<PAGE>
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED MARCH 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-19862
----------------------------------------------------------------
MEMOREX TELEX N.V.
(Exact name of registrant as specified in its charter)
THE NETHERLANDS NOT APPLICABLE
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
545 EAST JOHN CARPENTER FREEWAY
IRVING, TEXAS 75062-3931
TELEPHONE NO.: (214) 444-3500
(Address, including Zip Code, and telephone number,
including area code, of authorized representative in United States)
----------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
AMERICAN DEPOSITORY RECEIPTS EVIDENCING AMERICAN DEPOSITORY SHARES
WHICH REPRESENT COMMON STOCK, 0.10 DFL. NOMINAL 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
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by checkmark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a Court. Yes X No
--- ---
The aggregate market value of the voting stock held by non-affiliates of
the registrant at May 31, 1996 was $36,110,397.
The number of shares of the registrant's Common Stock, 0.10 DFL. Nominal
Value, outstanding as of May 31, 1996 was 25,076,665.
DOCUMENT INCORPORATED BY REFERENCE: NONE
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
<PAGE>
Memorex Telex N.V.
Index to Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 1996
Page
----
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 6
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 9
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . 15
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . 15
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . 16
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions. . . . . . . . . 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 57
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Memorex Telex N.V. and its subsidiaries (the "Company") is a provider of
information technology solutions including the distribution and integration of
data network and storage products and the provision of related services. The
market for information technology solutions includes the sales and leasing of
network and storage products along with the provision of design, integration and
support services. Memorex Telex N.V., a Netherlands corporation, is a holding
company that operates its business through subsidiaries in eighteen countries
and with distributors in other countries.
Data network and storage equipment are fundamental building blocks for
the information technology environments of large organizations. Networking
products provide the infrastructure that allows users to communicate with
applications, other users and systems inside or increasingly outside of their
enterprise. Storage products provide solutions that address the growing
requirements for the retention or backup of data. Advances in technology and
the multivendor environment created by the implementation of open systems have
created a knowledge gap in the marketplace and fueled the growing requirement
for design, integration and support service expertise.
The Company is continuing a comprehensive strategic transformation to adapt
to the structural changes occurring in the information technology marketplace.
The Company was formerly a manufacturer of plug compatible peripherals,
principally for the mainframe environment. As part of this continuing
transformation, the Company has eliminated product manufacturing, migrated
engineering to a sustaining role, reduced headcount, consolidated executive
functions and streamlined its sales organization.
Today, the Company is a worldwide distributor of data network and storage
solutions and provider of a full range of information technology services. The
Company's ability to provide these products and services originates from its
multinational distribution network and sales force, extensive service
organization, reorganized expertise in key technologies and relationships with
key industry suppliers.
MARKETS
The Company, through its approximately 830 sales and marketing personnel
and indirect sales channels provides a range of networking, storage and service
solutions to Fortune 1000 corporations and their foreign equivalents, large
state institutions and government agencies, the financial community, and major
medical facilities.
1
<PAGE>
PRODUCTS AND SERVICES
The Company is a provider of information technology solutions including the
distribution and integration of data network and storage products and the
provision of related services.
NETWORKS
Network solutions consist of desktop, connectivity, and server products and
related design, integration and support services. These solutions are typically
utilized as part of a client enterprise network infrastructure. The Company's
networking strategy emphasizes complete end to end connectivity across diverse
hardware platforms, operating systems and communications standards. The sale of
the network products described in the following paragraphs represented
approximately 48% of the Company's revenues for its fiscal year ended March 31,
1996.
Desktop products include fixed function displays, personal computers,
emulators, and printers for attachment and access to multiple network
environments. The Company distributes a line of displays with a wide variety of
features. The Company also distributes personal computers of varying processor
types for use in networks or as independent personal computing devices. These
personal computers are configured through third parties. The Company markets
terminal emulation products for a wide variety of network types. The Company
also offers a wide variety of printers utilizing both impact and nonimpact
technology. These printers can communicate with a mainframe via a network
controller, can connect directly to midrange systems or local area networks
("LANs"), or can attach to a display or desktop personal computer for local
output.
Connectivity products provide the infrastructure necessary to manage and
support client/server networks and integrate multiple network environments. The
products include network controllers, gateways, interface cards, wiring hubs,
bridges and routers. Network controllers connect LANs to host/servers.
Gateways enable communication between different network architectures. Network
interface cards, wiring hubs, bridges and routers form the network
infrastructure necessary to connect, manage and support client/server open
systems applications.
Server products offer a range of single and multiple-processor servers
sourced from the industry's leaders in this technology. Servers are powerful
central processing units ("CPUs") that provide file and application sharing as
well as storage services to networks. The Company offers a complete range of
products in the market for midrange and super servers. Midrange servers are
designed to be an open systems device for small to medium sized networks which
provide services such as file and print serving capabilities at a low cost with
PC compatibility. Super servers are a class of server designed to make use of
standard microprocessor, memory, and storage components as well as industry-
standard network and peripheral interfaces to provide high performance and
reliability. Super servers have a PC's ease of use and speed to meet a variety
of enterprise computing and communications needs.
2
<PAGE>
STORAGE
Storage solutions sold by the Company include multi-platform disk and tape
cartridge subsystems, automated tape libraries, software and related services
for comprehensive data storage throughout multiple environments. These storage
products are designed for attachment to large and midrange CPUs and contain
controllers to manage the flow of information between the CPU and the storage
device. The Company currently sells tape drives and automated tape libraries to
the large systems market, and disk, tape and automated tape libraries to the
midrange systems market. The sale of storage products represented approximately
8% of the Company's revenues for fiscal 1996.
SERVICES
The Company's service offerings are targeted at providing a full range of
services that add value to its network and storage solutions as well as
providing critical on-going support for customer environments. These services
are focused in four key areas:
STRATEGIC SERVICES, including full-scale capabilities for planning,
designing, building, and managing network systems;
INTEGRATION SERVICES, including connectivity and implementation services,
and cabling;
EDUCATION SERVICES, including a full range of learning methods and
conventional training for customers;
PERFORMANCE CONTROL SERVICES, including traditional services such as
contract maintenance of time and materials service for the Company's
networks and storage products, third-party maintenance of other equipment
manufacturer's products, as well as services that monitor, diagnose, and
correct network problems.
Service revenues represented approximately 42% of the Company's revenues
for fiscal 1996.
GEOGRAPHIC INFORMATION
Information regarding the Company's operations by geographic area is
included herein under Item 14(a), of the March 31, 1996 Consolidated Financial
Statements in Note 14 entitled "Geographic Data".
BACKLOG
At March 31, 1996, the Company had a backlog of $57.3 million compared with
a backlog of $56.6 million at March 31, 1995. The Company expects to fulfill
its March 31, 1996 backlog within the current fiscal year. The Company's
backlog is principally related to the sale of network and storage products, and
does not include ongoing operating lease contracts or maintenance contracts for
service of installed equipment.
3
<PAGE>
RESEARCH AND DEVELOPMENT
The Company has a research and development program principally relating to
the design of selected network products and the development of software for
storage systems. The Company expensed approximately $12.4 million, $15.7
million, and $25.6 million on research and development in the fiscal years ended
March 31, 1996, 1995 and 1994, respectively. The Company has reduced research
and development expenses by relying on outside vendors and will continue to
transition this function to primarily continuation engineering.
COMPETITION
There are a large number of competitors that provide data network, storage
and service solutions. Competitors include divisions of vertically integrated
manufacturers, local and national distributors, consulting firms and system
integrators such as Compucom and Vanstar. In addition, other small companies
compete with the Company in the sale of displays, controllers and printers to
the communications market. Various companies, including IBM and Storage
Technology Corporation, compete with the Company in the sale of storage
peripherals. In the service market, the Company competes with the service
operations of proprietary hardware manufacturers and third party service
providers. There are a large number of competitors that supply personal
computers and other networking products to business users. The Company also
competes with a number of system integrators in the delivery of network and
storage solutions. The Company believes that product performance, service
capabilities and pricing are the principal elements of competition within the
various areas of the computer industry.
CUSTOMERS
The Company's customers are generally Fortune 1000 corporations and their
foreign equivalents, large state institutions and government agencies, the
financial community, and major medical facilities that use large or midrange
systems, personal computers, or LANs to meet their data processing needs.
Typically, the Company's customers are substantial companies, institutions and
agencies with whom the Company has had long-term business relationships. None of
the Company's customers accounted for more than 10% of the Company's gross
revenues for fiscal 1996.
SUPPLIERS
The Company has developed a series of strategic relationships with
suppliers which enable the Company to obtain a wide range of technology. With
this bias-free approach, the Company implements the best available and most
appropriate products and services on behalf of its customers. Since most
products are sourced from third-party vendors, these arrangements limit the
Company's technological risk. Although alternative suppliers are available for
most of the Company's product offerings, the termination of a principal supplier
for a specific product might adversely affect the Company within a product area.
However, there is no single source or group of suppliers which is material to
the Company as a whole, and none of the Company's
4
<PAGE>
product offerings for which there are no alternative suppliers is material to
the Company as a whole.
EMPLOYEES AND LABOR RELATIONS
None of the Company's approximately 4,100 employees are covered by a
collective bargaining agreement. The Company considers its labor relations to
be good.
TRADEMARKS
The Company owns several trademarks, including the Memorex-Registered
Trademark- and Telex-Registered Trademark- names. Substantially all products
sold by the Company are sold under the Memorex Telex-Registered Trademark- name.
In connection with the sale by a predecessor corporation of its consumer
products division to Tandy Corporation in 1982, the predecessor corporation
granted to Tandy Corporation an exclusive limited license to use the
Memorex-Registered Trademark- trademark and designs in sales of certain consumer
products, including audio and video tapes. In December 1993, the Company
consented to the assignment of the license by Tandy Corporation to Hanny
Magnetics (B.V.I.) Ltd. ("Hanny"). The license expires on December 31, 2011;
however, Hanny may extend the term of the license for an additional 30 years
by payment of $3 million to the Company. In October 1993, in connection with
the sale of the Memorex Computer Supplies business in Europe to Boeder AG,
the Company granted an exclusive limited license to use the
Memorex-Registered Trademark- trademark (and other marks owned by the
Company) in the sale of computer media products and computer related supplies
and accessories. The license is terminable upon twenty-four months prior
notice, but in no event prior to October 1, 2003. In December 1993, in
connection with the sale of the Memorex Computer Supplies businesses in the
United States and Canada to Hanny, the Company granted an exclusive limited
license to use the Memorex-Registered Trademark- trademark in the sale of
computer media products and computer related supplies and accessories. The
term of the license is until December 31, 2013 and is renewable upon the
mutual agreement of the Company and Hanny. In February 1995, the Company
entered into an agreement with Hanny and BASF PLC to license BASF to use the
Memorex-Registered Trademark- trademark and design in the sale of audio and
video tape and related products during a period of three years in a territory
comprising the member states of the European Union and certain other
countries. In May 1989, in connection with the sale of the assets of Telex
Communications, Inc., the Company has granted a royalty free perpetual
license to use the Telex-Registered Trademark- name and a royalty bearing
license until 1999 to use the Memorex-Registered Trademark- trademark in the
sale of hearing aids.
REGULATORY MATTERS
The Company obtains export and import licenses in various countries
relating to certain products as required. The Company has not experienced any
problems in obtaining such licenses and has no reason to believe that problems
will be encountered in the future. The Company supplies products to and performs
certain maintenance and repair services for the United States government.
5
<PAGE>
ITEM 2. PROPERTIES
The Company leases approximately 40,000 square feet of office space in
Irving, Texas for executive offices, and approximately 6,500 square feet of
office space in Amsterdam, The Netherlands. The Company operates engineering,
repair and distribution facilities in Oklahoma, North Carolina, and The
Netherlands. The Company owns office space of approximately 184,000 square feet
in Tulsa, Oklahoma, used for the North American Customer Satisfaction Center,
Network Control Center, training and certain regional sales operations.
The Company leases 55,000 square feet of office and laboratory space and
50,400 square feet of warehouse and distribution space in Raleigh, North
Carolina.
The Company owns two facilities in The Netherlands, a repair facility in
Gronsveld comprising 50,000 square feet and an office and warehouse facility in
Beek comprising 85,000 square feet which is leased to a third party. The Company
also owns approximately 59,000 square feet of manufacturing and office space in
Liege, Belgium, which is leased to third parties. The Company is attempting to
sell the facilities leased to third parties.
Additionally, the Company leases offices and storage facilities in the
United States and in other countries through which it conducts its sales and
service operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits in which the plaintiffs seek
recovery for repetitive stress injuries allegedly incurred while using keyboards
used in computer systems sold by the Company. The plaintiffs are proceeding
against the Company and other suppliers of keyboards under theories of
negligence and strict products liability. Certain of the suits contain a claim
for punitive damages in the amount of $10 million. The Company has paid no
settlement amounts with respect to any of these lawsuits. The Company is
contesting these actions vigorously, and believes that the probability of an
unfavorable outcome in excess of available insurance coverage is remote. In the
event that plaintiffs were to succeed with respect to these claims, the
aggregate liability of the Company to plaintiffs in these lawsuits is likely to
exceed available insurance coverage and could have a material adverse impact
upon the financial position and results of operations of the Company.
The Company is involved in various other claims and proceedings incurred in
the ordinary course of business which, in the opinion of management, do not
involve significant amounts and are not material to the financial position or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock, DFL 0.10 nominal value which is listed on the
NASDAQ National Market System ("NASDAQ") in the form of American Depository
Receipts ("ADRs"), began trading on a when-issued basis on March 28, 1994, and
on a regular basis on May 19, 1994 under the NASDAQ symbol MEMXY. The high and
low closing sales prices on the Company's common stock ranged as follows:
QUARTER ENDED HIGH LOW
------------- ---- ---
June 30, 1994 $ 7.13 $ 3.78
September 30, 1994 4.00 1.38
December 31, 1994 2.56 0.44
March 31, 1995 1.13 0.34
June 30, 1995 2.53 0.72
September 30, 1995 2.69 1.06
December 31, 1995 1.31 0.50
March 31, 1996 1.38 0.69
The approximate number of record holders of the Company's ADRs at March 31,
1996 was 114. Under the terms of the Company's debt agreements, the Company is
presently restricted from making cash dividend payments.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below is denominated in United States
dollars and has been prepared in accordance with United States generally
accepted accounting principles.
As more fully described in Note 1 of the March 31, 1996 Consolidated
Financial Statements, the Company continues to experience declines in revenues
and gross margins primarily resulting from the decline in liquidity which has
negatively impacted the Company's ability to purchase product for resale. As
more fully described in Note 6, the Company is in default of certain covenants
under the Credit Facility and the Term Loan, as of March 31, 1996, and may be
required to make significant debt repayments during fiscal 1997 (see Note 6 of
the Financial Statements). Ernst & Young LLP's opinion indicated that these
conditions raised substantial doubt about the Company's ability to continue as a
going concern.
As more fully described in Note 2 of the March 31, 1996 Consolidated
Financial Statements, effective March 24, 1994, the Company emerged from
protection under chapter 11 of the U.S. Bankruptcy Code pursuant to the
Reorganization Plan. In accordance with AICPA Statement of Position 90-7, ("SOP
90-7"), the Company adopted fresh start reporting whereby its assets,
liabilities, and new capital structure were adjusted to reflect fair values as
of March 31, 1994. As a result, the Company's consolidated financial
statements for periods prior to March 31, 1994, are not comparable to
consolidated financial statements presented on or subsequent to March 31, 1994.
A similar restructuring was completed March 31, 1992, at which time the Company
also applied fresh start reporting. For financial reporting purposes, all
7
<PAGE>
balances prior to March 31, 1994 are considered to be related to the Predecessor
Companies. A black line has been drawn on the financial statements to
distinguish between the Reorganized Company and Predecessor Companies' balances
(as defined in Note 2 of the March 31, 1996 Consolidated Financial Statements).
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Companies
-------------------------- --------------------------------------------
Year Ended March 31,
-------------------------------------------------------------------------
1996 1995 | 1994 1993 1992
---- ---- | ---- ---- ----
<S> <C> <C> | <C> <C> <C>
Statement of Operations Data: |
Total revenues $ 834,053 $ 909,751 | $ 1,015,574 $ 1,326,372 $ 1,499,146
Gross margin 202,460 258,724 | 309,914 361,327 457,842
Depreciation and amortization of intangibles(1) 235,032 135,171 | 38,359 44,110 60,470
Operating income (loss)(2) (207,475) (84,860) | 32,247 (266,783) 14,099
Interest expense(1) (19,844) (20,127) | (100,433) (98,224) (158,371)
Loss before income taxes(2) (246,738) (103,904) | (491,833) (382,559) (428,700)
Preferred stock dividend requirements of |
subsidiaries 0 0 | 0 0 25,498
Extraordinary item 0 0 | 728,996 (3) 0 601,531 (3)
Net income (loss) (246,738) (108,011) | 227,005 (395,822) 104,333
Net income (loss) per common share $ (9.84) $ (4.32) | Note 4 Note 4 Note 4
Reorganized Company Predecessor Companies
-------------------------- --------------------------------------------
Year Ended March 31,
-------------------------------------------------------------------------
1996 1995 1994 | 1993 1992
---- ---- ---- | ---- ----
Balance Sheet Data: |
Total assets $ 268,168 $ 536,466 $ 721,253 | $ 1,138,985 $ 1,451,804
Debt (including debt in default classified 118,273 85,126 94,472 | 811,816 737,323
as current)(5) |
Stockholders' equity (deficit) (277,351) (30,827) 75,000 | (233,970) 175,000
</TABLE>
- - - ------------------------------
(1) Excludes amortization of debt issuance costs for the year ended March 31,
1992 of $5,652. Additionally, excludes accretion of debt discount of
$20,700, $20,455 and $20,904 for the years ended March 31, 1996, 1994 and
1993, respectively. Includes the write-off of the remaining reorganization
value of $99,334 as of March 31, 1996.
(2) Includes reorganization items of $406,536 and $284,328 for the years ended
March 31, 1994 and 1992, respectively.
(3) Extraordinary gains resulting from reorganizations under prepackaged plans
for the years ended March 31, 1994 and 1992.
(4) Predecessor Companies income (loss) per common share amounts are not
relevant due to the reorganization under the prepackaged plan.
(5) Excludes obligations in respect of non-recourse debt secured by leasebase
receivables of $1,208 at March 31, 1996, $2,309 at March 31, 1995, $3,315
at March 31, 1994, $5,982 at March 31, 1993, and $6,075 at March 31, 1992.
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY
During the year ended March 31, 1996, the Company's net loss, excluding the
non-cash charges for depreciation, amortization, debt discount accretion, and
gain from sale of assets provided cash of $2.5 million. Cash was also
provided from the sale of assets discussed in Note 3 ($13.9 million), a decrease
in accounts receivable ($5.2 million), and a term loan discussed in Note 6
($12.0 million). The existing cash and cash sources was primarily used for
workforce reductions, closure costs and unfavorable contractual obligations as
discussed in Note 11 ($27.3 million), reductions in royalty obligations ($3.8
million), capital expenditures ($4.9 million), reduced deferred revenues on
contract maintenance and warranty obligations ($5.2 million), and cash income
tax payments ($2.4 million). As a result of the above, cash and cash
equivalents, including restricted cash deposits, decreased $10.0 million.
The Company continues its transformation from a developer and manufacturer
of computer hardware to a provider of networking and storage solutions. As part
of this transformation, the Company continues to reengineer its selling,
service, product development, fulfillment, and finance and administrative
processes. This effort has resulted in workforce reductions, the consolidation
of functions, disposition of certain facilities, and closure or sale of
unprofitable operations. The cost of these initiatives, together with the
cumulative decline in revenues and gross margins has impeded the operating cash
flow during the second half of the year and particularly during the fourth
quarter. This decline in liquidity has negatively impacted the Company's
ability to fulfill customer orders on a timely basis.
As discussed in Footnote 7, the Company has reached an agreement to sell
its Asia/Pacific operations for $25 million. The Company believes it has
reached an agreement in principal with the lenders to its $100 million
Restructured Credit Facility (the "Credit Facility") for $9 million of the
proceeds to be used to reduce debt and the remaining $16 million to be used to
meet working capital requirements including accrued interest payments.
As discussed in Footnote 6, the Company believes it also has an agreement
in principal with the lenders to its Credit Facility to cure events of
default that existed under this agreement at March 31, 1996 and deferral
through October 31, 1996, of interest payments otherwise due prior to such
date. In connection with these agreements with the lenders, the Company will
agree to a modification of the Credit Facility to include a change in
maturity date from December 31, 1998 to March 31, 1997, a change in the
amortization schedule and certain other conditions. The Company has also
obtained waivers of existing events of default under the Term Loan subject to
finalization of the agreement in principal with the Credit Facility lenders.
The proceeds from the sale of the Asia/Pacific operations and the deferral
of interest payments will improve short-term liquidity, assisting the Company in
its efforts to expedite new solution introductions, fulfill customer orders
and enhance worldwide customer satisfaction.
9
<PAGE>
As discussed in Footnote 1, the Company continues discussions with
financial and strategic investors and financial institutions concerning a new
credit facility or other financing to repay the amounts owing under the Credit
Facility and for working capital. In addition, the Company will continue to
emphasize working capital management, particularly accounts receivable and
inventory as potential sources of cash. The Company expects to also pursue other
non-operating sources of funds such as increased factoring of accounts
receivable, increased subsidiary lines of credit or, if necessary, undertake an
asset disposition program.
The Company believes that operating cash flow, non-operating sources of
funds, and other new financing will enable the Company to continue to meet its
obligations, however, there is no assurance that management's plans will be
successful or what other actions might be necessary.
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED MARCH 31, 1996 ("FISCAL 1996") COMPARED WITH THE TWELVE
MONTHS ENDED MARCH 31, 1995 ("FISCAL 1995")
The Company's 1996 operating income, excluding the amortization of
intangibles and revaluation of reorganization intangibles, has declined from
$40.3 million and $55.7 million for fiscal 1995 and 1994, respectively, to
$17.0 million in fiscal 1996. However, the Company has reported
three consecutive years of operating income excluding amortization of
intangibles and reevaluation of reorganization costs. Despite some progress,
the transformation of the business and corresponding improved operating
results have been slower than originally anticipated. Fiscal 1996 results
did not achieve the operating levels achieved in fiscal 1995, primarily as
a result of shortfalls in anticipated revenues and margins.
The following table sets forth the Company's revenues and gross margins for
its product groups for fiscal 1996 and fiscal 1995 ($ in millions):
Revenues Gross Margin Gross Margin %
-------- ------------ --------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
Networks $397.2 $433.7 $92.1 $122.4 23.2% 28.2%
Storage 66.3 96.2 18.2 30.9 27.5% 32.1%
Service 346.1 351.6 82.6 96.6 23.9% 27.5%
Other 24.5 28.3 9.6 8.8 39.2% 31.1%
-------- -------- -------- -------- -------- --------
Total $834.1 $909.8 $202.5 $258.7 24.3% 28.4%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Networks revenues and gross margins declined when compared to fiscal 1995
as sales of network connectivity products have grown 31% but not enough to
offset the 26% decline in the sales of traditional fixed function display and
mainframe network products. While revenues from personal computer products have
remained relatively unchanged in the current year, gross margin dollars have
experienced a decline of 16% due to price competition. The decline in sales of
traditional fixed function display and mainframe network products was in line
with Company expectations as the market place continues to move quickly to open
systems. Since
10
<PAGE>
these products are among the Company's highest margin products, the decline in
their revenues had a significant unfavorable impact on gross margin dollars and
percentages in fiscal 1996. The Company expects growth in the sales of network
connectivity products next year as the market continues to move to open systems.
Storage revenues declined 31% in fiscal 1996 when compared to fiscal 1995.
The decline was primarily attributed to decreased sales of stand-alone tape and
tape library products in the current year. Sales of midrange storage products
were adversely affected by the Company's delayed launch of new products and
competitor announcements of new advanced products which further slowed sales.
Storage margins as a percentage of revenues when compared to the prior year
declined in the current year primarily as a result of price competition.
Service revenues have decreased slightly in fiscal 1996 when compared to
fiscal 1995 as the growth in advanced services revenue was exceeded by the
decline in revenues from traditional maintenance. Service gross margins as a
percentage of revenues declined as a result of increased price competition and
the change in mix of services provided. In fiscal 1996, margins suffered as the
decline in high margin traditional maintenance contracts has largely been
replaced with lower margin subcontracted services for cabling and third party
maintenance contracts partially offset by increased revenues from higher margin
advanced services products such as network design, support, and installation.
The Company expects the continued erosion of traditional maintenance contract
revenues and continued growth in the advanced services market. To capitalize on
the Company's strengths and reduce the gross margin impact of these trends, a
highly trained and experienced consulting services group has been established to
especially focus resources and target opportunities to provide services to the
higher margin segments of the growing advanced services market.
Other revenues have declined in the current year as a result of declines in
brokerage and media, while margins were relatively flat due to the increase of
higher margin revenues.
The Company estimates that the weaker U.S. dollar, when compared with the
prior year, favorably affected revenues approximately $24.6 million and margins
approximately $9.1 million in the current year.
Selling, general and administrative expenses in fiscal 1996 declined $35.7
million when compared to fiscal 1995. The decline reflects the impact of re-
engineering processes to reduce administrative costs and reductions provided by
the Company's transition from a hardware manufacturer to a solutions provider
which requires less investment in development and engineering. Additionally,
the continued effect of the Company's cost reduction programs have favorably
affected selling, general and administrative expenses in the current year. The
weaker U.S. dollar, when compared with the prior year, unfavorably affected
selling, general and administrative expenses by approximately $4.5 million when
compared with fiscal 1995. Management will continue to take actions to reduce
operating costs to a level commensurate with the level of expected future
revenues.
11
<PAGE>
Other income and expenses for fiscal 1996 reflect a net other income of
$4.5 million, compared with a net other expense of $2.5 million in fiscal 1995.
The increase in the current year is attributed to increased foreign currency
gains and gains recognized from the sale of assets.
Interest expense has declined slightly when compared with the prior year.
Interest includes amounts paid in respect to off balance sheet financing of
accounts receivable. Due to an amendment entered into during the fourth quarter
of fiscal year 1996, the potential discount available under the Credit Facility
was eliminated and as such, the Credit Facility debt was adjusted to reflect the
full principal amount due, thereby resulting in a charge to expense of $12.8
million. The Company accreted $7.9 million during fiscal 1996 for the loss of
debt forgiveness prior to the signing of the amendment in the fourth quarter.
The Company does not believe that inflation has had a material impact on
its results of operations.
12
<PAGE>
TWELVE MONTHS ENDED MARCH 31, 1995 ("FISCAL 1995") COMPARED WITH THE TWELVE
MONTHS ENDED MARCH 31, 1994 ("FISCAL 1994")
The Company's 1995 operating income, excluding the amortization of
intangibles and realignment costs, has improved from a loss of $57.0 million in
fiscal 1993 to a gain of $40.3 million and $55.7 million for fiscal 1995 and
1994, respectively, all calculated on the same basis. Fiscal 1995 results did
not achieve the operating levels achieved in fiscal 1994 nor the operating
results anticipated in the Company's forecast of operations included in the
Reorganization Plan, primarily as a result of shortfalls in anticipated revenues
and margins.
The following table sets forth the Company's revenues and gross margins for
its product groups for fiscal 1995 and fiscal 1994 ($ in millions):
Revenues Gross Margin Gross Margin %
-------- ------------ --------------
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
Networks $433.7 $491.3 $122.4 $156.3 28.2% 31.8%
Storage 96.2 125.2 30.9 34.6 32.1% 27.6%
Service 351.6 348.1 96.6 107.6 27.5% 30.9%
Other 28.3 51.0 8.8 11.4 31.1% 22.3%
-------- -------- -------- -------- -------- --------
Total $909.8 $1,015.6 $258.7 $309.9 28.4% 30.5%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Networks revenues and gross margins declined when compared to fiscal 1994
as sales of network connectivity products have grown 52% but not enough to
offset the 30% decline in the sales of traditional fixed function display and
mainframe network products. Revenues and gross margins from personal computer
products have remained relatively unchanged in the current year. The decline in
sales of traditional fixed function display and mainframe network products has
been faster than expected as the market place continues to move quickly to open
systems. Since these products are among the Company's highest margin products,
the decline in their revenues had a significant unfavorable impact on gross
margin dollars and percentages in fiscal 1995. The Company expects the decline
in revenues from traditional fixed function display and mainframe network
products and growth in the sales of network connectivity products to continue as
the market continues to move to open systems.
Storage revenues declined 23% in fiscal 1995 when compared to fiscal 1994.
The decline was primarily attributed to the phase-out sale of mainframe disk
storage products in the prior year and lower than expected sales of midrange
storage products in the current year. Sales of midrange storage products were
adversely affected by the Company's delayed launch of new products and
competitor announcements of new advanced products which further slowed sales.
Storage margins as a percentage of revenues when compared to the prior year
improved in the current year primarily as a result of improved margins achieved
on the sale of tape and tape library products and from sales of new disk array
products.
Service revenues have increased slightly in fiscal 1995 when compared to
fiscal 1994 as the growth in advanced services revenue exceeded the decline in
revenues from traditional maintenance. Service gross margins as a percentage of
revenues declined however, as a result
13
<PAGE>
of increased price competition and the change in mix of services provided. In
fiscal 1995, margins suffered as the decline in high margin traditional
maintenance contracts has largely been replaced with lower margin subcontracted
services for cabling and third party maintenance contracts partially offset by
increased revenues from higher margin advanced services products such as network
design, support, and installation. The Company expects the continued erosion of
traditional maintenance contract revenues and continued growth in the advanced
services market. To capitalize on the Company's strengths and reduce the gross
margin impact of these trends, a highly trained and experienced consulting
services group has been established to especially focus resources and target
opportunities to provide services to the higher margin segments of the growing
advanced services market.
Other revenues and margins have declined in the current year as a result of
declines in brokerage, media and original equipment manufactured parts sales.
The Company estimates that the weaker U.S. dollar, when compared with the
prior year, favorably affected revenues approximately $24.0 million and margins
approximately $14.0 million in the current year.
Selling, general and administrative expenses in fiscal 1995 declined $32.7
million when compared to fiscal 1994. The decline reflects the impact of
re-engineering processes to reduce administrative costs and reductions provided
by the Company's transition from a hardware manufacturer to a solutions
provider which requires less investment in development and engineering.
Additionally, the continued effect of the Company's cost reduction programs have
favorably affected selling, general and administrative expenses in the current
year. The weaker U.S. dollar, when compared with the prior year, unfavorably
affected selling, general and administrative expenses by approximately $4.0
million when compared with fiscal 1994. Management will continue to take
actions to reduce operating costs to a level commensurate with the level of
expected future revenues.
Effective October 31, 1994, the Company suspended indefinitely the accrual
of benefits under its U.S. defined benefit pension plan. This suspension was
accounted for as a curtailment under Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits." This curtailment
resulted in the Company recording a gain of $9.7 million during fiscal 1995.
Other income and expenses for fiscal 1995 reflect a net other expense of
$2.5 million, compared with a net other income of $4.2 million in fiscal 1994.
The decline in the current year is attributed to increased foreign currency
losses and a decrease in the gains recognized from the sale of assets. These
declines were partially offset by decreased equity losses from investments and
increased royalty income in the current year.
Amortization of intangibles significantly increased when compared with the
prior year due to the approval of the Reorganization Plan which required the
application of "fresh start" reporting for the Company (See Note 2 of the March
31, 1996 Consolidated Financial Statements). The Company's reorganization value
in excess of amounts allocated to identifiable assets was amortizing over a
thirty year period prior to the application of "fresh
14
<PAGE>
start". The Reorganized Company is amortizing the reorganization value in
excess of amounts allocated to identifiable assets over a three year period.
During the fourth quarter of fiscal year 1996, the Company wrote-off the
reorganization value in excess of amounts allocated to identifiable assets
(see Note 2 of the March 31, 1996 Consolidated Financial Statements).
Interest expense has significantly declined when compared with the prior
year due to the successful restructuring of the Company's indebtedness which
converted a significant portion of debt to equity. Interest includes amounts
paid in respect to off balance sheet financing of accounts receivable.
The Company does not believe that inflation has had a material impact on
its results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements for the Company, notes thereto and
related schedules are annexed hereto as pages 27 through 56. An index to such
materials is set forth at page 24.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company was formed in 1986 under Netherlands law and, since its
formation, has had a voluntary two-tier management system consisting of a
Management Board and a Supervisory Board. The Management Board is responsible
for the management and operation of the Company and for its dealings with third
parties. Each member of the Management Board has the power to represent and
legally bind the Company. The Supervisory Board assists the Management Board by
rendering advice and supervises the policy of the Management Board and the
general business of the Company. Members of the Supervisory Board do not have
the power to represent or legally bind the Company. The members of both the
Management Board and the Supervisory Board are appointed by the stockholders of
the Company. Under the laws of the Netherlands, the Company is not required to
have a Supervisory Board. The Company maintains the Supervisory Board, which
may consist only of individuals who are not members of the Management Board, to
assure adequate supervision of the policy of the Management Board and the
general business of the Company.
SUPERVISORY BOARD
The following information is furnished with respect to each incumbent
member of the Supervisory Board. All members are citizens of the United States
and have served on the Supervisory Board since June 1994 except Catherine Y.
Selleck who was elected to the Supervisory Board on September 30, 1994. Hon.
