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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 SEPTEMBER 29, 1996
or
/ / Transition report pursuant to Section 13 or 15 (d) of The Securities
Exchange Act of 1934.
[No Fee Required]
For the transition period from to
Commission file number: 0-25630
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U.S. ROBOTICS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3994412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 NORTH MCCORMICK BOULEVARD, SKOKIE, ILLINOIS 60076-2999
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 982-5010
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Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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COMMON STOCK, $.01 PAR VALUE PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated in Part III of this Form 10-K or any amendments to this
Form 10-K / /
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
THE REGISTRANT AS OF DECEMBER 13, 1996, (BASED ON THE CLOSING PRICE AS REPORTED
BY NASDAQ AS OF SUCH DATE) WAS $6,360,074,192.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR VALUE PER
SHARE, OUTSTANDING AS OF DECEMBER 13, 1996, WAS 88,907,629.
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Documents Incorporated By Reference
PORTIONS OF THE PROXY STATEMENT FOR REGISTRANT'S 1997 ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON MARCH 5, 1997, ARE INCORPORATED BY REFERENCE IN PART
III.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO. OR
REFERENCE
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<S> <C>
Item 1. Business..................................................... 3
Item 2. Properties................................................... 13
Item 3. Legal Proceedings............................................ 14
Item 4. Submission of Matters to a Vote of Securities Holders........ 14
Item 4a. Executive Officers and Directors of the Registrant........... 15
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 18
Item 6. Selected Financial Data...................................... 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 20
Item 8. Financial Statements and Supplementary Data.................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 43
Item 10. Directors and Executive Officers of the Registrant........... 44
Item 11. Executive Compensation....................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 44
Item 13. Certain Relationships and Related Transactions............... 44
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K.................................................. 45
</TABLE>
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PART I
ITEM 1. BUSINESS
THE COMPANY
U.S. Robotics Corporation, through its operating subsidiaries,
(collectively, the "Company" or "U.S. Robotics") is one of the world's leading
suppliers of products and systems that provide access to information. The
Company designs, manufactures, markets and supports remote access servers,
enterprise communications systems and desktop and mobile client products,
including modems, LAN adapter cards, hand-held computing devices and telephony
products, that connect computers and other equipment over analog, digital,
wireless, and switched cellular networks, enabling users to gain access to,
manage, and share data, fax, voice, sound, and video information. The Company
offers reliable, cost-effective solutions at all points of network access, from
the data communications center to the desktop to the mobile user. The Company
designs its products to comply with all major international, domestic and
proprietary communications standards and protocols. Many of the Company's
products are designed using proprietary software and architectures which
facilitate greater functional integration at both the circuit board and systems
levels. This enables the Company to be early to market with new and enhanced
products as technologies and standards evolve and to offer its customers
flexible solutions which both meet their immediate needs and provide them with a
longer term communications technology implementation path. Additionally, when
U.S. Robotics-designed products are present at both ends of a communications
link, performance and reliability can be enhanced.
U.S. Robotics' product lines include a wide variety of dial-up modems,
flexible and scaleable wide area network ("WAN") hubs, local area network
("LAN") access and switching products, telephony products, and hand-held
electronic connected organizers. The Company's products are sold under the
master corporate brand name "U.S. Robotics" and under the product line brand
names Courier(TM), Megahertz(R), Sportster(R), Total Control(TM),
TOTALswitch(TM), ConferenceLink(TM), Pilot(TM) and WorldPort(R). To provide the
broadest possible exposure to prospective purchasers and users of its products,
the Company is active in all major domestic and international distribution
channels. The Company also manufactures and sells its products to selected
original equipment manufacturer ("OEM") customers.
As part of the Company's ongoing efforts to expand its product offerings
for all network access points, in February 1996, the Company acquired Amber Wave
Systems, Inc. ("Amber Wave"), a technology leader in workgroup LAN switching.
This acquisition complements the Company's systems products and has enabled the
Company to offer low-cost LAN switching products for corporate customers. On
August 28, 1996, the Company completed its acquisition of Scorpio Communications
Ltd. ("Scorpio"), which designs, manufactures, and sells scaleable,
fully-redundant, fault-tolerant ATM (Asynchronous Transfer Mode) switches that
target workgroup LAN, corporate backbone and WAN access environments. This
acquisition helped round out the Company's LAN switching offerings by extending
this product line beyond workgroup Ethernet switches into ATM switching, thereby
giving the Company a more comprehensive portfolio of switching and ATM products
to offer to its customers.
INDUSTRY OVERVIEW
The ability to access, manage and share information, whether in the form
of data, fax, voice, sound or video, is becoming increasingly important as
organizations and individuals seek to improve productivity and effectiveness.
Recent trends in organizational and personal computing and communications
capabilities, as well as the increasing availability of electronic and digital
information on corporate Intranets, the Internet and other on-line sources, have
converged to stimulate unprecedented demand for personal computers and data
communications equipment. The Company believes that the demand for information
access will continue to grow and that further advances in computer and
communications technology will bring increasingly powerful capabilities to many
more users in nearly every conceivable location and environment. These trends
represent significant opportunities for businesses which possess the vision,
expertise, technology and other resources to develop the sophisticated products
that will be required to meet users' evolving needs.
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COMPANY STRATEGIES
Historically, U.S. Robotics focused its efforts on developing and marketing
dial-up modems, which allow personal computers to communicate over WANs
(primarily the public switched telephone network). As a result, the Company
developed significant expertise in digital-to-analog and analog-to-digital
signal conversion and in high speed data transmission over the public switched
telephone network ("PTSN"). This expertise has become increasingly important
with the advent of digital networks and communications services which must
interconnect with the existing analog networks.
Anticipating the need for products which support communications in hybrid
analog/digital environments, U.S. Robotics developed a strategy based on
providing customers with seamless connectivity and a flexible, cost-effective
approach to rapidly changing technologies, standards and services. In order to
provide such solutions, the Company decided to offer a broad range of products
and systems targeted at all of the key network access points -- in the data
communications center, at mobile sites and on the desktop. To complement its
strength in desktop products, the Company developed its Total Control product
line, starting with the Total Control Enterprise Network Hub (the "Total Control
Hub"), which was first shipped in fiscal 1993. The Total Control Hub chassis is
designed to serve as a modular, scaleable, high density platform for a wide
range of existing and future communications interfaces and applications.
The Company has also actively pursued business combinations and strategic
alliances with the objective of broadening its product lines and technological
capabilities so as to meet the needs of end-users for high performance products
for connecting with the network at all access points. In February 1995, the
Company became a very significant participant in the PC Card market for mobile
computer users with its acquisition of Megahertz Holding Corporation
("Megahertz"). Also, during 1995, U.S. Robotics acquired ISDN Systems
Corporation and Palm Computing, Inc. As noted above, during 1996 the Company
acquired Amber Wave and Scorpio.
In October 1996, the Company announced a key breakthrough in modem
technology that provides for Internet, on-line and remote access connections
capable of downloading information at speeds nearly twice as fast as those
previously available over regular analog telephone lines. This new technology,
named "x2(TM)", increases the top speed for receiving data "downstream" over the
PTSN to levels in the range of 52 to 56 Kbps without the need for expensive new
central office equipment required by other high-speed technologies and without
modifications to existing telephone wiring. This model is ideal for Internet or
remote access because information sent to the individual desktop is typically
graphics-based and requires a high-performance channel. User requests, such as
http and internet browser commands, require less bandwidth and can be
transmitted quickly "upstream" at the standard 28.8 or 33.6 Kbps speeds.
As with any data communications protocol, x2 technology must be present on
both ends of the call to achieve these high speed connections. By providing
both systems and client modem products that are x2 capable, U.S. Robotics will
offer an end-to-end higher speed solution for both individuals and service
providers. Further, the installed base of U.S. Robotics systems products and
many of the client modem products sold in the past, especially since the August
1996 announcement of x2, can be upgraded to x2 easily through a simple software
download or, in the case of some Sportster modems, a memory chip replacement.
The Company's objective is to maintain and enhance its leadership position
in the information access market by leveraging its strengths in the areas of
communications technologies, customer driven product design, marketing and
distribution channel partnerships, international presence, manufacturing and
human and financial resources. Specifically, the Company intends to continue to
implement the following key strategies:
- - Emphasize Research and Development. Continue the Company's commitment
to research and development efforts to enable it to (i) control key
components of technologies fundamental to its business, (ii) be early
to market with products that are responsive to customers' changing
needs and (iii) reduce manufacturing costs.
- - Provide Broad Based Access Solutions. Continue to expand product
offerings to address the large and growing markets for information
access and communications solutions at all levels and at all points of
access, from home and mobile users, to the corporate desktop, to the
data communication centers of businesses and information and
communication service providers.
- - Leverage and Expand Presence at All Points of Information Access.
Leverage the Company's position as a provider of end-to-end access
solutions by continuing to offer products at all points of information
access, thereby providing enhanced performance, reliability, and value
for customers.
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- - Maintain and Expand Distribution Channels. Build upon the Company's
presence in all of the distribution channels, including the Company's
traditional two-tier distribution channel partnerships, the retail channel,
value added resellers, direct corporate sales and OEMs.
- - Expand International Presence. Expand the Company's international
presence by establishing additional sales offices, entering into alliances
with distributors in geographic areas in which the Company is not currently
operating or represented and introducing mobile and systems products on a
global basis.
- - Pursue Strategic Alliances and Acquisitions. Pursue additional
strategic alliances and acquisitions to further enhance the Company's
product offerings, markets or capabilities, whenever such transactions or
relationships are consistent with the Company's overall strategic
direction.
- - Enhance Product Quality and Value. Continue to enhance product quality
and value, as well as the Company's operating efficiency and profitability,
by maintaining a well-trained and highly motivated work force and by
investing in state-of-the-art manufacturing capacity, generally located in
close proximity to the Company's research and development and product and
customer support activities.
PRODUCTS
U.S. Robotics' products fall into two general categories -- systems
products (network hubs, modem pools, remote access servers, and LAN switching
products sold under the Total Control and TOTALswitch brand names) and personal
computer related ("PC-related") products (high speed desktop and PC card
modems, LAN adapter cards, hand-held connected electronic organizers, and
telephony products sold under the Sportster, Megahertz, Courier, Worldport,
Pilot, and ConferenceLink brand names). The Company's product development,
marketing, sales and support operations are generally organized to focus on
these categories. The Network Systems Division has responsibility for systems
products and the Courier brand desktop modems, the Mobile Communications
subsidiary has responsibility for PC-related mobile and wireless products, the
Personal Communications Division has responsibility for PC-related desktop
modems and telephony products, and the Palm Computing subsidiary has
responsibility for the Pilot hand-held products.
Systems Products
U.S. Robotics' systems products include scaleable network hubs, modem
pools, remote access servers, and LAN switching devices to support a variety of
information access functions in the data centers, branch offices and small
businesses and at major information service providers. These products are sold
mainly under the Total Control and TOTALswitch brand names.
The Total Control Hub is a high density platform for the integration of
LANs and WANs to support a wide variety of dial-up applications at a low per
port cost. Uses of the Total Control Hub range from providing central site or
point-of-presence access to networks for Internet service providers, on-line
information services, interexchange carriers and corporations to transaction
processing applications such as credit card verification. The Total Control Hub
consists of a standard chassis with a midplane and slots to accommodate up to 16
communications card sets (each set consisting of either a network applications
card and a network interface card or a single network applications card, and
referred to herein as a "communications module") plus an SNMP (simple network
management protocol) network management card and dual power supplies. The
communications modules communicate with one another and with the management card
over high speed buses in the mid-plane.
The Total Control Hub integrates the capabilities of channel banks,
DSU/CSUs, modems, ISDN equipment, routers, X.25 PADs, and terminal servers in
a single chassis. Its flexible platform provides ISDN or analog dial access to
asynchronous hosts, Frame Relay, X.25, Ethernet or Token Ring networks. The
modular design and flexible architecture of the Total Control Hub allow the
Company to add new technologies and functionalities in order to meet evolving
customer needs. These communications modules can be configured and managed
remotely through the network management card, and the functionality and features
of the various communications modules can be upgraded through software
downloads. For example, internet service providers and other businesses
employing the Company's Total Control Hubs can easily add the Company's new x2
technology through a downloadable software upgrade, thus satisfying their
subscribers'
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ever increasing need for fast information access and enhanced functionality
while preserving the investment they have made in access equipment.
A recent addition to the Total Control product family is the EdgeServer(TM)
Card ("EdgeServer"). The EdgeServer is an innovative, powerful front-end
internet, intranet, remote access and collaborative communications solution that
integrates server functionality, communications interfaces, and the
high-performance capabilities of Microsoft(R) Windows NT(TM) in the Total
Control Hub. EdgeServer provides remote users with an organized way to access
widely dispersed information stored on multiple file servers on a LAN. The
EdgeServer enables access for remote users to services which are typically
available to a LAN-connected user and provides for quicker remote user access by
bringing application processing to the network edge.
In order to serve the needs of branch locations, bulletin boards and other
users and sites requiring 16 or fewer modem ports, U.S. Robotics offers 8 and 16
port modem pools in its Total Control product line. The Company also offers
stand-alone 8 and 16 port versions of its Total Control NETServer(TM) product.
Like the NETServer module for the Total Control Hub, these products offer
sophisticated, multi-port LAN access, but in a less powerful package for smaller
networks or offices. The Company's MP/8 and MP/16 modem pool products integrate
8 or 16 U.S. Robotics V.Everything(R)/V.34 modems in a compact, self-contained
unit. The MP/8 and MP/16 are designed to be connected to a variety of terminal
servers, communications processors and access servers.
The TOTALswitch LAN switching Hub is a flexible platform that improves LAN
performance by segmenting or replacing shared networks. It provides the
bandwidth needed to support high-speed applications and eliminate traditional
network congestions. TOTALswitch allows simultaneous communications, consistent
rapid response times, improved server throughput, and increased network capacity
by delivering dedicated bandwidth on every port. The TOTALswitch consists of a
modular chassis which can hold up to four Switched LAN Cards ("SLCs") that can
support from 2 to 32 ports. The functionality, standards, and features of the
SLCs can be upgraded through software downloads.
The Company plans to continuously add functionality in its systems
products, with particular focus on leveraging the flexible architecture of the
Total Control Hub. U.S. Robotics expects to continue investing in new
technologies such as x2, wireless, switching and broadband access, including
xDSL and cable, during fiscal 1997. To supplement its own development efforts,
U.S. Robotics has entered into strategic alliances, technology licenses and
business combinations with other companies and will continue to explore such
possibilities in the future.
PC-related Products
The Company's PC-related products include a variety of high speed dial-up
modems, in internal and external desktop and PCMCIA ("PC Card") form factors,
LAN adapter PC Cards, hand-held connected electronic organizers, and high
performance conference telephones. These products are sold under the Sportster,
Courier, Megahertz, Worldport, Pilot, and ConferenceLink product brand names.
Desktop Products
U.S. Robotics' desktop modem products are sold under the Sportster and
Courier brand names and primarily consist of high speed dial-up modems in both
external and internal (for insertion into a personal desktop computer) form
factors. Most of these products are designed based upon the Company's
proprietary data pump architectures, and they offer reliable connections in
compliance with virtually all official and most proprietary data communications
standards.
The Company's largest selling brand is its entry level dial-up modem,
Sportster. Targeted at home office and professional users, Sportster products
are available with transmission speeds up to 28.8/33.6 Kbps in internal and
external form factors. The Company's high speed Sportster products are
V.34-compliant and support other official and proprietary transmission speed
standards for data and fax. Most models also incorporate industry standard fax
capability, error control and data compression. As described below, some
Sportster products shipped during 1996 are upgradeable to the new x2 technology.
The Courier product family, targeted at corporate and advanced users,
features modems ranging up to the Courier V.Everything(TM). The Courier
V.Everything modem provides universal compatibility at the highest
available standard transmission speed and supports all major high speed
protocols,
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including V.34 (28.8/33.6 Kbps) and AT&T's V.32 terbo (19.2 Kbps), as well as
V.17, the international standard for fax communication at 14.4 Kbps. Newer
models of the Courier high speed modems may be upgraded by users in the field
through a downloadable software upgrade. Using the Company's proprietary data
pump architectures, these products contain unique features such as Quick
Connect(TM) and Adaptive Speed Leveling(TM) ("ASL"), which can improve connect
time, transmission speed and performance when two U.S. Robotics-designed modems
communicate with each other. ASL adjusts transmission speed dynamically and
automatically in response to network conditions. In addition, Courier modems
include remote configuration and help screen command summaries.
Beginning in the second quarter of fiscal 1997, the Company will offer
its new x2 technology ("down stream" transmissions at top rates in the range of
52 to 56 Kbps over regular analog telephone lines) in both the Sportster and
Courier line of desktop modems. Some of the Company's desktop modems sold prior
to the announcement of the x2 technology will be upgradeable via downloadable
software upgrades or through the substitution of memory chips.
Some of the features available in the Company's desktop modem products
include voice mail, speaker-phones, and simultaneous voice and data transmission
over a single analog line. The Company anticipates adding new features and
functionalities to its desktop products. For example, recent product
announcements have included the "Bigpicture(TM)" system which includes a U.S.
Robotics 28.8/33.6 Kbps voice/video and fax-modem, a color video camera, and a
video capture card and allows users to make video phone calls and send video
e-mail. In the future, the Company expects to explore other opportunities to
incorporate voice, sound and video capabilities into its products as the
personal computer comes to be viewed more as a multi-function communications
center.
Mobile Communications Products
The Company's mobile communications products consist primarily of high
speed dial-up PCMCIA ("PC Card") modems, including cellular capable modems, sold
under the Megahertz, Sportster, Courier and WorldPort brand names.
Most of the Company's PC Card modems are sold under the Megahertz brand
name. These industry-leading modems feature the patented XJACK(R) connector
system. This convenient RJ11 connector is built into the PC Card, eliminating
the inconvenience of a proprietary external connector. Megahertz modems are
currently built to comply with the V.34 standard using modem chipsets supplied
by Rockwell International or Lucent Technologies. In the future, the Company
intends to shift some of its Megahertz brand PC Card modems to a proprietary
architecture and introduce its new x2 technology, into this product line as well
as its other branded PC Card modems. Other PC card features include Digital
Line Guard, which prevents the modem from connecting to damaging high-voltage
lines, and automatic installation and configuration software for quick and easy
initial setup.
The Company has developed direct-connect PC Card modems that allow users to
communicate from their mobile computers through any of the largest selling
cellular phones. The cellular capable modems feature dual functionality,
offering a choice of connecting through a cellular phone or through a standard
land telephone line.
The Company's AllPoints(TM) Wireless PC Card for notebook computers and
hand-held computing devices allows users to access the Internet, corporate LANs,
and other on-line services in order to send and receive e-mails, access
databases, fax documents, transfer files, and access news and other information
without the use of a standard telephone line. The antenna-equipped AllPoints
card fits into a type II PC Card slot, operates on a 9-volt NiCad battery and
uses radio waves to send and receive information. Operating over the
radio-based RAM Mobile Data Network, the AllPoints Wireless PC Card offers the
freedom of nationwide wireless communications to the majority of the urban
business population.
In addition to modems, the Company also offers Megahertz brand PC Card
Ethernet adapters for mobile users who have portable machines as their primary
computers and need network connectivity within an office environment. The
Ethernet adapters support all leading network operating systems. The Company
has also developed a combination modem/Ethernet adapter card which offers the
power and convenience of a modem and a LAN adapter in one PC Card. The
combination card features simultaneous Ethernet and modem capability, driver
support for all major network operating systems, diagnostic LEDs and automatic
installation and configuration software.
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U.S. Robotics' mobile communications product development efforts are
focused on understanding the mobile and wireless communications needs of
customers in light of emerging technologies, services and standards. The Company
anticipates adding new features and functionalities to its PC Card product lines
in order to enhance the communications capabilities and ease of use of various
mobile computers and information access devices.
Hand-held Electronic Connected Organizers
U.S. Robotics' Pilot connected organizer, launched in the second quarter of
fiscal 1996, is a hand-held computing device designed to work as a companion
product to desktop and laptop computers, allowing personal information
management both remotely and on the desktop. The Pilot includes a docking
cradle which is connected to the user's Windows PC or Macintosh computer and
allows for automatic back-up and seamless synchronization of information between
the Pilot device and the larger computer, thus ensuring that both systems have
the most current information. The Pilot organizer, which is based upon the
proprietary Palm OS (operating system) software, also includes character
recognition software which allows the user to add and edit information with a
stylus while away from the desktop. This combination means that users can carry
and edit their personal data, such as thousands of addresses, phone numbers,
appointments, and personal notes with them everywhere they go. The Palm OS has
been made widely available to independent software developers who are producing
a variety of applications, utilities and games for the Pilot platform.
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Telephony Products
U.S. Robotics' introduction of telephony products during 1996 represents
the Company's application of its digital signal processing (DSP) expertise into
telephone-based information access products that provide integrated
communications solutions. U.S. Robotics' telephony products are sold under the
ConferenceLink product brand name and consist of full-duplex conference
speakerphones featuring automatic gain control and SimulCom(TM) technology which
allows users to speak and listen simultaneously for smooth, natural two-way,
conversation.
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company believes that its product development and design strategy,
which seeks to incorporate existing standards and technologies into innovative
products, enables the Company to develop and introduce products quickly in
response to identified market trends. The Company uses information derived from
participation in industry organizations, internal research, third-party
publications, customer participation and OEM relationships to make design and
product selection decisions.
The Company's research and development functions are divided among its
advanced development group and several product development and support groups.
The advanced development group focuses on the development of core product
architectures and computational algorithms that may have applications across
multiple product lines. This group concentrates on identifying trends in
semiconductor performance and features one to two years ahead of commercial
availability and creates and maintains the proprietary software programming that
is key to core data pump functions. The respective product development groups
work with product managers, sales and marketing personnel, manufacturing
engineers and customers to develop specific solutions for application in the
systems, mobile and desktop user environments and to adapt products for
international markets.
Most of the Company's products are designed using proprietary software
programs that run on digital signal processors and microprocessors. These
designs allow for rapid modification or addition of product features. As a
result, the Company believes it is well-positioned to exploit advances in
semiconductor technology quickly, introducing new features and improving
performance faster and at a lower cost than many of its competitors. Also,
controlling the software content and architecture of its data pumps enables the
Company to offer upgrades to several of its products through software downloads
to flash ROM (read only memory) components. For example, the Total Control Hub
is designed as a flexible, modular platform to accommodate the addition of new
features and capabilities on a continuing basis. Because U.S. Robotics' products
are flexible and easy to modify, the Company believes it is well positioned to
respond rapidly to emerging trends in data communications and to be first to
market with industry leading innovations such as the EdgeServer and the new x2
technology. Internal development of software algorithms also allows the Company
to add unique features to its products that provide superior performance when
two U.S. Robotics products communicate with each other.
On September 29, 1996, the Company's research and development organization
included 1,100 people organized into several groups including advanced
development, systems product development (including subgroups working on xDSL,
cable, wireless, WAN internetworking, and LAN access and network management),
personal communications product development, mobile and wireless product
development, hand-held computing product development, international product
development, communication systems and engineering services. Research and
development expenditures were $109.4 million, $52.5 million and $29.3 million in
the fiscal years ended September 29, 1996, October 1, 1995, and October 2, 1994,
respectively.
MARKETING, SALES, DISTRIBUTION AND SUPPORT
The Company's marketing and sales functions are divided among four
operating divisions and subsidiaries - Network Systems, Personal Communications,
Mobile Communications and Palm Computing. The Network Systems Division is
primarily responsible for sales and marketing of systems products. The Personal
Communications Division is primarily responsible for selling and marketing
Sportster and Courier brand desktop modem products and telephony products as
well as international sales of PC Card products. The Company's Mobile
Communications subsidiary is primarily responsible for marketing and selling PC
Card products in North America, and the Palm Computing subsidiary is primarily
responsible for Pilot connected organizer products.
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The Network Systems Division sells Total Control and TOTALswitch systems
products directly to corporate end-users and to authorized value-added
resellers. In some cases, sales are made to corporate customers through a
well-established two-tier distribution channel. The two-tiered channel allows
the Company to sell to national and regional distributors, who in turn sell to
resellers such as computer chains, franchise organizations and value-added
resellers. Network Systems products are complicated devices which are used for a
wide variety of purposes in highly complex network environments. Prices
typically run to several thousand dollars per unit. As a result, sales cycles
are longer and sales and marketing efforts require substantial resources for
direct support in the form of training, systems and applications engineering and
pre- and post-sale services to end users.
The Personal Communications Division markets the Company's desktop and
telephony products and the Palm Computing subsidiary markets hand-held
electronic connected organizer products directly to high-volume resellers, such
as mass merchandisers and computer superstores, as well as through the
two-tiered distribution channel and to OEMs. The Company's mobile
communications products are sold to large electronics distributors, resellers,
computer superstores and mail order companies. In addition, the Company sells
its mobile communications products to leading portable computer manufacturers
under OEM arrangements.
Unit prices for the PC-related products are typically under $500 with most
selling for less than $200. Sales of these products require substantial
expenditures for mass media advertising and retail promotion.
The Company believes that customer service and technical support, both
during the selling process and after a sale, are essential elements of its
success. Applications engineering and technical support services are especially
important for customers purchasing systems products which must function in
complex networking environments. The Network Systems Division engineering staff
often assists resellers and end users in designing connectivity solutions and
troubleshooting network performance problems. Engineering and technical support
are also important to OEM customers. The Company provides telephone support and
repair or replacement warranty service for all of its products. Warranty periods
for hardware products range from one to five years.
INTERNATIONAL OPERATIONS
Most of the Company's products are marketed under the same brand names
domestically and internationally. Some of the Company's PC Card modem products
are marketed internationally under the WorldPort brand. Sales outside North
America, primarily in Europe, accounted for approximately 22%, 20% and 16% of
net sales in the fiscal years ended September 29, 1996, October 1, 1995, and
October 2, 1994, respectively.
U.S. Robotics has established a European Coordination Center in Paris,
France to support and coordinate its European business operations. The Company
provides sales, marketing and local technical support through its other European
offices in France, England, Germany, Italy, The Netherlands, Spain and Sweden.
The Company performs final assembly and packaging at its warehouse facilities in
Winnersh, England, and Lesquin, France, the distribution centers for customers
in the United Kingdom and continental Europe, respectively. The Company has
also established a multi-lingual systems support facility in Dublin, Ireland
that supports all of the Company's European operations. With the acquisition of
Scorpio, the Company added research and development and manufacturing operations
in Israel. In addition, the Company has sales and support operations in Canada
and Japan, and plans to open additional offices in the Asia/Pacific Rim region
during 1997.
The Company's products are marketed, sold and serviced outside of North
America (the U.S. and Canada) by over 100 distributors. Generally, these
distributors have nonexclusive, country specific agreements enabling them to
sell both directly to large end users and through resellers. Many international
distributors have extensive data communication technical expertise and undertake
first line technical support to international customers.
Specific regulatory approvals must be obtained for each of the Company's
new products as well as for many changes to existing products sold in foreign
countries. Approvals are granted by the appropriate regulatory agency in each
respective country. By the end of 1996, PC-related products had been
homologated in 34 countries and systems products had been homologated in 38
countries.
10
<PAGE> 11
BACKLOG
Order backlogs at September 29, 1996 and October 1, 1995 were $117.1
million and $185.2 million, respectively. Backlog includes purchase orders for
products that are scheduled to be shipped within 90 days. Because of the
possibility of changes in delivery schedules or cancellations of orders, the
Company's backlog as of any particular date may not be indicative of future
sales levels.
MANUFACTURING AND SUPPLIERS
The Company believes that its integrated manufacturing operations provide
it with greater control over product quality and greater understanding of design
technologies, resulting in an enhanced ability to bring high quality products to
market rapidly. In addition, Company manufacturing personnel are intensively
involved in product design to insure that manufacturability considerations are
addressed early in the design process and that manufacturing processes and
products meet the Company's high quality control standards. The vast majority of
the Company's manufacturing operations are carried out at its factories in Mount
Prospect and Morton Grove, Illinois, and Salt Lake City, Utah. The Salt Lake
City facility is International Standards Organization ("ISO") 9001 certified,
the Morton Grove facility is ISO-9002 certified for desktop modem manufacturing,
the Mount Prospect facility is ISO-9001 certified, and the Lesquin, France
distribution center is ISO-9002 certified. A catastrophic event or natural
disaster at any of these facilities could adversely affect the Company's results
of operations and ability to manufacture products until the transition to a
different U.S. Robotics facility or a contract manufacturer could be completed.
In order to balance manufacturing loads and capacity, some subassemblies and
products are manufactured by third party contractors from time to time.
All components used in the Company's products are acquired from third
parties. Certain components are available only from a single source and others
are available only from limited sources. In addition, the Company is dependent
upon worldwide conditions in the semiconductor market. For the most part, the
Company has historically been able to obtain adequate supplies of components in
a timely manner, or with minor delays, from existing sources and has not been
adversely affected by component price increases. Limited supplies of chipsets
used in the Company's Megahertz brand PC Card modems for a part of fiscal 1996
temporarily inhibited the growth of sales of those products. The Company seeks
to minimize the risk of shortages of key components by preferring suppliers that
can manufacture components in more than one location, monitoring the financial
stability of key suppliers and maintaining reserves of key components. The
Company believes that alternative sources of supply for most components could be
developed; however, in the event of a shortage, if the Company were unable to
develop adequate, alternative sources in a timely fashion, the Company's
operating results would be adversely affected.
COMPETITION
The data communications industry is intensely competitive and characterized
by rapid technological advances and emerging industry standards. These changes
result in frequent introductions of new products with added capabilities and
features and continuous improvements in the relative price/performance of
communications and networking products. Failure to keep pace with technological
advances would adversely affect the Company's competitive position and results
of operations.
The Company's products compete on the basis of product features, price,
quality, reliability, name recognition and technical support and service.
Although the Company believes its products are competitive in each of these
areas, there can be no assurance that competitors will not introduce comparable
or superior products incorporating more advanced technology at lower prices.
The Company's primary competitors with respect to systems products
domestically include, among others, Ascend Communications, Cascade, 3COM,
Lucent, Motorola, CISCO, and Shiva. In Europe the primary competitors include
Ascend, CISCO, Multitech, Microcom, Motorola, 3COM, Shiva, and Tricom(UK). The
Company's primary competitors with respect to desktop products domestically
include Hayes Microcomputer Products, Zoom Telephonics, Best Data, Cardinal,
Diamond, Boca Research and Motorola. For desktop products internationally the
list of competitors includes SAT(Sagem), Zyxel, Creatix, Elsa, Lasat, Telebit,
Multitech, Microcom, CPV, and Motorola. The Company's primary competitors with
respect to mobile communications products include Hayes, Motorola, Xircom, 3COM,
and TDK. The Company's primary competitors with respect to hand-held electronic
organizers are Casio, Hewlett-Packard, Psion and Sharp. Some of the Company's
competitors and potential competitors
11
<PAGE> 12
have more extensive financial, engineering, product development, manufacturing
and marketing resources than the Company.
12
<PAGE> 13
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon its trade secret protection program and its patents
and copyrights to protect its proprietary technologies. The Company currently
holds twenty-three U.S. patents and has numerous patent applications pending
with the United States Patent and Trademark Office covering portions of the
technology employed in the Company's products. In addition, patents have been
issued and patent applications are pending for certain inventions in selected
foreign countries. The Company intends to continue to seek patent protection for
emerging technologies where appropriate. In addition, the Company has registered
certain trademarks in the United States and a number of foreign countries.
The Company is a party to license and cross-license agreements with respect
to certain technologies used in its products. A majority of these licenses are
nonexclusive, fully paid and perpetual. In addition, the Company is engaged in
negotiations with other parties to license or cross-license proprietary and
patented technologies that are required for implementation of certain
communications protocols and standards. In most instances the owners of
intellectual property rights covering technologies required for official
communications standards have undertaken to license such rights on fair,
reasonable and non-discriminatory terms. The Company has no reason to believe
these other parties will not honor their undertakings and anticipates that it
will enter into such licenses on reasonable terms.
The Company has received from time to time and may receive in the future
infringement claims from third parties relating to the Company's products or
technologies. The Company investigates these claims, and, if valid, responds
through licensing or other appropriate actions. If the Company were unable to
license necessary technology on a cost-effective basis, the Company could be
prohibited from marketing products incorporating that technology, incur
substantial costs in redesigning products incorporating that technology and
incur substantial costs defending any legal action taken against it.
EMPLOYEES
As of September 29, 1996, the Company employed 6,313 people including 3,068
in manufacturing, 1,100 in research and development, 1,232 in sales and
marketing, and 913 in general administration. None of the Company's employees
are represented by a labor union. The Company believes its relations with its
employees are good. Competition for qualified personnel in the information
access industry is intense, and the Company believes that its prospects for
future growth and success will depend, in significant part, on its ability to
retain and continue to attract highly skilled and capable personnel in all areas
of operations.
ITEM 2. PROPERTIES
The Company's executive offices are located at 8100 North McCormick
Boulevard in Skokie, Illinois, a 120,000 square foot building owned by the
Company. The Company's Personal Communications Division and principal advanced
development group also are located in Skokie, Illinois, in a 137,000 square foot
office building owned by the Company. The Company's Mobile Communications
subsidiary is located in a 196,000 square foot building the Company owns in Salt
Lake City, Utah. The Company's Palm Computing subsidiary is located in a 55,000
square foot building that it leases in Mountain View, California. The Company
also has leased a 75,000 square foot building adjacent to its existing Palm
offices in Mountain View that it is subleasing to others until it is needed for
future expansion. The Company also leases a 400,000 square foot office building
in Rolling Meadows, Illinois, that it intends to use to accommodate future
growth in its business operations. The Company's manufacturing operations are
located in three major facilities: a 300,000 square foot building in Morton
Grove, Illinois which the Company owns; a 650,000 square foot building in Mount
Prospect, Illinois which is being leased by the Company; and a new 150,000
square foot facility that has recently been completed on property the Company
owns adjacent to its Mobile Communications subsidiary offices in Salt Lake City.
The property in Mount Prospect also houses a major portion of the Network
Systems Division's research and development and customer support operations.
The Company has an option to purchase this property and has given notice of its
intent to exercise this option. In addition to the properties previously
mentioned, the Company leases other office, sales, technical support,
engineering, warehousing and distribution facilities in various locations around
the United States and the world.
13
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to lawsuits in the normal course of its business.
The Company and its counsel believe that the Company has meritorious defenses in
lawsuits in which the Company is a defendant. The Company does not believe the
outcome of these cases will have a material effect on its financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted during the fourth quarter of 1996.
14
<PAGE> 15
ITEM 4(A). EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The executive officers and directors of the Company are set forth below,
together with certain other significant employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Casey Cowell....... 44 Chairman of the Board, President, Chief Executive Officer and Director
John McCartney........ 44 Executive Vice President, Chief Operating Officer and Director
Jonathan N. Zakin..... 47 Executive Vice President, Business Development and Corporate Strategy, and Director
James E. Cowie........ 41 Director
Terence M. Graunke.... 37 Director
Peter I. Mason........ 44 Director
Paul G. Yovovich...... 43 Director
Ross W. Manire........ 44 Senior Vice President and General Manager, Network Systems
Steven T. Campbell.... 45 Vice President and Controller
Richard L. Edson...... 43 Vice President and General Manager, Manufacturing
Eugene L. Ferretti.... 50 Vice President and General Manager, Mobile Communications
Jerome Johnston....... 43 Vice President, Corporate Marketing and Communications
Mark Remissong........ 44 Vice President, Finance and Chief Financial Officer
Michael S. Seedman.... 40 Vice President and General Manager, Personal Communications
George A. Vinyard..... 47 Vice President, General Counsel and Secretary
CERTAIN SIGNIFICANT EMPLOYEES
Donna Dubinsky 41 Vice President and General Manager, Palm Computing
Elizabeth S. Ryan 36 Vice President, Human Resources and Administration
Dale M. Walsh 60 Vice President, Advanced Development
</TABLE>
Mr. Cowell, a founder of the Company, has served as Chairman of the Board,
President, Chief Executive Officer and a director of the Company since 1983. Mr.
Cowell also serves as a director of PLATINUM technology, inc. and Eagle River
Interactive, Inc. Mr. Cowell serves on the Board of Directors of Northwestern
Memorial Corp., parent company of Northwestern Memorial Hospital. Mr. Cowell has
a B.A. from the University of Chicago.
Mr. McCartney joined the Company as a Vice President in 1984 and has been a
director since 1985. In January 1996 he was designated Chief Operating Officer.
He has held the position of Executive Vice President since 1988. He held the
position of Chief Financial Officer from 1984 to 1992 and Secretary from 1989 to
1993. Mr. McCartney has an M.B.A. from the Wharton School of the University of
Pennsylvania and a B.A. from Davidson College.
Mr. Zakin joined the Company as Vice President, Sales, in 1987. He served
as the Company's Executive Vice President, Sales and Marketing from 1989 to
April 1995, when he was named Executive Vice President, Business Development and
Corporate Strategy. Mr. Zakin has been a director since 1988. Prior to joining
the Company, Mr. Zakin was Vice President and Chief Financial Officer of
Winterhalter, Inc., a computer communications company. Before joining
Winterhalter, he was President of Cosma International, an international
management consulting firm specializing in marketing computer products. Mr.
Zakin received an M.B.A. from Harvard University and a B.S. from New York
University.
Mr. Cowie has served as a director of the Company since March 1994. Mr.
Cowie has been a General Partner of Frontenac Company, a Chicago-based private
equity investment firm, since 1989. He also is a director of PLATINUM
technology, inc., Open Environment Corporation and U.S. Servis, Inc.
Mr. Graunke has served as a director of the Company since March 1996. He
has served as Chairman, President and Chief Executive Officer of Eagle River
Interactive, Inc., an interactive news media and services company, since May
1994. He was Chairman and Chief Executive Officer of Rapp Collins
Communications, an advertising agency owned by the Omnicom Group, Inc. from 1993
to 1994. From 1989 to 1992, he served as President and Chief Executive Officer
of U.S. Communications, a marketing agency.
Mr. Mason has served as a director of the Company since 1983. He is a
founding partner of the law firm of Freeborn & Peters and served as Chairman of
its Operating Committee from 1989 until 1996. Freeborn & Peters has provided
legal services to the Company since 1983. He currently is a
15
<PAGE> 16
director of May & Speh, Inc. and Eagle River Interactive, Inc., as well as
several privately held companies.
Mr. Yovovich has served as a director of the Company since 1991. He served
as President of Advance Ross Corporation from 1993 to May 1996. Mr. Yovovich
served in several executive positions with Centel Corporation from 1982 to 1992,
where his last position was that of president of its Central Telephone Company
subsidiary. Additionally, he serves as a director of Comarco, Inc., Illinois
Superconductor Corporation, and APAC TeleServices, Inc., and is a certified
public accountant.
Mr. Manire joined the Company as Vice President, Finance, in August 1991
and was named Chief Financial Officer in March 1992. He was named Senior Vice
President, Operations, in August 1992 and served as Secretary from March 1993 to
February 1994. He served as Senior Vice President, Operations, and Chief
Financial Officer until April 1995 when he was named General Manager, Network
Systems. From 1989 to 1991, he was Vice President of Ridge Capital Corporation,
a private equity investment firm. Prior to that he was a partner at Ernst &
Young, a public accounting firm. He serves as a director for several privately
held companies. Mr. Manire has an M.B.A. from the University of Chicago and a
B.A. from Davidson College.
Mr. Campbell joined the Company as Vice President and Controller in
November 1995. From 1990 to 1995, he held various financial management positions
with Amoco Corporation and its subsidiaries. Mr. Campbell has an M.M. from
Northwestern University and a B.S. from Quincy University. He is a certified
public accountant.
Mr. Edson joined the Company as Vice President and General Manager,
Manufacturing, in July 1995. From 1987 to 1995, Mr. Edson was with Thinking
Machines Corporation, where he held the position of Chief Operating Officer from
1994 to 1995, and held other management positions, including Vice President of
Core Products, Vice President of Manufacturing and Director of Manufacturing
from 1987 to 1993. Prior to 1987, he held management positions at Data General
Corporation and Digital Equipment Corporation. He holds an M.B.A. from Babson
College, a B.S.B.A. from the University of Lowell and. an A.S.E.E. from the
University of Cincinnati.
Mr. Ferretti joined the Company as Vice President, Finance, Mobile
Communications, in November 1995. In April 1996 he was named to the position of
Vice President and General Manager, Mobile Communications. Previously Mr.
Ferretti was with American Hawaii Cruises where he served as President from
April 1991 to August 1993 and Executive Vice President from April, 1987 to April
1991. Mr. Ferretti has an M.B.A. from the University of Chicago, a Ph.D. in
Physics from The Ohio State University and a B.A. degree from Lewis University.
Mr. Johnston joined the Company as Vice President, Corporate Marketing and
Communications, in September 1996. From May 1994 to July 1996 he was Senior
Vice President and Director of Corporate Communications with Paine Webber, Inc.
and prior to that, he was with J. Walter Thompson Company from 1984 to 1994,
where he most recently served as Senior Vice President and Director of Client
Services.. Mr. Johnston has an M.S.J. from Northwestern University and a B.A.
from Castleton State College.
Mr. Remissong joined the Company as Vice President, Finance, in March 1995.
He was named Chief Financial Officer in April 1995. From 1993 to 1994, he was
Senior Vice President and Chief Financial Officer of Collins and Aikman
Corporation. From 1989 to 1993 he was Vice President, Finance, of Burlington
Industries, Inc. Prior to that he was a partner at Ernst & Young, a public
accounting firm. Mr. Remissong has an M.B.A. from the University of Chicago and
a B.S.S. from Cornell College. He is a certified public accountant.
Mr. Seedman joined the Company as Vice President and General Manager,
Personal Communications, in June 1993. Mr. Seedman previously served as
President and Chief Executive Officer of Practical Peripherals, Inc., a data
communications company which he founded, from 1981 to 1993. He attended the
University of Southern California.
Mr. Vinyard joined the Company as Vice President, General Counsel and
Secretary in February 1994. From 1977 to 1994 he was a practicing attorney with
the Chicago firm of Sachnoff & Weaver, Ltd., where he had been a principal since
1981. He received his J.D. degree from the University of Michigan Law School and
holds a B.A. from Illinois Wesleyan University.
16
<PAGE> 17
Ms. Dubinsky joined the Company as Vice President and General Manager, Palm
Computing in September 1995. From 1992 to 1995, Ms. Dubinsky served as
President and Chief Executive Officer of Palm Computing, Inc. Prior to 1992,
Ms. Dubinsky held various executive positions at Claris Corporation and Apple
Computer. Ms. Dubinsky has an M.B.A. from Harvard University and a B.A. from
Yale University.
Ms. Ryan joined the Company as Director, Human Resources in 1989 and was
elected a Vice President in October 1991. Prior to that, Ms. Ryan was the
manager of personnel and training for Recycled Paper Products, Inc. Ms. Ryan
has an M.A. in Communications from Northwestern University and a B.A. from
Mundelein College.
Mr. Walsh has been a Vice President of the Company since 1983. He
currently serves as Vice President of Advanced Development, a position he has
held since 1989. Prior to that, Mr. Walsh served as Vice President,
Engineering. Before joining the Company, Mr. Walsh was senior scientist at
General Datacomm, Inc. Previously, he was manager for modem development at
Paradyne. Mr. Walsh is a member and past chairman of the Electronics Industry
Association committee which develops modem standards recommendations for the
ITU-TS. Mr. Walsh holds a B.S. from the University of Illinois, Urbana, and
B.S.M.E. from the University of South Florida.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under
the symbol USRX. The following table sets forth, for the fiscal years ended
September 29, 1996 and October 1, 1995, the range of high and low closing sale
prices for the Company's common stock, after giving effect to the two
two-for-one stock splits in the form of 100% stock dividends effected May 10,
1996 and September 8, 1995.
<TABLE>
<CAPTION>
1996 1995
--------------------- ----------------------
HIGH LOW HIGH LOW
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
First Quarter........................................... 54-7/8 37-9/16 10-13/16 7-7/8
Second Quarter.......................................... 69 34-1/2 17-1/4 9-13/16
Third Quarter........................................... 100-1/2 60-5/8 28-3/16 15-7/8
Fourth Quarter.......................................... 90 46-7/8 45-3/16 26-13/16
</TABLE>
As of December 13, 1996, there were 2,632 record holders of the Company's
common stock.
The Company has never paid cash dividends. It is the Company's present
intention to retain earnings for use in the Company's business. Accordingly,
the Company does not anticipate that cash dividends will be paid in the
foreseeable future.
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial information for the five fiscal years
ended September 29, 1996 provided below should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes. The financial
information has been restated to reflect the two two-for-one stock splits in
the form of 100% stock dividends effected May 10, 1996 and September 8, 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------
SEPT. 29, OCT. 1, OCT. 2, OCT. 1, OCT. 2,
1996(1) 1995(2) 1994 1993 1992
---------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net sales................................ $1,977,512 $889,347 $499,075 $ 242,653 $129,678
Cost of goods sold....................... 1,149,446 521,159 297,992 129,461 63,009
---------- -------- -------- --------- --------
Gross profit............................. 828,066 368,188 201,083 113,192 66,669
Operating expenses
Selling and marketing.................. 271,585 136,585 85,799 41,857 23,550
General and administrative............. 93,717 42,614 28,734 18,140 12,963
Research and development............... 109,437 52,478 29,284 16,888 11,127
Purchased in-process technology........ 54,000 - - - -
Non-recurring merger costs............. - 29,449 - - -
---------- -------- -------- --------- --------
Total operating expenses............. 528,739 261,126 143,817 76,885 47,640
---------- -------- -------- --------- --------
Operating profit......................... 299,327 107,062 57,266 36,307 19,029
Interest income.......................... 8,424 7,700 1,305 792 1,030
Interest expense......................... 4,995 5,465 1,860 377 409
Other income (expense)................... (866) (377) (1,342) 673 (642)
---------- -------- -------- --------- --------
Earnings before income taxes............. 301,890 108,920 55,369 37,395 19,008
Income tax expense....................... 131,870 42,969 19,248 13,276 7,149
---------- -------- -------- --------- --------
Net earnings............................. $ 170,020 $ 65,951 $ 36,121 $ 24,119 $ 11,859
========== ======== ======== ========= ========
Net earnings per share................... $ 1.79 $ .77 $ .47 $ .35 $ .19
Shares used in per share
calculation............................ 94,932 85,304 76,368 68,132 61,008
BALANCE SHEET DATA
Working capital.......................... $ 416,905 $367,981 $194,994 $110,040 $ 46,282
Total assets............................. $1,067,283 $659,623 $323,277 $200,863 $ 80,145
Long-term obligations less
current maturities..................... $ 54,044 $ 65,651 $ 69,464 $ 326 $ 604
Stockholders' equity..................... $ 671,870 $424,395 $195,717 $148,985 $ 61,630
</TABLE>
(1) In August 1996, the Company acquired Scorpio Communications Ltd. in a
transaction accounted for as a purchase. In conjunction with the acquisition,
the Company recorded a charge of $54,000 related to purchased in-process
technology. See Note C to the Consolidated Financial Statements.
(2) In February 1995, the Company consummated a business combination with
Megahertz Holding Corporation in a transaction accounted for as a pooling of
interests. As a direct result of the merger, the Company recorded a
non-recurring charge of $29,449. See Note C to the Consolidated Financial
Statements.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes; in particular, see
Notes A and C to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years indicated, the percentage
of net sales and the percentage change represented by items reflected in the
Company's Consolidated Statement of Earnings.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES PERCENTAGE CHANGE
------------------------------------ ---------------------------
1995 TO 1994 TO
1996 1995 1994 1996 1995
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 122.4% 78.2%
Cost of goods sold................ 58.1 58.6 59.7 120.6 74.9
----- ----- -----
Gross profit...................... 41.9 41.4 40.3 124.9 83.1
Operating expenses
Selling and marketing.......... 13.7 15.4 17.2 98.8 59.2
General and administrative..... 4.7 4.8 5.8 119.9 48.4
Research and development....... 5.6 5.9 5.9 108.5 79.2
Purchased in-process technology 2.7 - - - -
Non-recurring merger costs..... - 3.3 - - -
----- ----- -----
Total operating expenses..... 26.7 29.4 28.9 102.5 81.6
Operating profit.................. 15.2 12.0 11.4 179.6 87.0
Interest income................... 0.4 0.8 0.4 9.4 490.0
Interest expense.................. 0.3 0.6 0.4 (8.6) 193.8
Other income (expense)............ - - (0.3) - -
----- ----- -----
Earnings before income taxes...... 15.3 12.2 11.1 177.2 96.7
Income tax expense................ 6.7 4.8 3.9 206.9 123.2
----- ----- -----
Net earnings...................... 8.6 7.4 7.2 157.8 82.6
===== ===== =====
</TABLE>
NET EARNINGS
Net earnings for 1996 were $170.0 million or $1.79 per share, compared with
$66.0 million or $0.77 per share and $36.1 million or $0.47 per share for 1995
and 1994, respectively. Year-to-year comparisons of net earnings were affected
by significant non-recurring charges.
Reflected in 1996 net earnings was a non-recurring charge of $54.0 million
for purchased in-process technology incurred in connection with the acquisition
of Scorpio Communications Ltd. ("Scorpio"). Reflected in 1995 net earnings were
non-recurring charges of $29.4 million associated with the merger with Megahertz
Holding Corporation ("Megahertz"). Excluding the effects of these items, net
earnings for 1996 would have been $224.0 million, an increase of 151% over the
corresponding 1995 total of $89.2 million, and net earnings per share for 1996
would have been $2.36, an increase of 125% over the corresponding 1995 level of
$1.05.
Factors contributing to the significant improvements in net earnings and
earnings per share are discussed below.
20
<PAGE> 21
NET SALES
Net sales increased 122% to $1,977.5 million for 1996 from $889.3 million
for 1995. This increase was primarily the result of higher unit sales in both
the PC-related product categories (primarily high speed desktop and PC Card
modems sold under the Courier, Sportster, Megahertz and Worldport brand names)
and the systems product category (network hubs, modem pools, remote access
servers and LAN switching products sold under the Total Control and TOTALswitch
brand names). An increase in the average selling price of PC-related products
also contributed to the increase in net sales during 1996.
In general, the increases in unit sales in all product categories were
driven by strong market demand for devices that enable on-line access to
information through computers and computer networks, which demand reflected
continued growth of available on-line information and trends in organizational
and personal computing patterns and capabilities. In the PC-related product
categories, demand reflected overall growth in the personal computer market and
increased numbers of personal computer users employing modems for data, voice
and fax communications. Also influencing demand was the desire of existing
modem users to upgrade their equipment to utilize the V.34 standard, a high
speed protocol for data transmission at 28.8 to 33.6 Kbps; unit sales of
V.34-compliant products exceeded those of V.32bis-compliant products (14.4 Kbps)
for the first time during the Company's 1996 first quarter. These same factors
also contributed to increased unit sales of the Company's systems products as
end users, including several Internet and on-line service providers, expanded
and upgraded their networks to support the increased demand for on-line
information and communication services.
Increased unit sales of V.34-compliant products was the primary cause for
the rise in the average selling price of PC-related products during 1996. In
the intensely competitive market for information access products, competitive
pressures drive reductions in selling prices as products move through the
product life cycle. The timing and significance of price reductions are
dependent upon a number of factors, including market acceptance of new products,
technological advances and price reductions on competing products. In 1996, the
Company experienced increased unit sales and relatively higher average selling
prices for its newer V.34-compliant products; however, these effects were partly
offset by significant declines in unit sales and average selling prices for
V.32bis-compliant products as these products approached the latter stages of
their life cycles.
Net sales of PC-related and systems products in 1996 increased by 108% and
156%, respectively, from the 1995 levels. As a result, net sales of systems
products increased slightly as a percentage of consolidated net sales. For
1996, net sales of the Total Control Enterprise Network Hub ("Total Control
Hub") products were approximately $400.0 million.
International sales, concentrated in Canada and Europe, increased by 125%
to $517.2 million in 1996 compared to $230.4 million in 1995. International
sales in 1996 represented approximately 26% of consolidated net sales. The
Company has significantly expanded its presence in international markets in
response to continued growth in market demand for information access products,
and has recently acquired or established new operations in Germany, Ireland,
Israel, Italy, Japan, The Netherlands, Spain and Sweden. By the end of 1996,
PC-related products had been homologated in 34 countries and systems products
had been homologated in 38 countries.
International sales are denominated in U.S. dollars and several foreign
currencies. The Company has no significant foreign currency contracts or other
investments in derivative instruments.
In 1995, net sales increased 78% to $889.3 million from $499.1 million in
1994. The increase resulted from higher unit sales in both the PC-related and
systems products categories, reflecting strong market demand for information
access products as discussed above. Partly offsetting the effects of higher
unit sales during 1995 were modest declines in average selling prices.
International sales increased 110% to $230.4 million or 26% of consolidated
net sales in 1995, compared to $109.5 million or 22% of consolidated net sales
in 1994. The increase resulted primarily from increased unit sales of high
speed modem products, most notably V.34-compliant products. Also, 1995 sales
volumes included the initial international shipments of Total Control Hub
products following the Company's establishment of a systems sales office in
the United Kingdom during the year.
21
<PAGE> 22
GROSS PROFIT
Gross profit was $828.1 million or 41.9% of net sales in 1996, compared to
$368.2 million or 41.4% of net sales in 1995. The increase in gross profit
dollar contribution was due primarily to significantly higher unit sales volumes
and the continuing shift to higher priced V.34-compliant products. The increase
in gross profit margin reflected increased sales of higher margin systems
products as a percentage of consolidated net sales, partly offset by lower gross
margins on certain PC Card products as a result of component shortages that
existed in the first half of 1996. In 1996, the gross profit margins on sales
of the Total Control Hub were approximately 60%.
Gross profit in 1995 was $368.2 million or 41.4% of net sales, compared to
$201.1 million or 40.3% of net sales in 1994. The increase in gross profit
margin was due primarily to proportionately higher sales of systems products,
which generate higher gross margins, and rapid market acceptance of new, higher
margin V.34-compliant modem products. Gross profit margins in 1995 also were
affected by declines in average selling prices, but these declines were offset
by reductions in component costs and the introduction of new, lower-cost product
architectures.
OPERATING EXPENSES
Selling and marketing expenses in 1996 were $271.6 million or 13.7% of net
sales, compared to $136.6 million or 15.4% of net sales in 1995 and $85.8
million or 17.2% of net sales in 1994. During both 1996 and 1995, the Company
increased spending for promotional programs designed to enhance demand for the
Company's product offerings, for continued development of technical support
programs and for recruiting and training of additional resellers, particularly
for systems products. In addition, the Company made substantial investments in
building its worldwide selling and marketing staff to take advantage of strong
demand for its products in international markets. During the 1996 fourth
quarter, the Company expanded its worldwide sales force by approximately 20%.
This commitment of resources is critical to expanding international sales of
systems products. Selling and marketing expenses decreased as a percentage of
net sales in each year due to the significant growth in sales and the semi-fixed
nature of some of these expenses.
General and administrative expenses in 1996 were $93.7 million or 4.7% of
net sales, compared to $42.6 million or 4.8% of net sales in 1995 and $28.7
million or 5.8% of net sales in 1994. The dollar increases in 1996 and 1995
were attributable primarily to expenses associated with additional
administrative staff, systems and outside professional and consulting services
necessary to support the Company's expanded level of business activity. General
and administrative expenses decreased as a percentage of net sales due to the
significant growth in sales and the semi-fixed nature of some of these expenses.
Research and development expenses in 1996 were $109.4 million or 5.6% of
net sales, compared to $52.5 million or 5.9% of net sales in 1995 and $29.3
million or 5.9% of net sales in 1994. The dollar increases from year-to-year
mainly resulted from increases in the size of the Company's engineering staff
and related costs to support its emphasis on product development. The Company
believes that continued investment in research and development activities is
critical to future sales growth and technological competitiveness.
In 1996, the Company acquired Scorpio to gain state-of-the-art capability
in Asynchronous Transfer Mode ("ATM") switching. The acquisition was accounted
for as a purchase. As described more fully in Note C to the Consolidated
Financial Statements, the fair market value of purchased in-process technology
was determined to be $54.0 million. This amount was expensed upon acquisition
during the Company's 1996 fourth quarter.
