-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S/cQ6RdhaUNjVGbYv9yRSmHtk88Sh9WC2eDNei1Yz05SEqu/Y5G2dp3BecCmUWFN N35e2U9bfBh1AaMD37QyIQ== 0000026999-97-000105.txt : 19971218 0000026999-97-000105.hdr.sgml : 19971218 ACCESSION NUMBER: 0000026999-97-000105 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971217 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATA GENERAL CORP CENTRAL INDEX KEY: 0000026999 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 042436397 STATE OF INCORPORATION: DE FISCAL YEAR END: 0925 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07352 FILM NUMBER: 97739532 BUSINESS ADDRESS: STREET 1: 4400 COMPUTER DR CITY: WESTBORO STATE: MA ZIP: 10580 BUSINESS PHONE: 5088985000 MAIL ADDRESS: STREET 1: 4400 COMPUTER DRIVE CITY: WESTBORO STATE: MA ZIP: 10580 10-K 1 FY97 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended September 27, 1997 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________________ to __________________________ Commission File Number 1-7352 ------------------------------ Data General Corporation (Exact name of registrant as specified in its charter) Delaware 04-2436397 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 4400 Computer Drive, Westboro, Massachusetts 01580 - -------------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 898-5000 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 New York Stock Exchange London Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange London Stock Exchange ------------------------------- ----------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None --------------------------------------- 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. Aggregate market value of common stock held by non-affiliates of the registrant, as of December 1, 1997: $894,699,992 Number of shares outstanding of each of the registrant's classes of common stock, as of December 1, 1997: Common Stock, par value $.01 48,691,156 ---------------------------- ----------------- (Title of each class) (Number of shares) Documents incorporated by reference: Parts I and II - Portions of registrant's Annual Report to Stockholders for the year ended September 27, 1997. Part III - Portions of registrant's Proxy Statement dated December 17, 1997. ================================================================================ AViiON, AV Image, CLARiiON, DataGenie, DG/UX, DG/ViiSION, ECLIPSE, and VALiiANT are registered trademarks; Cluster-in-a-Box, Multidimensional Storage Architecture, NTerprise Manager, NUMALiiNE, SiteStak, TeleStor, and THiiN are trademarks; and NT Alert is a service mark of Data General Corporation. All other brand and product names appearing in this publication are trademarks or registered trademarks of their respective holders. PART I Item 1. Business. Data General, incorporated in Delaware on April 15, 1968, designs, manufactures, markets and supports a family of open computer systems including servers and mass storage products. As used herein, the terms "Data General" and the "Company" mean Data General Corporation, and, unless otherwise indicated, its consolidated subsidiaries. The Company's products provide solutions for high-performance customer applications such as database management, transaction processing, decision support, accounting and finance, healthcare information systems, telecommunications and video storage, manufacturing planning and control, human resources management and data warehousing. The Company focuses on providing enterprise-level solutions for businesses of all sizes, healthcare providers and government agencies, and has a worldwide sales, service and support network. Data General, founded as a minicomputer company, has a history of technology leadership in the computer industry. In 1988, the Company recognized the impact which commodity microprocessors would have on proprietary systems and on the overall economics of the computer business. To capitalize on this trend, in 1989 Data General introduced the AViiON(R) line of open systems, and in 1991 the Company brought to market its first high-availability RAID (Redundant Array of Inexpensive Disks) storage systems. During fiscal 1997, AViiON servers and CLARiiON(R) mass storage products constituted approximately 90 percent of the Company's product revenues. Strategy. Data General's objective is to be a worldwide leader in open server and mass storage products. The key elements of the Company's strategy are to: Develop Value-Added and Innovative Systems Technologies. Data General develops value-added and innovative systems technologies to provide a broad spectrum of business-critical, enterprise solutions. The Company believes its competitive position is strengthened by the differentiating features and enhancements that it provides by leveraging its design and engineering competencies with low cost commodity components and subassemblies, world-class manufacturing and the expertise of its suppliers. Maintain Technology Leadership. Data General intends to continue to identify market opportunities and rapidly deliver advanced technological products that provide scalability, connectivity and price/performance advantages. The Company believes that its ability to combine open technologies with its own expertise in advanced systems architecture design, manufacturing processes, project management and product development provides it with a competitive advantage and enables it to be early to market with key products. In 1997 the Company announced next generation technologies, including AViiON NT Cluster-in-a-Box, AV 20000 servers based on Non-Uniform Memory Architecture ("NUMA"), and CLARiiON fibre channel storage systems, to meet the future computing and information access needs of its customers. Utilize Multi-Channel Distribution and Strategic Alliances. The Company plans to continue using multiple channels of distribution to expand its worldwide market for enterprise server and storage solutions. In addition to expanding its direct sales force, the Company intends to continue to leverage and expand its extensive network of value-added resellers and its strong OEM and other third-party distribution relationships such as those with Hewlett Packard, NEC, Silicon Graphics and Storage Technology. Because enterprise customers often seek integrated solutions, Data General has developed relationships with such companies as Intel, Microsoft, Oracle, Informix, PeopleSoft, SAP, Baan, Meditech, and other selected component and software suppliers. Provide Superior Customer Service and Support. Data General intends to continue to provide superior customer service and support. Enterprise customers often require 24-hour, seven-day-a-week support, and prefer a single point of contact to ensure integrated hardware and software support and maintenance. This level of service is often a key factor in selection of a systems vendor. The Company believes that providing comprehensive, responsive service and support gives it a competitive advantage and is a differentiating factor in developing and maintaining customer relationships. Products and Technologies. Server Business AViiON computers function as servers and multi-user systems for a wide variety of applications providing solutions for businesses ranging from departments and small businesses to large commercial enterprises that need high availability systems to support large numbers of users, handle large volumes of transactions and support large databases. The AViiON family of computer systems includes two series: the newest series of AViiON servers, introduced in 1995, based on the Intel microprocessor architecture; and an earlier series, available since 1989, based on Reduced Instruction Set Computing (RISC) microprocessors from Motorola. AViiON now has an installed base of approximately 46,000 systems. In fiscal 1997, revenues from the AViiON family were approximately $527 million. Intel-based AViiON servers presently constitute the majority of AViiON revenues. The Intel-based AViiON product family includes enterprise servers, high-end departmental and PC servers, and desk-side servers. The Company's enterprise servers combine high performance with extensive reliability, availability and serviceability features typically found on larger computers. Together with a scalable and expandable design, these features make AViiON servers suitable platforms for business-critical commercial applications from independent software vendors such as SAP, PeopleSoft and Oracle. These servers support several operating systems and are capable of running more than 15,000 applications from leading suppliers of databases, languages, office automation and industry applications packages. Intel-based AViiON servers support the Microsoft Windows NT Server operating system, the SCO UnixWare System, various other open operating systems, and the DG/UX(R) operating system, Data General's commercial implementation of the UNIX operating system. During 1997, the Company introduced the AV 20000 family of high-performance systems based on Intel Standard High Volume (SHV) server boards and NUMA architecture. This class of product extends the high end of the AViiON product line and enables customers to capitalize on their existing investments in applications written for SMP (symmetric multiprocessing) systems. AV 20000 systems are sold by the Data General sales force and are also expected to be marketed through OEM relationships. Data General also is developing the THiiN(TM) Line, a new family of products for the Internet. THiiN Line servers are being designed to function in two key areas: Information Servers and Thin Servers. Information servers are single-function devices optimized to perform various Internet tasks, such as to dispatch HTML pages, to meet electronic commerce needs, or to run specific applications. Data General's first information server, the SiteStak TW-500, began shipping to customers in October 1997. These devices are being designed to function as connectivity gateways and file servers for groups of clients--laptops, PCs, thin clients, or other Internet appliances. THiiN servers are expected to be available in 1998. Data General also sells a wide variety of peripheral equipment for use with its computers. Peripheral equipment sold by the Company includes video display terminals, printers, plotters, communication controllers, multiplexors, disk storage, memory, magnetic tape equipment, analog-to-digital converters and digital-to-analog converters. The Company also manufactures peripheral controller subassemblies and related electronics for connecting its computers to standard data communication equipment and computer systems manufactured by others. Data General also designs and manufactures peripheral controller subassemblies for use with electromechanical peripheral equipment it purchases from third parties. The total purchase price of any computer system varies depending upon the processing power, size of main memory and storage capacity, and upon the types and quantities of accessory, peripheral controller subassembly, and peripheral equipment ordered. Prices of the Company's various products range from less than $500 to over $1,000,000. Dollar volume discounts are offered on most products sold by the Company. The Company's new products and revisions to existing products have typically resulted in improved price/performance ratios for its customers. AViiON servers and related systems, including personal computers and earlier generation ECLIPSE MV computers, represented 42% of consolidated total revenues for the fiscal year ended September 27, 1997, 43% of consolidated total revenues for the fiscal year ended September 28, 1996, and 49% of consolidated total revenues for the year ended September 30, 1995. Storage Business CLARiiON supports a wide range of open systems computing platforms with a broad family of storage products ranging from disk arrays for the PC/local area network market to high-capacity, high-availability arrays for enterprise storage applications. CLARiiON mass storage disk arrays support the UNIX operating system, Windows NT Server, SCO UnixWare and OS/2, as well as Novell NetWare. CLARiiON products operate on a wide range of open systems computing platforms, including systems from IBM, Digital Equipment, Sun Microsystems, Hewlett Packard, Sequent and Silicon Graphics. The majority of CLARiiON revenues are derived through OEM relationships with major systems vendors and storage suppliers. However, CLARiiON products are also sold through systems integrators and distributors. Approximately 56,000 CLARiiON systems have been shipped since 1991. During 1997, the Company introduced and began delivering a new generation of CLARiiON products based on "fibre channel" technology. Fibre channel technology has distinct advantages over SCSI technology, which is used in the existing generation of CLARiiON and competitive storage systems. Fibre channel advantages include increased bandwidth, enabling the movement of up to five times as much data, and greater scalability, permitting use of much larger disk arrays. Fibre channel technology will also allow a significant increase in the permitted distance between servers and CLARiiON storage devices. Data General believes that fibre channel-based CLARiiON products will provide the Company with opportunities for incremental revenues with existing customers as the new fibre channel architecture emerges to complement existing SCSI products. The Company believes that fibre channel technology also will permit the Company to pursue new applications and to expand its sales into new markets such as telecommunications and video. Storage revenues represented 33% of consolidated total revenues for the fiscal year ended September 27, 1997, 27% of consolidated total revenues for the fiscal year ended September 28, 1996, and 16% of consolidated total revenues for the year ended September 30, 1995. Contract Manufacturing Data General also has formed the VALiiANT(SM) Business Unit, a contract manufacturing operation, to take advantage of the Company's world class manufacturing expertise and facilities. Data General was the first U.S. computer company to have its worldwide manufacturing operations gain ISO 9000 certification. By leveraging its existing manufacturing facilities, the Company believes VALiiANT provides Data General with an opportunity to realize incremental revenues and profits. Services. Data General offers services and support in three primary areas: customer service, professional services and customer training. Customer services consist of maintenance of computer and computer peripheral products, on both a contract and time-and-materials basis. The Company's professional services focus on providing customer-specific solutions, such as the development of specialized applications, configuration and installation of computer and network systems and applications, and system migration, rehosting, and database implementation. The Company also offers over 250 course titles of basic and advanced information technology training. The Company extends a limited service and/or parts warranty on substantially all equipment sold and offers several types of maintenance services and contracts at additional charges. Warranty and other maintenance services are generally performed by service employees located in various offices throughout the world. The Company offers a mail-in parts exchange and repair service and a cooperative maintenance program for qualified organizations, VARs, and other customers capable of performing maintenance services. The cooperative program includes spare parts, back-up support, depot service, diagnostics, training, documentation, tools and test equipment, and service planning and support. Data General supports thousands of products made by other vendors. The Company also offers an On-line Information Service, which provides customers with immediate access to support information and personnel. The majority of the Company's service revenues are related to the Company's AViiON systems business. Service revenues represented 25% of consolidated total revenues for the fiscal year ended September 27, 1997, 30% of consolidated total revenues for the fiscal year ended September 28, 1996, and 35% of consolidated total revenues for the year ended September 30, 1995. Marketing and Distribution. The Company uses multiple distribution channels, including direct sales, mass merchandising, reseller channels, and OEM sales. Sales divisions are structured to cover the following major geographic areas: the United States, Europe, Asia/Pacific, Canada and Latin America. The Company also has a sales division dedicated to the healthcare market. The Company sells its AViiON systems directly to end users by its sales force of approximately 900 sales representatives and systems engineers. In addition the Company uses indirect channels such as systems integrators, software suppliers, distributors and industry-specific VARs to broaden sales of its AViiON products into many specialized markets. The Company's CLARiiON Business Unit uses primarily third-party distribution channels such as OEMs, distributors and VARs. Major customers include Hewlett Packard, NEC, Sequent, Silicon Graphics, and Storage Technology. The Company provides lease financing through various leasing and financing programs arranged with third parties. Data General Leasing provides flexible financing programs for all Data General products, as well as third party hardware, software and services. These programs are available worldwide for resellers, distributors and end users. The largest single customer during fiscal 1997 was Hewlett-Packard, which purchases primarily CLARiiON storage systems for resale to its customers. Hewlett-Packard accounted for 16% of consolidated total revenues in fiscal 1997. The Company did not have any other customers with revenues exceeding 10% of the Company's consolidated total revenues during fiscal 1997. The Company's business is not subject to any unusual seasonal fluctuations. The Company generally attempts to minimize the time from receipt of a customer's order to shipment and virtually no orders are booked with shipment dates in excess of one year from the date of order. As the Company's product mix has shifted more towards industry-standard systems, the average time from order date to shipment date has decreased. In addition, a substantial portion of the orders received by the Company are subject to cancellation without significant penalty, at the option of the customer at any time prior to shipment. Therefore, the Company believes that disclosure of its backlog is not material to an understanding of the Company's business. Organization and Structure. The Company's Worldwide Sales operations are responsible for direct sales, mass merchandising, and reseller channels. Sales divisions are structured to cover the following major geographic areas: the United States, Europe, Asia, the Pacific Rim, Canada, and Latin America. The Worldwide Healthcare Division is responsible for sales and marketing activities in the healthcare market. The Company's AViiON Marketing activities are focused on providing enterprise software solutions. The CLARiiON Business Unit is responsible for development and marketing of the Company's CLARiiON family of open mass storage products. The THiiN Line Business Unit is responsible for development and marketing of Internet appliances, including thin servers, network attached storage, and information servers. The Services organization encompasses Customer Service (the Customer Support Center, field engineering and other technical services); Professional Services, which provides customers worldwide with complete services to design, implement, and support commercial computing environments; Business Practices aimed at supporting specific markets; and Educational Services. Manufacturing and Corporate Quality is responsible for producing Data General systems; for procuring associated components, subassemblies, peripherals, and various other products which are incorporated into Data General systems or sold under the Data General label; for the operation of the VALiiANT contract manufacturing business unit; and for overall corporate quality assurance. The Finance and Administration organization includes the Controller, the Treasurer, Information Management, Legal, Investor Relations, Property Management, Customer Order Fulfillment, and Human Resources functions. Raw Materials. Data General's manufacturing operations employ a wide variety of mechanical and electronic components, raw materials and other supplies. In the design of its products, the Company routinely attempts to utilize multiple-sourced components. However, in some instances, the Company selectively uses sole-sourced components, such as custom microprocessors and gate arrays, in order to achieve desired system performance. These components are typically based on the manufacturer's proprietary underlying process technology. In a few instances, the Company is dependent upon certain vendors for the manufacture of significant components of its server and mass storage systems. If these vendors were to become unwilling or unable to continue to manufacture these products in required volumes, the Company would have to identify and qualify acceptable alternative vendors. The inability to develop alternate sources, if required in the future, could result in delays or reductions in product shipments. With respect to sole-sourced materials, the Company has not experienced any problems relative to the timeliness of product availability or quality matters. Patents. In November 1994 and in May 1996, the Company commenced patent infringement litigation against International Business Machines Corporation charging infringement of certain of the Company's patents (see "Item 3. Legal Proceedings", below). Although the Company believes its claims are valid, it cannot predict the outcome of the litigation. Should the Company prevail in the litigation, such patents could play a significant role in the conduct of its business and accordingly would be material. The Company believes that most of its remaining patents do not presently play a significant role in the conduct of its business or in its industry in general and most patents, granted or which may be granted to it, while anticipated to be of value, are not expected to be of material significance. The Company also owns certain copyrights, trademarks and proprietary information. From time to time, companies in the industry have claimed that products and components similar to those manufactured by the Company are covered by valid patents held by others. It may be necessary or desirable to obtain further patent licenses in addition to those which the Company now holds. Although there is no assurance that such additional patent licenses could be obtained, the Company is of the opinion, based on industry practice and information presently available, that such licenses could be obtained and on terms which would not have a material effect on the Company's consolidated financial position or results of operations. Competition. The computer industry has been characterized by rapid technological change, product improvement, and price reductions. During fiscal 1997, the Company experienced revenue growth in the U.S., Europe, and in other geographical areas. Product revenues increased 24%, driven by growth in the Intel-based AViiON server line, and continuing growth in the CLARiiON line of mass storage devices. The Company believes that the transition to Intel-based AViiON servers is progressing smoothly. Data General's future may be adversely affected by new technology developed by others or by price reductions initiated by competitors. Some of the Company's competitors are larger companies and have substantially greater resources than the Company. The Company also competes with a number of smaller manufacturers. The Company believes that it is a significant manufacturer of multi-user computer systems, servers, and mass storage devices for commercial applications. The Company's AViiON systems have become increasingly competitive since they were introduced in fiscal 1989, as more applications were ported to the platform and new product introductions added to the depth of the product family. The Company believes its AViiON systems compete favorably with standards-based systems from other industry-leading vendors based upon a wide range of features and performance, including high availability and clustering; the ability to run multiple operating systems, including Windows NT Server, the Company's DG/UX operating system, and SCO UnixWare; and the availability of an extensive range of applications software. The Company believes its AViiON systems also compete favorably as a result of their ability to connect with a variety of desktop systems manufactured by the Company and by other vendors. The Company's worldwide service and support capability, which includes service for certain products manufactured by other vendors (such as PCs and workstations), also enhances the competitive strength of the Company's product families. The Company believes that its CLARiiON product was the first open, RAID-based mass storage product. This product supports UNIX-based computers from IBM, Digital Equipment Corporation, Sun Microsystems, Hewlett-Packard, Sequent Computer Systems, Inc. and Silicon Graphics, Inc., as well as with systems running on Novell NetWare, NT, and DG/UX. The Company believes it is a leader in developing fibre channel-based storage products. Research and Development. The Company believes that if it is to compete successfully in the industry it will require a continuing commitment to research and development. Research and development expenses were $110.0 million in fiscal 1997, $98.0 million in fiscal 1996, and $85.9 million in fiscal 1995. Gross expenditures on research and development and software development in fiscal 1997, before capitalization, increased 14% compared to fiscal 1996. Research and development work contracted to third parties during fiscal 1997 was insignificant. During fiscal 1997, the Company focused its research and development efforts on its core business technology, multi-user computer systems, servers, and mass storage devices, including related software and services. This includes development work on systems based on NUMA architecture for high-end computer systems, fibre channel storage, and work on servers and storage systems for future Internet applications. Continued emphasis on applied research and development programs is anticipated in order to improve existing products and to expand product line capabilities. Research and development work is done primarily in the following areas: general purpose computer systems; open mass storage devices; systems and applications software; integrated circuit technology; network services and products; and contracted special product design. Environmental Conditions. The Company's various manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, particularly from plant wastes and emissions. In the Company's opinion, it is in material compliance with such laws and regulations. Compliance has not had, and is not expected to have, a material effect upon the Company's capital expenditures, results of operations, or competitive position. Employees. The Company had approximately 5,100 employees as of September 27, 1997, compared with 4,900 employees as of September 28, 1996, and 5,000 employees as of September 30, 1995. The Company's employees are not covered under any collective bargaining agreements, and the Company has not experienced any significant labor problems. The Company believes that its relationship with its employees is good. International Operations. Foreign business is conducted through Company owned subsidiaries and through a network of representatives and distributors. International revenues, including U.S. direct export sales, amounted to approximately 37% of consolidated total revenues in fiscal 1997, and 40% and 45% of consolidated total revenues in fiscal 1996 and 1995, respectively. The majority of Data General's international revenues are derived from western Europe, Asia and Canada. In view of the locations and diversification of its international activities, the Company does not believe that there are any special risks beyond the normal business risks attendant to activities abroad. The Company maintains a hedging program to minimize its exposure to foreign currency fluctuations. Additional information relating to the Company's international operations, including financial information by major geographic area, is included in "Note 12. Geographic Segment Data" on page 33 of the Company's Annual Report to Stockholders for the fiscal year ended September 27, 1997. RISK FACTORS This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual results could differ materially from those projected or contemplated in the forward-looking statements as a result of certain of the risk factors set forth below and incorporated by reference in this Report. In addition to the other information contained and incorporated by reference in this Report, the following risk factors should be considered carefully in evaluating the Company and its business. Changing Technologies. To compete effectively in the server and mass storage markets, the Company must continue to introduce new products and features that address the needs and preferences of its target markets. The server and storage markets are characterized by short development cycles that are driven by rapidly changing technology as well as declining product prices. There can be no assurance that the Company will be able to continue to introduce new competitively priced products, that the market will be receptive to its products or features, or that competitors will not introduce advancements ahead of Data General. Furthermore, there can be no assurance that the Company will develop or have access to new competitive technology to permit it to introduce new products and features for its target markets. In addition, the Company must make strategic decisions from time to time as to which new technologies will result in products for sale to markets that will experience future growth, and must form and maintain strategic alliances for the design and marketing of its products. If the Company is not successful in continuing to introduce new products in the growing segments of the market or in forming and maintaining critical strategic relationships, there could be a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Suppliers. Certain components and products that meet the Company's requirements are available only from a limited number of suppliers. Among those components are disk drives, microprocessors and certain proprietary integrated circuits. The Company purchases each of these components from a single supplier or a small number of qualified suppliers. The rapid rate of technological change, and the necessity of developing and manufacturing products with short life-cycles may intensify these risks. The inability to obtain components and products as required, or to develop alternative sources if and as required in the future, could result in delays or reductions in product shipments, which in turn could have a material adverse effect on the Company's business, financial condition and results of operations. Indirect Channels of Distribution. Substantially all of the Company's CLARiiON sales, and a significant portion of the Company's AViiON sales, are derived from reseller and OEM channels. A single OEM channel customer during fiscal 1997 accounted for approximately 16% of the Company's consolidated revenues. The Company's financial results could be adversely affected if this customer or any other material reseller or OEM were to substantially decrease its orders, or change configurations, or terminate its relationship with the Company. Further, the utilization of indirect channels of distribution tends to limit the Company's ability to predict customer orders. Concentrated Manufacturing Operations. Over the last several years, the Company has consolidated its various manufacturing operations into three facilities. As a result of this consolidation, most of the Company's assembly, test, systems integration, and distribution operations are performed at its Apex, North Carolina and Southborough, Massachusetts facilities. The Company's ability to ship products and the Company's business, financial condition and results of operations could be adversely affected were the Apex or Southborough facilities not able to operate at required levels. Capitalization of Software Development Costs. The Company has made and continues to make significant investments in software development efforts. The amount of expenditures that qualify for capitalization under SFAS 86 (Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed) may vary from period to period as software projects progress through the development life-cycle. These variations could impact the Company's operating results in any given period. Unamortized software development costs were $77 million at September 27, 1997. If technological developments or other factors were to jeopardize the realizability of such assets, the Company could be required to write off all or a substantial portion of such capitalized values, which would have a material adverse effect on the Company's results of operations for the period in which the write-off occurred. Item 2. Properties. The Company's executive offices are located in Westborough, Massachusetts. Manufacturing, research and development, service, marketing, and administrative support facilities are located in various states and countries throughout the world. All buildings are modern, air conditioned, and suitable and adequate for the present activities of the Company. Substantially all manufacturing equipment is owned by the Company and is well maintained. Additional information regarding the Company's principal plants and properties is included under the heading "Facilities" on page 35 of the Company's Annual Report to Stockholders for the fiscal year ended September 27, 1997. Item 3. Legal Proceedings. The Company has been engaged in patent infringement litigation against IBM Corporation since November 1994. Two lawsuits, both in the discovery stages, are pending in the United States District Court for the District of Massachusetts in Worcester. The Company alleges that several IBM products including the AS/400 midrange systems and the AS/400 RISC-based computer product line infringe various Company's patents. Both suits seek compensatory damages and, where appropriate, injunctive relief. IBM has answered both complaints, has denied the Company's infringement claims and has interposed counterclaims alleging that the Company's AViiON and CLARiiON computer systems infringe IBM patents. Although the Company believes its claims are valid, it cannot predict the outcome of the litigation. In the opinion of management, based on preliminary evaluation of the IBM patents covered in the counterclaims and subject to the risks of litigation, the counterclaims are without merit, the Company will prevail thereon and the counterclaims will not have a material adverse impact on the results of operations or the financial position of the Company. The Company and certain of its subsidiaries are involved in various other patent infringement, contractual, and proprietary rights suits. In the opinion of management, the conclusion of these suits will not have a material adverse effect on the financial position or results of operations and cash flows of the Company and its subsidiaries. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Executive Officers of the Registrant. Frederick R. Adler(1), Age 71, Chairman of the Executive Committee of the Board of Directors since July 1982; Managing General Partner of Adler & Company, a venture capital investment firm, and a general partner of its related investment funds for more than five years; of counsel to Fulbright & Jaworski L.L.P., Attorneys, and until December 1995, Senior Partner of such firm. Ronald L. Skates(1), Age 56, President and Chief Executive Officer of the Company since November 1989; Executive Vice President and Chief Operating Officer of the Company from August 1988 to November 1989; Senior Vice President of the Company from November 1986 to August 1988; Chief Financial Officer of the Company from November 1986 to August 1987; Partner, Price Waterhouse from July 1976 to November 1986. J. Thomas West, Age 58, Senior Vice President of the Company since November 1988; Vice President of the Company from September 1983 to November 1988. Effective January 1, 1998, Mr. West will reduce his day-to-day involvement with the Company and begin a new position as a technology consultant. In this capacity he will maintain an exclusive consulting relationship with Data General and continue to provide advice and guidance on technology direction. William J. Cunningham, Age 59, Senior Vice President of the Company since November 6, 1996; Vice President of the Company from August 1989 to October 1996; prior positions at Apollo Computer Inc. included Vice President and General Manager, Manufacturing and Research and Development, from October 1988 to June 1989; and Vice President and General Manager, Manufacturing and Distribution, from September 1987 to September 1988; Vice President, U.S. Manufacturing, for Honeywell Bull from March 1986 to September 1987. Arthur W. DeMelle, Age 57, Senior Vice President of the Company since November 6, 1996; Vice President of the Company from March 1992 to October 1996 and Chief Financial Officer of the Company since March 1992; prior positions included Senior Vice President of Finance and Administration at Chep USA from November 1989 to March 1992; Executive Vice President and Chief Financial Officer at Emery Air Freight Corporation from April 1987 to May 1989; and Executive Vice President and Chief Financial Officer at Purolator Courier Corporation from July 1980 to April 1987. Joel Schwartz, Age 55, Senior Vice President of the Company since November 6, 1996; Vice President of the Company from February 1989 to October 1996; President and Chief Operating Officer of Polygen Corp. from August 1986 to February 1989. William L. Wilson, Age 53, Senior Vice President of the Company since November 6, 1996; Vice President of the Company from March 1994 to October 1996; prior positions with International Business Machines Corporation including Assistant General Manager for Marketing - Enterprise Systems from 1992 to 1993, General Manager of IBM's Integrated Systems Solutions Corporation (ISSC) from 1990 to 1992, and Marketing and Sales Director for U.S. Marketing Services from 1989 to 1990. Executive officers of the Company are elected annually and hold office until the first meeting of the Board of Directors following the Annual Meeting of Stockholders or until their successors have been elected and have duly qualified. (1) Member of Board of Directors and Executive Committee thereof. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information contained under the headings "Stock Price Range" on page 34; and "Number of Stockholders," "Dividend Policy," and "Stock Exchange Listing" on page 37 of the Company's Annual Report to Stockholders for the fiscal year ended September 27, 1997 is incorporated herein by reference. Item 6. Selected Financial Data. The information contained under the heading "Five Year Summary of Selected Financial Data" on page 14 of the Company's Annual Report to Stockholders for the fiscal year ended September 27, 1997 is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information contained under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 15 through 19 of the Company's Annual Report to Stockholders for the fiscal year ended September 27, 1997 is incorporated herein by reference. This information should be read in conjunction with the related consolidated financial statements incorporated by reference under Item 8. Item 8. Financial Statements and Supplementary Data. The information contained in the consolidated financial statements, notes to consolidated financial statements, and report of independent accountants, under the heading "Quarterly Financial Data (Unaudited)," and "Facilities," on pages 20 through 35 of the Company's Annual Report to Stockholders for the fiscal year ended September 27, 1997 is incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information contained under the heading "Proposal No. 1 - Election of Seven Directors" on pages 4 through 7 of the Company's Proxy Statement dated December 17, 1997 is incorporated herein by reference. See also "Executive Officers of the Registrant" appearing in Part I hereof. Item 11. Executive Compensation. The information contained under the headings "Summary Compensation Table", "Option Grants in the 1997 Fiscal Year", "Option Exercises in the 1997 Fiscal Year and 1997 Fiscal Year-End Option Values", "Compensation Pursuant to Plans", "Employee Agreements" and "Compensation of Directors" on pages 8 through 18 of the Company's Proxy Statement dated December 17, 1997 is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information contained under the heading "Beneficial Ownership of Common Stock" and in the second paragraph and related table under the heading "Proposal No. 1 - Election of Seven Directors" on pages 2 through 5 of the Company's Proxy Statement dated December 17, 1997 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. Not applicable. PART IV Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K. (a) 1 and 2. Index to financial statements and related schedule: Page Five-year summary of selected financial data............................... 14* Management's discussion and analysis of financial condition and results of operations....................................................... 15-19* Consolidated balance sheets at September 27, 1997 and September 28, 1996.. 21* For fiscal years ended September 27, 1997, September 28, 1996, and September 30, 1995: Consolidated statements of operations............................ 20* Consolidated statements of cash flows............................ 22* Consolidated statements of stockholders' equity.................. 23* Notes to consolidated financial statements............................ 24-33* Report of independent accountants.......................................... 34* Supplemental financial information......................................... 34* Facilities................................................................. 35* Report of independent accountants on financial statement schedules......... 23 Financial statement schedule: Schedule II - Valuation and qualifying accounts.................. 24 The financial statement schedule should be read in conjunction with the financial statements in the 1997 Annual Report to Stockholders. All other schedules have been omitted as they are not applicable, not required, or the information is included in the consolidated financial statements or notes thereto. - ---------------------- * Page references are to the 1997 Annual Report to Stockholders. The 1997 Annual Report to Stockholders is not to be deemed filed as part of this Report except for those parts thereof specifically incorporated by reference into this Report. EXHIBITS 3. (a) Restated Certificate of Incorporation of the Company, as amended, including the Company's Certificate of Designation dated October 17, 1986, previously filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 1986, which is incorporated herein by reference. (b) Amendment to Certificate of Incorporation of the Company, filed January 29, 1987, previously filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1987, which is incorporated herein by reference. (c) By-Laws of the Company, as amended. 4. (a) Rights Agreement Renewed and Restated as of October 19, 1996 between the Company and The Bank of New York, as Rights Agent, previously filed on June 27, 1996, as Exhibit 1 to the Company's Amendment to Registration Statement on Form 8-A/A, which is incorporated herein by reference. (b) Indenture, dated as of May 21, 1997, between the Company and The Bank of New York, previously filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, which is incorporated herein by reference. (c) Registration Rights Agreement dated as of May 15, 1997, between and among the Company and Morgan Stanley and Co. Incorporated and Dillon, Read & Co. Inc. previously filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, which is incorporated herein by reference. 10. (a) Restricted Stock Option Plan, Appendix A to the prospectus included in the Company's Registration Statement on Form S-8, Registration Number 33-19759, which is incorporated herein by reference. (b) Forms of Restricted Stock Option Agreement, previously filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, which is incorporated herein by reference. (c) Form of Amendment to Restricted Stock Option Agreement, previously filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (d) Form of Amendments to Key Executive Restricted Stock Option Agreements, previously filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (e) Form of Amended and Restated Restricted Stock Option Agreement, between the Company and Ronald L. Skates, previously filed as Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (f) Form of Amendment to Restricted Stock Option Agreements, between the Company and Frederick R. Adler, previously filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (g) Amendment to Restricted and Employee Incentive Stock Option Agreements, between the Company and Ronald L. Skates, dated November 14, 1988, previously filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, which is incorporated herein by reference. (h) Forms of Incentive Stock Option Agreement, previously filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1987, which is incorporated herein by reference. (i) Form of Amendment to Employee Incentive Stock Option Agreement, previously filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (j) Form of Amended and Restated Employee Stock Option Agreement, between the Company and Ronald L. Skates, previously filed as Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (k) Form of Amendments to Key Executive Stock Option Agreements, previously filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (l) Non-Employee Director Restricted Stock Option Plan, Appendix A to the prospectus included in the Company's Registration Statement on Form S-8, Registration Number 2-91481, which is incorporated herein by reference. (m) Form of Non-Employee Director Restricted Stock Option Agreement, previously filed as Exhibit 10(n) to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, which is incorporated herein by reference. (n) Form of Employment Agreements between the Company and its full-time officers, previously filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (o) Form of Amendment dated September 1, 1993, to various Employment Agreements between the Company and its full-time officers, previously filed as Exhibit 10(u) to the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, which is incorporated herein by reference. (p) Form of Indemnity Agreement between the Company and its officers and directors, previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1987, which is incorporated herein by reference. (q) Data General Corporation Supplemental Retirement Benefit Plan dated as of October 1, 1989, between the Company and its highly compensated employees, previously filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (r) Form of Supplemental Pension and Retiree Medical Agreement dated as of December 7, 1994, between the Company and its current President and Chief Executive Officer, previously filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (s) 1994 Non-Employee Director Stock Option Plan, Appendix A to the prospectus included in the Company's Registration Statement on Form S-8, Registration Number 33-53039, which is incorporated herein by reference. (t) Form of 1994 Non-Employee Director Stock Option Agreement, previously filed as Exhibit 10(bb) to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (u) Form of Letter of Credit and Reimbursement Agreement dated as of December 21, 1994, previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 24, 1994, which is incorporated herein by reference. (v) Employee Qualified Stock Purchase Plan, previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration Number 333-31159, which is incorporated herein by reference. (w) Employee Stock Option Plan, Appendix A to the prospectus included in the Company's Registration Statement on Form S-8, Registration Number 33-58237, which is incorporated herein by reference. (x) Amendment dated October 9, 1995 to Letter of Credit and Reimbursement Agreement, changing the Consolidated Tangible Net Worth limitation, previously filed as Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, which is incorporated herein by reference. (y) Amendment dated December 10, 1995 to Letter of Credit and Reimbursement Agreement, previously filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1996, which is incorporated herein by reference. (z) Summary of 1997 Fiscal Year Bonus Opportunity for Chief Executive Officer, previously filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 28, 1996, which is incorporated herein by reference. (aa) Amendment dated December 11, 1996 to Letter of Credit and Reimbursement Agreement, previously filed as Exhibit 10(bb) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 28, 1996, which is incorporated herein by reference. (bb) Amendment dated April 18, 1997 to Letter of Credit and Reimbursement Agreement, previously filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997, which is incorporated herein by reference. (cc) Amendment dated May 19, 1997 to Letter of Credit and Reimbursement Agreement, previously filed as Exhibit 10(dd) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, which is incorporated herein by reference. (dd) Stock Compensation Plan for Non-Employee Directors, previously filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8, Registration Number 333-31159, which is incorporated herein by reference. (ee) Credit agreement dated September 30, 1997 between the Company and NationsBank of Texas, N.A. (ff) 1997 Non-Officer Employee Stock Option Plan. (gg) Form of 1997 Non-Officer Employee Stock Option Plan Agreement. 11. Computation of primary and fully diluted earnings per share. 13. Annual report to stockholders for the fiscal year ended September 27, 1997, certain portions of which have been incorporated herein by reference. 21. Subsidiaries of the registrant. 23. Consent of independent accountants. Exhibits, other than those incorporated by reference, have been included in copies of this Report filed with the Securities and Exchange Commission. Stockholders of the Company will be provided with copies of these exhibits upon written request to the Company. (b) Reports on Form 8-K The Company filed a report on Form 8-K on May 15, 1997, which included a copy of a press release regarding the sale of $212.8 million of 6% Convertible Subordinated Notes due 2004 and the retirement of $23 million of 8 3/8% Sinking Fund Debentures due 2002. The Company filed a report on Form 8-K on July 21, 1997, which included a copy of a press release regarding the retirement of $125 million of 7 3/4% Convertible Subordinated Debentures due 2001. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATA GENERAL CORPORATION (Registrant) By:/s/ Ronald L. Skates -------------------------------- Ronald L. Skates President and Chief Executive Officer December 17, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Ronald L. Skates President and Chief - -------------------------------- Executive Officer; Ronald L. Skates Director December 17, 1997 /s/ Frederick R. Adler Chairman of Executive - -------------------------------- Committee of Board of Frederick R. Adler Directors; Director December 17, 1997 /s/ Jeffrey M. Cunningham Director December 17, 1997 - -------------------------------- Jeffrey M. Cunningham /s/ Arthur W. DeMelle Senior Vice President; - -------------------------------- Chief Financial Officer; December 17, 1997 Arthur W. DeMelle Chief Accounting Officer /s/ Ferdinand Colloredo-Mansfeld Director December 17, 1997 - -------------------------------- Ferdinand Colloredo-Mansfeld /s/ Donald H. Trautlein Director December 17, 1997 - -------------------------------- Donald H. Trautlein /s/ Richard L. Tucker Director December 17, 1997 - -------------------------------- Richard L. Tucker /s/ W. Nicholas Thorndike Director December 17, 1997 - -------------------------------- W. Nicholas Thorndike DATA GENERAL CORPORATION REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Data General Corporation Our audits of the consolidated financial statements referred to in our report dated October 29, 1997 appearing on page 34 of the 1997 Annual Report to Stockholders of Data General Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE LLP Boston, Massachusetts October 29, 1997
SCHEDULE II DATA GENERAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance at Previous End Balance at Description of Year Additions Deductions End of Year - ---------------------------------- ------------ --------- ---------- ----------- SEPTEMBER 27, 1997 Allowance for doubtful accounts . . . . . . . . . . $ 14,480 $ 11,211(a) $ (9,103)(b) $ 16,588 Valuation allowance on deferred tax asset (c) . . . 204,017 11,504 (20,450) 195,071 SEPTEMBER 28, 1996 Allowance for doubtful accounts . . . . . . . . . . 14,079 10,276(a) (9,875)(b) 14,480 Valuation allowance on deferred tax asset (c) . . . 201,255 19,827 (17,065) 204,017 SEPTEMBER 30, 1995 Allowance for doubtful accounts . . . . . . . . . . 13,752 10,197(a) (9,870)(b) 14,079 Valuation allowance on deferred tax asset (c) . . . 209,936 1,008 (9,689) 201,255 - ------------------------------------------------------------------------------------------------------------------------------ (a) Charged to costs and expenses. (b) Accounts deemed uncollectable. (c) SFAS 109 "Accounting for Income Taxes" adopted September 26, 1993.
