforward.... 1,422 -- --
Adjustment to valuation allowance ..................... (2,286) (1,713) (10,027)
-------- ------- -------
Total deferred benefit .............................. (3,061) (4,905) (9,182)
-------- ------- -------
Total provision .......................................... $ 2,612 $27,855 $26,207
======== ======= =======
The sources of income (loss) before income taxes are presented as follows:
1998 1997 1996
-------- -------- --------
United States............................................ $(49,049) $18,758 $84,880
Foreign ................................................. 11,891 16,036 11,771
-------- ------- -------
$(37,158) $34,794 $96,651
======== ======= =======
</TABLE>
38
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The consolidated income tax provision was different from the amount computed
using the U.S. statutory income tax rate for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax provision at U.S. statutory rate .... (13,005) $ 12,177 $ 33,828
Reduction in valuation allowance ............... (2,286) (1,713) (10,027)
Reduction in federal net operating loss
carryforwards due to sale of business ......... 664 -- --
Reduction in state net operating loss
carryforwards ................................. 1,422 -- --
Foreign taxes at rates other than U.S. statutory
rate ......................................... 716 (1,229) (1,201)
U.S. research and experimentation credits ...... (905) (953) (977)
Foreign tax credits ............................ (639) -- --
State taxes (net of federal benefit) 378 412 3,474
Benefit from Foreign Sales Corporation ......... (1,060) -- --
Non-deductible loss on sale of business ....... 1,374 -- --
Non-deductible charge for purchased research and
development .................................. -- 14,701 --
Write-off of non-deductible goodwill and other
intangibles .................................... 9,141 -- --
Non-deductible goodwill ........................ 6,812 4,460 1,110
----- ----- -----
Income tax provision ........................... $ 2,612 $27,855 $ 26,207
======== ======= ========
</TABLE>
The tax effect of temporary differences and net operating loss carryforwards
("NOLs") that gave rise to the Company's deferred tax assets and liabilities at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets:
U.S. net operating loss carryforwards........ $11,654 $12,318
State net operating loss carryforwards....... 1,397 2,816
Other........................................ 31,767 22,304
-------- ------
44,818 37,438
Less: Valuation allowance.................... (16,216) (18,502)
------- -------
28,602 18,936
Liabilities.................................... (7,017) (3,905)
------ ------
Deferred tax asset, net........................ $21,585 $15,031
======= =======
</TABLE>
The deferred tax asset is broken down between current and noncurrent amounts in
the accompanying 1998 consolidated balance sheet according to the classification
of the related asset and liability or, in the case of tax loss carryforwards,
based on their expected utilization date.
The decrease in the valuation allowance of $2.3 million during the year ended
December 31, 1998 is related primarily to the reduction in net operating loss
carryforwards. The valuation allowance related specifically to all
carryforwards, including various credits, of acquired companies is $14.3
million. The Company believes that it is more likely than not that the net
deferred tax asset recorded at December 31, 1998 will be fully realized.
At December 31, 1998 and December 31, 1997, the Company has U.S. NOLs of $33
million and $34 million, respectively, which expire beginning in 2005. All of
these NOLs relate to companies acquired during the year ended December 31, 1997.
The Company's ability to use the NOLs to offset future income is subject to
restrictions enacted in the United States Internal Revenue Code of 1986 as
amended (the "Code"). These restrictions limit the Company's
39
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
future use of the NOLs. As a result, the potential tax benefit of the NOLs has
been fully reserved as part of the deferred tax asset valuation allowance.
As of December 31, 1996, the Company had net operating loss carryforwards of $70
million. All of these NOLs were utilized during the year ended December 31,
1997. Subsequent to a quasi-reorganization completed on February 1, 1988, the
benefits derived from the utilization of these tax net operating loss
carryforwards are reported in the statement of operations in the year such tax
benefits are realized and then reclassified from retained earnings to
contributed capital. The Company adopted the accounting method for utilization
of these tax net operating loss carryforwards outlined above on February 1,
1988. On September 28, 1989, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin No. 86 ("SAB 86") which set forth the SEC
staff's position with respect to this accounting treatment. According to the SEC
staff's interpretation of SFAS 96 contained in SAB 86, realized tax benefits
should be reported as a direct addition to contributed capital. Subsequently,
the Company consulted with SEC staff and determined that the SEC staff would not
object to the accounting method outlined above for companies which had adopted
such accounting methods prior to the issuance of SAB 86.
If the original guidance in SAB 86 had been applied, the Company's net income
for the years ended December 31, 1997 and 1996 would have been reduced by the
amount of the benefit from utilization of tax net operating loss carryforwards.
Such reduction in net income would have been $1,713,000 ($.03 per share) in
1997, and $10,027,000 ($.16 per share) in 1996.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $36.7 million at December 31, 1998. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
withholding taxes payable to the various foreign countries. Determination of the
amount of unrecognized deferred U.S. income tax liability is not practicable
because of the complexities associated with its hypothetical calculation;
however, foreign tax credit carryforwards would be available to reduce some
portion of the U.S. liability. Withholding taxes of approximately $1.7 million
would be payable upon remittance of all previously unremitted earnings at
December 31, 1998.
8. BUSINESS RESTRUCTURING
During 1998 the Company recorded a pre-tax charge of $8.0 million related to
restructuring its global workforce, exiting facilities and impairment of
associated long-lived assets. Separate charges were recorded in the first and
fourth quarters of the year. The first quarter charge related to consolidating
the Company's paging research and development efforts from two locations into
one location. This pre-tax charge amounted to $1.2 million, all of which related
to employee severance and outplacement expenses. The fourth quarter charge
amounted to $6.8 million and related to a 10% reduction of the Company's global
workforce, the exiting of two leased facilities and an impairment charge for
assets to be abandoned, principally leasehold improvements. Included in the
fourth quarter charge are the following expenses: $3.3 million for severance and
outplacement of terminated employees, $2.1 million for costs associated with
exiting facilities and $1.4 million related to write-down of long-lived assets.
The total pre-tax charge for restructuring, exiting leased facilities and
impairment of assets of $8.0 million was recorded as $1.0 million of cost of
sales, $3.8 million of selling, general and administrative expenses and $3.2
million of research and development expenses.
During the year ended December 31, 1998 the Company paid approximately $2.3
million of the restructuring charge in cash and took a non-cash charge of
approximately $1.4 million related to an asset write-down and other adjustments.
The cash payments relate principally to employee termination costs. The
restructuring charges
40
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
incorporated severance for approximately 320 employees. The work force has been
reduced by approximately 310 employees as of December 31, 1998.
At December 31, 1998 the Company had $4.3 million accrued to cover remaining
charges. Management believes the remaining reserves for business restructuring
are adequate to complete its plan.
9. SEGMENT REPORTING
Glenayre is a worldwide provider of telecommunications equipment and related
software used in the wireless personal communications service markets including
wireless messaging, voice processing, mobile data systems and point-to-point
wireless interconnection products. Sales to one customer amounted to
approximately 10%, 11% and 15% of net sales for 1998, 1997 and 1996,
respectively in the paging segment. An additional customer, in the paging
segment, accounted for 12% of net sales in 1998.
Glenayre has three principal businesses which are managed separately due to
different product market areas: Paging; Mobile and Fixed Network; and Microwave
Communication.
Glenayre's Paging segment includes switches, transmitters, receivers,
controllers and related software provided by the Company's Wireless Messaging
Group as well as service and support groups for these products. Paging is a
method of wireless telecommunication which uses an assigned radio frequency to
contact a paging subscriber anywhere within a service area. Additionally the
Paging segment includes the Company's two-way paging devices since the
acquisition of WAI in November 1997. WAI designs, develops and markets
innovative, low-power, two-way wireless data messaging devices.
Glenayre's Mobile and Fixed Network segment includes products and support
services from the Company's Integrated Network Group. This segment is comprised
of the Company's INTELLIGIS product line including (i) the MVP system, (ii) from
January 1997 to December 1998, network management systems developed by the
Company's Options group (formerly known as CNET), and (iii) since October 1997
data management systems for calling card services developed by ODC.
Glenayre's Microwave Communication segment includes products for use in
point-to-point microwave communications systems, designed, manufactured and
marketed by the Company's Western Multiplex Group. These products include
microwave radios (analog and digital transmission formats) and analog baseband
products.
The Company evaluates performance and allocates resources based on income from
operations before income taxes, which excludes interest income (expense) and
other income (expense). The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies.
Segment income (loss) excludes corporate activities and special charges.
Business assets used by each business are allocated to the segments except that
assets used in the manufacturing of the MVP system are included in the Paging
segment. However, depreciation expense is allocated to the appropriate segment
using a percentage of manufacturing costs incurred for the reporting period.
Corporate activities include operating expenses (including depreciation expense)
for the following corporate functions: (i) administration and finance (ii)
information technology services (iii) legal services (iv) business development,
(v) marketing communications and (vi) human resources. Corporate assets include
cash and cash equivalents, short-term investments and fixed assets associated
with corporate functions. Other assets consist of the Company's current and
long-term deferred tax assets.
41
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SEGMENT NET SALES
Paging ................................... $299,315 $348,712 $335,995
Mobile and Fixed Network ................. 67,724 70,611 24,911
Microwave Communication .................. 32,903 32,356 29,340
-------- -------- --------
Total .................................... $399,942 $451,679 $390,246
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEGMENT INCOME (LOSS) 1998 1997 1996
- --------------------- ---- ---- ----
<S> <C> <C> <C>
Paging ................................... $ 35,220 $ 81,892 $ 95,514
Mobile and Fixed Network ................. (27,473) 4,040 (1,903)
Microwave Communication .................. 1,978 4,393 6,475
Corporate activities ..................... (20,329) (19,851) (13,201)
Charge for purchased research and
development .............................. -- (38,700) --
Loss on sale of business ................. (7,858) -- --
Write-off of goodwill and other
intangibles .............................. (26,705) (5,183) --
Interest income .......................... 8,189 10,350 9,654
Other income (expense) ................... (180) (2,147) 112
-------- -------- --------
Income (loss) before income taxes and
cumulative effect of changes in
accounting principle .................. $(37,158) $ 34,794 $ 96,651
======== ======== ========
</TABLE>
The Mobile and Fixed Network results for 1998 were impacted by $5.1 million in
restructuring charges. Additionally, operating losses of $4.2 million and $3.8
million incurred by the Company's network management business sold in 1998 are
included in results for Mobile and Fixed Network for 1998 and 1997,
respectively. See Notes 1 and 8.
<TABLE>
<CAPTION>
SEGMENT ASSETS 1998 1997 1996
- -------------- ---- ---- ----
<S> <C> <C> <C>
Paging ................................... $477,193 $469,462 $321,634
Mobile and Fixed Network ................. 21,577 60,694 10,010
Microwave Communication .................. 34,451 35,563 34,596
Other assets ............................. 21,585 15,031 29,663
Corporate assets ......................... 6,989 9,411 125,307
-------- -------- --------
Total .................................... $561,795 $590,161 $521,210
======== ======== ========
</TABLE>
<TABLE>
<S> <C> <C> <C>
SEGMENT LONG-LIVED ASSETS
DEPRECIATION AND AMORTIZATION EXPENSE: 1998 1997 1996
- -------------------------------------- ---- ---- ----
Paging ................................... $26,044 $13,872 $ 7,479
Mobile and Fixed Network ................. 10,263 4,961 3,510
Microwave Communication .................. 1,441 1,598 1,398
Corporate activities ..................... 2,338 1,937 1,095
------- ------- -------
Total .................................... $40,086 $22,368 $13,482
======= ======= =======
</TABLE>
42
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C> <C>
EXPENDITURES FOR PROPERTY, PLANT AND EQUIPMENT 1998 1997 1996
- ---------------------------------------------------- ---- ----- ----
Paging............................................... $21,811 $24,723 $28,643
Mobile and Fixed Network............................. 4,991 4,311 9,322
Microwave Communication.............................. 860 901 1,522
Corporate activities................................. 2,287 2,954 3,530
------- ------- -------
Total................................................ $29,949 $32,889 $43,017
======= ======= =======
ADDITION OF LONG-LIVED ASSETS THROUGH BUSINESS 1998 1997 1996
- ----------------------------------------------------- ---- ---- ----
ACQUISITIONS:
-------------
PAGING:
Goodwill............................................. $--- $59,500 $---
Other intangibles.................................... --- 10,035 ---
Equipment............................................ --- 1,354 ---
MOBILE AND FIXED NETWORK:
Goodwill............................................. --- 39,924 ---
Other intangibles.................................... --- 3,700 ---
Equipment............................................ --- 4,220 ---
Other non-current assets............................. --- 922 ---
----- ------- -----
$--- $119,655 $---
==== ======== ====
</TABLE>
The following geographic area data represents property, plant and equipment by
location and trade revenues based on product shipment destination.
<TABLE>
<S> <C> <C> <C>
PROPERTY, PLANT AND EQUIPMENT: 1998 1997 1996
- ------------------------------------ ---- ---- ----
United States....................... $63,622 $64,781 $45,970
Canada.............................. 29,597 23,792 22,569
NE Asia............................. 134 216 8
SE Asia............................. 12,987 12,974 10,613
China............................... 1,226 86 38
Europe, Middle East and Africa...... 1,593 1,175 874
Latin America....................... 502 617 429
---------- --------- --------
Total............................... $109,661 $103,641 $80,501
========== ========= ========
NET SALES 1998 1997 1996
- ------------------------------------- ---- ---- ----
United States........................ $251,640 $224,488 $237,172
Canada............................... 6,835 9,432 16,270
NE Asia.............................. 1,427 18,564 31,123
SE Asia.............................. 27,208 68,940 20,661
China................................ 68,349 52,478 40,324
Europe, Middle East and Africa....... 24,763 48,134 26,339
Latin America........................ 19,603 29,643 13,506
Other Countries...................... 117 --- 4,851
-------- -------- --------
TOTAL................................ $399,942 $451,679 $390,246
======== ======== ========
</TABLE>
43
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
10. OPERATING LEASE COMMITMENTS
The Company leases office facilities and various equipment under non-cancellable
operating leases. Future minimum lease payments under non-cancellable operating
leases (with minimum or remaining lease terms in excess of one year) for
calendar years subsequent to December 31, 1998 are as follows:
1999............................. $4,553
2000............................. 4,200
2001............................. 2,459
2002............................. 1,070
2003............................. 566
Thereafter....................... 1,573
-------
$14,421
=======
Rent expense amounted to $6,926,000, $4,302,000, and $3,629,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Exit costs of $2.8 million
in the aggregate related to the ODC facility closing and the sale of the network
management business are included in rent expense for the year ended December 31,
1998.
11. EMPLOYEE BENEFIT PLANS
(A) POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides its U.S. employees with certain health care benefits upon
retirement assuming the employees meet minimum age and service requirements. The
Company's policy is to fund benefits as they become due.
The actuarial present value of accumulated postretirement benefit obligations at
December 31, 1998 and 1997 is as follows:
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Retirees................................................................ $1,037 $531
Fully eligible plan participants........................................ 113 231
Other active plan participants.......................................... 1,045 849
------ -----
Accumulated postretirement benefit obligation........................... 2,195 1,611
Unrecognized gain (loss)................................................ (32) 281
Unrecognized transition obligation...................................... (712) (763)
------ -----
Postretirement benefit liability recognized in balance sheet............ $1,451 $1,129
====== =====
</TABLE>
44
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The change in Accumulated Postretirement Benefit Obligation ("APBO") from
year to year is as follows:
<TABLE>
1998 1997
---- ----
<S> <C> <C>
APBO at the beginning of the year.............................. $1,611 $1,420
Service cost................................................ 222 195
Interest cost............................................... 115 101
Actuarial (gain) loss....................................... 293 (54)
Plan participants contributions............................. 30 19
Acquisitions................................................ 4 ---
Benefits paid............................................... (80) (70)
---- ----
APBO at end of the year..................................... $2,195 $1,611
====== ======
</TABLE>
Net postretirement benefit costs for the years ended December 31, 1998, 1997 and
1996 consist of the following components:
<TABLE>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost............................................... $222 $195 $190
Interest cost on APBO...................................... 115 101 109
Amortization of gain....................................... (15) (14) --
Amortization of transition obligation...................... 51 51 51
---- ---- ----
$373 $333 $350
==== ==== ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1998 was 8%, decreasing
linearly each successive year until it reaches 4.25% in 2009, after which it
remains constant. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated postretirement
benefit obligation as of December 31, 1998 and the 1998 aggregate interest and
services cost by approximately 14.7% and 18.8%, respectively. A one percentage
point decrease in the assumed health care cost trend rate for each year would
decrease the accumulated postretirement benefit obligation as of December
31,1998 and the 1998 aggregate interest and service cost by approximately 12.3%
and 19.0%, respectively. The assumed discount rate used in determining the
accumulated postretirement benefit obligation at December 31, 1998 and 1997 was
6.75% and 7.25%, respectively.
(B) DEFINED CONTRIBUTION PLANS
The Company has defined contribution plans covering substantially all of its
full-time employees. Under the plans, the employees can contribute a certain
percentage of their compensation and the Company matches a portion of the
employees' contribution. The Company's contributions under these plans amounted
to approximately $3,223,000, $2,787,000 and $2,210,000 during the years ended
December 31, 1998, 1997 and 1996, respectively.
45
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
12. STOCKHOLDERS' EQUITY
(A) STOCKHOLDERS RIGHTS AGREEMENT
In May 1997, the Company's Board of Directors adopted a Preferred Shares Rights
Agreement. The Preferred Shares Rights Agreement was amended on January 14, 1999
(the "Amendment") to provide special provisions with respect to the State of
Wisconsin Investment Board ("SWIB"). Under the Preferred Shares Rights
Agreement, the Board of Directors declared a dividend of one Right for each
outstanding share of common stock to holders of record as of the close of
business on June 12, 1997. Initially, the Rights will automatically trade with
the common stock and will not be exercisable.
Except as provided in the Amendment with respect to SWIB, if any person or group
acquires beneficial ownership of 15% or more of the Company's outstanding common
stock, or commences a tender or exchange offer that results in that person or
group acquiring such level of beneficial ownership, each Rights holder (other
than Rights owned by such person or group, which become void) is entitled to
purchase, for an exercise price of $80, 1/100th of a share of Series A Junior
Participating Preferred Stock. Each fractional preferred share will have
economic and voting terms similar to those of one share of common stock, except
as provided in the Amendment with respect to SWIB. In the event of such a tender
offer or 15% or more stock acquisition, the Rights certificates, after a short
period, will trade separately from the common stock and will be exercisable.
Each Right, under certain circumstances, entitles the holder to purchase the
number of shares of Glenayre common stock (or, at the discretion of the Board of
Directors, shares of Series A Junior Participating Preferred Stock) which have
an aggregate market value equal to twice the exercise price of $80. Under
certain circumstances, the Board of Directors may exchange each outstanding
Right for either one share of Glenayre common stock or 1/100th share of Series A
Junior Participating Preferred Stock. The Board may also redeem the Rights at a
price of $0.01 per Right.
In addition, except as provided in the Amendment with respect to SWIB, if any
person or group acquires beneficial ownership of 15% or more of the Company's
outstanding common stock and Glenayre either merges with or into another company
or Glenayre sells 50% or more of its assets or earning power to another company,
each Rights holder (other than Rights owned by such person or group, which
become void) is entitled to purchase, for an exercise price of $80, a number of
shares of the surviving company which has a market value equal to twice the
exercise price.
The Amendment provides that, instead of the 15% beneficial ownership level
described above, SWIB's beneficial ownership level will be 20% through January
14, 2000 and, after that date, will be reduced to (i) 15% if SWIB does not
beneficially own 15% or more of Glenayre's outstanding common stock on January
14, 2000 or (ii) if SWIB beneficially owns 15% or more of Glenayre's outstanding
common stock at the close of business on January 14, 2000, the next highest
whole percentage in excess of the percentage of Glenayre's outstanding common
stock then beneficially owned by SWIB, not exceeding 20%.
The Rights will expire on May 21, 2007, unless redeemed earlier.
46
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(B) STOCK REPURCHASE PROGRAMS
In September 1996, the Board of Directors authorized the purchase of up to 2.5
million shares of the Company's common stock. No shares under this program were
repurchased through December 31, 1998. In December 1994, the Board of Directors
authorized the purchase of up to 1.7 million shares of the Company's common
stock. The 1994 repurchase program was completed in 1996 with the repurchase of
1,684,375 shares at a total cost of $38.6 million during the term of the
program.
(C ) STOCK OPTION PLANS
The Company maintains two stock option plans (the "1996 Plan" and the "1991
Plan") which were approved by the stockholders, are administered by a committee
of the Board of Directors (the "Committee") and are utilized to promote the
long-term financial interests and growth of the Company. The 1996 and 1991 Plans
authorize the grant of up to 4,400,000 and 11,475,000 shares, respectively, of
the Company's common stock to directors, officers and key employees. Options
granted have an option price of the fair market value of the Company's common
stock on the date of grant. Options under the plans expire no later than ten
years from the grant date.
Activity and price information regarding the Company's stock option plans is
summarized as follows:
<TABLE>
<S> <C> <C>
Shares Price Range
-------- ---------------
Outstanding, December 31, 1995 .................... 5,307 $1.04---$47.67
Granted............................................ 1,247 20.00 --- 48.38
Exercised.......................................... (1,330) 1.04 --- 44.25
Canceled........................................... (32) 22.44 -- 48.38
-------- ----------------
Outstanding, December 31, 1996..................... 5,192 1.27 --- 47.67
Granted............................................ 586 9.00 --- 21.63
Assumed............................................ 1,641 0.08 --- 23.00
Exercised.......................................... (470) 0.17 --- 11.11
Canceled........................................... (224) 1.13 --- 44.17
-------- ----------------
Outstanding, December 31, 1997..................... 6,725 0.08 ---43.59
Granted............................................ 2,392 4.44 --- 16.75
Exercised......................................... (1,183) 0.08 --- 13.57
Canceled........................................... (572) 1.13 --- 28.22
-------- ----------------
Outstanding, December 31, 1998..................... 7,362 $0.17-- $43.59
======== ================
</TABLE>
Of the outstanding options under the Company's stock option plans at December
31, 1998, approximately 4,917,000 are currently exercisable. The
weighted-average exercise price for the outstanding and currently exercisable
options at December 31, 1998 is $9.51 and $8.36, respectively. The
weighted-average exercise price for options granted during the year is $13.40.
The weighted average remaining contractual life of options outstanding is 7.5
years.
In November 1996, due to a significant decline in the market price of the
Company's common stock, the Committee reduced the exercise price to $23.88 per
share on options to purchase 632,667 shares which had been awarded originally at
various dates during 1996 at $32.50 to $51.38 per share to employees of the
Company. In April 1997, as part of a broader market decline of paging industry
stocks, the market value of the Company's stock experienced a further
significant decline. In an effort to ensure retention of key technical and
management employees, the Committee reduced the exercise price to $9.00 per
share on options to purchase 3,005,228 shares which had been awarded originally
at various dates from May 1994 to March 1997 at $10.63 to $47.67 per share to
employees of the Company.
47
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The reduced exercise price and the original exercise prices reflected the fair
market value of the Company's common stock on the date of modification and the
dates of the original awards.
In December 1998, the Board of Directors amended the 1996 and 1991 Plans to
allow future reductions in option exercise prices only with the prior approval
of the Company's stockholders. Further, any amendment or repeal of this
provision will require prior approval of the Company's stockholders.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, ("FAS 123") requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. Pro forma information regarding
net income and earnings per share is required by FAS 123, which also requires
that the information be determined as if the Company had accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair
value method of that statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following assumptions:
<TABLE>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Expected Life in Years.................... 1 to 4 2 to 6 1.3 to 4
Risk Free Interest Rate................... 5.0% to 5.1% 5.9% to 6.3% 5.8% to 6.2%
Volatility................................ .59 .56 .53
Dividend Yield............................ --- --- ---
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Pro forma income (loss) before cumulative effect of change
in accounting principle............................ $(45,252) $(3,709) $59,090
Pro forma income (loss) before cumulative effect of change
in accounting principle per share:
Income (loss) per weighted average common share.... (0.74) (0.06) 0.98
Income (loss) per common share - assuming dilution. (0.74) (0.06) 0.94
</TABLE>
48
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Because FAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect is not fully reflected until 1997.
The 1996 and 1997 award modifications described above resulted in (i) a decrease
to 1996 pro forma net income of approximately $906,000 ($0.01 per weighted
average common share and per common share-assuming dilution); (ii) an increase
to the 1997 pro forma loss before cumulative effect in accounting change of
approximately $4.3 million ($0.07 per weighted average common share and per
common share-assuming dilution) and (iii) an increase to the 1998 pro forma net
loss of approximately $852,000 ($0.02 per weighted average common share and per
common share-assuming dilution).
Contributed capital was increased $2.2 million, $1.3 million and $16.9 million
in 1998, 1997 and 1996, respectively, which represents the income tax benefits
the Company realized from stock options exercised during these periods.
(D) EMPLOYEE STOCK PURCHASE PLAN
Effective July 1, 1993, the Company established the Glenayre Technologies, Inc.,
Employee Stock Purchase Plan (the "ESP Plan") reserving 506,250 shares of common
stock. The purpose of the ESP Plan is to give employees an opportunity to
purchase common stock of the Company through payroll deductions, thereby
encouraging employees to share in the economic growth and success of the
Company.
All regular full-time employees of the Company are eligible to enter the ESP
Plan as of the first day of each six-month period beginning every January 1 and
July 1. The price for common stock offered under the ESP Plan for each six-month
period is equal to 85% of the average market price of the common stock for the
five trading days prior to the first day of the six-month period. For the
January 1, 1999 to June 30, 1999 period, the stock purchase price will be $3.60.
As of December 31, 1998, 403,065 shares had been issued at a purchase price
range of $5.60 to $37.07 with 103,185 shares reserved under the ESP Plan.
(E) INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of income (loss) per share:
<TABLE>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Numerator:
Income (loss) before cumulative effect of change
in accounting principle.......................... $(39,770) $6,939 $70,444
Denominator:
Denominator for basic income (loss) per share -
weighted average shares......................... 61,550 60,323 60,597
Effect of dilutive securities:
stock options................................... --- 2,995 2,819
------ ------- ------
Denominator for diluted income (loss) per share-adjusted
weighted average shares and assumed conversions. 61,550 63,318 63,416
====== ======= ======
Income (loss) before cumulative effect of change in accounting
principle per weighted average common share......... $(0.65) $0.11 $1.16
======= ===== =====
Income (loss) before cumulative effect of change in accounting
principle per common share - assuming dilution...... $(0.65) $0.11 $1.11
======= ===== =====
</TABLE>
49
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
13. COMMITMENTS AND CONTINGENCIES
The Company entered into a new $50 million line of credit agreement in October
1998, which expires in October 1999 and replaces the $50 million line of credit
established with the same lending banks in October 1997. Interest on the new
line of credit is computed at the (i) higher of the bank's prime rate or the
Federal funds rate plus 0.5% or (ii) the Eurodollar rate plus a rate of .625% to
1.25%, at the option of the Company. There is a commitment fee at a per annum
rate of 0.25% to 0.375% paid quarterly on the unused portion of the line of
credit. The line of credit requires the Company to maintain certain financial
ratios and minimum net worth. During the calendar year 1998, borrowings under
the $50 million bank lines of credit ranged from $1 million to $29 million.
There were no borrowings outstanding as of December 31, 1998.
In the normal course of business, the Company issues bid and performance letters
of credit which in the aggregate amounted to approximately $15 million and $14
million as of December 31, 1998 and 1997, respectively. These letters of credit
have terms from approximately 6 to 58 months. The fair value of these letters of
credit is estimated to be the same as the contract values based on the nature of
the fee arrangements with the issuing banks.
The competitive telecommunications market often requires customer financing
commitments. These commitments may be in the form of guarantees, secured debt or
lease financing. At December 31, 1998, the Company had agreements to finance and
arrange financing for approximately $73 million of paging and voice mail
products. Additionally, at December 31, 1998, the Company had committed, subject
to customers meeting certain conditions and requirements, to finance
approximately $6 million for similar systems. The Company cannot currently
predict the extent to which these commitments will be utilized, since certain
customers may be able to obtain more favorable terms using traditional financing
sources. From time to time, the Company also arranges for third-party investors
to assume a portion of its commitments. If exercised, the financing arrangements
will be secured by the equipment sold by Glenayre.
On January 31, 1997 an amended class action complaint consolidating two lawsuits
filed in the fourth quarter of 1996 (the "Complaint") was filed in the United
States District Court for the Southern District of New York against the Company
and certain of its executive officers and directors. The Complaint was dismissed
in November 1997, but the plaintiffs were granted the right to amend and refile.
An amended Complaint was refiled December 19, 1997 and dismissed on December 29,
1998 without the right to refile. The dismissal was appealed by the plaintiffs
to the United States Court of Appeals for the Second Circuit on January 28,
1999. On February 20, 1997, a shareholder's derivative complaint (the
"Shareholder's Complaint") was filed in the United States District Court for the
Southern District Court of New York against certain current and former directors
and against the Company, as a nominal defendant, alleging that the directors
breached their fiduciary obligations to the Company by subjecting the Company to
the class action referred to above. As the derivative action is based on
allegations that the class action has merit, it is likely to remain in
suspension until the appeal is resolved. Additionally, the Company is currently
involved in various other disputes and legal actions related to its business
operations. In the opinion of the Company, the ultimate resolution of these
actions will not have a material effect on the Company's financial position, or
future results of operations or cash flows.
50
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
14. INTERIM FINANCIAL DATA--UNAUDITED
Quarters Ended
------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1998 (A)
Net sales......................................... $94,533 $81,881 $126,689 $96,839
Gross profit...................................... 48,769 41,626 61,895 36,397
Net income (loss):
As previously reported......................... 3,166 77 11,653 (45,421)
Adjustment (c)................................. (3,045) (3,082) (3,118) ---
As restated.................................... 121 (3,005) 8,535 (45,421)
Net income (loss) per weighted average common
share:
As previously reported........................ 0.05 0.00 0.19 (0.73)
Adjustment (c)................................ (0.05) (0.05) (0.05) ---
As restated................................... 0.00 (0.05) 0.14 (0.73)
Net income (loss) per common share - assuming dilution:
As previously reported....................... 0.05 0.00 0.18 (0.73)
Adjustment (c)............................... (0.05) (0.05) (0.05) ---
As restated.................................. 0.00 (0.05) 0.13 (0.73)
1997 (B)
Net sales........................................ $105,771 $110,172 $112,122 $123,614
Gross profit..................................... 55,221 59,601 59,684 59,380
Income (loss) before cumulative effect of change in
accounting principle:
As previously reported........................ 13,446 14,960 15,034 (120,844)
Adjustment (c)................................ --- --- --- 84,343
As restated................................... 13,446 14,960 15,034 (36,501)
Net income (loss):
As previously reported........................ 13,446 14,960 15,034 (121,532)
Adjustment (c)................................ --- --- --- 84,343
As restated................................... 13,446 14,960 15,034 (37,189)
Income (loss) per weighted average common share:
Before cumulative effect of change in accounting
principle:
As previously reported........................ 0.22 0.25 0.25 (2.00)
Adjustment.................................... --- --- --- 1.40
As restated................................... 0.22 0.25 0.25 (0.60)
Net income (loss):
As previously reported........................ 0.22 0.25 0.25 (2.01)
Adjustment (c)................................ --- --- --- 1.40
As restated................................... 0.22 0.25 0.25 (0.61)
51
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Quarters Ended
---------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
Income (loss) per common share - assuming dilution:
Before cumulative effect of change
in accounting principle:
As previously reported........................... 0.22 0.24 0.24 (2.00)
Adjustment (c).................................. --- --- --- 1.40
As restated..................................... 0.22 0.24 0.24 (0.60)
Net income (loss):
As previously reported......................... 0.22 0.24 0.24 (2.01)
Adjustment (c)................................. --- --- --- 1.40
As restated.................................... 0.22 0.24 0.24 (0.61)
</TABLE>
(a) The results for the fourth quarter 1998 were impacted by a $26.7 million
write-off of goodwill and other intangibles and a $7.9 million loss on sale
of business. See Note 1.
(b) The results for the fourth quarter 1997 were impacted by a $38.7 million
charge for purchased research and development and a $5.2 million write-off
of goodwill. See Note 1.
(c) In previously issued financial statements, the Company recorded charges for
acquired in-process technology of $125.2 million in the fourth quarter 1997
in connection with the acquisitions of Open Development Corporation and
Wireless Access, Inc. In response to recent communications from the
Securities and Exchange Commission, the Company has reduced the amount of
charges for acquired in-process technology to $38.7 million in the fourth
quarter 1997. These reductions have been reallocated to goodwill, and the
Company's financial statements have been restated to reflect the adjustments
to amortization expense in the fourth quarter of 1997 and the first three
quarters of 1998. See Note 1.
52
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10 through 13 are incorporated herein by reference to the sections
captioned "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,"
"EXECUTIVE OFFICERS OF THE REGISTRANT," "ELECTION OF DIRECTORS,"
"COMPENSATION--Compensation of Directors," "COMPENSATION--Executive
Compensation," "COMPENSATION--Employment Agreements,"
"COMPENSATION--Compensation Committee Interlocks and Insider Participation,"
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and "SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE" in the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held May 25, 1999.
53
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
A. INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
<TABLE>
(i) Financial Statements Page
<S> <C>
Report of Ernst & Young LLP Independent Auditors.......................................... 25
Consolidated Balance Sheets at December 31, 1998 and 1997................................. 26
Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 27
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998,
1997 and 1996............................................................................ 28
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 29
Notes to Consolidated Financial Statements................................................. 31
(ii) Supplemental Schedules:
(For the years ended December 31, 1998, 1997 and 1996)
Schedule II - Valuation and Qualifying Accounts........................................... 58
All other schedules are omitted because they are not applicable or not
required.
B. REPORTS ON FORM 8-K
None
</TABLE>
54
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
C. EXHIBITS
Exhibit
Number Description
2.1 Acquisition Agreement among Glenayre, WAI Acquisition Corp. And Wireless
Access, Inc., dated October 1, 1997 ("WAI Acquisition Agreement") was
filed as Exhibit 2 to the Registrant's Current Report on Form 8-K filed
November 11, 1997 and is incorporated herein by reference.
3.1 Composite Certificate of Incorporation of Glenayre reflecting the
Certificate of Amendment filed December 8, 1995 was filed as Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and is incorporated herein by reference.
3.2 Restated by-laws of Glenayre effective June 7, 1990, as amended September
21, 1994 was filed as Exhibit 3.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated herein
by reference.
4.1 Preferred Shares Rights Agreement dated May 21, 1997 between the Company
and American Stock Transfer & Trust Company, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration Statement on
Form 8-A, File No. 0-15761.
4.2 Amendment, dated January 14, 1999, to the Preferred Shares Rights
Agreement dated as of May 21, 1997 incorporated herein by reference to
Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated January
14, 1999.
4.3 Certificate of Designation of Rights, Preferences and Privileges of
Series A Junior Participating Preferred Stock of the Company filed May
23, 1997 was filed as Exhibit 4.2 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1997 and is incorporated herein
by reference.
10.1 Agreement, dated December 31, 1996, which terminates the Employment
Agreement, dated December 3, 1990 between the Company and Clarke H.
