MEMOREX TELEX N V, DEF 14A, 1996-09-17

MEMOREX TELEX N V
DEF 14A, 1996-09-17
COMPUTER TERMINALS

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

MEMOREX TELEX N.V
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
------------------------------------------------------------------------

<PAGE>
MEMOREX TELEX N.V.
HOOGOORDDREEF 9, 1101 BA
AMSTERDAM, THE NETHERLANDS

------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

---------------------

To Our Stockholders:

NOTICE IS HEREBY GIVEN that the Annual General Meeting of Stockholders (the
"Meeting") of Memorex Telex N.V., a naamloze vennootschap organized under the
laws of the Netherlands (the "Company"), will be held at the offices of the
Company at Hoogoorddreef 9, 1101 BA Amsterdam, The Netherlands, on September 30,
1996, at 11:00 a.m. (local time). At the Meeting, the Company's stockholders
will be asked to:

<TABLE>
<S> <C>
Proposal 1: elect each of Peter H. Dailey, Gregory S. Wood, Brad Sowers
and Anthony J. Barbieri to the Management Board of the
Company;

Proposal 2: adopt the annual financial statements contained in the
Statutory Annual Report of the Company for the fiscal year
ended March 31, 1996, which also contains the Report of the
Management Board of the Company; and

Proposal 3: appoint Ernst and Young LLP as United States auditors for
the Company and Moret, Ernst & Young as Netherlands auditors
for the Company for the fiscal year ending March 31, 1997;
and
</TABLE>

consider such other business as may properly come before the Meeting or any
adjournment thereof.

BY ORDER OF THE SUPERVISORY
BOARD OF MEMOREX TELEX N.V.

Amsterdam, The Netherlands

September 6, 1996

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MEMOREX TELEX N.V.
HOOGOORDDREEF 9 1101BA
AMSTERDAM, THE NETHERLANDS

------------------------

PROXY STATEMENT

---------------------

ANNUAL GENERAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 30, 1996

This Proxy Statement is being mailed to you in connection with the
solicitation of proxies by the Supervisory Board of Memorex Telex N.V., a
naamloze vennootschap organized under the laws of the Netherlands (the
"Company"), for use at the Annual General Meeting of Stockholders (the
"Meeting") of the Company to be held on September 30, 1996, at 11:00 a.m. (local
time), at the offices of the Company at Hoogoorddreef 9, 1101 BA Amsterdam, The
Netherlands. The approximate date on which this Proxy Statement and the
accompanying Notice of Annual General Meeting and Proxy are being mailed is
September 6, 1996.

VOTING SECURITIES

The Company has 25,076,665 shares of common stock, dfl. 0.10 nominal value
(the "Common Stock"), outstanding as of August 30, 1996. The Company has
established a program of American Depositary Receipts (the "ADRs") for the
benefit of the Common Stock, and all shares of Common Stock were issued in the
form of ADRs. Each ADR evidences one American Depositary Share which, in turn,
represents one share of Common Stock. At the close of business on August 30,
1996, there were 128 registered holders of the ADRs.

Under the Deposit Agreement among the Company, Morgan Guaranty Trust Company
of New York (the "Depositary"), and the holders of ADRs, these holders are
entitled to instruct the Depositary as to the exercise of voting rights
pertaining to the Common Stock represented by ADRs. Record holders of ADRs at
the close of business on August 30, 1996, are entitled to instruct the
Depositary as to the exercise of voting rights at the Meeting and any
adjournments thereof.