Peter H. Dailey resigned from the Supervisory Board as of March 31, 1996 to
become the Company's Chief Executive Officer. Each member of the Supervisory
Board is entitled to receive a $25,000 annual fee and $1,000 per diem (including
travel time) plus reimbursement for all out-of-pocket expenses incurred in
connection with attendance at meetings of the Supervisory Board and committees
of the Supervisory Board. The amount of these fees was set by the stockholders
of the Company.
HON. PETER H. DAILEY, 66, has been the Chairman of Enniskerry Financial
Ltd. since 1985. He was previously United States Ambassador to Ireland and
Special Envoy to NATO, and thereafter was a member of the President's Advisory
Commission on Arms Control and Disarmament. He also served as Vice Chairman of
the Interpublic Group of Companies and the Dailey Group. Mr. Dailey is
currently a director of Chicago Title and Trust Company, Sizzler International,
Inc., Pinkerton's, Inc., and Jacobs Engineering Group Inc. Also, Mr. Dailey
previously also served as a director of the Walt Disney Company and the
Interpublic Group of Companies.
HAROLD FIRST, 60, has been an independent financial consultant since
January 1993. From December 1990 through December 1992, Mr. First was the Chief
Financial Officer of Icahn Holding Corp. Mr. First is currently a director of
Taj Mahal Realty Corporation, Tel-Save Holdings, Inc. and Cadus Pharmaceutical
Corporations. Mr. First also previously served as a director of ACF Industries,
Inc., American Property Investors, Inc., Trans World Airlines, Inc., and Taj
Majal Holding Corporation.
16
<PAGE>
MICHAEL S. GROSS, 35, is one of the founding principals of Apollo Advisors,
L.P. which, together with certain affiliates, acts as managing general partner
of Apollo Investment Fund, L.P., AIF II, L.P., and the recently formed Apollo
Investment Fund III, L.P. (collectively, the "Apollo Funds"), private securities
investment funds, and of Lion Advisors, L.P. which acts as financial advisor to
and representative for certain institutional investors with respect to
securities investments. Prior to 1990, Mr. Gross was an investment banker with
Drexel Burnham Lambert Incorporated. Mr. Gross is currently a director of Buster
Brown Apparel, Inc., Converse, Inc., The Florsheim Shoe Company, Furniture
Brands International, Inc., Profitt's, Inc., and UROHEALTH, Inc.
JOSHUA J. HARRIS, 32, has been a limited partner of Apollo Advisors and
Lion Advisors since 1990. Apollo Advisors, together with certain affiliates,
acts as managing general partner of the Apollo Funds. Lion Advisors acts as
financial advisory to and representative for certain institutional investors
with respect to securities investments. Mr. Harris is currently a director of
Brueners Home Furnishings, Inc., Converse, Inc., The Florsheim Shoe Company,
Inc., and Furniture Brands International, Inc.
WALTER J. HUMANN, 58, has been with Hunt Consolidated, Inc., since 1975.
During that period he has held various executive positions, including Director,
Chief Operating Officer, and Chairman of the Executive Committee. Earlier, he
was Vice President for commercial operations, LTV Corporation. He has degrees
from M.I.T., Harvard Business School, and SMU Law School. Mr. Humann is
currently a director of the RAND Corporation. Mr. Humann previously also
served as a director of various manufacturing, service, and financial
organizations.
JAMES E. OUSLEY, 50, has been employed by the Control Data Corporation
since 1968 in a number of positions, including Chief Executive Officer and
President of Control Data Systems, Inc., from 1992 to the present, President,
Computer Products Group from 1989 to 1991, Vice President - Marketing and Sales,
Computer Products Group in 1989, Vice President - World Wide Sales and Services,
Imprimus Technology Incorporated from 1988 to 1989, and Vice President - Sales
and Strategies Alliance, Data Storage Products Group from 1987 to 1988. Mr.
Ousley is currently a director of Control Data Systems, Inc., and Metaphase
Technology, Inc.
CATHERINE Y. SELLECK, 62, has been an independent consultant to the
computer industry since January 1994. From January 1992 through January 1994,
Ms. Selleck was the President and Chief Executive Officer of Metaphor, Inc. Ms.
Selleck is currently a director of Right Management Consultants, Inc.
Previously, Ms. Selleck held several executive positions with IBM Corporation,
including Corporate Director of Office and Decision Support Systems from 1989 to
1991, Vice President, Field Operations, National Distribution Divisions from
1986 to 1988, and Vice President, Information Systems and Administration,
National Distribution Division from 1984 to 1985.
17
<PAGE>
MANAGEMENT BOARD
The following information is furnished with respect to each incumbent
member of the Management Board. All executive authority to make policy
decisions emanates from the Management Board.
DAVID J. FAULKNER, 57, is the Managing Director and the Chief Financial
Officer of the Company. He is also the Chief Financial Officer of Memorex Telex
Corporation and the Vice Chairman of its Board of Directors. Mr. Faulkner has
served as Chief Financial Officer of the Company since October 1989. Prior to
his employment with the Company, Mr. Faulkner was a Senior Partner with Arthur
Young & Co. Mr. Faulkner is a citizen of the United States.
ABN Trustcompany (Nederland) B.V. ("ABN") also serves as a member of the
Management Board. Under a management agreement, ABN performs certain
administrative functions for the Company. The management agreement provides for
the payment by the Company of an annual management fee of DFL. 10,000, an annual
administration fee of DFL. 2,000, and the out-of-pocket expenses incurred by
ABN in the performance of its duties. The management agreement may be
terminated by either party upon 30-day notice given prior to each anniversary
date. In addition, ABN may resign as a member of the Management Board at any
time by giving two months notice to the other members of the Management Board.
Hon. Peter H. Dailey resigned from the Supervisory Board as of March 31,
1996 to become the Company's Chief Executive Officer. The Supervisory Board of
the Company intends to nominate Mr. Dailey for election to the Management Board
of the Company at the annual general meeting of stockholders of the Company to
be held no later than September 30, 1996.
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table provides information about the compensation for Messrs.
Gumucio, Faulkner, Morin, (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION (2) COMPENSATION
----------------------------------------- --------------
AWARDS
OTHER -------------- ALL
ANNUAL SECURITIES OTHER
COMPEN- UNDERLYING COMPEN-
SATION OPTIONS/ SATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (3) SARS (5)
--------------------------- ---- ------ ----- ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Marcelo A. Gumucio 1996 $ 800,000 $ 412,500 $ 186,307 0 $ 1,585
Chairman, President and 1995 800,000 420,000 441,800 875,000 (4) 1,480
Chief Executive Officer (1) 1994 900,000 1,000,000 600
David Faulkner 1996 400,000 226,125 16,125 0 9,500
Vice Chairman and Chief 1995 400,000 120,000 370,000 150,000 (4) 2,225
Financial Officer 1994 500,000 500,000 600
Rudolph G. Morin 1996 305,760 155,387 0 0 11,307
Senior Vice-President (6) 1995 315,000 75,000 292,633 50,000 (4) 1,745
</TABLE>
- - - ------------------------------
(1) Mr. Gumucio resigned from the Company in March 1996.
(2) Compensation information is provided for fiscal 1996, 1995, and 1994.
(3) The amounts listed, for 1995, include discretionary relocation allowances
$387,000 for Mr. Gumucio, $370,000 for Mr. Faulkner and $292,633 for Mr.
Morin.. The amounts listed for 1996 include discretionary relocating
allowances of $132,461 for Mr. Gumucio and $16,125 for Mr. Faulkner. Mr.
Gumucio also received $53,846 in vacation allowance.
(4) The numbers listed are for employee stock options granted during fiscal
1995. As of March 31, 1995, no options have been exercised.
(5) The amounts listed are contributions paid by the Company to their 401(k)
plan for the benefit of each of Messrs. Gumucio, Faulkner, and Morin.
(6) Mr. Morin resigned from the Company in March 1996.
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with Messrs. Dailey and
Faulkner. The following is a summary of the principal terms of these
agreements.
The term of Mr. Dailey's employment agreement as the Chief Executive
Officer of the Company commenced on April 1, and will continue until March 31,
1997. This initial term will be automatically renewed for successive one year
periods unless either party provides the other with three (3) months notice of
termination. Mr. Dailey is entitled to an annual base salary of $500,000 and an
annual incentive bonus of up to 100% of his base salary, based upon performance
goals. The employment agreement provides for the grant of options to purchase
250,000 shares of the Company's common stock in accordance with the terms of the
Company's Amended and Restated Stock Option Plan for Management. The employment
agreement also provides for the participation in all employee incentive and
benefit programs of the Company including the Company's pension plan, and
certain perquisites. Upon any
19
<PAGE>
termination of Mr. Dailey's employment by the Company without cause, he will be
entitled to continued payments of his then-current annual base salary for the
current term of employment.
The current employment agreement for Mr. Faulkner provides for his
employment as Vice Chairman, Chief Financial Officer, and Managing Director of
the Company. Mr. Faulkner receives an annual base salary of $400,000 and
participates in the Company's management incentive plan, stock option plan, and
U.S. employee benefits program. The employment agreement provides for a
guaranteed incentive plan payment of $180,000 for the fiscal year ending March
31, 1997. Mr. Faulkner's employment may be terminated by either party upon
60-day notice. Upon any termination of Mr. Faulkner's employment by the Company
without cause he will be entitled to a severance payment equal to his then
current annual base salary. The employment agreement further provides for a two
year severance payment if he is terminated without cause within twelve months of
a change in control or a fundamental securities transaction. Upon any
termination by the Company without cause, Mr. Faulkner in entitled to certain
healthcare benefits, outplacement assistance of up to $25,000, and relocation
assistance. "Change in control" is defined to include (i) any person or group,
other than current shareholders or debtholders, becoming the beneficial owner of
at least 35% of the Company's voting stock, if Mr. Faulkner is terminated within
60 days thereafter, or 50% of the Company's voting stock, (ii) any adoption of a
liquidation plan by the Company, and (iii) any disposition of the business of
the Company by sale, merger, consolidation, or other transaction. Fundamental
Securities Transaction is defined to mean the purchase or agreement to purchase
by any person or group any securities, whether convertible to common stock or
not, which carries with it the right of the purchasing person or group to
purchase 35% or more of the Company's voting capital securities at any time.
20
<PAGE>
PENSION PLANS
The Company does not maintain a unified pension plan for its employees, but
rather maintains separate pension plans in most of the countries in which the
Company or its subsidiaries operate.
The pension plan for the United States is the Memorex Telex Employees'
Pension Plan (the "Pension Plan"). The following table shows the estimated
annual benefits payable upon retirement, assuming the final average compensation
and years of service indicated.
PENSION PLAN TABLE
Remuneration Years of Service
- - - ------------ -----------------------------------------------
15 20 25 30 35
------- ------- ------- ------- -------
$125,000 $26,302 $35,069 $43,836 $52,603 $61,370
$150,000 and above $31,927 $42,569 $53,211 $63,853 $74,495
Benefits are calculated based on the following formula: 1% of Final Average
Compensation times Years of Service (maximum 35 years), plus 0.5% of Final
Average Compensation in excess of Social Security Covered Compensation times
Years of Service (maximum 35 years). The foregoing table takes into account the
earnings limit of $150,000 for qualified defined benefit pension plans imposed
by Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, which
provision became effective on January 1, 1994. Benefits shown in the table are
not subject to reduction for social security benefits or other offsetting
amounts. Benefits under the Pension Plan vest after five years of service.
Covered compensation includes salaries and bonus awards from participation in
the Company's management bonus plan up to the maximum recognizable compensation
permitted for qualified pension plans. On October 31, 1994 benefit accrual in
the pension plan was suspended. The foregoing table reflects the years of
service, Final Average Compensation, and Covered Compensation as of October 31,
1994.
Mr. Faulkner is a participant in the Pension Plan. Mr. Faulkner is also
entitled to supplemental retirement benefits. The estimated annual benefits
payable to Mr. Faulkner under the Pension Plan upon retirement at age 65 are
$8,944, and under his supplemental retirement benefit agreement at age 60 are
$24,013.
STOCK OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
There were no new stock option grants for the period ending March 31, 1996.
21
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 31, 1996, with respect
to the beneficial ownership of shares of the Common Stock by all persons
believed by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Common Stock, by the Named Executive Officers, by
members of the Management Board and Supervisory Board, and by all Named
Executive Officers, all members of the Management Board and Supervisory Board
and the nominee for the Supervisory Board as a group. The information set forth
below is based upon the Company's records, and information obtained by the
Company from the persons named below:
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS (1)
- - - ------------------------------------ -------------------- -----------
Apollo Investment Fund. L.P.
c/o CIBC Bank and Trust Company
(Cayman) Limited
Edward Street
Georgetown, Grand Cayman
Cayman Islands
British West Indies
-and-
Lion Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577 4,255,279 (2) 14.38%
Carl C. Icahn
100 South Bedford Road
Mount Kisco, New York 10549 2,201,248 (3) 7.44%
Hon. Peter H. Dailey 250,000 (4) *
David J. Faulkner 150,000 (5) *
All Named Executive Officers, members of the
Management Board and Supervisory Board and
nominee for the Supervisory Board, as a group
(12 persons) 1,075,000 (6) 3.63%
* Less than 1%.
(1) Based upon the aggregate number of shares of Common Stock outstanding and
the number of shares of Common Stock issuable upon exercise of stock
subscription warrants (the "$2.00 Warrants") to purchase shares of Common
Stock at $2 per share, issuable upon exercise of
22
<PAGE>
stock subscription warrants (the "$14.00 Warrants") to purchase shares of
Common Stock at $14 per share, and issuable upon exercise of stock options
granted under the Company's Stock Option Plan.
(2) Includes (i) 3,465,847 shares of Common Stock, (ii) 512,148 shares of
Common Stock issuable upon exercise of $2.00 Warrants, and (iii) 277,284
shares of Common Stock issuable upon exercise of $14.00 Warrants. Apollo
Investment beneficially owns 904,738 shares of Common Stock, $2.00 Warrants
representing the right to purchase 134,840 shares of Common Stock, and
$14.00 Warrants representing the right to purchase 59,479 shares of Common
Stock. AIF beneficially owns 601,219 shares of Common Stock and $2.00
Warrants representing the right to purchase 89,604 shares of Common Stock.
The managing general partner of both Apollo Investment and AIF is Apollo
Advisors, and the administrative general partner of both Apollo Investment
and AIF is Apollo Fund Administration Limited. Lion Advisors, beneficially
owns, for the benefit of certain investment accounts, 1,959,890 shares of
Common Stock and $2.00 Warrants representing the right to purchase 287,704
shares of Common Stock. and $14.00 Warrants representing the right to
purchase 217,805 shares of Common Stock. Lion Advisors has sole voting and
dispositive power with respect to such investment accounts.
(3) Includes (i) 2,065,541 shares of Common Stock, and (ii) 135,707 shares of
Common Stock issuable upon exercise of $14.00 Warrants. Tortoise Corp.
("Tortoise") beneficially owns 2,187,075 shares of Common Stock, and
Chelonian Corp. ("Chelonian") beneficially owns 14,173 shares of Common
Stock (including in each case shares of Common Stock issuable upon exercise
of $14.00 Warrants). Tortoise is a wholly-owned subsidiaries of
Chelonian. Chelonian is a wholly-owned indirect subsidiary of Highcrest
Investors Corp., which is approximately 99.5% owned by Icahn Holding
Corporation. Mr. Icahn is the sole stockholder of Icahn Holding Company.
(4) Includes 250,000 shares of Common Stock issuable upon exercise of stock
options granted under the Company's Stock Option Plan.
(5) Includes 150,000 shares of Common Stock issuable upon exercise of stock
options granted under the Company's Stock Option Plan.
(6) Includes 1,075,000 shares of Common Stock issuable upon exercise of stock
options granted under the Company's Stock Option Plan. Does not include
4,255,242 shares of Common Stock beneficially owned by Apollo Investment,
AIF, and Lion Advisors, with which Messrs. Gross and Harris are associated.
See "Supervisory Board - Incumbent Members of the Supervisory Board."
Messrs. Gross and Harris disclaim beneficial ownership of the shares of
Common Stock owned beneficially by Apollo Investment, AIF, and Lion
Advisors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
1. Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets at March 31, 1996 and 1995
Years ended March 31, 1996, 1995 and 1994:
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders' Equity
(Deficit)
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule, years ended March 31, 1996, 1995
and 1994:
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because the information is not
applicable or is not material or has been included in the Consolidated Financial
Statements or the notes thereto.
(b) REPORTS ON FORM 8-K
On April 4, 1996, the registrant filed a current report on Form 8-K
reporting the resignation of Marcelo Gumucio, on March 19, 1996, as Chief
Executive Officer and as a Member of the Management Board of the Company.
Effective March 31, 1996, Peter H. Dailey, who had previously been Chairman of
the Company's Supervisory Board, became its Chief Executive Officer.
Additionally, effective March 22, 1996, Memorex Telex Corporation, a
subsidiary of the Company, entered into a Credit and Guaranty Agreement with
Foothill Capital Corporation pursuant to which it borrowed $12 million through a
two-year term loan facility to be used for the purchase of additional inventory.
In connection with the Foothill Agreement, the Company sought and received
from its existing lenders a modification of the existing credit facility
deferring interest payments accruing prior to March 31, 1996, and scheduled
principal payments until maturity of the Foothill Agreement. In consideration
for the modification, the Company agreed to additional covenants which include
additional reporting and financial conditions and an increase in the effective
interest rate of 1%.
24
<PAGE>
(c) EXHIBITS
2.1* Disclosure Statement dated January 6, 1994.
2.2* Joint Plan of Reorganization confirmed by the United States
Bankruptcy Court for the District of Delaware on March 14, 1994,
and effective on March 24, 1994.
3.1** English translation of Restated Articles of Association of Memorex
Telex N.V.
4.1* Specimen Certificate for common stock, DFL. 0.10 nominal value per
share, of the Company.
4.2* Form of $2.00 Warrant.
4.3* Form of $14.00 Warrant.
10.11* Management Agreement dated as of October 23, 1986, between ABN
Trust Company and Memorex Telex N.V.
10.12* Technology Transfer Agreement dated as of May 11, 1990 between
Memorex Telex Corporation and American Telephone and Telegraph
Company (the "AT&T Agreement").
10.13** Settlement Agreement and Stipulation dated as of February 5, 1992,
between Memorex Telex Corporation, Memorex Corporation and Tulsa
Computer Products, Ltd. and the Department of Justice.
10.14*** Amending Agreement dated February 3, 1994 to the AT&T Agreement.
10.15*** Restructured Credit and Guaranty Agreement dated as of March 24,
1993 among certain subsidiaries of the Company as Borrowers and
Guarantors, the Company as Guarantor, the Lenders listed therein
and Morgan Guaranty Trust Company of New York as Agent.
10.15(a)**** Amendment No. 1 to the Restructured Credit and Guaranty Agreement.
10.15(b)**** Amendment No. 2 to and Waiver under the Restructured Credit and
Guaranty Agreement.
10.15(c) Amendment and Waiver No. 3 under Restructured Credit and Guaranty
Agreement.
10.15(d) Amendment No. 4 to Restructured Credit and Guaranty Agreement.
10.15(e) Amendment No. 5 to Restructured Credit and Guaranty Agreement.
10.15(f) Amendment No. 6 to Restructured Credit and Guaranty Agreement.
10.21** Employment Agreement dated as of November 4, 1992, between the
Company and Marcelo A. Gumucio.
_____________________________________
* Previously filed as an Exhibit to the Company's Registration
Statement on Form S-4 (Registration No. 33-67988) and incorporated
herein by reference.
** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1993 and incorporated
herein by reference.
*** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1994 and incorporated
herein by reference.
**** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1995 and incorporated
herein by reference.
25
<PAGE>
10.21(a)**** Amendment No. 1 effective as of April 1, 1995 to the Employment
Agreement made as of November 4, 1992, between the Company and
Marcelo A. Gumucio.
10.22*** Employment Agreement dated as of June 29, 1993, between the Company
and Rudolph G. Morin.
10.23*** Employment Agreement dated as of April 1, 1994, between the Company
and David J. Faulkner.
10.23(a)*** Amended and Restated Employment Agreement effective as of April 1,
1995, between the Company and David J. Faulkner.
10.23(b) Employment Agreement dated as of April 1, 1996, between the Company
and Peter H. Dailey.
10.24 Credit and Guaranty Agreement dated as of March 5, 1996 among
certain subsidiaries of the Company as borrowers and guarantors,
the Company as guarantor and Foothill Capital Corporation.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
- - - -------------------------------------
*** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1994 and incorporated
herein by reference.
**** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1995 and incorporated
herein by reference.
26
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Supervisory Board
Memorex Telex N.V.
We have audited the accompanying consolidated balance sheets of Memorex
Telex N.V. and subsidiaries (the "Company") as of March 31, 1996 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
March 31, 1996. Our audits also included the financial statement schedule listed
in the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. 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
Memorex Telex N.V. and subsidiaries at March 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that Memorex Telex N.V. will continue as a going concern which
contemplates realization of assets and the liquidation of liabilities in the
ordinary course of business. During the 1996 fiscal year, the Company incurred
significant negative operating cash flow and as of March 31, 1996, has a
significant working capital deficiency which includes significant debt repayment
obligations during fiscal year 1997. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Memorex Telex N.V.
plans to deal with these issues as described in Note 1, Financial Condition and
Future Financial Plans. The financial statements do not include any adjustments
of assets or the amounts and classification of liabilities that may result from
the outcome of this uncertainty.
ERNST & YOUNG LLP
Dallas, Texas
June 28, 1996
27
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
MAR. 31, 1996 MAR. 31, 1995
------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents including restricted
deposits and guarantees of $7,592 and $14,669
at March 31, 1996 and 1995, respectively $ 26,838 $ 36,886
Accounts receivable, less allowance for doubtful
accounts of $10,161 and $12,357 at
March 31, 1996 and 1995, respectively 108,021 113,213
Inventories, primarily finished goods 34,891 30,730
Service parts 31,697 35,765
Other current assets 4,104 3,756
--------- ---------
Total current assets 205,551 220,350
Property, plant and equipment, net 28,622 33,866
Reorganization value in excess of amounts
allocable to identifiable assets, net 0 250,245
Other assets 33,995 32,005
--------- ---------
$ 268,168 $ 536,466
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current debt obligations $ 114,578 $ 15,960
Accounts payable 119,197 119,997
Accrued liabilities 169,098 183,262
--------- ---------
Total current liabilities 402,873 319,219
Debt obligations 4,903 71,475
Other long-term liabilities 137,743 176,599
Stockholders' Deficit:
Common stock, 124,996,000 shares each with a
nominal value of ten Dutch cents (DFL 0.10)
authorized; 25,076,665 and 25,053,296 shares
issued and outstanding in 1996 and 1995,
respectively 1,338 1,336
Additional paid-in capital 73,726 73,702
Accumulated deficit (354,749) (108,011)
Foreign currency translation adjustment 2,334 2,146
--------- ---------
Total stockholders' deficit (277,351) (30,827)
--------- ---------
$ 268,168 $ 536,466
--------- ---------
--------- ---------
See accompanying notes.
28
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for share amounts)
<TABLE>
<CAPTION>
PREDECESSOR
REORGANIZED COMPANY COMPANY
---------------------------- -----------
Year Ended March 31,
-----------------------------------------
1996 1995 | 1994
----------- ----------- | -----------
<S> <C> <C> | <C>
Revenues $ 834,053 $ 909,751 | $ 1,015,574
Cost of revenues 631,593 651,027 | 705,660
----------- ----------- | -----------
Gross margin 202,460 258,724 | 309,914
Selling, general, and administrative expenses 189,982 225,676 | 258,400
Curtailment gain on benefit plan 0 (9,744) | 0
Amortization of intangibles 224,456 125,122 | 23,459
Other (income) expenses, net (4,503) 2,530 | (4,192)
----------- ----------- | -----------
Operating income (loss) (207,475) (84,860) | 32,247
Interest income 1,281 1,083 | 3,344
Interest expense (19,844) (20,127) | (100,433)
Accretion of debt forgiveness discount (20,700) 0 | (20,455)
----------- ----------- | -----------
Loss before reorganization items and |
income taxes (246,738) (103,904) | (85,297)
Reorganization items: |
Fair value adjustments 0 0 | (342,712)
Loss on restructuring of operations 0 0 | (51,558)
Reorganization related professional fees 0 0 | (12,266)
----------- ----------- | -----------
Loss before income taxes (246,738) (103,904) | (491,833)
Provision for income taxes 0 (4,107) | (10,158)
----------- ----------- | -----------
Loss before extraordinary items (246,738) (108,011) | (501,991)
Extraordinary item, gain on extinguishment of debt 0 0 | 728,996
----------- ----------- | -----------
Net income (loss) $ (246,738) $ (108,011) | $ 227,005
----------- ----------- | -----------
----------- ----------- | -----------
Net loss per common share $ (9.84) $ (4.32) | *
Weighted average common shares outstanding 25,068,626 25,014,724 | *
</TABLE>
See accompanying notes.
29
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
PREDECESSOR
REORGANIZED COMPANY COMPANY
---------------------------- -----------
Year Ended March 31,
-----------------------------------------
1996 1995 | 1994
----------- ----------- | -----------
<S> <C> <C> | <C>
Cash flows from operating activities: |
Loss before extraordinary item $ (246,738) $ (108,011) | $ (501,991)
|
Adjustments to reconcile loss before extraordinary |
item to net cash provided (used) by operating |
activities: |
Depreciation and amortization 235,032 135,171 | 38,359
Gain from asset sales (6,549) 0 | 0
Curtailment gain on benefit plan 0 (9,744) | 0
Accretion of debt forgiveness discount 20,700 0 | 20,455
Realignment and reorganization charges 0 0 | 397,520
Interest on 10% Senior Guaranteed Notes, |
paid in additional notes 0 0 | 28,176
Changes in components of working capital |
excluding short-term debt 1,265 (7,761) | (11,114)
Other long-term liabilities (36,929) 8,055 | (20,900)
Other assets 2,790 (700) | 18,495
Other 6 (1) | (2,634)
----------- ----------- | -----------
Net cash provided (used) by operating activities (30,423) 17,009 | (33,634)
|
Cash flows from investing activities: |
Proceeds from asset sales 13,924 14,173 | 35,238
Capital expenditures (4,921) (9,309) | (6,220)
----------- ----------- | -----------
Net cash provided (used) by investment activities 9,003 4,864 | 29,018
|
Cash flows from financing activities: |
Issuance of common stock 26 38 | 0
Issuance of debt 26,322 37,676 | 23,355
Redemption of debt (14,976) (48,028) | (37,054)
----------- ----------- | -----------
Net cash provided (used) by financing activities 11,372 (10,314) | (13,699)
----------- ----------- | -----------
|
Net increase (decrease) in cash and cash equivalents (10,048) 11,559 | (18,315)
|
Cash and cash equivalents at beginning of year 36,886 25,327 | 43,642
----------- ----------- | -----------
Cash and cash equivalents at end of year $ 26,838 $ 36,886 | $ 25,327
----------- ----------- | -----------
----------- ----------- | -----------
</TABLE>
See accompanying notes.
30
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Foreign Total
Additional Accum- Currency Stockholders'
Common Paid-in ulated Translation Equity
Stock Capital Deficit Adjustment (Deficit)
----- ------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
- - - --------------------
Balances at March 31, 1993 $ 5,455 $ 169,667 $ (395,822) $ (3,270) $ (223,970)
Net income 0 0 227,005 0 227,005
Foreign currency
translation adjustment 0 0 0 (3,035) (3,035)
Issuance of stock and
application of fresh start
reporting (4,122) (96,000) 168,817 6,305 75,000
---------- ---------- ---------- ---------- ----------
REORGANIZED COMPANY:
- - - --------------------
Balances at March 31, 1994 1,333 73,667 0 0 75,000
Issuance of common stock 3 35 0 0 38
Net loss 0 0 (108,011) 0 (108,011)
Foreign currency
translation adjustment 0 0 0 2,146 2,146
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1995 1,336 73,702 (108,011) 2,146 (30,827)
Issuance of common stock 2 24 0 0 26
Net loss 0 0 (246,738) 0 (246,738)
Foreign currency
translation adjustment 0 0 0 188 188
---------- ---------- ---------- ---------- ----------
Balances at March 31, 1996 $ 1,338 $ 73,726 $ (354,749) $ 2,334 $ (277,351)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
31
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. FINANCIAL CONDITION AND FUTURE FINANCIAL PLANS
The Company is continuing a comprehensive transformation from a
manufacturing to a provider of information technology solutions including the
distribution and integration of data network and storage products and the
provision of related services. The Company's revenues and gross margins
experienced declines of 8.3% and 21.7%, respectively, in fiscal year 1996 as
a result of insufficient working capital to accomplish the necessary
transformation, thereby causing a level of business activity lower than
planned. These declines have not been sufficiently offset by corresponding
declines in the operating costs of the Company.
Management's plans to deal with these working capital and operating issues
include the following: 1) Complete the sale of the stock of its operations in
Australia, Hong Kong, Singapore, and Taiwan (collectively referred to herein as
"Asia/Pacific Operations"), See Note 7 for further discussion, 2) Finalize the
agreements in principal with the Credit Facility and Term Loan lenders to cure
defaults that exist under these facilities, 3) Obtain additional financing from
financial and strategic investors, 4) Continue the transition of the Company as
specified in its business plan discussed below, and 5) Sell other operations as
necessary. There can be no assurance as to whether management's plans will be
successful or what other actions might become necessary.
The Company's business plan is to continue to transform from a developer
and manufacturer of computer hardware to a provider of networking and storage
solutions. As part of this transformation, the Company continues to re-engineer
its selling, service, product development, fulfillment, and finance and
administrative processes. A summary table of remaining reorganization and
realignment cost reserves is presented in Note 11. These initiatives should
continue to lower costs and are aimed at improving operating cash flow but will
require additional funding in order to implement all of the initiatives.
The financial statements have been prepared assuming that the Company will
continue as a going concern which contemplates the realization of assets and the
liquidation of liabilities in the normal course of business. However, if it is
necessary for the Company to attempt to sell additional operations in order to
accomplish management's plans and satisfy its various cash obligations, no
assurance can be given that the Company will be able to sell additional
operations or if such sales occur the Company will not incur substantial
additional losses or incur additional liabilities from such disposition program.
32
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles and are presented in
United States dollars. The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. All intercompany
balances and transactions have been eliminated. Certain reclassifications were
made to the prior years' balances to conform to the current year's presentation.
REORGANIZATION PLAN
Based on a solicitation of votes completed February 9, 1994, the Company
received support from the impaired debt and equity holders for a voluntary plan
of reorganization under chapter 11 of the United States Bankruptcy Code. On
March 24, 1994 the Company's prepackaged plan of reorganization (the
"Reorganization Plan") was confirmed and became effective. The Reorganization
Plan was accounted for pursuant to Statement of Position 90-7 ("SOP 90-7") of
the American Institute of Certified Public Accountants, entitled "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code". The
accompanying consolidated financial statements reflect the use of "fresh start"
reporting as required by SOP 90-7, in which assets and liabilities were adjusted
to their fair values and resulted in the creation of a new reporting entity (the
"Company" or the "Reorganized Company") with no retained earnings or accumulated
deficit as of March 31, 1994. Accordingly, the consolidated financial
statements for the periods prior to March 31, 1994 (the "Predecessor Company")
are not comparable to consolidated financial statements presented on or
subsequent to March 31, 1994. A black line has been drawn on the accompanying
consolidated financial statements and notes thereto to distinguish between the
Company and the Predecessor Company balances.
The Reorganization Plan provided for the exchange of the Predecessor
Company's debt and accrued interest for a substantially reduced amount of new
debt, all of the new common stock of the Company, and certain warrants to
purchase new common stock of the Company. The stockholders of the Predecessor
Company received warrants to purchase new common stock of the Company. See
Note 10 for additional information on the warrants exchanged.
As a result of the debt restructuring and the application of "fresh start"
accounting as required by SOP 90-7, a gain on the extinguishment of debt of
approximately $729.0 million and reorganization items of approximately $406.5
million were recorded in the prior year. See Note 11 for the detail of the
expenses included in reorganization items for the year ended March 31, 1996.
33
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
The Stockholders' deficit of the Predecessor Company was eliminated in the
restructuring as follows:
Stockholders' deficit before restructuring $ (322,460)
Reorganization costs and fair value adjustments (406,536)
Gain on debt restructure 728,996
------------
Stockholders' deficit after restructuring $ 0
------------
------------
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.
ACCOUNTS RECEIVABLE
The Company services a highly diversified customer base composed primarily
of Fortune 1000 corporations and foreign equivalents, large government
agencies, the financial community, and medical facilities, which mitigates
exposure to concentrations of credit risk. Trade receivables are generally due
between 45-60 days and collateral is generally not required. The Company
performs periodic credit evaluations of its customers' financial condition.
Excluded from accounts receivables are United States trade receivables sold
under an agreement with a financial institution to sell a portion of its United
States accounts receivable. The maximum amount of receivables which can be sold
is $40.0 million. At March 31, 1996 and 1995, the amount of United States
receivables sold were $38.3 and $40.0 million, respectively, and are reflected
as a reduction of accounts receivable in the Consolidated Balance Sheets. The
agreement can be terminated by either party on a monthly basis and, if
terminated, the Company would be forced to obtain additional working capital
financing. While the Company believes such agreements with the financial
institution will continue, there can be no assurances that such agreement will
continue.
INVENTORIES
Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market. Inventories associated with discontinued products
and lines of business are valued at estimated net realizable value as determined
using estimated selling prices less costs to dispose of the products.