Bailey was filed as Exhibit 10.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 and is incorporated herein
by reference.*
10.2 Employment Agreement, dated June 21, 1995, between the Company and Ramon
D. Ardizzone was filed as Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 and is
incorporated herein by reference.*
10.3 Amendment, dated December 8, 1995, to the Employment Agreement dated
June 21, 1995 between the Company and Ramon D. Ardizzone was filed as
Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and is incorporated herein by reference.*
10.4 Second Amendment, dated December 12, 1996 to the Employment Agreement
dated June 21, 1995 between the Company and Ramon D. Ardizzone was filed
as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and is incorporated herein by reference.*
10.5 Termination Agreement, dated September 30, 1997, between the Company and
Ramon D. Ardizzone was filed as Exhibit 4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 and is
incorporated herein by reference.*
10.6 Employment Agreement, dated August 27, 1996 between the Company and Gary
B. Smith was filed as Exhibit 10 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and is incorporated
herein by reference.*
55
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
10.7 Amendment, dated December 12, 1996, to the Employment Agreement dated
August 27, 1996 between the Company and Gary B. Smith was filed as
exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and is incorporated herein by reference.*
10.8 Second Amendment, dated May 21, 1997, to the Employment Agreement dated
August 27, 1996 between the Company and Gary B. Smith was filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and is incorporated herein by reference.*
10.9 Resignation Agreement, dated December 21, 1998, between the Company and
Gary B. Smith is filed herewith.*
10.10 Employment Agreement, dated May 21, 1997 between the Company and Stanley
Ciepcielinski was filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 and is
incorporated herein by reference.*
10.11 Executive Severance Benefit Agreement, dated May 21, 1997, between the
Company and Lee M. Ellison (the "Ellison Agreement") was filed as Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 and is incorporated herein by reference. Executive
Severance Benefit Agreements, between the Company and individually with
Beverley W. Cox (dated February 1, 1995, as amended) , James W. Marion
(dated March 31, 1998), Warren K. Neuberger (dated January 14, 1999) and
Gary P. Hermansen (dated January 14, 1999) are identical, in all material
respects, with the Ellison Agreement and are not filed as exhibits.*
10.12 Consulting Services Agreement, dated November 11, 1998, between the
Company and Dan Case is filed herewith.*
10.13 Letter Agreement dated May 26, 1998 between the Registrant and Amir
Zoufonoun is filed herewith.*
10.14 Glenayre Electronics, Inc. Deferred Compensation Plan was filed as
exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and is incorporated herein by reference.*
10.15 Glenayre Technologies Management By Objective Plan for the year ended
December 31, 1998 was filed as Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 and is
incorporated herein by reference.*
10.16 Glenayre Technologies, Inc. Management By Objective Plan for the year
ended December 31, 1997 was filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997 and is
incorporated herein by reference.*
10.17 Glenayre 1996 Incentive Stock Plan, as amended April 18, 1997, was filed
as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and is incorporated herein by
reference.*
10.18 Amendment, dated December 18, 1998, to the Glenayre 1996 Incentive Stock
Plan is filed herewith.*
10.19 Glenayre Long-Term Incentive Plan, as amended and restated effective May
26, 1994, was filed as Exhibit 4 to the Registrant's Form S-8 filed June
16, 1994 and is incorporated herein by reference.*
10.20 Amendment, dated December 18, 1998, to the Glenayre Long-Term Incentive
Plan is filed herewith.*
10.21 Credit Agreement, dated October 30, 1998, between Glenayre Electronics,
Inc. and NationsBank, N.A., as Agent is filed herewith.
10.22 Credit Agreement, dated October 31, 1997, between Glenayre Electronics,
Inc. and NationsBank, N.A. as Agent was filed as Exhibit 10.18 to the
Registrant's Annual Report of Form 10-K for the year ended December 31,
1997 and is incorporated herein by reference.#
56
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
21 Subsidiaries of the Company is filed herewith.
23 Consent of Ernst & Young LLP is filed herewith.
27 Financial Data Schedule for the year ended December 31, 1998. (Filed in
electronic format only. Pursuant to Rule 402 of Regulation S-T, this
schedule shall not be deemed filed for purposes of Section 11 of the
Securities Act of 1933 or Section 18 of the Securities Exchange Act of
1934.)
99 Cautionary Statement under safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 is filed herewith.
- -------------------
*Management Contract
# Indicates that a portion of the document is confidential and has been
omitted and filed separately with the Securities and Exchange Commission in
connection with a request for confidential treatment of such omitted
material.
57
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
- ---------- ---------- ---------- --------- --------
Additions
-----------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
----------- ---------- ---------- ---------- ---------- -----------
ACCOUNTS RECEIVABLE - ALLOWANCE
FOR DOUBTFUL ACCOUNTS :
Year ended December 31, 1998 $4,542 $1,187 $806 $705 $5,830
Year ended December 31, 1997 4,527 1,155 1,192 2,332 4,542
Year ended December 31, 1996 4,072 878 5 428 4,527
NOTES RECEIVABLE - FAIR
MARKET VALUATION ALLOWANCE:
Year ended December 31, 1998 4 1,095 --- --- 1,099
Year ended December 31, 1997 322 ---- (318) --- 4
Year ended December 31, 1996 394 (73) --- --- 322
NOTES RECEIVABLE - ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
Year ended December 31, 1998 4,038 (439) 881 102 4,378
Year ended December 31, 1997 --- 120 3,918(1) --- 4,038
VALUATION ALLOWANCE ON
INVENTORIES:
Year ended December 31, 1998 5,511 5,701 (292) 4,077 6,843
Year ended December 31, 1997 4,365 2,476 1,037 2,367 5,511
Year ended December 31, 1996 4,705 1,904 --- 2,244 4,365
</TABLE>
(1)Includes amounts reclassified from previously established accrued
liabilities and reserves and collected fee offsets.
58
<PAGE>
GLENAYRE TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 26, 1999.
GLENAYRE TECHNOLOGIES, INC.
By_/s/ Ramon D. Ardizzone_______
Ramon D. Ardizzone
CHAIRMAN OF THE BOARD, PRESIDENT,
CHIEF EXECUTIVE OFFICER AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 26, 1999:
<TABLE>
<S> <C>
/s/ Ramon D. Ardizzone /s/ Donald S. Bates
- ------------------------ ----------------------
Ramon D. Ardizzone Donald S. Bates
CHAIRMAN OF THE BOARD, PRESIDENT, DIRECTOR
CHIEF EXECUTIVE OFFICER AND DIRECTOR
/s/ Peter W. Gilson
----------------------
Peter W. Gilson
/s/ Stanley Ciepcielinski DIRECTOR
-------------------------
Stanley Ciepcielinski
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER,
CHIEF FINANCIAL OFFICER, (PRINCIPAL FINANCIAL OFFICER),
TREASURER AND DIRECTOR /s/ John J. Hurley
----------------------
John J. Hurley
DIRECTOR
/s/ Billy C. Layton
- --------------------------
Billy C. Layton /s/ Stephen P. Kelbley
VICE PRESIDENT ,CONTROLLER, ----------------------
SECRETARY AND CHIEF ACCOUNTING OFFICER Stephen P. Kelbley
(PRINCIPAL ACCOUNTING OFFICER) DIRECTOR
/s/ Clarke H. Bailey /s/ Horace H. Sibley
- -------------------------- ----------------------
Clarke H. Bailey Horace H. Sibley
DIRECTOR DIRECTOR
</TABLE>
59
<PAGE>
<PAGE>
Exhibit
Number Description
- ------ -----------
2.1 Acquisition Agreement among Glenayre, WAI Acquisition Corp. And Wireless
Access, Inc., dated October 1, 1997 ("WAI Acquisition Agreement") was
filed as Exhibit 2 to the Registrant's Current Report on Form 8-K filed
November 11, 1997 and is incorporated herein by reference.
3.1 Composite Certificate of Incorporation of Glenayre reflecting the
Certificate of Amendment filed December 8, 1995 was filed as Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and is incorporated herein by reference.
3.2 Restated by-laws of Glenayre effective June 7, 1990, as amended
September 21, 1994 was filed as Exhibit 3.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 and is
incorporated herein by reference.
4.2 Preferred Shares Rights Agreement dated May 21, 1997 between the Company
and American Stock Transfer & Trust Company, incorporated herein by
reference to Exhibit 4.1 to the Registrant's Registration Statement on
Form 8-A, File No. 0-15761.
4.3 Amendment, dated January 14, 1999, to the Preferred Shares Rights
Agreement dated as of May 21, 1997 incorporated herein by reference to
Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated January
14, 1999.
4.3 Certificate of Designation of Rights, Preferences and Privileges of
Series A Junior Participating Preferred Stock of the Company filed May
23, 1997 was filed as Exhibit 4.2 to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1997 and is incorporated
herein by reference.
10.1 Agreement, dated December 31, 1996, which terminates the Employment
Agreement, dated December 3, 1990 between the Company and Clarke H.
Bailey was filed as Exhibit 10.5 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 and is incorporated
herein by reference.*
10.2 Employment Agreement, dated June 21, 1995, between the Company and Ramon
D. Ardizzone was filed as Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 and is
incorporated herein by reference.*
10.3 Amendment, dated December 8, 1995, to the Employment Agreement dated
June 21, 1995 between the Company and Ramon D. Ardizzone was filed as
Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and is incorporated herein by reference.*
10.4 Second Amendment, dated December 12, 1996 to the Employment Agreement
dated June 21, 1995 between the Company and Ramon D. Ardizzone was filed
as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and is incorporated herein by reference.*
10.5 Termination Agreement, dated September 30, 1997, between the Company and
Ramon D. Ardizzone was filed as Exhibit 4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 and is
incorporated herein by reference.*
<PAGE>
10.6 Employment Agreement, dated August 27, 1996 between the Company and Gary
B. Smith was filed as Exhibit 10 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and is incorporated
herein by reference.*
10.7 Amendment, dated December 12, 1996, to the Employment Agreement dated
August 27, 1996 between the Company and Gary B. Smith was filed as
exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and is incorporated herein by reference.*
10.8 Second Amendment, dated May 21, 1997, to the Employment Agreement dated
August 27, 1996 between the Company and Gary B. Smith was filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and is incorporated herein by reference.*
10.9 Resignation Agreement, dated December 21, 1998, between the Company and
Gary B. Smith is filed herewith.*
10.10 Employment Agreement, dated May 21, 1997 between the Company and Stanley
Ciepcielinski was filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 and is
incorporated herein by reference.*
10.11 Executive Severance Benefit Agreement, dated May 21, 1997, between the
Company and Lee M. Ellison (the "Ellison Agreement") was filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and is incorporated herein by reference.
Executive Severance Benefit Agreements, between the Company and
individually with Beverley W. Cox (dated February 1, 1995, as amended) ,
James W. Marion (dated March 31, 1998), Warren K. Neuberger (dated
January 14, 1999) and Gary P. Hermansen (dated January 14, 1999) are
identical, in all material respects, with the Ellison Agreement and are
not filed as exhibits.*
10.12 Consulting Services Agreement, dated November 11, 1998, between the
Company and Dan Case is filed herewith.*
10.13 Letter Agreement dated May 26, 1998 between the Registrant and Amir
Zoufonoun is filed herewith.*
10.14 Glenayre Electronics, Inc. Deferred Compensation Plan was filed as
exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and is incorporated herein by reference.*
10.15 Glenayre Technologies Management By Objective Plan for the year ended
December 31, 1998 was filed as Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 and is
incorporated herein by reference.*
10.16 Glenayre Technologies, Inc. Management By Objective Plan for the year
ended December 31, 1997 was filed as Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997 and is
incorporated herein by reference.*
10.17 Glenayre 1996 Incentive Stock Plan, as amended April 18, 1997, was filed
as Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997 and is incorporated herein by
reference.*
10.18 Amendment, dated December 18, 1998, to the Glenayre 1996 Incentive Stock
Plan is filed herewith.*
10.19 Glenayre Long-Term Incentive Plan, as amended and restated effective May
26, 1994, was filed as Exhibit 4 to the Registrant's Form S-8 filed June
16, 1994 and is incorporated herein by reference.*
10.20 Amendment, dated December 18, 1998, to the Glenayre Long-Term Incentive
Plan is filed herewith.*
10.21 Credit Agreement, dated October 30, 1998, between Glenayre Electronics,
Inc. and NationsBank, N.A., as Agent is filed herewith.
<PAGE>
10.22 Credit Agreement, dated October 31, 1997, between Glenayre Electronics,
Inc. and NationsBank, N.A. as Agent was filed as Exhibit 10.18 to the
Registrant's Annual Report of Form 10-K for the year ended December 31,
1997 and is incorporated herein by reference.#
21 Subsidiaries of the Company is filed herewith.
23 Consent of Ernst & Young LLP is filed herewith.
27 Financial Data Schedule for the year ended December 31, 1998. (Filed in
electronic format only. Pursuant to Rule 402 of Regulation S-T, this
schedule shall not be deemed filed for purposes of Section 11 of the
Securities Act of 1933 or Section 18 of the Securities Exchange Act of
1934.)
99 Cautionary Statement under safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 is filed herewith.
- --------------------
*Management Contract
# Indicates that a portion of the document is confidential and has been omitted
and filed separately with the Securities and Exchange Commission in
connection with a request for confidential treatment of such omitted
material.
Exhibit 10.9
STATE OF NORTH CAROLINA
RESIGNATION AGREEMENT
COUNTY OF MECKLENBURG
THIS RESIGNATION AGREEMENT (this "Agreement") is entered into as
of the 21 st day of December, 1998 by and between GLENAYRE TECHNOLOGIES, INC., a
Delaware corporation (the "Company"), and GARY B. SMITH ("Smith").
STATEMENT OF PURPOSE
Smith and the Company entered into an Employment Agreement dated as of
the 27 th day of August, 1996 (the "Employment Agreement") whereby Smith was
employed by the Company as the President and Chief Operating Officer of the
Company. As of the 12 th day of December, 1996, the Employment Agreement was
amended by a document entitled "Amendment to Employment Agreement" which, among
other things, changed Smith's position to that of President and Chief Executive
Officer. As of the 2 1 " day of May, 1997 the parties entered into a Second
Amendment to Employment Agreement (the Employment Agreement as amended is
hereinafter referred to as the "Amended Employment Agreement"). In addition to
serving as President and Chief Executive Officer, Smith also serves as a member
of the Company's Board of Directors. Smith has decided to voluntarily resign
from his employment with the Company.
Smith and the Company have agreed to terminate their relationship on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the Statement of Purpose and the te
provisions of this Agreement, the parties hereto mutually agree as follows:
I . Resignation. Smith hereby resigns from his employment with the
Company and resigns from all offices, committees and positions he holds with the
Company and any affiliated company, including but not limited to, President and
Chief Executive Officer of the Company and a member of the Company's Board of
Directors, with said resignation to be effective on December 21, 1998. If
requested by the Company, Smith will execute any additional resignation letters,
forms or other documents which acknowledge his resignation from such employment,
positions, committees and offices.
2. Payment of Compensation and Provision of Certain Benefits by the
Company. The Company agrees to pay or provide Smith with the following:
1
<PAGE>
(a) Compensation and benefits to which Smith is otherwise entitled
as an employee of the Company at Smith's current rate and status
through December 31, 1998, including any accrued but unpaid
vacation pay, automobile allowance and previously incurred
expenses, in accordance with the Company's generally applicable
policies and procedures;
(b) An amount equal to two times the annual rate of Smith's Base
Salary as provided in Paragraph 3(a)(3) of the Amended
Employment Agreement.
(c) Medical and dental benefits for Smith and his dependents until
December 21, 1999 under the Company's group medical plan. Smith
Shall be entitled to elect to continue such coverage under the
COBRA provisions of federal law, and his right to such continued
coverage shall begin on December 21, 1999.
(d) Smith has vested interests under a Company sponsored 401(k)
plan. Smith's interests in said plan shall be paid when and as
provided in, and otherwise subject to the terms, provisions and
conditions of said plan and nothing in this Agreement shall
modify or override those terms, provisions or conditions.
(e) Smith has vested interests under the Company's 1991 Long-Term
Incentive Plan and its 1996 Incentive Stock Plan and various
stock options have been granted to Smith pursuant to said plans.
In accordance with Paragraph 3(b) of the Amended Employment
Agreement, all previously granted stock options shall become
fully vested and immediately exercisable and shall remain
exercisable for a period of 12 months from the date of this
Agreement.
3. Acknowledgment as to Receipt of Compensation. Smith acknowledges that
he has been paid or provided all compensation and benefits to which he was
entitled through the date of termination of his employment. Smith further
acknowledges that the terms of Paragraph 2 above provide to him all of the
compensation and benefits to which he is entitled under the Amended Employment
Agreement. Moreover, Smith acknowledges that he is not entitled to receive any
payment under the Management by Objectives Bonus Plan for 1998.
4. Survival of Certain Paragraphs of the Amended Employment Agreement.
Notwithstanding the termination of Smith's employment with the Company, the
parties acknowledge that certain provisions of the Amended Employment Agreement
remain in full
2
<PAGE>
force and effect. Specifically, renumbered Paragraphs 6 (Confidential
Information), 7 (Benefit of Designs), 8 (Non-Competition), 9 (Indemnification)
and 10 (Reimbursement of Legal and Related Expenses) remain in full force and
effect notwithstanding the termination of Smith's employment.
5. Employment Taxes and Withholdings. Smith acknowledges and agrees that
the Company shall withhold from the payments and benefits described in this
Agreement all taxes, including income and employment taxes, required to be so
deducted or withheld under applicable law.
6. Release of the Company. Smith, on behalf of himself and his heirs,
personal representatives, successors and assigns, hereby releases and forever
discharges the Company and each and every one of its respective present and
former shareholders, directors, officers, employees, agents, successors and
assigns, of and from any and all claims, demands, actions, causes of action,
damages, costs and expenses, which Smith now has or may have by reason of any
thing occurring, done or omitted to be done to the date of this Agreement;
provided, however, this release shall not apply to any claims which Smith may
have for the payments or benefits expressly provided for Smith or otherwise
specifically referred to in this Agreement, and shall not apply to any rights of
indemnification or exculpation to which Smith would otherwise have been entitled
under the Charter or By-Laws of the Company or any benefits under directors and
officers' insurance maintained by the Company.
7. Release by the Company. The Company does hereby release and forever
discharge Smith, his heirs and assigns of and from any and all claims, demands,
actions and causes of action, damages, costs and expenses, which the Company now
has or may have by reason of anything occurring, done or omitted to be done to
the date of this Agreement.
8. Confidentiality of this Agreement; Employment Reference. Smith shall
not at any time, directly or indirectly, discuss with or disclose to anyone
(other than to members of his immediate family, his attorney, his tax advisors
and the appropriate taxing authorities or as otherwise required by law,
hereinafter "Qualified Persons") the terms of this Agreement, including the
amounts payable hereunder. Smith further agrees that he shall not discuss with
anyone other than Qualified Persons the circumstances surrounding the
termination of his employment. If any person asks Smith about the above matters,
he will simply say that he resigned from the Company and all issues relating to
his employment have been resolved. Smith further agrees that he will refrain
from making derogatory comments about the Company, its Board of Directors, its
officers or agents. The Company agrees that its officers and directors will
likewise refrain from making derogatory comments about Smith, and if any person
asks the Company about such matters, the Company will advise such person only as
to the dates of Employee's employment with the company, the positions held and
that he voluntarily resigned from his employment with the Company.
3
<PAGE>
9. Applicable Law. This Agreement is made and executed with the
intention that the construction, interpretation and validity hereof shall be
determined in accordance with and governed by the laws of the State of North
Carolina.
10. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns. This Agreement shall be
binding upon and inure to the benefit of Smith, his heirs, executors and
administrators.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes
and, except as provided in Paragraph 4 above, cancels all prior or
contemporaneous oral or written agreements and understandings between them with
respect to the subject matter hereof.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
signed by its duly authorized officers and its corporate seal to be
hereunto affixed, and Smith has hereunto set his hand and seal, all as
of the day and year first above written.
GLENAYRE TECHNOLOGIES, INC.
[CORPORATE SEAL]
ATTEST: By /s/ Ramon D. Ardizzone
-----------------------------
Ramon D. Ardizzone
Chairman of the Board
/s/ Eugene C. Pridgen
--------------------------------
Secretary
/s/ G Smith [SEAL]
-----------------------------
Gary B. Smith
5
Exhibit 10.12
November 11, 1998
Mr. Dan Case
Glenayre Electronics, Inc.
11360 Lakefield Drive
Atlanta, GA
Dear Dan:
As we previously discussed, I would like for you to continue your
association with Glenayre as a consultant to the Integrated Network
Group ("ING"). The terms and conditions of this consulting role are set
forth below.
1. Consulting Period. The period of your Consulting Services (the
"Consulting Period") shall commence on January 1, 1999 and shall
continue until such time as Glenayre and you terminate, by written
notice, the Consulting Period, provided that the Consulting Period
shall continue for a minimum of four months.
2. Consulting Services. During the Consulting Period, you agree to provide
to Glenayre reasonable services of an advisory or consulting nature
with respect to ING's business and affairs, including without
limitation advice and consultation related to ING's strategy, operating
procedures, customers, suppliers, products and financial matters (the
"Consulting Services"). The Consulting Services will be provided as
follows: (i) during the first four months of the Consulting Period you
agree to devote, at Glenayre's request, up to a total of 30 days (each
eight hour period to be deemed a "day"); and (ii) thereafter, during
the remainder of the Consulting Period, you agree to provide Consulting
Services on an as-needed basis, subject to your availability, it being
understood that you will not be required to render any Consulting
Services during times in which you have prior business or personal
commitments. In performing Consulting Services, you will not be
required to be active in the day-to-day operations of ING.
3. Payments for Consulting Service. In consideration of the Consulting
Services that you provide under Paragraph 2 above, Glenayre agrees to
pay or provide benefits to you as follows:
(a) During the first four months of the Consulting Period, Glenayre
shall pay you the sum of $106,000 in four equal monthly
installments of $26,500 each. Each payment will be made no later
than the 10th day of the month.
(b) Thereafter, during the Consulting Period, Glenayre will pay you a
monthly retainer in the amount of $10,500.
<PAGE>
(c) During the Consulting Period, you shall receive insured health and
dental benefits.
(d) Glenayre shall reimburse you for all reasonable out-of-pocket
expenses incurred by you during the Consulting Period at
Glenayre's request.
5. Facilities. Upon your request, Glenayre shall furnish you with office
space and facilities necessary for you to provide the Consulting
Services.
7. No Recruitment of Employees. During the Consulting Period, and for a
period of two years thereafter, you agree not to recruit, provide
information on any personnel of the Glenayre Companies, or assist
another employer in the recruitment of any employee of the Glenayre
Companies. For this purpose, the term "Glenayre Companies" refers to
Glenayre Electronics, Inc. and any subsidiary or affiliate of Glenayre
Electronics, Inc. or Glenayre Technologies, Inc.
8. Miscellaneous.
(a) This agreement embodies the entire agreement and understanding
between Glenayre and you concerning the subject matter of this
agreement and supersedes all prior and contemporaneous agreements
and understandings between Glenayre and you with respect to any
payments to be made to your after the termination of your
employment with Glenayre.
(b) The terms and conditions of this agreement shall be governed by
and construed in accordance with the laws of the State of Georgia.
I appreciate your willingness to help Glenayre during this transition period.
Very truly yours,
GLENAYRE ELECTRONICS, INC. ACCEPTED AND AGREED
By: /s/ G Smith By: /s/ Dan Case
Gary B. Smith Dan Case
President and CEO
Exhibit 10.13
May 26, 1998
CONFIDENTIAL
Mr. Amir Zoufonoun
Glenayre Western Multiplex
1196 Borregas Avenue
Sunnyvale, CA 94089-1302
Dear Amir:
As you know, Glenayre's current strategic intention is to sell Glenayre
Western Multiplex ("Western Multiplex "). We believe that you will play an
important role in insuring that Western Multiplex is refocused on an effective
growth strategy to position Western Multiplex for its future sale and in
supporting Glenayre's efforts to sell Western Multiplex. The purpose of this
agreement is to provide incentives to you to assist Glenayre in accomplishing
these objectives.
I . Your Responsibilities. In addition to fulfilling your current job
responsibilities, you agree to cooperate fully with Glenayre and its investment
bankers, attorneys and accountants in connection with the Sale of Western
Multiplex to any prospective Buyer. You acknowledge that the Buyer may be a
strategic as well as a financial Buyer, and you agree to cooperate fully with,
and support, Glenayre in either case. You agree to meet with prospective Buyers,
work with other Western Multiplex employees to insure their continued loyalty to
a prospective Buyer and generally use your best efforts to insure that the
highest possible sales price is received by Glenayre for the Sale of Western
Multiplex. In the event that you are offered an opportunity to receive an equity
interest in the Buyer or Western Multiplex as part of the Sale of Western
Multiplex, you agree to keep Glenayre advised of your negotiations with the
Buyer.
2. Your Benefits . Contingent upon your full compliance with your
responsibilities under Paragraph 1 above, Glenayre agrees to provide the
following benefits to you (assuming that you remain an employee of Western
Multiplex at the time a Sale of Western Multiplex closes):
(1) Promptly after the closing of the Sale of Western
Multiplex, you will receive an acquisition bonus based on a percentage
of the sales
<PAGE>
price for Western Multiplex (with a minimum bonus of $200,000), as set forth in
more detail on Attachment 1.
(2) I will recommend to the Plan Administration Committee of
the Board of Directors of Glenayre that all of your options for Glenayre common
stock be fully vested as of the closing date of the Sale of Western Multiplex
and that you be permitted to exercise your options within one year after the
closing date.
(3) Glenayre will pay to you a lump sum severance benefit
equal to 100% of your base salary (as in effect at the closing of the Sale of
Western Multiplex ) if a Sale of Western Multiplex occurs and either (i) you are
not offered employment by the Buyer or Western Multiplex at a position with
substantially the same or greater responsibilities than your current position
with Western Multiplex and at substantially the same or greater compensation and
other benefits and you do not accept another position with the Buyer or Western
Multiplex or (ii) you accept employment with Western Multiplex or the Buyer but
your Termination of Employment occurs within one year after the Sale of Western
Multiplex.
(4) These benefits apply to a Sale of Western Multiplex prior
to June 30, 1999. Prior to June 30, 1999, these benefits will be reviewed,
although it is currently anticipated that a similar program will be in effect
after June 30, 1999.
3. Confidentiality. You agree that you will keep strictly confidential
and will not disclose, directly or indirectly, any document or information
(including all proprietary, confidential, or trade secret information of
Glenayre or Western Multiplex that you have had in your possession or of which
you are or become aware) relating to your employment with Western Multiplex or
to the business and operations of Western Multiplex. You further agree that you
will not make any statement nor take any action which might adversely reflect
upon Glenayre or Western Multiplex, or any of their officers, directors or
employees. You also agree that you will keep strictly confidential the terms of
this agreement and will not reveal any of such terms to any other employee of
Western Multiplex .
4. Miscellaneous. This agreement supersedes and replaces the letter
agreements dated May 11, 1998 and August 22, 1997, and any and all other
arrangements, between Glenayre and you in regard to the sale of Western
Multiplex. This agreement will not be construed to provide you any right of
continued employment by Western Multiplex. The construction, interpretation and
validity of this agreement shall be determined in accordance with and governed
by the laws of the State of North Carolina. In addition to the terms defined in
this agreement, the other capitalized terms in this agreement shall
<PAGE>
have the meanings set forth in Attachment 2 hereto. No provision of this
agreement shall be deemed to restrict the absolute right of Glenayre at any time
to sell or dispose of Western Multiplex or any part of its business or assets on
such terms as Glenayre considers to be in its best interests.
/s/ Eugene C. Pridgen /s/ G Smith
Eugene C. Pridgen Gary B. Smith
Executive Vice President President and Chief Executive Officer
Corporate Development
ACCEPTED AND AGREED T0:
/s/ Amir Zoufonoun
Amir Zoufonoun
Date: /s/ 6/3/98
<PAGE>
Attachment 1
------------
Acquisition Bonus
-----------------
(Bonus Targets not required to be disclosed)
<PAGE>
ATTACHMENT 2
------------
DEFINITIONS
-----------
"Buyer means the acquiror (or any of its subsidiaries) of (i) more than
50% of the common stock of Western Multiplex or (ii) all or substantially all of
the business and assets of Western Multiplex.
"Cause" means (1) dishonesty or fraud on your part which is intended to
result in your substantial personal enrichment at the expense of Western
Multiplex or the Buyer; (2) a material violation of your responsibilities as an
employee of Western Multiplex or the Buyer which is willful and deliberate: or
(3) your conviction (after the exhaustion of all appeals of a felony involving
moral turpitude or the entry of a plea of nolo contendere for such a felony;
provided, however, that Western Multiplex or the Buyer must first (i) give
written notice to you specifying the occurrence of a violation described in
clause (2) above and (ii) allow you 30 days from receipt of the written notice
to correct the violation.
"Sale of Western Multiplex" means (i) the sale of more than 50% of
Western Multiplex's common stock or (ii) the sale of all or substantially all of
the business and assets of Western Multiplex.
"Disability" means your inability, due to the condition of your
physical, mental or emotional health, to regularly and satisfactorily perform
your duties or responsibilities as an employee of Western Multiplex or the Buyer
for a continuous period in excess of 90 days.
"Good Reason" means the occurrence of any of the following without your
consent: (1) a significant change in the nature or scope of your authority as in
effect immediately prior to a Sale of Western Multiplex; (2) an assignment to
you of duties which are materially inconsistent with your duties or
responsibilities immediately prior to a Sale of Western Multiplex; (3) a
reduction in your base salary; or (4) a requirement that the principal location
where you are required to perform services change by more than 30 miles;
provided, however, that you must first (i) give written notice to Western
Multiplex or the Buyer specifying the occurrence of an event described in clause
(1), (2), (3) or (4) above and (ii) allow the Buyer or Western Multiplex 60 days
from receipt of the written notice to correct the event.
"Termination of Employment" means the termination of your employment
with Western Multiplex or the Buyer for any reason other than (1) your death,
(2) your Disability, (3) the termination of your employment for Cause or (4)
your voluntary termination of employment other than for Good Reason.
Exhibit 10.18
GLENAYRE TECHNOLOGIES, INC.
1996 INCENTIVE STOCK PLAN
THIS INSTRUMENT OF AMENDMENT (this "Instrument") is executed as of the
18th day of December, 1998 by GLENAYRE TECHNOLOGIES, INC., a Delaware
corporation (the "Company").
Statement of Purpose
The Company sponsors the Glenayre Technologies, Inc. 1996 Incentive
Stock Plan (the "Plan"). The Company desires to amend the Plan as set forth
herein. In accordance with Section 16.1 of the Plan, the amendment set forth
herein has been approved by the Board of Directors of the Company.
NOW, THEREFORE, the Company hereby amends the Plan effective as of the
date hereof as follows:
1. Section 16.1 of the Plan is hereby amended to add the following
provision:
"In no event shall any issued and outstanding Option be repriced to a
lower Option Price at any time during the term of such Option,
without the prior affirmative vote of a majority of shares of stock
of the Company present at a stockholders meeting in person or by
proxy and entitled to vote thereon. Any amendment or repeal of this
provision shall require the affirmative vote of a majority of shares
of stock of the Company present at a stockholders meeting in person
or by proxy and entitled to vote thereon."
2. Except as expressly or by necessary implication amended hereby, the
Plan shall continue in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Instrument to be
executed by its duly authorized officer as of the day and year first above
written.
GLENAYRE TECHNOLOGIES, INC.
By: /s/ Ramon D. Ardizzone
--------------------------------
Ramon D. Ardizzone
Chairman of the Board, President
and Chief Executive Officer
Exhibit 10.20
GLENAYRE TECHNOLOGIES, INC.
LONG-TERM INCENTIVE PLAN
THIS INSTRUMENT OF AMENDMENT (this "Instrument") is executed as of the
18th day of December, 1998 by GLENAYRE TECHNOLOGIES, INC., a Delaware
corporation (the "Company").
Statement of Purpose
The Company sponsors the Glenayre Technologies, Inc. Long-Term Incentive
Plan (the "Plan"). The Company desires to amend the Plan as set forth herein. In
accordance with Section 1.13 of the Plan, the amendment set forth herein has
been approved by the Board of Directors of the Company.
NOW, THEREFORE, the Company hereby amends the Plan effective as of the
date hereof as follows:
1. Section 1.13 of the Plan is hereby amended to add the following
provision:
"In no event shall any issued and outstanding Stock Option be
repriced to a lower option price at any time during the term of such
Stock Option, without the prior affirmative vote of a majority of
shares of stock of the Company present at a stockholders meeting in
person or by proxy and entitled to vote thereon. Any amendment or
repeal of this provision shall require the affirmative vote of a
majority of shares of stock of the Company present at a stockholders
meeting in person or by proxy and entitled to vote thereon."
2. Except as expressly or by necessary implication amended hereby, the
Plan shall continue in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Instrument to be
executed by its duly authorized officer as of the day and year first above
written.
GLENAYRE TECHNOLOGIES, INC.
By: /s/ Ramon D. Ardizzone
---------------------------------
Ramon D. Ardizzone
Chairman of the Board, President
and Chief Executive Officer
Exhibit 10.21
364-DAY CREDIT AGREEMENT
Dated as of October 30, 1998
among
GLENAYRE ELECTRONICS, INC.,
as Borrower,
GLENAYRE TECHNOLOGIES, INC. AND
CERTAIN SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE SEVERAL LENDERS
FROM TIME TO TIME PARTY HERETO
AND
NATIONSBANK, N.A.,
as Agent
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS.........................................................1
1.1 Definitions........................................................1
1.2 Computation of Time Periods.......................................26
1.3 Accounting Terms..................................................26
SECTION 2CREDIT FACILITIES....................................................27
2.1 Loans. ...........................................................27
2.2Letter of Credit Subfacility.......................................29
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES.....................34
3.1 Default Rate......................................................34
3.2 Extension and Conversion..........................................34
3.3 Prepayments.......................................................35
3.4 Termination and Reduction of Committed Amount.....................36
3.5 Fees. ...........................................................36
3.6 Capital Adequacy..................................................37
3.7 Limitation on Eurodollar Loans....................................38
3.8 Illegality........................................................38
3.9 Requirements of Law...............................................39
3.10 Treatment of Affected Loans......................................40
3.11 Taxes............................................................40
3.12 Compensation.....................................................43
3.13 Pro Rata Treatment...............................................43
3.14 Sharing of Payments..............................................44
3.15 Payments, Computations, Etc......................................45
3.16 Evidence of Debt.................................................46
SECTION 4 GUARANTY...........................................................47
4.1 The Guarantee.....................................................47
4.2 Obligations Unconditional.........................................48
4.3 Reinstatement.....................................................49
4.4 Certain Additional Waivers........................................49
4.5 Remedies..........................................................49
4.6 Rights of Contribution............................................50
4.7 Continuing Guarantee..............................................51
SECTION 5 CONDITIONS.........................................................51
5.1 Closing Conditions................................................51
5.2 Conditions to all Extensions of Credit............................53
SECTION 6 REPRESENTATIONS AND WARRANTIES.....................................54
6.1 Financial Condition...............................................54
i
<PAGE>
6.2 No Change; Dividends..............................................55
6.3 Organization and Good Standing....................................55
6.4 Power; Authorization; Enforceable Obligations.....................55
6.5 No Conflicts......................................................56
6.6 No Default........................................................56
6.7 Ownership.........................................................56
6.8 Indebtedness......................................................57
6.9 Litigation........................................................57
6.10 Taxes............................................................57
6.11 Compliance with Laws.............................................57
6.12 ERISA.54 ........................................................57
6.13 Subsidiaries.....................................................58
6.14 Governmental Regulations, Etc....................................59
6.15 Purpose of Loans and Letters of Credit...........................60
6.16 Environmental Matters............................................60
6.17 Intellectual Property............................................61
6.18 Solvency.........................................................61
6.19 Investments......................................................61
6.20 Disclosure.......................................................61
6.21 No Burdensome Restrictions.......................................61
6.22 Labor Matters....................................................62
6.23 Nature of Business...............................................62
6.24 Year 2000 Compliance.............................................62
SECTION 7 AFFIRMATIVE COVENANTS..............................................62
7.1 Information Covenants.............................................62
7.2 Preservation of Existence and Franchises..........................65
7.3 Books and Records.................................................65
7.4 Compliance with Law...............................................65
7.5 Payment of Taxes and Other Indebtedness...........................66
7.6 Insurance.........................................................66
7.7 Maintenance of Property...........................................66
7.8 Performance of Obligations........................................66
7.9 Use of Proceeds...................................................66
7.10 Audits/Inspections...............................................67
7.11 Financial Covenants..............................................67
7.12 Additional Credit Parties........................................67
7.13 Funded Debt Reduction............................................68
7.14 Year 2000 Compliance.............................................68
SECTION 8 NEGATIVE COVENANTS.................................................68
8.1 Indebtedness......................................................68
8.2 Liens. ...........................................................69
8.3 Nature of Business................................................69
ii
<PAGE>
8.4 Consolidation, Merger, Dissolution, etc...........................70
8.5 Asset Dispositions................................................71
8.6 Investments.......................................................71
8.7 Restricted Payments...............................................71
8.8 Prepayments of Indebtedness, etc..................................72
8.9 Transactions with Affiliates......................................72
8.10 Fiscal Year; Organizational Documents............................72
8.11 Limitation on Restricted Actions.................................73
8.12 Ownership of Subsidiaries........................................73
8.13 Sale and Leasebacks and Synthetic Leases.........................73
8.14 No Further Negative Pledges......................................74
8.15 Operating Lease Obligations......................................74
8.16 Customer Financing Transactions..................................74
SECTION 9 EVENTS OF DEFAULT..................................................75
9.1 Events of Default.................................................75
9.2 Acceleration; Remedies............................................77
SECTION 10 AGENCY PROVISIONS.................................................78
10.1 Appointment, Powers and Immunities...............................78
10.2 Reliance by Agent................................................79
10.3 Defaults.........................................................79
10.4 Rights as a Lender...............................................80
10.5 Indemnification..................................................80
10.6 Non-Reliance on Agent and Other Lenders..........................80
10.7 Successor Agent..................................................81
SECTION 11 MISCELLANEOUS.....................................................81
11.1 Notices..........................................................81
11.2 Right of Set-Off; Adjustments....................................82
11.3 Benefit of Agreement.............................................83
11.4 No Waiver; Remedies Cumulative...................................85
11.5 Expenses; Indemnification........................................85
11.6 Amendments, Waivers and Consents.................................86
11.7 Counterparts.....................................................87
11.8 Headings.........................................................88
11.9 Survival.........................................................88
11.10 Governing Law; Submission to Jurisdiction; Venue................88
11.11 Severability....................................................89
11.12 Entirety........................................................89
11.13 Binding Effect; Termination.....................................89
11.14 Confidentiality.................................................89
11.15 Conflict........................................................90
11.16 Limitation on Attorneys' Fees..................................90
iii
<PAGE>
SCHEDULES
Schedule 1.1A Investments
Schedule 1.1B Liens
Schedule 2.1(a) Lenders
Schedule 6.4 Required Consents, Authorizations, Notices and Filings
Schedule 6.9 Litigation
Schedule 6.12 ERISA
Schedule 6.13 Subsidiaries
Schedule 6.16 Environmental Disclosures
Schedule 6.17 Intellectual Property
Schedule 8.1 Indebtedness
EXHIBITS
Exhibit 2.1(b)(i) Form of Notice of Borrowing
Exhibit 2.1(e) Form of Note
Exhibit 3.2 Form of Notice of Extension/Conversion
Exhibit 7.1(c) Form of Officer's Compliance Certificate
Exhibit 7.12 Form of Joinder Agreement
Exhibit 11.3(b) Form of Assignment and Acceptance
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of October 30, 1998 (as amended,
modified, restated or supplemented from time to time, the "Credit Agreement"),
is by and among GLENAYRE ELECTRONICS, INC., a Colorado corporation (the
"Borrower"), GLENAYRE TECHNOLOGIES, INC., a Delaware corporation (the "Parent"),
and certain Domestic Subsidiaries (as defined herein) of the Borrower which are
Guarantors (as defined herein), the Lenders (as defined herein) and NATIONSBANK,
N.A., as Agent for the Lenders (in such capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide a
$50,000,000 364-day credit facility for the purposes hereinafter set forth; and
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions.