There is no quorum requirement for conducting business at the Meeting. Each
share of Common Stock has the right to cast ten votes on all matters on which
stockholders of the Company are entitled to vote. Stockholders may not split
their votes. The affirmative vote of the holders of at least a majority of all
votes cast at the Meeting is necessary for (i) the election of each of Peter H.
Dailey, Gregory S. Wood, Brad Sowers and Anthony J. Barbieri to the Management
Board of the Company, (ii) the adoption of the annual financial statements
contained in the Statutory Annual Report of the Company (the "Statutory Annual
Report") for the fiscal year ended March 31, 1996, which also contains the
Report of the Management Board of the Company (the "Management Report"), and
(iii) the appointment of Ernst & Young LLP as United States auditors and Moret,
Ernst & Young as Netherlands auditors for the Company for the fiscal year ending
March 31, 1997 (items (i), (ii) and (iii) are referred to as the "Agenda
Items").

SOLICITATION AND REVOCATION OF PROXIES

The Depositary has agreed it will endeavor, insofar as practicable, to vote
the Common Stock deposited with it only in accordance with the instructions of
the holders of ADRs as given by means of the instruction card delivered with
this Proxy Statement. Shares of Common Stock for which the Depositary has not
received an instruction card will not be voted at the Meeting. Properly signed
and dated instruction cards should be returned to the Depositary at the address
set forth below no later than 4:00 p.m., Eastern Standard Time, on September 26,
1996 (the "Voting Deadline"). A prepaid, addressed return envelope is enclosed.
<PAGE>
Morgan Guaranty Trust Company
of New York
P.O. Box 9184
Boston, Massachusetts 02102-9906

For overnight courier or other express deliveries, please use the following
address:

J.P. Morgan
40 Boston Equiserve
150 Royalle Street
Canton, MA 02021

Attn: John Sjosten

A holder of ADRs delivering an instruction card has the power to revoke the
instruction card by delivering to the Depositary before the Voting Deadline a
written notice of revocation or a properly signed instruction card bearing a
later date than the instruction card being revoked. If the instruction card is
properly signed but no voting instruction is given, the Depositary, through its
nominee or nominees, will vote the underlying shares of Common Stock FOR
approval of the Agenda Items.

The Company does not know of any matters other than as set forth herein that
are expected to be presented for consideration at the Meeting. If other matters
properly come before the Meeting, the Depositary, through its nominee or
nominees, intends to vote thereon in accordance with its judgment.

The costs of soliciting proxies for the Meeting are borne by the Company.

MANAGEMENT

GENERAL

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.

NOMINEES FOR MANAGEMENT BOARD

The following information is furnished with respect to each person nominated
by the Supervisory Board for election to the Management Board. All nominees are
citizens of the United States.

HON. PETER H. DAILEY, 66, served as Chairman of the Supervisory Board from
1992 until his resignation as of March 31, 1996, to become the Company's Chief
Executive Officer. He has also 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.

GREGORY S. WOOD, 38, serves as Senior Vice President Finance and Treasurer
of the Company. Mr. Wood joined the company in 1989 and has served in a variety
of financial positions before becoming

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Senior Vice President, Finance and Treasurer of the Company in April 1996. Prior
to his employment with the Company, Mr. Wood worked for Ernst & Young as a
consultant.

BRAD SOWERS, 34, serves as Senior Vice President of Operations of the
Company. Mr. Sowers joined the Company in 1986 as an account manager, and has
served as a district and area business manager, regional business director, and
as Vice President of World Wide Marketing. Prior to joining the Company, Mr.
Sowers was with Harris Lanier 3M in a sales position.

ANTHONY J. BARBIERI, 48, serves as Senior Vice President and Group Counsel
of the Company and Senior Vice President, General Counsel and Secretary of
Memorex Telex Corporation. Mr. Barbieri has been with the company for 8 years.
Previously, Mr. Barbieri held legal positions with Syntex Corporation and G.D.
Searle & Co., and in private practice.

THE SUPERVISORY BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
FOREGOING PERSONS TO THE MANAGEMENT BOARD.

INCUMBENT MEMBERS OF THE 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, 56, is a 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. from 1986 until 1989. 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 thirty day's 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.

SUPERVISORY BOARD

MEMBERS OF THE SUPERVISORY BOARD

HAROLD FIRST, 59, 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.