In 1995, in connection with the Megahertz acquisition, the Company recorded
non-recurring charges of $29.4 million, primarily related to (i) the write-down
of inventory and goodwill due to the elimination of overlapping product lines,
(ii) transaction costs and (iii) the consolidation of certain facilities and
personnel.
INCOME TAX EXPENSE
The provisions for income taxes were $131.9 million in 1996, $43.0 million
in 1995 and $19.2 million in 1994, resulting in effective tax rates for those
years of 43.7%, 39.5% and 34.8%, respectively. The higher rate in 1996 was due
mainly to the expensing of purchased in-process technology in connection with
the Scorpio acquisition with no corresponding tax benefit, due to uncertainty
regarding the benefit's realizability. The higher rate in 1995 was due mainly
to the
22
<PAGE> 23
tax treatment of certain non-recurring costs associated with the Megahertz
merger. Excluding the effects of the Scorpio and Megahertz items, the effective
tax rates for 1996 and 1995 would have been 37.1% and 35.6%, respectively. This
increase was attributable to reduced research and development tax credits as a
result of expiration of the enabling legislation.
OTHER
To date, inflation has not had a material impact on the Company's results
of operations.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities, excluding changes
in assets and liabilities................................. $248.8 $ 87.3 $ 41.1
Working capital, excluding the cash portfolio............... $400.1 $135.2 $127.7
Capital expenditures........................................ $189.0 $ 73.1 $ 34.5
Scorpio acquisition......................................... $ 71.8 - -
Net cash provided by financing activities................... $109.4 $157.2 $111.7
Availability under committed and uncommitted lines of
credit.................................................... $357.5 $ 75.0 $ 75.0
</TABLE>
Cash flows from operating activities, excluding changes in assets and
liabilities, increased to $248.8 million in 1996 from $87.3 million for 1995,
primarily due to the $1,088.2 million increase in net sales and the resultant
higher net earnings.
Excluding the cash portfolio, (cash, cash equivalents and marketable
securities), working capital was $400.1 million at September 29, 1996 compared
to $135.2 million at October 1, 1995. Increases in both accounts receivable and
inventories reflected significant growth in the sales of, and demand for, the
Company's products, including the hand-held and telephony products introduced
during 1996. The change in accounts receivable also was affected, to a greater
degree than in 1995, by significant product shipments late in the Company's
fourth quarter. The late shipments were primarily the result of two factors:
(i) the introduction of Sportster desktop products upgradeable to the Company's
new x2 technology beginning August 15; and (ii) shipments to customers of
PC-related products in anticipation of the holiday selling season.
The Company made significant investments during 1996 to expand its
manufacturing capability, physical plant and information systems. In 1996, the
Company increased to 31 the number of surface mount lines in its plants from
the 18 in place at the end of 1995. Also, during 1996: renovation of a 300,000
square foot office and manufacturing facility in Morton Grove, Illinois was
completed; construction of a 150,000 square-foot manufacturing facility in Salt
Lake City, Utah was completed; and renovation continued on a 650,000 square-foot
office and manufacturing facility in Mount Prospect, Illinois which the Company
leased in 1996 to house its Network Systems division. Capital expenditures were
$189.0 million in 1996 compared to $73.1 million in 1995. The Company expects to
spend significant additional amounts in 1997 for manufacturing equipment, for
the purchase and completion of renovation of the Mount Prospect facility, and
for additional office facilities and information systems to support its growth.
The Company also made significant cash investments during 1996 to acquire
technology. Scorpio was acquired in a cash transaction for $71.8 million and an
additional $12.0 million of cash was expended to acquire certain technology
licenses. The Company intends to pursue additional acquisitions and other
business alliances to further enhance its product offerings, markets and
technological capabilities, whenever such transactions are consistent with the
Company's overall strategic direction. Such transactions may or may not require
the use of cash.
Proceeds from the exercise of stock options by employees and issuances of
common stock under the Company's employee stock purchase plan totaled $22.2
million in 1996. Also, the Company realized the benefits of $54.5 million in
1996 in connection with the exercise of stock options by employees. The Company
had outstanding $32.5 million in short term borrowings under its $90 million of
uncommitted lines of credit at the end of 1996. In June 1997, the Company will
be required to make the first of five annual repayments of $12.0 million under
its 7.52% Unsecured Senior Notes (See Notes F and H to the Consolidated
Financial Statements).
23
<PAGE> 24
As indicated above, the Company expects to continue to make significant
investments in the future to support its overall growth. Currently, it is
anticipated that ongoing operations will be financed primarily from internally
generated funds. However, there are several factors that could affect the
Company's ability to generate cash from operations in 1997, including general
economic conditions, market competition, market acceptance of products
incorporating the x2 technology, and changes in working capital requirements.
Accordingly, to maintain its financial flexibility, the Company has arranged a
committed Multicurrency Credit Agreement with a group of banks which provides
for initial credit availability of $300 million and is expandable to $600
million under certain circumstances. As of December 29, 1996, there had been no
borrowings under this agreement (See Note H to the Consolidated Financial
Statements). The Company believes its anticipated cash flows from operations and
access to debt and equity markets will permit the financing of its business
requirements in an orderly manner for the foreseeable future.
FUTURE OPERATING RESULTS
The following discussion includes forward-looking statements regarding the
Company's future results of operations. Actual results may differ materially
from these statements.
The Company expects demand for all of its product lines to continue to grow
substantially in 1997 as worldwide requirements increase for highly integrated,
cost-effective, end-to-end information access solutions. The Company
anticipates that its sales of network systems products will continue over time
to grow at a more rapid rate than sales of its PC-related products. Continued
sales growth is expected to be driven by increases in unit sales of existing
products and by new product introductions, which will be offset in part by
anticipated future reductions in the average selling prices of existing products
as they progress through their life cycles.
The Company expects the markets it serves to continue to grow at rapid
rates during the next several years. The Company intends to continue investing
during 1997 in new technologies such as its new x2 high speed analog
downstream modem feature, wireless, LAN switching and broadband access,
including xDSL and cable, in order to be well-positioned to serve these markets
in the future.
The Company also expects to continue its historical strategy of building
share in the markets which it serves. The Company intends to continue to build
its sales force, with particular focus on expanding sales of its network systems
products domestically and internationally. Depending upon the growth in
revenues achieved, these investments, coupled with expenses related to the
launch of the Company's new x2 products, may cause selling and marketing
expenses in the first half of 1997 to represent a higher percentage of total
sales than in recent quarters.
The Company's ability to achieve its revenue and profitability objectives
in 1997 depend on many factors beyond the Company's control. These include the
market acceptance of x2 and other new products and features announced and
introduced by the Company and its competitors, and the extent to which the
Company is successful in implementing its ongoing strategy of continuously
improving the performance/cost characteristics of its products through improved
designs and manufacturing efficiencies. Other factors include rapid changes in
technologies and standards relating to information access and
telecommunications.
The foregoing forward-looking statements involve a number of risks and
uncertainties. In addition to the factors discussed above, among the other
factors that could cause actual results to differ materially are the following:
changes in business conditions and growth trends affecting the Company's
products and markets, the personal computer and telecommunications industries
and the economy in general; continuing availability of key components and
technologies at competitive prices; a variety of other competitive factors such
as price reductions by the Company and its competitors and resulting effects on
market shares; changes in consumer and business purchasing patterns; and the
Company's merger and acquisition activities, including its success in
integrating businesses it has acquired and the amounts of any non-recurring
charges related to such activities.
Because of the foregoing uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance. The use of historical trends to anticipate
results or trends in future periods may be inappropriate. In addition, the
Company's participation in a highly dynamic industry often results in
significant volatility in the price of the Company's common stock.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Listed below are the financial statements included in this part of the
Registrant's Annual Report on Form 10-K:
(a) Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......................... 26
Consolidated Statement of Earnings.......................................... 27
Consolidated Balance Sheet.................................................. 28
Consolidated Statement of Stockholders' Equity.............................. 29
Consolidated Statement of Cash Flows........................................ 30
Notes to Consolidated Financial Statements.................................. 31
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
U.S. Robotics Corporation
We have audited the accompanying consolidated balance sheet of U.S.
Robotics Corporation and Subsidiaries as of September 29, 1996 and October 1,
1995, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years in the three-year period ended September
29, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of U.S. Robotics
Corporation and Subsidiaries as of September 29, 1996 and October 1, 1995, and
their consolidated results of operations and consolidated cash flows for each of
the years in the three-year period ended September 29, 1996, in conformity with
generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Grant Thornton LLP
Chicago, Illinois
November 4, 1996
26
<PAGE> 27
U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
FISCAL YEARS 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $1,977,512 $889,347 $499,075
Cost of goods sold......................................... 1,149,446 521,159 297,992
---------- -------- --------
Gross profit............................................... 828,066 368,188 201,083
Operating expenses
Selling and marketing.................................... 271,585 136,585 85,799
General and administrative............................... 93,717 42,614 28,734
Research and development................................. 109,437 52,478 29,284
Purchased in-process technology......................... 54,000 - -
Non-recurring merger costs............................... - 29,449 -
---------- -------- --------
Total operating expenses............................... 528,739 261,126 143,817
Operating profit........................................... 299,327 107,062 57,266
Interest income............................................ 8,424 7,700 1,305
Interest expense........................................... 4,995 5,465 1,860
Other income (expense)..................................... (866) (377) (1,342)
---------- -------- --------
Earnings before income taxes........................... 301,890 108,920 55,369
Income tax expense......................................... 131,870 42,969 19,248
---------- -------- --------
Net earnings............................................... $ 170,020 $ 65,951 $ 36,121
========== ======== ========
Net earnings per share.................................... $ 1.79 $ .77 $ .47
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE> 28
U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 29, OCTOBER 1,
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................. $ 16,814 $136,803
Marketable securities................................................. - 96,000
Accounts receivable, less allowances of $11,573
and $7,354 in 1996 and 1995, respectively .......................... 490,040 168,365
Inventories........................................................... 185,855 103,032
Deferred income taxes................................................. 45,493 22,373
Prepaid expenses and other current assets............................. 12,407 7,739
---------- --------
Total current assets................................................ 750,609 534,312
PROPERTY, PLANT AND EQUIPMENT - NET..................................... 276,591 117,156
OTHER ASSETS............................................................ 40,083 8,155
---------- --------
$1,067,283 $659,623
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations........................... $ 12,174 $ 249
Short-term obligations................................................ 32,500 -
Accounts payable...................................................... 130,959 78,386
Accrued liabilities................................................... 138,747 78,171
Income taxes payable.................................................. 19,324 9,525
---------- --------
Total current liabilities........................................... 333,704 166,331
LONG-TERM OBLIGATIONS................................................... 54,044 65,651
DEFERRED INCOME TAXES................................................... 7,665 3,246
STOCKHOLDERS' EQUITY
Preferred stock - $.01 par value; 10,000,000 shares
authorized; issuable in series, none issued........................ - -
Common stock - $.01 par value; 250,000,000 shares authorized;
88,171,420 shares and 84,386,396 shares outstanding in 1996 and 1995,
respectively............................................ 882 422
Additional contributed capital....................................... 356,265 273,939
Retained earnings.................................................... 312,492 148,617
---------- --------
669,639 422,978
Cumulative translation adjustment and other.......................... 2,231 1,417
---------- --------
Total stockholders' equity......................................... 671,870 424,395
---------- --------
$1,067,283 $659,623
========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 29
U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL TRANSLATION TOTAL
COMMON CONTRIBUTED RETAINED ADJUSTMENT STOCKHOLDERS'
STOCK CAPITAL EARNINGS AND OTHER EQUITY
----- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 1, 1993 $173 $ 96,934 $ 52,348 $ (470) $148,985
Issuances under stock option
and purchase plans.......... 6 1,698 - - 1,704
Tax benefits relating to the
exercise of stock options... - 6,928 - - 6,928
Foreign currency translation
adjustments................. - - - 1,979 1,979
Net earnings................. - - 36,121 - 36,121
---- -------- ------- ------ --------
BALANCE AT OCTOBER 2, 1994 179 105,560 88,469 1,509 195,717
Adjustment to conform fiscal
year end of Megahertz...... - - 2,271 - 2,271
Sale of common stock in a
public offering............ 15 123,038 - - 123,053
Issuances under stock option
and purchase plans......... 10 9,082 - - 9,092
Tax benefits relating to the
exercise of stock options.. - 28,873 - - 28,873
Issuance of stock in
connection with
acquisitions............... 10 7,386 (7,866) - (470)
Stock split.................. 208 - (208) - -
Foreign currency translation
adjustments and other...... - - - (92) (92)
Net earnings................. - - 65,951 - 65,951
---- -------- ------- ------ --------
BALANCE AT OCTOBER 1, 1995 422 273,939 148,617 1,417 424,395
Issuances under stock option
and purchase plans......... 18 22,142 - - 22,160
Tax benefits relating to the
exercise of stock options.. - 54,460 - - 54,460
Issuance of stock in
connection with
acquisitions............... 3 6,001 (5,706) - 298
Stock split.................. 439 - (439) - -
Foreign currency translation
adjustments and other...... - (277) - 814 537
Net earnings................. - - 170,020 - 170,020
---- -------- ------- ------ --------
BALANCE AT SEPTEMBER 29, 1996 $882 $356,265 $312,492 $2,231 $671,870
==== ======== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 30
U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEARS 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................................ $ 170,020 $ 65,951 $ 36,121
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Adjustment to conform fiscal year end cash
of Megahertz........................................ - 3,288 -
Merger related asset write-downs...................... - 16,361 -
Purchased in-process technology....................... 54,000 - -
Depreciation and amortization......................... 30,464 14,164 8,873
Deferred income taxes................................. (18,701) (12,551) (4,519)
Loss on disposal of property and equipment............ 41 484 671
Other................................................. 12,985 (394) (81)
Changes in assets and liabilities (net of
effects of acquisitions):
Accounts receivable................................. (327,266) (69,644) (32,668)
Inventories......................................... (91,654) (34,675) (28,344)
Prepaid expenses and other current assets........... (5,978) (4,241) (2,274)
Accounts payable.................................... 53,338 60,087 (21,246)
Accrued liabilities................................. 61,106 48,868 18,488
Income taxes payable................................ 9,964 (3,675) 7,310
--------- --------- --------
Net cash provided (used) by operating
activities...................................... (51,681) 84,023 (17,669)
Cash flows from investing activities:
Purchases of marketable securities...................... (175,898) (88,945) (78,025)
Sales and maturities of marketable securities........... 271,898 1,873 75,492
Capital expenditures.................................... (189,010) (73,085) (34,474)
Acquisition of subsidiary............................... (71,840) - -
Payments for technology licenses........................ (12,000) - (5,836)
Other - net............................................. 261 (288) (626)
--------- --------- --------
Net cash used by investing activities............ (176,589) (160,445) (43,469)
Cash flows from financing activities:
Borrowings (repayments) under short-term obligations -
net................................................... 32,500 - (1,729)
Borrowings under long-term obligations.................. 743 - 70,000
Repayments of long-term obligations..................... (441) (3,802) (471)
Issuance of common stock including tax benefits
relating to the exercise of stock options............. 76,620 161,018 43,863
--------- --------- --------
Net cash provided by financing activities......... 109,422 157,216 111,663
Effect of exchange rate changes on cash and cash
equivalents............................................. (1,141) (2,277) 1,482
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (119,989) 78,517 52,007
Cash and cash equivalents at beginning of year............ 136,803 58,286 6,279
--------- --------- --------
Cash and cash equivalents at end of year.................. $ 16,814 $ 136,803 $ 58,286
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 31
U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A - BASIS OF PRESENTATION
U.S. Robotics Corporation ("USR") was organized to effect a corporate
reorganization of U.S. Robotics, Inc. ("Robotics") whereby Robotics became, on
February 22, 1995, a wholly owned subsidiary of a new publicly held parent
corporation, USR. All of the outstanding shares of Robotics at the time of the
reorganization were converted into an equal number of USR shares. Following the
reorganization, the stockholders of USR had the same voting, dividend and
liquidation rights they had as stockholders of Robotics. In conjunction with the
reorganization, Robotics' name was changed to U.S. Robotics Access Corp.
("Access"). USR and its subsidiaries, all of which are wholly owned, are
collectively referred to as the "Company."
On February 22, 1995, the stockholders of Robotics and shareholders of
Megahertz Holding Corporation ("Megahertz") each approved and adopted a plan of
merger which resulted in Megahertz becoming a wholly owned subsidiary of USR.
All of the outstanding shares of Megahertz were converted into shares of USR.
The merger has been accounted for as a pooling of interests and, accordingly,
the accompanying financial statements have been restated to include the accounts
and operations of Megahertz for all periods prior to the merger (See Note C).
Effective October 3, 1994, Megahertz's fiscal year end (previously June 30)
was conformed to agree with that of USR. Accordingly, Megahertz's net earnings
for the three months ended September 30, 1994, were credited to retained
earnings as of October 3, 1994. Megahertz's net sales and earnings for that
period were $30,191 and $2,271, respectively.
The Company acquired ISDN Systems Corporation ("ISC"), Palm Computing,
Inc.("Palm") and Amber Wave Systems, Inc. ("Amber Wave") on August 21, 1995,
September 1, 1995 and February 29, 1996, respectively. These transactions were
accounted for by the pooling of interests method; however, since the historical
operations of ISC, Palm and Amber Wave prior to the dates of combination were
not material to the Company's consolidated financial position or results of
operations, financial statements for periods prior to the dates of combination
have not been restated (See Note C).
On August 29, 1996, the Company acquired Scorpio Communications Ltd.
("Scorpio"). The acquisition was accounted for by the purchase method;
accordingly, Scorpio's results of operations since the date of acquisition have
been included in the accompanying financial statements (See Note C).
On August 10, 1995, the Company's Board of Directors authorized a
two-for-one stock split in the form of a 100% stock dividend distributed on
September 8, 1995 to all stockholders of record as of August 25, 1995. Further,
on April 12, 1996, the Company's Board of Directors authorized a two-for-one
stock split in the form of a 100% stock dividend distributed on May 10, 1996 to
all stockholders of record as of April 25, 1996. All references to share and
per share data have been restated to reflect these stock splits.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION. The consolidated financial statements include the
accounts of USR and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
FISCAL YEAR. The fiscal year of the Company ends on the Sunday nearest September
30. All references herein to "1996", "1995" and "1994" mean the fiscal years
ended September 29, 1996, October 1, 1995 and October 2, 1994, respectively.
Quarterly financial results are based upon a 13-week reporting period.
ESTIMATES IN FINANCIAL STATEMENTS. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and
31
<PAGE> 32
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Revenue is recognized when a product is shipped and title
transfers to the customer. Provisions for cash discounts, returns and warranty
costs are recorded in the period the sale is reported, based on experience.
RESEARCH AND DEVELOPMENT. Research and development costs, other than certain
software development costs, are expensed as incurred.
INCOME TAXES. Income taxes are accounted for using the assets and liability
method under which deferred income taxes are recognized for the estimated tax
consequences of temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities. Provision has not been
made for deferred U.S. income taxes on the undistributed earnings of foreign
subsidiaries since these earnings are intended to be permanently invested.
NET EARNINGS PER SHARE. Net earnings per share are based on the weighted
average number of common and common equivalent shares outstanding during the
period. Stock options are considered to be common equivalent shares.
FINANCIAL INSTRUMENTS. The carrying value of financial instruments
approximates their estimated fair values based upon quoted market prices.
CASH EQUIVALENTS. All highly liquid debt instruments with a maturity of ninety
days or less at the time of acquisition are considered to be cash equivalents.
MARKETABLE SECURITIES. Investments in marketable securities are classified into
one of three categories: held-to-maturity, trading or available-for-sale. At
September 29, 1996, the Company held no investments in marketable securities. At
October 1, 1995, substantially all of the Company's investments were notes and
obligations of the U.S. government and certain of its agencies and were
classified as available-for-sale. Investments in marketable securities
available for sale are carried at fair value, with unrealized gains and losses,
net of tax, reflected in stockholders' equity. Realized gains and losses on the
sales of such investments are determined using the specific identification
method.
INVENTORIES. Inventories are stated at the lower of cost or market value. Cost
is determined by the first-in, first-out method. The elements of cost include
materials, direct labor, factory overhead and outside processing charges.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost.
Depreciation and amortization are calculated generally using the straight-line
method over the estimated service lives of the assets (generally 5 to 31.5
years). Leasehold improvements are amortized on a straight-line basis over the
period of the lease or the estimated service lives of the improvements,
whichever is shorter.
OTHER ASSETS. Other assets include intangibles such as goodwill, capitalized
software development costs, and licensing arrangements.
Goodwill represents the unamortized cost in excess of fair value of net assets
acquired and is amortized on a straight-line basis over the periods estimated to
be benefited, currently not exceeding ten years. The Company capitalizes certain
development costs of software included in hardware products after technological
feasibility has been established. These costs are amortized over the estimated
revenue producing lives of the related products, commencing upon general release
to the market and continuing over two to five years. The costs of purchased
software are capitalized if related to a product that has achieved technological
feasibility or if an alternative future use exists. Such costs are amortized
over their estimated economic lives. Other acquired intangible assets are
recorded at cost and are amortized using the straight-line method over their
estimated economic lives, currently not exceeding 10 years.
On an ongoing basis, the Company evaluates the carrying values and amortization
rates for goodwill and other intangible assets. As a result of the Megahertz
merger, the Company determined that goodwill pertaining to certain prior
acquisitions had been impaired and, accordingly, recorded an adjustment to
reflect such goodwill at its estimated recoverable value (See Note C).
32
<PAGE> 33
STOCK BASED COMPENSATION. In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123 encourages but does not require adoption of a fair value method of
accounting for stock options; for those entities which do not elect to adopt the
fair value method, the new standard requires supplemental disclosures regarding
the pro-forma effects of that method. SFAS No. 123 is effective for the
Company's 1997 fiscal year. At this time, the Company expects to provide only
the supplemental disclosures as permitted by SFAS No. 123; consequently, the new
standard is not expected to have any impact on the Company's results of
operations or financial position.
FOREIGN CURRENCY TRANSLATION. The functional currency for the majority of the
Company's foreign subsidiaries is the local currency.
RECLASSIFICATION. Certain 1995 and 1994 amounts have been reclassified to
conform to the 1996 basis of presentation.
NOTE C - BUSINESS COMBINATIONS
On February 22, 1995, the Company consummated a business combination with
Megahertz, a company engaged in the design, manufacture, marketing and support
of mobile information access products. The Company issued approximately
24,748,000 shares of its common stock in exchange for all of the outstanding
shares of common stock of Megahertz. The Megahertz merger has been accounted for
as a pooling of interests and, accordingly, the accompanying financial
statements have been restated to include the accounts and operations of
Megahertz for all periods presented.
As a direct result of the Megahertz merger, the Company recorded a
non-recurring charge totaling $29,449 during 1995. The components of the
non-recurring charge are as follows:
<TABLE>
<S> <C>
Consolidation of overlapping product lines:
Write-down of inventory.................................................... $ 9,961
Write-down of goodwill..................................................... 4,712
Transaction costs (financial advisory, legal, accounting, tax and other).... 5,961
Personnel related costs..................................................... 3,304
Excess facilities costs..................................................... 3,081
Other....................................................................... 2,430
-------
$29,449
=======
</TABLE>
Further, as a result of the Megahertz merger, it was determined that a portion
of the Company's existing inventory and goodwill had been impaired; therefore,
the Company wrote down inventory and goodwill to their respective net
realizable values.
In the fourth quarter of 1995, the Company issued approximately 1,022,000
and 1,246,000 shares of its common stock in exchange for all of the outstanding
capital shares of ISC and Palm, respectively. ISC develops technology related to
ISDN and Frame Relay-based client and server products. Palm develops hand-held
computing devices and related operating systems and applications software. Each
of these transactions has been accounted for as a pooling of interests. Because
the aggregated historical operations of ISC and Palm prior to the dates of
combination were not material to the Company's consolidated results of
operations and financial position, prior period financial statements have not
been restated.
On February 29, 1996, the Company issued approximately 694,000 shares of
its common stock in exchange for all of the outstanding capital stock of Amber
Wave. Amber Wave develops technology related to LAN switching products. The
transaction was accounted for as a pooling of interests. Since the aggregated
historical operations of Amber Wave prior to the date of combination were not
material to the Company's consolidated results of operations and financial
position, prior period financial statements have not been restated.
On August 29, 1996, the Company completed the acquisition of Scorpio.
Scorpio designs, manufactures and sells scaleable, fully redundant,
fault-tolerant ATM switches that target workgroup local area network (LAN),
corporate backbone and wide area network (WAN) access environments. The
aggregate purchase price of approximately $74,532, including direct costs of
acquisition, was financed primarily through available cash resources and
proceeds from short-term borrowings. Approximately $5,400 of the purchase price
is being held in escrow for a period of one year from the
33
<PAGE> 34
date of acquisition to indemnify the Company against losses resulting from
breach of representations and warranties or other unforeseen circumstances.
The acquisition has been accounted for as a purchase and, accordingly,
Scorpio's results of operations have been included in the consolidated financial
statements since the date of acquisition. The Company engaged a nationally
recognized appraisal firm to perform a valuation analysis to serve as a basis of
the allocation of the purchase price. Based on the results of the analysis, the
Company allocated the total purchase price as follows:
<TABLE>
<CAPTION>
<S> <C>
Tangible and identifiable intangible net assets........................ $ 750
Developed technology................................................... 16,000
In-process technology.................................................. 54,000
Goodwill............................................................... 3,782
-------
$74,532
=======
</TABLE>
The valuation of the developed and in-process technologies was accomplished
through the application of an income approach. The fair value of the purchased
developed technology was determined to be $16,000. This amount has been
recorded as capitalized software development costs and is being amortized on a
straight-line basis over ten years. The fair value of the purchased in-process
technology was determined to be $54,000. This amount was expensed upon
acquisition. Goodwill of $3,782 represents the excess of purchase price over
net assets acquired and is being amortized over ten years.
The following unaudited pro forma information has been prepared assuming
that Scorpio had been acquired as of the beginning of each of the years
presented.
<TABLE>
<CAPTION>
1996 1995
---------- ---------
(Unaudited)
<S> <C> <C>
Net sales.................................................................. $1,977,873 $889,347
Net earnings .............................................................. $ 215,014 $ 59,707
Net earnings per share..................................................... $ 2.26 $ .70
</TABLE>
The pro forma information excludes the charge of $54,000 for purchased
in-process technology which was expensed upon acquisition as discussed above.
Further, the pro forma information does not purport to be indicative of the
results that would have occurred had the acquisition been in effect for the
periods presented, nor does it purport to be indicative of the results to be
obtained in the future.
NOTE D - CASH FLOW INFORMATION
The Consolidated Statement of Cash Flows provides information concerning
changes in cash and cash equivalents. Net cash flows from operating activities
reflect cash payments for interest and income taxes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest paid.................................................. $ 4,969 $ 5,038 $ 704
Income taxes paid.............................................. $85,603 $29,844 $10,008
</TABLE>
NOTE E - BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Inventories
Finished products................................................ $116,802 $ 32,688
Work-in-process................................................. 12,654 21,373
Raw materials.................................................... 56,399 48,971
-------- --------
$185,855 $103,032
======== ========
</TABLE>
Allowances for potentially excess or obsolete inventories resulting from
changing market conditions were $17,587 and $8,621 at the end of 1996 and 1995,
respectively.
34
<PAGE> 35
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Property, plant and equipment
Land and buildings................................................ $ 79,206 $ 45,077
Leasehold improvements............................................ 22,506 -
Computer, test and factory equipment.............................. 206,547 87,844
Furniture and fixtures............................................ 27,698 14,202
-------- --------
335,957 147,123
Less accumulated depreciation and amortization.................... 59,366 29,967
-------- --------
$276,591 $117,156
======== ========
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C>
Other assets
Goodwill......................................................... $ 12,650 $ 9,204
Capitalized software development costs, including purchased
developed technology............................................ 16,697 -
Other acquired intangibles........................................ 16,044 5,500
-------- --------
45,391 14,704
Less accumulated amortization..................................... 9,143 7,948
-------- --------
36,248 6,756
Other ..................................... ...................... 3,835 1,399
-------- --------
$ 40,083 $ 8,155
======== ========
Accrued Liabilities
Employee compensation and benefits ............................... $ 39,639 $18,701
Marketing expenses................................................ 45,111 24,257
Warranty costs.................................................... 17,228 5,373
Taxes other than income taxes..................................... 3,873 2,831
Merger related costs.............................................. - 6,066
Other............................................................. 32,896 20,943
-------- --------
$138,747 $78,171
======== ========
</TABLE>
NOTE F - SHORT-TERM BORROWINGS
The Company has uncommitted lines of credit totaling $90,000 from
commercial banks. These lines do not have termination dates but are reviewed
annually for renewal. As of September 29, 1996, short-term borrowings under
these lines totaled $32,500 at an average annual interest rate of 5.6 percent.
There were no borrowings under the uncommitted lines of credit during 1995.
NOTE G - INCOME TAXES
The components of earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
United States.................................................. $324,705 $109,529 $54,847
Foreign........................................................ (22,815) (609) 522
-------- -------- -------
$301,890 $108,920 $55,369
======== ======== =======
</TABLE>
Income tax expense (benefit) consists of the following:
<TABLE>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current
Federal...................................................... $117,723 $44,394 $18,598
State........................................................ 20,635 7,376 4,360
Foreign...................................................... 12,213 3,750 809
Deferred....................................................... (18,701) (12,551) (4,519)
-------- ------- -------
$131,870 $42,969 $19,248
======== ======= =======
</TABLE>
36
<PAGE> 37
The components of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward.......................................... $5,032 $2,684
Accrued liabilities
Marketing expenses..................................................... 10,062 5,993
Employee compensation and benefits..................................... 3,571 1,858
Warranty costs......................................................... 6,042 1,993
Merger costs........................................................... - 2,365
Other.................................................................. 3,896 343
Inventories.............................................................. 5,428 3,991
Accounts receivable...................................................... 16,584 5,830
------------ -------------
50,615 25,057
Valuation allowance...................................................... (2,719) (2,684)
------------ -------------
47,896 22,373
Deferred tax liabilities
Property, plant and equipment............................................ (9,014) (3,102)
Other assets............................................................. (1,054) (144)
------------ -------------
(10,068) (3,246)
------------ -------------
Total temporary differences.............................................. $37,828 $19,127
============ =============
</TABLE>
The valuation allowance primarily relates to net operating loss
carryforwards and tax credits generated by certain Company subsidiaries which
the Company has not determined to be more likely than not to be realizable at
this time.
The Company's effective tax rate varied from the U.S. Federal income tax
rate for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
U.S. Federal income tax rate......................................... 35.0% 35.0% 35.0%
State income tax - net of federal income tax benefit................. 3.0 4.1 4.9
Incremental research credit.......................................... (0.5) (1.5) (3.7)
Tax exempt interest.................................................. (0.2) - (0.2)
Foreign sales corporation............................................ (0.8) (1.4) (1.6)
Non-deductible expenses.............................................. 0.4 3.7 -
Purchased in-process technology...................................... 6.6 - -
Other - net.......................................................... 0.2 (0.4) 0.4
----- ------ ------
43.7% 39.5% 34.8%
===== ====== ======
</TABLE>
The exercise by employees of certain stock options results in a current
tax benefit for the Company, equivalent to the applicable tax rate multiplied
by the difference between the market price at the date of exercise and the
option price. The current tax benefit is not recognized as a reduction of
income tax expense, but rather is credited directly to additional contributed
capital. Tax benefits of $54,460, $28,873 and $6,928 associated with the
exercise of employee stock options were credited to additional contributed
capital in 1996, 1995 and 1994, respectively.
Provision has not been made for deferred U.S. income taxes on
undistributed earnings of foreign subsidiaries totaling $36,275 since those
earnings are intended to be permanently invested. It is not practicable to
estimate the income tax liability that might be incurred upon the remittance of
such earnings.
37
<PAGE> 38
NOTE H - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
7.52% Unsecured Senior Notes................................................. $60,000 $60,000
8.61% Secured Note........................................................... 4,881 4,944
Other........................................................................ 1,337 956
---------- ----------
66,218 65,900
Less current maturities...................................................... 12,174 249
---------- ----------
$54,044 $65,651
========== ==========
</TABLE>
On July 7, 1994, the Company arranged a private placement of $60,000 in
7.52% Unsecured Senior Notes with three insurance companies. The notes are
payable in five equal annual installments beginning in June 1997.
On September 12, 1996, the Company replaced an existing unsecured $50,000
line of credit with a new unsecured $300,000 Multicurrency Credit Agreement with
a group of banks. This facility will expire on September 12, 1999, but contains
provisions providing for extensions on an annual basis. Also, the revolving
credit commitment under the facility is expandable to $600,000 under certain
terms and conditions. Commitment fees vary depending upon the Company's
leverage ratio, as defined; currently, fees are payable at 0.1 % per annum on
the total commitment. Borrowings under the facility bear interest at one of
several specified floating rates, as selected by the Company at the time of
borrowing. At September 29, 1996, there were no outstanding borrowings under
this facility.
The terms of the Unsecured Senior Notes and Multicurrency Credit Agreement
include various covenants which, among other things, restrict dividend payments
and require the Company to maintain certain financial ratios with respect to
tangible net worth, interest coverage and maximum debt levels. The Company was
in compliance with such covenants through September 29, 1996.
Principal payments due under long-term obligations are as follows: 1997,
$12,174; 1998, $12,337; 1999, $12,429; 2000, $12,746; 2001, $13,184; thereafter,
$3,348.
NOTE I - COMMITMENTS
In November 1995, the Company entered into an operating lease for an office
and manufacturing facility in Mount Prospect, Illinois. The operating lease
provides for an initial term of fifteen years and three additional five year
renewal options, as well as an option to purchase the facility in January, 1997
for approximately $14,200. The Company has provided notice of its intention to
exercise the purchase option.
The Company leases certain other equipment and office and manufacturing
facilities under operating leases which expire through 2020. Future annual
minimum lease payments under such non-cancelable operating leases are as
follows: 1997, $7,646; 1998, $11,190; 1999, $11,190; 2000, $10,199; 2001,
$10,285; thereafter, $47,127.
Total rent expense associated with operating leases for 1996, 1995 and 1994
amounted to approximately $3,347, $1,773 and $1,107, respectively.
NOTE J - STOCKHOLDERS' EQUITY
In June 1995, the Company completed a public offering involving the
issuance and sale by the Company of 6,000,000 shares of its common stock,
resulting in net proceeds to the Company of $123,053.
On August 10, 1995, the Company's Board of Directors approved a two-for-one
split of the Company's common stock in the form of a 100% stock dividend payable
to stockholders of record as of August 25, 1995. On September 8, 1995,
20,758,095 shares were issued to effect the stock split.
On March 7, 1996, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's common stock to 250,000,000 shares and preferred stock
to 10,000,000 shares.
38
<PAGE> 39
On April 12, 1996, the Company's Board of Directors approved a two-for-one
split of the Company's common stock in the form of a 100% stock dividend payable
to stockholders of record as of April 25, 1996. On May 10, 1996, 43,791,954
shares were issued to effect the stock split.
Effective May 9, 1996, the Board of Directors of the Company approved the
replacement of its stockholder rights plan with a new stockholder rights plan.
Under the new plan, stockholders have certain rights to purchase Series B Junior
Participating Preferred Stock, par value $.01 per share ("Series B Junior
Preferred"), under certain circumstances, including the event of unsolicited
attempts to acquire a controlling interest in the Company. Each right, when
exercisable, will entitle the holder to purchase from the Company one
one-hundredth of a share of Series B Junior Preferred at a price of $500.00 or,
in certain circumstances, such right will entitle the holder, other than an
acquiring person, to receive, upon exercise at the then current exercise price
of the right, common stock of the Company (or, in certain circumstances, cash,
property or other securities of the Company) having a value equal to two times
the exercise price of the right. Of the 10,000,000 preferred shares the Company
is authorized to issue, 2,500,000 shares have been designated Series B Junior
Preferred. The Series B Junior Preferred has certain dividend, voting and
liquidation preferences. No preferred shares have been issued.
NOTE K - STOCK OPTIONS
Coincident with the February 1995 corporate reorganization, options granted
under the Executive Officer and Director Stock Option Plan of USR and the Key
Employee Stock Option Plan of USR were substituted for options granted under
previous Robotics and Megahertz stock option plans and such stock option plans
were terminated.
On March 7, 1996, the Company's shareholders approved the adoption of
amended and restated Executive Officers and Directors Stock Option and Key
Employee Stock Option Plans. On June 27, 1996, the Company's Board of Directors
approved The Agreement for Exchange of Shares ("The Agreement") for the
acquisition of Scorpio. Contained in the agreement was a provision for the
establishment of the 1996 Stock Option Plan for Israeli Employees. The 1996
Stock Option Plan for Israeli Employees was adopted on July 1, 1996.
The Executive Officer and Director Stock Option Plan, as amended and
restated in 1996, provides for options to be granted to employees of the Company
and others, including, but not limited to, directors and executive officers who
are subject to the reporting requirements of Section 16 of the Securities
Exchange Act of 1934. The Key Employee Stock Option Plan, as amended and
restated in 1996, provides for options to be granted to key employees other than
such executive officers and directors. The 1996 Stock Option Plan for Israeli
Employees provides for options to be granted to key employees of the Company who
are residents of Israel.
The Stock Option and Compensation Committee of the Board of Directors,
which consists of two outside directors, determines, within limits set forth in
the Company's stock option plans, the term of each option, the option exercise
price, the number of shares subject to each option and the times at and
conditions under which each option is or becomes exercisable (generally in equal
annual installments over five years following the date of grant). On March 7,
1996, the Company's stockholders approved an increase of 2,000,000 to the
number of shares subject to the Key Employee Stock Option Plan. The Company has
reserved 18,000,000, 14,400,000, and 328,000 shares for issuance under the
Executive Officer and Director Stock Option Plan, the Key Employee Stock Option
Plan, and the 1996 Stock Option Plan for Israeli Employees, respectively. The
expiration date of the Executive Officer and Director Stock Option Plan and the
Key Employee Stock Option Plan is December 31, 2004. The expiration date of the
1996 Stock Option Plan for Israeli Employees is June 30, 2006. Under the
Company's stock option plans, options for 23,620,758 shares have been granted
with exercise prices ranging from $.09 to $98.63 per share.
In connection with the acquisitions of Amber Wave and Scorpio, the Company
substituted options for a total of 97,122 shares under the Key Employee Stock
Option Plan for outstanding options under the acquired companies' plans.
39
<PAGE> 40
Changes in options outstanding under all Plans in 1994, 1995 and 1996 are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER OF
OPTIONS OUTSTANDING EXERCISE PRICE
------------------- ----------------
October 1, 1993................................ 11,950,728 $ 0.09 to $10.00
Granted........................................ 5,701,604 $ 4.95 to $13.70
Canceled....................................... (485,588) $ 0.56 to $ 8.07
Exercised...................................... (2,170,960) $ 0.09 to $ 8.52
----------
October 2, 1994................................ 14,995,784 $ 0.09 to $13.70
Granted........................................ 5,280,084 $ 7.78 to $42.75
Canceled....................................... (340,562) $ 5.09 to $13.70
Exercised...................................... (4,271,258) $ 0.09 to $13.70
----------
October 1, 1995................................ 15,664,048 $ 0.09 to $42.75
Granted........................................ 4,904,182 $35.18 to $98.63
Canceled....................................... (461,482) $ 0.59 to $95.75
Exercised...................................... (3,021,287) $ 0.09 to $42.75
----------
September 29, 1996............................. 17,085,461 $ 0.09 to $98.63
==========
</TABLE>
At September 29, 1996, options to purchase 4,924,353 shares were
exercisable at prices ranging from $0.09 to $42.75.
NOTE L - EMPLOYEE STOCK PURCHASE PLAN
On February 22, 1995, USR stockholders approved the establishment of the
U.S. Robotics Corporation Employee Stock Purchase Plan (the "ESPP") to replace
the existing Robotics and Megahertz Employee Stock Purchase Plans. Under the
ESPP, employees meeting certain eligibility requirements may elect to use up to
ten percent of their compensation to purchase USR's common stock at a purchase
price equal to 85% of the fair market value of the stock at the beginning or end
of each offering period, whichever is lower. Executive officers of the Company
are not eligible to participate in the ESPP. Under the ESPP, the Company
reserved for issuance a total of 2,000,000 shares. Under the stock purchase
plans, 69,372, 106,640 and 91,734 shares were issued in fiscal 1996, 1995 and
1994, respectively. An additional 20,477 shares were distributable at September
29, 1996.
40
<PAGE> 41
NOTE M - SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment, the manufacture and sale of
information access products. These products are used in a wide range of
industries and businesses and are sold both directly to end users and through
various distribution networks in the United States and internationally.
Information about the Company's operations in different geographic areas is
shown below.
<TABLE>
<CAPTION>
UNITED
STATES EUROPE ELIMINATIONS CONSOLIDATED
-----------------------------------------------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated customers........ $1,664,737 $312,775 $ - $1,977,512
Transfers between geographic areas..... 181,595 - (181,595) -
-----------------------------------------------------
Total net sales.................... $1,846,332 $312,775 $(181,595) $1,977,512
Operating profit....................... $ 259,493 $ 45,165 $ (5,331) $ 299,327
Identifiable assets.................... $ 967,862 $150,461 $ (51,040) $1,067,283
1995
Sales to unaffiliated customers........ $ 751,357 $137,990 $ - $ 889,347
Transfers between geographic areas..... 81,498 - (81,498) -
-----------------------------------------------------
Total net sales.................... $ 832,855 $137,990 $ (81,498) $ 889,347
Operating profit....................... $ 108,020 $ 766 $ (1,724) $ 107,062
Identifiable assets.................... $ 624,099 $ 65,728 $ (30,204) $ 659,623
1994
Sales to unaffiliated customers........ $ 433,885 $ 65,190 $ - $ 499,075
Transfers between geographic areas..... 35,347 - (35,347) -
-----------------------------------------------------
Total net sales.................... $ 469,232 $ 65,190 $ (35,347) $ 499,075
Operating profit....................... $ 55,671 $ 730 $ 865 $ 57,266
Identifiable assets.................... $ 298,443 $ 51,772 $ (26,938) $ 323,277
</TABLE>
Transfers between geographic areas represent intercompany sales made at
established transfer prices. Export sales from the Company's U.S. operations to
unaffiliated customers were $204,384, $92,412 and $44,264 for the fiscal years
ended 1996, 1995 and 1994, respectively.
One customer and its international affiliates accounted for approximately
14%, 12% and 21% of the Company's sales during 1996, 1995 and 1994,
respectively. A second customer and its international affiliates accounted for
approximately 11% of the company's sales during 1994; for 1995 and 1996, this
customer accounted for less than 10% of sales. Accounts receivable from these
customers bore a similar relationship to total receivables as the percentages
above.
NOTE N - EMPLOYEE BENEFIT PLANS
In April 1996, the Company merged the former Robotics, Megahertz, ISC and
Palm 401(k) plans, containing substantially similar provisions, into a new
Employees' Retirement Investment Plan under section 401(k) of the Internal
Revenue Code. This plan covers substantially all employees of the Company.
Participants may elect to contribute up to 15% of their compensation each plan
year, subject to certain IRS limitations. The Company may elect to make
contributions to the plan at the discretion of the Board of Directors.
Contributions under the newly adopted plan and former plans of the Company were
$2,573, $1,481 and $967 for 1996, 1995 and 1994, respectively.
In March 1996, the stockholders approved the establishment of the Senior
Executive Performance Bonus Plan, which governs performance bonuses to be
awarded to certain key executives for services rendered. Bonuses are awarded
each quarter by the Stock Option and Compensation Committee of the Board with
the bonus amounts determined by the Committee, based upon the Company
41
<PAGE> 42
achieving certain quarterly and annual earnings per share targets. In no event
shall the key executive bonus pool exceed 10% of the Company's earnings before
income taxes. Bonuses paid under this program and predecessor programs, which
were substantially similar in purpose for 1996, 1995 and 1994 were $10,360,
$7,461 and $3,130, respectively.
NOTE O - LITIGATION
The Company is a party to lawsuits in the normal course of its business.
The Company and its counsel believe that the Company has meritorious defenses in
lawsuits in which the Company is a defendant. The Company does not believe the
outcome of these cases will have a material effect on its financial position or
results of operations.
NOTE P - QUARTERLY FINANCIAL RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
GROSS NET NET EARNINGS
NET SALES PROFIT EARNINGS PER SHARE
-------------------------------------------
<S> <C> <C> <C> <C>
1996
First quarter................................. $364,812 $152,616 $41,645 $ .45
Second quarter................................ $454,505 $190,317 $51,605 $ .55
Third quarter................................. $546,785 $228,961 $63,298 $ .66
Fourth quarter (1)............................ $611,410 $256,172 $13,472 $ .14
1995
First quarter................................. $162,454 $ 67,087 $11,857 $ .15
Second quarter (2)............................ $196,149 $ 79,773 $(4,987) $(.06)
Third quarter................................. $237,347 $ 98,296 $24,862 $ .30
Fourth quarter................................ $293,397 $123,032 $34,219 $ .37
1994
First quarter................................. $108,518 $ 45,538 $ 9,668 $ .13
Second quarter................................ $123,139 $ 49,891 $10,039 $ .13
Third quarter................................. $135,566 $ 55,805 $11,028 $ .14
Fourth quarter................................ $131,852 $ 49,849 $ 5,386 $ .07
</TABLE>
(1) Includes a charge of $54,000 ($54,000 after-tax) related to purchased
in-process technology acquired in the Scorpio transaction recorded during
the fourth quarter of 1996. Excluding this charge, net earnings and net
earnings per share for the fourth quarter of 1996 would have been $67,472
and $0.71, respectively.
(2) Includes non-recurring merger related charges for the Megahertz merger of
$27,338 ($21,822 after-tax) recorded during the second quarter of 1995.
Excluding these charges, net earnings and net earnings per share for the
second quarter of 1995 would have been $16,834 and $0.21, respectively.
42
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
43
<PAGE> 44
PART III
The information required by this Part III will be provided in the definitive
proxy statement for the Company's 1997 Annual Meeting of Stockholders
(involving the election of directors), which definitive proxy statement will be
filed pursuant to Regulation 14A not later than 120 days following the
Company's fiscal year ended September 29, 1996, and is incorporated herein by
this reference to the following extent:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from Proxy Statement section entitled "Election
of Directors" and "Principal Holders of Securities." Information about the
Company's executive officers and directors is also set forth in Item 4(a) in
Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from Proxy Statement section entitled "Executive
Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from Proxy Statement section entitled "Principal
Holders of Securities."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from Proxy Statement section entitled "Certain
Relationships and Related Transactions."
44
<PAGE> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULE AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of U.S. Robotics
Corporation and Subsidiaries are included in Part II, Item 8 of this report:
- Consolidated Statement of Earnings - Fiscal Years 1996, 1995 and 1994
- Consolidated Balance Sheet - September 29, 1996 and October 1, 1995
- Consolidated Statement of Stockholders' Equity - Fiscal Years 1996,
1995, and 1994
- Consolidated Statement of Cash Flows - Fiscal Years 1996, 1995,
and 1994
- Notes to Consolidated Financial Statements - Fiscal Years 1996, 1995
and 1994
(A)(2) SCHEDULES
- Report of Independent Certified Public Accountants on Schedule II
- Schedule II -- Valuation and Qualifying Accounts.
(A)(3)EXHIBITS
Many Company exhibits are incorporated by reference to the following previous
filings of the Company:
Registration Statement on Form S-1, filed on October 4, 1991 by U.S.
Robotics, Inc. (predecessor to U.S. Robotics Corporation), file number
33-42546 (the "1991 Form S-1")
Amendment No. 2 to Registration Statement on Form S-4, filed on January 20,
1996 by U.S. Robotics Corporation and its predecessor, U.S. Robotics, Inc.,
file number 33-86856 (the "1995 Form S-4").
Registration Statement on Form S-8, filed on September 6, 1996 by U.S.
Robotics Corporation, file number 33-89702 (the "1996 Form S-8").
Registration Statement on Form 8-A, filed on May 16, 1996 by U.S. Robotics
Corporation (the "1996 Form 8-A").
Report on Form 10-K for the fiscal year ended October 1, 1995, filed on
January 2, 1996 by U.S. Robotics Corporation (the "1995 Form 10-K").
Definitive 1995 Proxy Statement, filed on January 30, 1996 by U.S. Robotics
Corporation (the "1995 Proxy Statement").
Report on Form 10-Q for the second quarter ended April 2, 1995, filed on
May 23, 1995 by U.S. Robotics Corporation (the "1995 2nd Quarter 10-Q").
THE EXHIBITS SET FORTH BELOW ARE FURNISHED AS PART OF THIS REPORT:
2.1 Amended and Restated Plan and Agreement of Merger dated as of January 10,
1995, between and among U.S. Robotics Holdings Corporation, USR
Restructuring Company and U.S. Robotics, Inc. (incorporated by reference
to Exhibit 2.2 of the 1995 Form S-4, which appears in Annex A to the Joint
Proxy Statement-Prospectus, contained therein).
2.2 Amended and Restated Agreement and Plan of Merger dated November 30,
1994, between and U.S. Robotics, Inc., USR Transitory, Inc., and U.S.
Robotics Holding Corporation (incorporated by reference to Exhibit 2.1 of
the 1995 Form S-4, which appears in Annex D to the Joint Proxy
Statement-Prospectus, contained therein).
45
<PAGE> 46
*3.1 Certificate of Incorporation of U.S. Robotics Corporation (f/k/a U.S.
Robotics Holding Corporation).
3.2 By-laws of U.S. Robotics Corporation (incorporated by reference to
Exhibit 4.3 of the 1996 Form S-8).
4.1 Form of Certificate of Common Stock of U.S. Robotics Corporation
(incorporated by reference to Exhibit 4.1.1. of the 1995 Form S-4).
4.2 Rights Agreement between U.S. Robotics Corporation and Harris Trust and
Savings Bank, as Rights Agent, dated May 9, 1996 (incorporated by
reference to Exhibit 1 of the 1996 Form 8-A).
10.1 Form of Directorship Agreement, between U.S. Robotics Corporation and
each of its directors (incorporated by reference to Exhibit 10.1 of the
1995 Form 10-K).
10.2 Key Employee Stock Option Plan of U.S. Robotics Corporation as amended
and restated, effective as of March 7, 1996 (incorporated by reference to
Appendix A of the 1995 Proxy Statement).
10.3 Executive Officer and Director Stock Option Plan of U.S. Corporation as
amended and restated, effective as of March 7, 1996 (incorporated by
reference to Appendix B of the 1995 Proxy Statement).
10.4 Employee Stock Purchase Plan of U.S. Robotics Corporation (incorporated
by reference to Exhibit 10.3 of the 1995 Form S-4).
*10.5 Amendment #2 to Employee Stock Purchase Plan of U.S. Robotics
Corporation, dated August 10, 1995 and effective as of October 1, 1995.
*10.6 Amendment #3 to Employee Stock Purchase Plan of U.S. Robotics
Corporation, dated November 14, 1996 and effective as of January 1, 1997.
10.7 Senior Executive Performance Bonus Plan of U.S. Robotics Corporation
effective as of March 7, 1996 (incorporated by reference to Appendix C of
the 1995 Proxy Statement).
*10.8 $300,000,000 Multicurrency Credit Agreement, dated as of September 12,
1996.
*10.9 First Restatement of the U.S. Robotics Corporation 401(k) Retirement
Savings Plan, effective as of April 1, 1996.
10.10 Amended and Restated Note Agreement, dated as of March 1, 1995
(incorporated by reference to Exhibit 10.5 of the 1995 2nd Quarter
10-Q).
10.11 Employment Agreement between U.S. Robotics Corporation's subsidiary, U.S.
Robotics Access Corp. (formerly U.S. Robotics, Inc.) and Casey Cowell,
dated August 28, 1991 (incorporated by reference to Exhibit 10.17 of the
1991 Form S-1).
10.12 Employment Agreement between U.S. Robotics Corporation's subsidiary, U.S.
Robotics Access Corp. (formerly U.S. Robotics, Inc.) and John McCartney,
dated August 28, 1991 (incorporated by reference to Exhibit 10.18 of the
1991 Form S-1).
10.13 Employment Agreement between U.S. Robotics Corporation's subsidiary, U.S.
Robotics Access Corp. (formerly U.S. Robotics, Inc.) and Jonathan N.
Zakin, dated August 28, 1991 (incorporated by reference to Exhibit 10.19
of the 1991 Form S-1).
10.14 Employment Agreement between U.S. Robotics Corporation's subsidiary, U.S.
Robotics Access Corp. (formerly U.S. Robotics, Inc.) and Ross Manire,
dated January 1, 1994 (incorporated by reference to Exhibit 10.20 of the
1991 Form S-1).
10.15 Employment Agreement between U.S. Robotics Corporation's subsidiary, U.S.
Robotics Access Corp. (formerly U.S. Robotics, Inc.) and Michael Seedman,
dated October 13, 1993 (incorporated by reference to Exhibit 10.9 of the
1995 Form 10-K).
46
<PAGE> 47
*11 Statement regarding Computation of Net Earnings Per Share.
*21 Subsidiaries of U.S. Robotics Corporation.
*23 Consent of Grant Thornton LLP.
25 Power of Attorney (included as part of signature page).
*27 Financial Data Schedule.
- ------------------------
* Filed herewith.
(B) REPORTS ON FORM 8-K
During the last quarter of the period covered by this report, U.S.
Robotics Corporation filed the following Reports on Form 8-K:
DATE OF REPORT ITEM REPORTED
- -------------- --------------------------------------------------------------
July 24, 1996 U.S. Robotics Corporation announced its results of operations
for the third quarter ended June 30, 1996.
August 29, 1996 On August 29, 1996, U.S. Robotics Corporation acquired Scorpio
Communications Ltd.; all outstanding shares of Scorpio
Communications were converted into U.S. Robotics Corporation
common shares pursuant to merger and it became a wholly-owned
subsidiary of U.S. Robotics Corporation.
47
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 27th day of
December, 1996.
U.S. ROBOTICS CORPORATION
By: /s/ CASEY COWELL
-----------------------
Casey Cowell, President
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints George A. Vinyard and Mark Remissong, and each
of them singly, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities (including his capacity as a director and
officer of U.S. Robotics Corporation) to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------- -------------------------------------------------------------------- -----------------
<S> <C> <C>
/s/ CASEY COWELL Chairman, Chief Executive Officer, President and Director (Principal
- ---------------- Executive Officer) December 27, 1996
Casey Cowell
/s/ JOHN McCARTNEY
- ------------------ Executive Vice President, Chief Operating Officer and Director December 27, 1996
John McCartney
/s/ JONATHAN N. ZAKIN
- --------------------- Executive Vice President and Director December 27, 1996
Jonathan N. Zakin
/s/ MARK REMISSONG
- ------------------ Vice President and Chief Financial Officer (Principal Financial Officer) December 27, 1996
Mark Remissong
/s/ STEVEN T. CAMPBELL
- ---------------------- Vice President and Controller (Principal Accounting Officer) December 27, 1996
Steven T. Campbell
/s/ JAMES E. COWIE
- ------------------ Director December 27, 1996
James E. Cowie
/s/ TERENCE M. GRAUNKE
- ---------------------- Director December 27, 1996
Terence M. Graunke
/s/ PETER I. MASON
- ------------------ Director December 27, 1996
Peter I. Mason
/s/ PAUL G. YOVOVICH
- -------------------- Director December 27, 1996
Paul G. Yovovich
</TABLE>
48
<PAGE> 49
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
U.S. Robotics Corporation
In connection with our audit of the consolidated financial statements of
U.S. Robotics Corporation and Subsidiaries referred to in our report dated
November 4, 1996, we also have audited Schedule II for each of the three years
in the period ended September 29, 1996. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
/s/ GRANT THORNTON LLP
Grant Thornton LLP
Chicago, Illinois
November 4, 1996
49
<PAGE> 50
SCHEDULE II
U.S. ROBOTICS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING CHARGED TO COSTS AND OTHER DEDUCTIONS END OF
OF PERIOD EXPENSES ACCOUNTS (1) (2) PERIOD
---------- -------------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1996..................... $7,354 $ 7,314 $ 142 $3,237 $11,573
1995..................... $3,669 $ 6,316 $ 572 $3,203 $ 7,354
1994..................... $2,378 $ 1,793 $ 41 $ 543 $ 3,669
Allowance for excess
and obsolete inventory:
1996..................... $8,621 $16,449 $(187) $7,296 $17,587
1995..................... $5,418 $ 6,784 $ 226 $3,807 $ 8,621
1994..................... $1,462 $ 4,927 $ 172 $1,143 $ 5,418
</TABLE>
(1) Reserves of companies acquired, currency translation, reclassification
and other adjustments.