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires:
"Acquisition", by any Person, means the acquisition by such
Person of the Capital Stock or all or substantially all of the Property
of another Person, whether or not involving a merger or consolidation
with such Person.
"Additional Credit Party" means each Domestic Subsidiary of the
Parent or the Borrower (excluding Inactive Subsidiaries) that becomes a
Guarantor after the Closing Date by execution of a Joinder Agreement.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
1
<PAGE>
"Affiliate" means, with respect to any Person, any other Person
(i) directly or indirectly controlling or controlled by or under direct
or indirect common control with such Person or (ii) directly or
indirectly owning or holding five percent (5%) or more of the Capital
Stock in such Person. For purposes of this definition, "control" when
used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
"Agency Services Address" means NationsBank, N. A.,
NC1-001-15-04, 101 North Tryon Street, Charlotte, North Carolina 28255,
Attn: Agency Services, or such other address as may be identified by
written notice from the Agent to the Borrower.
"Agent" shall have the meaning assigned to such term in the
heading hereof, together with any successors or assigns.
"Agent's Fee Letter" means that certain letter agreement, dated
as of October 8, 1998, between the Agent and the Borrower, as amended,
modified, restated or supplemented from time to time.
"Agent's Fees" shall have the meaning assigned to such term in
Section 3.5(d).
"Applicable Lending Office" means, for each Lender, the office of
such Lender (or of an Affiliate of such Lender) as such Lender may from
time to time specify to the Agent and the Borrower by written notice as
the office by which its Eurodollar Loans are made and maintained.
"Applicable Percentage" means, for purposes of calculating the
applicable interest rate for any day for any Eurodollar Loan, or the
applicable rate of the Unused Fee for any day for purposes of Section
3.5(b) or the applicable rate of the Letter of Credit Fee for any day
for purposes of Section 3.5(c)(i), the appropriate applicable percentage
corresponding to the Leverage Ratio in effect as of the most recent
Calculation Date:
<TABLE>
<CAPTION>
- --------------------- ------------------ ------------------ ------------------ ------------------
Applicable Applicable Applicable
Pricing Leverage Percentage for Percentage for Percentage for
Level Ratio Eurodollar Loans Letters of Credit Unused Fees
- --------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
I >=1.25 1.25% 1.25% 0.375%
- --------------------- ------------------ ------------------ ------------------ ------------------
II <1.25 >=1.0 1.125% 1.125% 0.375%
- --------------------- ------------------ ------------------ ------------------ ------------------
III < 1.0 >= 0.75 1.000% 1.000% 0.300%
- --------------------- ------------------ ------------------ ------------------ ------------------
IV < 0.75 >= 0.50 0.875% 0.875% 0.300%
- --------------------- ------------------ ------------------ ------------------ ------------------
V < 0.50 >= 0.25 0.750% 0.750% 0.250%
- --------------------- ------------------ ------------------ ------------------ ------------------
VI < 0.25 0.625% 0.625% 0.250%
- --------------------- ------------------ ------------------ ------------------ ------------------
</TABLE>
<PAGE>
The Applicable Percentages shall be determined and adjusted quarterly on
the date (each a "Calculation Date") five Business Days after the date
by which the Borrower is required to provide the officer's certificate
in accordance with the provisions of Section 7.1(c) for the most
recently ended fiscal quarter of the Consolidated Parties; provided,
however, that (i) the initial Applicable Percentages shall be based on
the Leverage Ratio as of the last day of the fiscal quarter ended June
30, 1998 and shall remain at such Pricing Level until the first
Calculation Date subsequent to the Closing Date and, thereafter, the
Pricing Level shall be determined by the Leverage Ratio as of the last
day of the most recently ended fiscal quarter of the Consolidated
Parties preceding the applicable Calculation Date, and (ii) if the
Borrower fails to provide the officer's certificate to the Agency
Services Address as required by Section 7.1(c) for the last day of the
most recently ended fiscal quarter of the Consolidated Parties, the
Applicable Percentage from such Calculation Date shall be based on
Pricing Level I until such time as an appropriate officer's certificate
is provided, whereupon the Pricing Level shall be determined by the
Leverage Ratio as of the last day of the most recently ended fiscal
quarter of the Consolidated Parties preceding such Calculation Date.
Each Applicable Percentage shall be effective from one Calculation Date
until the next Calculation Date. Any adjustment in the Applicable
Percentages shall be applicable to all existing Loans as well as any new
Loans made or issued.
"Application Period", in respect of any Asset Disposition, shall
have the meaning assigned to such term in Section 8.5.
"Asset Disposition" means the disposition of any or all of the
assets of any Consolidated Party whether by sale, lease, transfer or
otherwise, but excluding (a) the sale of inventory in the ordinary
course of business for fair consideration, (b) the sale or disposition
of machinery and equipment no longer used or useful in the conduct of
such Person's business and (c) any Equity Issuance.
"Asset Disposition Prepayment Event" means, with respect to any
Asset Disposition other than an Excluded Asset Disposition, (i) any
Asset Disposition not occurring in the ordinary course of Business of
the Borrower or (ii) the failure of the Borrower to apply (or cause to
be applied) the Net Cash Proceeds of such Asset Disposition to the
purchase, acquisition or construction of Eligible Assets during the
Application Period for such Asset Disposition.
"Attributed Principal Amount" means, on any day, with respect to
any Permitted Receivables Financing entered into by a Credit Party
(other than the Parent), the aggregate amount (with respect to any such
transaction, the "Invested Amount") paid to, or borrowed by, such Person
as of such date under such Permitted Receivables Financing, minus the
aggregate amount received by the applicable Receivables Financier and
applied to the reduction of the Invested Amount under such Permitted
Receivables Financing.
3
<PAGE>
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (i) a
court or governmental agency having jurisdiction in the premises shall
enter a decree or order for relief in respect of such Person in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
ordering the winding up or liquidation of its affairs; or (ii) there
shall be commenced against such Person an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or any case, proceeding or other action for the appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of such Person or for any substantial part of its
Property or for the winding up or liquidation of its affairs, and such
involuntary case or other case, proceeding or other action shall remain
undismissed, undischarged or unbonded for a period of sixty (60)
consecutive days; or (iii) such Person shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its Property or make any general assignment for the
benefit of creditors; or (iv) such Person shall be unable to, or shall
admit in writing its inability to, pay its debts generally as they
become due.
"Base Rate" means, for any day, the rate per annum equal to the
higher of (a) the Federal Funds Rate for such day plus one-half of one
percent (0.5%) and (b) the Prime Rate for such day. Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Prime
Rate or Federal Funds Rate.
"Base Rate Loan" means any Loan bearing interest at a rate
determined by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading
hereof, together with any permitted successors and assigns.
"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banks in Charlotte, North Carolina or New York,
New York are authorized or required by law to close, except that, when
used in connection with a Eurodollar Loan, such day shall also be a day
on which dealings between banks are carried on in U.S. dollar deposits
in London, England.
"Calculation Date" has the meaning set forth in the definition of
"Applicable Percentage" set forth in this Section 1.1.
4
<PAGE>
"Canadian Property" means, the real property located at 1570 and
1590 Kootenay Street, Vancouver, Canada.
"Capital Lease" means, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person.
"Capital Stock" means (i) in the case of a corporation, capital
stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents
(however designated) of capital stock, (iii) in the case of a
partnership, partnership interests (whether general or limited), (iv) in
the case of a limited liability company, membership interests and (v)
any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and
credit of the United States of America is pledged in support thereof)
having maturities of not more than eighteen months from the date of
acquisition, (b) U.S. dollar denominated time deposits and certificates
of deposit of (i) any Lender, (ii) any domestic commercial bank of
recognized standing having capital and surplus in excess of $500,000,000
or (iii) any bank whose short-term commercial paper rating from S&P is
at least A-1 or the equivalent thereof or from Moody's is at least P-1
or the equivalent thereof (any such bank being an "Approved Bank"), in
each case with maturities of not more than eighteen months from the date
of acquisition, (c) commercial paper and variable or fixed rate notes
issued by any Approved Bank (or by the parent company thereof) or any
variable rate notes issued by, or guaranteed by, any domestic
corporation rated A-1 (or the equivalent thereof) or better by S&P or
P-1 (or the equivalent thereof) or better by Moody's and maturing within
six months of the date of acquisition, (d) repurchase agreements with a
bank or trust company (including any of the Lenders) or recognized
securities dealer having capital and surplus in excess of $500,000,000
for direct obligations issued by or fully guaranteed by the United
States of America in which any Credit Party shall have a perfected first
priority security interest (subject to no other Liens) and having, on
the date of purchase thereof, a fair market value of at least 100% of
the amount of the repurchase obligations, (e) Investments, classified in
accordance with GAAP as current assets, in money market investment
programs registered under the Investment Company Act of 1940, as
amended, which are administered by reputable financial institutions
having capital of at least $500,000,000 and the portfolios of which are
limited to Investments of the character described in the foregoing
subdivisions (a) through (d), and (f) Investments of the character
described in the foregoing subdivisions (a) through (d) by a
Consolidated Party (other than a Credit Party) in countries in which
such Consolidated Party operates.
5
<PAGE>
"Cash-on-Hand" means as to any Person, the sum of all deposits in
checking, money market, brokerage or savings accounts maintained by such
Person at a financial institution.
"Change of Control" means the occurrence of any of the following
events: (i) the failure of the Parent to own all of the Capital Stock of
the Borrower, (ii) any Person or two or more Persons acting in concert
shall have acquired beneficial ownership, directly or indirectly, of, or
shall have acquired by contract or otherwise, or shall have entered into
a contract or arrangement that, upon consummation, will result in its or
their acquisition of, control over, Voting Stock of the Parent (or other
securities convertible into such Voting Stock) representing 30% or more
of the combined voting power of all Voting Stock of the Parent, or (iii)
during any period of up to 12 consecutive months, commencing after the
Closing Date, individuals who at the beginning of such 12 month period
were directors of the Parent (together with any new director whose
election by the Parent's Board of Directors or whose nomination for
election by the Parent's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason
to constitute a majority of the directors of the Parent then in office.
As used herein, "beneficial ownership" shall have the meaning provided
in Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and
any successor statute thereto, as interpreted by the rules and
regulations issued thereunder, in each case as in effect from time to
time. References to sections of the Code shall be construed also to
refer to any successor sections.
"Commitment" means (i) with respect to each Lender, the
commitment of such Lender in an aggregate principal amount at any time
outstanding of up to such Lender's Commitment Percentage of the
Committed Amount, (A) to make Loans in accordance with the provisions of
Section 2.1(a) and (B) to purchase Participation Interests in Letters of
Credit in accordance with the provisions of Section 2.2(c), and (ii)
with respect to the Issuing Lender, the LOC Commitment.
"Commitment Percentage" means, for any Lender, the percentage
identified as its Commitment Percentage on Schedule 2.1(a), as such
percentage may be modified in connection with any assignment made in
accordance with the provisions of Section 11.3.
"Committed Amount" shall have the meaning assigned to such term
in Section 2.1(a).
"Consolidated Capital Expenditures" means, for any period, all
capital expenditures of the Consolidated Parties on a consolidated basis
for such period, as determined in accordance with GAAP.
6
<PAGE>
"Consolidated Cash Taxes" means, for any period, the aggregate of
all taxes of the Consolidated Parties on a consolidated basis for such
period (excluding income taxes incurred in connection with income from
the sales of Western Multiplex Corporation and Glenayre OPTIONS Corp.),
as determined in accordance with GAAP, to the extent the same are paid
in cash during such period.
"Consolidated EBITDA" means, for any period, the sum of (i)
Consolidated Net Income for such period, plus (ii) an amount which, in
the determination of Consolidated Net Income for such period, has been
deducted for (A) Consolidated Interest Expense, (B) total federal,
state, local and foreign income, value added and similar tax expenses,
(C) depreciation and amortization expense, all as determined in
accordance with GAAP and (D) other non-cash charges.
"Consolidated Interest Expense" means, for any period, interest
expense (including the amortization of debt discount and premium, the
interest component under Capital Leases and the implied interest
component under Permitted Receivables Financings and the implied
interest component under Synthetic Leases) of the Consolidated Parties
on a consolidated basis for such period, as determined in accordance
with GAAP.
"Consolidated Interest Income" means, for any period, interest
income for such period of the Consolidated Parties on a consolidated
basis, as determined in accordance with GAAP.
"Consolidated Net Income" means, for any period, net income
(excluding extraordinary items, but including in any event Consolidated
Interest Income) after taxes for such period of the Consolidated Parties
on a consolidated basis, as determined in accordance with GAAP;
provided, however, Consolidated Net Income shall not include income
arising under Permitted Customer Financing Transactions with maturities
exceeding 120 days until cash payment in respect of such income has been
received by the applicable Consolidated Party.
"Consolidated Net Worth" means, as of any date, shareholders'
equity or net worth of the Consolidated Parties on a consolidated basis,
as determined in accordance with GAAP.
"Consolidated Parties" means a collective reference to the Parent
and its Subsidiaries, and "Consolidated Party" means any one of them.
"Consolidated Scheduled Funded Debt Payments" means, as of the
end of each fiscal quarter of the Consolidated Parties, for the
Consolidated Parties on a consolidated basis, the sum of all scheduled
payments of principal on Funded Indebtedness for the applicable period
ending on such date (including the principal component of payments due
7
<PAGE>
on Capital Leases during the applicable period ending on such date); it
being understood that Scheduled Funded Debt Payments shall not include
voluntary prepayments or the mandatory prepayments required pursuant to
Section 3.3.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 3.2 hereof of a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a
conversion pursuant to Section 3.2 or Sections 3.7 through 3.12,
inclusive, of a Base Rate Loan into a Eurodollar Loan.
"Conxus Credit Agreement" means that Second Amended and Restated
Credit Agreement dated as of May 28, 1998 among Conxus Financial Corp.,
a Delaware corporation, the several banks and other financial
institutions from time to time parties thereto, Glenayre Electronics,
Inc., a Colorado corporation, Motorola, Inc. by and through its
Messaging Systems Products Group and the Chase Manhattan Bank, a New
York banking association, as administration agent for the lenders
thereunder.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the LOC Documents, each Joinder Agreement, the
Agent's Fee Letter, and all other related agreements and documents
issued or delivered hereunder or thereunder or pursuant hereto or
thereto (in each case, as the same may be amended, modified, restated,
supplemented, extended, renewed or replaced from time to time) and
"Credit Document" means any one of them.
"Credit Parties" means a collective reference to the Borrower and
the Guarantors, and "Credit Party" means any one of them.
"Credit Party Obligations" means, without duplication, (i) all of
the obligations of the Credit Parties to the Lenders (including the
Issuing Lender) and the Agent, whenever arising, under this Credit
Agreement, the Notes or any of the other Credit Documents (including,
but not limited to, any interest accruing after the occurrence of a
Bankruptcy Event with respect to any Credit Party, regardless of whether
such interest is an allowed claim under the Bankruptcy Code) and (ii)
all liabilities and obligations, whenever arising, owing from the
Borrower to any Lender, or any Affiliate of a Lender, arising under any
Hedging Agreement.
"Customer Financing Policy" means that certain Customer Financing
Policy No. FIN-110 of Glenayre Technologies, Inc. issued July 19, 1997
and revised October 22, 1997.
"Customer Financing Transaction" means as to any Consolidated
Party, any extension of credit to another Person to finance (i) the cost
of equipment, inventory or other goods (including, without limitation,
software) manufactured or sold by such Consolidated
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Party to such Person or (ii) the cost of any services provided by such
Consolidated Party to such Person.
"Default" means any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that (a) has
failed to make a Loan or purchase a Participation Interest required
pursuant to the term of this Credit Agreement within one Business Day of
when due, (b) other than as set forth in (a) above, has failed to pay to
the Agent or any Lender an amount owed by such Lender pursuant to the
terms of this Credit Agreement within one Business Day of when due,
unless such amount is subject to a good faith dispute or (c) has been
deemed insolvent or has become subject to a bankruptcy or insolvency
proceeding or with respect to which (or with respect to any of assets of
which) a receiver, trustee or similar official has been appointed.
"Dollars" and "$" means dollars in lawful currency of the United
States of America.
"Domestic Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is incorporated or organized under the
laws of any State of the United States or the District of Columbia.
"Eligible Assets" means another business or any substantial part
of another business or other long-term assets, in each case, in, or used
or useful in, the same or a similar line of business as the Consolidated
Parties were engaged in on the Closing Date or any reasonable extensions
or expansions thereof.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; and (iii) any other Person approved by the Agent and, unless an
Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 11.3, the Borrower
(such approval not to be unreasonably withheld or delayed by the
Borrower); provided, however, that neither the Borrower nor an Affiliate
of the Borrower shall qualify as an Eligible Assignee.
"Environmental Laws" means any and all lawful and applicable
Federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
or handling of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes.
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"Equity Issuance" means any issuance by any Consolidated Party to
any Person which is not a Credit Party of (a) shares of its Capital
Stock, (b) any shares of its Capital Stock pursuant to the exercise of
options or warrants or (c) any shares of its Capital Stock pursuant to
the conversion of any debt securities to equity. The term "Equity
Issuance" shall not include any Asset Disposition or any issuance of
Capital Stock pursuant to stock option plans maintained by the Parent
existing as of the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"ERISA Affiliate" means an entity which is under common control
with any Consolidated Party within the meaning of Section 4001(a)(14) of
ERISA, or is a member of a group which includes the Borrower and which
is treated as a single employer under Sections 414(b) or (c) of the
Code.
"ERISA Event" means (i) with respect to any Plan, the occurrence
of a Reportable Event or the substantial cessation of operations (within
the meaning of Section 4062(e) of ERISA); (ii) the withdrawal by any
Consolidated Party or any ERISA Affiliate from a Multiple Employer Plan
during a plan year in which it was a substantial employer (as such term
is defined in Section 4001(a)(2) of ERISA), or the termination of a
Multiple Employer Plan; (iii) the distribution of a notice of intent to
terminate or the actual termination of a Plan pursuant to Section
4041(a)(2) or 4041A of ERISA; (iv) the institution of proceedings to
terminate or the actual termination of a Plan by the PBGC under Section
4042 of ERISA; (v) any event or condition which constitutes grounds
under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan; (vi) the complete or partial
withdrawal of any Consolidated Party or any ERISA Affiliate from a
Multiemployer Plan; (vii) the conditions for imposition of a lien under
Section 302(f) of ERISA exist with respect to any Plan; or (viii) the
adoption of an amendment to any Plan requiring the provision of security
to such Plan pursuant to Section 307 of ERISA.
"Eurodollar Loan" means any Loan that bears interest at a rate
based upon the Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Agent to be equal to the
quotient obtained by dividing (a) the Interbank Offered Rate for such
Eurodollar Loan for such Interest Period by (b) 1 minus the Eurodollar
Reserve Requirement for such Eurodollar Loan for such Interest Period.
"Eurodollar Reserve Requirement" means, at any time, the maximum
rate at which reserves (including, without limitation, any marginal,
special, supplemental, or emergency reserves) are required to be
maintained under regulations issued from time to time by the
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Board of Governors of the Federal Reserve System (or any successor) by
member banks of the Federal Reserve System against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting
the effect of the foregoing, the Eurodollar Reserve Requirement shall
reflect any other reserves required to be maintained by such member
banks with respect to (i) any category of liabilities which includes
deposits by reference to which the Adjusted Eurodollar Rate is to be
determined, or (ii) any category of extensions of credit or other assets
which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Requirement.
"Excluded Asset Disposition" means (i) the sale, conveyance or
other contribution of applicable Transferred Assets by a Credit Party
(other than the Parent) as part of any Permitted Receivables Financing,
(ii) any Asset Disposition by any Consolidated Party to any Credit Party
if after giving effect such Asset Disposition, no Default or Event of
Default exists and (iii) any Asset Disposition by any Consolidated Party
(which is not a Credit Party) to any other Consolidated Party if after
giving effect such Asset Disposition, no Default or Event of Default
exists.
"Executive Officer" of any Person means any of the chief
executive officer, chief operating officer, president, vice president,
chief financial officer or treasurer of such Person.
"Event of Default" means such term as defined in Section 9.1.
"Fees" means all fees payable pursuant to Section 3.5.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) 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 on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day; provided that (a) if
such day is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business
Day as so published on the next succeeding Business Day, and (b) if no
such rate is so published on such next succeeding Business Day, the
Federal Funds Rate for such day shall be the average rate charged to the
Agent (in its individual capacity) on such day on such transactions as
determined by the Agent.
"Fixed Charge Coverage Ratio" means, as of the end of each fiscal
quarter of the Consolidated Parties for the twelve month period ending
on such date, the ratio of (a) the sum of (i) Consolidated EBITDA for
the applicable period minus (ii) Consolidated Cash Taxes for the
applicable period to (b) the sum of (i) Consolidated Interest Expense
for the applicable period plus (ii) Consolidated Capital Expenditures
plus (iii) Restricted Payments made in cash.
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"Foreign Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is not a Domestic Subsidiary of such
Person.
"Funded Indebtedness" means, with respect to any Person, without
duplication, (a) all Indebtedness of such Person other than Indebtedness
of the types referred to in clauses (e), (f), (g), (i) and (n) of the
definition of "Indebtedness" set forth in this Section 1.1, (b) all
Indebtedness of another Person of the type referred to in clause (a)
above secured by (or for which the holder of such Funded Indebtedness
has an existing right, contingent or otherwise, to be secured by) any
Lien on, or payable out of the proceeds of production from, Property
owned or acquired by such Person, whether or not the obligations secured
thereby have been assumed, (c) all Guaranty Obligations of such Person
with respect to Indebtedness of the type referred to in clause (a) above
of another Person and (d) Indebtedness of the type referred to in clause
(a) above of any partnership or unincorporated joint venture in which
such Person is legally obligated or has a reasonable expectation of
being liable with respect thereto.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to the terms of
Section 1.3.
"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantors" means a collective reference to the Parent and each
of the Domestic Subsidiaries of the Parent (excluding the Borrower) and
the Borrower identified as a "Guarantor" on the signature pages hereto
and each Additional Credit Party which may hereafter execute a Joinder
Agreement, together with their successors and permitted assigns, and
"Guarantor" means any one of them; provided, however, that "Guarantors"
shall not include any Inactive Subsidiary.
"Guaranty Obligations" means, with respect to any Person, without
duplication as to the Consolidated Parties, any obligations of such
Person (other than endorsements in the ordinary course of business of
negotiable instruments for deposit or collection) guaranteeing or
intended to guarantee any Indebtedness of any other Person in any
manner, whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (i) to purchase any such
Indebtedness or any Property constituting security therefor, (ii) to
advance or provide funds or other support for the payment or purchase of
any such Indebtedness or to maintain working capital, solvency or other
balance sheet condition of such other Person (including without
limitation keep well agreements, maintenance agreements, comfort letters
or similar agreements or arrangements) for the benefit of any holder of
Indebtedness of such other Person, (iii) to lease or purchase Property,
securities or services primarily for the purpose of assuring the holder
of such Indebtedness, or (iv) to otherwise assure or hold harmless the
holder of such Indebtedness against loss in respect thereof. The amount
of any Guaranty Obligation hereunder shall
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<PAGE>
(subject to any limitations set forth therein) be deemed to be an amount
equal to the outstanding principal amount (or maximum principal amount,
if larger) of the Indebtedness in respect of which such Guaranty
Obligation is made.
"Hedging Agreements" means any interest rate protection
agreement, foreign currency exchange agreement or commodity/raw
materials price hedging agreement between any Consolidated Party and any
Lender, or any Affiliate of a Lender.
"Inactive Subsidiary" means any of the following entities:
Wireless Access, Inc., a Delaware corporation, Western Multiplex
International Sales Corp., a California corporation, Sunway Financial
Services, Inc. or Sunway Management, Inc; provided that on or after the
Closing Date (i) no Inactive Subsidiary shall have EBITDA greater than
5% of Consolidated EBITDA and (ii) the aggregate EBITDA of all Inactive
Subsidiaries shall not exceed 10% of Consolidated EBITDA.
"Indebtedness" means, with respect to any Person, without
duplication as to the Consolidated Parties, (a) all obligations of such
Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes or similar instruments, or upon which
interest payments are customarily made, (c) all obligations of such
Person under conditional sale or other title retention agreements
relating to Property purchased by such Person (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (d) all obligations of
such Person issued or assumed as the deferred purchase price of Property
or services purchased by such Person which would appear as liabilities
on a balance sheet of such Person, (e) all obligations of such Person
under take-or-pay or similar arrangements or under commodities
agreements, (f) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on, or payable out of the proceeds
of production from, Property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed, (g) all
Guaranty Obligations of such Person, (h) the principal portion of all
obligations of such Person under Capital Leases, (i) all obligations of
such Person under Hedging Agreements, (j) the maximum amount of all
standby letters of credit issued or bankers' acceptances facilities
created for the account of such Person and, without duplication, all
drafts drawn thereunder (to the extent unreimbursed), (k) all preferred
Capital Stock issued by such Person and required by the terms thereof to
be redeemed, or for which mandatory sinking fund payments are due, by a
fixed date, (l) with respect to the Borrower or any of its Subsidiaries,
the outstanding Attributed Principal Amount under any Permitted
Receivables Financing, (m) the principal portion of all obligations of
such Person under Synthetic Leases and (n) the Indebtedness of any
partnership or unincorporated joint venture in which such Person is a
general partner or a joint venturer. In no event shall the term
"Indebtedness" include accounts payable due within six months of
incurrence thereof, accrued expenses, deferred revenue items, pension
liabilities, and other advance payments incurred in the ordinary course
of business.
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"Interbank Offered Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750
(or any successor page) as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "Interbank Offered Rate" shall mean, for any
Eurodollar Loan for any Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one
rate is specified on Reuters Screen LIBO Page, the applicable rate shall
be the arithmetic mean of all such rates (rounded upwards, if necessary,
to the nearest 1/100 of 1%).
"Interest Payment Date" means (a) as to Base Rate Loans, December
31, 1998, March 31, 1999, June 30, 1999, September 30, 1999 and the
Maturity Date, and (b) as to Eurodollar Loans, the last day of each
applicable Interest Period and the Maturity Date, and in addition where
the applicable Interest Period for a Eurodollar Loan is greater than
three months, then also the date three months from the beginning of the
Interest Period and each three months thereafter.
"Interest Period" means as to any Eurodollar Loan, a period of
one, two, three or six months' duration, as the Borrower may elect,
commencing in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (a) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that in the case of Eurodollar Loans where the next succeeding
Business Day falls in the next succeeding calendar month, then on the
next preceding Business Day), (b) no Interest Period shall extend beyond
the Maturity Date and (C) in the case of Eurodollar Loans, where an
Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month in which the Interest Period is
to end, such Interest Period shall end on the last Business Day of such
calendar month.
"Investment" in any Person means (a) the acquisition (whether for
cash, property, services, assumption of Indebtedness, securities or
otherwise) of assets, shares of Capital Stock, bonds, notes, debentures,
partnership, joint ventures or other ownership interests or other
securities of such other Person or (b) any deposit with, or advance,
loan or other extension of credit to, such Person (other than deposits
made in connection with the purchase of equipment or other assets in the
ordinary course of business) or (c) any other capital contribution to or
investment in such Person, including, without limitation, any Guaranty
Obligations (including any support for a letter of credit issued on
behalf of such Person) incurred for the benefit of such Person, but
excluding any Restricted Payment to such Person.
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"Issuing Lender" means NationsBank.
"Issuing Lender Fees" shall have the meaning assigned to such
term in Section 3.5(c)(ii).
"Joinder Agreement" means a Joinder Agreement substantially in
the form of Exhibit 7.12 hereto, executed and delivered by an Additional
Credit Party in accordance with the provisions of Section 7.12.
"Lender" means any of the Persons identified as a "Lender" on the
signature pages hereto, and any Person which may become a Lender by way
of assignment in accordance with the terms hereof, together with their
successors and permitted assigns.
"Letter of Credit" means any letter of credit issued by the
Issuing Lender for the account of the Borrower in accordance with the
terms of Section 2.2.
"Letter of Credit Fee" shall have the meaning assigned to such
term in Section 3.5(c)(i).
"Leverage Ratio" means, with respect to the Consolidated Parties
on a consolidated basis for the twelve month period ending on the last
day of any fiscal quarter, the ratio of (a) Funded Indebtedness of the
Consolidated Parties on a consolidated basis on the last day of such
period to (b) Consolidated EBITDA for such period.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any financing or similar statement or notice
filed under the Uniform Commercial Code as adopted and in effect in the
relevant jurisdiction or other similar recording or notice statute, and
any lease in the nature thereof).
"Loan" or "Loans" shall have the meaning assigned to such term in
Section 2.1(a) and shall include within the meaning thereof any portion
of any Loan bearing interest at the Base Rate or the Adjusted Eurodollar
Rate and referred to as a Base Rate Loan or a Eurodollar Loan.
"LOC Commitment" means the commitment of the Issuing Lender to
issue Letters of Credit in an aggregate face amount at any time
outstanding (together with the amounts of any unreimbursed drawings
thereon) of up to the LOC Committed Amount.
"LOC Committed Amount" shall have the meaning assigned to such
term in Section 2.2(a).
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"LOC Documents" means, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (i) the rights and obligations of the parties concerned or
at risk or (ii) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the maximum
amount which is, or at any time thereafter may become, available to be
drawn under Letters of Credit then outstanding, assuming compliance with
all requirements for drawings referred to in such Letters of Credit plus
(ii) the aggregate amount of all drawings under Letters of Credit
honored by the Issuing Lender but not theretofore reimbursed by the
Borrower.
"Material Adverse Effect" means a material adverse effect on (i)
the condition (financial or otherwise), results of operations, business,
assets, liabilities or prospects of the Consolidated Parties taken as a
whole, (ii) the ability of any Credit Party to perform any material
obligation under the Credit Documents to which it is a party or (iii)
the material rights and remedies of the Lenders under the Credit
Documents.
"Materials of Environmental Concern" means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Laws,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"Maturity Date" means October 29, 1999.
"Moody's" means Moody's Investors Service, Inc., or any successor
or assignee of the business of such company in the business of rating
securities.
"Multiemployer Plan" means a Plan which is a multiemployer plan
as defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which any Consolidated
Party or any ERISA Affiliate and at least one employer other than the
Consolidated Parties or any ERISA Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N. A. and its successors.
"Net Cash Proceeds" means the aggregate cash proceeds received by
the Consolidated Parties in respect of any Asset Disposition, Equity
Issuance or Permitted Receivables Financing, net of (a) direct costs
(including, without limitation, legal, accounting and investment banking
fees, and sales commissions) and (b) taxes paid or payable as a result
thereof; it being understood that "Net Cash Proceeds" shall include,
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<PAGE>
without limitation, any cash received upon the sale or other disposition
of any non-cash consideration received by the Consolidated Parties in
any Asset Disposition, Equity Issuance or Permitted Receivables
Financing.
"Note" or "Notes" means the promissory notes of the Borrower in
favor of each of the Lenders evidencing the Loans provided pursuant to
Section 2.1(e), individually or collectively, as appropriate, as such
promissory notes may be amended, modified, restated, supplemented,
extended, renewed or replaced from time to time.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Exhibit 2.1(b)(i), as required by Section
2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of
extension or conversion in substantially the form of Exhibit 3.2, as
required by Section 3.2.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property which is not a Capital Lease other
than any such lease in which that Person is the lessor.
"Other Taxes" means such term as is defined in Section 3.11.
"Parent" means the Person identified as such in the heading
hereof, together with any permitted successors and assigns.
"Participation Interest" means, a purchase by a Lender of a
participation in any Letters of Credit or LOC Obligations as provided in
Section 2.2(c) or in any Loans as provided in Section 3.14.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Acquisition" means an Acquisition by any Consolidated
Party for the fair market value of the Capital Stock or Property
acquired; provided that (i) the Capital Stock or Property acquired in
such Acquisition relates to a line of business similar to the business
of the Consolidated Parties engaged in on the Closing Date, (ii) the
Agent shall have received all items in respect of the Capital Stock or
Property acquired in such Acquisition (and/or the seller thereof)
required to be delivered by the terms of Section 7.12, (iii) in the case
of an Acquisition of the Capital Stock of another Person, the board of
directors (or other comparable governing body) of such other Person
shall have duly approved such Acquisition, (iv) the Borrower shall have
delivered to the Agent a Pro Forma Compliance Certificate demonstrating
that, upon giving effect to such Acquisition on a Pro Forma Basis, the
Consolidated Parties shall be in compliance with all of the covenants
set forth in Section 7.11, (v) the representations and warranties made
by the Credit Parties in any Credit Document shall be true and correct
in all material respects at
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and as if made as of the date of such Acquisition (after giving effect
thereto) except to the extent such representations and warranties
expressly relate to an earlier date, (vi) the cost (including cash and
non-cash consideration) for any such Acquisition or transaction
described in Section 8.4 occurring after the Closing Date shall not
exceed $50,000,000 and (vii) the aggregate cost (including cash and
non-cash consideration plus the book value of assumed liabilities) for
all such Acquisitions and all transactions described in Section 8.4
occurring after the Closing Date shall not exceed $100,000,000.
"Permitted Customer Financing Transactions" means (i) any
Customer Financing Transaction permitted under the terms and conditions
set forth in the Customer Financing Policy or (ii) extensions of credit
by the Borrower under the Conxus Credit Agreement.
"Permitted Investments" means Investments which are either (i)
cash and Cash Equivalents; (ii) accounts receivable created, acquired or
made by any Consolidated Party in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; (iii)
Investments consisting of Capital Stock, obligations, securities or
other property received by any Consolidated Party in settlement of
accounts receivable (created in the ordinary course of business) from
bankrupt obligors; (iv) Investments existing as of the Closing Date and
set forth in Schedule 1.1A, (v) Guaranty Obligations permitted by
Section 8.1; (vi) transactions permitted by Section 8.9 or Section 8.16,
(vii) advances or loans to directors, officers, employees, agents,
customers or suppliers that do not exceed $500,000 in the aggregate at
any one time outstanding for all of the Consolidated Parties; (viii)
Investments in any Credit Party; (ix) Permitted Acquisitions; (x)
Investments by a Consolidated Party in a Receivables Financing SPC made
in connection with a Permitted Receivables Financing; (xi) equity
securities listed on the New York Stock Exchange, provided that (A) the
long-term credit rating of the corporation issuing such securities shall
be A- (or the equivalent thereof) or better from S&P or A3 (or the
equivalent thereof) or better from Moody's and (B) the purchase price
paid for all such equity securities held at any time shall not exceed
$1,000,000; (xii) Investments in Foreign Subsidiaries of any
Consolidated Party not exceeding in the aggregate $45,000,000 per fiscal
year of the Borrower; (xiii) Investments in joint ventures,
partnerships, limited liability companies or OEMs in which a
Consolidated Party owns an equity interest, provided such Investments
shall not exceed (when combined with Investments described in clause
(xiv)), in the aggregate, 5% of Consolidated Net Worth; and (xiv)
Investments consisting of Capital Stock and/or warrants, taken by any
Consolidated Party as consideration in a Permitted Customer Financing
Transaction in lieu of cash, provided such Investments shall not exceed
(when combined with Investments described in clause (xiii)), in the
aggregate, 5% of Consolidated Net Worth.