MICHAEL S. GROSS, 34, is one of the founding principles 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
Converse, Inc., The Florsheim Shoe Company, Furniture Brands International,
Inc., and Profitts, Inc.

JOSHUA J. HARRIS, 31, has been a limited partner of Apollo Advisors and Lion
Advisors, having been associated with them since 1990. Apollo Advisors, together
with certain affiliates, acts as managing general

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partner of the Apollo Funds. Lion Advisors acts as financial advisor to and
representative for certain institutional investors with respect to securities
investments. Mr. Harris is currently a director of Converse, Inc., The Florsheim
Shoe Company 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.

MEETINGS

During the fiscal year ended March 31, 1996 ("fiscal 1996"), the Supervisory
Board held 29 meetings. Nine meetings were in-person meetings with the
management of the Company, and each member of the Supervisory Board attended at
least 75% of all meetings held during fiscal 1996. The other meetings were by
telephonic conference call.

COMMITTEES

The Supervisory Board has established the following committees.

COMPENSATION COMMITTEE. The Compensation and Stock Option Committee of the
Supervisory Board (the "Compensation Committee") met 2 times during fiscal 1996.
On April 19, 1996, Messrs. Humann and Gross and Ms. Selleck were appointed as
the current members of the Compensation Committee. The Compensation Committee
provides advice to and assists the Supervisory Board in reviewing and
establishing compensation for the members of the Management Board, including the
determination of bonuses pursuant to the Company's management bonus plan.

AUDIT COMMITTEE. The Audit Committee of the Supervisory Board (the "Audit
Committee") met 2 times during fiscal 1996. On April 19, 1996, Messrs. First,
Harris and Ousley were appointed as the current members of the Audit Committee.
The Audit Committee provides advice to and assists the Supervisory Board in
reviewing the Company's audit function.

SUPERVISORY BOARD COMPENSATION

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.

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<PAGE>
EXECUTIVE COMPENSATION

REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE

This report was prepared by the Compensation Committee of the Supervisory
Board.

In determining the amount and composition of management compensation, the
Compensation Committee and the Supervisory Board are guided by the following
fundamental objectives: (1) attracting and retaining outstanding members of the
Company's Management Board; (2) encouraging members of the Management Board to
acquire and hold Common Stock; and (3) ensuring that a portion of management
compensation is variable, tied to quantifiable short-term and long-term measures
of the Company's performance

During the course of the fiscal year, the Supervisory Board approved
revisions to the Company's employment arrangements with the then-incumbent
members of the Management Board, Messrs. Gumucio, Faulkner, and Morin. In
addition, the Company continued to provide annual incentive bonuses for each
member of the Management Board pursuant to the Company's management bonus plan
based upon percentage achievement of certain performance goals, and the Company
maintained the respective pension plans in which each member of the Management
Board is a participant. In March 1996, Messrs. Gumucio and Morin resigned from
the Management Board of the Company. As of March 31, 1996, the Hon. Peter H.
Dailey resigned from the Supervisory Board to become the Company's Chief
Executive Officer effective April 1, 1996. The Supervisory Board approved an
employment arrangement with Mr. Dailey which provides for salary and bonus
competitive with industry standards.

The Company's compensation and benefit programs and management incentive
compensation plan have been designed to attract, motivate, and retain senior
management by providing a competitive total compensation opportunity based on
performance. Competitive base salaries that reflect the individual's level of
responsibility and annual variable performance-based incentive awards for
certain key employees are important elements of the Company's compensation
philosophy.