EXHIBITS Index to Exhibits. 3. (a) Restated Certificate of Incorporation of the Company, as amended, including the Company's Certificate of Designation dated October 17, 1986, previously filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 1986, which is incorporated herein by reference. (b) Amendment to Certificate of Incorporation of the Company, filed January 29, 1987, previously filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1987, which is incorporated herein by reference. (c) By-Laws of the Company, as amended. 4. (a) Rights Agreement Renewed and Restated as of October 19, 1996 between the Company and The Bank of New York, as Rights Agent, previously filed on June 27, 1996, as Exhibit 1 to the Company's Amendment to Registration Statement on Form 8-A/A, which is incorporated herein by reference. (b) Indenture, dated as of May 21, 1997, between the Company and The Bank of New York, previously filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, which is incorporated herein by reference. (c) Registration Rights Agreement dated as of May 15, 1997, between and among the Company and Morgan Stanley and Co. Incorporated and Dillon, Read & Co. Inc. previously filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, which is incorporated herein by reference. 10. (a) Restricted Stock Option Plan, Appendix A to the prospectus included in the Company's Registration Statement on Form S-8, Registration Number 33-19759, which is incorporated herein by reference. (b) Forms of Restricted Stock Option Agreement, previously filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, which is incorporated herein by reference. (c) Form of Amendment to Restricted Stock Option Agreement, previously filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (d) Form of Amendments to Key Executive Restricted Stock Option Agreements, previously filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (e) Form of Amended and Restated Restricted Stock Option Agreement, between the Company and Ronald L. Skates, previously filed as Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (f) Form of Amendment to Restricted Stock Option Agreements, between the Company and Frederick R. Adler, previously filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (g) Amendment to Restricted and Employee Incentive Stock Option Agreements, between the Company and Ronald L. Skates, dated November 14, 1988, previously filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, which is incorporated herein by reference. (h) Forms of Incentive Stock Option Agreement, previously filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1987, which is incorporated herein by reference. (i) Form of Amendment to Employee Incentive Stock Option Agreement, previously filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1988, which is incorporated herein by reference. (j) Form of Amended and Restated Employee Stock Option Agreement, between the Company and Ronald L. Skates, previously filed as Exhibit 10(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (k) Form of Amendments to Key Executive Stock Option Agreements, previously filed as Exhibit 10(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (l) Non-Employee Director Restricted Stock Option Plan, Appendix A to the prospectus included in the Company's Registration Statement on Form S-8, Registration Number 2-91481, which is incorporated herein by reference. (m) Form of Non-Employee Director Restricted Stock Option Agreement, previously filed as Exhibit 10(n) to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, which is incorporated herein by reference. (n) Form of Employment Agreements between the Company and its full-time officers, previously filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 25, 1989, which is incorporated herein by reference. (o) Form of Amendment dated September 1, 1993, to various Employment Agreements between the Company and its full-time officers, previously filed as Exhibit 10(u) to the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, which is incorporated herein by reference. (p) Form of Indemnity Agreement between the Company and its officers and directors, previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 1987, which is incorporated herein by reference. (q) Data General Corporation Supplemental Retirement Benefit Plan dated as of October 1, 1989, between the Company and its highly compensated employees, previously filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (r) Form of Supplemental Pension and Retiree Medical Agreement dated as of December 7, 1994, between the Company and its current President and Chief Executive Officer, previously filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (s) 1994 Non-Employee Director Stock Option Plan, Appendix A to the prospectus included in the Company's Registration Statement on Form S-8, Registration Number 33-53039, which is incorporated herein by reference. (t) Form of 1994 Non-Employee Director Stock Option Agreement, previously filed as Exhibit 10(bb) to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, which is incorporated herein by reference. (u) Form of Letter of Credit and Reimbursement Agreement dated as of December 21, 1994, previously filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 24, 1994, which is incorporated herein by reference. (v) Employee Qualified Stock Purchase Plan, previously filed as Exhibit 4.1 to the Company's Registration Statement on Form S-8, Registration Number 333-31159, which is incorporated herein by reference. (w) Employee Stock Option Plan, Appendix A to the prospectus included in the Company's Registration Statement on Form S-8, Registration Number 33-58237, which is incorporated herein by reference. (x) Amendment dated October 9, 1995 to Letter of Credit and Reimbursement Agreement, changing the Consolidated Tangible Net Worth limitation, previously filed as Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, which is incorporated herein by reference. (y) Amendment dated December 10, 1995 to Letter of Credit and Reimbursement Agreement, previously filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1996, which is incorporated herein by reference. (z) Summary of 1997 Fiscal Year Bonus Opportunity for Chief Executive Officer, previously filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 28, 1996, which is incorporated herein by reference. (aa) Amendment dated December 11, 1996 to Letter of Credit and Reimbursement Agreement, previously filed as Exhibit 10(bb) to the Company's Quarterly Report on Form 10-Q for the quarter ended December 28, 1996, which is incorporated herein by reference. (bb) Amendment dated April 18, 1997 to Letter of Credit and Reimbursement Agreement, previously filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997, which is incorporated herein by reference. (cc) Amendment dated May 19, 1997 to Letter of Credit and Reimbursement Agreement, previously filed as Exhibit 10(dd) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997, which is incorporated herein by reference. (dd) Stock Compensation Plan for Non-Employee Directors, previously filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8, Registration Number 333-31159, which is incorporated herein by reference. (ee) Credit agreement dated September 30, 1997 between the Company and NationsBank of Texas, N.A. (ff) 1997 Non-Officer Employee Stock Option Plan. (gg) Form of 1997 Non-Officer Employee Stock Option Plan Agreement. 11. Computation of primary and fully diluted earnings per share. 13. Annual report to stockholders for the fiscal year ended September 28, 1996, certain portions of which have been incorporated herein by reference. 21. Subsidiaries of the registrant. 23. Consent of independent accountants. Exhibits, other than those incorporated by reference, have been included in copies of this Report filed with the Securities and Exchange Commission. Stockholders of the Company will be provided with copies of these exhibits upon written request to the Company. EX-10 2 CREDIT AGGREMENT DATED 09/30/97 EXHIBIT 10 (ee) ================================================================================ CREDIT AGREEMENT by and among DATA GENERAL CORPORATION as Borrower, NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as Agent and as Lender, THE BANK OF NEW YORK and FLEET NATIONAL BANK as Co-Agents and as Lenders and THE LENDERS PARTY HERETO FROM TIME TO TIME September 30, 1997 =============================================================================== TABLE OF CONTENTS ARTICLE I Definitions and Terms 1.1. Definitions.....................................................1 1.2. Rules of Interpretation........................................24 ARTICLE II The Revolving Credit Facility 2.1. Revolving Loans................................................26 2.2. Payment of Interest............................................28 2.3. Payment of Principal...........................................28 2.4. Manner of Payments.............................................29 2.5. Notes..........................................................29 2.6. Pro Rata Payments..............................................30 2.7. Reductions.....................................................30 2.8. Conversions and Elections of Subsequent Interest Periods.......30 2.9. Increase and Decrease in Amounts...............................31 2.10. Commitment Fee................................................31 2.11. Deficiency Advances...........................................31 2.12. Use of Proceeds...............................................32 2.13. Swing Line....................................................32 ARTICLE III Letters of Credit 3.1. Letters of Credit..............................................33 3.2. Reimbursement..................................................34 3.3. Letter of Credit Facility Fees.................................37 3.4. Administrative Fees............................................37 i ARTICLE IV Change in Circumstances 4.1. Increased Cost and Reduced Return..............................38 4.2. Limitation on Types of Loans...................................39 4.3. Illegality.....................................................39 4.4. Treatment of Affected Loans....................................40 4.5. Compensation...................................................40 4.6. Taxes..........................................................41 ARTICLE V Conditions to Making Loans and Issuing Letters of Credit 5.1. Conditions of Initial Advance of Revolving Loans and Initial Issuance of Letters of Credit...........................................44 5.2. Conditions of Revolving Loans and Letter of Credit.............46 ARTICLE VI Representations and Warranties 6.1. Organization and Authority.....................................48 6.2. Loan Documents.................................................48 6.3. Solvency.......................................................49 6.4. Ownership of the Borrower and its Subsidiaries.................49 6.5. Borrower Ownership Interests...................................49 6.6. Financial Condition............................................49 6.7. Title to Properties............................................50 6.8. Taxes..........................................................50 6.9. Other Agreements...............................................50 6.10. Litigation....................................................51 6.11. Margin Stock..................................................51 6.12. Investment Company; Public Utility Holding Company............51 6.13. Intellectual Property.........................................51 6.14. No Untrue Statement...........................................52 6.15. No Consents, Etc..............................................52 6.16. Employee Benefit Plans........................................52 6.17. No Default....................................................53 6.18. Hazardous Materials...........................................53 6.19. Employment Matters............................................54 ii ARTICLE VII Affirmative Covenants 7.1. Financial Reports, Etc........................................55 7.2. Maintain Properties...........................................56 7.3. Existence, Qualification, Etc.................................56 7.4. Regulations and Taxes.........................................56 7.5. Insurance.....................................................56 7.6. True Books....................................................57 7.7. Right of Inspection...........................................57 7.8. Observe all Laws..............................................57 7.9. Governmental Licenses.........................................57 7.10. Covenants Extending to Subsidiaries...........................57 7.11. Officer's Knowledge of Default................................57 7.12. Suits or Other Proceedings....................................58 7.13. Notice of Discharge of Hazardous Material or Environmental Complaint.....................................................58 7.14. Environmental Compliance......................................58 7.15. Indemnification...............................................58 7.16. Further Assurances............................................59 7.17. Employee Benefit Plans........................................59 7.18. Continued Operations..........................................60 7.19. New Material Subsidiaries.....................................60 ARTICLE VIII Negative Covenants 8.1. Financial Covenants...........................................61 8.2. Acquisitions..................................................61 8.3. Liens.........................................................62 8.4. Indebtedness..................................................63 8.5. Transfer of Assets; Issuance of Capital Stock.................65 8.6. Investments...................................................65 8.7. Merger or Consolidation.......................................66 8.8. Restricted Payments...........................................67 8.9. Transactions with Affiliates..................................67 8.10. Compliance with ERISA.........................................67 8.11. Fiscal Year...................................................68 8.12. Dissolution, etc..............................................68 8.13. Limitations on Sales and Leasebacks...........................68 8.14. Hedging Obligations...........................................68 8.15. Negative Pledge Clauses.......................................68 8.16. Change in Accountants.........................................69 iii 8.17. Limitations on Certain Restrictive Covenants..................69 8.18. Payment of Indebtedness.......................................69 ARTICLE IX Events of Default and Acceleration 9.1. Events of Default.............................................70 9.2. Agent to Act..................................................73 9.3. Cumulative Rights.............................................73 9.4. No Waiver.....................................................73 9.5. Allocation of Proceeds........................................73 ARTICLE X The Agent 10.1. Appointment, Powers, and Immunities...........................75 10.2. Reliance by Agent.............................................75 10.3. Defaults......................................................76 10.4. Rights as Lender..............................................76 10.5. Indemnification...............................................76 10.6. Non-Reliance on Agent and Other Lenders.......................77 10.7. Resignation of Agent..........................................77 10.8. Sharing of Payments, etc......................................77 10.9. Fees..........................................................78 ARTICLE XI Miscellaneous 11.1. Assignments and Participations...............................79 11.2. Notices......................................................80 11.3. Right of Set-off; Adjustments................................82 11.4. Survival.....................................................82 11.5. Expenses.....................................................82 11.6. Amendments and Waivers.......................................83 11.7. Counterparts.................................................83 11.8. Termination..................................................83 11.9. Indemnification; Limitation of Liability.....................84 11.10. Severability.................................................85 11.11. Entire Agreement.............................................85 11.12. Agreement Controls...........................................86 11.13. Usury Savings Clause.........................................86 iv 11.14. Governing Law; Waiver of Jury Trial..........................86 11.15. Status of Debt...............................................87 11.16. Existing Letters of Credit...................................87 EXHIBIT A Applicable Commitment Percentages.....................A-1 EXHIBIT B Form of Assignment and Acceptance.....................B-1 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative........................................C-1 EXHIBIT D-1 Form of Borrowing Notice--Revolving Credit Loans......D-1-1 EXHIBIT D-2 Form of Borrowing Notice--Swing Line Loans............D-2-1 EXHIBIT E Form of Interest Rate Selection Notice................E-1 EXHIBIT F-1 Form of Revolving Note................................F-1-1 EXHIBIT F-2 Form of Swing Line Note...............................F-2-1 EXHIBIT G Form of Opinion of Borrower's Counsel.................G-1 EXHIBIT H Compliance Certificate................................H-1 EXHIBIT I Form of Subsidiary Guaranty...........................I-1 EXHIBIT J Terms of Subordination................................J-1 EXHIBIT K Form of Cash Collateral Account Agreement.............K-1 EXHIBIT L Confidentiality Agreement.............................L-1 Schedule 6.4 Subsidiaries and Investments in Other Persons.........S-1 Schedule 6.6 Indebtedness..........................................S-2 Schedule 8 Investment Guidelines.................................S-4 v CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of September 30, 1997 (the "Agreement"), is made by and among DATA GENERAL CORPORATION, a Delaware corporation (the "Borrower"), NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, in its capacity as a Lender ("NationsBank"), and each other financial institution executing and delivering a signature page hereto and each other financial institution which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to Section 11.1 (hereinafter such financial institutions may be referred to individually as a "Lender" or collectively as the "Lenders"), the BANK OF NEW YORK, a New York chartered bank, and FLEET NATIONAL BANK, a national banking association organized and existing under the laws of the United States, each in their capacity as Co-agents for the Lenders, and NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, in its capacity as agent for the Lenders (in such capacity, and together with any successor agent appointed in accordance with the terms of Section 10.7 hereof, the "Agent"); W I T N E S S E T H: -------------------- WHEREAS, the Borrower has requested that the Lenders make available to the Borrower a Revolving Credit Facility (as hereafter defined) of up to $110,000,000, the proceeds of which are to be used to redeem certain existing indebtedness and for working capital, capital expenditures, permitted acquisitions and general corporate purposes and which shall include a letter of credit subfacility of up to $15,000,000 for the issuance of standby and commercial letters of credit and a swing line subfacility of up to $5,000,000; and WHEREAS, the Lenders are willing to make such revolving credit and letter of credit facilities available to the Borrower and NationsBank is willing to make the swing line facility available to the Borrower, all upon the terms and conditions set forth herein; NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: ARTICLE I Definitions and Terms --------------------- 1.1. Definitions. ------------ For the purposes of this Agreement, in additionto the definitions set forth above, the following terms shall have the respective meanings set forth below: "Acquisition" means the acquisition of (i) a controlling equity interest in another Person (including an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such controlling equity interest or upon exercise of an option or warrant for, 1 or conversion of securities into, such equity interest, or (ii) all or substantially all the assets of another Person or a line of business or business segment of another Person. "Advance" means any of a borrowing under the Revolving Credit Facility consisting of a Base Rate Loan or a Eurodollar Rate Loan. "Affiliate" means any Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with the Borrower; or (ii) which beneficially owns or holds 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of the Borrower; or 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of which is beneficially owned or held by the Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise. "Applicable Commitment Percentage" means, with respect to each Lender at any time, a fraction, the numerator of which shall be such Lender's Revolving Credit Commitment and the denominator of which shall be the Total Revolving Credit Commitment, which Applicable Commitment Percentage for each Lender as of the Closing Date is as set forth in Exhibit A; provided that the Applicable Commitment Percentage of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 11.1 hereof. "Applicable Lending Office" means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrower by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" means that percent per annum set forth below, which shall be based upon the Consolidated Leverage Ratio for the Four-Quarter Period most recently ended as specified below: 2 Applicable Margin ----------------- Consolidated Eurodollar Rate and Leverage Ratio Letter of Credit Fee Base Rate Commitment Fee - -------------------------------------------------------------------------------- (a) Less than .75 to 1.00 .875% 0% .250% (b) Less than 1.50 to 1.00 but greater than or equal to .75 to 1.00 1.1250% 0% .350% (c) Less than 2.25 to 1.00 but greater than or equal to 1.50 to 1.00 1.250% 0% .375% (d) Greater than or equal to 2.25 to 1.00 1.375% .250% .500% The Applicable Margin shall be established at the end of each fiscal quarter of the Borrower (each, a "Determination Date"). Any change in the Applicable Margin following each Determination Date shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to Section 7.1(a)(ii) and Section 7.1(b)(ii) hereof, subject to review and approval of such computations by the Agent, and shall be effective commencing on the date such certificate is received until the date on which a new certificate is delivered; provided however, if the Borrower shall fail to deliver any such certificate within the time period required by Section 7.1 hereof, then the Applicable Margin shall be 1.375% for Eurodollar Rate Loans and the fee for Letters of Credit under Section 4.3 hereof, .250% for Base Rate Loans and .500% for the Commitment Fee, in each case, from the date such certificate was required to be delivered, until the appropriate certificate is so delivered. From the Closing Date until the date on which the certificate for the period ending December 31, 1997 is delivered, the Applicable Margin shall be 1.250% for Eurodollar Rate Loans and the fee for Letters of Credit, 0% for Base Rate Loans and .375% for the Commitment Fee. "Applications and Agreements for Letters of Credit" means, collectively, the Applications and Agreements for Letters of Credit, or similar documentation, executed by the Borrower from time to time and delivered to the Issuing Bank to support the issuance of Letters of Credit. "Assignment and Acceptance" shall mean an Assignment and Acceptance in the form of Exhibit B (with blanks appropriately filled in) delivered to the Agent in connection 3 with an assignment of a Lender's interest under this Agreement pursuant to Section 11.1 hereof. "Authorized Representative" means any of the President, the Chief Executive Officer, any Vice President, the Chief Financial Officer, Treasurer and Controller of the Borrower or any other Person expressly designated by the Board of Directors of the Borrower (or the appropriate committee thereof) as an Authorized Representative of the Borrower, as set forth from time to time in a certificate in the form of Exhibit C. "Available Revolving Credit Commitment" means an amount equal to the excess, if any, of (a) the Total Revolving Credit Commitment over (b) the aggregate Revolving Credit Outstandings. "Base Rate" means, for any day, the rate per annum equal to the sum of (a) the higher of (i) the Federal Funds Rate for such day plus one-half of one percent (0.5%) and (ii) the Prime Rate for such day plus (b) the Applicable Margin. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. "Base Rate Loan" means a Revolving Loan for which the rate of interest is determined by reference to the Base Rate. "Base Rate Refunding Loan" means either (i) a Base Rate Loan made to satisfy Reimbursement Obligations arising from a drawing under a Letter of Credit or (ii) a Base Rate Loan made to pay NationsBank with respect to Swing Line Outstandings; "Board" means the Board of Governors of the Federal Reserve System (or any successor body). "Borrowing Notice" means the notice delivered by an Authorized Representative in connection with an Advance under the Revolving Credit Facility or a Swing Line Loan, in the forms attached hereto as Exhibits D-1 and D-2, respectively; "Business Day" means, (i) with respect to any Base Rate Loan, any day which is not a Saturday, Sunday or a day on which banks in the States of New York and Texas are authorized or obligated by law, executive order or governmental decree to be closed and, (ii) with respect to any Eurodollar Rate Loan, any day which is a Business Day, as described above, and on which the relevant international financial markets are open for the transaction of business contemplated by this Agreement in London, England, New York, New York and Dallas, Texas. "Capital Expenditures" means, with respect to the Borrower and its Subsidiaries, for any period the sum of (without duplication) (i) all expenditures (whether paid in cash or accrued as liabilities) by the Borrower or any Subsidiary during such period for items 4 that would be classified as "property, plant or equipment" or comparable items on the consolidated balance sheet of the Borrower and its Subsidiaries, including without limitation all transactional costs incurred in connection with such expenditures provided the same have been capitalized, excluding, however, the amount of any Capital Expenditures paid for with proceeds of casualty insurance as evidenced in writing and submitted to the Agent together with any compliance certificate delivered pursuant to Section 7.1(a) or (b) hereof, and (ii) with respect to any Capital Lease entered into by the Borrower or its Subsidiaries during such period, the present value of the lease payments due under such Capital Lease over the term of such Capital Lease applying a discount rate equal to the interest rate provided in such lease (or in the absence of a stated interest rate, that rate used in the preparation of the financial statements described in Section 7.1(a)), all the foregoing in accordance with GAAP applied on a Consistent Basis. "Capital Leases" means all leases which have been or should be capitalized in accordance with GAAP as in effect from time to time including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof. "Cash Collateral Account Agreement" means a Cash Collateral Account Agreement between the Borrower and the Agent in the form of Exhibit K hereto, as amended, modified or supplemented from time to time. "Change of Control" means, at any time: (i) any "person" or "group" (each as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) either (A) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of Voting Stock of the Borrower (or securities convertible into or exchangeable for such Voting Stock) representing 20% or more of the combined voting power of all Voting Stock of the Borrower (on a fully diluted basis) or (B) otherwise has the ability, directly or indirectly, to elect a majority of the board of directors of the Borrower; or (ii) during any period of up to 24 consecutive months, commencing on the Closing Date, individuals who at the beginning of such 24-month period were directors of the Borrower shall cease for any reason (other than (A) the death, disability or retirement of a director or (B) the death, disability or retirement of an officer of the Borrower that is serving as a director at such time so long as another officer of the Borrower replaces such Person as a director) to constitute a majority of the board of directors of the Borrower; or (iii) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence on the management or policies of the Borrower. 5 "Closing Date" means the date as of which this Agreement is executed by the Borrower, the Lenders and the Agent and on which the conditions set forth in Section 4.1 have been satisfied. "Code" means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. "Confidentiality Agreement" means a Confidentiality Agreement in the form of Exhibit L hereto; "Consistent Basis" in reference to the application of GAAP means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited financial statements of the Borrower referred to in Section 6.6(a); "Consolidated Accounts Receivable" means the amount of all accounts receivable of the Borrower and its Subsidiaries less all reserves with respect thereto, including without limitation reserves for past due and doubtful accounts, determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Accounts Payable" means the amount of all unpaid obligations of the Borrower and its Subsidiaries for the payment of the price of goods purchased or leased (other than pursuant to a Capital Lease) by or services rendered to the Borrower or the Subsidiaries and determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated EBIT" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation, the difference of Consolidated EBITDA less amortization and depreciation, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated EBITDA" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the sum of, without duplication, (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) taxes on income, (iv) amortization, and (v) depreciation, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; provided, however, that for each of the first four fiscal quarters following any Acquisition, the calculation of Consolidated EBITDA for each Four-Quarter Period ending on the last day of each such fiscal quarter shall include the historical financial performance of the acquired business for that portion of such Four-Quarter Period occurring prior to such Acquisition. "Consolidated Fixed Charge Ratio" means, with respect to the Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the 6 ratio of (i) Consolidated EBIT plus Consolidated Lease Payments for such period, to (ii) Consolidated Fixed Charges for such period. "Consolidated Fixed Charges" means, with respect to Borrower and its Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the sum of, without duplication, (i) Consolidated Interest Expense, and (ii) Consolidated Lease Payments for such period, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Funded Indebtedness" means, with respect to the Borrower and its Subsidiaries, at any time as of which the amount thereof is to be determined, the sum of (i) Indebtedness for Money Borrowed of the Borrower and its Subsidiaries at such time, (ii) all direct Guaranties of Indebtedness for Money Borrowed of a Person other than a Consolidated Subsidiary at such time and (iii) the face amount of all outstanding letters of credit issued for the account of the Borrower or any of its Subsidiaries and all obligations (to the extent not duplicative) arising under such letters of credit, all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, less up to $10,000,000 in aggregate face amount of letters of credit issued in support of performance of Subsidiaries under agreements entered into in the ordinary course of business. "Consolidated Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of the Borrower and its Subsidiaries for such period, including without limitation (i) the current amortized portion of debt discounts to the extent included in gross interest expense, (ii) the current amortized portion of all fees (including fees payable in respect of any Swap Agreement) payable in connection with the incurrence of Indebtedness to the extent included in gross interest expense and (iii) the portion of any payments made in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Lease Payments" means the gross amount of all lease or rental payments, whether or not characterized as rent, of the Borrower and its Subsidiaries, excluding payments in respect of Capital Leases constituting Indebtedness, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Leverage Ratio" means, as of the date of computation thereof, the ratio of (i) Consolidated Funded Indebtedness (as determined as at such date) to (ii) Consolidated EBITDA (for the Four-Quarter Period ending on (or most recently prior to) such date). "Consolidated Liquidity Ratio" means, as of the date of computation thereof, the ratio of (i) the sum of cash plus Eligible Securities of the Borrower and its Subsidiaries plus Consolidated Accounts Receivable to (ii) the sum of Consolidated Funded 7 Indebtedness less the principal amount of all Indebtedness outstanding under the Indenture plus Consolidated Accounts Payable. "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations and income of the Borrower and its Subsidiaries (including payments received by the Borrower and its Subsidiaries of interest income and dividends and distributions made in the ordinary course of their businesses by Persons in which investment is permitted pursuant to this Agreement and not related to an extraordinary event), less all operating and non-operating expenses of the Borrower and its Subsidiaries including taxes on income, all determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis; but excluding (for all purposes other than compliance with Section 8.1(c) hereof) as income: (i) net gains on the sale, conversion or other disposition of capital assets, (ii) net gains on the acquisition, retirement, sale or other disposition of capital stock and other securities of the Borrower or its Subsidiaries, (iii) net gains on the collection of proceeds of life insurance policies, (iv) any write-up of any asset, and (v) any other net gain or credit of an extraordinary nature as determined in accordance with GAAP applied on a Consistent Basis. "Consolidated Shareholders' Equity" means, as of any date on which the amount thereof is to be determined, the sum of the following in respect of the Borrower and its Subsidiaries (determined on a consolidated basis and excluding any upward adjustment after the Closing Date due to revaluation of assets): (i) the amount of issued and outstanding share capital, plus (ii) the amount of additional paid-in capital and retained earnings (or, in the case of a deficit, minus the amount of such deficit), plus (iii) the amount of any foreign currency translation adjustment (if positive, or, if negative, minus the amount of such translation adjustment), plus (iv) the amount of unrealized gain (or if a loss, minus such amount) on marketable securities plus (v) software research and development costs required to be capitalized, minus (v) the amount of any treasury stock, all as determined in accordance with GAAP applied on a Consistent Basis. "Consolidated Subsidiary" means any Subsidiary of the Borrower whose financial information and operations are required to be consolidated in the financial statements of the Borrower pursuant to GAAP. "Consolidated Tangible Net Worth" means, as of any date on which the amount thereof is to be determined, Consolidated Shareholders' Equity minus (without duplication of deductions in respect of items already deducted in arriving at Consolidated Shareholders' Equity) (i) all reserves (other than contingency reserves not allocated to any particular purpose), including without limitation reserves for depreciation, depletion, amortization, obsolescence, deferred income taxes, insurance and inventory valuation, and (ii) the net book value of all assets which would be treated as intangible assets, such as (without limitation) goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), unamortized debt discount and expense, patents, trademarks, 8 trade names, copyrights, franchises and licenses, all as determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Consolidated Total Assets" means, as of any date on which the amount thereof is to be determined, the net book value of all assets of the Borrower and its Subsidiaries as determined on a consolidated basis in accordance with GAAP applied on a Consistent Basis. "Contingent Obligation" of any Person means all Guaranties and other contingent liabilities required (or which, upon the creation or incurring thereof, would be required) to be included in the financial statements (including footnotes) of such Person in accord ance with GAAP applied on a Consistent Basis, including Statement No. 5 of the Financial Accounting Standards Board, all Hedging Obligations and any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including obligations of such Person however incurred: (1) to purchase such Indebtedness or other obligation or any property or assets constituting security therefor; (2) to advance or supply funds in any manner (i) for the purchase or payment of such Indebtedness or other obligation, or (ii) to maintain a minimum working capital, net worth or other balance sheet condition or any income statement condition of the primary obligor; (3) to grant or convey any lien, security interest, pledge, charge or other encumbrance on any property or assets of such Person to secure payment of such Indebtedness or other obligation; (4) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner or holder of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or other obligation; or (5) otherwise to assure the owner of the Indebtedness or such obligation of the primary obligor against loss in respect thereof. "Continue", "Continuation", and "Continued" shall refer to the continuation pursuant to Section 2.8 hereof of a Eurodollar Rate Loan of one Type as a Eurodollar Rate Loan of the same Type from one Interest Period to the next Interest Period. "Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to Section 2.8 or Article IV hereof of one Type of Loan into another Type of Loan. 9 "Cost of Acquisition" means, with respect to any Acquisition, as at the date of entering into any agreement therefor, the sum of the following (without duplication): (i) the value of the capital stock, warrants or options to acquire capital stock of Borrower or any Subsidiary to be transferred in connection therewith, (ii) the amount of any cash and fair market value of other property (excluding property described in clause (i) and the unpaid principal amount of any debt instrument) given as consideration, (iii) the amount (determined by using the face amount or the amount payable at maturity, whichever is greater) of any Indebtedness incurred, assumed or acquired by the Borrower or any Subsidiary in connection with such Acquisition, (iv) all additional purchase price amounts in the form of earnouts and other contingent obligations that should be recorded on the financial statements of the Borrower and its Subsidiaries in accordance with GAAP, (v) all amounts paid in respect of covenants not to compete, consulting agreements that should be recorded on financial statements of the Borrower and its Subsidiaries in accordance with GAAP, and other affiliated contracts in connection with such Acquisition, (vi) the aggregate fair market value of all other consideration given by the Borrower or any Subsidiary in connection with such Acquisition, and (vii) out of pocket transaction costs for the services and expenses of attorneys, accountants and other consultants incurred in effecting such transaction, and other similar transaction costs so incurred. For purposes of determining the Cost of Acquisition for any transaction, (A) the capital stock of the Borrower shall be valued (I) at its market value as reported on the New York Stock Exchange or any national securities exchange or automated national market system with respect to shares that are freely tradeable, and (II) with respect to shares that are not freely tradeable, as determined by a committee composed of the disinterested members of the Board of Directors of the Borrower and, if requested by the Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 7.1(a) hereof, (B) the capital stock of any Subsidiary shall be valued as determined by a committee composed of the disinterested members of the Board of Directors of such Subsidiary and, if requested by the Agent, determined to be a reasonable valuation by the independent public accountants referred to in Section 7.1(a) hereof, and (C) with respect to any Acquisition accomplished pursuant to the exercise of options or warrants or the conversion of securities, the Cost of Acquisition shall include both the cost of acquiring such option, warrant or convertible security as well as the cost of exercise or conversion. "Credit Facilities" means, collectively, the Revolving Credit Facility and the Letter of Credit Facility. "Credit Party" means, collectively or individually as the context may indicate, the Borrower, and each Guarantor. "Default" means any event or condition which, with the giving or receipt of notice or lapse of time or both, would constitute an Event of Default hereunder. "Default Rate" means (i) with respect to each Eurodollar Rate Loan, until the end of the Interest Period applicable thereto, a rate of two percent (2%) above the Eurodollar rate applicable to such Loan, 10 and thereafter a rate of interest perannum which shall be two percent (2%) above the Base Rate, (ii) with respect to each Base Rate Loan and Reimbursement Obligations, a rate of interest per annum which shall be two percent (2%) above the Base Rate and (iii) in any case, the maximum rate permitted by applicable law, if lower. "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America. "Domestic" means, with respect to any Subsidiary, an entity which is organized under the laws of the District of Columbia or one of the states comprising the United States of America. "Eligible Assignee" means (i) a Lender, (ii) an affiliate of a Lender, and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 11.1 hereof, the Borrower, such approval not to be unreasonably withheld or delayed by the Borrower, provided, however, that neither the Borrower nor an Affiliate shall qualify as an Eligible Assignee. "Eligible Securities" means the following obligations and any other obligations previously approved in writing by the Agent: (a) Government Securities maturing no later than two years from the date of purchase thereof; (b) obligations of any corporation organized under the laws of any state of the United States of America or under the laws of any other nation, payable in the United States of America, having a maturity and rating complying with the investment guidelines for such obligations set forth on Schedule 8 hereto; (c) interest bearing demand or time deposits issued by any Lender or certificates of deposit maturing within one year from the date of issuance thereof and issued by a bank or trust company organized under the laws of the United States or of any state thereof having capital surplus and undivided profits aggregating at least $400,000,000 and having a rating complying with the investment guidelines for such deposits set forth on Schedule 8 hereto; (d) Municipal Obligations maturing no later than one year from the date of issuance thereof; (e) Money Market Funds with minimum net assets of $300,000,000 and a dollar weighted portfolio maturity of 90 days or less as stated in the most recent report to shareholders of such Money Market Funds. 11 "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA which (i) is maintained for employees of the Borrower or any of its ERISA Affiliates or is assumed by the Borrower or any of its ERISA Affiliates in connection with any Acquisition or (ii) has at any time within the last six (6) calendar years been maintained for the employees of the Borrower or any current or former ERISA Affiliate. "Environmental Laws" means any federal, state or local statute, law, ordinance, code, rule, regulation, order, decree, permit or license regulating, relating to, or imposing liability or standards of conduct concerning, any environmental matters or conditions, environmental protection or conservation, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the Superfund Amendments and Reauthorization Act of 1986, as amended; the Resource Conservation and Recovery Act, as amended; the Toxic Substances Control Act, as amended; the Clean Air Act, as amended; the Clean Water Act, as amended; together with all regulations promulgated thereunder, and any other "Superfund" or "Superlien" law. "Equity Offering" means a public or private offering of equity securities (including, without limitation, any security or investment not constituting Indebtedness exchangeable, exercisable or convertible for or into, or otherwise entitling the holder to receive, equity securities) of the Borrower or any Subsidiary (other than securities issued to the Borrower or another Subsidiary). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder. "ERISA Affiliate", as applied to the Borrower, means any Person or trade or business which is a member of a group which is under common control with the Borrower, who together with the Borrower, is treated as a single employer within the meaning of Section 414(b) and (c) of the Code. "Eurodollar Rate Loan" means a Loan for which the rate of interest is determined by reference to the Eurodollar Rate. "Eurodollar Rate" means the interest rate per annum calculated according to the following formula: Interbank Offered Rate Eurodollar Rate = ---------------------- + Applicable Margin 1 - Reserve Requirement "Event of Default" means any of the occurrences set forth as such in Section 9.1. 12 "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder. "Existing Letters of Credit" means all letters of credit issued and outstanding under the Existing Letter of Credit Agreement. "Existing Letter of Credit Agreement" means that certain Letter of Credit and Reimbursement Agreement dated as of December 21, 1994 by and among the Agent, the Borrower and certain lenders party thereto under which the Existing Letters of Credit were issued. "Facility Termination Date" means such date as all of the following shall have occurred: (a) the Borrower shall have permanently terminated the Revolving Credit Facility by payment in full of all Revolving Credit Outstandings, Swing Line Outstandings and Letter of Credit Outstandings, together with all accrued and unpaid interest thereon, except for such issued and undrawn Letters of Credit as have been fully cash collateralized in a manner consistent with the terms of Section 9.1(l)(B) hereof, (b) all Swap Agreements shall have been terminated, expired or cash collateralized in a manner substantially similar to the terms of the Cash Collateral Account Agreement, (c) all Revolving Credit Commitments and Letter of Credit Commitments shall have terminated or expired and (d) the Borrower shall have fully, finally and irrevocably paid and satisfied in full all Obligations (other than Obligations consisting of continuing indemnities and other contingent Obligations of the Borrower or any Guarantor that may be owing to the Lenders pursuant to the Loan Documents and expressly survive termination of this Agreement). "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Fiscal Year" means the annual fiscal period of the Borrower ending on the last Saturday in each September. "Foreign Benefit Law" means any applicable statute, law, ordinance, code, rule, regulation, order or decree of any foreign nation or any province, state, territory, protectorate or other political subdivision thereof regulating, relating to, or imposing liability or standards of conduct concerning, any Employee Benefit Plan. 13 "Four-Quarter Period" means a period of four full consecutive fiscal quarters of the Borrower and its Subsidiaries, taken together as one accounting period. "GAAP" or "Generally Accepted Accounting Principles" means generally accepted accounting principles, being those principles of accounting set forth in pronouncements of the Financial Accounting Standards Board, the American Institute of Certified Public Accountants or which have other substantial authoritative support and are applicable in the circumstances as of the date of a report. "Government Securities" means direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America or any federal department or agency thereof. "Governmental Authority" shall mean any Federal, state, municipal, national or other governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government. "Guaranties" means all obligations of the Borrower or any Subsidiary directly or indirectly guaranteeing, or in effect guaranteeing, any Indebtedness or other obligation of any other Person. "Guarantors" means, at any date, all Domestic Subsidiaries that are Material Subsidiaries on the Closing Date and all further Domestic Subsidiaries who are required to be parties to a Subsidiary Guaranty at such date pursuant to Section 7.19 hereof. "Hazardous Material" means and includes any pollutant, contaminant, or hazardous, toxic or dangerous waste, substance or material (including without limitation petroleum products, asbestos-containing materials and lead), the generation, handling, storage, transportation, disposal, treatment, release, discharge or emission of which is subject to any Environmental Law. "Hedging Obligations" means any and all obligations of the Borrower or any Subsidiary, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or currency exchange transactions, including, but not limited to, Dollar- denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts, warrants and those commonly known as interest rate 14 "swap" agreements; and (ii) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing. "Indebtedness" means with respect to any Person, without duplication, all Indebtedness for Money Borrowed, all indebtedness of such Person for the acquisition of property, all executory obligations arising under Hedging Obligations, all indebtedness secured by any Lien on the property of such Person whether or not such indebtedness is assumed, all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), all Guaranties, that portion of obligations with respect to Capital Leases and other items which in accordance with GAAP is required to be classified as a liability on a balance sheet; but excluding all accounts payable in the ordinary course of business so long as payment therefor is due within one year; provided that in no event shall the term Indebtedness include surplus and retained earnings, lease obligations (other than pursuant to Capital Leases), reserves for deferred income taxes and investment credits, other deferred credits or reserves. "Indebtedness for Money Borrowed" means with respect to any Person, without duplication, all indebtedness in respect of money borrowed, including without limitation all Capital Leases and the deferred purchase price of any property or asset, evidenced by a promissory note, bond, debenture or similar written obligation for the payment of money (including conditional sales or similar title retention agreements), other than trade payables incurred in the ordinary course of business. "Indenture" means that certain Indenture dated as of May 21, 1997 pursuant to which the Borrower has issued its 6.0% subordinated convertible debentures due 2004 in an original aggregate principal amount of $212,750,000. "Interbank Offered Rate" means, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary), to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Interbank Offered Rate" shall mean, with respect to any Eurodollar Rate Loan for the Interest Period applicable thereto, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period, provided, however; if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "Interest Period" means, for each Eurodollar Rate Loan, a period commencing on the date such Eurodollar Rate Loan is made or Converted and ending, at the Borrower's option, on the date one, two, three or six months thereafter as notified to the Agent by the 15 Authorized Representative three (3) Business Days prior to the beginning of such Interest Period; provided, that, (i) if the Authorized Representative fails to notify the Agent of the length of an Interest Period three (3) Business Days prior to the first day of such Interest Period, the Loan for which such Interest Period was to be determined shall be deemed to be a Base Rate Loan as of the first day thereof; (ii) if an Interest Period for a Eurodollar Rate Loan would end on a day which is not a Business Day, such Interest Period shall be extended to the next Business Day (unless such extension would cause the applicable Interest Period to end in the succeeding calendar month, in which case such Interest Period shall end on the next preceding Business Day); (iii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (iv) no Interest Period shall extend past the Stated Termination Date; and (v) there shall not be more than six (6) Interest Periods in effect on any day. "Interest Rate Selection Notice" means the written notice delivered by an Authorized Representative in connection with the election of a subsequent Interest Period for any Eurodollar Rate Loan or the Conversion of any Eurodollar Rate Loan into a Base Rate Loan or the Conversion of any Base Rate Loan into a Eurodollar Rate Loan, in the form of Exhibit E. "Issuing Bank" means NationsBank as issuer of Letters of Credit under Article III hereof and any successor thereto that is a Lender. "Letter of Credit" means a standby or commercial letter of credit issued by the Issuing Bank pursuant to Article III hereof for the account of the Borrower in favor of a Person advancing credit to or securing an obligation for the benefit of the Borrower or its Subsidiaries. "Letter of Credit Commitment" means, with respect to each Lender, the obligation of such Lender to acquire Participations in respect of Letters of Credit and Reimbursement Obligations up to an aggregate amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Letter of Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement. 16 "Letter of Credit Facility" means the facility described in Article III hereof providing for the issuance by the Issuing Bank for the account of the Borrower of Letters of Credit in an aggregate stated amount at any time outstanding not exceeding the Total Letter of Credit Commitment. "Letter of Credit Outstandings" means, as of any date of determination, the aggregate amount available to be drawn under all Letters of Credit plus any Reimbursement Obligations then outstanding. "Lien" means any interest in property securing any 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, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purposes of this Agreement, the Borrower and any Subsidiary shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes. "Loan" or "Loans" means any of the Revolving Loans. "Loan Documents" means this Agreement, the Notes, the Subsidiary Guaranties, the Cash Collateral Account Agreement, the Applications and Agreements for Letter of Credit, and all other instruments and documents heretofore or hereafter executed and delivered in favor of any Lender or the Agent in connection with the Loans made and transactions contemplated under this Agreement, as the same may be amended, supplemented or replaced from the time to time. "Material Adverse Effect" means a material adverse effect on (i) the business, properties, operations or condition, financial or otherwise, or prospects of the Borrower and its Subsidiaries, taken as a whole, (ii) the ability of any Credit Party to pay or perform its respective obligations, liabilities and indebtedness under the Loan Documents as such payment or performance becomes due in accordance with the terms thereof, or (iii) the rights, powers and remedies of the Agent or any Lender under any Loan Document or the validity, legality or enforceability thereof. "Material Subsidiary" means any direct or indirect Domestic Subsidiary of the Borrower which (i) has total assets equal to or greater than 5% of Consolidated Total Assets (calculated as of the most recent fiscal period with respect to which the Agent shall have received financial statements required to be delivered pursuant to Sections 7.1(a) or (b) (or if prior to delivery of any financial statements pursuant to such Sections, then calculated with respect to the Fiscal Year end financial statements referenced in Section 6.6) (the "Required Financial Information")) or (ii) has income equal to or greater than 5% of Consolidated Net Income (calculated for the most recent period for which the Agent has 17 received the Required Financial Information); provided, however, that notwithstanding the foregoing, the term "Material Subsidiaries" shall mean Domestic Subsidiaries of the Borrower that together with the Borrower account for not less than 70% of Consolidated Total Assets (calculated as described above) and 90% of Consolidated Net Income; provided further that if more than one combination of Domestic Subsidiaries satisfies such threshold, then those Domestic Subsidiaries so determined to be "Material Subsidiaries" shall be specified by the Borrower. "Money Market Funds" means open-ended mutual funds that (i) invest in first tier commercial paper, banker's acceptances, repurchase agreements, government securities, certificates of deposit and other highly liquid securities paying money market rates of interest, (ii) seek to maintain a constant net asset value of $1.00 per share and (iii) are rated AAA or better by S&P. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or is accruing an obligation to make, contributions or has made, or been obligated to make, contributions within the preceding six (6) Fiscal Years. "Municipal Obligations" means general obligations issued by, and supported by the full taxing authority of, any state of the United States of America or of any municipal corporation or other public body organized under the laws of any such state which are rated A-1 or AA- or better by S&P and P-1 or Aa3 or better by Moody's. "Nationally Recognized Standing" means with respect to any firm of certified public accountants, any "Big Six" accounting firm or other firm as may be recognized in writing as acceptable to the Agent. "NationsBank" means NationsBank of Texas, National Association "NCMI" means NationsBanc Capital Markets, Inc .and its successors. "Net Proceeds" means cash payments received by the Borrower from an Equity Offering as and when received, net of all legal, accounting, banking and underwriting fees and expenses, commissions, discounts and other issuance expenses incurred in connection therewith and all taxes required to be paid or accrued as a consequence of such issuance. "Note or Notes" means the Revolving Notes and the Swing Line Notes. "Obligations" means the obligations, liabilities and Indebtedness of the Borrower with respect to (i) the principal and interest on the Loans as evidenced by the Notes, (ii) the Reimbursement Obligations and otherwise in respect of the Letters of Credit, (iii) all 18 liabilities of Borrower to any Lender which arise under a Swap Agreement, and (iv) the payment and performance of all other obligations, liabilities and Indebtedness of the Borrower to the Lenders, the Agent or NCMI hereunder, under any one or more of the other Loan Documents or with respect to the Loans. "Organizational Action" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, any corporate, organizational, partnership action (including any required shareholder, member or partner action) or other similar official action, as applicable, taken by such entity. "Organizational Documents" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the articles of incorporation, certificate of incorporation, articles of organization, certificate of limited partnership or other applicable organizational or charter documents relating to the creation of such entity. "Operating Documents" means with respect to any corporation, limited liability company, partnership, limited partnership, limited liability partnership or other legally authorized incorporated or unincorporated entity, the bylaws, operating agreement, partnership agreement, limited partnership agreement or other applicable documents relating to the operation, governance or management of such entity. "Outstandings" means, collectively, at any date, the Letter of Credit Outstandings, Swing Line Outstandings and Revolving Credit Outstandings on such date. "Participation" means, (i) with respect to any Lender (other than NationsBank) in connection with a Swing Line Loan, the extension of credit represented by the participation of such Lender hereunder in the liability of NationsBank in respect of such Swing Line Loan and (ii) with respect to any Lender (other than the Issuing Bank) in connection with a Letter of Credit, the extension of credit represented by the participation of such Lender hereunder in the liability of the Issuing Bank in respect of a Letter of Credit issued by the Issuing Bank in accordance with the terms hereof; "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto. "Pension Plan" means any employee pension benefit plan within the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (i) is maintained for employees of the Borrower or any of its ERISA Affiliates or is assumed by the Borrower or any of its ERISA Affiliates in connection with any Acquisition or (ii) has at any time been maintained for the employees of the Borrower or any current or former ERISA Affiliate. 19 "Permitted Liens" has the meaning given to such term in Section 8.3 hereof. "Person" means an individual, partnership, corporation, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof. "Prime Rate" means the per annum rate of interest established from time to time by NationsBank as its prime rate, which rate may not be the lowest rate of interest charged by NationsBank to its customers. "Principal Office" means the principal office of NationsBank, presently located at 901 Main Street, TX1-492-14-11, Dallas, Texas 75202, Attention: Agency Services, or such other office and address as the Agent may from time to time designate. "Regulation D" means Regulation D of the Board as the same may be amended or supplemented from time to time. "Reimbursement Obligation" shall mean at any time, the obligation of the Borrower with respect to any Letter of Credit to reimburse the Issuing Bank and the Lenders to the extent of their respective Participations (including by the receipt by the Issuing Bank of proceeds of Base Rate Refunding Loans pursuant to Section 4.2) for amounts theretofore paid by the Issuing Bank pursuant to a drawing under such Letter of Credit. "Required Financial Information" has the meaning given to such term in the definition of "Material Subsidiary." "Required Lenders" means, as of any date, Lenders on such date having Credit Exposures (as defined below) aggregating in excess of 50% of the aggregate Credit Exposures of all the Lenders on such date. For purposes of the preceding sentence, the amount of the "Credit Exposure" of each Lender shall be equal at all times (a) other than following the occurrence and during the continuance of an Event of Default, to its Revolving Credit Commitment, and (b) following the occurrence and during the continuance of an Event of Default, to the sum of (i) the amount of such Lender's Applicable Commitment Percentage of Revolving Credit Outstandings, plus (ii) the amount of such Lender's Applicable Commitment Percentage of Swing Line Outstandings and plus (iii) the amount of such Lender's Applicable Commitment Percentage of Letter of Credit Outstandings; provided that, for the purpose of this definition only, (x) if any Lender shall have failed to fund its Applicable Commitment Percentage of any Advance, the Revolving Credit Commitment of such Lender shall be deemed reduced by the amount it so failed to fund for so long as such failure shall continue and such Lender's Credit Exposure attributable to such failure shall be deemed held by any Lender making more than its Applicable Commitment Percentage of such Advance to the extent it covers such failure, (y) if any Lender shall have failed to pay to the Issuing Bank upon demand its Applicable Commitment Percentage of any drawing under any Letter of Credit resulting in an 20 outstanding Reimbursement Obligation, such Lender's Credit Exposure attributable to such Letter of Credit Outstandings shall be deemed to be held by Issuing Bank and (z) if any Lender shall have failed to pay to NationsBank upon demand its Applicable Commitment Percentage of any Swing Line Loan when required pursuant to Section 2.13(c), such Lender's Credit Exposure attributable to all Swing Line Outstandings shall be deemed to be held by NationsBank. "Responsible Officer" means, the Chief Executive Officer, Chief Financial Officer, President or General Counsel of the Borrower or, with respect to matters relating to specific areas of the Borrower's business, each executive officer of the Borrower managing or responsible for oversight of such area. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "Restricted Payment" means (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Borrower or any of its Subsidiaries (other than those payable or distributable solely to the Borrower) now or hereafter outstanding, except a dividend or other distribution payable (i) solely in shares of a class of stock to the holders of that class or (ii) in shares of common stock to the holders of any class of stock; (b) any redemption, conversion, exchange, retirement or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Borrower or any of its Subsidiaries (other than those payable or distributable solely to the Borrower or solely in shares of common stock) now or hereafter outstanding; and (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Borrower or any of its Subsidiaries now or hereafter outstanding. "Revolving Credit Commitment" means, with respect to each Lender, the obligation of such Lender to make Revolving Loans to the Borrower up to an aggregate principal amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Revolving Credit Commitment. 21 "Revolving Credit Facility" means the facility described in Article II hereof providing for Revolving Loans to the Borrower by the Lenders in the aggregate principal amount of the Total Revolving Credit Commitment. "Revolving Credit Outstandings" means, as of any date of determination, the aggregate principal amount of all Revolving Loans then outstanding. "Revolving Credit Termination Date" means the earliest to occur of (i) the Stated Termination Date or (ii) the date of termination of Lenders' obligations pursuant to Section 9.1 hereof upon the occurrence of an Event of Default, or (iii) the Facility Termination Date. "Revolving Loan" means any borrowing pursuant to an Advance under the Revolving Credit Facility in accordance with Article II hereof. "Revolving Notes" means, collectively, the promissory notes of the Borrower evidencing Revolving Loans executed and delivered to the Lenders as provided in Section 2.5 hereof substantially in the form of Exhibit F-1, with appropriate insertions as to amounts, dates and names of Lenders. "S&P" means Standard & Poor's Ratings Group, a division of the McGraw-Hill Company, Inc. "Significant Subsidiary" means each Material Subsidiary and any non-Material Subsidiary of the Borrower which (i) has total assets equal to or greater than 5% of Consolidated Total Assets (calculated as of the most recent date for which the Agent has received the Required Financial Information) or (ii) has income equal to or greater than 5% of Consolidated Net Income (calculated for the most recent period for which the Agent has received the Required Financial Information). "Single Employer Plan" means any employee pension benefit plan covered by Title IV of ERISA in respect of which the Borrower or any Subsidiary is an "employer" as described in Section 4001(b) of ERISA and which is not a Multiemployer Plan. "Solvent" means, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair saleable value on an orderly basis) is in excess of the total amount of its liabilities, including Contingent Obligations (calculated for the purposes hereof at the amount which, in light of all facts and circumstances at the time, could reasonably be expected to become an actual or mature liability); and 22 (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. "Stated Termination Date" means September 30, 2000. "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding voting stock or more than 50% of all equity interests is owned directly or indirectly by the Borrower and/or by one or more of the Borrower's Subsidiaries. "Subsidiary Guaranty" means each Guaranty Agreement between one or more Material Subsidiaries and the Agent for the benefit of the Lenders, delivered as of the Closing Date and otherwise pursuant to Section 7.19 hereof, as the same may be amended, supplemented or replaced from time to time. "Swap Agreement" means one or more agreements between the Borrower and any Person with respect to Indebtedness evidenced by any or all of the Notes, on terms mutually acceptable to Borrower and such Person and approved by the Lenders, which agreements create Hedging Obligations; provided, however, that no such approval of the Lenders shall be required to the extent such agreements are entered into between the Borrower and any Lender. "Swing Line" means the revolving line of credit established by NationsBank pursuant to Section 2.13. "Swing Line Loans" means loans made by NationsBank pursuant to Section 2.13. "Swing Line Note" means the promissory note of the Borrower evidencing Swing Line Loans executed and delivered to NationsBank substantially in the form attached hereto as Exhibit F-2. "Swing Line Outstandings" means, as of any date of determination, the aggregate principal amount of all Swing Line Loans then outstanding. "Termination Event" means: (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder (unless the notice requirement has been waived by applicable regulation); or (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA; or (iii) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA; or (iv) the institution of proceedings to terminate a Pension 23 Plan by the PBGC; or (v) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (vi) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA; or (viii) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Section 4241 or Section 4245 of ERISA, respectively; or (ix) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA. "Total Letter of Credit Commitment" means an amount not to exceed $15,000,000. "Total Revolving Credit Commitment" means a principal amount equal to $110,000,000, as reduced from time to time in accordance with Section 2.7 hereof. "Type" shall mean any type of Loan (i.e., a Base Rate Loan or a Eurodollar Rate Loan). "Voting Stock" means shares of capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. 1.2. Rules of Interpretation. (a) All accounting terms not specifically defined herein shall have the meanings assigned to such terms and shall be interpreted in accordance with GAAP applied on a Consistent Basis. (b) Each term defined in Article 1, 5, 8 or 9 of the New York Uniform Commercial Code shall have the meaning given therein unless otherwise defined herein, except to the extent that the Uniform Commercial Code of another jurisdiction is controlling, in which case such terms shall have the meaning given in the Uniform Commercial Code of the applicable jurisdiction. (c) The headings, subheadings and table of contents used herein or in any other Loan Document are solely for convenience of reference and shall not constitute a part of any such document or affect the meaning, construction or effect of any provision thereof. (d) Except as otherwise expressly provided, references herein to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules are references 24 to articles, sections, paragraphs, clauses, annexes, appendices, exhibits and schedules in or to this Agreement. (e) All definitions set forth herein or in any other Loan Document shall apply to the singular as well as the plural form of such defined term, and all references to the masculine gender shall include reference to the feminine or neuter gender, and vice versa, as the context may require. (f) When used herein or in any other Loan Document, words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of the applicable document and not to any particular article, section, subsection, paragraph or clause thereof. (g) References to "including" means including without limiting the generality of any description preceding such term. (h) All dates and times of day specified herein shall refer to such dates and times at Dallas, Texas. (i) Each of the parties to the Loan Documents and their counsel have reviewed and revised, or requested (or had the opportunity to request) revisions to, the Loan Documents, and any rule of construction that ambiguities are to be resolved against the drafting party shall be inapplicable in the construing and interpretation of the Loan Documents and all exhibits, schedules and appendices thereto. (j) Any reference to an officer of the Borrower or any other Person by reference to the title of such officer shall be deemed to refer to each other officer of such Person, however titled, exercising the same or substantially similar functions. (k) All references to any agreement or document as amended, modified or supplemented, or words of similar effect, shall mean such document or agreement, as the case may be, as amended, modified or supplemented from time to time only as and to the extent permitted therein and in the Loan Documents. 25 ARTICLE II The Revolving Credit Facility ----------------------------- 2.1. Revolving Loans. ---------------- (a) Commitment. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrower under the Revolving Credit Facility from time to time from the Closing Date until the Revolving Credit Termination Date on a pro rata basis as to the total borrowing requested by the Borrower on any day determined by such Lender's Applicable Commitment Percentage up to but not exceeding the Revolving Credit Commitment of such Lender, provided, however, that the Lenders will not be required and shall have no obligation to make any such Advance (i) so long as a Default or an Event of Default has occurred and is continuing or (ii) if the Agent has accelerated the maturity of any of the Notes as a result of an Event of Default; provided further, however, that immediately after giving effect to each such Advance, the aggregate amount of Outstandings shall not exceed the Total Revolving Credit Commitment. Within such limits, the Borrower may borrow, repay and reborrow under the Revolving Credit Facility on a Business Day from the Closing Date until, but (as to borrowings and reborrowings) not including, the Revolving Credit Termination Date; provided, however, that (y) no Revolving Loan that is a Eurodollar Rate Loan shall be made which has an Interest Period that extends beyond the Stated Termination Date and (z) each Revolving Loan that is a Eurodollar Rate Loan may, subject to the provisions of Section 2.7 hereof, be repaid only on the last day of the Interest Period with respect thereto unless such payment is accompanied by the additional payment, if any, required by Section 4.5. (b) Amounts. Except as otherwise permitted by the Lenders from time to time, the aggregate amount of Outstandings shall not exceed at any time the Total Revolving Credit Commitment, and, in the event there shall be outstanding any such excess, the Borrower shall immediately make such payments and prepayments as shall be necessary to comply with this restriction. Each Revolving Loan hereunder, other than Base Rate Refunding Loans and Swing Line Loans, and each Conversion under Section 2.8 hereof, shall be in an amount of at least $1,000,000, and, if greater than $1,000,000, an integral multiple of $100,000. (c) Advances. (i) An Authorized Representative shall give the Agent (1) at least three (3) Business Days' irrevocable written notice by telefacsimile transmission of a Borrowing Notice or Interest Rate Selection Notice (as applicable) with appropriate insertions, effective upon receipt, of each Revolving Loan that is a Eurodollar Rate Loan (whether representing an additional borrowing hereunder or the Conversion of a borrowing hereunder from Base Rate Loans to Eurodollar Rate Loans) on or prior to 10:30 A.M. and (2) irrevocable written notice by telefacsimile transmission of a Borrowing Notice or Interest Rate Selection Notice (as applicable) with appropriate insertions, effective upon receipt, of each Revolving Loan (other than Base Rate Refunding Loans to the extent the same are effected without notice pursuant to Section 2.1(c)(iv) hereof) that is a Base Rate Loan (whether representing an additional borrowing hereunder or the Conversion of borrowing hereunder from Eurodollar Rate Loans to Base Rate 26 Loans) on or prior to 10:30 A.M. on the day of such proposed Revolving Loan. Each such notice shall specify the amount of the borrowing, the Type of Revolving Loan (Base Rate or Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate Loan, the Interest Period to be used in the computation of interest. Notice of receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case may be, together with the amount of each Lender's portion of an Advance requested thereunder, shall be provided by the Agent to each Lender by telefacsimile transmission with reasonable promptness, but (provided the Agent shall have received such notice by 10:30 A.M.) not later than 12:00 P.M. on the same day as the Agent's receipt of such notice. (ii) Not later than 2:00 P.M. on the date specified for each borrowing under this Section 2.1, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make the amount of the Advance or Advances to be made by it on such day available by wire transfer to the Agent in the amount of its pro rata share, determined according to such Lender's Applicable Commitment Percentage of the Revolving Loan or Revolving Loans to be made on such day. Such wire transfer shall be directed to the Agent at the Principal Office and shall be in the form of Dollars constituting immediately available funds. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made immediately available to the Borrower by delivery of the proceeds thereof to the Borrower's Account or otherwise as shall be directed in the applicable Borrowing Notice by the Authorized Representative and reasonably acceptable to the Agent. (iii) The Borrower shall have the option to elect the duration of the initial and any subsequent Interest Periods and to Convert the Revolving Loans in accordance with Section 2.8. Eurodollar Rate Loans and Base Rate Loans may be outstanding at the same time, provided, however, there shall not be outstanding at any one time Eurodollar Rate Loans having more than six (6) different Interest Periods. If the Agent does not receive a Borrowing Notice or an Interest Rate Selection Notice giving notice of election of the duration of an Interest Period or of Conversion of any Loan to or Continuation of a Loan as a Eurodollar Rate Loan by the time prescribed by Section 2.1(c)(i) or 2.8 hereof, the Borrower shall be deemed to have elected to request such Advance to be, or Convert such Loan to, or Continue such Loan as, a Base Rate Loan until the Borrower notifies the Agent in accordance with Section 2.8 hereof. (iv) Notwithstanding the foregoing, if a drawing is made under any Letter of Credit, such drawing is honored by the Issuing Bank prior to the Revolving Credit Termination Date, and the Borrower shall not immediately fully reimburse the Issuing Bank in respect of such drawing, (A) provided that the conditions to making a Revolving Loan as herein provided shall then be satisfied, the Reimbursement Obligation arising from such drawing shall be paid to the Issuing Bank by the Agent without the requirement of notice to or from the Borrower from immediately available funds which shall be advanced as a Base Rate Refunding Loan by each Lender under the Revolving Credit Facility in an amount equal to such Lender's Applicable Commitment Percentage of such Reimbursement Obligation, and (B) if the conditions to making a Revolving Loan as herein provided shall not then be satisfied, each of the Lenders shall fund by payment to the Agent (for the benefit of the Issuing Bank) in immediately available funds the purchase from the Issuing Bank of their respective Participations in the related Reimbursement Obligation based 27 on their respective Applicable Commitment Percentages of the Total Letter of Credit Commitment. If a drawing is presented under any Letter of Credit in accordance with the terms thereof and the Borrower shall not immediately reimburse the Issuing Bank in respect thereof, then notice of such drawing or payment shall be provided promptly by the Issuing Bank to the Agent and the Agent shall provide notice to each Lender by telephone or telefacsimile transmission. If notice to the Lenders of a drawing under any Letter of Credit is given by the Agent at or before 12:00 noon on any Business Day, each Lender shall, pursuant to the conditions specified in this Section 2.1(c)(iv), either make a Base Rate Refunding Loan or fund the purchase of its Participation, as applicable, in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 2:00 P.M. on the same Business Day. If notice to the Lenders of a drawing under a Letter of Credit is given by the Agent after 12:00 noon on any Business Day, each Lender shall, pursuant to the conditions specified in this Section 2.1(c)(iv), either make a Base Rate Refunding Loan or fund the purchase of its Participation in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds before 12:00 noon on the next following Business Day. Any such Base Rate Refunding Loan shall be advanced as, and shall Continue as, a Base Rate Loan unless and until the Borrower Converts such Base Rate Loan in accordance with the terms of Section 2.8 hereof. 2.2. Payment of Interest. -------------------- (a) The Borrower shall pay interest to the Agent for the account of each Lender on the outstanding and unpaid principal amount of each Revolving Loan made by such Lender for the period commencing on the date of such Revolving Loan until such Revolving Loan shall be due at the then applicable Base Rate for Base Rate Loans or applicable Eurodollar Rate for Eurodollar Rate Loans, as designated by the Authorized Representative pursuant to Section 2.1 hereof; provided, however, that if any amount shall not be paid when due (at maturity, by acceleration or otherwise) or if any other Event of Default shall have occurred and be continuing hereunder, all amounts outstanding hereunder shall bear interest thereafter at the Default Rate from the date such Event of Default occurred until the date such Event of Default is cured or waived. (b) Interest on each Revolving Loan shall be computed on the basis of a year of 360 days and calculated in each case for the actual number of days elapsed. Interest on each Revolving Loan shall be paid (i) quarterly in arrears on the last Business Day of each March, June, September and December, commencing September 30, 1997 for each Base Rate Loan, (ii) on the last day of the applicable Interest Period for each Eurodollar Rate Loan and, if such Interest Period extends for more than three (3) months, at intervals of three (3) months after the first day of such Interest Period, and (iii) upon payment in full of the principal amount of such Revolving Loan. 2.3. Payment of Principal. -------------------- The principal amount of each Revolving Loan shall be due and payable to the Agent for the benefit of each Lender in full on the Revolving Credit Termination Date, or earlier as specifically provided herein. The principal amount of any Base Rate Loan may be prepaid in whole or in part at any time. The principal 28 Rate Loan may be prepaid in whole or in part at any time. The principal amount of any Eurodollar Rate Loan may be prepaid only at the end of the applicable Interest Period unless the Borrower shall pay to the Agent for the account of the Lenders the additional amount, if any, required under Section 4.5 hereof. All prepayments of Revolving Loans made by the Borrower shall be in the amount of $1,000,000 or such greater amount which is an integral multiple of $100,000, or the amount equal to all Revolving Credit Outstandings, or such other amount as necessary to comply with Section 2.1(c)(iv) or Section 2.8 hereof. 2.4. Manner of Payments. ------------------ (a) Each payment of principal (including any prepayment) and payment of interest and fees, and any other amount required to be paid to the Lenders with respect to the Revolving Loans, shall be made to the Agent at the Principal Office, for the account of each Lender, in Dollars and in immediately available funds before 1:00 P.M. on the date such payment is due. The Agent may, but shall not be obligated to, debit the amount of any such payment which is not made by such time to any ordinary deposit account, if any, of the Borrower with the Agent. (b) The Agent shall deem any payment made by or on behalf of the Borrower hereunder that is not made both in Dollars and in immediately available funds and prior to 1:00 P.M. to be a non-conforming payment. Any such payment shall not be deemed to be received by the Agent until the later of (i) the time such funds become available funds and (ii) the next Business Day. Any non-conforming payment may constitute or become a Default or Event of Default. Interest shall continue to accrue on any principal as to which a non-conforming payment is made until the later of (x) the date such funds become available funds or (y) the next Business Day at the Default Rate from the date such amount was due and payable. (c) In the event that any payment hereunder or under the Revolving Notes becomes due and payable on a day other than a Business Day, then such due date shall be extended to the next succeeding Business Day unless provided otherwise under clause (ii) of the definition of "Interest Period"; provided that interest shall continue to accrue during the period of any such extension and provided further, that in no event shall any such due date be extended beyond the Revolving Credit Termination Date. 2.5. Notes. ------ (a) Revolving Loans made by each Lender shall be evidenced by a Revolving Note payable to the order of such Lender in the respective amount of its Revolving Credit Commitment, which Revolving Note shall be dated the Closing Date or a later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by the Borrower. (b) Swing Line Loans made by NationsBank shall be evidenced by the Swing Line Note payable to the order of NationsBank, which Note shall be dated the Closing Date and shall be duly completed, executed and delivered by the Borrower. 29 2.6. Pro Rata Payments. ------------------ Except as otherwise provided herein, (a) each payment on account of the principal of and interest on the Revolving Loans and the fees described in Section 2.10 hereof shall be made to the Agent for the account of the Lenders pro rata based on their Applicable Commitment Percentages, (b) all payments to be made by the Borrower for the account of each of the Lenders on account of principal, interest and fees, shall be made without diminution, setoff, recoupment or counterclaim, and (c) the Agent will promptly distribute to the Lenders in immediately available funds payments received infully collected, immediately available funds from the Borrower. 2.7. Reductions. ----------- The Borrower shall, by notice from an Authorized Representative, have the right from time to time but not more frequently than once each calendar month, upon not less than three (3) Business Days' written notice to the Agent, effective upon receipt, to reduce the Total Revolving Credit Commitment. The Agent shall give each Lender, within one (1) Business Day of receipt of such notice, telefacsimile notice, or telephonic notice (confirmed in writing), of such reduction. Each such reduction shall be in the aggregate amount of $1,000,000 or such greater amount which is in an integral multiple of $1,000,000, or the entire remaining Total Revolving Credit Commitment, and shall permanently reduce the Total Revolving Credit Commitment and the Revolving Credit Commitment of each Lender pro rata. Each reduction of the Total Revolving Credit Commitment shall be accompanied by payment of the Revolving Loans to the extent that the aggregate principal amount of Outstandings exceeds the Total Revolving Credit Commitment after giving effect to such reduction, together with accrued and unpaid interest on the amounts prepaid. No such reduction shall result in the payment of any Eurodollar Rate Loan other than on the last day of the Interest Period of such Eurodollar Rate Loan unless such prepayment is accompanied by amounts due, if any, under Section 4.5 hereof. 2.8. Conversions and Elections of Subsequent Interest Periods. -------------------------------------------------------- (a) Upon delivery, effective upon receipt, of a properly completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M. on any Business Day, the Borrower may Convert all or a part of Eurodollar Rate Loans under the Revolving Credit Facility to Base Rate Loans on the last day of the Interest Period for such Eurodollar Rate Loans; and (b) Provided that no Default or Event of Default shall have occurred and be continuing and subject to the limitations set forth below and in Article IV hereof, the Borrower may, upon delivery, effective upon receipt, of a properly completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M. three (3) Business Days' prior to the date of such election or Conversion: (i) elect a subsequent Interest Period for all or a portion of Eurodollar Rate Loans under the Revolving Credit Facility to begin on the last day of the then current Interest Period for such Eurodollar Rate Loans; and (ii) Convert Base Rate Loans under the Revolving Credit Facility to Eurodollar Rate Loans on any Business Day. 30 Each election and Conversion pursuant to this Section 2.8 shall be subject to the limitations on Eurodollar Rate Loans set forth in the definition of "Interest Period" herein and in Sections 2.1, 2.3 and Article IV hereof. The Agent shall give written notice to each Lender of such notice of election or Conversion prior to 12:00 P.M. on the day such notice of election or Conversion is received. All such Continuations or Conversions of Loans shall be effected pro rata based on the Applicable Commitment Percentages of the Lenders. 2.9. Increase and Decrease in Amounts. --------------------------------- The amount of the Total Revolving Credit Commitment which shall be available to the Borrower as Advances shall be reduced by the aggregate amount of Outstandings. 2.10. Commitment Fee. --------------- For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date, the Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a fee equal to the Applicable Margin for the Commitment Fee multiplied by the average daily amount by which the Total Revolving Credit Commitment exceeds the Outstandings (without giving effect to Swing Line Outstandings except in the case of NationsBank). Such fees shall be due in arrears on the last Business Day of each March, June, September and December, commencing September 30, 1997 to and on the Revolving Credit Termination Date. Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Revolving Credit Commitment when requested, such Lender shall not be entitled to receive payment of its pro rata share of such fee until such Lender shall make available such portion. Such fee shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. 2.11. Deficiency Advances. --------------------- No Lender shall be responsible for any default of any other Lender in respect to such other Lender's obligation to make any Loan or fund its purchase of any Participation hereunder nor shall the Revolving Credit Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing, in the event any Lender shall fail to advance funds to the Borrower under the Revolving Credit Facility as herein provided, the Agent may in its discretion, but shall not be obligated to, advance under the Revolving Note in its favor as a Lender all or any portion of such amount or amounts (each, a "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such other Lender would have been entitled had it made such advance under its Revolving Note; provided that, upon payment to the Agent from such other Lender of the entire outstanding amount of each such deficiency advance, together with accrued and unpaid interest thereon,from the most recent date or dates interest was paid to the Agent by the Borrower on each Revolving Loan comprising the deficiency advance at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank, then such payment shall be credited against the applicable Revolving Note of the Agent in full payment of such deficiency 31 advance and the Borrower shall be deemed to have borrowed the amount of such deficiency advance from such other Lender as of the most recent date or dates, as the case may be, upon which any payments of interest were made by the Borrower thereon. 2.12. Use of Proceeds. ---------------- The proceeds of the Loans made pursuant to the Revolving Credit Facility hereunder shall be used by the Borrower for working capital, capital expenditures, permitted Acquisitions and general corporate purposes. 2.13. Swing Line. ----------- a) Notwithstanding any other provision of this Agreement to the contrary, in order to administer the Revolving Credit Facility in an efficient manner and to minimize the transfer of funds between the Agent and the Lenders, NationsBank shall make available Swing Line Loans to the Borrower prior to the Facility Termination Date. NationsBank shall not make any Swing Line Loan pursuant hereto (i) if NationsBank has received written notice from the Borrower or a Lender that the Borrower is not in compliance with all the conditions to the making of Loans set forth in this Agreement, (ii) if after giving effect to such Swing Line Loan, the Swing Line Outstandings exceed $5,000,000 or (iii) if after giving effect to such Swing Line Loan, the aggregate amount of all Outstandings exceeds the Total Revolving Credit Commitment. Swing Line Loans shall bear interest at the Base Rate. The Borrower may borrow, repay and reborrow under this Section 2.13. Unless notified to the contrary by NationsBank, borrowings under the Swing Line shall be made in the minimum amount of $100,000 or, if greater, in amounts which are integral multiples of $50,000, upon written request by telefacsimile transmission, effective upon receipt, by an Authorized Representative made to NationsBank not later than 2:00 P.M. on the Business Day of the requested borrowing. Each such Borrowing Notice shall specify the amount of the borrowing and the date of borrowing, and shall be in the form of Exhibit D-2, with appropriate insertions. Unless notified to the contrary by NationsBank, each repayment of a Swing Line Loan shall be in the minimum amount of $500,000 or an integral multiple of $50,000 in excess thereof, or the aggregate amount of all Swing Line Outstandings. If an Authorized Representative instructs NationsBank to debit any demand deposit account of a Borrower in the amount of any payment with respect to a Swing Line Loan, or NationsBank otherwise receives repayment, after 2:00 P.M. on a Business Day, such payment shall be deemed received on the next Business Day. Each Swing Line Loan shall be repaid by the Borrower on or before the tenth Business Day following the day such Swing Line Loan is made. (b) The interest payable on Swing Line Loans is solely for the account of NationsBank, and all accrued and unpaid interest on Swing Line Loans shall be payable on the dates and in the manner provided in Sections 2.2 and 2.4 with respect to interest on Base Rate Loans except as otherwise set forth in Section 2.13(a) above. The Swing Line Outstandings shall be evidenced by th Note delivered to NationsBank pursuant to Section 2.5. (c) Upon the making of a Swing Line Loan, each Lender shall be deemed to have purchased from NationsBank a Participation therein in an amount equal to that Lender's Applicable Commitment Percentage of such Swing Line Loan. Upon demand made by NationsBank, each Lender shall, according to its Applicable Commitment Percentage of such Swing Line Loan, promptly provide to NationsBank its purchase price therefor in an amount equal 32 to its Participation therein. Any Advance made by a Lender pursuant to demand of NationsBank of the purchase price of its Participation shall be deemed to be (i) provided that the conditions to making Loans shall be satisfied, a Base Rate Refunding Loan pursuant to Section 2.1 until the Borrower Converts such Base Rate Loan in accordance with the terms of Section 2.8, and (ii) in all other cases, the funding by each Lender of the purchase price of its Participation in such Swing Line Loan. The obligation of each Lender to so provide its purchase price to NationsBank pursuant to clause (ii) above shall be absolute and unconditional and shall not be affected by the occurrence or continuance of a Default or an Event of Default, the failure to satisfy any condition to the making of a Loan or any other occurrence or event. (d) The Borrower at its option and subject to the terms hereof, may request an Advance pursuant to Section 2.1 in an amount sufficient to repay Swing Line Outstandings on any date and the Agent shall provide to NationsBank from the proceeds of such Advance the amount necessary to repay such Swing Line Outstandings (which NationsBank shall then apply to such repayment) and credit any balance of the Advance in immediately available funds in the manner directed by the Borrower pursuant to Section 2.1(c)(ii) and the Lenders shall then be deemed to have made Loans in the amount of such Advances. The Swing Line shall continue in effect until the Revolving Credit Termination Date. ARTICLE III ----------- Letters of Credit ----------------- 3.1. Letters of Credit. ----------------- (a) The Issuing Bank agrees, subject to the terms and conditions of this Agreement, upon request of the Borrower to issue from time to time for the account of the Borrower Letters of Credit upon delivery to the Issuing Bank of an Application and Agreement for Letter of Credit relating thereto in form and content acceptable to the Issuing Bank; provided, that (i) the Letter of Credit Outstandings shall not exceed the Total Letter of Credit Commitment, (ii) no Letter of Credit shall be issued if, after giving effect thereto, the aggregate amount of Outstandings shall exceed the Total Revolving Credit Commitment and (iii) no Letter of Credit shall be issued if the Issuing Bank has received written notice from the Borrower or a Lender that the Borrower is not in compliance with all of the conditions to issuance of a Letter of Credit set forth in this Agreement. (b) No Letter of Creditshall have an initial expiry date occurring later than the earlier to occur of twelve (12) month after the date of its issuance or the fifth Business Day prior to the Stated Termination Date; provided, however, that each Letter of Credit may by its terms automatically extend its then existing expiry date for an additional twelve (12) month period (an "Extension Period") provided (i) the Agent has not given notice to the Borrower and the beneficiary of such Letter of Credit of its election not to renew such Letter of Credit, such notice to be given at least sixty (60) days prior to the then existing expiry date of such Letter of Credit and (ii) such Letter of Credit shall have been cash-collateralized in a manner consistent with the terms of Section 9.1(B) hereof. Each Letter of Credit may have any number of consecutive Extension Periods provided no notice, as described above has been 33 delivered by the Agent; provided, however, no Letter of Credit shall have an Extension Period ending after the date which is twelve (12) months following the fifth Business Day prior to the Stated Termination Date. After the Stated Termination Date, no Lender shall be deemed to have a Participation in a Letter of Credit having an Extension Period which continues beyond the Stated Termination Date to the extent such Lender has delivered to the Agent and each other Lender written notice of its election not to renew its Participation in such Letter of Credit, such notice to be given at least seventy-five (75) days prior to the existing expiry date of such Letter of Credit. Notwithstanding the foregoing provisions of this Section 3.1(b), no Letter of Credit providing for confirmation by a confirming bank or a nominated Person shall have an expiry date later than 45 days preceding the Stated Termination Date (or, if subject to an Extension Period continuing past the Stated Termination Date, 45 days preceding the date which is twelve(12) months following the Stated Termination Date). 3.2. Reimbursement. ------------- (a) The Borrower hereby unconditionally agrees to pay to the Issuing Bank immediately on demand at the Principal Office all amounts required to pay all drafts drawn or purporting to be drawn under the Letters of Credit and all reasonable expenses incurred by the Issuing Bank in connection with the Letters of Credit, and in any event and without demand to place in possession of the Issuing Bank (which shall include Advances under the Revolving Credit Facility if permitted by Section 2.1 hereof) sufficient funds to pay all debts and liabilities arising under any Letter of Credit. The Issuing Bank agrees to give the Borrower prompt notice of any request for a draw under a Letter of Credit. The Issuing Bank may charge any account the Borrower may have with it for any and all amounts the Issuing Bank pays under a Letter of Credit, plus charges and reasonable expenses as from time to time agreed to by the Issuing Bank and the Borrower; provided that to the extent permitted by Section 2.1(c)(iv) hereof, amounts shall be paid pursuant to Advances under the Revolving Credit Facility. The Borrower agrees to pay the Issuing Bank interest on any Reimbursement Obligations not paid when due hereunder at the Default Rate, such rate to be calculated on the basis of a year of 360 days for actual days elapsed. (b) In accordance with the provisions of Section 2.1(c)(iv) hereof, the Issuing Bank shall notify the Agent of any drawing under any Letter of Credit promptly following the receipt by the Issuing Bank of such drawing. (c) Each Lender (other than the Issuing Bank) shall automatically acquire on the date of issuance thereof, a Participation in the liability of the Issuing Bank in respect of each Letter of Credit in an amount equal to such Lender's Applicable Commitment Percentage of such liability, and to the extent that the Borrower is obligated to pay the Issuing Bank under Section 3.2(a) hereof, each Lender (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, and shall be unconditionally obligated to pay to the Issuing Bank as hereinafter described, its Applicable Commitment Percentage of the liability of the Issuing Bank under such Letter of Credit. 34 (i) Each Lender (other than the Issuing Bank) shall, subject to the terms and conditions of Article II, pay to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds, an amount equal to its Applicable Commitment Percentage of any Reimbursement Obligation under a Letter of Credit, such funds to be provided in the manner described in Section 2.1(c)(iv) hereof. (ii) Simultaneously with the making of each payment by a Lender to the Issuing Bank pursuant to Section 2.1(c)(iv)(B) hereof, such Lender shall, automatically and without any further action on the part of the Issuing Bank or such Lender, acquire a Participation in an amount equal to such payment (excluding the portion thereof constituting interest accrued prior to the date the Lender made its payment) in the related Reimbursement Obligation of the Borrower. The Reimbursement Obligations of the Borrower shall be immediately due and payable whether by Advances made in accordance with Section 2.1(c)(iv)(A) hereof or otherwise. (iii) Each Lender's obligation to make payment to the Agent for the account of the Issuing Bank pursuant to Section 2.1(c)(iv) hereof and this Section 4.2(c), and the right of the Issuing Bank to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and shall be made without any offset, abatement, withholding or reduction whatsoever. If any Lender is obligated to pay but does not pay amounts to the Agent for the account of the Issuing Bank in full upon such request as required by Section 2.1(c)(iv) hereof or this Section 3.2(c), such Lender shall, on demand, pay to the Agent for the account of the Issuing Bank interest on the unpaid amount for each day during the period commencing on the date of notice given to such Lender pursuant to Section 2.1(c) hereof until such Lender pays such amount to the Agent for the account of the Issuing Bank in full at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank. (iv) In the event the Lenders have purchased Participations in any Reimbursement Obligation as set forth in clause (ii) above, then at any time payment of such Reimbursement Obligation (including any payment of interest pursuant to Section 3.2(a) hereof), in whole or in part, is received by Issuing Bank in fully collected, immediately available funds from the Borrower, Issuing Bank shall promptly pay to each Lender an amount equal to its Applicable Commitment Percentage of such payment. (d) Promptly following the end of each calendar quarter, the Issuing Bank shall deliver to the Agent a notice describing the aggregate undrawn amount of all Letters of Credit at the end of such quarter. Upon the request of any Lender from time to time, the Issuing Bank shall deliver to the Agent, and the Agent shall deliver to such Lender, any other information reasonably requested by such Lender with respect to each Letter of Credit outstanding. 35 (e) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Article V hereof, be subject to the conditions that such Letter of Credit be in such form and contain such terms as shall be reasonably satisfactory to the Issuing Bank consistent with the then current practices and procedures of the Issuing Bank with respect to similar letters of credit, and the Borrower shall have executed and delivered such other instruments and agreements relating to such Letters of Credit as the Issuing Bank shall have reasonably requested consistent with such practices and procedures. All Letters of Credit shall be issued pursuant to and subject to the Uniform Customs and Practice for Documentary Credits, 1993 revision, International Chamber of Commerce Publication No. 500 and all subsequent amendments and revisions thereto. (f) The Borrower agrees that Issuing Bank may, in its sole discretion, accept or pay, as complying with the terms of any Letter of Credit, any drafts or other documents otherwise in order which may be signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, attorney in fact or other legal representative of a party who is authorized under such Letter of Credit to draw or issue any drafts or other documents. (g) Subject to and without limiting the generality of the provisions of Section 11.9 hereof, the Borrower hereby agrees to indemnify and hold harmless the Issuing Bank, each other Lender and the Agent from and against any and all claims and damages, losses, liabilities, reasonable and documented out-of-pocket costs and expenses which the Issuing Bank, such other Lender or the Agent incurs by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; provided that the Borrower shall not be required to indemnify the Issuing Bank, any other Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the party to be indemnified or (ii) caused by the failure of the Issuing Bank to pay under any Letter of Credit after the presentation to it of a request for payment strictly complying with the terms and conditions of such Letter of Credit, unless such payment is prohibited by any law, regulation, court order or decree. (h) Without limiting Borrower's rights as set forth in Section 3.2(g) hereof, the obligation of the Borrower to immediately reimburse the Issuing Bank for drawings made under Letters of Credit and the Issuing Bank's right to receive such payment shall be absolute, unconditional and irrevocable, and that such obligations of the Borrower shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit and the related Applications and Agreement for any Letter of Credit, under all circumstances whatsoever, including the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, the obligation supported by the Letter of Credit or any other agreement or instrument relating thereto (collectively, the "Related LC Documents"); 36 (ii) any amendment or waiver of or any consent to or departure from all or any of the Related LC Documents; (iii) the existence of any claim, setoff, defense (other than the defense of payment in accordance with the terms of this Agreement) or other rights which the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Agent, the Lenders or any other Person, whether in connection with the Loan Documents, the Related LC Documents or any unrelated transaction; (iv) any breach of contract or other dispute between the Borrower and any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom such beneficiary or any such transferee may be acting), the Agent, the Lenders or any other Person; (v) any draft, statement or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by the Agent, with or without notice to or approval by the Borrower in respect of any of Borrower's Obligations under this Agreement; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. 3.3. Letter of Credit Facility Fees. -------------------------------- The Borrower shall pay to the Agent (a) for the pro rata benefit of the enders based on their Applicable Commitment Percentages, a fee on the aggregate amount available to be drawn on each outstanding Letter of Credit at a rate equal to the Applicable Margin for the fee for Letters of Credit and (b) for the benefit of the Issuing Bank, 0.125% per annum based on the aggregate amount available to be drawn on each outstanding Letter of Credit. Such fees shall be due quarterly in arrears on the last day of each March, June, September and December the first such payment to be made on the first such date occurring after the date of issuance of a Letter of Credit. The fees described in this Section 3.3 shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. 3.4. Administrative Fees. -------------------- The Borrower shall pay to the Issuing Bank such administrative fee and other fees, if any,in connection with the Letters of Credit in such amounts and at such times as the Issuing Bank and the Borrower shall agree from time to time. 37 ARTICLE IV ---------- Change in Circumstances ----------------------- 4.1. Increased Cost and Reduced Return. ---------------------------------- (a) If, after the date hereof, the adoption of any applicable law, rule, or regulation, or any change in any applicable law, rule, or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty, or other charge with respect to any Loans, Letters of Credit, its Note, or its obligation to make Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office) and taxes for which indemnification is provided under Section 4.6 hereof; (ii) shall impose, modify, or deem applicable any reserve, special deposit, assessment, or similar requirement (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Revolving Credit Commitment of such Lender hereunder; or (iii) shall impose on such Lender (or its Applicable Lending Office) or on the London interbank market any other condition affecting this Agreement or its Note or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing, or maintaining any Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Note with respect to any Loans or Letters of Credit, then the Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by the Borrower under this Section 4.1(a), the Borrower may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender to make or Continue Loans of the Type with respect to which such compensation is requested, or to Convert Loans of any other Type into Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 4.4 shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested. 38 (b) If, after the date hereof, any Lender shall have determined that the adoption of any applicable law, rule, or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request, or directive (taking into consideration its policies with respect to capital adequacy), then from time to time upon demand the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section 4.1 and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section 4.1 shall furnish to the Borrower and the Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. 4.2. Limitation on Types of Loans. ---------------------------- If on or prior to the first day of any Interest Period for any Eurodollar Rate Loan: (a) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify the Agent that the Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Rate Loans for such Interest Period; then the Agent shall give the Borrower prompt notice thereof specifying the relevant Type of Loans and the relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Loans of such Type, Continue Loans of such Type, or to Convert Loans of any other Type into Loans of such Type and the Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected Type, either prepay such Loans or Convert such Loans into another Type of Loan in accordance with the terms of this Agreement. 4.3. Illegality. ----------- Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain, or fund Eurodollar Rate Loans herunder, then such Lender shall 39 promptly notify the Borrower thereof and such Lender's obligation to make or Continue Eurodollar Rate Loans and to Convert other Types of Loans into Eurodollar Rate Loans shall be suspended until such time as such Lender may again make, maintain, and fund Eurodollar Rate Loans (in which case the provisions of Section 6.4 shall be applicable). 