34
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and primarily consists of
buildings and improvements, equipment, and furniture and fixtures. Depreciation
is computed using the straight-line method with lives ranging up to 30 years on
buildings and improvements, four years on office equipment, and 10 years on
equipment and furniture and fixtures. Accumulated depreciation is $16.5 million
and $9.0 million at March 31, 1996 and 1995, respectively.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
resulted from the application of "fresh start" reporting, as discussed above,
which requires the Predecessor Company's unidentified intangibles, net of
amortization, to be reduced to zero and a new amount to be recorded equaling the
excess of the fair value of the Company over the fair value allocated to its
identifiable assets. This excess is classified as reorganization value in
excess of amounts allocable to identifiable assets (the "Reorganization Value").
The reorganized value was originally determined to be amortized over a three-
year period.
In March 1996 it was determined that the remaining Reorganization Value was
not recoverable through future operations. This conclusion was based on a number
of factors including, but not limited to the continued decline in operating
results compared to the Reorganization Plan from which the Reorganization Value
was based and discussions with potential investors which provided an indication
as to an enterprise value for the Company. Accordingly, the residual
Reorganization Value, net of adjustments including the allocation of $16 million
of the reorganization value to the Asia/Pacific operations and certain other
restructuring reserve revaluations (see Note 11), of approximately $99.3 million
was included as a component of amortization of intangibles in the Consolidated
Statement of Operations.
ACCOUNTS PAYABLE
Included in accounts payable is approximately $17.6 million for the years
ended March 31, 1996 and 1995 which is due at various times up to September 1996
under an extended term agreement with a vendor which currently expires on March
31, 1997. The extended term agreement provides for outstanding product
purchases up to $18.0 million and bears interest at market rates. The payable
is collateralized by the Company's investment in an affiliate accounted for
under the equity method. The Company has certain other informal agreements with
major vendors where interest accrues on overdue accounts payable.
35
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
PRODUCT WARRANTY COSTS
The Company provides warranty on certain products for varying periods of
time up to three years and recognizes the estimated cost of warranty at the time
the sale is recorded.
FOREIGN CURRENCIES
Translation adjustments are recorded in the foreign currency translation
adjustment account included in stockholders' equity, and transaction gains or
losses are included in the results of operations for the period as part of other
income and expenses (approximately $3.4 million of net exchange gain in 1996,
approximately $5.5 million of net exchange loss in 1995, and approximately $4.7
million of net exchange gain in 1994).
REVENUE RECOGNITION
Revenue is recognized upon shipment or certification of acceptance
depending on individual contract terms. Service revenue is recognized ratably
over the term of the service contract.
CASH AND CASH EQUIVALENTS
Cash generally includes all highly liquid investments with a maturity of
three months or less, but also includes deposits principally used for guarantees
and sureties for casualty insurance, Company performance and customs. The
deposits and guarantees are restrictive and can extend for periods up to a year.
36
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
3. ASSET SALES
The Company had assets sales during fiscal 1996 with total proceeds of
$13.9 million, which consisted primarily of a portion of the common stock of an
investment in an affiliate.
In fiscal 1995, the Company completed a series of transactions which
disposed of land and buildings with total proceeds of $14.2 million. These
dispositions included two properties used for assembly and distribution located
in Tulsa, Oklahoma and Raleigh, North Carolina, a manufacturing facility which
was not in use located in Santa Clara, California, and office space located in
Tulsa, Oklahoma and in the United Kingdom.
The gains resulting from these asset sales were approximately $6.5 million
and $2.4 million and are included as other income within the Consolidated
Statements of Operations for the respective years ended March 31, 1996 and 1995.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at March 31:
1996 1995
Realignment and reorganization cost $ 16,400 $ 25,000
Income taxes payable 12,048 11,676
Deferred revenue 54,450 57,300
Compensation and related benefits 32,016 33,068
Accrued interest 6,897 2,438
Warranty reserves 12,341 15,481
Royalty obligation 3,353 5,085
Other 31,593 33,214
---------- ----------
$ 169,098 $ 183,262
---------- ----------
---------- ----------
37
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
5. INCOME TAXES
The Company has operations in various countries which have differing tax
laws and rates. Consequently, the effective tax rate on consolidated income
before income taxes may vary from year to year according to the sources of
earnings by country.
Loss before income taxes consists of the following:
Year Ended March 31,
----------------------------------------
1996 1995 | 1994
---- ---- | ----
|
Domestic (Netherlands) $ (8,500) $ (56,764) | $ (70,673)
Foreign (238,238) (47,140) | (421,160)
--------- --------- | ---------
Total $ (246,738) $ (103,904) | $ (491,833)
--------- --------- | ---------
--------- --------- | ---------
The provision for income taxes consists of the following:
Year Ended March 31,
----------------------------------------
1996 1995 | 1994
---- ---- | ----
|
Current $ 297 $ (8,678) | $ (10,409)
Deferred (297) 4,571 | 251
--------- --------- | ---------
Total $ 0 $ (4,107) | $ (10,158)
--------- --------- | ---------
--------- --------- | ---------
There is no provision for income taxes for the year ended March 31, 1996,
due to the utilization of post March 31, 1994 net operating losses and
adjustments to prior income tax accruals.
The current provisions for the years ended March 31, 1995 and 1994 include
additional provisions of $8,050 and $11,749, respectively, as a result of
examinations and settlements with taxing authorities in the United States and
other jurisdictions. Total income taxes payable included in accrued liabilities
and other long-term liabilities were $73,040 and $75,100 at March 31, 1996 and
1995, respectively.
38
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
Deferred income taxes reflect the net tax effects of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of March 31, 1996 and 1995 are
as follows:
1996 1995
---- ----
Deferred tax liabilities:
Sales type leases $ 3,863 $ 4,778
Other 539 694
-------- --------
Total deferred tax liabilities 4,402 5,472
-------- --------
Deferred tax assets:
Depreciation 3,594 5,661
Deferred expenses 50,892 52,455
Reorganization costs 11,593 30,206
Other financial reserves 19,875 21,467
Other 12,758 13,940
3/31/93 - 3/31/94 NOL carryforwards (U.S.) 39,956 39,956
Post 3/31/94 net operating loss (U.S.) 39,168 26,851
Net operating loss (non-U.S.) 84,449 80,799
-------- --------
Total deferred tax assets 262,285 271,335
-------- --------
Net deferred tax assets 257,883 265,863
Valuation allowance for deferred tax assets (254,107) (261,986)
-------- --------
Net deferred tax assets $ 3,776 $ 3,877
-------- --------
-------- --------
The valuation allowance decreased approximately $8.0 million during the
year due primarily to realization of tax assets relating to reorganization costs
offset by increases in net operating losses. Any tax benefits for items related
to pre-reorganization periods will be credited to paid-in capital since
reorganization value in excess of amounts allocable to identifiable assets was
fully amortized in the current year.
Effective March 31, 1994, the Company completed its second reorganization
under a prepackaged plan which resulted in a change in the ownership of the
Company. Under provisions of the U.S. Internal Revenue Code, certain aspects
of the reorganization under the prepackaged plan have substantially restricted
the Company's ability to use the U.S. net operating loss carryforwards prior to
the effective date. At March 31, 1996, the Company had restricted U.S. net
operating loss carryforwards of approximately $114.0 million which expire in the
years 2008 and 2009. Additionally, the Company had unrestricted U.S. net
operating loss carryforwards of approximately $112.0 million which expire in the
year 2010 and 2011. At March 31, 1996, certain non-U.S. subsidiaries had net
operating loss carryforwards of approximately $411 million which may be utilized
in future years.
39
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
At March 31, 1996, foreign earnings of approximately $35 million have been
retained indefinitely by subsidiaries for reinvestment. If repatriated, these
earnings are exempt from Netherlands tax, but would incur other withholding
taxes of approximately $.8 million.
The difference between the consolidated effective tax rate and the
statutory Netherlands Corporate tax rate of 35% is reconciled as follows:
Year Ended March 31,
----------------------------------------
1996 1995 | 1994
---- ---- | ----
|
Tax benefit at statutory rate $ 86,359 $ 36,366 | $ 172,142
Net operating losses and net deferred |
tax assets for which no tax benefit |
has been recognized (18,434) (2,757) | (162,594)
Foreign taxes at different rates 11,160 7,208 | 254
Reorganization value amortization (79,085) (36,874) | (8,211)
Accrual for prior year taxes 0 (8,050) | (11,749)
--------- --------- | ---------
Total $ 0 $ (4,107) | $ (10,158)
--------- --------- | ---------
--------- --------- | ---------
40
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
6. DEBT OBLIGATIONS
Debt obligations consist of the following at March 31:
1996 1995
---- ----
Restructured Credit Facility, net of $20.7 million
of discount at 1995 $ 97,500 $ 76,800
Term Loan Credit and Guaranty Agreement 12,000 0
Obligations in respect of non-recourse debt
secured by lease assets 1,208 2,309
Other debt 8,773 8,326
-------- --------
119,481 87,435
Less current debt:
Long-term debt classified as current 109,500 14,281
Local borrowings by subsidiaries 5,078 1,679
-------- --------
4,903 71,475
-------- --------
-------- --------
CURRENT STATUS
As of March 31, 1996, the Company was in default of covenants under the
Credit Facility as amended, and the $12,000 Term Loan Credit and Guaranty
Agreement (the "Term Loan"). In late June 1996, the Company reached an agreement
in principal with the Lenders under the Credit Facility whereby the then
existing events of default would be waived. In connection with these waivers,
the Company has agreed to obtain a new credit facility or other financing or
capital sufficient in amount to repay the amounts owed under the Credit Facility
by September 30, 1996. If the Company is unable to obtain such new financing or
capital, then the Company will agree to undertake a strategic asset disposition
program in order to permit the Company to repay the amounts due under the Credit
Facility at the earliest possible date. Such agreement in principal further
provides for $9,000 of the proceeds from the Asia/Pacific operations sale to be
paid to the Credit Facility Lenders and for the Credit Facility's unpaid
principal not to exceed $80,000 by October 31, 1996, $70,000 by November 30,
1996, $60,000 by December 31, 1996, $40,000 by January 31, 1997, $20,000 by
February 28, 1997, and $0 by March 31, 1997. The agreement in principal further
provides for waivers for continuing noncompliance with the requirements to
maintain certain defined interest coverage ratios and for the deferral of
substantiallY all scheduled interest payments due under the terms of the Credit
Facility until October 31, 1996.
The Credit Facility, as a result of continuing defaults, is classified as a
current obligation in the accompanying March 31, 1996 Consolidated Balance
Sheets. However, the
41
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
finalization of the agreement in principal will result in the Credit Facility
continuing to be classified as current based on the revised payment terms.
The Company has received waivers of existing events of defaults under the
Term Loan. The waivers are contingent upon the finalization of the agreement in
principal with the Credit Facility lenders. The Term Loan, by its terms, is to
be repaid prior to repayment of any principal amounts on the Credit Facility and
accordingly, is classified as current.
While the Company believes the description of the agreements in principal
with the Credit Facility and Term Loan lenders is an accurate description of
such agreements, there can be no assurance that amendments will be concluded, or
if concluded, that the final amendments to the Credit Facility and the Term Loan
will be the same in all respects as the description.
DEBT AGREEMENTS
The following is a description of the $100,000 Restructured Credit
Facility, which was the new debt received in connection with the Reorganization
Plan, and the $12,000 Term Loan Guaranty and Credit Agreement, which was
obtained during fiscal year 1996.
$100,000 RESTRUCTURED CREDIT FACILITY
The Credit Facility is composed of two tranches, a Working Capital Tranche
of $66,000 and the Continuing Tranche A Loans of $34,000, as defined by the
Restructured Credit Facility Agreement, resulting in an aggregate original
principal amount of $100,000. The Credit Facility contained certain provisions
that allowed the Company to obtain certain discounts upon prepayments made at
various times over the life of the Credit Facility. The discount was being
accreted monthly as the associated discount opportunities expired. However, due
to an amendment entered into during the fourth quarter of fiscal year 1996, the
potential discount available to the Company under the terms of the Credit
Facility was eliminated and as such, the amounts due under the Credit Facility
were adjusted to reflect the principal amount currently due, which resulted in a
charge to expense of $12.8 million.
The Credit Facility bore interest at LIBOR plus 2.25% through March 5,
1996, at which time the Company and the Lenders revised the Credit Facility to
waive all defaults which might arise from the Company entering into the $12,000
Term Loan Credit and Guaranty Agreement and deferred all payments of principal
and interest accruing through March 31, 1996 until March 5, 1998. In return,
the Lenders received a 1% increase in the interest rate on certain amounts where
amortization has been deferred. Interest accruing subsequent to March 31, 1996
continues to be payable at the end of each three month period.
42
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
During fiscal year 1995, the Company and the holders of the Credit Facility
revised the terms of the agreement to provide that the proceeds from the sale of
certain designated assets prior to September 30, 1995 were required to be
deposited into a collateral account controlled by an agent of the holders of the
Credit Facility (the agent). These designated asset sales included a portion of
the dispositions discussed in Note 3, for the sales of properties used for
assembly and distribution located in Tulsa and North Carolina and sales of stock
of the Company's equity investee. The revised terms allowed the Company to
receive the proceeds in excess of $4,000 from these asset sales upon request
from the agent, provided that the funds released pay vendors or were used to
retire the Credit Facility. All such proceeds were used to pay vendors.
During fiscal year 1996, the Company requested and received a waiver from
the Lenders under the Credit Facility that released the remaining $4,000 of
funds generated from the sale of assets which were on deposit with the agent.
The obligation under the Credit Facility is guaranteed by Memorex Telex
N.V. and certain other subsidiaries. The guarantees are subordinate to the Term
Loan discussed below but rank senior to all other obligations and are secured on
a first priority basis to substantially all assets of the Company.
The obligation under the Credit Facility is subject to the following
restrictive financial and operating covenants: (a) limitations on aggregate
indebtedness, with certain limited exceptions, (b) restrictions from making
certain payments including dividend payments, (c) limitations on capital
expenditures, (d) requirements to maintain certain defined interest coverage
ratios, (e) limitations on assets sales, with certain designated asset sales
subject to specified treatment as described above, (f) requirements to reduce
the facility outstanding to the extent that the Company has "Adjusted Free Cash
Flow" as defined by the agreement, (g) limitations on investments,
consolidations, and mergers with certain limited exceptions, and other
limitations. See discussion above regarding violations of certain restrictive
covenants.
$12,000 TERM LOAN CREDIT AND GUARANTY AGREEMENT
The Company obtained the $12,000 Term Loan Credit and Guaranty Agreement
during fiscal year 1996 to finance the Company's purchase of inventory to
fulfill outstanding sales orders. The Term Loan matures on March 5, 1998, and
bears interest at prime rate through the first anniversary of the funding date,
and prime rate plus two percent thereafter, subject to a seven percent minimum
interest rate. Interest is payable monthly, with any unpaid interest becoming a
part of the principal and accruing interest thereon. Any asset
43
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
sale proceeds are required to be used to pay down the principal balance of the
Term Loan, with the exception of the sale of the Asia/Pacific operations
discussed in Note 7.
The Term Loan provides for payment of a $750 closing fee at the time of
principal repayment. The Company will expense this fee over the term of the
loan.
The obligation under the Term Loan is guaranteed by Memorex Telex N.V. and
certain other subsidiaries. The guarantees rank senior to all other obligations
and are secured on a first priority basis to substantially all assets of the
Company.
The obligation under the Term Loan is subject to the following restrictive
financial and operating covenants: (a) limitations on aggregate indebtedness,
(b) limitations on the principal amount outstanding of the Term Loan, (c)
restrictions from making certain payments including dividend payments, (d)
limitations on capital expenditures and certain investments, (e) limitations on
assets sales, subject to conditions specified above, (f) limitations on
investments, consolidations, and mergers with certain limited exceptions, and
other limitations. As noted above the Company is also in default of certain
provisions of the Term Loan.
Other borrowings include local borrowings by subsidiaries which are
generally unsecured and mortgage obligations on certain facilities. Other
borrowings have weighted average interest rates of 11.3% at March 31, 1996 and
1995.
7. ASSETS HELD FOR SALE
In 1996, the Company began to actively pursue the sale of its
Asia/Pacific operations. On June 28, 1996, the Company reached an agreement
to sell these subsidiaries to Kanematsu Corporation for approximately $25.0
million. The completion of the transaction is subject to certain conditions,
primarily, the Company reaching an agreement with its Lenders as to the
distribution of proceeds, in order to secure the release of the collateral.
A tentative agreement has been reached with the Lenders (see Note 6).
Asia/Pacific operations consist of the Australia, Taiwan, Singapore, and Hong
Kong subsidiaries. The carrying value of Asia/Pacific operations is
approximately $25.0 million (including the $16.0 million of allocated
reorganization value, see Note 2) and no significant gain or loss is expected
to be recognized on the sale of the operations. The sale of these operations
is expected to be closed in July 1996. The buyer is to deposit the proceeds
with an escrow agent pending completion of closing conditions, primarily, the
Company providing certain documentation necessary for closing. If this sales
transaction is not completed, then the carrying value of the allocated
reorganized value assigned to the Asia/Pacific operations will be reassessed.
See Note 14 for information with regards to the Asia/Pacific operations.
44
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
8. RETIREMENT BENEFITS
The majority of the Company's United States employees are covered by a non-
contributory defined benefit pension plan. Benefits are based on years of
service and average final compensation. The Company's funding policy is to
contribute at least the minimum amount required by ERISA. Plan assets consist
primarily of equity and debt securities and cash equivalents.
Effective October 31, 1994, the Company suspended indefinitely the accrual
of benefits under its U.S. defined benefit pension plan. In exchange the
Company elected to lift the limitation on matching contributions on its U.S.
defined contribution plan (described below). This suspension was accounted for
as a curtailment under Statement of Financial Accounting Standards No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits." This curtailment resulted in the
Company recording a gain of approximately $9.7 million during the year ended
March 31, 1995. The Company continues to administer the plan, including the
monitoring and investment of assets and distribution of benefit payments.
Pension expense for the United States pension plan for the years ended
March 31 was as follows:
<TABLE>
<CAPTION>
1996 1995 | 1994
---- ---- | ----
<S> <C> <C> | <C>
Service cost-benefits earned during the period $ 0 $ 2,186 | $ 4,487
Interest cost on projected benefit obligations 4,521 5,148 | 6,227
Actual return on plan assets (10,489) (3,975) | (1,116)
Net amortization and deferrals 5,775 (1,123) | (5,472)
-------- -------- | --------
Net pension expense (193) 2,236 | 4,126
Net curtailment gain 0 (9,744) | 0
Fresh start loss 0 0 | 11,805
-------- -------- | --------
Net pension expense (income) of U.S. defined benefit plan $ (193) $ (7,508) | $ 15,931
-------- -------- | --------
-------- -------- | --------
</TABLE>
45
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
The funded status of the United States plan at March 31 was as follows:
1996 1995
Actuarial present value of benefit obligations:
Vested $ 57,669 $ 57,324
Nonvested 1,123 1,751
-------- --------
Accumulated benefit obligations 58,792 59,075
Effect of projected future compensation levels 0 0
-------- --------
Projected benefit obligations 58,792 59,075
Plan assets at market value (55,938) (53,216)
-------- --------
Plan assets less than projected benefit obligations 2,854 5,859
Unrecognized net gain 3,132 320
-------- --------
Pension liability included in balance sheet $ 5,986 $ 6,179
-------- --------
-------- --------
In 1996 and 1995 the discount rate used to measure the present value of
benefit obligations was 7.75% and 8.0%, respectively. The projected long-term
rate of return on plan assets was 9.5% in 1996 and 1995 and 10% in 1994.
The "fresh start" loss for the year ended March 31, 1994 resulted from the
immediate recognition of deferrals from prior years.
In addition to the non-contributory defined benefit pension plan described
above, the Company also sponsors a U.S. defined contribution plan. The plan
covers substantially all of the Company's full-time U.S. employees. In 1994,
the Company's contributions consisted of matching 40% of each participant's
contributions up to the first six percent of the participant's pay with a cap of
six hundred dollars per year. During 1995, in conjunction with the suspension
of accrual of benefits under its U.S. defined benefit pension plan, the Company
decided to lift its six hundred dollar limitation on matching contributions.
The Company's contribution expense was approximately $1.7 million in 1996, and
$1.2 million in 1995 and $1.3 million in 1994.
The Company and its subsidiaries have several non-United States pension
plans, as generally dictated by local business practice and statutory
requirements, covering substantially all of their employees in those countries
where pension plans exist. Plan assets consist primarily of insurance
contracts, debt and equity securities, and cash equivalents.
The pension expense for the non-United States defined benefit pension plans
for the years ended March 31 was as follows:
46
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1996 1995 | 1994
---- ---- | ----
<S> <C> <C> | <C>
Service cost-benefits earned during the period $ 1,703 $ 2,229 | $ 2,293
Interest cost on projected benefit obligations 2,315 2,237 | 2,006
Actual return on plan assets (2,876) 613 | (2,141)
Net amortization and deferrals 1,194 (2,342) | 534
Employee contributions (283) (301) | (347)
--------- --------- | ---------
Net pension expense of non-US pension plans 2,053 2,436 | 2,345
Net curtailment gain 0 0 | (666)
FAS 88 loss 382 0 | 2,695
--------- --------- | ---------
Net pension expense of non-US defined benefit plans $ 2,435 $ 2,436 | $ 4,374
--------- --------- | ---------
--------- --------- | ---------
</TABLE>
The funded status of the non-United States pension plans at March 31 was
as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
Plan Assets Accumulated Plan Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Plan Assets Benefits Plan Assets
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 12,496 $ 12,916 $ 9,719 $ 14,282
Nonvested 170 839 247 1,061
--------- --------- --------- ---------
Accumulated benefit obligations 12,666 13,755 9,966 15,343
Effect of projected future compensation levels 2,378 2,169 2,380 4,240
--------- --------- --------- ---------
Projected benefit obligations 15,044 15,924 12,346 19,583
Plan assets at market value (17,937) (5,640) (15,566) (7,859)
--------- --------- --------- ---------
Plan assets net of projected benefit obligations (2,893) 10,284 (3,220) 11,724
Unrecognized net gain/(loss) 2,010 1,779 (419) 2,485
--------- --------- --------- ---------
Pension (asset) liability included in balance sheet $ (883) $ 12,063 $ (3,639) $ 14,209
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The range of assumptions used for the non-United States pension plans
reflects the different economic environments within the various countries. The
discount rates used to measure the present value of benefit obligations in 1996
ranged from 4.75% to 9.0% and 4.75% to 10% in 1995. The assumed rates of
increase in future compensation levels for the majority of the employees covered
by the plans ranged from 2.5% to 7% in 1996 and 3.5% to 6.0% in 1995.
9. COMMITMENTS AND CONTINGENCIES
The Company rents facilities and equipment in the normal course of its
business. Rent expense under these operating leases was approximately $27.1
million, $30.1 million and $40.2 million, in years ended March 31, 1996, 1995
and 1994, respectively. Future minimum rental
47
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
commitments under non-cancelable operating leases at March 31, 1996 are as
follows: 1997 - $15,734; 1998 - $10,733; 1999 - $7,495; 2000 - $3,706; 2001 -
$3,454, and thereafter - $0.
The Company is involved in various legal actions and claims which arise in
the normal course of business. In the opinion of management, the final
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
10. STOCKHOLDERS' DEFICIT
Under the terms of the Credit Facility and Term Loan, the Company is
restricted from making cash dividend payments.
$2.00 WARRANTS AND $14.00 WARRANTS
Upon consummation of the Reorganization Plan discussed in Note 2, the
Company issued to holders of the Predecessor Company's debt and old common
stock, new warrants to purchase 1,532,156 shares, and 1,000,000 shares of the
Company's common stock at an exercise price of $2.00 and $14.00 per share,
respectively. The $2.00 and $14.00 warrants are exercisable for five and seven
years, respectively from the date of issuance and have certain anti-dilution
protection from future issuances.
STOCK OPTION AND STOCK PURCHASE PLANS
The Company has stock options outstanding to participants under the Memorex
Telex Stock Option Plan (the "Stock Option Plan"), approved by stockholders on
April 13, 1994. Under this plan, both non-qualified options and incentive stock
options may be granted at an exercise price per share not less than fair market
value at the date of the grant. Options granted become exercisable in such
amounts, at such intervals and subject to such terms and conditions as
determined by the compensation and stock option committee of the supervisory
board.
The Company also maintains a stock purchase plan under the Memorex Telex
Employees' Stock Purchase Plan ("Stock Purchase Plan"), approved by stockholders
on April 13, 1994. The plan allows participants to purchase new common stock at
85% of the lower of the fair market value at the last trading day before the
calendar month of participation and the last trading day of the calendar month
of participation. Employee contributions can be made through lump sum
contributions or periodic payroll deductions up to annual plan specified limits.
The shares purchased under this plan were 23,369 and 53,296 in fiscal 1996 and
1995, respectively. In November 1995, the Management Board of Memorex Telex
indefinitely suspended the Stock Purchase Plan.
48
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
The Stock Option and Stock Purchase Plans provided for the issuance of a
maximum of 3,110,978 and 466,647 shares, respectively, of the Company's new
common stock in the form of ADRs.
During fiscal 1996, 1,047,500 options were terminated under the Stock
Option Plan. The amount of stock options outstanding was 1,187,500 and 2,002,500
at March 31, 1996 and 1995, respectively and have an option price of $4.00.
Total shares exercisable were 471,250 and 0 at March 31, 1996 and 1995,
respectively. The Stock Option and Stock Purchase Plans have 2,155,978 and
389,982 shares available for future grants and issuance, respectively. At March
31, 1996, 3,500,960 shares were reserved for issuance under the Stock Option and
Stock Purchase Plan.
11. REORGANIZATION AND REALIGNMENT COSTS
Since fiscal 1993, the Company has made a series of announcements defining
plans to restructure its worldwide operations. The Company continues its
transition from a manufacturer of computer hardware to a provider of networking
and storage solutions. As part of this transformation, the Company continues to
implement its plans for re-engineering its business processes which will result
in workforce reductions, consolidation of functions, disposition of facilities,
and closure or sale of certain unprofitable operations. In connection with the
Company's Reorganization Plan, as discussed in Note 2, the Company recorded a
$406.5 million reorganization charge in fiscal 1994. This reorganization charge
included "fresh start" adjustments to fair value individual assets and
liabilities (approximately, $342.7 million), workforce reductions, and
consolidation and closure costs (approximately, $51.6 million), and professional
fees associated with the restructuring (approximately, $12.3 million). The fair
value adjustments were based on independent appraisals, discounted cash flow
analyses, evaluations, estimations and other studies which resulted in
adjustments including the reorganization value in excess of amounts allocable to
identifiable assets (approximately, $281.5 million), projected benefit
obligations on pensions (approximately, $15.0 million), property, plant and
equipment (approximately, $8.8 million), inventories (approximately, $5.8
million) and unfavorable contractual obligations and commitments (approximately,
$25.8 million).
During fiscal 1994, it was determined that the Company had overestimated
its 1993 realignment charge by approximately $6.8 million. This amount was
included as a reduction of the 1994 reorganization charge. The remaining
liability for the 1993 realignment initiatives has been combined with the 1994
reorganization charge for tracking of restructuring activities.
49
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
The following presents the Company's reorganization activities and the
remainder of charges to be utilized:
<TABLE>
<CAPTION>
Reorganization Items
-----------------------------------------------------------------------------------------
Professional Unfavorable
Workforce Consolidation Fees for Asset and Contractual
Reductions & Closure Reorgan- Liability Obligations & Other Total
Costs ization Valuations Commitments
----------- ------------- ----------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Reorganization charges in 1994 $40,362 $11,196 $12,266 $311,114 $25,803 $5,795 $406,536
Noncash items & transfers in 1994 (506) (12,266) (311,114) - (877) (324,763)
Remaining realignment charges from 1993 24,546 794 - - 8,681 2,895 36,916
Reorganization & realignment reserve ----------- ------------- ----------- ------------ -------------- ----------- -----------
at March 31, 1994 64,908 11,484 - - 34,484 7,813 118,689
Reclassifications and transfers of reserves (7,827) (1,447) - - 1,968 1,990 (5,316)
Noncash items - - - - (6,607) - (6,607)
Cash payments (23,793) (3,873) - - (8,970) (1,412) (38,048)
Reorganization & realignment reserve ----------- ------------- ----------- ------------ -------------- ----------- -----------
at March 31, 1995 33,288 6,164 - - 20,875 8,391 68,718
Reclassifications and transfers of reserves (1,232) 1,057 - - (1,057) 1,232 0
Release of excess reserves (2,132) (197) - - (3,347) (4,113) (9,789)
Noncash items - - - - 3,534 408 3,942
Cash payments (10,084) (5,496) - - (10,322) (1,407) (27,309)
Reorganization & realignment reserve ----------- ------------- ----------- ------------ -------------- ----------- -----------
at March 31, 1996 19,840 1,528 - - 9,683 4,511 35,562
</TABLE>
Note: The reorganization and realignment reserve includes both the current and
noncurrent portion of the reorganization and realignment reserve.
In fiscal 1996, as initiatives progressed, it was determined that the
Company had overestimated its 1994 restructuring charge by approximately $9.8
million. This change is reflected in the release of excess reserves and was
netted against the amortization of intangibles in the 1996 Statement of
Operations. As of March 31, 1996, the Company has determined that the
remaining reorganization and realignment reserve balances are adequate to cover
the presently planned remaining restructuring items. However, as discussed in
Note 1, the Company's plans may include, if necessary, the disposition of
certain other operations. No provision for losses, have been reflected in the
financial statements as of March 31, 1996, if such dispositions occur. In
fiscal 1995, the Company determined that it was necessary to redistribute by
category a portion of the remaining reserves. This redistribution primarily
reduced reserve balances designated for workforce actions and increased reserves
designated for contractual obligations and commitments and appears on the
reclassifications and transfers of reserves line for 1995 activity in the
preceding table. The Company anticipates $16.4 million of reserves to be
utilized in fiscal 1997. However, the Company believes that it will need
additional capital to meet all of the future costs of the re-engineering
initiatives remaining. Management's plans to meet its additional capital
requirements are discussed further in Note 1.
50
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Certain of the Company's foreign subsidiaries manage their exposure to
fluctuations in foreign currency exchange rates relating to certain U.S. dollar
inventory purchase obligations by entering into forward foreign currency
exchange contracts. The forward contracts are not held for trading purposes.
The agreements generally have maturities of six months or less and contain an
element of risk that the counterparty may be unable to meet the terms of the
agreements. In order to minimize its exposure to credit risk, the Company
limits its counterparties to major financial institutions. The Company does not
expect any of the counterparties to fail to meet its obligations. At March 31,
1996 and 1995, the Company had forward foreign currency contracts outstanding to
purchase U.S. dollars of approximately $19.0 million and $12.0 million,
respectively. The current market settlement values of these contracts were not
materially different from those recorded. Gains or losses on these contracts
are included in the underlying cost of the inventory acquired.
The Company offers lease financing of selected products to its customers,
which include various industries and governmental agencies in multiple
geographic regions, with lease terms of 3-5 years. Certain of these leases are
sold on a limited recourse basis. Sales of lease receivables in 1996, 1995, and
1994 were approximately $35.3 million, $35.0 million, $42.0 million,
respectively.
At March 31, 1996, it is not practicable to estimate the fair value of the
Company's borrowings under its Credit Facility or Term Loan because no active
marketplace exists and due to the significant expense to obtain an outside
appraisal. See Note 6 for discussion of the carrying amount, maturity date, and
interest rate of the Company's debt instruments.
The Company's investment in a publicly traded company, accounted for under
the equity method of accounting, had a fair market value, based on quoted market
prices of $24.1 million and $30.7 million, and a carrying value of $7.7 million
and $17.7 million, at March 31, 1996 and 1995, respectively. The investment is
included in other assets the Consolidated Balance Sheets. See Note 3 for
discussion of certain sales of the Company's investment during fiscal year 1996.