Respectfully submitted,

Catherine Selleck

Walter Humann

Michael Gross

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EXECUTIVE COMPENSATION TABLE

The following table provides information about the compensation for Messrs.
Gumucio, Faulkner and Morin (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION (2) AWARDS
---------------------------------------------- -----------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
FISCAL COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (3) SARS (5)
- --------------------------- ----------- --------- --------- ----------- ----------- -----------
<S> <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 1994 $ 900,000 $1,000,000 600
Officer(1)

David J. Faulkner.......... 1996 $ 400,000 $ 226,125 $ 16,125 0 $ 9,500
Vice Chairman and Chief 1995 $ 400,000 $ 120,000 $ 370,00 $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>

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(1) Mr. Gumucio resigned from the Company in March 1996

(2) Compensation information is provided for the fiscal year ended March 31,
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, 1996 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 150% of his base salary, based upon performance
goals. The employment agreement provides for a 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 termination of Mr. Dailey's

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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 bonus plan, stock option plan, and U.S.
employee benefits program. The employment agreement provides for a guaranteed
bonus of $120,000 for the fiscal year ending March 31, 1996. 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 is 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.

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

<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000....................................... $ 26,302 $ 35,869 $ 43,836 $ 52,603 $ 61,370
$150,000 and above............................. $ 31,927 $ 42,569 $ 53,211 $ 63,853 $ 74,495
</TABLE>

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,
1995.

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

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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.

PERFORMANCE GRAPH

Set forth below is a graph comparing the total shareholder returns (assuming
reinvestment of dividends) of the Company, the NASDAQ US & Foreign Composite
Index, and the NASDAQ Computer Manufacturers Sector Index. The graph assumes
$100 invested in the Company and the two indices on March 28, 1994, the day on
which the Common Stock, in the form of ADRs, began trading on the NASDAQ
National Market System.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
MEMOREX TELEX N.V. NASDAQ US & FOREIGN NASDAQ HARDWARE MFG.
<S> <C> <C> <C>
3/28/94 100.00 100 100.00
6/30/94 46.97 95 81.08
9/30/94 14.38 103 98.58
12/31/94 9.09 101 113.28
3/31/95 9.47 110 119.42
6/30/95 25.00 128 145.23
9/30/95 15.81 141 174.74
12/31/95 10.81 142 178.45
3/31/96 12.12 149 183.95
</TABLE>

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, MANAGEMENT BOARD AND
SUPERVISORY BOARD MEMBERS, AND NOMINEES TO MANAGEMENT BOARD

The following table sets forth information as of August , 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 members of the Management Board and
Supervisory Board, by nominees for the Management 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.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS(1)
- -------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
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.................................................................... 4,255,279(2) 14.38%
Two Manhattanville Road
Purchase, New York 10577
Carl C. Icahn......................................................................... 2,201,248(3) 7.44%
114 W. 47th Street
New York, N.Y. 10036
Hon. Peter H. Dailey.................................................................. 250,000(4) *
David J. Faulkner..................................................................... 150,000(5) *
Brad Sowers........................................................................... 30,000(6) *
Gregory S. Wood....................................................................... 35,000(7) *
Anthony J. Barbieri................................................................... 35,000(8) *
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(9) 3.63%
</TABLE>

- ------------------------

(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 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.

9
<PAGE>
administrative general partner of both Apollo Investment and AIF is Apollo
Fund Administration Limited. Lion Advisors beneficially owns, for the
benefit of certain managed investment accounts, 1,959,853 shares of Common
Stock, $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 managed 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 subsidiary 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 Corporation.

(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 30,000 shares of Common Stock issuable upon exercise of stock
options granted under the Company's Stock Option Plan.

(7) Includes 35,000 shares of Common Stock issuable upon exercise of stock
options granted under the Company's Stock Option Plan.

(8) Includes 35,000 shares of Common Stock issuable upon exercise of stock
options granted under the Company's Stock Option Plan.

(9) 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--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.

* Less than 1%.