4.4. Treatment of Affected Loans. ----------------------------- If the obligation of any Lender to make a Eurodollar Rate Loan or to Continue, or to Convert Loans of any other Type into, Loans of a particular Type shall be suspended pursuant to Section 4.1 or 4.3 hereof (Loans of such Type being herein called "Affected Loans" and such Type being herein called the "Affected Type") , such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Affected Loans (or, in the case of a Conversion required by Section 4.3 hereof, on such earlier date as such Lender may specify to the Borrower with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 4.1 or 4.3 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Loans of the Affected Type shall be made or Continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Loans of the Affected Type shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives notice to the Borrower (with a copy to the Agent) that the circumstances specified in Section 4.1 or 4.3 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this Section 4.4 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Loans of the Affected Type and by such Lender are held pro rata (as to principal amounts, Types, and Interest Periods) in accordance with their respective Revolving Credit Commitments. 4.5. Compensation ------------ Upon the request of any Lender, the Borrower shall pay to such Lender such amount or amounts as shall compensate it for any loss, cost, or reasonable expense (including loss of anticipated profits) incurred by it as a result of: (a) any payment, prepayment, or Conversion of a Eurodollar Rate Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 9.1 hereof) on a date other than the last day of the Interest Period for such Loan; or 40 (b) any failure by the Borrower for any reason (including, without limitation, the failure of any condition precedent specified in Article V to be satisfied) to borrow, Convert, Continue, or prepay a Eurodollar Rate Loan on the date for such borrowing, Conversion, Continuation, or prepayment specified in the relevant notice of borrowing, prepayment, Continuation, or Conversion under this Agreement. Any Lender claiming compensation under this Section 4.5 shall furnish to the Borrower and the Agent a statement setting forth in reasonable detail the calculation of amounts to be paid to it hereunder. 4.6. Taxes. ------ (a) Any and all payments by the Borrower to or for the account of any Lender or the Agent hereunder or under any other Loan Document shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender (or its Applicable Lending Office) or the Agent (as the case may be) is organized or any political subdivision thereof, other than to the extent such income or franchise tax is imposed solely as a result of the activities of the Agent or a Lender pursuant to or in respect of this Agreement or any of the other Loan Documents (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings, and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other Loan Document to any Lender or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.6) such Lender or the Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and (iv) the Borrower shall furnish to the Agent, at its address referred to in Section 11.2 hereof, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which arise from any payment made under this Agreement or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) The Borrower agrees to indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 4.6) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. 41 (d) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by the Borrower or the Agent (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower and the Agent with (i) a properly completed Internal Revenue Service Form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States, (ii) a properly completed Internal Revenue Service Form W-8 or W-9, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from United States backup withholding, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide the Borrower and the Agent with the appropriate form pursuant to Section 4.6(d) hereof (unless such failure is due to a change in treaty, law, or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 4.6(a) or 4.6(b) hereof with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request and at such Lender's cost to assist such Lender to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section 4.6, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. (g) Within thirty (30) days after the date of any payment of Taxes, the Borrower shall furnish to the Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 4.6 shall survive until the first anniversary of the Facility Termination Date. (i) If the Borrower makes any additional payment to any Lender pursuant to this Section 4.6 in respect of any Taxes, and such Lender determines that it has received (i) a refund of such Taxes, or (ii) a credit against, relief or remission for, or a reduction in the amount of, any taxes or other 42 governmental charge as a result of any deduction or credit for any Taxes with respect to which it has received payments under this Section 4.6, such Lender shall, to the extent that it can do so without prejudice to the retention of such refund, credit, relief, remission or reduction, pay to the Borrower such amount as shall be reasonably determined by such Lender to be solely attributable to the deduction or withholding of such Taxes. If such Lender later determines that it was not entitled to such refund, credit, relief, remission or reduction to the full extent of any payment made pursuant to the first sentence of this Section 4.6(i), the Borrower shall upon demand of such Lender promptly repay the amount of such overpayment. Nothing in this Section 4.6(i) shall be construed as requiring such Lender to conduct its business or to arrange or alter in any respect its tax or financial affairs so that it is entitled to receive such a refund, credit or reduction or as allowing any Person to inspect any records, including tax returns, of such Lender. 43 ARTICLE V ----------- Conditions to Making Loans and Issuing Letters of Credit ------------------------------------------------------- 5.1. Conditions of Initial Advance of Revolving Loans and Initial ----------------------------------------------------------------- Issuance of Letters of Credit. - -------------------------------- The obligations of the Lenders to make the initial Advance under the Revolving Credit Facility and of NationsBank to make any Swing Line Loan and of the Issuing Bank to issue any Letter of Credit, are subject to the conditions precedent that: (a) the Agent shall have received on the Closing Date, in form and substance satisfactory to the Agent and Lenders, the following: (i) executed originals of each of this Agreement, the Notes, the initial Subsidiary Guaranties and the other Loan Documents, together with all schedules and exhibits thereto; (ii) the favorable written opinion or opinions with respect to the Loan Documents and the transactions contemplated thereby of special counsel to the Credit Parties dated the Closing Date, addressed to the Agent and the Lenders and reasonably satisfactory to Smith Helms Mulliss & Moore, L.L.P., special counsel to the Agent; (iii) resolutions of the boards of directors or other appropriate governing body (or of the appropriate committee thereof) of each Credit Party certified by its secretary, or assistant secretary as of the Closing Date, approving and adopting the Loan Documents to be executed by such Person, and authorizing the execution and delivery thereof; (iv) specimen signatures of officers of each of the Credit Parties executing the Loan Documents on behalf of such Credit Party, certified by the secretary or assistant secretary of such Credit Party; (v) the Organizational Documents of each of the Credit Parties certified as of a recent date by the Secretary of State of its state of organization; (vi) the Operating Documents of each of the Credit Parties certified as of the Closing Date as true and correct by its secretary or assistant secretary; (vii) certificates issued as of a recent date by the Secretaries of State of the respective jurisdictions of formation of each of the Credit Parties as to the due existence and good standing of such Person; (viii) appropriate certificates of qualification to do business, good standing and, where appropriate, authority to conduct business under assumed name, issued 44 in respect of each of the Credit Parties as of a recent date by the Secretary of State or comparable official of each jurisdiction in which the failure to be qualified to do business or authorized so to conduct business could reasonably be likely to have a Material Adverse Effect; (ix) notice of appointment of the initial Authorized Representative(s); (x) certificate of an Authorized Representative dated the Closing Date demonstrating compliance with the financial covenants contained in Sections 8.1(a) through 8.1(d) hereof as of the Closing Date, substantially in the form of Exhibit H; (xi) evidence of all insurance required by the Loan Documents; (xii) an initial Borrowing Notice, if any, and, if elected by the Borrower, Interest Rate Selection Notice; (xiii) evidence that all fees payable by the Borrower on the Closing Date to the Agent, NCMI and the Lenders have been paid in full; (xiv) a certificate of an Authorized Representative as to the matters set forth in Section 5.1(b) hereof; and (xv) such other documents, instruments, certificates and opinions as the Agent or any Lender may reasonably request on or prior to the Closing Date in connection with the consummation of the transactions contemplated hereby; (b) In the good faith judgment of the Agent and the Lenders: (i) there shall not have occurred (A) any material adverse change in the business, assets, revenues, operations or condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole since June 28, 1997 and (B) any event, condition, situation or status of, or change in the facts, assumptions or information regarding, the Borrower and its Subsidiaries, since the date of the information contained in the financial and business projections, budgets, pro forma data and forecasts concerning the Borrower and its Subsidiaries delivered to the Agent prior to the Closing Date that has had or could reasonably be expected to result in a Material Adverse Effect; (ii) no litigation, action, suit, investigation or other arbitral, administrative or judicial proceeding before any arbitrator or Governmental Authority shall be pending or threatened which purports to affect the transactions contemplated under the Loan Documents or which could reasonably be likely to result in a Material Adverse Effect; 45 (iii) the Credit Parties shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby without the occurrence of any default under, conflict with or violation of (A) any applicable law, rule, regulation, order or decree of any Governmental Authority or arbitral authority or (B) any agreement, document or instrument to which any of the Credit Parties is a party or by which any of them or their properties is bound; and (iv) there shall not have occurred and be continuing a material adverse change in the market for syndicated credit facilities similar in nature to the Facilities or a material disruption of, or a material adverse change in, financial, banking or capital market conditions, in each case as determined by the Agent in its reasonable discretion; and (c) the Existing Letter of Credit Agreement shall have been terminated and all letters of credit outstanding thereunder shall be deemed Letters of Credit hereunder. 5.2. Conditions of Revolving Loans and Letter of Credit. ---------------------------------------------------------- The obligations of the Lenders to make any Revolving Loans and of NationsBank to make any Swing Line Loan and the Issuing Bank to issue Letters of Credit, hereunder on or subsequent to the Closing Date are subject to the satisfaction of the following conditions: (a) the Agent (or, in the case of Swing Line Loans, NationsBank) shall have received a Borrowing Notice if required by Article II hereof; (b) the representations and warranties of the Credit Parties set forth in Article VI hereof and in each of the other Loan Documents shall be true and correct in all material respects on and as of the date of such Advance or Swing Line Loan or Letter of Credit issuance or renewal, with the same effect as though such representations and warranties had been made on and as of such date, except to the extent that such representations and warranties expressly relate to an earlier date and except that the financial statements referred to in Section 6.6(a) hereof shall be deemed to be those financial statements most recently delivered to the Agent and the Lenders pursuant to Section 7.1 hereof from the date financial statements are delivered to the Agent and the Lenders in accordance with such Section; (c) in the case of the issuance of a Letter of Credit, the Borrower shall have executed and delivered to the Issuing Bank an Application and Agreement for Letter of Credit in form and content acceptable to the Issuing Bank together with such other instruments and documents as it shall reasonably request; (d) at the time of (and after giving effect to) each Advance or Swing Line Loan or the issuance of a Letter of Credit, no Default or Event of Default shall have occurred and be continuing; and 46 (e) immediately after giving effect to: (i) a Revolving Loan, the aggregate principal balance of all outstanding Revolving Loans for each Lender shall not exceed such Lender's Revolving Credit Commitment; (ii) a Swing Line Loan, the aggregate principal balance of all Swing Line Outstandings shall not exceed $5,000,000; (iii) a Letter of Credit or renewal thereof, the aggregate principal balance of all outstanding Participations in Letters of Credit and Reimbursement Obligations (or in the case of the Issuing Bank, its remaining interest after deduction of all Participations in Letters of Credit and Reimbursement Obligations of other Lenders) for each Lender and in the aggregate shall not exceed, respectively, (A) such Lender's Letter of Credit Commitment or (B) the Total Letter of Credit Commitment; (iv) a Revolving Loan, a Swing Line Loan or a Letter of Credit or renewal thereof, the sum of all Outstandings shall not exceed the Total Revolving Credit Commitment. 47 ARTICLE VI ---------- Representations and Warranties ------------------------------ The Borrower represents and warrants with respect to itself and to its Subsidiaries (which representations and warranties shall survive the delivery of the documents mentioned herein and the making of Loans), that: 6.1. Organization and Authority. --------------------------- (a) The Borrower and each Significant Subsidiary is a corporation duly organized and validly existing under the laws of the jurisdiction of its formation; (b) The Borrower and each Significant Subsidiary (i) has the requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Loan Documents, and (ii) is qualified to do business in every jurisdiction in which failure so to qualify could reasonably be likely to have a Material Adverse Effect; (c) The Borrower has the power and authority to execute, deliver and perform this Agreement and the Notes, and to borrow hereunder, and to execute, deliver and perform each of the other Loan Documents to which it is a party; (d) Each Material Subsidiary has the power and authority to execute, deliver and perform the Subsidiary Guaranty and each of the other Loan Documents to which it is a party; and (e) When executed and delivered, each of the Loan Documents to which any Credit Party is a party will be the legal, valid and binding obligation or agreement, as the case may be, of such Credit Party, enforceable against such Credit Party in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity (whether considered in a proceeding at law or in equity); 6.2. Loan Documents. -------------- The execution, delivery and performance by each Credit Party of each of the Loan Documents to which it is a party: (a) have been duly authorized by all requisite Organizational Action (including any required shareholder or partner approval) of such Credit Party required for the lawful execution, delivery and performance thereof; (b) do not violate any provisions of (i) applicable law, rule or regulation, (ii) any judgment, writ, order, determination, decree or arbitral award of any Governmental Authority or arbitral authority 48 binding on such Credit Party or its properties, or (iii) the Organizational Documents or Operating Documents of such Credit Party; (c) does not and will not be in conflict with, result in a breach of or constitute an event of default, or an event which, with notice or lapse of time or both, would constitute an event of default, under any contract, indenture, agreement or other instrument or document to which such Credit Party is a party, or by which the properties or assets of such Credit Party are bound; and (d) does not and will not result in the creation or imposition of any Lien upon any of the properties or assets of such Credit Party; 6.3. Solvency. -------- Each Credit Party is Solvent after giving effect to the transactions contemplated by the Loan Documents; 6.4. Ownership of the Borrower and its Subsidiaries. ---------------------------------------------- The Borrower has no Significant Subsidiaries other than those Persons listed as Significant Subsidiaries in Schedule 6.4 and additional Subsidiaries created or acquired after the Closing Date. Schedule 6.4 states as of the date hereof the organizational form of the Borrower and each Significant Subsidiary, the authorized and issued capitalization of the Borrower listed thereon, the number of shares or other equity interests of each class of capital stock or interest issued and outstanding of the Borrower and the number or percentage of outstanding shares or other equity interest (including options, warrants and other rights to acquire any interest) of such class of capital stock or other equity interest of each Significant Subsidiary owned by Borrower or by any such Significant Subsidiary. The outstanding shares or other equity interests of the Borrower and each such Significant Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable and the Borrower and each such Significant Subsidiary owns beneficially and of record all the shares and other interests it is listed as owning in Schedule 6.4, free and clear of any Lien; 6.5. Borrower Ownership Interests. ---------------------------- Borrower owns no interest in any Person other than the Persons listed in Schedule 6.4, equity investments in Persons not constituting Subsidiaries permitted under Section 8.6 hereof and additional Subsidiaries created or acquired after the Closing Date; 6.6. Financial Condition. -------------------- (a) The Borrower has heretofore furnished to each Lender an audited consolidated balance sheet of the Borrower and its Subsidiaries as at September 28, 1996 and the notes thereto and the related consolidated statements of income, stockholders' equity and cash flows for the Fiscal Year then ended as examined and certified by Price Waterhouse, and unaudited consolidated interim financial statements of the Borrower and its Subsidiaries consisting of consolidated balance sheets and related consolidated and consolidating statements of income, stockholders' equity and cash flows, in each case without notes, for and as of the end of the nine month period ending June 28, 1997. 49 Except as set forth therein, such financial statements (including the notes thereto) present fairly the financial condition of the Borrower and its Subsidiaries as of the end of such Fiscal Year and six month period and results of their operations and the changes in its stockholders' equity for the Fiscal Year and interim period then ended, all in conformity with GAAP, subject however, in the case of unaudited interim statements to normal, recurring year end audit adjustments; (b) since September 28, 1996 there has been no material adverse change in the condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole or in the businesses, properties, performance, prospects or operations of the Borrower and its Subsidiaries taken as a whole, nor have such businesses or properties taken as a whole been materially adversely affected as a result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo or act of God; and (c) except as set forth in the financial statements referred to in Section 6.6(a) hereof or on Schedule 6.6 hereto, neither Borrower nor any Subsidiary has incurred, other than in the ordinary course of business, any (i) Indebtedness, (ii) Contingent Obligation or (iii) other commitment or liability which remains outstanding or unsatisfied, which are material to the Borrower and its Subsidiaries taken as a whole; 6.7. Title to Properties. ------------------- The Borrower and each Material Subsidiary has good title to all its real and personal properties, subject to no transfer restrictions or Liens of any kind, except for Permitted Liens; 6.8. Taxes. ------ The Borrower and each of its Significant Subsidiaries has filed or caused to be filed all federal, state and local tax returns which are required to be filed by it and, except for taxes and assessments being contested in good faith by appropriate proceedings diligently conducted and against which reserves reflected in the financial statements described in Section 6.6(a) hereof and as required by GAAP have been established, have paid or caused to be paid all taxes as shown on said returns or on any assessment received by it, to the extent that such taxes have become due and payable; 6.9. Other Agreements. ----------------- Neither the Borrower nor any Subsidiary is (a) a party to or subject to any judgment, order, decree, agreement, lease or instrument, or subject to other restrictions, which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect or would result in or require the creation of a Lien on the property or assets of any Credit Party; or (b) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which any Subsidiary is a party, which default has, or if not remedied within any applicable grace period could reasonably be likely to have, a Material Adverse Effect; or 50 (c) is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that could reasonably be expected to have, and no provision of applicable law or governmental regulation could reasonably be expected to have, a material adverse effect on the ability of the Borrower to carry out its obligations under this Agreement or any other Loan Document as such obligations become due. 6.10. Litigation. ---------- There is no action, suit, investigation or proceeding at law or in equity or by or before any governmental instrumentality or agency or arbitral body pending, or, to the knowledge of any Responsible Officer, threatened by or against the Borrower or any Subsidiary that (i) is reasonably likely to be determined adversely to the Borrower or such Subsidiary and which, if determined adversely to the Borrower or such Subsidiary, could reasonably be likely to have a Material Adverse Effect or (ii) questions the validity or enforceability of, or the ability of any Credit Party to perform under, any Loan Document; 6.11. Margin Stock. ------------- The proceeds of the borrowings made hereunder will be used by the Borrower only for the purposes expressly authorized herein. None of such proceeds will be used directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute any of the Loans under this Agreement a "purpose credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Borrower nor any agent acting in its behalf has taken or will take any action which might cause this Agreement or any of the documents or instruments delivered pursuant hereto to violate any regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any state securities laws, in each case as in effect on the date hereof; 6.12. Investment Company; Public Utility Holding Company. -------------------------------------------------- Neither the Borrower nor any Subsidiary is (a) an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80a-1, et seq.) or (b) a "holding company" as defined in, or otherwise subject to regulation under, the Public Utility Holding Company Act of 1935, as amended; 6.13. Intellectual Property. ----------------------- To the knowledge of each Responsible Officer, each of the Credit Parties owns, or has a license or otherwise has the right to use, in all jurisdictions in which it carries on business, all patents (including all applications, renewals, reissues, extensions, divisions, continuations and extensions thereof) trademarks (including both registered and unregistered trademarks and applications therefor), service marks, trade names, copyrights (including all registrations, renewals, modifications and extensions thereof), and know-how and trade secrets of material importance to the conduct of its business as currently conducted (collectively, the "Intellectual Property"), without violating or conflicting with any patent, license, franchise, trademark, trade secret, trade name, copyright, or other proprietary rights of any other Person, except where the failure to so own or have the right to use or such conflict could not 51 reasonably be expected to have a Material Adverse Effect. None of the Intellectual Property is subject to any Lien other than Permitted Liens; 6.14. No Untrue Statement. --------------------- Neither (a) this Agreement nor any other Loan Document or certificate or document executed and delivered by or on behalf of the Borrower or any other Credit Party in accordance with or pursuant to any Loan Document nor (b) any statement, representation, or warranty contained in the Loan Documents contains any misrepresentation or untrue statement of material fact or omits to state a material fact necessary, in light of the circumstance under which it was made, in order to make any such warranty, representation or statement contained therein not misleading in any material respect, and, to the extent that any such written statements constitute projections, such projections were prepared in good faith on the basis of assumptions, methods, data, tests and information believed by the Borrower to be valid and accurate at the time such projections were furnished to the Agent or such governmental authority, as the case may be; 6.15. No Consents, Etc. ----------------- Neither the respective businesses or properties of the Borrower or any Subsidiary, nor any relationship among the Borrower and its Subsidiaries and any other Person, nor any circumstance in connection with the execution, delivery and performance of the Loan Documents and the transactions contemplated thereby, is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority or any other Person on the part of the Borrower or any Subsidiary as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by the Loan Documents, or if so, such consent, approval, authorization, filing, registration or qualification has been duly obtained or effected, as the case may be; 6.16. Employee Benefit Plans. ---------------------- (a) The Borrower and each ERISA Affiliate is in compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder and in compliance with all Foreign Benefit Laws with respect to all Employee Benefit Plans except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired and except to the extent non-compliance does not or is not reasonably expected to have a Material Adverse Effect. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified. No material liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan; (b) Neither the Borrower nor any ERISA Affiliate has (i) engaged in a nonexempt prohibited transaction described in Section 4975 of the Code or Section 406 of ERISA affecting any of the Employee Benefit Plans or the trusts created thereunder which could subject any such Employee Benefit Plan or trust to a material tax or penalty on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA, (ii) incurred any accumulated funding deficiency within the meaning of Section 412 of the 52 Code with respect to any Pension Plan, whether or not waived, or any other material liability to the PBGC which remains outstanding other than the payment of premiums, (iii) failed to make a required contribution or payment to a Multiemployer Plan, or (iv) failed to make a required installment or other required payment under Section 412 of the Code, Section 302 of ERISA or the terms of such Employee Benefit Plan which, if not contributed, could reasonably be expected to have a Material Adverse Effect; (c) No Termination Event has occurred or is reasonably expected to occur with respect to any Pension Plan or Multiemployer Plan, and neither the Borrower nor any ERISA Affiliate has incurred any unpaid withdrawal liability with respect to any Multiemployer Plan; (d) The present value of all vested accrued benefits under each Employee Benefit Plan which is subject to Title IV of ERISA (determined in accordance with the assumptions used to compute the minimum funding standards under Section 302(b) of ERISA), did not, as of the most recent valuation date for each such plan, exceed the then current value of the assets of such Employee Benefit Plan allocable to such benefits; (e) To the Borrower's knowledge, each Employee Benefit Plan subject to Title IV of ERISA, maintained by the Borrower or any ERISA Affiliate, has been administered in accordance with its terms in all material respects and is in compliance in all material respects with all applicable requirements of ERISA and other applicable laws, regulations and rules except for any compliance for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired and except to the extent non-compliance does not or is not reasonably expected to have a Material Adverse Effect; (f) No material proceeding, claim, lawsuit and/or investigation exists or, to the best knowledge of the Borrower after due inquiry, is threatened concerning or involving any Employee Benefit Plan; 6.17. No Default. ---------- As of the date hereof, there does not exist any Default or Event of Default hereunder; 6.18. Hazardous Materials. -------------------- The Borrower and each Subsidiary is in compliance with all applicable Environmental Laws except to the xtent non-compliance could not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has been notified of any action, suit, proceeding or investigation which (i) calls into question compliance by the Borrower or any Subsidiary with any Environmental Laws, (ii) which seeks to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous Material, or (iii) which seeks to cause any property of the Borrower or any Subsidiary to be subject to any restrictions on ownership, use, occupancy or transferability under any Environmental Law to the extent any such non-compliance, suspension revocation or restriction, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; 53 6.19. Employment Matters. ------------------ (a) None of the employees of the Borrower or any Subsidiary is subject to any collective bargaining agreement and there are no strikes, work stoppages, election or decertification petitions or proceedings, unfair labor charges, equal opportunity proceedings, or other material labor/employee related controversies or proceedings pending or, to the knowledge of a Responsible Officer, threatened against the Borrower or any Subsidiary or between the Borrower or any Subsidiary and any of its employees, other than to the extent the foregoing arise in the ordinary course of business and could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and (b) Except to the extent a failure to maintain compliance could not reasonably be expected to have a Material Adverse Effect, the Borrower and each Subsidiary is in compliance in all respects with all applicable laws, rules and regulations pertaining to labor or employment matters, including without limitation those pertaining to wages, hours, occupational afety and taxation and there is neither pending or threatened any litigation, administrative proceeding nor, to the knowledge of a Responsible Officer, any investigation, in respect of such matters which, if decided adversely, could reasonably be likely, individually or in the aggregate, to have a Material Adverse Effect. 54 ARTICLE VII ----------- Affirmative Covenants --------------------- Until the Facility Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will, and where applicable will cause each Subsidiary to: 7.1. Financial Reports, Etc. ------------------------ (a) As soon as practical and in any event within 90 days after the end of each Fiscal Year of the Borrower, deliver or cause to be delivered to the Agent and each Lender (i) consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such Fiscal Year, and the notes thereto, and the related consolidated statements of income, stockholders' equity and cash flows, and the respective notes thereto, for such Fiscal Year, setting forth comparative financial statements for the preceding Fiscal Year, all prepared in accordance with GAAP applied on a Consistent Basis, except to the extent GAAP requires application of different accounting principles, and containing, with respect to the consolidated financial statements, opinions of Price Waterhouse, or other independent certified public accountants of Nationally Recognized Standing, which are unqualified as to the scope of the audit performed and as to the "going concern" status of the Borrower and without any exception not acceptable to the Lenders, and (ii) a certificate of an Authorized Representative demonstrating compliance with Sections 8.1(a) through 8.1(d) hereof, which certificate shall be in the form of Exhibit H; (b) as soon as practical and in any event within 45 days after the end of each fiscal quarter (except the last fiscal quarter of the Fiscal Year), deliver to the Agent and each Lender (i) consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal quarter and for the period from the beginning of the then current Fiscal Year through the end of such reporting period, and accompanied by a certificate of an Authorized Representative to the effect that such financial statements present fairly the financial position of the Borrower and its Subsidiaries as of the end of such fiscal period and the results of their operations and the changes in their financial position for such fiscal period, in conformity with the standards set forth in Section 6.6(a) hereof with respect to interim financial statements, and (ii) a certificate of an Authorized Representative containing computations for such quarter comparable to that required pursuant to Section 7.1(a)(ii) hereof; (c) together with each delivery of the financial statements required by Section 7.1(a)(i) hereof, deliver to the Agent and each Lender a letter from the Borrower's accountants specified in Section 7.1(a)(i) hereof stating that in performing the audit necessary to render an opinion on the financial statements delivered under Section 7.1(a)(i) hereof, they obtained no knowledge of any Default or Event of Default by the Borrower in the fulfillment of the terms and provisions of this Agreement insofar as they relate to financial matters (which at the date of such statement remains uncured); or if the accountants have obtained knowledge of such Default or Event of Default, a statement specifying the nature and period of existence thereof; 55 (d) promptly upon their becoming available to the Borrower, the Borrower shall deliver to the Agent and each Lender a copy of (i) all regular or special reports or effective registration statements which Borrower shall file with the Securities and Exchange Commission (or any successor thereto) or any securities exchange, (ii) any proxy statement distributed by the Borrower to its shareholders, bondholders or the financial community in general, and (iii) any management letter or other report submitted to the Borrower by independent accountants in connection with any annual or special audit of the Borrower; (e) promptly, from time to time, deliver or cause to be delivered to the Agent and each Lender such other information regarding Borrower's and any Subsidiary's operations, business affairs and financial condition as the Agent or such Lender may reasonably request. The Agent and the Lenders are hereby authorized to deliver a copy of any such financial or other information delivered hereunder to the Lenders (or any affiliate of any Lender) or to the Agent, to any Governmental Authority having jurisdiction over the Agent or any of the Lenders pursuant to any written request therefor or in the ordinary course of examination of loan files, or to any other Person who shall acquire or consider the assignment of, or acquisition of any participation interest in, any Obligation permitted by this Agreement; 7.2. Maintain Properties. ------------------- Maintain all properties of any Credit Party necessary to its operations in good working order and condition, as reasonably necessary to conduct its business as currently conducted or as contemplated hereby and in accordance with customary and prudent business practices; 7.3. Existence, Qualification, Etc. -------------------------------- Except as otherwise expressly permitted under Sections 8.5 and 8.7 hereof, do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all material rights and franchises, and maintain its license or qualification to do business as a foreign corporation and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary except where the failure to so preserve and keep or maintain the same or to so qualify could not reasonably be expected to have a Material Adverse Effect; 7.4. Regulations and Taxes. ----------------------- Comply in all material respects with or contest in good faith all statutes and governmental regulations and pay all material taxes, assessments, governmental charges, claims for labor, supplies, rent and any other obligation which, if unpaid, would become a Lien against any material portion of any Credit Party's properties except liabilities being contested in good faith by appropriate proceedings diligently conducted and against which all reserves with respect thereto as may be required by GAAP have been established unless and until any Lien resulting therefrom attaches to any of its property and becomes enforceable against its creditors; 7.5. Insurance. ---------- (a) Keep all of its insurable properties adequately insured at all times with financially sound and responsible insurance carriers against loss or damage by fire and other hazards to the extent and in the manner as is consistent with past practice, (b) maintain general public liabilityinsurance at all times 56 with responsible insurance carriers against liability on account of damage to persons and property, (c) maintain insurance against interruption of its business operations and, (d) maintain insurance under all applicable workers' compensation laws (or in the alternative, maintain required reserves if self-insured for workers' compensation purposes), all such policies of insurance to have such limits, deductibles, exclusions, co-insurance and other provisions providing no less coverages than is consistent with past practice. Each of the issuers of the policies of insurance described in this Section 7.5 shall undertake to provide the Agent not less than thirty (30) days' prior written notice before any such policy shall be terminated, lapse or be altered in any manner; 7.6. True Books. ----------- Keep true books of record and account in which, to the extent required by GAAP, full, true and correct entries will be made of all of its dealings and transactions, and set up on its books such reserves as may be required by GAAP with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business in general, and include such reserves in interim as well as year-end financial statements; 7.7. Right of Inspection. -------------------- Permit any Person designated by any Lender or the Agent (such Person to be subject to a Confidentiality Agreement) to visit and inspect at the Agent's or such Lender's expense any of the properties, corporate books and financial reports of the Borrower or any Subsidiary and to discuss its affairs, finances and accounts with its principal officers and independent certified public accountants, all at reasonable times, at reasonable intervals and with reasonable prior notice; provided that, upon and during the continuance of an Event of Default, all costs and expenses incurred in connection with any such visits and inspections shall be paid by the Borrower; 7.8. Observe all Laws. ------------------ Conform to and duly observe in all material respects all laws, rules and regulations and all other valid requirements of any Governmental Authority with respect to the conduct of its business, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; 7.9. Governmental Licenses. --------------------- Obtain and maintain all licenses, permits, certifications and approvals of all applicable Governmental Authorities as are required for the conduct of its business as currently conducted and as contemplated by the Loan Documents, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; 7.10. Covenants Extending to Subsidiaries. ------------------------------------ Cause each of its Significant Subsidiaries to do with respect to itself, its business and its assets, each of the things required of the Borrower in Sections 7.2 through 7.9, 7.18 and 7.19 hereof inclusive; 7.11. Officer's Knowledge of Default. ------------------------------- Upon any Responsible Officer obtaining knowledge of any Default or Event of Default hereunder or under any other obligation of the Borrower or other Credit Party to any Lender, notify the Agent of the nature thereof, the period of existence thereof and what action the Borrower or other Credit Party proposes to take with respect thereto; 57 7.12. Suits or Other Proceedings. ----------------------------- Upon any Responsible Officer obtaining knowledge of any litigation or other proceedings being instituted against the Borrower or other Credit Party, or any attachment, levy, execution or other process being instituted against any assets of the Borrower or any other Credit Party, making a claim or claims in an aggregate amount greater than $15,000,000 not otherwise covered by insurance, promptly deliver to the Agent written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process; 7.13. Notice of Discharge of Hazardous Material or Environmental Complaint. --------------------------------------------------------------------- Promptly provide to the Agent true, accurate and complete copies of any and all notices, complaints, orders, directives, claims, or citations received by the Borrower or any Significant Subsidiary relating to any (a) material violation or alleged material violation by any applicable Environmental Law; (b) release or threatened release by the Borrower or any Significant Subsidiary on any facility or property owned or leased or operated by the Borrower or any Significant Subsidiary, of any Hazardous Material, except where occurring legally; or (c) liability or alleged liability of the Borrower or any Significant Subsidiary for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials; 7.14. Environmental Compliance. -------------------------- If the Borrower or any Significant Subsidiary shall receive any letter, notice, complaint, order, directive, claim or citation alleging that the Borrower or such Significant Subsidiary is liable for any material cost of cleaning up, removing, remediating or responding to a release of Hazardous Materials, the Borrower shall, within the time period permitted by the applicable Environmental Law or the Governmental Authority responsible for enforcing such Environmental Law, remove or remedy, or cause the applicable Significant Subsidiary to remove or remedy, such violation or release or satisfy such liability unless and only during the period that the applicability of the Environmental Law, the fact of such violation or liability or what is required to remove or remedy such violation is being contested by the Borrower or the applicable Significant Subsidiary by appropriate proceedings diligently conducted and all reserves with respect thereto as may be required under GAAP, if any, have been made, and no Liens in connection therewith shall have attached to any property of the Borrower or the applicable Significant Subsidiary which shall have become enforceable against creditors of such Person and which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect; 7.15. Indemnification. --------------- Subject to and without limiting the generality of Section 11.9 hereof, the Borrower hereby agrees to indemnify and hold the Agent, the Lenders, and their respective officers, directors, employees and agents, harmless from and against any and all claims, losses, penalties, liabilities, damages and documented out-of-pocket expenses (including assessment and cleanup costs and reasonable attorneys' fees and disbursements) arising directly or indirectly from, out of or by reason of (a) the violation of any Environmental Law by the Borrower or any Subsidiary or with respect to any property owned, operated or leased by the Borrower or any Subsidiary or (b) the handling, storage, treatment, emission or disposal of any Hazardous Materials by or on behalf of the Borrower or any Subsidiary or on or with respect to property owned or leased or operated by the Borrower or any Subsidiary; 58 7.16. Further Assurances. -------------------- At the Borrower's cost and expense, upon written request of the Agent, duly execute and deliver or cause to be duly executed and delivered, to the Agent such further instruments, documents and certificates and do and cause to be done such further acts that may be reasonably necessary to carry out more effectively the provisions and purposes of this Agreement and the other Loan Documents; 7.17. Employee Benefit Plans. ----------------------- (a) With reasonable promptness, and in any event within thirty (30) days thereof, give notice to the Agent of (a) the establishment of any new Pension Plan (which notice shall include a copy of such plan), (b) the commencement of contributions to any Employee Benefit Plan to which the Borrower or any of its ERISA Affiliates was not previously contributing, (c) any material increase in the benefits of any existing Pension Plan, (d) each funding waiver request filed with respect to any Employee Benefit Plan and (e) the failure of the Borrower or any ERISA Affiliate to make a required installment or payment under Section 302 of ERISA or Section 412 of the Code by the due date which, if not made could reasonably be expected to have a Material Adverse Effect; (b) Promptly and in any event within fifteen (15) days of becoming aware of the occurrence or forthcoming occurrence of any (a) Termination Event or (b) nonexempt "prohibited transaction," as such term is defined in Section 406 of ERISA or Section 4975 of the Code, in connection with any Pension Plan or any trust created thereunder, deliver to the Agent a notice specifying the nature thereof, what action the Borrower or any ERISA Affiliate has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (c) With reasonable promptness but in any event within fifteen (15) days for purposes of clauses (a) and (b) and within sixty (60) days of the filing of the annual report for purposes of clause (c), deliver to the Agent copies of (a) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code, (b) all notices received by the Borrower or any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (c) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrower or any ERISA Affiliate with the Internal Revenue Service with respect to each Pension Plan and (d) all notices received by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA. The Borrower will notify the Agent in writing within five (5) Business Days of the Borrower or any ERISA Affiliate obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA; 59 7.18. Continued Operations. --------------------- Continue at all times to conduct its business and engage principally in the same line or lines of business substantially as heretofore conducted; 7.19. New Material Subsidiaries. ------------------------- Within 30 days of the acquisition or creation of any Material Subsidiary, or upon any existing Subsidiary becoming a Material Subsidiary, cause to be delivered to the Agent for the benefit of the Lenders each of the following, as applicable: (a) a Subsidiary Guaranty executed by such Material Subsidiary substantially in the form of Exhibit I; and (b) an opinion of counsel to such Material Subsidiary dated as of the date of delivery of the Subsidiary Guaranty and other Loan Documents provided for in this Section 7.19(a) and addressed to the Agent and the Lenders, in form and substance reasonably acceptable to the Agent, which opinion shall include substantially identical opinions as those delivered to the Agent and the Lenders on the Closing Date with respect to comparable matters and from comparable jurisdictions and which opinion may include assumptions and qualifications, all of similar effect to those contained in the opinions of counsel delivered pursuant to Section 5.1(a) hereof. 60 ARTICLE VIII ------------ Negative Covenants ------------------ Until the Facility Termination Date, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, nor will it permit any Subsidiary or Significant Subsidiary, as applicable, to violate any of the following provisions: 8.1. Financial Covenants. -------------------- The Borrower and its Subsidiaries will not: (a) Consolidated Leverage Ratio. Permit at any time during any Four-Quarter Period of the Borrower, the Consolidated Leverage Ratio to be greater than 2.25 to 1.00. (b) Consolidated Fixed Charge Ratio. Permit at any time during any Four - Quarter Period of the Borrower the Consolidated Fixed Charge Ratio to be less than 1.50 to 1.00. (c) Consolidated Tangible Net Worth. Permit at any time Consolidated Tangible Net Worth to be less than $375,000,000, such amount to be increased as at the first day of each fiscal quarter, beginning with the fiscal quarter ending December 31, 1997, by an amount equal to (a) fifty percent (50%) of Consolidated Net Income during the immediately preceding fiscal quarter, plus (b) one hundred percent (100%) of the Net Proceeds of any Equity Offering consummated during the immediately preceding fiscal quarter; provided, however, in no event shall the Consolidated Tangible Net Worth requirement be decreased as a result of a net loss of the Borrower and its Subsidiaries (i.e., negative Consolidated Net Income) for any fiscal quarter. Any increase calculated pursuant hereto shall be determined based upon financial statements delivered in accordance with Section 7.1(a) hereof; provided, however such increase shall be deemed effective as of the first day of the fiscal quarter in which such financial statements are delivered. (d) Consolidated Liquidity Ratio. Permit at any time during any Four - Quarter Period of the Borrower the Consolidated Liquidity Ratio to be less than 1.50 to 1.00. 8.2. Acquisitions. ------------ Neither the Borrower, nor any Subsidiary shall enter into any agreement, contract, binding commitment or other arrangement providing for any Acquisition or take any action to solicit the tender of securities or proxies in respect thereof in order to effect any Acquisition, unless (i) the Person to be (or whose assets are to be) acquired does not oppose such Acquisition, (ii) no Default or Event of Default shall have occurred and be continuing either immediately prior to or immediately after giving effect to such Acquisition, (iii) if the Cost of Acquisition shall exceed $25,000,000, the Borrower shall have furnished to the Agent a certificate in the form of Exhibit H prepared on a historical pro forma basis giving effect to such Acquisition, which certificate shall demonstrate that no Default or Event of Default would exist immediately 61 after giving effect thereto, and pro forma historical financial statements as of the end of the most recently completed Fiscal Year of the Borrower and most recent interim fiscal quarter, if applicable, giving effect to such Acquisition and (iv) the Cost of Acquisition, in the aggregate with all Costs of Acquisition during the Four-Quarter Period in which the Acquisition is closed, does not exceed twenty percent (20%) of Consolidated Tangible Net Worth as at the beginning of such Four-Quarter Period; 8.3. Liens. ----- Neither the Borrower nor any Significant Subsidiary shall incur, create or permit to exist any Lien, charge or other encumbrance of any nature whatsoever with respect to any property or assets now owned or hereafter acquired by the Borrower or any Significant Subsidiary, other than the following (collectively "Permitted Liens"): (a) Liens existing as of the date hereof and as set forth in Schedule 6.7; (b) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP and which Liens are not yet enforceable; (c) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law or created in the ordinary course of business and in existence less than 90 days from the date of creation thereof for amounts not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP and which Liens are not yet enforceable; (d) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure (or to obtain letters of credit that secure) the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations or tax obligations or refunds, and other similar obligations or arising as a result of progress payments under government contracts; (e) easements (including reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Borrower or any Significant Subsidiary and which do not materially detract from the value of the property to which they attach or materially impair the use thereof to the Borrower or any Significant Subsidiary; and 62 (f) purchase money Liens to secure Indebtedness permitted under Section 8.4(d) hereof, including any refinancing thereof permitted under Section 8.4(m) hereof, provided that no such Lien shall extend to any property other than the assets so purchased; (g) Liens arising in connection with Capital Leases permitted under Section 8.4(f) hereof; provided that no such Lien shall extend to any property other than the assets subject to such Capital Leases; (h) Liens on the property or assets of a Significant Subsidiary acquired after the date hereof securing Indebtedness permitted by Section 8.4(j) hereof, provided that (i) such Liens existed at the time such corporation became a Subsidiary and were not created in anticipation thereof, (ii) any such Lien does not attach to any additional property or assets of such corporation (other than the proceeds of the property subject to such Lien on the date such corporation becomes a Subsidiary and after-acquired property of such corporation on which a Lien had been granted prior to such date) after the time such corporation becomes a Subsidiary, and (iii) the amount of Indebtedness secured thereby is not increased; (i) Liens arising pursuant to one or more orders of attachment, distraint or similar legal process issued in connection with one or more court proceedings (which may or may not be related) so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby do not exceed $2,500,000 in the aggregate and are being contested in good faith by appropriate proceedings diligently conducted; and (j) other incidental Liens which do not individually or in the aggregate materially interfere with the use, occupancy or operation of any property to which they attach and which secured Indebtedness or obligations in an aggregate amount not greater than $5,000,000. 