"Permitted Liens" means:
(i) Liens in favor of the Agent to secure the Credit Party
Obligations;
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(ii) Liens (other than Liens created or imposed under ERISA)
for taxes, assessments or governmental charges or levies not yet
due or Liens for taxes being contested in good faith by
appropriate proceedings for which adequate reserves determined in
accordance with GAAP have been established (and as to which the
Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof);
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and suppliers and other
Liens imposed by law or pursuant to customary reservations or
retentions of title arising in the ordinary course of business,
provided that such Liens secure only amounts not yet due and
payable or, if due and payable, are unfiled and no other action
has been taken to enforce the same or are being contested in good
faith by appropriate proceedings for which adequate reserves
determined in accordance with GAAP have been established (and as
to which the Property subject to any such Lien is not yet subject
to foreclosure, sale or loss on account thereof);
(iv) Liens (other than Liens created or imposed under ERISA)
incurred or deposits made by any Consolidated Party in the
ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(v) Liens in connection with attachments or judgments
(including judgment or appeal bonds) provided that the judgments
secured shall, within 30 days after the entry thereof, have been
discharged or execution thereof stayed pending appeal, or shall
have been discharged within 30 days after the expiration of any
such stay;
(vi) easements, rights-of-way, restrictions (including
zoning restrictions), minor defects or irregularities in title
and other similar charges or encumbrances not, in any material
respect, impairing the use of the encumbered Property for its
intended purposes;
(vii) Liens on Property securing purchase money Indebtedness
(including Capital Leases) to the extent permitted under Section
8.1(c) and Liens on the Canadian Property with respect to Sale
and Leaseback Transactions and Synthetic Leases to the extent
permitted under Section 8.1(g), provided that any such Lien
attaches to such Property concurrently with or within 90 days
after the acquisition thereof;
(viii) leases or subleases granted to others not
interfering in any material respect with the business of any
Consolidated Party;
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(ix) any interest of title of a lessor under, and Liens
arising from UCC financing statements (or equivalent filings,
registrations or agreements in foreign jurisdictions) relating
to, leases permitted by this Credit Agreement;
(x) Liens in favor of a Receivables Financing SPC or
Receivables Financier created or deemed to exist in connection
with a Permitted Receivables Financing (including any related
filings of any financing statements), but only (a) to the extent
that any such Lien relates to the applicable Transferred Assets
actually sold, contributed, financed or otherwise conveyed or
pledged pursuant to such transaction or (b) as required in
connection with the Non-Notification Factoring Agreement to be
executed by NationsBanc Commercial Corporation and a Credit Party
(other than the Parent);
(xi) Liens deemed to exist in connection with Investments
in repurchase agreements permitted under Section 8.6;
(xii) normal and customary rights of setoff upon deposits
of cash in favor of banks or other depository institutions;
(xiii) Liens existing as of the Closing Date and set forth
on Schedule 1.1B, as renewed, refunded or refinanced; provided
that (a) no such Lien shall at any time be extended to or cover
any Property other than the Property subject thereto on the
Closing Date and (b) the Indebtedness secured by such Liens shall
not be increased; and
(xiv) other Liens not to exceed in the aggregate
$15,000,000.
"Permitted Receivables Financing" means any one or more
receivables financings in which (i) a Consolidated Party (a) sells (as
determined in accordance with GAAP) any accounts receivable, notes
receivable, rights to future lease payments or residuals (collectively,
together with certain related property relating thereto and the right to
collections thereon, being the "Transferred Assets") to any Person that
is not a Subsidiary or Affiliate of the Borrower (with respect to any
such transaction, the "Receivables Financier"), (b) borrows from such
Receivables Financier and secures such borrowings by a pledge of such
Transferred Assets and/or (c) otherwise finances its acquisition of such
Transferred Assets and, in connection therewith, conveys an interest in
such Transferred Assets to the Receivables Financier or (ii) a
Consolidated Party sells, conveys or otherwise contributes any
Transferred Assets to a Receivables Financing SPC, which Receivables
Financing SPC then (a) sells (as determined in accordance with GAAP) any
such receivables (or an interest therein) to any Receivables Financier,
(b) borrows from such Receivables Financier and secures such borrowings
by a pledge of such receivables or (c) otherwise finances its
acquisition of such receivables and, in connection therewith, conveys an
interest in such receivables to the Receivables Financier, provided that
(1) the
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aggregate amount of uncollected accounts receivable subject to all such
receivables financings shall not at any time exceed the lesser of
$25,000,000 or 25% of total accounts receivable of the Consolidated
Parties on a consolidated basis, as determined in accordance with GAAP,
as of the most recent fiscal quarter end preceding any date of
determination with respect to which the Agent shall have received the
Required Financial Information, (2) such receivables financing shall not
involve any recourse to the Borrower or any of its Subsidiaries for any
reason other than (A) repurchases of non-eligible receivables, (B)
indemnifications for losses other than credit losses related to the
receivables sold in such financing or (C) in connection with the
Non-Notification Factoring Agreement to be executed by NationsBanc
Commercial Corporation and a Credit Party (other than the Parent), (3)
the Agent shall be reasonably satisfied with the structure of and
documentation for any such transaction and that the terms of such
transaction, including the discount at which receivables are sold (which
in any event shall not exceed 10%), the term of the commitment of the
Receivables Financier thereunder and any termination events, shall be
(in the good faith understanding of the Agent) consistent with those
prevailing in the market for similar transactions involving a
receivables originator/servicer of similar credit quality and a
receivables pool of similar characteristics, (4) the documentation for
such transaction shall not be amended or modified without the prior
written approval of the Agent, which approval shall not be unreasonably
withheld or delayed and (5) the Net Cash Proceeds received from such
Permitted Receivables Financing shall be immediately applied to prepay
the Loans in accordance with Section 3.3(b)(ii).
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated) or any Governmental Authority.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which any
Consolidated Party or any ERISA Affiliate is (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" within the meaning of Section 3(5) of ERISA.
"Prime Rate" means the per annum rate of interest established
from time to time by NationsBank as its prime rate, which rate may not
be the lowest rate of interest charged by NationsBank to its customers.
"Principal Office" means the principal office of NationsBank,
presently located at Charlotte, North Carolina.
"Pro Forma Basis" means, with respect to any transaction,
that such transaction shall be deemed to have occurred (for purposes of
calculating compliance in respect of such transaction with each of the
financial covenants set forth in Section 7.11 as of the most recent
fiscal quarter end preceding the date of such transaction with respect
to which the Agent has received the Required Financial Information) as
of the first day of the four fiscal-quarter period ending as of such
fiscal quarter end. As used herein, "transaction"
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shall mean (i) any incurrence or assumption of Indebtedness as referred
to in Section 8.1(g), (ii) any merger or consolidation as referred to in
Section 8.4, (iii) any Asset Disposition as referred to in Section 8.5,
(iv) any Permitted Acquisition or (v) any Restricted Payment as referred
to in Section 8.7. With respect to any transaction of the type described
in clause (i) above regarding Indebtedness which has a floating or
formula rate, the implied rate of interest for such Indebtedness for the
applicable period for purposes of this definition shall be determined by
utilizing the rate which is or would be in effect with respect to such
Indebtedness as at the relevant date of determination. With respect to
any transaction of the type described in clause (ii) or (iv) above, any
Indebtedness incurred by the Borrower or any of its Subsidiaries in
order to consummate such transaction (A) shall be deemed to have been
incurred on the first day of the applicable period and (B) if such
Indebtedness has a floating or formula rate, then the implied rate of
interest for such Indebtedness for the applicable period for purposes of
this definition shall be determined by utilizing the rate which is or
would be in effect with respect to such Indebtedness as at the relevant
date of determination. In connection with any calculation of the
financial covenants set forth in Section 7.11 upon giving effect to a
transaction on a Pro Forma Basis for purposes of Section 8.1(g), Section
8.4, Section 8.5, clause (v) of the definition of "Permitted
Acquisition" set forth in this Section 1.1, or Section 8.7, as
applicable:
(A) for purposes of any such calculation in respect of any
incurrence or assumption of Indebtedness as referred to in
Section 8.1(g), any Indebtedness which is retired in connection
with such incurrence or assumption shall be excluded and deemed
to have been retired as of the first day of the applicable
period;
(B) for purposes of any such calculation in respect of any
Asset Disposition as referred to in Section 8.5, (1) income
statement items (whether positive or negative) attributable to
the Property disposed of in such Asset Disposition shall be
excluded and (2) any Indebtedness which is retired in connection
with such Asset Disposition shall be excluded and deemed to have
been retired as of the first day of the applicable period;
(C) for purposes of any such calculation in respect of any
merger or consolidation as referred to in Section 8.4, any
Permitted Acquisition or any Restricted Payment as referred to in
Section 8.7, (1) any Indebtedness incurred by the Borrower or any
of its Subsidiaries in connection with such transaction shall be
deemed to have been incurred as of the first day of the
applicable period and (2) income statement items (whether
positive or negative) attributable to the Property acquired in
such transaction or to the Investment comprising such
transaction, as applicable, shall be included to the extent
relating to the relevant period; and
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(D) for purposes of any such calculation, the principles
set forth in the second paragraph of Section 1.3 shall be
applicable.
"Pro Forma Compliance Certificate" means a certificate of an
Executive Officer of the Borrower delivered to the Agent in connection
with (i) any incurrence, assumption or retirement of Indebtedness as
referred to in Section 8.1(g), (ii) any merger or consolidation as
referred to in Section 8.4, (iii) any Asset Disposition as referred to
in Section 8.5, (iv) any Permitted Acquisition or (v) any Restricted
Payment as referred to in Section 8.7, as applicable, and containing
reasonably detailed calculations, upon giving effect to the applicable
transaction on a Pro Forma Basis, of the Fixed Charge Coverage Ratio and
the Leverage Ratio as of the most recent fiscal quarter end preceding
the date of the applicable transaction with respect to which the Agent
shall have received the Required Financial Information.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Receivables Financier" shall have the meaning assigned to such
term in the definition of "Permitted Receivables Financing" set forth in
this Section 1.1.
"Receivables Financing SPC" shall mean, in respect of any
Permitted Receivables Financing, any Subsidiary or Affiliate of the
Borrower to which the Borrower or any of its Subsidiaries sells,
contributes or otherwise conveys any Transferred Assets in connection
with such Permitted Receivables Financing.
"Register" shall have the meaning given such term in Section
11.3(c).
"Regulation T, U, or X" means Regulation T, U or X, respectively,
of the Board of Governors of the Federal Reserve System as from time to
time in effect and any successor to all or a portion thereof.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the environment (including the abandonment or
discarding of barrels, containers and other closed receptacles
containing any Materials of Environmental Concern).
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the notice
requirement has been waived by regulation.
"Required Financial Information" means, with respect to the
applicable Calculation Date, (i) the financial statements of the
Consolidated Parties required to be delivered pursuant to Section 7.1(a)
or (b) for the fiscal period or quarter ending as of such Calculation
Date, and (ii) the certificate of an Executive Officer of the Borrower
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required by Section 7.1(c) to be delivered with the financial statements
described in clause (i) above.
"Required Lenders" means, at any time, Lenders which are then in
compliance with their obligations hereunder (as determined by the Agent)
and holding in the aggregate at least 51% of (i) the Commitments (and
Participation Interests therein) or (ii) if the Commitments have been
terminated, the outstanding Loans and Participation Interests (including
the Participation Interests of the Issuing Lender in any Letters of
Credit).
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each
case applicable to or binding upon such Person or any of its material
property is subject.
"Restricted Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of Capital Stock of any Consolidated Party, now or hereafter
outstanding, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of Capital Stock of any Consolidated Party, now
or hereafter outstanding and (iii) any payment made to retire, or to
obtain the surrender of, any outstanding warrants, options or other
rights to acquire shares of any class of Capital Stock of any
Consolidated Party, now or hereafter outstanding.
"S&P" means Standard & Poor's Ratings Services Group, a division
of The McGraw-Hill Companies, Inc., or any successor or assignee of the
business of such division in the business of rating securities.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party,
providing for the leasing to any Consolidated Party of any Property,
whether owned by such Consolidated Party as of the Closing Date or later
acquired, which has been or is to be sold or transferred by such
Consolidated Party to such Person or to any other Person from whom funds
have been, or are to be, advanced by such Person on the security of such
Property.
"Single Employer Plan" means any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan or a Multiple
Employer Plan.
"Solvent" or "Solvency" means, with respect to any Person as of a
particular date, that on such date (i) such Person is able to realize
upon its assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (ii) such Person does not intend to, and does not believe that
it will, incur debts or liabilities beyond such Person's ability to pay
as such debts and liabilities mature in their ordinary course, (iii)
such Person is not engaged in a business or a
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transaction, and is not about to engage in a business or a transaction,
for which such Person's Property would constitute unreasonably small
capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged or is to engage, (iv) the fair
value of the Property of such Person is greater than the total amount of
liabilities, including, without limitation, contingent liabilities, of
such Person and (v) the present fair salable value of the assets of such
Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute
and matured. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the
amount which, in light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Subsidiary" means, as to any Person, (a) any corporation more
than 50% of whose Capital Stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors
of such corporation (irrespective of whether or not at the time, any
class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time
owned by such Person directly or indirectly through Subsidiaries, and
(b) any partnership, association, joint venture or other entity of which
such Person directly or indirectly through Subsidiaries has more than
50% Capital Stock at any time.
"Synthetic Lease" means any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an Operating Lease
for accounting purposes.
"Taxes" means such term as is defined in Section 3.11.
"Transferred Assets" shall have the meaning assigned to such term
in the definition of "Permitted Receivables Financing" set forth in this
Section 1.1.
"Unused Fee" shall have the meaning assigned to such term in
Section 3.5(b).
"Unused Fee Calculation Period" shall have the meaning assigned
to such term in Section 3.5(b).
"Unused Committed Amount" means, for any period, the amount by
which (a) the then applicable Committed Amount exceeds (b) the daily
average sum for such period of (i) the outstanding aggregate principal
amount of all Loans plus (ii) the outstanding aggregate principal amount
of all LOC Obligations.
"Upfront Fee" shall have the meaning assigned to such term in
Section 3.5(a).
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"Voting Stock" means, with respect to any Person, Capital Stock
issued by such Person the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even though
the right so to vote has been suspended by the happening of such a
contingency.
"Wholly Owned Subsidiary" of any Person means any Subsidiary 100%
of whose Voting Stock is at the time owned by such Person directly or
indirectly through other Wholly Owned Subsidiaries.
"Year 2000 Compliant" shall have the meaning assigned to such
term in Section 6.24.
1.2 Computation of Time Periods.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."
1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 (or,
prior to the delivery of the first financial statements pursuant to Section 7.1,
consistent with the financial statements as at December 31, 1997); provided,
however, if (a) the Borrower shall object to determining such compliance on such
basis at the time of delivery of such financial statements due to any change in
GAAP or the rules promulgated with respect thereto or (b) the Agent or the
Required Lenders shall so object in writing within 30 days after delivery of
such financial statements, then such calculations shall be made on a basis
consistent with the most recent financial statements delivered by the Borrower
to the Lenders as to which no such objection shall have been made.
Notwithstanding the above, the parties hereto acknowledge and agree
that, for purposes of all calculations made in determining compliance with the
financial covenants set forth in Section 7.11 (including without limitation for
purposes of the definitions of "Applicable Percentage" and "Pro Forma Basis" set
forth in Section 1.1), (i)(A) income statement items (whether positive or
negative) attributable to the Property disposed of in any Asset Disposition as
contemplated by Section 8.5, as applicable, shall be excluded to the extent
relating to any period occurring prior to the date of such transaction and (B)
Indebtedness which is retired in connection with any such Asset Disposition
shall be excluded and deemed to have been retired as of the first day of the
applicable period and (ii) income statement items (whether positive or negative)
attributable to any Property acquired in any Investment transaction contemplated
by
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Section 8.6 shall be included to the extent relating to any period applicable in
such calculations occurring after the date of such transaction (and,
notwithstanding the foregoing, during the first four fiscal quarters following
the date of such transaction, shall be included on an annualized basis).
SECTION 2
CREDIT FACILITIES
2.1 Loans.
(a) Commitment. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties set forth herein, each
Lender severally agrees to make available to the Borrower such Lender's
Commitment Percentage of revolving credit loans requested pursuant to
this Credit Agreement by the Borrower in Dollars ("Loans") from time to
time from the Closing Date until the Maturity Date, or such earlier date
as the Commitments shall have been terminated as provided herein for the
purposes hereinafter set forth; provided, however, that the sum of the
aggregate principal amount of outstanding Loans shall not exceed FIFTY
MILLION AND 00/100 DOLLARS ($50,000,000.00) (as such aggregate maximum
amount may be reduced from time to time as provided in Section 3.4, the
"Committed Amount"); provided, further, (i) with regard to each Lender
individually, such Lender's outstanding Loans shall not exceed such
Lender's Commitment Percentage of the Committed Amount, and (ii) the
aggregate principal amount of outstanding Loans plus LOC Obligations
outstanding shall not exceed the Committed Amount. Loans may consist of
Base Rate Loans or Eurodollar Loans, or a combination thereof, as the
Borrower may request; provided, however, that no more than 5 Eurodollar
Loans shall be outstanding hereunder at any time. For purposes hereof,
Eurodollar Loans with different Interest Periods shall be considered as
separate Eurodollar Loans, even if they begin on the same date, although
borrowings, extensions and conversions may, in accordance with the
provisions hereof, be combined at the end of existing Interest Periods
to constitute a new Eurodollar Loan with a single Interest Period. Loans
hereunder may be repaid and reborrowed in accordance with the provisions
hereof.
(b) Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a Loan
borrowing by written notice (or telephonic notice promptly
confirmed in writing) to the Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day prior to the
date of the requested borrowing in the case of Base Rate Loans,
and on the third Business Day prior to the date of the requested
borrowing in the case of Eurodollar Loans. Each such request for
borrowing shall be irrevocable and shall specify (A) that a Loan
is requested, (B) the date of the requested borrowing (which
shall be a Business Day), (C) the aggregate principal amount to
be borrowed, and
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(D) whether the borrowing shall be comprised of Base Rate Loans,
Eurodollar Loans or a combination thereof, and if Eurodollar
Loans are requested, the Interest Period(s) therefor. If the
Borrower shall fail to specify in any such Notice of Borrowing
(I) an applicable Interest Period in the case of a Eurodollar
Loan, then such notice shall be deemed to be a request for an
Interest Period of one month, or (II) the type of Loan requested,
then such notice shall be deemed to be a request for a Base Rate
Loan hereunder. The Agent shall give notice to each affected
Lender promptly upon receipt of each Notice of Borrowing pursuant
to this Section 2.1(b)(i), the contents thereof and each such
Lender's share of any borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Eurodollar Loan or Base Rate
Loan shall be in a minimum aggregate principal amount of
$1,000,000 and integral multiples of $500,000 in excess thereof
(or the remaining amount of the Committed Amount, if less).
(iii) Advances. Each Lender will make its Commitment
Percentage of each Loan borrowing available to the Agent for the
account of the Borrower as specified in Section 3.15(a), or in
such other manner as the Agent may specify in writing, by 1:00
P.M. (Charlotte, North Carolina time) on the date specified in
the applicable Notice of Borrowing in Dollars and in funds
immediately available to the Agent. Such borrowing will then be
made available to the Borrower by the Agent by crediting the
account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Agent by the
Lenders and in like funds as received by the Agent.
(c) Repayment. The principal amount of all Loans shall be due and
payable in full on the Maturity Date, unless accelerated sooner pursuant
to Section 9.2.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Loans shall be
comprised in whole or in part of Base Rate Loans, such Base Rate
Loans shall bear interest at a per annum rate equal to the Base
Rate;
(ii) Eurodollar Loans. During such periods as Loans shall
be comprised in whole or in part of Eurodollar Loans, such
Eurodollar Loans shall bear interest at a per annum rate equal to
the Adjusted Eurodollar Rate.
Interest on Loans shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified
herein).
(e) Notes. The Loans made by each Lender shall be evidenced by a
duly executed promissory note of the Borrower to such Lender in an
original principal amount
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equal to such Lender's Commitment Percentage of the Committed Amount and
in substantially the form of Exhibit 2.1(e).
2.2 Letter of Credit Subfacility.
(a) Issuance. Subject to the terms and conditions hereof and of
the LOC Documents, if any, and any other terms and conditions which the
Issuing Lender may reasonably require and in reliance upon the
representations and warranties set forth herein, the Issuing Lender
agrees to issue, and each Lender severally agrees to participates in the
issuance by the Issuing Lender of, Letters of Credit in Dollars from
time to time from the Closing Date until the Maturity Date as the
Borrower may request, in a form acceptable to the Issuing Lender;
provided, however, that (i) the LOC Obligations outstanding shall not at
any time exceed FIFTEEN MILLION AND 00/100 DOLLARS ($15,000,000.00) (the
"LOC Committed Amount") and (ii) the sum of the aggregate principal
amount of outstanding Loans plus LOC Obligations outstanding shall not
at any time exceed the aggregate Committed Amount. No Letter of Credit
shall have an original expiry date more than one year from the date of
issuance. Each Letter of Credit shall comply with the related LOC
Documents. The issuance and expiry dates of each Letter of Credit shall
be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter
of Credit shall be submitted by the Borrower to the Issuing Lender at
least three (3) Business Days prior to the requested date of issuance.
The Issuing Lender will, at least quarterly and more frequently upon
request, disseminate to each of the Lenders a detailed report specifying
the Letters of Credit which are then issued and outstanding and any
activity with respect thereto which may have occurred since the date of
the prior report, and including therein, among other things, the
beneficiary, the face amount and the expiry date, as well as any payment
or expirations which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of
Credit, shall be deemed to have purchased without recourse a
Participation Interest from the applicable Issuing Lender in such Letter
of Credit and the obligations arising thereunder and any collateral
relating thereto, in each case in an amount equal to its pro rata share
of the obligations under such Letter of Credit (based on the respective
Commitment Percentages of the Lenders) and shall absolutely,
unconditionally and irrevocably assume and be obligated to pay to the
Issuing Lender and discharge when due, its pro rata share of the
obligations arising under such Letter of Credit. Without limiting the
scope and nature of each Lender's Participation Interest in any Letter
of Credit, to the extent that the Issuing Lender has not been reimbursed
as required hereunder or under any such Letter of Credit, each such
Lender shall pay to the Issuing Lender its pro rata share of such
unreimbursed drawing in same day funds on the day of notification by the
Issuing Lender of an unreimbursed drawing pursuant to the provisions of
subsection (d) below. The obligation of each Lender to so reimburse the
Issuing Lender shall be absolute and unconditional and shall not be
affected by the occurrence of a Default, an Event of Default or any
other
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occurrence or event. Any such reimbursement shall not relieve or
otherwise impair the obligation of the Borrower to reimburse the Issuing
Lender under any Letter of Credit, together with interest as hereinafter
provided.
(d) Reimbursement. In the event of any drawing under any Letter
of Credit, the Issuing Lender will promptly notify the Borrower. Unless
the Borrower shall immediately notify the Issuing Lender that the
Borrower intends to otherwise reimburse the Issuing Lender for such
drawing, the Borrower shall be deemed to have requested that the Lenders
make a Loan in the amount of the drawing as provided in subsection (e)
below on the related Letter of Credit, the proceeds of which will be
used to satisfy the related reimbursement obligations. The Borrower
promises to reimburse the Issuing Lender on the day of drawing under any
Letter of Credit (either with the proceeds of a Loan obtained hereunder
or otherwise) in same day funds. If the Borrower shall fail to reimburse
the Issuing Lender as provided hereinabove, the unreimbursed amount of
such drawing shall bear interest at a per annum rate equal to the Base
Rate plus 2%. The Borrower's reimbursement obligations hereunder shall
be absolute and unconditional under all circumstances irrespective of
any rights of setoff, counterclaim or defense to payment the Borrower
may claim or have against the Issuing Lender, the Agent, the Lenders,
the beneficiary of the Letter of Credit drawn upon or any other Person,
including without limitation any defense based on any failure of the
Borrower or any other Credit Party to receive consideration or the
legality, validity, regularity or unenforceability of the Letter of
Credit. The Issuing Lender will promptly notify the other Lenders of the
amount of any unreimbursed drawing and each Lender shall promptly pay to
the Agent for the account of the Issuing Lender in Dollars and in
immediately available funds, the amount of such Lender's pro rata share
of such unreimbursed drawing. Such payment shall be made on the day such
notice is received by such Lender from the Issuing Lender if such notice
is received at or before 2:00 P.M. (Charlotte, North Carolina time)
otherwise such payment shall be made at or before 12:00 Noon (Charlotte,
North Carolina time) on the Business Day next succeeding the day such
notice is received. If such Lender does not pay such amount to the
Issuing Lender in full upon such request, such Lender shall, on demand,
pay to the Agent for the account of the Issuing Lender interest on the
unpaid amount during the period from the date of such drawing until such
Lender pays such amount to the Issuing Lender in full at a rate per
annum equal to, if paid within two (2) Business Days of the date that
such Lender is required to make payments of such amount pursuant to the
preceding sentence, the Federal Funds Rate and thereafter at a rate
equal to the Base Rate. Each Lender's obligation to make such payment to
the Issuing Lender, and the right of the Issuing Lender to receive the
same, shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of this
Credit Agreement or the Commitments hereunder, the existence of a
Default or Event of Default or the acceleration of the obligations of
the Borrower hereunder and shall be made without any offset, abatement,
withholding or reduction whatsoever. Simultaneously with the making of
each such payment by a Lender to the Issuing Lender, such Lender shall,
automatically and without any further action on the part of the Issuing
Lender or such Lender, acquire a Participation Interest in an amount
equal to such payment (excluding the portion of such
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payment constituting interest owing to the Issuing Lender) in the
related unreimbursed drawing portion of the LOC Obligation and in the
interest thereon and in the related LOC Documents, and shall have a
claim against the Borrower with respect thereto.
(e) Repayment with Loans. On any day on which the Borrower shall
have requested, or been deemed to have requested, a Loan advance to
reimburse a drawing under a Letter of Credit, the Agent shall give
notice to the Lenders that a Loan has been requested or deemed requested
by the Borrower to be made in connection with a drawing under a Letter
of Credit, in which case a Loan advance comprised of Base Rate Loans (or
Eurodollar Loans to the extent the Borrower has complied with the
procedures of Section 2.1(b)(i) with respect thereto) shall be
immediately made to the Borrower by all Lenders (notwithstanding any
termination of the Commitments pursuant to Section 9.2) pro rata based
on the respective Commitment Percentages of the Lenders (determined
before giving effect to any termination of the Commitments pursuant to
Section 9.2) and the proceeds thereof shall be paid directly to the
Issuing Lender for application to the respective LOC Obligations. Each
such Lender hereby irrevocably agrees to make its pro rata share of each
such Loan immediately upon any such request or deemed request in the
amount, in the manner and on the date specified in the preceding
sentence notwithstanding (i) the amount of such borrowing may not comply
with the minimum amount for advances of Loans otherwise required
hereunder, (ii) whether any conditions specified in Section 5.2 are then
satisfied, (iii) whether a Default or an Event of Default then exists,
(iv) failure for any such request or deemed request for Loan to be made
by the time otherwise required hereunder, (v) whether the date of such
borrowing is a date on which Loans are otherwise permitted to be made
hereunder or (vi) any termination of the Commitments relating thereto
immediately prior to or contemporaneously with such borrowing. In the
event that any Loan cannot for any reason be made on the date otherwise
required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with respect to
the Borrower or any Credit Party), then each such Lender hereby agrees
that it shall forthwith purchase (as of the date such borrowing would
otherwise have occurred, but adjusted for any payments received from the
Borrower on or after such date and prior to such purchase) from the
Issuing Lender such Participation Interests in the outstanding LOC
Obligations as shall be necessary to cause each such Lender to share in
such LOC Obligations ratably (based upon the respective Commitment
Percentages of the Lenders (determined before giving effect to any
termination of the Commitments pursuant to Section 9.2)); provided,
however, that at the time any purchase of Participation Interests
pursuant to this sentence is actually made, the purchasing Lender shall
be required to pay to the Issuing Lender, to the extent not paid to the
Issuer by the Borrower in accordance with the terms of subsection (d)
above, interest on the principal amount of Participation Interests
purchased for each day from and including the day upon which such
borrowing would otherwise have occurred to but excluding the date of
payment for such Participation Interests, at the rate equal to, if paid
within two (2) Business Days of the date of the Loan advance, the
Federal Funds Rate, and thereafter at a rate equal to the Base Rate.
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(f) Designation of Consolidated Parties as Account Parties.
Notwithstanding anything to the contrary set forth in this Credit
Agreement, including without limitation Section 2.2(a), a Letter of
Credit issued hereunder may contain a statement to the effect that such
Letter of Credit is issued for the account of a Consolidated Party other
than the Borrower, provided that notwithstanding such statement, the
Borrower shall be the actual account party for all purposes of this
Credit Agreement for such Letter of Credit and such statement shall not
affect the Borrower's reimbursement obligations hereunder with respect
to such Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same
as the issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may have
the Letters of Credit be subject to The Uniform Customs and Practice for
Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (the "UCP"), in which case the UCP may
be incorporated therein and deemed in all respects to be a part thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this
Section 2.2, the Borrower hereby agrees to pay, and protect,
indemnify and save each Lender harmless from and against, any and
all claims, demands, liabilities, damages, losses, costs, charges
and expenses (including reasonable attorneys' fees) that such
Lender may incur or be subject to as a consequence, direct or
indirect, of (A) the issuance of any Letter of Credit or (B) the
failure of such Lender to honor a drawing under a Letter of
Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government
or Governmental Authority (all such acts or omissions, herein
called "Government Acts").
(ii) As between the Borrower and the Lenders (including
the Issuing Lender), the Borrower shall assume all risks of the
acts, omissions or misuse of any Letter of Credit by the
beneficiary thereof. No Lender (including the Issuing Lender)
shall be responsible: (A) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or
assign any Letter of Credit or the rights or benefits thereunder
or proceeds thereof, in whole or in part, that may prove to be
invalid or ineffective for any reason; (B) for errors, omissions,
interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (C) for any loss or delay in the
transmission or otherwise of any document required in order to
make a drawing under a Letter of Credit or of the proceeds
thereof; and (D) for any consequences arising from causes beyond
the control of such Lender, including,
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without limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
(iii) In furtherance and extension and not in limitation
of the specific provisions hereinabove set forth, any action
taken or omitted by any Lender (including the Issuing Lender),
under or in connection with any Letter of Credit or the related
certificates, if taken or omitted in good faith, shall not put
such Lender under any resulting liability to the Borrower or any
other Credit Party. It is the intention of the parties that this
Credit Agreement shall be construed and applied to protect and
indemnify each Lender (including the Issuing Lender) against any
and all risks involved in the issuance of the Letters of Credit,
all of which risks are hereby assumed by the Borrower (on behalf
of itself and each of the other Credit Parties), including,
without limitation, any and all Government Acts. No Lender
(including the Issuing Lender) shall, in any way, be liable for
any failure by such Lender or anyone else to pay any drawing
under any Letter of Credit as a result of any Government Acts or
any other cause beyond the control of such Lender.
(iv) Nothing in this subsection (i) is intended to limit
the reimbursement obligations of the Borrower contained in
subsection (d) above. The obligations of the Borrower under this
subsection (i) shall survive the termination of this Credit
Agreement. No act or omissions of any current or prior
beneficiary of a Letter of Credit shall in any way affect or
impair the rights of the Lenders (including the Issuing Lender)
to enforce any right, power or benefit under this Credit
Agreement.
(v) Notwithstanding anything to the contrary contained in
this subsection (i), the Borrower shall have no obligation to
indemnify any Lender (including the Issuing Lender) in respect of
any liability incurred by such Lender (A) arising solely out of
the gross negligence or willful misconduct of such Lender, as
determined by a court of competent jurisdiction, or (B) caused by
such Lender's failure to pay under any Letter of Credit after
presentation to it of a request strictly complying with the terms
and conditions of such Letter of Credit, as determined by a court
of competent jurisdiction, unless such payment is prohibited by
any law, regulation, court order or decree.
(j) Responsibility of Issuing Lender. It is expressly understood
and agreed that the obligations of the Issuing Lender hereunder to the
Lenders are only those expressly set forth in this Credit Agreement and
that the Issuing Lender shall be entitled to assume that the conditions
precedent set forth in Section 5.2 have been satisfied unless it shall
have acquired actual knowledge that any such condition precedent has not
been satisfied; provided, however, that nothing set forth in this
Section 2.2 shall be deemed to prejudice the right of any Lender to
recover from the Issuing Lender any amounts made available by such
Lender to the Issuing Lender pursuant to this Section 2.2 in the event
that it is determined by a court of competent jurisdiction that the
payment with respect to a Letter of Credit constituted gross negligence
or willful misconduct on the part of the Issuing Lender.
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(k) Conflict with LOC Documents. In the event of any conflict
between this Credit Agreement and any LOC Document (including any letter
of credit application), this Credit Agreement shall control.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 Default Rate.
Upon the occurrence, and during the continuance, of an Event of Default,
the principal of and, to the extent permitted by law, interest on the Loans and
any other amounts owing hereunder or under the other Credit Documents shall bear
interest, payable on demand, at a per annum rate 2% greater than the rate which
would otherwise be applicable (or if no rate is applicable, whether in respect
of interest, fees or other amounts, then the Base Rate plus 2%).
3.2 Extension and Conversion.
Subject to the terms of Section 5.2, the Borrower shall have the option,
on any Business Day, to extend existing Loans into a subsequent permissible
Interest Period or to convert Loans into Loans of another interest rate type;
provided, however, that (i) except as provided in Section 3.8, Eurodollar Loans
may be converted into Base Rate Loans only on the last day of the Interest
Period applicable thereto, (ii) Eurodollar Loans may be extended, and Base Rate
Loans may be converted into Eurodollar Loans, only if no Default or Event of
Default is in existence on the date of extension or conversion, (iii) Loans
extended as, or converted into, Eurodollar Loans shall be subject to the terms
of the definition of "Interest Period" set forth in Section 1.1 and shall be in
such minimum amounts as provided in, with respect to Loans, Section 2.1(b)(ii),
(iv) no more than 5 Eurodollar Loans shall be outstanding hereunder at any time
(it being understood that, for purposes hereof, Eurodollar Loans with different
Interest Periods shall be considered as separate Eurodollar Loans, even if they
begin on the same date, although borrowings, extensions and conversions may, in
accordance with the provisions hereof, be combined at the end of existing
Interest Periods to constitute a new Eurodollar Loan with a single Interest
Period) and (v) any request for extension or conversion of a Eurodollar Loan
which shall fail to specify an Interest Period shall be deemed to be a request
for an Interest Period of one month. Each such extension or conversion shall be
effected by the Borrower by giving a Notice of Extension/Conversion (or
telephonic notice promptly confirmed in writing) to the office of the Agent
specified in Schedule 2.1(a), or at such other office as the Agent may designate
in writing, prior to 11:00 A.M. (Charlotte, North Carolina time) on the Business
Day of, in the case of the conversion of a Eurodollar Loan into a Base Rate
Loan, and on the third Business Day prior to, in the case of the extension of a
Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar Loan,
the date of the proposed extension or conversion, specifying the date of the
proposed extension or conversion, the Loans to be so extended or converted, the
types of Loans into which such Loans are to be converted and, if appropriate,
the
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applicable Interest Periods with respect thereto. Each request for extension
or conversion shall be irrevocable and shall constitute a representation and
warranty by the Borrower of the matters specified in subsections (b), (c), (d),
(e) and (f) of Section 5.2. In the event the Borrower fails to request extension
or conversion of any Eurodollar Loan in accordance with this Section, or any
such conversion or extension is not permitted or required by this Section, then
such Eurodollar Loan shall be automatically converted into a Base Rate Loan at
the end of the Interest Period applicable thereto. The Agent shall give each
Lender notice as promptly as practicable of any such proposed extension or
conversion affecting any Loan.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrower shall have the right to
prepay Loans in whole or in part from time to time; provided, however,
that each partial prepayment of Loans shall be in a minimum principal
amount of $1,000,000 and integral multiples of $500,000. Subject to the
foregoing terms, amounts prepaid under this Section 3.3(a) shall be
applied as the Borrower may elect; provided that if the Borrower fails
to specify a voluntary prepayment then such prepayment shall be applied
first to first to Base Rate Loans and then to Eurodollar Loans in direct
order of Interest Period maturities. All prepayments under this Section
3.3(a) shall be subject to Section 3.12, but otherwise without premium
or penalty.