51
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
13. OTHER FINANCIAL INFORMATION
The following is a summary of certain other financial information:
Predecessor
Reorganized Company Company
------------------------------------------
Year Ended March 31,
------------------------------------------
1996 1995 | 1994
---- ---- | ----
(i) Revenues: |
Product $ 463,517 $ 529,846 | $ 620,775
Service 346,112 351,568 | 348,135
Rentals and Brokerage 24,424 28,337 | 46,664
----------- ----------- | -----------
$ 834,053 $ 909,751 | $ 1,015,574
----------- ----------- | -----------
----------- ----------- | -----------
(ii) Cost of Revenues: |
Product $ 353,398 $ 378,603 | $ 427,366
Service 263,529 254,970 | 240,492
Rentals and Brokerage 14,666 17,454 | 37,802
----------- ----------- | -----------
$ 631,593 $ 651,027 | $ 705,660
----------- ----------- | -----------
----------- ----------- | -----------
(iii) Cash Flow Information: |
Interest Paid $ 15,728 $ 17,646 | $ 27,581
Income Taxes Paid 2,369 5,849 | 6,743
Sources (uses) of working capital excluding changes resulting from
realignment and reorganization items reflected in the consolidated statements of
cash flows are as follows:
Predecessor
Reorganized Company Company
-----------------------------------------
Year Ended March 31,
-----------------------------------------
1996 1995 | 1994
---- ---- | ----
|
Receivables $ 5,192 $ 28,504 | $ 29,619
Inventories and Service Parts (93) 27,378 | 1,770
Other current assets (348) 3,276 | (1,426)
Accounts payable 700 24,474 | (34,129)
Accrued liabilities (4,186) (91,393) | (6,948)
---------- ---------- | ----------
$ 1,265 $ (7,761) | $ (11,114)
---------- ---------- | ----------
---------- ---------- | ----------
52
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
14. GEOGRAPHIC DATA
The Company operates in one business segment. Certain information by
geographic area for the years ended March 31, 1996, 1995 and 1994 was as
follows:
<TABLE>
<CAPTION>
Revenue Operating
---------------------------------------- Income Identifiable
REORGANIZED COMPANY: External Internal Total (Loss) Assets
- - - -------------------- -------- -------- ----- ---- ------
<S> <C> <C> <C> <C> <C>
1996: Domestic (Netherlands) $ 15,471 $ 88,304 $ 103,775 $ 9,548 $ 210,041
United States 368,473 30,922 399,395 (13,430) 134,458
Europe (excluding
Netherlands) 340,286 4,173 344,459 7,105 111,885
Asia/Pacific Operations(3) 73,258 374 73,632 10,834 35,501
Other (1) 36,565 44 36,609 (222,596) 23,686
Eliminations 0 (123,817) (123,817) 1,064 (247,403)
---------- --------- --------- --------- ---------
$ 834,053 $ 0 $ 834,053 $ (207,475) $ 268,168
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
1995: Domestic (Netherlands) $ 13,096 $ 126,242 $ 139,338 $ 1,885 $ 189,725
United States 438,579 42,605 481,184 30,621 159,535
Europe (excluding
Netherlands) 339,572 10,417 349,989 4,839 115,329
Asia/Pacific Operations 73,090 682 73,772 1,118 40,776
Other (1) 45,414 514 45,928 (124,508) 273,541
Eliminations 0 (180,460) (180,460) 1,185 (242,440)
---------- --------- --------- --------- ---------
$ 909,751 $ 0 $ 909,751 $ (84,860) $ 536,466
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
1994: Domestic (Netherlands) $ 16,305 $ 156,343 $ 172,648 $ 1,129 $ 223,668
United States 499,232 75,620 574,852 40,349 190,739
Europe (excluding
Netherlands) 362,884 13,727 376,611 2,833 116,545
Asia/Pacific Operations 69,769 500 70,269 2,853 42,750
Other (1) 67,384 1,938 69,322 (19,463) 405,713
Eliminations 0 (248,128) (248,128) 4,546 (258,162)
---------- --------- --------- --------- ---------
$ 1,015,574 $ 0 $ 1,015,574 $ 32,247 $ 721,253 (2)
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
Notes:
(1) Other includes reorganization value in excess of the amounts allocable to
identifiable assets and the associated amortization. Additionally includes
the reorganization value write-off discussed in Note 2.
(2) Reflects the fair value of identifiable assets of the Reorganized Company
at March 31, 1994.
(3) Operating income (loss) includes gain of $5.5 million related to sale of
shares of equity investee (see Note 3).
Sales and transfers between geographic areas are made with reference to
prevailing market prices and at prices approximating those charged to
unaffiliated distributors. Operating income is revenue less related costs and
operating expenses excluding net interest expense. No single customer accounted
for 10% or more of the Company's total revenue in the period.
53
<PAGE>
MEMOREX TELEX N.V.
(A Netherlands Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial data, which is unaudited, for each of the
quarters in the fiscal years ended March 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
June 30, September 30, December 31, March 31,
1995 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $220,551 $207,870 $206,340 $199,292
Gross margin 59,323 51,738 48,153 43,246
Operating loss (23,077) (24,006) (28,495) (131,897) (1)
Net loss ($27,729) ($31,522) ($36,131) ($151,357) (2)
Net loss per common share ($1.11) ($1.26) ($1.44) ($6.03)
June 30, September 30, December 31, March 31,
1994 1994 1994 1995
---- ---- ---- ----
Net revenues $232,637 $222,988 $232,518 $221,608
Gross margin 67,736 64,656 67,551 58,781
Operating loss (21,759) (26,288) (11,261) (3) (25,552)
Net loss ($30,633) ($31,662) ($18,357) ($27,359)
Net loss per common share ($1.23) ($1.27) ($0.73) ($1.09)
</TABLE>
Notes: (1) Includes amortization and write-off of reorganization value in
the amount of $99,334 for the quarter ended March 31, 1996.
(2) Includes additional accretion of debt of $12,779 for the quarter
ending March 31, 1996.
(3) Includes curtailment gain of $9,744 from the suspension of the
accrual of benefits for the U.S. defined benefit pension plan.
54
<PAGE>
SCHEDULE II
MEMOREX TELEX N.V.
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Additions Additions
Balances at charged to charged Balances
beginning costs and to other at end
of period expenses accounts Deductions of period
Description ----------- ---------- --------- ---------- ---------
- - - -----------
<S> <C> <C> <C> <C> <C>
REORGANIZED COMPANY:
- - - --------------------
For the year ended March 31, 1996
Allowance for doubtful accounts $ (12,357) $ (4,606) $ 163 $ 6,639 $ (10,161)
For the year ended March 31, 1995
Allowance for doubtful accounts (14,263) (2,926) (651) 5,483 (12,357)
PREDECESSOR COMPANY:
- - - --------------------
For the year ended March 31, 1994
Allowance for doubtful accounts (17,196) (3,188) 178 5,943 (14,263)
</TABLE>
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MEMOREX TELEX N.V.
By: /s/ David J. Faulkner
-----------------------------------
(David J. Faulkner)
Managing Director
July 15, 1996 and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature & Title Date
----------------- ----
By: /s/Peter H. Dailey
-------------------------------
(Peter H. Dailey)
Chief Executive Officer July 15, 1996
By: /s/David J. Faulkner
-------------------------------
(David J. Faulkner)
Managing Director
and Chief Financial Officer July 15, 1996
By: /s/Gregory S. Wood
-------------------------------
(Gregory S. Wood)
Senior Vice President and
Chief Accounting Officer July 15, 1996
56
<PAGE>
EXHIBIT INDEX
2.1* Disclosure Statement dated January 6, 1994.
2.2* Joint Plan of Reorganization confirmed by the United States
Bankruptcy Court for the District of Delaware on March 14, 1994,
and effective on March 24, 1994.
3.1** English translation of Restated Articles of Association of Memorex
Telex N.V.
4.1* Specimen Certificate for common stock, DFL. 0.10 nominal value per
share, of the Company.
4.2* Form of $2.00 Warrant.
4.3* Form of $14.00 Warrant.
10.11* Management Agreement dated as of October 23, 1986, between ABN
Trust Company and Memorex Telex N.V.
10.12* Technology Transfer Agreement dated as of May 11, 1990 between
Memorex Telex Corporation and American Telephone and Telegraph
Company (the "AT&T Agreement").
10.13** Settlement Agreement and Stipulation dated as of February 5, 1992,
between Memorex Telex Corporation, Memorex Corporation and Tulsa
Computer Products, Ltd. and the Department of Justice.
10.14*** Amending Agreement dated February 3, 1994 to the AT&T Agreement.
10.15*** Restructured Credit and Guaranty Agreement dated as of March 24,
1993 among certain subsidiaries of the Company as Borrowers and
Guarantors, the Company as Guarantor, the Lenders listed therein
and Morgan Guaranty Trust Company of New York as Agent.
10.15(a)**** Amendment No. 1 to the Restructured Credit and Guaranty Agreement.
10.15(b)**** Amendment No. 2 to and Waiver under the Restructured Credit and
Guaranty Agreement.
10.15(c) Amendment and Waiver No. 3 under Restructured Credit and Guaranty
Agreement.
10.15(d) Amendment No. 4 to Restructured Credit and Guaranty Agreement.
10.15(e) Amendment No. 5 to Restructured Credit and Guaranty Agreement.
10.15(f) Amendment No. 6 to Restructured Credit and Guaranty Agreement.
10.21** Employment Agreement dated as of November 4, 1992, between the
Company and Marcelo A. Gumucio.
_____________________________________
* Previously filed as an Exhibit to the Company's Registration
Statement on Form S-4 (Registration No. 33-67988) and incorporated
herein by reference.
** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1993 and incorporated
herein by reference.
*** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1994 and incorporated
herein by reference.
**** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1995 and incorporated
herein by reference.
<PAGE>
10.21(a)**** Amendment No. 1 effective as of April 1, 1995 to the Employment
Agreement made as of November 4, 1992, between the Company and
Marcelo A. Gumucio.
10.22*** Employment Agreement dated as of June 29, 1993, between the Company
and Rudolph G. Morin.
10.23*** Employment Agreement dated as of April 1, 1994, between the Company
and David J. Faulkner.
10.23(a)*** Amended and Restated Employment Agreement effective as of April 1,
1995, between the Company and David J. Faulkner.
10.23(b) Employment Agreement dated as of April 1, 1996, between the Company
and Peter H. Dailey.
10.24 Credit and Guaranty Agreement dated as of March 5, 1996 among
certain subsidiaries of the Company as borrowers and guarantors,
the Company as guarantor and Foothill Capital Corporation.
23.1 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
- - - -------------------------------------
*** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1994 and incorporated
herein by reference.
**** Previously filed as an Exhibit to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended March 31, 1995 and incorporated
herein by reference.
<PAGE>
EXHIBIT 10.15(c)
[EXECUTION COPY]
AMENDMENT AND WAIVER NO. 3 UNDER
RESTRUCTURED CREDIT AND GUARANTY AGREEMENT
AMENDMENT AND WAIVER NO. 3 dated as of September 30, 1995 among Memorex
Telex Corporation, Memorex Telex N.V., Memorex Telex Holding N.V., Memorex Telex
Distribution N.V., Tulsa Computer Products, Ltd., the Lenders listed on the
signature pages hereof and Morgan Guaranty Trust Company of New York, in its
capacity as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into the Restructured
Credit and Guaranty Agreement dated as of March 24, 1994 (as heretofore amended,
the "Agreement"); and
WHEREAS, the parties hereto desire to waive certain provisions thereof;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically defined
herein, each term used herein which is defined in the Agreement shall have the
meaning assigned to such term in the Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Agreement shall from and after the date hereof refer to the Agreement as amended
hereby.
SECTION 2. AMENDMENTS IN CONNECTION WITH SALES OF SHARES OF MEMOREX TELEX
JAPAN LTD.
(a) Section 2.04(c)(i) of the Agreement is amended to add the following
proviso immediately after the last proviso of such subparagraph:
; and PROVIDED, FURTHER, that in the event of any sales at any time
during the period from September 30, 1995 but prior to December 31,
1995 of up to an aggregate 2,000,000 shares of common stock of Memorex
Telex Japan Ltd. ("MTJL") owned by the
<PAGE>
Parent, pursuant to the option to purchase such shares granted by the
Parent, the Borrowers shall not be required to make a prepayment
pursuant to this clause (c)(i) if the following subclauses (A),
(B) and (C) are satisfied: (A) all of the Net Cash Proceeds from such
sale and from all prior sales during such period of any shares of
common stock of MTJL owned by the Parent shall be paid to Kanematsu
Corporation, a Japanese corporation, to satisfy obligations of the
Borrowers to Kanematsu Corporation secured by a pledge of such shares
or paid to MTJL to satisfy obligations of the Borrowers to MTJL,
except that an aggregate cumulative amount of Net Cash Proceeds not
to exceed $2,000,000 during such period may be deposited in the Other
Designated Asset Proceeds Account in accordance with subclause (C);
(B) the consideration for such Asset Sale consists solely of cash and
(C) the Net Cash Proceeds not applied to make any such payments to
Kanematsu Corporation or to MTJL are deposited in the Other Designated
Asset Proceeds Account in a manner satisfactory to the Agent as soon
as practicable (and in any event not later than one Business Day)
after consummation of such Asset Sale.
(b) Section 7.01(f) of the Agreement is amended by amending and restating
the first clause (i) therein as follows:
(i) no Default shall have occurred and be continuing at the time such
release is to occur, other than any Default which shall have been
waived by the Required Lenders
SECTION 3. WAIVERS OF CERTAIN OBLIGATIONS TO PAY INTEREST AND PRINCIPAL.
The Lenders, through the Required Lenders signatory hereto, hereby waive, until
the earlier of December 31, 1995 or the occurrence of any other Default (the
"Waiver Expiration Date"), any and all Defaults resulting from any failure by
the Borrowers to make the payments of interest required to be made pursuant to
Section 2.03 at any time during the period from and including September 30, 1995
until the Waiver Expiration Date or resulting from the failure by the Borrowers
to make the payments of principal required to be made pursuant to Section
2.04(b) on June 30, 1995 and September 30, 1995 (all such payments of interest
and principal, collectively, being referred to herein as the "Deferred
Payments"). Upon the Waiver Expiration Date, the waivers set forth in this
2
<PAGE>
Section 3 shall cease to be of force or effect and the Deferred Payments shall
be due and payable. It is understood that (x) the waivers set forth in this
Section 3 do not purport to alter the obligations imposed by Sections 2.03 and
2.04(b), but merely the exercise of rights and remedies predicated upon a
Default thereunder, and (y) upon the occurrence of the Waiver Expiration Date,
such rights and remedies shall be fully exercisable unless such obligations
shall have then been performed.
Without limiting the generality of the foregoing, prior to the Waiver
Expiration Date, the availability of the amounts referred to in subsection
7.01(f)(C) of the Agreement will by virtue of this Amendment and Waiver No. 3
not be affected by the failure to make the Deferred Payments.
SECTION 4. REDUCTION OF CONDITIONAL FORGIVENESS. Notwithstanding anything
to the contrary contained in the Agreement or in Waiver No. 2 Under Restructured
Credit and Guaranty Agreement, no Triggering Reduction or portion thereof shall
give rise to a Forgiveness Amount or a conditional right to forgiveness as
provided in Section 3.02 of the Credit Agreement unless the aggregate amount of
such Triggering Reduction and all prior Triggering Reductions exceeds, in the
aggregate, the sum of the Deferred Designated Asset Amortization Amount (as such
term is defined in the Agreement) and $5,500,000. Moreover, any Triggering
Reduction with respect to which the foregoing condition is satisfied shall give
rise to a Forgiveness Amount and a conditional entitlement to forgiveness only
in respect of the portion of such Triggering Reduction which, when taken
together with all prior Triggering Reductions, exceeds, in the aggregate, the
sum of the Deferred Designated Asset Amortization Amount and $5,500,000. The
Agreement shall be deemed amended to the extent required to effectuate the
foregoing, and the Borrowers hereby waive any and all Forgiveness Amounts and
conditional rights to forgiveness except to the extent contemplated by this
paragraph. Upon the effectiveness of this Amendment and Waiver No. 3, Section 3
of Waiver No. 2 Under Restructured Credit and Guaranty shall cease to be
operative and shall have no further force or effect.
SECTION 5. GOVERNING LAW. This Amendment and Waiver No. 3 shall be
governed by and construed in accordance with the laws of the State of New York.
SECTION 6. COUNTERPARTS; EFFECTIVENESS. This Amendment and Waiver No. 3
shall become effective as of the date hereof when the Agent shall have received
duly executed
3
<PAGE>
counterparts hereof signed by (i) all parties hereto other than the Lenders
and (ii) the Required Lenders (or in the case of any party from which an
executed counterpart shall not have been received, the Agent shall have
received facsimile, telegraphic, telex or other written confirmation from
such party that a counterpart has been signed by such party). This Amendment
and Waiver No. 3 may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver No. 3 to be duly executed as of the date first above written.
BORROWERS AND GUARANTOR
MEMOREX TELEX N.V.
By:
----------------------------------
Name:
Title:
MEMOREX TELEX CORPORATION
By:
----------------------------------
Name:
Title:
MEMOREX TELEX DISTRIBUTION N.V.
By:
----------------------------------
Name:
Title:
MEMOREX TELEX HOLDING N.V.
By:
----------------------------------
Name:
Title:
4
<PAGE>
TULSA COMPUTER PRODUCTS, LTD.
By:
----------------------------------
Name:
Title:
AGENT:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent
By:
----------------------------------
Name:
Title:
LENDERS:
ABN AMRO BANK N.V., AMSTERDAM
BRANCH
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
BANQUE WORMS CAPITAL CORP.
By:
----------------------------------
Name:
Title:
BAYERISCHE VEREINSBANK,
AKTIENGESELLSCHAFT, LONDON BRANCH
By:
----------------------------------
Name:
Title:
5
<PAGE>
CERBERUS PARTNERS, L.P.
By:
----------------------------------
Name:
Title:
GRACE BROTHERS, LTD.
By:
----------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, LONDON BRANCH
By:
----------------------------------
Name:
Title:
NEW VERNON PARTNERS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By:
----------------------------------
Name:
Title:
PARESCO INC.
By: Whippoorwill Associates, Inc.,
as agent
By:
----------------------------------
Name:
Title:
6
<PAGE>
PEARL STREET L.P.
By:
----------------------------------
Name:
Title:
PEQUA TRADING CORP.
By: Whippoorwill Associates, Inc.,
as agent
By:
----------------------------------
Name:
Title:
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
SARANAC INVESTORS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By:
----------------------------------
Name:
Title:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
----------------------------------
Name:
Title:
7
<PAGE>
THE PRESIDENT AND FELLOWS
OF HARVARD COLLEGE
By: Whippoorwill Associates, Inc.,
as agent
By:
----------------------------------
Name:
Title:
THE ROCKEFELLER FOUNDATION
By: Whippoorwill Associates, Inc,,
as agent
By:
----------------------------------
Name:
Title:
VEGA OFFSHORE FUND TRUST
By: Whippoorwill Associates, Inc.,
as agent
By:
----------------------------------
Name:
Title:
VEGA PARTNERS L.P.
By: Whippoorwill Associates, Inc.,
as General Partner
By:
----------------------------------
Name:
Title:
8
<PAGE>
VEGA PARTNERS II L.P.
By: Whippoorwill Associates, Inc.,
as General Partner
By:
----------------------------------
Name:
Title:
25307 PARTNERSHIP
By: Whippoorwill Associates, Inc.,
as agent
By:
----------------------------------
Name:
Title:
9
<PAGE>
EXHIBIT 10.15(d)
EXECUTION COPY
AMENDMENT NO. 4 TO
RESTRUCTURED CREDIT AND GUARANTY AGREEMENT
AMENDMENT dated as of February 1, 1996 among Memorex Telex Corporation (the
"Company"), Memorex Telex N.V., Memorex Telex Holding N.V., Memorex Telex
Distribution N.V., Tulsa Computer Products, Ltd., the Lenders listed on the
signature pages hereof and Morgan Guaranty Trust Company of New York, in its
capacity as agent (the "Agent").
WITNESSETH :
WHEREAS, the parties hereto have heretofore entered into the Restructured
Credit and Guaranty Agreement dated as of March 24, 1994 (as heretofore amended,
the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement to provide for
additional covenants under the Agreement and to waive certain provisions
thereof;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically defined
herein, each term used herein which is defined in the Agreement shall have the
meaning assigned to such term in the Agreement. Each reference to "hereof",
"hereunder", "herein" and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar reference contained in the
Agreement shall from and after the date hereof refer to the Agreement as amended
hereby.
SECTION 2. DEFERRAL OF PRINCIPAL AND INTEREST. The Lenders agree to defer
all payments of interest on the Notes accruing prior to March 31, 1996 to, and
all such interest not heretofore paid shall be due and payable on, March 31,
1996. The Lenders further agree to defer the payment of the principal of the
Loans that is currently scheduled to be due on December 31, 1995 to, and such
payment of principal shall be due and payable on, March 31, 1996.
SECTION 3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
<PAGE>
SECTION 4. COUNTERPARTS; EFFECTIVENESS. This Amendment shall become
effective as of the date hereof when the Agent shall have received duly
executed counterparts hereof signed by (i) all parties hereto other than the
Lenders and (ii) each of the Lenders (or in the case of any party from which
an executed counterpart shall not have been received, the Agent shall have
received facsimile, telegraphic, telex or other written confirmation from
such party). This Amendment may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be duly executed as of the date first above written.
BORROWERS AND GUARANTOR
MEMOREX TELEX N.V.
By
------------------------------------
Title:
MEMOREX TELEX CORPORATION
By
------------------------------------
Title:
MEMOREX TELEX DISTRIBUTION N.V.
By
------------------------------------
Title:
MEMOREX TELEX HOLDING N.V.
By
------------------------------------
Title:
TULSA COMPUTER PRODUCTS, LTD.
By
------------------------------------
Title:
3
<PAGE>
AGENT:
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent
By
------------------------------------
Title:
LENDERS:
ABN AMRO BANK N.V.,
AMSTERDAM BRANCH
By
------------------------------------
Name:
Title:
BANQUE WORMS CAPITAL CORP.
By
------------------------------------
Name:
Title:
BAYERISCHE VEREINSBANK
AKTIENGESELLSCHAFT,
LONDON BRANCH
By
------------------------------------
Name:
Title:
CERBERUS PARTNERS, L.P.
By
------------------------------------
Name:
Title:
4
<PAGE>
GRACE BROTHERS LTD.
By
------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, LONDON BRANCH
By
------------------------------------
Name:
Title:
NEW VERNON PARTNERS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
PARESCO INC.
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
PEARL STREET L.P.
By
------------------------------------
Name:
Title:
5
<PAGE>
PEQUA TRADING CORP.
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By
------------------------------------
Name:
Title:
By
------------------------------------
Name:
Title:
SARANAC INVESTORS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
------------------------------------
Name:
Title:
6
<PAGE>
THE PRESIDENT AND FELLOWS
OF HARVARD COLLEGE
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
THE ROCKEFELLER FOUNDATION
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
VEGA OFFSHORE FUND TRUST
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
VEGA PARTNERS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
7
<PAGE>
VEGA PARTNERS II L.P.
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
25307 PARTNERSHIP
By: Whippoorwill Associates, Inc.,
as agent
By
------------------------------------
Name:
Title:
8
<PAGE>
EXHIBIT 10.15(e)
EXECUTION COPY
AMENDMENT NO. 5 TO
RESTRUCTURED CREDIT AND GUARANTY AGREEMENT
AMENDMENT dated as of February 1, 1996 among Memorex Telex Corporation
(the "Company"), Memorex Telex N.V., Memorex Telex Holding N.V., Memorex
Telex Distribution N.V., Tulsa Computer Products, Ltd., the Lenders listed on
the signature pages hereof and Morgan Guaranty Trust Company of New York, in
its capacity as agent (the "Agent").
W I T N E S S E T H :
WHEREAS, the parties hereto have heretofore entered into the Restructured
Credit and Guaranty Agreement dated as of March 24, 1994 (as heretofore
amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement to provide for
additional covenants under the Agreement and to waive certain provisions
thereof;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof ", "hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall from and after the date hereof
refer to the Agreement as amended hereby.
SECTION 2. BRIDGE LOAN. The Lenders consent to the execution, delivery
and performance by the parties thereto of the Term Loan and Guaranty
Agreement (as amended from time to time, the "Bridge Agreement") to be
entered into by Cardinal Investment Company, Inc. (or an affiliated
partnership or other entity or entities) ("Cardinal"), as lender, the
Company, as borrower and each of the Obligors, as guarantors, substantially
in the form of the draft dated January 31, 1996 previously delivered to the
Lenders, including the granting of Liens by the borrowers and guarantors
thereunder to secure the loans made thereunder and the loaning by the
borrowers of the proceeds of such loans to the
<PAGE>
Company. The Lenders also waive Section 6.22 of the Agreement in order to
allow the Parent to enter into the Definitive Agreement referred to below, it
being understood that no Obligor shall take any action which would be
required to be taken pursuant to, or in satisfaction of any condition
contained in, such Definitive Agreement which is not permitted by the
Agreement unless and until all necessary amendments or waivers have been
given or made pursuant to the Agreement.
SECTION 3. AMENDMENTS TO COVENANTS AND DEFAULTS. The Lenders agree that
as part of the amendment and restatement of the Agreement entered into with
the consent of each of the parties to the Agreement in connection with the
consummation of the transactions contemplated by the Financing Agreement (the
"Definitive Agreement") among Cardinal Investment Company, Inc., the Parent
and certain Subsidiaries of the Parent (including the Company) substantially
in the form of the draft dated January 29, 1996 Previously delivered to the
Lenders, the covenants set forth in Article VI of the Agreement shall be
amended substantially as set forth in Annex A hereto and the Events of
Default set forth in Article VII of the Agreement shall be amended
substantially as set forth in Annex B hereto. The effectiveness of such
amendment and restatement of the Agreement shall be conditioned upon, among
other things, receipt by the Parent of the proceeds of issuance of at least
$21,430,000 aggregate principal amount of the Convertible Notes (as defined
in the Definitive Agreement).
SECTION 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 5. COUNTERPARTS; EFFECTIVENESS. This Amendment shall become
effective as of the date hereof when the Agent shall have received duly
executed counterparts hereof signed by (i) all parties hereto other than the
Lenders and (ii) each of the Lenders (or in the case of any party from which
an executed counterpart shall not have been received, the Agent shall have
received facsimile, telegraphic, telex or other written confirmation from
such party). This Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be duly executed as of the date first above written.
BORROWERS AND GUARANTOR
MEMOREX TELEX N.V.
By
----------------------------------
Title:
MEMOREX TELEX CORPORATION
By
----------------------------------
Title:
MEMOREX TELEX DISTRIBUTION N.V.
By
----------------------------------
Title:
MEMOREX TELEX HOLDING N.V.
By
----------------------------------
Title:
TULSA COMPUTER PRODUCTS, LTD.
By
----------------------------------
Title:
3
<PAGE>
AGENT:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By
----------------------------------
Title:
LENDERS:
ABN AMRO BANK N.V.,
AMSTERDAM BRANCH
By
----------------------------------
Name:
Title:
BANQUE WORMS CAPITAL CORP.
By
----------------------------------
Name:
Title:
BAYERISCHE VEREINSBANK
AKTIENGESELLSCHAFT, LONDON
BRANCH
By
----------------------------------
Name:
Title:
CERBERUS PARTNERS, L.P.
By
----------------------------------
Name:
Title:
4
<PAGE>
GRACE BROTHERS LTD.
By
----------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, LONDON BRANCH
By
----------------------------------
Name:
Title:
NEW VERNON PARTNERS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
PARESCO INC.
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
PEARL STREET L.P.
By
----------------------------------
Name:
Title:
5
<PAGE>
PEQUA TRADING CORP.
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
SARANAC INVESTORS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
----------------------------------
Name:
Title:
6
<PAGE>
THE PRESIDENT AND FELLOWS
OF HARVARD COLLEGE
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
THE ROCKEFELLER FOUNDATION
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
VEGA OFFSHORE FUND TRUST
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
VEGA PARTNERS L.P.
By: Whippoorwill Associates, Inc.,
as General Partner
By
----------------------------------
Name:
Title:
7
<PAGE>
VEGA PARTNERS II L.P.
By: Whippoorwill Associates, Inc.,
as General Partner
By
----------------------------------
Name:
Title:
25307 PARTNERSHIP
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
8
<PAGE>
EXHIBIT 10.15(f)
EXECUTION COPY
AMENDMENT NO. 6 TO
RESTRUCTURED CREDIT AND GUARANTY AGREEMENT
AMENDMENT dated as of February 1, 1996 among Memorex Telex Corporation
(the "Company"), Memorex Telex N.V., Memorex Telex Holding N.V., Memorex
Telex Distribution N.V., Tulsa Computer Products, Ltd., the Lenders listed on
the signature pages hereof and Morgan Guaranty Trust Company of New York, in
its capacity as agent (the "Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto have heretofore entered into the Restructured
Credit and Guaranty Agreement dated as of March 24, 1994 (as heretofore
amended, the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement to provide for
additional covenants under the Agreement and to waive certain provisions
thereof;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically
defined herein, each term used herein which is defined in the Agreement shall
have the meaning assigned to such term in the Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Agreement shall from and after the date hereof refer to the
Agreement as amended hereby.
SECTION 2. WAIVER. Compliance with the requirement of Section 6.11 of
the Agreement that the ratio of EBITDA to Cash Interest Expense for the
period of twelve consecutive calendar months ending on December 31, 1995 not
be less than 2.50 to 1.00 is hereby waived.
SECTION 3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 4. COUNTERPARTS; EFFECTIVENESS. This Amendment shall become
effective as of the date hereof when the
<PAGE>
Agent shall have received duly executed counterparts hereof signed by (i) all
parties hereto other than the Lenders and (ii) the Required Lenders (or in
the case of any party from which an executed counterpart shall not have been
received, the Agent shall have received facsimile, telegraphic, telex or
other written confirmation from such party). This Amendment may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be duly executed as of the date first above written.
BORROWERS AND GUARANTOR
MEMOREX TELEX N.V.
By
----------------------------------
Title:
MEMOREX TELEX CORPORATION
By
----------------------------------
Title:
MEMOREX TELEX DISTRIBUTION N.V.
By
----------------------------------
Title:
MEMOREX TELEX HOLDING N.V.
By
----------------------------------
Title:
TULSA COMPUTER PRODUCTS, LTD.
By
----------------------------------
Title:
3
<PAGE>
AGENT:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By
----------------------------------
Title:
LENDERS:
ABN AMRO BANK N.V.,
AMSTERDAM BRANCH
By
----------------------------------
Name:
Title:
BANQUE WORMS CAPITAL CORP.
By
----------------------------------
Name:
Title:
BAYERISCHE VEREINSBANK
AKTIENGESELLSCHAFT, LONDON BRANCH
By
----------------------------------
Name:
Title:
CERBERUS PARTNERS, L.P.
By
----------------------------------
Name:
Title:
4
<PAGE>
GRACE BROTHERS LTD.
By
----------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, LONDON BRANCH
By
----------------------------------
Name:
Title:
NEW VERNON PARTNERS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
PARESCO INC.
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
PEARL STREET L.P.
By
----------------------------------
Name:
Title:
5
<PAGE>
PEQUA TRADING CORP.
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
SARANAC INVESTORS L.P.
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By
----------------------------------
Name:
Title:
6
<PAGE>
THE PRESIDENT AND FELLOWS
OF HARVARD COLLEGE
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
THE ROCKEFELLER FOUNDATION
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
VEGA OFFSHORE FUND TRUST
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
VEGA PARTNERS L.P.
By: Whippoorwill Associates, Inc.,
as General Partner
By
----------------------------------
Name:
Title:
7
<PAGE>
VEGA PARTNERS II L.P.
By: Whippoorwill Associates, Inc.,
as General Partner
By
----------------------------------
Name:
Title:
25307 PARTNERSHIP
By: Whippoorwill Associates, Inc.,
as agent
By
----------------------------------
Name:
Title:
8
<PAGE>
EXHIBIT 10.23(b)
CONFORMED COPY
EMPLOYMENT AGREEMENT
Employment Agreement dated as of April 1, 1996, between Memorex Telex N.V.
organized under the laws of the Netherlands (the "Company"), Memorex Telex
Corporation, a Delaware corporation (the "Company Subsidiary") and Peter H.
Dailey (the "Executive").
The Company desires to employ the Executive as its Chief Executive Officer,
and the Company Subsidiary desires that the Executive shall also perform
services in a responsible managerial capacity, and the Executive desires to
accept such employment by the Company and the Company Subsidiary, on the terms
and subject to the conditions set forth herein.
In consideration of the premises and the mutual agreements herein
contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Company and the Company Subsidiary hereby employ the
Executive, and the Executive hereby accepts employment in the positions and with
the duties and responsibilities as set forth in paragraph 3 below subject to the
terms and conditions hereinafter set forth.
2. TERM. Subject to the provisions for earlier termination as herein provided,
the initial term of employment under this agreement shall be for the period
commencing April 1, 1996, and ending March 31, 1997 (the "Initial Term") and
shall automatically renew for successive twelve-month periods unless either
party notifies the other in writing at least three months prior to the end of
the then current term of employment that such term of employment shall no so
renew (the Initial Term and any renewal thereof referred to herein,
collectively, the "Term of Employment").
3. POSITION AND DUTIES. During the Term of Employment, the Executive shall be
employed as Chief Executive Officer of the Company and shall serve upon election
by the shareholders of the Company as a member and Chairman of the Company's
Management Board, and, subject to supervision by the Company's Supervisory Board
of Directors, shall have overall charge of the business affairs of the Company,
with the duties, responsibilities, and authorities normally associated with such
position. The Executive shall serve the Company faithfully, diligently, and to
the best of his ability and shall devote substantially all of his business time
and efforts to his employment, provided however, the Executive may serve as a
member of the Board of Directors of other entities with the
<PAGE>
Employment Agreement
Page 2
approval of the Chairman of the Company's Supervisory Board of Directors.
Nothing herein shall preclude the Executive from making personal investments
and spending time on immaterial business activities unrelated to the Company
and its business. The Executive shall also serve as an officer and/or
director of the Company Subsidiary and such one or more other subsidiaries of
the Company as the Supervisory Board of Directors shall request, and shall be
entitled to no additional remuneration for such service.
4. COMPENSATION. During the Initial Term, the Executive shall (a) be paid by
the Company Subsidiary an annual base salary of $500,000, payable in accordance
with the payroll practices of the Company Subsidiary, which currently provides
for bi-weekly pay periods, and (b) be eligible for participation in the
Company's management incentive compensation plan which will provide for a bonus
of up to one hundred percent (100%) of the Executive's base salary upon one
hundred percent achievement of objectives. Of such bonus amount, seventy-five
percent will be based upon the Company's results, and twenty-five percent will
be based upon mutually agreed, individual objectives determined by the Company's
Supervisory Board of Directors.
5. STOCK OPTIONS. The Executive shall receive options to acquire 250,000
shares of common stock of the Company in accordance with the terms of the
Company's amended and restated stock option plan for management.