8.4. Indebtedness. ------------- Neither the Borrower nor any Significant Subsidiary shall incur, create, assume or permit to exist any Indebtedness of the Borrower or any Significant Subsidiary,howsoever evidenced, except: (a) Indebtedness existing as of the Closing Date as set forth in Schedule 6.6; provided, none of the instruments and agreements evidencing or governing such Indebtedness shall be amended, modified or supplemented after the Closing Date to change any terms of subordination, repayment or rights of conversion, put, exchange or other rights from such terms and rights as in effect on the Closing Date or to change any terms in a manner not permitted under Section 8.4(m) hereof with respect to any refinancing; (b) Indebtedness owing to the Agent or any Lender in connection with this Agreement, any Note or other Loan Document; 63 (c) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (d) Indebtedness not to exceed an aggregate principal outstanding amount at any time of $15,000,000 incurred to purchase fixed assets, provided such Indebtedness represents not less than 75% nor more than 100% of the purchase price or market value, whichever is less, of such assets as of the date of purchase thereof; (e) Indebtedness arising from Hedging Obligations not prohibited under Section 8.14 hereof; (f) Indebtedness consisting of Capital Leases not to exceed an aggregate amount outstanding at any time of $5,000,000; (g) unsecured intercompany Indebtedness of the Borrower or any Material Subsidiary owing to any non-Guarantor Subsidiary, provided that such Indebtedness shall be subordinated upon terms substantially the same as set forth in Exhibit J hereto and, if evidenced by a note or other instrument, such instrument shall be non-negotiable; (h) unsecured intercompany Indebtedness of the Borrower or any Material Subsidiary owing to a Material Subsidiary; (i) Indebtedness of the Borrower or a Subsidiary hereunder incurred to fund part of the Cost of Acquisition in connection with an Acquisition permitted hereunder, provided such Indebtedness is owed to the selling party in such Acquisition and is evidenced by a promissory note which is subordinated to the Obligations hereunder on terms substantially the same as set forth in Exhibit J hereto; (j) Indebtedness for Borrowed Money of a Person acquired in an Acquisition permitted under Section 8.2 hereof so long as (i) such Indebtedness is not incurred in contemplation of such Acquisition, and (ii) the aggregate principal amount of all such Indebtedness does not exceed $10,000,000; (k) Indebtedness in connection with contingent lease obligations in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis arising from recourse lease transactions in an aggregate amount not in excess of $25,000,000; (l) intercompany Indebtedness of non-Guarantor Subsidiaries permitted under Section 8.6(e) or (h) hereof; (m) additional unsecured Indebtedness for Money Borrowed not otherwise covered by clauses (a) through (k) above, provided that the aggregate outstanding principal amount of all such other Indebtedness permitted under this clause (k) shall in no event exceed $5,000,000 at any time; 64 (n) Indebtedness consisting of short-term overdraft facilities arising in the ordinary course of business and consistent with past practice and to the extent repaid within 30 days of incurrence; (o) Indebtedness of the Borrower consisting of Guaranties of performance obligations of Subsidiaries entered into in the ordinary course of business and consistent with past practice of the Borrower; and (p) Indebtedness extending the maturity of, or renewing, refunding or refinancing, in whole or in part, Indebtedness incurred created, assumed or permitted under clauses (a), (d), (f), (g), (h), (i), (j), (k), (l) or (m) of this Section 8.4, provided that the terms of any such extension, renewal, refunding or refinancing Indebtedness (and of any agreement or instrument entered into in connection therewith) are no less favorable to the Agent and the Lenders than the terms of the Indebtedness as in effect prior to such action, and provided further that (1) the aggregate principal amount of or interest rate or rates and fees payable on such extended, renewed, refunded or refinanced Indebtedness shall not be increased by such action, (2) the group of direct or contingent obligors on such Indebtedness shall not be expanded as a result of any such action, and (3) immediately before and immediately after giving effect to any such extension, renewal, refunding or refinancing, no Default or Event of Default shall have occurred and be continuing. 8.5. Transfer of Assets; Issuance of Capital Stock. ----------------------------------------------- (a) Neither the Borrower nor any Significant Subsidiary shall sell, lease, transfer or otherwise dispose of any of its assets, including any sale of any capital stock of a Significant Subsidiary (or any option, warrant or right to acquire such stock), other than (i) dispositions of inventory, demonstration equipment, or equipment on rotation in the ordinary course of business, (ii) dispositions of equipment which, in the aggregate during any Fiscal Year, have a fai market value or book value, whichever is less, of $10,000,000 or less and is not replaced by equipment having at least equivalent value,(iii) dispositions of property that is substantially worn, damaged, obsolete or, in the judgment of the Borrower, no longer best used or useful in its business or that of any Significant Subsidiary, iv) transfers of assets necessary to give effect to merger or consolidation liquidation or dissolution transactions permitted by Section 8.7 hereof and (v) the disposition of Eligible Securities in the ordinary course of management of the investment portfolio of the Borrower and its Significant Subsidiaries. (b) The Borrower shall not permit any Significant Subsidiary to issue any shares of capital stock to any Person other than a Material Subsidiary or the Borrower. 8.6. Investments. ------------ Neither the Borrower nor any Significant Subsidiary shall purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities, or make or permit to exist any interest whatsoever in any other Person or permit to exist any loans or advances to any Person, except the Borrower and its Significant Subsidiaries may: (a) own securities of any Person acquired in an Acquisition permitted hereunder and de minimis equity interests in any Person; 65 (b) own Eligible Securities; (c) maintain investments existing as of the date hereof not otherwise provided for in this Section 8.6 and as set forth in Schedule 6.4 hereof; (d) create accounts receivable arising and provide trade credit granted in the ordinary course of business and own any securities received in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; (e) in addition to any Indebtedness permitted under clause (h) below, make or maintain unsecured intercompany loans, advances and cash investments by the Borrower or any Significant Subsidiary to or in any non-Guarantor Subsidiary in an aggregate amount not in excess of $10,000,000; provided that if the obligations thereunder are evidenced by a note or other instrument, such instrument shall be non-negotiable; (f) make and maintain loans and advances between the Borrower and its Material Subsidiaries and between a Material Subsidiary and any other Material Subsidiary; (g) make and maintain cash investments in non-Guarantor Subsidiaries in an aggregate amount outstanding at any time not in excess of $10,000,000; (h) make and maintain non-cash investments in Non-Guarantor Subsidiaries in the form of sales or transfers of inventory to such Subsidiaries consistent with past practice and in the ordinary course of business, whether in the form of accounts receivable or Indebtedness derived therefrom owing from the Subsidiary; (i) make and maintain investments in any Person or Persons engaged in the same or similar line of business as the Borrower, which is acquired in an Acquisition permitted under Section 8.2 hereof; (j) make loans and advances to its officers, directors and employees for any business purpose in an aggregate amount outstanding at any time not in excess of $750,000; (k) invest in key man life insurance with respect to its executive officers; and (l) make other loans, advances and investments in an aggregate principal amount at any time outstanding not to exceed $15,000,000. 8.7. Merger or Consolidation. ----------------------- Neither the Borrower nor any Subsidiary shall (a)consolidate with or merge into any other Person, or (b) permit any other Person to merge into it; provided,however (i) any Subsidiary of the Borrower may merge or transfer all or substantiallyall of its assets inot or consldate with the Borrower or 66 any Guarantor, (ii) any non-Guarantor Subsidiary may merge or consolidate with or into any other non-Guarantor Subsidiary and (iii) any other Person may merge into or consolidate with the Borrower or any wholly-owned Subsidiary and any Subsidiary may merge into or consolidate with any other Person in order to consummate an Acquisition permitted by Section 8.2 hereof provided further, that any resulting or surviving entity shall execute and deliver such agreements and other documents, including a Subsidiary Guaranty, and take such other action required under Section 7.19 hereof or as the Agent may reasonably require to evidence or confirm its express assumption of the obligations and liabilities of its predecessor entities under the Loan Documents to which such predecessor entities were party; 8.8. Restricted Payments. ------------------- Neither the Borrower nor any Subsidiary shall make any Restricted Payment or apply or set apart any of their assets therefor or agree to do any of the foregoing; 8.9. Transactions with Affiliates. ----------------------------- Other than transactions permitted under Sections 8.7 and 8.8, neither the Borrower nor any Subsidiary shall enter into any transaction after the Closing Date, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, or the rendering of any service, with any Affiliate of the Borrower, except (a) that such Affiliates may render services to the Borrower or its Subsidiaries for compensation at the same rates generally paid by Persons engaged in the same or similar businesses for the same or similar services, (b) that the Borrower or any Subsidiary may render services to such Affiliates for compensation at the same rates generally charged by the Borrower or such Subsidiary, (c) in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's (or any Subsidiary's) business and upon fair and reasonable terms no less favorable to the Borrower (or any Subsidiary) than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate or (d)transactions described in Section 8.6(g) hereof; 8.10. Compliance with ERISA. ---------------------- Neither the Borrower nor any Subsidiary shall with respect to any Pension Plan, Employee Benefit Plan or Multiemployer Plan: (a) permit the occurrence of any Termination Event which would result in a liability on the part of the Borrower or any ERISA Affiliate to the PBGC except where such occurrence could not reasonably be expected to have a Material Adverse Effect; or (b) permit any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code) with respect to any Pension Plan, whether or not waived, except where such occurrence could not reasonably be expected to have a Material Adverse Effect; or (c) fail to make any contribution or payment to any Multiemployer Plan which the Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; or 67 (d) engage, or permit any Borrower or any ERISA Affiliate to engage, in any prohibited transaction under Section 406 of ERISA or Sections 4975 of the Code for which a civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant to Section 4975 of the Code may be imposed except where such occurrence could not reasonably be expected to have a Material Adverse Effect; or (e) permit the establishment of any Employee Benefit Plan providing post-retirement welfare benefits, or establish or amend any Employee Benefit Plan which establishment or amendment could result in any liability to the Borrower or any ERISA Affiliate or increase the obligation of the Borrower or any ERISA Affiliate to a Multiemployer Plan except where such liability or increased obligation could not reasonably be expected to have a Material Adverse Effect; or (f) fail, or permit the Borrower or any ERISA Affiliate to fail, to establish, maintain and operate each Employee Benefit Plan in compliance in all material respects with the provisions of ERISA, the Code, all applicable Foreign Benefit Laws and all other applicable laws and the regulations and interpretations thereof except where such occurrence could not reasonably be expected to have a Material Adverse Effect; 8.11. Fiscal Year. ------------ Neither the Borrower nor any Subsidiary shall change its Fiscal Year; 8.12. Dissolution, etc. ------------------ Neither the Borrower nor any Significant Subsidiary shall wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking any such winding up, liquidation or dissolution, except in connection with a merger or consolidation permitted pursuant to Section 8.7 hereof; 8.13. Limitations on Sales and Leasebacks. ----------------------------------- Neither the Borrower nor any Significant Subsidiary shall enter into any arrangement with any Person providing for the leasing by the Borrower or any Significant Subsidiary of real or personal property, whether now owned or hereafter acquired in a related transaction or series of related transactions, which has been or is to be sold or transferred by the Borrower or any Significant Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Borrower or any Significant Subsidiary (a "Sale and Leaseback Transaction"); provided however, the Borrower or any Significant Subsidiary may enter into Sale and Leaseback Transactions to the extent the aggregate amount of all payments made in connection therewith during any twelve month period do not exceed $10,000,000; 8.14. Hedging Obligations. -------------------- Neither the Borrower nor any Significant Subsidiary shall incur any Hedgin Obligations, or enter into any agreements, arrangements, devices or instruments relating to Hedging Obligations, for speculative or investment purposes; 8.15. Negative Pledge Clauses. ------------------------ Neither the Borrower nor any Subsidiary shall enter into or cause, suffer or permit to exist any agreement with any Person other than the Agent and the Lenders pursuant to this Agreement or any other Loan Documents which prohibits or limits the ability of any of the Borrower or any Subsidiary to create, incur 68 assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, provided that the Borrower and any Subsidiary may enter into such an agreement in connection with, and limited to, property acquired with the proceeds of purchase money Indebtedness permitted hereunder; 8.16. Change in Accountants. --------------------- The Borrower shall not change its independent public accountants to any accounting firm other than an accounting firm of Nationally Recognized Standing; 8.17. Limitations on Certain Restrictive Covenants. ------------------------------------------------- Neither the Borrower nor any Subsidiary shall enter into, or permit to exist, with any Person any agreement (other than this Agreement) which prohibits or limits the ability of any Subsidiary to declare or pay any dividend or make any loan to or investment in the Borrower or any other owner of such Subsidiary. 8.18. Payment of Indebtedness. ------------------------ The Borrower shall not make any optional redemption of any Indebtedness outstanding under the Indenture nor deposit any funds with the Trustee (as defined in the Indenture) pursuant to Section 13.1(b)of the Indenture in order to effect, directly or indirectly, an optional redemption if (a) an Event of Default has occurred and is continuing or such prepayment would create a Default or Event of Default, (b) there are any Outstandings hereunder or (c) the sum of cash plus Eligible Securities of the Borrower is less than $500,000,000. 69 ARTICLE IX ---------- Events of Default and Acceleration ----------------------------------- 9.1. Events of Default. ------------------ If any one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority), that is to say: (a) if default shall be made in the due and punctual payment of the principal or interest of any Loan, Swing Line Loan, or Reimbursement Obligation, when and as the same shall be due and payable whether pursuant to any provision of Article II or Article III hereof, at maturity, by acceleration or otherwise; or (b) if default shall be made in the due and punctual payment of any fees or other Obligations payable to NationsBank, any of the Lenders or the Agent on the date on which the same shall be due and payable and such default shall continue for a period of five (5) Business Days after notice of such default is received from the Agent or any Lender; or (c) if default shall be made in the performance or observance of any covenant set forth in Section 7.3, 7.7, 7.11, 7.12, 7.19 or Article VIII; (d) if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in this Agreement or the Notes (other than as described in clauses (a), (b) or (c) above) and such default shall continue for 30 or more days after the earlier of receipt of notice of such default by the Authorized Representative from the Agent or any Lender, or a Responsible Officer of the Borrower becomes aware of such default, or if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in any of the other Loan Documents (beyond any applicable grace period, if any, contained therein) or in any instrument or document evidencing or creating any obligation, guaranty, or Lien in favor of the Agent or any of the Lenders or delivered to the Agent or any of the Lenders in connection with or pursuant to this Agreement or any of the Obligations, or if any Loan Document ceases to be in full force and effect (other than by reason of any action by the Agent or in accordance with its terms), or if without the written consent of the Lenders, this Agreement or any other Loan Document shall be disaffirmed or shall ter minate, be terminable or be terminated or become void or unenforceable for any reason whatsoever (other than in accordance with its terms in the absence of default or by reason of any action by the Lenders or the Agent); or (e) if there shall occur (i) a default, which is not waived, in the payment of any principal, interest, premium or other amount with respect to any Indebtedness(other than the Loans and other Obligations) 70 of the Borrower or any Subsidiary which Indebtedness is in an amount not less than $15,000,000 in the aggregate outstanding, or (ii) a default, which is not waived, in the performance, observance or fulfillment of any term or covenant contained in any agreement instrument under or pursuant to which any such Indebtedness may have been issued, created, assumed, guaranteed or secured by the Borrower or any Subsidiary, and such default or event of default shall continue for more than the period of grace, if any, therein specified, or such default or event of default shall permit the holder of any such Indebtedness (or any agent or trustee acting on behalf of one or more holders) to accelerate the maturity thereof; or (f) if any representation, warranty or other statement of fact contained in any Loan Document or in any writing, certificate, report or statement at any time furnished to the Agent or any Lender by or on behalf of the Borrower or any other Credit Party pursuant to or in connection with any Loan Document, or otherwise, shall be false or misleading in any material respect when given; or (g) if the Borrower or any other Credit Party shall be unable to pay its debts generally as they become due; file a petition to take advantage of any insolvency statute; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; file a petition or answer seeking liquidation, reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute; or (h) if a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of the Borrower or any other Credit Party or of the whole or any substantial part of its properties and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days, or approve a petition filed against the Borrower or any other Credit Party seeking liquidation, reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state, which petition is not dismissed within sixty (60) days; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of the Borrower or any other Credit Party or of the whole or any substantial part of its properties, which control is not relinquished within sixty (60) days; or if there is commenced against the Borrower or any other Credit Party any proceeding or petition seeking reorganization, arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state which proceeding or petition remains undismissed for a period of sixty (60) days; or if the Borrower or any other Credit Party takes any action to indicate its consent to or approval of any such proceeding or petition; or (i)if (i) one or more judgments or orders where the amount not covered by insurance (or the amount as to which the insurer denies liability) in excess of $15,000,000 is rendered against the Borrower 71 or any Subsidiary, or (ii) there is any attachment, injunction or execution against any of the Borrower's or Subsidiaries' properties for any amount in excess of $15,000,000 in the aggregate; and such judgment, attachment, injunc tion or execution remains unpaid, unstayed undischarged, unbonded or undismissed for a period of sixty (60) days; or (j) if the Borrower or any Subsidiary shall, other than in the ordinary course of business (as determined by past practices), suspend all or any part of its operations material to the conduct of the business of the Borrower or such Subsidiary for a period of more than 60 days; or (k) if the Borrower or any Subsidiary shall breach any of the material terms or conditions of any agreement under which any Hedging Obligations permitted hereby is created and such breach shall continue beyond any grace period, if any, relating thereto pursuant to the terms of such agreement, or if the Borrower or any Subsidiary shall disaffirm or seek to disaffirm any such agreement or any of its obligations thereunder; or (l) if a Change of Control shall occur; then, and in any such event and at any time thereafter, if such Event of Default or any other Event of Default shall have not been waived, (A) either or both of the following actions may be taken: (i) the Agent, with the consent of the Required Lenders may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders, NationsBank and the Issuing Bank to make further Revolving Loans or Swing Line Loans or to issue additional Letters of Credit terminated, whereupon the obligation of each Lender to make further Revolving Loans and of NationsBank to make Swing Line Loans and of the Issuing Bank to issue additional Letters of Credit, hereunder shall terminate immediately, and (ii) the Agent shall at the direction of the Required Lenders, at their option, declare by notice to the Borrower any or all of the Obligations to be immediately due and payable, and the same, including all interest accrued thereon and all other obligations of the Borrower to the Agent and the Lenders, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Obligations to the contrary notwithstanding; provided, however, that notwithstanding the above, if there shall occur an Event of Default under clause (g) or (h) above, then the obligation of the Lenders to make Revolving Loans, and of NationsBank to make Swing Line Loans and of the Issuing Bank to issue Letters of Credit hereunder shall automatically terminate and any and all of the Obligations shall be immediately due and payable without the necessity of any action by the Agent or the Required Lenders or notice to or by the Agent or the Lenders; 72 (B) The Borrower shall, upon demand of the Agent or the Required Lenders, deposit cash with the Agent in an amount equal to the amount of any Letter of Credit Outstandings, as collateral security for the repayment of any future drawings or payments under such Letters of Credit, and such amounts shall be held by the Agent pursuant to the terms of the Cash Collateral Account Agreement; and (C) the Agent and each of the Lenders shall have all of the rights and remedies available under the Loan Documents or under any applicable law. 9.2. Agent to Act. ------------- In case any one or more Events of Default shalloccur and not have been waived, the Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Obligations or any other legal or equitable right or remedy. 9.3. Cumulative Rights. ------------------- No right or remedy herein conferred upon the Lenders or the Agent is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 9.4. No Waiver. ---------- No course of dealing between the Borrower and any Lender or the Agent or any failure or delay on the part of any Lender or the Agent in exercising any rights or remedies under any Loan Document or otherwise available to it shall operate as a waiver of any rights or remedies and no single or partial exercise of any rights or remedies shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. 9.5. Allocation of Proceeds. ----------------------- If an Event of Default has occurred and not been waived, and the maturity of the Notes has been accelerated pursuant to Article XI hereof, all payments received by the Agent hereunder, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrower hereunder, shall be applied by the Agent in the following order: (a) amounts due to the Lenders pursuant to Sections 2.10, 3.3, 3.4 and 11.5; (b) amounts due to the Agent pursuant to Section 10.9; (c) payments of interest on Loans, Swing Line Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders; (d) payments of principal of Loans, Swing Line Loans and Reimbursement Obligations, to be applied for the ratable benefit of the Lenders; 73 (e) payments of cash amounts to the Agent in respect of Letter of Credit Outstandings pursuant to Section 9.1(l)(B); (f) amounts due to the Lenders pursuant to Sections 3.2(g), 7.15 and 11.9; (g) payments of all other amounts due to the Lenders under any of the Loan Documents, if any, to be applied for the ratable benefit of the Lenders; (h) amounts due to any of the Lenders in respect of Obligations consisting of liabilities under any Swap Agreement with any of the Lenders on a pro rata basis according to the amounts owed; and (i) any surplus remaining after application as provided for herein, to the Borrower or otherwise as may be required by applicable law. 74 ARTICLE X --------- The Agent --------- 10.1. Appointment, Powers, and Immunities. ------------------------------------- Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 10.5 hereof and the first sentence of Section 10.6 hereof shall include its affiliates and its own and its affiliates' officers, directors employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not be responsible to the Lenders for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Credit Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any Credit Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Credit Party or any of its Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. 10.2. Reliance by Agent. ----------------- The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telefacsimile) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Credit Party), independent accountants, and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the holder thereof for all 75 purposes hereof unless and until the Agent receives and accepts an Assignment and Acceptance executed in accordance with Section 11.1 hereof. As to any matters not expressly provided for by this Agreement, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Loan Document or applicable law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. 10.3. Defaults. -------- The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Lender or the Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 10.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. 10.4. Rights as Lender. ----------------- With respect to its Revolving Credit Commitment and the Loans made by it, NationsBank (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust, or other business with any Credit Party or any of its Subsidiaries or affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other consideration from any Credit Party or any of its Subsidiaries or affiliates for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 10.5. Indemnification. ---------------- The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 11.9 hereof, but without limiting the obligations of the Borrower under such Section) ratably in accordance with their respective Applicable Commitment Percentages, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) in any way relating to or arising out of any Loan Document or the transactions contemplated thereby or any action taken or omitted by the Agent under any Loan Document; provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful 76 misconduct of the Person to be indemnified. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any costs or expenses payable by the Borrower under Section 11.5, to the extent that the Agent is not promptly reimbursed for such costs and expenses by the Borrower. The agreements contained in this Section 10.5 shall survive payment in full of the Loans and all other amounts payable under this Agreement. 10.6. Non-Reliance on Agent and Other Lenders. --------------------------------------- Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Credit Parties and their Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports, and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition, or business of any Credit Party or any of its Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. 10.7. Resignation of Agent. --------------------- The Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent who must be reasonably acceptable to the Borrower. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States of America having combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article X hereof shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 10.8. Sharing of Payments, etc. ------------------------- Each Lender agrees that if it shall, through the exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain payment with respect to its Obligations (other than pursuant to Article IV hereof) which results in its receiving more than its pro rata share of the aggregate payments with respect to all of the Obligations (other than any payment expressly provided hereunder to be distributed on other than a pro rata basis and payments pursuant to Article IV hereof), then (a) such Lender shall be deemed to have simultaneously purchased from the other Lenders a share in their Obligations so that the amount of the Obligations held by each of the Lenders shall be pro rata and (b) such other adjustments shall be made from time to time as shall be equitable to insure that the Lenders share such payments ratably; provided, however, that for purposes of this Section 10.8 the term "pro rata" 77 shall be determined with respect to the Revolving Credit Commitment of each Lender to the Total Revolving Credit Commitments after subtraction in each case of amounts, if any, by which any such Lender has not funded its share of the outstanding Loans and Obligations. If all or any portion of any such excess payment is thereafter recovered from the Lender which received the same, the purchase provided in this Section 10.8 shall be rescinded to the extent of such recovery, without interest. The Borrower expressly consents to the foregoing arrangements and agrees that each Lender so purchasing a portion of the other Lenders' Obligations may exercise all rights of payment (including, without limitation, all rights of set-off, banker's lien or counterclaim) with respect to such portion as fully as if such Lender were the direct holder of such portion. 10.9. Fees. ---- The Borrower agrees to pay to the Agent, for its individual account, an annual Agent's fee as agreed to by the Borrower and Agent pursuant to that certain fee letter dated July 2, 1997 between the Borrower and the Agent, as it may be amended prior to the Closing Date. 78 ARTICLE XI ---------- Miscellaneous ------------- 11.1. Assignments and Participations. ------------------------------- (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note and its Revolving Credit Commitment); provided, however, that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $5,000,000; (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Note; and (iv) the parties to such assignment shallexecute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of Exhibit B hereto, together with any Note subject to such assignment and a processing fee of $3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights (other than rights under Sections 3.2(g), 4.1, 4.6, 7.15, 11.5 and 11.9 of the Credit Agreement which shall survive any such assignment) and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 4.6 hereof. (b) The Agent shall maintain at its address referred to in Section 11.2 hereof a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Revolving Credit Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. 79 (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Revolving Credit Commitment and its Loans); provided, however, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Article IV and the right of set-off contained in Section 11.3 hereof provided, however that no participant shall be entitled to receive any greater amount than the transferor Lender would have been entitled to receive in respect of the participation effected by such transfer had no participation occurred, and (iv) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of the Borrower relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing fees or the amount of principal of or the rate at which interest is payable on such Loans or Notes, extending any scheduled principal payment date or date fixed for the payment of interest on or fees with espect to such Loans or Notes, or extending its Revolving Credit Commitment). (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Any Lender may furnish any information concerning the Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants. 11.2. Notices. -------- Any notice (other than notice of a Default or Event of Default) shall be conclusively deemed to have been received by any party hereto and be effective (i) on the day on which delivered (including hand delivery by commercial courier service) to such party (against receipt therefor), (ii) on the date of receipt at such telefacsimile number as may from time to time be specified by such party in written notice to the other parties hereto, or otherwise received, in the case of notice by telefacsimile (where the receipt of such message is verified by return), or (iii) on the fifth Business Day after the day on which mailed, if sent prepaid by certified or registered mail, return receipt requested, in each case delivered, transmitted or mailed, as the case may be, to the address or telefacsimile number, as appropriate, set forth below or such other address or number as such party shall specify by notice hereunder; provided, however, that notice of a Default or event of Default herunder shall 80 only be effective if delivered pursuant to subsection (i) or (iii) of this Section 11.2: (a) if to the Borrower or any other Credit Party: Data General Corporation 4400 Computer Drive Westboro, Massachusetts 01580 Attn: Treasurer (Mr. Robert McBride) Telephone:(508) 898-6426 Telefacsimile: (508) 898-4584 with a copy to (in the case of notice of a Default or an Event of Default only): Data General Corporation 4400 Computer Drive Westboro, Massachusetts 01580 Attn: General Counsel, Law Department Telephone: (508) 898-6227 Telefacsimile: (508) 898-4632 (b) if to the Agent: NationsBank of Texas, National Association TX1-492-14-11 901 Main Street Dallas, Texas 75202 Attention: Agency Services Telephone:(214) 508-9970 Telefacsimile: (214) 508-2515 with a copy to: NationsBank of Texas, National Association TX1-492-67-01 901 Main Street Dallas, Texas 75202 Attention: Mr. Yousuf Omar Telephone:(212) 508-3347 Telefacsimile: (212) 508-0980 81 (c) if to the Lenders: At the addresses set forth on the signature pages hereof and on the signature page of each Assignment and Acceptance; (d) if to any other Credit Party, at the address set forth on the signature page of the Subsidiary Guaranty executed by such Credit Party. 11.3. Right of Set-off; Adjustments. ----------------------------- Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender (or any of its affiliates) to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Note held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note and although such obligations may be unmatured. Each Lender agrees promptly to notify the Borrower after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 11.3 are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. 11.4. Survival. --------- All covenants, agreements, representations and warranties made herein shall survive the making by the Lenders of the Loans and the issuance of the Letters of Credit and the execution and delivery to the Lenders of this Agreement and the Notes and shall continue in full force and effect until the Facility Termination Date unless otherwise provided herein. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party and all covenants, provisions and agreements by or on behalf of the Borrower which are contained in the Loan Documents shall inure to the benefit of the successors and permitted assigns of the Lenders or any of them. 11.5. Expenses. --------- The Borrower agrees to pay on demand all reasonable, documented out-of-pocket costs and expenses of the Agent incurred in connection with the syndication, preparation, execution, delivery, administration, modification, and amendment of this Agreement, the other Loan Documents, and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of special counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under the Loan Documents. The Borrower further agrees to pay on demand all reasonable, documented out-of-pocket costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable attorneys' fees and expenses and the cost of internal counsel of each Lender), in connection with the enforcement (whether through negotiations, legal proceedings, or otherwise) of the Loan Documents and the other documents to be delivered hereunder. All of the foregoing costs and expenses will be paid by the Borrower to the Agent except to the extent such cost, liability or expense is 82 found in a judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the party claiming reimbursement. 11.6. Amendments and Waivers. ------------------------ Any provision of this Agreement or any other Loan Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Lenders (and, if Article X or the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by all the Lenders, (i) increase the Revolving Credit Commitments hereunder, (ii) reduce the principal of or rate of interest on any Loan or any fees or other amounts payable hereunder, (iii) postpone any date fixed for the payment of any scheduled installment of principal of or interest on any Loan or any fees or other amounts payable hereunder or for termination of any Loan, (iv) change the percentage of the Revolving Credit Commitments or of the unpaid principal amount of the Notes, or change the number of Lenders which shall be required for the Lenders or any of them to take any action under this Section 11.6 or any other provision of this Agreement, (v) release any Guarantor or (vi) change the provisions of this Section 11.6; and provided, further, that no such amendment or waiver that affects the rights, privileges or obligations of NationsBank as provider of Swing Line Loans, shall be effective unless signed in writing by NationsBank and that no such amendment or waiver that affects the rights, privileges or obligations of the Issuing Bank as issuer of Letters of Credit, shall be effective unless signed in writing by the Issuing Bank; Notwithstanding any provision of the other Loan Documents to the contrary, solely as between the Agent and the Lenders, execution by the Agent shall not be deemed conclusive evidence that the Agent has obtained the written consent of the Required Lenders. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances, except as otherwise expressly provided herein. No delay or omission on any Lender's or the Agent's part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default. 11.7. Counterparts. ------------- This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully - executed counterpart. 11.8. Termination. ------------ The termination of this Agreement shall not affect any rights of the Borrower, the Lenders or the Agent or any obligation of the Borrower, the Lenders or the Agent, arising prior to the effective date of such termination. The rights granted to the Agent for the benefit of the Lenders under the Loan Documents shall continue in full force and effect, notwith standing the termination of this Agreement, until the Facility Termination Date shall have occurred (other than with respect to Sections 3.2(g), 7.15 and 11.9 hereof which shall survive any such termination). All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until the Facility Termination Date unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the 83 Obligations, any Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrower shall be liable to, and shall indemnify and hold the Agent or such Lender harmless for, the amount of such payment surrendered until the Agent or such Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Agent or the Lenders in reliance upon such payment, and any such contrary action so taken shall be without prejudice to the Agent or the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. 11.9. Indemnification; Limitation of Liability. ----------------------------------------- (a) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their affiliates and their respective officers directors, employees, agents, and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities, costs, and expenses (including, without limitation, reasonable attorneys' fees and disbursements) ("Indemnified Liabilities") incurred by or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation, or proceeding or preparation of defense in connection therewith) the Loan Documents, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Loans, except to the extent such Indemnified Liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct or to the extent relating to actions or proceedings between or among the Indemnified Parties and the Lenders not arising from any action or inaction of the Borrower or any Credit Party. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 11.9 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any other Person or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. This Section 11.9 supersedes any prior agreements of the parties as to indemnification or limits on liability. (b) If a claim is to be made by a party entitled to indemnification under this Section 11.9, Section 3.2(g) or Section 7.15 hereof against the Borrower, the applicable Indemnified Party shall give written notice to the Borrower promptly after such Indemnified Party receives actual notice of any claim, action, suit, loss, cost, liability, damage or expense incurred or instituted for which the indemnification is sought. If requested by the Borrower in writing, and so long as no Default or Event of Default shall have occurred and be continuing, such Indemnified Party shall contest at the expense of the Borrower the validity, applicability and/or amount of such suit, action, or cause of action to the extent such contest may be conducted in good faith on legally supportable grounds. If any lawsuit or enforcement action is filed against any Indemnified Party, written notice thereof shall be given to the Borrower as soon as practicable (and in any event within 20 days after the service of the citation or summons. Notwithstanding the foregoing, the failure so 84 to notify the Borrower as provided in this section will relieve the Borrower from liability hereunder only if and to the extent that such failure results in the forfeiture by the Borrower of any substantive rights or defenses or results in demonstrable monetary harm to the Borrower (but such relief from liability shall only be the extent of such demonstrable monetary harm). The applicable Indemnified Party shall control the defense and investigation of such lawsuit o action and shall employ and engage counsel of its own choice to handle and defend the same, at the Borrower's cost, risk and expense; provided, however, that the Borrower may, at its own cost participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom and the Indemnified Party shall provide reasonable cooperation with any such participation to the extent determined, in such Indemnified Party's sole judgement, not to be detrimental to the interests and rights of such Indemnified Party. If the Borrower has acknowledged in writing to any Indemnified Party its obligation to indemnify hereunder (including during the twenty (20) day notice period described below), such Indemnified Party, so long as no Default or Event of Default shall have occurred and be continuing, shall not settle such lawsuit or enforcement action without the prior written consent of the Borrower and, if the Borrower has not so acknowledged its obligation, such Indemnified Party shall not settle such lawsuit or enforcement action without giving twenty (20) days' prior written notice of such settlement and its terms to the Borrower. (c) The Borrower agrees that no Indemnified Party shall have anyliability (whether direct or indirect, in contract or tort or otherwise) to it, any of its Subsidiaries, any Guarantor, or any security holders or creditors thereof arising out of, related to or in connection with the transactions contemplated herein, except to the extent that such liability is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct; provided, however, in no event shall any Indemnified Party be liable for punitive, consequential, indirect or special damages, as opposed to direct damages. (d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Section 11.9, Section 3.2(g) and Section 7.15 shall survive the payment in full of the Obligations payable under this Agreement, the occurrence of the Facility Termination Date and the expiration or termination of this Agreement. 11.10. Severability. ------------- If any provision of this Agreement or the other Loan Documents shall be determined to be illegal or invalid as to one or more of the parties hereto, then such provision shall remain in effect with respect to all parties, if any, as to whom such provision is neither illegal nor invalid, and in any event all other provisions hereof shall remain effective and binding on the parties hereto 11.11. Entire Agreement. ----------------- This Agreement, together with the other Loan Documents, constitutes the entire agreement among the parties with respect to the subject matter hereof and 85 supersedes all previous proposals, negotiations, representations and other communications between or among the parties, both oral and written, with respect thereto. 11.12. Agreement Controls. ------------------ In the event that any term of any of the Loan Documents other than this Agreement conflicts with any express term of this Agreement, the terms and provisions of this Agreement shall control to the extent of such conflict. 11.13. Usury Savings Clause. ----------------------- Notwithstanding any other provision herein, the aggregate interest rate charged under any of the Notes, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate (as such term is defined below). If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as defined below), the utstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for,charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrower. As used in this paragraph, the term "Highest Lawful Rate" means the maximum lawful interest rate, if any, tha at any time or from time to time may be contracted for, charged, or received under the laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. 11.14. Governing Law; Waiver of Jury Trial. ----------------------------------- (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. (b) THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, UNITED STATES OF AMERICA AND, BY THE 86 EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY, ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND THE BORROWER HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. (c) THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF THE BORROWER PROVIDED IN SECTION 11.2, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NEW YORK. (d) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO ANY LOAN DOCUMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE BORROWER, THE AGENT AND THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING. 11.15. Status of Debt. -------------- EACH PARTY HERETO AGREES THAT THE REVOLVING CREDIT FACILITY, THE LETTER OF CREDIT FACILITY, ALL SWING LINE LOANS AND ALL OUTSTANDINGS ARE HEREBY SPECIFICALLY DESIGNATED AS "DESIGNATED SENIOR INDEBTEDNESS" AND AS "SENIOR INDEBTEDNESS" FOR ALL PURPOSES OF THE INDENTURE AND ARE TO BE AFFORDED ALL RIGHTS OF, AND TERMS APPLICABLE TO, DESIGNATED SENIOR INDEBTEDNESS AND SENIOR INDEBTEDNESS UNDER THE TERMS OF THE INDENTURE, INCLUDING, WITHOUT LIMITATION, SUBORDINATION OF THE NOTES (AS DEFINED IN THE INDENTURE) PURSUANT TO ARTICLE IV OF THE INDENTURE. 11.16. Existing Letters of Credit. -------------------------- Each party hereto agrees that the Existing Letters of Credit shall be deemed Letters of Credit issued and outstanding under the terms of this Agreement. 87 [Signatures on following pages] 88 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. DATA GENERAL CORPORATION By:__/s/ Robert C. McBride_________________ Name:____Robert C. McBride_________________ Title:__Vice President and Treasurer_______ NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as Agent for the Lenders By___/s/ Yousuf Omar_______________________ Name:____Yousuf Omar_______________________ Title:___Senior Vice President_____________ Signature Page 1 of 7 NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION By:___/s/ Yousuf Omar______________________ Name:_____Yousuf Omar______________________ Title:____Senior Vice President____________ Lending Office: NationsBank of Texas, National Association 901 Main Street TX1-492-14-11 Dallas, Texas 75202 Attention: Agency Services Telephone: (214) 508-2138 Telefacsimile: (214) 508-2515 Wire Transfer Instructions: NationsBank of Texas, National Association ABA# _________________________________ Account No.:__________________________ Reference: Data General Corporation Attention: Corporate Loans Funds Transfer Signature Page 2 of 7 THE BANK OF NEW YORK By:___/s/ Andrew Keith_____________________ Name:_____Andrew Keith_____________________ Title:____A.V.P.___________________________ Lending Office: The Bank of New York Corporate Banking, N/E Division 1 Wall Street 21st Fl New York, New York 10286 ==================================== Attention:__Andrew Keith___________________ Telephone:_____(212) 635-6864______________ Telefacsimile:_(212) 635-7978______________ Wire Transfer Instructions: The Bank of New York ABA#_________________________________ Account No.:_________________________ Reference:___________________________ Attention:__Lorna O. Alleyne_______________ Signature Page 3 of 7 FLEET NATIONAL BANK By:__/s/ Thomas W. Davies__________________ Name:____Thomas W. Davies__________________ Title:___Senior Vice President_____________ Lending Office: Fleet National Bank 75 State Street Boston, Massachusetts 02109 ===================================== Attention:_____Thomas W. Davies____________ Telephone:_____(617) 346-1645______________ Telefacsimile:_(617) 346-1633______________ Wire Transfer Instructions: Fleet National Bank ABA#_________________________________ Account No.:_________________________ Reference:__Data General Corporation_______ Attention:___________________________ Signature Page 4 of 7 THE BANK OF NOVA SCOTIA By:____/s/ T.M. Pitcher____________________ Name:______T.M. Pitcher____________________ Title:_____Authorized Signatory____________ Lending Office: The Bank of Nova Scotia 101 Federal Street Boston, Massachusetts 02110 Attention: Stephen F. Foley Telephone: (617) 737-6318 Telefacsimile: (617) 951-2177 Wire Transfer Instructions: The Bank of Nova Scotia-Atlanta Agency ABA# Account No.: Reference: Boston Loan Servicing Attention: Amanda Norsworthy Signature Page 5 of 7 CREDIT LYONNAIS NEW YORK BRANCH By:___/s/ Alain Papiasse___________________ Name:_____Alain Papiasse___________________ Title:__Executive Vice President___________ Lending Office: Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 ===================================== Attention:____Anthony Muller_______________ Telephone:_____(617) 723-2615______________ Telefacsimile:_(617) 723-4803______________ Wire Transfer Instructions: Credit Lyonnais New York ABA#_________________________________ Account No.:_________________________ Reference:Client name+description of funds Attention:Loan Servicing___________________ Signature Page 6 of 7 US TRUST By:__/s/ Thomas F. Macina__________________ Name:____Thomas F. Macina__________________ Title:___Vice President____________________ Lending Office: ------------------------------------- 40 Court Street Boston, Massachusetts 02108 Attention: David Pennybaker Telephone: (617) 726-7137 Telefacsimile:(617) 726-7309 Wire Transfer Instructions: ------------------------------------- ABA# ________________________________ Account No.:_________________________ Reference: Data General Corporation Attention: Commercial Loan Operations Signature Page 7 of 7 EXHIBIT A ---------- Applicable Commitment Percentages --------------------------------- Commitment Lender Percentage Amount - ------------------------------ -------------- ------------ NationsBank of Texas, National Association 22.7272727272% $ 25,000,000 The Bank of New York 18.1818181818% $ 20,000,000 Fleet National Bank 18.1818181818% $ 20,000,000 The Bank of Nova Scotia 13.6363636363% $ 15,000,000 Credit Lyonnais New York Branch 13.6363636363% $ 15,000,000 US Trust 13.6363636363% $ 15,000,000 TOTAL: $110,000,000 A-1 EXHIBIT B --------- Form of Assignment and Acceptance --------------------------------- Reference is made to the Credit Agreement dated as of September 30, 1997 (the "Credit Agreement") among Data General Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and NationsBank of Texas, National Association, as agent for the Lenders (the "Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule 1 agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, WITHOUT RECOURSE and without representation or warranty except as expressly set forth herein, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement and the other Loan Documents as of the date hereof equal to the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement and the other Loan Documents. After giving effect to such sale and assignment, the Assignee's Revolving Loans owing to the Assignee will be as set forth on Schedule 1. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Credit Party or the performance or observance by any Credit Party of any of its obligations under the Loan Documents or any other instrument or document furnished pursuant thereto; and (iv) attaches the Note held by the Assignor and requests that the Agent exchange such Note for new Notes payable to the order of the Assignee in an amount equal to the Revolving Credit Commitment assumed by the Assignee pursuant hereto and to the Assignor in an amount equal to the Revolving Credit Commitment retained by the Assignor, if any, as specified on Schedule 1. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 9.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Agent by B-1 the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vi) attaches any U.S. Internal Revenue Service or other forms required under Section 6.6. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Agent, unless otherwise specified on Schedule 1. 5. Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights (other than rights under Sections 3.2(g), 4.1, 4.6, 7.15, 11.5 and 11.9 of the Credit Agreement which shall survive the assignment hereunder) and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telefacsimile shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. B-2 Schedule 1 ---------- Percentage interest assigned: ________% Assignee's Commitment: $_______ Aggregate outstanding principal amount of Loans assigned: $_______ Principal amount of Revolving Note payable to Assignee: $_______ Principal amount of Revolving Note payable to Assignor: $_______ Effective Date (if other than date of acceptance by Agent): *_______, 19__ [NAME OF ASSIGNOR], as Assignor By:________________________________ Title: Dated:_______________________, 19 _ [NAME OF ASSIGNEE], as Assignee By:________________________________ Title: Domestic Lending Office: Eurodollar Lending Office: * This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to the Agent. Accepted [and Approved] ** this ___ day of ___________, 19 _ NationsBank of Texas, National Association B-3 By:_______________ Title: [Approved this ____ day of ____________, 19__ Data General Corporation By:____________________]** Title: ** Required if the Assignee is an Eligible Assignee solely by reason of clause (iii) of the definition of "Eligible Assignee". B-4 EXHIBIT C --------- Notice of Appointment (or Revocation) of Authorized Representative ------------------------------------------------------------------ Reference is hereby made to the Credit Agreement dated as of September 30, 1997 (the "Agreement") among Data General Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and NationsBank of Texas, National Association, as agent for the Lenders (the "Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower hereby nominates, constitutes and appoints each individual named below as an Authorized Representative under the Loan Documents, and hereby represents and warrants that (i) set forth opposite each such individual's name is a true and correct statement of such individual's office (to which such individual has been duly elected or appointed), a genuine specimen signature of such individual and an address for the giving of notice, and (ii) each such individual has been duly authorized by the Borrower to act as Authorized Representative under the Loan Documents: Name and Address Office Specimen Signature - ----------------- --------------- ------------------ - ----------------- - ----------------- --------------- ------------------ - ----------------- Borrower hereby revokes (effective upon receipt hereof by the Agent) the prior appointment of ________________ as an Authorized Representative. This the ___ day of __________________, 19__. By:_________________________________ Name:_______________________________ Title:______________________________ C-1 EXHIBIT D-1 ----------- Form of Borrowing Notice--Revolving Credit Loans ------------------------------------------------ To: NationsBank of Texas, National Association, as Agent 901 Main Street TX1-492-14-11 Dallas, Texas 75202 Attention: Agency Services Telefacsimile: (214) 508-2515 Reference is hereby made to the Credit Agreement dated as of September 30, 1997 (the "Agreement") among Data General Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and NationsBank of Texas, National Association, as agent for the Lenders (the "Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby gives notice to the Agent that Loans of the type and amount set forth below be made on the date indicated: Type of Loan Interest Aggregate (check one) Period(1) Amount(2) Date of Loan(3) - ----------- --------- ---------- --------------- Revolving Loan - -------------- o Base Rate Loan ______ _________ ____________ o Eurodollar Rate Loan ______ _________ ____________ - ---------------------- (1) For any Eurodollar Rate Loan, one, two, three or six months. (2) Must be $_________ or if greater an integral multiple of $_______, unless a Base Rate Refunding Loan. (3)At least three (3) Business Days later if a Eurodollar Rate Loan; The Borrower hereby requests that the proceeds of Loans described in this Borrowing Notice be made available to the Borrower as follows: [insert transmittal instructions] . The undersigned hereby certifies that: 1. No Default or Event of Default exists either now or after giving effect to the borrowing described herein; and D-1-1 2. All the representations and warranties set forth in Article VIII of the Agreement and in the Loan Documents (other than those expressly stated to refer to a particular date) are true and correct as of the date hereof except that the reference to the financial statements in Section 6.6(a) of the Agreement are to those financial statements most recently delivered to you pursuant to Section 7.1 of the Agreement (it being understood that any financial statements delivered pursuant to Section 7.1(b) have not been certified by independent public accountants) and attached hereto are any changes to the Schedules referred to in connection with such representations and warranties. 