(b) Mandatory Prepayments.
(i) Committed Amount. If at any time the sum of the
aggregate principal amount of outstanding Loans plus LOC
Obligations outstanding shall exceed the Committed Amount, the
Borrower shall immediately prepay the outstanding principal
balance on the Loans (or, after all Loans have been repaid, cash
collateralize the LOC Obligations) in an amount sufficient to
eliminate such excess.
(ii) Permitted Receivables Financing. Upon the occurrence
and during the continuance of a Default or Event of Default,
immediately upon the receipt by any Consolidated Party of Net
Cash Proceeds from any Permitted Receivables Financing, the
Borrower shall prepay the Loans in an aggregate amount equal to
the Net Cash Proceeds of the related Permitted Receivables
Financing (such prepayment to be applied as set forth in clause
(iv) below).
(iii) Asset Dispositions. Immediately upon the occurrence
of any Asset Disposition Prepayment Event, the Borrower shall
prepay the Loans in an aggregate amount equal to the Net Cash
Proceeds of the related Asset Disposition not applied (or caused
to be applied) by the Consolidated Parties during the related
Application Period to the purchase, acquisition or construction
of Eligible Assets as contemplated by the terms of Section 8.5(f)
(such prepayment to be applied as set forth in clause (iv)
below).
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(iv) Application of Mandatory Prepayments. All amounts
required to be paid pursuant to this Section 3.3(b) shall be
applied to Loans (first to Base Rate Loans and then to Eurodollar
Loans in direct order of Interest Period maturities) and, after
all Loans have been repaid, to a cash collateral account in
respect of LOC Obligations. All prepayments under this Section
3.3(b) shall be subject to Section 3.12 but shall otherwise be
without any premium or penalty.
3.4 Termination and Reduction of Committed Amount.
(a) Voluntary Reductions. The Borrower may from time to time
permanently reduce or terminate the Committed Amount in whole or in part
(in minimum aggregate amounts of $5,000,000 or in integral multiples of
$1,000,000 in excess thereof (or, if less, the full remaining amount of
the then applicable Committed Amount)) upon five Business Days' prior
written notice to the Agent; provided, however, no such termination or
reduction shall be made which would cause the aggregate principal amount
of outstanding Loans plus LOC Obligations outstanding to exceed the
Committed Amount unless, concurrently with such termination or
reduction, the outstanding Loans are repaid to the extent necessary to
eliminate such excess. The Agent shall promptly notify each Lender of
receipt by the Agent of any notice from the Borrower pursuant to this
Section 3.4(a).
(b) Mandatory Reductions. On any date that the Loans are required
to be prepaid pursuant to the terms of Sections 3.3(b)(ii) and
3.3(b)(iii), the Committed Amount automatically shall be permanently
reduced by the amount of such required prepayment, provided, however,
that the Committed Amount shall not be reduced in connection with any
prepayment required as a result of the sales of Western Multiplex
Corporation and Glenayre OPTIONS Corp. and the Sale and Leaseback
Transactions or Synthetic Leases with respect to the Canadian Property.
(c) Maturity Date. The Commitments of the Lenders shall
automatically terminate on the Maturity Date.
(d) General. The Borrower shall pay to the Agent for the account
of the Lenders in accordance with the terms of Section 3.5(b), on the
date of each termination or reduction of the Committed Amount, the
Unused Fee accrued through the date of such termination or reduction on
the amount of the Committed Amount so terminated or reduced.
3.5 Fees.
(a) Upfront Fees. The Borrower agrees to pay to the Agent for the
benefit of the Lenders in immediately available funds on or before the
Closing Date an upfront fee (the "Upfront Fee") in the amount provided
in the Agent's Fee Letter.
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(b) Unused Fee. In consideration of the Commitments of the
Lenders hereunder, the Borrower agrees to pay to the Agent for the
account of each Lender a fee (the "Unused Fee") on the Unused Committed
Amount computed at a per annum rate for each day during the applicable
Unused Fee Calculation Period (hereinafter defined) at a rate equal to
the Applicable Percentage in effect from time to time. The Unused Fee
shall commence to accrue on the Closing Date and shall be due and
payable in arrears on the last business day of each March, June,
September and December (and any date that the Committed Amount is
reduced as provided in Section 3.4(a) and the Maturity Date) for the
immediately preceding quarter (or portion thereof) (each such quarter or
portion thereof for which the Unused Fee is payable hereunder being
herein referred to as an "Unused Fee Calculation Period"), beginning
with the first of such dates to occur after the Closing Date.
(c) Letter of Credit Fees.
(i) Letter of Credit Issuance Fee. In consideration of the
issuance of Letters of Credit hereunder, the Borrower promises to
pay to the Agent for the account of each Lender a fee (the
"Letter of Credit Fee") on such Lender's Commitment Percentage of
the average daily maximum amount available to be drawn under each
such Letter of Credit computed at a per annum rate for each day
from the date of issuance to the date of expiration equal to the
Applicable Percentage. The Letter of Credit Fee will be payable
quarterly in arrears on the last Business Day of each March,
June, September and December for the immediately preceding
quarter (or a portion thereof).
(ii) Issuing Lender Fees. In addition to the Letter of
Credit Fee payable pursuant to clause (i) above, the Borrower
promises to pay to the Issuing Lender for its own account without
sharing by the other Lenders a letter of credit fronting fee
equal to 0.125% on the average daily maximum amount available to
be drawn under each such Letter of Credit (such fee to be payable
quarterly in arrears on the last Business Day of each March,
June, September and December for the immediately preceding
quarter (or a portion thereof)) and the customary charges from
time to time of the Issuing Lender with respect to the issuance,
amendment, transfer, administration, cancellation and conversion
of, and drawings under, such Letters of Credit (collectively, the
"Issuing Lender Fees").
(d) Administrative Fees. The Borrower agrees to pay to the Agent,
for its own account, the fees referred to in the Agent's Fee Letter
(collectively, the "Agent's Fees").
3.6 Capital Adequacy.
If any Lender has determined, after the date hereof, that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance
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by such Lender with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction. Each determination by any such Lender of amounts
owing under this Section shall, absent manifest error, be conclusive and binding
on the parties hereto.
3.7 Limitation on Eurodollar Loans.
If on or prior to the first day of any Interest Period for any
Eurodollar Loan:
(a) the Agent determines (which determination shall be
conclusive) that by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period; or
(b) the Required Lenders determine (which determination shall be
conclusive) and notify the Agent that the Eurodollar Rate will not
adequately and fairly reflect the cost to the Lenders of funding
Eurodollar Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Loans, Continue Eurodollar Loans, or to Convert Base
Rate Loans into Eurodollar Loans and the Borrower shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans, either
prepay such Eurodollar Loans or Convert such Eurodollar Loans into Base Rate
Loans in accordance with the terms of this Credit Agreement.
3.8 Illegality.
Notwithstanding any other provision of this Credit Agreement, in the
event that it becomes unlawful for any Lender or its Applicable Lending Office
to make, maintain, or fund Eurodollar Loans hereunder, then such Lender shall
promptly notify the Borrower thereof and such Lender's obligation to make or
Continue Eurodollar Loans and to Convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as such Lender may again make, maintain, and
fund Eurodollar Loans (in which case the provisions of Section 3.10 shall be
applicable); provided, however, that before giving any notice to the Borrower
pursuant to this Section, the notifying Lender shall designate a different
Applicable Lending Office or other lending office if such designation will avoid
the need for giving such notice and will not in the reasonable judgment of the
Lender be materially disadvantageous to the Lender.
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3.9 Requirements of Law.
(a) If, after the date hereof, the adoption of any applicable law, rule,
or regulation, or any change in any applicable law, rule, or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank, or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank, or comparable agency:
(i) shall subject such Lender (or its Applicable Lending
Office) to any tax, duty, or other charge with respect to any Eurodollar
Loans, its Notes, or its obligation to make Eurodollar Loans, or change
the basis of taxation of any amounts payable to such Lender (or its
Applicable Lending Office) under this Credit Agreement or its Notes in
respect of any Eurodollar Loans (other than taxes imposed on the overall
net income, and franchise taxes of such Lender by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(ii) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than the
Eurodollar Reserve Requirement utilized in the determination of the
Adjusted Eurodollar Rate) relating to any extensions of credit or other
assets of, or any deposits with or other liabilities or commitments of,
such Lender (or its Applicable Lending Office), including the Commitment
of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable Lending
Office) or the London interbank market any other condition affecting
this Credit Agreement or its Notes or any of such extensions of credit
or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
such Lender (or its Applicable Lending Office) under this Credit Agreement or
its Notes with respect to any Eurodollar Loans, then the Borrower shall pay to
such Lender on demand such amount or amounts as will compensate such Lender for
such increased cost or reduction. If any Lender requests compensation by the
Borrower under this Section 3.9(a), the Borrower may, by notice to such Lender
(with a copy to the Agent), suspend the obligation of such Lender to make or
Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans,
until the event or condition giving rise to such request ceases to be in effect
(in which case the provisions of Section 3.10 shall be applicable); provided
that such suspension shall not affect the right of such Lender to receive the
compensation so requested.
(b) Each Lender shall promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section 3.9 and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will
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not, in the judgment of such Lender, be otherwise unreasonably disadvantageous
to it. Any Lender claiming compensation under this Section 3.9 shall furnish to
the Borrower and the Agent a statement setting forth the additional amount or
amounts to be paid to it hereunder which shall be conclusive in the absence of
manifest error. In determining such amount, such Lender may use any reasonable
averaging and attribution methods.
3.10 Treatment of Affected Loans.
If the obligation of any Lender to make any Eurodollar Loan or to
Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be
suspended pursuant to Section 3.8 or 3.9 hereof, such Lender's Eurodollar Loans
shall be automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for such Eurodollar Loans (or, in the case of a
Conversion required by Section 3.8 hereof, on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until such
Lender gives notice as provided below that the circumstances specified in
Section 3.8 or 3.9 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Eurodollar Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such
Lender as Eurodollar Loans shall be made or Continued instead as Base
Rate Loans, and all Base Rate Loans of such Lender that would otherwise
be Converted into Eurodollar Loans shall remain as Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 3.8 or 3.9 hereof that gave rise to the
Conversion of such Lender's Eurodollar Loans pursuant to this Section 3.10 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Lenders are
outstanding, such Lender's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Lenders holding Eurodollar Loans and by such Lender are
held pro rata (as to principal amounts, interest rate basis, and Interest
Periods) in accordance with their respective Commitments.
3.11 Taxes.
(a) Any and all payments by the Borrower to or for the account of
any Lender or the Agent hereunder or under any other Credit Document
shall be made free and clear of and without deduction for any and all
present or future taxes, duties, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in
the case of each Lender and the Agent, taxes imposed on its income and
franchise taxes imposed on it (including any interest and penalties
imposed thereon), by the jurisdiction
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under the laws of which such Lender (or its Applicable Lending Office)
or the Agent (as the case may be) is organized or any political
subdivision thereof (all such non-excluded taxes, duties, levies,
imposts, deductions, charges, withholdings, and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required
by law to deduct any Taxes from or in respect of any sum payable under
this Credit Agreement or any other Credit Document to any Lender or the
Agent, (i) 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 3.11) such Lender or the
Agent receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law,
and (iv) the Borrower shall furnish to the Agent, at its address
referred to in Section 11.1, the original or a certified copy of a
receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all present
or future stamp or documentary taxes and any other excise or property
taxes or charges or similar levies which arise from any payment made
under this Credit Agreement or any other Credit Document or from the
execution or delivery of, or otherwise with respect to, this Credit
Agreement or any other Credit Document (hereinafter referred to as
"Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent
for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section 3.11) paid by such
Lender or the Agent (as the case may be) and any liability (including
penalties, interest, and expenses) arising therefrom or with respect
thereto provided, however, that the Borrower shall have no obligation to
indemnify such Lender or the Agent (i) unless five days' notice has been
given by such Lender or the Agent, as applicable, to afford the
Borrower, in good faith, a reasonable opportunity to contest such
payment by such Lender or the Agent, provided such opportunity to
contest exists under Applicable Law, and (ii) until such Lender or the
Agent shall have delivered to the Borrower a certificate setting forth
in reasonable detail the basis of the Borrower's obligation to indemnify
such Lender or the Agent pursuant to this Section 3.11. This
indemnification shall be made within 30 days from the date such Lender
or the Agent (as the case may be) makes written demand therefor. If the
Agent (or such Lender, as the case may be), in its discretion ,
determines that such Taxes or Other Taxes are incorrectly or illegally
asserted against it, and the Agent or such Lender has made a claim
against the Borrower for such amount, then the Agent or such Lender
shall take reasonable action to seek a refund and deliver said refund if
received, to the Borrower.
(d) Each Lender organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and
delivery of this Credit Agreement in the case of each Lender listed on
the signature pages hereof and on or prior to the date on which it
becomes a Lender in the case of each other Lender, and from time to time
thereafter if requested in writing by the Borrower or the Agent (but
only so long as such
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Lender remains lawfully able to do so), shall provide the Borrower and
the Agent with (i) Internal Revenue Service Form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender is entitled to benefits under an
income tax treaty to which the United States is a party which reduces
the rate of withholding tax on payments of interest or certifying that
the income receivable pursuant to this Credit Agreement is effectively
connected with the conduct of a trade or business in the United States,
(ii) Internal Revenue Service Form W-8 or W-9, as appropriate, or any
successor form prescribed by the Internal Revenue Service, and (iii) any
other form or certificate required by any taxing authority (including
any certificate required by Sections 871(h) and 881(c) of the Internal
Revenue Code), certifying that such Lender is entitled to an exemption
from or a reduced rate of tax on payments pursuant to this Credit
Agreement or any of the other Credit Documents.
(e) For any period with respect to which a Lender has failed to
provide the Borrower and the Agent with the appropriate form pursuant to
Section 3.11(d) (unless such failure is due to a change in treaty, law,
or regulation occurring subsequent to the date on which a form
originally was required to be provided), such Lender shall not be
entitled to indemnification under Section 3.11(a) or 3.11(b) with
respect to Taxes imposed by the United States; provided, however, that
should a Lender, which is otherwise exempt from or subject to a reduced
rate of withholding tax, become subject to Taxes because of its failure
to deliver a form required hereunder, the Borrower shall take such steps
as such Lender shall reasonably request to assist such Lender to recover
such Taxes.
(f) If the Borrower is required to pay additional amounts to or
for the account of any Lender pursuant to this Section 3.11, then such
Lender will agree to use its reasonable best efforts to change the
jurisdiction of its Applicable Lending Office so as to eliminate or
reduce any such additional payment which may thereafter accrue if such
change, in the judgment of such Lender, is not otherwise disadvantageous
to such Lender.
(g) Within thirty (30) days after the date of any payment of
Taxes, the Borrower shall furnish to the Agent the original or a
certified copy of a receipt evidencing such payment.
(h) The agreements and obligations of the Borrower contained in
this Section 3.11 shall survive the repayment of the Loans, LOC
Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
(i) Each Lender (and the Agent with respect to payments to the
Agent for its own account) agrees that (i) it will take all reasonable
actions by all usual means to maintain all exemptions, if any, available
to it from United States withholding taxes (whether available by treaty,
existing administrative waiver, by virtue of the location of any
Applicable Lending Office) and (ii) otherwise cooperate with Borrower to
minimize amounts payable by the Borrower under this Section 3.11.
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3.12 Compensation.
Upon the request of any Lender, the Borrower shall pay to such Lender
such amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost, or expense (including loss of
anticipated profits) incurred by it as a result of:
(a) any payment, prepayment, or Conversion of a Eurodollar Loan
for any reason (including, without limitation, the acceleration of the
Loans pursuant to Section 9.2) on a date other than the last day of the
Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any condition precedent specified in
Section 5 to be satisfied) to borrow, Convert, Continue, or prepay a
Eurodollar Loan on the date for such borrowing, Conversion,
Continuation, or prepayment specified in the relevant notice of
borrowing, prepayment, Continuation, or Conversion under this Credit
Agreement.
With respect to Eurodollar Loans, such indemnification may include an amount
equal to the excess, if any, of (a) the amount of interest which would have
accrued on the amount so prepaid, or not so borrowed, converted or continued,
for the period from the date of such prepayment or of such failure to borrow,
convert or continue to the last day of the applicable Interest Period (or, in
the case of a failure to borrow, convert or continue, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Loans provided for herein (excluding,
however, the Applicable Percentage included therein, if any) over (b) the amount
of interest (as reasonably determined by such Lender) which would have accrued
to such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The covenants of
the Borrower set forth in this Section 3.12 shall survive the repayment of the
Loans, LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
3.13 Pro Rata Treatment.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the terms of
Section 3.3) prepayment of principal of any Loan or reimbursement
obligations arising from drawings under Letters of Credit, each payment
of interest on the Loans or reimbursement obligations arising from
drawings under Letters of Credit, each payment of Unused Fees, each
payment of the Letter of Credit Fee, each reduction of the Committed
Amount and each conversion or extension of any Loan, shall be allocated
pro rata among the Lenders in accordance with the respective principal
amounts of their outstanding Loans and Participation Interests.
(b) Advances. No Lender shall be responsible for the failure or
delay by any other Lender in its obligation to make its ratable share of
a borrowing hereunder; provided,
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however, that the failure of any Lender to fulfill its obligations
hereunder shall not relieve any other Lender of its obligations
hereunder. Unless the Agent shall have been notified by any Lender prior
to the date of any requested borrowing that such Lender does not intend
to make available to the Agent its ratable share of such borrowing to be
made on such date, the Agent may assume that such Lender has made such
amount available to the Agent on the date of such borrowing, and the
Agent in reliance upon such assumption, may (in its sole discretion but
without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made
available to the Agent, the Agent shall be able to recover such
corresponding amount from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the
Agent will promptly notify the Borrower, and the Borrower shall
immediately pay such corresponding amount to the Agent. The Agent shall
also be entitled to recover from the Lender or the Borrower, as the case
may be, interest on such corresponding amount in respect of each day
from the date such corresponding amount was made available by the Agent
to the Borrower to the date such corresponding amount is recovered by
the Agent (i) from the Borrower at a per annum rate equal to the
applicable rate for the applicable borrowing pursuant to the Notice of
Borrowing and (ii) from a Lender at a per annum rate equal to the
Federal Funds Rate.
3.14 Sharing of Payments.
The Lenders agree among themselves that, in the event that any Lender
shall obtain payment in respect of any Loan, LOC Obligations or any other
obligation owing to such Lender under this Credit Agreement through the exercise
of a right of setoff, banker's lien or counterclaim, or pursuant to a secured
claim under Section 506 of Title 11 of the United States Code or other security
or interest arising from, or in lieu of, such secured claim, received by such
Lender under any applicable bankruptcy, insolvency or other similar law or
otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Credit Agreement, such Lender shall promptly
purchase from the other Lenders a Participation Interest in such Loans, LOC
Obligations and other obligations in such amounts, and make such other
adjustments from time to time, as shall be equitable to the end that all Lenders
share such payment in accordance with their respective ratable shares as
provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a
Participation Interest theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrower agrees that any Lender so purchasing such a Participation Interest
may, to the fullest extent permitted by law, exercise all rights of payment,
including setoff, banker's lien or counterclaim, with respect to such
Participation Interest as fully as if such Lender were a holder of such Loan,
LOC Obligations or other obligation in the amount of such Participation
Interest. Except as otherwise expressly provided in this Credit Agreement, if
any Lender or the Agent shall fail to remit to the Agent or any other Lender an
amount payable by such Lender or the Agent to the Agent or such other Lender
pursuant to this
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Credit Agreement on the date when such amount is due, such payments
shall be made together with interest thereon for each date from the date
such amount is due until the date such amount is paid to the Agent or
such other Lender at a rate per annum equal to the Federal Funds Rate.
If under any applicable bankruptcy, insolvency or other similar law, any
Lender receives a secured claim in lieu of a setoff to which this
Section 3.14 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders under this Section 3.14 to
share in the benefits of any recovery on such secured claim.
3.15 Payments, Computations, Etc.
(a) Except as otherwise specifically provided herein, all
payments hereunder shall be made to the Agent in dollars in immediately
available funds, without setoff, deduction, counterclaim or withholding
of any kind, at the Agent's office specified in Schedule 2.1(a) not
later than 2:00 P.M. (Charlotte, North Carolina time) on the date when
due. Payments received after such time shall be deemed to have been
received on the next succeeding Business Day. The Agent may (but shall
not be obligated to) debit the amount of any such payment owed by the
Borrower which is not made by such time to any ordinary deposit account
of the Borrower maintained with the Agent (with notice to the Borrower).
The Borrower shall, at the time it makes any payment under this Credit
Agreement, specify to the Agent the Loans, LOC Obligations, Fees,
interest or other amounts payable by the Borrower hereunder to which
such payment is to be applied (and in the event that it fails so to
specify, or if such application would be inconsistent with the terms
hereof, the Agent shall distribute such payment to the Lenders in such
manner as the Agent may determine to be appropriate in respect of
obligations owing by the Borrower hereunder, subject to the terms of
Section 3.13(a)). The Agent will distribute such payments to such
Lenders, if any such payment is received prior to 12:00 Noon (Charlotte,
North Carolina time) on a Business Day in like funds as received prior
to the end of such Business Day and otherwise the Agent will distribute
such payment to such Lenders on the next succeeding Business Day.
Whenever any payment hereunder shall be stated to be due on a day which
is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day (subject to accrual of interest and Fees
for the period of such extension), except that in the case of Eurodollar
Loans, if the extension would cause the payment to be made in the next
following calendar month, then such payment shall instead be made on the
next preceding Business Day. Except as expressly provided otherwise
herein, all computations of interest and fees shall be made on the basis
of actual number of days elapsed over a year of 360 days, except with
respect to computation of interest on Base Rate Loans which shall be
calculated based on a year of 365 or 366 days, as appropriate. Interest
shall accrue from and include the date of borrowing, but exclude the
date of payment.
(b) Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, after the occurrence and during the continuance of an Event of
Default, all amounts collected or received by the Agent or any Lender on
account of the Credit Party Obligations or any other amounts outstanding
under any of the Credit Documents shall be paid over or delivered as
follows:
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FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of
the Agent in connection with enforcing the rights of the Lenders under
the Credit Documents;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of
each of the Lenders in connection with enforcing its rights under the
Credit Documents or otherwise with respect to the Credit Party
Obligations owing to such Lender;
FOURTH, to the payment of all of the Credit Party
Obligations consisting of accrued fees and interest;
FIFTH, to the payment of the outstanding principal amount of the
Credit Party Obligations (including the payment or cash
collateralization of the outstanding LOC Obligations);
SIXTH, to all other Credit Party Obligations and other
obligations which shall have become due and payable under the Credit
Documents or otherwise and not repaid pursuant to clauses "FIRST"
through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to the
next succeeding category; (ii) each of the Lenders shall receive an
amount equal to its pro rata share (based on the proportion that the
then outstanding Loans and LOC Obligations held by such Lender bears to
the aggregate then outstanding Loans and LOC Obligations) of amounts
available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH"
and "SIXTH" above; and (iii) to the extent that any amounts available
for distribution pursuant to clause "FIFTH" above are attributable to
the issued but undrawn amount of outstanding Letters of Credit, such
amounts shall be held by the Agent in a cash collateral account and
applied (A) first, to reimburse the Issuing Lender from time to time for
any drawings under such Letters of Credit and (B) then, following the
expiration of all Letters of Credit, to all other obligations of the
types described in clauses "FIFTH" and "SIXTH" above in the manner
provided in this Section 3.15(b).
3.16 Evidence of Debt.
(a) Each Lender shall maintain an account or accounts evidencing
each Loan made by such Lender to the Borrower from time to time,
including the amounts of principal
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and interest payable and paid to such Lender from time to time under
this Credit Agreement. Each Lender will make reasonable efforts to
maintain the accuracy of its account or accounts and to promptly update
its account or accounts from time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to Section
11.3(c), and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and
Interest Period of each such Loan hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable to
each Lender hereunder and (iii) the amount of any sum received by the
Agent hereunder from or for the account of the Borrower and each
Lender's share thereof. The Agent will make reasonable efforts to
maintain the accuracy of the subaccounts referred to in the preceding
sentence and to promptly update such subaccounts from time to time, as
necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.16 (and, if
consistent with the entries of the Agent, subsection (a)) shall be prima
facie evidence of the existence and amounts of the obligations of the
Borrower therein recorded; provided, however, that the failure of any
Lender or the Agent to maintain any such account, such Register or such
subaccount, as applicable, or any error therein, shall not in any manner
affect the obligation of the Borrower to repay the Loans made by such
Lender in accordance with the terms hereof.
SECTION 4
GUARANTY
4.1 The Guarantee.
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, each Affiliate of a Lender that enters into a Hedging Agreement and the
Agent as hereinafter provided the prompt payment of the Credit Party Obligations
in full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as a mandatory cash collateralization or otherwise) strictly in
accordance with the terms thereof. The Guarantors hereby further agree that if
any of the Credit Party Obligations are not paid in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise), the Guarantors will, jointly and severally,
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Credit Party
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, as a mandatory prepayment, by acceleration, as a mandatory
cash collateralization or otherwise) in accordance with the terms of such
extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, the obligations of each
Guarantor hereunder shall be limited
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to an aggregate amount equal to the largest amount that would not render its
obligations hereunder subject to avoidance under Section 548 of the Bankruptcy
Code or any comparable provisions of any applicable state law.
4.2 Obligations Unconditional.
The obligations of the Guarantors under Section 4.1 are joint and
several, and, to the fullest extent permitted by applicable law, absolute and
unconditional, irrespective of (i) the value, genuineness, validity, regularity
or enforceability of any of the Credit Documents or Hedging Agreements, or any
other agreement or instrument referred to therein, or any substitution, release,
impairment or exchange of any other guarantee of or security for any of the
Credit Party Obligations, and (ii) any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 4.2 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Each Guarantor agrees that such Guarantor shall have no right of
subrogation, indemnity, reimbursement or contribution against the Borrower or
any other Guarantor of the Credit Party Obligations for amounts paid under this
Section 4 until such time as the Lenders (and any Affiliates of Lenders entering
into Hedging Agreements) have been paid in full, all Commitments under this
Credit Agreement have been terminated and no Person or Governmental Authority
shall have any right to request any return or reimbursement of funds from the
Lenders in connection with monies received under the Credit Documents or Hedging
Agreements. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by law, the occurrence of any one or more of the
following shall not alter or impair the liability of any Guarantor hereunder
which shall remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of the
Credit Party Obligations shall be extended, or such performance or
compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of any of
the Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements
shall be done or omitted;
(c) the maturity of any of the Credit Party Obligations shall be
accelerated, or any of the Credit Party Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements
shall be waived or any other guarantee of any of the Credit Party
Obligations or any security therefor shall be released, impaired or
exchanged in whole or in part or otherwise dealt with;
(d) any Lien granted to, or in favor of, the Agent or any Lender
or Lenders as security for any of the Credit Party Obligations shall
fail to attach or be perfected; or
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(e) any of the Credit Party Obligations shall be determined to be
void or voidable (including, without limitation, for the benefit of any
creditor of any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit Documents,
any Hedging Agreement or any other agreement or instrument referred to in the
Credit Documents or Hedging Agreements, or against any other Person under any
other guarantee of, or security for, any of the Credit Party Obligations.
4.3 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4 Certain Additional Waivers.
Without limiting the generality of the provisions of this Section 4,
each Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. ss.ss.
26-7 through 26-9, inclusive, to the extent applicable. Each Guarantor further
agrees that such Guarantor shall have no right of recourse to security for the
Credit Party Obligations, except through the exercise of the rights of
subrogation pursuant to Section 4.2 and through the exercise of rights of
contribution pursuant to Section 4.6.
4.5 Remedies.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Agent and the Lenders, on the
other hand, the Credit Party Obligations may be declared to be forthwith due and
payable as provided in Section 9.2 (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 9.2)
for purposes of Section 4.1 notwithstanding any stay, injunction or other
prohibition preventing such declaration (or preventing the Credit Party
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or the Credit Party
Obligations being deemed to have become automatically due and payable), the
Credit Party
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Obligations (whether or not due and payable by any other Person) shall
forthwith become due and payable by the Guarantors for purposes of Section 4.1.
4.6 Rights of Contribution.
The Guarantors hereby agree as among themselves that, if any Guarantor
shall make an Excess Payment (as defined below), such Guarantor shall have a
right of contribution from each other Guarantor in an amount equal to such other
Guarantor's Contribution Share (as defined below) of such Excess Payment. The
payment obligations of any Guarantor under this Section 4.6 shall be subordinate
and subject in right of payment to the prior payment in full to the Agent and
the Lenders of the Guaranteed Obligations, and none of the Guarantors shall
exercise any right or remedy under this Section 4.6 against any other Guarantor
until payment and satisfaction in full of all of any Guaranteed Obligations. For
purposes of this Section 4.6, (a) "Guaranteed Obligations" shall mean any
obligations arising under the other provisions of this Section 4; (b) "Excess
Payment" shall mean the amount paid by any Guarantor in excess of its Pro Rata
Share of such Guaranteed Obligations; (c) "Pro Rata Share" shall mean, for any
Guarantor in respect of any payment of Guaranteed Obligations, the ratio
(expressed as a percentage) as of the date of such payment of Guaranteed
Obligations of (i) the amount by which the aggregate present fair salable value
of all of its assets and properties exceeds the amount of all debts and
liabilities of such Guarantor (including contingent, subordinated, unmatured,
and unliquidated liabilities, but excluding the obligations of such Guarantor
hereunder) to (ii) the amount by which the aggregate present fair salable value
of all assets and other properties of the Borrower and all of the Guarantors
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Borrower and the Guarantors hereunder) of the Borrower and
all of the Guarantors; provided, however, that, for purposes of calculating the
Pro Rata Shares of the Guarantors in respect of any payment of Guaranteed
Obligations, any Guarantor that became a Guarantor subsequent to the date of any
such payment shall be deemed to have been a Guarantor on the date of such
payment and the financial information for such Guarantor as of the date such
Guarantor became a Guarantor shall be utilized for such Guarantor in connection
with such payment; and (d) "Contribution Share" shall mean, for any Guarantor in
respect of any Excess Payment made by any other Guarantor, the ratio (expressed
as a percentage) as of the date of such Excess Payment of (i) the amount by
which the aggregate present fair salable value of all of its assets and
properties exceeds the amount of all debts and liabilities of such Guarantor
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of such Guarantor hereunder) to (ii) the amount by
which the aggregate present fair salable value of all assets and other
properties of the Borrower and all of the Guarantors other than the maker of
such Excess Payment exceeds the amount of all of the debts and liabilities
(including contingent, subordinated, unmatured, and unliquidated liabilities,
but excluding the obligations of the Borrower and the Guarantors hereunder) of
the Borrower and all of the Guarantors other than the maker of such Excess
Payment; provided, however, that, for purposes of calculating the Contribution
Shares of the Guarantors in respect of any Excess Payment, any Guarantor that
became a Guarantor subsequent to the date of any such Excess Payment shall be
deemed to have been a Guarantor on the date of such Excess Payment and the
financial information for such Guarantor as of the date such Guarantor became a
Guarantor shall be utilized for such
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Guarantor in connection with such Excess Payment. This Section 4.6 shall not be
deemed to affect any right of subrogation, indemnity, reimbursement or
contribution that any Guarantor may have under applicable law against the
Borrower in respect of any payment of Guaranteed Obligations. Notwithstanding
the foregoing, all rights of contribution against any Guarantor shall terminate
from and after such time, if ever, that such Guarantor shall be relieved of its
obligations pursuant to Section 8.4.
4.7 Continuing Guarantee.
The guarantee in this Section 4 is a continuing guarantee, and shall
apply to all Credit Party Obligations whenever arising.
SECTION 5
CONDITIONS
5.1 Closing Conditions.
The obligation of the Lenders to enter into this Credit Agreement and to
make the initial Loans or the Issuing Lender to issue the initial Letter of
Credit, whichever shall occur first, shall be subject to satisfaction of the
following conditions (in form and substance acceptable to the Lenders):
(a) Executed Credit Documents. Receipt by the Agent of duly
executed copies of: (i) this Credit Agreement; (ii) the Notes; and (iii)
all other Credit Documents, each in form and substance acceptable to the
Agent in its sole discretion.
(b) Corporate Documents. Receipt by the Agent of the following:
(i) Charter Documents. Copies of the articles or
certificates of incorporation or other charter documents of each
Credit Party certified to be true and complete as of a recent
date by the appropriate Governmental Authority of the state or
other jurisdiction of its incorporation and certified by a
secretary or assistant secretary of such Credit Party to be true
and correct as of the Closing Date.
(ii) Bylaws. A copy of the bylaws of each Credit Party
certified by a secretary or assistant secretary of such Credit
Party to be true and correct as of the Closing Date.
(iii) Resolutions. Copies of resolutions of the Board of
Directors of each Credit Party approving and adopting the Credit
Documents to which it is a party, the transactions contemplated
therein and authorizing execution and delivery
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thereof, certified by a secretary or assistant secretary of such
Credit Party to be true and correct and in force and effect as of
the Closing Date.
(iv) Good Standing. Copies of certificates of good
standing, existence or its equivalent with respect to each Credit
Party certified as of a recent date by the appropriate
Governmental Authorities of the state or other jurisdiction of
incorporation and each other jurisdiction in which the failure to
so qualify and be in good standing could have a Material Adverse
Effect.
(v) Incumbency. An incumbency certificate of each Credit
Party certified by a secretary or assistant secretary to be true
and correct as of the Closing Date.
(c) Opinions of Counsel. The Agent shall have received, in each
case dated as of the Closing Date:
(i) an opinion of legal counsel for the Credit Parties
in form and substance satisfactory to the Agent; and
(ii) a legal opinion of special local counsel for each
Credit Party incorporated in the State of Colorado in form and
substance satisfactory to the Agent.
(d) Material Adverse Effect. No material adverse change shall
have occurred since December 31, 1997 in the condition (financial or
otherwise), business, management or prospects of the Consolidated
Parties taken as a whole.
(e) Litigation. There shall not exist any pending or threatened
action, suit, investigation or proceeding against a Consolidated Party
that could have a Material Adverse Effect.
(f) Officer's Certificates. The Agent shall have received a
certificate or certificates executed by an Executive Officer of the
Borrower as of the Closing Date stating that to the best of the
Borrower's knowledge (A) each Consolidated Party is in compliance with
all of its existing material financial obligations, (B) all
governmental, shareholder and third party consents and approvals, if
any, with respect to the Credit Documents and the transactions
contemplated thereby have been obtained, (C) no action, suit,
investigation or proceeding is pending or threatened in any court or
before any arbitrator or governmental instrumentality that purports to
affect any Consolidated Party or any transaction contemplated by the
Credit Documents, if such action, suit, investigation or proceeding
could have a Material Adverse Effect, and (D) immediately after giving
effect to this Credit Agreement, the other Credit Documents and all the
transactions contemplated therein to occur on such date, (1) the
Borrower, the Parent and the Consolidated Parties, taken as a whole, are
Solvent, (2) no Default or Event of Default exists, (3) all
representations and
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warranties contained herein and in the other Credit Documents are true
and correct in all material respects, and (4) the Credit Parties are in
compliance with each of the financial covenants set forth in
Section 7.11.
(g) Fees and Expenses. Payment by the Credit Parties of all fees
and expenses owed by them to the Lenders and the Agent, including,
without limitation, payment to the Agent of the fees set forth in the
Fee Letter.
(h) Financial Statements. Receipt by the Agent of (a) financial
statements described in Section 7.1(a) for the fiscal year ending
December 31, 1997, and (b) financial statements described in Section
7.1(b) for each of the first two fiscal quarters of 1998.
(i) The Agent shall have received a certificate describing the
insurance coverage of the Consolidated Parties which identifies carrier,
policy number, expiration date, type and amount.
(j) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably requested by any
Lender.