6. EMPLOYEE BENEFIT PROGRAMS. The Executive shall be entitled to participate
in all employee incentive and benefit programs of the Company Subsidiary now or
hereafter made available to the Company's senior executives or salaried
employees generally, as such programs may be in effect from time to time.
7. ADDITIONAL PERQUISITES. The Executive shall be entitled to additional
perquisites as follows:
a. ANNUAL PHYSICAL. The Executive shall be reimbursed for the cost of an
annual physical examination.
b. TAX RETURNS. The Company shall pay $10,000.00 for the preparation of
the Executive's income tax returns.
c. BUSINESS EXPENSES. The Company and the Company Subsidiary shall
reimburse the Executive (in accordance with the practice from time to
time for other officers of the Company) for all reasonable and
necessary travel and other disbursement incurred by the Executive for
or on behalf of the Company in the performance his duties hereunder
upon presentation by the Executive to the Company of appropriate
expense reimbursement claims. Reasonable travel expenses shall
include, but not be limited to, the expense of travel to and from the
Executive's permanent residence within the continental United States.
In addition to such
<PAGE>
Employment Agreement
Page 3
travel expenses, the Company Subsidiary shall during the Initial
Term of employment pay up to $80,000.00 of the rental or hotel costs
and automobile rental for the Executive at the location of Executive's
employment.
8. TERMINATION OF EMPLOYMENT.
(a) TERMINATION WITHOUT CAUSE. In the event the Executive's employment is
terminated by the Company without Cause (as defined in paragraph 9(a)
hereof), which shall not include a termination due to the Executive's
death or Disability (as defined in paragraph 9(c) hereof), the
Executive shall be entitled to continued payments of his then current
base salary for the current term of employment.
(b) TERMINATION DUE TO DEATH OR DISABILITY. In the event the Executive's
employment is terminated due to his death of Disability, then the
Executive or his legal representative shall be entitled to continued
payments of his then current base salary for the then current term of
employment.
(c) OTHER PAYMENTS. Upon the termination of the Executive's employment
for any reason, the Executive shall be entitled to receive, in
addition to the amounts, if any, payable under paragraph 8(a) hereof,
the following: (i) any annual bonus earned during one or more
preceding years but not yet paid; (ii) reimbursement for reasonable
expenses incurred but not yet reimbursed by the Company; (iii) any
other benefits to which the Executive or his legal representative may
be entitled under applicable plans and programs of the Company.
9. DEFINITIONS. For purpose of the Agreement, the following terms shall be
defined as set forth below:
(a) The Executive shall be deemed to be terminated for "Cause" if (i) the
Executive shall theretofore have been convicted by any federal, state,
or local authority for, or shall have pleaded guilty to, an act
constituting a felony, (ii) the Executive shall have habitually abused
any substance (such as narcotics or alcohol), or (iii) the Executive
is terminated because of (x) acts of fraud, material dishonesty or
gross misconduct by the Executive in connection with the business of
the Company, or (y) repeated and willful failure by the Executive to
perform his duties hereunder after a demand for such performance is
delivered to the Executive by the Company's Supervisory Board of
Directors.
(b) "Disability" means the Executive's inability, for a period of three
consecutive months, to render substantially the services provided in
this Agreement by reason of mental or physical disability, whether
resulting from illness, accident, or otherwise.
<PAGE>
Employment Agreement
Page 4
10. DISCLOSURE OF INFORMATION. The Executive agrees that he will not, at any
time during or after any Term of Employment, disclose to any person, firm,
corporation, or other business entity (other than agents and representatives of
the Company, its subsidiaries who need to know) except as required by law, any
non-public information concerning the business, customers, or affairs of the
Company or any subsidiary thereof for any reason or purpose whatsoever nor shall
the Executive make use of any of such non-public information for his own
purposes or for the benefit of any person, firm, corporation, or other business
entity except the Company or any subsidiary thereof.
11. COVENANT NOT TO COMPETE. The Executive acknowledges and recognizes that
during any Term of Employment he will be privy to trade secrets and confidential
proprietary information critical to the business of the Company (including the
Company's subsidiaries) and, accordingly, the Executive agrees that, in
consideration of the premises contained herein, he will not, from and after the
date hereof until the first anniversary of the termination of his employment
hereunder, (i) directly or indirectly engage in, represent in any way, or be
connected with, any business or activity (such business or activity being
hereinafter called a "Competing Business"), directly competing with the
Company's business, within any country in which the Company transacts business,
whether such engagement shall be as an officer, director, owner, employee,
partner, affiliate, or other participant in any Competing Business, except that
the provisions of this paragraph 11 shall not be deemed breached merely because
the Executive owns not more than five percent of the outstanding common stock of
a corporation or other entity if at the time of its acquisition by the
Executive, such stock is listed on a national securities exchange, or is
regularly traded in the over-the-counter market, (ii) assist others in engaging
in any Competing Business in the manner described in the foregoing clause (i),
(iii) induce other employees of the Company or any subsidiary thereof to
terminate their employment with the Company or any subsidiary thereof, or engage
in any Competing Business, or (iv) solicit any of the customers or suppliers of
the Company or induce such customers or suppliers to terminate their
relationships with the Company.
12. INDEMNIFICATION. The Company and the Company Subsidiary hereby indemnifies
and holds harmless the Executive to the fullest extent permitted under the laws
and regulations applicable to such entities against all actions, suit,
proceedings, and claims, actual or threatened, based upon or arising out of
Executive's service as a director, officer, employee, or agent thereof The
Executive will also be covered under any directors and officers liability
insurance policies applicable to directors and officers of the Company and/or
the Company Subsidiary.
13. ASSIGNABILITY; BINDING NATURE. This agreement shall be binding upon, and
shall inure to the benefit of; the respective heirs, legal representatives, and
successors of the parties hereto.
14. SEVERABILITY. In the event that any provision or portion of the agreement
shall be determined to be invalid or unenforceable for any reason, in whole or
in part, the
<PAGE>
Employment Agreement
Page 5
remaining provisions of the agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
15. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of the agreement to the extent necessary
to the intended preservation of such rights and obligations.
16. GOVERNING LAW. The Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of California without
reference to principles of conflict of laws. The parties hereto hereby
irrevocably agree that any legal action or proceeding arising out of; related
to, or in connection with this agreement shall be brought in a court of
competent jurisdiction in California, and by their execution and delivery of
this agreement each party hereby irrevocably accepts and submits to the
jurisdiction of such court in person, generally and unconditionally in
connection with any such action or proceeding.
17. NOTICES. Any notice given to either party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the party concerned, if to the Company and Company Subsidiary, at their
principal office, and if the Executive, 1999 Oak Knoll Avenue, San Marino,
California 91108, or at such other address as such party may give notice of.
18. HEADINGS. The headings of the paragraphs contained in the Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of the Agreement.
19. COUNTERPARTS. The Agreement may be executed in two or more counterparts.
20. ENTIRE AGREEMENT; AMENDMENTS. The Agreement contains the entire agreement
between the parties hereto concerning the subject matter hereof and supersedes
all prior agreements, understandings, discussions, negotiations, and
undertakings, whether written or oral, between them with respect thereto. This
Agreement may be amended only by an agreement in writing signed by the parties
hereto.
[The remainder of this page intentionally left blank.]
<PAGE>
Employment Agreement
Page 6
IN WITNESS WHEREOF, the undersigned have executed the Agreement as of the
date first written above.
EXECUTIVE
/s/ Peter H. Dailey
---------------------------------------
MEMOREX TELEX N.V.
By: /s/ David J. Faulkner
-----------------------------------
Managing Director
MEMOREX TELEX CORPORATION
By: /s/ Anthony J. Barbieri
-----------------------------------
Secretary
<PAGE>
- - - -----------------------------------------------------------------------------
[LOGO]
CREDIT AND GUARANTY AGREEMENT
by and among
MEMOREX TELEX CORPORATION
as Borrower,
MEMOREX TELEX SERVICES, INC.,
MEMOREX TELEX INC.,
MEMOREX TELEX (UK) LTD., and
MEMOREX TELEX N.V.
as the Guarantors,
and
FOOTHILL CAPITAL CORPORATION
Dated as of March 5, 1996
- - - -----------------------------------------------------------------------------
<PAGE>
CREDIT AND GUARANTY AGREEMENT
THIS CREDIT AND GUARANTY AGREEMENT (this "Agreement"), is entered into as
of March 5, 1996, among the following:
MEMOREX TELEX CORPORATION, a Delaware corporation ("Borrower"), with its
chief executive office located at 545 East John Carpenter Freeway, Irving, Texas
75062;
MEMOREX TELEX SERVICES, INC., a Delaware corporation ("Services"), with its
chief executive office located at 545 East John Carpenter Freeway, Irving, Texas
75062;
MEMOREX TELEX INC., a corporation organized under the laws of the Province
of Ontario, Canada ("Canada"), with its principal office located at 65 Allstate
Parkway, Markham, Ontario, L3R 9X1 Canada;
MEMOREX TELEX (UK) LTD., a corporation organized under the laws of England
and Wales ("UK"), with its principal office located at Eskdale Road, Winnersh,
Workingham, Berkshire RG11 5TS, United Kingdom;
MEMOREX TELEX N.V., a corporation organized under the laws of The
Netherlands (the "Parent"), with its principal office located at Hoogoorddreef
9, 1101 BA Amsterdam ZO, The Netherlands; and
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a
place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los
Angeles, California 90025-3333.
W I T N E S S E T H :
WHEREAS, Borrower, Services, Canada, UK, and the Parent have requested that
Foothill provide certain financing to Borrower, guarantied by the Guarantors;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of an Account.
"Accounts" means all currently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Parent or any of
its Consolidated Subsidiaries arising out of the sale or lease of goods or the
rendition of services by Parent or such Consolidated Subsidiary, irrespective of
whether earned by performance, and any and all credit insurance, guaranties, or
security therefor.
"Affiliate" means (i) any Person that directly, or indirectly through one
or more intermediaries, controls an Obligor (a "Controlling Person") and (ii)
any Person (other than the Parent or a Subsidiary of the Parent) which controls,
is controlled by or is under common control with a Controlling Person. The Agent
or any Restructuring Lender which, together with its affiliates, controls less
than 10% of the outstanding shares of Voting Stock shall not be deemed to be an
Affiliate. As used herein, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" means Morgan Guaranty Trust Company of New York, in its capacity as
agent and as trustee for the Restructuring Lenders under the Restructured Credit
Agreement, and its successors in such capacity.
"Annualized Domestic Eligible Service Revenues" means Annualized Eligible
Service Revenues excluding (a) revenues from Service Accounts not created by
Borrower or Services and (b) revenues from those Service Accounts that are not
payable in Dollars or with respect to which the Account Debtor (i) does not
maintain its chief executive office in the United States, or (ii) is not
organized under the laws of the United States or any State thereof.
"Annualized Eligible Service Revenues" means, as of the date of any
determination, an amount equal to: (a) the product of (i) the aggregate amount
of revenues from Service Accounts of Parent and its Consolidated Subsidiaries
during the immediately preceding three (3) month period, MULTIPLIED BY (ii) four
(4); LESS (b) the amount of any deferred revenue at the end of such three (3)
month period.
2
<PAGE>
"Applicable Margin" means (a) during the period commencing on the
Closing Date and ending on the date immediately preceding the first (1st)
anniversary of the Closing Date, zero (0) percentage points, and (b) thereafter,
two (2) percentage points.
"Asia Pacific Sale" means a sale of all or substantially all of the capital
stock or assets of those Subsidiaries of the Parent, including, without
limitation, Australia, that comprise the Consolidated Company's Asia-Pacific
operations (other than Memorex Telex Japan Ltd.), and that are identified on
SCHEDULE A-1 attached hereto.
"Asia-Pacific Sale Condition" means the consummation of the Asia-Pacific
Sale on or before June 1, 1996.
"Asset Sale" means any sale, lease or other disposition (including, without
limitation, any such transaction effected by way of merger, amalgamation or
consolidation) by the Parent or any of its Subsidiaries subsequent to the
Closing Date of any asset, including, without limitation, any Sale and Leaseback
Transaction, whether or not involving a Capital Lease, but excluding: (i)
dispositions of inventory and used, surplus or worn-out equipment in the
ordinary course of business; (ii) dispositions of assets by the Parent or any of
its Subsidiaries to the Parent or any of its Subsidiaries; (iii) any sale of
leasebase receivables of the Parent or any of its Consolidated Subsidiaries;
(iv) the sale by Borrower or a Subsidiary of Borrower of the 100,000 shares of
Series A Convertible Preferred Stock of Telex Communications Group, Inc. ("TCI")
and the 100,000 shares of Series B Preferred Stock of TCI; (v) the sale or other
disposition of the capital stock of Memorex Telex Japan Ltd.; and (vi) any sale
or other factoring of accounts receivable (other than leasebase receivables and
other than Accounts created by UK or Canada); PROVIDED that
(A) each sale or factoring of accounts receivable pursuant to this
clause (vi) (a "Transferred Account Receivable") shall be without recourse
to any Obligor or any of its Subsidiaries (and for purposes of this
definition, a lien on such Transferred Account Receivable in favor of the
transferee of an interest in such receivable, or any other third party,
shall not in and of itself constitute recourse to the transferor of such
interest),
(B) the sum (the "Transferred Amount") of (1) the aggregate
uncollected balances of Transferred Accounts Receivable (exclusive of
defaulted accounts receivable) PLUS (2) the aggregate amount of all
collections on Transferred Accounts Receivable theretofore received by the
seller for the account of the purchaser but not yet remitted to the
purchaser MINUS (3) the aggregate unpaid amount of the deferred purchase
price, if any, ("holdback") in respect of Transferred Accounts Receivable
to the extent that such holdback has
3
<PAGE>
not been applied against defaulted accounts receivable, shall not exceed
$100,000,000 at any time, and
(C) the Transferred Amount in respect of Transferred Accounts
Receivable that but for such sale would have constituted Collateral located
in the United States shall not exceed $40,000,000 at any time.
"Australia" means Memorex Telex Pty Ltd., a corporation organized under the
laws of New South Wales, Australia, and its successors.
"Authorized Officer" means any corporate officer of Borrower properly
authorized in writing by such Borrower to transact business with Foothill.
"Bankruptcy Code" means Title I of the Bankruptcy Reform Act of 1978, as
amended, as set forth in title 11, Section 101 ET SEQ, of the United States
Code.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Borrower" means Memorex Telex Corporation, a Delaware corporation, and its
successors.
"Borrowing Base" has the meaning set forth in SECTION 2.03.
"Business Day" means any day, that is not a Saturday, Sunday, or other day
on which national banks are authorized or required by law to close.
"Canada" means Memorex Telex Inc., a corporation organized under the laws
of Ontario, Canada, and its successors.
"Capital Lease" means a lease that would be capitalized on a balance sheet
of the lessee prepared in accordance with generally accepted accounting
principles and the amount of any Capital Lease obligation shall be the
capitalized amount thereof, determined in accordance with generally accepted
accounting principles.
"Capital Stock" means any and all shares, interests, participations,
warrants, options, contingent equity rights or other equivalents (however
designated) of or in corporate stock or any other equity interest.
4
<PAGE>
"Central Obligors" means the Parent and each Subsidiary of Parent from time
to time party to any Restructured Collateral Document.
"CFO" means at any time the chief financial officer at such time of the
Parent and its Consolidated Subsidiaries.
"Closing Date" means the date of the funding of the Loan hereunder.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Collateral" has the meaning set forth in the Restructured Collateral
Agency Agreement.
"Collateral Access Agreement" means a landlord waiver, mortgagee waiver,
bailee letter, or a similar acknowledgement agreement of any warehouseman,
processor, or other Person in possession of Inventory, in each case, in form and
substance satisfactory to Foothill.
"Collateral Agent" means Morgan Guaranty Trust Company of New York in its
capacity as collateral agent under the Restructured Collateral Documents and its
successors in such capacity.
"Collateral Documents" means the (a) the assignments, security agreements,
pledge agreements, instruments, acknowledgments and other documents (as the same
may be amended, modified, supplemented or waived from time to time) described in
SCHEDULE C-1 to this Agreement and (b) all additional assignments, security
agreements, pledge agreements, instruments, acknowledgments and other documents
(as the same may be amended, modified, supplemented or waived from time to time)
which are delivered or to be delivered pursuant hereto (to the extent such
document pertains to the Collateral).
"Consolidated Capital Expenditures" means, for any period, the aggregate
amount of expenditures by the Parent and its Consolidated Subsidiaries for
plant, property and equipment during such period which in accordance with
generally accepted accounting principles are capitalized in the consolidated
financial statements of the Parent and its Consolidated Subsidiaries for such
period (reduced, to the extent otherwise reflected therein, by (x) the aggregate
principal amount of Debt incurred during such period pursuant to paragraph (iv)
or (vi) of Section 5.07(a) and (y)investments in sales-type leases made during
such period).
5
<PAGE>
"Consolidated Company" means the Parent and its Consolidated Subsidiaries.
"Consolidated Debt" means, at any date, the aggregate amount of Debt of the
Parent and its Consolidated Subsidiaries, determined on a consolidated basis as
of such date.
"Consolidated Subsidiary" means, at any date with respect to any Person,
any Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in the consolidated financial statements of such Person as
of such date.
"Constitutional Documents" means, in relation to any corporate Person, the
Memorandum and Articles of Association, Certificate of Incorporation and By-Laws
or other constitutional documents of such corporate Person.
"Daily Balance" means the amount of an Obligation owed at the end of a
given day.
"Debt" of any Person means, without duplication, (i) all obligations of
such Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person to pay the deferred purchase price of property or services, (iv) all
obligations of such Person as lessee under Capital Leases, (v) all obligations
of such Person to purchase securities which arise out of or in connection with
the sale of the same or substantially similar securities, (vi) all obligations
of such Person, fixed or contingent, to reimburse any other Person for amounts
drawn under a letter of credit or similar instrument, (vii) any preferred stock
of any Subsidiary of such Person, and any preferred stock of such Person which
is subject to redemption otherwise than at the sole option of such Person prior
to January 1, 2000; (viii) all Debt secured by a Lien on any asset of such
Person, whether or not such Debt is otherwise an obligation of such Person and
(ix) all Debt of others Guaranteed by such Person; PROVIDED that neither (A)
obligations of the Parent or any of its Consolidated Subsidiaries in respect of
non-recourse dispositions of accounts receivable (including, without limitation,
leasebase receivables) accounted for as sales under United States accepted
accounting principles in effect on December 31, 1995, nor (B) trade accounts
payable arising in the ordinary course of business nor obligations in respect of
insurance policies or performance or surety bonds which are not themselves
Guarantees of Debt (nor drafts, acceptances or similar instruments evidencing
the same nor obligations in respect of letters of credit supporting the payment
of the same) shall constitute Debt.
6
<PAGE>
"Default" means any condition or event that constitutes an Event of Default
or that with the giving of notice or lapse of time or both would, unless cured
or waived, become an Event of Default.
"Directly Imposed Foreign Taxes" has the meaning set forth in Section
10.11.
"Distribution" means Memorex Telex Distribution N.V., a corporation
organized under the laws of The Netherlands with its statutory seat in
Amsterdam, and its successors.
"Dollars" and the sign "$" mean lawful currency of the United States of
America.
"Domestic Securitization Reserve" means, as of any date of determination,
an amount equal to the Dollar amount of Morgan Delaware's aggregate 'Net
Investment' under the Receivables Purchase Agreement in Service Accounts, PLUS
the Dollar amount of Morgan Delaware's accrued but unpaid 'Yield' under the
Receivables Purchase Agreement.
"Eligible Accounts" means those Accounts created by the Non-Parent Obligors
in the ordinary course of business that arise out of the sale of goods or
rendition of services, and that strictly comply with each and all of the
representations and warranties respecting Accounts to Foothill in the Financing
Documents. Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within ninety
(90) days of invoice date or Accounts with selling terms of more than thirty
(30) days;
(b) Accounts with respect to which the Account Debtor is an employee,
Affiliate, or agent of any Obligor;
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
(d) Accounts that are not payable in Dollars or an Eligible Currency
or with respect to which the Account Debtor: (i) does not maintain its chief
executive office in the United States or an Eligible Foreign Jurisdiction, or
(ii) is not organized under the laws of the United States or any State thereof,
Canada, or an Eligible Foreign Jurisdiction, or (iii) is the government of any
foreign country or
7
<PAGE>
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or
other instrumentality thereof;
(e) Accounts with respect to an Account Debtor whose total
obligations owing to one or more Non-Parent Obligors exceed twenty percent (20%)
of all Eligible Accounts, to the extent of the obligations owing by such Account
Debtor in excess of such percentage;
(f) Accounts with respect to which the Account Debtor disputes
liability or makes any claim with respect thereto, or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(g) Accounts the collection of which Foothill, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
(h) Accounts with respect to which the goods giving rise to such
Account have not been shipped and delivered to and accepted by the Account
Debtor or the Account otherwise does not represent a final sale; and
(i) Accounts that represent progress payments or other advance
billings that are due prior to the completion of performance by the Obligors of
the subject contract for goods or services.
"Eligible Currency" means: (a) in respect of Accounts created by UK,
British Pounds Sterling; and (b) in respect of Accounts created by Canada,
Canadian Dollars.
"Eligible Foreign Jurisdiction" means any of: (i) the United Kingdom; and
(ii) any provinces of Canada other than Quebec, New Brunswick, Prince Edward
Island, Newfoundland, and Nova Scotia.
"Eligible Inventory" means Inventory consisting of first quality finished
goods held for sale in the ordinary course of Borrower's or Services' business,
that are located at the Borrower's or Services' premises identified on SCHEDULE
E-1, and that strictly comply with each and all of the representations and
warranties respecting Inventory made to Foothill in the Financing Documents. In
determining the amount to be so included, Inventory shall be valued at the lower
of cost or market, net of standard reserves for obsolescence and physical
inventory adjustments, on a basis consistent with the current and historical
accounting practices of Borrower or Services. An item of Inventory shall not be
included in Eligible Inventory if:
8
<PAGE>
(a) it is not owned solely by Borrower or Services, or Borrower or
Services does not have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on SCHEDULE
E-1 attached hereto;
(c) it consists of service parts, trade-ins, demonstration units, or
"holdover inventory;"
(d) it is not subject to a valid and perfected first priority
security interest in favor of Foothill or the Collateral Agent on behalf
thereof;
(e) it consists of goods returned or rejected by customers of
Borrower or Services, as the case may be, or goods in transit; and
(f) it is obsolete or slow moving, a restrictive or custom item,
work-in-process, a component that is not part of finished goods, or constitutes
spare parts, packaging and shipping materials, supplies used or consumed in the
business of Borrower or Services, Inventory subject to a security interest or
lien in favor of any third Person, bill and hold goods, defective goods,
"seconds," or Inventory acquired on consignment.
"Eligible Non-Securitized Account" means, as of any date of determination,
any Eligible Account other than an Eligible Securitized Account.
"Eligible Securitized Account" means, as of any date of determination, any
Eligible Account included in any 'Pool' (as defined in the Receivables Purchase
Agreement).
"Eligible Transferee" means (a) a commercial bank organized under the laws
of the United States, or any state thereof, and having total assets in excess of
$100,000,000; (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country, and having total
assets in excess of $100,000,000; provided that such bank is acting through a
branch or agency located in the United States; (c) a finance company, insurance
or other financial institution or fund that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business
and having total assets in excess of $50,000,000; (d) any Affiliate (other than
individuals) of Foothill; and (e) any other Person approved by Foothill and
Borrower.
9
<PAGE>
"Enforceable Judgment" means a judgment or order of a court or arbitral or
regulatory authority as to which the period, if any, during which the
enforcement of such judgment or order is stayed shall have expired; PROVIDED,
that if any judgment requires a monetary payment and does not set a date by
which such payment must be made, there shall be deemed to be a five-day period
after the entry of such judgment during which such payment may be made prior to
such judgement becoming an Enforceable Judgment. A judgment or order which is
under appeal or as to which the time in which to perfect an appeal has not
expired shall not be deemed an Enforceable Judgment so long as enforcement
thereof is effectively stayed pending the outcome of such appeal or the
expiration of such period, as the case may be.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to the
environment, the effect of the environment on human health or to emissions,
discharges or of pollutants, contaminants, 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, Hazardous Substances or wastes or the clean-up or
other remediation thereof.
"Equipment" means all of the Non-Parent Obligors' present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including, without limitation, motor vehicles and
trailers), tools, parts, goods (other than consumer goods, farm products, or
Inventory), wherever located, including, without limitation, (a) any interest
of the Non-Parent Obligors in any of the foregoing, and (c) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"Equity Issuance" has the meaning set forth in Section 2.04(c)(iii) of the
Restructured Credit Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended or any successor statute.
"ERISA Group" means Borrower, any Subsidiary of Borrower, and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with Borrower or any
Subsidiary of Borrower, are treated as a single employer under Section 414 of
the Code.
10
<PAGE>
"Event of Acceleration" means any of the events or conditions set forth
in paragraphs (h), (i) and (j) of Section 7.01 with respect to any Material
Company.
"Event of Default" means any of the events or conditions set forth in
Section 7.01.
"Financial Obligation" means (i) any Debt, (ii) any obligation in respect
of any letter of credit, whether or not constituting Debt, and (iii) any
obligation in respect of any interest swap, currency swap, financial option or
futures contract or any similar arrangement.
"Financing Documents" means this Agreement, the Restructured Collateral
Agency Agreement, and the Collateral Documents, any note or notes executed by
Borrower and payable to Foothill, and any other agreement entered into, now or
in the future, in connection with this Agreement.
"Foothill" means Foothill Capital Corporation, a California corporation,
and its successors and assigns.
"Foothill Expenses" means all reasonable items as follows: costs or
expenses (including, without limitation, taxes and insurance premiums) required
to be paid by the Obligors under any of the Financing Documents that are paid or
incurred by Foothill; fees or charges paid or incurred by Foothill in connection
with Foothill's transactions with the Obligors, including, without limitation,
fees or charges for photocopying, notarization, telecommunication, public record
searches (including, without limitation, tax lien, litigation, and UCC
searches), filing, recording, publication, appraisal (including, without
limitation, periodic Collateral appraisals), real estate surveys, real estate
title policies, and environmental audits; costs and expenses incurred by
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the dishonor of
checks; costs and expenses paid or incurred by Foothill to correct any default
or enforce any provision of the Financing Documents, or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated; costs and expenses paid or
incurred by Foothill in examining any Obligor's books and records; costs and
expenses of third party claims or any other suit paid or incurred by Foothill in
enforcing or defending the Financing Documents or in connection with the
transactions contemplated by the Financing Documents or Foothill's relationship
with the Obligors; and Foothill's reasonable attorneys fees and expenses
incurred in advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including, without limitation, attorneys fees and
expenses incurred in connection with a "workout", a
11
<PAGE>
"restructuring", or an Insolvency Proceeding concerning any Obligor or any
other guarantor of the Obligations), defending, or concerning the Financing
Documents, irrespective of whether suit is brought.
"Foreign Taxes" means any Taxes levied or imposed by any government or any
taxing authority of or in any jurisdiction other than Taxes imposed by the
United States or any political subdivision or taxing authority thereof or
therein.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of such
Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), PROVIDED that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantors" means, collectively, each of Services, UK, Canada, Australia
(from and after the time, if any, that Australia first becomes a Guarantor under
Section 3.02 hereof and thereafter for so long as Australia is not released
pursuant to Section 8.07 hereof from Australia's guaranty hereunder), and the
Parent, and "Guarantor" means any one of the foregoing.
"Hazardous Substances" means any toxic, radioactive, caustic or otherwise
hazardous substance, including, without limitation, petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Holding" means Memorex Telex Holding N.V., a corporation organized under
the laws of The Netherlands with its statutory seat in Amsterdam, and its
successors.
"Indemnitee" has the meaning set forth in Section 14.03(b).
"Inventory" means all present and future inventory in which the
Non-Parent Obligors have any interest, including, without limitation, goods
held for sale or lease or to be furnished under a contract of service and all
of the Non-Parent Obligors' present
12
<PAGE>
and future raw materials, work in process, finished goods, mid packing and
shipping materials, wherever located, and any documents of title representing
any of the above.
"Investment" means any investment m any Person, whether by means of share
purchase, capital contribution, loan, purchase of Debt, Guarantee of Debt, time
deposit or otherwise.
"Investment Grade" means, when used with respect to any security or
obligation, that such security or obligation (or in the case of any equity
security, a class of debt securities issued by the same Person) shall have been
assigned a rating of Baa-3 (or the comparable rating in any successor rating
scheme) or better by Moody's Investors Service, Inc. (or any successor thereto)
or BBB- (or the comparable rating in any successor rating scheme) or better by
Standard and Poor's Corporation (or any successor thereto)
"J.V. Investments" means Investments by the Parent or any of its
Subsidiaries in: (i) Persons (other than Subsidiaries of the Parent) which are
expected to supply products or services to the Parent or any of its Subsidiaries
or whose products or services are expected to be marketed in conjunction with
the products or services of the Parent or any of its Subsidiaries; or (ii)
Persons engaged in business of a type conducted by the Parent or a Subsidiary of
the Parent and accounted for by the Parent and its Consolidated Subsidiaries on
the equity method.
"Leasebase Amount" has the meaning ascribed to that term in Section
5.13(c).
"Lender" means Foothill, each assignee of Foothill or another Lender for
purposes hereof pursuant to Section 10.08, and their respective successors and
assigns.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
or any deposit or maintenance, or use as collateral or support, in connection
with any obligation of such asset (including, without limitation, cash) or any
other arrangement the economic effect of which is to give a creditor
preferential access to such asset to satisfy its claim. For the purpose of this
Agreement, the Parent or any of its Subsidiaries shall be deemed to own subject
to a Lien (i) any asset that it has acquired or holds subject to the interest of
a vendor or lessor under any conditional sale agreement or other title retention
agreement relating to such asset or any Capital Lease or (ii) any account
receivable transferred by the Parent or any of its Subsidiaries with recourse.
13
<PAGE>
"Liquidation" means, in relation to any corporate Person, any dissolution,
termination, winding-up or liquidation, by whatsoever name known and in
whatsoever jurisdiction, of such Person.
"Loan" means the term loan made by Foothill to Borrower, as more fully
described in Section 2.01 of this Agreement.
"Lockbox Agreement" means, individually and collectively: (i) the Amended
and Restated Lockbox Agreement (Hardware), dated as of June 30, 1995, among
Borrower, Morgan Delaware, the Collateral Agent, and Bank of America Illinois;
and (ii) the Lockbox Agreement (Maintenance), dated as of June 30, 1995, among
Services, Morgan Delaware, the Collateral Agent, and Bank of America Illinois;
in each case, as amended to, and in effect on, the date hereof and as amended
from time to time.
"Marketable Securities" means (i) Dollars or direct non-callable
obligations of, or non-callable obligations guaranteed as to timely payment or
insured by, the United States or any agency or instrumentality thereof for the
payment of which obligation or guarantee the full faith and credit of the United
States is pledged and (ii) notes, bonds or stock that are listed on a national
securities exchange and are Investment Grade.
"Material Adverse Change" means with respect to the Consolidated Company, a
material adverse change in the business, properties, assets, financial position,
results of operations or prospects of the Consolidated Company, taken as a
whole.
"Material Company" means any Obligor, Central Obligor, or Security
Subsidiary.
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities exceeding $1,000,000.
"Maturity Date" means March 5, 1998 or, if such day is not a Business Day,
the next preceding Business Day.
"Maximum Rate" means the maximum rate of interest permitted by applicable
law as the same exists from day to day during the term of this Agreement.
"Morgan Delaware" means J.P. Morgan Delaware, a corporation organized under
the laws of Delaware, and its successors.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA
14
<PAGE>
Group is then making or accruing an obligation to make contributions or has
within the preceding five plan years made contributions, including, without
limitation, for these purposes any Person which ceased to be a member of the
ERISA Group during such five year period.
"Net Cash Proceeds" means, with respect to any Asset Sale, an amount equal
to the cash proceeds received by the Parent or any of its Subsidiaries from or
in respect of such Asset Sale, less (x) any expenses reasonably incurred by the
Parent or such Subsidiary in respect of such Asset Sale, (y) the amount of any
Debt secured by a Lien on the related asset and required to be discharged from
the proceeds of such Asset Sale and (z) any taxes paid or payable by the Parent
or such Subsidiary (as are reasonably and in good faith estimated by the CFO) in
respect of such Asset Sale; PROVIDED, that, with respect to any Asset Sale, "Net
Cash Proceeds", determined as provided above, shall be adjusted by adding the
book value (net of any collection fee charged by the buyer) of all accounts
receivable being retained by Subsidiaries of the Parent and by subtracting the
book value of all accounts payable and other accrued liabilities related to the
assets being sold, incurred in the ordinary course of such business, which are
not being assumed by the buyer(s) of such assets, so long as the fair market
value of the total consideration for such Asset Sale is less than $2,000,000 and
the fair market value of the total consideration for all Asset Sales consummated
during any fiscal year, the Net Cash Proceeds of which are adjusted pursuant to
this PROVISO, is less than $5,000,000; and, PROVIDED, FURTHER, that "Net Cash
Proceeds" shall not include (i) the cash proceeds of any Asset Sale by Memorex
Telex Japan Ltd. or (ii) to the extent Foothill consents in writing in advance
of any particular transaction giving rise thereto, any Other cash proceeds
received by any Subsidiary of the Parent which, by reason of any law or
regulation of the jurisdiction where such Subsidiary maintains the bank account
in which such proceeds are held, are blocked and cannot be remitted from such
jurisdiction or can be remitted from such jurisdiction only through incurrence
of a material incremental tax liability. The Parent and its Subsidiaries shall
be deemed to have received at the closing of any Asset Sale cash in an amount
equal to the fair market value of the portion (if any) of the consideration for
such sale that consists of either Marketable Securities or Non-Cash Proceeds.