(2) Uncollectible receivables charged off, net of recoveries. Disposal of
excess and obsolete inventory.
50
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
U.S. ROBOTICS HOLDING CORPORATION
1. The name of the Corporation is U.S. ROBOTICS HOLDING CORPORATION.
2. The address of the registered office in the State of Delaware is 1209
Orange Street in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. Capitalization. The total number of shares of stock which the
Corporation shall have authority to issue is eighty million (80,000,000), of
which seventy-five million (75,000,000) shares, of the par value of One Cent
($0.01) each, shall be common stock and five million (5,000,000) shares, of the
par value of One Cent ($0.01) each, shall be preferred stock; preferred stock
shall be issued from time to time (a) in one or more series with such
distinctive serial designations; and (b) may have such voting powers, full or
limited, or may be without voting powers; and (c) may be subject to redemption
at such time or times and at such prices; and (d) may be entitled to receive
dividends (which may be cumulative or noncumulative) at such rate or rates, on
such conditions, and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or classes of stock; and
(e) may have such rights upon the dissolution of, or upon any distribution of
the assets of, the Corporation; and (f) may be made convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation, at such
price or prices or at such rates of exchange, and with such adjustments; and (g)
shall have such other relative, participating, optional or other special rights
and qualifications, limitations or restrictions thereof, all as shall hereafter
be stated and expressed in the resolution or resolutions providing for the issue
of such preferred stock from time to time adopted by the Board of Directors
pursuant to authority to do so which is hereby vested in the Board.
5. The name and mailing address of the incorporator is: Daniel G. Kazan,
190 South LaSalle Street, Chicago, Illinois 60603.
6. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
to adopt, amend or repeal the By-laws of the Corporation.
7. The business and affairs of the Corporation shall be managed by the
Board of Directors, and the directors need not be elected by written ballot
unless the By-laws so provide.
8. The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by law, and all the provisions of this Certificate of
Incorporation and all rights and powers conferred in this Certificate of
Incorporation on stockholders, directors and officers are subject to this
reserved power, provided
<PAGE> 2
that the affirmative vote of the holders of record of outstanding shares
representing at least eighty percent (80%) of the voting power of all of the
shares of capital stock of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class, shall be required
to amend, alter, change or repeal any provision of, or to adopt any provision or
provisions inconsistent with this Section 8 of the Certificate of Incorporation
or Article III, Sections 2 and 14 of the By-laws unless such amendment,
alteration, repeal or adoption of any inconsistent provision or provisions is
declared advisable by the Board of Directors by the affirmative vote of at least
seventy-five percent (75%) of the entire Board of Directors, notwithstanding the
fact that a lesser percentage may be specified by the General Corporation Law of
Delaware.
9. A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 29th day of November, 1994.
/s/ Daniel G. Kazan
-------------------
Sole Incorporator
-2-
<PAGE> 3
CERTIFICATE OF DESIGNATIONS
of
SERIES A PARTICIPATING PREFERRED STOCK
of
U.S. ROBOTICS HOLDING CORPORATION
(Pursuant to Section 151 of the
Delaware General Corporation Law)
--------------------------------
U.S. Robotics Holding Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section
141(f) of the General Corporation Law by a written consent dated January 10,
1995.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 750,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) The holders of shares of Series A Preferred Stock, in preference
to the holders of Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $1.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since
the first issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation
<PAGE> 4
of the outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock), then in each such
case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution of the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$1.00 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue
of such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive payment
of a dividend or distribution declared thereon, which record date shall be
not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation, in any other Certificate of Designations creating a series
of Preferred Stock or any similar stock, or by law, the holders of shares
of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
-2-
<PAGE> 5
(C) Except as set forth herein, or as otherwise provided by the
Certificate of Incorporation or by law, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or
-3-
<PAGE> 6
not declared, to the date of such payment, provided that the holders of shares
of Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
-4-
<PAGE> 7
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Executive Vice President and attested by its
Secretary as of this 23rd day of January, 1995.
U.S. ROBOTICS HOLDING CORPORATION,
a Delaware corporation
By: /s/ Jonathan N. Zakin
---------------------------
Name: Jonathan N. Zakin
Title: Executive Vice President
ATTEST:
/s/ George A. Vinyard
- ------------------------------
Name: George A. Vinyard
Title: Secretary
-5-
<PAGE> 8
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
U.S. ROBOTICS HOLDING CORPORATION
---------------------------------
Adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the
State of Delaware
---------------------------------
The undersigned, U.S. ROBOTICS HOLDING CORPORATION, a Delaware
corporation, does hereby certify as follows:
FIRST: That the name of the corporation is U.S. ROBOTICS HOLDING
CORPORATION.
SECOND: That Article 1 of the Certificate of Incorporation of the
Corporation has been amended to read as follows: The name of the Corporation
is U.S. ROBOTICS CORPORATION.
THIRD: That such amendment has been duly adopted in accordance with the
provisions of Section 242 and 228 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, U.S. ROBOTICS HOLDING CORPORATION has caused this
Certificate of Amendment to be executed this 22nd day of February, 1995.
U.S. ROBOTICS HOLDING CORPORATION
By: /s/ George A. Vinyard
-----------------------------
Its: Vice President and Secretary
<PAGE> 9
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
U.S. ROBOTICS CORPORATION
_____________________________
Adopted in accordance with the
provisions of Section 242 of the
General Corporation Law of the
State of Delaware
_____________________________
The undersigned, U.S. ROBOTICS CORPORATION, a Delaware corporation, does
hereby certify as follows:
FIRST: That the name of the Corporation is U.S. ROBOTICS CORPORATION.
SECOND: That Article 4 of the Certificate of Incorporation of the
Corporation has been amended in its entirety to read as follows:
4. Capitalization. The total number of shares of stock which
the Corporation shall have authority to issue is two hundred sixty
million (260,000,000), of which two hundred fifty million
(250,000,000) shares, of the par value of one cent ($0.01) each,
shall be common stock and ten million (10,000,000) shares, of the
par value of one cent ($0.01) each, shall be preferred stock;
preferred stock (a) may be issued from time to time in one or more
series with such distinctive serial designations; and (b) may have
such voting powers, full or limited, or may be without voting
powers; and (c) may be subject to redemption at such time or times
and at such prices; and (d) may be entitled to receive dividends
(which may be cumulative or noncumulative) at such rate or rates,
on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other
class or classes of stock; and (e) may have such rights upon the
dissolution of, or upon any distribution of the assets of, the
Corporation; and (f) may be made convertible into, or exchangeable
for, shares of any other class or classes or of any other series
of the same or any other class or classes of stock of the
Corporation, at such price or prices or at such rates of exchange,
and with such adjustments; and (g) may have such other relative,
participating, optional or other special rights and
qualifications, limitations or restrictions thereof, all as shall
hereafter be stated and expressed in the resolution or resolutions
providing for the issuance of such preferred stock from time to
time adopted by the Board of Directors pursuant to the authority to do
so which is hereby vested in the Board.
THIRD: That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 10
IN WITNESS WHEREOF, U.S. ROBOTICS CORPORATION has caused this Certificate
of Amendment to be executed this 7th day of March, 1995.
U.S. ROBOTICS CORPORATION
By: /s/ George A. Vinyard
----------------------------
George A. Vinyard,
Vice President and Secretary
<PAGE> 11
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
of
U.S. ROBOTICS CORPORATION
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware:
We, Casey Cowell, Chairman, President and Chief Executive Officer, and
George A. Vinyard, Secretary of U.S. Robotics Corporation, a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), in accordance with the provisions of Section 103
thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation, as amended, of the Corporation, the Board of
Directors on May 9, 1996 adopted the following resolution creating a series of
2,500,000 shares of preferred stock designated as Series B Junior Participating
Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of its Certificate of
Incorporation, as amended, a series of preferred stock, par value $.01 per
share, of the Corporation (such preferred stock being herein referred to as
"Preferred Stock," which term shall include any additional shares of preferred
stock of the same class heretofore or hereafter authorized to be issued by the
Corporation), consisting of 2,500,000 shares is hereby created, and the voting
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, are as
follows:
S1. Designation and Amount. There shall be a series of Preferred Stock of the
Corporation which shall be designated as "Series B Junior Participating
Preferred Stock," par value $.01 per share (hereinafter called "Series B
Preferred Stock"), and the number of shares constituting such series shall be
2,500,000. Such number of shares may be increased or decreased by resolution
of the Board of Directors and by the filing of a certificate pursuant to the
provisions of the General Corporation Law of the State of Delaware stating that
such increase or reduction has been so authorized; provided, however, that no
decrease shall reduce the number of shares of Series B Preferred Stock to a
number less than that of the shares then outstanding plus the number of shares
of Series B Preferred Stock issuable upon exercise of outstanding rights,
options or warrants or upon conversion of outstanding securities issued by the
Corporation.
-1-
<PAGE> 12
S2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series B Preferred Stock with respect to dividends, the holders of shares of
Series B Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash to holders of record on the last business
day of March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series B Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions other
than a dividend payable in shares of Common Stock (hereinafter defined) or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series B
Preferred Stock. In the event the Corporation shall at any time following May
31, 1996 (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series B Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying each such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
B Preferred Stock as provided in paragraph (A) above at the time it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock).
(C) No dividend or distribution (other than a dividend payable in shares
of Common Stock) shall be paid or payable to the holders of shares of Common
Stock unless, prior thereto, all accrued but unpaid dividends to the date of
such dividend or distribution shall have been paid to the holders of shares of
Series B Preferred Stock.
-2-
<PAGE> 13
(D) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series B Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series B Preferred Stock,
unless the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless the date
of issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series B Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of
Series B Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of holders
of shares of Series B Preferred Stock entitled to receive payment of a dividend
or distribution declared thereon, which record date shall be no more than 30
days prior to the date fixed for the payment thereof.
S3. Voting Rights. The holders of shares of Series B Preferred Stock shall
have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
one one-hundredth of a share of Series B Preferred Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any
time following May 31, 1996 (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of shares
of Series B Preferred Stock were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares
of Series B Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
(C) (i) Whenever, at any time or times, dividends payable on any share or
shares of Series B Preferred Stock shall be in arrears in an amount equal
to at least six full quarterly dividends (whether or not declared and
whether or not consecutive), the holders of record of the outstanding
Preferred Stock shall have the exclusive right, voting separately as a
single class, to elect two directors of the Corporation at a special
meeting of stockholders of the Corporation or at the Corporation's next
annual meeting of stockholders, and at each subsequent annual meeting of
stockholders, as provided below. At elections for such directors, the
holders of shares of Series B Preferred Stock shall be entitled to cast one
vote for each one one-hundredth of a share of Series B Preferred Stock
held.
(i) Upon the vesting of such right of the holders of the Preferred
Stock, the maximum authorized number of members of the Board of Directors
shall automatically be increased by two and the two vacancies so created
shall be filled by vote of the holders of the outstanding Preferred Stock
as hereinafter
-3-
<PAGE> 14
set forth. A special meeting of the stockholders of the
Corporation then entitled to vote shall be called by the Chairman or the
President or the Secretary of the Corporation, if requested in writing by
the holders of record of not less than 10% of the Preferred Stock then
outstanding. At such special meeting, or, if no such special meeting
shall have been called, then at the next annual meeting of stockholders
of the Corporation, the holders of the shares of the Preferred Stock
shall elect, voting as above provided, two directors of the Corporation
to fill the aforesaid vacancies created by the automatic increase in the
number of members of the Board of Directors. At any and all such
meetings for such election, the holders of a majority of the outstanding
shares of the Preferred Stock shall be necessary to constitute a quorum
for such election, whether present in person or by proxy, and such two
directors shall be elected by the vote of at least a plurality of shares
held by such stockholders present or represented at the meeting. Any
director elected by holders of shares of the Preferred Stock pursuant to
this Section may be removed at any annual or special meeting, by vote of
a majority of the stockholders voting as a class who elected such
director, with or without cause. In case any vacancy shall occur among
the directors elected by the holders of the Preferred Stock pursuant to
this Section, such vacancy may be filled by the remaining director so
elected, or his successor then in office, and the director so elected to
fill such vacancy shall serve until the next meeting of stockholders for
the election of directors. After the holders of the Preferred Stock
shall have exercised their right to elect Directors in any default period
and during the continuance of such period, the number of Directors shall
not be further increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series B
Preferred Stock.
(ii) The right of the holders of the Preferred Stock, voting
separately as a class, to elect two members of the Board of Directors of
the Corporation as aforesaid shall continue until, and only until, such
time as all arrears in dividends (whether or not declared) on the
Preferred Stock shall have been paid or declared and set apart for
payment, at which time such right shall terminate, except as herein or by
law expressly provided, subject to revesting in the event of each and
every subsequent default of the character above-mentioned. Upon any
termination of the right of the holders of the shares of the Preferred
Stock as a class to vote for directors as herein provided, the term of
office of all directors then in office elected by the holders of
Preferred Stock pursuant to this Section shall terminate immediately.
Whenever the term of office of the directors elected by the holders of
the Preferred Stock pursuant to this Section shall terminate and the
special voting powers vested in the holders of the Preferred Stock
pursuant to this Section shall have expired, the maximum number of
members of the Board of Directors of the Corporation shall be such number
as may be provided for in the By-laws of the Corporation irrespective of
any increase made pursuant to the provisions of this Section.
(D) Except as set forth herein, holders of Series B Preferred Stock shall
have no special voting rights and their consent shall not be required (except
to the extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
S4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series B Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared,
-4-
<PAGE> 15
on shares of Series B Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred
Stock, except dividends paid ratably on the Series B Preferred Stock and
all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred
Stock, provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares
of any stock of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series B Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series B Preferred Stock, except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section,
purchase or otherwise acquire such shares at such time and in such manner.
S5. Reacquired Shares. Any shares of Series B Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall
upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
S6. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $1.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series B Liquidation Preference").
Following the payment of the full amount of the Series B Liquidation
Preference, no additional distributions shall be made to the holders of shares
of Series B Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the "Common Adjustment")
equal to the
-5-
<PAGE> 16
quotient obtained by dividing (i) the Series B Liquidation Preference by (ii)
100 (as appropriately adjusted as set forth in subparagraph C below to reflect
such events as stock splits, stock dividends and recapitalizations with respect
to the Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series B Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Series B
Preferred Stock and Common Stock, respectively, holders of Series B Preferred
Stock and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio, on a
per share basis, of the Adjustment Number to 1 with respect to such Preferred
Stock and Common Stock, on a per share basis, respectively.
(A) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series B Liquidation Preference and the
liquidation preferences of all other series of Preferred Stock, if any, which
rank on a parity with the Series B Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such parity shares in proportion
to their respective liquidation preferences.
(B) In the event the Corporation shall at any time following May 31, 1996
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding shares of Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
S7. Consolidation, Merger, etc. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the shares of Series B
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series B Preferred Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
S8. Redemption. The shares of a Series B Preferred Stock shall not be
redeemable by the Corporation. The preceding sentence shall not limit the
ability of the Corporation to purchase or otherwise deal in such shares of stock
to the extent permitted by law.
S9. Ranking. The Series B Preferred Stock shall rank junior to all other series
of the Corporation's preferred stock (whether with or without par value) as to
the payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise.
-6-
<PAGE> 17
S10. Amendment. The Certificate of Incorporation of the Corporation shall not
be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series B Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a majority or
more of the outstanding shares of Series B Preferred Stock, voting separately
as a class.
S11. Fractional Shares. Series B Preferred Stock may be issued in fractions of
a share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series
B Preferred Stock.
IN WITNESS WHEREOF, U.S. Robotics Corporation has caused its corporate
seal to be hereunto affixed and this Certificate to be signed by Casey Cowell,
its Chairman, President and Chief Executive Officer, and the same to be
attested by George A. Vinyard, its Secretary, this 9th day of May, 1996.
U.S. ROBOTICS CORPORATION
By: /s/ Casey Cowell
-------------------------
Casey Cowell
Chairman, President and
Chief Executive Officer
(SEAL)
Attest:
By: /s/ George A. Vinyard
---------------------
George A. Vinyard
Secretary
-7-
<PAGE> 1
EXHIBIT 10.5
SECOND AMENDMENT TO THE
U.S. ROBOTICS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The U.S. Robotics Corporation Employee Stock Purchase Plan (the "Plan") is
hereby amended, effective October 1, 1995, as follows:
1. Section 3(b) of the Plan shall be amended to read as follows:
"An employee who is subject to Section 16 of the Securities Exchange
Act of 1934 and is a highly compensated employee (within the meaning of
Section 414(q) of the Code) shall not be eligible to participate in the
Plan; and"
2. Section 6(a) of the Plan shall be amended to read as follows:
"A Participant shall pay for the shares of Common Stock authorized
for in his Subscription Agreement by electing to authorize payroll
deductions for the purchase price of said shares, to be made beginning
the first pay period following the Subscription Date and ending the last
pay period of the Subscription Period. Such payroll deduction shall be
any percentage equal to a whole number equal to or less than ten (10)
multiplied by one percent (1%) of the Compensation of the Participant
(but not less than $30.00 per biweekly payroll or $15.00 per weekly
payroll, whichever is applicable), or any specified even dollar amount,
up to but not more than ten percent (10%) of his Compensation for the
Subscription Period. In addition to the foregoing, if a Participant is
employed by a subsidiary of the Company that has been formed under the
laws of any foreign country, or if the Participant's employment is based
in Canada, the Participant may, in lieu of the foregoing, elect to to
make, on or before ten (10) days prior to the Price Date (as defined in
subsection 6(b)), a lump sum payment for the purchase price of said
shares, of not more than ten percent (10%) of the Participant's
Compensation for the period between the next preceding Subscription Date
and the Price Date."
3. The Plan shall be amended in its entirety, including in Section 6(b),
7, 8, 9, 11, 16, and 17 (but excluding Section 21 which permits a lump sum
payment upon a Participant's death, which may continue to be made as provided
therein), to clarify that any references therein to "lump sum payments" or
"lump sum deposits" shall have the meaning necessary to effectuate the purposes
of the amendment so Section 6(a) of the Plan as set forth above.
IN WITNESS WHEREOF, U.S. Robotics Corporation has caused this Amendment to
be executed by its officer hereto duly authorized this 10th day of August,
1995.
U.S. ROBOTICS CORPORATION,
a Delaware corporation
By: /s/ Mark Remissong
------------------------------------------
Its: Vice President and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.6
THIRD AMENDMENT TO THE
U.S. ROBOTICS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The U.S. Robotics Corporation Employee Stock Purchase Plan (the "Plan") is
hereby amended, effective January 1, 1997, as follows:
1. Section 3(c) of the Plan shall be amended to read as follows:
"An employee shall be eligible to participate in the Plan:
(i) Who has been employed for three consecutive months;
(ii) Whose customary employment is more than 20 hours
per week; or
(iii) Whose customary employment is for more than five
months in any calendar year.
2. Any reference to "full" shares in the Plan shall be deemed to include
fractional shares as well.
IN WITNESS WHEREOF, U.S. Robotics Corporation has caused this Amendment to
be executed by its officer hereto duly authorized this 14th day of November,
1996.
U.S. ROBOTICS CORPORATION,
a Delaware corporation
By: /s/ Mark Remissong
------------------------------------------
Its: Vice President and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.8
U.S. $300,000,000
MULTICURRENCY CREDIT AGREEMENT
DATED AS OF
SEPTEMBER 12, 1996
AMONG
U.S. ROBOTICS CORPORATION,
THE BANKS PARTY HERETO,
HARRIS TRUST AND SAVINGS BANK
as Agent
AND
THE FIRST NATIONAL BANK OF CHICAGO,
NATIONSBANK OF TEXAS, N.A.
AND
SOCIETE GENERALE,
as Co-Agents
<PAGE> 2
TABLE OF CONTENTS
(This Table of Contents is not part of the Agreement)
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SECTION 1. THE REVOLVING CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. The Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Applicable Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.4. Minimum Borrowing Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.5. Manner of Borrowing Committed Loans and Designating Interest Rates Applicable to
Committed Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.6. The Bid Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.7. Requests for Bid Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1.8. Notice of Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1.9. Acceptance or Rejection of Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 1.10. Notice of Acceptance or Rejection of Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.11. Interest on Bid Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1.12. Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1.13. Maturity of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.14. Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.15. Default Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.16. The Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.17. Funding Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.18. Commitment Terminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.19. Increase in Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2. FEES AND EXTENSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.1. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.2. Extension of Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3. PLACE AND APPLICATION OF PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.1. Place and Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4. DEFINITIONS; INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.2. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.1. Corporate Organization and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.2. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.3. Corporate Authority and Validity of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.4. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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Section 5.5. No Litigation; No Labor Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.7. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.8. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.9. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.10. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.11. Licenses and Authorizations; Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.12. Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.13. No Burdensome Restrictions; Compliance with Agreements . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.14. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.1. Initial Credit Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.2. All Credit Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.1. Corporate Existence; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.2. Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.4. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.6. Financial Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.7. Bank Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.8. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.9. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.10. Use of Proceeds; Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.11. Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.12. Mergers, Consolidations and Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.13. Use of Property and Facilities; Environmental, Health and Safety Laws . . . . . . . . . . . . . . . 39
Section 7.14. Investments, Acquisitions, Loans, Advances and Guaranties . . . . . . . . . . . . . . . . . . . . . 40
Section 7.15. Consolidated Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.16. Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.17. Total Debt to EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.18. Dividends and Other Shareholder Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.19. Subsidiary Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.20. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.21. No Subsidiary Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.22. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8. EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.2. Non-Bankruptcy Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.3. Bankruptcy Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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Section 8.4. Collateral for Undrawn Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.6. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9. CHANGE IN CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.1. Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.2. Unavailability of Deposits or Inability to Ascertain, or Inadequacy of, LIBOR . . . . . . . . . . . 46
Section 9.3. Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.4. Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.5. Discretion of Bank as to Manner of Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.6. Substitution of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.1. Appointment and Authorization of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.2. Agent and its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.3. Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.4. Consultation with Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.5. Liability of Agent; Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.6. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.7. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.8. Resignation of Agent and Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.9. Co-Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.1. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.2. No Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.3. Non-Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.4. Documentary Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.5. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.6. Survival of Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.7. Sharing of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 11.9. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 11.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 11.11. Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 11.12. Assignment of Commitments by Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 11.13. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 11.14. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 11.15. Legal Fees, Other Costs and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 11.16. Set Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 11.17. Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 11.18. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.19. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
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Section 11.20. Submission to Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . 58
EXHIBITS
A - Form of Notice of Payment Request
B - Form of Committed Note
C - Form of Bid Note
D - Bid Loan Request Confirmation
E - Invitation to Bid
F - Confirmation of Bid
G - Notice of Acceptance of Bid
H - Form of Compliance Certificate
I - Form of Legal Opinion of Counsel to the Borrower
J - Commitment Amount Increase Request
SCHEDULE 5.1 Schedule of Borrower Liabilities
SCHEDULE 5.2 Schedule of Existing Subsidiaries
SCHEDULE 5.12 Schedule of Real Property
SCHEDULE 7.9 Schedule of Existing Liens
SCHEDULE 7.14 Schedule of Permitted Liquid Investments
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MULTICURRENCY CREDIT AGREEMENT
To each of the Banks signatory hereto
Ladies and Gentlemen:
The undersigned, U.S. Robotics Corporation, a Delaware corporation
(the "Borrower"), applies to you for your several commitments, subject to all
the terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth, to make available a revolving credit for
loans and letters of credit (the "Revolving Credit"), as described herein.
Each of you is hereinafter referred to individually as a "Bank," all of you are
hereinafter referred to collectively as the "Banks," Harris Trust and Savings
Bank in its capacity as agent for the Banks hereunder is hereinafter referred
to as the "Agent" and The First National Bank of Chicago, NationsBank of Texas,
N.A. and Societe Generale in their respective capacities as co-agents hereunder
are hereinafter referred to as the "Co-Agents."
SECTION 1. THE REVOLVING CREDIT.
Section 1.1. The Loan Commitment. Subject to the terms and
conditions hereof, each Bank, by its acceptance hereof, severally agrees to
make a loan or loans (individually a "Committed Loan" and collectively
"Committed Loans") to the Borrower from time to time on a revolving basis in
U.S. Dollars and Alternative Currencies in an aggregate outstanding Original
Dollar Amount up to the amount of its revolving credit commitment set forth on
the applicable signature page hereof as such amount may be increased or
decreased pursuant to the terms hereof (its "Revolving Credit Commitment" and,
cumulatively for all the Banks, the "Revolving Credit Commitments"), before the
Termination Date. The sum of the aggregate Original Dollar Amount of Loans and
of L/C Obligations at any time outstanding shall not exceed the Revolving
Credit Commitments in effect at such time. Each Borrowing of Committed Loans
shall be made ratably from the Banks in proportion to their respective
Percentages. As provided in Section 1.5(a) hereof, the Borrower may elect that
each Borrowing of Committed Loans denominated in U.S. Dollars be either
Domestic Rate Loans or Eurocurrency Loans. All Committed Loans denominated in
an Alternative Currency shall be Eurocurrency Loans. Committed Loans may be
repaid and the principal amount thereof reborrowed before the Termination Date,
subject to all the terms and conditions hereof.
Section 1.2. Letters of Credit. (a) General Terms. Subject to
the terms and conditions hereof, as part of the Revolving Credit the Agent
shall issue standby or commercial letters of credit (each a "Letter of Credit")
for the Borrower's account in U.S. Dollars in an aggregate undrawn face amount
up to the amount of the L/C Commitment, provided that the aggregate L/C
Obligations at any time outstanding shall not exceed the
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difference between the Revolving Credit Commitments in effect at such time and
the aggregate Original Dollar Amount of Loans then outstanding. Each Letter of
Credit shall be issued by the Agent, but each Bank shall be obligated to
reimburse the Agent for its Percentage of the amount of each drawing thereunder
and, accordingly, the undrawn face amount of each Letter of Credit shall
constitute usage of the Revolving Credit Commitment of each Bank pro rata in
accordance with each Bank's Percentage.
(b) Applications. At any time before the Termination Date, the
Agent shall, at the request of the Borrower, issue one or more Letters of
Credit, in a form satisfactory to the Agent, with expiration dates no later
than the Termination Date, in an aggregate face amount as set forth above, upon
the receipt of a duly executed application for the relevant Letter of Credit in
the form customarily prescribed by the Agent for the type of Letter of Credit,
whether standby or commercial, requested (each an "Application").
Notwithstanding anything contained in any Application to the contrary (i) the
Borrower shall pay fees in connection with each Letter of Credit as set forth
in Section 2.1(b) hereof, (ii) before the occurrence of an Event of Default,
the Agent will not call for the funding by the Borrower of any amount under a
Letter of Credit, or any other form of collateral security for the Borrower's
obligations in connection with such Letter of Credit, before being presented
with a drawing thereunder, and (iii) if the Agent is not timely reimbursed for
the amount of any drawing under a Letter of Credit on the date such drawing is
paid, the Borrower's obligation to reimburse the Agent for the amount of such
drawing shall bear interest (which the Borrower hereby promises to pay) from
and after the date such drawing is paid at a rate per annum equal to the sum of
2% plus the Domestic Rate from time to time in effect. If the Agent issues any
Letters of Credit with expiration dates that are automatically extended unless
the Agent gives notice that the expiration date will not so extend beyond its
then scheduled expiration date, the Agent will give such notice of non-
extension before the time necessary to prevent such automatic extension if
before such required notice date (i) the expiration date of such Letter of
Credit if so extended would be after the Termination Date, (ii) the Commitments
have been terminated or (iii) an Event of Default exists and the Required Banks
have given the Agent instructions not to so permit the extension of the
expiration date of such Letter of Credit. The Agent agrees to issue amendments
to the Letter(s) of Credit increasing the amount, or extending the expiration
date, thereof at the request of the Borrower subject to the conditions of
Section 6.2 and the other terms of this Section 1.2.
(c) The Reimbursement Obligations. Subject to Section 1.2(b)
hereof, the obligation of the Borrower to reimburse the Agent for all drawings
under a Letter of Credit (a "Reimbursement Obligation") shall be governed by
the Application related to such Letter of Credit, except that reimbursement
shall be made by no later than 12:00 noon (Chicago time) on the date when each
drawing is paid in immediately available funds at the Agent's principal office
in Chicago, Illinois. If the Borrower does not make any such reimbursement
payment on the date due and the Participating Banks fund their participations
therein in the manner set forth in Section 1.2(d) below, then all payments
thereafter received by the Agent in discharge of any of the relevant
Reimbursement Obligations shall be distributed in accordance with Section
1.2(d) below.
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(d) The Participating Interests. Each Bank (other than the Bank
then acting as Agent in issuing Letters of Credit), by its acceptance hereof,
severally agrees to purchase from the Agent, and the Agent hereby agrees to
sell to each such Bank (a "Participating Bank"), an undivided percentage
participating interest (a "Participating Interest"), to the extent of its
Percentage, in each Letter of Credit when issued by, and each Reimbursement
Obligation owed to, the Agent. Upon any failure by the Borrower to pay any
Reimbursement Obligation at the time required on the date the related drawing
is paid, as set forth in Section 1.2(c) above, or if the Agent is required at
any time to return to the Borrower or to a trustee, receiver, liquidator,
custodian or other Person any portion of any payment of any Reimbursement
Obligation, each Participating Bank shall, not later than the Business Day it
receives a certificate in the form of Exhibit A hereto from the Agent to such
effect, if such certificate is received before 1:00 p.m. (Chicago time), or not
later than the following Business Day, if such certificate is received after
such time, pay to the Agent an amount equal to its Percentage of such unpaid or
recaptured Reimbursement Obligation together with interest on such amount
accrued from the date the related payment was made by the Agent to the date of
such payment by such Participating Bank at a rate per annum equal to (i) from
the date the related payment was made by the Agent to the date two (2) Business
Days after payment by such Participating Bank is due hereunder, the Federal
Funds Rate for each such day and (ii) from the date two (2) Business Days after
the date such payment is due from such Participating Bank to the date such
payment is made by such Participating Bank, the Domestic Rate in effect for
each such day. Each such Participating Bank shall thereafter be entitled to
receive its Percentage of each payment received in respect of the relevant
Reimbursement Obligation and of interest paid thereon, with the Agent retaining
its Percentage as a Bank hereunder.
The several obligations of the Participating Banks to the Agent under
this Section 1.2 shall be absolute, irrevocable and unconditional under any and
all circumstances whatsoever (except, without limiting the Borrower's
obligations under each Application, to the extent the Borrower is relieved from
its obligation to reimburse the Agent for a drawing under a Letter of Credit
because of the Agent's gross negligence or willful misconduct in determining
that documents received under the Letter of Credit comply with the terms
thereof) and shall not be subject to any set-off, counterclaim or defense to
payment which any Participating Bank may have or have had against the Borrower,
the Agent, any other Bank or any other Person whatsoever. Without limiting the
generality of the foregoing, such obligations shall not be affected by any
Default or Event of Default or by any subsequent reduction or termination of
any Commitment of any Bank, and each payment by a Participating Bank under this
Section 1.2 shall be made without any offset, abatement, withholding or
reduction whatsoever. The Agent shall be entitled to offset amounts received
for the account of a Bank under this Agreement against unpaid amounts due from
such Bank to the Agent hereunder (whether as fundings of participations,
indemnities or otherwise), but shall not be entitled to offset against amounts
owed to the Agent by any Bank arising outside this Agreement.
(e) Indemnification. The Participating Banks shall, to the extent
of their respective Percentages, indemnify the Agent (to the extent not
reimbursed by the Borrower) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand,
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<PAGE> 9
action, loss or liability (except such as result from the Agent's gross
negligence or willful misconduct) that the Agent may suffer or incur in
connection with any Letter of Credit. The obligations of the Participating
Banks under this Section 1.2(e) and all other parts of this Section 1.2 shall
survive termination of this Agreement and of all other L/C Documents.
Section 1.3. Applicable Interest Rates. (a) Domestic Rate
Loans. Each Domestic Rate Loan made or maintained by a Bank shall bear
interest during each Interest Period it is outstanding (computed on the basis
of a year of 365 or 366 days, as applicable, and actual days elapsed) on the
unpaid principal amount thereof from the date such Loan is advanced, continued
or created by conversion from a Eurocurrency Loan to but not including the last
day of such Interest Period or, if earlier its maturity date (whether by
acceleration or otherwise) at a rate per annum equal to the Domestic Rate from
time to time in effect, payable on the last day of the applicable Interest
Period and at maturity (whether by acceleration or otherwise).
"Domestic Rate" means for any day the greater of:
(i) the rate of interest announced by the Agent from time
to time as its prime commercial rate, or equivalent, as in effect on
such day, with any change in the Domestic Rate resulting from a change
in said prime commercial rate to be effective as of the date of the
relevant change in said prime commercial rate; and
(ii) the sum of (x) the rate determined by the Agent to be
the prevailing rate per annum (rounded upwards, if necessary, to the
nearest one hundred-thousandth of a percentage point) at approximately
10:00 a.m. (Chicago time) (or as soon thereafter as is practicable) on
such day (or, if such day is not a Business Day, on the immediately
preceding Business Day) for the purchase at face value of overnight
Federal funds in an amount comparable to the principal amount owed to
the Agent for which such rate is being determined, plus (y) 1/2 of 1%
(0.50%).
(b) Eurocurrency Loans. Each Eurocurrency Loan made or maintained
by a Bank shall bear interest during each Interest Period it is outstanding
(computed on the basis of a year of 360 days and actual days elapsed) on the
unpaid principal amount thereof from the date such Loan is advanced, continued,
or created by conversion from a Domestic Rate Loan to but not including the
last day of such Interest Period or, if earlier its maturity date (whether by
acceleration or otherwise) at a rate per annum equal to the sum of the
Eurocurrency Margin plus the Adjusted LIBOR applicable for such Interest
Period, payable on the last day of the Interest Period and at maturity (whether
by acceleration or otherwise), and, if the applicable Interest Period is longer
than three months, on each day occurring every three months after the
commencement of such Interest Period.
"Adjusted LIBOR" means, for any Borrowing of Eurocurrency Loans, a
percentage determined in accordance with the following formula:
Adjusted LIBOR = LIBOR
-----------------------------------
1 - Eurocurrency Reserve Percentage
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<PAGE> 10
"LIBOR" means, for an Interest Period for a Borrowing of Eurocurrency
Loans, the arithmetic average of the rates of interest per annum (rounded
upwards, if necessary, to the nearest one hundred-thousandth of a percentage
point) at which deposits in U.S. Dollars or the relevant Alternative Currency,
as appropriate, in immediately available funds are offered by each of the
Reference Banks at 11:00 a.m. (London, England time) two (2) Business Days
before the beginning of such Interest Period to major banks in the interbank
eurocurrency market for delivery on the first day of and for a period equal to
such Interest Period in an amount equal or comparable to the principal amount
of the Eurocurrency Loan scheduled to be made by, in the case of Committed
Eurocurrency Loans, such Reference Bank as part of such Borrowing or in the
case of the Bid Eurocurrency Loans, each Bank scheduled to make such Bid Loan.
"Eurocurrency Reserve Percentage" means, for any Borrowing of
Eurocurrency Loans, the daily average for the applicable Interest Period of the
maximum rate, expressed as a decimal, at which reserves (including, without
limitation, any supplemental, marginal and emergency reserves) are imposed
during such Interest Period by the Board of Governors of the Federal Reserve
System (or any successor) on "eurocurrency liabilities", as defined in such
Board's Regulation D (or in respect of any other category of liabilities that
includes deposits by reference to which the interest rate on Eurocurrency Loans
is determined or any category of extensions of credit or other assets that
include loans by non-United States offices of any Bank to United States
residents), subject to any amendments of such reserve requirement by such Board
or its successor, taking into account any transitional adjustments thereto.
For purposes of this definition, the Eurocurrency Loans shall be deemed to be
"eurocurrency liabilities" as defined in Regulation D without benefit or credit
for any prorations, exemptions or offsets under Regulation D.
"Eurocurrency Margin" means (a) for each Eurocurrency Bid Loan the
percentage agreed to pursuant to Section 1.9 hereof and (b) for each Committed
Eurocurrency Loan 0.225% per annum until the first Pricing Date and thereafter
from one Pricing Date to the next a percentage determined in accordance with
the following schedule:
<TABLE>
<CAPTION>
Level: Eurocurrency Margin:
----- -------------------
<S> <C>
Level I 0.165%
Level II 0.225%
Level III 0.250%
Level IV 0.325%
Level V 0.500%
</TABLE>
(c) Rate Determinations. The Agent shall determine each interest
rate applicable to Obligations and the Original Dollar Amount of Loans
denominated in Alternative Currencies, and its determination thereof shall be
conclusive and binding except in the case of manifest error or willful
misconduct. The Original Dollar Amount of each Eurocurrency Loan denominated
in an Alternative Currency shall be determined or redetermined, as applicable,
effective as of the first day of each Interest Period applicable to such Loan.
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<PAGE> 11
Section 1.4. Minimum Borrowing Amounts. Each Borrowing of
Domestic Rate Loans shall be in an amount not less than $5,000,000 and in
integral multiples of $1,000,000. Each Committed Borrowing of Eurocurrency
Loans shall be in an amount not less than an Original Dollar Amount of
$10,000,000 and in integral multiples of 1,000,000 units of the relevant
currency.
Section 1.5. Manner of Borrowing Committed Loans and Designating
Interest Rates Applicable to Committed Loans.
(a) Notice to the Agent. The Borrower shall give notice to the
Agent by no later than 10:00 a.m. (Chicago time) (i) at least three (3)
Business Days before the date on which the Borrower requests the Banks to
advance a Committed Borrowing of Eurocurrency Loans and (ii) on the date the
Borrower requests the Banks to advance a Committed Borrowing of Domestic Rate
Loans. The Loans included in each Committed Borrowing shall bear interest
initially at the rate for the type of the Committed Loan specified in such
notice of a new Committed Borrowing. Thereafter, the Borrower may from time to
time elect to change or continue the type of interest rate borne by each
Committed Borrowing or, subject to Section 1.4's minimum amount requirement for
each outstanding Committed Borrowing, a portion thereof, as follows: (i) if
such Committed Borrowing is of Eurocurrency Loans, on the last day of the
Interest Period applicable thereto, the Borrower may continue part or all of
such Committed Borrowing as Eurocurrency Loans for an Interest Period or
Interest Periods specified by the Borrower or, if such Eurocurrency Loan is
denominated in U.S. Dollars, convert part or all of such Committed Borrowing
into Domestic Rate Loans, (ii) if such Committed Borrowing is of Domestic Rate
Loans, on any Business Day, the Borrower may convert all or part of such
Committed Borrowing into Eurocurrency Loans denominated in U.S. Dollars for an
Interest Period or Interest Periods specified by the Borrower. The Borrower
shall give all such notices requesting the advance, continuation, or conversion
of a Committed Borrowing to the Agent by telephone or telecopy (which notice
shall be irrevocable once given and, if by telephone, shall be promptly
confirmed in writing). Notices of the continuation of a Committed Borrowing of
Eurocurrency Loans denominated in U.S. Dollars for an additional Interest
Period or of the conversion of part or all of a Committed Borrowing of
Eurocurrency Loans denominated in U.S. Dollars into Domestic Rate Loans or of
Domestic Rate Loans into Eurocurrency Loans must be given by no later than
10:00 a.m. (Chicago time) at least three (3) Business Days before the date of
the requested continuation or conversion. Notices of the continuation of a
Committed Borrowing of Eurocurrency Loans denominated in an Alternative
Currency must be given no later than 10:00 a.m. (Chicago time) at least three
(3) Business Days before the requested continuation. All such notices
concerning the advance, continuation, or conversion of a Committed Borrowing
shall specify the date of the requested advance, continuation or conversion of
a Committed Borrowing (which shall be a Business Day), the amount of the
requested Committed Borrowing to be advanced, continued, or converted, the type
of Loans to comprise such new, continued or converted Committed Borrowing and,
if such Committed Borrowing is to be comprised of Eurocurrency Loans, the
currency and Interest Period applicable thereto. The Borrower agrees that the
Agent may rely on any such telephonic or telecopy notice given by any person it
in good faith believes is an Authorized Representative without the necessity of
independent investigation, and in the
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<PAGE> 12
event any such notice by telephone conflicts with any written confirmation,
such telephonic notice shall govern if the Agent has acted in reliance thereon.
(b) Notice to the Banks. The Agent shall give prompt telephonic
or telecopy notice to each Bank of any notice from the Borrower received
pursuant to Section 1.5.(a) above. The Agent shall give notice to the Borrower
and each Bank by like means of the interest rate applicable to each Committed
Borrowing of Eurocurrency Loans and, if such Committed Borrowing is denominated
in an Alternative Currency, shall give notice by such means to the Borrower and
each Bank of the Original Dollar Amount thereof.
(c) Borrower's Failure to Notify. Any outstanding Committed
Borrowing of Domestic Rate Loans shall, subject to Section 6.2 hereof,
automatically be continued for an additional Interest Period on the last day of
its then current Interest Period unless the Borrower has notified the Agent
within the period required by Section 1.5(a) that it intends to convert such
Committed Borrowing into a Committed Borrowing of Eurocurrency Loans or
notifies the Agent within the period required by Section 1.14(a) that it
intends to prepay such Committed Borrowing. If the Borrower fails to give
notice pursuant to Section 1.5(a) above of the continuation or conversion of
any outstanding principal amount of a Committed Borrowing of Eurocurrency Loans
denominated in U.S. Dollars before the last day of its then current Interest
Period within the period required by Section 1.5(a) and has not notified the
Agent within the period required by Section 1.14(a) that it intends to prepay
such Committed Borrowing, such Committed Borrowing shall automatically be
converted into a Committed Borrowing of Domestic Rate Loans, subject to Section
6.2 hereof. If the Borrower fails to give notice pursuant to Section 1.5(a)
above of the continuation of any outstanding principal amount of a Committed
Borrowing of Eurocurrency Loans denominated in an Alternative Currency before
the last day of its then current Interest Period within the period required by
Section 1.5(a) and has not notified the Agent within the period required by
Section 1.14(a) that it intends to prepay such Committed Borrowing, such
Borrowing shall automatically be continued as a Committed Borrowing of
Eurocurrency Loans in the same Alternative Currency with an Interest Period of
one month, subject to Section 6.2 hereof, including the application of Section
1.4 and of the restrictions contained in the definition of Interest Period.
(d) Disbursement of Committed Loans. Not later than 11:00 a.m.
(Chicago time) on the date of any requested advance of a new Committed
Borrowing of Eurocurrency Loans, and not later than 12:00 noon (Chicago time)
on the date of any requested advance of a new Committed Borrowing of Domestic
Rate Loans, subject to Section 6 hereof, each Bank shall make available its
Loan comprising part of such Committed Borrowing in funds immediately available
at the principal office of the Agent in Chicago, Illinois, except that if such
Committed Borrowing is denominated in an Alternative Currency each Bank shall,
subject to Section 6, make available its Loan comprising part of such Committed
Borrowing at such office as the Agent has previously specified in a notice to
each Bank, in such funds as are then customary for the settlement of
international transactions in such currency and no later than such local time
as is necessary for such funds to be received and transferred to the Borrower
for same day value on the date of the Borrowing. The Agent shall make
available to the Borrower Loans denominated in U.S. Dollars at the Agent's
principal office in
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<PAGE> 13
Chicago, Illinois and Loans denominated in Alternative Currencies at such
office as the Agent has previously agreed to with the Borrower, in each case in
the type of funds received by the Agent from the Banks.
Section 1.6. The Bid Loans. The Borrower may request the Banks to offer to
make uncommitted loans (each such loan being hereinafter referred to as a "Bid
Loan" and collectively as the "Bid Loans") in the manner set forth in this
Section 1 and in amounts such that the aggregate Original Dollar Amount of all
Committed Loans, Bid Loans and L/C Obligations at any time outstanding shall
not exceed the Revolving Credit Commitments then in effect. The Banks may, but
shall have no obligation to, make such offers and the Borrower may, but shall
have no obligation to, accept any such offers in the manner set forth herein.
Each Bank may offer to make Bid Loans in any amount (whether greater than,
equal to, or less than its Revolving Credit Commitment), subject to the
limitation that the aggregate Original Dollar Amount of all outstanding Loans
and L/C Obligations may not at any time exceed the Revolving Credit Commitments
then in effect and subject to the other conditions of this Agreement. Bid
Loans may either bear interest at a stated rate per annum ("Stated Rate Bid
Loans") or at a margin above or below the applicable Adjusted LIBOR
("Eurocurrency Bid Loans"); provided that there may be no more than ten
different Interest Periods for both Stated Rate Bid Loans and Eurocurrency Bid
Loans outstanding at the same time.
Section 1.7. Requests for Bid Loans.
(a) Requests and Confirmations. In order to request a Borrowing
of Bid Loans (a "Bid Loan Request") the Borrower shall give telephonic, telex
or telecopy notice to the Agent by no later than 10:00 A.M. (Chicago time) (i)
on the date at least five Business Days before the date of the requested Bid
Borrowing (the "Borrowing Date") in the case of a request for Eurocurrency Bid
Loans or for both Eurocurrency Bid Loans and Stated Rate Bid Loans and (ii) on
the date at least one Business Day before the Borrowing Date in the case of a
request solely for Stated Rate Bid Loans. Each such request may be for up to
three maturities and shall be followed on the same day by a duly completed bid
loan request confirmation (each a "Bid Loan Request Confirmation"), delivered
by telecopier or other means of facsimile communication, substantially in the
form of Exhibit D hereto or otherwise containing the information required by
this Section, to be received by the Agent no later than 10:30 A.M. (Chicago
time). Bid Loan Request Confirmations that do not conform substantially to the
format of Exhibit D may be rejected by the Agent, and the Agent shall give
telecopy notice to the Borrower of such rejection promptly after it determines
(which determination shall be conclusive) that the Bid Loan Request
Confirmation does not substantially conform to the format of Exhibit D.
Requests for Bid Loans shall in each case refer to this Agreement and specify
(i) the proposed Borrowing Date (which must be a Business Day), (ii) the
currency of each Bid Loan (which shall be either U.S. Dollars or an Alternative
Currency), (iii) the aggregate principal amount thereof (which shall not be
less than an Original Dollar Amount of $5,000,000 and shall be in integral
multiples of 1,000,000 units of the relevant currency) and (iv) the proposed
maturity date thereof, which in the case of Stated Rate Bid Loans shall be 1 to
180 days after the Borrowing Date and in the case of Eurocurrency Bid Loans
shall be 1, 2, 3, 4, 5 or 6
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<PAGE> 14
months after the proposed Borrowing Date, but with no maturity to extend beyond
the Termination Date.
(b) Invitation to Bid. Upon receipt by the Agent of a Bid Loan
Request Confirmation that conforms substantially to the format of Exhibit D
hereto or is otherwise acceptable to the Agent, the Agent shall, by telecopy in
the form of Exhibit E hereto, invite each Bank to bid, on the terms and
conditions of this Agreement, to make Bid Loans pursuant to the Bid Loan
Request.
(c) Bids. Each Bank may, in its sole discretion, offer to make a
Bid Loan or Loans (a "Bid") to the Borrower responsive to the Bid Loan Request.
Each Bid by a Bank must be received by the Agent in the form of Exhibit F
delivered by telecopier not later than (i) 9:00 A.M. (Chicago time) on the
proposed Borrowing Date in the case of a bid for a Stated Rate Bid Loan and
(ii) 1:00 P.M. (Chicago time) four Business Days prior to the proposed
Borrowing Date in the case of a bid for a Eurocurrency Bid Loan; provided,
however, that any Bid made by the Agent must be made by telecopy to the
Borrower by no later than fifteen minutes prior to the time that bids from the
other Banks are required to be received. Each Bid and each Confirmation of Bid
shall refer to this Agreement and specify (i) the principal amount of each Bid
Loan that the Bank is willing to make to the Borrower and the type of Bid Loan
(i.e., Stated Rate or Eurocurrency), (ii) the interest rate (which shall be
computed on the basis of a 360-day year and actual days elapsed and, in the
case of a Eurocurrency Bid Loan, shall be expressed in terms of a percentage
margin to be added to or subtracted from the applicable LIBOR for the Interest
Period to be applicable to such Eurocurrency Bid Loan) at which the Bank is
prepared to make each Bid Loan, (iii) the currency of such Bid Loan (which
shall be denominated in either U.S Dollars or an Alternative Currency) and (iv)
the Interest Period applicable thereto. The Agent shall reject any Bid if such
Bid (i) does not specify all of the information specified in the immediately
preceding sentence, (ii) contains any qualifying, conditional, or similar
language, (iii) proposes terms other than or in addition to those set forth in
the Bid Loan Request to which it responds, or (iv) is received by the Agent
later than the time required for such Bid Loan. Any Bid submitted by a Bank
pursuant to this Section 1.7 shall be irrevocable. Each offer contained in a
Bid to make a Bid Loan of a certain type in a certain amount, at a certain
interest rate, and for a certain Interest Period is referred to herein as an
"Offer".
Section 1.8. Notice of Bids; Advice of Rate. The Agent shall give telecopy
notice to the Borrower of the number of Bids made, the interest rate(s) and
Interest Period(s) applicable to each Bid, the maximum principal amount bid at
each interest rate for each Interest Period, and the identity of the Bank
making such Bid such notice to be given by (i) 9:30 A.M. (Chicago time) on the
Borrowing Date in the case of Bid Loan Requests solely for Stated Rate Bid Loan
or (ii) 3:00 P.M. four Business Days before the proposed Borrowing Date in the
case of Bid Loan Requests for Eurocurrency Bid Loans or for both Stated Rate
Bid Loans and Eurocurrency Bid Loans.
Section 1.9. Acceptance or Rejection of Bids. The Borrower may in its sole
and absolute discretion, subject only to the provisions of this Section,
irrevocably accept or reject, in whole or in part, any Offer contained in a
Bid. The Borrower shall give telecopy
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<PAGE> 15
notice to the Agent of whether and to what extent it has decided to accept or
reject any Offers contained in the Bids made in response to a Bid Loan Request
to be received by the Agent by no later than 10:00 a.m. (Chicago time) (i) on
the proposed Borrowing Date, in the case of Stated Rate Bid Loans or (ii) three
Business Days before the proposed Borrowing Date, in the case of Eurocurrency
Bid Loans; provided, however, that (A) the Borrower shall accept offers for any
of the maturities specified by the Borrower in its Bid Loan Request
Confirmation solely on the basis of ascending interest rates for each such
Interest Period for a particular currency, (B) if the Borrower declines to
borrow, or if it is restricted by any other condition hereof from borrowing,
the maximum principal amount of Bid Loans for which Offers at a particular
interest rate for a particular Interest Period have been made, then the
Borrower shall accept a pro rata portion of each such Offer, based as nearly as
possible on the ratio of the maximum aggregate principal amounts of Bid Loans
for which each such Offer was made by each Bank (provided that, if the
available principal amount of Bid Loans to be so allocated is not sufficient to
enable Bid Loans to be so allocated to each relevant Bank in integral multiples
of not less than an Original Dollar Amount of $1,000,000, then the Agent may
round allocations up or down in integral multiples of 100,000 units of the
relevant currency as it shall deem appropriate), (C) the aggregate principal
amount of all Offers accepted by the Borrower shall not exceed the maximum
amount contained in the related Bid Loan Request Confirmation, and (D) subject
to clause (B) above no Offer of a Bid Loan shall be accepted in a principal
amount less than an Original Dollar Amount of $5,000,000 and thereafter in
integral multiples of 100,000 units of the relevant currency.
Section 1.10. Notice of Acceptance or Rejection of Bids.
(a) Notice to Banks Making Successful Bids. The Agent shall give
telephonic notice to each Bank if any of the Offers contained in its Bid have
been accepted (and if so, in what amount, in what currency, at what interest
rate and for what Interest Period) no later than 10:30 A.M. (Chicago time) (i)
on the proposed Borrowing date in the case of Stated Rate Bid Loans and (ii)
three Business days before the proposed Borrowing Date in the case of
Eurocurrency Bid Loans, and each successful bidder will thereupon become bound,
subject to Section 6 and the other applicable conditions hereof, to make each
Bid Loan in the amount for which its Offer has been accepted. As soon as
practicable thereafter the Agent shall send written notice substantially in the
form of Exhibit G hereto to each such successful bidder; provided, however,
that failure to give such notice shall not affect the obligation of such
successful bidder to disburse its Bid Loans as herein required.
(b) Notice to all Banks. As soon as practicable after each
Borrowing Date for Bid Loans, the Agent shall notify each Bank (whether or not
any of its Offers were accepted) of the aggregate amount and types of Bid Loans
advanced pursuant to a Bid Loan Request on such Borrowing Date, the maturities
thereof, the currencies, and the lowest and highest interest rates at which Bid
Loans were made for each maturity.
(c) Disbursement of Bid Loans. Not later than 12:00 noon (Chicago
time) on the Borrowing Date for each Borrowing of a Bid Loan(s), each Bank
bound to make Bid Loan(s) in accordance with Section 1.10(a) shall, subject to
Section 6, make available to the
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<PAGE> 16
Agent the principal amount of each such Bid Loan in immediately available funds
in Chicago, Illinois at the Agent's payment office in Chicago, Illinois, except
that if such Bid Loan is denominated in an Alternative Currency each Bank
shall, subject to Section 6, make available its Bid Loan at such office as the
Agent has previously specified in a notice to each Bank, in such funds as are
then customary for the settlement of international transactions in such
currency and no later than such local time as is necessary for such funds to be
received and transferred to the Borrower for same day value on the date of the
Borrowing. The Agent shall make available to the Borrower Loans denominated in
U.S. Dollars at the Agent's principal office in Chicago, Illinois and Loans
denominated in Alternative Currencies at such office as the Agent has
previously agreed to with the Borrower, in each case in the type of funds
received by the Agent from the Banks.
Section 1.11. Interest on Bid Loans. Each Stated Rate Bid Loan
made by a Bank shall bear interest (computed on the basis of a year of 360 days
and actual days elapsed) on the unpaid principal amount thereof from time to
time outstanding from the date of the Borrowing of such Loan to but excluding
its maturity date (whether by acceleration or otherwise) at the rate per annum
determined for such Stated Rate Bid Loan pursuant to Section 1.10 hereof,
payable on its maturity date (whether by acceleration or otherwise) and if such
Stated Rate Bid Loan has a maturity of longer than 90 days then on the day
occurring every 90 days after the Borrowing Date for such Stated Rate Bid Loan.
Each Eurocurrency Bid Loan made by a Bank shall bear interest, which interest
shall be payable, as provided in Section 1.3(b) hereof.
Section 1.12. Interest Periods. As provided in Sections 1.5(a)
and 1.7(a) hereof, at the time of each request to advance, continue, or create
by conversion a Borrowing of Loans, the Borrower shall select an Interest
Period applicable to such Loans from among the available options. The term
"Interest Period" means the period commencing on the date a Borrowing of Loans
is advanced, continued, or created by conversion and ending: (a) in the case
of Domestic Rate Loans, on the last day of the calendar month in which such
Borrowing is advanced, continued, or created by conversion (or on the last day
of the following month if such Loan is advanced, continued or created by
conversion on the last day of a calendar month), (b) in the case of Stated Rate
Bid Loans, 1-180 days thereafter and (c) in the case of Eurocurrency Loans, 1,
2, 3, or 6 months thereafter; provided, however, that:
(a) any Interest Period for a Borrowing of Domestic Rate
Loans that otherwise would end after the Termination Date shall end on
the Termination Date;
(b) for any Borrowing of Fixed Rate Loans, the Borrower
may not select an Interest Period that extends beyond the Termination
Date;
(c) whenever the last day of any Interest Period would
otherwise be a day that is not a Business Day, the last day of such
Interest Period shall be extended to the next succeeding Business Day,
provided that, if such extension would cause the last day of an
Interest Period for a Borrowing of Eurocurrency
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<PAGE> 17
Loans to occur in the following calendar month, the last day of such
Interest Period shall be the immediately preceding Business Day; and
(d) for purposes of determining an Interest Period for a
Borrowing of Eurocurrency Loans, a month means a period starting on
one day in a calendar month and ending on the numerically
corresponding day in the next calendar month; provided, however, that
if there is no numerically corresponding day in the month in which
such an Interest Period is to end or if such an Interest Period begins
on the last Business Day of a calendar month, then such Interest
Period shall end on the last Business Day of the calendar month in
which such Interest Period is to end.