3. All conditions contained in the Agreement to the making of any Loan requested hereby have been met or satisfied in full. DATA GENERAL CORPORATION BY:____________________________________ Authorized Representative DATE:__________________________________ D-1-2 EXHIBIT D-2 ------------- Form of Borrowing Notice--Swing Line Loans ------------------------------------------- To: NationsBank of Texas, National Association, as Agent 901 Main Street TX1-492-14-11 Dallas, Texas 75202 Attention: Agency Services Telefacsimile:(214) 508-2515 Reference is hereby made to the Credit Agreement dated as of September 30, 1997 (the "Agreement") among Data General Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and NationsBank of Texas, National Association, as agent for the Lenders (the "Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby gives notice to the Agent that Loans of the type and amount set forth below be made on the date indicated: Amount(1) Date of Loan - ----------------------- (1)Must be $100,000 or if greater an integral multiple of $50,000, unless a Base Rate Refunding Loan. The Borrower hereby requests that the proceeds of Loans described in this Borrowing Notice be made available to the Borrower as follows: [insert transmittal instructions] . The undersigned hereby certifies that: 1.No Default or Event of Default exists either now or after giving effect to the borrowing described herein; and 2. All the representations and warranties set forth in Article VIII of the Agreement and in the Loan Documents (other than those expressly stated to refer to a particular date) are true and correct as of the date hereof except that the reference to the financial statements in Section 6.6(a) of the Agreement are to those financial statements most recently delivered to you pursuant to Section 7.1 of the Agreement (it being understood that any financial D-2-1 statements delivered pursuant to Section 7.1(b) have not been certified by independent public accountants) and attached hereto are any changes to the Schedules referred to in connection with such representations and warranties. 3. All conditions contained in the Agreement to the making of any Swing Line Loan requested hereby have been met or satisfied in full . DATA GENERAL CORPORATION By:______________________________ Authorized Representative Date:____________________________ D-2-2 EXHIBIT E --------- Form of Interest Rate Selection Notice -------------------------------------- To: NationsBank of Texas, National Association, as Agent 901 Main Street TX1-492-14-11 Dallas, Texas 75202 Attention: Agency Services Telefacsimile:(214) 508-2515 Reference is hereby made to the Credit Agreement dated as of September 30, 1997 (the "Agreement") among Data General Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and NationsBank of Texas, National Association, as agent for the Lenders (the "Agent"). Capitalized terms used but not defined herein shall have the respective meanings therefor set forth in the Agreement. The Borrower through its Authorized Representative hereby gives notice to the Agent of the following selection of a type of Loan and Interest Period: Type of Loan Interest Aggregate (check one) Period(1) Amount(2) Date of Loan(3) - ------------- --------- ----------- --------------- Revolving Loan o Base Rate Loan ______ _________ ____________ o Eurodollar Rate Loan ______ _________ ____________ - ----------------------- (1) For any Eurodollar Rate Loan, one, two, three or six months. (2) Must be $_________ or if greater an integral multiple of $_______, unless a Base Rate Refunding Loan. (3) At least three (3) Business Days later if a Eurodollar Rate Loan; ---------------------------------------- BY:_____________________________________ Authorized Representative DATE:___________________________________ E-1 EXHIBIT F-1 ----------- Form of Revolving Note ---------------------- Promissory Note (Revolving Loan) $______________ New York, New York ______ __, 1997 FOR VALUE RECEIVED, DATA GENERAL CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of________________________ - -------------------------------------------------------------------------------- (the "Lender"), in its individual capacity, at the office of NationsBank of Texas, National Association, as agent for the Lenders (the "Agent"), located at 901 Main Street, TX1-492-14-11, Dallas, Texas 75202 (or at such other place or places as the Agent may designate in writing) at the times set forth in the Credit Agreement dated as of September 30, 1997 among the Borrower, the financial institutions party thereto (collectively, the "Lenders") and the Agent (the "Agreement" -- all capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement), in lawful money of the United States of America, in immediately available funds, the principal amount of ___________ DOLLARS ($__________) or, if less than such principal amount, the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to the Agreement on the Revolving Credit Termination Date or such earlier date as may be required pursuant to the terms of the Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates provided in Article II of the Agreement. All or any portion of the principal amount of Loans may be prepaid or required to be prepaid as provided in the Agreement. If payment of all sums due hereunder is accelerated under the terms of the Agreement or under the terms of the other Loan Documents executed in connection with the Agreement, the then remaining principal amount and accrued but unpaid interest shall bear interest which shall be payable on demand at the Default Rate. Further, in the event of such acceleration, this Revolving Note shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Revolving Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees, and interest due hereunder thereon at the rates set forth above. Interest hereunder shall be computed as provided in the Agreement. F-1-1 This Revolving Note is one of the Revolving Notes in the principal amount of $110,000,000 referred to in the Agreement and is issued pursuant to and entitled to the benefits and security of the Agreement to which reference is hereby made for a more complete statement of the terms and conditions upon which the Revolving Loans evidenced hereby were or are made and are to be repaid. This Revolving Note is subject to certain restrictions on transfer or assignment as provided in the Agreement. All Persons bound on this obligation, whether primarily or secondarily liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive to the full extent permitted by law the benefits of all provisions of law for stay or delay of execution or sale of property or other satisfaction of judgment against any of them on account of liability hereon until judgment be obtained and execution issues against any other of them and returned satisfied or until it can be shown that the maker or any other party hereto had no property available for the satisfaction of the debt evidenced by this instrument, or until any other proceedings can be had against any of them, also their right, if any, to require the holder hereof to hold as security for this Revolving Note any collateral deposited by any of said Persons as security. Protest, notice of protest, notice of dishonor, diligence or any other formality are hereby waived by all parties bound hereon. IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be made, executed and delivered by its duly authorized representative as of the date and year first above written, all pursuant to authority duly granted. DATA GENERAL CORPORATION By:_____________________________________ Name:___________________________________ Title:__________________________________ F-1-2 EXHIBIT F-2 ----------- Form of Swing Line Note ----------------------- $5,000,000 New York, New York September __, 1997 FOR VALUE RECEIVED, FOR VALUE RECEIVED, DATA GENERAL CORPORATION, a Delaware corporation (the "Borrower"), hereby promises to pay to the order of NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION (the "Lender"), in its individual capacity, at its office, located at 901 Main Street, TX1-492-14-11, Dallas, Texas 75202 (or at such other place or places as the Lender may designate) at the times set forth in the Credit Agreement dated as of September 30, 1997 among the Borrower, the financial institutions party thereto (collectively, the "Lenders") and the Agent (as from time to time, amended, supplemented or replaced, the "Agreement" -- all capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement), in lawful money of the United States of America, in immediately available funds, the lesser of (i) the principal amount of FIVE MILLION DOLLARS ($5,000,000) or (ii) if less than such principal amount, the aggregate unpaid principal amount of all Swing Line Loans made by the Lender to the Borrower pursuant to the Agreement on the Revolving Credit Termination Date or such earlier date as may be required pursuant to the terms of the Agreement, and to pay interest from the date hereof on the unpaid principal amount hereof, in like money, at said office, on the dates and at the rates provided in Section 2.13 of the Agreement. All or any portion of the principal amount of Loans may be prepaid as provided in the Agreement. If payment of all sums due hereunder is accelerated under the terms of the Agreement or under the terms of the other Loan Documents executed in connection with the Agreement, the then remaining principal amount and accrued but unpaid interest shall bear interest which shall be payable on demand at a rate of two percent (2%) per annum in excess of the Base Rate for such Swing Line Loan, or the maximum rate permitted under applicable law, if lower, until such principal and interest have been paid in full. Further, in the event of such acceleration, this Note, and all other indebtedness of the Borrower to the Lender shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees, and interest thereon at the rates set forth above. F-2-1 Interest hereunder shall be computed as specified in the Agreement. This Note is the Swing Line Note referred to in the Agreement and is issued pursuant to and entitled to the benefits of the Agreement to which reference is hereby made for a more complete statement of the terms and conditions upon which the Loans evidenced hereby were or are made and are to be repaid. This Note is subject to certain restrictions on transfer or assignment as provided in the Agreement. All Persons bound on this obligation, whether primarily or secondarily liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive to the full extent permitted by law the benefits of all provisions of law for stay or delay of execution or sale of property or other satisfaction of judgment against any of them on account of liability hereon until judgment be obtained and execution issues against any other of them and returned satisfied or until it can be shown that the maker or any other party hereto had no property available for the satisfaction of the debt evidenced by this instrument, or until any other proceedings can be had against any of them, also their right, if any, to require the holder hereof to hold as security for this Note any collateral deposited by any of said Persons as security. Protest, notice of protest, notice of dishonor, diligence or any other formality are hereby waived by all parties bound hereon. IN WITNESS WHEREOF, the Borrower has caused this Note to be made, executed and delivered by its duly authorized representatives as of the date and year first above written, all pursuant to authority duly granted. DATA GENERAL CORPORATION By: _________________________________ Name: ______________________________ Title: ______________________________ F-2-2 EXHIBIT G --------- Form of Opinion of Borrower's Counsel ------------------------------------- _____________ ___, 199_ NationsBank of Texas, National Association, as Agent and Each of the Lenders Party to the Credit Agreement Referenced Below 901 Main Street Dallas, Texas 75202 Re: Revolving Credit and Letter of Credit Facilities among NationsBank of Texas, National Association, as Agent, the Lenders party thereto and Data General Corporation Ladies and Gentlemen: We have acted as counsel to Data General Corporation, a Delaware corporation (the "Borrower"), and the Guarantors in connection with the Revolving Loan in an aggregate amount of up to $110,000,000 (the "Revolving Loans"), including the $10,000,000 Swing Line Facility and the $15,000,000 Letter of Credit Facility constituting part of the Revolving Credit Facility (the "LC Facility"), each being made available to the Borrower by you on this date pursuant to the Credit Agreement of even date herewith among you, the Lenders and the Borrower (the "Credit Agreement"), and the other transactions contemplated under the Credit Agreement. This opinion is being delivered in accordance with the conditions set forth in Section 5.1 of the Credit Agreement. All capitalized terms not otherwise defined herein shall have the meanings provided therefor in the Credit Agreement. As such counsel, we have reviewed the following documents: 1. the Credit Agreement; 2. the Notes; 3. the Swing Line Note; and G-1 4. the Subsidiary Guaranty. The documents described in items 1 through 4 immediately above are referred to herein as the "Loan Documents". For purposes of the opinions expressed below, we have assumed that all natural persons executing the Loan Documents have legal capacity to do so; that all signatures (other than those of representatives of the Borrower and the Guarantors on the Loan Documents) on all documents submitted to us are genuine; that all documents submitted to us as originals (other than the Loan Documents) are authentic; and that all documents submitted to us as certified copies or photocopies conform to the originals of such documents, which themselves are authentic. In addition, for purposes of giving this opinion, we have examined such corporate records of the Borrower and the Guarantors, certificates of public officials, certificates of appropriate officials of the Borrower and the Guarantors, and such other documents, and have made such inquiries as we have deemed appropriate. Based upon and subject to the foregoing, it is our opinion that: 1. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and is duly qualified to transact business as a foreign corporation and is in good standing in all jurisdictions in which the nature of its business requires such qualification and in which the failure to be so qualified would reasonably be likely to result in a Material Adverse Effect. The Borrower has full corporate power and authority to own its assets and conduct the businesses in which it is now engaged and as are expressly contemplated by the Loan Documents, and has full corporate power and authority to enter into each of the Loan Documents to which it is a party and to perform its obligations thereunder. 2. Each of the Loan Documents to which the Borrower is a party has been duly authorized by the Board of Directors of the Borrower (and by any required shareholder action), has been duly executed and delivered by the Borrower, and constitutes the legal, valid and binding obligation, agreement, instrument or conveyance, as the case may be, of the Borrower, enforceable against the Borrower in accordance with its respective terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization and other similar laws relating to or affecting creditors' rights generally and by the application of general equitable principles (whether considered in proceedings at law or in equity). 3. Each Credit Party (other than the Borrower) is a corporation duly organized, validly existing and in good standing under the laws of its respective state of its formation and is duly qualified to transact business as a foreign entity and is in good standing in all jurisdictions in which the nature of its business requires such qualification and in which the failure to be so qualified would reasonably be likely to result in a Material Adverse Effect. Each Credit Party (other than the Borrower) has full corporate power and authority to own its assets and conduct the businesses in which it is now engaged and as expressly contemplated in the Loan Documents, and G-2 has full corporate power and authority to enter into each of the Loan Documents to which it is a party and to perform its obligations thereunder. 4. Each of the Loan Documents to which each Credit Party (other than the Borrower) is a party has been duly authorized by the Board of Directors of such Credit Party (and by any required shareholder action), has been duly executed and delivered by such Credit Party, and con stitutes the legal, valid and binding obligation, agreement or instrument, as the case may be, of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization and other similar laws relating to or affecting creditors' rights generally and by the application of general equitable principles (whether considered in proceedings at law or in equity). 5. Neither the execution or delivery of, nor performance by the Borrower or any other Credit Party of its obligations under, the Loan Documents (a) does or will conflict with, violate or constitute a breach of (i) the Organizational Documents or Operating Documents of the Borrower or any other Credit Party, (ii) any laws, rules or regulations applicable to the Borrower or any other Credit Party, or (iii) any contract, agreement, indenture, lease, instrument, other document, judgment, writ, determination, order, decree or arbitral award to which the Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary or any other Credit Party or any of their properties is bound, (b) requires the prior consent of, notice to, license from or filing with any Governmental Authority which has not been duly obtained or made on or prior to the date hereof, or (c) does or will result in the creation or imposition of any lien, pledge, charge or encumbrance of any nature upon or with respect to any of the properties of the Borrower or any Subsidiary or any other Credit Party, except for the Liens in your favor expressly created pursuant to the Loan Documents. 6. There is no pending or, to our knowledge, threatened, action, suit, investigation or proceeding (including, without limitation, any action, suit, investigation, or proceeding under any environmental or labor law), nor is there any basis therefor, before or by any court, or governmental department, commission, board, bureau, instrumentality, agency or arbitral authority, (i) which calls into question the validity or enforceability of any of the Loan Documents, or the titles to their respective offices or authority of any officers of the Borrower or any other Credit Party or (ii) an adverse result in which would reasonably be likely to have a Material Adverse Effect. 7. Neither the Borrower nor any Subsidiary nor any other Credit Party is subject to any Organizational Document or Operating Document or other corporate restrictions nor, to our knowledge, is the Borrower or any Subsidiary or any other Credit Party party to or bound by any contract or agreement which (i) materially and adversely affects its business, properties or condition (financial or otherwise), or (ii) restricts, limits, or prohibits performance of any of their respective obligations pursuant to the terms of the Loan Documents. 8.To our knowledge after due inquiry, neither the Borrower nor any Subsidiary nor any other Credit Party (i) is in default (which default has not been waived) under any agreement, G-3 document or instrument to which it is a party or by which it or any of its assets is bound or (ii) is in violation of any law, rule, regulation, judgment, writ, determination, order, decree or arbitral award to which the Borrower or any Subsidiary or any other Credit Party is a party or by which the Borrower or any Subsidiary or any other Credit Party or any of their respective properties is bound, which default or violation, as the case may be, would constitute a Default or Event of Default under the Credit Agreement or otherwise could reasonably be likely to have a Material Adverse Effect. 9. None of the transactions contemplated by the Credit Agreement, including, without limitation, the use of the proceeds of the Loans provided for in the Loan Documents, will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, any regulations issued pursuant thereto, or regulations G, T, U or X of the Board of Governors of the Federal Reserve System. Our opinions contained herein are rendered solely in connection with the transactions contemplated under the Loan Documents and may not be relied upon in any manner by any Person other than the addressees hereof, any successor or assignee of any addressee (including successive assignees) and any Person who shall acquire a participation interest in the interest of any Lender (collectively, the "Reliance Parties"), or by any Reliance Party for any other purpose. Our opinions herein shall not be quoted or otherwise included, summarized or referred to in any publication or document, in whole or in part, for any purposes whatsoever, or furnished to any Person other than a Reliance Party (or a Person considering whether to become a Reliance Party), except as may be required of any Reliance Party by applicable law or regulation or in accordance with any auditing or oversight function or request of regulatory agencies to which a Reliance Party is subject. Very truly yours, G-4 EXHIBIT H --------- Compliance Certificate ---------------------- NationsBank of Texas, National Association, as Agent 901 Main Street TX1-492-14-11 Dallas, Texas 75202 Attention: Agency Services Telefacsimile:(214) 508-2515 NationsBank of Texas, National Association, as Agent 901 Main Street Dallas, Texas 75202 Attention: Mr. Yousuf Omar, Senior Vice President Telefacsimile:(214) 508-0980 Reference is hereby made to the Credit Agreement dated as of September 30, 1997 (the "Agreement") among Data General Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit Agreement) and NationsBank of Texas, National Association, as agent for the Lenders (the "Agent"). Capitalized terms used but not otherwise defined herein shall have the respective meanings therefor set forth in the Agreement. The undersigned, a duly authorized and acting Authorized Representative, hereby certifies to you as of __________ (the "Determination Date") as follows: 1. Calculations: A. Compliance with Section 8.1(a): Consolidated Leverage Ratio 1. Consolidated Funded Indebtedness $______________ 2. Consolidated EBITDA* $______________ 3. Ratio of A.1 to A.2 __.__ to 1.00 Required: A.3 must not be greater than 2.25 to 1.00 * See attached Schedule 1 for EBIT and EBITDA calculation H-1 B. Compliance with Section 8.1(b): Consolidated Fixed Charge Ratio 1. Consolidated EBIT* $______________ 2. Consolidated Lease Payments $______________ 3. Sum of B.1 + B.2 $______________ 4. Consolidated Interest Expense $______________ 5. Consolidated Lease Payments $______________ 6. Sum of B.4 + B.5 $______________ 7. Ratio of B.3 to B.6 __.__ to 1.00 Required: B.7 must not be less than 1.50 to 1.00 C.Compliance with Section 8.1(c): Consolidated Tangible Net Worth 1. Required Consolidated Tangible Net Worth at the last day of the preceding fiscal quarter $______________ 2. Consolidated Net Income x 0.5 $______________ 3. Net Proceeds of any Equity Offering $______________ 4. Sum of C.1 + C.2 + C.3 $______________ 5. Actual Consolidated Tangible Net Worth $______________ Required: C.5 must not be less than C.4 D. Compliance with Section 8.1(d): Consolidated Liquidity Ratio 1. Cash $______________ 2. Eligible Securities $______________ 3. Consolidated Accounts Receivable $______________ * See attached Schedule 1 for EBIT and EBITDA calculation H-2 4. Sum of D.1 + D.2 + D.3 $______________ 5. Consolidated Funded Indebtedness $______________ 6. Consolidated Accounts Payable $______________ 7. Sum of D.5 + D.6 $______________ 8. Ratio of D.4 to D.7 __.__ to 1.00 Required: D.8 must not be less than 1.50 to 1.00 2. No Default A. Since __________ (the date of the last similar certification), (a) the Borrower has not defaulted in the keeping, observance, performance or fulfillment of its obligations pursuant to any of the Loan Documents; and (b) no Default or Event of Default specified in Article IX of the Agreement has occurred and is continuing. B. If a Default or Event of Default has occurred since __________ (the date of the last similar certification), the Borrower proposes to take the following action with respect to such Default or Event of Default: (Note, if no Default or Event of Default has occurred, insert "Not Applicable"). The Determination Date is the date of the last required financial statements submitted to the Lenders in accordance with Section 7.1 of the Agreement. IN WITNESS WHEREOF, I have executed this Certificate this _____ day of __________, 19___. By:_____________________________________ Authorized Representative Name:___________________________________ Title:__________________________________ H-3 Schedule 1 to Compliance Certificate ------------------------------------ [Insert Applicable Determination Date__,__] ------------------------------------------- Consolidated EBITDA Calculation A. Consolidated Net Income $____________________ B. Consolidated Interest Expense $____________________ C. Taxes on Income $____________________ D. Consolidated EBIT $____________________ (A +B+C) E. Amortization $____________________ F. Depreciation $____________________ G. Consolidated EBITDA $____________________ (D +E +F) H-4 EXHIBIT I --------- Form of Subsidiary Guaranty --------------------------- GUARANTY AGREEMENT THIS GUARANTY AGREEMENT (the "Guaranty Agreement" or the "Guaranty"), dated as of September 30, 1997, is made by each of the undersigned guarantors (each a "Guarantor" and collectively the "Guarantors") to NATIONSBANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States, as Agent (the "Agent") for each of the financial institutions (each a "Lender" and collectively, the "Lenders") now or hereafter party to the Credit Agreement (as defined below). W I T N E S S E T H: ------------------- WHEREAS, the Agent and the Lenders have agreed to provide to Data General Corporation, a Delaware corporation (the "Borrower"), certain revolving credit facilities and letter of credit facilities pursuant to the terms of the Credit Agreement dated as of September 29, 1997 among the Borrower, the Agent and the Lenders (as from time to time amended, modified or supplemented, the "Credit Agreement"); and WHEREAS, each Guarantor is a Material Subsidiary of the Borrower; WHEREAS, the Agent and the Lenders are unwilling to enter into the Credit Agreement and to make the Loans thereunder unless each Guarantor guarantees to the Lenders payment of the Borrower's Liabilities (as hereinafter defined) in accordance with the terms of this Guaranty; and WHEREAS, each Guarantor will materially benefit from the Loans to be made under the Credit Agreement, and each Guarantor is willing to enter into this Guaranty to provide an inducement for the Lenders and the Agent to enter into the Credit Agreement and for the Lenders to make the Loans thereunder. NOW, THEREFORE, in order to induce the Lenders and the Agent to enter into the Credit Agreement and to make the Loans thereunder, each Guarantor agrees as follows: 1. Definitions. ------------ All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Credit Agreement. 2. Guaranty. -------- Each Guarantor hereby jointly and severally, unconditionally, absolutely, continually and irrevocably guarantees to the Agent and the Lenders the payment and performance in full of the Borrower's Liabilities (as defined below). For all purposes of this Guaranty Agreement, "Borrower's Liabilities" means: (a) the Borrower's prompt payment in full, when due or declared due and at all such times, of all Obligations and all other amounts pursuant to the terms of the I-1 Credit Agreement, the Notes, and all other Loan Documents executed in connection with the Credit Agreement heretofore, now or at any time or times hereafter owing, arising, due or payable from the Borrower to the Lenders, including without limitation principal, interest, premium or fee (including, but not limited to, loan fees and attorneys' fees and expenses); and (b) Borrower's prompt, full and faithful performance, observance and discharge of each and every agreement, undertaking, covenant and provision to be performed, observed or discharged by the Borrower under the Credit Agreement and all other Loan Documents executed in connection therewith. Each Guarantor's obligations to the Agent and the Lenders under this Guaranty Agreement are hereinafter collectively referred to as the "Guarantors' Obligations"; Each Guarantor agrees that it is jointly and severally, directly and primarily liable for the Borrowers' Liabilities; provided, however, the obligations of each Guarantor hereunder shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any applicable state law. 3. Payment. -------- If the Borrower shall default in payment or performance of any Borrower's Liabilities, whether principal, interest, premium, fee (including, but not limited to, loan fees and attorneys' fees and expenses), or otherwise, when and as the same shall become due, whether according to the terms of the Credit Agreement, by acceleration, or otherwise, or upon the occurrence of any other Event of Default under the Credit Agreement that has not been cured or waived, then each Guarantor, upon demand thereof by the Agent or its successors or assigns, will as of the date of the Agent's demand fully pay to the Agent, for the benefit of the Lenders, subject to any restriction set forth in Section 2 hereof, an amount equal to all Guarantors' Obligations then due and owing. Each Guarantor hereby agrees that the Guarantors' Obligations will be paid in lawful currency of the United States of America and in immediately available funds, regardless of any law, regulation or decree now or hereafter in effect that might in any manner affect the Borrower's Liabilities, or the rights of the Agent or any Lender with respect thereto as against the Borrower, or cause or permit to be invoked any alteration in the time, amount or manner of payment by the Borrower of any or all of the Borrower's Liabilities. 4. Unconditional Obligations. -------------------------- This is a guaranty of payment and not of collection. The Guarantors' Obligations under this Guaranty Agreement shall be joint and several, absolute and unconditional irrespective of the validity, legality or enforceability of the Credit Agreement, the Notes or any other Loan Document or any other guaranty of the Borrower's Liabilities, and shall not be affected by any action taken under the Credit Agreement, the Notes or any other Loan Document, this Guaranty Agreement against any other Guarantor, any other guaranty of the Borrower's Liabilities, or any other agreement between the Agent or the Lenders and the Borrower or any other person, in the exercise of any right or power therein conferred, or by any failure or omission to enforce any right conferred hereby or thereby, or by any waiver of any covenant or condition herein or therein provided, or by any acceleration of the maturity of any of the Borrower's Liabilities, or by the release or other disposal of any security for any of the Borrower's Liabilities, or by the dissolution of the Borrower or any Guarantor or the combination or consolidation of the Borrower or any Guarantor into or with another entity or any transfer or disposition of any assets of the I-2 Borrower or any Guarantor or by any extension or renewal of the Credit Agreement any of the Notes or any other Loan Document, in whole or in part, or by any modification, alteration, amendment or addition of or to the Credit Agreement, any of the Notes or any other Loan Document, this Guaranty Agreement or any other guaranty of the Borrower's Liabilities, or any other agreement between the Agent or the Lenders and the Borrower or any other Person, or by any other circumstance whatsoever(with or without notice to or knowledge of any Guarantor) which may or might in any manner or to any extent vary the risks of any Guarantor, or might otherwise constitute a legal or equitable discharge of a surety or guarantor; it being the purpose and intent of the parties hereto that this Guaranty Agreement and the Guarantors' Obligations hereunder shall be absolute and unconditional under any and all circumstances and shall not be discharged except by payment as herein provided. 5. Subordination. ------------- Until the Guarantors' Obligations are paid in full and the Lenders are under no further obligation to lend or extend funds or credit which would constitute Guarantors' Obligations, and until the occurrence of the Facility Termination Date, each Guarantor hereby unconditionally subordinates all present and future debts, liabilities or obligations of the Borrower to such Guarantor to the Guarantors' Obligations, and all amounts due under such debts, liabilities, or obligations shall, upon the occurrence and during the continuance of an Event of Default, be collected and paid over forthwith to the Lenders on account of the Guarantors' Obligations and, pending such payment, shall be held by each Guarantor as agent and bailee of the Lenders separate and apart from all other funds, property and accounts of such Guarantor; provided, however, nothing herein shall be deemed to prevent such Guarantor from receiving payments of such obligations from the Borrower other than after the occurrence and during the continuation of an Event of Default. Each Guarantor, at the reasonable request of the Lenders, shall execute such further documents in favor of the Lenders to further evidence and support the purpose of this Section 5. Each Guarantor hereby irrevocably waives and releases any right or rights of subrogation or contribution existing at law, by contract or otherwise to recover all or any portion of any payment made hereunder from the Borrower or any other Guarantor. 6. Suits. ----- Each Guarantor from time to time shall pay to the Agent for the benefit of the Lenders, on demand, at the Agent's place of business set forth in the Credit Agreement, the Guarantors' Obligations as they become or are declared due, and in the event such payment is not made forthwith, the Agent or the Lenders or any of them may proceed to suit against any one or more or all of the Guarantors. At the Agent's election, one or more and successive or concurrent suits may be brought hereon by the Agent against any one or more or all of the Guarantors, whether or not suit has been commenced against the Borrower, any other Guarantor, any other guarantor of the Borrower's Liabilities, or any other Person and whether or not the Agent or any Lender has taken or failed to take any other action to collect all or any portion of theBorrower's Liabilities. 7. Set-Off and Waiver. -------------------- Each Guarantor waives any right to assert against the Agent and the Lenders as a defense, counterclaim, set-off or cross claim, any defense (legal or equitable) or other claim which such Guarantor may now or at any time hereafter have against the Borrower, each other Guarantor, the Agent or the Lenders, without waiving any additional defenses, set-offs, counterclaims or other claims I-3 otherwise available to such Guarantor. If at any time hereafter the Agent or any Lender employs counsel for advice or other representation to enforce the Guarantors' Obligations, then, in any of the foregoing events, all of the expenses, costs and charges in any way or respect arising in connection therewith or relating thereto shall be jointly and severally paid by the Guarantors to the Agent, for the benefit of the Lenders, on demand. 8. Waiver; Subrogation. ------------------- (a) Each Guarantor hereby waives notice of the following events or occurrences: (i) the Agent's acceptance of this Guaranty Agreement; (ii) the Lenders' heretofore, now or from time to time hereafter loaning monies or giving or extending credit to or for the benefit of the Borrower, whether pursuant to the Credit Agreement or the Notes or any amendments, modifications, or supplements thereto, or replacements or extensions thereof; (iii) the Agent, the Lenders or the Borrower heretofore, now or at any time hereafter, obtaining, amending, sub stituting for, releasing, waiving or modifying the Credit Agreement, the Notes or any other Loan Documents or this Guaranty Agreement with respect to any other Guarantor; (iv) presentment, demand, default, non-payment, partial payment and protest; (v) the Agent or the Lenders heretofore, now or at any time hereafter granting to the Borrower (or any other party liable to the Lenders on account of the Borrowers' Liabilities) any indulgence or extensions of time of payment of the Borrower's Liabilities or granting to any other Guarantor any indulgence or extension of time of payment of its Guarantors' Obligations; and (vi) the Agent or the Lenders heretofore, now or at any time hereafter accepting from the Borrower or any other Person, any partial payment or payments on account of the Borrower's Liabilities or any collateral securing the payment thereof or the Agent settling, subordinating, compromising, discharging or releasing the same. Each Guarantor agrees that the Agent and each Lender may heretofore, now or at any time hereafter do any or all of the foregoing in such manner, upon such terms and at such times as the Agent and each Lender, in its sole and absolute discretion, deems advisable, without in any way or respect impairing, affecting, reducing or releasing such Guarantor from the Guarantors' Obligations, and each Guarantor hereby consents to each and all of the foregoing events or occurrences. (b) Each Guarantor hereby agrees that payment or performance by such Guarantor of the Guarantors' Obligations under this Guaranty Agreement may be enforced by the Agent on behalf of the Lenders upon demand by the Agent to such Guarantor without the Agent being required, each Guarantor expressly waiving any right it may have to require the Agent, to (i) prosecute collection or seek to enforce or resort to any remedies against the Borrower or any other Guarantor or any other guarantor of the Borrower's Liabilities, it being expressly understood, acknowledged and agreed to by each Guarantor that demand under this Guaranty Agreement may be made by the Agent, and the provisions hereof enforced by the Agent, effective as of the first date any Event of Default occurs and is continuing under the Credit Agreement, or (ii) seek to enforce or resort to any remedies with respect to any security interests, Liens or encumbrances granted to the Agent by the Borrower, any other Guarantor, or any other Person on account of the Borrower's Liabilities or any guaranty thereof or the Guarantors' Obligations. Neither the Agent nor any Lender shall have any obligation to protect, secure or insure any of the foregoing security interests, Liens or I-4 encumbrances on the properties or interests in properties subject thereto. The Guarantors' Obligations shall in no way be impaired, affected, reduced, or released by reason of the Agent's or any Lender's failure or delay to do or take any of the acts, actions or things described in this Guaranty Agreement including, without limiting the generality of the foregoing, those acts, actions and things described in this Section 8. (c) Each Guarantor further agrees with respect to this Guaranty Agreement that such Guarantor shall have no right of subrogation, reimbursement or indemnity, nor any right of recourse to security for the Borrower's Liabilities until the Facility Termination Date has occurred. 9. Effectiveness; Enforceability. ------------------------------ This Guaranty Agreement shall be effective as of the date of the initial Advance under the Credit Agreement and shall continue in full force and effect until the Facility Termination Date. This Guaranty Agreement shall be binding upon and inure to the benefit of each Guarantor, the Agent and the Lenders and their respective successors and assigns. Notwithstanding the foregoing, no Guarantor may, without the prior written consent of the Agent, assign any rights, powers, duties or obligations hereunder. Any claim or claims that the Agent and the Lenders may at any time hereafter have against any Guarantor under this Guaranty Agreement may be asserted by the Agent or any Lender by written notice directed to any one or more or all of the Guarantors at the address specified in the Credit Agreement. 10. Representations and Warranties. -------------------------------- Each Guarantor warrants and represents to the Agent for the benefit of the Lenders that it is duly authorized to execute, deliver and perform this Guaranty Agreement; that this Guaranty Agreement is legal, valid, binding and enforceable against such Guarantor in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles; and that such Guarantor's execution, delivery and performance of this Guaranty Agreement do not violate or constitute a breach of its certificate of incorporation or other documents of corporate governance or any agreement to which such Guarantor is a party, or any applicable laws. 11. Expenses. -------- Each Guarantor agrees to be liable for the payment of all reasonable fees and expenses, including attorney's fees, incurred by the Agent in connection with the enforcement of this Guaranty Agreement, other than fees and expenses arising as a result of the Agent's or a Lender's gross negligence or wilfull misconduct. 12. Reinstatement. ------------- Each Guarantor agrees that this Guaranty Agreement and the obligations of each Guarantor hereunder shall be reinstated at any time any payment received by the Agent under the Credit Agreement or this Guaranty Agreement is rescinded or must be restored for any reason after the Facility Termination Date. 13. Counterparts. ------------ This Guaranty Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall constitute one and the same instrument. I-5 14. Reliance. --------- Each Guarantor represents and warrants to the Agent, for the benefit of the Agent and the Lenders, that: (a) such Guarantor has adequate means to obtain from the Borrower, on a continuing basis, information concerning the Borrower and the Borrower's financial condition and affairs and has full and complete access to the Borrower's books and records; (b) such Guarantor is not relying, and will not rely, on the Agent or any Lender, its or their employees, agents or other representatives, to provide such information, now or in the future; (c) such Guarantor is executing this Guaranty Agreement freely and deliberately, and understands the obligations and financial risk undertaken by providing this Guaranty; (d) such Guarantor has relied solely on the Guarantor's own independent investigation, appraisal and analysis of the Borrower and the Borrower's financial condition and affairs in deciding to provide this Guaranty and is fully aware of the same; and (e) such Guarantor has not depended or relied on the Agent or any Lender, its or their employees, agents or representatives, for any information whatsoever concerning the Borrowers or the Borrower's financial condition and affairs or other matters material to such Guarantor's decision to provide this Guaranty or for any counseling, guidance, or special consideration or any promise therefor with respect to such decision. Each Guarantor agrees that neither the Agent nor any Lender has any duty or responsibility whatsoever, now or in the future, to provide to any Guarantor any information concerning the Borrower or the Borrower's financial condition and affairs, other than as expressly provided herein, and that, if such Guarantor receives any such information from the Agent or any Lender, its or their employees, agents or other representatives, such Guarantor will independently verify the information and will not rely on the Agent or any Lender, its or their employees, agents or other representatives, with respect to such information. 15. Termination. ------------ Subject to reinstatement pursuant to Section 12 hereof, this Guaranty Agreement and all obligations of the Guarantors hereunder shall terminate without delivery of any instrument or performance of any act by any party on the Facility Termination Date. 16. Governing Law; Venue; Waiver of Jury Trial. ------------------------------------------ (a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORKAPPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. (b) EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GUARANTOR EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY, ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND EACH GUARANTOR I-6 HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. (c) EACH GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF THE BORROWER PROVIDED IN SECTION 11.2 OF THE CREDIT AGREEMENT, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NEW YORK. (d) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO THIS GUARANTY OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, EACH GUARANTOR AND THE AGENT ON BEHALF OF THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING. [Signature page Follows.] I-7 IN WITNESS WHEREOF, the parties have duly executed this Agreement on the day and year first written above. GUARANTORS: DATAGEN, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ DATA GENERAL INTERNATIONAL, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ DATA GENERAL INVESTMENT CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ AGENT: NATIONSBANK, NATIONAL ASSOCIATION, as Agent for the Lenders By:____________________________________ Name:__________________________________ Title:_________________________________ SIGNATURE PAGE 1 OF 1 EXHIBIT J --------- Terms of Subordination* ---------------------- 1. DEFINITIONS ----------- 1.1 Terms defined in the Credit Agreement shall have their defined meanings when used herein unless otherwise defined herein, and the following terms shall have the following meanings: "Senior Loans" shall mean, collectively, the Loans and any extension, renewal, refunding or refinancing thereof. "Senior Obligations" shall mean the unpaid principal amount of, any premium applicable to, and interest on (including, without limitation, interest accruing after the maturity of the Senior Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Notes and all other obligations and liabilities of the Borrower or any Guarantor to the Agent or the Lenders, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, the Notes, the other Loan Documents or this Agreement and any other document made, delivered or given in connection therewith or herewith, whether on account of principal, premium, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Agent or any Lender that are required to be paid by the Borrower pursuant to the terms of the Credit Agreement) or otherwise. "Subordinated Creditors" shall mean the holders of Subordinated Debt and their successors and assigns. "Subordinated Debt" shall mean the unpaid principal amount of, any premium applicable to and any interest on the Indebtedness of the Subordinated Debtor to the Subordinated Creditor evidenced by that certain promissory note dated _____________ by the Subordinated Debtor payable to the Subordinated Creditor in the original principal amount of $__________. "Subordinated Debtor" means____________________________________________ 1.2 (a) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. - -------- * The terms hereof shall not apply to any Indebtedness under the Indenture. J-1 (b) the meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 2. SUBORDINATION ------------ 2.1 The Subordinated Creditor and the Subordinated Debtor agree, for themselves and their respective successors and assigns, that the Subordinated Debt is expressly subordinate and junior in right of payment (as defined in subsection 2.2) to all Senior Obligations. 2.2 "Subordinate and junior in right of payment" shall mean that: (a) The Subordinated Creditor shall not have any claim, as holder of the Subordinated Debt, to any assets of the Subordinated Debtor on parity with or prior to the claim of the Lenders as holders of the Senior Obligations. At any time after an Event of Default shall have occurred and be continuing, the Subordinated Creditor will not take, demand or receive from the Subordinated Debtor or any of its direct or indirect subsidiaries, nor will the Subordinated Debtor or any of its direct or indirect subsidiaries, give or permit, directly or indirectly, by set-off, redemption, purchase or in any other manner, any payment or prepayment of principal or interest on, or security, guarantee or collateral for the whole or any part of, the Subordinated Debt. (b) In the event (i) of any distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any substantial part of the property, assets or business of the Subordinated Debtor or the proceeds thereof to any creditor or creditors of the Subordinated Debtor or (ii) of any Indebtedness of the Subordinated Debtor becoming due and payable by reason of any liquidation, dissolution or other winding-up of the Subordinated Debtor or its business or by reason of any sale, receivership, insolvency, reorganization or bankruptcy proceedings, assignment for the benefit of creditors, arrangement or any proceeding by or against the Subordinated Debtor for any relief under any bankruptcy, reorganization or insolvency law or laws, Federal or state, or any law, Federal or state, relating to the relief of debtors, readjustment of indebtedness, reorganization, composition, or extension, or (iii) any of the Senior Obligations have become, or have been declared to be, due and payable (and have not been paid in accordance with their terms), then and in any such event, any payment or distribution of any kind or character, whether in cash, property or securities which, but for the subordination provisions contained herein, would otherwise be payable or deliverable to the Subordinated Creditor upon or in respect of the Subordinated Debt, shall instead be paid over or delivered to the Agent on behalf of the Lenders to be applied to the Senior Obligations and the remainder, if any, to be paid to the Subordinated Creditor. 3. PAYMENTS, ETC. ------------- 3.1 The Subordinated Creditor and the Subordinated Debtor irrevocably authorize and empower (without imposing any obligation on) the Lenders, or the Agent on behalf of the Lenders, under the circumstances set forth in clause (i) or (ii) of subsection 2.2(b), to demand, sue for, collect and receive every such payment or distribution referred to in such subsection and give acquittance therefor, and file claims and proofs of claim in any statutory or non-statutory proceeding, to vote the Subordinated Debt in the sole discretion of the Lenders J-2 or the Agent, as the case may be, in connection with any resolution, arrangement, plan of reorganization, compromise, settlement or extension and to take such other action (including, without limitation, the right to participate in any composition of creditors and the right to vote such Subordinated Debt at creditors' meetings for the election of trustees, acceptances of plans and otherwise) and take such other proceedings, in their own names as Lenders, or the Agent, as the case may be, or in the name of the Subordinated Creditor or otherwise, as the Lenders or the Agent, as the case may be, may deem necessary or advisable for the enforcement of the provisions of this Agreement. The Subordinated Creditor hereby agrees, under the circumstances set forth in clause (i) or (ii) of subsection 2.2(b), duly and promptly to take such action as may be requested at any time and from time to time by the Lenders or the Agent to enable the Lenders or the Agent, as the case may be, to enforce all claims upon or in respect of the Subordinated Debt, including, without limitation, the filing of appropriate proofs of claim in respect of the Subordinated Debt, and to collect and receive any and all payments or distributions which may be payable or deliverable any time upon or in respect of the Subordinated Debt. 3.2 Should any payment or distribution or security, or the proceeds of any thereof, be collected or received by the Subordinated Creditor in respect of the Subordinated Debt after the occurrence and during the continuance of an Event of Default, the applicable Subordinated Creditor will forthwith deliver the same to the Agent in the form received (except for the endorsement or assignment of such Subordinated Creditor when necessary) and, until such delivery, shall hold the same in trust for the benefit of the Agent. 3.3 Notwithstanding anything to the contrary in this Agreement, the Subordinated Creditor hereby irrevocably waives all rights which may have arisen in connection with this Agreement to be subrogated to any of the rights (whether contractual, under the Bankruptcy Code, including Section 509 thereof, under common law or otherwise) of the Agent or any Lender against the Subordinated Debtor or against the Agent or any Lender for the payment of the Senior Obligations. The Subordinated Creditor hereby further irrevocably waives all contractual, common law, statutory or other rights of reimbursement, contribution, exoneration or indemnity (or any similar right) from or against the Subordinated Debtor or any other Person which may have arisen in connection with this Agreement. So long as the Senior Obligations remain outstanding, if any amount shall be paid by or on behalf of the Subordinated Debtor to the Subordinated Creditor on account of any of the rights waived in this paragraph, such amount shall be held by the Subordinated Creditor in trust, segregated from other funds of the Subordinated Creditor, and shall, forthwith upon receipt by the Subordinated Creditor, be turned over to the Agent, in the exact form received by the Subordinated Creditor (duly indorsed by the Subordinated Creditor to the Collateral Agent, if required), to be applied against the Senior Obligations, whether matured or unmatured, in such order as the Agent may determine. The provisions of this paragraph shall survive until the occurrence of the Facility Termination Date. 3.4 Notwithstanding the foregoing, the obligations of the Subordinated Creditor under this Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Obligations, or any other payment to any Lender in respect of the Senior Obligations, is rescinded or must otherwise be restored or returned by such Lender upon, or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Debtor or any substantial J-3 part of its property, or otherwise, all as though such payment had not been made. J-4 EXHIBIT K --------- Form of Cash Collateral Account Agreement ----------------------------------------- CASH COLLATERAL ACCOUNT AGREEMENT THIS CASH COLLATERAL ACCOUNT AGREEMENT (the "Agreement") dated as of this 30th day of September, 1997, and made between DATA GENERAL CORPORATION, a Delaware corporation (the "Pledgor"), and NATIONSBANK, NATIONAL ASSOCIATION, a national banking association, as Agent (in such capacity herein and together with any successors in such capacity, the "Agent") for each of the lenders (the "Lenders" and together with the Agent, the "Secured Parties") now or hereafter party to the Credit Agreement (as defined below). W I T N E S S E T H: WHEREAS, the Pledgor, the Lenders, and the Agent have entered into that certain Credit Agreement dated as of the date hereof among the Pledgor, the Agent and the Lenders (as from time to time amended, supplemented or restated, the "Credit Agreement") pursuant to which the Lenders have agreed to make certain credit facilities available to the Pledgor and to issue certain letters of credit; and WHEREAS, as a condition precedent to the Lenders' obligations to make Loans or to issue Letters of Credit, the Pledgor is required to execute and deliver to the Agent a copy of this Agreement on or before the Closing Date; NOW, THEREFORE, in consideration of the foregoing and the agreements, provisions and covenants contained herein, the Pledgor and the Agent hereby agree as follows: 1. Definitions. ----------- The following capitalized terms used in this Agreement shall have the following meanings notwithstanding any definition thereof in the Credit Agreement. Other capitalized terms used but not defined herein shall have the meanings therefore set forth in the Credit Agreement. "Collateral" means (a) all funds from time to time on deposit in the Cash Collateral Account; (b) all Investments and all certificates and instruments from time to time representing or evidencing such Investments; (c) all notes, certificates of deposit, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Agent for or on behalf of the Pledgor in substitution for or in addition to any or all of the Collateral described in clause (a) or (b) above; (d) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the K-1 Collateral described in clause (a), (b) or (c) above; and (e) to the extent not covered by clauses (a) through (d) above, all proceeds of any or all of the foregoing Collateral. "Investments" means those investments, if any, made by the Agent pursuant to Section 5 hereof. "Cash Collateral Account" means the cash collateral account established and maintained pursuant to Section 2 hereof. "Secured Obligations" means (i) all Obligations of the Pledgor now existing or hereafter arising under or in respect of the Credit Agreement or the Notes (including, without limitation, the Pledgor's obligation to pay principal and interest and all other charges, fees, expenses, commissions, reimbursements, indemnities and other payments related to or in respect of the obligations contained in the Credit Agreement or the Notes) or any documents or agreement related to the Credit Agreement or the Notes; and (ii) without duplication, all obligations of the Pledgor now or hereafter existing under or in respect of this Agreement, including, without limitation, with respect to all charges, fees, expenses, commissions, reimbursements, indemnities and other payments related to or in respect of the obligations contained in this Agreement. 