STATUTORY ANNUAL REPORT
AND
MANAGEMENT REPORT

A copy of the Management Report is attached to this Proxy Statement as ANNEX
I. The annual financial statements of the Company for the fiscal year ended
March 31, 1996, and the related report of Ernst & Young LLP, United States
auditors of the Company, are contained in the Annual Report on Form 10-K of the
Company filed with the Securities and Exchange Commission. A copy of the Annual
Report on Form 10-K is attached to this Proxy Statement as ANNEX II. The
consolidated financial statements contained in the Annual Report on Form 10-K
were prepared in accordance with U.S. generally accepted accounting principles,
but are substantially similar to the consolidated financial statements prepared
in accordance with generally accepted accounting standards in the Netherlands
and contained in the Statutory Annual Report. The Company will make the
Statutory Annual Report available for inspection by the stockholders of the
Company at its offices at Hoogoorddreef 9, 1101 BA Amsterdam, The Netherlands.
Stockholders may also obtain a copy of the Statutory Annual Report by writing to
Memorex Telex Corporation, 545 East John Carpenter Freeway, Irving, Texas 75062.
The Articles of Association provide

10
<PAGE>
that the unconditional adoption of the annual financial statements will release
managing directors from liability for the management attached to the annual
financial statements, and will release the Supervisory Board from liability for
its supervision thereof. The Supervisory Board urges the stockholders to read
and consider carefully the annual financial statements contained in the Annual
Report on Form 10-K and the Management Report. THE SUPERVISORY BOARD RECOMMENDS
A VOTE FOR THE ADOPTION OF THE ANNUAL FINANCIAL STATEMENTS.

APPOINTMENT OF AUDITORS

The Supervisory Board has selected the firm of Ernst & Young LLP to serve as
United States auditors for the Company for the fiscal year ending March 31,
1997. Ernst & Young LLP has served as the Company's United States auditors since
December 1986. The Supervisory Board has also selected the firm of Moret, Ernst
& Young to serve as the Netherlands auditors for the Company for the fiscal year
ending March 31, 1997. Moret, Ernst & Young has served as the Company's
Netherlands auditors since December 1986. Representatives of Moret, Ernst &
Young will be present at the Meeting. THE SUPERVISORY BOARD RECOMMENDS A VOTE
FOR THE APPOINTMENT OF AUDITORS IN ACCORDANCE WITH THESE SELECTIONS.

STOCKHOLDER PROPOSALS

It is presently contemplated that the 1997 Annual General Meeting of
Stockholders will be held on or about September 30, 1997. Proposals by
stockholders intended for inclusion in the proxy statement to be furnished to
all stockholders entitled to vote at the next annual meeting of the Company must
be received at the Company's principal offices not later than May 2, 1997. In
order to curtail controversy as to the date on which a proposal was received by
the Company, it is suggested that proponents submit their proposals by certified
mail, return receipt requested.

OTHER MATTERS

Stockholders may obtain without charge additional copies of the Annual
Report on Form 10-K or copies of the Statutory Annual Report by writing to
Memorex Telex Corporation, 545 East John Carpenter Freeway, Irving, Texas 75062.

The Supervisory Board does not know of any other matters to be presented at
the Meeting. If other matters properly come before the Meeting, the Depositary,
through its nominee or nominees, intends to vote thereon in accordance with its
judgment.

11
<PAGE>
REPORT OF THE BOARD OF MANAGING DIRECTORS

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.

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.

During the year ended March 31, 1996, the Company's net loss, excluding
non-cash charges for depreciation, amortization, debt discount accretion and
gain from sale of assets, provided cash of USD 2.5 million. Cash was also
provided from the sale of assets discussed in Note 7 (USD 13.9 million), a
decrease in accounts receivable (USD 5.2 million) and a term loan discussed in
Note 9 (USD 12.0 million). The existing cash and cash sources were primarily
used for workforce reductions, closure costs and unfavorable contractual
obligations as discussed in Note 14 (USD 27.3 million), reductions in royalty
obligations (USD 3.8 million), capital expenditures (USD 4.9 million), reduced
deferred revenues on contract maintenance and warranty obligations (USD 5.2
million) and cash income tax payments (USD 2.4 million). As a result of the
above, cash and cash equivalents, including restricted cash deposits, decreased
USD 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 re-engineer 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 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.