Section 1.13. Maturity of Loans. Each Committed Loan shall
mature and become due and payable by the Borrower on the Termination Date.
Each Bid Loan shall mature and become due and payable by the Borrower on the
last day of its Interest Period.
Section 1.14. Prepayments. (a) Committed Loans. The Borrower
shall have the privilege of prepaying Committed Loans without premium or
penalty and in whole or in part (but, if in part, then: (i) if such Committed
Borrowing is of Domestic Rate Loans, in an amount not less than $5,000,000,
(ii) if such Committed Borrowing is of Eurocurrency Loans denominated in U.S.
Dollars, in an amount not less than $5,000,000, (iii) if such Committed
Borrowing is denominated in an Alternative Currency, an amount for which the
U.S. Dollar Equivalent is not less than $5,000,000 and (iv) in an amount such
that the minimum amount required for a Committed Borrowing pursuant to Section
1.4 hereof remains outstanding) any Committed Borrowing of Eurocurrency Loans
at any time upon three Business Days' prior notice to the Agent or, in the case
of a Committed Borrowing of Domestic Rate Loans, at any time upon notice
delivered to the Agent no later than 10:00 a.m. (Chicago time) on the date of
prepayment, such prepayment to be made by the payment of the principal amount
to be prepaid and accrued interest thereon to the date fixed for prepayment
and, in the case of Committed Eurocurrency Loans, any compensation required by
Section 1.17 hereof. The Agent will promptly advise each Bank of any such
prepayment notice it receives from the Borrower. Any amount paid or prepaid
before the Termination Date may, subject to the terms and conditions of this
Agreement, be borrowed, repaid and borrowed again.
(b) Bid Loans. The Borrower may not prepay any Bid Loan before
the last day of its Interest Period, except as required pursuant to Section
1.14(c), Section 8 or Section 9.1 hereof.
(c) Mandatory. If, within 30 days after receiving notice under
Section 7.6(c) of a Change of Control Event, the Required Banks notify the
Borrower that they require prepayment of the Notes, on the date set forth in
such notice (which date shall be no earlier than (x) five (5) days after such
notice is given or (y) the day on which the Borrower repays any other Debt
before its original scheduled due date, whichever day is earlier) the Borrower
shall pay in full all Obligations then outstanding, including the prepayment of
L/C Obligations in the manner contemplated by Section 8.4 hereof, and the
Commitments shall
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terminate in full; provided, however, that any outstanding Bid Loan may be
repaid on its scheduled maturity date unless otherwise required by the Bank
that made the relevant Bid Loan.
Section 1.15. Default Rate. If any payment of principal on any
Loan is not made when due (whether by acceleration or otherwise), such Loan
shall bear interest (computed on the basis of a year of 360 days and actual
days elapsed or, if based on the Domestic Rate, on the basis of a year of 365
or 366 days, as applicable, and the actual number of days elapsed) from the
date such payment was due until paid in full, payable on demand, at a rate per
annum equal to:
(a) for any Domestic Rate Loan, the sum of two percent
(2%) plus the Domestic Rate from time to time in effect; and
(b) for any Fixed Rate Loan, the sum of two percent (2%)
plus the rate of interest in effect thereon at the time of such
default until the end of the Interest Period applicable thereto and,
thereafter, if such Loan is denominated in U.S. Dollars, at a rate
per annum equal to the sum of two percent (2%) plus the Domestic Rate
from time to time in effect or, if such Loan is denominated in an
Alternative Currency, at a rate per annum equal to the sum of the
Eurocurrency Margin, plus two percent (2%) plus the rate of interest
per annum as determined by the Agent (rounded upwards, if necessary,
to the nearest whole multiple of one-sixteenth of one percent (1/16%))
at which overnight or weekend deposits of the appropriate currency
(or, if such amount due remains unpaid more than three Business Days,
then for such other period of time not longer than one month as the
Agent may elect in its absolute discretion) for delivery in
immediately available and freely transferable funds would be offered
by the Agent to major banks in the interbank market upon request of
such major banks for the applicable period as determined above and in
an amount comparable to the unpaid principal amount of any such
Eurocurrency Loan (or, if the Agent is not placing deposits in such
currency in the interbank market, then the Agent's cost of funds in
such currency for such period).
Section 1.16. The Notes. (a) The Committed Loans made to the
Borrower by a Bank shall be evidenced by a single promissory note of the
Borrower issued to such Bank in the form of Exhibit B hereto (individually a
"Committed Note" and collectively the "Committed Notes"). All Bid Loans made
to the Borrower by a Bank shall be evidenced by a single promissory note of the
Borrower payable to the order of such Bank in the form of Exhibit C hereto
(such notes being hereinafter referred to individually as a "Bid Note" and
collectively as the "Bid Notes").
(b) Each Bank shall record on its books and records or on a
schedule to its applicable Note the amount of each Loan advanced, continued, or
converted by it, all payments of principal and interest and the principal
balance from time to time outstanding thereon, the type of such Loan, and, for
any Fixed Rate Loan, the Interest Period, the currency in which such Loan is
denominated, and the interest rate applicable thereto. The
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<PAGE> 19
record thereof, whether shown on such books and records of a Bank or on a
schedule to any Note, shall be prima facie evidence as to all such matters;
provided, however, that the failure of any Bank to record any of the foregoing
or any error in any such record shall not limit or otherwise affect the
obligation of the Borrower to repay all Loans made to it hereunder together
with accrued interest thereon. At the request of any Bank and upon such Bank
tendering to the Borrower the Note to be replaced, the Borrower shall furnish a
new Note to such Bank to replace any outstanding Note, and at such time the
first notation appearing on a schedule on the reverse side of, or attached to,
such Note shall set forth the aggregate unpaid principal amount of all Loans,
if any, then outstanding thereon.
Section 1.17. Funding Indemnity. If any Bank shall incur any
loss, cost or expense (including, without limitation, any loss of profit, and
any loss, cost or expense incurred by reason of the liquidation or
re-employment of deposits or other funds acquired by such Bank to fund or
maintain any Fixed Rate Loan or the relending or reinvesting of such deposits
or amounts paid or prepaid to such Bank) as a result of:
(a) any payment, prepayment or conversion of a Fixed Rate
Loan on a date other than the last day of its Interest Period,
(b) any failure (because of a failure to meet the
conditions of Section 6 or otherwise) by the Borrower to borrow or
continue a Fixed Rate Loan, or to convert a Domestic Rate Loan into a
Fixed Rate Loan, on the date specified in a notice given pursuant to
Section 1.5(a) or established pursuant to Section 1.5(c) hereof,
(c) any failure by the Borrower to make any payment of
principal on any Fixed Rate Loan when due (whether by acceleration or
otherwise), or
(d) any acceleration of the maturity of a Fixed Rate Loan
as a result of the occurrence of any Event of Default hereunder,
then, upon the demand of such Bank, the Borrower shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost or expense. If any Bank
makes such a claim for compensation, it shall provide to the Borrower, with a
copy to the Agent, a certificate executed by an officer of such Bank setting
forth the amount of such loss, cost or expense in reasonable detail (including
an explanation of the basis for and the computation of such loss, cost or
expense) and the amounts and components of such calculation shown on such
certificate if reasonably calculated shall be conclusive.
Section 1.18. Commitment Terminations. The Borrower shall have
the right at any time and from time to time, upon five (5) Business Days' prior
written notice to the Agent, to terminate the Revolving Credit Commitments
without premium or penalty, in whole or in part, any partial termination to be
(i) in an amount not less than $5,000,000, and (ii) allocated ratably among the
Banks in proportion to their respective Percentages, provided that the
Revolving Credit Commitments may not be reduced to an amount less than the sum
of the Original Dollar Amount of all Loans and all L/C Obligations then
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outstanding. The Agent shall give prompt notice to each Bank of any such
termination of Revolving Credit Commitments. Any termination of Revolving
Credit Commitments pursuant to this Section 1.18 may not be reinstated.
Section 1.19. Increase in Revolving Credit Commitment. Provided
that no Event of Default has occurred and is continuing, the Borrower may, from
time to time on any Business Day, increase the Revolving Credit Commitments by
delivering a Revolving Credit Commitment Amount Increase Request at least 5
Business Days (or such fewer Business Days as the Agent may agree) before the
desired effective date of such increase (the "Commitment Amount Increase")
identifying each additional Bank (which may be an existing Bank) which has so
agreed and the amount of its Revolving Credit Commitment (or, each additional
amount of an existing Bank's Revolving Credit Commitment) which Bank and
Commitment must be acceptable to the Agent; provided, however, that any
increase of the Revolving Credit Commitments to aggregate Revolving Credit
Commitments in excess of $600,000,000 will require the approval of all the
Banks. The effective date of each Commitment Amount Increase shall be agreed
upon by the Borrower and the Agent and shall be a date on which no Committed
Loans are outstanding. Upon the effectiveness thereof, the Banks' Percentages
shall be adjusted to reflect the then existing Revolving Credit Commitments.
The Borrower agrees to pay any fees or expenses (including reasonable
attorneys' fees and any processing fees) of the Agent relating to any
Commitment Amount Increase.
SECTION 2. FEES AND EXTENSIONS.
Section 2.1. Fees. (a) Facility Fee. For the period from the
Effective Date to and including the Termination Date, the Borrower shall pay to
the Agent for the ratable account of the Banks in accordance with their
Percentages a facility fee on the average daily amount of the Revolving Credit
Commitments hereunder (whether used or unused) at a rate of 0.10% per annum
until the first Pricing Date, and thereafter from one Pricing Date until the
next at a rate of (i) 0.085% per annum for each day Level I status exists, (ii)
0.10% per annum for each day Level II status exists, (iii) 0.125% per annum for
each day Level III status exists, (iv) 0.175% per annum for each day Level IV
status exists and (v) 0.250% per annum for each day Level V status exists, such
fees being payable in arrears on September 30, 1996, on the last day of each
calendar quarter thereafter and on the Termination Date, unless the Revolving
Credit Commitments are terminated in whole on an earlier date, in which event
the fee for the period to but not including the date of such termination shall
be paid in whole on the date of such termination.
(b) Letter of Credit Fees. On the date of issuance or extension,
or increase in the amount, of any Standby Letter of Credit pursuant to Section
1.2 hereof, the Borrower shall pay to the Agent for its own account an issuance
fee equal to 1/16 of 1% (0.0625) per annum of the face amount of (or of the
increase in the face amount of) such Standby Letter of Credit. Quarterly in
arrears, on the last day of each calendar quarter, commencing on September 30,
1996, the Borrower shall pay to the Agent, for the ratable benefit of the Banks
in accordance with their Percentages, a letter of credit fee at a rate per
annum equal to the Eurocurrency Margin in effect during each day of such
quarter applied to the daily
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average face amount of Letters of Credit outstanding during such quarter. In
addition, the Borrower shall pay to the Agent for its own account (i) the
Agent's standard issuance fee for each Commercial Letter of Credit and (ii) the
Agent's standard drawing, negotiation, amendment, and other administrative fees
for each Letter of Credit. Such standard fees referred to in the preceding
clauses (i) and (ii) may be established by the Agent from time to time.
(c) Agent Fees. The Borrower shall pay to the Agent the fees
agreed to between the Agent and the Borrower.
(d) Fee Calculations. All fees payable under this Section 2.1
shall be computed on the basis of a year of 365 or 366 days, as applicable, for
the actual number of days elapsed.
Section 2.2. Extension of Termination Date. (a) No later than
ninety (90) days before each anniversary date of this Agreement (each an
"Anniversary Date") the Borrower may make a request for a one year extension of
the Termination Date then in effect (the "Existing Termination Date") in a
written notice to the Agent. The Agent will promptly inform the Banks of any
such request, and each Bank shall notify the Agent in writing within forty-five
(45) days before the Anniversary Date following such request (the "Reply Date")
whether it agrees to the requested extension. If a Bank fails to so notify the
Agent whether it agrees to such extension, such Bank shall be deemed to have
refused to grant the requested extension.
(b) If, on or before the relevant Reply Date, the Agent shall have
received from Banks holding Revolving Credit Commitments in an aggregate amount
more than 80% of the aggregate amount of the Revolving Credit Commitments
notices agreeing to extend the Termination Date as provided in paragraph (a)
above, then, effective as of such Anniversary Date, the Termination Date shall
be extended to the date one year following the Existing Termination Date;
provided that (i) if the Agent shall not have received such notices or the
Borrower shall deliver a notice of material adverse change as provided in
Section 2.2(d), the Termination Date shall remain unchanged and no Replacement
Bank shall become a Bank hereunder and (ii) if the Agent shall have received
such notices and the Borrower has not delivered a notice of material adverse
change as provided in Section 2.2(d) below, the Revolving Credit Commitment of
any Bank (a "Non-Extending Bank") that notified the Agent it elected not to
extend the Termination Date as provided in paragraph (a) above or failed to
deliver a notice to the Agent agreeing to such an extension shall, subject to
paragraph (c) below, terminate on such Anniversary Date and the Borrower shall
pay on such Anniversary Date in full all Obligations owing to each
Non-Extending Bank. Such payment shall be made to such Non-Extending Banks pro
rata without any sharing with the other Banks, notwithstanding Section 11.7
hereof, so long as no Obligations owed hereunder are then past due. After
receipt of such payment on such Anniversary Date, each such Non-Extending Bank
shall no longer be a party to this Agreement or be included as a Bank for
purposes of this Agreement and each other Credit Document except that each such
Non-Extending Bank shall continue to be entitled to the benefits of the
indemnities which survive the termination of this Agreement as provided in
Section 11.6 hereof. Each Non-Extending Bank shall have no further obligation
or Revolving Credit Commitment hereunder following
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the date on which it is terminated as a Bank hereunder except for those that
accrued on or before such date.
(c) The Borrower shall have the right at any time after the Reply
Date and on or before such Anniversary Date to replace such Non- Extending
Bank(s) with one or more other Eligible Assignees including any other Bank
(each a "Replacement Bank") with the approval of the Agent, each of which
Replacement Bank(s) shall have entered into an agreement in form and substance
satisfactory to the Borrower and the Agent pursuant to which such Replacement
Bank(s) shall (i) assume all or any portion of the Revolving Credit
Commitment(s) of the Non-Extending Bank(s) as if such Non-Extending Bank(s) had
agreed to an extension of the Existing Termination Date previously effected
pursuant to Section 2.2(b) hereof (and, if such Replacement Bank(s) is a Bank,
its Revolving Credit Commitment shall be in addition to each such Bank's
Revolving Credit Commitment hereunder on such date) and (ii) purchase all of
each such Non-Extending Bank's Loans and any Reimbursement Obligations which
may be owing to such Non-Extending Bank for a consideration equal to the
aggregate outstanding principal amount of such Non-Extending Bank's Loans and
such Reimbursement Obligations, together with interest thereon to the date of
such purchase, and satisfactory arrangements are made for payment to such
Non-Extending Bank of all other amounts payable to such Non-Extending Bank on
or prior to the date of such transfer (including any fees accrued hereunder and
any amounts that would be payable under Section 1.17 hereof as if all of such
Non-Extending Bank's Loans were being prepaid in full on such date).
(d) If the Existing Termination Date shall have been extended
pursuant to this Section 2.2, the Borrower shall be deemed to represent to each
Bank, including each Replacement Bank, that, except as previously disclosed in
writing to the Banks before the applicable Anniversary Date, since the date of
the latest audited financial statements delivered pursuant to Section
7.6(a)(ii) hereof to such Anniversary Date, there has been no material adverse
change in the financial condition, results of operations, Property, or business
of the Borrower and its Subsidiaries, taken as a whole.
SECTION 3. PLACE AND APPLICATION OF PAYMENTS.
Section 3.1. Place and Application of Payments. All payments of
principal of and interest on the Loans and the Reimbursement Obligations, and
of all other amounts payable by the Borrower under this Agreement, shall be
made by the Borrower to the Agent by no later than 12:00 noon (Chicago time) on
the due date thereof at the principal office of the Agent in Chicago, Illinois
(or such other location in the State of Illinois as the Agent may designate to
the Borrower) or, if such payment is to be made in an Alternative Currency, no
later than 12:00 noon local time at the place of payment to such office as the
Agent has previously specified in a notice to the Borrower for the benefit of
the Person or Persons entitled thereto. Any payments received after such time
shall be deemed to have been received by the Agent on the next Business Day.
All such payments shall be made (i) in U.S. Dollars, in immediately available
funds at the place of payment, or (ii) in the case of principal or interest
payable on Loans made in an Alternative Currency and other amounts payable
hereunder in an Alternative Currency, in such Alternative Currency in such
funds
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<PAGE> 23
then customary for the settlement of international transactions in such
currency, in each case without setoff or counterclaim. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal or interest on Loans or facility fees or Letter of Credit fees
payable pursuant to the second sentence of Section 2.1(b) hereof ratably to the
Banks entitled thereto and like funds relating to the payment of any other
amount payable to any Person to such Person, in each case to be applied in
accordance with the terms of this Agreement.
SECTION 4. DEFINITIONS; INTERPRETATION.
Section 4.1. Definitions. The following terms when used herein
have the following meanings:
"Account" is defined in Section 8.4(b) hereof.
"Adjusted LIBOR" is defined in Section 1.3(b) hereof.
"Affiliate" means, as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with their
correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction
of management or policies of a Person (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise),
provided that, in any event for purposes of this definition: (i) any Person
which owns directly or indirectly 5% or more of the securities having ordinary
voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person; and (ii) each director and
executive officer of the Borrower or any Subsidiary shall be deemed an
Affiliate of the Borrower and each Subsidiary.
"Agent" means Harris Trust and Savings Bank and any successor pursuant
to Section 10.8 hereof.
"Alternative Currency" means any of Australian Dollars, Belgian
Francs, Canadian Dollars, Deutsche Marks, Dutch Guilders, French Francs,
Japanese Yen, Pound Sterling, Spanish Pesetas, and, for a Eurocurrency Bid Loan
only, any other currency in which a Bank has agreed to advance pursuant to a
Bid Loan Request, in each case for so long as such currency is freely
transferable and convertible to U.S. Dollars and, in the case of Committed
Eurocurrency Loans, is available to all the Banks.
"Anniversary Date" is defined in Section 2.2 hereof.
"Application" is defined in Section 1.2(b) hereof.
"Australian Dollars" means the lawful currency of Australia.
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"Authorized Representative" means those persons shown on the list of
officers provided by the Borrower pursuant to Section 6.1(e) hereof, or on any
updated such list provided by the Borrower to the Agent, or any further or
different officer of the Borrower so named by any Authorized Representative of
the Borrower in a written notice to the Agent.
"Bank" means each Bank signatory hereto or that becomes a Bank
hereunder pursuant to Sections 1.19, 2.2(c) or 11.12 hereof and includes the
Agent in its capacity as issuer of Letters of Credit and holder of L/C
Obligations after giving effect to each Participating Bank's interest therein.
"Belgian Francs" means the lawful currency of the Kingdom of Belgium.
"Bid" is defined in Section 1.7(c) hereof.
"Bid Loan" is defined in Section 1.6 hereof.
"Bid Loan Request" is defined in Section 1.7(a) hereof.
"Bid Loan Request Confirmation" is defined in Section 1.7(a) hereof.
"Bid Note" is defined in Section 1.16 hereof.
"Borrower" means U.S. Robotics Corporation, a Delaware corporation.
"Borrowing" means the total of Loans of a single type advanced,
continued for an additional Interest Period, or converted from a different type
into such type by a Bank or Banks on a single date and for a single Interest
Period. Borrowings of Committed Loans are made and maintained ratably from
each of the Banks according to their Percentages. A Borrowing is "advanced" on
the day a Bank or Banks advance funds comprising such Borrowing to the Borrower
and, in the case of Committed Loans only, is "continued" on the date a new
Interest Period for the same type of Committed Loans commences for such
Borrowing, and is "converted" when such Borrowing of Committed Loans is changed
from one type of Loan to the other, all as requested by the Borrower pursuant
to Section 1.5(a). The term "Committed Borrowing" shall mean a Borrowing of
Committed Loans advanced, continued, or converted pursuant to Section 1.5
hereof and the term "Bid Borrowing" shall mean a Borrowing of Bid Loans
advanced pursuant to Section 1.10 hereof.
"Borrowing Date" is defined in Section 1.7(a) hereof.
"Business Day" means any day other than a Saturday or Sunday on which
Banks are not authorized or required to close in Chicago, Illinois and, if the
applicable Business Day relates to the borrowing or payment of a Eurocurrency
Loan, on which banks are dealing in U.S. Dollar deposits or the relevant
Alternative Currency in the interbank market in London, England and, if the
applicable Business Day relates to the borrowing or payment of a Eurocurrency
Loan denominated in an Alternative Currency, on which banks and foreign
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exchange markets are open for business in the city where disbursements of or
payments on such Loan are to be made.
"Canadian Dollars" means the lawful currency of Canada.
"Capital Lease" means at any date any lease of Property which, in
accordance with GAAP, would be required to be capitalized on the balance sheet
of the lessee.
"Capitalized Lease Obligations" means, for any Person, the amount of
such Person's liabilities under Capital Leases determined at any date in
accordance with GAAP.
"Change of Control Event" means at any time (a) any person or group of
persons (within the meaning of Section 13 or 14 of the Securities and Exchange
Act of 1934, as amended) acquires legal or beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the SEC under said Act) of 20% or more in
voting power of the outstanding Voting Stock of the Borrower or (b) members of
the Board of Directors of the Borrower on the date hereof plus any additional
members of such Board whose nomination for election or election to such Board
is recommended or approved by the then current members of such Board shall at
any time fail to constitute a majority of such Board.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Letter of Credit" means a Letter of Credit that finances a
commercial transaction by paying part or all of the purchase price for goods
against delivery of a document of title covering such goods and any other
required documentation.
"Commitments" means the Revolving Credit Commitments and the L/C
Commitment.
"Commitment Amount Increase" is defined in Section 1.19 hereof.
"Committed Loan" is defined in Section 1.1 hereof.
"Committed Note" is defined in Section 1.16 hereof.
"Compliance Certificate" means a certificate in the form of Exhibit H
hereto.
"Consolidated Net Income" means, for any period, the net income (or
net loss) of the Borrower and its Subsidiaries for such period computed on a
consolidated basis in accordance with GAAP.
"Consolidated Tangible Assets" means the total assets of the Borrower
and its Subsidiaries on a consolidated basis determined in accordance with
GAAP, excluding from the determination thereof all assets which would be
classified as intangible assets under GAAP.
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"Consolidated Tangible Net Worth" means the excess of Consolidated
Tangible Assets over the total liabilities that are reflected on the balance
sheet of the Borrower and its Subsidiaries on a consolidated basis determined
in accordance with GAAP.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking
to which such Person is a party or by which it or any of its Property is bound.
"Controlled Group" means all members of a controlled group of
corporations and all trades and businesses (whether or not incorporated) under
common control that, together with the Borrower or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.
"Credit Documents" means this Agreement, the Notes, the Applications
and the Letters of Credit.
"Credit Event" means the advancing of any Loan, the continuation of or
conversion into a Eurocurrency Loan, or the issuance of, or extension of the
expiration date or increase in the amount of, any Letter of Credit.
"Debt" means, for any Person, any Indebtedness of such Person of the
type described in clauses (i) through (vii) of the definition of such term.
"Default" means any event or condition the occurrence of which would,
with the passage of time or the giving of notice, or both, constitute an Event
of Default.
"Deutsche Marks" means the lawful currency of the Federal Republic of
Germany.
"Domestic Rate" is defined in Section 1.3(a) hereof.
"Domestic Rate Loan" means a Loan bearing interest prior to maturity
at a rate specified in Section 1.3(a) hereof.
"Dutch Guilder" means the lawful currency of The Kingdom of The
Netherlands.
"EBITDA" means, for any period, Consolidated Net Income for such
period plus all amounts deducted in arriving at such Consolidated Net Income
amount for such period for (i) Interest Expense, (ii) federal, state and local
income tax expense and (iii) all amounts properly charged for depreciation of
fixed assets and amortization of intangible assets during such period on the
books of the Borrower and its Subsidiaries.
"Effective Date" means the date on which the Agent has received signed
counterpart signature pages of this Agreement from each of the signatories (or,
in the case of a Bank, confirmation that such Bank has executed such a
counterpart and dispatched it for delivery to the Agent) and the conditions in
Section 6.1 hereof have been fulfilled.
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<PAGE> 27
"Eligible Assignee" means a commercial bank incorporated or organized
under the laws of the United States of America, any state or political
subdivision thereof or another member country of the Organization for Economic
Cooperation and Development (provided that such bank is acting through a branch
or agency located in the United States) with a net worth or combined capital
and surplus (as established in its most recent report of condition to its
primary regulator) of not less than $250,000,000.
"ERISA" is defined in Section 5.8 hereof.
"Existing Termination Date" is defined in Section 2.2(a) hereof.
"Eurocurrency Loan" means a Loan bearing interest prior to maturity at
the rate specified in Section 1.3(b) hereof and "Committed Eurocurrency Loan"
means a Eurocurrency Loan made pursuant to the provisions of Section 1.5 hereof
and "Eurocurrency Bid Loan" means a Eurocurrency Loan made pursuant to the
provisions of Section 1.10 hereof. "Eurocurrency Loans" shall include both
Committed Eurocurrency Loans and Eurocurrency Bid Loans unless the context
otherwise requires.
"Eurocurrency Margin" is defined in Section 1.3(b) hereof.
"Eurocurrency Reserve Percentage" is defined in Section 1.3(b) hereof.
"Event of Default" means any of the events or circumstances specified
in Section 8.1 hereof.
"Federal Funds Rate" means the fluctuating interest rate per annum
described in part (x) of clause (ii) of the definition of Domestic Rate in
Section 1.3(a) hereof.
"French Franc" means the lawful currency of the Republic of France.
"Fixed Rate Loans" means all Loans other than Domestic Rate Loans.
"GAAP" means generally accepted accounting principles as in effect
from time to time, provided that for purposes of computing compliance with
Sections 7.9, 7.12, 7.15, 7.16, 7.17 and 7.19 hereof, GAAP shall mean generally
accepted accounting principles applied by the Borrower and its Subsidiaries on
a basis consistent with the preparation of the financial statements furnished
to the Banks as described in Section 5.4 hereof.
"Guaranty" by any Person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing
any Indebtedness, dividend or other obligation (including, without limitation,
limited or full recourse obligations in connection with sales of receivables or
any other Property) of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any Property or assets constituting
security therefor,
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(ii) to advance or supply funds (x) for the purchase or payment of such
Indebtedness or obligation, or (y) to maintain working capital or other balance
sheet condition, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness or obligation, or (iii) to lease
property or to purchase Securities or other property or services primarily for
the purpose of assuring the owner of such Indebtedness or obligation of the
ability of the primary obligor to make payment of the Indebtedness or
obligation, or (iv) otherwise to assure the owner of the Indebtedness or
obligation of the primary obligor against loss in respect thereof. For the
purpose of all computations made under this Agreement, the amount of a Guaranty
in respect of any obligation shall be deemed to be equal to the maximum
aggregate amount of such obligation or, if the Guaranty is limited to less than
the full amount of such obligation, the maximum aggregate potential liability
under the terms of the Guaranty.
"Hazardous Material" means and includes (a) any asbestos, PCBs or
dioxins or insulation or other material composed of or containing asbestos,
PCBs or dioxins and (b) any petroleum product or derivative or other
hydrocarbon, and any hazardous or toxic waste, substance or material defined as
such in (or for purposes of) CERCLA, any so-called "Superfund" or "Superlien"
law, or any other applicable federal, state, local or other statute, law,
ordinance, code, rule, regulation, order or decree regulating or pertaining to
any such waste, substance or material, as now or at any time hereinafter in
effect.
"Indebtedness" means and includes, for any Person, all obligations of
such Person, without duplication, which are required by GAAP to be shown as
liabilities on its balance sheet, and in any event shall include the principal
component or imputed principal component of all (i) obligations of such Person
for borrowed money, (ii) obligations of such Person representing the deferred
purchase price of property or services other than accounts payable arising in
the ordinary course of business on terms customary in the trade, (iii)
obligations of such Person evidenced by notes, acceptances, or other
instruments of such Person or arising out of letters of credit issued for such
Person's account, (iv) Capitalized Lease Obligations of such Person, (v)
obligations of such Person under Sale/Leaseback Leases, (vi) obligations of the
type described in clauses (i) through (v) above, whether or not assumed,
secured by Liens or payable out of the proceeds or production from Property now
or hereafter owned or acquired by such Person and (vii) obligations of the type
described in clauses (i) through (vi) above for which such Person is obligated
pursuant to a Guaranty. The imputed principal component of any such
obligations or liabilities will be determined by any reasonable method selected
by the Borrower and disclosed to the Banks that is not objected to by the
Required Banks.
"Interest Expense" means, for any period, the sum of all interest
charges for such period determined on a consolidated basis in accordance with
GAAP.
"Interest Period" is defined in Section 1.12 hereof.
"Investment" is defined in Section 7.14 hereof.
"Japanese Yen" means the lawful currency of Japan.
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"L/C Commitment" means $30,000,000.
"L/C Documents" means the Letters of Credit, any draft or other
document presented in connection with a drawing thereunder, the Applications
and this Agreement.
"L/C Obligations" means the aggregate undrawn face amounts of all
outstanding Letters of Credit and all unpaid Reimbursement Obligations.
"Lending Office" is defined in Section 9.4 hereof.
"Letter of Credit" is defined in Section 1.2(a) hereof.
"Level I" means from and after August 29, 1997 the Borrower's Leverage
Ratio as of the end of the Borrower's fiscal quarter ending immediately prior
to the most recent Pricing Date is less than .10 to 1.00.
"Level II" means (a) before August 29, 1997 the Borrower's Leverage
Ratio as of the end of the Borrower's fiscal quarter ending immediately prior
to the most recent Pricing Date is less than .25 to 1.00 and (b) from and after
August 29, 1997 the Borrower's Leverage Ratio as of the end of the Borrower's
fiscal quarter ending immediately prior to the most recent Pricing Date is
greater than or equal to .10 to 1.00 and less than .25 to 1.00.
"Level III" means the Borrower's Leverage Ratio as of the end of the
Borrower's fiscal quarter ending immediately prior to the most recent Pricing
Date is greater than or equal to .25 to 1.00 and less than .35 to 1.00.
"Level IV" means the Borrower's Leverage Ratio as of the end of the
Borrower's fiscal quarter ending immediately prior to the most recent Pricing
Date is greater than or equal to .35 to 1.00 and less than .45 to 1.00.
"Level V" means the Borrower's Leverage Ratio as of the end of the
Borrower's fiscal quarter ending immediately prior to the most recent Pricing
Date is greater than or equal to .45 to 1.00.
"Leverage Ratio" means the ratio of Total Debt to Total
Capitalization.
"LIBOR" is defined in Section 1.3(b) hereof.
"Lien" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, including, but not
limited to, the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale, security agreement or trust receipt, or a lease,
consignment or bailment for security purposes. The term "Lien" shall also
include reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purposes of this definition, a Person
shall be deemed to be the owner of any Property which
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it has acquired or holds subject to a conditional sale agreement, Capital Lease
or other arrangement pursuant to which title to the Property has been retained
by or vested in some other Person for security purposes, and such retention of
title shall constitute a "Lien."
"Loan" means any Committed Loan or Bid Loan and, as so defined,
includes a Domestic Rate Loan, Stated Rate Bid Loan or Eurocurrency Loan, each
of which is a "type" of Loan hereunder.
"Material Subsidiary" means each Subsidiary existing on the Effective
Date and each Subsidiary hereafter created or acquired which has either (i)
assets with a book value in excess of 5% of the Consolidated Tangible Assets
measured as of the last day of the most recently completed fiscal quarter or
(ii) annual revenues for the most recently completed 12-month period in excess
of 5% of the revenues of the Borrower and its Subsidiaries, taken as a whole.
"Non-Extending Bank" is defined in Section 2.2(b) hereof.
"Note" means any Committed Note or Bid Note and "Notes" shall mean all
Committed Notes and Bid Notes.
"Obligations" means all fees payable hereunder, all obligations of the
Borrower to pay principal or interest on Loans and Reimbursement Obligations,
and all other payment obligations of the Borrower arising under or in relation
to any Credit Document.
"Original Dollar Amount" means the amount of any Obligation
denominated in U.S. Dollars and, in relation to any Loan denominated in an
Alternative Currency, the U.S. Dollar Equivalent of such Loan on the day it is
advanced or continued for an additional Interest Period.
"Participating Bank" is defined in Section 1.2(d) hereof.
"Participating Interest" is defined in Section 1.2(d) hereof.
"Percentage" means, for each Bank, the percentage of the Revolving
Credit Commitments represented by such Bank's Revolving Credit Commitment or,
if the Revolving Credit Commitments have been terminated, the percentage held
by such Bank (including through participation interests in Reimbursement
Obligations) of the aggregate principal amount of all outstanding Obligations.
"Permitted Liquid Investments" means any investment by the Borrower or
any Subsidiary of excess cash complying with the restrictions of Schedule 7.14
hereto, provided that all such investments in preferred stock are in so-called
"money market preferred" that pays dividends at rates reset periodically to
reflect then current short term interest rates and such preferred stock carries
a credit rating meeting the "Quality Standards" described in such Schedule
7.14; provided further that Permitted Liquid Investments will include
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<PAGE> 31
investments in instruments similar to securities listed on Schedule 7.14 that
meet the credit quality and maturity standards of Schedule 7.14.
"Person" means an individual, partnership, corporation, association,
trust, unincorporated organization or any other entity or organization,
including a government or any agency or political subdivision thereof.
"Plan" means at any time an employee pension benefit plan covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code that is either (i) maintained by a member of the Controlled Group
or (ii) maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"PBGC" is defined in Section 5.8 hereof.
"Pound Sterling" means the lawful currency of the United Kingdom.
"Pricing Date" means, for any fiscal quarter of the Borrower ended
after the date hereof, the sixtieth day after the last day of such fiscal
quarter. The Eurocurrency Margin and facility fee established as of a Pricing
Date shall remain in effect until the next Pricing Date.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, whether now owned
or hereafter acquired.
"Reference Banks" means Harris Trust and Savings Bank, The First
National Bank of Chicago, NationsBank of Texas, N.A., and Societe Generale, and
"Reference Bank" means any one of such Reference Banks.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans.
"Reimbursement Obligation" is defined in Section 1.2(c) hereof.
"Required Banks" means, as of the date of determination thereof, Banks
holding at least 66-2/3% of the Percentages.
"Replacement Bank" is defined in Section 2.2(c) hereof.
"Reply Date" is defined in Section 2.2(b) hereof.
"Revolving Credit" is defined in the introductory paragraph hereof.
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"Revolving Credit Commitment" is defined in Section 1.1 hereof.
"Revolving Credit Commitment Amount Increase Request" means a request
substantially in the form of Exhibit J hereto executed by an Authorized
Representative.
"Sale/Leaseback Lease" means any lease of any real or personal
property that is created pursuant to or in connection with a transaction
permitted under Section 7.11 hereof.
"SEC" means the Securities and Exchange Commission.
"Security" has the same meaning as in Section 2(l) of the Securities
Act of 1933, as amended.
"Set-Off" is defined in Section 11.7 hereof.
"Spanish Pesetas" means the lawful currency of Spain.
"Standby Letter of Credit" means a Letter of Credit that is not a
Commercial Letter of Credit.
"Stated Rate Bid Loan" is defined in Section 1.6 hereof.
"Subsidiary" means, as to the Borrower, any corporation or other
entity of which more than fifty percent (50%) of the outstanding stock or
comparable equity interests having ordinary voting power for the election of
the Board of Directors of such corporation or similar governing body in the
case of a non-corporation (irrespective of whether or not, at the time, stock
or other equity interests of any other class or classes of such corporation or
other entity shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the Borrower
or by one or more of its Subsidiaries.
"Termination Date" means September 12, 1999, subject to any extension
of such date pursuant to Section 2.2 hereof.
"Total Capitalization" means the sum of Total Debt and Consolidated
Tangible Net Worth.
"Total Debt" means all Debt of the Borrower and its Subsidiaries
determined without duplication on a consolidated basis.
"Unfunded Vested Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all vested
nonforfeitable accrued benefits under such Plan exceeds (ii) the fair market
value of all Plan assets allocable to such benefits, all determined as of the
then most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the Controlled Group to
the PBGC or the Plan under Title IV of ERISA.
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<PAGE> 33
"U.S. Dollars" and "$" each means the lawful currency of the United
States of America.
"U.S. Dollar Equivalent" means the amount of U.S. Dollars which would
be realized by converting an Alternative Currency into U.S. Dollars in the
spot market at the exchange rate quoted by the Agent, at approximately 11:00
a.m. (London time) two Business Days prior to the date on which a computation
thereof is required to be made, to major banks in the interbank foreign
exchange market for the purchase of U.S. Dollars for such Alternative
Currency.
"Voting Stock" of any Person means capital stock of any class or
classes or other equity interests (however designated) having ordinary voting
power for the election of directors or similar governing body of such Person,
other than stock or other equity interests having such power only by reason of
the happening of a contingency.
"Welfare Plan" means a "welfare plan", as defined in Section 3(1) of
ERISA.
"Wholly-Owned" when used in connection with any Subsidiary of the
Borrower means a Subsidiary of which all of the issued and outstanding Voting
Stock (other than directors' qualifying shares as required by law) shall be
owned by the Borrower and/or one or more of its wholly-owned Subsidiaries.
Section 4.2. Interpretation. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the terms defined.
All references to times of day in this Agreement shall be references to
Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, the same shall be
done in accordance with GAAP, to the extent applicable, except where such
principles are inconsistent with the specific provisions of this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to each Bank as to itself
and, where the following representations and warranties apply to Subsidiaries,
as to each of its Subsidiaries, as follows:
Section 5.1. Corporate Organization and Authority. The Borrower
is duly organized and existing in good standing under the laws of the State of
Delaware; has all necessary corporate power to carry on its present business;
and is duly licensed or qualified and in good standing in each jurisdiction in
which the nature of the business transacted by it or the nature of the Property
owned or leased by it makes such licensing or qualification necessary and in
which the failure to be so licensed or qualified would reasonably be expected
to have a material adverse effect on the financial condition, results of
operations, Property, or business of the Borrower and its Subsidiaries, taken
as a whole.
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Section 5.2. Subsidiaries. Schedule 5.2 (as updated from time
to time pursuant to Section 7.6(a)(iv)) hereto identifies each Subsidiary, the
jurisdiction of its incorporation or organization, as the case may be, the
percentage of issued and outstanding shares of each class of its capital stock
or other equity interests owned by the Borrower and the Subsidiaries and, if
such percentage is not 100% (excluding directors' qualifying shares as required
by law), a description of each class of its authorized capital stock and other
equity interests and the number of shares of each class issued and outstanding.
Each Subsidiary is duly incorporated and existing in good standing as a
corporation under the laws of the jurisdiction of its incorporation, has all
necessary corporate power to carry on its present business, and is duly
licensed or qualified and in good standing in each jurisdiction in which the
nature of the business transacted by it or the nature of the Property owned or
leased by it makes such licensing or qualification necessary and in which the
failure to be so licensed or qualified would reasonably be expected to have a
material adverse effect on the financial condition, results of operations,
Property, or business of the Borrower and its Subsidiaries, taken as a whole.
All of the issued and outstanding shares of capital stock of each Subsidiary
are validly issued and outstanding and fully paid and nonassessable. All such
shares owned by the Borrower are owned beneficially, and of record, free of any
Lien.
Section 5.3. Corporate Authority and Validity of Obligations.
The Borrower has full right and authority to enter into this Agreement and the
other Credit Documents to which it is a party, to make the borrowings herein
provided for, to issue its Notes in evidence thereof, to apply for the issuance
of the Letters of Credit, and to perform all of its obligations under the
Credit Documents to which it is a party. Each Credit Document to which it is a
party has been duly authorized, executed and delivered by the Borrower and
constitutes valid and binding obligations of the Borrower enforceable in
accordance with its terms. Neither any of the Credit Documents, nor the
performance or observance by the Borrower of any of the matters required by
them, contravenes any provision of law or any charter or by-law provision of
the Borrower or (individually or in the aggregate) any material Contractual
Obligation of or affecting the Borrower or any of its Properties or results in
or requires the creation or imposition of any Lien on any of the Properties or
revenues of the Borrower.
Section 5.4. Financial Statements. The October 1, 1995, audited
consolidated financial statements of the Borrower and its Subsidiaries and the
June 30, 1996 unaudited consolidated financial statements of the Borrower and
its Subsidiaries each heretofore delivered to the Banks, have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with that of the previous fiscal year, except as otherwise noted
therein. Each of such financial statements fairly presents on a consolidated
basis the financial condition of the Borrower and its Subsidiaries as of the
dates thereof and the results of operations for the periods covered thereby.
The Borrower and its Subsidiaries, taken as a whole, have no contingent
liabilities material to the Borrower and its Subsidiaries, taken as a whole,
other than those disclosed in such financial statements referred to in this
Section 5.4 or in comments or footnotes thereto, or in any report supplementary
thereto, heretofore furnished to the Banks. From October 1, 1995 to the
Effective Date there has been no material adverse change in the financial
condition, results of operations, Property, or business of the Borrower and its
Subsidiaries, taken as a whole.
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<PAGE> 35
Section 5.5. No Litigation; No Labor Controversies. (a) There
is no litigation or governmental proceeding pending, or to the knowledge of the
Borrower threatened, against the Borrower or any Subsidiary which (individually
or in the aggregate) would reasonably be expected to have a material adverse
effect on the financial condition, results of operations, Property, or business
of the Borrower and its Subsidiaries, taken as a whole.
(b) There are no labor controversies pending or, to the best
knowledge of the Borrower, threatened against the Borrower or any Subsidiary
which (insofar as the Borrower may reasonably foresee) would reasonably be
expected to have a material adverse effect on the financial condition, results
of operations, Property, or business of the Borrower and its Subsidiaries,
taken as a whole.
Section 5.6. Taxes. The Borrower and its Subsidiaries have
filed all United States federal tax returns, and all other material tax
returns, required to be filed and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or any
Subsidiary, except such taxes, if any, as are being contested in good faith and
for which adequate reserves have been provided. No notices of tax liens have
been filed and no claims are being asserted concerning any such taxes, which
liens or claims are material to the financial condition of the Borrower and its
Subsidiaries, taken as a whole. The charges, accruals and reserves on the
books of the Borrower and its Subsidiaries for any taxes or other governmental
charges are reasonably adequate.
Section 5.7. Approvals. No authorization, consent, license,
exemption, filing or registration with any court or governmental department,
agency or instrumentality, nor any approval or consent of the stockholders of
the Borrower or any Subsidiary or from any other Person, is necessary to the
valid execution, delivery or performance by the Borrower or any Subsidiary of
any Credit Document to which it is a party.
Section 5.8. ERISA. Each of the Borrower and each other member
of the Controlled Group has fulfilled its obligations under the minimum funding
standards of and is in compliance in all material respects with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and with the Code
to the extent applicable to it and has not incurred any liability to the
Pension Benefit Guaranty Corporation ("PBGC") or a Plan under Title IV of ERISA
other than a liability to the PBGC for premiums under Section 4007 of ERISA.
Neither the Borrower nor any Subsidiary has any contingent liabilities for any
post-retirement benefits under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Title I of ERISA.
Section 5.9. Government Regulation. Neither the Borrower nor
any Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
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<PAGE> 36
Section 5.10. Margin Stock. Neither the Borrower nor any
Subsidiary is engaged principally, or as one of its primary activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock ("margin stock" to have the same meaning herein as in Regulation U of the
Board of Governors of the Federal Reserve System). The Borrower will not use
the proceeds of any Loan or Letter of Credit in a manner that violates any
provision of Regulation U or X of the Board of Governors of the Federal Reserve
System.
Section 5.11. Licenses and Authorizations; Compliance with Laws.
(a) The Borrower and each of its Subsidiaries has all necessary governmental
licenses, permits and authorizations to own and operate its Properties and to
carry on its business as currently conducted and contemplated.
(b) To the best of the Borrower's knowledge, the business and
operations of the Borrower and each Subsidiary comply in all respects with all
applicable federal, state, regional, county and local laws, statutes, rules,
regulations and ordinances relating to public health, safety or the
environment, including, without limitation, relating to releases, discharges,
emissions or disposals into air, water, land or groundwater, to the withdrawal
or use of groundwater, to the use, handling, disposal, treatment, storage,
transportation management, or exposure to Hazardous Material, and any
regulation, order, injunction, judgment, declaration, notice or demand issued
thereunder, except where the failure to so comply would (individually or in the
aggregate) reasonably be expected to have a material adverse effect on the
financial condition, results of operations, Property, or business of the
Borrower and its Subsidiaries, taken as a whole.
(c) Neither the Borrower nor any Subsidiary has given, nor is it
required to give, nor has it received, any notice, letter, citation, order,
warning, complaint, inquiry, claim or demand to or from any governmental entity
or in connection with any court proceeding that: (i) the Borrower or any
Subsidiary has violated, or is about to violate, any federal, state, regional,
county or local environmental, health or safety statute, law, rule, regulation,
ordinance, judgment or order; (ii) there has been a release, or there is a
threat of release, of Hazardous Material from the Borrower's or any
Subsidiary's real property, facilities, equipment or vehicles; (iii) the
Borrower or any Subsidiary may be or is liable, in whole or in part, for the
costs of cleaning up, remediating or responding to a release of Hazardous
Material; or (iv) any of the Borrower's or any Subsidiary's property or assets
are subject to a Lien in favor of any governmental entity for any liability,
costs or damages, under any federal, state or local environmental law, rule or
regulation arising from, or costs incurred by such governmental entity in
response to, a release of a Hazardous Material, to the extent any of the
foregoing would reasonably be expected to have a material adverse effect on the
financial condition, results of operations, Property, or business of the
Borrower and its Subsidiaries, taken as a whole.
Section 5.12. Ownership of Property; Liens. Schedule 5.12 hereto
(as the Borrower may supplement or amend it from time to time) lists all
principal real property locations used by the Borrower or any Subsidiary in the
conduct of their respective businesses. Each of the Borrower and each
Subsidiary has good and marketable title in fee simple to, or valid
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<PAGE> 37
leasehold interests in, all such real property, as specified in Schedule 5.12,
and good title to or valid leasehold interests in all its other Property. None
of the real property listed on Schedule 5.12 is subject to any Lien or
Capitalized Lease Obligation except as set forth therein or as permitted in
Section 7.9, and none of the Borrower's or any Subsidiary's other Property is
subject to any Lien except as permitted in Section 7.9.
Section 5.13. No Burdensome Restrictions; Compliance with
Agreements. Neither the Borrower nor any Subsidiary is (a) party or subject to
any law, regulation, rule or order, or any Contractual Obligation that
(individually or in the aggregate) materially adversely affects, or (insofar as
the Borrower may reasonably foresee) may so affect, the business, operations,
Property or financial or other condition of the Borrower and its Subsidiaries,
taken as a whole or (b) in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement to which it is a party, which default would reasonably be expected to
have a material adverse effect on the financial condition, results of
operations, Property, or business of the Borrower and its Subsidiaries, taken
as a whole.
Section 5.14. Full Disclosure. All information heretofore
furnished by the Borrower or any Subsidiary to the Agent or any Bank for
purposes of or in connection with the Credit Documents or any transaction
contemplated thereby is, and all such information hereafter furnished by the
Borrower or any Subsidiary to the Agent or any Bank will be, true and accurate
in all material respects and not misleading on the date as of which such
information is stated or certified. The Borrower has disclosed to the Banks in
writing any and all facts that materially and adversely affect the business,
operations or financial condition of the Borrower and its Subsidiaries, taken
as a whole, or the ability of the Borrower to perform its obligations under the
Credit Documents.
SECTION 6. CONDITIONS PRECEDENT.
The obligation of each Bank to advance, continue, or convert any Loan
(other than the continuation of, or conversion into, a Domestic Rate Loan), or
of the Agent to issue, extend the expiration date (including by not giving
notice of non-renewal) of or increase the amount of any Letter of Credit, shall
be subject to the following conditions precedent:
Section 6.1. Initial Credit Event. Before or concurrently with
the initial Credit Event:
(a) The Agent shall have received for each Bank the
favorable written opinions of (i) George Vinyard, General Counsel to
the Borrower, in substantially the form attached hereto as Exhibit I-1
and (ii) Mayer Brown & Platt, special Illinois counsel to the
Borrower, in substantially the form attached hereto as Exhibit I-2;
(b) The Agent shall have received for each Bank copies of
the Borrower's Certificate of Incorporation and bylaws (or comparable
constituent documents) and any amendments thereto, certified in each
instance by its Secretary or Assistant Secretary;
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(c) The Agent shall have received for each Bank copies of
resolutions in the Borrower's Board of Directors authorizing the
execution and delivery of the Credit Documents to which it is a party
on the Effective Date and the consummation of the transactions
contemplated thereby together with specimen signatures of the persons
authorized to execute such documents on the Borrower's behalf, all
certified in each instance by its Secretary or Assistant Secretary;
(d) The Agent shall have received for each Bank such
Bank's duly executed Committed Note and Bid Note of the Borrower dated
the date hereof and otherwise in compliance with the provisions of
Section 1.16 hereof;
(e) The Agent shall have received for each Bank a list of
the Borrower's Authorized Representatives; and
(f) All legal matters incident to the execution and
delivery of the Credit Documents shall be satisfactory to the Banks.
Section 6.2. All Credit Events. As of the time of each Credit
Event hereunder:
(a) In the case of a Borrowing, the Agent shall have
received the notice required by Section 1.5 hereof (including any
deemed notice under Section 1.5(c)) or 1.9 hereof, as applicable, in
the case of the issuance of any Letter of Credit the Agent shall have
received a duly completed Application for a Letter of Credit and, in
the case of an extension or increase in the amount of a Letter of
Credit, a written request therefor, in a form acceptable to the Agent;
(b) In the case of a Credit Event other than a Refunding
Borrowing or an extension of an existing Letter of Credit, each of the
representations and warranties set forth in Section 5 (except for the
last sentence of Section 5.4 and Section 5.5) hereof shall be and
remain true and correct in all material respects as of said time,
except that if any such representation or warranty relates solely to
an earlier date it need only remain true as of such date;
(c) In the case of a Credit Event other than a Refunding
Borrowing in Domestic Rate Loans or an extension of an existing Letter
of Credit, the Borrower shall be in full compliance with all of the
terms and conditions hereof, and no Default or Event of Default shall
have occurred and be continuing or would occur as a result of such
Credit Event;
(d) Such Credit Event shall not violate any order,
judgment or decree of any court or other authority or any provision of
law or regulation applicable to any Bank (including, without
limitation, Regulation U of the Board of Governors of the Federal
Reserve System); and
(e) In the case of a Credit Event other than a Refunding
Borrowing or an extension of an existing Letter of Credit, the sum of
(a) the outstanding principal
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amount of Loans denominated in U.S. Dollars, (b) the outstanding L/C
Obligations, and (c) the U.S. Dollar Equivalent of all Loans
denominated in an Alternative Currency, shall not, after giving effect
to such Credit Event, exceed the Revolving Credit Commitments then in
effect.
Each request for a Borrowing (other than a Refunding Borrowing)
hereunder and each request for the issuance of, or increase in the amount of, a
Letter of Credit shall be deemed to be a representation and warranty by the
Borrower on the date of such Credit Event as to the facts specified in
paragraphs (b) and (c) of this Section 6.2.
SECTION 7. COVENANTS.
The Borrower covenants and agrees that, so long as any Note or any L/C
Obligation is outstanding hereunder, or any Commitment is available to or in
use by the Borrower hereunder, except to the extent compliance in any case is
waived in writing by the Required Banks:
Section 7.1. Corporate Existence; Subsidiaries. The Borrower
shall, and shall cause each of its Material Subsidiaries to, preserve and
maintain its corporate existence, subject to the provisions of Section 7.12
hereof.
Section 7.2. Maintenance. The Borrower will maintain, preserve
and keep its plants, properties and equipment deemed by it necessary to the
proper conduct of its business in reasonably good repair, working order and
condition and will from time to time make all reasonably necessary repairs,
renewals, replacements, additions and betterments thereto so that at all times
such plants, properties and equipment shall be reasonably preserved and
maintained, and the Borrower will cause each of its Material Subsidiaries to do
so in respect of Property owned or used by it; provided, however, that nothing
in this Section 7.2 shall prevent the Borrower or a Material Subsidiary from
discontinuing the operation or maintenance of any such Properties if such
discontinuance is, in the judgment of the Borrower, desirable in the conduct of
its business or the business of its Material Subsidiary.
Section 7.3. Taxes. The Borrower will duly pay and discharge,
and will cause each of its Subsidiaries duly to pay and discharge, all material
taxes, rates, assessments, fees and governmental charges upon or against it or
against its Properties, in each case before the same becomes delinquent and
before penalties accrue thereon, unless and to the extent that the same is
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP have been provided therefor on the books of the Borrower.
Section 7.4. ERISA. The Borrower will, and will cause each of
its Subsidiaries to, promptly pay and discharge all obligations and liabilities
arising under ERISA of a character which if unpaid or unperformed might result
in the imposition of a Lien against any of its properties or assets and will
promptly notify the Agent of (i) the occurrence of any reportable event (as
defined in ERISA) affecting a Plan, other than any such event of which
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the PBGC has waived notice by regulation, (ii) receipt of any notice from PBGC
of its intention to seek termination of any Plan or appointment of a trustee
therefor, (iii) its or any of its Subsidiaries' intention to terminate or
withdraw from any Plan, and (iv) the occurrence of any event affecting any Plan
which could result in the incurrence by the Borrower or any of its Subsidiaries
of any material liability, fine or penalty, or any material increase in the
contingent liability of the Borrower or any of its Subsidiaries under any
post-retirement Welfare Plan benefit. The Agent will promptly distribute to
each Bank any notice it receives from the Borrower pursuant to this Section
7.4.
Section 7.5. Insurance. The Borrower will insure, and keep
insured, and will cause each of its Subsidiaries to insure, and keep insured,
with good and responsible insurance companies, all insurable Property owned by
it of a character usually insured by companies similarly situated and operating
like Property. To the extent usually insured (subject to self-insured
retentions) by companies similarly situated and conducting similar businesses,
the Borrower will also insure, and cause each of its Subsidiaries to insure,
employers' and public and product liability risks with good and responsible
insurance companies. The Borrower will upon request of any Bank furnish to
such Bank a summary setting forth the nature and extent of the insurance
maintained pursuant to this Section 7.5.
Section 7.6. Financial Reports and Other Information. (a) The
Borrower will maintain a system of accounting in accordance with GAAP and will
furnish to the Agent and its respective duly authorized representatives such
information respecting the business and financial condition of the Borrower and
its Subsidiaries as any Bank may reasonably request; and without any request,
the Borrower will furnish each of the following to the Agent (with sufficient
copies for each Bank):
(i) within 60 days after the end of each of the first
three quarterly fiscal periods of the Borrower, a copy of the
Borrower's Form 10-Q Report filed with the SEC;
(ii) within 100 days after the end of each fiscal year of
the Borrower, a copy of the Borrower's Form 10-K Report filed with the
SEC, prepared by the Borrower in accordance with GAAP and certified by
independent public accountants of recognized national standing
selected by the Borrower;
(iii) promptly after the sending or filing thereof, copies
of all proxy statements, financial statements and reports the Borrower
sends to its shareholders, and copies of all other regular, periodic
and special reports and all registration statements the Borrower files
with the SEC or any successor thereto, or with any national securities
exchange;
(iv) an updated Schedule 5.2 along with the financial
statements delivered under subsection (i) or (ii) above, as
applicable, for any calendar quarter during which there is a change in
any of the facts specified in Schedule 5.2 hereto, as then most
recently updated; and
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<PAGE> 41
(v) within 60 days after the end of each quarterly fiscal
period of the Borrower, a certificate (which may be the Compliance
Certificate) calculating the Borrower's Leverage Ratio as of the last
day of such quarterly fiscal period.