5.2 Conditions to all Extensions of Credit.
The obligations of each Lender to make, convert or extend any Loan and
of the Issuing Lender to issue or extend any Letter of Credit (including the
initial Loans and the initial Letter of Credit) are subject to satisfaction of
the following conditions in addition to satisfaction on the Closing Date of the
conditions set forth in Section 5.1:
(a) The Borrower shall have delivered (i) in the case of any
Loan, an appropriate Notice of Borrowing or Notice of
Extension/Conversion or (ii) in the case of any Letter of Credit, the
Issuing Lender shall have received an appropriate request for issuance
in accordance with the provisions of Section 2.2(b);
(b) The representations and warranties set forth in Section 6
shall be, subject to the limitations set forth therein, true and correct
in all material respects as of such date (except for those which
expressly relate to an earlier date);
(c) There shall not have been commenced against any Credit Party
an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or any case, proceeding or other
action for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of such Person or
for any substantial part of its Property or for the winding up or
liquidation of its affairs, and such involuntary case or other case,
proceeding or other action shall remain undismissed, undischarged or
unbonded;
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(d) No Default or Event of Default shall exist and be continuing
either prior to or after giving effect thereto;
(e) As of the Closing Date,. no material adverse change shall
have occurred since December 31, 1997 in the condition (financial or
otherwise), business, results of operations or prospects of the
Consolidated Parties taken as a whole; and
(f) Immediately after giving effect to the making of such Loan
(and the application of the proceeds thereof) or to the issuance of such
Letter of Credit, as the case may be, (i) the sum of the aggregate
principal amount of outstanding Loans plus LOC Obligations outstanding
shall not exceed the Committed Amount, and (ii) the LOC Obligations
shall not exceed the LOC Committed Amount.
The delivery of each Notice of Borrowing, each Notice of Extension/Conversion
and each request for a Letter of Credit pursuant to Section 2.2(b) shall
constitute a representation and warranty by the Borrower of the correctness of
the matters specified in subsections (b), (c), (d), (e) and (f) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Agent and each Lender that:
6.1 Financial Condition.
(a) The audited consolidated balance sheet of the Consolidated
Parties as of December 31, 1996 and December 31, 1997 and the audited
consolidated statements of earnings and statements of cash flows for the
years ended December 31, 1996 and December 31, 1997 have heretofore been
furnished to each Lender. Such financial statements (including the notes
thereto) (i) have been audited by Ernst & Young, LLP (ii) have been
prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (iii) present fairly (on the basis disclosed
in the footnotes to such financial statements) the consolidated
financial condition, results of operations and cash flows of the
Consolidated Parties as of such date and for such periods. The unaudited
interim balance sheets of the Consolidated Parties as at the end of, and
the related unaudited interim statements of earnings and of cash flows
for, each quarterly period ended after June 30, 1998 and prior to the
Closing Date have heretofore been furnished to each Lender. Such interim
financial statements for each such quarterly period, (i) have been
prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (ii) present fairly (on the basis disclosed
in the footnotes to such financial statements) the consolidated
financial condition, results of operations and cash flows of the
Consolidated Parties as of such date and for such periods. During the
period from June 30, 1998 to and including the Closing Date, there has
been no sale, transfer or other disposition by any
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Consolidated Party of any material part of the business or property of
the Consolidated Parties, taken as a whole, and no purchase or other
acquisition by any of them of any business or property (including any
Capital Stock of any other person) material in relation to the
consolidated financial condition of the Consolidated Parties, taken as a
whole, in each case, which, is not reflected in the foregoing financial
statements or in the notes thereto and has not otherwise been disclosed
in writing to the Lenders on or prior to the Closing Date.
(b) The financial statements delivered to the Lenders pursuant to
Section 7.1(a) and (b), (i) have been prepared in accordance with GAAP
(except as may otherwise be permitted under Section 7.1(a) and (b)) and
(ii) present fairly (on the basis disclosed in the footnotes to such
financial statements) the consolidated financial condition, results of
operations and cash flows of the Consolidated Parties as of such date
and for such periods.
6.2 No Change; Dividends.
Since December 31, 1997, (a) there has been no development or event
relating to or affecting a Consolidated Party which has had or could have a
Material Adverse Effect and (b) except as otherwise permitted under this Credit
Agreement, no dividends or other distributions have been declared, paid or made
upon the Capital Stock in a Consolidated Party nor has any of the Capital Stock
in a Consolidated Party been redeemed, retired, purchased or otherwise acquired
for value by such Consolidated Party.
6.3 Organization and Good Standing.
Each of the Consolidated Parties (a) is duly organized, validly existing
and is in good standing under the laws of the jurisdiction of its incorporation
or organization except where the failure to be so organized, existing or in good
standing would not reasonably be expected to have a Material Adverse Effect, (b)
has the corporate or other necessary power and authority, and the legal right,
to own and operate its property, to lease the property it operates as lessee and
to conduct the business in which it is currently engaged, and (c) is duly
qualified as a foreign entity and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the conduct
of its business requires such qualification, other than in such jurisdictions
where the failure to be so qualified and in good standing could not have a
Material Adverse Effect.
6.4 Power; Authorization; Enforceable Obligations.
Each of the Credit Parties has the corporate or other necessary power
and authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party, and in the case of the Borrower, to obtain
extensions of credit hereunder, and has taken all necessary corporate action to
authorize the borrowings and other extensions of credit on the terms and
conditions of this Credit Agreement and to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other Person is required to be obtained or
made by or on behalf of any Credit Party in connection with the borrowings or
other
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extensions of credit hereunder or with the execution, delivery, performance,
validity or enforceability of the Credit Documents to which such Credit Party is
a party, except for (i) consents, authorizations, notices and filings described
in Schedule 6.4, all of which have been obtained or made or have the status
described in such Schedule 6.4 and (ii) those the failure of which to obtain
could not have a Material Adverse Effect. This Credit Agreement has been, and
each other Credit Document to which any Credit Party is a party will be, duly
executed and delivered on behalf of the Credit Parties. This Credit Agreement
constitutes, and each other Credit Document to which any Credit Party is a party
when executed and delivered will constitute, a legal, valid and binding
obligation of such Credit Party enforceable against such party in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
6.5 No Conflicts.
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its articles or certificate of
incorporation or bylaws or other organizational or governing documents of such
Person, (b) violate, contravene or conflict in any material respect with any
Requirement of Law or any other law, regulation (including, without limitation,
Regulation U or Regulation X), order, writ, judgment, injunction, decree or
permit applicable to it, (c) violate, contravene or conflict in any material
respect with contractual provisions of, or cause an event of default under, any
indenture, loan agreement, mortgage, deed of trust, contract or other agreement
or instrument to which it is a party or by which it may be bound, the violation
of which could have a Material Adverse Effect, or (d) result in or require the
creation of any Lien (other than those contemplated in or created in connection
with the Credit Documents) upon or with respect to its properties.
6.6 No Default.
No Consolidated Party is in default in any respect under any contract,
lease, loan agreement, indenture, mortgage, security agreement or other
agreement or obligation to which it is a party or by which any of its properties
is bound which default could have a Material Adverse Effect. No Default or Event
of Default has occurred or exists except as previously disclosed in writing to
the Lenders.
6.7 Ownership.
Each Consolidated Party is the owner of, and has good and marketable
title to, all of its respective material assets and none of such material assets
is subject to any Lien other than Permitted Liens
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6.8 Indebtedness.
Except as otherwise permitted under Section 8.1, the Consolidated
Parties have no Indebtedness.
6.9 Litigation.
Except as disclosed in Schedule 6.9, there are no actions, suits or
legal, equitable, arbitration or administrative proceedings, pending or, to the
knowledge of any Credit Party, threatened against any Consolidated Party which
could reasonably be expected to have a Material Adverse Effect.
6.10 Taxes.
Each Consolidated Party has filed, or caused to be filed, all material
tax returns (federal, state, local and foreign) required to be filed and paid
(a) all amounts of taxes shown thereon to be due (including interest and
penalties) and (b) all other material taxes, fees, assessments and other
governmental charges (including mortgage recording taxes, documentary stamp
taxes and intangibles taxes) owing by it, except for such taxes (i) which are
not yet delinquent or (ii) that are being contested in good faith and by proper
proceedings, and against which adequate reserves are being maintained in
accordance with GAAP except where the failure to make such filings or pay such
amounts could not have a Material Adverse Effect.
6.11 Compliance with Laws.
Each Consolidated Party is in compliance with all Requirements of Law
and all other laws, rules, regulations, orders and decrees (including without
limitation Environmental Laws) applicable to it, or to its properties, unless
such failure to comply could not reasonably be expected to have a Material
Adverse Effect. No applicable Requirement of Law could reasonably be expected to
cause a Material Adverse Effect.
6.12 ERISA.
Except as disclosed and described in Schedule 6.12 attached hereto:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred,
and, to the best knowledge of the Credit Parties, no event or condition
has occurred or exists as a result of which any ERISA Event could
reasonably be expected to occur, with respect to any Plan; (ii) no
"accumulated funding deficiency," as such term is defined in Section 302
of ERISA and Section 412 of the Code, whether or not waived, has
occurred with respect to any Plan; (iii) each Plan has been maintained,
operated, and funded in compliance with its own terms and in material
compliance with the provisions of ERISA, the Code, and any other
applicable federal or state laws; and (iv) no lien in favor of the PBGC
or a Plan has arisen or is reasonably likely to arise on account of any
Plan.
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(b) The actuarial present value of all "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA), whether or not vested, under
each Single Employer Plan, as of the last annual valuation date prior to
the date on which this representation is made or deemed made
(determined, in each case, in accordance with Financial Accounting
Standards Board Statement 87, utilizing the actuarial assumptions used
in such Plan's most recent actuarial valuation report), did not exceed
as of such valuation date the fair market value of the assets of such
Plan.
(c) Neither any Consolidated Party nor any ERISA Affiliate has
incurred, or, to the best knowledge of the Credit Parties, could be
reasonably expected to incur, any withdrawal liability under ERISA to
any Multiemployer Plan or Multiple Employer Plan. Neither any
Consolidated Party nor any ERISA Affiliate would become subject to any
withdrawal liability under ERISA if any Consolidated Party or any ERISA
Affiliate were to withdraw completely from all Multiemployer Plans and
Multiple Employer Plans as of the valuation date most closely preceding
the date on which this representation is made or deemed made. Neither
any Consolidated Party nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization (within
the meaning of Section 4241 of ERISA), is insolvent (within the meaning
of Section 4245 of ERISA), or has been terminated (within the meaning of
Title IV of ERISA), and no Multiemployer Plan is, to the best knowledge
of the Credit Parties, reasonably expected to be in reorganization,
insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406
of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility has occurred with respect to a Plan which has subjected
or may subject any Consolidated Party or any ERISA Affiliate to any
liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section
4975 of the Code which could reasonably be expected to have a Material
Adverse Effect, or under any agreement or other instrument pursuant to
which any Consolidated Party or any ERISA Affiliate has agreed or is
required to indemnify any person against any such liability.
(e) Neither any Consolidated Party nor any ERISA Affiliates has
any material liability with respect to "expected post-retirement benefit
obligations" within the meaning of the Financial Accounting Standards
Board Statement 106. Each Plan which is a welfare plan (as defined in
Section 3(1) of ERISA) to which Sections 601-609 of ERISA and Section
4980B of the Code apply has been administered in compliance in all
material respects with such sections.
6.13 Subsidiaries.
Set forth on Schedule 6.13 is a complete and accurate list of all
Subsidiaries of each Consolidated Party. Information on Schedule 6.13 includes
jurisdiction of incorporation and the percentage of outstanding shares of each
class owned (directly, indirectly or beneficially) by such Consolidated Party.
The outstanding Capital Stock of all such Subsidiaries is validly issued, fully
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paid and non-assessable and is owned by each such Consolidated Party, directly,
indirectl or beneficially, free and clear of all Liens (other than Permitted
Liens). Other than as set forth in Schedule 6.13, no Consolidated Party has
outstanding any securities convertible into or exchangeable for its Capital
Stock nor does any such Person have outstanding any rights to subscribe for or
to purchase or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to its Capital Stock. Schedule 6.13 may be updated
from time to time by the Borrower by giving written notice thereof to the Agent.
6.14 Governmental Regulations, Etc.
(a) No part of the Letters of Credit or proceeds of the Loans
will be used, directly or indirectly, for the purpose of purchasing or
carrying any "margin stock" within the meaning of Regulation U, or for
the purpose of purchasing or carrying or trading in any securities. If
requested by any Lender or the Agent, the Borrower will furnish to the
Agent and each Lender a statement to the foregoing effect in conformity
with the requirements of FR Form U-1 referred to in Regulation U. No
indebtedness being reduced or retired out of the proceeds of the Loans
was or will be incurred for the purpose of purchasing or carrying any
margin stock within the meaning of Regulation U or any "margin security"
within the meaning of Regulation T. "Margin stock" within the meaning of
Regulation U does not constitute more than 25% of the value of the
consolidated assets of the Consolidated Parties. None of the
transactions contemplated by this Credit Agreement (including, without
limitation, the direct or indirect use of the proceeds of the Loans)
will violate or result in a violation of the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, or
regulations issued pursuant thereto, or Regulation T, U or X.
(b) No Consolidated Party is subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act or the
Investment Company Act of 1940, each as amended. In addition, no
Consolidated Party is (i) an "investment company" registered or required
to be registered under the Investment Company Act of 1940, as amended,
and is not controlled by such a company, or (ii) a "holding company", or
a "subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(c) No director, executive officer or principal shareholder of
any Consolidated Party is a director, executive officer or principal
shareholder of any Lender. For the purposes hereof the terms "director",
"executive officer" and "principal shareholder" (when used with
reference to any Lender) have the respective meanings assigned thereto
in Regulation O issued by the Board of Governors of the Federal Reserve
System.
(d) Each Consolidated Party has obtained and holds in full force
and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, easements, rights of way
and other rights, consents and approvals which are necessary for
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the ownership of its respective Property and to the conduct of its
respective businesses as presently conducted other than those for which
the failure to obtain and hold such could not be expected to have a
Material Adverse Effect.
(e) No Consolidated Party is in violation of any applicable
statute, regulation or ordinance of the United States of America, or of
any state, city, town, municipality, county or any other jurisdiction,
or of any agency thereof (including without limitation, environmental
laws and regulations), which violation could reasonably be expected to
have a Material Adverse Effect.
(f) Each Consolidated Party is current with all material reports
and documents, if any, required to be filed with any state or federal
securities commission or similar agency and is in compliance in all
material respects with all applicable rules and regulations of such
commissions.
6.15 Purpose of Loans and Letters of Credit.
The proceeds of the Loans hereunder shall be used solely by the Borrower
for working capital, capital expenditures and other lawful corporate purposes.
The Letters of Credit shall be used only for or in connection with appeal bonds,
reimbursement obligations arising in connection with surety and reclamation
bonds, reinsurance, domestic or international trade transactions and obligations
not otherwise aforementioned relating to transactions entered into by the
applicable account party in the ordinary course of business.
6.16 Environmental Matters.
Except as disclosed and described in Schedule 6.16 attached hereto, no
Consolidated Party has and to the best of Borrower's knowledge, no other person
has stored, treated, used, managed, generated or disposed of any substance
deemed hazardous by any applicable Environmental Laws on any real property now
owned by any Consolidated Party in violation of any Environmental Law. The
Consolidated Parties are not in violation of or subject to any existing, pending
or, to the best of the Borrower's knowledge, threatened investigation or inquiry
by any Governmental Authority or to any material remedial obligations under any
applicable Environmental Laws, and this representation and warranty would
continue to be true and correct following disclosure to the applicable
Governmental Authorities of all relevant facts, conditions and circumstances, if
any pertaining to any real property of the Consolidated Parties. The
Consolidated Parties have not obtained and are not required to obtain any
permits, licenses or similar authorizations (which have not already been
obtained) to construct, occupy, operate or use any buildings, improvements,
fixtures, and equipment forming a part of any real property of the Consolidated
Parties by reason of any applicable Environmental Laws. No Consolidated Parties,
and to the best of Borrower's knowledge, no other person has caused the release
of any Materials of Environmental Concern on or to the real property of the
Consolidated Parties in any manner or quantities which would be deemed a
violation or require investigation or remediation under the applicable
Environmental Laws.
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6.17 Intellectual Property.
Each Consolidated Party owns, or has the legal right to use, all
trademarks, tradenames, copyrights, technology, know-how and processes (the
"Intellectual Property") necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal right
to use could not have a Material Adverse Effect. Except as provided on Schedule
6.17, no claim has been asserted in writing and is pending or to the best of the
Borrower's knowledge, threatened by any Person challenging or questioning the
use of any such Intellectual Property or the validity or effectiveness of any
such Intellectual Property, and to the Credit Parties' knowledge the use of such
Intellectual Property by any Consolidated Party does not infringe on the rights
of any Person, in either case except for such claims and infringements that in
the aggregate, could not have a Material Adverse Effect. Schedule 6.17 may be
updated from time to time by the Borrower by giving written notice thereof to
the Agent. Upon the reasonable request of the Agent, the Borrower will provide a
list of all registered Intellectual Property owned by each Consolidated Party or
that any Consolidated Party has the right to use.
6.18 Solvency.
The Borrower, the Parent and the Consolidated Parties, taken as a whole,
are and, after consummation of the transactions contemplated by this Credit
Agreement, will be Solvent.
6.19 Investments.
All Investments of each Consolidated Party are Permitted Investments.
6.20 Disclosure.
Neither this Credit Agreement nor any financial statements delivered to
the Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any Consolidated Party in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein or herein not misleading.
6.21 No Burdensome Restrictions.
No Consolidated Party is a party to any agreement or instrument or
subject to any other obligation or any charter or corporate restriction or any
provision of any applicable law, rule or regulation which, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
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6.22 Labor Matters.
There are no collective bargaining agreements or Multiemployer Plans
covering the employees of a Consolidated Party as of the Closing Date and none
of the Consolidated Parties has suffered any strikes, walkouts, work stoppages
or other material labor difficulty within the five years preceding the Closing
Date.
6.23 Nature of Business.
As of the Closing Date, the Consolidated Parties are engaged in the
business of manufacturing, selling, financing, licensing and servicing
telecommunications products and services, developing software related thereto
and conducting other activities related thereto.
6.24 Year 2000 Compliance.
Each of the Consolidated Parties has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' businesses and
operations (including those affected by suppliers, vendors and customers) that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer applications may not be able to recognize and properly perform
date-sensitive functions after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, the Borrower believes that all computer applications (including those
of its suppliers, vendors and customers) that are material to its or any of its
Subsidiaries' business and operations are reasonably expected on a timely basis
to be able to perform properly date-sensitive functions for all dates before and
after January 1, 2000 (that is, be "Year 2000 Compliant"), except to the extent
that a failure to do so could not reasonably be expected to have a Material
Adverse Effect.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
7.1 Information Covenants.
The Borrower will furnish, or cause to be furnished, to the Agent and
each of the Lenders:
(a) Annual Financial Statements. As soon as available, and in any
event within 120 days after the close of each fiscal year of the Parent,
a consolidated balance sheet and income statement of the Consolidated
Parties, as of the end of such fiscal year, together
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with related consolidated statements of operations and retained earnings
and of cash flows for such fiscal year, setting forth in comparative
form consolidated figures for the preceding fiscal year, all such
financial information described above to be in reasonable form and
detail and audited by independent certified public accountants of
recognized national standing reasonably acceptable to the Agent and
whose opinion shall be to the effect that such financial statements have
been prepared in accordance with GAAP (except for changes with which
such accountants concur) and shall not be limited as to the scope of the
audit or qualified as to the status of the Consolidated Parties as a
going concern.
(b) Quarterly Financial Statements. As soon as available, and in
any event within 45 days after the close of each fiscal quarter of the
Parent (other than the fourth fiscal quarter, in which case 120 days
after the end thereof) a consolidated balance sheet and income statement
of the Consolidated Parties, as of the end of such fiscal quarter,
together with related consolidated statements of operations and retained
earnings and of cash flows for such fiscal quarter in each case setting
forth in comparative form consolidated figures for the corresponding
period of the preceding fiscal year, all such financial information
described above to be in reasonable form and detail and reasonably
acceptable to the Agent, and accompanied by a certificate of the chief
financial officer of the Borrower to the effect that such quarterly
financial statements fairly present in all material respects the
financial condition of the Consolidated Parties and have been prepared
in accordance with GAAP, subject to changes resulting from audit and
normal year-end audit adjustments.
(c) Officer's Certificate. At the time of delivery of the
financial statements provided for in Sections 7.1(a) and 7.1(b) above, a
certificate of the chief financial officer of the Borrower substantially
in the form of Exhibit 7.1(c), (i) demonstrating compliance with the
financial covenants contained in Section 7.11 by calculation thereof as
of the end of each such fiscal period and (ii) stating that no Default
or Event of Default exists, or if any Default or Event of Default does
exist, specifying the nature and extent thereof and what action the
Credit Parties propose to take with respect thereto.
(d) Compliance With Certain Provisions of the Credit Agreement.
Within 120 days after the end of each fiscal year of the Borrower, a
certificate containing information regarding the amount of all Asset
Dispositions and Equity Issuances that were made during the prior fiscal
year.
(e) Auditor's Reports. Promptly upon receipt thereof, a copy of
any other material report or "management letter" submitted by
independent accountants to any Consolidated Party in connection with any
annual, interim or special audit of the books of such Person.
(f) Reports. Promptly upon transmission or receipt thereof, (i)
copies of any filings and registrations with, and reports to or from,
the Securities and Exchange Commission, or any successor agency, and
copies of all financial statements, proxy statements, notices and
reports as any Consolidated Party shall send to its shareholders or to
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a holder of any Indebtedness owed by any Consolidated Party in its
capacity as such a holder and (ii) upon the request of the Agent, all
reports and written information to and from the United States
Environmental Protection Agency, or any state or local agency
responsible for environmental matters, the United States Occupational
Health and Safety Administration, or any state or local agency
responsible for health and safety matters, or any successor agencies or
authorities concerning environmental, health or safety matters.
(g) Notices. Upon obtaining knowledge thereof, the Borrower will
give written notice to the Agent (i) promptly of the occurrence of an
event or condition consisting of a Default or Event of Default,
specifying the nature and existence thereof and what action the Credit
Parties propose to take with respect thereto, and (ii) within ten
Business Days of the occurrence of any of the following with respect to
any Consolidated Party (A) the commencement of any litigation, arbitral
or governmental proceeding against such Person which if adversely
determined is likely to have a Material Adverse Effect, (B) the
institution of any proceedings against such Person with respect to, or
the receipt of notice by such Person of potential liability or
responsibility for violation, or alleged violation of any federal, state
or local law, rule or regulation, including but not limited to,
Environmental Laws, the violation of which could have a Material Adverse
Effect, or (C) any notice or determination concerning the imposition of
any withdrawal liability by a Multiemployer Plan against such Person or
any ERISA Affiliate, the determination that a Multiemployer Plan is, or
is expected to be, in reorganization within the meaning of Title IV of
ERISA or the termination of any Plan.
(h) ERISA. Upon obtaining knowledge thereof, the Borrower will
give written notice to the Agent promptly (and in any event within ten
Business Days) of: (i) of any event or condition, including, but not
limited to, any Reportable Event, that constitutes, or might reasonably
lead to, an ERISA Event; (ii) with respect to any Multiemployer Plan,
the receipt of notice as prescribed in ERISA or otherwise of any
withdrawal liability assessed against the Borrower or any of its ERISA
Affiliates, or of a determination that any Multiemployer Plan is in
reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due date
(including extensions) thereof of all amounts which any Consolidated
Party or any ERISA Affiliate is required to contribute to each Plan
pursuant to its terms and as required to meet the minimum funding
standard set forth in ERISA and the Code with respect thereto; or (iv)
any change in the funding status of any Plan that could have a Material
Adverse Effect, together with a description of any such event or
condition or a copy of any such notice and a statement by the chief
financial officer of the Borrower briefly setting forth the details
regarding such event, condition, or notice, and the action, if any,
which has been or is being taken or is proposed to be taken by the
Credit Parties with respect thereto. Promptly upon request, the Credit
Parties shall furnish the Agent and the Lenders with such additional
information concerning any Plan as may be reasonably requested,
including, but not limited to, copies of each annual report/return (Form
5500 series), as well as all schedules and attachments thereto required
to be filed with the Department of Labor and/or the Internal
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Revenue Service pursuant to ERISA and the Code, respectively, for each
"plan year" (within the meaning of Section 3(39) of ERISA).
(i) Environmental.The Consolidated Parties will conduct and
complete all investigations, studies, sampling, and testing and all
remedial, removal, and other actions reasonably necessary to address all
Materials of Environmental Concern on , from or affecting any of the
Properties to the extent necessary to be in compliance with all
Environmental Laws and with the validly issued orders and directives of
all Governmental Authorities with jurisdiction over such Properties to
the extent any failure could have a Material Adverse Effect.
(j) Permitted Customer Financing Transactions. Contemporaneously
with the furnishing of the annual and quarterly financial statements
described in clauses (a) and (b) above, a schedule setting forth in
detail reasonably satisfactory to the Agent, all outstanding Customer
Financing Transactions (including extensions of credit under the Conxus
Credit Agreement), the principal and interest balances of each such
transaction and the date and amounts of each payment default with
respect to each such transaction.
(k) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or
financial condition of any Consolidated Party as the Agent or the
Required Lenders may reasonably request.
7.2 Preservation of Existence and Franchises.
Except as a result of or in connection with a dissolution, merger or
disposition of a Subsidiary permitted under Section 8.4 or Section 8.5, each
Credit Party will, and will cause each of its Subsidiaries to, do all things
necessary to preserve and keep in full force and effect its existence, rights,
franchises and authority unless the failure to do so could not have a Material
Adverse Effect.
7.3 Books and Records.
Each Credit Party will, and will cause each of its Subsidiaries to, keep
complete and accurate books and records of its transactions in accordance with
good accounting practices on the basis of GAAP (including the establishment and
maintenance of appropriate reserves) (unless such is not permitted by the
applicable Governmental Authority).
7.4 Compliance with Law.
Each Credit Party will, and will cause each of its Subsidiaries to,
comply in all material respects with all applicable laws, rules, regulations and
orders and all applicable restrictions imposed by all Governmental Authorities,
applicable to it and its Property if noncompliance with any such law, rule,
regulation, order or restriction could have a Material Adverse Effect.
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7.5 Payment of Taxes and Other Indebtedness.
Each Credit Party will, and will cause each of its Subsidiaries to, pay
and discharge (a) all material taxes, assessments and governmental charges or
levies imposed upon it, or upon its income or profits, or upon any of its
properties, before they shall become delinquent, (b) all lawful material claims
(including claims for labor, materials and supplies) which, if unpaid, might
give rise to a Lien upon any of its properties, and (c) except as prohibited
hereunder, all of its other Indebtedness as it shall become due; provided,
however, that no Consolidated Party shall be required to pay any such tax,
assessment, charge, levy, claim or Indebtedness which is being contested in good
faith by appropriate proceedings and as to which adequate reserves therefor have
been established in accordance with GAAP, unless the failure to make any such
payment (i) could give rise to an immediate right to foreclose on a Lien
securing such amounts or (ii) could reasonably be expected to have a Material
Adverse Effect.
7.6 Insurance.
Each Credit Party will, and will cause each of its Subsidiaries
(excluding Inactive Subsidiaries) to, at all times maintain in full force and
effect insurance (including worker's compensation insurance, liability
insurance, casualty insurance and business interruption insurance) in such
amounts, covering such risks and liabilities and with such deductibles or
self-insurance retentions as are in accordance with normal industry practice.
7.7 Maintenance of Property.
Each Credit Party will, and will cause each of its Subsidiaries (except
Inactive Subsidiaries) to, maintain and preserve its properties and equipment
material to the conduct of its business in reasonably good repair, working order
and condition, taken as a whole, normal wear and tear and casualty and
condemnation excepted, and will make, or cause to be made, in such properties
and equipment from time to time all repairs, renewals, replacements, extensions,
additions, betterments and improvements thereto as may be needed or proper, to
the extent and in the manner customary for companies in similar businesses.
7.8 Performance of Obligations.
Each Credit Party will, and will cause each of its Subsidiaries to,
perform in all material respects all of its obligations under the terms of all
material agreements, indentures, mortgages, security agreements or other debt
instruments to which it is a party or by which it is bound, the failure of which
to perform could have a Material Adverse Effect.
7.9 Use of Proceeds.
The Borrower will use the proceeds of the Loans and will use the Letters
of Credit solely for the purposes set forth in Section 6.15.
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7.10 Audits/Inspections.
Upon reasonable notice and during normal business hours, each Credit
Party will, and will cause each of its Subsidiaries to, permit representatives
appointed by the Agent (including, without limitation, independent accountants,
agents, attorneys, and appraisers) to visit and inspect its property, including
its books and records, its accounts receivable and inventory, its facilities and
its other business assets, and to make photocopies or photographs thereof and to
write down and record any information such representative obtains and shall
permit the Agent or its representatives to investigate and verify the accuracy
of information provided to the Lenders and to discuss all such matters with the
officers, employees and representatives of such Person.
7.11 Financial Covenants.
(a) Fixed Charge Coverage Ratio. The Fixed Charge Coverage
Ratio, as of the last day of each fiscal quarter of the Consolidated
Parties, shall be greater than 1.0 to 1.0.
(b) Leverage Ratio. The Leverage Ratio, as of the last day
of each fiscal quarter of the Consolidated Parties, shall be less than
or equal to 1.5:1.0.
(c) Consolidated Net Worth. At all times the Consolidated
Net Worth shall be greater than or equal to 90% of Consolidated Net
Worth as of June 30, 1998, increased on a cumulative basis as of the end
of each fiscal quarter of the Consolidated Parties, commencing with the
fiscal quarter ending September 30, 1998 by (i) an amount equal to 50%
of Consolidated Net Income, to the extent positive for the fiscal
quarter then ended and (ii) an amount equal to 100% of the Net Proceeds
of any Equity Issuances.
7.12 Additional Credit Parties.
As soon as practicable and in any event within 30 days after any Person
becomes a Subsidiary (other than an Inactive Subsidiary) of any Credit Party,
the Borrower shall provide the Agent with written notice thereof setting forth
information in reasonable detail describing all of the assets of such Person and
shall (a) if such Person is a Domestic Subsidiary of a Credit Party, cause such
Person to execute a Joinder Agreement in substantially the same form as Exhibit
7.12 and (b) cause such Person to deliver such other documentation as the Agent
may reasonably request in connection with the foregoing, including, without
limitation, certified resolutions and other organizational and authorizing
documents of such Person, favorable opinions of counsel to such Person (which
shall cover, among other things, the legality, validity, binding effect and
enforceability of the documentation referred to above) and other items of the
types required to be delivered pursuant to Section 5.1, all in form, content and
scope reasonably satisfactory to the Agent.
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7.13 Funded Debt Reduction.
The Borrower shall reduce the outstanding principal balance of all Loans
to $0 for one consecutive 30-day period during the term of this Credit
Agreement. For the purpose of this Section 7.13, all Cash-on-Hand and all Cash
Equivalents maturing within such 30-day period of the Borrower shall be treated
as reducing the outstanding principal balance of said Loans.
7.14 Year 2000 Compliance.
The Borrower will promptly notify the Agent in the event any
Consolidated Party discovers or determines that any computer application
(including those of its suppliers, vendors and customers) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
Compliant, except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect.
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that, so long as this
Credit Agreement is in effect or any amounts payable hereunder or under any
other Credit Document shall remain outstanding, and until all of the Commitments
hereunder shall have terminated:
8.1 Indebtedness.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the
other Credit Documents;
(b) Indebtedness of the Consolidated Parties set forth in
Schedule 8.1 (and renewals, refinancings and extensions thereof on terms
and conditions no less favorable to such Person than such existing
Indebtedness);
(c) purchase money Indebtedness and Capital Leases (excluding
Capital Leases entered into in connection with any Sale and Leaseback
Transaction permitted pursuant to Section 8.13) hereafter incurred by
the Consolidated Parties to finance the purchase of fixed assets
provided that (i) the total of all such Indebtedness shall not exceed an
aggregate principal amount of $5,000,000 at any one time outstanding
(including any such Indebtedness referred to in subsection (b) above);
(ii) such Indebtedness when incurred shall not exceed the purchase price
of the asset(s) financed; and (iii) no such Indebtedness shall be
refinanced for a principal amount in excess of the principal balance
outstanding thereon at the time of such refinancing;
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(d) obligations of the Consolidated Parties in respect of Hedging
Agreements entered into in order to manage existing or anticipated
interest rate or exchange rate risks and not for speculative purposes;
(e) intercompany Indebtedness arising out of loans and
advances permitted under Section 8.6;
(f) obligations of the Consolidated Parties in connection with
any Permitted Receivables Financing, to the extent such obligations
constitute Indebtedness;
(g) Indebtedness incurred in connection with any Sale and
Leaseback Transaction or Synthetic Lease involving the Canadian Property
provided that (i) the total of all such Indebtedness shall not exceed an
aggregate principal amount of $35,000,000 at any one time outstanding;
(ii) such Indebtedness when incurred shall not exceed the fair market
value as evidenced by an appraisal (in a form reasonably satisfactory to
the Agent) of the asset(s) financed; and (iii) no such Indebtedness
shall be refinanced for a principal amount in excess of the principal
balance outstanding thereon at the time of such refinancing;
(h) in addition to the Indebtedness otherwise permitted by this
Section 8.1, other unsecured Indebtedness hereafter incurred by the
Consolidated Parties provided that (A) the loan documentation with
respect to such Indebtedness shall not contain covenants or default
provisions relating to any Consolidated Party that are more restrictive
than the covenants and default provisions contained in the Credit
Documents, (B) the Borrower shall have delivered to the Agent a Pro
Forma Compliance Certificate demonstrating that, upon giving effect on a
Pro Forma Basis to the incurrence of such Indebtedness and to the
concurrent retirement of any other Indebtedness of any Consolidated
Party, no Default or Event of Default would exist hereunder and (C) the
aggregate principal amount of such Indebtedness shall not exceed
$20,000,000 at any time.
8.2 Liens.
The Credit Parties will not permit any Consolidated Party to contract,
create, incur, assume or permit to exist any Lien with respect to any of its
Property, whether now owned or after acquired, except for Permitted Liens.
8.3 Nature of Business.
The Credit Parties will not permit any Consolidated Party to
substantively alter the character or conduct of the business conducted by such
Person as of the Closing Date or reasonable extensions thereof.
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8.4 Consolidation, Merger, Dissolution, etc.
Except in connection with an Asset Disposition permitted by the terms of
Section 8.5, the Credit Parties will not permit any Consolidated Party to enter
into any transaction of merger or consolidation or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution) without obtaining the
prior written consent of the Required Lenders; provided that, notwithstanding
the foregoing provisions of this Section 8.4, (a) the Borrower may merge or
consolidate with any of its Subsidiaries provided that (i) the Borrower shall be
the continuing or surviving corporation, (ii) the Borrower shall have delivered
to the Agent a Pro Forma Compliance Certificate demonstrating that, upon giving
effect on a Pro Forma Basis to such transaction, no Default or Event of Default
would exist, (iii) the representations and warranties contained in Section 6 are
true immediately prior to and after giving effect to such transaction and (iv)
no Default or Event of Default exists or will exist after giving effect to such
transaction, (b) any Credit Party may merge or consolidate with any other Credit
Party provided that (i) neither the Parent nor the Borrower may merge or
consolidate with one another, (ii) in the case of a merger or consolidation
involving the Parent or the Borrower, the Parent or the Borrower, as the case
may be, shall be the continuing or surviving corporation, (iii) the Borrower
shall have delivered to the Agent a Pro Forma Compliance Certificate
demonstrating that, upon giving effect on a Pro Forma Basis to such transaction,
no Default or Event of Default would exist, (iv) the representations and
warranties contained in Section 6 are true immediately prior to and after giving
effect to such transaction and (v) no Default or Event of Default exists or will
exist after giving effect to such transaction, (c) any Consolidated Party which
is not a Credit Party may be merged or consolidated with or into any Credit
Party provided that (i) such Credit Party shall be the continuing or surviving
corporation and (ii) the Borrower shall have delivered to the Agent a Pro Forma
Compliance Certificate demonstrating that, upon giving effect on a Pro Forma
Basis to such transaction, no Default or Event of Default would exist, (iii) the
representations and warranties contained in Section 6 are true immediately prior
to and after giving effect to such transaction and (iv) no Default or Event of
Default exists or will exist after giving effect to such transaction, (d) any
Consolidated Party which is not a Credit Party may be merged or consolidated
with or into any other Consolidated Party which is not a Credit Party provided
(i) the Borrower shall have delivered to the Agent a Pro Forma Compliance
Certificate demonstrating that, upon giving effect on a Pro Forma Basis to such
transaction, no Default or Event of Default would exist, (ii) the
representations and warranties contained in Section 6 are true immediately prior
to and after giving effect to such transaction and (iii) no Default or Event of
Default exists or will exist after giving effect to such transaction, (e) a
Consolidated Party (other than the Parent) may merge with any Person other than
a Consolidated Party in connection with a Permitted Acquisition if (i) such
Consolidated Party shall be the continuing or surviving corporation and (ii) the
Borrower shall have delivered to the Agent a Pro Forma Compliance Certificate
demonstrating that, upon giving effect on a Pro Forma Basis to such transaction,
no Default or Event of Default would exist, (iii) the representations and
warranties contained in Section 6 are true immediately prior to and after giving
effect to such transaction and (iv) no Default or Event of Default exists or
will exist after giving effect to such transaction, and (f) any Wholly-Owned
Subsidiary (including Inactive Subsidiaries) of the Borrower or the Parent
(excluding the Borrower) may dissolve, liquidate or wind up its affairs at any
time. The consideration for any transaction permitted by this Section 8.4 shall
not exceed $50,000,000, and
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the aggregate consideration for all transactions permitted hereby shall not
exceed $100,000,000 during the term of this Credit Agreement.