The Company sold its Asia/Pacific operations for USD 25 million. The Company
also reached an agreement with the lenders to its USD 100 million Restructured
Credit Facility (the "Credit Facility") for USD 9 million of the proceeds to be
used to reduce debt and the remaining USD 16 million to be used to meet working
capital requirements including accrued interest payments.

The agreement with the lenders to its Credit Facility cures events of
default that existed under this agreement at March 31, 1996 and includes a
deferral through October 31, 1996 of interest payments otherwise due prior to
such date. In connection with the amendments and waivers, the Company agreed 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 USD 12 million Term Loan and Guaranty Agreement.

12
<PAGE>
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.

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.

YEAR ENDED MARCH 31, 1996 ("FISCAL 1996") COMPARED WITH THE YEAR 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 USD
40.3 million and USD 55.7 million for fiscal 1995 and 1994, respectively, to USD
17.0 million in fiscal 1996. However, the Company has reported three consecutive
years of operating income, excluding amortization of intangibles and revaluation
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 (USD in millions):

<TABLE>
<CAPTION>
GROSS
REVENUES GROSS MARGIN MARGIN %
------------ ------------ ----------
1996 1995 1996 1995 1996 1995
----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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
----- ----- ----- ----- ---- ----
----- ----- ----- ----- ---- ----
</TABLE>

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 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 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

13
<PAGE>
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, compared with the prior
year, favorably affected revenues approximately USD 24.6 million and margins
approximately USD 9.1 million in the current year.

Selling, general and administrative expenses in fiscal 1996 declined USD
35.7 million 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, compared with the prior year, unfavorably affected selling,
general and administrative expenses by approximately USD 4.5 million 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.

Other income and expenses for fiscal 1996 reflect a net other income of USD
4.5 million, compared with a net other expense of USD 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 compared with the prior year.
Interest includes amounts paid with 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 USD
12.8 million. The Company accreted USD 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. Certain actions discussed above were concluded subsequent
to the date when the following consolidated financial statements were prepared.

BOARD OF MANAGING DIRECTORS

AMSTERDAM, AUGUST 13, 1996

14
<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

/ / 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

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.

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.

<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.

<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.

<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

<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.

<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.

<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

<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)

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

- ------------------------------

(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.

<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.

<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%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------

<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.

<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.

<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

<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

<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.

<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.

<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.

<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.

<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

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

<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.

<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.

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

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.

<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%.

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.

<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.

<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.

<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.

<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.

<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
---------- ----------
---------- ----------

<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.

<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.

<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)
--------- --------- | ---------
--------- --------- | ---------

<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

<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.

<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

<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.

<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:

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>

<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:

<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:

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.

<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:

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.

<PAGE>

SCHEDULE II
MEMOREX TELEX N.V.
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

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>

<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>
/ X / PLEASE MARK VOTES
AS IN THIS EXAMPLE

MEMOREX TELEX N.V.

<S> <C>

Mark box at right if you do not want more than one annual 1 Elect Peter H. Dailey to the FOR AGAINST ABSTAIN
report mailed to your household. / / Management Board of the Company. / / / / / /

Mark box at right if address change has been noted on the 2 Elect Gregory S. Wood to the FOR AGAINST ABSTAIN
reverse side of this card. / / Management Board of the Company. / / / / / /

3 Elect Brad Sowers to the Management FOR AGAINST ABSTAIN
Board of the Company. / / / / / /

4 Elect Anthony J. Barbieri to the FOR AGAINST ABSTAIN
Management Board of the Company. / / / / / /

5 Adopt the annual financial statements FOR AGAINST ABSTAIN
contained in the Statutory Annual / / / / / /
Report of the Company for the fiscal
` year ended March 31, 1996, which also
contains the Report of the Management
Board of the Company.

6 Appoint Ernst and Young LLP as United FOR AGAINST ABSTAIN
States auditors for the Company and / / / / / /
Moret, Ernst & Young as Netherlands
auditors for the Company for the fiscal
year ending March 31, 1997.