"Non-Cash Proceeds" shall have the meaning set forth in Section 5.09(b)
hereof.
"Non-Parent Obligors" means, collectively, the Obligors other than the
Parent, and "Non-Parent Obligor" means any one of them.
"Obligations" means all loans, advances, debts, principal, interest
(including, without limitation, any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), premiums, liabilities (including, without
limitation, all amounts
15
<PAGE>
charged to Borrower's Loan Account pursuant hereto), obligations, fees, or
Foothill Expenses (including, without limitation, any fees or expenses that,
but for the provisions of the Bankruptcy Code, would have accrued),
guaranties, covenants, and duties owing by the Obligors to Foothill of any
kind and description pursuant to or evidenced by the Financing Documents,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including, without limitation, all
interest not paid when due and all Foothill Expenses that the Obligors are
required to pay or reimburse in connection with the Financing Documents.
"Obligors" means, collectively, Borrower and each of the Guarantors, and
"Obligor" means any one of them.
"Overadvance" has the meaning set forth in SECTION 2.02.
"Parent" means Memorex Telex N.V., a corporation organized under the laws
of The Netherlands with its statutory seat in Amsterdam, and its successors.
"Participant" has the meaning set forth in Section 14.08(b)
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Asia-Pacific Proceeds Application" has the meaning set forth in
Section 2.02(a).
"Permitted Liens" means those Liens described in clauses (a) through (i) of
Section 5.08.
"Person" means an individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or other agency or political subdivision thereof or any other entity.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
16
<PAGE>
"Prepackaged Plan" has the meaning ascribed thereto in the Restructured
Credit Agreement.
"Qualification"' means, with respect to any report of independent public
accountants covering financial statements, a qualification to such report
(such as a "subject to" or "except for" statement therein) (I) resulting from
a limitation on the scope of examination of such financial statements or the
underlying data, (ii) with respect to the continued existence of the entity
whose financial statements are reported upon, as contemplated by Statement on
Auditing Standards No. 34, or (iii) which could be eliminated by changes in
financial statements or notes thereto covered by such report (such as, by the
creation of or increase in a reserve or a decrease in the carrying value of
assets) and which if so eliminated by the making of any such change and after
giving effect thereto would occasion a Default; PROVIDED that neither of the
following shall constitute a Qualification: (a) a consistency exception
relating to a change in accounting principles with which the independent
public accountants for the Person whose financial statements are being
examined have concurred or (b) a qualification relating to the outcome or
disposition of any uncertainty, including but not limited to threatened
litigation, pending litigation being contested in good faith, pending or
threatened claims or other contingencies, the impact of which litigation,
claims, contingencies or uncertainties cannot be determined with sufficient
certainty to permit quantification in such financial statements.
"Receivables Purchase Agreement" means the Amended and Restated
Receivables Purchase Agreement dated as of September 17, 1990, between
Borrower and Morgan Delaware, as amended to, and as in effect on, the date
hereof and as amended from time to time.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Norwest Bank, Minnesota, N.A. or any successor to such
institutions, as its "prime rate", "base rate", or "reference rate", as the
case may be, irrespective of whether such announced rate is the best rate
available from such financial institution.
"Regulation G" means Regulation G of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Restricted Payment" means (i) any dividend or other distribution on any
shares of the Capital Stock of the Parent or any of its Subsidiaries (other
than stock splits, like-kind stock dividends or the distribution of shares of
Capital Stock of the Parent
17
<PAGE>
pursuant to the exercise of Warrants issued pursuant to the Prepackaged Plan)
or (ii) any payment on account of the purchase, redemption, retirement or
acquisition of (a) any shares of Capital Stock of the Parent or any of its
Subsidiaries or (b) any option, warrant or other right to acquire shares of
capital stock of the Parent or any of its Subsidiaries; PROVIDED that
payments by any Subsidiary of the Parent to the Parent or any of its
Wholly-Owned Subsidiaries shall not constitute Restricted Payments.
"Restructured Collateral Documents" means the (a) Restructured Collateral
Agency Agreement, (b) the assignments, security agreements, pledge
agreements, instruments, acknowledgments and other documents (as the same may
be amended, modified, supplemented or waived from time to time) described in
Schedule C-1 to the Restructured Collateral Agency Agreement and (c) all
additional assignments, security agreements, pledge agreements, instruments,
acknowledgments and other documents (as the same may be amended, modified,
supplemented or waived from time to time) which the Representatives (as
defined in the Restructured Collateral Agency Agreement) from time to time
agree by notice to the Collateral Agent shall constitute Collateral Documents
for the purposes of the Restructured Collateral Agency Agreement or which are
delivered or to be delivered pursuant hereto (to the extent such document
pertains to the Collateral) or thereto.
"Restructured Collateral Agency Agreement" means the Amended and Restated
Restructured Collateral Agency, dated as of the date hereof, among the
Borrower, the Parent, certain Subsidiaries of the Parent listed on the
signature pages thereof, Foothill, the Agent, the Restructuring Lenders, and
the Collateral Agent, as the same may be modified, waived or amended from
time to time.
"Restructured Credit Agreement" means the Restructured Credit and
Guaranty Agreement dated as of March 24, 1994, as amended, among Borrower,
Holding, Distribution, Tulsa, the Parent, the lenders listed on the signature
pages thereof, and Morgan Guaranty Trust Company of New York, as agent.
"Restructuring Lender" means each Person listed as a Lender on the
signature pages of the Restructured Credit Agreement, each Assignee which
becomes a "Lender" for purposes of the Restructured Credit Agreement pursuant
to Section 14.08(c) of the Restructured Credit Agreement, and their
respective successors, and "Restructuring Lenders" means all of the foregoing.
"Restructured Loans" means the 'Loans' as defined in the Restructured
Credit Agreement.
18
<PAGE>
"Sale and Leaseback Transaction" means any arrangement with any Person
providing for the leasing by the Parent or any of its Subsidiaries of any
property that, or of any property similar to and used for substantially the
same purposes as any other property that, has been or is to be sold,
assigned, transferred or otherwise disposed of by the Parent or any of its
Subsidiaries to such Person with the intention of entering into such a lease.
"Securitization Reserve" means, as of any date of determination, the
Dollar amount of Morgan Delaware's Net Investment under the Receivables
Purchase Agreement in Service Accounts.
"Security Subsidiaries" means all, and "Security Subsidiary" means any
one, of the following Subsidiaries of the Parent:
1. Memorex Telex Corporation
2. Tulsa Computer Products, Ltd.
3. Memorex Telex Inc.
4. Memorex Telex Holding N.V.
5. Memorex Telex AG
6. Memorex Telex Holdings (UK) Limited
7. Memorex Telex (UK) Limited
8. Memorex Telex S.A. (France)
9. Memorex Telex Italia SpA
10. Memorex Telex Distribution N.V.
11. Memorex Telex Nederland B.V.
12. Memorex Telex S.A. (Belgium)
13. Memorex Telex Pty Limited
14. Memorex Telex Wholesale Pty Limited
15. Services,
and any other Subsidiary of the Parent some or all of whose capital stock or
obligations serve as collateral for the Restructuring Lenders under one or
more of the Restructured Collateral Documents and any other Subsidiary of the
Parent formed or organized after the Closing Date.
"Service Accounts" means Accounts created in the ordinary course of
business arising arise out of the rendition of maintenance and other similar
services from recurring contracts with Account Debtors.
"Services" means Memorex Telex Services Inc., a Delaware corporation, and
its successors.
19
<PAGE>
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"Tax" means any present or future tax, duty or other charge (including,
without limitation, interest and penalties imposed with respect thereto).
"Temporary Cash Investment" means (a) funds of any subsidiary of the
Parent or, subject to Section 5.22, of the Parent on deposit with a local
bank or (b) any Investment in (i) Dollars or direct non-callable obligations
of, or non-callable obligations guaranteed as to timely payment or insured
by, the United States or any agency or instrumentality thereof for the
payment of which obligation or guarantee the full faith and credit of the
United States is pledged, (ii) commercial paper rated at least A-1 by
Standard & Poor's Corporation and P-1 by Moody's Investors Service, Inc.,
(iii) time deposits with, including, without limitation, certificates of
deposit issued by, any office located in the United States of any bank or
trust company which is organized under the laws of the United States or any
state thereof and the senior debt securities of which are rated in one of the
two highest categories by a nationally recognized credit rating agency,
provided, in each case, that such Investment matures within 90 days from the
date of acquisition thereof, or (iv) repurchase obligations with a term of
not more than ten days with respect to securities described in clause (i)
above entered into with an office of a bank or trust company meeting the
criteria specified in clause (iii) above.
"Transferee" has the meaning set forth in Section 14.08(d).
"Tulsa" means Tulsa Computer Products, Ltd., an Oklahoma corporation, and
its successors.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed
by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair
market value of all Plan assets allocable to such liabilities under Title IV
of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA
Group to the PBGC or any other Person under Title IV of ERISA.
"UK" means Memorex Telex (UK) Ltd., a corporation organized under the
laws of England and Wales, and its successors.
20
<PAGE>
"U.S." and "United States" means the United States of America.
"U.S. Taxes" means any Taxes levied or imposed by the United States of
America or any political subdivision or taxing authority thereof or therein.
"Voting Stock" means Capital Stock of any class or classes (however
designated) having ordinary voting power for the election of managing
directors of the Parent, other than Capital Stock having such power only by
reason of the happening of a contingency.
"Warrants" means either or both (i) the stock subscription warrants
representing the right to purchase, in the aggregate, 1,532,156 shares of the
authorized common stock, dfl. 0.10 nominal value per share, of Memorex Telex
N.V. on and after the effective date of the Prepackaged Plan, at an exercise
price of $2.00 per share until the fifth anniversary of the effective date of
the Prepackaged Plan, which are authorized to be issued and distributed
pursuant to the Prepackaged Plan, or (ii) the stock subscription warrants
representing the right to purchase, in the aggregate, 1,000,000 shares of the
authorized common stock, dfl. 0.10 nominal value per share, of Memorex Telex
N.V. on and after the effective date of the Prepackaged Plan, at an exercise
price of $14.00 per share until the seventh anniversary of the effective date
of the Prepackaged Plan, which are authorized to be issued and distributed
pursuant to the Prepackaged Plan.
"Wholly-Owned Subsidiary" means, with respect to any Person, any
Subsidiary all of the shares of Capital Stock of which (except directors'
qualifying shares and investments by foreign nationals mandated by applicable
law) are at the time directly or indirectly owned by such Person. The Special
Purpose Domestic Receivables Subsidiary (if any) permitted by Section 5.16
hereof shall be deemed to be a Wholly-Owned Subsidiary.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared in accordance
with the United States generally accepted accounting principles as in effect
from time to time, applied on a basis consistent (except for changes
concurred in by the Parent's independent public accountants) with the most
recent audited consolidated financial statements of the Parent and its
Consolidated Subsidiaries delivered to Foothill; PROVIDED that, if Borrower
notifies Foothill that the Borrower wishes to amend any covenant in Article V
to eliminate the effect of any change in generally accepted accounting
principles on the operation of such covenant or calculation, as the case may
be (or if Foothill notifies Borrower that Foothill wishes to amend Article V
for such purpose), then Borrower's
21
<PAGE>
compliance with such covenant or calculation, as the case may be, shall be
determined on the basis of generally accepted accounting principles in effect
immediately before the relevant change in generally accepted accounting
principles became effective, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to Borrower and Foothill.
SECTION 1.03. CONVERSION OF AMOUNTS DENOMINATED IN FOREIGN CURRENCY. If
for purposes of any determination it is necessary to translate amounts
denominated in a currency other than Dollars into Dollars, such translation
shall be made: (a) if such determination relates to a matter reflected in the
consolidated financial statements, or the books and records, of the Parent
and its Consolidated Subsidiaries, on the basis reflected therein consistent
with the United States generally accepted accounting principles; and (b) in
other cases, for any month, at the exchange rate for such currency designated
by Borrower for such month and reported to Foothill hereunder. The foregoing
notwithstanding, if Foothill determines in its reasonable judgment that the
exchange rate applicable under (a) or (b) above does not reflect the fair
market exchange rate therefor, then such translation shall be made at the
exchange rate for such currency most recently reported in the WALL STREET
JOURNAL or REUTERS WIRE SERVICE at the time of such determination.
ARTICLE II
LOAN AND TERMS OF PAYMENT.
SECTION 2.01 LOAN. Foothill has agreed to make a term loan (the "Loan")
on the Closing Date to Borrower in the original principal amount of Twelve
Million Dollars ($12,000,000). Borrower promises to repay the Loan in full on
the Maturity Date. The outstanding principal balance and all accrued and
unpaid interest under the Loan shall be due and payable upon the termination
of this Agreement, whether by its terms, by prepayment, by acceleration, or
otherwise. The Loan may be prepaid, in whole or in part, without any premium
or penalty. All amounts outstanding under the Loan shall constitute
Obligations. Principal amounts borrowed under the Loan, once repaid, may not
be reborrowed at any time during the term of this Agreement.
SECTION 2.02 MANDATORY PREPAYMENT.
(a) ASSET SALES. In the event that the Parent or any of its
Subsidiaries shall at any time, or from time to time, engage in an Asset
Sale, Borrower shall prepay the Obligations in an amount equal to the Net
Cash Proceeds of such Asset Sale, to be paid to Foothill on the date on which
such Asset Sale is consummated; PROVIDED, HOWEVER, that in the case of the
Asia-Pacific Sale, Borrower shall not be obligated to prepay the Obligations
22
<PAGE>
to the extent that the Net Cash Proceeds of the Asia-Pacific Sale (the
"Asia-Pacific Proceeds") are applied as follows (the "Permitted Asia-Pacific
Proceeds Application"): (i) the lesser of (y) the amount of all cash
Asia-Pacific Proceeds and (z) Seventeen Million Dollars ($17,000,000) cash is
retained and used by the Consolidated Company solely to support the
Consolidated Company's continuing operations and not applied toward the
obligations under the Restructured Credit Agreement; and (ii) iii the event
that the amount of all cash Asia-Pacific Proceeds is in excess of Seventeen
Million Dollars ($17,000,000), an amount not to exceed the amount of such
cash excess is applied as a partial prepayment toward Borrower's obligations
under the Restructured Credit Agreement.
(b) OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by the Borrower to Foothill pursuant to SECTION 2.01 is
greater than either the dollar or percentage limitations set forth in SECTION
2.03 (an "Overadvance"), Borrower immediately shall pay to Foothill, in cash,
the amount of such excess to be used by Foothill to repay the Obligations.
SECTION 2.03 BORROWING BASE. The outstanding principal amount of the
Loan shall not exceed, at any time or for any reason, the Borrowing Base. For
purposes of this Agreement, "Borrowing Base" shall mean the lowest of:
(x) the sum of: (i) the greater of: (A) seventy percent (70%) of
the amount of Eligible Securitized Accounts, LESS the Domestic
Securitization Reserve; and (B) zero (0); PLUS (ii) seventy percent (70%)
of the amount of Eligible Non-Securitized Accounts; PLUS (iii) fifty
percent (50%) of the amount of Eligible Inventory; PLUS (iv) Seven Million
Dollars ($7,000,000);
(y) thirty five percent (35%) of Annualized Eligible Domestic
Service Revenues, LESS the Securitization Reserve; and
(z) twenty percent (20%) of Annualized Eligible Service
Revenues, LESS the Securitization Reserve.
SECTION 2.04 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. All Obligations shall bear interest at a per
annum rate equal to the lesser of: (i) the Maximum Rate; or (ii) the greater
of (A) the Reference Rate plus the Applicable Margin, or (B) seven percent
(7.0%) per annum.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence and during the continuance of an Event of Default, at a
per annum rate equal
23
<PAGE>
to the lesser of: (i) the Maximum Rate; or (ii) the rate otherwise applicable
under SECTION 2.04(a)(ii) plus three percent (3.0%) per annum.
(c) INTEREST CATCH-UP. Notwithstanding the provisions of Sections
2.05(a) and (b), if at any time the applicable interest rate shall exceed the
Maximum Rate and thereafter the applicable interest rate shall become less
than the Maximum Rate, the rate of interest payable hereunder shall, at the
option of Foothill, be the Maximum Rate until the total interest paid by
Borrower equals the amount which would have been paid but for the applicable
interest rate having been in excess of the Maximum Rate. If, at maturity of
final payment of the Obligations, the total amount of interest paid or
accrued on the Obligations under the provisions of Sections 2.03(a) and (b)
is less than the total amount of interest which would have been accrued if
the applicable interest rate had at all times been in effect, then Borrower,
to the fullest extent permitted by law, shall pay to Foothill an amount equal
to the difference between (a) the amount of interest which would have accrued
on the Obligations if the Maximum Rate had at all times been in effect, and
(b) the amount of interest accrued in accordance with the provisions of
Sections 2.03(a) and (b).
(d) MINIMUM INTEREST. In no event shall the rate of interest
chargeable hereunder on any Obligations be less than seven percent (7%) per
annum (or, if lower, the Maximum Rate).
(e) PAYMENTS. Interest hereunder shall be due and payable on the
first day of each month during the term hereof. Borrower hereby authorizes
Foothill, at its option, without prior notice to Borrower, to charge such
interest, all Foothill Expenses (as and when incurred), and all installments
or other payments due under the Loan or the Financing Documents to the
Borrower's Loan Account, which amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a pan of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(f) COMPUTATION. The Reference Rate as of this date is eight and
one-quarter percent (8.25%) per annum. In the event the Reference Rate is
changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to such change in the Reference Rate. The rates of interest
charged hereunder shall be based upon the average Reference Rate in effect
during the month. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a three hundred sixty (360) day year for
the actual number of days elapsed. All interest calculated at the Maximum
Rate shall be computed on the basis of a three hundred sixty-five (365) or
three hundred sixty-six day year, as appropriate.
24
<PAGE>
(g) USURY. It is the intention of the parties hereto to conform
strictly to all usury laws applicable to this transaction. Accordingly, if
the transactions contemplated hereby would be usurious under applicable law
(including, without limitation, the laws of any jurisdiction whose laws may
be mandatorily applicable notwithstanding the other provisions of this
Agreement), then, notwithstanding anything to the contrary in this Agreement
or in any other instrument or agreement entered into in connection herewith,
it is agreed as follows: (i) the aggregate of all consideration which
constitutes interest under applicable law that is contracted for, taken,
reserved, charged, or received under this Agreement or under any other
instruments or agreements or otherwise in connection herewith shall under no
circumstances exceed the maximum amount allowed by such applicable law, and
any excess shall be credited on the principal amount of the Obligations (or,
if the principal amount of the Obligations shall have been paid in full,
refunded to Borrower); and (ii) in the event that the maturity of the
Obligations is accelerated for any reason under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under applicable law may never
include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
canceled automatically as of the date of such acceleration or prepayment and,
if theretofore paid, shall be credited on the principal amount of the
Obligations (or, if the principal amount of the Obligations shall have been
paid in full, refunded to Borrower). In determining whether the interest
paid or payable with respect to any indebtedness of Borrower to Foothill,
under any specific contingency, exceeds the highest lawful rate, Borrower and
Foothill shall, to the maximum extent permitted by applicable law, (i)
characterize any non-principal payment as an expense, fee, or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
(iii) amortize, prorate, allocate, and spread the total amount of interest
throughout the full term of such indebtedness so that the actual rate of
interest on account of such indebtedness does not exceed the maximum amount
permitted by applicable law, and/or (iv) allocate interest between portions
of such indebtedness, so that no such portion shall bear interest at a rate
greater than that permitted by applicable law.
SECTION 2.05 BORROWER'S DESIGNATED ACCOUNT. Foothill is authorized to
make the Loan under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Officer of
Borrower. Borrower shall designate in writing to Foothill the identity of the
deposit account of Borrower (the "Designated Account") established and
maintained by Borrower for the purpose of receiving the proceeds of the Loan
requested by Borrower and made by Foothill hereunder. Unless otherwise
agreed by Foothill and Borrower, the Loan requested by Borrower and made by
Foothill hereunder shall be made to Borrower's Designated Account.
25
<PAGE>
SECTION 2.06 MAINTENANCE OF LOAN ACCOUNT: STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with the Loan and all
accrued interest, Foothill Expenses, and any other payment Obligations and on
which Borrower will be credited with all payments received by Foothill from
Borrower or for the Borrower's account, including, without limitation, all
amounts received by Foothill from any lockbox account in accordance with the
Lockbox Agreement and the Restructured Collateral Agency Agreement. Foothill
shall render statements regarding the Loan Account to Borrower, including,
without limitation, principal, interest, fees, and including, without
limitation, an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be
correct and accurate and constitute an account stated between Borrower and
Foothill unless, within thirty (30) days after receipt thereof by Borrower,
Borrower shall deliver to Foothill by registered or certified mail at its
address specified under SECTION 10.01, written objection thereto describing
the error or errors contained in any such statements.
SECTION 2.07 FEES. Borrower shall pay to Foothill the following fees:
(a) CLOSING FEE. A one time fee in an amount equal to Seven Hundred
Fifty Thousand Dollars ($750,000), which fee is earned, in full, and
non-refundable on the Closing Date and is due and payable by Borrower to
Foothill in connection with this Agreement on the earliest to occur of: (i)
the Maturity Date; (ii) the prepayment in full of the Loan; and (iii) the
acceleration by Foothill of the Loan.
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Foothill's customary fee
of Six Hundred Fifty Dollars ($650) per day per examiner and One Thousand
Five Hundred Dollars ($1,500) per day per appraiser for financial analyses
and examinations and collateral appraisals, plus out-of-pocket expenses for
each such financial analysis, examination and appraisal performed by Foothill
or its agents; PROVIDED, HOWEVER, that so long as no Event of Default has
occurred and is continuing, the appraisal fee payable by Borrower will not
exceed the amount of such fee for three (3) appraiser-days.
SECTION 2.08 FOOTHILL EXPENSES. Borrower shall pay to Foothill all
Foothill Expenses promptly upon demand by Foothill.
26
<PAGE>
ARTICLE III
CONDITIONS; TERM OF AGREEMENT
SECTION 3.01. CONDITIONS PRECEDENT TO THE LOAN. The obligation of
Foothill to make the Loan is subject to the fulfillment, to the satisfaction
of Foothill and its counsel, of each of the following conditions on or before
the Closing Date:
(a) receipt by Foothill of counterparts hereof signed by each Obligor
and Foothill (or, in the case of any party other than the Obligors, as to
which an executed counterpart shall not have been received, receipt by
Foothill in form satisfactory to it of telex, facsimile or other written
confirmation of execution of a counterpart hereof by such party);
(b) receipt by Foothill of counterparts of the Restructured Collateral
Agency Agreement, each duly executed by authorized officials of each of the
parties listed on the signature pages thereof (including, without limitation,
the Agent and each Restructuring Lender);
(c) receipt by Foothill of duly executed counterparts of the Collateral
Documents (including, without limitation, to the extent practicable,
Collateral Documents in respect of the Lien on the assets of Canada and UK
located outside the United States), together with evidence satisfactory to
Foothill of the effectiveness of the security contemplated thereby;
(d) receipt by Foothill of copies of each Lockbox Agreement, together
with a certificate of the Secretary of Borrower certifying the same to be
true, correct, and complete copies thereof and certifying the lockbox
arrangements contemplated thereunder are in fill force and effect;
(e) receipt by Foothill of any unpaid fees and expenses (including,
without limitation, attorneys fees) accrued or incurred, or estimated to have
been accrued or incurred, by or on behalf of Foothill pursuant to or in
connection with this Agreement and the Financing Documents;
(f) receipt by Foothill of opinions of special counsel for the Obligors,
in form satisfactory to Foothill, covering such matters relating to the
transactions contemplated hereby as Foothill may reasonably request;
(g) receipt by Foothill of a certificate signed by the Chief Financial
Officer of Borrower to the effect that (i) such Chief Financial Officer was
the Chief Financial Officer on December 31, 1995, (ii) immediately after such
effectiveness, no Default shall have occurred and be continuing and, to the
best of his knowledge, no Material Adverse Change
27
<PAGE>
has occurred since December 31, 1995, and (iii) to the best of his knowledge,
each of the representations and warranties made by the Obligors in or
pursuant to the Financing Documents is true and correct in all material
respects on and as of such Closing Date;
(h) receipt by Foothill of a certificate from the Secretary of each
Obligor attesting to: (i) the resolutions of such Obligor's board of
directors (or foreign equivalent thereof) authorizing its execution,
delivery, and performance of this Agreement and the other Financing Documents
to which it is a party and authorizing specific officers to execute the same;
(ii) the incumbency and signature specimen of each such authorized officer;
and (iii) copies of such Obligor's Constitutional Documents, as amended,
modified, or supplemented to the Closing Date; in each case, in form and
substance satisfactory to Foothill;
(i) receipt by Foothill of certificates of corporate status (or the
relevant foreign equivalents thereof) with respect to each Obligor, dated
within ten (10) days of the Closing Date, by the appropriate officer of the
jurisdiction of incorporation of such Obligor, which certificates shall
indicate that such Obligor is in good standing (or the relevant foreign
equivalent thereof) in such jurisdiction;
(j) receipt by Foothill of: (i) certificates of corporate status with
respect to Borrower, dated within ten (10) days of the Closing Date, by the
appropriate officer of the states of New Jersey, North Carolina, Oklahoma,
and Texas; and (ii) a certificate of corporate status with respect to
Services, dated within ten (10) days of the Closing Date, by the appropriate
officer of the state of Texas; which certificates shall indicate that such
Obligor is in good standing in such jurisdiction;
(k) receipt by Foothill of searches reflecting the filing of the
Collateral Agent's financing statements and fixture filings (and the relevant
foreign equivalents thereof);
(l) the execution and delivery of all counterpart signature pages to the
amendments and waivers in respect of the Restructured Credit Agreement by the
Agent each Restructuring Lender, and each Material Company party thereto,
whereby, among other things, the execution, delivery, and performance by the
Obligors of the Financing Documents and the consummation of the transactions
contemplated thereby are permitted by the Restructuring Lenders;
(m) receipt by Foothill of copies of the Restructured Credit Agreement
(including all amendments and modifications to date) and the Receivables
Purchase Agreement (including all amendments and modifications to date),
together with a certificate of the Secretary of Borrower certifying the same
to be true, correct, and complete copies thereof;
28
<PAGE>
(n) receipt by Foothill of certificates of insurance in respect of the
Non-Parent Obligors, together with the endorsements thereto (including,
without limitation, a 438BFU lender's loss payable endorsement, or an
equivalent endorsement in a form satisfactory to Foothill, showing the
Collateral Agent as loss payee thereof), as are required by the Restructured
Collateral Agency Agreement, the form and substance of which shall be
satisfactory to Foothill;
(o) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all respects on and as
of the date of the making of the Loan;
(p) no Event of Default or event which with the giving of notice or
passage of time would constitute an Event of Default shall have occurred and
be continuing on the date of the making of the Loan;
(q) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the making of the Loan shall have been
issued and remain in force by any governmental authority against 'any
Borrower, Foothill, or any of their Affiliates; and
(r) the Closing Date shall occur on or before March 22, 1996.
SECTION 3.02 CONDITIONS SUBSEQUENT TO THE LOAN. The following shall be
conditions subsequent and the failure to satisfy on a timely basis one or
more of the same shall constitute an Event of Default hereunder:
(a) In the event the Asia-Pacific Sale Condition is not satisfied, then
Borrower shall cause Australia to execute and deliver to Foothill, on or
before June l, 1996, (i) such joinder documents as Foothill may request, in
form and substance satisfactory to Foothill, by which Australia agrees to
join in and become bound by the provisions of this Agreement as a Guarantor,
and (ii) to the extent practicable, such Collateral Documents as Foothill may
request in order to grant the Collateral Agent for the benefit of Foothill a
perfected security interest in the personal property Collateral of Australia;
(b) To the extent that any Collateral Documents in respect of the Lien
on the assets of Canada and UK located outside the United States are not
executed and delivered on or before the Closing Date under Section 3.01(c)
hereof, UK and Canada shall execute and deliver to Foothill, within thirty
(30) days following the Closing Date, such Collateral Documents, together
with evidence satisfactory to Foothill of the effectiveness of the security
contemplated thereby;
29
<PAGE>
(c) Within sixty (60) days following the Closing Date, Foothill shall
receive duly executed Collateral Access Agreements for the Obligors'
non-owned locations in each of: (i) Raleigh, North Carolina; and (ii) if
requested by Foothill, Tulsa, Oklahoma; and
(d) Within thirty (30) days following the Closing Date, the Obligors
shall deliver to Foothill the certified copies of the policies of insurance,
together with the endorsements thereto (including, without limitation, a
438BFU lender's loss payable endorsement, or an equivalent endorsement in a
form satisfactory to Foothill, showing the Collateral Agent or Foothill as
loss payees thereof (as their interests may appear)), as are required by the
Restructured Collateral Agency Agreement, the form and substance of which
shall be satisfactory to Foothill.
SECTION 3.03 TERM. This Agreement shall become effective upon the
execution and delivery hereof by the Obligors and Foothill and shall continue
in full force and effect for a term ending on the Maturity Date, unless
sooner terminated pursuant to the terms hereof. The foregoing
notwithstanding, Foothill shall have the right to terminate its obligations
under this Agreement immediately and without notice upon the occurrence and
during the continuation of an Event of Default.
SECTION 3.04 EFFECT OF TERMINATION. On the date of termination, all
Obligations immediately shall become due and payable without notice or
demand. No termination of this Agreement, however, shall relieve or discharge
the Obligors of their duties, Obligations, or covenants hereunder, and
Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have ken fully and finally discharged.
SECTION 3.05 EARLY TERMINATION BY BORROWER. The provisions of SECTION
3.03 notwithstanding, Borrower shall have the option, at any time upon sixty
(60) days prior written notice to Foothill, to terminate this Agreement by
paying to Foothill, in cash, the Obligations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Obligors jointly and severally represent and warrant to Foothill that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each Obligor is a
corporation duly incorporated, validly existing and (in the case of each such
Person incorporated under the laws of any State of the United States and each
other such Person as to which such
30
<PAGE>
concept has meaning under the laws of the jurisdiction of its incorporation)
in good standing under the laws of its jurisdiction of incorporation and has
all corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted
(except, to the extent that failure to comply with the foregoing statements
could not, in the aggregate, have a material adverse effect on the business,
financial position, results of operations or prospects of the Obligors and
their Consolidated Subsidiaries, considered as a whole), and each Obligor is
duly qualified as a foreign corporation, licensed and (in the case of each
such Person incorporated under the laws of any State of the United States and
each other such Person as for which such concept has meaning under the laws
of the jurisdiction of its incorporation) in good standing in each
jurisdiction where qualification or licensing is required by the nature of
its business or the character and location of its property, business or
customers and in which the failure so to qualify or be licensed, as the case
may be, in the aggregate, could have a material adverse effect on the
business, financial position, results of operations or prospects of the
Obligors and their Subsidiaries, considered as a whole.
SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION.
The execution and delivery by each Obligor of each of the Financing Documents
to which it is a party and the performance by such Obligor of its obligations
thereunder are within the corporate power of such Obligor, have been duly
authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official (except
such as shall have been obtained and be in full force and effect on and after
the date of execution and delivery of the related Financing Document by the
related Obligor) and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the Constitutional Documents
of such Obligor or of any agreement, judgment, injunction, order, decree or
other instrument binding upon such Obligor.
SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of each Obligor, and the other Financing Documents, when
executed and delivered as contemplated by this Agreement, will constitute
valid and binding obligations of each Obligor that is a party thereto.
SECTION 4.04. FINANCIAL INFORMATION. (a) The unaudited consolidated
balance sheet of the Parent and its Consolidated Subsidiaries as of December
31, 1995 and the related unaudited consolidated statements of operations and
cash flows for the nine months then ended, set forth in the Parent's
quarterly report for the fiscal quarter then ended as filed with the
Securities and Exchange Commission on Form 10-Q, a copy of which has been
delivered to Foothill, fairly present, in conformity with United States
generally accepted accounting principles applied on a basis consistent with
the financial statements referred to in subsection (b) of this Section 4.04,
the consolidated financial position of the Parent and its Consolidated
Subsidiaries as of such date and their consolidated results of
31
<PAGE>
operations and cash flows for such six month period (subject to normal
year-end audit adjustments).
(b) The consolidated balance sheet of the Parent and its Consolidated
Subsidiaries as of March 31, 1995 and the related consolidated statements of
operations and cash flows for the fiscal year then ended, reported on by
Ernst & Young and set forth in the Parent's 1995 Form 10-K, a copy of which
has been delivered to Foothill, fairly present, in conformity with United
States generally accepted accounting principles, the consolidated financial
position of the Parent and its Consolidated Subsidiaries as of such date and
their consolidated results of operations and cash flows for such fiscal year.
(c) There has been no Material Adverse Change, nor any event which is
reasonably likely to result in a Material Adverse Change, since December 31,
1995.
SECTION 4.05. LITIGATION. There is no action, suit or proceeding pending
against, or to the knowledge of any Obligor threatened against any Obligor or
any Subsidiary of any thereof, before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially and adversely
affect the business, financial position, results of operations or prospects
of the Consolidated Company, considered as a whole, or which in any manner
questions the validity of any Financing Document.
SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and
the Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Plan. No member of the ERISA Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could
result in the imposition of a Lien or the posting of a bond or other security
under ERISA or the Code or (iii) incurred any liability under Title IV of
ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA.