8.5 Asset Dispositions.
The Credit Parties will not permit any Consolidated Party (other than an
Inactive Subsidiary) to make any Asset Disposition (including, without
limitation, any Sale and Leaseback Transaction) other than Excluded Asset
Dispositions unless (a) the consideration paid in connection therewith is cash
or Cash Equivalents, (b) if such transaction is a Sale and Leaseback
Transaction, such transaction is permitted by the terms of Section 8.13, (c)
such transaction does not involve the sale or other disposition of a minority
equity interest in any Consolidated Party, (d) the aggregate net book value of
all of the assets sold or otherwise disposed of by the Consolidated Parties in
all such transactions (including, without limitation, Sale and Leaseback
Transactions) after the Closing Date (excluding (i) the sale of Western
Multiplex Corporation and Glenayre OPTIONS Corp. and (ii) Sale and Leaseback
Transactions and Synthetic Leases involving the Canadian Property) shall not
exceed $15,000,000, (e) the Borrower shall have delivered to the Agent a Pro
Forma Compliance Certificate demonstrating that, upon giving effect on a Pro
Forma Basis to such transaction, no Default or Event of Default would exist
hereunder, and (f) no later than 15 days prior to such Asset Disposition, the
Agent and the Lenders shall have received a certificate of an officer of the
Borrower specifying the anticipated or actual date of such Asset Disposition,
briefly describing the assets to be sold or otherwise disposed of and setting
forth the net book value of such assets, the aggregate consideration and the Net
Cash Proceeds to be received for such assets in connection with such Asset
Disposition, and thereafter the Borrower shall, within the period of 12 months
following the consummation of such Asset Disposition (with respect to any such
Asset Disposition, the "Application Period"), apply (or cause to be applied) an
amount equal to the Net Cash Proceeds of such Asset Disposition to (i) the
purchase, acquisition or, in the case of improvements to real property,
construction of Eligible Assets or (ii) to the prepayment of any outstanding
Loans in accordance with the terms of Section 3.3(b)(iii).
Upon a sale of assets or the sale of Capital Stock of a Consolidated
Party permitted by this Section 8.5, the Agent shall (to the extent applicable)
deliver to the Borrower, upon the Borrower's request and at the Borrower's
expense, such documentation as is reasonably necessary to evidence the release
of such Consolidated Party from all of its obligations, if any, under the Credit
Documents.
8.6 Investments.
The Credit Parties will not permit any Consolidated Party to make
Investments in or to any Person, except for Permitted Investments.
8.7 Restricted Payments.
The Credit Parties will not permit any Consolidated Party to, directly
or indirectly, declare, order, make or set apart any sum for or pay any
Restricted Payment, except (a) to make dividends
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payable solely in the same class of Capital Stock of such Person, (b) to make
dividends or other distributions payable to any Credit Party (directly or
indirectly through Subsidiaries), (c) as permitted by Section 8.8 and (d) other
Restricted Payments provided that the Borrower shall have delivered to the Agent
a Pro Forma Compliance Certificate demonstrating that, upon giving effect on a
Pro Forma Basis to such transaction, no Default or Event of Default would exist.
8.8 Prepayments of Indebtedness, etc..
The Credit Parties will not permit any Consolidated Party to, if any
Default or Event of Default has occurred and is continuing or would be directly
or indirectly caused as a result thereof, (a) after the issuance thereof, amend
or modify (or permit the amendment or modification of) any of the terms of any
Indebtedness if such amendment or modification would add or change any terms in
a manner adverse to the issuer of such Indebtedness, or shorten the final
maturity or average life to maturity or require any payment to be made sooner
than originally scheduled or increase the interest rate applicable thereto or
change any subordination provision thereof, or (b) make (or give any notice with
respect thereto) any voluntary or optional payment or prepayment or redemption
or acquisition for value of (including without limitation, by way of depositing
money or securities with the trustee with respect thereto before due for the
purpose of paying when due), refund, refinance or exchange of any other
Indebtedness.
8.9 Transactions with Affiliates.
The Credit Parties will not permit any Consolidated Party to enter into
or permit to exist any transaction or series of transactions with any officer,
director, shareholder, Subsidiary or Affiliate of such Person other than (a)
advances of working capital to any Credit Party, (b) transfers of cash and
assets to any Credit Party, (c) transactions permitted by Section 8.1, Section
8.4, Section 8.5, Section 8.6, or Section 8.7, (d) normal compensation and
reimbursement of expenses of officers and directors and (e) except as otherwise
specifically limited in this Credit Agreement, other transactions which are
entered into in the ordinary course of such Person's business on terms and
conditions substantially as favorable to such Person as would be obtainable by
it in a comparable arms-length transaction with a Person other than an officer,
director, shareholder, Subsidiary or Affiliate.
8.10 Fiscal Year; Organizational Documents.
The Credit Parties will not permit any Consolidated Party to change its
fiscal year or amend, modify or change its articles of incorporation (or
corporate charter or other similar organizational document) or bylaws (or other
similar document) without the prior written consent of the Required Lenders
except as may be permitted or required pursuant to a transaction permitted by
Section 8.4.
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.
8.11 Limitation on Restricted Actions.
The Credit Parties will not permit any Consolidated Party to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any such Person to (a) pay
dividends or make any other distributions to any Credit Party on its Capital
Stock or with respect to any other interest or participation in, or measured by,
its profits, (b) pay any Indebtedness or other obligation owed to any Credit
Party, (c) make loans or advances to any Credit Party, (d) sell, lease or
transfer any of its properties or assets to any Credit Party, (e) act as a
Guarantor and pledge its assets pursuant to the Credit Documents or any
renewals, refinancings, exchanges, refundings or extension thereof, except (in
respect of any of the matters referred to in clauses (a)-(d) above) for such
encumbrances or restrictions existing under or by reason of (i) this Credit
Agreement and the other Credit Documents, (ii) the documents executed in
connection with any Permitted Receivables Financing (but only to the extent that
the related encumbrance or restriction pertains to the applicable Transferred
Assets actually sold, contributed, financed or otherwise conveyed or pledged
pursuant to such Permitted Receivables Financing), (iii) applicable law or (iv)
any Permitted Lien or any document or instrument governing any Permitted Lien,
provided that any such restriction contained therein relates only to the asset
or assets subject to such Permitted Lien.
8.12 Ownership of Subsidiaries.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, the Credit Parties will not permit any Consolidated Party to (i)
permit any Person (other than the Parent, the Borrower or any other Wholly-Owned
Subsidiary of the Parent which is a Credit Party) to own any Capital Stock of
any Subsidiary of the Borrower; provided, however, Glenayre Electronics (UK)
Limited shall be permitted to own 100% of the Capital Stock of Glenayre
Electronics (Korea) Limited, (ii) permit any Subsidiary of the Borrower to issue
Capital Stock (except to the Parent, the Borrower or any other Wholly-Owned
Subsidiary of the Parent which is a Credit Party), (iii) permit, create, incur,
assume or suffer to exist any Lien thereon, in each case (A) except to qualify
directors where required by applicable law or to satisfy other requirements of
applicable law with respect to the ownership of Capital Stock of Foreign
Subsidiaries, (B) except as a result of or in connection with a dissolution,
merger or disposition of a Subsidiary permitted under Section 8.4 or Section 8.5
or (C) except for Permitted Liens and (iv) notwithstanding anything to the
contrary contained in clause (ii) above, permit any Subsidiary of the Borrower
to issue any shares of preferred Capital Stock.
8.13 Sale and Leasebacks and Synthetic Leases.
(a) Other than Sale and Leaseback Transactions involving the
Canadian Property permitted under Section 8.1(g), the Credit Parties
will not permit any Consolidated Party to, directly or indirectly,
become or remain liable as lessee or as guarantor or other surety with
respect to any lease, whether an Operating Lease or a Capital Lease, of
any Property (whether real or personal or mixed), whether now owned or
hereafter acquired, (a) which such Consolidated Party has sold or
transferred or is to sell or transfer to a Person
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which is not a Consolidated Party or (b) which such Consolidated Party
intends to use for substantially the same purpose as any other Property
which has been sold or is to be sold or transferred by such Consolidated
Party to another Person which is not a Consolidated Party in connection
with such lease.
(b) The Credit Parties will not permit any Consolidated Party to
enter into any Synthetic Lease other than with respect to the Canadian
Property to the extent permitted under Section 8.1(g).
8.14 No Further Negative Pledges.
The Credit Parties will not permit any Consolidated Party to enter into,
assume or become subject to any agreement prohibiting or otherwise restricting
the creation or assumption of any Lien upon its Property, whether now owned or
hereafter acquired, or requiring the grant of any security for such obligation
if security is given for some other obligation except (a) pursuant to this
Credit Agreement and the other Credit Documents, (b) pursuant to the documents
executed in connection with any Permitted Receivables Financing (but only (i) to
the extent that the related prohibitions against other encumbrances pertain to
the applicable Transferred Assets actually sold, contributed, financed or
otherwise conveyed or pledged pursuant to such Permitted Receivables Financing
and (ii) as required in connection with the Non-Notification Factoring Agreement
to be executed by NationsBanc Commercial Corporation and a Credit Party (other
than the Parent)), and (c) in connection with any Permitted Lien or any document
or instrument governing any Permitted Lien, provided that any such restriction
contained therein relates only to the asset or assets subject to such Permitted
Lien.
8.15 Operating Lease Obligations.
The Credit Parties will not permit any Consolidated Party to enter into,
assume or permit to exist any obligations for the payment of rental under
Operating Leases which in the aggregate for all such Persons would exceed
$10,000,000 in any fiscal year (without duplication as to the
Consolidated Parties).
8.16 Customer Financing Transactions.
The Credit Parties will not permit any Consolidated Party to engage in
any Customer Financing Transactions except for Permitted Customer Financing
Transactions. For the purpose of determining compliance with this Section 8.16,
all extensions of credit by the Borrower pursuant to the Conxus Credit Agreement
shall be deemed within the scope of transactions governed by the Customer
Financing Policy.
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SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal of
any of the Loans or of any reimbursement obligations arising from
drawings under Letters of Credit, or
(ii) default, and such default shall continue for three
(3) or more Business Days, in the payment when due of any
interest on the Loans or on any reimbursement obligations arising
from drawings under Letters of Credit, or of any Fees or other
amounts owing hereunder, under any of the other Credit Documents
or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or statement
made or deemed to be made by any Credit Party herein, in any of the
other Credit Documents, or in any statement or certificate delivered or
required to be delivered pursuant hereto or thereto shall prove untrue
in any material respect on the date as of which it was deemed to have
been made; or
(c) Covenants. Any Credit Party shall
(i) default in the due performance or observance of any
term, covenant or agreement contained in Sections 7.2, 7.9, 7.11,
7.12, 7.13 or 8.1 through 8.16, inclusive;
(ii) default in the due performance or observance of any
term, covenant or agreement contained in Sections 7.1(a), (b) or
(c) and such default shall continue unremedied for a period of at
least 5 Business Days after the earlier of a responsible officer
of a Credit Party becoming aware of such default or notice
thereof by the Agent; or
(iii) default in the due performance or observance by it
of any term, covenant or agreement (other than those referred to
in subsections (a), (b), (c)(i) or (c)(ii) of this Section 9.1)
contained in this Credit Agreement and such default shall
continue unremedied for a period of at least 45 days after the
earlier of a responsible
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officer of a Credit Party becoming aware of such default or
written notice thereof by the Agent; or
(d) Other Credit Documents. (i) Any Credit Party shall default in
the due performance or observance of any term, covenant or agreement in
any of the other Credit Documents (subject to applicable grace or cure
periods, if any), or (ii) except as a result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted under
Section 8.4 or Section 8.5, any Credit Document shall fail to be in full
force and effect or to give the Agent and/or the Lenders the rights,
powers and privileges purported to be created thereby, or any Credit
Party shall so state in writing; or
(e) Guaranties. Except as the result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted under
Section 8.4 or Section 8.5, the guaranty given by any Guarantor
hereunder (including any Additional Credit Party) or any provision
thereof shall cease to be in full force and effect, or any Guarantor
(including any Additional Credit Party) hereunder or any Person acting
by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under such guaranty, or any Guarantor shall
default in the due performance or observance of any term, covenant or
agreement on its part to be performed or observed pursuant to any
guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with
respect to any Consolidated Party; or
(g) Defaults under Other Agreements.
(i) Any Consolidated Party shall default in the
performance or observance (beyond the applicable grace period
with respect thereto, if any) or any material obligation or
condition of any contract or lease material to the Consolidated
Parties taken as a whole; or
(ii) With respect to any Indebtedness (other than
Indebtedness outstanding under this Credit Agreement) in excess
of $5,000,000 in the aggregate for the Consolidated Parties taken
as a whole, (A) any Consolidated Party shall (1) default in any
payment (beyond the applicable grace period with respect thereto,
if any) with respect to any such Indebtedness, or (2) the
occurrence and continuance of a default in the observance or
performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto,
or any other event or condition shall occur or condition exist,
the effect of which default or other event or condition is to
cause, or permit, the holder or holders of such Indebtedness (or
trustee or agent on behalf of such holders) to cause (determined
without regard to whether any notice or lapse of time is
required), any such Indebtedness to become due prior to its
stated maturity; or (B) any such Indebtedness shall be declared
due and payable, or required to be prepaid other
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than by a regularly scheduled required prepayment, prior to the
stated maturity thereof; or
(h) Judgments. One or more judgments or decrees shall be entered
against one or more of the Consolidated Parties involving a liability of
$10,000,000 or more in the aggregate (to the extent not paid or fully
covered by insurance provided by a carrier who has acknowledged coverage
and has the ability to perform) and any such judgments or decrees shall
not have been vacated, discharged or stayed or bonded pending appeal
within 30 days from the entry thereof; or
(i) ERISA. Any of the following events or conditions, if such
event or condition could have a Material Adverse Effect: (i) any
"accumulated funding deficiency," as such term is defined in Section 302
of ERISA and Section 412 of the Code, whether or not waived, shall exist
with respect to any Plan, or any lien shall arise on the assets of any
Consolidated Party or any ERISA Affiliate in favor of the PBGC or a
Plan; (ii) an ERISA Event shall occur with respect to a Single Employer
Plan, which is, in the reasonable opinion of the Agent, likely to result
in the termination of such Plan for purposes of Title IV of ERISA; (iii)
an ERISA Event shall occur with respect to a Multiemployer Plan or
Multiple Employer Plan, which is, in the reasonable opinion of the
Agent, likely to result in (A) the termination of such Plan for purposes
of Title IV of ERISA, or (B) any Consolidated Party or any ERISA
Affiliate incurring any liability in connection with a withdrawal from,
reorganization of (within the meaning of Section 4241 of ERISA), or
insolvency or (within the meaning of Section 4245 of ERISA) such Plan;
or (iv) any prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility
shall occur which may subject any Consolidated Party or any ERISA
Affiliate to any liability under Sections 406, 409, 502(i), or 502(l) of
ERISA or Section 4975 of the Code, or under any agreement or other
instrument pursuant to which any Consolidated Party or any ERISA
Affiliate has agreed or is required to indemnify any person against any
such liability; or
(j) Defaults under Permitted Customer Financing Transactions.
During any fiscal year of the Borrower, the aggregate amount of payment
defaults occurring with respect to principal and interest payments owed
to the Consolidated Parties pursuant to Permitted Customer Financing
Transactions (including extensions of credit pursuant to the Conxus
Credit Agreement) shall exceed $15,000,000.
(k) Ownership. There shall occur a Change of Control.
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived by the requisite Lenders
(pursuant to the voting requirements of Section 11.6) or cured to the
satisfaction of the requisite Lenders (pursuant to the voting procedures
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in Section 11.6), the Agent shall, upon the request and direction of the
Required Lenders, by written notice to the Credit Parties take any of the
following actions:
(a) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(b) Acceleration. Declare the unpaid principal of and any accrued
interest in respect of all Loans, any reimbursement obligations arising
from drawings under Letters of Credit and any and all other indebtedness
or obligations of any and every kind owing by the Borrower to the Agent
and/or any of the Lenders hereunder to be due whereupon the same shall
be immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the
Borrower.
(c) Cash Collateral. Direct the Borrower to pay (and the Borrower
agrees that upon receipt of such notice, or upon the occurrence of an
Event of Default under Section 9.1(f), it will immediately pay) to the
Agent additional cash, to be held by the Agent, for the benefit of the
Lenders, in a cash collateral account as additional security for the LOC
Obligations in respect of subsequent drawings under all then outstanding
Letters of Credit in an amount equal to the maximum aggregate amount
which may be drawn under all Letters of Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents and all rights
and remedies available at law or in equity.
Notwithstanding the foregoing, if an Event of Default specified in
Section 9.1(f) shall occur, then the Commitments shall automatically terminate
and all Loans, all reimbursement obligations arising from drawings under Letters
of Credit, all accrued interest in respect thereof, all accrued and unpaid Fees
and other indebtedness or obligations owing to the Agent and/or any of the
Lenders hereunder automatically shall immediately become due and payable without
the giving of any notice or other action by the Agent or the Lenders.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment, Powers and Immunities.
Each Lender hereby irrevocably appoints and authorizes the Agent to act
as its agent under this Credit Agreement and the other Credit Documents with
such powers and discretion as are specifically delegated to the Agent by the
terms of this Credit Agreement and the other Credit Documents, together with
such other powers as are reasonably incidental thereto. The Agent (which term as
used in this sentence and in Section 10.5 and the first sentence of Section 10.6
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hereof shall include its Affiliates and its own and its Affiliates' officers,
directors, employees, and agents): (a) shall not have any duties or
responsibilities except those expressly set forth in this Credit Agreement and
shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible
to the Lenders for any recital, statement, representation, or warranty (whether
written or oral) made in or in connection with any Credit Document or any
certificate or other document referred to or provided for in, or received by any
of them under, any Credit Document, or for the value, validity, effectiveness,
genuineness, enforceability, or sufficiency of any Credit Document, or any other
document referred to or provided for therein or for any failure by any Credit
Party or any other Person to perform any of its obligations thereunder; (c)
shall not be responsible for or have any duty to ascertain, inquire into, or
verify the performance or observance of any covenants or agreements by any
Credit Party or the satisfaction of any condition or to inspect the property
(including the books and records) of any Credit Party or any of its Subsidiaries
or Affiliates; (d) shall not be required to initiate or conduct any litigation
or collection proceedings under any Credit Document; and (e) shall not be
responsible for any action taken or omitted to be taken by it under or in
connection with any Credit Document, except for its own gross negligence or
willful misconduct. The Agent may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
10.2 Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice,
instrument, writing, or other communication (including, without limitation, any
thereof by telephone or telecopy) believed by it to be genuine and correct and
to have been signed, sent or made by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel (including counsel for
any Credit Party), independent accountants, and other experts selected by the
Agent. The Agent may deem and treat the payee of any Note as the holder thereof
for all purposes hereof unless and until the Agent receives and accepts an
Assignment and Acceptance executed in accordance with Section 11.3(b) hereof. As
to any matters not expressly provided for by this Credit Agreement, the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Lenders,
and such instructions shall be binding on all of the Lenders; provided, however,
that the Agent shall not be required to take any action that exposes the Agent
to personal liability or that is contrary to any Credit Document or applicable
law or unless it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking any such action.
10.3 Defaults.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of a Default or Event of Default unless the Agent has received
written notice from a Lender or the Borrower specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent receives such a notice of the occurrence of a Default or
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Event of Default, the Agent shall give prompt notice thereof to the Lenders.
The Agent shall (subject to Section 10.2 hereof) take such action with respect
to such Default or Event of Default as shall reasonably be directed by the
Required Lenders, provided that, unless and until the Agent shall have received
such directions, the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of the Lenders.
10.4 Rights as a Lender.
With respect to its Commitment and the Loans made by it, NationsBank
(and any successor acting as Agent) in its capacity as a Lender hereunder shall
have the same rights and powers hereunder as any other Lender and may exercise
the same as though it were not acting as the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. NationsBank (and any successor acting as Agent) and its
Affiliates may (without having to account therefor to any Lender) accept
deposits from, lend money to, make investments in, provide services to, and
generally engage in any kind of lending, trust, or other business with any
Credit Party or any of its Subsidiaries or Affiliates as if it were not acting
as Agent, and NationsBank (and any successor acting as Agent) and its Affiliates
may accept fees and other consideration from any Credit Party or any of its
Subsidiaries or Affiliates for services in connection with this Credit Agreement
or otherwise without having to account for the same to the Lenders.
10.5 Indemnification.
The Lenders agree to indemnify the Agent (to the extent not reimbursed
under Section 11.5 hereof) ratably in accordance with their respective
Commitments, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including attorneys'
fees), or disbursements of any kind and nature whatsoever that may be imposed
on, incurred by or asserted against the Agent (including by any Lender) in any
way relating to or arising out of any Credit Document or the transactions
contemplated thereby or any action taken or omitted by the Agent under any
Credit Document; provided that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Person to be indemnified. Without limitation of the foregoing,
each Lender agrees to reimburse the Agent promptly upon demand for its ratable
share of any costs or expenses payable by the Borrower under Section 11.5, to
the extent that the Agent is not promptly reimbursed for such costs and expenses
by the Borrower. The agreements in this Section 10.5 shall survive the repayment
of the Loans, LOC Obligations and other obligations under the Credit Documents
and the termination of the Commitments hereunder.
10.6 Non-Reliance on Agent and Other Lenders.
Each Lender agrees that it has, independently and without reliance on
the Agent or any other Lender, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Credit Parties and
their Subsidiaries and decision to enter into this
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Credit Agreement and that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Credit Documents. Except for
notices, reports, and other documents and information expressly required to be
furnished to the Lenders by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition, or business of any
Credit Party or any of its Subsidiaries or Affiliates that may come into the
possession of the Agent or any of its Affiliates.
10.7 Successor Agent.
The Agent may resign at any time by giving notice thereof to the Lenders
and the Borrower. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor Agent with the prior written consent of the
Borrower (such consent not to be unreasonably withheld). If no successor Agent
shall have been so appointed by the Required Lenders and shall have accepted
such appointment within thirty (30) days after the retiring Agent's giving of
notice of resignation, then the retiring Agent may with the prior written
consent of the Borrower (such consent not to be unreasonably withheld), on
behalf of the Lenders, appoint a successor Agent which shall be a commercial
bank organized under the laws of the United States of America having combined
capital and surplus of at least $100,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor, such successor shall thereupon
succeed to and become vested with all the rights, powers, discretion,
privileges, and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Section 10 shall continue
in effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Agent.
SECTION 11
MISCELLANEOUS
11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address, in the case of the Borrower, Guarantors and
the Agent, set forth below, and, in the case of the Lenders, set forth on
Schedule 2.1(a), or at such other address as such party may specify by written
notice to the other parties hereto:
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if to the Borrower or the Guarantors:
Glenayre Electronics, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Attn: Treasury Department
Telephone: (704)553-0038
Telecopy: (704)553-9338
with a copy to:
Glenayre Technologies, Inc.
5935 Carnegie Boulevard
Charlotte, NC 28209
Attn: Eugene C. Pridgen, Esq.
Telephone: (704)553-0038
Telecopy: (704) 553-7878
if to the Agent:
NationsBank, N. A.
901 Main Street
Dallas, TX 75202
Attn: Agency Services/Mickey McLean
Telephone: (214) 508-3076
Telecopy: (214) 508-2515
with a copy to:
NationsBank, N. A.
901 Main Street, 64th Floor
Dallas, TX 75202
Attn: Pam Kurtzman
Telephone: (214) 508-0997
Telecopy: (214) 508-9390
11.2 Right of Set-Off; Adjustments.
Upon the occurrence and during the continuance of any Event of Default,
each Lender (and each of its Affiliates) is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or any
of its Affiliates) to or for the credit or the account of any Credit Party
against any
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and all of the obligations of such Person now or hereafter existing under this
Credit Agreement, under the Notes, under any other Credit Document or otherwise,
irrespective of whether such Lender shall have made any demand under hereunder
or thereunder and although such obligations may be unmatured. Each Lender agrees
promptly to notify any affected Credit Party after any such set-off and
application made by such Lender. The rights of each Lender under this Section
11.2 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) that such Lender may have.
11.3 Benefit of Agreement.
(a) This Credit Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns
of the parties hereto; provided that none of the Credit Parties may
assign or transfer any of its interests and obligations without prior
written consent of the Lenders; provided further that the rights of each
Lender to transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth in this Section
11.3.
(b) Each Lender may assign to one or more Eligible Assignees all
or a portion of its rights and obligations under this Credit Agreement
(including, without limitation, all or a portion of its Loans, its
Notes, and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender
or an assignment of all of a Lender's rights and obligations
under this Credit Agreement, any such partial assignment shall be
in an amount at least equal to $5,000,000 (or, if less, the
remaining amount of the Commitment being assigned by such Lender)
or an integral multiple of $1,000,000 in excess thereof;
(iii) each such assignment by a Lender shall be of a
constant, and not varying, percentage of all of its rights and
obligations under this Credit Agreement and the Notes; and
(iv) the parties to such assignment shall execute and
deliver to the Agent for its acceptance an Assignment and
Acceptance in the form of Exhibit 11.3(b) hereto, together with
any Note subject to such assignment and a processing fee of
$3,500.
Upon execution, delivery, and acceptance of such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the
extent of such assignment, have the obligations, rights, and benefits of
a Lender hereunder and the assigning Lender shall, to the extent of such
assignment, relinquish its rights and be released from its obligations
under this Credit Agreement. Upon the consummation of any assignment
pursuant to this Section 11.3(b), the assignor, the Agent and the
Borrower shall make appropriate
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arrangements so that, if required, new Notes are issued to the assignor
and the assignee. If the assignee is not incorporated under the laws of
the United States of America or a state thereof, it shall deliver to the
Borrower and the Agent certification as to exemption from deduction or
withholding of Taxes in accordance with Section 3.11. The Credit Parties
shall not be liable for any fees or expenses of the Agent, any Lender or
any Eligible Assignee incurred in connection with such assignment.
(c) The Agent shall maintain at its address referred to in
Section 11.1 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of
the Loans owing to, each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agent and the
Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Credit Agreement. The
Register shall be available for inspection by the Borrower or any Lender
at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of an Assignment and Acceptance executed by
the parties thereto, together with any Note subject to such assignment
and payment of the processing fee, the Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of
Exhibit 11.3(b) hereto, (i) accept such Assignment and Acceptance, (ii)
record the information contained therein in the Register and (iii) give
prompt notice thereof to the parties thereto.
(e) Each Lender may sell participations to one or more Persons in
all or a portion of its rights, obligations or rights and obligations
under this Credit Agreement (including all or a portion of its
Commitment and its Loans); provided, however, that (i) such Lender's
obligations under this Credit Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, (iii) the participant shall be
entitled to the benefit of the yield protection provisions contained in
Sections 3.7 through 3.12, inclusive, and the right of set-off contained
in Section 11.2, and (iv) the Borrower shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Credit Agreement, and such Lender shall retain
the sole right to enforce the obligations of the Borrower relating to
its Loans and its Notes and to approve any amendment, modification, or
waiver of any provision of this Credit Agreement (other than amendments,
modifications, or waivers decreasing the amount of principal of or the
rate at which interest is payable on such Loans or Notes, extending any
scheduled principal payment date or date fixed for the payment of
interest on such Loans or Notes, or extending its Commitment). The
Credit Parties shall not be liable for any fees or expenses of the
Agent, any Lender or any Eligible Assignee incurred in connection with
such assignment.
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(f) Notwithstanding any other provision set forth in this Credit
Agreement, any Lender may at any time assign and pledge all or any
portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release
the assigning Lender from its obligations hereunder. The Credit Parties
shall not be liable for any fees or expenses of the Agent, any Lender or
any Eligible Assignee incurred in connection with such assignment.
(g) Any Lender may furnish any information concerning the
Borrower or any of its Subsidiaries in the possession of such Lender
from time to time to assignees and participants (including prospective
assignees and participants), subject, however, to the provisions of
Section 11.14 hereof.
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Agent or any Lender in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between the Agent or any Lender and any of the Credit
Parties shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
the Agent or any Lender would otherwise have. No notice to or demand on any
Credit Party in any case shall entitle the Borrower or any other Credit Party to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
11.5 Expenses; Indemnification.
(a) The Borrower agrees to pay on demand all costs and expenses of the
Agent in connection with the syndication, preparation, execution, delivery,
modification, and amendment of this Credit Agreement, the other Credit
Documents, and the other documents to be delivered hereunder, including, without
limitation, the reasonable fees and expenses of counsel for the Agent with
respect thereto and with respect to advising the Agent as to its rights and
responsibilities under the Credit Documents. The Borrower further agrees to pay
on demand all costs and expenses of the Agent and the Lenders, if any
(including, without limitation, reasonable attorneys' fees and expenses and the
cost of internal counsel), in connection with the enforcement (whether through
negotiations, legal proceedings, or otherwise) of the Credit Documents and the
other documents to be delivered hereunder.
(b) The Borrower agrees to indemnify and hold harmless the Agent and
each Lender and each of their Affiliates and their respective officers,
directors, employees, agents, and advisors (each, an "Indemnified Party") from
and against any and all claims, damages, losses,
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liabilities, costs, and expenses (including, without limitation, reasonable
attorneys' fees) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any litigation, or
proceeding or preparation of defense in connection therewith) the Credit
Documents, any of the transactions contemplated herein or the actual or proposed
use of the proceeds of the Loans, except to the extent such claim, damage, loss,
liability, cost, or expense is found in a final, non-appealable judgment by a
court of competent jurisdiction to have resulted from such Indemnified Party's
gross negligence or willful misconduct. In the case of an investigation,
litigation or other proceeding to which the indemnity in this Section 11.5
applies, such indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by the Borrower, its directors, shareholders
or creditors or an Indemnified Party or any other Person or any Indemnified
Party is otherwise a party thereto and whether or not the transactions
contemplated hereby are consummated. The Credit Parties and the Lenders,
including the Agent, agree not to assert any claim against the other, any of
such other's Affiliates, or any of such other's respective directors, officers,
employees, attorneys, agents, and advisers, on any theory of liability, for
special, indirect, consequential, or punitive damages arising out of or
otherwise relating to the Credit Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Loans.
(c) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower and the
Lenders contained in this Section 11.5 shall survive the repayment of the Loans,
LOC Obligations and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any other Credit Document nor any of
the terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower; provided, however, that:
(a) the consent of each Lender affected thereby is required to
(i) extend the final maturity of any Loan or of any
reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit,
(ii) reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any
post-default increase in interest rates) thereon or Fees
hereunder,
(iii) reduce or waive the principal amount of any Loan or of
any reimbursement obligation, or any portion thereof, arising
from drawings under Letters of Credit,
86
<PAGE>
(iv) increase the Commitment of a Lender over the amount
thereof in effect (it being understood and agreed that a waiver
of any Default or Event of Default or mandatory reduction in the
Commitments shall not constitute a change in the terms of any
Commitment of any Lender),
(v) except as the result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted
under Section 8.4, release the Borrower or substantially all of
the other Credit Parties from its or their obligations under the
Credit Documents,
(vi) except, amend, modify or waive any provision of this
Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12,
3.13, 3.14, 9.1(a), 11.2, 11.3, 11.5 or 11.9,
(vii) reduce any percentage specified in, or otherwise
modify, the definition of Required Lenders, or
(viii) consent to the assignment or transfer by the Borrower (or
another Credit Party) of any of its rights and obligations under
(or in respect of) the Credit Documents except as permitted
thereby;
(b) without the consent of the Agent, no provision of Section 10
may be amended;
(c) without the consent of the Issuing Lender, no provision of
Section 2.2 may be amended.
Notwithstanding the fact that the consent of all the Lenders is required
in certain circumstances as set forth above, (x) each Lender is entitled
to vote as such Lender sees fit on any bankruptcy reorganization plan
that affects the Loans, and each Lender acknowledges that the provisions
of Section 1126(c) of the Bankruptcy Code supersedes the unanimous
consent provisions set forth herein and (y) the Required Lenders may
consent to allow a Credit Party to use cash collateral in the context of
a bankruptcy or insolvency proceeding.
11.7 Counterparts.
This Credit Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart for each of the parties hereto. Delivery by facsimile by any of
the parties hereto of an executed counterpart of this Credit Agreement shall be
as effective as an original executed counterpart hereof and shall be deemed a
representation that an original executed counterpart hereof will be delivered.
87
<PAGE>
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Survival.
All indemnities set forth herein, including, without limitation, in
Section 2.2(i), 3.11, 3.12, 10.5 or 11.5 shall survive the execution and
delivery of this Credit Agreement, the making of the Loans, the issuance of the
Letters of Credit, the repayment of the Loans, LOC Obligations and other
obligations under the Credit Documents and the termination of the Commitments
hereunder, and all representations and warranties made by the Credit Parties
herein shall survive delivery of the Notes and the making of the Loans
hereunder.
11.10 Governing Law; Submission to Jurisdiction; Venue.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NORTH CAROLINA WITHOUT REFERENCE TO THE CONFLICT OR CHOICE
OF LAW PRINCIPLES THEREOF. Any legal action or proceeding with respect
to this Credit Agreement or any other Credit Document may be brought in
the courts of the State of North Carolina in Mecklenburg County, or of
the United States for the Western District of North Carolina, and, by
execution and delivery of this Credit Agreement, each of the Credit
Parties hereby irrevocably accepts for itself and in respect of its
property, generally and unconditionally, the nonexclusive jurisdiction
of such courts. Each of the Credit Parties further irrevocably consents
to the service of process out of any of the aforementioned courts in any
such action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to it at the address set out for
notices pursuant to Section 11.1, such service to become effective three
(3) Business Days after such mailing. Nothing herein shall affect the
right of the Agent or any Lender to serve process in any other manner
permitted by law or to commence legal proceedings or to otherwise
proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of
any of the aforesaid actions or proceedings arising out of or in
connection with this Credit Agreement or any other Credit Document
brought in the courts referred to in subsection (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has
88
<PAGE>
been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE
LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER
CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.11 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 Entirety.
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein.
11.13 Binding Effect; Termination.
(a) This Credit Agreement shall become effective at such time on
or after the Closing Date when it shall have been executed by the Credit
Parties and the Agent, and the Agent shall have received copies hereof
(telefaxed or otherwise) which, when taken together, bear the signatures
of each Lender, and thereafter this Credit Agreement shall be binding
upon and inure to the benefit of the Credit Parties, the Agent and each
Lender and their respective successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans,
LOC Obligations or any other amounts payable hereunder or under any of
the other Credit Documents shall remain outstanding, no Letters of
Credit shall be outstanding, all of the Credit Party Obligations have
been irrevocably satisfied in full and all of the Commitments hereunder
shall have expired or been terminated.