------------------
Please be sure to sign and date this Proxy. Date If you wish to give a discretionary proxy to the / /
- ------------------------------------------------------------------ Chairman of the Meeting, please mark the box to the
right.

PLEASE NOTE: Marking the box at the right voids any
other instructions indicated above.

Shareholder sign here Co-owner sign here
- -------- -----------------

</TABLE>

- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TO THE REGISTERED HOLDERS OF AMERICAN DEPOSITARY RECEIPTS

REPRESENTING COMMON SHARES OF

The Depositary has received advice that the Annual General Meeting
(the "Meeting") for Memorex Telex N.V. (the "Company"), will be held at the
offices of the Company at Hoogoorddreef 9, 1101 BA, Amsterdam, The
Netherlands, on Monday, September 30, 1996, at 11:00 a.m. (local time) for
the purposes set forth in the enclosed Notice of Annual General Meeting.

If you are desirous of having the Depositary, through its Nominee or
Nominees, vote or execute a proxy to vote the shares of common stock
represented by your American Depositary Receipt(s) for or against the
Resolutions to be proposed, or any of them, at the Meeting, kindly execute
and forward the enclosed Voting Instruction Card to Morgan Guaranty Trust
Company of New York. The enclosed postage paid envelope is provided for
this purpose. This Voting Instruction Card should be executed in such
manner as to show clearly whether you desire the Nominee or the Nominees of
the Depositary to vote for or against the Resolutions, or any of them, as
the case may be. You may include instructions to give a discretionary
proxy to the Chairman of the Meeting. The Voting Instruction Card MUST be
forwarded in sufficient time to reach the Depositary before 4:00 P.M.,
September 26, 1996 (for overnight courier or other express deliveries,
please use the following address: Morgan ADR Service Center, 2 Heritage
Drive, North Quincy, MA 02171, Attn: John Sjosten). Only the registered
holders of record at the close of business on August __, 1996, will be
entitled to execute the enclosed Voting Instruction Card.

Morgan Guaranty Trust Company of New York, Depositary
60 Wall Street, New York, New York 10260-0060

Dated: September 3, 1996

<PAGE>

MEMOREX TELEX N.V.
Morgan Guaranty Trust Company of New York, Depositary
P. O. Box 9184, Boston, MA, 02102-9906

The undersigned, a registered holder of American Depositary Receipts
representing Common Stock, dfl. 0.10 nominal value, of Memorex Telex N.V., of
record August __, 1996, hereby requests and authorizes Morgan Guaranty Trust
Company of New York, the Depositary, through its Nominee or Nominees, to vote or
execute a proxy to vote the underlying Common Stock of the Company represented
by such American Depositary Receipts, on the Resolutions at the Annual Meeting
of Stockholders of the Company to be held on September 30, 1996, or any
adjournment thereof.
These instructions, when properly signed and dated, will be voted in the
manner directed herein. If you mark the box to indicate that you wish to give a
discretionary proxy to the Chairman of the Meeting, the underlying shares
represented by your American Depositary Receipt(s) will be voted by the Chairman
of the Meeting in his discretion. If these instructions are properly signed and
dated, but no direction is made, the underlying shares represented by such
Receipt(s) will be voted by the Depositary FOR all Resolutions at the Meeting.
NOTE: In order to have the aforesaid shares voted, this Instruction
Card should be returned on or before 4 P.M. September 26, 1996 (for overnight
courier or other express deliveries, please use the following address:
Morgan ADR Service Center, 2 Heritage Drive, North Quincy, MA 02171, Attn:
John Sjosten)

--------------------------------------------
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE
- --------------------- ---------------
AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
--------------------------------------------
Please sign this proxy exactly as your name appears on the address label affixed
hereto. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more than
one name appears, a majority must sign. If a corporation, this signature should
be that of an authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?

_____________________________________ _______________________________________