SECTION 4.07. TAXES. The Obligors and each Subsidiary of any of them have
filed all material Tax returns that are required to be filed by them and have
paid all Taxes due pursuant to such returns or pursuant to any assessment
received by any of them, except for any such Taxes being diligently contested
in good faith and by appropriate proceedings or being paid in accordance with
the terms of any settlement agreement entered into by the Obligors. Charges,
accruals and reserves have been provided on the books of the Parent and its
Subsidiaries in respect of all Taxes or other governmental charges which are
32
<PAGE>
adequate in the aggregate in accordance with generally accepted accounting
principles, and no Tax liabilities in excess of the amounts so provided are
anticipated that could materially and adversely affect the business,
financial position, results of operations or prospects of the Consolidated
Company, considered as a whole.
SECTION 4.08. COMPLIANCE WITH LAWS. Each Obligor is in compliance in all
material respects with all applicable laws, rules and regulations, other than
such laws, rules or regulations (i) the validity or applicability of which
such Obligor is contesting in good faith or (ii) failure to comply with which
cannot reasonably be expected to have consequences which would materially and
adversely affect the business, financial position, results of operations or
prospects of the Obligors and their Consolidated Subsidiaries, considered as
a whole.
SECTION 4.09. NOT AN INVESTMENT COMPANY. None of the Obligors is an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
SECTION 4.10. NO DEFAULTS. (a) No Obligor or any Subsidiary thereof is
in violation of, or in default under, any term or provision of any charter,
by-law, mortgage, indenture, agreement, instrument, statute, rule,
regulation, judgment, decree, order, writ or injunction applicable to it,
such that such violations or defaults in the aggregate might materially and
adversely affect the financial condition, results of operations, business or
prospects of the Consolidated Company, considered as a whole, or the ability
of any Obligor to perform its obligations under the Financing Documents.
(b) Upon the effectiveness of this Agreement, no Default will have
occurred and then be continuing.
SECTION 4.11. POSSESSION OF FRANCHISES. LICENSES ETC. The Obligors and
each Subsidiary of any of them own or possess all franchises, patents,
trademarks, service marks, trade names, copyrights, licenses and other rights
that are necessary in any material respect for the ownership and operation of
their respective properties and businesses, and none of the Obligors or any
Subsidiary of any of them is in violation of any provision thereof such that
any lack of such ownership or possession or violations in the aggregate might
materially and adversely affect the financial condition, results of
operation, business or prospects of the Consolidated Company, considered as a
whole, or the ability of any Obligor to perform its obligations under the
Financing Documents.
SECTION 4.12. FULL DISCLOSURE. All information heretofore furnished by
the Obligors or any Subsidiary of any of them to Foothill for purposes of or
in connection with this Agreement or any transaction contemplated hereby was,
and all such information
33
<PAGE>
hereafter furnished by the Obligors or any Subsidiary of any of them to
Foothill will be, true and accurate in every material respect or based on
reasonable estimates on the date as of which such information is stated or
certified. The Obligors have disclosed to Foothill in writing any and all
facts which materially and adversely affect or may affect (to the extent the
Obligors can now reasonably foresee), the business, properties, financial
position, results of operations or prospects of the Consolidated Company,
considered as a whole, or the ability of the Obligors to perform their
obligations under the Financing Documents.
SECTION 4.13. REPRESENTATIONS IN OTHER AGREEMENTS TRUE AND CORRECT. Each
of the representations and warranties contained in any Financing Document is
true and correct.
SECTION 4. 14. ENVIRONMENTAL LAWS. In the ordinary course of its
business, the Parent conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of the Parent
and its Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs (including, without limitation, any capital
or operating expenditures required for clean-up or closure of properties
presently or previously owned, any capital or operating expenditures required
to achieve or maintain compliance with environmental protection standards
imposed by law or as a condition of any license, permit or contract, any
related constraints on operating activities, including, without limitation,
any periodic or permanent shutdown of any facility or reduction in the level
of or change in the nature of operations conducted thereat, any costs or
liabilities in connection with off-site disposal of wastes or Hazardous
Substances, and any actual or potential liabilities to third parties,
including, without limitation, employees, and any related costs and
expenses). On the basis of this review, the Parent has reasonably concluded
that such associated liabilities and costs, including, without limitation,
the costs of compliance with Environmental Laws, are unlikely to have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Parent and its Consolidated Subsidiaries,
considered as a whole.
SECTION 4.15. LIENS. There are no Liens of any nature whatsoever on any
properties of the Obligors or any of their Subsidiaries other than Permitted
Liens. No Obligor is a party to any contract, agreement, lease or
instrument, the performance of which, either unconditionally or upon the
happening of an event, will result in or create a Lien (other than a
Permitted Lien) on the property or assets of any Obligor or otherwise result
in a violation of any Financing Document.
SECTION 4.16. ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time
of the creation thereof and as of each date on which Borrower includes them
in a Borrowing Base calculation or certification, bona fide existing
obligations created by the sale and delivery
34
<PAGE>
of Inventory or the rendition of services to Account Debtors in the ordinary
course of the Non-Parent Obligors' business, unconditionally owed to the
Non-Parent Obligors without defenses, disputes, offsets, counterclaims, or
rights of return or cancellation. The property giving rise to such Eligible
Accounts have been delivered to the Account Debtor, or to the Account
Debtor's agent for immediate shipment to and unconditional acceptance by the
Account Debtor. At the time of the creation of an Eligible Account and as of
each date on which the Borrower includes an Eligible Account in a Borrowing
Base calculation or certification, no Obligor has received notice of actual
or imminent bankruptcy, insolvency, or material impairment of the financial
condition of any applicable Account Debtor regarding such Eligible Account.
SECTION 4.17. ELIGIBLE INVENTORY. All Eligible Inventory is now and at
all times hereafter shall be of good and merchantable quality, free from
defects.
SECTION 4.18. LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party
(without Foothill's prior written consent) and are located only at the
locations identified on SCHEDULE 5.14 or otherwise permitted by SECTION 5.14.
SECTION 4.19. INVENTORY RECORDS. The Obligors now keep, and hereafter at
all times shall keep, correct and accurate records itemizing and describing
the kind, type, quality, and quantity of the Inventory, and the Obligors'
cost therefor.
ARTICLE V
COVENANTS
The Obligors jointly and severally agree that, so long as any Obligations
remains unpaid, the Obligors will perform and comply with, and will cause
their respective Subsidiaries, as applicable, to perform and comply with,
each of the following covenants.
SECTION 5.01. INFORMATION. Borrower will deliver to Foothill:
(a) within 90 days after the end of each fiscal year of the Parent, (i)
the consolidated balance sheet of the Parent and its Consolidated
Subsidiaries as of the end of such fiscal year, and the related consolidated
statements of operations and cash flows for such fiscal year, setting forth
in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and accompanied by an opinion or opinions thereon by
Ernst & Young or other independent public accountants of nationally
recognized standing, which opinion (x) shall state that such financial
statements present fairly the consolidated
35
<PAGE>
financial position of the companies being reported upon as of the date of
such financial statements and the consolidated results of their operations
for the period covered by such financial statements in conformity with
generally accepted accounting principles applied on a consistent basis
(except for changes with which such accountants concur) and that the
examination of such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing standards and,
accordingly, included such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances and (y)
shall not contain any Qualification for any fiscal year after the fiscal year
ending March 31, 19%, and (ii) a certificate, certified by the CFO, in the
form agreed upon by the Parent and Foothill and setting forth the Parent's
calculation of the Leasebase Amount for such fiscal year;
(b) within 45 days after the end of each of the first three quarters of
each fiscal year of the Parent, the consolidated balance sheet of the Parent
and its Consolidated Subsidiaries, and the related consolidated statements of
operations and cash flows for such quarter and for the portion of the fiscal
year ended at the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding quarter and the
corresponding portion of the previous fiscal year, all prepared in accordance
with Rule 10-01 of Regulation S-X of the General Rules and Regulations under
the Securities Act of 1933, or any successor rule that sets forth the manner
in which interim financial statements shall be prepared, and certified
(subject to normal year-end audit adjustments) as to fairness of presentation
and consistency by the chief financial officer or the chief accounting
officer of the Parent;
(c) within 45 days after the end of each fiscal quarter of each fiscal
year of the Parent, (i) the balance sheet of each Obligor, on a stand-alone
basis, and the related statements of operations and cash flows for such
quarter and for the portion of the fiscal year ended at the end of such
quarter, prepared on a basis consistent with the financial statements
referred to in subsection (b)and certified (subject to normal year-end audit
adjustments) as to fairness of presentation and consistency by the chief
financial officer or the chief accounting officer of the relevant Obligor,
(ii) a certificate of the CFO setting forth all cash payments received during
such fiscal quarter in respect of any Non-Cash Proceeds held by the Parent or
any of its Consolidated Subsidiaries, as permitted by the first PROVISO in
Section 5.09(b), and (iii) a certificate of the CFO setting forth the
aggregate amount as at the last day of such fiscal quarter of Liens on any
asset (including, without limitation, cash) of any Obligor securing any
obligation which is not Debt, other than Liens arising in the ordinary course
of business which constitute (A) statutory Liens or landlords and carriers',
warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other
like Liens with respect to amounts not yet delinquent or being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with generally accepted
accounting principles shall have been made
36
<PAGE>
therefor; (B) Liens for taxes, assessments, government charges or claims
which are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with generally accepted
accounting principles shall have been made therefor; (C) Liens incurred or
deposits made in connection with workers' compensation, unemployment
insurance and other types of social security; (D) easements, rights-of-way,
restrictions and other similar charges or encumbrances not interfering in any
material respect with the business of any Obligor; (E) Liens imposed by
operation of law which do not materially affect any Obligor's ability to
perform its obligations under the Financing Documents; and (F) Liens in favor
of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods;
(d) within twenty Business Days after the end of each calendar month,
(i) consolidated cash forecasts (substantially in the form customarily
prepared by the Parent) for a period covering at least the following twelve
weeks based upon the Parent's best estimates, information and assumptions at
the time, and (ii) the consolidated balance sheet of the Parent and its
Consolidated Subsidiaries, and the related consolidated statements of profit
and loss and of cash flows for such calendar month, in each case in the form
in which such statements are prepared for the Board of Supervisors of the
Parent;
(e) within 120 days after the end of each fiscal year of the Parent, a
projected consolidated balance sheet of the Parent and its Consolidated
Subsidiaries as of the end of the following fiscal year, and the related
consolidated statements of projected operations land cash flows (in each case
substantially in the form customarily prepared by the Parent) for such fiscal
year, based on the Parent's best estimates, information and assumptions at
the time;
(f) simultaneously with the delivery to Morgan Delaware of the daily and
monthly reports required under the Receivables Purchase Agreement, copies of
such reports;
(g) simultaneously with the delivery of each set of financial statements
referred to in paragraphs (a) and (b) of this Section, a certificate of the
CFO (i) setting forth in reasonable detail such calculations as are required
to establish whether the Parent was in compliance with the requirements of
Sections 5.06 through 5.13, inclusive, on the date of such financial
statements, (ii) stating whether there exists on the date of such certificate
any Default and, if any Default then exists, setting forth the details
thereof and the action that the Parent is taking or proposes to take with
respect thereto, (iii) stating whether, since the date of the most recent
previous delivery of financial statements pursuant to paragraph (a) or (b) of
this Section, there has been any Material Adverse Change not reflected in the
financial statements delivered simultaneously therewith and, if so, the
nature of such
37
<PAGE>
Material Adverse Change and (iv) stating whether, since the date of the most
recent financial statements previously delivered pursuant to paragraph (a) or
(b) of this Section, there has been a change in the generally accepted
accounting principles applied in preparing the financial statements then
being delivered from those applied in preparing the most recent audited
financial statements so delivered which is material to the financial
statements then being delivered;
(h) simultaneously with the delivery of each set of financial statements
referred 10 in paragraph (a) of this Section, a letter from the firm of
independent public accountants that reported on such statements stating (i)
whether anything has come to their attention in the course of their normal
audit procedures to cause them to believe that there existed on the date of
such statements any Default and (ii) whether in their opinion the
calculations set forth in the officer's certificate delivered simultaneously
therewith pursuant to paragraph (g) of this Section 5.01, to the extent
derived from data contained in the accounting records of the Parent and its
Consolidated Subsidiaries, have been determined in accordance with the
relevant provisions of this Agreement;
(i) forthwith upon the occurrence of any Default, a certificate of the
CFO setting forth the details thereof and the action that the Parent is
taking or proposes to take with respect thereto;
(j) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto) and annual, quarterly or monthly
reports that the Parent or any of its Subsidiaries shall have filed with the
Securities and Exchange Commission;
(k) if and when any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section
4043 of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such report able event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of
such notice; (iii) receives notice from the PBGC under Title IV of ERISA of
an intent to terminate, impose liability (other' than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee to administer any
Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding
standard under Section 412 of the Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy
of such notice and other information filed with the PBGC; (vi) gives notice
of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or
38
<PAGE>
in respect of any Benefit Arrangement or makes any amendment to any Plan or
Benefit Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the chief
financial officer or the chief accounting officer of the Parent setting forth
details as to such occurrence and action, if any, which the Parent or
applicable member of the ERISA Group is required or proposes to take;
(l) as soon as reasonably practicable after any Obligor obtains
knowledge of the commencement of, or of a material threat of the commencement
of, an action, suit or proceeding against the Parent or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency
or official in which there is a non-remote possibility of an adverse decision
which could materially and adversely affect the business, financial position,
results of operations or prospects of the Consolidated Company, considered as
a whole, or which in any manner questions the validity of any Financing
Document, the Obligors will inform Foothill of the nature of such pending or
threatened action, suit or proceeding and will provide such additional
information as may be reasonably requested by Foothill;
(m) [intentionally omitted]
(n) from time to time such additional information regarding the
financial position, results of operations, business or prospects of the
Parent or any of its Subsidiaries as Foothill may reasonably request; and
(o) In addition to the copies of the daily and monthly reports delivered
to Morgan Delaware required to be delivered concurrently to Foothill pursuant
to Section 5.01(f) hereof, the Obligors shall deliver to Foothill the
following documents at the following times in form and substance satisfactory
to Foothill: (i) on a weekly basis, (A) Inventory reports in respect of
Inventory located at the Obligors' Raleigh, North Carolina location,
specifying the Obligors' cost thereof, and (B) a detailed aging, by total, of
the Accounts of UK and Canada; (ii) on a monthly basis and, in any event, by
no later than the tenth (10th) Business Day of each month during the term of
this Agreement, (A) a detailed calculation of the Borrowing Base, together
with a reconciliation to the detailed calculation of the Borrowing Base
previously provided to Foothill, (B) a detailed aging, by total, of the
Accounts of the Non-Parent Obligors, together with a reconciliation to the
detailed calculation of the Borrowing Base previously provided to Foothill,
(C) a summary aging, by vendor, of the Obligors' accounts payable, and the
Dollar amount of any book overdraft, and (D) Inventory reports specifying the
Obligors' cost of the Obligors' Inventory by category, with additional detail
showing additions to and deletions from the Inventory; and (iii) such other
reports as to the Collateral or the financial condition of the Obligors as
Foothill may request from time to time.
39
<PAGE>
SECTION 5.02. PAYMENT OF OBLIGATIONS. The Obligors will, and will cause
each other Material Company to, pay and discharge, as the same shall become
due and payable, (i) all material claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons which, in
any such case, if unpaid, might by law give rise to a Lien upon any of its
property or assets, and (ii) all material taxes, assessments and governmental
charges or levies upon it or its property or assets, except where any of the
items in clause (i) or (ii) above may be contested in good faith by
appropriate proceedings, and the relevant Obligor or other Material Company,
as the case may be. shall have set aside on its books, in accordance with
generally accepted accounting principles, appropriate reserves for the
accrual of any such items; PROVIDED that the Obligors shall, and shall cause
one or more of the appropriate Subsidiaries of the Parent to, exercise any
option reasonably available to pay tax claims (including, without limitation,
interest thereon if applicable) in installments over any extended period.
SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE. The Obligors will, and
will cause each other Material Company to: (a) keep all material property
useful and necessary in its business in good working order and condition in
accordance with generally accepted industry standards applicable to the line
of business in which such property is used; (b) maintain with financially
sound and responsible insurance companies, insurance on all their respective
properties in at least such amounts and against at least such risks (and with
such risk retention) as are usually insured against in the same general area
by companies of established repute engaged in the same or a similar business;
and (c) furnish to Foothill, upon written request from Foothill, information
presented in reasonable detail as to the insurance so carried.
Notwithstanding the foregoing, the Obligors may, in lieu of maintaining the
insurance required by the preceding sentence, self-insure, or cause any other
Material Company to self-insure, with respect to the properties and risks
referred to in the preceding sentence to the extent that such self-insurance
is customary among companies of established repute engaged in the line of
business in which such properties are used or to which such risks pertain.
SECTION 5.04. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. (a)
Subject to Section 5.09, the Obligors will continue, and will cause their
respective Subsidiaries to continue, to engage in business of the same
general type as now conducted by the Obligors and their respective
Subsidiaries, as such business is described in the 1995 Form 10-K, and will
preserve, renew and keep in full force and effect, and will cause each other
Material Company to preserve, renew and keep in full force and effect, their
respective corporate existences and their respective rights, privileges,
licenses and franchises necessary or desirable in the normal conduct of
business.
(b) The Parent shall continue, and shall cause its Subsidiaries to
continue to maintain the Lockbox Agreement (or any replacement agreement in
substantially similar
40
<PAGE>
form which is reasonably satisfactory to Foothill), in substantially the form
in effect on the Closing Date or with such amendments, modifications or
changes as are satisfactory to Foothill. The Parent shall continue, and
shall cause its Subsidiaries to continue, to maintain working capital
financing arrangements similar to the Receivables Purchase Agreement or which
provide a comparable amount of working capital financing based on the sale or
other disposition or the pledge of U.S. accounts receivable. The Parent
shall, and shall cause each of its Subsidiaries to, establish in each
jurisdiction (other than France) in which Collateral exists under the
Collateral Documents, lockbox or other similar arrangements satisfactory to
Foothill.
SECTION 5.05. INSPECTION OF PROPERTY BOOKS AND RECORDS. The Parent will
keep, and will cause each other Material Company to keep, proper books of
record and account in which full, true and correct entries in conformity with
generally accepted accounting principles shall be made of all dealings and
transactions in relation to its business and activities. The Parent, upon
reasonable request by Foothill, will permit, and will cause each other
Material Company to permit, representatives of Foothill to visit and inspect
any of their respective properties, to examine and make abstracts from any of
their respective books and records and to discuss their respective affairs,
finances and accounts with their respective officers, employees and
independent public accountants, all at such reasonable times and as often as
may reasonably be desired.
SECTION 5.06. MAINTENANCE OF STOCK OF SUBSIDIARIES. Except as permitted
by Section 5.16 hereof, the Parent will at all times maintain direct or
indirect ownership of 100% of the outstanding shares (Other than directors'
qualifying shares and investments by foreign nationals mandated by applicable
law) of each class of capital stock of each of its Subsidiaries which is a
Material Company, other than Persons that have become Subsidiaries of the
Parent by way of Investments permitted by Section 5.13 (as to which the
Parent will at all times maintain direct or indirect ownership of the maximum
percentage of the capital stock of such Subsidiary that the Parent has owned
directly or indirectly at any time), except for a disposition by the Parent
of its entire Investment in any of its Subsidiaries in accordance with
Section 5.09 and except for a sale or disposition of its entire Investment in
the capital stock of Memorex Telex Japan Ltd.
SECTION 5.07. LIMITATION ON DEBT. (a) The Parent will not, and will not
permit any of its Subsidiaries to, incur or at any time be liable with
respect to any Debt except Debt under the Financing Documents and:
(i) Debt under the Restructured Credit Agreement; PROVIDED that
the aggregate principal amount of the Restructured Loans outstanding
at any time shall not exceed $100,000,000;
41
<PAGE>
(ii) Debt owing to the Parent or a Wholly-Owned Subsidiary of the
Parent;
(iii) Debt outstanding on the Closing Date and identified on
SCHEDULE A-1 of the Restructured Credit Agreement as in effect as of
the Closing Date, a copy of which schedule is attached hereto as
SCHEDULE 5.07;
(iv) Debt of any Person outstanding at the date such Person
becomes a Subsidiary of the Parent and not created in contemplation of
such event;
(v) Debt in respect of Capital Leases entered into in connection
with a Sale and Leaseback Transaction permitted by Section 5.09;
(vi) Debt secured by a Lien permitted by paragraph (g) of Section
5.08; PROVIDED that with respect to such Liens, the aggregate
principal amount of Debt secured thereby shall at no time exceed
$10,000,000;
(vii) Debt of Memorex Telex Japan Ltd. which is not Guaranteed by
the Parent or any other Subsidiary of the Parent; and
(viii) Debt not otherwise permitted by this Section 5.07(a) in
the aggregate outstanding principal amount (calculated, with respect
to Debt denominated in currencies other than Dollars, without regard
to variances of less than 5% between the dollar equivalent value of
such Debt at the time of its incurrence and its dollar equivalent
value at the date of determination under this Section 5.07(a)(viii))
not to exceed $40,000,000 at any time.
(b) At no time shall the sum of (i) the outstanding principal amount of
the Loan plus the Restructured Loans, (ii) the aggregate outstanding
principal amount of borrowings under any other secured or unsecured,
committed or uncommitted credit lines available to the Parent or any of its
Subsidiaries, and (iii) the aggregate amount of receivables factored
(exclusive of holdback, if any) exceed $230,000,000.
SECTION 5.08. NEGATIVE PLEDGE. The Parent will not, and will not permit
any of its Subsidiaries to, create, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by the Parent or any of its
Subsidiaries, except:
(a) Liens securing the Loan and other obligations of the Obligors under
the Financing Documents created pursuant to the Collateral Documents.
42
<PAGE>
(b) Liens existing on the Closing Date securing Debt that is outstanding
on such date and identified on SCHEDULE 5.08;
(c) Liens securing the Restructured Loans and other obligations of the
Central Obligors created pursuant to the Restructured Credit Agreement and
the Restructured Collateral Documents, subject to the provisions of Section
9.01 of the Restructured Collateral Agency Agreement;
(d) any Lien existing on any asset prior to the acquisition thereof by
such Subsidiary and not created in contemplation of such acquisition;
(e) any Lien existing on any asset of any Person at the time such Person
becomes a Subsidiary of the Parent and not created in contemplation of such
event;
(f) any Lien created by a Capital Lease otherwise permitted hereunder;
(g) any Lien on any asset of a Subsidiary of the Parent securing Debt
incurred or assumed by such Subsidiary for the purpose of financing all or
any part of the cost of acquiring such asset, PROVIDED that such Lien
attaches to such asset concurrently with the acquisition thereof;
(h) any Lien on any account receivable of a Subsidiary which is factored
by such Subsidiary or as to which an interest has been transferred by such
Subsidiary as security for any financing (in each case to the extent
permitted and in accordance with the terms of this Agreement), which Lien
does not secure any Debt of the Parent or any of its Subsidiaries (other than
the obligation to pass on collections of such receivable if any to the extent
received by the Parent or any of its Subsidiaries);
(i) Liens arising in the ordinary course of business which (i) do not
secure Debt and (ii) do not in the aggregate materially detract from the
value of its assets or materially impair the use thereof in the operation of
its business; and
(j) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (b) through (i); PROVIDED that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall not
extend to any other asset of the Parent or any of its Subsidiaries other than
such asset originally covered by such Lien or any improvements thereon or
additions or accessions thereto.
SECTION 5.09. CONSOLIDATIONS, MERGERS AND ASSET SALES. (a) The Parent
will not, and will not permit any other Material Company to, consolidate or
merge with or into, or
43
<PAGE>
sell, lease or otherwise dispose of all or substantially all of its assets
to, any other Person, except that any Material Company may merge with any
Person (other than a Material Company) if such Material Company is the
surviving corporation and if, immediately after such merger (and giving
effect thereto), no Default shall have occurred and be continuing; PROVIDED,
HOWEVER, that in the case of the merger of any Non-Parent Obligor with a
Material Company that is not a Non-Parent Obligor, such Non-Parent Obligor
shall be the surviving corporation.
(b) The Parent will not, and will not permit any of its Subsidiaries to,
make any Asset Sale, unless (i) the consideration therefor is not less than
the fair market value of the related asset (as determined in good faith by
the Parent) or, in the case of a Sale and Leaseback Transaction giving rise
to a Capital Lease, 60% of such fair market value AND (ii) the consideration
for such Asset Sale consists solely of cash or Marketable Securities payable
at the closing thereof; PROVIDED, HOWEVER, that the consideration for any
Asset Sale may consist in whole or in part of assets that are payable upon
the closing of such Asset Sale but which are neither cash nor Marketable
Securities ("Non-Cash Proceeds") so long as (i) such Non-Cash Proceeds do not
exceed $250,000 for any one transaction and (ii) the aggregate fair market
value of such Non-Cash Proceeds, calculated for each Asset Sale as of the
date on which such Asset Sale is consummated, net of any cash proceeds of
such Non-Cash Proceeds received from time to time, does not at any time
exceed $1,000,000; PROVIDED FURTHER that the Asia-Pacific Sale shall be
permitted to be consummated so long as no Default or Event of Default has
occurred and is continuing or would result therefrom and so long as either
all Obligations are paid in full in cash or item (i) in the definition of
"Permitted Asia-Pacific Proceeds Application" is satisfied.
SECTION 5.10. RESTRICTED PAYMENTS. The Parent will not, and will not
permit any of its Subsidiaries to, declare or make any Restricted Payment.
SECTION 5.11. INVOICING. Subject to the Collateral Documents and the
Receivables Purchase Agreement, original sales invoices evidencing daily
sales shall be mailed by the Non-Parent Obligors to each Account Debtor and,
at the Collateral Agent's direction, the invoices shall indicate on their
face that the Account has been assigned to the Collateral Agent and that all
payments are to be made directly to the Collateral Agent.
SECTION 5.12. LIMITATIONS ON INVESTMENTS. (a) The Parent will not, and
will not permit any of its Subsidiaries to, make or acquire any Investment,
except:
(i) subject to the limitations of Section 5.13, Investments in
the Parent and its Consolidated Subsidiaries
(ii) subject to the limitations of Section 5.13, J.V. Investments;
44
<PAGE>
(iii) temporary cash investments in bank time deposits or money
market instruments of recognized credit quality; and
(iv) instruments received as consideration for Asset Sales,
subject to the limitations of Section 5.09(b)
(b) Notwithstanding anything in this Agreement to the contrary, the
Parent shall not, and shall not permit any of its Subsidiaries to, exercise
any warrant, option or other similar right or any convertible security, if
such exercise requires any use or transfer of any asset by the Parent or such
Subsidiary, unless the security or other asset received by the Parent or such
Subsidiary upon such exercise is sold or otherwise disposed of for cash
within 5 days.
SECTION 5.13. CAPITAL EXPENDITURES. (a) The Parent and its Subsidiaries
may retain and apply up to 66% of the proceeds of any Equity Issuance to make
capital expenditures for property, plant and equipment and J.V. Investments.
(b) Subject to Section 5.12(b) and to paragraph (c) of this Section
5.13, the Parent and its Subsidiaries may make J.V. Investments; PROVIDED
that such J.V. Investments (other than Investments permitted by subsection
(a) hereof) do not exceed (i) $2,500,000 individually, (ii) $5,000,000 in the
aggregate in any fiscal year and (iii) Foothill is granted a security
interest in the equity interest of the Parent and its Subsidiaries in all
J.V. Investments entered into on or after the date hereof, subject to any
prior claim by any Person who is a participant in such J.V. Investment
pursuant to the operative documents of such J.V. Investment.
(c) The sum of (i) Consolidated Capital Expenditures for any fiscal year
plus (ii) the aggregate amount of J.V. Investments made during such fiscal
year (in each case exclusive of capital expenditures and J.V. Investments
permitted by subsection (a) hereof) shall not exceed the amount set forth
below for such fiscal year:
FISCAL YEAR
ENDING MARCH 31 AMOUNT
--------------- ------
1996 $15,000,000
1997 $15,000,000
1998 $15,000,000
For purposes of this Section 5.13(c), Consolidated Capital Expenditures for
any fiscal year shall include the net amount of leasebase assets to the
extent of the amount, if any, by which such net amount at the end of such
fiscal year exceeds the Leasebase Amount for
45
<PAGE>
such fiscal year (such excess amount being referred to herein as the
"Leasebase Increment"). The "Leasebase Amount" shall be, for the fiscal year
ending March 31, 1995, $9,000,000 and, for any subsequent fiscal year, the
sum of (a) the Leasebase Amount for the prior fiscal year plus (b) the
Leasebase Increment for such prior fiscal year.
SECTION 5.14. LOCATION OF INVENTORY AND EQUIPMENT. The Non-Parent
Obligors shall keep the Inventory and Equipment only at the locations
identified on SCHEDULE 5.14; PROVIDED, HOWEVER, that the Non-Parent Obligors
shall be permitted to have: (a) Inventory in-transit between any two such
locations or from any such location to a destination specified by the
purchaser of such Inventory; (b) Inventory consigned by the Non-Parent
Obligors located with the consignees thereof; and (c) Inventory sold on
approval located with the purchaser thereof; in each case, in the ordinary
course of business; PROVIDED FURTHER that the Non-Parent Obligors may amend
SCHEDULE 5.14 so long as such amendment occurs by written notice to Foothill
not less than thirty (30) days prior to the date on which the Inventory or
Equipment is moved to such new location, so long as such new location is
within the continental United States, Canada, or the United Kingdom, and so
long as, at the time of such written notification, the Non-Parent Obligors
provide any financing statements or fixture filings (or foreign equivalents,
as applicable) necessary to perfect and continue perfected security interests
of Foothill (or the Collateral Agent for the benefit thereof) in such assets
and, if requested by Foothill, also provides to Foothill (or the Collateral
Agent for the benefit thereof) a Collateral Access Agreement.
SECTION 5.15. HEDGING FACILITIES. The Parent will not, and will not
permit any of its Subsidiaries to, enter into any interest swap, currency
swap, financial option or futures contract or any other similar arrangement
except for the purpose of the BONA FIDE hedging of actual financial exposures
of the Parent and its Consolidated Subsidiaries incurred in the ordinary
course of business.
SECTION 5.16. SPECIAL PURPOSE DOMESTIC RECEIVABLES SUBSIDIARY. (a)
Foothill agrees that if Borrower creates and owns a Special Purpose Domestic
Receivables Subsidiary, (i) Foothill shall not require the Special Purpose
Domestic Receivables Subsidiary to, and shall acknowledge and agree that the
Special Purpose Domestic Receivables Subsidiary may not, Guaranteed or grant
a Lien on its assets to secure, the Obligations under the Financing Documents
or the Restructured Loans or any other obligations under the "Financing
Documents" (as defined in the Restructured Credit Agreement), and (ii)
domestic Accounts of Borrower or Services purchased by the Special Purpose
Domestic Receivables Subsidiary shall be free and clear of the Liens of the
Collateral Agent, and Foothill authorizes the Collateral Agent to release and
terminate its Liens in such Accounts in reliance upon a certificate of
Borrower to the effect that such Accounts are being sold in compliance with
the requirements of this Agreement and the Restructured Credit Agreement;
PROVIDED, HOWEVER, that, in each case, no Default or Event
46
<PAGE>
of Default shall exist or be continuing at the time of, or result from, the
initial transfer of such Accounts to the Special Purpose Domestic Receivables
Subsidiary.
(b) As used herein, "Special Purpose Domestic Receivables Subsidiary"
means:
(i) a wholly-owned Subsidiary of Borrower (PROVIDED that such
Subsidiary may be less than wholly-owned to the extent that a DE
MINIMIS economic interest in such Subsidiary is held by a third
Person for the purpose of effectuating the bankruptcy-remote
status of such Subsidiary);
(ii) all of the issued and outstanding capital stock of which (except
for any such stock owned by a third Person as permitted by clause
(i) of this subsection) is at all times subject to a valid and
binding first priority Lien in favor of the Collateral Agent;
(iii) that is not at any time obligated with respect to any Debt
of any Other Person;
(iv) that does not create, assume, or suffer to exist any Liens on any
of its assets that secure any obligations of any other Person;
and
(v) that is formed solely for the limited purpose of, and engages in
no activities except as are necessary for, effecting financing
domestic Accounts originated by Borrower or Services.
(c) The foregoing provisions of this Section 5.16 do not amend or waive
any provisions of this Agreement that limit or otherwise regulate sales or
factoring of Accounts by the Parent and its Subsidiaries or the use of
proceeds thereof and such provisions of this Agreement shall govern the sales
of domestic Accounts of Borrower and Services to an by the Special Purpose
Domestic Receivables Subsidiary, and the application of proceeds of such
sales.
(d) If and when the transactions contemplated in this Section 5.16 are
consummated, the parties hereto agree to modify the applicable provisions of
this Agreement, in form and substance satisfactory to Foothill, to effectuate
and reflect the substance of this Section 5.16.