2.Cash Collateral Account; Cash Collateralization of Letters of Credit. -------------------------------------------------------------------- (i) At any time, in the Agent's sole discretion, the Agent shall establish and maintain at its offices at 101 North Tryon Street, Charlotte, North Carolina, in its name and under its sole dominion and control, a cash collateral account designated as Data General Corporation Cash Collateral Account. (ii) In the event that the Pledgor delivers to the Agent an amount equal to the maximum amount remaining undrawn or unpaid under any Letters of Credit either (A) as required pursuant to Article IX of the Credit Agreement or (B) as otherwise agreed by the parties hereto to provide cash collateral for the undrawn amount of any Letter of Credit, the Agent shall deposit such amount into the Cash Collateral Account to be held pursuant to the terms of this Agreement. Upon a drawing under the Letters of Credit in respect of which any amounts described above have been deposited in the Cash Collateral Account, the Agent shall apply such amounts to reimburse NationsBank for the amount of such drawing. In the event the Letters of Credit are canceled or expire or in the event of any reduction in the maximum amount available at any time for drawing under such Letters of Credit (the "Maximum Available Amount"), the Agent shall apply the amount then in the Cash Collateral Account less the Maximum Available Amount immediately after such cancellation, expiration or reduction, if any, first, to the cash collateralization of the Letters of Credit if the Pledgor has failed to pay all or a portion of the maximum amounts described in the first sentence of this clause (ii) above, second, to the payment in full of the outstanding Secured Obligations and third, the balance, if any, to the Pledgor or as otherwise required by law. K-2 (iii) Interest and other income received in respect of Investments of any amounts deposited in the Cash Collateral Account pursuant to clause (ii) of this Section 2 shall be held by the Agent as additional Collateral hereunder. 3. Pledge; Security for Secured Obligations. ---------------------------------------- The Pledgor hereby grants and pledges to the Agent, for itself and on behalf of the Secured Parties, a first priority lien and security interest in the Collateral now existing or hereafter arising or acquired, s collateral security for the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the filing of a petition in bankruptcy or the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), of all Secured Obligations. 4. Delivery of Collateral. ---------------------- The Collateral, when delivered to the Agent, for the benefit of the Lenders, shall be in the form of immediately available funds. 5. Investing of Amounts in the Cash Collateral Account; Amounts held by the ------------------------------------------------------------------------ Agent. - ------ Cash held by the Agent in the Cash Collateral Account shall not be invested or reinvested except as provided in this Section 5. (i) Subject to the remedies and other rights provided in Section 11 hereof and provided that the lien and security interest in favor of the Agent and Secured Parties remains perfected and so long as no Event of Default shall have occurred and be continuing, any funds on deposit in the Cash Collateral Account shall be invested by the Agent in cash equivalents. (ii) The Agent shall have no responsibility and the Pledgor hereby agrees to hold the Agent and the Lenders harmless for any loss in the value of the Collateral resulting from a fluctuation in interest rates or otherwise. Any interest on Investments permitted hereunder and the net proceeds of the sale or payment of any such Investments shall constitute part of the Collateral and be held in the Cash Collateral Account by the Agent. 6. Representations and Warranties. ------------------------------- In addition to its representations and warranties made pursuant to Article VI of the Credit Agreement, the Pledgor represents and warrants to the Agent (for itself and as agent on behalf of the Lenders), that the following statements are true, correct and complete: (i) The Pledgor will be the legal and beneficial owner of the Collateral free and clear of any Lien except for the lien and security interest created by this Agreement; (ii) The pledge and assignment of the Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations. K-3 7. Further Assurances. -------------------- The Pledgor agrees that at any time and from time to time, at the Pledgor's expense, the Pledgor will promptly execute and deliver to the Agent any further instruments and documents, and take any further actions, that may be necessary or that the Agent may reasonably request in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. 8. Transfers and Other Liens. -------------------------- The Pledgor agrees that it will not (a) sell or otherwise dispose of any of the Collateral, or (b) create or permit to exist any Lien upon or with respect to any of the Collateral, except for the Lien and security interest created by this Agreement and the Credit Agreement. 9. The Agent Appointed Attorney-in Fact. --------------------------------------- Upon the occurrence and during the continuation of an Event of Default and acceleration of the Obligations under the Credit Agreement, the Pledgor hereby appoints the Agent as its attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Agent's reasonable discretion to take any action and to execute any instrument which the Agent may reasonably deem necessary or advisable to accomplish the purposes of the Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor or either of them representing any payment, dividend, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. In performing its functions and duties under this Agreement, the Agent shall act solely for the Secured Parties and the Agent has not assumed nor shall be deemed to have assumed, other than as may be required by law, any obligation towards or relationship of agency or trust with or for the Pledgor. 10. The Agent May Perform. --------------------- If Pledgor fails to perform any agreement contained herein, after reasonable notice to Pledgor, the Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Agent incurred in connection therewith shall be payable by Pledgor under Section 13 hereof. 11. Standard of Care; No Responsibility For Certain Matters. ------------------------------------------------------- In dealing with the Collateral in its possession, the Agent shall exercise the same care which it would exercise in dealing with similar collateral property pledged by others in transactions of a similar nature, but it shall not be responsible for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, (b) taking any steps to preserve rights against any parties with respect to any Collateral (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Collateral), (c) the collection of any proceeds, (d) any loss resulting from Investments made pursuant to Section 5 hereof, or (e) determining (x) the correctness of any statement or calculation made by the Pledgor in any written instructions, or (y) whether any deposit in the Cash Collateral Account is proper. 12. Remedies upon Default; Application of Proceeds. ---------------------------------------------- If the Pledgor shall fail to perform any action required hereunder or shall otherwise breach any term or provision hereof (a "Default" hereunder which K-4 Default shall not have been waived in accordance with Section 11.6 of the Credit Agreement: (i) The Agent may and shall at the request of the Required Lenders exercise in respect of the Collateral, in addition to other rights and remedies provided for herein otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "Code") as in effect in the state in which the Collateral is located at that time, and the Agent may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices, and upon such other terms as the Agent may deem commercially reasonable. Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (ii) In addition to the remedies set forth in part (i) above and subject to the provisions of Section 2(ii) hereof, any cash held by the Agent as Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or part of the Collateral shall be applied (after payment of any amounts payable to the Agent pursuant to Section 12 hereof) by the Agent to pay the Secured Obligations pursuant to Article IX of the Credit Agreement. 13. Expenses. -------- In addition to any payments of expenses of the Agent pursuant to the Credit Agreement or the other Loan Documents, the Pledgor agrees to pay promptly to the Agent all the costs and expenses, including reasonable attorneys fees and expenses, which the Agent may incur in connection with (a) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (b) the exercise or enforcement of any of the rights of the Agent hereunder, or (c) the failure by the Pledgor to perform or observe any of the provisions hereof, other than costs and expenses arising as a result of the Agent's or a Lender's gross negligence or wilfull misconduct. 14. No Delays; Waiver, etc. -------------------------- No delay or failure on the part of the Agent in exercising, and no course of dealing with respect to, any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent of any power or right hereunder preclude other or further exercise thereof or the exercise of any other power or right. The remedies herein provided are to the fullest extent permitted by law cumulative and are not exclusive of any remedies provided by law. K-5 15. Amendments, Etc. --------------- No amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by the Pledgor therefrom, shall in any event be effective without the written concurrence of the Agent. 16. Notices. -------- Except as otherwise specifically provided herein, all notices which are to be sent to the Pledgor or Agent shall be given in accordance with the Credit Agreement. 17. Continuing Security Interest; Termination. -------------------------------------------- This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until all Secured Obligations (other than Secured Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable) shall have been indefeasibly paid in full in cash, the commitments or other obligations of the Agent or any Lender to make any Loan under the Credit Agreement shall have expired, the Letters of Credit shall have expired and the Facility Termination Date shall have occurred, (b) be binding upon Pledgor, its successors and assigns, and (c) inure to the benefit of the Agent, the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c) and subject to the provisions of the Credit Agreement, any Lender may assign or otherwise transfer any Note held by it to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. Upon the indefeasible payment in full in cash of the Secured Obligations (other than Secured Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable), and the cancellation or expiration of the Letters of Credit and termination or expiration of all commitments and other obligations of the Agent and any Lender to make any Loan and the occurrence of the Facility Termination Date, Pledgor shall be entitled, subject to the provisions of Section 11 hereof, to the return, upon its request and at its expense, of such of the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. 18. Successors and Assigns. ------------------------- Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party and all covenants, promises, and agreements by or on behalf of the Pledgor or by and on behalf of the Agent shall bind and inure to the benefit of the successors and assigns of the Pledgor, the Agent and the Lenders. 19. Execution in Counterparts. --------------------------- This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall for all purposes be deemed an original, but all such counterparts shall together constitute but one and the same Agreement. The Pledgor and the Agent hereby acknowledge receipt of a true, correct, and complete counterpart of this Agreement. 20. Swap Agreements. --------------- All Hedging Obligations of any Pledgor shall be deemed to be Secured Obligations secured hereby, and each Lender or affiliate of a Lender party to any Swap Agreement shall be deemed to be a Secured Party hereunder. K-6 21. Severability. ------------ Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 22. Headings. -------- The section headings in this Agreement are inserted for convenience of reference and shall not be considered a part of this Agreement or used in its interpretation. 23. GOVERNING LAW; TERMS. -------------------- (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY PERFORMED, IN SUCH STATE. (b) THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY AGREES AND CONSENTS THAT ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, UNITED STATES OF AMERICA AND, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PLEDGOR EXPRESSLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN, OR TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTY BY, ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND THE PLEDGOR HEREBY IRREVOCABLY SUBMITS GENERALLY AND UNCONDITIONALLY TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. (c) THE PLEDGOR AGREES THAT SERVICE OF PROCESS MAY BE MADE BY PERSONAL SERVICE OF A COPY OF THE SUMMONS AND COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING, OR BY REGISTERED OR CERTIFIED MAIL (POSTAGE PREPAID) TO THE ADDRESS OF THE PLEDGOR PROVIDED IN SECTION 11.2 OF THE CREDIT AGREEMENT, OR BY ANY OTHER METHOD OF SERVICE PROVIDED FOR UNDER THE APPLICABLE LAWS IN EFFECT IN THE STATE OF NEW YORK. (d) IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER OR RELATED TO THIS AGREEMENT OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR THAT MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH, THE PLEDGOR AND THE AGENT ON K-7 BEHALF OF THE LENDERS HEREBY AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY AND HEREBY IRREVOCABLY WAIVE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PERSON MAY HAVE TO TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDING. [Signatures on following pages] K-8 IN WITNESS WHEREOF, the Pledgor and the Agent have caused this Cash Collateral Account Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. DATA GENERAL CORPORATION By:____________________________________ Name:__________________________________ Title:_________________________________ NATIONSBANK, NATIONAL ASSOCIATION, as Agent for the Lenders By:____________________________________ Name:__________________________________ Title:_________________________________ CASH COLLATERAL ACCOUNT AGREEMENT Signature Page EXHIBIT L --------- Confidentiality Agreement ------------------------- PROPRIETARY RIGHTS AND NONDISCLOSURE AGREEMENT Non-Disclosure Agreement for the benefit of: DATA GENERAL CORPORATION ("DGC") 4400 Computer Drive, Westboro, Massachusetts 01580 Reference is hereby made to that certain Credit Agreement dated as of September 30, 1997 among DGC, the lenders party thereto (the "Lenders") and NationsBank, National Association, as agent for the Lenders (as amended, supplemented or replaced from time to time, the "Credit Agreement"). All capitalized terms not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement. 1. The undersigned shall not disclose to any third party any Confidential Information and shall keep confidential any Confidential Information, except as provided in the next sentence, unless DGC has, in its sole discretion, previously and expressly consented to such disclosure in writing. The undersigned may disclose Confidential Financial Information to the extent necessary to protect, exercise or enforce its rights or perform its obligations under the Credit Agreement or as otherwise specifically permitted pursuant to the terms of the Credit Agreement, or to (i) any of the undersigned's directors, officers, employees, agents, accountants, attorneys, auditors and advisors on a "need to know" and confidential basis pursuant to this Agreement or terms equivalent, (ii) prospective participants or prospective assignees on a confidential basis pursuant to this Agreement or terms equivalent; (iii) examiners or regulatory agencies having supervisory or examination authority over the undersigned; and (iv) any person pursuant to the order of any governmental authority or as otherwise required by any rule, regulation, law or judicial process, after giving DGC notice thereof promptly after becoming aware of such requirement, to the extent such notice would not be prohibited by law, regulation or such judicial process. The undersigned may disclose Confidential Non-Financial Information to the extent necessary to protect, exercise or enforce its rights or perform its obligations under the Credit Agreement but only upon notice to DGC sufficient to permit DGC to obtain such protective orders reasonably necessary to prevent public disclose of such Non-Financial Information (and the undersigned agrees not to oppose obtaining such protective orders where such action is not reasonably likely to impair the rights or interests of the undersigned) or as otherwise specifically permitted pursuant to the terms of the Credit Agreement, or to (i) any of the undersigned's directors, officers, employees, agents, accountants, attorneys, auditors and advisors on a "need to know" and confidential basis pursuant to this Agreement or terms equivalent, (ii) prospective participants or prospective assignees on a confidential basis pursuant to this Agreement or terms equivalent; (iii) examiners or regulatory agencies having supervisory or examination authority over the undersigned requesting or requiring such disclosure; and (iv) any person pursuant to the order of any governmental authority or as otherwise required by any rules, regulation, law or judicial process, after giving DGC notice thereof promptly after becoming aware of such requirement, to the extent such notice would not be prohibited by law, regulation or such judicial process. "Confidential Information" means all Confidential Financial Information and all Confidential Non-Financial Information. "Confidential Financial Information" means all financial information concerning DGC and its Affiliates which has been identified in good faith by DGC as confidential and delivered to the undersigned by or on behalf of DGC pursuant to this Agreement and which is not information which is (a) in the public domain; (b) known to the undersigned at the time of such disclosure without duty of confidentiality; (c) subsequently received by the undersigned in good faith from a third party who is not known to the undersigned to be bound by a confidentiality agreement with DGC or known to the undersigned to be otherwise prohibited from transmitting the information to the undersigned by a contractual, legal or fiduciary obligation; (d) independently generated by the undersigned; or (e) approved for release or disclosure by DGC in a separate writing; "Confidential Non-Financial Information" means all non-financial information which has been identified in good faith by DGC as confidential and relating to DGC and its Subsidiaries and its and their trade-secrets, proprietary rights, operations and plans which has been delivered to the undersigned by or on behalf of DGC pursuant to this Agreement and which is not information which is (a) in the public domain; (b) known to the undersigned at the time of such disclosure without duty of confidentiality; (c) subsequently received by the undersigned in good faith from a third party who is not known to the undersigned to be bound by a confidentiality agreement with DGC or known to the undersigned to be otherwise prohibited from transmitting the information to the undersigned by a contractual, legal or fiduciary obligation; (d) independently generated by the undersigned; or (e) approved for release or disclosure by DGC in a separate writing; 2. The undersigned recognizes the proprietary rights of DGC in and to the Confidential Information and/or the confidential nature of the Confidential Information, and agrees to keep the Confidential Information as confidential in accordance with its customary procedures for handling similar information and with such care as is otherwise reasonable and treat the Confidential Information as confidential to DGC, and to take appropriate action by instruction, agreement or notice to its directors, officers, agent, consultants, contractors and employees to notify them of the confidential and proprietary nature of the Confidential Information submitted by DGC, and to require that they conform to therequirements of this Agreement. 3. The undersigned further agrees that it will not make use of, either directly or indirectly, any of the Confidential Information which it receives or has received from DGC, other than for the purpose for which such Confidential Information has been disclosed or in connection with the protection, exercise or enforcement of its rights under the Loan Documents, except as otherwise permitted hereunder or with the specific proper written authorization of an officer of DGC. 4. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. AGREED: By:____________________________________ Its:___________________________________ Date:__________________________________ Schedule 6.4 ------------ Borrower, Material and Significant Subsidiaries of Borrower disclosed under Section 6.4: -----------------------------------------------------------
Share Owned by Capitalization Borrower or ----------------- Organizational Other Significant Class of Name of Entity Form Subsidiaries Security Authorized Issued - ----------------------------------------------------------------------------------------------------------------- Borrower: --------- Data General Delaware N/A Common 100M Approximately Corporation corporation 48.8M (including 220,653 treasury shares) Preferred 1M -0- Material Subsidiaries --------------------- Data General Delaware 100% Common International, Inc. corporation Datagen, Inc. Delaware 100% Common corporation Data General Investment Delaware 100% Common Corporation corporation Significant Subsidiaries Those Subsidiaries listed in that letter from Borrower to Agent dated and delivered contemporaneously with this Agreement.
Borrower Ownership Interests disclosed under Section 6.5: - ------------------------------------------------------------- Those investments listed in that letter from Borrower to Agent dated and delivered contemporaneously with this Agreement. Schedule 6.6 ------------ Indebtedness ------------ 1. $212,750,000 6% Convertible Subordinated Notes due 2004 2. That guarantee described in that letter from Borrower to Agent dated and delivered contemporaneously with this Agreement. SCHEDULE 6.7 ------------ Liens None. SCHEDULE 8 ---------- INVESTMENT GUIDELINES --------------------- ISSUE/ RATING MINIMUM TYPE OF INVESTMENT MAX PER MAXIMUM MAX % OF BANK RATING MIN. MOODY/S&P ACCOUNT ANK/ISSUE MATURITY PORTFOLIO MOOD/ S&P FUND - ----------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Securities (OID only) (1) (2) BVI Unlimited 183 days 100% - - - - - - - - U.S. Treasury Securities (1) DGC/DGIC Unlimited 1 Year 100% - - - - - - - - U.S. Treasury Securities (1) DGC/DGIC Unlimited 2 Years 50% - - - - - - - - U.S. Government Agencies (OID only) (2) BVI Unlimited 183 days 50% - - - - - - - - U.S. Government Agencies DGC/DGIC Unlimited 1 Year 50% - - - - - - - - Repurchase Agreements (3) (4) DGC/DGIC $10M 2 months 50% A2 A - - - - Repurchase Agreements (3) DGC/DGIC $20M 3 Months 50% Aaa AAA - - - - Bankers Acceptances (4) DGC/DGIC $10M 3 Months 50% A2 A - - - - Bankers Acceptances DGC/DGIC $20M 6 Months 50% Aaa AAA - - - - CD's(Dom/Euro/Yankee/Floating rate) (4) DGC/DGIC /BVI $10M 6 Months 50% A2 A - - - - CD's(Dom/Euro/Yankee/Floating rate) DGC/DGIC /BVI $20M 1 Year 50% Aaa AAA - - - - Time Deposits (Domestic, Euro) (4) DGC/DGIC /BVI $10M 3 Months 50% A2 A - - - - Time Deposits (Domestic, Euro) DGC/DGIC /BVI $20M 6 Months 50% Aaa AAA - - - - Corporate/Municipal Bonds (4) DGC/DGIC $10M 3 Months 50% - - - - A2 A Corporate/Municipal Bonds DGC/DGIC $20M 6 Months 50% - - - - Aaa AAA Commercial Paper DGC/DGIC $10M 1 Month 20% - - - - A1 P1 Commercial Paper DGC/DGIC $10M 3 Months 20% - - - - A1+ P1 Eurocommercial Paper BVI $10M 1 Month 20% - - - - A1 P1 Eurocommercial Paper BVI $10M 3 Months 20% - - - - A1+ P1 Money Market Fund (w/Facility Banks) DGC/DGIC $20M Daily 20% A3 A- Aaa AAA Liquidity Auction Preferreds and Notes DGC/DGIC $10M 2 Months 20% - - - - Aaa AAA A minimum 50% of the domestic investment portfolio must be maintained in U.S. Treasuries. BVI limits further restricted by Tax Department. OID = Original Issue Discount. (1) With permitted institutions only and secured only by U.S. Treasury and Agency collateral at 102% Mark to Market plus accrued interest: (subject to investment criteria on banks). (2) $10M limit for Credit Facility Banks with a bank rating of A3/A-.
EX-10 3 1997 NON-OFFICER STOCK OPTION PLAN EXHIBIT 10 (ff) DATA GENERAL CORPORATION 1997 NON-OFFICER EMPLOYEE STOCK OPTION PLAN 1. Purpose ------- The Data General Corporation 1997 Non-Officer Employee Stock Option Plan (the "Plan") is intended to provide a method whereby employees of Data General Corporation (the "Company") and its subsidiaries who are making and are expected to continue making substantial contributions to the successful management and growth of the Company and its subsidiaries, may be offered an opportunity to acquire Common Stock, $.01 par value per share (the "Common Stock"), of the Company in order to increase their proprietary interests in the Company and their incentive to remain and advance in the employ of the Company and its subsidiaries. It is also the purpose of the Plan to strengthen the ability of the Company and its subsidiaries to attract and retain personnel of experience and ability by granting such persons an opportunity to acquire a proprietary interest in the Company. 2. Administration of the Plan -------------------------- The Plan shall be administered by a 1997 Non-Officer Employee Stock Option Plan Committee (the "Committee") appointed by the Board of Directors of the Company. The Committee shall consist of two or more "non-employee directors", as that term is defined in Rule 16b-3, as in effect from time to time, under the Securities Exchange Act of 1934, as amended. Subject to the terms and conditions of the Plan, the Committee shall have exclusive authority to select the times when and employees to whom Stock Options may be granted, and to determine the terms and conditions of the option agreements (as hereinafter defined), the number of shares of Common Stock to be acquired by the exercise of Stock Options, the option price (as hereinafter defined) and the term during which the Stock Options may be exercised. The Board of Directors may at any time appoint or remove members of the Committee and may fill vacancies however caused in the Committee. The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it shall deem advisable. All acts by a majority of the Committee or acts approved in writing by a majority of the Committee shall be valid acts of the Committee. The Committee shall keep records of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable. 3. Interpretation and Amendment ---------------------------- The interpretation and construction of any terms or conditions of the Plan or of any option agreement or other matters related to the Plan by the Committee shall be final and conclusive. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan. The Board of Directors may at any time terminate or from time to time modify or suspend the Plan; provided, however, that no such action shall impair any Stock Option theretofore granted. 4. Participants ------------ Stock Options may be granted to employees of the Company or its subsidiaries. No Stock Options shall be granted to an employee who, at the time the Stock Option is granted, owns capital stock having more than ten percent (10%) of the total combined voting power of all classes of capital stock of the Company. The term "employees" shall not include officers or directors of the Company, but shall also include consultants to the Company and its subsidiaries. The term "subsidiary" shall mean "subsidiary corporation" as defined in Section 424 of the Code. Subject to the preceding paragraph, receipt of stock options under any other stock option plan maintained by the Company or any subsidiary shall not, for that reason, preclude an employee from receiving Stock Options under the Plan. 5. Common Stock ------------ Subject to Paragraph 11, no more than an aggregate of 3,500,000 shares of Common Stock may be issued and sold pursuant to the Plan. The shares of Common Stock issued and sold under the Plan may be authorized but unissued shares of Common Stock, or shares of Common Stock acquired by the Company, including shares of Common Stock purchased in the open market. 6. Terms and Conditions of Options ------------------------------- Stock Options shall be in such form and on such terms and conditions as the Committee shall from time to time approve, subject to the following terms and conditions: (a) A Stock Option shall state the number of shares of Common Stock to which it relates and no fractional shares of Common Stock shall be issued. (b) The option price per share of Common Stock issuable upon the exercise of a Stock Option shall be determined by the Committee; provided, however, that in no event shall such price be less than the lower of (i) fifty percent (50%) of the book value per share of the Common Stock as of the end of the fiscal year immediately preceding the date of grant or (ii) twenty-five percent (25%) of the fair market value per share of Common Stock on the date of such grant. (c) Notwithstanding any other provisions of the Plan, the term of a Stock Option shall not be more than ten (10) years from the date such option is granted. 7. Restrictions on Disposition and Obligation of Resale ---------------------------------------------------- Shares of Common Stock acquired by an employee pursuant to the exercise of a Stock Option under the Plan shall not be sold, transferred, or otherwise disposed of and shall not be pledged or otherwise hypothecated, except as provided below. (Any such sale, transfer or other disposition, or any pledge or other hypothecation shall hereinafter be referred to as a "disposition.") In the event of the termination of employment for any reason except death or retirement with the consent of the Company, such shares shall, except as provided below, be offered for resale to the Company at their original acquisition price. Shares as to which the restrictions against disposition and the obligation of resale to the Company have lapsed in accordance with the provisions set forth below shall be referred to as "free shares." Shares as to which the restrictions against disposition and the obligation of resale to the Company have not lapsed as provided below shall be referred to as "restricted shares." (a) The restrictions against disposition and the obligation of resale to the Company of shares acquired pursuant to the Plan shall lapse as Board of Directors or the Committee shall determine, and such terms shall be incorporated into and be made a part of the option agreement between the Company and the employee. Any provision for the lapse of the restrictions against disposition and the obligation of resale shall apply with respect to shares subject to an Option whether or not the Option has been exercised in whole or part on the date of lapse. (b) Upon the occurrence of the earlier of the death of the employee, the retirement of the employee with the consent of the Company or the attainment by the employee of the age of 65 whether or not the employee retires, the restrictions against disposition and the obligation of resale to the Company of shares as to which such restrictions and obligation have not otherwise lapsed under the Plan shall immediately lapse. (c) In the event of the termination of employment for any reason except death or retirement with the consent of the Company, shares issued to the employee pursuant to the exercise of an option under the Plan, which shares have not, as of the date of termination of employment, become free shares as defined above, shall become subject to an obligation of immediate resale to the Company. Shares subject to such obligation of resale shall be delivered to the Company within 30 days following the termination of employment. Within 60 days following a timely delivery of shares, the Company will compensate the employee (at the original acquisition price) for such number of shares as the Company elects to purchase and will return to the employee any shares not so purchased. Restricted shares which are not delivered to the Company within 30 days following the termination of employment shall remain subject to the restrictions against disposition and such restrictions shall not lapse as otherwise provided in this Section 7 and in the employee's option agreement. Nothing in this Section 7 shall require the Company to repurchase shares issued to employees under the Plan. (d) Notwithstanding any of the foregoing restrictions, any shares acquired under the Plan may at any time be pledged or otherwise hypothecated to secure borrowing by the employee to obtain the acquisition price to be paid by the employee for such shares; provided, however, that the amount of such borrowing may not exceed the acquisition price of such shares. (e) The provisions of this Section 7 and the provisions of any option agreement between the Company and an employee relating to the restrictions against disposition and the obligation of resale to the Company shall be applied according to their terms or according to such other terms and conditions, or at such times and dates, as the Board of Directors or the Committee may from time to time establish. Any questions as to whether and when there has been a termination of employment, and (subject to Sections 6(b) and 6(c) of the Plan) any questions as to the acquisition price of shares, shall be determined by the Committee and its determination of such questions shall be final. 8. Notice of Election under Section 83(b) -------------------------------------- Each employee exercising a non-qualified option and making an election under Section 83(b) of the Code and the Regulations and Rulings promulgated thereunder will provide a copy thereof to the Company within 30 days of the filing of such election with the Internal Revenue Service. 9. Termination of Employment ------------------------- If an employee shall cease to be employed by the Company or any subsidiary for any reason other than disability, retirement with the consent of the Company or death, then any Stock Option granted pursuant to the Plan shall terminate immediately. If an employee shall cease to be employed by the Company or any subsidiary as the result of his disability, or retirement with the consent of the Company, then any Stock Option that is exercisable by him at the time he ceases to be employed by the Company or its subsidiaries, and only to the extent that such Stock Options are exercisable as of such time, may be exercised by him within twelve (12) months or three (3) months, respectively, after such time. Solely for the purposes of the Stock Option Plan, the transfer of an employee from the employ of the Company to a subsidiary, or vice-versa, or from one subsidiary to another shall not be deemed a termination of employment. 10. Death ----- If an employee shall die while employed by the Company or any subsidiary, the employee's executor, personal representative or administrator shall have the right to exercise those Stock Options granted to the employee that were exercisable by him at the time of his death at any time within twelve (12) months from the date of his death (or within such shorter period as may be specified by the Company in the option agreement). 11. Changes in Capital Stock ------------------------ Upon any readjustment or recapitalization of the Company's capital stock whereby the character of the Common Stock shall be changed, appropriate adjustments shall be made so that the capital stock to be purchased under the Stock Option Plan after such readjustment or recapitalization shall be the substantial equivalent of the Common Stock. In the event of a subdivision or combination of the shares of Common Stock, the number of shares of Common Stock as to which Stock Options may be granted under the Plan shall be proportionately increased or decreased, respectively, and the Option Price shall be proportionately adjusted by the Board of Directors, and in the case of a reclassification or other change in the shares of the Common Stock such action shall be taken as in the opinion of the Board of Directors shall be appropriate under the circumstances. 12. Transferability --------------- Stock Options shall not be assignable or transferable and during an employee's lifetime may be exercised only by him, except by will or the laws of descent and distribution or as the Committee shall determine. 13. Exercise of Options ------------------- An employee electing to exercise a Stock Option shall give written notice to the Company of such election and of the number of shares of Common Stock that he has elected to acquire. An employee shall have no rights of a stockholder with respect to shares of Common Stock to be acquired by the exercise of a Stock Option until the issuance to him of a certificate representing said shares. 14. Option Agreements ----------------- Agreements granting Stock Options under the Plan ("Option Agreements") shall be in writing, duly executed and delivered by or on behalf of the Company to the employee and shall contain such terms and conditions as the Committee deems advisable. If there is any conflict between the terms and conditions of any Option Agreement and of the Plan, the terms and conditions of the Plan shall control. 15. Payment ------- The option price shall be payable upon the exercise of the Stock Option and shall be paid in cash, by certified check, by cashier's check or in shares of Common Stock. If shares of Common Stock are tendered as payment of the option price, the value of such shares shall be their fair market value as of the date of exercise. If such tender would result in the issuance of fractional shares of Common Stock, the Company shall require an additional amount which will result in the issuance of another whole share. 16. Term of Plan ------------ The Plan shall terminate on July 9, 2007. 17. Continuance of Employment ------------------------- Neither the Plan nor any Option Agreement shall impose any obligation on the Company or any subsidiary to continue to employ any employee. 18. Effectiveness of Plan --------------------- The Plan shall become effective on the date of its adoption by the Board of Directors. EX-10 4 FORM OF 1997 NON-OFFICER EE STOCK OPTION PLAN EXHIBIT 10 (gg) DATA GENERAL CORPORATION DOMESTIC 1997 NON-OFFICER EMPLOYEE STOCK OPTION AGREEMENT (Non-qualified Stock Option) * * * EMPLOYEE STOCK OPTION AGREEMENT made this_______, between DATA GENERAL CORPORATION, a Delaware corporation (hereinafter called the "Company"), and_______, an employee of the Company or of a subsidiary of the Company (hereinafter called the "Participant"); W I T N E S S E T H : ------------------- WHEREAS, the Company desires, by affording the Participant an opportunity to purchase shares of its common stock, as hereinafter provided, to carry out the purpose of the "1997 Non-Officer Employee Stock Option Plan" (hereinafter referred to as the "Plan"), approved by its directors: NOW, THEREFORE, in consideration of the premises and of the mutual promises hereinafter contained, the parties hereto have agreed as follows: 1. Grant of Option. ---------------- The Company hereby grants to the Participant a non-qualified stock option (hereinafter called the "Option") to purchase all or part of an aggregate of ____________ of stock (hereinafter referred to as the "Stock") (such number being subject to adjustment as provided in Paragraph 11 hereof) on the terms and conditions hereinafter set forth. 2. Incorporation of Plan. ---------------------- Except as hereinafter provided, this Agreement shall be governed by and be subject to all the terms and conditions set forth in the Plan as in effect on the date hereof. A copy of the Plan has been delivered to the Participant and is hereby incorporated by reference. 3. Purchase Price. -------------- The purchase price of the shares of Stock covered by the Option shall be________ per share. Payment shall be made in cash, by certified check or in shares of Common Stock in the manner prescribed in Paragraph 9 hereof. 4. Term of Option. ----------------- The term of the Option shall be for a period commencing on the date hereof and ending on___________________. The right of Participant to purchase Stock through the exercise of this Option, wholly or in part, shall be available to the Participant at any time during the term of this Option subject to restrictions on the disposition as provided in Paragraph 6 hereof and to the obligation of resale of said Stock as provided in Paragraph 7 hereof. 5. Nontransferability. ------------------- The Option shall not be transferable otherwise than by will or the laws of descent and distribution, and the Option may be exercised, during the lifetime of the Participant only by him, more particularly (but without limiting generality of the foregoing), the Option may not be assigned, transferred (except as provided above), pledged, hypothecated in any way, shall not be assignable by operation of law, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provision hereof, and the levy of any execution, attachment, or similar process upon the Option, shall be null and void and without effect; provided however, that if Participant shall die while in the employ of the Company or a subsidiary of the Company, his executor, personal representative, or administrator shall have the right to exercise the Option (to the extent that the Participant would have been entitled to do so at the date of his death) at any time within twelve (12) months from the date of death in respect of the total number of shares as to which he would be entitled to exercise his Option at the date of his death. 6. Restrictions on Disposition. ---------------------------- Stock acquired by Participant pursuant to the exercise of an Option is subject to certain restrictions on dispositions and obligations of resale to the Company as provided in Section 7 of the Plan and such Stock shall not be sold, transferred, or otherwise disposed of and shall not be pledged to anyone other than the Company or otherwise hypothecated until such restrictions lapse. Participant understands and agrees that, if the Stock is subject to restrictions which have not yet lapsed, certificates representing such Stock will contain a legend to the effect that the Stock is subject to certain restrictions on disposition and obligations of resale as contained in Section 7 of the Plan. Such restrictions against the disposition of the Stock shall lapse in accordance with the provisions of Exhibit A attached hereto; provided, however, that the 1997 Non-Officer Employee Stock Option Plan Committee (the "Committee") shall, in its sole discretion, decide at the time Participant is granted an Authorized Leave of Absence (as defined in this Paragraph 6), whether the period of time during which Participant takes an Authorized Leave of Absence shall be included in determining whether the restrictions against disposition shall have lapsed in accordance with th provisions of Exhibit A attached hereto. In any event, upon the occurrence of the earlier of the death of Participant, the retirement of Participant with the consent of the Company or the attainment by Participant of the age of 65 whether or not Participant retires, the restrictions against disposition which have not otherwise lapsed under the Plan shall immediately lapse. For purposes of this Paragraph 6, "Authorized Leave of Absence" shall mean (a) any period of leave granted to Participant by the Company for reasons of sickness or disability or for the pursuit of graduate or other academic studies or for government service or personal or family hardship, or such other reasons as the Company may in its discretion determine provided that in no event shall the period of such leave exceed the period granted by the Company and provided further that unless Participant retires during such leave, Participant returns to the employment of the Company at the termination of such period; and (b) absence for military service in the armed forces of the United States under leave granted by the Company or as required by law, provided Participant returns to employment within six (6) months of his releas from such military service, or within any longer period during which his right to reemployment is protected by law. 7. Obligation of Resale. -------------------- If Participant's employment terminates other than by retirement with the consent of the Company or by Participant's death, then the Stock for which Participant has paid the purchase price but on which restrictions against disposition have not lapsed shall be offered for resale to the Company at the price paid by Participant. This offer of resale must be in writing and must be delivered to the Company within thirty (30) days following termination and certificates for such Stock shall be delivered to the Company within such thirty-day period. If such Stock is not delivered to the Company within thirty (30) days following the termination of Participant's employment, such Stock shall remain subject to the restrictions against disposition and such restrictions shall not lapse as otherwise provided herein and in the Plan. Within sixty (60) days following a timely delivery of the Stock, the Company will compensate Participant (at the original purchase price) for such number of the shares of the Stock as the Company elects to repurchase and will return to the Participant any such shares not so purchased. In the event that the Company declines in writing to repurchase such Stock, such Stock shall remain the property of Participant and the restrictions against disposition shall lapse at the rate stated in this Agreement. 8. Employment. ----------- Subject to the provisions of Paragraph 5 hereof, this Option shall be exercisable only by Participant while he is employed by the Company or a subsidiary of the Company or upon his retirement with the consent of the Company If Participant shall retire with the consent of the Company before his Option shall have terminated, he must exercise the Option within ninety (90) days after the date on which he ceases to be employed by the Company or a subsidiary of the Company. Participant acknowledges and agrees that the Company is not obligated by this Agreement or the Plan to continue the Participant in its employment, and this Agreement does not in any manner constitute an employment agreement or create any rights, benefits, or obligations not specifically set forth herein. 9. Method of Exercising Option. ---------------------------- Subject to the terms and conditions of this Option Agreement, the Option may be exercised by written notice to the Company at its office at 4400 Computer Drive, Westboro, MA 01580, Attn: Treasurer. Such notice shall state the election to exercise the Option, and the number of shares of Stock in respect of which it is being exercised. It shall be signed by the person or persons so exercising the Option and shall be accompanied by payment of the full purchase price of such Stock in cash, by certified check or in shares of Common Stock. If shares of Common Stock are tendered as payment of the Option exercise price, the value of such shares shall be their fair market value as of the date of exercise. If such tender would result in the issuance of fractional shares of Common Stock, the Participant shall purchase, at the price which reflects the fair market value of the Stock as of the date of exercise, in cash, by certified check, or cashier's check such additional fractional shares of Common Stock as are necessary to result in the issuance to the Participant of an additional whole share of Stock. The Company shall issue, in the name of the person or persons exercising the Option, and deliver a certificate or certificates representing such shares as soon as practicable after the notice and payment shall be received. In the event the Option shall be exercised, pursuant to Paragraph 5 hereof, by any person or persons other than the Participant, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. Until Participant (or his representative as provided in Paragraph 5 hereof) has been issued a certificate or certificates for the shares as acquired, Participant shall possess no stockholder rights with respect to any such Stock. 10. Additional Withholding for Tax Purposes. --------------------------------------- Upon exercise of an Option, if the restrictions on any of the shares being purchased thereunder shall have already lapsed, then the Company will require, at the time of exercise, an additional payment equal to all applicable withholding taxes which may be imposed on the difference between the purchase price of such shares and the fair market value of such shares as of the exercise date (which sum shall be paid in due course by the Company to the applicable agencies as income taxes withheld on income resulting from the exercise of the Option). The Company will also require, in each year during which restrictions on any shares purchased upon exercise of the Option shall lapse, a payment equal to all applicable withholding taxes which may be imposed on the difference between the purchase price of such shares and the faimarket value of such shares as of the date on which the restrictions lapse. If a Participant elects, in accordance with Section 83(b) of the Internal Revenue Code of 1986 as amended, and Section 9 of the Plan, to recognize ordinary income in the year of exercise with respect to the shares being purchased upon exercise of the Option, then the Company will require at the time of such election an additional payment equal to all applicable withholding taxes which may be imposed on the difference between the purchase price of such shares and the fair market value of such shares as of the exercise date. 11. Changes in Capital Structure. ----------------------------- If all or any portion of the Option shall be exercised subsequent to any stock dividend splitup, recapitalization, merger, consolidation, combination or exchange of shares, or otherwise, occurring after the date hereof, the aggregate number of shares of the Stock subject to this Agreement and the Option price may be proportionately adjusted, and any other appropriate changes may be made by the Board of Directors or the Committee, whose determination shall be conclusive. No fractional share shall be issued upon any such exercise and the aggregate price shall be reduced on account of any fractional share not issued. In no event, however, shall adjustment be made in the rate at which restrictions against disposition lapse and Participant's obligation of resale, as fixed by Paragraph 6 and 7 hereof. 12. Termination of Option. --------------------- In the event of the institution of any legal proceedings directed to the validity of the Plan pursuant to which the Option is granted, or to any option granted under it, the Company may, in its discretion, and without incurring any liability therefor to any Participant, terminate the Option. 13. Enforceability. -------------- This agreement shall be binding upon the Participant, his estate, his personal representatives and beneficiaries. IN WITNESS WHEREOF, the Company has caused this Option Agreement to be executed by its duly authorized officer, and the Participant has hereunto set his hand and seal, all on the day and year first above written. DATA GENERAL CORPORATION By: _______________________________ Officer I have read and understood this Agreement and agree to be bound by its terms. --------------------------------- *name* EXHIBIT A TO EMPLOYEE STOCK OPTION AGREEMENT Dated: ________________ The Option is immediately exercisable except as otherwise provided in the Agreement. During the term of this Option, the restrictions against disposition and obligation of resale to the Company shall lapse so the shares become freely tradeable ("free shares") in accordance with the following schedule: # of Years From Cumulative % of Date of Option % of Grant Becoming Grant Becoming Agreement Free Shares Free Shares ------------- ------------------ -------------- EX-11 5 FY97 EARNINGS PER SHARE EXHIBIT 11 DATA GENERAL CORPORATION COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (In thousands except per share amounts)
Fiscal Year Ended --------------------------------------------------------------------------- Sept. 27, Sept. 28, Sept. 30, Sept. 24, Sept. 25, 1997 1996 1995 1994 1993 --------------- -------------- ------------- ------------- ------------- Primary earnings per share: Net income (loss) $ 55,900 $ 28,145 $ (46,703) $ (87,693) $ (60,479) =============== ============= ============= ============= ============= Weighted average shares outstanding 41,347 38,769 37,052 35,774 34,464 Incremental shares from use of treasury stock method for stock options 2,852 2,312 814 - 412 --------------- -------------- ------------- ------------- ------------- Common and common equivalent shares, where applicable 44,199 41,081 37,866 35,774 34,876 =============== ============= ============= ============= ============= Net income (loss) per share $ 1.26 $ 0.68 $ (1.23) $ (2.45) $ (1.73) =============== ============== ============= ============= ============= Earnings per share assuming full dilution: (a) Net income (loss) $ 63,861 $ 28,145 $ (46,703) $ (87,693) $ (60,479) =============== ============== ============= ============= ============= Weighted average shares outstanding 46,992 38,769 37,052 35,774 34,464 Incremental shares from use of treasury stock method for stock options 3,353 2,565 907 - 432 --------------- -------------- ------------- ------------- ------------- Common and common equivalent shares assuming full dilution, where applicable 50,345 41,334 37,959 35,774 34,896 =============== ============== ============= ============= ============= Net income (loss) per share $ 1.27 $ 0.68 $ (1.23) $ (2.45) $ (1.73) =============== ============== ============= ============= ============= - ------------------------------------------------------------------------------------------------------------------------- (a) For the year ended September 27, 1997, the conversion of the Company's 7 3/4% Convertible Subordinated Debentures due 2001 was assumed to occur at the beginning of the year. For the years ended September 28, 1996, September 30, 1995, September 24, 1994 and September 25, 1993, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, results in anti-dilution and has therefore been excluded from the computation. For the year ended September 24, 1994, the assumed exercise of options outstanding under the Company's stock option plans using the treasury stock method, is anti-dilutive and has been excluded from the computation.