(b) Each financial statement furnished to the Banks pursuant to
subsection (i) or (ii) of this Section 7.6 shall be accompanied by a Compliance
Certificate in the form of Exhibit C hereto signed by the Borrower's chief
financial officer or treasurer.
(c) The Borrower will promptly (and in any event within five
Business Days after an officer of the Borrower has knowledge thereof) give
notice to the Agent and each Bank:
(i) of the occurrence of any Change of Control Event,
Default or Event of Default;
(ii) of any default or event of default under any material
Contractual Obligation of the Borrower or any of its Material
Subsidiaries;
(iii) of a material adverse change in the business,
operations, Property or financial or other condition of the Borrower
and its Subsidiaries, taken as a whole; and
(iv) of any litigation or governmental proceeding of the
type described in Section 5.5 hereof.
Section 7.7. Bank Inspection Rights. Upon reasonable notice
from any Bank, the Borrower will permit such Bank (and such Persons as any Bank
may designate) during normal business hours to visit and inspect, under the
Borrower's guidance, any of the properties of the Borrower or any of its
Subsidiaries, to examine all of their books of account, records, reports and
other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants (and by this provision the
Borrower authorizes such accountants to discuss with the Banks (and such
Persons as any Bank may designate) the finances and affairs of the Borrower and
its Subsidiaries) all at such reasonable times and as often as may be
reasonably requested.
Section 7.8. Conduct of Business. Neither the Borrower nor any
Subsidiary will engage in any line of business if, as a result, the general
nature of the business of the Borrower and its Subsidiaries, taken as a whole,
would be substantially changed from the development, manufacture, distribution
and sale of data communications equipment and computer and other equipment,
software, systems, technology and services related to communications,
computation or information access.
Section 7.9. Liens. The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, permit to exist or to be incurred
any Lien of any kind on any Property owned by the Borrower or any Subsidiary;
provided, however, that this Section 7.9 shall not apply to nor operate to
prevent:
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(a) Liens arising by operation of law in connection with
worker's compensation, unemployment insurance, social security
obligations, taxes, assessments, statutory obligations or other
similar charges, good faith deposits, pledges or Liens in connection
with bids, tenders, contracts or leases to which the Borrower or any
Subsidiary is a party (other than contracts for borrowed money), or
other deposits required to be made in the ordinary course of business;
provided that in each case the obligation secured is not overdue or,
if overdue, is being contested in good faith by appropriate
proceedings and for which reserves in conformity with GAAP have been
provided on the books of the Borrower;
(b) mechanics', workmen's, materialmen's, landlords',
carriers' or other similar Liens arising in the ordinary course of
business (or deposits to obtain the release of such Liens) securing
obligations not due or, if due, being contested in good faith by
appropriate proceedings and for which reserves in conformity with GAAP
have been provided on the books of the Borrower;
(c) Liens for taxes or assessments or other government
charges or levies on the Borrower or any Subsidiary of the Borrower or
their respective Properties, not yet due or delinquent, or which can
thereafter be paid without penalty, or which are being contested in
good faith by appropriate proceedings and for which reserves in
conformity with GAAP have been provided on the books of the Borrower;
(d) Liens arising out of judgments or awards against the
Borrower or any Subsidiary of the Borrower, or in connection with
surety or appeal bonds in connection with bonding such judgments or
awards, the time for appeal from which or petition for rehearing of
which shall not have expired or with respect to which the Borrower or
such Subsidiary shall be prosecuting an appeal or proceeding for
review, and with respect to which it shall have obtained a stay of
execution pending such appeal or proceeding for review; provided that
the aggregate amount of liabilities (including interest and penalties,
if any) of the Borrower and its Subsidiaries secured by such Liens
shall not exceed $10,000,000 at any one time outstanding;
(e) Liens at any one time outstanding upon any Property
acquired by the Borrower or any Subsidiary of the Borrower to secure
any Indebtedness of the Borrower or any Subsidiary incurred at the
time of or within 90 days after the acquisition of such Property to
finance the purchase price of such Property, provided that any such
Lien shall apply only to the Property that was so acquired and the
aggregate principal amount of Indebtedness secured by such Liens shall
not exceed 5% of Consolidated Tangible Assets;
(f) Minor title exceptions, survey exceptions or minor
encumbrances, easements or reservations, covenants, conditions,
restrictions, encroachments or rights of others for rights-of-way,
utilities and other similar purposes, or zoning or other restrictions
as to the use of real properties which are necessary for the conduct
of the activities of the Borrower and any Subsidiary of the Borrower
or which customarily exist on properties of corporations engaged in
similar activities and similarly situated
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and which do not in any event materially impair their use in the
operation of the business of the Borrower or any Subsidiary of the
Borrower;
(g) Liens existing on the date hereof and listed on
Schedule 7.9 hereto;
(h) Liens of or upon any Property of a Person existing at
the time such Person is merged with or into or consolidated with the
Borrower or any of its Subsidiaries or existing at the time of a sale
or transfer of the properties of a Person (or division thereof) as an
entirety or substantially as an entirety to the Borrower or any of its
Subsidiaries and not created in contemplation of such transaction;
provided that the aggregate principal amount of Indebtedness secured
by such Liens shall not exceed $25,000,000 at any one time
outstanding;
(i) Any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in part of any Lien
referred to in the foregoing paragraphs (a) through (g), inclusive,
provided, however, that the principal amount of Indebtedness secured
thereby shall not exceed the principal amount of Indebtedness so
secured at the time of such extension, renewal or replacement, and
that such extension, renewal or replacement shall be limited to the
Property which was subject to the Lien so extended, renewed or
replaced; and
(j) Liens not otherwise permitted under this Section 7.9
securing Indebtedness in an aggregate principal amount not exceeding
10% of Consolidated Tangible Assets at any time outstanding;
provided further that no Lien permitted under Subsections (a) through (j) above
may apply to any capital stock of any Subsidiary.
Section 7.10. Use of Proceeds; Regulation U. The proceeds of
each Borrowing, and the credit provided by Letters of Credit, will be used by
the Borrower for working capital and other general corporate purposes including
acquisitions of businesses and other investments permitted by Section 7.14. At
no time will margin stock (as defined in Section 5.10 hereof) constitute 25% or
more of the assets of the Borrower or of the Borrower and its Subsidiaries,
taken as a whole, subject to Sections 7.9, 7.12, or any other restriction
herein on the pledge or other disposition of property of the Borrower or any of
its Subsidiaries.
Section 7.11. Sales and Leasebacks. The Borrower will not, nor
will it permit any Subsidiary to, enter into any arrangement with any bank,
insurance company or other lender or investor providing for the leasing by the
Borrower or any Subsidiary of any Property theretofore owned by it and which
has been or is to be sold or transferred by such owner to such lender or
investor, except for such transactions that relate to any manufacturing plant
or equipment and which are permitted under Sections 7.12 and 7.19 hereof.
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<PAGE> 44
Section 7.12. Mergers, Consolidations and Sales of Assets. The
Borrower will not, and will not permit any of its Subsidiaries to, (i)
consolidate with or be a party to a merger with any other Person or (ii) sell,
lease or otherwise dispose of all or a "substantial part" of the consolidated
assets of the Borrower and its Subsidiaries; provided, however, that:
(1) any Subsidiary of the Borrower may merge or
consolidate with or into or sell, lease or otherwise convey all or a
substantial part of its assets to the Borrower or any Subsidiary
(including any Person that, as a result of such transaction, becomes a
Subsidiary) of which the Borrower holds either directly or indirectly
at least the same percentage equity ownership; provided that in any
such merger or consolidation involving the Borrower, the Borrower
shall be the surviving or continuing corporation; and
(2) the Borrower or any Subsidiary of the Borrower may
consolidate or merge with any other Person if the Borrower or such
Subsidiary or, in the case of such a transaction involving the
Borrower, the Borrower is the surviving or continuing corporation and
at the time of such consolidation or merger, and after giving effect
thereto, no Default or Event of Default shall have occurred and be
continuing.
As used in this Section 7.12, a sale, lease, transfer or disposition of assets
shall be deemed to be of a "substantial part" of the consolidated assets of the
Borrower and its Subsidiaries if the fair market value of such assets, when
added to the fair market value of all other assets sold, leased, transferred or
disposed of by the Borrower and its Subsidiaries (other than inventory in the
ordinary course of business) during the 12-month period ending with the date of
such sale exceeds 10% of Consolidated Tangible Assets determined as of the last
day of the fiscal quarter most recently completed before the date of such sale;
provided that during any 12-month period the Borrower and its Subsidiaries may
sell, lease, transfer or otherwise dispose of up to 25% of Consolidated
Tangible Assets determined as of the last day of the fiscal quarter most
recently completed before the date of such sale if (i) all such assets sold,
leased, transferred or otherwise disposed of in excess of 10% of Consolidated
Tangible Assets at the end of the fiscal quarter most recently completed before
the date of such sale are so disposed of at fair market value as determined by
the Board of Directors of the Borrower, (ii) the proceeds from such disposition
are received in cash or cash equivalents or in Property that is readily usable
in the business of the Borrower and its subsidiaries or transferable in
exchange for Property that is readily usable in the business of the Borrower
and its Subsidiaries, and (iii) such proceeds from the disposition are
reinvested into the business of the Borrower and its Subsidiaries and not used
to pay dividends or make any other distributions to shareholders.
Section 7.13. Use of Property and Facilities; Environmental,
Health and Safety Laws. (a) The Borrower will, and will cause each of its
Subsidiaries to, comply in all material respects with the requirements of all
federal, state and local environmental and health and safety laws, rules,
regulations and orders applicable to or pertaining to the Properties or
business operations of the Borrower or any Subsidiary of the Borrower, except
where the
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failure to so comply would (individually or in the aggregate) reasonably be
expected to have a material adverse effect on the financial condition, results
of operations, Property, or business of the Borrower and its Subsidiaries,
taken as a whole. Without limiting the foregoing, the Borrower will not, and
will not permit any Person to, except in accordance with applicable law,
dispose of any Hazardous Material into, onto or from any real property owned or
operated by the Borrower or any of its Subsidiaries, except where the failure
to so comply would (individually or in the aggregate) reasonably be expected to
have a material adverse effect on the financial condition, results of
operations, Property, or business of the Borrower and its Subsidiaries, taken
as a whole.
(b) The Borrower will promptly provide the Banks with copies of
any notice or other instrument of the type described in Section 5.11(c) hereof,
and in no event later than five (5) Business Days after an officer of the
Borrower receives such notice or instrument.
Section 7.14. Investments, Acquisitions, Loans, Advances and
Guaranties. The Borrower will not, nor will it permit any Subsidiary to,
directly or indirectly, make, retain or have outstanding any investments
(whether through purchase of stock or obligations or otherwise) in, or loans or
advances to, any other Person, or acquire all or any substantial part of the
assets or business of any other Person or division thereof, or be or become
liable as endorser, guarantor, surety or otherwise for any debt, obligation or
undertaking of any other Person, or otherwise agree to provide funds for
payment of the obligations of another, or supply funds thereto or invest
therein or otherwise assure a creditor of another against loss, or apply for or
become liable to the issuer of a letter of credit which supports an obligation
of another, or subordinate any claim or demand it may have to the claim or
demand of any other Person (cumulatively, all of the foregoing, being
"Investments"); provided, however, that the foregoing provisions shall not
apply to nor operate to prevent:
(a) purchases of Permitted Liquid Investments;
(b) ownership of stock, obligations or securities
received in settlement of debts (created in the ordinary course of
business) owing to the Borrower or any Subsidiary;
(c) endorsements of negotiable instruments for collection
in the ordinary course of business;
(d) loans and advances to employees in the ordinary
course of business for travel, relocation, and similar purposes;
(e) Investments in the Borrower or Subsidiaries, provided
that Investments in Subsidiaries that only become Subsidiaries through
such Investment must comply with the provisions of subsection (f)
below;
(f) acquisitions of all or any substantial part of the
assets or business of any other Person or division thereof, or of all
or a substantial part of the Voting Stock of
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a Person, so long as (i) no Default or Event of Default exists or
would exist after giving effect to such acquisition, (ii) the Board of
Directors or other governing body of such Person whose Property or
Voting Stock is being so acquired has approved the terms of such
acquisition and (iii) the Person or division so acquired is engaged in
or the asset so purchased is used in, the development, manufacture,
distribution, or sale of data communications equipment or computer or
other equipment, software, systems, technology or services related to
communications, computation or information access; or
(g) Investments not otherwise permitted under this
Section 7.14 in an aggregate principal amount at any one time
outstanding not to exceed $25,000,000.
Section 7.15. Consolidated Tangible Net Worth. The Borrower will
at all times maintain a Consolidated Tangible Net Worth of not less than
$503,850,000 plus 50% of the cumulative positive Consolidated Net Income earned
during (i) the fourth fiscal quarter of the Borrower's 1996 fiscal year
(without subtraction for any negative Consolidated Net Income for such fiscal
quarter) and (ii) each fiscal year ending on or after September 28, 1997 (but
without subtraction for any negative Consolidated Net Income for any such
fiscal year).
Section 7.16. Leverage Ratio. The Borrower will at all times
maintain a Leverage Ratio of not more than 0.50 to 1.00.
Section 7.17. Total Debt to EBITDA. The Borrower shall not as of
the last day of any fiscal quarter of the Borrower permit the ratio of Total
Debt as of such day to EBITDA for the four fiscal quarters then ended to be
greater than 2.0 to 1.0.
Section 7.18. Dividends and Other Shareholder Distributions. The
Borrower shall only declare or pay any dividends or make a distribution of any
kind (including by redemption or purchase) on its outstanding capital stock, if
no Default or Event of Default exists prior to or would result after giving
effect to such action.
Section 7.19. Subsidiary Debt. The aggregate principal amount of
Debt owed by Subsidiaries to Persons other than the Borrower and other
Subsidiaries shall not at any time exceed 15% of Consolidated Tangible Assets.
Section 7.20. Transactions with Affiliates. The Borrower will
not, and will not permit any of its Subsidiaries to, enter into or be a party
to any material transaction or arrangement (where "material" means material for
the Borrower and its Subsidiaries, taken as a whole) with any Affiliate of such
Person (other than the Borrower or any of its Subsidiaries), including without
limitation, the purchase from, sale to or exchange of Property with, any merger
or consolidation with or into, or the rendering of any service by or for, any
Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than
would be obtained in a comparable arm's-length transaction with a Person other
than an Affiliate.
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Section 7.21. No Subsidiary Guaranties. No Subsidiary shall
incur or at any time have outstanding a Guaranty of any Indebtedness of the
Borrower.
Section 7.22. Compliance with Laws. Without limiting any of the
other covenants of the Borrower in this Section 7, the Borrower will, and will
cause each of its Subsidiaries to, conduct its business, and otherwise be, in
compliance with all applicable laws, regulations, ordinances and orders of any
governmental or judicial authorities; provided, however, that neither the
Borrower nor any Subsidiary of the Borrower shall be required to comply with
any such law, regulation, ordinance or order if (x) it shall be contesting such
law, regulation, ordinance or order in good faith by appropriate proceedings
and reserves in conformity with GAAP have been provided therefor on the books
of the Borrower or such Subsidiary, as the case may be, or (y) the failure to
comply therewith could not, in the aggregate, reasonably be expected to have a
material adverse effect on the financial condition, results of operations,
Property or other business of the Borrower and its Subsidiaries, taken as a
whole.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
Section 8.1. Events of Default. Any one or more of the
following shall constitute an Event of Default:
(a) default (x) in the payment when due of the principal
amount of any Loan or of any Reimbursement Obligation or (y) for a
period of three (3) Business Days in the payment when due of interest
or of any other Obligation;
(b) default by the Borrower or any Subsidiary in the
observance or performance of any covenant set forth in Section 7.1,
7.6(c), 7.9 through 7.12, or 7.14 through 7.21 hereof;
(c) default by the Borrower or any Subsidiary in the
observance or performance of any provision hereof or of any other
Credit Document not mentioned in (a) or (b) above, which is not
remedied within thirty (30) days after notice thereof to the Borrower
by the Agent or any Bank;
(d) (i) failure to pay when due Debt in an aggregate
principal amount of $10,000,000 or more of the Borrower or any
Subsidiary or (ii) default shall occur under one or more indentures,
agreements or other instruments under which any Debt of the Borrower
or any Subsidiary in an aggregate principal amount of $10,000,000 or
more may be issued or created and such default shall continue for a
period of time sufficient to permit the holder or beneficiary of such
Debt or a trustee therefor to cause the acceleration of the maturity
of any such Debt or any mandatory unscheduled prepayment, purchase or
funding thereof;
(e) any representation or warranty made herein or in any
other Credit Document by the Borrower or any Subsidiary, or in any
statement or certificate furnished pursuant hereto or pursuant to any
other Credit Document by the Borrower
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or any Subsidiary, or in connection with any Credit Document, proves
false in any material respect as of the date of the issuance or
making, or deemed making or issuance, thereof;
(f) the Borrower or any Material Subsidiary shall (i)
have had entered involuntarily against it an order for relief under
the United States Bankruptcy Code, as amended, or have had taken
against it any analogous action under any other applicable law
relating to bankruptcy or insolvency, (ii) fail to pay, or admit in
writing its inability to pay, its debts generally as they become due,
(iii) make an assignment for the benefit of creditors, (iv) apply for,
seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or
any substantial part of its Property, (v) institute any proceeding
seeking to have entered against it an order for relief under the
United States Bankruptcy Code, as amended, to adjudicate it insolvent,
or seeking dissolution, winding up, liquidation, reorganization,
arrangement, adjustment or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, (vi)
take any corporate action in furtherance of any matter described in
parts (i)-(v) above, or (vii) fail to contest in good faith any
appointment or proceeding described in Section 8.1(g) hereof;
(g) a custodian, receiver, trustee, examiner, liquidator
or similar official shall be appointed for the Borrower or any
Material Subsidiary or any substantial part of any of their Property,
or a proceeding described in Section 8.1(f)(v) shall be instituted
against the Borrower or any Material Subsidiary, and such appointment
continues undischarged or such proceeding continues undismissed or
unstayed for a period of sixty (60) days;
(h) the Borrower or any Material Subsidiary shall fail
within thirty (30) days to pay, bond or otherwise discharge any
judgment or order for the payment of money in excess of $10,000,000,
which is not stayed on appeal or otherwise being appropriately
contested in good faith in a manner that stays execution thereon;
(i) the Borrower or any other member of the Controlled
Group shall fail to pay when due an amount or amounts aggregating in
excess of $5,000,000 which it shall have become liable to pay to the
PBGC or to a Plan under Title IV of ERISA; or notice of intent to
terminate a Plan or Plans having aggregate Unfunded Vested Liabilities
in excess of $5,000,000 (collectively, a "Material Plan") shall be
filed under Title IV of ERISA by the Borrower or any Subsidiary or any
other member of the Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any Material Plan or a proceeding shall be
instituted by a fiduciary of any Material Plan against the Borrower or
any other member of the Controlled Group to enforce Section 515 or
4219(c)(5) of ERISA and such proceeding shall not have been dismissed
within thirty (30) days thereafter; or a
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<PAGE> 49
condition shall exist by reason of which the PBGC would be entitled
to obtain a decree adjudicating that any Material Plan must be
terminated; or
(j) the Borrower, any Person acting on behalf of the
Borrower, or any governmental authority challenges the validity of any
Credit Document or the Borrower's obligations thereunder or any Credit
Document ceases to be in full force and effect.
Section 8.2. Non-Bankruptcy Defaults. When any Event of Default
other than those described in subsections (f) or (g) of Section 8.1 hereof has
occurred and is continuing, the Agent shall, by written notice to the Borrower:
(a) if so directed by the Required Banks, terminate the remaining Commitments
and all other obligations of the Banks hereunder on the date stated in such
notice (which may be the date thereof); (b) if so directed by the Required
Banks, declare the principal of and the accrued interest on all outstanding
Notes to be forthwith due and payable and thereupon all outstanding Notes,
including both principal and interest thereon, shall be and become immediately
due and payable together with all other amounts payable under the Credit
Documents without further demand, presentment, protest or notice of any kind;
and (c) if so directed by the Required Banks, demand that the Borrower
immediately pay to the Agent, subject to Section 8.4, the full amount then
available for drawing under each or any Letter of Credit, and the Borrower
agrees to immediately make such payment and acknowledges and agrees that the
Banks would not have an adequate remedy at law for failure by the Borrower to
honor any such demand and that the Agent, for the benefit of the Banks, shall
have the right to require the Borrower to specifically perform such undertaking
whether or not any drawings or other demands for payment have been made under
any Letter of Credit. The Agent, after giving notice to the Borrower pursuant
to Section 8.1(c) or this Section 8.2, shall also promptly send a copy of such
notice to the other Banks, but the failure to do so shall not impair or annul
the effect of such notice.
Section 8.3. Bankruptcy Defaults. When any Event of Default
described in subsections (f) or (g) of Section 8.1 hereof has occurred and is
continuing, then all outstanding Notes shall immediately become due and payable
together with all other amounts payable under the Credit Documents without
presentment, demand, protest or notice of any kind, the obligation of the Banks
to extend further credit pursuant to any of the terms hereof shall immediately
terminate and the Borrower shall immediately pay to the Agent, subject to
Section 8.4, the full amount then available for drawing under all outstanding
Letters of Credit, the Borrower acknowledging that the Banks would not have an
adequate remedy at law for failure by the Borrower to honor any such demand and
that the Banks, and the Agent on their behalf, shall have the right to require
the Borrower to specifically perform such undertaking whether or not any draws
or other demands for payment have been made under any of the Letters of Credit.
Section 8.4. Collateral for Undrawn Letters of Credit. (a) If
the prepayment of the amount available for drawing under any or all outstanding
Letters of Credit is required under Section 1.14(c) or under Section 8.2 or 8.3
above, the Borrower shall forthwith pay
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the amount required to be so prepaid, to be held by the Agent as provided in
subsection (b) below.
(b) All amounts prepaid pursuant to subsection (a) above shall be
held by the Agent in a separate collateral account (such account, and the
credit balances, properties and any investments from time to time held therein,
and any substitutions for such account, any certificate of deposit or other
instrument evidencing any of the foregoing and all proceeds of and earnings on
any of the foregoing being collectively called the "Account") as security for,
and for application by the Agent (to the extent available) to, the
reimbursement of any payment under any Letter of Credit then or thereafter made
by the Agent, and to the payment of the unpaid balance of any Loans and all
other Obligations. The Account shall be held in the name of and subject to the
exclusive dominion and control of the Agent for the benefit of the Agent and
the Banks. If and when requested by the Borrower, the Agent shall invest funds
held in the Account from time to time in direct obligations of, or obligations
the principal of and interest on which are unconditionally guaranteed by, the
United States of America with a remaining maturity of one month or less,
provided that the Agent is irrevocably authorized to sell investments held in
the Account when and as required to make payments out of the Account for
application to amounts due and owing from the Borrower to the Agent or Banks;
provided, however, that if (A)(i) the Borrower shall have made payment of all
such obligations referred to in subsection (a) above, (ii) all relevant
preference or other disgorgement periods relating to the receipt of such
payments have passed, and (iii) no Letters of Credit, Commitments, Loans or
other Obligations remain outstanding hereunder or (B) the Commitments have not
terminated and there does not then exist any Event of Default, then the Agent
shall repay to the Borrower any remaining amounts held in the Account.
Section 8.5. Notice of Default. The Agent shall give notice to
the Borrower under Section 8.1(c) hereof promptly upon being requested to do so
by any Bank and shall thereupon notify all the Banks thereof.
Section 8.6. Expenses. The Borrower agrees to pay to the Agent
and each Bank, and any other holder of any Note outstanding hereunder, all
expenses reasonably incurred or paid by the Agent and such Bank or any such
holder, including reasonable attorneys' fees and court costs, in connection
with any Default or Event of Default by the Borrower hereunder or in connection
with the enforcement of any of the Credit Documents.
SECTION 9. CHANGE IN CIRCUMSTANCES.
Section 9.1. Change of Law. Notwithstanding any other
provisions of this Agreement or any Note, if at any time any change in
applicable law or regulation or in the interpretation thereof makes it unlawful
for any Bank to make or continue to maintain Eurocurrency Loans or Stated Rate
Bid Loans denominated in an Alternative Currency or to perform its obligations
as contemplated hereby, such Bank shall promptly give notice thereof to the
Borrower and such Bank's obligations to make or maintain Eurocurrency Loans
under this Agreement shall terminate until it is no longer unlawful for such
Bank to make or maintain Eurocurrency Loans. If such Bank shall determine that
it may not lawfully
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continue to maintain and fund any of its outstanding Eurocurrency Loans or
Stated Rate Bid Loans denominated in an Alternative Currency to maturity, the
Borrower shall prepay on demand the outstanding principal amount of any such
affected Eurocurrency Loans or Stated Rate Bid Loans denominated in an
Alternative Currency, together with all interest accrued thereon and all other
amounts then due and payable to such Bank under this Agreement; provided,
however, subject to all of the terms and conditions of this Agreement, the
Borrower may then elect to borrow the principal amount of the affected Fixed
Rate Loans from such Bank by means of Domestic Rate Loans from such Bank, which
Domestic Rate Loans shall not be made ratably by the Banks but only from such
affected Bank.
Section 9.2. Unavailability of Deposits or Inability to
Ascertain, or Inadequacy of, LIBOR. If on or prior to the first day of any
Interest Period for any Borrowing of Eurocurrency Loans:
(a) the Agent is advised by two or more Reference Banks
that deposits in U.S. Dollars or the applicable Alternative Currency
(in the applicable amounts) are not being offered to it in the
eurocurrency interbank market for such Interest Period, or that by
reason of circumstances affecting the interbank eurocurrency market
adequate and reasonable means do not exist for ascertaining the
applicable LIBOR, or
(b) Banks having 20% or more of the aggregate amount of
the Revolving Credit Commitments advise or, in the case of a
Eurocurrency Bid Loan, any Bank required to make a Eurocurrency Bid
Loan advises the Agent that (i) LIBOR as determined by the Agent will
not adequately and fairly reflect the cost to such Banks or Bank of
funding their or its Eurocurrency Loans or Loan for such Interest
Period or (ii) that the making or funding of Eurocurrency Loans in the
relevant currency has become impracticable, in either case as a result
of an event occurring after the date of the Agreement which in the
opinion of such Banks or Bank materially affects such Loans,
then the Agent shall forthwith give notice thereof to the Borrower and the
Banks, whereupon until the Agent notifies the Borrower that the circumstances
giving rise to such suspension no longer exist, the obligations of the Banks or
of the relevant Bank to make Eurocurrency Loans in the currency so affected
shall be suspended.
Section 9.3. Increased Cost and Reduced Return. (a) If, on or
after (x) the date hereof, in the case of Committed Loans or (y) the date of
the related Offer, in the case of a Bid Loan, the adoption of any applicable
law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency:
(i) shall subject any Bank (or its Lending Office) to any
tax, duty or other charge with respect to its Fixed Rate Loans, its
Notes, its Letter(s) of Credit, or its
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participation in any thereof, any Reimbursement Obligations owed to it
or its obligation to make Fixed Rate Loans, issue a Letter of Credit,
or to participate therein, or shall change the basis of taxation of
payments to any Bank (or its Lending Office) of the principal of or
interest on its Fixed Rate Loans, Letter(s) of Credit, or
participations therein or any other amounts due under this Agreement
in respect of its Fixed Rate Loans, Letter(s) of Credit, or
participations therein, any Reimbursement Obligations owed to it, or
its obligation to make Fixed Rate Loans, issue a Letter of Credit, or
acquire participations therein (except for changes in the rate of tax
on the overall net income of such Bank or its Lending Office imposed
by the jurisdiction in which such Bank's principal executive office or
Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal
Reserve System, but excluding with respect to any Eurocurrency Loans
any such requirement included in an applicable Eurocurrency Reserve
Percentage) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Lending Office) or shall impose
on any Bank (or its Lending Office) or on the interbank market any
other condition affecting its Fixed Rate Loans, its Notes, its
Letter(s) of Credit, or its participation in any thereof, any
Reimbursement Obligation owed to it, or its obligation to make Fixed
Rate Loans, to issue a Letter of Credit, or to participate therein;
and the result of any of the foregoing is to increase the cost to such Bank (or
its Lending Office) of making or maintaining any Fixed Rate Loan, issuing or
maintaining a Letter of Credit, or participating therein, or to reduce the
amount of any sum received or receivable by such Bank (or its Lending Office)
under this Agreement or under its Notes with respect thereto, by an amount
deemed by such Bank to be material, then, within fifteen (15) days after demand
by such Bank (with a copy to the Agent), the Borrower shall be obligated to pay
to such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction; provided, however, that such Bank shall
promptly notify the Borrower of an event which might cause it to seek
compensation, and the Borrower shall be obligated to pay only such compensation
which is incurred or which arises after the date 60 days prior to the date such
notice is given.
(b) If, after the date hereof, any Bank or the Agent shall have
determined that the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein (including, without
limitation, any revision in the Final Risk-Based Capital Guidelines of the
Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A;
12 CFR Part 225, Appendix A) or of the Office of the Comptroller of the
Currency (12 CFR Part 3, Appendix A), or in any other applicable capital rules
heretofore adopted and issued by any governmental authority), or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Bank's capital, or
on the capital
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of any corporation controlling such Bank, as a consequence of its obligations
hereunder to a level below that which such Bank could have achieved but for
such adoption, change or compliance (taking into consideration such Bank's
policies with respect to capital adequacy) by an amount deemed by such Bank to
be material, then from time to time, within fifteen (15) days after demand by
such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such reduction;
provided, however, that such Bank shall promptly notify the Borrower of an
event which might cause it to seek compensation, and the Borrower shall be
obligated to pay only such compensation which is incurred or which arises after
the date 60 days prior to the date such notice is given.
(c) Each Bank that determines to seek compensation under this
Section 9.3 shall notify the Borrower and the Agent of the circumstances that
entitle the Bank to such compensation pursuant to this Section 9.3 and will
designate a different Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the judgment
of such Bank, be otherwise disadvantageous to such Bank. A certificate of any
Bank claiming compensation under this Section 9.3 and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount, such Bank may use
any reasonable averaging and attribution methods.
Section 9.4. Lending Offices. Each Bank may, at its option,
elect to make its Loans hereunder at the branch, office or affiliate specified
on the appropriate signature page hereof (each a "Lending Office") for each
type of Loan available hereunder or at such other of its branches, offices or
affiliates as it may from time to time elect and designate in a written notice
to the Borrower and the Agent.
Section 9.5. Discretion of Bank as to Manner of Funding.
Notwithstanding any other provision of this Agreement, each Bank shall be
entitled to fund and maintain its funding of all or any part of its Loans in
any manner it sees fit, it being understood, however, that for the purposes of
this Agreement all determinations hereunder shall be made as if each Bank had
actually funded and maintained each Eurocurrency Loan through the purchase of
deposits of U.S. Dollars or the applicable Alternative Currency in the
eurocurrency interbank market having a maturity corresponding to such Loan's
Interest Period and bearing an interest rate equal to LIBOR for such Interest
Period.
Section 9.6. Substitution of Bank. If (a) any Bank has demanded
compensation or given notice of its intention to demand compensation under
Section 9.3 hereof or has delivered a notice to the Agent pursuant to Section
9.1 hereof, or (b) the Borrower is required to pay any additional amount to any
Bank pursuant to Section 11.1 hereof, and in any such case the Required Banks
are not in the same situation, the Borrower shall have the right to seek a
substitute bank or banks reasonably satisfactory to the Agent (which may be one
or more of the Banks) to replace such Bank under this Agreement. The Bank to
be so replaced shall cooperate with the Borrower and substitute bank to
accomplish such substitution on the terms of Section 11.12 hereof, provided
that such Bank's entire
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Commitment is replaced and such Bank receives in immediately available funds on
the date of such assignment the principal of and interest accrued to the date
of payment on the Loans made by it hereunder and all other amounts accrued for
its account or owed to it hereunder.
SECTION 10. THE AGENT.
Section 10.1. Appointment and Authorization of Agent. Each Bank
hereby appoints Harris Trust and Savings Bank as the Agent under the Credit
Documents and hereby authorizes the Agent to take such action as Agent on its
behalf and to exercise such powers under the Credit Documents as are delegated
to the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto.
Section 10.2. Agent and its Affiliates. The Agent in its
individual capacity as a Bank shall have the same rights and powers under this
Agreement and the other Credit Documents as any other Bank and may exercise or
refrain from exercising the same as though it were not the Agent, and the Agent
and its affiliates may accept deposits from, lend money to, and generally
engage in any kind of business with the Borrower or any Affiliate of the
Borrower as if it were not the Agent under the Credit Documents. The term
"Bank" as used herein and in all other Credit Documents, unless the context
otherwise clearly requires, includes the Agent in its individual capacity as a
Bank. References in Section 1 hereof to the Agent's Loans, or to the amount
owing to the Agent for which an interest rate is being determined, refer to the
Agent in its individual capacity as a Bank.
Section 10.3. Action by Agent. If the Agent receives from the
Borrower a written notice pursuant to Section 7.6(c)(i) hereof, the Agent shall
promptly give each of the Banks written notice thereof. The obligations of the
Agent under the Credit Documents are only those expressly set forth therein.
Without limiting the generality of the foregoing, the Agent shall not be
required to take any action hereunder with respect to any Default or Event of
Default, except as expressly provided in Sections 8.2 and 8.5. In no event,
however, shall the Agent be required to take any action in violation of
applicable law or of any provision of any Credit Document, and the Agent shall
in all cases be fully justified in failing or refusing to act hereunder or
under any other Credit Document unless it shall be first indemnified to its
reasonable satisfaction by the Banks against any and all costs, expense, and
liability which may be incurred by it by reason of taking or continuing to take
any such action. The Agent shall be entitled to assume that no Default or
Event of Default exists unless notified to the contrary by a Bank or the
Borrower. In all cases in which this Agreement and the other Credit Documents
do not require the Agent to take certain actions, the Agent shall be fully
justified in using its discretion in failing to take or in taking any action
hereunder and thereunder.
Section 10.4. Consultation with Experts. The Agent may consult
with legal counsel, independent public accountants and other experts selected
by it and shall not be liable to the Banks for any action taken or omitted to
be taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
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Section 10.5. Liability of Agent; Credit Decision. Neither the
Agent nor any of its directors, officers, agents, or employees shall be liable
for any action taken or not taken by it in connection with the Credit Documents
(i) with the consent or at the request of the Required Banks or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent
nor any of its directors, officers, agents or employees shall be responsible
for or have any duty to ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with this Agreement, any other
Credit Document or any Credit Event; (ii) the performance or observance of any
of the covenants or agreements of the Borrower contained herein or in any other
Credit Document; (iii) the satisfaction of any condition specified in Section 6
hereof, except receipt of items required to be delivered to the Agent; or (iv)
the validity, effectiveness, genuineness, enforceability, perfection, value,
worth or collectability hereof or of any other Credit Document or of any other
documents or writing furnished in connection with any Credit Document; and the
Agent makes no representation of any kind or character with respect to any such
matter mentioned in this sentence. The Agent may execute any of its duties
under any of the Credit Documents by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Banks, the Borrower or any
other Person for the default or misconduct of any such agents or
attorneys-in-fact selected with reasonable care. The Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate, other
document or statement (whether written or oral) believed by it to be genuine or
to be sent by the proper party or parties. In particular and without limiting
any of the foregoing, the Agent shall have no responsibility for confirming the
accuracy of any Compliance Certificate or other document or instrument received
by it under the Credit Documents. The Agent may treat the payee of any Note as
the holder thereof until written notice of transfer shall have been filed with
the Agent signed by such payee in form satisfactory to the Agent. Each Bank
acknowledges that it has independently and without reliance on the Agent or any
other Bank, and based upon such information, investigations and inquiries as it
deems appropriate, made its own credit analysis and decision to extend credit
to the Borrower in the manner set forth in the Credit Documents. It shall be
the responsibility of each Bank to keep itself informed as to the
creditworthiness of the Borrower and the Subsidiaries, and the Agent shall have
no liability to any Bank with respect thereto.
Section 10.6. Indemnity. The Banks shall ratably, in accordance
with their respective Percentages, indemnify and hold the Agent, and its
directors, officers, employees, agents and representatives harmless from and
against any liabilities, losses, costs or expenses suffered or incurred by it
under any Credit Document or in connection with the transactions contemplated
thereby, regardless of when asserted or arising, except to the extent they are
promptly reimbursed for the same by the Borrower and except to the extent that
any event giving rise to a claim was caused by the gross negligence or willful
misconduct of the party seeking to be indemnified. The obligations of the
Banks under this Section 10.6 shall survive termination of this Agreement.
Section 10.7. Payments. Unless the Agent shall have been
notified by a Bank before the date on which such Bank is scheduled to make
payment to the Agent of the proceeds of a Loan (which notice shall be effective
upon receipt) that such Bank does not intend to make
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such payment, the Agent may assume that such Bank has made such payment when
due and the Agent may in reliance upon such assumption (but shall not be
required to) make available to the Borrower the proceeds of the Loan to be made
by such Bank and, if any Bank has not in fact made such payment to the Agent,
such Bank shall, on demand, pay to the Agent the amount made available to the
Borrower attributable to such Bank together with interest thereon in respect of
each day during the period commencing on the date such amount was made
available to the Borrower and ending on (but excluding) the date such Bank pays
such amount to the Agent at a rate per annum equal to the Federal Funds Rate
or, in the case of a Loan denominated in an Alternative Currency, the cost to
the Agent of funding the amount it advanced to fund such Bank's Loan, as
determined by the Agent. If such amount is not received from such Bank by the
Agent immediately upon demand, the Borrower will, on demand, repay to the Agent
the proceeds of the Loan attributable to such Bank with interest thereon at a
rate per annum equal to the interest rate applicable to the relevant Loan, but
without such payment being considered a payment or prepayment of a Loan under
Section 1.17 hereof, so that the Borrower will have no liability under such
Section with respect to such payment.
Section 10.8. Resignation of Agent and Successor Agent. The
Agent may resign at any time by giving written notice thereof to the Banks and
the Borrower. The Borrower, with the consent of the Required Banks, may remove
the Agent at any time. Upon any such resignation or removal of the Agent, the
Required Banks shall have the right to appoint a successor Agent with the
consent of the Borrower. If no successor Agent shall have been so appointed by
the Required Banks, and shall have accepted such appointment, within thirty
(30) days after the retiring Agent's giving of notice of resignation or the
Borrower giving notice of removal, then the retiring or removed Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be any Bank
hereunder or any commercial bank organized under the laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least $200,000,000. Upon the acceptance of its appointment as the Agent
hereunder, such successor Agent shall thereupon succeed to and become vested
with all the rights and duties of the retiring or removed Agent under the
Credit Documents, and the retiring or removed Agent shall be discharged from
its duties and obligations thereunder. After any retiring or removed Agent's
resignation or removal hereunder as Agent, the provisions of this Section 10
and all protective provisions of the other Credit Documents shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent.
Section 10.9. Co-Agents. Nothing in this Agreement shall impose
any obligations on any of The First National Bank of Chicago, NationsBank of
Texas, N.A. or Societe Generale in their capacity as Co-Agents.
SECTION 11. MISCELLANEOUS.
Section 11.1. Withholding Taxes. (a) Payments Free of
Withholding. Except as otherwise required by law and subject to Section
11.1(b) hereof, each payment by the Borrower under this Agreement or the other
Credit Documents shall be made without
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withholding for or on account of any present or future taxes (other than
overall net income taxes on the recipient) imposed by or within the
jurisdiction in which the Borrower is domiciled, any jurisdiction from which
the Borrower makes any payment, or (in each case) any political subdivision or
taxing authority thereof or therein. If any such withholding is so required,
the Borrower shall make the withholding, pay the amount withheld to the
appropriate governmental authority before penalties attach thereto or interest
accrues thereon and forthwith pay such additional amount as may be necessary to
ensure that the net amount actually received by each Bank and the Agent free
and clear of such taxes (including such taxes on such additional amount) is
equal to the amount which that Bank or the Agent (as the case may be) would
have received had such withholding not been made. If the Agent or any Bank
pays any amount in respect of any such taxes, penalties or interest the
Borrower shall reimburse the Agent or that Bank for that payment on demand in
the currency in which such payment was made. If the Borrower pays any such
taxes, penalties or interest, it shall deliver official tax receipts evidencing
that payment or certified copies thereof to the Bank or Agent on whose account
such withholding was made (with a copy to the Agent if not the recipient of the
original) on or before the thirtieth day after payment. If any Bank or the
Agent determines it has received or been granted a credit against or relief or
remission for, or repayment of, any taxes paid or payable by it because of any
taxes, penalties or interest paid by the Borrower and evidenced by such a tax
receipt, such Bank or Agent shall, to the extent it can do so without prejudice
to the retention of the amount of such credit, relief, remission or repayment,
pay to the Borrower such amount as such Bank or Agent determines is
attributable to such deduction or withholding and which will leave such Bank or
Agent (after such payment) in no better or worse position than it would have
been in if the Borrower had not been required to make such deduction or
withholding. Nothing in this Agreement shall interfere with the right of each
Bank and the Agent to arrange its tax affairs in whatever manner it thinks fit
nor oblige any Bank or the Agent to disclose any information relating to its
tax affairs or any computations in connection with such taxes.
(b) U.S. Withholding Tax Exemptions. Each Bank that is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) shall submit to the Borrower and the Agent on or before the date hereof,
two duly completed and signed copies of either Form 1001 (relating to such Bank
and entitling it to a complete exemption from withholding under the Code on all
amounts to be received by such Bank, including fees, pursuant to the Credit
Documents and the Loans) or Form 4224 (relating to all amounts to be received
by such Bank, including fees, pursuant to the Credit Documents and the Loans)
of the United States Internal Revenue Service. Thereafter and from time to
time, each Bank shall submit to the Borrower and the Agent such additional duly
completed and signed copies of one or the other of such Forms (or such
successor forms as shall be adopted from time to time by the relevant United
States taxing authorities) as may be required under then-current United States
law or regulations to avoid or reduce United States withholding taxes on
payments in respect of all amounts to be received by such Bank, including fees,
pursuant to the Credit Documents or the Loans.
(c) Inability of Bank to Submit Forms. If any Bank determines, as
a result of any change in applicable law, regulation or treaty, or in any
official application or interpretation
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thereof, that it is unable to submit to the Borrower or Agent any form or
certificate that such Bank is obligated to submit pursuant to subsection (b) of
this Section 11.1. or that such Bank is required to withdraw or cancel any such
form or certificate previously submitted or any such form or certificate
otherwise becomes ineffective or inaccurate, such Bank shall promptly notify
the Borrower and Agent of such fact and the Bank shall to that extent not be
obligated to provide any such form or certificate and will be entitled to
withdraw or cancel any affected form or certificate, as applicable.
Section 11.2. No Waiver of Rights. No delay or failure on the
part of the Agent or any Bank or on the part of the holder or holders of any
Note in the exercise of any power or right under any Credit Document shall
operate as a waiver thereof, nor as an acquiescence in any default, nor shall
any single or partial exercise thereof preclude any other or further exercise
of any other power or right, and the rights and remedies hereunder of the
Agent, the Banks and the holder or holders of any Notes are cumulative to, and
not exclusive of, any rights or remedies which any of them would otherwise
have.
Section 11.3. Non-Business Day. If any payment of principal or
interest on any Loan or of any other Obligation shall fall due on a day which
is not a Business Day, interest or fees (as applicable) at the rate, if any,
such Loan or other Obligation bears for the period prior to maturity shall
continue to accrue on such Obligation from the stated due date thereof to but
excluding the next succeeding Business Day, on which the same shall be payable.
Section 11.4. Documentary Taxes. The Borrower agrees that it
will pay any documentary, stamp or similar taxes payable in respect to any
Credit Document, including interest and penalties, in the event any such taxes
are assessed, irrespective of when such assessment is made and whether or not
any credit is then in use or available hereunder.
Section 11.5. Survival of Representations. All representations
and warranties made herein or in certificates given pursuant hereto shall
survive the execution and delivery of this Agreement and the other Credit
Documents, and shall continue in full force and effect with respect to the date
as of which they were made as long as any credit is in use or available
hereunder.
Section 11.6. Survival of Indemnities. All indemnities and all
other provisions relative to reimbursement to the Banks of amounts sufficient
to protect the yield of the Banks with respect to the Loans, including, but not
limited to, Section 1.17, Section 9.3 and Section 11.15 hereof, shall survive
the termination of this Agreement and the other Credit Documents and the
payment of the Loans and all other Obligations.
Section 11.7. Sharing of Set-Off. Each Bank agrees with each
other Bank a party hereto that if such Bank shall receive and retain any
payment, whether by set-off or application of deposit balances or otherwise
("Set-off"), on any of the Committed Loans or Reimbursement Obligations in
excess of its ratable share of payments on all such obligations
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then outstanding to the Banks, then such Bank shall purchase for cash at face
value, but without recourse, ratably from each of the other Banks such amount
of the Committed Loans or Reimbursement Obligations, or participations therein,
held by each such other Banks (or interest therein) as shall be necessary to
cause such Bank to share such excess payment ratably with all the other Banks;
provided, however, that if any such purchase is made by any Bank, and if such
excess payment or part thereof is thereafter recovered from such purchasing
Bank, the related purchases from the other Banks shall be rescinded ratably and
the purchase price restored as to the portion of such excess payment so
recovered, but without interest. For purposes of this Section 11.7, amounts
owed to or recovered by, the Agent in connection with Reimbursement Obligations
in which Banks have been required to fund their participation shall be treated
as amounts owed to or recovered by the Agent as a Bank hereunder.
Section 11.8. Notices. Except as otherwise specified herein, all
notices under the Credit Documents shall be in writing (including cable,
telecopy or other electronic communication) and shall be given to a party
hereunder at its address or telecopier number set forth below or such other
address or telecopier number as such party may hereafter specify by notice to
the Agent and the Borrower, given by courier, by United States certified or
registered mail, or by other telecommunication device capable of creating a
written record of such notice and its receipt. Notices under the Credit
Documents to the Banks and the Agent shall be addressed to their respective
addresses, telecopier, telex, or telephone numbers set forth on the signature
pages hereof, and to the Borrower to:
U.S. Robotics Corporation
8100 North McCormick Boulevard
Skokie, Illinois 60076-2999
Attention: C. David Hall, Treasurer
Telecopy: (847) 676-6600
Telephone: (847) 933-5765
with a copy to:
U.S. Robotics Corporation
8100 North McCormick Boulevard
Skokie, Illinois 60076-2999
Attention: George A. Vinyard, Vice President, General Counsel
and Secretary
Telecopy: (847) 933-5149
Telephone: (847) 933-5830
Each such notice, request or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to the telecopier
number specified in this Section 11.8 or on the signature pages hereof and a
confirmation of receipt of such telecopy has been received by the sender, (ii)
if given by telex, when such telex is transmitted to the telex number specified
in this Section 11.8 or on the signature pages hereof and the answer back is
received by sender, (iii) if given by courier, when delivered, (iv) if given by
mail,
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three Business Days after such communication is deposited in the mail,
registered with return receipt requested, addressed as aforesaid or (v) if
given by any other means, when delivered at the addresses specified in this
Section 11.8 or on the signature pages hereof; provided that any notice given
pursuant to Section 1 hereof shall be effective only upon receipt and notices
described in clauses (i), (ii), (iii), and (v) above that are received after
normal business hours will be deemed received at the opening of business on the
next business day.
Section 11.9. Counterparts. This Agreement may be executed in
any number of counterpart signature pages, and by the different parties on
different counterparts, each of which when executed shall be deemed an original
but all such counterparts taken together shall constitute one and the same
instrument.
Section 11.10. Successors and Assigns. This Agreement shall be
binding upon the Borrower and its successors and assigns, and shall inure to
the benefit of each of the Banks and the benefit of their respective successors
and assigns, including any subsequent holder of any Note. The Borrower may not
assign any of its rights or obligations under any Credit Document without the
written consent of all of the Banks.
Section 11.11. Participants. Each Bank shall have the right at
its own cost to grant participations (to be evidenced by one or more agreements
or certificates of participation) in the Loans made and Reimbursement
Obligations and/or Commitments held by such Bank at any time and from time to
time to one or more other Persons; provided that no such participation shall
relieve any Bank of any of its obligations under this Agreement, and, provided,
further that no such participant shall have any rights under this Agreement
except as provided in this Section 11.11, and the Agent shall have no
obligation or responsibility to such participant. Any agreement pursuant to
which such participation is granted shall provide that the granting Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrower under this Agreement and the other Credit Documents including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of the Credit Documents, except that such agreement may provide that
such Bank will not agree to any modification, amendment or waiver of the Credit
Documents that would reduce the amount of or postpone or extend any fixed date
for payment of any Obligation in which such participant has an interest. Any
party to which such a participation has been granted shall have the benefits of
Section 1.17 and Section 9.3 hereof but shall not be entitled to receive any
greater payment under either such Section than the Bank granting such
participation would have been entitled to receive with respect to the rights
transferred. Prior to any Bank granting a participation as provided herein
such Bank shall notify the Borrower thereof in writing. The Borrower
authorizes each Bank to disclose to any participant or prospective participant
under this Section 11.11 any financial or other information pertaining to the
Borrower or any Subsidiary, subject to Section 11.21 hereof.
Section 11.12. Assignment of Commitments by Banks. Each Bank
shall have the right at any time, with the prior written consent of the
Borrower (which consent shall not be unreasonably withheld or delayed) and the
Agent, to assign all or any part of its Revolving Credit Commitment (including
the same percentage of its Committed Note, outstanding
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Committed Loans and participations in Letters of Credit) to one or more other
Eligible Assignees; provided that each such assignment is in an amount of at
least $15,000,000 or the entire Revolving Credit Commitment of such Bank, and
if such assignment is not for such Bank's entire Revolving Credit Commitment,
then such Bank's Revolving Credit Commitment after giving effect to such
assignment shall not be less than $10,000,000; provided further that no such
consents shall be required if the assignee is an Affiliate of the assigning
Bank. Each such assignment shall set forth the assignee's address for notices
to be given under Section 11.8 hereof hereunder and its designated Lending
Office pursuant to Section 9.4 hereof. Upon any such assignment, delivery to
the Agent and the Borrower of an executed copy of such assignment agreement and
the forms referred to in Section 11.1 hereof, if applicable, and, in the case
of an assignment to an Eligible Assignee other than an Affiliate of the
assigning Bank, the payment of a $3,000 recordation fee to the Agent, the
assignee shall become a Bank hereunder, all Loans, participations in Letters of
Credit and the Revolving Credit Commitment it thereby holds shall be governed
by all the terms and conditions hereof and the Bank granting such assignment
shall have its Revolving Credit Commitment, and its obligations and rights in
connection therewith, reduced by the amount of such assignment. At the time of
the assignment the Borrower shall execute and deliver to the assignor and/or
assignee new Notes.
Section 11.13. Amendments. Any provision of the Credit Documents
may be amended or waived if, but only if, such amendment or waiver is in
writing and is signed by (a) the Borrower, (b) the Required Banks, and (c) if
the rights or duties of the Agent are affected thereby, the Agent; provided
that:
(i) no amendment or waiver pursuant to this Section 11.13
shall (A) increase or extend any Commitment of any Bank without the
consent of such Bank or (B) reduce the amount of or postpone any fixed
date for payment of any principal of or interest on any Loan or
Reimbursement Obligation or of any fee payable hereunder without the
consent of each Bank; and
(ii) no amendment or waiver pursuant to this Section 11.13
shall, unless signed by each Bank, change any provision of Section 6,
Section 9, this Section 11.13, or the definition of Required Banks, or
affect the number of Banks required to take any action under the
Credit Documents.
Section 11.14. Headings. Section headings used in this Agreement
are for reference only and shall not affect the construction of this Agreement.
Section 11.15. Legal Fees, Other Costs and Indemnification. The
Borrower agrees to pay all reasonable costs and expenses of the Agent in
connection with the preparation, negotiation, associated due diligence review,
administration, and syndication of the Credit Documents, including without
limitation, the reasonable fees and disbursements of Chapman and Cutler,
counsel to the Agent, in connection with the preparation and execution of the
Credit Documents, and any amendment, waiver or consent related hereto, whether
or not the transactions contemplated herein are consummated. The Borrower
further agrees to indemnify each Bank, the Agent, and their respective
directors, officers and employees,
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against all losses, claims, damages, penalties, judgments, liabilities and
expenses (including, without limitation, all expenses of litigation or
preparation therefor, whether or not the indemnified Person is a party thereto)
which any of them may incur or reasonably pay arising out of or relating to any
Credit Document or any of the transactions contemplated thereby or the direct
or indirect application or proposed application of the proceeds of any Loan or
Letter of Credit, other than those which arise from the gross negligence or
willful misconduct of the party claiming indemnification. The Borrower, upon
demand by the Agent or a Bank at any time, shall reimburse the Agent or Bank
for any reasonable legal or other expenses incurred in connection with
investigating or defending against any of the foregoing except if the same is
directly due to the gross negligence or willful misconduct of the party to be
indemnified.
Section 11.16. Set Off. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence of any Event of Default, each Bank and each
subsequent holder of any Note is hereby authorized by the Borrower at any time
or from time to time, without notice to the Borrower or to any other Person,
any such notice being hereby expressly waived, to set off and to appropriate
and to apply any and all deposits (general or special, including, but not
limited to, Indebtedness evidenced by certificates of deposit, whether matured
or unmatured, but not including trust accounts, and in whatever currency
denominated) and any other Indebtedness at any time held or owing by that Bank
or that subsequent holder to or for the credit or the account of the Borrower,
whether or not matured, against and on account of the obligations and
liabilities of the Borrower to that Bank or that subsequent holder under the
Credit Documents, including, but not limited to, all claims of any nature or
description arising out of or connected with the Credit Documents, irrespective
of whether or not (a) that Bank or that subsequent holder shall have made any
demand hereunder or (b) the principal of or the interest on the Loans or Notes
and other amounts due hereunder shall have become due and payable pursuant to
Section 8 and although said obligations and liabilities, or any of them, may be
contingent or unmatured.
Section 11.17. Currency. Each reference in this Agreement to U.S.
Dollars or to an Alternative Currency (the "relevant currency") is of the
essence. To the fullest extent permitted by law, the obligation of the
Borrower in respect of any amount due in the relevant currency under this
Agreement shall, notwithstanding any payment in any other currency (whether
pursuant to a judgment or otherwise), be discharged only to the extent of the
amount in the relevant currency that the Person entitled to receive such
payment may, in accordance with normal banking procedures, purchase with the
sum paid in such other currency (after any premium and costs of exchange) on
the Business Day immediately following the day on which such party receives
such payment. If the amount in the relevant currency that may be so purchased
is less than the sum originally due to such Person in the specified currency,
the Borrower agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify such Person against such loss, and if the amount of the
specified currency so purchased exceeds the sum of (a) the amount originally
due to the relevant Person in the specified currency plus (b) any amounts
shared with other Banks as a result of allocations of such excess as a
disproportionate payment to such Bank under Section 11.7 hereof, such Person
agrees to remit such excess to the Borrower.
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Section 11.18. Entire Agreement. The Credit Documents constitute
the entire understanding of the parties thereto with respect to the subject
matter thereof and any prior or contemporaneous agreements, whether written or
oral, with respect thereto are superseded thereby.
Section 11.19. Governing Law. This Agreement and the other Credit
Documents, and the rights and duties of the parties hereto, shall be construed
and determined in accordance with the internal laws of the State of Illinois.
Section 11.20. Submission to Jurisdiction; Waiver of Jury Trial.