47
<PAGE>
SECTION 5.17. TRANSACTIONS WITH AFFILIATES. The Parent will not, and will
not permit any of its Subsidiaries to, directly or indirectly, pay any funds to
or for the account of, make any Investment in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate; PROVIDED, HOWEVER, that the foregoing
provisions of this Section 5.17 shall not prohibit (a) the Parent or any of
its Subsidiaries from declaring or paying any lawful dividend so long as, after
giving effect thereto, no Default shall have occurred and be continuing, (b)the
Parent or any of its Subsidiaries from making sales to or purchases from any
Affiliate and, in connection therewith, extending credit or making payments, or
from making payments for services rendered by any Affiliate, if such sales or
purchases are made or such services are rendered in the ordinary course of
business and on terms and conditions at least as favorable to the Parent or such
Subsidiary as the terms and conditions which would apply in a similar
transaction with a Person not an Affiliated, (c) the Parent or any of its
Subsidiaries from making payments of principal, interest and premium on any Debt
of the Parent or such Subsidiary held by an Affiliate if the terms of such Debt
are substantially as favorable to the Parent or such Subsidiary as the terms
which could have been obtained at the time of the creation of such Debt from a
lender which was not an Affiliate, (d) the Parent or any of its Subsidiaries
from participating in, or effecting any transaction in connection with, any
joint enterprise or other joint arrangement with any Affiliate if the Parent or
such Subsidiary participates in the ordinary course of its business and on a
basis no less advantageous than the basis on which such Affiliate participates,
(e) the Parent or any of its Subsidiaries from making any Investment permitted
by Section 5.12(a)(iii), and (f) the Parent or any of its Subsidiaries (i) from
making any payment due in respect of the Loan, or (ii) from providing
compensation, indemnification and other benefits to any director or officer of
the Parent or such subsidiary who also is an employee, officer, director,
trustee or is otherwise affiliated or associated with an Affiliate on terms no
more favorable than those on which compensation, indemnification and such other
benefits are provided to directors and officers of the Parent or such Subsidiary
who are not so affiliated or associated with any Affiliate; and, PROVIDED,
FURTHER, that the Parent will not, and will not permit any of its Subsidiaries
to, make payments to or for the account of any Affiliate in respect of financial
advisory, management, transaction or other similar fees, except as otherwise
permitted by this Section 5.17.
SECTION 5.18. FISCAL YEAR. The Parent will not change its fiscal year from
the twelve months ending March 31.
SECTION 5.19. CONSTITUTIONAL DOCUMENTS. The Parent will not permit any
Material Company to amend its Constitutional Documents in any manner that could
adversely affect the rights of Foothill under the Financing Documents or
Foothill's ability to enforce the same.
48
<PAGE>
SECTION 5.20. MEETINGS WITH FOOTHILL. The Parent and Borrower will make its
respective officers available to meet with representatives of Foothill at a
mutually agreeable location within the first 50 days of each fiscal quarter of
the Parent during the term of this Agreement for the purpose of reviewing the
financial performance during the preceding fiscal quarter, and the then-current
financial condition and prospects, of the Parent and its Consolidated
Subsidiaries, in general, and of the Obligors, in particular.
SECTION 5.21. EXCULPATION AND INJUNCTION. The Parent and each Obligor
hereby exculpates, and the Parent hereby causes each other Subsidiary of the
Parent to exculpate, Foothill for any actions or omissions in good faith in
connection with any exercise of remedies and agrees not to pursue any legal
action either to limit or prohibit the exercise of any remedy in accordance
herewith by Foothill or to assert any claim for any act or omission relating
thereto.
SECTION 5.22. NET ASSET OUTFLOW: DISTRIBUTION ACCOUNT BALANCE. Anything to
the contrary in this Agreement notwithstanding, from and after the Closing Date
until all Obligations are paid in full in cash, the aggregate net outflow
(netting inflows from outflows on an aggregate combined basis) of assets from
(x) all Non-Parent Obligors on a combined basis, to (y) the Parent or any
Subsidiary of the Parent that is not a Non-Parent Obligor on a combined basis,
in whatever form, including sales or other dispositions of assets, intercompany
loans, dividends, investments, or other transfers, but excluding sales of
domestic Accounts of Borrower or Services to the Special Purpose Domestic
Receivables Subsidiary permitted by Section 5.16 hereof shall not exceed Ten
Million Dollars ($10,000,000) without the prior written consent of Foothill. The
Parent shall not permit the balance standing to the credit of the account
maintained by Distribution with Bank of America Illinois to exceed $5,000,000
for more than three (3) consecutive Business Days.
ARTICLE VI
[INTENTIONALLY OMITTED]
ARTICLE VII
DEFAULTS
SECTION 7.01. DEFAULTS. An Event of Default shall have occurred if:
(a) Borrower shall fail to pay when due any principal of the Loan; or
49
<PAGE>
(b) Borrower shall fail to pay any interest on any Loan or any fees or any
other amount payable under this Agreement for a period of five days after the
same shall become due; or
(c) any Obligor shall fail to observe or perform any covenant contained in
Sections 5.06, 5.09, 5.10, 5.12 to 5.15 inclusive, 5.16, 5.19, or 5.21; or
(d) any Obligor shall fail to observe or perform any of its covenants or
agreements contained in the Financing Documents (other than those covered by
paragraph (a), (b) or (c) above) for 10 days after the Parent shall have become
aware of such failure, except, in the case of the covenants contained in
Sections 5.03, 5.04(a), 5.05, 5.16(a) and 5.18, such period shall be 30 days,
instead of 10 days; or
(e) any representation, warranty, certification or statement made by any
Obligor in any Financing Document or in any certificate, financial statement or
other document delivered pursuant thereto shall prove to have been incorrect in
any material respect when made; or
(f) the Parent or any of its Subsidiaries shall fail to make any payment
in respect of any Financial Obligation (other than the Loan) in a principal (or
face) amount of $1,000,000 or more when due or within any applicable grace
period; or
(g) any event or condition shall occur that results in the acceleration of
the maturity of any Financial Obligation in a principal (or face) amount of
$1,000,000 or more of the Parent or any of its Subsidiaries or enables (or, with
the giving of notice or lapse of time or both, would enable) the holder or
holders of such Financial Obligation or any Person acting on behalf of such
holder or holders to accelerate the maturity thereof, or any security therefor
becomes enforceable; or
(h) the Parent or any Subsidiary of the Parent shall commence a voluntary
case or other proceeding seeking Liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or
50
<PAGE>
(i) an involuntary case or other proceeding shall be commenced against the
Parent or any Subsidiary of the Parent seeking Liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Parent or any Subsidiary of the Parent under
the Federal bankruptcy laws as now or hereafter in effect; or
(j) the Parent or any of its Subsidiaries admits its inability to pay its
debts as and when they fall due or becomes or is deemed to be unable to pay its
debts (whether for the purpose of the Insolvency Act of 1986 of Great Britain or
otherwise) or insolvent, or convenes a meeting for the purpose of proposing, or
otherwise proposes or enters into, any composition or arrangement with its
creditors or any group or class thereof, or anything analogous to, or having a
substantially similar effect to, any of the events specified in this paragraph
or in paragraph (h) or (i) above occurs in any jurisdiction; or
(k) any member of the ERISA Group shall fail to pay when due an amount or
amounts aggregating in excess of $1,000,000 which it shall have become liable to
pay under Title IV of ERISA; or notice of intent to terminate a Material Plan
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing, other than pursuant to a
standard termination within the meaning of Section 4041(b) of ERISA in
connection with which Borrower has provided Foothill with an opinion of
Borrower's independent actuary reasonably acceptable to Foothill that such
termination can be effected solely on the basis of existing Plan assets
augmented by a commitment to contribute an additional amount not exceeding
$1,000,000, PROVIDED, that, in the event, notwithstanding such opinion, any
member of the ERISA Group is required to contribute an amount in excess of
$1,000,000 in order to effect such standard termination, then such notice of
intent shall be deemed to constitute an Event of Default; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c) (5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a payment obligation
in excess of $1,000,000; or
(l) an Enforceable Judgment for the payment of money in excess of
$1,000,000, to the extent not covered by insurance, shall be rendered against
the Parent or any of its Subsidiaries; or
51
<PAGE>
(m) unless otherwise permitted by Section 5.06, any Material Company shall
cease to be a Wholly-Owned Subsidiary of the Parent; or
(n) after the Closing Date, any person or group of persons (within the
meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under said Act, but
excluding any shares which such person or group of persons has the right to
acquire upon the exercise of any Warrant) of 35% or more of the outstanding
shares of Voting Stock; or
(o) (i) the CFO in office on the date hereof and any date thereafter (the
Incumbent CFO") shall for any reason cease to be CFO and either (x) no successor
shall have been appointed within 120 days after such event occurs or (y) a
successor to such Incumbent CFO shall have been appointed during such 120-day
period but, within 21 days after such appointment becomes effective, Foothill
delivers a notice to the Parent that such successor CFO is not reasonably
satisfactory to them and such notice is not withdrawn by Foothill within 60 days
after the date on which it was delivered to the Parent, or (ii) the Incumbent
CFO shall cease to be a member of the managing board of the Parent and the
successor to such Incumbent CFO, once appointed to such position, shall not have
been duly elected by the shareholders of the Parent to be a member of the
managing board of the Parent within 90 days after the date such appointment
became effective; or
(p) any authorization, approval, consent, license or exemption necessary
or, in the opinion of counsel to Foothill, desirable for any Obligor to comply
with its obligations under any Financing Document or for the enforceability of
any Financing Document expires or is revoked, withheld or modified in a manner
unacceptable to Foothill or fails to be granted or to remain in full force and
effect and the effect of any of the foregoing is not, or is not able to be,
remedied within ten days; or the validity of any Financing Document is contested
or denied by any Obligor; or Foothill or the Collateral Agent on behalf thereof
does not have, or ceases to have, valid and effective Liens on any material
portion of the Collateral securing the Loan with the relative priorities
contemplated by the Collateral Documents; or
(q) the failure by any Restructuring Lender to deliver to Foothill any
payment collected or received, directly or indirectly, by such Restructuring
Lender that such Restructuring Lender is required to deliver to Foothill in
accordance with Section 9.01(a) of the Restructured Collateral Agency Agreement.
If an Event of Default under SECTION 7.01(a), (b), OR (q) shall have
occurred and be continuing then, and in every such event, Foothill may, at its
option, by notice to Borrower
52
<PAGE>
declare the Loan (together with accrued interest thereon) and all other
Obligations to be, and the Loan and such other amounts shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Obligors;
PROVIDED, HOWEVER, that in the case of any Event of Acceleration, without any
notice to any Obligor or any other act by Foothill, the Loan and all other
Obligations shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived
by the Obligors. If any other Event of Default has occurred and is
continuing, Foothill may give such notice to the Collateral Agent as shall
cause the Collateral Agent to commence the enforcement of remedies under the
Collateral Documents.
ARTICLE VIII
GUARANTEE
SECTION 8.01. THE GUARANTEE. (a) Each Guarantor hereby unconditionally and
irrevocably guarantees to Foothill the due and punctual payment of all present
and future indebtedness evidenced by or arising out of this Agreement and any
other Financing Document, including, but not limited to, the due and punctual
payment of principal of and interest on the Loan and the due and punctual
payment of all other sums now or hereafter owed by Borrower under this Agreement
and the other Financing Documents as and when the same shall become due and
payable, whether at maturity, by declaration or otherwise, according to the
terms hereof and thereof. In case of failure by any Obligor punctually to pay
any indebtedness guaranteed hereby, each Guarantor hereby unconditionally agrees
to cause such payment to be made punctually as and when the same shall become
due and payable, whether at maturity or by declaration or otherwise, and as if
such payment were made by such Obligor.
(b) Without prejudice to its obligations to Foothill hereunder, each
Guarantor hereby agrees with Foothill to pay to Foothill from time to time on
demand all amounts from time to time due and payable by it for the account of
Foothill pursuant to any Financing Document to the extent not already paid. Any
payment made pursuant to any such demand shall PRO TANTO satisfy such
Guarantor's obligations to make payment for the account of Foothill pursuant to
such Financing Document.
SECTION 8.02. GUARANTEE UNCONDITIONAL. The obligations of each Guarantor
under this Article VIII shall be unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released, discharged or
otherwise affected by:
53
<PAGE>
(a) any extension, renewal, settlement, compromise, waiver or release in
respect of any obligation of Borrower under any Financing Document by operation
of law or otherwise;
(b) any modification or amendment of or supplement to any Financing
Document;
(c) any modification, amendment, waiver, release, non-perfection or
invalidity of any direct or indirect security, or of any guarantee or other
liability of any third party, for any obligation of Borrower under any Financing
Document;
(d) any change in the corporate existence, structure or ownership of
Borrower, or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting Borrower or its assets or any resulting release or
discharge of any obligation of Borrower contained in any Financing Document;
(e) the existence of any claim, set-off or other rights which such
Guarantor may have at any time against Borrower, Foothill, or any other Person,
whether or not arising in connection with any Financing Document, PROVIDED that
nothing herein shall prevent the assertion of any such claim by separate suit or
compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against Borrower for
any reason of any Financing Document, or any provision of applicable law or
regulation purporting to prohibit the payment by Borrower of the principal of or
interest on the Loan or any other amount payable by Borrower under this
Agreement; or
(g) any other act or omission to act or delay of any kind by Borrower,
Foothill, or any other Person or any other circumstance whatsoever that might,
but for the provisions of this paragraph, constitute a legal or equitable
discharge of the obligations of such Guarantor under this Article VIII.
SECTION 8.03. DISCHARGE ONLY UPON PAYMENT IN FULL. Each Guarantor's
obligations under this Article VIII shall remain in full force and effect until
the principal of and interest on the Loan and all other amounts payable by any
Obligor under any Financing Document shall have been paid in fill.
SECTION 8.04. WAIVER. Each Guarantor irrevocably waives acceptance hereof,
presentment, demand, protest and any notice not provided for herein, as well as
any requirement that at any time any action be taken by any Person against any
Obligor or any other Person or against any security.
54
<PAGE>
SECTION 8.05. SUBROGATION AND CONTRIBUTION. Each Guarantor irrevocably
waives any and all rights to which it may be entitled, by operation of law or
otherwise, upon making any payment hereunder (i) to be subrogated to the rights
of the payee against any Obligor with respect to such payment or against any
direct or indirect security therefor, or otherwise to be reimbursed, indemnified
or exonerated by or for, the account of any Obligor in respect thereof or (ii)
to receive any payment, in the nature of contribution or for any other reason,
from any other Guarantor with respect to such payment.
SECTION 8.06. STAY OF ACCELERATION. If acceleration of the time for payment
of any amount payable by Borrower under this Agreement is stayed upon the
insolvency, bankruptcy or reorganization of Borrower, all such amounts otherwise
subject to acceleration under the terms of this Agreement shall nonetheless be
payable by the Guarantors hereunder forthwith on demand by Foothill.
SECTION 8.07. RELEASE OF AUSTRALIA AS GUARANTOR. Upon the consummation of
the Asia-Pacific Sale as permitted in accordance with Section 5.09(b), the
guarantee by Australia hereunder of the Obligations automatically shall be
terminated and of no further force and effect, and the definition of
'Guarantors' thereafter shall be deemed to no longer include Australia.
SECTION 8.08. LIMITED GUARANTEES OF UK. Anything in this Agreement to the
contrary notwithstanding, the maximum aggregate amount recoverable from UK and
Memorex Telex Holding (UK) Limited ("UK Holding") under (x) this Agreement, (y)
Article II of that certain Subsidiary Guaranty Agreement, dated as of March 24,
1994 (as amended), among Parent, Australia, Memorex Telex Wholesale Pty Limited,
and the "Subsidiary Guarantors" referred to therein (including UK and UK
Holding), and (z) Article II of the "1992 Guaranty Agreements" (as defined in
such Subsidiary Guaranty), collectively, shall be limited to $60,000,000 and the
maximum aggregate amount recoverable from UK alone under the foregoing items
(x), (y), and (z), collectively, shall be limited to $30,000,000.
ARTICLE IX
JUDICIAL PROCEEDINGS
SECTION 9.01. CONSENT TO JURISDICTION. Each Obligor (a) irrevocably submits
to the non-exclusive jurisdiction of any New York State or Federal court sitting
in The City of New York over any suit, action or proceeding arising out of or
relating to any Financing Document, and (b) to the fullest extent it may
effectively do so under applicable law, irrevocably waives and agrees not to
assert, by way of motion, as a defense or otherwise any claim that it is not
subject to the jurisdiction of any such court, any objection that it
55
<PAGE>
may now or hereafter have to the laying of the venue of any such suit, action
or proceeding brought in any such court and any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
SECTION 9.02. ENFORCEMENT OF JUDGMENTS. Each Obligor agrees, to the fullest
extent it may effectively do so under applicable law, that a judgment in any
suit, action or proceeding of the nature referred to in Section 9.01 brought in
any such court shall be conclusive and binding upon such Obligor and may be
enforced in the courts of the United States or the State of New York (or any
other courts to the jurisdiction of which it is or may be subject) by a suit
upon such judgment.
SECTION 9.03. SERVICE OF PROCESS. (a) Each Obligor hereby irrevocably
designates, appoints, authorizes and empowers as its agent for service of
process, O'Sullivan Graev & Karabell, LLP, at its offices presently located at
30 Rockefeller Plaza, New York, New York 10112, to accept and acknowledge for
and on behalf of such Obligor service of any and all process, notices or other
documents which may be served in any suit, action or proceeding of the nature
referred to in Section 9.01 in any New York State or Federal court sitting in
The City of New York. Said designation and appointment shall continue until all
principal of and interest on the Loan and any other amounts payable by any
Obligor under this Agreement or any other Financing Document shall have been
paid in full.
(b) In lieu of service upon its agent, each Obligor (i) consents to process
being served in any suit, action or proceeding of the nature referred to in
Section 9.01 by mailing a copy thereof by registered or certified air mail,
postage prepaid, return receipt requested, to its address specified in or
designated pursuant to Section 10.01, and (ii) agrees that such service (A)
shall be deemed in every respect effective service of process upon it in any
such suit, action or proceeding and (B) shall, to the fullest extent permitted
by law, be taken and held to be valid personal service upon and personal
delivery to it.
(c) Without prejudice to the effectiveness of any process served in the
manner specified under paragraph (a) above, copies of such process shall also be
sent to Borrower at the addresses specified in or designated pursuant to Section
10.01.
SECTION 9.04. NO LIMITATION ON SERVICE OR SUIT. Nothing in this Article IX
shall affect the right of Foothill to serve process in any manner permitted by
law, or limit any right that Foothill may have to bring proceedings against any
Obligor in the courts of any jurisdiction or to enforce in any lawful manner a
judgment obtained in one jurisdiction in any other jurisdiction.
56
<PAGE>
ARTICLE X
MISCELLANEOUS
SECTION 10.01. NOTICES. Unless otherwise specified herein, all notices,
requests and other communications to any party hereunder shall be in,writing
(including, without limitation, bank wire, telex, telecopy or similar writing)
and shall be personally delivered or sent by registered or certified mail,
postage prepaid, return receipt requested, or by prepaid telex, overnight
courier, telefacsimile, or telegram (with messenger delivery specified) to an
Obligor or to Foothill, as the case may be, at its address set forth below:
If to any Obligor: c/o MEMOREX TELEX CORPORATION
545 East Carpenter Freeway
Irving, Texas 75062
Attn: Anthony Barbieri, Esq.,
General Counsel
Fax No. 214.444.3600
with copies to: O'SULLIVAN GRAEV & KARABELL, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attn: Robert Seber, Esq.
Fax No. 212.408.2420
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.575.3435
with copies to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street, Suite 2100
Los Angeles, California 90071
Attn: John Francis Hilson, Esq.
Fax No. 213.239.1324
Each such notice, request or other communication shall be effective (i) if given
by telex, when such telex is transmitted to the telex number specified in this
Section 10.01 and the appropriate answerback is received, (ii) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified in
this Section 10.01, (iii) if given by mail, ten days after such communication is
deposited in the mails with first class postage prepaid,
57
<PAGE>
addressed as aforesaid or (iv) if given by any other means, when delivered at
the address specified in this Section 10.01; PROVIDED that notices to
Foothill under Article II or X shall not be effective until received;
PROVIDED FURTHER that each Obligor acknowledges and agrees that notices sent
by Foothill in connection with Sections 9-504 or 9-505 of the New York
Uniform Commercial Code shall be deemed sent when deposited in the mail or
transmitted by telefacsimile or other similar method set forth above. The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
SECTION 10.02. NO WAIVER. No failure or delay by Foothill in exercising any
right, power or privilege under any Financing Document shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in the Financing Documents shall be cumulative
and not exclusive of any rights or remedies provided by law.
SECTION 10.03. EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION. (a) Borrower
shall pay (i) all out-of-pocket expenses of Foothill and the Collateral
Agent, including, without limitation, fees and disbursements of the law
firm(s) acting as special United States counsel for Foothill and the
Collateral Agent and such local counsel as may be retained by Foothill or the
Collateral Agent, in connection with the preparation and administration of
the Financing Documents, any waiver or amendment of any provision thereof, or
any Default or alleged Default hereunder or thereunder, within 30 days after
the receipt by Borrower of an invoice pertaining thereto from Foothill, and
(ii) if any Event of Default occurs, all out-of-pocket expenses incurred by
Foothill, including, without limitation, fees and disbursements of counsel,
in connection with such Event of Default (including, without limitation, any
visit to and inspection of the Parent and its Consolidated Subsidiaries after
the occurrence and during the continuance of any Event of Default) and
collection and other enforcement proceedings resulting therefrom. Borrower
agrees to indemnify Foothill from and hold it harmless against any transfer
taxes, documentary taxes, stamp taxes or other similar assessments or charges
made by any governmental authority by reason of the execution and delivery of
the Financing Documents.
(b) Borrower agrees to indemnify Foothill, its affiliates and the
respective directors, officers, agents and employees (each, an "Indemnitee") and
hold each Indemnitee harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel and any settlement costs, which may
be incurred after the Closing Date by such Indemnitee in connection with any
investigative, administrative or judicial proceeding (whether or not such
Indemnitee shall be designated a party thereto) brought or threatened relating
to or arising out of the Financing Documents, or any actual or proposed use of
the proceeds of
58
<PAGE>
the Loan hereunder, PROVIDED that no Indemnitee shall have the right to be
indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
SECTION 10.04. RIGHT OF SET-OFF. Upon the occurrence of a Default,
Foothill is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply (or cause the Collateral Agent or
any subagent thereof to do the same) 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 Foothill to or for the credit or the account of any Obligor
against any and all of the obligations of such Person now or hereafter existing
under the Financing Documents, irrespective of whether or not Foothill shall
have made any demand under any Financing Document or such deposit obligations
may be unmatured. Foothill agrees promptly to notify Borrower after any such
set-off and application made by Foothill, PROVIDED that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of Foothill under this Section 10.04 are in addition to other rights and
remedies which Foothill may have upon the occurrence and during the continuance
of any Default or any Event of Default.
SECTION 10.06. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement
or the other Financing Documents may be amended or waived if, and only if, such
amendment or waiver is in writing and is signed by Borrower and Foothill (and,
if the rights or duties of any other Obligor are affected thereby, by it),
PROVIDED that, no such amendment or waiver shall, unless signed by Foothill, (w)
reduce the principal of or rate of interest on any Loan or any fees payable
hereunder, (x) postpone the date fixed in Section 2.04(b) for any payment of
principal of or interest on any Loan or any fees payable hereunder, (y) change
the aggregate unpaid principal amount of the Note or any Other provision of this
Agreement or (z) subject any Lender to any additional obligation.
SECTION 10.07. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
FOOTHILL'S (OR COLLATERAL
59
<PAGE>
AGENT'S) OPTION, IN THE COURTS OF ANY JURISDICTION WHERE FOOTHILL (OR
COLLATERAL AGENT) ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR
OTHER PROPERTY MAY BE FOUND. EACH PARTY HERETO WAIVES, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 10.07. EACH PARTY
HERETO HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY HERETO REPRESENTS THAT IT HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 10.08. SUCCESSORS AND ASSIGNS; PARTICIPATIONS; NOVATION. (a) This
Agreement and the other Financing Documents shall bind and inure to the benefit
of the respective successors and assigns of each of the parties; PROVIDED,
HOWEVER, that no Obligor may assign this Agreement or any other Financing
Document or any rights or duties hereunder or thereunder without Foothill's
prior written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment by Foothill shall release any Obligor from its
Obligations. Foothill may assign all or any ratable part of the Obligations and
the rights and obligations of Foothill under this Agreement and the other
Financing Documents. Any such assignment by Foothill to a Person other than an
Eligible Transferee shall be subject to the prior written consent of the
Obligors, which consent shall not be unreasonably withheld, conditioned, or
delayed. No consent or approval by any Obligor is required in connection with
any such assignment by Foothill to an Eligible Transferee. Anything contained
herein to the contrary notwithstanding, the consent of the Obligors shall not be
required if such assignment is in connection with any merger, consolidation,
sale, transfer, or other disposition of all or any substantial portion of the
business or loan portfolio of Foothill. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits under the Financing Documents.
Any such participation by Foothill to a Person other than an Eligible Transferee
shall be subject to the prior written consent of the Obligors, which consent
shall not be unreasonably withheld, conditioned, or delayed. No consent or
approval by any Obligor is required in connection with any such participation by
Foothill to an Eligible Transferee. In connection with any such assignment or
60
<PAGE>
participation, Foothill may disclose all documents and information which
Foothill now or hereafter may have relating to the Parent and its Subsidiaries,
in general, and the Obligors, in particular. To the extent that Foothill
assigns its rights and obligations under the Financing Documents to a third
Person, Foothill thereafter shall be released from such assigned obligations to
the Obligors and such assignment shall effect a novation between the Obligors
and such third Person.
(b) The Obligors authorize, and hereby cause the Parent on behalf of
itself and its Subsidiaries to authorize, Foothill to disclose to any
participant or assignee (each a "Transferee") and any prospective Transferee any
and all financial information in Foothill's possession concerning the Obligors
and the Parent and its Subsidiaries which has been delivered to Foothill by them
pursuant to this Agreement or which has been delivered to Foothill by them in
connection with Foothill's credit evaluation prior to entering into this
Agreement.
(c) No Transferee shall be entitled to receive any greater payment under
Section 10.03 or 10. 11 than Foothill would have been entitled to receive with
respect to the rights assigned, unless such assignment is made with the prior
written consent of Borrower.
SECTION 10.10. JUDGEMENT CURRENCY. If, for the purpose of enforcing the
obligations of the Obligors hereunder or under any other Financing Document, it
is necessary to convert a sum due hereunder in Dollars into another currency,
the parties hereto agree, to the fullest extent that they may effectively do so,
that the rate of exchange used shall be that at which in accordance with normal
banking procedures Foothill could purchase Dollars with such other currency at
or about 11:00 A.M. (London time) on the Business Day preceding that on which
final judgment is given. The obligations of the Obligors in respect of any sum
due to Foothill hereunder or under the other Financing Documents shall,
notwithstanding any adjudication expressed in a currency other than Dollars, be
discharged only to the extent that on the Business Day following receipt by
Foothill of any sum adjudged to be so due in such other currency Foothill may in
accordance with normal banking procedures purchase Dollars with such other
currency; if the amount of Dollars so purchased is less than the sum originally
due to Foothill, as the case may be, in Dollars, each Obligor agrees, to the
fullest extent that it may effectively do so, as a separate obligation and
notwithstanding any such adjudication, to indemnify Foothill against such loss,
and if the amount of Dollars so purchased exceeds the sum originally due to
Foothill, Foothill agrees to remit such excess to Borrower.
SECTION 10.11. FOREIGN TAXES. All payments of principal of and interest on
the Loan and of all other amounts payable under this Agreement for the account
of Foothill shall be paid without withholding or deduction for or on account of
any Foreign Taxes. If any Foreign Taxes are so levied or imposed by way of
withholding or deduction,
61
<PAGE>
Borrower will pay additional interest or will make additional payments in
such amounts so that every net payment of principal of and interest on the
Loan and of all other amounts payable under this Agreement, after withholding
or deduction for or on account of any Foreign Taxes, will not be less than
the amount provided for herein. Borrower shall furnish to Foothill within 30
days official receipts evidencing such withholding or deduction. If any
Foreign Taxes are levied or imposed with respect to payment of principal or
interest on the Loan or any other amount payable under this Agreement
(including, without limitation, this Section 10.11) other than by way of
withholding or deduction ("Directly Imposed Foreign Taxes"), Borrower shall
promptly pay to Foothill additional interest, or will make additional
payments, in such amounts so that every net payment of such additional
interest or payments, after withholding or deduction for or on account of any
Foreign Taxes, will not be less than the amount of Directly Imposed Foreign
Taxes levied or imposed on such Lender. If any additional amount shall become
payable pursuant to this Section 10.11, Borrower and Foothill will enter into
discussions in good faith with a view to determining whether any means (not
being detrimental in the opinion of Foothill to the interests of Foothill)
exist by which such amounts may lawfully be mitigated. Foothill shall use
reasonable efforts consistent with legal and regulatory restrictions to file
any certificate or similar document requested by the Obligors, if the making
of such a filing would avoid the need for or reduce the amount of any such
Directly Imposed Foreign Taxes attributable to the Loan and would not result
in any unreimbursed loss, cost or expense or otherwise be disadvantageous to
Foothill as determined in Foothill's sole discretion.
SECTION 10.12. COUNTERPARTS; INTEGRATION. This Agreement may be signed in
any number of counterparts, each of which shall be an original, and all of which
taken together shall constitute a single agreement, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
and the other Financing Documents constitute the entire agreement and
understanding among the parties hereto and supersede any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.
SECTION 10.13. CONFIDENTIALITY. Foothill agrees to keep confidential from
anyone other than Persons employed or retained by Foothill who are expected to
become engaged in evaluating, approving, structuring or administering the Loan
any information delivered or made available by Borrower to it and indicated in
writing as confidential; PROVIDED that nothing herein shall prevent Foothill
from disclosing such information (a) to any Restructuring Under, (b) to any
other Person if reasonably incidental to the administration of the Loan or the
other Obligations, (c) upon the order of any court or administrative agency, (d)
upon the request or demand of, or pursuant to any regulation of, any regulatory
agency or authority, (e) to the NAIC or any similar association or authority,
(f) which had been publicly disclosed other than as a result of a disclosure by
Foothill or any Lender
62
<PAGE>
prohibited by this Agreement, (g) in connection with any litigation to which
Foothill or its subsidiaries or parent may be a party, (h) to the extent
reasonably required in connection with the exercise of any remedy hereunder,
(i) to Foothill's legal counsel and its respective independent auditors and
(j) to any actual or proposed Transferee of all or part of its rights
hereunder provided that such actual or proposed Transferee agrees in writing
to the provisions of this Section 10.13.
SECTION 10.15. SUBSIDIARY GUARANTY DEED POLL. In the absence of fraud or
misconduct by the directors of Australia, Foothill agrees, expressly for the
benefit of such directors, not to pursue any action under section 588G of the
Corporation Law of Australia in connection with the Subsidiary Guaranty Deed
Poll (if any) of Australia.
[remainder of page intentionally left blank]
63
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
BORROWER:
MEMOREX TELEX CORPORATION
By:
---------------------------------
Name:
Title:
GUARANTORS:
MEMOREX TELEX SERVICES, INC.
By:
---------------------------------
Name:
Title:
MEMOREX TELEX INC.
By:
---------------------------------
Name:
Title:
MEMOREX TELEX (UK) LTD.
By:
---------------------------------
Name:
Title:
64
<PAGE>
MEMOREX TELEX N.V.
By:
---------------------------------
Name:
Title:
LENDER:
FOOTHILL CAPITAL CORPORATION
By:
---------------------------------
Name:
Title:
65
<PAGE>
SCHEDULES:
A-1 - Asia-Pacific Subsidiaries
E-1 - Eligible Inventory Locations
5.07 - Permitted Existing Debt
5.08 - Permitted Existing Liens
5.14 - Locations of Inventory and Equipment
66
<PAGE>
SCHEDULE A-1
ASIA-PACIFIC SUBSIDIARIES
[See Attached]
67
<PAGE>
SCHEDULE C-1
COLLATERAL DOCUMENTS
[See Attached]
68
<PAGE>
SCHEDULE E-1
LOCATIONS OF ELIGIBLE INVENTORY
[See Attached]
69
<PAGE>
SCHEDULE 5.07
PERMITTED EXISTING DEBT
[See Attached]
70
<PAGE>
SCHEDULE 5.08
PERMITTED EXISTING LIENS
[See Attached]
71
<PAGE>
SCHEDULE 5.14
LOCATION OF INVENTORY AND EQUIPMENT
[See Attached]
72
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-78512), pertaining to the Memorex Telex Stock Option Plan and the
Memorex Telex Employees' Stock Purchase Plan, of our report dated June 28, 1996
with respect to the consolidated financial statements and schedule of Memorex
Telex N.V. included in the annual report on Form 10-K for the year ended March
31, 1996.
Dallas, Texas ERNST & YOUNG LLP
July 15, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 26838
<SECURITIES> 0
<RECEIVABLES> 108021
<ALLOWANCES> (10161)
<INVENTORY> 66588
<CURRENT-ASSETS> 205551
<PP&E> 28622
<DEPRECIATION> (16536)
<TOTAL-ASSETS> 268168
<CURRENT-LIABILITIES> 402873
<BONDS> 4903
0
0
<COMMON> 1338
<OTHER-SE> (278689)
<TOTAL-LIABILITY-AND-EQUITY> 268168
<SALES> 463517
<TOTAL-REVENUES> 834053
<CGS> 353398
<TOTAL-COSTS> 631593
<OTHER-EXPENSES> 409935
<LOSS-PROVISION> 4606
<INTEREST-EXPENSE> 40544
<INCOME-PRETAX> (246738)
<INCOME-TAX> 0
<INCOME-CONTINUING> (246738)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246738)
<EPS-PRIMARY> (9.84)
<EPS-DILUTED> (9.84)
</TABLE>