11.14 Confidentiality.
The Agent and each Lender (each, a "Lending Party") agree to keep
confidential any information furnished or made available to it by the Borrower
pursuant to this Credit Agreement that is (i) marked confidential or (ii)
otherwise identified as confidential at the time of disclosure and confirmed as
confidential in a writing delivered by the Borrower to the applicable Lending
Parties within ten Business Days following the disclosure of such information;
provided that nothing herein shall prevent any Lending Party from disclosing
such information (a) to any other
89
<PAGE>
Lending Party or any Affiliate of any Lending Party, or any officer, director,
employee, agent, or advisor of any Lending Party or Affiliate of any Lending
Party, (b) to any other Person if reasonably incidental to the administration of
the credit facility provided herein, provided that such Person agrees to be
bound by confidentiality obligations which are no less protective as those
contained herein, (c) as required by any law, rule, regulation or judicial
decree (d) upon the order of any court or administrative agency, (e) upon the
request or demand of any regulatory agency or authority, (f) that is or becomes
available to the public or that is or becomes available to any Lending Party
other than as a result of a disclosure by any Lending Party prohibited by this
Credit Agreement, (g) in connection with any litigation that is related to the
transactions contemplated hereby to which such Lending Party or any of its
Affiliates may be a party, (h) to the extent necessary in connection with the
exercise of any remedy under this Credit Agreement or any other Credit Document,
and (i) subject to written provisions substantially similar to those contained
in this Section 11.14, to any actual or proposed participant or assignee.
11.15 Conflict.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
11.16 Limitation on Attorneys' Fees.
Notwithstanding anything to the contrary herein or in any other Credit
Document, attorneys' fees due in connection with the Credit Documents shall be
reasonable and calculated without regard to any statutory presumption and
determined based on the standard hourly rates of the attorneys and paralegals
performing the work.
[Signature Pages to Follow]
90
<PAGE>
Credit Agreement - Glenayre Electronics, Inc.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: Glenayre electronics, Inc.
a Colorado corporation
By: ________________________________
Stanley Ciepcielinski
Chief Operating Officer
GUARANTORS: GLENAYRE TECHNOLOGIES, INC.
a Delaware corporation
By:________________________________
Stanley Ciepcielinski
Chief Operating Officer
WESTERN MULTIPLEX CORPORATION
a California corporation
By: ________________________________
Stanley Ciepcielinski
Chief Financial Officer and
Treasurer
GLENAYRE OPTIONS CORP.
a Texas corporation
By: ________________________________
Stanley Ciepcielinski
Treasurer
OPEN DEVELOPMENT CORPORATION
a Delaware corporation
By: ________________________________
Stanley Ciepcielinski
Treasurer
<PAGE>
Credit Agreement - Glenayre Electronics, Inc.
WIRELESS ACCESS, INC.
a California corporation
By: ________________________________
Stanley Ciepcielinski
Chief Financial Officer and
Treasurer
GLENAYRE DIGITAL SYSTEMS, INC.
a North Carolina corporation
By: ________________________________
Stanley Ciepcielinski
Executive Vice President
and Chief Financial Officer
GLENAYRE ELECTRONICS CAPITAL
CORPORATION
a North Carolina corporation
By: ________________________________
Samuel A. Washington
President and Chief Executive
Officer
GTI ACQUISITION CORP.
a Delaware corporation
By: ________________________________
Samuel A. Washington
Vice President and Treasurer
<PAGE>
Credit Agreement - Glenayre Electronics, Inc.
LENDERS: NATIONSBANK, N. A.,
individually in its capacity as a
Lender and in its capacity as Agent
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
Credit Agreement - Glenayre Electronics, Inc.
ABN AMRO BANK N.V.
By:______________________________
Name:____________________________
Title:___________________________
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
Credit Agreement - Glenayre Electronics, Inc.
FIRST UNION NATIONAL BANK
By:_______________________________
Name:______________________________
Title:_____________________________
<PAGE>
Schedule 1.1A
INVESTMENTS
CONXUS Convertible Senior Subordinated Notes and Warrants
Investments in Glenayre entities. See Schedule 6.13.
<PAGE>
Schedule 1.1B
LIENS
None.
<PAGE>
Schedule 2.1(a)
LENDERS
<TABLE>
<CAPTION>
Lender Commitment Percentage Commitment
- --------- --------------------- -------------
<S> <C> <C>
NationsBank, N.A. 40% $20,000,000.00
First Union National Bank 30% $15,000,000.00
301 South Tryon Street, M-2
2nd Floor
Charlotte, NC 28288
Attn: David Trotter
ABN Amro Bank N.V. 30% $15,000,000.00
One Ravinia Drive
Suite 1200
Atlanta, GA 30346
Attn: Jerry Sneiderman
Total 100% $50,000,000.00
</TABLE>
<PAGE>
Schedule 6.4
REQUIRED CONSENTS, AUTHORIZATIONS, NOTICES AND FILINGS
The Credit Agreement will be filed with the Securities and Exchange Commission.
<PAGE>
Schedule 6.9
LITIGATION
As of 10-30-98
<TABLE>
<CAPTION>
Case Name Parties Description
<S> <C> <C>
- ------------------------------ ---------------------------- -----------------------------------
Access Global et al v. Open Plaintiffs: Access Global Breach of contract, fraud &
Development Corporation Telecom, Inc. And Sunnet negligent misrepresentation claim
et al. Telecom, Inc. brought by plaintiffs who allege
Superior Court, Middlesex a switching/ database platform
County, (Massachusetts) Defendants: Open they purchased from ODC failed to
No. 97-3834 Development Corp., Matthew perform functions critical to
Kay and Joseph Moriarity their business.
[Complaint Filed 8/1/97 -
dismissed 11/4/97] ODC denies the allegations and
asserts plaintiff's outdated and
[Arbitration Demand Filed poorly maintained equipment was
5/22/98] the primary cause of any problems
experienced.
It is anticipated arbitration
will be scheduled for May 1999.
- ------------------------------ ---------------------------- -----------------------------------
In Re Glenayre Plaintiffs: LLM (a Securities class action lawsuit
Technologies, Inc., partnership) and Robin alleging violations of Sections 10(b)
Securities Litigation Kwalbrun, Edmond Franco, and 20(a) of the Securities Exchange
US District Court, Southern and Harris Weinstein Act of 1934 and Rule 10b-5
District of New York, (NY) (individuals), on behalf of promulgated by the SEC. Plaintiffs
96 Civ. 8252 (HB) themselves and all similarly contend that between 2/6/96 and
situated. 9/13/96 defendants sold Glenayre
stock while in possession of material,
[2nd Amended Complaint filed adverse, non-public information about
12/19/97] Defendants: Glenayre Glenayre (such as the pending FCC
Technologies, Inc., Ramon license freeze and its impact on
D. Ardizzone, John J. Glenayre) and while under a duty
Hurley, Billy C. Layton, to disclose such information or
Stanley Ciepcielinski, abstain from trading.
Gerald B. Cramer, Edward
J. Rosenthal, Barry W. The defendants filed a motion to
Gray, Gary B. Smith, dismiss this lawsuit on January
Thomas C. Israel, Clarke 23, 1998 and are awaiting the
H. Bailey, Alma M. Judge's decision on that motion.
McDonnell, Cramer
Rosenthal McGlynn, Inc.
and A.C. Israel
Enterprises.
- ------------------------------ ---------------------------- -----------------------------------
Jerry Krim v. Richard D. Plaintiff: Jerry Krim "Derivative" action brought by
Ardizzone, et. al. and plaintiff Krim as a companion
Glenayre Technologies, Inc., Defendants: "Richard" suit to the securities class
U.S. District Court Southern (Ramon) D. Ardizzone action claim. The complaint
District of New York, (NY) (sic), Barry W. Gray, seeks declaratory relief and
96 Civ. 1163 Edward J. Rosenthal, damages resulting from alleged
Clarke H. Bailey, Gerald breaches of trust and fiduciary
[Filed 2/20/97] B. Cramer, Thomas E. duty owed by the named defendants
Skidmore, John J. Hurley to Glenayre and its shareholders.
and Thomas C. Israel Plaintiff contends breaches subjected
(defendants) and Glenayre Glenayre to the securities class
Technologies, Inc. action litigation.
(nominal defendant).
This action has been stayed
pending the Judge's decision on
the motion to dismiss the
securities class action lawsuit.
- ------------------------------ ---------------------------- -----------------------------------
- ------------------------------ ---------------------------- -----------------------------------
Mountain Meadows Plaintiff: Mountain Negligence, breach of implied and
Patio/Terrace Maintenance Meadows Patio/Terrace express warranties, negligent
Association, v. Nu-West, Maintenance Association. misrepresentations & strict
Inc. et al. liability claim brought by a
U.S. District Court, Central Defendants: Mountain homeowners association in Pomona,
District of California, Meadows I, Nu-West, Inc., California known as "Mountain
(Cal.) Mountain Meadows Meadows" in connection with the
No. 93-7450 Development Co., Inc., design and construction of a
Western Savings and Loan development. The complaint
[Filed 6/19/93] Association, Western alleges Nu-West (GEI) is/was a
Property Service general partner of Mountain
Corporation, and DOES 1 Meadows.
through 500 inclusive
GEI has never been served with
the complaint. As Plaintiff has
already settled with most of the
co-defendants, it is anticipated
the court may mark the entire
matter dismissed within the next
few months.
- ------------------------------ ---------------------------- -----------------------------------
See also Schedule 6.17.
</TABLE>
<PAGE>
Schedule 6.12
ERISA
The Plans of Western Multiplex Corporation and Glenayre OPTIONS Corp.
(fka CNET, Inc.) have previously been merged into the Plans maintained by
Glenayre Technologies, Inc. or Glenayre Electronics, Inc. The Plans of
Wireless Access, Inc. and Open Development Corporation either have been or
will be merged into the Plans maintained by Glenayre Technologies, Inc. or
Glenayre Electronics, Inc.
<PAGE>
Schedule 6.13
SUBSIDIARIES
Glenayre Technologies, Inc. (Delaware)
Glenayre Electronics, Inc. (Colorado) -100%
Glenayre Administracion, S.A. de C.V. (Mexico) - 100%
Glenayre de Mexico S.A. de C.V. (Mexico) - 100%
Glenayre Electronics South America Ltda (Brazil) - 100%
Glenayre Digital Systems, Inc. (North Carolina) - 100%
Glenayre Electronics Capital Corporation (North Carolina) - 100%
Glenayre Electronics (UK) Ltd. (England) - 100%
Glenayre Electronics (Korea) Limited (Korea) - 100%
Glenayre Electronics Europe b.v. (Netherlands) - 100%
Glenayre Electronics Middle East LLC (Dubai, UAE) - 49%
Glenayre Electronics (Proprietary) Limited (South Africa) - 100%
Glenayre Electronics Singapore PTE Ltd. (Singapore) - 100%
Glenayre Electronics Philippines Inc. (Philippines) - 100%
Glenayre (India) Private Ltd. (India) - 100%
Nihon Glenayre Electronics K.K. (Japan) - 100%
Glenayre Electronics (Hong Kong) Ltd. (Hong Kong) - 100%
Glenayre Electronics Export Sales Corporation (Barbados) - 100%
GTI Acquisition Corp. (Delaware) - 100%
Western Multiplex Corporation (California) - 100%
Western Multiplex International Sales Corporation
(California) - inactive
Wireless Access, Inc. (California) - 100%
Wireless Access, Inc. (Delaware) - inactive
Open Development Corporation (Delaware) - 100%
Glenayre Services Ltd. (Canada) - 100%
Glenayre OPTIONS Corp. (Texas) - 100%
CNET GmbH (Germany) - 100%
Glenayre R & D Inc. (Canada) - 100%
Glenayre Manufacturing Ltd. (Canada) - 100%
Sunway Financial Services, Inc. - inactive
Sunway Management, Inc. - inactive
CERTAIN RIGHTS IN CAPITAL STOCK
Certain conversion and redemption rights that Glenayre Electronics, Inc. has as
a shareholder in certain of the Foreign Subsidiaries, including rights as the
owner of preferred shares.
Stock which has been and will be issued from time to time pursuant to stock
option plans (including employee stock purchase plan) maintained as of the
Closing Date by Glenayre Technologies, Inc.
<PAGE>
Schedule 6.16
ENVIRONMENTAL DISCLOSURES
None.
<PAGE>
Schedule 6.17
INTELLECTUAL PROPERTY CLAIMS AGAINST
GLENAYRE TECHNOLOGIES, INC. AND ITS SUBSIDIARIES
October 30, 1998
<TABLE>
<CAPTION>
COJK Parties Description
File No.
- ------------- -------------------------------- -----------------------------------
<S> <C> <C>
5-14032 Open Development Corporation Open Development Corporation
and First Data Resources Inc. ("ODC") has been approached by at
least one of its customers
regarding the possibility that
ODC's product(s) may infringe one
or more of 44 U.S. patents
listing Ronald A. Katz as
inventor (the "Katz patents").
5-14990 Freedom Wireless, Inc. v. Open Freedom Wireless has claimed
Development Corporation infringement of and has offered
to license ODC under
U.S.P. 5,722,067 (the "Fougnies
patent") relating to the
provision of prepaid cellular
services.
5-14344 Lemelson Foundation Limited Lemelson has notified Glenayre of
Partnership v. Glenayre infringement of numerous U.S.
Technologies, Inc. patents relating to various
manufacturing methods and
systems, including automatic
identification operations such as
bar code identification,
electronic assembly operations,
integrated circuit manufacturing
operations, and flexible
manufacturing systems, and has
offered a license thereunder.
7-10056 Glenayre OPTIONS Corp. Claims by both Glenayre and US
(formerly Cnet) v. US WEST New WEST for breach of a Software
Vector Group, Inc. Purchase and License Agreement
dated 1/31/95 and relating to the
BOS and WINGS products.
<CAPTION>
File No. Current Status
- ------------ -------------------------------------------------------------
<S> <C>
5-14032 COJK is conducting an in depth validity and infringement
investigation of the Katz patents, pertaining to the ODC,
MVP and GL3000 platforms. A number of the patents are of
interest with respect to the noted products.
5-14990 COJK's preliminary infringement investigation indicates
that the Fougnies patent is of interest with respect to the
ODC and MVP platforms. Further investigations are being
conducted.
5-14344 COJK has completed a preliminary infringement review of the
Lemelson patents, and has determined that some of the
patents are of interest with respect to Glenayre's
manufacturing methods and systems, primarily by reason of
Glenayre's use of machines manufactured and sold to
Glenayre by others. Glenayre has notified its vendors of
these machines of the claims, and requested indemnification
therefrom. COJK has had one negotiation meeting with the
attorneys for Lemelson to determine the license terms
available. Glenayre's exposure under the proposed license
terms is currently being determined by Glenayre and COJK.
7-10056 The parties are discussing a settlement proposal for
termination of the Agreement.
</TABLE>
<PAGE>
Schedule 8.1
INDEBTEDNESS
A letter of credit issued by a Consolidated Party in the amount of 50,000
Canadian dollars with the Royal Bank of Canada for the City of Vancouver to
build a turning lane after the new Vancouver building is completed.
Standby letters of credit issued by a Consolidated Party from time to time in
the ordinary course of business of the Consolidated Parties.
Preferred Capital Stock owned in various Foreign Subsidiaries by a Credit Party.
<PAGE>
Exhibit 2.1(b)(i)
FORM OF NOTICE OF BORROWING
NationsBank, N. A.,
as Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, GLENAYRE ELECTRONICS, INC. (the "Borrower"), refers to
the Credit Agreement dated as of October 30, 1998 (as amended, modified,
extended or restated from time to time, the "Credit Agreement"), among the
Borrower, the Guarantors, the Lenders and NationsBank, N. A., as Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The Borrower hereby
gives notice pursuant to Section 2.1 of the Credit Agreement that it requests a
Loan advance under the Credit Agreement, and in connection therewith sets forth
below the terms on which such Loan advance is requested to be made:
(A) Date of Borrowing (which is a Business Day) ______________________
(B) Principal Amount of Borrowing ______________________
(C) Interest rate basis ______________________
(D) Interest Period and the last day thereof ______________________
In accordance with the requirements of Section 5.2, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c), (d), (e) and (f) of such Section, are true and
correct.
Glenayre electronics, Inc.
By:________________________
Name:______________________
Title:_____________________
<PAGE>
Exhibit 2.1(e)
FORM OF REVOLVING NOTE
$_________________ October 30, 1998
FOR VALUE RECEIVED, GLENAYRE ELECTRONICS, INC., a Colorado corporation
(the "Borrower"), hereby promises to pay to the order of
__________________________, its successors and assigns (the "Lender"), at the
office of NationsBank, N. A., as Agent (the "Agent"), at 101 N. Tryon Street,
Independence Center, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the holder hereof may designate), at the times set
forth in the 364-Day Credit Agreement dated as of the date hereof among the
Borrower, the Guarantors, the Lenders and the Agent (as it may be amended,
modified, extended or restated from time to time, the "Credit Agreement"; all
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement), but in no event later than the Maturity Date, in
Dollars and in immediately available funds, the principal amount of
________________________ DOLLARS ($____________) or, if less than such principal
amount, the aggregate unpaid principal amount of all Loans made by the Lender to
the Borrower pursuant to the Credit Agreement, and to pay interest from the date
hereof on the unpaid principal amount hereof, in like money, at said office, on
the dates and at the rates selected in accordance with Section 2.1(d) of the
Credit Agreement.
Upon the occurrence and during the continuance of an Event of Default,
the balance outstanding hereunder shall bear interest as provided in Section 3.1
of the Credit Agreement. Further, in the event the payment of all sums due
hereunder is accelerated under the terms of the Credit Agreement, this Note, and
all other indebtedness of the Borrower to the Lender pursuant to the Credit
Agreement shall become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Borrower.
In the event this Note is not paid when due at any stated or accelerated
maturity, the Borrower agrees to pay, in addition to the principal and interest,
all costs of collection, including reasonable attorneys' fees limited as set
forth in the Credit Agreement.
This Note and the Loans evidenced hereby may be transferred in whole or
in part only by registration of such transfer on the Register maintained by or
on behalf of the Borrower as provided in Section 11.3(c) of the Credit
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by its duly authorized officer as of the day and year first above
written.
GLENAYRE ELECTRONICS, INC.
By:_______________________
Name:_____________________
Title:____________________
<PAGE>
Exhibit 3.2
FORM OF NOTICE OF EXTENSION/CONVERSION
NationsBank, N. A.,
as Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Ladies and Gentlemen:
The undersigned, GLENAYRE ELECTRONICS, INC. (the "Borrower"), refers to
the Credit Agreement dated as of October 30, 1998 (as amended, modified,
extended or restated from time to time, the "Credit Agreement"), among the
Borrower, the Guarantors, the Lenders and NationsBank, N. A., as Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Credit Agreement. The Borrower hereby
gives notice pursuant to Section 3.2 of the Credit Agreement that it requests an
extension or conversion of a Loan outstanding under the Credit Agreement, and in
connection therewith sets forth below the terms on which such extension or
conversion is requested to be made:
(A) Date of Extension or Conversion
(which is the last day of the
the applicable Interest Period) _______________________
(B) Principal Amount of Extension or Conversion _______________________
(C) Interest rate basis _______________________
(D) Interest Period and the last day thereof _______________________
In accordance with the requirements of Section 5.2, the Borrower hereby
reaffirms the representations and warranties set forth in the Credit Agreement
as provided in subsection (b) of such Section, and confirms that the matters
referenced in subsections (c), (d), (e) and (f) of such Section, are true and
correct.
GLENAYRE ELECTRONICS, INC.
By:______________________
Name:____________________
Title:___________________
<PAGE>
Exhibit 7.1(c)
FORM OF OFFICER'S COMPLIANCE CERTIFICATE
For the fiscal quarter ended _________________, 19___.
I, ______________________, [Title] of GLENAYRE ELECTRONICS, INC. (the
"Borrower") hereby certify that, to the best of my knowledge and belief, with
respect to that certain Credit Agreement dated as of October 30, 1998 (as
amended, modified, extended or restated from time to time, the "Credit
Agreement"; all of the defined terms in the Credit Agreement are incorporated
herein by reference) among the Borrower, the other Credit Parties party thereto,
the Lenders party thereto and NationsBank, N. A., as Agent:
a. The company-prepared financial statements which accompany this
certificate are true and correct in all material respects and
have been prepared in accordance with GAAP applied on a
consistent basis, subject to changes resulting from normal
year-end audit adjustments; and
b. Since ___________ (the date of the last similar certification,
or, if none, the Closing Date) no Default or Event of Default has
occurred and is continuing under the Credit Agreement.
Delivered herewith are detailed calculations demonstrating compliance by
the Credit Parties with the financial covenants contained in Section 7.11 of the
Credit Agreement as of the end of the fiscal period referred to above.
This ______ day of ___________, 19__.
Glenayre electronics, Inc.
By:_____________________
Name:___________________
Title:__________________
<PAGE>
Attachment to Officer's Certificate
Computation of Financial Covenants
<PAGE>
Exhibit 7.12
FORM OF JOINDER AGREEMENT
THIS JOINDER AGREEMENT (the "Agreement"), dated as of _____________,
19__, is by and between _____________________, a ___________________ (the
"Domestic Subsidiary"), and NATIONSBANK, N. A., in its capacity as Agent under
that certain Credit Agreement (as it may be amended, modified, extended or
restated from time to time, the "Credit Agreement"), dated as of October 30,
1998, by and among Glenayre electronics, Inc., a Colorado corporation (the
"Borrower"), the other Credit Parties party thereto, the Lenders party thereto
and NationsBank, N. A., as Agent. All of the defined terms in the Credit
Agreement are incorporated herein by reference.
The Domestic Subsidiary is an Additional Credit Party, and,
consequently, the Credit Parties are required by Section 7.12 of the Credit
Agreement to cause the Domestic Subsidiary to become a "Guarantor".
Accordingly, the Domestic Subsidiary hereby agrees as follows with the
Agent, for the benefit of the Lenders:
1. The Domestic Subsidiary hereby acknowledges, agrees and confirms
that, by its execution of this Agreement, the Domestic Subsidiary will be deemed
to be a party to the Credit Agreement and a "Guarantor" for all purposes of the
Credit Agreement, and shall have all of the obligations of a Guarantor
thereunder as if it had executed the Credit Agreement. The Domestic Subsidiary
hereby ratifies, as of the date hereof, and agrees to be bound by, all of the
terms, provisions and conditions applicable to the Guarantors contained in the
Credit Agreement. Without limiting the generality of the foregoing terms of this
paragraph 1, the Domestic Subsidiary hereby jointly and severally together with
the other Guarantors, guarantees to each Lender and the Agent, as provided in
Section 4 of the Credit Agreement, the prompt payment and performance of the
Credit Party Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration or otherwise) strictly in accordance with
the terms thereof.
2. The address of the Domestic Subsidiary for purposes of all notices
and other communications is ____________________, ____________________________,
Attention of ______________ (Facsimile No. ____________).
3. The Domestic Subsidiary hereby waives acceptance by the Agent and the
Lenders of the guaranty by the Domestic Subsidiary under Section 4 of the Credit
Agreement upon the execution of this Agreement by the Domestic Subsidiary.
4. This Agreement may be executed in two or more counterparts, each of
which shall constitute an original but all of which when taken together shall
constitute one contract.
<PAGE>
5. This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of North Carolina without reference to the
conflicts or choice of law principles thereof.
IN WITNESS WHEREOF, the Domestic Subsidiary has caused this Joinder
Agreement to be duly executed by its authorized officers, and the Agent, for the
benefit of the Lenders, has caused the same to be accepted by its authorized
officer, as of the day and year first above written.
[DOMESTIC SUBSIDIARY]
By:_______________________
Name:_____________________
Title:____________________
Acknowledged and accepted:
NATIONSBANK, N. A., as Agent
By:_______________________
Name:_____________________
Title:____________________
<PAGE>
Exhibit 11.3(b)
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of October 30, 1998,
as amended and modified from time to time thereafter (the "Credit Agreement")
among GLENAYRE ELECTRONICS, INC., the other Credit Parties party thereto, the
Lenders party thereto and NationsBank, N. A., as Agent. Terms defined in the
Credit Agreement are used herein with the same meanings.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse and without representation or warranty except as expressly set forth
herein, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Credit Documents as of the date hereof equal to the
percentage interest specified on Schedule 1 of all outstanding rights and
obligations under the Credit Agreement and the other Credit Documents. After
giving effect to such sale and assignment, the Assignee's Commitment and the
amount of the Loans owing to the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Documents or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any Credit Party or
the performance or observance by any Credit Party of any of its obligations
under the Credit Documents or any other instrument or document furnished
pursuant thereto; and (iv) attaches the Notes held by the Assignor and requests
that the Agent exchange such Notes for new Notes payable to the order of the
Assignee in an amount equal to the Commitment assumed by the Assignee pursuant
hereto and to the Assignor in an amount equal to the Commitment retained by the
Assignor, if any, as specified on Schedule 1.
<PAGE>
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 7.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender; and (vi) attaches any
U.S. Internal Revenue Service or other forms required under Section 3.11.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Agent for acceptance and recording by the Agent. The effective
date for this Assignment and Acceptance (the "Effective Date") shall be the date
of acceptance hereof by the Agent, unless otherwise specified on Schedule 1.
5. Upon such acceptance and recording by the Agent, as of the Effective
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after the
Effective Date, the Agent shall make all payments under the Credit Agreement and
the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment fees with respect
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the Notes for periods
prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of North Carolina without regard to the
conflicts or choice of law principles thereof.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date hereof.
____________________, as Assignor
By: _____________________________
Name: ___________________________
Title: __________________________
_____________________, as Assignee
By: ______________________________
Name: ____________________________
Title: ___________________________
Notice address of Assignee:
[Assignee]
==========================
Attn: _____________________
Telephone: (___) ________
Telecopy: (___) ________
CONSENTED TO:
NATIONSBANK, N. A., *
as Agent
By:___________________________
Name:_________________________
Title:________________________
Glenayre ELECTRONICS, Inc.*
By:___________________________
Name:_________________________
Title:________________________
- --------
* Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee."
* Required if the Assignee is an Eligible Assignee solely by reason of clause
(iii) of the definition of "Eligible Assignee."
<PAGE>
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
<TABLE>
<S> <C> <C>
(a) Date of Assignment:
(b) Legal Name of Assignor:
(c) Legal Name of Assignee:
(d) Effective Date of Assignment* :
(e) Commitment Percentage Assigned
(expressed as a percentage set forth to at least 8 decimals) %
(f) Commitment Percentage of Assignee
after giving effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(g) Commitment Percentage of Assignor
after giving effect to this Assignment and Acceptance
as of the Effective Date (set forth to at least 8 decimals) %
(h) Committed Amount as of Effective Date $_____________
(i) Dollar Amount of Assignor's Commitment
Percentage as of the Effective Date (the amount set
forth in (h) multiplied by the percentage set forth in (g)) $_____________
(j) Dollar Amount of Assignee's Commitment
Percentage as of the Effective Date (the amount set
forth in (h) multiplied by the percentage set forth in (f)) $_____________
</TABLE>
- --------
* This date should be no earlier than five Business Days after delivery of this
Assignment and Acceptance to the Agent.
EXHIBIT 21
SUBSIDIARIES OF GLENAYRE
The following subsidiaries are wholly-owned, directly or indirectly, by Glenayre
as of March 1999.
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
Glenayre Electronics, Inc. Colorado, U.S.A.
Glenayre Manufacturing Ltd. Canada
Glenayre Electronics Singapore PTE Ltd. Singapore
Glenayre Electronics (UK) Limited United Kingdom
Glenayre Digital Systems, Inc. North Carolina, U.S.A.
Glenayre Electronics Capital Corporation. North Carolina, U.S.A.
Glenayre de Mexico S.A. de C.V. Mexico
Glenayre Administracion, S.A. de C.V. Mexico
Glenayre Electronics South America Ltda. Brazil
Glenayre Electronics Europe B.V. Netherlands
Glenayre Electronics (Hong Kong) Limited Hong Kong
Glenayre Electronics Philippines, Inc. Philippines
Glenayre Electronics (Korea) Limited Korea
Glenayre Electronics Middle East LLC United Arab Emirates
Glenaye Electronics Export Sales Corporation Barbados
Glenayre (India) Private Limited India
Nihon Glenayre Electronics K.K. Japan
GTI Acquisition Corp. Delaware, U.S.A.
Western Multiplex Corporation California, U.S.A
Open Development Corporation Delaware, U.S.A.
Wireless Access, Inc. California, U.S.A.
- -----------------
The names of other subsidiaries have been omitted because, considered in the
aggregate as a single subsidiary, they would not constitute a significant
subsidiary.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Glenayre Technologies, Inc.'s
Registration Statements No. 33-43797 on Form S-8, No. 33-68766 on Form S-8, No.
33-80464 on Form S-8, No. 33-88818 on Form S-4, as amended by Post-Effective
Amendment No. 1 on Form S-8, No. 333-04635 on Form S-8, No. 333-15845 on Form
S-4, as amended by Post-Effective Amendment No. 1 on Form S-8, Registration
Statement No. 333-38169 and Registration Statement No. 333-39717 of our report
dated February 15, 1999, with respect to the consolidated financial statements
and schedules of Glenayre Technologies, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1998.
ERNST & YOUNG LLP
Charlotte, North Carolina
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000808918
<NAME> GLENAYRE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> $12,283
<SECURITIES> 0
<RECEIVABLES> 246,931
<ALLOWANCES> 11,307
<INVENTORY> 46,502
<CURRENT-ASSETS> 246,904
<PP&E> 163,321
<DEPRECIATION> 53,660
<TOTAL-ASSETS> 561,795
<CURRENT-LIABILITIES> 92,432
<BONDS> 0
0
0
<COMMON> 1,241
<OTHER-SE> 460,912
<TOTAL-LIABILITY-AND-EQUITY> 561,795
<SALES> 399,942
<TOTAL-REVENUES> 399,942
<CGS> 211,255
<TOTAL-COSTS> 211,255
<OTHER-EXPENSES> 233,854
<LOSS-PROVISION> 748
<INTEREST-EXPENSE> 591
<INCOME-PRETAX> (37,158)
<INCOME-TAX> 2,612
<INCOME-CONTINUING> (39,770)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,770)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
EXHIBIT 99
CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Glenayre Technologies, Inc. ("Glenayre" or the "Company"), from time to time,
makes "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements reflect the expectations of
management of the Company at the time such statements are made. Glenayre is
filing this cautionary statement to identify important factors that could cause
Glenayre's actual results to differ materially from those in any forward-looking
statements made by or on behalf of Glenayre.
POTENTIAL MARKET CHANGES RESULTING FROM RAPID TECHNOLOGICAL ADVANCES
Glenayre's business is primarily focused on paging and is subject to competition
from alternative forms of communication. In addition, Glenayre's business is
also focused on the wireless telecommunications industry. The wireless
telecommunications industry is characterized by rapid technological change,
including digital cellular telephone systems, which compete, directly or
indirectly, with Glenayre's products or the services provided by the Company's
customers. While the introduction of more advanced forms of telecommunication
may provide opportunities to Glenayre for the development of new products, these
advanced forms of telecommunication may reduce the demand for pagers and thus
the type of paging systems and related software designed and sold by Glenayre.
ACCEPTANCE OF TWO-WAY PAGING COMMUNICATION PRODUCTS
While certain of Glenayre's customers have installed Glenayre's products used to
provide two-way communications services, these services are available only in
certain areas. The growth and installation of two-way paging systems by
Glenayre's paging service provider customers may be delayed depending upon
delays in installation, difficulties in initial operation of two-way systems,
the availability of financing for its paging service provider customers and the
market acceptance of two-way paging by the customers of such paging service
providers. The development of the two-way market will also be affected by other
technological changes in wireless messaging services, regulatory developments
and general economic conditions.
COMPETITION
The Company currently faces competition from a number of other equipment
manufacturers, certain of which are larger and have significantly greater
resources than the Company. The Company also faces indirect competition from
alternative wireless telecommunications technologies, including cellular
telephone services, mobile satellite systems, specialized and private mobile
radio systems, digital cellular telephone systems and broadband personal
communications services. Although these technologies are generally higher priced
than traditional paging services, technological improvements could result in
increased capacity and efficiency for wireless two-way communication and could
result in increased competition for the Company.
VARIABILITY OF QUARTERLY RESULTS
The Company's financial results in any single quarter are highly dependent upon
the timing and size of customer orders and the shipment of products for large
orders. Large orders from customers can account for a significant portion of
products shipped in any quarter. Sales to a single customer, which has a
significant United States market presence, totaled approximately 10%, 11% and
15% of 1998, 1997 and 1996 fiscal year net sales, respectively. An additional US
customer accounted for 12% of net sales in 1998. Beyond 1998, the customers with
whom the Company does the largest amount of business are expected to vary from
year to year as a result of the timing for development and expansion of
customers' paging systems, the expansion into international markets and changes
in the proportion of revenues generated by the products and services of
Glenayre's newly acquired companies. Furthermore, if a customer delays or
accelerates its delivery requirements or a product's completion is delayed or
accelerated, revenues expected in a given quarter may be deferred or accelerated
into subsequent or earlier quarters.
<PAGE>
Therefore, annual financial results are more indicative of the Company's
performance than quarterly results, and results of operations in any quarterly
period may not be indicative of results likely to be realized in the following
quarterly periods.
VOLATILITY OF STOCK PRICE
The market price of Glenayre Common Stock is volatile. The market price of
Glenayre Common Stock could be subject to significant fluctuations in response
to variations in Glenayre's quarterly operating results and other factors such
as announcements of technological developments or new products by Glenayre,
developments in Glenayre's relationships with its customers, technological
advances by existing and new competitors, general market conditions in the
industry and changes in government regulations. In addition, in recent years
conditions in the stock market in general and shares of technology companies in
particular have experienced significant price and volume fluctuations which have
often been unrelated to the operating performance of these specific companies.
LIMITS ON PROTECTION OF PROPRIETARY TECHNOLOGY
Glenayre owns or licenses numerous patents used in its operations. Glenayre
believes that while these patents are useful to Glenayre, they are not critical
or valuable on an individual basis. The collective value of the intellectual
property of Glenayre is comprised of its patents, blueprints, specifications,
technical processes and cumulative employee knowledge. Although Glenayre
attempts to protect its proprietary technology through a combination of trade
secrets, patent law, nondisclosure agreements and technical measures, such
protection may not preclude competitors from developing products with features
similar to Glenayre's products. The laws of certain foreign countries in which
Glenayre sells or may sell its products, including The Republic of Korea, The
People's Republic of China, Saudi Arabia, Thailand, Dubai, India and Brazil, do
not protect Glenayre's proprietary rights in the products to the same extent as
do the laws of the United States.
POTENTIAL CHANGES IN GOVERNMENT REGULATION
Many of Glenayre's products operate on radio frequencies. Radio frequency
transmissions and emissions, and certain equipment used in connection therewith,
are regulated in the United States, Canada and internationally. Regulatory
approvals generally must be obtained by Glenayre in connection with the
manufacture and sale of its products, and by Glenayre's paging service provider
and other wireless customers to operate Glenayre's products. The enactment by
federal, state, local or international governments of new laws or regulations or
a change in the interpretation of existing regulations could affect the market
for Glenayre's products. Although recent deregulation of international
telecommunications industries along with recent radio frequency spectrum
allocations made by the Federal Communications Commission ("FCC") in the United
States have increased the demand for Glenayre's products by providing users of
those products with opportunities to establish new paging and other wireless
personal communications services, the trend toward deregulation and current
regulatory developments favorable to the promotion of new and expanded personal
communications services may not continue and future regulatory changes may not
have a positive impact on Glenayre. The issuance of paging system licenses
stimulates demand for the Company's products, however, delays in the issuance of
licenses may adversely affect sales and the timing of sales of the Company's
products.
FINANCING CUSTOMER PURCHASES FOR DEVELOPMENT OF THE TWO-WAY COMMUNICATIONS
MARKET
The Company finances customer purchases of its products for development of the
two-way communications market for the build-out of two-way networks by its
customers who acquired two-way licenses auctioned by the FCC (the "Two-Way
License Holders"). Many of the Two-Way License Holders with whom the Company has
or expects to enter into customer financing arrangements have limited operating
histories, significant debt related to the acquisition of their two-way licenses
and start-up expenses, negative cash flows from operations and some have never
generated an operating profit. The Company generally retains a security interest
in equipment for which it provides financing.
INTERNATIONAL BUSINESS RISKS
Approximately 37% of 1998 fiscal year net sales were generated in markets
outside of the United States. International sales are subject to the customary
risks associated with international transactions, including political
<PAGE>
risks, local laws and taxes, the potential imposition of trade or currency
exchange restrictions, tariff increases, transportation delays, difficulties or
delays in collecting accounts receivable, exchange rate fluctuations and the
effects of prolonged currency destabilization in major international markets.
Although a substantial portion of the international sales of the Company's
products and services for fiscal year 1998 was negotiated in United States
dollars, the Company may not be able to maintain such a high percentage of
United States dollar denominated international sales. The Company seeks to
mitigate its currency exchange fluctuation risk by entering into currency
hedging transactions. The Company also acts to mitigate certain risks associated
with international transactions through the purchase of political risk insurance
and the use of letters of credit.