The Borrower hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Northern District of Illinois and of any Illinois
State court sitting in the City of Chicago for purposes of all legal
proceedings arising out of or relating to this Agreement, the other Credit
Documents or the transactions contemplated hereby or thereby. The Borrower
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum. THE BORROWER, THE AGENT,
AND EACH BANK HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY.
Section 11.21. Confidentiality. Each Bank agrees to maintain in
confidence and not to disclose without the Borrower's consent (other than to
its employees, affiliates, auditors, counsel or other professional advisors, or
to another Bank) any information concerning the Borrower or any of its
Subsidiaries furnished pursuant to this Agreement and identified as
confidential by the party so furnishing such information; provided that any
Bank may disclose any such information (a) that has become generally available
to the public, (b) if required or appropriate in any report, statement or
testimony submitted to any regulatory body having or claiming to have
jurisdiction over such Bank, (c) if required or appropriate in response to any
summons or subpoena or in connection with any litigation, (d) in order to
comply with any law, order, regulation or ruling applicable to such Bank, or
(e) to any prospective or actual participant under Section 11.11 hereof or
assignee under Section 11.12 hereof in connection with any contemplated or
actual transfer of a participating interest in such Bank's rights or
obligations hereunder; provided, that such actual or prospective transferee
executes an agreement with such Bank containing provisions substantially
identical to those contained in this Section 11.21.
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<PAGE> 64
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set
forth.
Dated as of September 12, 1996.
U.S. Robotics Corporation
By /s/ C. DAVID HALL
------------------------
Its Treasurer
------------------------
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<PAGE> 65
Accepted and Agreed to as of the day and year last above written.
Address and Amount of Commitments:
Address: HARRIS TRUST AND SAVINGS BANK, in its
individual capacity as a Bank and as
Agent
111 West Monroe Street
Chicago, Illinois 60690
Attn: John R. Smart
Facsimile: (312) 461-2591 By /s/ JOHN R. SMART
Telephone: (312) 461-2801 -----------------------------
Its Vice President
-----------------------------
Revolving Credit
Commitment: $45,000,000
Lending Offices:
Domestic Rate Loans:
111 West Monroe Street
Chicago, Illinois 60690
Attn: John R. Smart
Eurocurrency Loans:
111 West Monroe Street
Chicago, Illinois 60690
Attn: John R. Smart
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Address: THE FIRST NATIONAL BANK OF CHICAGO,
in its individual capacity as a
Bank and as a Co-Agent
One First National Plaza
Mail Suite 0088, 14th Floor
Chicago, Illinois 60670-0088
Attn: Jerry Kane
Facsimile: (312) 732-1117 By /s/ JERRY KANE
Telephone: (312) 732-1614 -----------------------------
Its SVP
-----------------------------
Revolving Credit
Commitment: $25,000,000
Lending Offices:
Domestic Rate Loans:
One First National Plaza
Mail Suite 0088, 14th Floor
Chicago, Illinois 60670-0088
Attn: Jerry Kane
Eurocurrency Loans:
One First National Plaza
Mail Suite 0088, 14th Floor
Chicago, Illinois 60670-0088
Attn: Jerry Kane
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Address: NATIONSBANK OF TEXAS, N.A.
in its individual capacity
as a Bank and as a Co-Agent
901 Main Street, 67th Floor
Dallas, Texas 75283-1000
Attn: Stan W. Reynolds
Facsimile: (214) 508-0980 By /s/ STAN W. REYNOLDS
Telephone: (214) 508-3399 -----------------------------
Its Vice President
-----------------------------
Revolving Credit
Commitment: $25,000,000
Lending Offices:
Domestic Rate Loans:
901 Main Street
Dallas, Texas 75283-1000
Attn: Stan W. Reynolds
Eurocurrency Loans:
901 Main Street
Dallas, Texas 75283-1000
Attn: Stan W. Reynolds
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Address: SOCIETE GENERALE, CHICAGO BRANCH
in its individual capacity as a
Bank and as a Co-Agent
181 W. Madison Street, Suite 3400
Chicago, Illinois 60602
Attn: Joseph A. Philbin
Facsimile: (312) 578-5099 By /s/ JOSEPH A. PHILBIN
Telephone: (312) 578-5005 -----------------------------
Its Vice President
-----------------------------
Revolving Credit
Commitment: $25,000,000
Lending Offices:
Domestic Rate Loans:
181 W. Madison Street, Suite 3400
Chicago, Illinois 60602
Attn: Joseph A. Philbin
Eurocurrency Loans:
181 W. Madison Street, Suite 3400
Chicago, Illinois 60602
Attn: Joseph A. Philbin
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Address: ABN AMRO BANK N.V.
135 South LaSalle Street By /s/ DAVID C. SAGERS
Chicago, Illinois 60674-9135 -----------------------------
Attn: Douglas R. Elliott Its Vice President
-----------------------------
Facsimile: (312) 606-8425
Telephone: (312) 904-2994 By /s/ CHRISTINE E. HOLMES
-----------------------------
Its Vice President
-----------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
135 South LaSalle Street
Chicago, Illinois 60674-9135
Attn: Douglas R. Elliott
Eurocurrency Loans:
135 South LaSalle Street
Chicago, Illinois 60674-9135
Attn: Douglas R. Elliott
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Address: THE BANK OF NOVA SCOTIA
600 Peachtree Street N.E.
Suite 2700
Atlanta, Georgia 30308
Attn: F.C.H. Ashby
Facsimile: (404) 888-8998 By /s/ A.S. NORSWORTHY
Telephone: (404) 877-1560 -----------------------------
Its Senior Team Leader -
Loan Operations
-----------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
600 Peachtree Street N.E.
Suite 2700
Atlanta, Georgia 30308
Attn: F.C.H. Ashby
Eurocurrency Loans:
600 Peachtree Street N.E.
Suite 2700
Atlanta, Georgia 30308
Attn: F.C.H. Ashby
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Address: BANQUE NATIONALE DE PARIS
209 South LaSalle Street, 5th Floor
Chicago, Illinois 60604
Attn: Rosalie C. Hawley
Facsimile: (312) 977-1380 By /s/ ARNAUD COLLIN DU BOCAGE
Telephone: (312) 977-2203 -----------------------------
Its Executive Vice President and
General Manager
----------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
209 South LaSalle Street, 5th Floor
Chicago, Illinois 60604
Attn: Rosalie C. Hawley
Eurocurrency Loans:
209 South LaSalle Street, 5th Floor
Chicago, Illinois 60604
Attn: Rosalie C. Hawley
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Address: COMMERZBANK AKTIENGESELLSCHAFT,
CHICAGO BRANCH
311 South Wacker Drive, Suite 5800
Chicago, Illinois 60606
Attn: Mark D. Monson
Facsimile: (312) 435-1486 By /s/ MARK MONSON
Telephone: (312) 408-6910 -----------------------------
Its Vice President
-----------------------------
By /s/ DR. HELMUT TOLLNER
-----------------------------
Its Executive Vice President
-----------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
311 South Wacker Drive
Chicago, Illinois 60606
Attn: Mark D. Monson
Eurocurrency Loans:
311 South Wacker Drive
Chicago, Illinois 60606
Attn: Mark D. Monson
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Address: CREDIT LYONNAIS, CHICAGO BRANCH
227 West Monroe Street
Chicago, Illinois 60606
Attn: Michel Buysschaert
Facsimile: (312) 641-0527 By /s/ MICHAEL BUYSSCHAERT
Telephone: (312) 220-7301 -----------------------------
Its Vice President
-----------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
227 West Monroe Street
Chicago, Illinois 60606
Attn: Michel Buysschaert
Eurocurrency Loans:
227 West Monroe Street
Chicago, Illinois 60606
Attn: Michel Buysschaert
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Address: DEUTSCHE BANK AG, CHICAGO BRANCH
AND/OR CAYMAN ISLANDS BRANCH
227 West Monroe Street, Suite 4350
Chicago, Illinois 60606
Attn: Hans Roderich
Facsimile: (312) 578-4111 By /s/ HANS RODERICH
Telephone: (312) 578-4133 -----------------------------
Its Associate
------------------------
By /s/ CYNTHIA L. HUNT
-----------------------------
Its Director
------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
227 West Monroe Street, Suite 4350
Chicago, Illinois 60606
Attn: Hans Roderich
Eurocurrency Loans:
Cayman Islands Branch
c/o New York Branch
31 West 52nd Street
New York, New York 10019
with a copy to:
Chicago Branch
227 West Monroe Street, Suite 4350
Chicago, Illinois 60606
Attn: Hans Roderich
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Address: FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
One First Union Center
Charlotte, North Carolina 28288-0745
Attn: David Gillespie
By /s/ JANE W. WORKMAN
Facsimile: (704) 374-2802 --------------------------------
Telephone: (704) 383-1392 Its SENIOR VICE PRESIDENT
-------------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
One First Union Center
Charlotte, North Carolina 28288-0745
Attn: David Gillespie
Eurocurrency Loans:
One First Union Center
Charlotte, North Carolina 28288-0745
Attn: David Gillespie
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Address: THE FUJI BANK, LIMITED
225 West Wacker Drive, Suite 2000
Chicago, Illinois 60606
Attn: Lee E. Prewitt
Facsimile: (312) 621-0539 By /s/ PETER L. CHINNICI
Telephone: (312) 621-9485 ----------------------------
Its Joint General Manager
Revolving Credit -----------------------
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
225 West Wacker Drive, Suite 2000
Chicago, Illinois 60606
Attn: Lee E. Prewitt
Eurocurrency Loans:
225 West Wacker Drive, Suite 2000
Chicago, Illinois 60606
Attn: Lee E. Prewitt
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Address: THE INDUSTRIAL BANK OF JAPAN, LIMITED
227 West Monroe Street, Suite 2600
Chicago, Illinois 60606
Attn: Steven Ryan
Facsimile: (312) 855-8200 By [SIG]
Telephone: (312) 855-6251 -----------------------------
Its Joint General Manager
-------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
227 West Monroe Street, Suite 2600
Chicago, Illinois 60606
Attn: Steven Ryan
Eurocurrency Loans:
227 West Monroe Street, Suite 2600
Chicago, Illinois 60606
Attn: Steven Ryan
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Address: THE NORTHERN TRUST COMPANY
50 South LaSalle Street
Chicago, Illinois 60675
Attn: Carolyn Donohue Grant
Facsimile: (312) 444-7028 By Carolyn Donohue Grant
Telephone: (312) 444-7729 -----------------------------
Its Vice President
-------------------------
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
50 South LaSalle Street
Chicago, Illinois 60675
Attn: Carolyn Donohue Grant
Eurocurrency Loans:
50 South LaSalle Street
Chicago, Illinois 60675
Attn: Carolyn Donohue Grant
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Address: WACHOVIA BANK OF GEORGIA, N.A.
70 West Madison Street, Suite 2440
Chicago, Illinois 60602
Attn: Keith L. Burson
Facsimile: (312) 853-0693 By /s/ ELIZABETH COLT
Telephone: (312) 853-3775 -----------------------------
Its Vice President
------------------------
Elizabeth Colt
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
70 West Madison Street
Chicago, Illinois 60602
Attn: Keith L. Burson
Eurocurrency Loans:
70 West Madison Street
Chicago, Illinois 60602
Attn: Keith L. Burson
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Address: WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
1211 Avenue of the Americas
New York, New York 10036
Attn: Cheryl Wilson
By /SIG/
Facsimile: (212) 852-6148 ------------------------------
Telephone: (212) 852-6121 Its VP
---------------------------
with a copy to:
181 W. Madison Street, Suite 4850 By /s/ KAREN E. HOPLOCK
Chicago, Illinois 60602 ------------------------------
Attn: Mark R. Worley Its VP
-----------------------------
Facsimile: (312) 553-1609
Telephone: (312) 553-1600
Revolving Credit
Commitment: $15,000,000
Lending Offices:
Domestic Rate Loans:
1211 Avenue of the Americas
New York, New York 10036
Attn: Cheryl Wilson
Eurocurrency Loans:
1211 Avenue of the Americas
New York, New York 10036
Attn: Cheryl Wilson
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EXHIBIT A
NOTICE OF PAYMENT REQUEST
[Name of Bank] [Date]
[Address]
Attention:
Reference is made to the Credit Agreement, dated as of September 12,
1996 among U.S. Robotics Corporation, the Banks named therein, and Harris Trust
and Savings Bank, as Agent (the "Credit Agreement"). Capitalized terms used
herein and not defined herein have the meanings assigned to them in the Credit
Agreement. [The Borrower has failed to pay its Reimbursement Obligation in the
amount of $__________. Your Bank's Percentage of the unpaid Reimbursement
Obligation is $____________] or [Harris Trust and Savings Bank has been
required to return a payment by the Borrower of a Reimbursement Obligation in
the amount of $____________. Your Bank's Percentage of the returned
Reimbursement Obligations is $____________.]
Very truly yours,
HARRIS TRUST AND SAVINGS BANK
By ________________________________
Its ___________________________
<PAGE> 82
EXHIBIT B
COMMITTED NOTE
________________, _____
FOR VALUE RECEIVED, the undersigned, U.S. Robotics Corporation, a
Delaware corporation (the "Borrower"), promises to pay to the order
of ____________________ (the "Bank") on the Termination Date of the hereinafter
defined Credit Agreement, at the principal office of Harris Trust and Savings
Bank, in Chicago, Illinois, (or in the case of Eurocurrency Loans denominated
in an Alternative Currency, at such office as the Agent has previously notified
the Borrower) in the currency of such Committed Loan in accordance with Section
3.1 of the Credit Agreement, the aggregate unpaid principal amount of all
Committed Loans made by the Bank to the Borrower pursuant to the Credit
Agreement, together with interest on the principal amount of each Committed
Loan from time to time outstanding hereunder at the rates, and payable in the
manner and on the dates, specified in the Credit Agreement.
The Bank shall record on its books or records or on a schedule
attached to this Committed Note, which is a part hereof, each Committed Loan
made by it pursuant to the Credit Agreement, together with all payments of
principal and interest and the principal balances from time to time outstanding
hereon, whether the Committed Loan is a Domestic Rate Loan or a Eurocurrency
Loan, the currency thereof and the interest rate and Interest Period applicable
thereto, provided that prior to the transfer of this Committed Note all such
amounts shall be recorded on a schedule attached to this Committed Note. The
record thereof, whether shown on such books or records or on a schedule to this
Committed Note, shall be prima facie evidence of the same, provided, however,
that the failure of the Bank to record any of the foregoing or any error in any
such record shall not limit or otherwise affect the obligation of the Borrower
to repay all Committed Loans made to it pursuant to the Credit Agreement
together with accrued interest thereon.
This Committed Note is one of the Committed Notes referred to in the
Credit Agreement dated as of September 12, 1996, among the Borrower, Harris
Trust and Savings Bank, as Agent, and the Banks party thereto (the "Credit
Agreement"), and this Committed Note and the holder hereof are entitled to all
the benefits provided for thereby or referred to therein, to which Credit
Agreement reference is hereby made for a statement thereof. All defined terms
used in this Committed Note, except terms otherwise defined herein, shall have
the same meaning as in the Credit Agreement. This Committed Note shall be
governed by and construed in accordance with the internal laws of the State of
Illinois.
Prepayments may be made hereon and this Committed Note may be declared
due prior to the expressed maturity hereof, all in the events, on the terms and
in the manner as provided for in the Credit Agreement.
<PAGE> 83
The Borrower hereby waives demand, presentment, protest or notice of
any kind hereunder.
U.S. ROBOTICS CORPORATION
By______________________________________
Its_________________________________
-2-
<PAGE> 84
EXHIBIT C
BID NOTE
________________, ______
FOR VALUE RECEIVED, the undersigned, U.S. Robotics Corporation, a
Delaware corporation (the "Borrower"), promises to pay to the order of
____________________ (the "Bank") on the Termination Date of the hereinafter
defined Credit Agreement, at the principal office of Harris Trust and Savings
Bank, in Chicago, Illinois, (or in the case of Bid Loans denominated in an
Alternative Currency, at such office as the Agent has previously notified the
Borrower) in the currency of such Bid Loan in accordance with Section 3.1 of
the Credit Agreement, the aggregate unpaid principal amount of all Bid Loans
made by the Bank to the Borrower pursuant to the Credit Agreement, together
with interest on the principal amount of each Bid Loan from time to time
outstanding hereunder at the rates, and payable in the manner and on the dates,
specified in the Credit Agreement.
The Bank shall record on its books or records or on a schedule
attached to this Bid Note, which is a part hereof, each Bid Loan made by it
pursuant to the Credit Agreement, together with all payments of principal and
interest and the principal balances from time to time outstanding hereon,
whether the Bid Loan is a Eurocurrency Bid Loan or a Stated Rate Bid Loan, the
currency thereof and the interest rate and Interest Period applicable thereto,
provided that prior to the transfer of this Bid Note all such amounts shall be
recorded on a schedule attached to this Bid Note. The record thereof, whether
shown on such books or records or on a schedule to this Bid Note, shall be
prima facie evidence of the same, provided, however, that the failure of the
Bank to record any of the foregoing or any error in any such record shall not
limit or otherwise affect the obligation of the Borrower to repay all Bid Loans
made to it pursuant to the Credit Agreement together with accrued interest
thereon.
This Bid Note is one of the Bid Notes referred to in the Credit
Agreement dated as of September 12, 1996, among the Borrower, Harris Trust and
Savings Bank, as Agent, and the Banks party thereto (the "Credit Agreement"),
and this Bid Note and the holder hereof are entitled to all the benefits
provided for thereby or referred to therein, to which Credit Agreement
reference is hereby made for a statement thereof. All defined terms used in
this Bid Note, except terms otherwise defined herein, shall have the same
meaning as in the Credit Agreement. This Bid Note shall be governed by and
construed in accordance with the internal laws of the State of Illinois.
Prepayments may be made hereon and this Bid Note may be declared due
prior to the expressed maturity hereof, all in the events, on the terms and in
the manner as provided for in the Credit Agreement.
<PAGE> 85
The Borrower hereby waives demand, presentment, protest or notice of
any kind hereunder.
U.S. ROBOTICS CORPORATION
By ___________________________________
Its ______________________________
-2-
<PAGE> 86
EXHIBIT D
BID LOAN REQUEST CONFIRMATION
[Date]
Harris Trust and Savings Bank, as Agent
111 West Monroe Street
Chicago, Illinois 60690
Attention: Agency Services
Dear ________________:
The undersigned, U.S. Robotics Corporation (the "Borrower") refers to
the Credit Agreement dated as of September 12, 1996, as amended (the "Credit
Agreement"), among the Borrower, the Banks from time to time party thereto, and
Harris Trust and Savings Bank, as Agent for the Banks. Capitalized terms used
and not defined herein have the meanings assigned to them in the Credit
Agreement. The Borrower hereby confirms that it has, on the date hereof, given
you notice pursuant to Section 1.7 of the Credit Agreement that it requests a
Bid Loan Borrowing under the Credit Agreement, and in that connection sets
forth below the terms on which such Bid Loan Borrowing is requested to be made:
<TABLE>
<S> <C> <C>
(A) Type of Bid Loan Borrowing(1) ________________
(B) Date of Bid Loan Borrowing(2) ________________
(C) Currency ________________
(D) Aggregate Principal Amount of Stated Rate Eurocurrency
----------- ------------
Bid Loan Borrowing(3)
--------------- ---------------
</TABLE>
__________________________________
(1) Stated Rate or Eurocurrency.
(2) The Bid Loan Request Confirmation must be received on a Business Day by the
Agent not later than 10:30 A.M. (Chicago time) one (1) Business Day
before the proposed Borrowing Date in the case of Stated Rate Bid
Loans and five Business Days before the proposed Borrowing Date in the
case of Eurodollar Bid Loans.
(3) Not less than an Original Dollar Amount of $5,000,000 and in integral
multiples of 1,000,000 units of the relevant currency.
<PAGE> 87
<TABLE>
<S> <C> <C> <C>
(E) Maturities(4)
--------------- ---------------
--------------- ---------------
(F) If, applicable maximum amount --------------- ---------------
requested for each maturity
--------------- ---------------
</TABLE>
Upon acceptance of any or all of the Bids offered by Banks in response
to this request, the Borrower shall be deemed to affirm as of such date the
representations and warranties made in the Credit Agreement.
U.S. ROBOTICS CORPORATION
By __________________________________
Its ____________________________
_________________
(4) List up to 3 maturities of 1 to 180 days in the case of Stated Rate Bid
Loans and 1, 2, 3, 4, 5 or 6 months in the case of Eurocurrency Bid
Loans, but never beyond the Termination Date.
-2-
<PAGE> 88
EXHIBIT E
INVITATION TO BID
[Date]
[Name of Bank]
[Address of Bank]
Attention:
Reference is made to the Credit Agreement dated as of September 12,
1996 (the "Credit Agreement") among U.S. Robotics Corporation, (the
"Borrower"), the Banks from time to time party thereto, and Harris Trust and
Savings Bank, as Agent for the Banks. Capitalized terms used and not defined
herein have the meanings assigned to them in the Credit Agreement. The
Borrower made a Bid Loan Request on __________, ________ pursuant to Section
1.7(a) of the Credit Agreement, and in that connection you are invited to
submit a Bid by [Date](1). Your Bid must comply with Section 1.7(c) of the
Credit Agreement and the terms set forth below on which the Bid Loan Request
was made.
<TABLE>
<S> <C> <C> <C>
(A) Type (Stated Rate or Eurocurrency) _______________
(B) Date of Proposed Bid Loan Borrowing _______________
(C) Currency _______________
Stated Rate Eurocurrency
----------- ------------
(D) Aggregate Principal Amount
of Bid Loan ____________ ______________
(E) Maturities and maximum
amount, if different from
(D), for any maturity _____________ ______________
</TABLE>
Very truly yours,
HARRIS TRUST AND SAVINGS BANK,
as Agent
By __________________________
Its ___________________
_________________
(1) The Bid must be received by the Agent not later than 9:00 a.m. Chicago time,
on the proposed Borrowing Date for Stated Rate Bid Loans and 1:00 p.m.
four Business Days prior to the proposed Borrowing Date for
Eurocurrency Bid Loans.
<PAGE> 89
EXHIBIT F
CONFIRMATION OF BID
[Date]
Harris Trust and Savings Bank, as Agent
111 West Monroe Street
Chicago, Illinois 60690
Attention: Agency Services
The undersigned [Name of Bank], refers to the Credit Agreement dated
as of September 12, 1996 (the "Credit Agreement") among U.S. Robotics
Corporation (the "Borrower"), the Banks from time to time party thereto, and
Harris Trust and Savings Bank, as Agent for the Banks. Capitalized terms used
and not defined herein have the meanings assigned to them in the Credit
Agreement. The undersigned hereby confirms that on the date hereof it has made
a Bid pursuant to Section 1.7 of the Credit Agreement, in response to the Bid
Loan Request made by the Borrower on __________, _______, and in that
connection sets forth below the terms on which such Bid is made:
<TABLE>
<S> <C> <C>
Type (Stated Rate or Eurocurrency): _____________________
Currency _____________________
Date of proposed Bid Loan Borrowing: ____________________(1)
Interest Rate or spread
Principal Amount(2) Maturity(3) above or below LIBOR(4)
---------------- -------- --------------------
Very truly yours,
[Name of Bank]
By ________________________________
Its ___________________________
</TABLE>
__________________________________
(1) As specified in the related Invitation to Bid.
(2) Principal amount of bid for each maturity may not exceed the principal
amount requested by the Company or the maximum amount requested for
that maturity, if less. Bids must be made in a minimum an Original
Dollar Amount of $5,000,000 and in integral multiples of 1,000,000
units of the relevant currency.
(3) List each maturity of 1 to 180 days in the case of Stated Rate Bid Loans and
1, 2, 3, 4, 5 or 6 months in the case of Eurocurrency Bid Loans.
(4) Specify rate of interest per annum computed on the basis of a year of 360
days and actual days elapsed for Stated Rate Bid Loans and percentage
to be added to or subtracted from LIBOR for Eurocurrency Bid Rate
Loans.
<PAGE> 90
EXHIBIT G
NOTICE OF ACCEPTANCE OF BID
[Date]
[Name of Bank]
[Address of Bank]
Attention:
Reference is made to the Credit Agreement dated as of September 12,
1996 (the "Credit Agreement") among U.S. Robotics Corporation (the "Borrower"),
the Banks from time to time party thereto, and Harris Trust and Savings Bank,
as Agent for the Banks. Capitalized terms used and not defined herein have the
meanings assigned to them in the Credit Agreement. The Borrower made a Bid
Loan Request on __________, ______ pursuant to Section 1.7 of the Credit
Agreement, and in that connection you have submitted a Bid. Your Bid has been
accepted as set forth below.
<TABLE>
<S> <C> <C> <C> <C>
(A) Type of Bid Loan _______________
(B) Date of Bid Loan Borrowing _______________
Interest
(C) Aggregate principal Rate or
amount of each Bid Spread above or
maturity and interest Principal below
rate Amount Currency Maturity LIBOR
------- -------- -------- -----
__________ __________ __________ __________
__________ __________ __________ __________
__________ __________ __________ __________
__________ __________ __________ __________
Very truly yours,
HARRIS TRUST AND SAVINGS BANK,
as Agent
By _______________________________________
Its __________________________________
</TABLE>
<PAGE> 91
EXHIBIT H
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished to Harris Trust and Savings
Bank as Agent pursuant to the Credit Agreement (the "Credit Agreement") dated
as of September 12, 1996, by and among U.S. Robotics Corporation, the Banks
signatory thereto and Harris Trust and Savings Bank as Agent. Unless otherwise
defined herein, the terms used in this Compliance Certificate have the meanings
ascribed thereto in the Credit Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ____________________ of U.S.
Robotics Corporation;
2. I have reviewed the terms of the Credit Agreement and
I have made, or have caused to be made under my supervision, a
detailed review of the transactions and conditions of U.S. Robotics
Corporation and its Subsidiaries during the accounting period covered
by the attached financial statements;
3. The examinations described in paragraph 2 did not
disclose, and I have no knowledge of, the existence of any condition
or event which constitutes an Event of Default during or at the end of
the accounting period covered by the attached financial statements or
as of the date of this Certificate, except as set forth below;
4. Based on the examinations described in paragraph 2,
the representations and warranties of the Borrower contained in
Section 5 of the Credit Agreement are true and correct in all material
respects as if made on the date hereof (other than those made solely
as of an earlier date, which are only certified to be true as of such
date), except as set forth below; and
5. Schedule 1 attached hereto sets forth financial data
and computations evidencing compliance with certain covenants of the
Credit Agreement, all of which data and computations are true,
complete and correct. All computations are made in accordance with
the terms of the Credit Agreement.
Described below are the exceptions, if any, to paragraphs 3 and 4 by
listing, in detail, the nature of the condition or event, the period during
which it has existed and the action which the Borrower has taken, is taking, or
proposes to take with respect to each such condition or event:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
<PAGE> 92
______________________________________________________________________
The foregoing certifications, together with the computations set forth
in Schedule 1 hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this __________ day of
_____________, 19___.
__________________________________
-2-
<PAGE> 93
SCHEDULE 1 TO COMPLIANCE CERTIFICATE
Compliance Calculations for Credit Agreement
dated as of September 12, 1996
CALCULATION AS OF ____________, ____
<TABLE>
<S> <C> <C> <C>
A. Liens (Sec. 7.9(d), (e), and (i))
1. Liens securing judgments or related
bonds (Section 7.9(d)) $______________ (not to exceed $10,000,000)
2. Purchase money Liens
(Section 7.9(e)) $______________ (not to exceed 5% of
Consolidated Tangible
Assets)
3. Liens on Property of newly
acquired Persons (or divisions)
(Section 7.9(h)) $______________ (not to exceed $25,000,000)
4. Liens securing Indebtedness not
otherwise permitted by Section 7.9
(Section 7.9(j)) $______________ (not to exceed
10% of Consolidated
Tangible Assets
(Line C3))
B. Sale of Assets (Section 7.12)
1. Fair market value of assets sold
during past 12-months (excluding
inventory and permitted
sale/leasebacks) $_______________
2. Consolidated Tangible Assets at end
of preceding fiscal quarter (Line C3) $_______________ (Line B1 not to exceed
10% of Line B2, but may equal
up to 25% of Line B2 if sale
proceeds in excess of 10% of
Line B2 are reinvested in
business and meet other
requirements of Section 7.12
</TABLE>
<PAGE> 94
<TABLE>
<S> <C> <C> <C>
C. Consolidated Tangible Net Worth (Section 7.15)
1. Consolidated total assets $______________
2. Consolidated intangible assets $______________
3. Consolidated Tangible Assets
(Line C1 minus Line C2) $______________
4. Consolidated total liabilities $______________
5. Consolidated Tangible Net Worth
(Line C3 minus Line C4) $______________
6. Positive Net Income for fiscal
quarter ending September 29, 1996 $______________
7. Cumulative positive Net Income
for each fiscal year ending on
or after September 28, 1997 $______________
8. Sum of Line C6 and Line C7 $______________
9. Line C8 times 50% $______________
10. Sum of Line C8 plus $503,850,000 $______________ (Line C5 must equal
or exceed Line C10)
D. Leverage Ratio (Section 7.16)
1. Total Debt $______________
2. Consolidated Tangible Net Worth
(from Line C5) $______________
3. Sum of Lines D1 and D2 $______________
4. Ratio of Line D1 to D3 _______ : ______ (Ratio of Line D1 to
Line D3 must not
exceed 0.50 to 1.00)
E. Total Debt to EBITDA (Section 7.17)
1. Total Debt $______________
2. Consolidated Net Income for four
past fiscal quarters $______________
</TABLE>
-2-
<PAGE> 95
<TABLE>
<S> <C> <C> <C>
3. Interest Expense for four past
fiscal quarters $______________
4. Income taxes for four past
fiscal quarters $______________
5. Amounts properly charged
for depreciation of fixed assets
for four past fiscal quarters $______________
6. Amounts properly charged
for amortization of intangible
assets for four past fiscal quarters $______________
7. Line E2 plus Lines E3,
E4, E5 and E6 $______________
8. Ratio of Line E1 to Line E7 _______ : ______ (Ratio of Line E1 to
Line E7 must not
be greater than
2.0:1.0
F. Subsidiary Debt (Section 7.19)
1. Debt of Subsidiaries to Persons
other than the Borrower and other
Subsidiaries $______________
2. Consolidated Tangible Assets
(Line C3)) $______________
3. 15% of Line F2 $______________ (Line F3 must be equal
to or greater than Line F1)
</TABLE>
-3-
<PAGE> 96
EXHIBIT I-1
[FORM OF OPINION]
September 12, 1996
To each of the Banks named in the
Credit Agreement defined below
c/o Harris Trust and Savings Bank, as Agent
111 West Monroe Street
Chicago, Illinois 60690
Ladies and Gentlemen:
I am the General Counsel of U.S. Robotics Corporation (the
"Borrower"), and I have acted as counsel for the Borrower in connection with
the Borrower's authorization, execution and delivery of the Multicurrency
Credit Agreement dated as of September 12, 1996, by and among the Borrower, the
Banks and the Agent named therein (the "Credit Agreement") and of the Notes
issued by the Borrower thereunder. All terms used and not defined herein shall
have the meanings ascribed to them in the Credit Agreement.
In connection with this opinion, I have examined such corporate
documents and records of the Borrower and its Subsidiaries, certificates of
public officials and officers of the Borrower and its Subsidiaries, and such
other documents, as I have deemed necessary or appropriate for the purpose of
this opinion.
Based upon the foregoing, it is my opinion that:
1. Each of the Borrower and each Subsidiary of the Borrower is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction in which a
failure to so qualify or be in good standing would reasonably be expected to
materially and adversely affect the ownership of property of, or the business
and operations conducted by, the Borrower and its Subsidiaries taken as a
whole, or the Borrower's ability to perform any of its obligations under any of
the Credit Documents.
2. The Borrower has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Credit Documents, to
borrow thereunder, and to apply for the Letters of Credit. The Borrower has
taken all necessary corporate action to authorize such transactions on the
terms and conditions of the Credit Documents, and to authorize the execution,
delivery and performance of the Credit Documents, including, without
limitation, the Applications for the Letters of Credit. Other than such
corporate approvals and consents as have been obtained, to the best of my
knowledge and belief no consent or authorization of, filing with, or other act
by or in respect of, any Person is
<PAGE> 97
required in connection with the execution, delivery, performance, validity or
enforceability of any of the Credit Documents, any borrowings thereunder or the
application for any Letters of Credit. The Credit Agreement and the Notes have
been duly executed and delivered on behalf of the Borrower.
3. The execution, delivery and performance of the Credit
Documents by the Borrower, and the use of the proceeds of borrowings thereunder
and of the credit provided by the Letters of Credit issued thereunder, will not
violate or contravene any provision of law or any judgment or decree, or any
provision of the Borrower's certificate of incorporation or by-laws or, to the
best of my knowledge and belief, any material agreement, instrument or
undertaking, to which the Borrower is a party or by which it or any of its
Properties is bound and will not result in, or require, the creation or
imposition of any Lien on any of the Borrower's Properties or revenues.
4. No litigation, investigation or proceeding of or before any
court, arbitrator or governmental authority is pending or, to the best of my
knowledge and belief, threatened by or against the Borrower or any of its
Subsidiaries or any of their respective Properties or revenues that calls into
question the validity or enforceability of any of the Credit Documents or any
of the transactions contemplated thereby or which would reasonably be expected
to have a material adverse effect on the business, operations, property or
financial condition of the Borrower and its Subsidiaries, taken as a whole.
This opinion is given pursuant to Section 6.1(a) of the Credit
Agreement, solely for the use of the Banks and Agent and their respective
assignees, participants and counsel and are not to be relied upon by any other
party without the prior written consent of the undersigned.
Very truly yours,
-2-
<PAGE> 98
EXHIBIT I-2
[FORM OF OPINION]
September 12, 1996
To each of the Banks named in the
Credit Agreement defined below
c/o Harris Trust and Savings Bank, as Agent
111 West Monroe Street
Chicago, Illinois 60690
Re: U.S. Robotics Corporation
Ladies and Gentlemen:
We have acted as special Illinois counsel to U.S. Robotics Corporation
(the "Borrower") in connection with the preparation and negotiation of that
certain Multicurrency Credit Agreement dated as of September 12, 1996 (the
"Credit Agreement"), by and among the Borrower, the Banks and the Agent named
therein. We are furnishing this opinion to you pursuant to Section 6.1(a) of
the Credit Agreement. Unless otherwise defined herein, capitalized terms used
herein have the respective meanings assigned to such terms in the Credit
Agreement.
In connection with the opinions expressed below, we have examined the
Credit Agreement and the Notes and the opinion of George Vinyard, General
Counsel to the Borrower (the "Opinion").
In our examination of the documents referred to above, we have assumed
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to the originals of all such documents
submitted to us as copies, and the due authority of the persons executing or
delivering the same. We have made no independent examination of the records
of, or other matters relating to, the Borrower or any of its Subsidiaries. As
to factual matters, we have relied on the documents that we have examined. As
to matters of law covered by the Opinion, we have relied solely, without
independent verification or investigation as to any of the matters referred to
therein, on the Opinion and have assumed the correctness of the matters set
forth therein, our opinions being subject to the assumptions, qualifications
and limitations set forth in the Opinion with respect thereto. We have also
assumed that the Credit Agreement has been duly executed and delivered by the
Agent and the Banks, with all necessary power and authority and the Credit
Agreement is a legal, valid and binding obligation of each of them, enforceable
in accordance with its terms.
<PAGE> 99
Based upon the foregoing examination of documents and assumptions and
having due regard for legal considerations we deem relevant, we are of the
opinion that the Credit Agreement and the Notes are the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
Our opinion expressed above, with respect to the enforceability of
such Credit Documents, is subject to the effects of (a) applicable bankruptcy,
insolvency, reorganization, moratorium, rearrangement, liquidation,
conservatorship or similar laws of a general application at the time in effect
relating to or affecting the rights of creditors generally and (b) general
principles of equity, including without limitation concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether considered
in a proceeding in equity or at law).
In addition, certain provisions contained in such Credit Documents may
be limited or rendered ineffective by applicable laws or judicial decisions
governing such provisions or holding their enforcement to be unreasonable under
the then existing circumstances, but such laws and judicial decisions do not in
our opinion render any of such Credit Documents invalid as a whole or leave you
without adequate remedies for the enforcement thereof.
The laws covered by the opinions expressed herein are specifically
limited to the laws of the State of Illinois and the Federal laws of the United
States of America. The opinions expressed herein are for the sole benefit of,
and may only be relied upon by the Agent and the Banks, and their respective
assignees, participants and counsel, and are not to be relied upon by any other
party without our prior written consent.
Very truly yours,
MAYER, BROWN & PLATT
-2-
<PAGE> 100
EXHIBIT J
COMMITMENT AMOUNT INCREASE REQUEST
________________, ____
Harris Trust and Savings Bank
(the "Agent") and the Banks
referred to below
111 West Monroe Street
Chicago, Illinois 60690
Attention: Agency Services
Re: Credit Agreement dated as of September 12, 1996 (the "Credit
Agreement"), among U.S. Robotics Corporation, the Banks from
time to time party thereto and Harris Trust and Savings Bank,
as Agent
Ladies and Gentlemen:
In accordance with the Credit Agreement, the Borrower hereby requests
that the Agent consent to an increase in the aggregate Revolving Credit
Commitments (the "Commitment Amount Increase"), in accordance with Section 1.19
of the Credit Agreement, to be effected by [an increase in the Revolving Credit
Commitment of [name of existing Bank]] / [the addition of [name of new Bank]
(the "New Bank") as a Bank under the terms of the Credit Agreement]. All
defined terms used herein and not defined herein shall have the same meaning
herein as in the Credit Agreement.
After giving effect to such Commitment Amount Increase, the Commitment
of the New Bank shall be $______________ and the Percentages of all Banks for
the purposes of the Credit Agreement will be as set forth on Attachment I
hereto.
[INCLUDE PARAGRAPHS 1 - 5 FOR A NEW BANK]
1. The New Bank hereby confirms that it has received a
copy of the Credit Agreement and the exhibits and schedules related thereto,
together with copies of the documents which were required to be delivered under
the Credit Agreement as a condition to the making of a Credit Event thereunder.
The New Bank acknowledges and agrees that it has made and will continue to
make, independently and without reliance upon the Agent or any other Bank and
based on such documents and information as it has deemed appropriate, its own
credit analysis and decisions relating to the Credit Agreement. The New Bank
further acknowledges and agrees that the Agent has not made any representations
or
<PAGE> 101
warranties about the creditworthiness of the Borrower or any other party to the
Credit Agreement or any other Credit Document or with respect to the legality,
validity, sufficiency or enforceability of the Credit Agreement or any other
Credit Document or the value of any security therefor.
2. Except as otherwise provided in the Credit Agreement,
effective as of the date of acceptance hereof by the Agent, the New Bank (i)
shall be deemed automatically to have become a party to the Credit Agreement
and have all the rights and obligations of a "Bank" under the Credit Agreement
as if it were an original signatory thereto and (ii) agrees to be bound by the
terms and conditions set forth in the Credit Agreement as if it were an
original signatory thereto.
3. The New Bank hereby advises you of the following administrative
details with respect to the its Loans and Commitment(s):
(A) Address for Notices:
Institution Name:
Address:
Attention:
Telephone:
Facsimile:
(B) Payment Instructions:
(C) Effective date of Commitment Amount Increase, which
shall not be earlier than 5 Business Days after the date hereof:
4. The Borrower agrees to execute and deliver to the New Bank, if
not already a Bank under the Credit Agreement, a Bid Note and Committed Note.
[5. The New Bank has delivered, if appropriate, to the Borrower
and the Agent (or is delivering to the Borrower and the Agent concurrently
herewith) the tax forms referred to in Section 11.1 of the Credit Agreement.]*
THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACTUAL OBLIGATION UNDER,
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF ILLINOIS.
____________________
* Insert bracketed paragraph if New Bank is organized under the law of a
jurisdiction other than the United States of America or a state
thereof.
-2-
<PAGE> 102
The Commitment Amount Increase shall be effective when the executed
consent of the Agent is received or otherwise in accordance with Section 1.19
of the Credit Agreement, but not in any case prior to ___________, ____. It
shall be a condition to the effectiveness of the Commitment Amount Increase
that no Loans shall be outstanding on the date of such effectiveness.
The Borrower hereby certifies that no Default or Event of Default has
occurred and is continuing.
Please indicate the Agent's consent to such Commitment Amount Increase
by signing the enclosed copy of this letter in the space provided below and
returning the same to the Borrower no later than __________, _____.
Very truly yours,
U.S. ROBOTICS CORPORATION
By ___________________________________
Title: ___________________________
[NEW BANK] / [BANK
INCREASING COMMITMENT]
By ___________________________________
Title: ___________________________
The undersigned hereby consents on this
_______ day of _________, ____ to the above
requested Commitment Amount Increase.
HARRIS TRUST AND SAVINGS BANK, as Agent
By: _________________________________
Title: _____________________________
-3-
<PAGE> 103
SCHEDULE 5.1
LIABILITIES OF U.S. ROBOTICS CORPORATION
$60,000,000 7.52% Senior Notes due June 30, 2001.
-4-
<PAGE> 104
SCHEDULE 5.2
SUBSIDIARIES OF U.S. ROBOTICS CORPORATION
(INCLUSION OF ANY SUBSIDIARY ON THIS SCHEDULE DOES NOT IMPLY
THAT IT IS A MATERIAL SUBSIDIARY AS DEFINED IN THE CREDIT DOCUMENTS)
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP
<S> <C> <C>
U.S. Robotics Access Corp. Delaware 100%
Megahertz Holding Inc. Utah 100%
ISDN Systems Corporation Maryland 100%
Palm Computing, Inc. California 100%
Amber Wave Systems, Inc. Delaware 100%
U.S. Robotics Research Corp. Delaware 100%
U.S. Robotics Deutschland Gmbh Germany 100%
U.S. ROBOTICS ACCESS CORP SUBSIDIARIES:
U.S. Robotics, s.a. France 100%(1)
U.S. Robotics European
Coordination Center SARL France 100%
P.N.B., s.a. France 100%(1)
US Robotics PCD SARL France 100%
US Robotics Logistics SARL France 100%
US Robotics Systems SARL France 100%
USR Limited United Kingdom 100%
U.S. Robotics Limited United Kingdom 100%
U.S. Robotics Italia S.r.L. Italy 100%
U.S.R. Sales Corporation U.S. Virgin Islands 100%
USR International, Inc. Delaware 100%
USR Middle East Holdings, Inc. Delaware 100%
Scorpio Communications, Ltd. Israel 100%
USR Robotics Services Limited Ireland 100%
U.S. Robotics Europe Limited Ireland 100%
</TABLE>
__________________
(1) Wholly-owned, except for directors' qualifying shares.
<PAGE> 105
MEGAHERTZ HOLDING INC. SUBSIDIARIES:
<TABLE>
<S> <C> <C>
U.S. Robotics Mobile Communications Corp.
Utah 100%
</TABLE>
-2-
<PAGE> 106
SCHEDULE 5.12
REAL PROPERTY
<TABLE>
<CAPTION>
LOCATION INTEREST LIENS
<S> <C> <C>
8100 N. McCormick Blvd. Owned None
Skokie, IL 60076
8111 N. St. Louis Owned None
Skokie, IL 60076
3400 Oakton St. Owned None
Skokie, IL 60076
605 North 5600 West Owned None
Salt Lake City, UT 84116
Leased None
940 Idaho Maryland Rd.
Grass Valley, CA 95945
Leased None
443 Crown Point Circle
Suite A
Grass Valley, CA 95945
Leased None
500 Crown Point Circle
Grass Valley, CA 95945
Leased None
19100 Von Karman Avenue
Suite 680
Irvine, CA 92715
Leased None
4410 El Camino Real
Suite 108
Los Altos, CA 94087
Leased None
Charleston Place
1565 & 1585 Charleston Road
Mountain View, CA
Leased None
5201 Great American Pkwy
Suite 320
Santa Clara, CA 95054
</TABLE>
-1-
<PAGE> 107
<TABLE>
<S> <C> <C>
321 Main Street Leased None
Farmington, CT 06032
One Tabor Center Leased None
1200 17th Street, Suite 530
Denver, CO 80202
1000 Mansell Exchange West Leased None
Suite 250
Alpharetta, GA 30202
10440 Little Patuxent Parkway Leased None
Suite 900
Columbia, MD 21044
4 Technology Drive Leased None
Westborough, MA 01581
Two Penn Plaza Leased None
10th Floor, Suite 1088
New York, NY 10121
2801 Yorkmont Road Leased None
Charlotte, NC 28208
5429 LBJ Freeway Leased None
Suite 700
Dallas, TX 75240
2500 City West Blvd. Leased None
Destec Tower, Suite 300
Houston, TX 77042
2070 Chain Ridge Road Leased None
Vienna, VA 22182
500 108th Avenue Leased None
Suite 848
Bellevue, WA 98004
Sterling Plaza Leased None
3535 128th Avenue, S.E.
Suite 110
Bellevue, WA 98006
</TABLE>
-2-
<PAGE> 108
<TABLE>
<S> <C> <C>
6201 West Oakton Street Owned None
Morton Grove, IL 60053
7770 North Frontage Road Owned None
Skokie, IL 60077
1800 West Central Road Leased None
Mt. Prospect, IL 60056
3800 Golf Road Leased None
Rolling Meadows, IL 60006
CANADA Leased None
5420 North Service Road
Burlington, Ontario L7L 6C7
ENGLAND Leased None
Arundell House
1 Farm Yard
Windsor, Berkshire, SL4 1QL
650 Wharfdale Road Leased None
Winnersh Triangle
Wokingham, Berkshire
FRANCE Leased None
City Parc
3 Rue Lavoisier
F-59650 Villeneuve d'Ascq
European Distribution Center Leased None
rue Jules Verne
Centre de Gos n 2
F-59818 Lesquin
Tour Kupka A Leased None
18, Rue Hoche
92800 Paris la Defense
France
PBN Leased None
4 Rue Jean Mace
92150 Suresnes
</TABLE>
-3-
<PAGE> 109
<TABLE>
<S> <C> <C>
GERMANY Leased None
Munchner Str. 12
85774 Unterfohning
Munich
IRELAND Leased None
Europa House
Harcourt St.
Dublin 2
ITALY Leased None
Via Cavriana 3
20134 Milan
</TABLE>
-4-
<PAGE> 110
SCHEDULE 7.9
EXISTING LIENS
1. Megahertz Land and Building
Borrower: Megahertz Corporation and Megahertz Holding Corporation
Lender: Zions First National Bank
P.O. Box 25822
Salt Lake City, UT 84125
Collateral: Land and Building at 605 North 5600 West, Salt Lake City, UT
Outstanding Principal of Secured
Obligation: $4,889,000
2. Telephone Equipment
Borrower: U.S. Robotics Access Corp.
Lender: Octel Communications Corp.
Collateral: Telephone Equipment
Outstanding
Principal: $4,500
3. Office Equipment
Borrower: PNB, S.A.
Lender: Locabail
Collateral: Office Equipment
Outstanding
Principal: FRF 118,500
4. Office Equipment
Borrower: PNB, S.A.
Lender: Credit Universal
Collateral: Office Equipment
Outstanding
Principal: FRF 262,879
<PAGE> 111
SCHEDULE 7.14
PERMITTED LIQUID INVESTMENTS
TAXABLE FIXED INCOME SECURITIES:
A. Direct obligations of the United States Government and
obligations fully guaranteed by any agency thereof.
B. Investments in corporate fixed income securities and
convertible bonds denominated in U.S. dollars.
C. Demand/Master Notes.
D. Commercial paper.
E. Bank Obligations - Direct obligations of banks (e.g.,
certificates of deposit (CD's), banker's acceptances (BA's), and Bank
Investment Contracts) which are organized and operating in the United States
and are members of the FDIC (certain obligations of which, however, may not be
subject to FDIC insurance); obligations of foreign branches of such banks
(e.g., Eurodollar time deposits (TD's)).
F. Foreign Bank Obligations (including CD's, BA's and TD's) of
the domestic branches of foreign banks subject to the banking laws of the
United States or any state thereof. All obligations must be denominated in
U.S. dollars.
G. Repurchase agreements - underlying securities must meet the
qualification specified below.
H. Dollar Denominated Commercial Paper of Foreign issuers rated
A-1, P-1 or better.
I. Asset-backed securities.
QUALITY STANDARDS
All issues held shall be of investment grade quality, or equivalent if
unrated. Commercial Paper shall be rated one of the two highest
ratings by Moody's or Standard & Poor's (A-1, P-1 or A-2, P-2).
TAX ADVANTAGED INVESTMENTS
A. Obligations of any state, county, city, or other political
subdivision
B. Preferred Stocks
<PAGE> 112
Quality Standards
All long-term issues shall be of investment grade quality, or
equivalent if unrated. Short-term issues shall be limited to the two
highest rating categories of Moody's or Standard & Poor's, or
equivalent if unrated.
-2-
<PAGE> 1
EXHIBIT 10.9
FIRST RESTATEMENT OF THE
U.S. ROBOTICS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
(Restated Effective April 1, 1996)
<PAGE> 2
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
INTRODUCTION 1
ARTICLE 1 - DEFINITIONS 2
1.1. ACCOUNT(S) 2
1.2. ACCOUNT BALANCE(S) 2
1.3. AFFILIATE 2
1.4. ANNUITY STARTING DATE 2
1.5. APPROVED ABSENCE 2
1.6. BENEFICIARY 2
1.7. BOARD 2
1.8. BREAK IN SERVICE 2
1.9. CODE 2
1.10. COMPANY 2
1.11. COMPANY CONTRIBUTION ACCOUNT 2
1.12. COMPANY CONTRIBUTIONS 3
1.13. COMPENSATION 3
1.14. DATE OF EMPLOYMENT OR REEMPLOYMENT 3
1.15. EFFECTIVE DATE 3
1.16. EMPLOYEE 3
1.17. EMPLOYEE SALARY REDUCTION CONTRIBUTION ACCOUNT 3
1.18. EMPLOYEE SALARY REDUCTION CONTRIBUTIONS 3
1.19. ENTRY DATE 3
1.20. ERISA 3
1.21. FORFEITURE 3
1.22. HIGHLY COMPENSATED EMPLOYEE 3
1.23. HOUR OF SERVICE 4
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
1.24. INVESTMENT MANAGER 5
1.25. LIMITATION YEAR 5
1.26. MATCHING CONTRIBUTION ACCOUNT 5
1.27. MATCHING CONTRIBUTIONS 5
1.28. NORMAL RETIREMENT AGE 5
1.29. PARTICIPANT 5
1.30. PARTICIPATING EMPLOYER 5
1.31. PLAN 5
1.32. PLAN ADMINISTRATOR 5
1.33. PLAN YEAR 6
1.34. PRIOR PLAN 6
1.35. ROLLOVER ACCOUNT 6
1.36. ROLLOVER CONTRIBUTIONS 6
1.37. TOTAL AND PERMANENT DISABILITY 6
1.38. TRUST AGREEMENT AND TRUST 6
1.39. TRUST FUND 6
1.40. TRUSTEE 6
1.41. VALUATION DATE 6
1.42. VESTED INTEREST 6
1.43. YEAR OF VESTING SERVICE 6
ARTICLE 2 - ELIGIBILITY AND PARTICIPATION 7
2.1. ELIGIBILITY 7
2.2. TERMINATION AND REEMPLOYMENT 7
ARTICLE 3 - CONTRIBUTIONS 8
3.1. COMPANY CONTRIBUTIONS 8
3.2. EMPLOYEE SALARY REDUCTION CONTRIBUTIONS 8
3.3. MATCHING CONTRIBUTIONS 10
3.4. NONDISCRIMINATION TEST FOR MATCHING CONTRIBUTIONS 11
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
3.5. SPECIAL COMPANY CONTRIBUTIONS 12
3.6. ROLLOVERS 12
3.7. TRANSFERS OF ASSETS TO THE PLAN 13
ARTICLE 4 ALLOCATIONS, ACCOUNTING, AND ADJUSTMENTS 13
4.1 COMPOSITION OF TRUST FUND 14
4.2 ALLOCATION OF EARNINGS TO ACCOUNTS 14
4.3 ELIGIBILITY FOR ALLOCATION OF COMPANY CONTRIBUTIONS AND 15
4.4 MAXIMUM ANNUAL ADDITIONS 15
4.5 PARTICIPATION IN DEFINED BENEFIT PLAN 16
4.6 ALLOCATION OF COMPANY CONTRIBUTIONS 17
ARTICLE 5 - VESTING 17
5.1 PARTICIPANT CONTRIBUTIONS 17
5.2 COMPANY AND MATCHING CONTRIBUTION ACCOUNTS 17
5.3 TERMINATION OF EMPLOYMENT 17
ARTICLE 6 - TIME AND METHOD OF PAYMENT 19
6.1 MANNER OF PAYMENT - EMPLOYEES OF CERTAIN PARTICIPATING EMPLOYERS 19
6.2 OPTIONAL FORMS OF PAYMENT FOR SECTION 6.1(A) DESIGNATED EMPLOYEES 20
6.3 DEATH BENEFITS 21
6.4 NORMAL FORM OF PAYMENT FOR EMPLOYEES 23
6.5 TIME OF PAYMENT 24
6.6 DISTRIBUTION OF UNALLOCATED CONTRIBUTIONS 25
6.7 CERTAIN RETROACTIVE PAYMENTS 25
6.8 BENEFICIARY 25
6.9 ADMINISTRATIVE POWERS RELATING TO PAYMENTS 26
6.10 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 26
ARTICLE 7 - WITHDRAWALS 26
7.1 AVAILABILITY OF LOANS 26
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
7.2 HARDSHIP WITHDRAWALS 30
7.3 OTHER WITHDRAWALS 32
ARTICLE 8- MANAGEMENT OF FUNDS 32
8.1 TRUSTEE AND TRUST AGREEMENT 33
8.2 ASSETS OF THE TRUST FUND 33
8.3 TRUST CONTRIBUTIONS 33
8.4 DIRECTED INVESTMENT ACCOUNTS 33
ARTICLE 9 - ADMINISTRATION OF PLAN 34
9.1 PLAN ADMINISTRATOR 35
9.2 RIGHTS, POWERS AND DUTIES OF PLAN ADMINISTRATOR 35
9.3 EXERCISE OF PLAN ADMINISTRATOR'S DUTIES 36
9.4 INDEMNIFICATION OF FIDUCIARIES 36
9.5 COMPENSATION 36
9.6 EXPENSES 37
ARTICLE 10 - CLAIMS PROCEDURES 37
10.1 CLAIMS REVIEW 37
10.2 APPEALS PROCEDURE 37
ARTICLE XI - AMENDMENT AND TERMINATION 38
11.1 TERMINATION 38
11.2 RIGHT TO AMEND, MODIFY, CHANGE OR REVISE PLAN 38
11.3 MERGER AND CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS 39
ARTICLE XII - TOP-HEAVY PROVISIONS 40
12.1 DEFINITIONS 40
12.2 SPECIAL CODE SECTION 415 LIMITATIONS 42
12.3 MISCELLANEOUS 42
12.4 MINIMUM ALLOCATION REQUIREMENTS 42
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE XIII - PARTICIPATING EMPLOYERS 43
13.1 ADOPTION BY OTHER EMPLOYERS 43
13.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS 43
13.3 DESIGNATION OF AGENT 43
13.4 EMPLOYEE TRANSFERS 44
13.5 PARTICIPATING EMPLOYERS CONTRIBUTION 44
13.6 AMENDMENT 44
13.7 DISCONTINUANCE OF PARTICIPATION 44
13.8 PLAN ADMINISTRATOR'S AUTHORITY 44
ARTICLE XIV - MISCELLANEOUS 45
14.1 NO CONTRACT OF EMPLOYMENT 45
14.2 RESTRICTIONS UPON ASSIGNMENTS AND CREDITORS' CLAIMS 45
14.3 RESTRICTION OF CLAIMS AGAINST TRUST 45
14.4 BENEFITS PAYABLE BY TRUST 46
14.5 SAVINGS CLAUSE 46
14.6 SUCCESSOR TO COMPANY 46
14.7 APPLICABLE LAW 46
14.8 DATA 46
14.9 INTERNAL REVENUE SERVICE APPROVAL 46
</TABLE>
1.
v
<PAGE> 7
FIRST RESTATEMENT
OF THE U.S. ROBOTICS CORPORATION
401(K) RETIREMENT SAVINGS PLAN
INTRODUCTION
U.S. Robotics Corporation, a Delaware corporation, has amended and
restated, effective April 1, 1996, the profit sharing and savings plan for its
eligible Employees known as the First Restatement of the U.S. Robotics
Corporation 401(k) Retirement Savings Plan (the "Plan"). The Plan constitutes
a continuation and restatement of the U.S. Robotics, Inc. Employees' Retirement
Investment Plan (the "Prior Plan"), which was effective January 1, 1989.
The Plan has been restated as a result of a reorganization effected
February 22, 1995, whereby, pursuant to such reorganization, U.S. Robotics,
Inc., the former Plan sponsor, which now is known as U.S. Robotics Access
Corp., became a wholly-owned subsidiary of the Company. As part of this
corporate reorganization, the Plan has been restated in order to (i) designate
the Company as the Plan sponsor; (ii) make certain design changes in the Plan;
(iii) permit certain wholly-owned subsidiaries of the Company to become
Participating Employers into the Plan; and (iv) reflect the merger into the
Plan of those plans previously maintained by Participating Employers and other
entities that have merged into U.S. Robotics Access Corp.
The amendment and restatement of the Prior Plan shall not in any way
affect the rights of the Employees who participated in accordance with the
provisions of the Prior Plan or the plans that were merged into the Plan. All
matters relating to the benefits, if any, payable to such Employees (or their
Beneficiaries), based upon events occurring prior to April 1, 1996, shall be
determined in accordance with the applicable provisions of the Prior Plan (or
the plans of the Participating Employers or other entities that have merged
into U.S. Robotics Access Corp.), to the extent that there are any
inconsistencies between the Plan and the Prior Plan (or the plans of the
Participating Employers or other entities that have merged into U.S. Robotics
Access Corp.).
1
<PAGE> 8
ARTICLE
1.
DEFINITIONS
Whenever used herein with the initial letter capitalized, words and phrases
shall have the meanings stated below unless a different meaning is plainly
required by the context. For purposes of construction of this Plan, the
masculine term shall include the feminine and the singular shall include the
plural in all cases in which they could thus be applied, unless the context
clearly indicates the gender or the number.
1.1 ACCOUNT(S) means the Employee Salary Reduction Contribution Account, the
Company Contribution Account, the Matching Contribution Account, and the
Rollover Account, any or all of which may be maintained for the benefit of
each Participant.
1.2 ACCOUNT BALANCE(S) means, for each Participant, the total balance
standing to his Account or Accounts on the date of reference determined in
accordance with valuation procedures described in Sections 4.2 and 8.4.
1.3 AFFILIATE means any corporation or other business entity that is included
in a controlled group of corporations within which a Company is also
included, as provided in Section 414(b) of the Code (as modified, for
purposes of Sections 4.4 and 4.5 of the Plan, by Section 415(h) of the
Code); or which is a trade or business under common control with a
Company, as provided in Section 414(c) of the Code (as modified, for
purposes of Sections 4.4 and 4.5 of the Plan, by Section 415(h) of the
Code); or which constitutes a member of an affiliated service group within
which a Company is also included, as provided in Section 414(m) of the
Code; or which is required to be aggregated with a Company pursuant to
regulations issued under Section 414(o) of the Code.
1.4 ANNUITY STARTING DATE means the first day of the first period for which
an amount is payable as an annuity or in any other form.
1.5 APPROVED ABSENCE means an absence from work approved by a Company under
uniform rules and conditions for all Employees.
1.6 BENEFICIARY means the person, persons or entity designated by a
Participant to receive any benefits under the Plan which may be due upon
the Participant's death.
1.7 BOARD means the Board of Directors of the Company.
1.8 BREAK IN SERVICE means any twelve (12) consecutive month period beginning
on an Employee's Date of Employment, and succeeding anniversaries thereof,
in which an Employee completes five hundred (500) or fewer Hours of
Service.
1.9 CODE means the Internal Revenue Code of 1986, as amended from time to
time.
1.10 COMPANY means U.S. Robotics Corporation, a Delaware corporation; any
Participating Employer that, with the consent of U.S. Robotics
Corporation, shall adopt this Plan; and any successor that shall maintain
this Plan. Where, in the context of the Plan, Company refers to a single
entity, Company means U.S. Robotics Corporation. Effective April 1, 1996,
the following companies shall be Participating Employers in the Plan:
U.S. Robotics Access Corp., U.S. Robotics Mobile Communications Corp. and
Palm Computing, Inc.
2
<PAGE> 9
1.11 COMPANY CONTRIBUTION ACCOUNT means the separate Account that shall be
maintained by the Trustee for each Participant to reflect all Company
Contributions made on behalf of such Participant and any earnings or
losses thereon.
1.12 COMPANY CONTRIBUTIONS means the amount a Company may pay to the Trust on
behalf of each Participant for each Plan Year, as set forth in Section 3.1
of the Plan.
1.13 COMPENSATION means the total compensation paid to an Employee by a
Company in a Plan Year as reported on an Employee's Form W-2 for income
tax withholding purposes, plus an Employee's Employee Salary Reduction
Contributions under the Plan and any salary reduction contributions made
on behalf of an Employee to a plan maintained under Code Section 125, and
reduced by any amounts recognized as taxable compensation to an Employee
under Section 83 of the Code. If an Employee becomes a Participant during
a Plan Year, his Compensation in such Plan Year for purposes of
determining the amount of the Company Contributions contributed on his
behalf shall be his Compensation for the full Plan Year. Compensation in
excess of one hundred fifty thousand dollars ($150,000) (or such other
amount as may be established by the Secretary of the Treasury) shall be
disregarded. In determining Compensation, the rules of Section 414(q)(6)
of the Code shall apply, except in applying such rules, the term "family"
shall include only the spouse of the Employee and any lineal descendants
of the Employee who have not attained age nineteen (19) before the close
of the Plan Year. If, as a result of the application of such rules, the
one hundred fifty thousand dollar ($150,000) limitation is exceeded, then
the limitation shall be prorated among the affected individuals in
proportion to each such individual's Compensation as determined under this
Section 1.13 prior to the application of this limitation.
1.14 DATE OF EMPLOYMENT OR REEMPLOYMENT means the first day an Employee
performs an Hour of Service.
1.15 EFFECTIVE DATE means April 1, 1996 (except as otherwise set forth
herein), the effective date of this amended and restated Plan.
1.16 EMPLOYEE means a person employed by a Company, including any leased
employees, as defined under Section 414(n) of the Code, but excluding any
independent contractors not considered to be leased employees under
Section 414(n) of the Code.
1.17 EMPLOYEE SALARY REDUCTION CONTRIBUTION ACCOUNT means the separate Account
maintained for each Participant to reflect Employee Salary Reduction
Contributions and any earnings or losses thereon.
1.18 EMPLOYEE SALARY REDUCTION CONTRIBUTIONS means the contributions made by a
Company that are attributable to the reduction in Compensation a
Participant agrees to accept from his Company each Plan Year as described
in Section 3.2.
1.19 ENTRY DATE means, prior to April 1, 1996, the date upon which the
Participant fulfills the eligibility requirements of the Prior Plan or any
plan of a Participating Employer in which the Participant then
participated, and, after March 31, 1996, the first day of the calendar
month coincident with or next following the date the Participant fulfills
the eligibility requirements of Section 2.1.
1.20 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
3
<PAGE> 10
1.21 FORFEITURE means the portion of a Participant's Matching Contribution
Account and Company Contribution Account to which he is not entitled at
his termination of employment, as determined under Section 5.3.
1.22 HIGHLY COMPENSATED EMPLOYEE means any Employee who during a Plan Year
performs services for a Company and any Affiliate and who:
(a) Was at any time a five percent (5%) owner of a Company
(within the meaning of Section 416(i)(1) of the Code);
(b) Received Compensation from a Company and any Affiliate for
the Plan Year in excess of seventy-five thousand dollars ($75,000)
(or such other amount as determined under Section 414(q) of the
Code);
(c) Received Compensation from a Company and any Affiliate for
the Plan Year in excess of fifty thousand dollars ($50,000) (or such
other amount as determined under Section 414(q) of the Code) and was
in the top twenty percent (20%) of the group of employees determined
under Section 414(q)(8) of the Code when ranked on the basis of
Compensation in such Plan Year; or
(d) Was at any time an officer of a Company or any Affiliate and
received Compensation from a Company and any Affiliate for the Plan
Year in excess of fifty percent (50%) of the amount in effect under
Section 415(b)(1)(A) of the Code for such Plan Year. For purposes
of this Section 1.22, in the event that no officer of a Company or
any Affiliate received Compensation from a Company or any Affiliate
in excess of fifty percent (50%) of the amount in effect under
Section 415(b)(1)(A) of the Code for such Plan Year, the highest
paid officer shall be treated as highly compensated. Further, no
more than fifty (50) Employees or, if less, the greater of three (3)
Employees or ten percent (10%) of the Employees shall be treated as
officers for purposes of this Section 1.22 in determining a Highly
Compensated Employee.
If any individual is the spouse, lineal ascendant, lineal descendant
or spouse of a lineal ascendant or descendant of a five percent (5%)
owner (whether active or former) or of a Highly Compensated Employee in
the group consisting of the ten (10) Highly Compensated Employees paid
the greatest Compensation during the year, then such individual shall not
be treated as a separate Employee, and any Compensation paid to such
individual (and any Employee Salary Reduction Contributions on behalf of
such individual) shall be aggregated with and treated as if paid to (or
on behalf of) the five percent (5%) owner or Highly Compensated Employee
and such individual and five percent (5%) owner or Highly Compensated
Employee shall be treated as a single Employee.
The determination of who is a Highly Compensated Employee, including
the determination of the number and identity of Employees in the top paid
group, the number of Employees treated as officers and the Compensation
that is taken into account, shall be made in accordance with Code Section
414(q) and Section 1.414(q)-1 T of the temporary Tax Regulations, or any
successor thereto, to the extent they are inconsistent with the method
established above.
1.23 HOUR OF SERVICE means:
(a) Each hour for which an Employee is paid or entitled to
payment for the performance of duties for a Company or an Affiliate.
These hours shall be credited to the Employee for the computation
period or periods in which the duties are performed; and
4
<PAGE> 11
(b) Each hour for which an Employee is paid or entitled to
payment by a Company or an Affiliate on account of a period of time
during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty,
military duty, or Approved Absence. No more than five hundred one
(501) Hours of Service shall be credited under this paragraph (b)
for any single continuous period (whether or not such period occurs
in a single computation period). Hours of Service under this
paragraph (b) shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations, which are
incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by a Company or an
Affiliate. The same Hours of Service shall not be credited both
under paragraph (a) or paragraph (b), as the case may be, and under
this paragraph (c). These hours shall be credited to the
Employee for the computation period or periods to which the award,
agreement, or payment pertains rather than the computation period in
which the award, agreement, or payment is made; and
(d) In the event that records are not kept which accurately
reflect the number of hours worked, an Employee shall be credited
with forty-five (45) Hours of Service for each week in which he
would be credited with at least one (1) Hour of Service; and
(e) Solely for purposes of determining whether a Break in Service
has occurred, an Employee who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service
which would otherwise have been credited to him but for such absence
or, in any case in which such Hours of Service cannot be determined,
eight (8) Hours of Service per day of such absence. For purposes of
this paragraph (e), an absence from work for maternity or paternity
reasons means an absence by reason of the pregnancy of the Employee,
by reason of a birth of a child of the Employee, by reason of the
placement of a child with the Employee in connection with the
adoption of such child by the Employee, or for purposes of caring
for such child for a period beginning immediately following such
birth or placement. Any hour under this paragraph (e) which is
considered an Hour of Service under paragraph (b) shall not be
considered under this paragraph (e). The Hours of Service credited
under this paragraph (e) shall be credited in the computation period
in which the absence begins if the crediting is necessary to prevent
a Break in Service in that computation period or, in all other
cases, in the immediately following computation period.
Notwithstanding the foregoing, no credit shall be given for Hours of
Service under this paragraph (e) unless the Employee furnishes the
Plan Administrator such timely information as the Plan Administrator
may reasonably require to establish that the absence from work is
because of maternity or paternity leave and the number of days for
which there was such an absence.
1.24 INVESTMENT MANAGER means any person, firm, or corporation who is a
registered investment advisor under the Investment Advisors Act of 1940, a
bank, or an insurance company, and (i) who has the power to manage,
acquire, or dispose of Plan assets, and (ii) who acknowledges in writing
his fiduciary responsibility to the Plan.
1.25 LIMITATION YEAR means the Plan Year.
5
<PAGE> 12
1.26 MATCHING CONTRIBUTION ACCOUNT means the separate Account maintained for
each Participant to reflect the Matching Contributions made on behalf of
the Participant and any earnings or losses thereon.
1.27 MATCHING CONTRIBUTIONS means the contributions made to the Matching
Contribution Account of a Participant by his Company as provided in
Section 3.3.
1.28 NORMAL RETIREMENT AGE means age sixty-five (65).
1.29 PARTICIPANT means an Employee who fulfills the eligibility requirements
as provided in Article II and who continues to qualify for participation,
and any former Employee who continues to have an Account in the Plan.
1.30 PARTICIPATING EMPLOYER means any employer who adopts this Plan pursuant
to Article XIII.
1.31 PLAN means the First Restatement of the U.S. Robotics Corporation 401(k)
Retirement Savings Plan.
1.32 PLAN ADMINISTRATOR means the Company, or any person designated by the
Company to administer the Plan.
1.33 PLAN YEAR means the calendar year.
1.34 PRIOR PLAN means the U.S. Robotics, Inc. Employees' Retirement Investment
Plan, as it existed prior to April 1, 1996.
1.35 ROLLOVER ACCOUNT means the separate Account which shall be maintained for
a Participant or Employee to reflect any Rollover Contributions made by
the Participant or Employee and any earnings or losses thereon.
1.36 ROLLOVER CONTRIBUTIONS means the contributions made by a Participant or
Employee, as set forth in Section 3.6 of the Plan.
1.37 TOTAL AND PERMANENT DISABILITY means a physical or mental condition of a
Participant resulting from bodily injury, disease, or mental disorder that
renders such Participant incapable of continuing his usual and customary
employment with a Company, as determined by a licensed physician chosen by
the Plan Administrator; provided, however, and notwithstanding the
foregoing, if a Participant meets the requirements for disability under
the Social Security law then in effect, such Participant shall be deemed
to have incurred a Total and Permanent Disability under the Plan. Uniform
standards shall apply to Participants in similar conditions.
1.38 TRUST AGREEMENT AND TRUST mean, respectively, the agreement between the
Company and the Trustee governing the administration of the Trust, as it
may be amended from time to time, and the Trust established thereunder.
1.39 TRUST FUND means all cash, securities, real estate, or any other property
held under the Trust Agreement for purposes of the Plan, together with
income thereon.
1.40 TRUSTEE means the person, persons, entity, or entities appointed by the
Company as provided under Section 8.1 of the Plan to act as Trustee of the
Trust.
1.41 VALUATION DATE means any date that the New York Stock Exchange is open
for business. In addition, the Company may in its discretion adopt more
frequent
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Valuation Dates for purposes of allocating earnings and/or contributions
under the Plan.
1.42 VESTED INTEREST means that portion of a Participant's Account which is
nonforfeitable and vested, based upon the Participant's Years of Vesting
Service.
1.43 YEAR OF VESTING SERVICE means any consecutive twelve (12) month period of
employment ending on an Employee's anniversary of employment with the
Company or an Affiliate in which an Employee completes at least one
thousand (1,000) Hours of Service.
If an Employee incurs a Break in Service and is thereafter
reemployed by a Company or an Affiliate, he shall be considered a new
Employee for purposes of the Plan, except:
(a) If the Employee had a Vested Interest prior to such Break in
Service;
(b) If the Years of Vesting Service credited to him prior to such
Break in Service exceed his consecutive years of Breaks in Service;
or
(c) If he is reemployed by a Company or an Affiliate prior to
incurring a five (5) consecutive year Break in Service,
the Years of Vesting Service that the Employee had prior to such
Break in Service shall be reinstated on the Date of Reemployment,
provided he completes one (1) Year of Vesting Service following his
reemployment.
ARTICLE
2.
ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY
(a) Each Employee who was a Participant in the Prior Plan on the
day prior to the Effective Date (or was a Participant on the day
prior to the Effective Date in a plan that was merged into the Plan
on the Effective Date) shall participate or continue to participate,
as the case may be, in the Plan on the Effective Date, provided he
is still an Employee on the Effective Date. Each other Employee of
a Company shall become a Participant in the Plan on the first Entry
Date on or after the Effective Date which is coincident with or next
follows the date on which he attains age twenty-one (21) and
completes three (3) consecutive months of service, provided he is an
Employee on that Entry Date. For purposes of this Section 2.1, an
Employee shall complete a month of service if he completes one (1)
Hour of Service during such month and is employed by a Company or
any Affiliate on the last day of such monthly cycle.
(b) Notwithstanding anything to the contrary, (i) an Employee
included in a unit of employees covered by a collective bargaining
agreement with a Company where retirement benefits were the subject
of good faith bargaining between employee representatives and such
Company shall not be eligible to participate in the Plan, except to
the extent the benefits provided by the Plan are specifically
included under said collective bargaining agreement; and (ii) an
Employee who is a nonresident alien deriving no earned income from a
Company which constitutes income from sources in the United States
shall not be eligible to participate in the Plan.
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2.2 TERMINATION AND REEMPLOYMENT
(a) A Participant who terminates employment and is subsequently
reemployed as an Employee shall become a Participant again on the
Entry Date coincident with or next following his Date of
Reemployment.
(b) An Employee who terminates employment after being eligible to
become a Participant, but prior to the Entry Date coincident with or
next following the date upon which he first becomes eligible to
enter the Plan, and who then is reemployed before incurring a Break
in Service, shall be eligible to become a Participant on his Date of
Reemployment.
(c) An Employee who terminates employment before becoming
eligible to become a Participant and who is reemployed before
incurring a Break in Service shall be eligible to become a
Participant when he satisfies the eligibility requirements of
Section 2.1, based on his original Date of Employment.
(d) An Employee who terminates employment before becoming a
Participant and who is reemployed after incurring a Break in Service
shall be eligible to become a Participant when he satisfies the
eligibility requirements of Section 2.1, based on his Date of
Reemployment.
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<PAGE> 15
ARTICLE
3.
CONTRIBUTIONS
3.1 COMPANY CONTRIBUTIONS
A Company may contribute to the Trust Fund for each Plan Year, as Company
Contributions, such amount as it shall determine in its sole discretion;
provided, however, that the contribution for any Plan Year shall not
exceed the maximum amount deductible by such Company for such Plan Year
for Federal income tax purposes under Section 404 of the Code. A Company
may determine that no Company Contribution shall be made for a particular
year.
3.2 EMPLOYEE SALARY REDUCTION CONTRIBUTIONS
(a) Each Participant shall have the option to enter into a
written (or by any other means approved by the Company) salary
reduction agreement with his Company effective on any Entry Date,
which agreement shall be applicable to all Compensation received
thereafter. The salary reduction agreement shall provide that the
Participant agrees to accept a reduction in salary from his Company
equal to an integral percentage of from one percent (1%) to fifteen
percent (15%) of his Compensation. A Company shall contribute to
the Trust Fund, as soon as practicable after the end of each payroll
period, but not later than the time period that may be mandated by
law or by regulation, whichever date is earlier, an amount equal to
the Employee Salary Reduction Contributions of all of its
Participants for such payroll period.
(b) Each Participant may change the amount of his Employee Salary
Reduction Contributions, effective as of any Entry Date, by means of
an appropriate authorization or notice to his Company, on a form or
in the manner prescribed by the Plan Administrator. The change
shall be effective as soon as practicable after the receipt of the
authorization or notice by the Plan Administrator, but no earlier
than the Entry Date following the receipt of the authorization or
notice. The Plan Administrator may establish additional rules
regarding the timing and frequency of a change in the amount of
Employee Salary Reduction Contributions, provided such policy is
applied uniformly to all Participants.
(c) Each Participant may elect to discontinue his Employee Salary
Reduction Contributions by means of an appropriate authorization or
notice to his Company, on a form or in the manner prescribed by the
Plan Administrator. The change shall be effective as soon as
practicable after the receipt of the authorization or notice by the
Plan Administrator. The Participant may elect to resume his
Employee Salary Reduction Contributions as of a subsequent Entry
Date by filing another authorization or notice with his Company.
(d) Each Company shall direct the Plan Administrator to establish
and maintain an Employee Salary Reduction Contribution Account in
the name of each of its Participants who elects to enter into a
salary reduction agreement.
(e) The maximum amount of Employee Salary Reduction Contributions
that can be made on behalf of each Participant in the 1996 calendar
year to this Plan and any other qualified plan shall not exceed nine
thousand five hundred dollars ($9,500), adjusted for each subsequent
calendar year to take into account, if applicable, any
cost-of-living increase provided for such year
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<PAGE> 16
under Section 402(g) of the Code. If a Participant makes elective
deferrals to this Plan and to any other qualified cash or deferred
plan in excess of the dollar limit specified above for the calendar
year, then the Participant must notify the Plan Administrator in
writing by March 1 of the following year of the amount, if any, to be
refunded from this Plan. The Participant shall be deemed to have
notified the Plan Administrator by March 1 of any excess elective
deferrals made to this Plan and any other plan maintained by the
Company or an Affiliate of the Company. The amount to be refunded
shall be paid to the Participant in a single payment not later than
April 15 following the close of the calendar year and shall include
any income or loss allocated to the refund, as determined below, for
the period (i) during the calendar year, and (ii) between the end of
that year and the date of the refund payment. Although the excess
elective deferral may be refunded, it shall be considered as an
Employee Salary Reduction Contribution for the Plan Year in which it
was originally made and shall be included in the Participant's actual
deferral percentage. The foregoing notwithstanding, Employee Salary
Reduction Contributions shall not include any elective deferrals
properly distributed as excess annual additions in accordance with
Section 4.4 of the Plan.
The income or loss allocable to excess elective deferrals for
the calendar year shall be determined by multiplying the income or
loss for the calendar year allocable to the Participant's elective
deferrals for such year by a fraction, the numerator of which is the
amount of excess elective deferrals and the denominator of which is
the closing balance (as of the end of the calendar year) of the
Participant's Employee Salary Reduction Contribution Account reduced
by gains (or increased by losses) allocable to such Account during the
calendar year. The income or loss allocable to excess elective
deferrals during the period between the end of the calendar year and
the date of the refund payment may be calculated by multiplying the
income or loss allocable to the excess elective deferrals for the
period between the end of the calendar year and the last day of the
month preceding the date of distribution by a fraction determined
under the method specified above. Alternatively, the allocable income
or loss for the period between the end of the calendar year and the
date of the refund payment shall be deemed to be equal to 10% of the
income or loss allocable to the excess elective deferrals for the
calendar year multiplied by the number of calendar months that have
elapsed since the end of the calendar year. For this purpose, payment
occurring on or before the 15th day of the month will be treated as
having been made on the last day of the preceding month. A payment
occurring after the 15th day of the month will be treated as having
been made on the first day of the next month.
(f) A Company may refuse to give effect to any salary reduction
agreement entered into by a Participant at any time if a Company
determines that such refusal is necessary to ensure that the
additions to a Participant's Account for any Plan Year shall not
exceed the limitations set forth in paragraph (e) above or Section
4.4 of the Plan, or to ensure that one (1) of the following
nondiscrimination tests contained in Section 401(k) of the Code is
satisfied for any Plan Year:
(1) The actual deferral percentage for the Plan Year
for eligible Participants who are Highly Compensated Employees
as a group is not more than one and one-quarter (1-1/4) times
the actual deferral percentage for the Plan Year for all other
eligible Participants as a group;
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<PAGE> 17
(2) The actual deferral percentage for the Plan Year
for eligible Participants who are Highly Compensated Employees
as a group is not more than two (2) percentage points (or such
lesser amount as the Secretary of the Treasury shall prescribe
to prevent the multiple use of this alternative limitation
with respect to any Highly Compensated Employee) greater than,
and not more than two (2) times, the actual deferral
percentage for the Plan Year for all other eligible
Participants as a group; or
(3) Such other formula as the Secretary of the
Treasury shall prescribe to calculate the aggregate
nondiscrimination limit.
The "actual deferral percentage" for a Plan Year for a group
of eligible Participants is the average of the ratios (calculated
separately for each Participant in such group) of the amount of
Employee Salary Reduction Contributions credited to an eligible
Participant's Employee Salary Reduction Contribution Account for such
Plan Year to the eligible Participant's Compensation for such Plan
Year. The actual deferral percentage of an eligible Participant who
is a Highly Compensated Employee for the Plan Year and who is eligible
to make salary reduction contributions under two (2) or more plans or
arrangements described in Section 401(k) of the Code that are
maintained by a Company or an Affiliate shall be determined as if all
such salary reduction contributions were made under a single
arrangement.
An "eligible Participant" is any Employee of a Company who is
authorized under the terms of the Plan to make Employee Salary
Reduction Contributions for the Plan Year.
In the event that one (1) of the tests set forth above is not
satisfied for any Plan Year (after taking into account any special
Company contributions made pursuant to Section 3.5), the excess
Employee Salary Reduction Contributions (within the meaning of
Section 401(k)(8)(B) of the Code), along with the earnings of the
Trust Fund allocable to such amount (as allocated pursuant to the
procedure set forth in Section 3.2(e) but with respect to the Plan
Year), shall be distributed to the Highly Compensated Employees who
made the excess Employee Salary Reduction Contributions within two
and one-half months after the Plan Year in which such excess
contributions were made, provided, however, that the Company may,
in its discretion, instead direct that such excess Employee Salary
Reduction Contributions, along with associated earnings, be
distributed to the Highly Compensated Employees who made the excess
Employee Salary Reduction Contributions before the last day of the
Plan Year after the Plan Year in which such excess contributions
were made. The amount of the excess Employee Salary Reduction
Contributions shall be determined by reducing Employee Salary
Reduction Contributions made on behalf of Highly Compensated
Employees so that the actual deferral percentage of the Highly
Compensated Employees who elected the highest actual deferral
percentage will first be lowered to the next percentage necessary
to satisfy one (1) of the tests set forth above or to that of those
Highly Compensated Employees who elected the next highest actual
deferral percentage, whichever first occurs. If such reduction is
not sufficient to satisfy one (1) of the tests set forth above, the
actual deferral percentage of all Highly Compensated Employees who
elected at least the next highest actual deferral percentage will
be lowered by an additional percentage. If such reduction is not
sufficient, similar reductions will be made until all Highly
Compensated Employees have been reduced to the same actual deferral
percentage. If further reductions are necessary, then adjustments
shall be
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<PAGE> 18
made to the actual deferral percentage of all Highly Compensated
Employees until one (1) of the tests set forth above is satisfied.
3.3 MATCHING CONTRIBUTIONS
(a) For each Participant who authorizes Employee Salary Reduction
Contributions during the Plan Year, a Company shall contribute each
payroll period to the Plan, on behalf of each such Participant, a
Matching Contribution in an amount equal to fifty percent (50%) of
the Participant's Employee Salary Reduction Contributions, provided,
however, that the Matching Contribution shall not be made on the
portion of a Participant's Employee Salary Reduction Contributions
that exceeds six percent (6%) of the Participant's Compensation in
each such payroll period. In addition, for each Participant who is
authorizing Employee Salary Reduction Contributions at the close of
business on the last day of the Plan Year, or who is precluded from
so authorizing because of the limitations set forth under Section
402(g) or 401(k) of the Code, such Participant shall receive a
Matching Contribution equal to five hundred dollars ($500), but only
if such Participant is actively employed by a Company at the close
of business on the last day of the Plan Year and has completed one
thousand (1,000) Hours of Service during the Plan Year. A
Participant also shall be entitled to such five hundred dollar
($500) Matching Contribution if he made Employee Salary
Reduction Contributions at any time during the Plan Year and (i)
terminated during the Plan Year on or after attaining Normal
Retirement Age, (ii) died during the Plan Year, or (iii) became
Totally and Permanently Disabled during the Plan Year. Matching
Contributions hereunder shall be made to the Trustee no later than
the time prescribed by law for filing a Company's Federal income tax
return for the Plan Year to which they relate, including any
extensions thereof.
(b) If a Participant is entitled to Matching Contributions in a
Plan Year, such contributions shall be made on a Participant's
behalf by his Company based upon the Participant's Employee Salary
Reduction Contributions made while employed by such Company.
(c) Each Company shall direct the Plan Administrator to establish
and maintain a Matching Contribution Account in the name of each of
its Participants on whose behalf Matching Contributions are made.
(d) Notwithstanding anything in this Plan to the contrary, any
Matching Contributions, whether vested or not, that are associated
with an excess elective deferral under Section 3.2(e) or are
associated with an excess Employee Salary Reduction Contribution
under Section 3.2(f) shall be forfeited within two and one-half
months after the end of the Plan Year in which such excess elective
deferrals or excess contributions were made and shall be reallocated
in the manner described in Section 5.3.
3.4 NONDISCRIMINATION TEST FOR MATCHING CONTRIBUTIONS
(a) The Matching Contributions for any Plan Year shall satisfy
one (1) of the following nondiscrimination tests contained in
Section 401(m) of the Code:
(1) The contribution percentage for the Plan Year for
eligible Participants who are Highly Compensated Employees as
a group is not more than one and one-quarter (1-1/4) times the
contribution percentage for the Plan Year for all other
eligible Participants as a group;
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<PAGE> 19
(2) The contribution percentage for the Plan Year for
eligible Participants who are Highly Compensated Employees as
a group is not more than two (2) percentage points (or such
lesser amount as the Secretary of the Treasury shall prescribe
to prevent the multiple use of this alternative limitation
with respect to any Highly Compensated Employee) greater than,
and not more than two (2) times, the contribution percentage
for the Plan Year for all other eligible Participants as a
group; or
(3) Such other formula as the Secretary of the
Treasury shall prescribe to calculate the aggregate
nondiscrimination limit.
(b) For purposes of this Section 3.4, the following definitions shall
apply:
(1) An "eligible Participant" is any Employee of a
Company who is authorized under the terms of the Plan to have
Matching Contributions allocated to his Account for the Plan
Year.
(2) The "contribution percentage" for a Plan Year for
a group of eligible Participants is the average of the ratios
(calculated separately for each eligible Participant in such
group) of the amount of Matching Contributions credited to an
eligible Participant's Account for the Plan Year to the
eligible Participant's Compensation for the Plan Year. The
contribution percentage of an eligible Participant who is a
Highly Compensated Employee for the Plan Year and who is
eligible to make employee contributions or to receive matching
contributions, as defined in Section 401(m)(4) of the Code,
under two (2) or more plans described in Section 401(a) of the
Code that are maintained by a Company or an Affiliate
shall be determined as if all such contributions were made
under a single plan.
(c) In the event that one (1) of the tests set forth above is not
satisfied for any Plan Year (after taking into account any
special Company contributions made pursuant to Section 3.5), the
excess aggregate vested Matching Contributions (within the meaning
of Section 401(m)(6)(B) of the Code), along with the earnings of the
Trust Fund allocable to such amount (as allocated pursuant to the
procedure set forth in Section 3.2(e) but with respect to the Plan
Year), shall be distributed to the Highly Compensated Employees who
made the excess aggregate contributions within two and one-half
months after the Plan Year in which such excess contributions were
made, or instead, if the Company shall so direct, before the last
day of the Plan Year after the Plan Year in which such excess
contributions were made. The amount of the excess aggregate
contributions shall be determined by first reducing the vested
Matching Contributions so that the contribution percentage of the
Highly Compensated Employees with the highest contribution
percentage will first be lowered to the next percentage necessary to
satisfy one (1) of the tests set forth above or to that of those
Highly Compensated Employees with the next highest contribution
percentage, whichever first occurs. If such reduction is not
sufficient to satisfy one (1) of the tests set forth above, the
contribution percentage of all Highly Compensated Employees with at
least the next highest contribution percentage will be lowered by an
additional percentage. If such reduction is not sufficient, similar
reductions will be made until all Highly Compensated Employees have
been reduced to the same contribution percentage. If further
reductions are necessary, the adjustment shall be made to the
contribution percentage of all Highly Compensated Employees until
one (1) of the tests set forth above is satisfied. If the vested
portion of the Matching Contributions of the
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<PAGE> 20
Participants is not sufficient to satisfy the necessary reduction,
the nonvested portion of such Matching Contributions shall be
forfeited to the extent necessary to satisfy such reduction and
shall be reallocated in the manner described in Section 5.3.
3.5 SPECIAL COMPANY CONTRIBUTIONS
(a) In order to meet the nondiscrimination requirements of
Sections 401(k) and 401(m) of the Code (as set forth in Sections 3.2
and 3.4 of the Plan), a Company may, in its discretion and by action
of its Board of Directors, establish a special rate of Company
contributions applicable only to those Participants who are not
Highly Compensated Employees or, to the extent permitted by Treasury
regulations, recharacterize Company Contributions made under Section
3.1 as Employee Salary Reduction Contributions or Matching
Contributions, whichever is applicable.
(b) If contributions under this Section 3.5 are made, or Company
Contributions are recharacterized, to meet the nondiscrimination
requirements of Code Section 401(k) (as set forth in Section 3.2 of
the Plan), then such contributions shall be deemed, for all Plan
purposes, to be Employee Salary Reduction Contributions, and shall
be allocated to the Employee Salary Reduction Contribution Accounts
of such Participants; provided, however, that Matching Contributions
shall not be based upon such contributions. If contributions under
this Section 3.5 are made, or Company Contributions are
recharacterized, to meet the nondiscrimination requirements of Code
Section 401(m) (as set forth in Section 3.4 of the Plan), then such
contributions shall be deemed, for all Plan purposes, to be Matching
Contributions, and shall be allocated to the Matching Contribution
Accounts of such Participants who made Employee Salary Reduction
Contributions; provided, however, that such contributions shall be
fully vested upon deposit.
3.6 ROLLOVERS
(a) Any Employee, regardless of whether or not he has become a
Participant in the Plan pursuant to Article II, may, subject to
obtaining the prior approval of the Plan Administrator, at any
time transfer (or cause to be transferred) to the Trust Fund:
(1) Up to the entire amount of money received from
another qualified trust under Section 401(a) of the Code which
constitutes an eligible rollover distribution within the
meaning of Section 402 of the Code, provided that, in the
event of a rollover of amounts received by, and made payable
to, the Employee and not of amounts transferred in a
trust-to-trust transfer, such amount or amounts attributable
to such distribution must be received by the Trustee within
sixty (60) days after the Employee's receipt of such payment;
and
(2) Up to the entire amount of money received by the
Employee that was in an "individual retirement account" or an
"individual retirement annuity" (as defined in Section 408 of
the Code) which contains only those amounts described above in
paragraph (1) plus any earnings thereon, provided that, in the
event of a rollover of amounts received by, and made payable
to, the Employee and not of amounts transferred in a
trust-to-trust transfer, such amount must be received by the
Trustee within sixty (60) days after the Employee's receipt of
such payment.
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<PAGE> 21
The Employee shall furnish the Plan Administrator with a written
statement that the contribution to the Trust Fund is a rollover
contribution, together with such other statements and information
as may be required by the Plan Administrator in order to establish
that such contribution does not contain amounts from sources other
than provided above and that such Rollover Contribution otherwise
meets the requirements of law. Acceptance by the Trustee of any
amount under these provisions shall not be construed as a
determination of the Employee's tax consequences by the Plan
Administrator.
(b) A Company shall direct the Plan Administrator to establish
and maintain a Rollover Account in the name of each of its Employees
who elects to roll over or transfer amounts into the Trust Fund
pursuant to the provisions of this Section 3.6. An Employee shall
always be one hundred percent (100%) vested in his Rollover Account.
3.7 TRANSFERS OF ASSETS TO THE PLAN
If another plan that is qualified under Section 401(a) of the Code
is merged into this Plan, or assets from the plan of an Affiliate are
transferred to this Plan, then, for purposes of this Plan and absent
direction by the Plan Administrator to the contrary, any amounts
attributable to elective salary reduction contributions (not considered
as taxable income) thereunder shall be combined with amounts attributable
to Employee Salary Reduction Contributions; any amounts attributable to
employer matching contributions (or contributions made by an employer in
relation to the employee's elective salary reduction contributions)
thereunder shall be combined with amounts attributable to Matching
Contributions; any amounts attributable to employer profit sharing or
non-elective contributions thereunder shall be combined with amounts
attributable to Company Contributions; and any amounts attributable to
employee contributions (or contributions considered as taxable income)
thereunder shall be accounted for separately under this Plan. All such
transferred amounts shall be vested hereunder to at least the extent
provided in such other qualified plan. Notwithstanding anything herein
to the contrary, absent the consent of the Plan Administrator, assets
from a plan subject to the joint and survivor annuity requirements of
Section 401(a)(11) of the Code shall not be entitled to be transferred to
this Plan.
ARTICLE
4.
ALLOCATIONS, ACCOUNTING, AND ADJUSTMENTS
4.1 COMPOSITION OF TRUST FUND
All amounts contributed to the Plan, as increased or decreased by
income, expenditure, appreciation, and depreciation, shall constitute a
single fund known as the Trust Fund. A separate Company Contribution
Account shall be maintained for each Participant. Additional Accounts
shall be maintained for each Participant as required by Article III.
4.2 ALLOCATION OF EARNINGS TO ACCOUNTS
Earnings shall be allocated to the Accounts of all Participants as
of the Valuation Date by credit or deduction therefrom, as the case may
be, of a portion of the increase or decrease in the value of the
respective investment funds of the Trust Fund since the preceding
Valuation Date attributable to interest, dividends, changes in market
value, expenses, and gains and losses realized from the sale of assets,
provided, however, that a Participant's Accounts shall not
15
<PAGE> 22
share in the allocations hereunder to the extent that the Participant has
directed the investment of his Accounts pursuant to Section 8.4.
Allocations hereunder shall be made in the proportion that the opening
balance of each Account (the balance as of the previous Valuation Date
adjusted by subtracting withdrawals, Forfeitures and distributions, and by
adding one-half (1/2) of all periodic current contributions and Rollover
Contributions deposited in the Trust Fund since the last Valuation Date)
invested in such investment fund bears to the total of the opening
balances of all such Accounts, as adjusted, invested in the investment
fund. Unless otherwise specified above, as of each Valuation Date, after
the allocation of earnings but prior to the allocation of Company
Contributions and Matching Contributions, the Rollover Contributions and
Employee Salary Reduction Contributions, if any, shall be allocated to the
Accounts of the Participants on whose behalf such contributions are made.
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<PAGE> 23
4.3 ELIGIBILITY FOR ALLOCATION OF COMPANY CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS
As of the last day of each Plan Year, after the allocation of
earnings, Rollover Contributions, and Employee Salary Reduction
Contributions, Company Contributions made by a Company for such Plan Year
shall be allocated to the Company Contribution Accounts of all
Participants who are actively employed by such Company at the close of
business on the last day of the Plan Year and who have completed one
thousand (1,000) Hours of Service during the Plan Year; provided,
however, if the Plan would fail to meet the coverage requirements of
Section 410(b)(1) of the Code for the Plan Year due solely to the
ineligibility of one or more Participants who were credited with less
than one thousand (1,000) Hours of Service, but more than five hundred
(500) Hours of Service in the Plan Year, then the Plan Administrator
shall determine the minimum number of members of such group of
Participants to share in Company Contributions for the Plan Year under
the following procedure:
(a) the minimum number of Participants required to meet the
coverage tests under Section 410(b)(1) based on their number of
Hours of Service earned during the Plan Year, ranked in descending
order; and
(b) if more than one Participant receives credit for the lowest
number of Hours of Service earned for which any Participant must be
covered in order to meet the coverage tests (pursuant to paragraph
(a) above), then all individuals receiving credit for exactly that
number of Hours of Service shall share in the allocation of the
Company Contribution.
Furthermore, if after the application of the procedure in the
foregoing paragraph, the Plan would still fail to meet the coverage
requirements of Section 410(b)(1) of the Code for the Plan Year due to
the ineligibility of one or more Participants whose employment with a
Company has terminated before the end of the Plan Year, then the Plan
Administrator shall determine the minimum number of members of such group
of terminated Participants to share in Company Contributions for the Plan
Year under a procedure comparable to that set forth in paragraphs (a) and
(b) above.
Notwithstanding the above, Participants of a Company who, during the
Plan Year, have (i) terminated on or after attaining Normal Retirement
Age, (ii) died, or (iii) become Totally and Permanently Disabled shall
also be eligible to share in such Company's Company Contributions for the
Plan Year.
An eligible Participant shall share in Company Contributions
according to the allocation procedures in Section 4.6.
Following the allocation of Company Contributions, Matching
Contributions, if any, and if not previously allocated, then shall be
allocated. An eligible Participant shall share in Matching Contributions
as provided in Section 3.3.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) The sum of the following additions to a Participant's
Accounts in any Limitation Year:
(1) The Company Contributions allocated to such Participant's
Account, and
(2) The Employee Salary Reduction Contributions and
Matching Contributions allocated to such Participant's
Accounts, and
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<PAGE> 24
(3) The Forfeitures, if any, allocated to such
Participant's Company Contribution Account,
shall not exceed the lesser of: (1) the greater of thirty
thousand dollars ($30,000) or one-fourth (1/4) of the dollar
limitation in effect under Section 415(b)(1)(A) of the Code, or (2)
twenty-five percent (25%) of the Participant's Compensation for
such Plan Year.
(b) In the event that the additions to a Participant's Accounts
under this Section 4.4 in any Limitation Year would be in excess of
the maximum annual limits as a result of a reasonable error in
estimating a Participant's Compensation or as a result of a
reasonable error in determining the amount of elective deferrals
(within the meaning of Section 402(g)(3) of the Code), or under
other facts and circumstances to which Tax Regulation Section
1.415-6 shall be applicable, the Employee Salary Reduction
Contributions made by or with respect to such Participant shall be
distributed to him to the extent that any such distribution would
reduce the amount in excess of the limits of this Section 4.4, and
amounts otherwise in excess of this Section 4.4 remaining after such
distribution shall be allocated to a suspense account in an amount
necessary to bring the additions within the maximum annual limits,
and shall be allocated pursuant to Tax Regulation Section
1.415-6(b)(6)(iii) in future Limitation Years. The foregoing
notwithstanding, the Plan Administrator may comply with either Tax
Regulation Section 1.415-6(b)(6)(i) or Section 1.415-6(b)(6)(ii), in
lieu of the Tax Regulation Section 1.415-6(b)(6)(iii).
(c) For purposes of this Section 4.4, this Plan and any other
qualified defined contribution plan maintained by a Company or an
Affiliate shall be considered as a single defined contribution plan
if a Participant is a participant in both plans. Amounts allocated
in Limitation Years beginning after March 31, 1984 to a
Participant's individual medical benefit account, as defined in
Section 415(l)(1) of the Code, which is part of a defined benefit
plan maintained by a Company or an Affiliate shall be treated as
annual additions to a defined contribution plan. Amounts derived
from contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate account
of a Participant who is a key employee, as defined in Section
419A(d) of the Code, under a welfare benefit fund, as defined in
Section 419(e) of the Code, maintained by a Company or an Affiliate,
shall be treated as annual additions to a defined contribution plan.
Notwithstanding the foregoing, the compensation limit described
above shall not apply to any contribution for medical benefits
(within the meaning of Section 419A(f)(2) of the Code) after
separation from service which otherwise is treated as an annual
addition under Section 415(l)(1) of the Code. If a reduction is
necessary under paragraph (b), then the reduction shall first be
made to the annual additions under this Plan.
4.5 PARTICIPATION IN DEFINED BENEFIT PLAN
(a) If any Participant also has participated in any qualified
defined benefit plan maintained by a Company or an Affiliate, the
annual additions under this Plan shall be reduced to the extent
necessary so that the sum of the defined benefit plan fraction and
the defined contribution plan fraction for any Limitation Year does
not exceed 1.0.
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<PAGE> 25
(b) The defined contribution plan fraction for any Limitation
Year is a fraction, the numerator of which is the sum of all of the
annual additions to the Participant's Accounts as of the close of
the Limitation Year under each defined contribution plan and the
denominator of which is the sum of the lesser of the following
amounts determined for the Limitation Year and each prior year of
service with a Company or Affiliate:
(1) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(c)(1)(A) of the Code
for such Limitation Year; or
(2) The product of 1.4 multiplied by the amount which
may be taken into account under Section 415(c)(1)(B) of the
Code for such Limitation Year.
The annual additions for any Limitation Year beginning before
January 1, 1987 shall not be recomputed to treat all Employee
contributions as annual additions.
(c) The defined benefit plan fraction for any Limitation Year is
a fraction, the numerator of which is the projected annual benefit
of the Participant under each defined benefit plan (determined as of
the close of its limitation year) and the denominator of which is
the lesser of:
(1) The product of 1.25 multiplied by the maximum
dollar limitation in effect under Section 415(b)(1)(A) of the
Code for such Limitation Year; or
(2) The product of 1.4 multiplied by the amount which
may be taken into account under Section 415(b)(1)(B) of the
Code for such Limitation Year.
For purposes of this Section 4.5, all defined benefit or defined
contribution plans shall be treated as one (1) plan by class.
4.6 ALLOCATION OF COMPANY CONTRIBUTIONS
A Participant eligible to share in Company Contributions for the
Plan Year in accordance with Section 4.3 shall share in such Company
Contributions in the proportion that his Compensation bears to the
Compensation of all eligible Participants for the Plan Year.
ARTICLE
5.
VESTING
5.1 PARTICIPANT CONTRIBUTIONS
A Participant shall at all times be one hundred percent (100%)
vested in his Employee Salary Reduction Contribution Account and his
Rollover Account.
5.2 COMPANY AND MATCHING CONTRIBUTION ACCOUNTS
A Participant shall have a fully vested, nonforfeitable interest in
his Company Contribution Account and Matching Contribution Account on the
first to occur of the following events:
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<PAGE> 26
(a) His attainment of Normal Retirement Age;
(b) The date on which he shall be determined to have a Total and
Permanent Disability;
(c) The date of his death; or
(d) The completion of three (3) Years of Vesting Service.
5.3 TERMINATION OF EMPLOYMENT
(a) A Participant who terminates employment with a Company and
all Affiliates for any reason other than (i) Total and Permanent
Disability, (ii) death, (iii) the completion of three (3) Years of
Vesting Service, and (iv) before his Normal Retirement Age shall
be vested in the percentage of his Company Contribution Account and
Matching Contribution Account set forth in the following tables:
<TABLE>
<CAPTION>
Completed Years
of Vesting Service Vested Percentage
------------------ --------------------
<S> <C>
Less than 1 0%
1 33%
2 66%
3 or more 100%
</TABLE>
All of a Participant's Years of Vesting Service shall be taken
into consideration in determining the vested percentage of his
Company Contribution Account and Matching Contribution Account.
(b) The portion of the Participant's Company Contribution Account
and Matching Contribution Account in which he is not vested at his
termination of employment shall be declared a Forfeiture at the
earlier of (i) the date the Participant receives or is deemed to
have received pursuant to Section 6.2 a distribution of his Vested
Interest under the Plan, or (ii) the last day of the Plan Year in
which the Participant incurs a one (1) year Break in Service. Such
Forfeiture shall, in the Company's.discretion, and subject to
Section 5.3(c) below, (i) be used to reduce a Company's Matching
Contribution or Company Contribution (or special Company
contribution under Section 3.5) for the Plan Year in which the
Forfeiture occurs or, if no Matching Contributions or Company
Contributions (or special Company contributions under Section 3.5)
are made in such Plan Year (or if Forfeitures still remain after
reducing such contributions), in the next Plan Year or Plan Years in
which such contributions are made, or (ii) be applied to offset
administrative expenses incurred in the operation of the Plan.
(c) If the Participant returns to the employ of a Company or an
Affiliate before he incurs five (5) consecutive one (1) year Breaks
in Service, the portion of his Company Contribution Account and
Matching Contribution Account that had been forfeited shall be
reinstated to his Company Contribution Account and Matching
Contribution Account in full, unadjusted by any gains or losses
occurring subsequent to the Valuation Date coincident with or
immediately following his termination of employment, only if he
repays the full amount of any distribution, other than Rollover
Contributions, before the end of five (5) years from the Date of
Reemployment. The amount so reinstated shall be made from any
Forfeitures of his Company made during the Plan Year in which his
repayment occurred.
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<PAGE> 27
If the Forfeitures in the year of repayment are insufficient to
restore the forfeited amount, the remainder shall be restored by a
Company contribution. Such a Participant shall continue vesting in
such Account. If the Participant incurs five (5) consecutive one (1)
year Breaks in Service, and thereafter is reemployed by a Company or
an Affiliate, he shall not regain any interest in any Forfeiture.
(d) If a Participant who is reemployed before he incurs five (5)
consecutive one (1) year Breaks in Service shall again terminate his
employment under circumstances in which he is not fully vested in
his Company Contribution Account or Matching Contribution Account,
such Participant's Vested Interest in such Accounts shall be
determined by adding to the amount actually held by the Trust any
amount previously distributed to him. The vested percentage shall
be applied to this total, the amount of any previous distributions
shall be subtracted, and the remaining amount shall be his vested
balance.
(e) No amendment to the vesting schedule shall deprive a
Participant of his Vested Interest in his Account Balance to the
date of amendment. Further, if the vesting schedule of the Plan is
amended, or if the Plan is amended in any way that directly or
indirectly affects the computation of a Participant's Vested
Interest in his Company Contribution Account or Matching Contribution
Account, or if the Plan is deemed amended by an automatic change to
or from the top-heavy vesting schedule, each Participant with at
least three (3) Years of Vesting Service may elect, within a
reasonable period after the adoption of the amendment or change, to
have his Vested Interest in his Company Contribution Account or
Matching Contribution Account computed under the Plan without regard
to such amendment or change. The period during which the election
may be made shall commence with the date the amendment is adopted and
shall end on the latest of:
(1) Sixty (60) days after the amendment is adopted;
(2) Sixty (60) days after the amendment becomes effective; or
(3) Sixty (60) days after the Participant is issued
written notice of the amendment by the Company.
ARTICLE
6.
TIME AND METHOD OF PAYMENT
6.1 MANNER OF PAYMENT - EMPLOYEES OF CERTAIN PARTICIPATING EMPLOYERS
(a) Unless Employees of other Participating Employers are from
time to time so designated by the Company, Section 6.1 shall apply
only to those Employees of (i) U.S. Robotics Access Corp. who
formerly were employed by ISDN Systems Corporation and (ii) Palm
Computing, Inc., who were participants with account balances in the
retirement plans sponsored by ISDN Systems Corporation and Palm
Computing, Inc., respectively, on April 1, 1996, when those
retirement plans were merged into the Plan.
(b) If a Participant is unmarried as of his Annuity Starting
Date, the Vested Interest in his Account Balance shall be
distributed to him in the form of an immediate life annuity
contract, unless the Participant elects an
21
<PAGE> 28
optional form of payment provided in the Plan in accordance with
the procedures of paragraph (d).
(c) If a Participant is married as of his Annuity Starting Date,
the Vested Interest in his Account Balance shall be distributed to
him in the form of a joint and survivor annuity, unless the
Participant elects an optional form of payment provided in the Plan
in accordance with the procedures of paragraph (e). The joint and
survivor annuity shall be equal in value to a single life annuity,
and shall consist of an immediate annuity for the life of the
Participant with a survivor annuity for the life of his spouse equal
to fifty percent (50%) of the amount of the payments made to the
Participant.
(d) An unmarried Participant may elect in writing, during the
ninety (90) day period ending on his Annuity Starting Date, to waive
the life annuity form of benefit described in paragraph (b) and to
make a qualified election of an optional form of payment permitted
under the Plan. No less than thirty (30) days and no more than
ninety (90) days prior to the Participant's Annuity Starting Date
and consistent with such regulations as the Secretary of the
Treasury may prescribe, the Plan Administrator shall provide the
Participant with a written explanation of:
(1) The terms and conditions of the life annuity;
(2) The Participant's right to make and the effect of
an election to waive the life annuity; and
(3) The right of the Participant to revoke each such
election and the effect of such revocation.
The written notice shall contain a general explanation of the
optional forms of payment permitted under the Plan and shall
explain the difference between the life annuity and such optional
forms of payment in a manner calculated to be understood by the
Participant.
(e) A married Participant may elect in writing, during the ninety
(90) day period ending on his Annuity Starting Date, to waive the
joint and survivor annuity form described in paragraph (c) and to
make a qualified election of either the life annuity or an optional
form of payment permitted under the Plan. A married Participant may
make a qualified election of a life annuity or a joint and
contingent Beneficiary option, as described in Section 6.2, only
with his spouse's written consent. The spouse's consent must
acknowledge the effect of such election and be witnessed by a Plan
representative or notary public. The spouse also must consent both
to the specific optional form of benefit chosen and to the specific
Beneficiary designated, if applicable, or to a general Beneficiary
designation, provided such consent acknowledges that the spouse has
the right to limit consent to a specific Beneficiary and elects to
relinquish such right. Notwithstanding the foregoing, the
requirement for a spouse's written consent shall not apply if a
Participant elects a joint and contingent Beneficiary option under
Section 6.2 with his spouse as Beneficiary, or if it is established
to the Plan Administrator's satisfaction that the spouse cannot be
located or that other circumstances set forth in regulations
promulgated under Section 417 of the Code which preclude the
necessity of the spouse's consent are present with respect to the
Participant. No less than thirty (30) days and no more than ninety
(90) days prior to the Participant's Annuity Starting Date and
consistent with such regulations as
22
<PAGE> 29
the Secretary may prescribe, the Plan Administrator shall provide
the Participant with a written explanation of:
(1) The terms and conditions of the joint and survivor annuity;
(2) The Participant's right to make and the effect of
an election to waive the joint and survivor annuity;
(3) The right of the Participant's spouse, if
applicable, to consent to an election to waive the joint and
survivor annuity; and
(4) The right of the Participant to revoke such
election and the effect of such revocation.
The written notice shall contain a general explanation of the
life annuity and the optional forms of payment permitted under the
Plan and shall explain the differences between the joint and
survivor annuity, the life annuity, and the optional forms of
payment in a manner calculated to be understood by the Participant.
6.2 OPTIONAL FORMS OF PAYMENT FOR SECTION 6.1(A) DESIGNATED EMPLOYEES
Unless otherwise set forth herein, the following optional forms of
payment shall be available only for those Employees to whom Section 6.1
of the Plan applies:
(a) Joint and Contingent Beneficiary. Payments to the
Participant during his lifetime in monthly, quarterly, semiannual,
or annual cash installments, with payments of either one hundred
percent (100%), seventy-five percent (75%), or fifty percent (50%)
of such amount to continue after his death to a Beneficiary
designated by the Participant for the lifetime of the Beneficiary.
This option shall be paid for through the purchase of a
nontransferable annuity contract providing for such payments.
(b) Lump Sum. Payment to the Participant of his entire Account
Balance in cash in one (1) single sum.
(c) Installments. Periodic annual payments to the Participant
for a specified number of years, not to exceed ten (10) years.
Distributions may be made over only one (1) of the following periods
(or a combination thereof):
(a) The life of the Participant;
(b) The life of the Participant and a designated Beneficiary;
(c) A period certain not extending beyond the life expectancy of
the Participant; or
(d) A period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated Beneficiary.
If a Participant's spouse is not the designated Beneficiary, the
method of distribution selected must assure that at least fifty percent
(50%) of the present value of the amount available for distribution is
paid within the life expectancy of the Participant.
23
<PAGE> 30
For purposes of this Plan, life expectancy of a Participant and/or a
surviving spouse may be recalculated annually if the Participant so
elects, provided, however, that, absent such election, life expectancy
shall not be recalculated.
6.3 DEATH BENEFITS
(a) Except as otherwise set forth in this Article VI, Section 6.3
shall apply only to those Employees to whom Section 6.1 of the Plan
applies. Section 6.4 shall apply to death benefits for all other
Employees.
(b) If a married Participant dies prior to his Annuity Starting
Date, payment of the Vested Interest in his Account Balance shall be
made to the surviving spouse of the Participant in the form of a
qualified pre-retirement survivor annuity contract providing monthly
payments to the spouse, unless the Participant has designated
another Beneficiary in the manner described in Section 6.8, or the
spouse elects to receive payment in a form set out in Section 6.2.
The surviving spouse may elect to commence or receive payment as
soon as administratively feasible after the Participant's death. In
order for the designation of a Beneficiary other than the spouse to
be valid, the designation must have been made after the first day of
the Plan Year in which the Participant attains age thirty-five (35),
the designation must contain a waiver of the qualified
pre-retirement survivor annuity, and the Participant's spouse must
consent in writing to the waiver of the qualified pre-retirement
survivor annuity and either to the specific non-spouse Beneficiary
designation or to a general Beneficiary designation, provided such
consent acknowledges that the spouse has the right to limit consent
to a specific Beneficiary and elects to relinquish such right. A
valid spousal consent shall be witnessed by either a representative
of the Plan or a notary public and shall be revocable by the spouse
at any time prior to the Annuity Starting Date.
The Plan Administrator shall provide to each Participant a
written explanation of the qualified pre-retirement survivor annuity
within the applicable period. With respect to any Participant, the
applicable period means whichever of the following periods ends last:
(1) The period beginning with the first day of the
Plan Year in which the Participant attains age thirty-two (32)
and ending with the close of the Plan Year preceding the
Plan Year in which the Participant attains age thirty-five (35);
(2) A reasonable period ending after the individual
becomes a Participant; or
(3) A reasonable period ending after Section
401(a)(11) of the Code first applies to the Participant.
Notwithstanding the foregoing, in the case of a Participant who
separates from service before attaining age thirty-five (35), the
applicable period means the period beginning one (1) year before
the separation from service and ending one (1) year after such
separation. The written explanation of the qualified pre-retirement
survivor annuity shall provide comparable notice and information to
that described in Section 6.1(e) with respect to the joint and
survivor annuity.
A married Participant may designate a non-spouse Beneficiary prior
to the first day of the Plan Year in which the Participant attains
age thirty-five (35) if a written explanation of the pre-retirement
survivor annuity is
24
<PAGE> 31
given to the Participant by the Plan Administrator prior to the
time of designation. Such early nonspouse Beneficiary designation
shall become invalid as of the first day of the Plan Year in which
the Participant attains age thirty-five (35). The designation of a
nonspouse Beneficiary shall be revoked automatically upon the
marriage or remarriage of the Participant. Notwithstanding the
foregoing, the spousal consent requirement shall not apply if it is
established to the satisfaction of the Plan Administrator either that
the spouse cannot be located or that other circumstances set forth in
regulations promulgated under Section 417 of the Code which preclude
the necessity of the spouse's consent are present with respect to the
Participant.
If an unmarried Participant dies prior to his Annuity Starting
Date, or if a married Participant has designated a Beneficiary
other than his spouse, the Vested Interest in his Account Balance
shall be paid to his designated Beneficiary in a life annuity or in
any of the forms permitted under Section 6.2, at the election of
the Beneficiary.
If the Participant's surviving spouse is his Beneficiary, his
surviving spouse may elect to receive payments in any of the forms
permitted under Sections 6.1 or 6.2.
(c) In the event of the Participant's death prior to the
commencement of payments, the period over which payments shall be
made shall not exceed five (5) years, unless one (1) of the
following exceptions is met:
(1) (A) Any portion of the Participant's Account is payable to (or
for the benefit of) a designated Beneficiary; and
(B) Such portion of the Participant's Account shall be
distributed over a period not extending beyond the life or life
expectancy of the designated Beneficiary; and
(C) Such distribution commences no later than one (1) year
after the date of the Participant's death.
(2) (A) The portion of the Participant's Account to which his
surviving spouse is entitled shall be distributed over a period not
extending beyond the life or life expectancy of the surviving
spouse; and
(B) Such distribution commences no later than the date on
which the Participant would have attained age seventy and one-half
(70-1/2).
(d) If the Participant dies after the commencement of payments,
the remaining portion of such interest will continue to be
distributed at least as rapidly as under the method of distribution
being used prior to the Participant's death.
6.4 NORMAL FORM OF PAYMENT FOR EMPLOYEES
(a) For Employees other than those to whom Section 6.1 of the
Plan applies, the Vested Interest of the Participant's Account
Balance shall be paid to the Participant or, in the event of his
death, to his Beneficiary in cash in one (1) single sum; provided,
however, that those Participants who were participants in the
retirement plan sponsored by U.S. Robotics Mobile Communications
Corp. on April 1, 1996, when that retirement plan was merged into
the Plan, also shall be entitled to the installment form of
distribution described in Section 6.2. A Participant or his
Beneficiary
25
<PAGE> 32
shall be entitled to receive his distribution at the time specified
in Section 6.5.
(b) If the Participant's Account Balance at any time prior to
distribution exceeds three thousand five hundred dollars ($3,500)
and payment is to be made prior to the Participant attaining age
sixty-five (65), the Participant must consent in writing to the
distribution before payment of any portion of the distribution
commences. For Employees to whom Section 6.1 of the Plan applies,
the Participant's spouse also must consent to the early commencement
of benefits, if such benefits are distributed in any annuity form
other than a joint and survivor annuity or joint and contingent
Beneficiary option with the spouse as Beneficiary.
(c) If the Vested Interest of the Participant's Account Balance
(determined as of the Valuation Date coincident with or next
following his termination of employment) is three thousand five
hundred dollars ($3,500) or less, payment shall be made as soon as
practicable after the Participant's termination of employment in one
(1) single sum cash payment. For purposes of this paragraph, if the
Vested Interest of the Participant's Account Balance (determined as
of the Valuation Date coincident with or next following his
termination of employment) is zero (0), the Participant shall be
deemed to have received a distribution of such Vested Interest under
this paragraph (c). This paragraph (c) shall apply to all
Employees, including those to whom Section 6.1 of the Plan applies.
(d) If a distribution is one to which Sections 401(a)(11) and 417
of the Code do not apply, such distribution may be made or commence
less than thirty (30) days after the notice required under Section
1.411(a)-11(c) of the Tax Regulations is given provided that:
(1) The Plan Administrator clearly informs the
Participant that the Participant has a right to a period of at
least thirty (30) days after receiving the notice to consider
the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and
(2) The Participant, after receiving the notice,
affirmatively elects a distribution.
(e) If a distribution is one to which Sections 401(a)(11) and 417
of the Code do apply, such distribution may be made or commence less
than thirty (30) days after written explanation of the forms of
distribution is given (but not sooner than seven (7) days after such
explanation is given), provided the requirements set forth in
Section 1.417(e)-1T of the Tax Regulations are met.
(f) Notwithstanding any provision of the Plan to the contrary, a
Distributee may elect, at the time and in the manner prescribed by
the Plan Administrator, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover.
For purposes of this paragraph (f):
(1) Eligible Rollover Distribution means any
distribution of all or any portion of the balance to the
credit of the Distributee, except that an Eligible Rollover
Distribution does not include: any distribution that is one of
a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life
26
<PAGE> 33
expectancy) of the Distributee or the joint lives (or joint
life expectancies) of the Distributee and the Distributee's
designated beneficiary, or for a specified period of ten years
or more; any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code; and the portion
of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) Eligible Retirement Plan means an individual
retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of
the Code, an annuity plan described in Section 403(a) of the
Code, or a qualified trust described in Section 401(a) of the
Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover
Distribution to a surviving spouse, an Eligible Retirement
Plan is an individual retirement account or individual
retirement annuity.
(3) Distributee means an Employee or former Employee.
In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or
former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Section 414(p) of the
Code, are Distributees with regard to the interest of the
spouse or former spouse.
(4) Direct Rollover means a payment by the Plan to
the Eligible Retirement Plan specified by the Distributee.
6.5 TIME OF PAYMENT
Subject to the provisions of Sections 6.3(c) and (d), 6.4 and 6.7,
payment shall be made or shall commence at the later of:
(a) Sixty (60) days after the close of the Plan Year in which the
Participant attains (or would have attained) Normal Retirement Age,
or
(b) Sixty (60) days after the close of the Plan Year in which the
employment of the Participant terminates,
unless the Participant or, in the event of his death, his
Beneficiary, requests payment at an earlier date, but subsequent to his
termination of employment. In such event, payment shall be made or shall
commence as soon as practicable after the date payment is requested, and
based upon the Participant's Account Balance as of the Valuation Date
coincident with the date the payment is processed. Notwithstanding the
foregoing, in all cases payment shall be made or shall commence by the
April 1 immediately following the year in which the Participant attains
the age of seventy and one-half (70-1/2), even if he has not retired.
The preceding sentence shall not apply to a Participant who (1) has made
a written election to receive his benefits under the Plan at a later date
in accordance with Section 242(b) of the Tax Equity and Fiscal
Responsibility Act of 1982, or (2) has attained age seventy and one-half
(70-1/2) before January 1, 1988 and who was not a five percent (5%) owner
of a Company at any time during the Plan Year ending with or within the
calendar year in which such individual attained age sixty-six and
one-half (66-1/2) or any subsequent Plan Year.
6.6 DISTRIBUTION OF UNALLOCATED CONTRIBUTIONS
27
<PAGE> 34
If on the date of termination of a Participant's employment the
Company shall be holding contributions made on behalf of the Participant
but not yet allocated to his Accounts, the Company shall pay such amounts
either directly to the Participant (or his Beneficiary, as the case may
be) or to the Trustee, to be distributed by the Trustee in accordance
with the method of distribution determined under this Article VI.
6.7 CERTAIN RETROACTIVE PAYMENTS
If the amount of the payment required to be made or commence on the
date determined under Sections 6.1, 6.2, or 6.4 cannot be ascertained by
such date, a payment retroactive to such date may be made no later than
sixty (60) days after the earliest date on which the amount of such
payment can be ascertained under the Plan.
6.8 BENEFICIARY
(a) If a Participant is married on the date of his death, the
Beneficiary of such Participant shall be his spouse unless the
Participant's spouse consents in writing not, wholly or in part, to
be said Beneficiary. The spouse's consent must acknowledge the
effect of such consent not to be the Participant's Beneficiary and
such written consent must be witnessed either by the Plan
Administrator or by a notary public. The consent must either be
limited to a benefit for a specific alternate Beneficiary or may, in
the alternative, provide for a general Beneficiary designation,
provided such general consent acknowledges that the spouse has the
right to limit consent to a specific Beneficiary and elects to
relinquish such right. The designation of a non-spouse Beneficiary
shall be automatically revoked upon the marriage or remarriage of a
Participant. Notwithstanding the foregoing, this paragraph (a)
shall not apply if it is established to the Plan Administrator's
satisfaction either that the spouse cannot be located or that other
circumstances set forth in regulations promulgated under Section 417
of the Code which preclude the necessity of the spouse's consent are
present with respect to the Participant.
(b) Except as otherwise provided in paragraph (a), each
Participant shall have the right to designate, by giving a written
designation to the Plan Administrator, a Beneficiary to receive any
death benefit which may become payable upon the death of such
Participant. Successive designations may be made, and the last
designation received by the Plan Administrator prior to the death of
the Participant shall be effective and shall revoke all prior
designations. If a designated Beneficiary shall die before the
Participant, his interest shall terminate, and, unless otherwise
provided in the Participant's designation, such interest shall be
paid in equal shares to those Beneficiaries, if any, who survive the
Participant. Except as otherwise provided in paragraph (a), the
Participant shall have the right to revoke the designation of any
Beneficiary without the consent of the Beneficiary.
(c) If a Participant shall fail to designate a Beneficiary, if
such designation shall for any reason be illegal or ineffective, or
if no Beneficiary shall survive the Participant (or survive until
the date all payments are made hereunder), his death benefits shall
be paid:
(1) To his surviving spouse;
(2) If there is no surviving spouse, to his
descendants (including legally adopted children and their
descendants) per stirpes; or
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(3) If there is neither a surviving spouse nor
surviving descendants, to the estate of the Participant.
(d) The Plan Administrator may determine the identity of the
distributees and in so doing may act and rely upon any information
it may deem reliable upon reasonable inquiry, and upon any
affidavit, certificate, or other paper believed to be genuine, and
upon any evidence believed by it to be sufficient.
6.9 ADMINISTRATIVE POWERS RELATING TO PAYMENTS
If a Participant or Beneficiary is under a legal disability or, by
reason of illness or mental or physical disability, is unable, in the
opinion of the Plan Administrator, to attend properly to his personal
financial matters, the Trustee may make such payments in such of the
following ways as the Plan Administrator shall direct:
(a) Directly to such Participant or Beneficiary;
(b) To the legal representative of such Participant or
Beneficiary; or
(c) To some relative by blood or marriage, or friend, for the
benefit of such Participant or Beneficiary.
Any payment made pursuant to this Section 6.9 shall be in complete
discharge of the obligation for such payment under the Plan.
6.10 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable
to a Participant or his Beneficiary hereunder shall, at the expiration of
five (5) years after it shall become payable, remain unpaid solely by
reason of the Plan Administrator being unable, after sending a certified
or registered letter, return receipt requested, to the last known
address, and after further diligent effort, to ascertain the whereabouts
of such Participant or his Beneficiary, the amount so distributable shall
be treated in the same manner as a Forfeiture under this Plan. If a
Participant or Beneficiary is subsequently located, such benefit shall be
restored from any Forfeitures made during the Plan Year in which the
Participant or Beneficiary is located. If the Forfeitures in the year of
location are insufficient to restore the forfeited amount, the remainder
shall be restored by a Company contribution.
ARTICLE
7.
WITHDRAWALS
7.1 AVAILABILITY OF LOANS
Upon application by an Employee who is a Participant or any other
party-in-interest, as defined in Section 3(14) of ERISA, the Trustee may
lend such Employee or other party-in-interest an amount such that the
aggregate of all of his outstanding loans under this Plan and all other
plans maintained by his Company or an Affiliate does not exceed the
lesser of: (1) fifty thousand dollars ($50,000) (reduced by the excess,
if any, of (A) the highest outstanding balance of loans from the Plan and
all other plans maintained by his Company or an Affiliate during the one
(1) year period ending on the day before the date on
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<PAGE> 36
which such loan is made over (B) the outstanding balance of loans from the
Plan and all other plans maintained by his Company or an Affiliate on the
date on which such loan is made); or (2) an amount which does not exceed
one-half (1/2) of the Vested Interest of his Account Balances, if any,
under the Plan as of the date on which the loan is approved. All loans
shall follow a uniform, nondiscriminatory policy. Loans shall not
be made available to Highly Compensated Employees in an amount greater
than the amount made available to other Employees.
In addition to such rules and regulations as the Plan Administrator
may adopt, all loans shall comply with the following terms and
conditions:
(a) An application for a loan by an Employee or other
party-in-interest shall be made in writing to the Plan
Administrator, whose action thereon shall be final. The Plan
Administrator shall specify the form of the application and any
supporting data required.
(b) The period of repayment for any loan shall be five (5) years,
unless the loan is used to acquire a dwelling unit which within a
reasonable time shall be used as the principal residence of the
Employee or other party-in-interest, in which case the period of
repayment shall be determined by the Plan Administrator but shall
not be greater than thirty (30) years or the number of years until
the Employee attains his Normal Retirement Age, whichever is less.
Loans shall be repayable in substantially equal amortized
installments of both principal and interest payable not less
frequently than quarterly. Loans to Employees shall be repaid
through automatic payroll deduction, and for parties-in-interest who
are not Employees, on such other terms and conditions as the Plan
Administrator deems appropriate. To the extent that such loan is
unpaid at the time a distribution of such Participant's Accounts
becomes payable, such unpaid amount shall be deducted from the
amount otherwise payable from his Account. Any loan described in
this Section 7.1 shall be considered an investment of the Account
from which it was borrowed. Such Account shall not share in the
allocation of earnings under Sections 4.2 or 8.4 to the extent of
such loan.
(c) Each loan shall bear interest at a fixed rate which is one
percent (1%) above the prime rate, as such rate is reported from
time to time in the Wall Street Journal.
(d) Each loan shall be supported by collateral equal to no more
than fifty percent (50%) of the Employee's or other
party-in-interest's entire Vested Interest in the Trust. A loan
also shall be supported by the Employee's or other
party-in-interest's promissory note for the amount of the loan,
including interest, payable to the order of the Trustee. The
promissory note shall require that the unpaid principal and interest
will become due and payable if a loan payment is not made by the
last day of the calendar year quarter following the calendar year
quarter in which the installment was due and owing. In the event of
default, foreclosure on the note and attachment of security will not
occur until a distributable event occurs in the Plan.
(e) Each loan shall be in an amount not less than one thousand
dollars ($1,000.00), and no more than two (2) loans may be
outstanding at any one time.
7.2 HARDSHIP WITHDRAWALS
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A Participant may elect in writing (or in such other form as may be
permitted from time to time by the Plan Administrator) to withdraw any
amount from his Employee Salary Reduction Contribution Account or
Rollover Account at any time subject to the following conditions:
(a) The distribution of a Participant's Employee Salary Reduction
Contribution Account or Rollover Account shall not commence prior to
his death, Total and Permanent Disability, Normal Retirement Age, or
termination of employment, except upon his demonstration of
financial hardship or as permitted under Section 7.3. A
distribution based upon financial hardship may be made only if the
Participant has an immediate and heavy financial need, and cannot
exceed the amount required to satisfy such financial need, which
may not be satisfied from other resources reasonably available to the
Participant. The determination of the existence of an immediate and
heavy financial need and the amount required to be distributed to
meet the need created by the hardship must be made by the Plan
Administrator in accordance with uniform and nondiscriminatory
standards applicable to all Participants. Notwithstanding the
preceding sentence, a Participant shall be deemed to have an
immediate and heavy financial need if the distribution is on account
of:
(1) Medical expenses described in Code Section 213(d)
incurred by the Participant, the Participant's spouse or any
of the Participant's dependents (as defined in Code Section
152);
(2) The purchase (excluding mortgage payments) of a
principal residence of the Participant;
(3) Payment of tuition and related educational fees
for the next twelve (12) months of post-secondary education
for the Participant, his spouse, children or dependents;
(4) The need to prevent the eviction of the
Participant from his principal residence or foreclosure on the
mortgage of the Participant's principal residence; or
(5) Any other emergency that the Plan Administrator,
pursuant to a uniform and nondiscriminatory policy and in
accordance with guidelines issued by the Internal Revenue
Service, deems a bona fide financial emergency.
Further, and notwithstanding the foregoing, the distribution
shall be considered necessary to satisfy the financial need if the
requirements set forth in paragraph (b) below are satisfied or if the
Plan Administrator reasonably relies upon the Participant's
representation that the distribution is not in excess of his
immediate and heavy financial need and that he cannot satisfy his
financial need by:
(1) Reimbursement or compensation by insurance;
(2) Reasonable liquidation of the Participant's
assets, including those of his spouse and minor children that
are reasonably available to him;
(3) Cessation of Employee Salary Reduction
Contributions under the Plan; and
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<PAGE> 38
(4) Obtaining other distributions or loans from this
Plan or other plans maintained by his Company, or by borrowing
from commercial sources on reasonable commercial terms.
(b) A distribution shall be deemed necessary to satisfy an
immediate and heavy financial need if:
(1) The distribution is not in excess of the amount
of the immediate and heavy financial need of the Participant;
(2) The Participant has obtained all distributions,
other than hardship distributions, and all nontaxable loans
currently available under all plans maintained by his Company;
and
(3) The Participant does not make elective deferrals
or employee contributions under any plan maintained by his
Company for a twelve (12) month period following the date of
receipt of the hardship distribution, nor does he make
elective deferrals under any plan maintained by his Company for
the taxable year immediately following the taxable year of the
hardship distribution in excess of the limitation imposed by
Section 402(g) of the Code for such next taxable year, less the
amount of such Participant's elective deferrals for the taxable
year of the hardship distribution.
(c) The Participant must request a hardship withdrawal in writing
on a form provided by the Plan Administrator, or in such other form
or manner as the Plan Administrator may from time to time determine.
The Plan Administrator shall specify any supporting data required
and shall follow a uniform, nondiscriminatory policy in determining
the eligibility for, and timing of, hardship withdrawals.
(d) A Participant shall be entitled to a hardship withdrawal
pursuant to this Section 7.2 from that portion of his Employee
Salary Reduction Contribution Account that represents his Employee
Salary Reduction Contributions, but not on that portion that
represents any earnings credited on such Account.
7.3 OTHER WITHDRAWALS
By delivery of a request to the Plan Administrator, in such form or
manner as the Plan Administrator may from time to time determine, and
with thirty (30) days prior advance notice, a Participant who still is
employed by a Company and who has attained age fifty-nine and one-half
(59 1/2) years may elect to withdraw all or any portion (but not less
than one thousand dollars ($1,000) in any one request) of the Vested
Interest of his Company Contribution Account, Matching Contribution
Account, Employee Salary Reduction Contribution Account, or Rollover
Account. Withdrawal of all or part of the Vested Interest of a
Participant's Account Balance pursuant to this Section 7.3 shall not
affect the Participant's right to continue participation under the Plan.
In addition, notwithstanding the foregoing paragraphs of this Article
VII, in the event of the termination of the Plan without establishment of
a successor plan or upon the occurrence of the circumstances defined in
Code Section 401(k)(10)(A)(ii) and (iii), the distribution of all of a
Participant's Accounts shall be permitted.
ARTICLE
8.
MANAGEMENT OF FUNDS
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8.1 TRUSTEE AND TRUST AGREEMENT
A Trustee shall be appointed by the Company to administer the Trust
Fund. The Trustee shall serve at the pleasure of the Company and shall
have the rights, powers, and duties set forth in the Trust Agreement,
under which Trust Agreement the Trustee shall receive contributions from
each Company. All assets of the Trust Fund shall be held, invested, and
reinvested by the Trustee, subject to the terms of the Trust Agreement.
8.2 ASSETS OF THE TRUST FUND
All contributions under this Plan shall be paid to the Trustee and,
except as provided in Section 8.3, all assets of the Trust Fund,
including income from investments and from all other sources, shall be
retained for the exclusive benefit of Participants and their
Beneficiaries, and shall be used to pay benefits to such persons or to
pay reasonable expenses of administration of the Plan and the Trust to
the extent not paid by a Company.
8.3 TRUST CONTRIBUTIONS
All Company Contributions, Employee Salary Reduction Contributions,
Matching Contributions, and Rollover Contributions will be paid into the
Trust, and all benefits payable under the Plan will be paid from the
Trust. No part of the corpus or income of the Trust shall revert to a
Company or be used for, or diverted to, purposes other than for the
exclusive benefit of Participants and their Beneficiaries. All
contributions are expressly conditioned upon the deductibility under
Section 404 of the Code of contributions made to provide Plan benefits; to
the extent the deductions are disallowed, such contributions shall be
returned to the Company denied the deduction within one (1) year after the
disallowance of the deduction. A contribution which was made by a mistake
of fact shall be returned to the Company which made the contribution
within one (1) year after payment of such contribution.
8.4 DIRECTED INVESTMENT ACCOUNTS
(a) The Company may establish separate investment funds in which
the assets of the Trust will be held. Upon such establishment, the
Trustee shall, if the Plan Administrator so directs, and in
accordance with the Trust Agreement, permit the Participants to
direct the Trustee as to the investment of all or a portion of their
Account Balances. If such authorization is given by the Plan
Administrator, Participants may, subject to a procedure established
and applied in a uniform and nondiscriminatory manner, direct the
Trustee to invest their Account Balances in a specific investment
fund or funds, including Company securities or real property and
other investments permitted under this Plan. To the extent so
directed, and as permitted by law, the Trustee and the Plan
Administrator shall be relieved of their fiduciary responsibilities
under Section 404 of ERISA. That portion of the Account of any
Participant so directed will thereupon be considered a "Directed
Investment Account," which shall not share in Trust Fund earnings
nor be taken into consideration for purposes of Section 4.2. In
lieu thereof, the Trustee shall, following the end of each Valuation
Date, value all assets of the Trust Fund, allocate net gains or
losses, and process additions to and withdrawals from Participants'
Account Balances in the following manner:
(1) The Trustee shall first compute the fair market
value of securities and/or the other assets comprising each
investment fund. Each
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Account Balance shall be adjusted each business day by applying
the closing market price of the investment fund on the current
business day to the share/unit balance of the investment fund as
of the close of business on the current business day.
(2) The Trustee then shall account for any requests
of additions or withdrawals made to or from a specific
designated investment fund by any Participant, including
allocations of contributions. In completing the valuation
procedure described above, such adjustments in the amounts
credited to such accounts shall be made on the business day to
which the investment activity relates. Contributions received
by the Trustee pursuant to the Plan shall not be taken into
account until the Valuation Date coinciding with or next
following the date such contribution was both actually paid to
the Trustee and allocated among Account Balances of the
Participants.
(3) Notwithstanding paragraphs 1 and 2 above, if a
pooled investment fund is created as a designated fund for
Participants, valuation of the pooled investment fund and
allocation of earnings of the pooled investment fund shall be
governed by any agreement of such pooled investment fund. The
provisions of any agreement shall be incorporated by reference
in this Section 8.4.
It is intended that this Section 8.4 operate to distribute among
each Participant all income of the Trust Fund and changes in the
value of the assets of the Trust Fund.
(b) A separate Directed Investment Account shall be established
for each Participant who has directed an investment. Transfers
between a Participant's regular account, if any, and his Directed
Investment Account shall be charged and credited as the case may be
to each account.
(c) All investments, including that of any common stock, shall be
held in the name of the Trustee or one or more of its nominees as
provided in the Trust Agreement.
(d) Each Participant shall file an investment election with, and
on a form or in the manner provided by, the Plan Administrator at
the time he becomes a Participant in the Plan. A Participant may
change his investment fund elections regarding existing Account
Balances and future contributions pursuant to procedures established
by the Plan Administrator. A Participant also may transfer amounts
attributable to prior contributions among the investment funds
pursuant to such procedures. All investments and changes must be
made in multiples of one percent (1%). Elections shall become
effective as soon as practicable after receipt by the Plan
Administrator, subject to such limitations and restrictions as the
Plan Administrator may, from time to time, establish.
(e) If no election form has been executed by the Participant for
his Directed Investment Account, his entire Account Balance shall be
invested by the Trustee pursuant to the Trust Agreement.
ARTICLE
9.
ADMINISTRATION OF PLAN
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9.1 PLAN ADMINISTRATOR
The Company shall be the Plan Administrator. The Company may
appoint one (1) or more persons or institutions to act as its agent or
delegate to aid in carrying out its administrative duties. Absent the
written consent of the Plan Administrator, any such person or institution
shall perform such duties within the framework of policies,
interpretations, rules, practices and procedures established by the Plan
Administrator. The Company may, in its discretion, appoint an Investment
Manager to manage all or a designated portion of the assets of the Plan.
In such event, the Plan Administrator shall direct the Trustee to follow
the directive of the Investment Manager in investing the assets of the
Plan managed by the Investment Manager.
9.2 RIGHTS, POWERS AND DUTIES OF PLAN ADMINISTRATOR
The Plan Administrator shall have such authority as may be necessary
to discharge its responsibilities under the Plan, including the following
rights, powers, and duties:
(a) The Plan Administrator shall adopt rules governing its
procedures not inconsistent herewith, and shall keep a permanent
record of its meetings and actions. The Plan Administrator shall
administer the Plan uniformly and consistently with respect to
persons who are similarly situated. The Plan Administrator shall
maintain the Accounts of Participants and Beneficiaries under the
Plan or shall cause them to be maintained under its direction.
(b) The Plan Administrator shall direct the Trustee to make
payments from the Trust Fund to persons who qualify for such
payments hereunder. Such order to the Trustee shall provide the
Trustee with appropriate directions as to the determination of
distributions hereunder.
(c) The Plan Administrator shall not take action or direct the
Trustee to take any action with respect to any of the benefits
provided hereunder which would be discriminatory in favor of those
Participants or Employees who are officers, shareholders, or Highly
Compensated Employees.
(d) The Plan Administrator shall have the sole responsibility for
the administration of the Plan, and, except as herein expressly
provided, the Plan Administrator shall have the exclusive right to
interpret the provisions of the Plan and to determine any question
arising hereunder or in connection with the administration of the
Plan, including the remedying of any omission, inconsistency, or
ambiguity, and its decision or action in respect thereof shall be
conclusive and binding upon any and all Participants, former
Participants, Beneficiaries, heirs, distributees, executors,
administrators, successors, and assigns.
(e) The Plan Administrator may employ such counsel and agents in
such clerical, medical, legal, accounting, and other services as it
may require in carrying out the provisions of the Plan.
(f) Participants or their Beneficiaries shall be notified by the
Plan Administrator of their right to receive benefits. The Plan
Administrator shall establish a uniform procedure for such
notification.
(g) The Plan Administrator shall establish reasonable procedures
for the proper operation of Section 414(p) of the Code with respect
to "qualified domestic
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relations orders", as defined therein, including but not
limited to, establishing appropriate procedures, authorizing the
establishment of new Accounts, and directing distributions from
such Accounts.
(h) The Plan Administrator may establish procedures which a
Participant must follow in verifying maternity or paternity leave
and the length thereof.
(i) The Plan Administrator shall consult with each Company and
the Trustee regarding the short and long term liquidity needs of the
Plan in order that the Trustee, to the extent it exercises any
investment discretion, can exercise such discretion in a manner
designed to accomplish specific objectives.
(j) The Plan Administrator may perform any and all other
functions as reasonably necessary to administer the Plan.
9.3 EXERCISE OF PLAN ADMINISTRATOR'S DUTIES
The Plan Administrator shall discharge its duties solely in the
interest of Participants and their Beneficiaries:
(a) For the exclusive purposes of providing benefits to such
Participants and Beneficiaries and, in the discretion of the
Company, defraying reasonable expenses of Plan administration; and
(b) With the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of
an enterprise of a like character.
9.4 INDEMNIFICATION OF FIDUCIARIES
The Company shall indemnify all of its officers, representatives,
and Employees assigned fiduciary responsibility under Federal law to the
extent that such officers, representatives, or Employees incur loss or
damage which may result from such officers' or representatives' or
Employees' duties, exercises of discretion under the Plan, or any other
acts or omissions hereunder. Such duties, exercises of discretion, acts
or omissions shall not be indemnified by the Company in the event that
such loss or damage is judicially determined or
agreed by the officers, representatives, or Employees to be due to their
respective gross negligence or willful misconduct.
9.5 COMPENSATION
Any individuals acting as Plan Administrator or as agent of the Plan
Administrator shall serve without compensation for services as such, but
all proper expenses incurred by the individual incident to the
functioning of the Plan shall be paid by the Company.
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9.6 EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by a Company or the Participant. Such expenses shall include
any expenses incident to the functioning of the Plan Administrator,
including, but not limited to fees of accountants, counsel and other
specialists and their agents, and other costs of administering the Trust
Fund.
ARTICLE
10.
CLAIMS PROCEDURES
10.1 CLAIMS REVIEW
Any Participant or Beneficiary who wishes to request review of a
claim for benefits or who wishes an explanation of a benefit or its
denial may direct to the Plan Administrator a written request for such
review. The Plan Administrator shall respond to the request by issuing a
notice to the claimant, posted by first-class mail to the address of
record of the claimant as soon as possible, but in no event later than
ninety (90) days from the date of the request. This notice furnished by
the Plan Administrator shall be written in a manner calculated to be
understood by the claimant and shall include the following:
(a) The specific reason or reasons for any denial of benefits;
(b) The specific Plan provisions on which any denial is based;
(c) A description of any further material or information which is
necessary for the claimant to perfect his claim and an explanation
of why the material or information is needed; and
(d) An explanation of the Plan's claim appeals procedure.
If the claimant does not respond to the notice, posted by
first-class mail to the address of record of the Plan Administrator,
within one hundred twenty (120) days from the posting of the notice, the
claimant shall be considered satisfied in all respects. If the Plan
Administrator fails to respond to the claimant's written request for a
review, the claimant shall be entitled to proceed to the claim appeals
procedure described in Section 10.2.
10.2 APPEALS PROCEDURE
In the event that the claimant wishes to appeal the claim review
denial, the claimant or his duly authorized representative may submit to
the Plan Administrator, within one hundred twenty (120) days of the
posting of the notice, a written notification of appeal of the claim
denial. The notification of appeal of the claim denial shall permit the
claimant or his duly authorized representative to utilize the following
claim appeals procedures:
(a) To review pertinent documents; and
(b) To submit issues and comments in writing to which the Plan
Administrator shall respond.
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The Plan Administrator shall furnish a written decision on the
appeal no later than sixty (60) days after receipt of the notification of
appeal, unless special circumstances require an extension of the time for
processing the appeal. In no event, however, shall the Plan
Administrator respond later than one hundred twenty (120) days after a
request for an appeal. The decision on appeal shall be in writing and
shall include specific reasons for the decision, and shall be
written in a manner calculated to be understood by the claimant and
contain specific reference to the pertinent Plan provisions on which the
decision is based.
ARTICLE
11.
AMENDMENT AND TERMINATION
11.1 TERMINATION
(a) It is the expectation of the Company that it shall continue
this Plan and the payment of contributions hereunder indefinitely,
but the continuation of the Plan is not assumed as a contractual
obligation of the Company, and the right is reserved by the Company
at any time to terminate the Plan, and each Participating Employer
in adopting this Plan, consents to any such termination. The
Company, by resolution of the Board, may terminate the Plan with
respect to any or all Participating Employers. Each Company, by a
resolution of its Board of Directors, may terminate its
participation in the Plan. If participation in the Plan is
terminated by fewer than all Participating Employers, it shall
continue in effect for Participants employed by the remaining
Participating Employers. In the event that the Plan is terminated
in whole or part or if contributions by a Company are permanently
discontinued, the interest of all affected Participants shall be
fully vested and nonforfeitable.
(b) A Plan termination shall become effective as of the date of
the Board action or any subsequent date determined by the Board.
(c) Upon complete termination of the Plan, further payment of
Company Contributions to the Trust shall cease. The Plan
Administrator shall notify each affected Participant of the
termination of the Plan. Each affected Participant shall be
entitled to receive the entire amount of his Account Balances and
the Plan Administrator shall direct the Trustee to make payment to
each such Participant of such amount in cash or in assets of the
Trust Fund, as the Plan Administrator shall determine.
11.2 RIGHT TO AMEND, MODIFY, CHANGE OR REVISE PLAN
The Company, by appropriate action of its Board, may at any time and
from time to time amend, modify, change, or revise this Plan in whole or
in part. Each Participating Employer, in adopting this Plan, consents to
any such amendment, modification, change, or revision; provided however:
(a) That no amendment shall have the effect of vesting in any
Company any interest in or control of any funds, securities, or
other property subject to the terms of the Trust;
(b) That no amendment shall authorize or permit at any time any
part of the corpus or income of the Trust Fund to be used for or
diverted to purposes
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other than for the benefit of Participants and their
Beneficiaries, except as provided in Section 8.3;
(c) That no amendment shall have any retroactive effect as to
deprive any Participant or Beneficiary of any benefit already
accrued, save only that no amendment made in conformance with the
provisions of the Code or any other statute relating to employees'
trusts, or of any official regulation or rulings issued pursuant
thereto, shall be considered prejudicial to the rights of any
Participant or Beneficiary; and
(d) That no amendment shall eliminate an optional form of benefit
or decrease an Account Balance.
11.3 MERGER AND CONSOLIDATION OF PLAN; TRANSFER OF PLAN ASSETS
In the case of any merger or consolidation with or transfer of assets and
liabilities to any other plan, provisions shall be made so that each
Participant in the Plan on the date thereof (if the Plan then terminated)
would receive a benefit immediately after the merger, consolidation, or
transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately prior to the merger, consolidation, or
transfer (if the Plan had terminated).
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ARTICLE
12.
TOP-HEAVY PROVISIONS
12.1 DEFINITIONS
COMPENSATION means compensation as defined under Section 414(q)(7)
of the Code.
DETERMINATION DATE means, with respect to any Plan Year, the last
calendar day of the immediately preceding Plan Year or, in the case of
the first Plan Year, the last calendar day of the first Plan Year.
KEY EMPLOYEE means any Employee or former Employee (or any
Beneficiary of such Employee) who, at any time during the Plan Year or
any of the four (4) immediately preceding Plan Years (or, if fewer, the
total number of Plan Years during which the Plan has been in effect) is
or was:
(a) An officer of a Company or an Affiliate whose compensation
exceeds fifty percent (50%) of the amount in effect under Section
415(b)(1)(A) of the Code for such Plan Year;
(b) One (1) of the ten (10) Employees whose compensation exceeds
the amount in effect under Section 415(c)(1)(A) of the Code and who
owns (or is considered to own under Section 318 of the Code) one (1)
of the largest interests in a Company or an Affiliate;
(c) A five percent (5%) owner of a Company; or
(d) A one percent (1%) owner of a Company whose annual
compensation from a Company and Affiliates exceeds one hundred fifty
thousand dollars ($150,000).
An officer is defined as an actual officer of a Company or an
Affiliate; provided, however, that not more than the greater of three (3)
Employees or ten percent (10%) of the Employees (but in no event more
than fifty (50) Employees) shall be considered as officers in determining
whether the Plan is Top-heavy.
NON-KEY EMPLOYEE means any Employee who is not a Key Employee.
PERMISSIVE AGGREGATION GROUP means the Required Aggregation Group of
plans plus any other plan or plans of a Company or an Affiliate which,
when considered as a group with the Required Aggregation Group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of the
Code.
REQUIRED AGGREGATION GROUP means the group of:
(a) Each qualified plan of a Company or an Affiliate in which at
least one (1) Key Employee participates; and
(b) Any other qualified plan of a Company or an Affiliate which
enables a plan described in paragraph (a) above to meet the
requirements of Section 401(a)(4) or Section 410 of the Code.
TOP-HEAVY
40
<PAGE> 47
The Plan shall be deemed to be Top-heavy for any Plan Year if, as of
the Determination Date for such Plan Year, any of the following
conditions exists:
(a) If the Top-heavy Ratio for the Plan exceeds sixty percent
(60%) and the Plan is not part of a Required Aggregation Group of
plans or a Permissive Aggregation Group of plans;
(b) If the Plan is part of a Required Aggregation Group of plans
(but is not part of a Permissive Aggregation Group of plans) and the
Top-heavy Ratio for the group of plans exceeds sixty percent (60%);
or
(c) If the Plan is part of a Required Aggregation Group of plans
and part of a Permissive Aggregation Group of plans and the
Top-heavy Ratio for the Permissive Aggregation Group of plans
exceeds sixty percent (60%).
TOP-HEAVY RATIO
(a) If a Company or an Affiliate maintains one (1) or more
defined contribution plans (including any simplified employee
pension plan) and such Company or Affiliate has not maintained any
defined benefit plan which, during the five (5) Plan Year period
ending on the Determination Date, has or has had any accrued
benefits, the Top-Heavy Ratio for the Plan or for the Required
Aggregation Group or the Permissive Aggregation Group, as
appropriate, shall be a fraction, the numerator of which is the sum
of the account balances of all Key Employees under the aggregated
defined contribution plans as of the Determination Date (including
any part of any account balance distributed in the five (5) Plan
Year period ending on the Determination Date) and the denominator of
which is the sum of all account balances (including any part of any
account balance distributed in the five (5) Plan Year period ending
on the Determination Date) of all Participants as of the
Determination Date, both computed in accordance with Section 416 of
the Code. The numerator and denominator of the Top-heavy Ratio
shall be adjusted to reflect any contribution not actually made as
of the Determination Date, but which is required to be taken into
account on that date under Section 416 of the Code.
(b) If a Company or an Affiliate maintains or has maintained one
(1) or more defined contribution plans (including any simplified
employee pension plan) and such Company or Affiliate maintains or
has maintained one (1) or more defined benefit plans which, during
the five (5) Plan Year period ending on the Determination Date, has
or has had any accrued benefits, the Top-heavy Ratio for the
Required Aggregation Group or the Permissive Aggregation Group, as
appropriate, shall be a fraction, the numerator of which is the sum
of the account balances of all Key Employees under the aggregated
defined contribution plans and the present value of the accrued
benefits of all Key Employees under the aggregated defined benefit
plans as of the Determination Date, and the denominator of which is
the sum of the account balances of all Participants under the
aggregated defined contribution plans and the present value of the
accrued benefits of all Participants under the aggregated defined
benefit plans as of the Determination Date, determined in accordance
with Section 416 of the Code. The numerator and denominator of the
Top-heavy Ratio shall be adjusted for any distribution of an account
balance or accrued benefit made in the five (5) Plan Year period
ending on the Determination Date and any contribution due but unpaid
as of the Determination Date.
(c) For purposes of paragraphs (a) and (b) above, the value of
the account balances and the present value of the accrued benefits
shall be determined as of the most recent Valuation Date occurring
within the twelve (12) month
41
<PAGE> 48
period ending on the Determination Date, except as provided in
Section 416 of the Code for the first and second Plan Years of
a defined benefit plan. The accrued benefits of Non-Key Employees
shall be determined under the method which is used for accrual
purposes for all plans of a Company and Affiliates or, if there is no
such method, then as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under the fractional accrual rate
of Code Section 411(b)(1)(C). The account balances and the accrued
benefits of a Participant who is not a Key Employee but who was a Key
Employee in a prior Plan Year or who has not performed any services
for a Company under the Plan at any time during the five (5)
Plan Year period ending on the Determination Date shall be
disregarded. The calculation of the Top-heavy Ratio and the extent to
which distributions, rollovers, and direct transfers are taken into
account shall be made in accordance with Section 416 of the Code.
When aggregating plans, the value of the account balances and the
present value of the accrued benefits shall be calculated with
reference to the Determination Dates that fall within the same
calendar year.
VALUATION DATE means the same valuation date used for computing plan
costs for minimum funding, regardless of whether an actuarial valuation
is performed that year.
12.2 SPECIAL CODE SECTION 415 LIMITATIONS
For purposes of Section 4.5, in any Plan Year during which the Plan
is deemed to be Top-heavy and in which a Company also maintains a defined
benefit plan which is deemed to be Top-heavy, the number 1.25 shall be
replaced by the number 1.0 to the extent required under Section 416(h) of
the Code; provided, however, that such adjustment shall not occur if the
Top-heavy Ratio does not exceed ninety percent (90%) and additional
contributions or benefits are provided for Non-Key Employees in
accordance with the provisions of Sections 416(h)(2)(A) and (B) of the
Code. In such case, the minimum allocation described in Section 12.4(a)
shall be equal to seven and one-half percent (7 1/2%) of compensation for
each Non-Key Employee covered under both plans.
12.3 MISCELLANEOUS
(a) Unrelated rollover contributions or transfers from plans
other than a plan sponsored by a Company or an Affiliate shall not
be considered a part of the Participant's Account Balance for
purposes of determining whether or not the Plan is Top-heavy.
(b) Related rollover contributions or transfers from other plans
sponsored by a Company or an Affiliate shall be considered a part of
the Participant's Account Balance for purposes of determining
whether or not the Plan is Top-heavy.
12.4 MINIMUM ALLOCATION REQUIREMENTS
(a) Company contributions allocated on behalf of any Participant
who is not a Key Employee shall not be less than the lesser of three
percent (3%) of such Participant's Compensation, or the largest
percentage of contributions allocated on behalf of any Key Employee
of such Company for that Plan Year, without, in either event, taking
into consideration any contributions or benefits under Social
Security or any similar legislation. The preceding provisions shall
not apply to any Participant who was not employed by a Company on
the last day of the Plan Year.
42
<PAGE> 49
(b) The minimum allocation in paragraph (a) shall be made even
though, under other Plan provisions, the Participant otherwise would
not be entitled to receive an allocation, or would have received a
lesser allocation for the Plan Year because the Participant failed
to complete at least one thousand (1,000) Hours of Service, the
Participant's Compensation was less than any stated amount, or the
Participant failed to make mandatory contributions to the Plan. The
minimum allocation above shall not apply to a Participant covered
under another defined contribution plan of a Company if such
Participant receives the minimum allocation under such other plan.
(c) The minimum allocation required (to the extent required to be
nonforfeitable under Section 416(b) of the Code) may not be
forfeited under Sections 411(a)(3)(B) or 411(a)(3)(D) of the Code.
(d) If a Company maintains a defined benefit plan that also
covers any Non-Key Employee who is a Participant in this Plan, the
defined benefit plan shall be designated to satisfy the minimum
allocation or benefit requirements of Section 416 of the Code for
each such Non-Key Employee. To that extent, the minimum allocation
in paragraph (a) shall not be made.
ARTICLE
13.
PARTICIPATING EMPLOYERS
13.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of
the Company, any other corporation or entity, whether an Affiliate or
not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a
properly executed document evidencing said intent and will of such
Participating Employer.
13.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to use the
same Trustee as provided in this Plan, unless the Plan Administrator
otherwise consents to an alternative trustee.
(b) The transfer of any Participant from or to the Company or a
Participating Employer shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's
Accounts as well as his accumulated service time with the transferor
or predecessor, and his length of participation in the Plan, shall
continue to his credit.
(c) Unless the Plan Administrator shall otherwise direct, all
rights and values forfeited by termination of employment shall inure
only to the benefit of the Employee-Participants of the
Participating Employer by which the forfeiting Participant was
employed on the date of termination.
(d) Any expenses of the Trust Fund which are to be paid by the
Company or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total amount
standing to the credit of all Participants employed by such
Participating Employer bears to the total standing to the credit of
all Participants.
13.3 DESIGNATION OF AGENT
43
<PAGE> 50
Each Participating Employer shall be deemed to be a part of this
Plan; provided, however, that with respect to all of its relations with
the Trustee and Plan Administrator for the purpose of this Plan, each
Participating Employer shall be deemed to have designated irrevocably the
Company as its agent. Except for Article IX of the Plan, and unless the
context of the Plan otherwise indicates to the contrary, the word
"Company" shall be deemed to include each Participating Employer as
related to its adoption of the Plan.
13.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the
Employee involved shall carry with him his accumulated service and
eligibility. No such transfer shall effect a termination of employment
hereunder, and the Participating Employer to which the Employee is
transferred shall thereupon become obligated hereunder with respect to
such Employee in the same manner as was the Participating Employer from
whom the Employee was transferred.
13.5 PARTICIPATING EMPLOYERS CONTRIBUTION
All contributions made by a Participating Employer, as provided for
in this Plan, shall be determined separately on the basis of its total
Compensation paid, and shall be paid to the Trustee for the exclusive
benefit of the Employees of such Participating Employer and the
Beneficiaries of such Employees, subject to all the terms and conditions
of this Plan and the Trust Agreement. Unless the Plan Administrator
shall otherwise direct, any Forfeiture shall be applied only for the
benefit of the Participating Employer for whom the forfeiting Participant
last was employed. On the basis of the information furnished by the Plan
Administrator, the Plan Administrator shall direct the Trustee to keep
separate books and records concerning the affairs of each Participating
Employer hereunder and as to the accounts and credits of the Employees of
each Participating Employer.
13.6 AMENDMENT
Amendment of this Plan by the Company at any time when there shall
be a Participating Employer hereunder shall only be by the written action
of the Company and each and every Participating Employer hereby consents
to any such Amendment.
13.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or
revoke its participation in the Plan. At the time of any such
discontinuance or revocation, satisfactory evidence thereof and of any
applicable conditions imposed shall be delivered to the Plan
Administrator. The Plan Administrator shall thereafter direct the
Trustee to transfer, deliver, and assign contracts and other Trust Fund
assets allocable to the Participants of such Participating Employer to
such new trustee as shall have been designated by such Participating
Employer, in the event that it has established a separate pension plan
for its Employees. If no successor is designated, the Trustee shall
retain such assets for the Employees of said Participating Employer. In
no such event shall any part of the corpus or income of the Trust as it
relates to such Participating Employer be used for or diverted for
purposes other than for the exclusive benefit of the Employees of such
Participating Employer.
13.8 PLAN ADMINISTRATOR'S AUTHORITY
44
<PAGE> 51
The Plan Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purposes of this Article.
ARTICLE
14.
MISCELLANEOUS
14.1 NO CONTRACT OF EMPLOYMENT
Nothing herein contained shall be construed to constitute a contract of
employment between a Company and any Employee. The employment records of
a Company and the Trustee's records shall be final and binding upon all
Employees as to liability and participation.
14.2 RESTRICTIONS UPON ASSIGNMENTS AND CREDITORS' CLAIMS
No interest of any person or entity in or right to receive distributions
from the Trust Fund shall be subject in any manner to sale, transfer,
assignment, pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may any such interest or right to receive
distributions be taken, either voluntarily or involuntarily, for the
satisfaction of the debts of or other obligations or claims against such
person or entity. The preceding sentence also shall apply to the
creation, assignment, or recognition of a right to any benefit payable
with respect to a Participant pursuant to a domestic relations order
unless such order is determined to be a qualified domestic relations
order, as defined in Section 414(p) of the Code. A domestic relations
order entered before January 1, 1985 shall be treated as a qualified
domestic relations order if payment of benefits pursuant to the order has
commenced as of such date and may be treated as a qualified domestic
relations order if payment of benefits has not commenced as of such date,
even though the order does not satisfy the requirements of Section 414(p)
of the Code.
Notwithstanding anything in the Plan to the contrary, a payment from a
Participant's Account may be made to an alternate payee (as defined in
Section 414(p)(8) of the Code) prior to the date the Participant reaches
his earliest retirement age (as defined in Section 414(p)(4)(B) of the
Code) if such payments are made pursuant to a qualified domestic
relations order. All such payments pursuant to a qualified domestic
relations order shall be paid in a lump sum, unless the domestic
relations order specifies a different manner of payment permitted by the
Plan. The Plan Administrator may adopt reasonable rules and regulations
regarding the time of payment and the valuation of the Participant's
Account from which payment is made, provided such rules and regulations
shall not be inconsistent with Section 414(p) of the Code. The balance
of an Account that is subject to any qualified domestic relations order
shall be reduced by the amount of any payment made pursuant to such
order.
14.3 RESTRICTION OF CLAIMS AGAINST TRUST
The Trust under this Plan and the Trust Fund from its inception shall be
a separate entity aside and apart from each Company and its assets. The
Trust and the corpus and income thereof shall in no event and in no
manner whatsoever be subject to the rights or claims of any creditor of
any Company. Neither the establishment of the Trust, the modification
thereof, the creation of any fund or account, nor the payment of any
benefits shall be construed as giving any
45
<PAGE> 52
Participant or any other person whomsoever any legal or equitable rights
against any Company or the Trustee unless the same shall be
specifically provided for in this Plan or the Trust Agreement.
14.4 BENEFITS PAYABLE BY TRUST
All benefits payable under the Plan shall be paid or provided for solely
from the Trust, and no Company assumes any liability or responsibility
therefor.
14.5 SAVINGS CLAUSE
This Plan is intended to comply in all respects with all applicable laws
and regulations, including with respect to Company stock as an investment
hereunder, Rule 16b-3 as promulgated by the Securities and Exchange
Commission. In case any one or more provisions of this Plan shall be
held invalid, illegal, or unenforceable in any respect under applicable
laws and regulations, or shall be inconsistent with applicable laws and
regulations (including Rule 16b-3), the invalid, illegal, or
unenforceable provision, or the inconsistent provision, shall be deemed
null and void and shall be construed, interpreted or revised, as
necessary, to permit this Plan to be in compliance with all applicable
laws (including Rule 16b-3) so as to foster the intent of this Plan.
Notwithstanding anything in this Plan to the contrary, those Participants
who are officers or directors for purposes of Section 16 of the
Securities Exchange Act of 1934, as amended from time to time, shall not
be entitled to participate in, or transfer funds into, a U.S. Robotics
Corporation Stock Fund, if such a stock fund is available as a
self-directed investment option under Section 8.4 of the Plan.
14.6 SUCCESSOR TO COMPANY
In the event that any successor to a Company, by merger, consolidation,
purchase, or otherwise, shall elect to adopt the Plan, such successor
shall be substituted hereunder for such Company upon filing in writing
with the Trustee of its election to do so.
14.7 APPLICABLE LAW
The Plan shall be construed and administered in accordance with ERISA,
and any judicial review thereunder shall be governed by the "arbitrary
and capricious" standard of review, as enunciated by case law. To the
extent not preempted by ERISA, the laws of the State of Illinois shall
govern.
14.8 DATA
It shall be a condition precedent to the payment of all benefits under
the Plan that each Participant and surviving spouse must furnish to the
Plan Administrator such documents, evidence, or information as the Plan
Administrator considers necessary or desirable for the purpose of
administering the Plan, or to protect a Company or the Trustee.
14.9 INTERNAL REVENUE SERVICE APPROVAL
This Plan shall be effective as of the Effective Date, provided that the
Company shall obtain a favorable determination letter from the Internal
Revenue Service that this Plan and Trust qualify under Sections 401(a)
and 501(a) of the Code. Any modification or amendment of this Plan may
be made retroactive as necessary or appropriate in order to secure or
maintain such qualification.
46
<PAGE> 53
Dated and Executed: March 28, 1996
U.S. ROBOTICS CORPORATION
By: Elizabeth S. Ryan
Its: Vice President
47
<PAGE> 1
EXHIBIT 11
COMPUTATION OF NET EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -----
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Weighted average common shares outstanding........... 86,681 77,650 70,624
Additional shares assuming exercise of all options
outstanding...................................... 12,619 15,737 15,176
Shares repurchased................................... (4,368) (8,084) (9,432)
-------- ------- -------
Shares used in per share calculations................ 94,932 85,304 76,368
======== ======= =======
Net earnings......................................... $170,020 $65,951 $36,121
======== ======= =======
Net earnings per share............................... $ 1.79 $ .77 $ .47
======== ======= =======
FULLY DILUTED EARNINGS PER SHARE
Weighted average common shares outstanding........... 86,681 77,650 70,624
Additional shares assuming exercise of all options
outstanding ..................................... 13,148 16,022 15,112
Shares repurchased................................... (4,561) (6,994) (9,216)
-------- ------- -------
Shares used in per share calculations................ 95,268 86,678 76,520
======== ======= =======
Net earnings......................................... $170,020 $65,951 $36,121
======== ======= =======
Net earnings per share............................... $ 1.78 $ .76 $ .47
======== ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21
U.S. ROBOTICS CORPORATION
SUBSIDIARIES
SUBSIDIARY JURISDICTION
- ---------- ------------
U.S. Robotics Access Corp. Delaware
Megahertz Holding Inc. Utah
U.S. Robotics Mobile Communications Corp. Utah
52
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated November 4, 1996 with respect to the
consolidated financial statements and schedule of U.S. Robotics Corporation and
Subsidiaries, included in Annual Report on Form 10-K for the year ended
September 29, 1996. We consent to the incorporation by reference of said
reports in the Registration Statements on Form S-8 (Nos. 33-89698, 33-89700,
33-89702, 33-97632, 33-98782 and 333-10955) and in the Registration Statements
on Form S-3 (Nos. 33-86856, 33-98758 and 33-33666).
/s/ GRANT THORNTON LLP
Grant Thornton LLP
Chicago, Illinois
December 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 29, 1996 AND THE CONSOLIDATED STATEMENT
OF EARNINGS FOR THE YEAR ENDED SEPTEMBER 29, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> SEP-29-1996
<CASH> 16,814
<SECURITIES> 0
<RECEIVABLES> 501,613
<ALLOWANCES> 11,573
<INVENTORY> 185,855
<CURRENT-ASSETS> 750,609
<PP&E> 335,957
<DEPRECIATION> 59,366
<TOTAL-ASSETS> 1,067,283
<CURRENT-LIABILITIES> 333,704
<BONDS> 54,044
882
0
<COMMON> 0
<OTHER-SE> 670,988
<TOTAL-LIABILITY-AND-EQUITY> 1,067,283
<SALES> 1,977,512
<TOTAL-REVENUES> 1,977,512
<CGS> 1,149,446
<TOTAL-COSTS> 1,149,446
<OTHER-EXPENSES> 528,739
<LOSS-PROVISION> 7,314
<INTEREST-EXPENSE> 4,995
<INCOME-PRETAX> 301,890
<INCOME-TAX> 131,870
<INCOME-CONTINUING> 170,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,020
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.78
</TABLE>