EX-13 6 FY97 ANNUAL REPORT EXHIBIT 13 Data General Corporation 1997 Annual Report Servers Storage Services Growth www.dg.com www.clariion.com www.thiin.com Data General was built on technology leadership and innovation. Our objective is to be a worldwide leader in open server and storage products. We deliver computing solutions through multiple distribution channels and strategic alliances. We provide superior customer service and support. Since our founding in 1968, we have installed more than 500,000 servers and storage systems worldwide. Positioned for Growth --------------------- Highlights of the past year: o Achieved revenues of $1.53 billion, highest annual revenues in our 29-year history o Achieved record quarterly revenues in each of the last three quarters of fiscal 1997 o Extended profit trend to nine consecutive quarters o Completed the sale of $212,750,000 of 6 percent convertible subordinate notes o Completed the redemption of $125,000,000 of 7 3/4 percent convertible subordinated notes o Introduced AViiON(R) NT Cluster-in-a-Box(TM)--the first Microsoft Windows NT Server clustering solution in a pre-installed, pre-tested, single rack-mounted system o Introduced high-end AViiON AV 20000 servers based on the ccNUMA (cache coherent Non-Uniform Memory Access) architecture o Achieved record-breaking benchmarks with AViiON servers o Introduced the CLARiiON (R) TeleStor(TM) disk array, which offers a complete storage solution for the telecommunications industry o Announced a revolutionary family of CLARiiON fibre storage products o Introduced the THiiN(TM) Line SiteStak(TM) web host, the first in a family of single-purpose, specialized Internet appliances designed to bring economy, simplicity, and utility to web publishing and administration Open Systems Revenue Trend ($M): Open systems revenues from AViiON servers, CLARiiON storage, PCs, and Services have grown at a compound growth rate of 33 percent, and now represent 93 percent of total revenues. 1 To Our Stockholders, Customers, And Employees: Fiscal 1997 was a good year for Data General by many measures. It marked the company's second consecutive year of increased profits and revenue growth. Record revenue levels were reached. Product revenues increased 24 percent and total revenues increased 16 percent over fiscal 1996. We also established market share leadership in segments of the fast-growing Microsoft Windows NT Server market, and continued our leadership in the OEM segment of the disk storage market. 2 Data General has followed a focused strategy of providing a scalable family of servers and storage products which meets our customers' needs for high availability, data integrity, and high performance, while adding value through superior customer services. To ensure our ability to deliver high-end solutions which meet emerging standards, we built and strengthened relationships with industry leaders, including Intel, Microsoft, and Oracle. Implementing this strategy over several years has enabled Data General to grow revenues, build profitability, and establish a strong presence in the server and storage markets According to the most recent International Data Corporation reports, Data General has gained leadership in key market sectors, including the number one position for 1996 in the $50,000 to $100,000 segment of the Microsoft Windows NT Server market, and the number two position for systems priced between $100,000 and $250,000. CLARiiON disk arrays enabled Data General to achieve the number one position in the OEM storage market for 1996. We have targeted the enterprise level of the Microsoft NT Server market and provide clear added value for customers with award-winning AViiON NT Cluster- in-a-Box, the industry's first Microsoft Windows NT Server clustering solution that comes completely pre-configured and pre-tested and with the software pre- installed, allowing for quick deployment; NTerprise Manager(TM), the first product to provide integrated server management of hardware, systems software, and applications for the NT environment; and NTAlert(SM), the industry's most comprehensive NT-based remote service for early identification of potential problems. According to International Data Corporation, the high end of the Microsoft Windows NT Server market grew at over 100 percent in 1996 and is projected to continue growing at compound annual growth rates exceeding 50 percent for several years. The high-end UNIX market which we have targeted grew at 26 percent in 1996 and is projected to be growing at between 10 and 15 percent in 1997. In a September 1997 Merrill Lynch Corporate Buyers' Survey, 73 percent of customers indicated a continuing or increasing commitment to UNIX. Our ccNUMA-bas ed AV 20000 servers provide high performance and scalability for UNIX applications, including on-line transaction processing, enterprise resource planning, data warehousing, server consolidation, and mainframe migration. To support the growing market for AV 20000 servers, we are continuing to invest in the DG/UX operating system, our industry-leading UNIX implementation, adding larger file support and additional clustering and performance features to provide increasing levels of scalability and high availability. Initial demand for AV 20000 servers has exceeded our plans and expectations. Two major establishments in the United Kingdom, J Sainsbury PLC and Booker Belmont Wholesale, are among more than 50 organizations that have installed AV 20000 servers since the products were introduced in June. 3 A Growing Customer Base - ----------------------- Our worldwide AViiON customer base now includes several of the world's largest petrochemical firms; the U.S. State Department, which is installing AViiON servers in consular offices around the world; Bloomberg Financial Markets, the fastest growing supplier of financial data, which uses our largest AViiON servers and over 30 terabytes of CLARiiON storage; a large telecommunications company in the United States, which is basing its new Internet services on AViiON servers, CLARiiON storage, and Data General network control and network management; and nearly 30 percent of the hospitals in the United States which use AViiON servers for healthcare information processing. The worldwide CLARiiON installed base continues to grow, with more than 60,000 systems and two petabytes of protected storage shipped. Each petabyte is the equivalent of 400 billion typed pages. Among CLARiiON's end-user customers are EDS, Motorola, Sallie Mae, Vastar Resources, and the Kansas City Chiefs of the National Football League. CLARiiON SCSI and fibre channel storage is supported on leading open systems platforms including Bull, Convex, Cray, Data General, Digital Equipment, Hewlett Packard , IBM, Motorola, NCR, SCO, Sequent, Silicon Graphics, and Sun Microsystems, and Intel PC servers running Windows NT, IntranetWare, and OS/2. CLARiiON storage is sold through major computer systems manufacturers, value-added storage resellers, and system integrators around the world. Data General Fellow Program - --------------------------- Our company's current success in AViiON servers and CLARiiON storage is directly related to our continuing investments in new technology. The AViiON line has evolved through several generations since 1989, and CLARiiON has grown from a startup venture in 1991 to a half-billion dollar business today . Chart: Total Revenue ($M) Q4 FY95 ........................ 313 Q1 FY96 ........................ 328 Q2 FY96 ........................ 335 Q3 FY96 ........................ 323 Q4 FY96 ........................ 336 Q1 FY97 ........................ 349 Q2 FY97 ........................ 389 Q3 FY97 ........................ 391 Q4 FY97 ........................ 404 4 Data General has a strong track record of innovation and providing opportunities for the development and growth of new business ventures. Continuing this entrepreneurial process is essential for us. The Data General Fellow Program will provide a process for formalizing our strategic technology direction while recognizing our senior technologists. Named as the first three Data General Fellows are: Roy Clark, NUMALiiNE(TM) Systems Architect; Eric Hamilton, Software Systems Architect; and Robert Solomon, vice president of CLARiiON Advanced Development. J. Thomas West, who will assume a new role as a technology consultant for Data General in January 1998, will assist in managing the program. Mr. West has led the development of generations of new products and has nurtured generations of technology leaders over his 25 years with Data General. We are pleased that he is continuing an exclusive relationship with us. Financial Strength - ------------------- I believe Data General has the people, products, services, and strategy to succeed. We are also well financed to pursue our growth strategy. In the past year, our total capitalization has increased by over 50 percent and cash and marketable securities, which totaled $368 million at the end of fiscal 1997, increased by 80 percent. Our inventory turns and receivable days sales outstanding rank among the best in the information technology industry. The success we achieved during fiscal 1997 is solid affirmation that our strategy and products are on target for the needs of the enterprise marketplace. Going forward, with our growing AViiON server and CLARiiON storage businesses, and the potential we see for THiiN Line Internet Appliances, we are confident that we are on a course for continued revenue growth and profitability. Respectfully submitted, Ronald L. Skates President and Chief Executive Officer December 17, 1997 Chart: Earnings Per Share ($) Q4 FY95 ...................... 0.04 Q1 FY96 ...................... 0.12 Q2 FY96 ...................... 0.15 Q3 FY96 ...................... 0.17 Q4 FY96 ...................... 0.24 Q1 FY97 ...................... 0.25 Q2 FY97 ...................... 0.32 Q3 FY97 ...................... 0.34 Q4 FY97 ...................... 0.35 5 Technology - ---------- Technology excellence has been the sustaining factor in Data General's growth since the company's founding in 1968. Technology continues to be at the core of our strategy to deliver industry-leading open servers and storage products, and provide our customers with complete business solutions and premier services. 6 Over the past three years, Data General has taken a number of steps to provide the company with new growth opportunities. These include: o Adopting the Intel architecture, the world's leading computer platform, for our AViiON server family to ensure that our customers have access to the broadest range of applications o Focusing on high-availability and clustering technologies which enable AViiON servers and CLARiiON storage to run mission-critical applications o Developing a new line of high-performance servers based on ccNUMA architecture which opens new markets, such as data warehousing and mainframe migrations, to Data General o Expanding the market for our CLARiiON storage products by establishing strong OEM and reseller alliances o Pioneering fibre channel technology for CLARiiON storage, and delivering the first full fibre channel disk arrays o Exploring new technology for the Internet with THiiN Line, a family of appliances designed specifically for the way computing is done on the World Wide Web o Continuing our strong focus on UNIX while dedicating new resources to Microsoft Windows NT Server, the fastest growing operating system o Supporting our UNIX and NT server strategies with premier services, including networking, integration, migration, and education o Helping our customers fully utilize their computing assets by becoming an Authorized Microsoft Support Center, Authorized Microsoft Technical Education Center, and SCO Authorized Support Center o Providing complete business solutions by strengthening relationships with Microsoft, Oracle, SAP, Baan, PeopleSoft, and other leading suppliers of databases and applications o Extending our manufacturing expertise to VALiiANT(R) electronic manufacturing and design services, a new business which takes advantage of our ISO 9000-certified manufacturing resources o Using the World Wide Web to expand Data General's market presence through our www.dg.com, www.clariion.com, and www.thiin.com web sites which include e-commerce product ordering features 7 AViiON Servers - -------------- Data General's AViiON family uses the power of the Intel architecture to provide customers with a broad and scalable family of high-performance systems ranging from departmental servers to enterprise systems. AViiON servers feature comprehensive security, reliability, high availability, and serviceability. Our top-of-the-line AV 20000 servers are based on ccNUMA technology. ccNUMA technology redefines price/performance levels and extends the capabilities of symmetric multiprocessing (SMP) systems, all without requiring modifications to existing SMP applications. AViiON servers provide an excellent platform for such strategic applications as data warehousing and secure Internet commerce. AViiON supported operating systems include Microsoft Windows NT Server; Data General's own DG/UX, one of the most technically advanced UNIX operating systems in the market; the SCO UnixWare System; SCO Open Server; Novell IntranetWare; and Citrix WinFrame/Enterprise Server. Data General's clustering solutions for NT and UNIX provide reliability, high availability and data protection for critical applications. NT Cluster-in-a-Box combines two powerful AViiON NT servers with NTerprise Manager server management software, NTAlert automatic diagnostics, a CLARiiON disk array, and a choice of clustering software--either FirstWatch for NT or Microsoft Cluster Server. Our UNIX clustering solution--DG/UX Clusters--includes two or more AViiON servers, a CLARiiON RAID array, and a PC with cluster-management software. For Internet and intranet applications, we offer comprehensive services which combine our AViiON server and CLARiiON storage platforms with products from leading providers of security software, including BDM International, CyberGuard, Microsoft, and Raptor Systems. Our award-winning family of AV Image(R) products, available for AViiON systems, provides imaging solutions targeted at efficient, affordable document management. With our AViiON servers, we also offer the DG/ViiSION(R) family of personal computers, which includes desktop, minitower, and notebook products featuring Intel processors. Data General works closely with leading software and services suppliers that understand specific customer problems and provide efficient, effective, and affordable computing solutions. Their complementary products and services add significant value to Data General's products, and allow us to bring complete business solutions to customers in diverse markets. 8 Data General teams with a multitude of solution suppliers to offer a portfolio of tens of thousands of applications for a variety of industries and markets, including healthcare, manufacturing, distribution, financial services, telecommunications, and government. www.dg.com THiiN Line Internet Appliances - ------------------------------ Over the last few years, the Internet has catapulted into the mainstream, and defined a new form of computing driven by the need for information access. Data General's THiiN Line business unit is exploring new technology designed explicitly for the Internet, and is capitalizing on our existing server and storage expertise to develop a new line of computing appliances for the Internet model. The potential of this emerging market is not yet clear. Our ultimate success in this area depends on how the Internet appliance market evolves. As we explore this opportunity, we are designing THiiN Line servers to perform two key functions: Web Server Appliances--These are single-function devices optimized to dispatch web pages. Web servers reside at content-host sites; they are fast, inexpensive, simple to manage, and stackable, for easy expansion. Our first web server, the SiteStak TW-500, began shipping to customers in October 1997 . It is available through Data General's worldwide sales channel and also through THiiN Line's web site at www.thiin.com.. The SiteStak TW-500 is a zero-administration web server that is simple to install, configure, operate, and grow, and fits in less than two inches of rack space. Thin Servers--These devices are being designed to function as connectivity gateways and file servers for groups of clients--laptops, PCs , thin clients, or other Internet appliances--for use in homes, businesses, and schools. Thin servers are expected to be available in 1998. www.thiin.com 9 CLARiiON Storage Systems - ------------------------ Our market-leading CLARiiON disk arrays are innovative, fault-tolerant storage subsystems based on RAID technology. Powerful, competitively priced, and compact, the CLARiiON family offers a wide range of storage systems, from disk arrays for servers on local area networks to high-capacity, high-availability arrays for enterprise servers with applications needing multiple terabytes of storage. The CLARiiON family continues to grow by taking advantage of the latest developments in information systems technology. The newest members of the CLARiiON storage family offer fibre channel technology--the next-generation serial interface. From mainframes to PC servers, CLARiiON disk arrays provide the high availability and performance customers require for their most demanding applications. Redundant subsystems--drives, storage control processors, power supplies, and fans--eliminate single points of failure. In the event of a problem, on-line maintenance allows replacement or repair of the component while under power and fully operational. CLARiiON disk arrays allow concurrent multi-RAID configurations to maximize each application's performance. In addition, CLARiiON disk arrays offer an innovative mirrored cache feature that actually improves data integrity while dramatically improving performance. The CLARiiON TeleStor disk array, a specialized storage solution for the telecommunications industry, provides users with a complete storage solution for paging, multimedia, voice messaging systems, billing, and operations administration maintenance and provisioning systems. Multidimensional Storage Architecture (TM) (MSA) is the CLARiiON strategic framework for deploying open systems storage throughout an enterprise. MSA provides virtually unlimited flexibility to configure centrally managed storage pools via storage networks that scale independently in five dimensions--capacity, transaction performance, data throughput, connectivity, and availability of business information. CLARiiON supplies advanced storage solutions to major computer system manufacturers, value-added storage resellers, and system integrators around the world. www.clariion.com 10 Opportunity - ------------ AViiON NT Cluster-in-a-Box, AV 20000 NUMA systems, CLARiiON fibre channel, and THiiN Line SiteStak, all represent opportunities to scale Data General's assets to generate new business and profitability. The incremental marketing effort we are making in the OEM channel has the potential to deliver significant returns. Our VALiiANT contract manufacturing operation makes optimal use of existing manufacturing facilities and provides opportunities to realize incremental revenues and profits. 11 Services - --------- Data General's worldwide Customer Service network is ready to provide our users with service and support whenever and wherever they need it. With more than 200 U.S. field offices, 130 international service locations, three primary Customer Support Centers, and numerous secondary customer support organizations worldwide, our service is always available--seven days a week, 24 hours a day. Data General was the first major computer vendor in the industry to have its entire U.S. Service and Support Organization registered with the Underwriters Laboratories (UL) and certified to the ISO 9001 Standard. Whether a customer needs full on-site service from a knowledgeable engineer, on-line telephone support from our Customer Support Centers, or customized support services, we have a ready-to-go solution. As a Microsoft Authorized Support Center (ASC), the Data General Customer Support Center provides software support services for Microsoft Windows NT for Workstations and Windows NT Advanced Server, the full set of Microsoft desktop and BackOffice products, as well as hundreds of other software products. Data General is also a SCO Authorized Support Center, and has been certified to support SCO's operating system and client-integration products and customers in North America. Our Business Practices services are focused on NT Solutions, Database and Data Warehousing, Migrations, and Imaging, essential areas where customers benefit from our in-depth expertise and comprehensive service offerings. To ensure that mission-critical and general-purpose business applications function smoothly across the enterprise, we provide packaged Professional Services to help customers implement, integrate, and manage their system solutions quickly and easily. Educational Services provides lecture/lab courses, on-site training, computer-based training, and video-based training for many mission-critical components, including the operating system, network, database, off-the-shelf applications, and custom programs. In addition, Educational Services is a Microsoft Authorized Technical Education Center and offers the Microsoft Certified Professional Program, which certifies a computer professional's ability to design, develop, implement, and support solutions with Microsoft products. We also offer our manufacturing expertise to customers through our VALiiANT electronic manufacturing and design services business. With facilities in the U.S. and Asia, VALiiANT is a full-service supplier, offering design services for printed wiring board layout and metal fabrication, quick-turn prototype runs , volume manufacturing, and repair/engineering change services. For customers with special equipment or application requirements, our Special Systems team integrates third-party products into Data General systems and adapts standard Data General products to exact customer specifications. One example is our handheld computer family, which is designed for data collection environments where long battery life, rugged design, and ease of use are at a premium. Such markets include warehousing and distribution, utilities, healthcare, route sales and management, and retail. www.dg.com 12 Product Revenues (Millions of dollars) 1993 ......................... 672 1994 ......................... 722 1995 ......................... 757 1996 ......................... 924 1997 ......................... 1143 Revenue per Employee (Thousands of dollars) 1993 ........................ 166 1994 ........................ 193 1995 ........................ 232 1996 ........................ 272 1997 ........................ 301 Selling, General, & Administrative expenses (Percentage of Total Revenues) 1993 ........................ 32% 1994 ........................ 30% 1995 ........................ 29% 1996 ........................ 23% 1997 ........................ 22% FINANCIAL REVIEW FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA ............................... 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................................................................. 15 CONSOLIDATED STATEMENTS OF OPERATIONS ...................................... 20 CONSOLIDATED BALANCE SHEETS ................................................ 21 CONSOLIDATED STATEMENTS OF CASH FLOWS ...................................... 22 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ............................ 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................................. 24 REPORT OF INDEPENDENT ACCOUNTANTS .......................................... 34 SUPPLEMENTAL FINANCIAL INFORMATION ......................................... 34 FACILITIES ................................................................. 35 OFFICERS AND DIRECTORS ..................................................... 36 CORPORATE INFORMATION ...................................................... 37 13 DATA GENERAL CORPORATION FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
YEAR ENDED ------------------------------------------------------------------------------------------- SEPT. 27, SEPT. 28, SEPT. 30, SEPT. 24, SEPT. 25, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues........................ $ 1,533,169 $1,322,250 $ 1,159,316 $1,120,505 $ 1,077,869 ----------- ---------- ----------- ---------- ----------- Total cost of revenues................ 1,021,569 877,692 772,047 733,114 654,718 Research and development.............. 109,984 98,022 85,886 90,826 100,172 Selling, general, and administrative.. 338,443 309,259 334,337 341,343 346,740 Restructuring charge.................. - - 43,000 35,000 25,000 ----------- ---------- ----------- ---------- ------------ Total costs and expenses............ 1,469,996 1,284,973 1,235,270 1,200,283 1,126,630 ----------- ---------- ----------- ---------- ------------ Income (loss) from operations......... 63,173 37,277 (75,954) (79,778) (48,761) Interest expense, net................. 4,873 5,632 4,116 8,168 6,734 Other income, net..................... - - 41,972 2,353 416 ----------- ---------- ----------- ---------- ----------- Income (loss) before income taxes..... 58,300 31,645 (38,098) (85,593) (55,079) Income tax provision.................. 2,400 3,500 8,605 2,100 5,400 ----------- ---------- ----------- ---------- ------------ Net income (loss)..................... $ 55,900 $ 28,145 $ (46,703) $ (87,693) $ (60,479) =========== ========== =========== ========== =========== Primary net income (loss) per share... $ 1.26 $ 0.68 $ (1.23) $ (2.45) $ (1.73) AS OF ---------------------------------------------------------------------------------------- SEPT. 27, SEPT. 28, SEPT 30, SEPT. 24, SEPT.25 DOLLARS IN THOUSANDS 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Current assets....................... $ 858,236 $ 616,812 $ 591,485 $ 598,076 $ 611,660 Current liabilities.................. 391,822 366,184 370,226 326,865 302,908 ------------ ---------- ------------ ----------- ------------ Working capital...................... $ 466,414 $ 250,628 $ 221,259 $ 271,211 $ 308,752 ============ =========== ============ =========== ============ Total assets......................... $ 1,134,868 $ 860,443 $ 832,018 $ 821,864 $ 866,329 Annual expenditures for property, plant, and equipment.............. $ 110,505 $ 94,670 $ 96,471 $ 92,955 $ 94,968 Long-term debt...................... $ 212,750 $ 149,971 $ 153,457 $ 156,942 $ 158,352 Other liabilities................... $ 11,516 $ 15,224 $ 28,791 $ 29,445 $ 27,992 Stockholders' equity................ $ 518,780 $ 329,064 $ 279,544 $ 308,612 $ 377,077 Employees........................... 5,100 4,900 5,000 5,800 6,500 Results of operations are for 52-week periods except for 1995 which is a 53-week period. The company has not declared or paid cash dividends since inception.
14 Data General Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company reported net income of $56 million for fiscal 1997 compared with net income of $28 million for fiscal 1996 and a net loss of $47 million for fiscal 1995. Included in the net loss of fiscal year 1995 were restructuring charges of $43 million as well as other income of $44.5 million from the settlement of litigation with Northrop Grumman Corporation. Revenues (in millions) =============================================================================== 1997 Change 1996 Change 1995 --------------------------------------------- Product $1,142 24% $924 22% $757 % of Total Revenues 74% 70% 65% Service 391 (2%) 398 (1%) 402 % of Total Revenues 26% 30% 35% Total $1,533 16% $1,322 14% $1,159 =============================================================================== Revenues in fiscal year 1997 grew 16% compared to the prior fiscal year. The growth came primarily from domestic product revenues in the CLARiiON line of mass storage devices and the AViiON server business. In fiscal 1997, revenues from the AViiON family were approximately $527 million, a 14% increase over fiscal 1996. AViiON systems revenues in fiscal 1996 increased 9% over fiscal 1995. Since 1989, the Company has established a customer base of nearly 46,000 AViiON installations, with a total sales value of approximately $3 billion. In fiscal 1996, the Company introduced its Intel-based AViiON systems. These systems represented 64% of total fiscal 1997 AViiON revenues and 31% of total fiscal 1996 AViiON revenues. In fiscal 1997, revenues from the Company's Intel-based AViiON systems more than doubled while revenues from the Motorola-based AViiON systems declined by 40% compared to the prior fiscal year. The Company anticipates that the percentage of server product revenues generated by the Intel-based AViiON products will continue to increase in fiscal 1998 while the Motorola-based AViiON system revenues are expected to continue to decline. In fiscal 1997, the CLARiiON line of mass storage systems grew by 41% and represented 44% of the overall product revenues, compared to 38% of total product revenues in the previous fiscal year. CLARiiON is sold primarily through the Company's Original Equipment Manufacturer ("OEM") and distributor channels; thus sales in any given period are subject to sales cycles and inventory levels of the Company's customers. CLARiiON product revenues have been concentrated in a limited number of customers, with a significant portion of the Company's CLARiiON product sold to a single OEM. In fiscal 1997, product revenues from personal computer and other peripheral equipment increased 31% from fiscal 1996, and in fiscal 1996 decreased 22% when compared with fiscal 1995. ECLIPSE MV ("MV") revenues decreased 34% during fiscal 1997 compared to a 36% decline in fiscal 1996. MV revenues in fiscal 1997 represented only 2% of the Company's total product revenues. 15 Revenues by Geographic Marketplace =============================================================================== Percentage of Percentage Change of $ Consolidated Revenues of Revenues ----------------------------------------------------- 1997 1996 1995 1997-96 1996-95 ----------------------------------------------------- Domestic Product 64% 61% 55% 30% 35% Service 59% 57% 56% - - Total 63% 60% 55% 22% 23% Europe Product 22% 24% 28% 11% 4% Service 31% 32% 33% (4%) (4%) Total 24% 26% 30% 5% 1% Other International Product 14% 15% 17% 18% 10% Service 10% 11% 11% (6%) - Total 13% 14% 15% 12% 8% =============================================================================== In fiscal 1997, domestic marketplace revenues from the CLARiiON product line increased 52%, the AViiON product revenues increased 14%, and PC product revenues increased 53%, partly offset by a continued decrease in MV product revenues. In the prior year, the CLARiiON product line revenues more than doubled in this marketplace and the AViiON product revenues increased 22%, partly offset by a 25% decrease in MV product revenues and a 43% decrease in PC product revenues. The increase in European product revenues, including U.S. direct export sales, in fiscal year 1997, was attributable to a 16% increase in both the AViiON and PC product revenues, and a 5% increase in the CLARiiON product line, partially offset by a decline in MV product revenues. The 11% increase in product revenues in the European marketplace was partly offset by a 3% unfavorable foreign exchange effect due to the strengthening of the U.S. dollar in relation to European currencies. The increase in other international product revenues, including U.S. direct export sales, was primarily driven by a 42% growth in CLARiiON product revenues, a 10% increase in AViiON product revenues, and a 5% increase in PC product revenues in fiscal year 1997. The fiscal 1996 increase in other international product revenues was largely due to the increase in CLARiiON and PC product revenues, which was partly offset by the decrease in AViiON and MV product revenues. In the service business, the Company experienced a 3% decline in contract maintenance revenues in fiscal 1997 and a 2% decrease in fiscal 1996 as compared with the previous year. These declines were the result of the continued shift from proprietary to open system service maintenance contracts. The decline was partially offset by modest growth in professional service revenues during the same periods. In Europe, the effect of foreign exchange accounted for the 4% decrease in fiscal 1997 and less than 1% of the total 4% decrease in fiscal 1996 service revenues. Cost of Revenues (in millions) =============================================================================== 1997 Change 1996 Change 1995 ---------------------------------------------- Product $773 25% $619 20% $514 % of Product Revenues 68% 67% 68% Service 249 (4%) 259 - 258 % of Service Revenues 64% 65% 64% Total $1,022 16% $878 14% $772 % of Total Revenues 67% 66% 67% =============================================================================== 16 The increase in the product cost as a percentage of product revenues for fiscal 1997 was primarily caused by the increased proportion of CLARiiON revenues in the Company's product revenue mix. Generally, CLARiiON revenues yield a lower product margin than the Company's AViiON revenues. The decrease in the cost as a percentage of service revenues for fiscal 1997 was the result of improvements in spare parts inventory management and improved gross margins in the professional services business. Operating Expenses (in millions) =============================================================================== 1997 Change 1996 Change 1995 ------------------------------------------- Research & Development $110 12% $98 14% $86 % of Total Revenues 7% 7% 7% Selling, general, & administrative $338 9% $309 (7%) $334 % of Total Revenues 22% 23% 29% Restructuring charges - - - (100%) $43 % of Total Revenues - - 4% The Company continues to focus its research and development efforts on its core business technology: multi-user computer systems, servers, and mass storage devices. Gross expenditures on research and development and software development in fiscal 1997, before capitalization, increased 14% compared to fiscal 1996. The increase in the level of expenditures was primarily driven by investment in the next generation of CLARiiON fibre products, in the Company's Non Uniform Memory Access ("NUMA") architecture for high-end servers, and in THiiN Line products for the Internet. The increase in selling, general, and administrative expenses was the result of increased sales and marketing efforts in the server and storage businesses. Management believes that in the future, increases of selling, general, and administrative expenses will be required to support business growth. However, the Company's objective is to have the ratio of these expenses as a proportion of total revenues continue to decline. Results of operations for fiscal 1995 included charges of $43 million for estimated costs associated with a worldwide workforce reduction along with other cost reduction programs, primarily related to real estate. There have been no material changes in the Company's original estimates of the costs associated with the previously announced restructuring actions. At the close of fiscal 1997, the total number of employees was approximately 5,100, a net increase of 200 employees from September 28, 1996. During fiscal year 1996, there was a net reduction of 100 employees from the 5,000 employed as of September 30, 1995. Net Income (Loss) (in millions) =============================================================================== 1997 1996 1995 -------- -------- -------- Income (loss) from operations $63 $37 $(76) Interest and other Income (5) (5) 38 Tax provision (2) (4) (9) -------- -------- -------- Net income (loss) $56 $28 ($47) =============================================================================== Income from operations for fiscal 1997 of $63 million was composed of $73 million from the domestic marketplace, partially offset by losses from operations of $5 million each from Europe and other international locations. The income from operations for fiscal 1996 of $37 million was composed of $44 million domestically and $3 million in Europe, offset by a loss from operations of $10 million from other international markets. The losses from operations were $45 million, $15 million, and $16 million in fiscal 1995 for the domestic marketplace, Europe, and other international locations, respectively. These losses in fiscal 1995 included restructuring charges of $19 million in both the domestic marketplace and Europe, as well as $5 million for other international locations. Interest income for fiscal 1997 increased 42% from fiscal 1996, following a 23% decrease from fiscal 1995 to fiscal 1996. The current year increase was primarily due to higher levels of invested cash and longer investment maturity terms which resulted in higher interest yields. The prior year decrease was primarily due to lower levels of invested cash and an overall reduction in market interest rates. Interest expense for fiscal 1997 was $15 million, an increase from $13 million for fiscal 1996. The increase was primarily attributable to the interest expense related to the 6% Convertible Subordinated Notes due 2004, which were issued during fiscal 1997. The fiscal 1997 increase was partially offset by the conversion of $125 million of 7 3/4% Convertible Subordinated Debentures due 2001 and the early retirement of $27 million of 8 3/8% Sinking Fund Debentures due 2002. Interest expense for fiscal 1996 remained relatively unchanged from fiscal 1995. 17 Included in other income in the fiscal 1995 Statements of Operations is a pretax gain, net of related legal fees and other expenses, of $44.5 million from the settlement with Northrop Grumman Corporation in connection with a six-year software copyright infringement and trade secrets litigation brought by the Company against Grumman Systems Support Corporation ("Grumman"). Under the terms of the settlement, Grumman paid the Company $53 million. The provision for income taxes in both fiscal years 1997 and 1996 related primarily to foreign, state, and federal alternative minimum taxes. The 1995 provision resulted primarily from the settlement of the Grumman lawsuit, deferred taxes on undistributed earnings for certain foreign subsidiaries, and foreign and state taxes. The Company continues to have significant operating loss carryforwards and unused tax credits available to minimize future tax liabilities. The Company has a valuation allowance which offsets substantially all deferred tax assets existing as of September 27, 1997 and September 28, 1996. The amount of the deferred tax asset considered realizable is subject to change based on estimates of future taxable income during the carryforward period. The Company will assess the need for the valuation allowance at each balance sheet date based on all available evidence. In the first quarter of fiscal 1997, the Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". In the second quarter of fiscal 1997, the Company adopted SFAS 125, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS 121 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS 125 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The implementation of SFAS 121 and SFAS 125 did not have a material effect on the Company's consolidated financial position or results of operations. In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS 123, "Accounting for Stock-Based Compensation". As permitted by SFAS 123, the Company continues to measure compensation cost in accordance with APB opinion Number 25 and related Interpretations in accounting for its plans. Note 9 to the Consolidated Financial Statements contains a summary of the pro forma effects to reported net income and net income per share for fiscal years 1997 and 1996 as if the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS 123. In February 1997, the FASB issued SFAS 128, "Earnings per Share". SFAS 128 specifies modifications to the calculation of earnings per share from the method currently used by the Company as prescribed by APB Opinion Number 15. The Company is required by the Securities and Exchange Commission to disclose pro forma earnings per share amounts computed in accordance with the SFAS 128 in the notes to the Consolidated Financial Statements prior to required adoption. In July 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" and SFAS 131, "Disclosures About Segments of an Enterprise and Related Information". In October 1997, the Accounting Standards Executive Committee of American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition". All these statements are effective for fiscal years beginning after December 15, 1997. The Company will implement these statements as required. The future adoption of SFAS 130, SFAS 131, and SOP 97-2 is not expected to have a material effect on the Company's consolidated financial position or results of operations. In January 1997, the Securities and Exchange Commission issued Financial Reporting Release No. 48, which expands the disclosure requirements for certain derivative and other financial instruments. See Notes 2 and 7 to the Consolidated Financial Statements for a description of the Company's use of derivative and other financial instruments and related market risk. LIQUIDITY AND CAPITAL RESOURCES Cash and temporary cash investments as of September 27, 1997 were $217 million, an increase of $38 million over fiscal 1996. At the same date, the Company held $151 million in marketable securities, a net increase of $126 million from the prior fiscal year. In total, cash and temporary cash investments along with marketable securities increased $164 million over fiscal 1996. The increase was mainly attributable to the net proceeds received from the issuance of 6% Convertible Subordinated Notes due 2004, which were partly offset by the retirement of $27 million of 8 3/8% Sinking Fund Debentures and purchases of inventory required for the growth of the Company's server and storage businesses. The marketable securities held, which supplement cash and temporary cash investments, include United States Treasury bills and notes, commercial paper, and notes issued by U.S. government agencies, as well as an equity security recorded at fair market value of $4 million and classified as available-for-sale. The unrealized gain on marketable securities of $3 million is recorded as a separate component of stockholders' equity. Net cash provided from operations in fiscal 1997 was $127 million. Expenditures for property, plant, and equipment were $111 million, capitalized software development costs totaled $36 million, and cash provided from stock plans equaled $17 million. The effect of currency fluctuations on cash and temporary cash investments was a decrease of $4 million for fiscal year 1997. 18 Net receivables increased $39 million to $296 million at September 27, 1997, primarily as a result of increased revenues. The Company's worldwide days' sales outstanding decreased three days when compared to the prior fiscal year, primarily as a result of increased collection activity. Inventory levels increased $36 million during fiscal 1997, primarily as a result of increased end-of-year procurement required to support the growth in both the server and storage businesses. Net property, plant, and equipment increased $13 million, principally due to the purchases of equipment and capital expenditures for developing both operating and financial systems to support the future growth of the Company. Accounts payable increased $33 million, primarily attributable to the increase in end-of-year inventory procurements. Other current and other liabilities, excluding the current portion of long-term debt, decreased $7 million, primarily as a result of payments made relating to previously recorded restructuring accruals. For the three-year period ending September 27, 1997, cash and temporary cash investments increased $74 million. Net cash provided from operations was $349 million, including $53 million from the Grumman litigation settlement. The sale of non-operating facilities and investments provided $13 million. Proceeds from the Company's employee stock plans provided $34 million. Net cash provided from long-term debt was $173 million as a result of the Company issuing $213 million of 6% Convertible Subordinated Notes due 2004, which was partially offset by the retirement of $34 million of 8 3/8% Sinking Fund Debentures due 2002, and the payment of $6 million debt issuance costs on the 6% Convertible Subordinated Notes due 2004. Net cash used for the purchase of marketable securities was $91 million. Expenditures for property, plant, and equipment totaled $302 million and the Company's investment in capitalized software development costs was $95 million. Notes payable were paid in the amount of $2 million during this three-year period. The effect of foreign exchange on this three-year period was $3 million increase to cash. Operations have generally been the primary source of the Company's cash. Cash provided from operations has been augmented by proceeds from the issuance of 6% Convertible Subordinated Notes, sales of stock under the Company's stock plans, from sales of facilities and other non-operating assets, and the settlement of the Grumman litigation. The Company has not paid cash dividends since its inception in order to reinvest available cash in operations. At September 27, 1997, the Company had a $30 million unsecured letter of credit and reimbursement facility with a group of banks. On September 30, 1997, this facility was replaced with a $110 million unsecured senior revolving credit facility with a group of banks. This latter facility is available for working capital, capital expenditures, permitted acquisitions, and to secure the issuance of letters of credit. It contains certain covenants, including restrictions on particular liens, other indebtedness, and certain investments. The interest rate for borrowings under the revolving credit facility is the lower of 1.25% per annum above LIBOR or the prime rate plus .5%. Commitment fees paid on available funds during fiscal years 1997 and 1996 were not material. There were $5 million and $8 million of letters of credit secured by the $30 million letter of credit and reimbursement facility at September 27, 1997 and September 28, 1996, respectively. At September 30, 1997, those same $5 million of letters of credit became secured by the $110 million credit facility. During fiscal years 1997 and 1996, there were no borrowings under either of these facilities. The current facility has a duration of three years and expires on September 30, 2000. The Company believes it is important to maintain a conservative capital structure and a strong cash position. Cash is primarily invested in liquid temporary investments pending its utilization. The Company's investment policy is to minimize risk while maximizing return on cash, and to keep uninvested cash at a minimum. Cash is generally centralized domestically, although some cash is also held at various subsidiaries around the world to meet local operating funding requirements. All cash is freely remittable to the United States. Although the actual level of spending will be influenced by many factors, the Company anticipates that expenditures for property, plant, and equipment will continue to be the primary non-operating use of cash during fiscal year 1998. Most of the expenditures will be for capital assets directly related to the Company's open systems product sales, marketing, support, and development. The net book value of fixed asset disposals during fiscal 1997 totaled $9 million, primarily as a result of sales of demonstration equipment to end-users. Management expects that sales of demonstration equipment will continue. During fiscal 1998, cash totaling $5 million is expected to be utilized to settle liabilities arising from the Company's restructuring programs. The Company believes it has sufficient resources to provide for its current operations and to continue to invest in the future. The Company has started to replace many of its business and operating computer systems. The new systems, based on software from Oracle Corporation and PeopleSoft Inc., will replace older legacy systems and allow employees at different locations to share financial and operating information more efficiently. The first major use of the new software commenced April 1995, in certain areas of the Company. Remaining business units and staffs are scheduled for implementation in phases, with project completion targeted for mid-1999. The Company believes that the new systems and software are Year-2000 compatible, thus handling the major portion of the Company's Year-2000 conversion requirements. The Company is currently implementing changes to make the remaining legacy systems Year-2000 compatible. The Company does not anticipate the cost of implementing these changes to be significant. 19 DATA GENERAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED -------------------------------------- SEPT. 27, SEPT. 28, SEPT. 30, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1997 1996 1995 - ------------------------------------------------------------------------------- REVENUES Product.............................. $ 1,142,561 $ 924,140 $ 757,338 Service.............................. 390,608 398,110 401,978 ------------ ---------- ------------ Total revenues................... 1,533,169 1,322,250 1,159,316 ------------ ---------- ------------ COSTS AND EXPENSES Cost of product revenues............. 772,721 618,351 514,049 Cost of service revenues............. 248,848 259,341 257,998 Research and development............. 109,984 98,022 85,886 Selling, general, and administrative 338,443 309,259 334,337 Restructuring charge................. - - 43,000 ------------ ---------- ------------ Total costs and expenses......... 1,469,996 1,284,973 1,235,270 ------------ ---------- ------------ Income (loss) from operation......... 63,173 37,277 (75,954) Interest income...................... 10,549 7,440 9,710 Interest expense..................... 15,422 13,072 13,826 Other income, net.................... - - 41,972 ------------ ---------- ------------ Income (loss) before income taxes... 58,300 31,645 (38,098) Income tax provision................ 2,400 3,500 8,605 ------------ ---------- ------------ Net income (loss) $ 55,900 $ 28,145 $ (46,703) ============ ========== ============ PRIMARY NET INCOME (LOSS) PER SHARE Net income (loss) per share $ 1.26 $ 0.68 $ (1.23) Weighted average shares outstanding 44,199 41,081 37,866 Results of operations are for 52-week periods except for 1995 which is a 53-week period. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
20 DATA GENERAL CORPORATION CONSOLIDATED BALANCE SHEETS
AS OF ---------------------------- SEPT. 27, SEPT. 28, DOLLARS IN THOUSANDS, EXCEPT PAR VALUE 1997 1996 - ------------------------------------------------------------------------------ ASSETS Current assets: Cash and temporary cash investments............. $ 216,814 $ 178,997 Marketable securities........................... 151,455 25,624 Receivables, less allowances of $16,588 at Sept. 27, 1997 and $14,480 at Sept. 28, 1996... 296,375 257,815 Inventories..................................... 166,008 129,783 Other current assets............................ 27,584 24,593 ------------ ---------- Total current assets.......................... 858,236 616,812 Property, plant, and equipment, net............... 180,410 167,672 Other assets...................................... 96,222 75,959 ------------ ---------- $ 1,134,868 $ 860,443 ============ ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable................................... $ - $ 1,943 Accounts payable................................ 154,624 121,625 Other current liabilities....................... 237,198 242,616 ----------- ---------- Total current liabilities..................... 391,822 366,184 ----------- ---------- Long-term debt.................................... 212,750 149,971 ----------- ---------- Other liabilities................................. 11,516 15,224 ----------- ---------- Commitments and Contingencies Stockholders' equity Common Stock, $.01 par value Outstanding -- 48,588,000 shares at Sept. 27, 1997 and 39,601,000 shares at Sept. 28, 1996 (net of deferred compensation of $14,157 at Sept. 27, 1997 and $7,812 at Sept. 28, 1996).................. 607,130 460,312 Accumulated deficit............................. (79,581) (135,481) Unrealized gains on marketable securities....... 2,812 9,708 Cumulative translation adjustment............... (11,581) (5,475) ------------ ----------- Total stockholders' equity.................... 518,780 329,064 ------------ ----------- $ 1,134,868 $ 860,443 =========== ========== The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
21 DATA GENERAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED ---------------------------------------------- SEPT. 27, SEPT. 28, SEPT. 30, IN THOUSANDS 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)............................................ $ 55,900 $ 28,145 $ (46,703) Adjustments to reconcile net income (loss) to net cash provided from operating activities Depreciation............................................... 79,203 82,330 74,842 Amortization of capitalized software development costs..... 20,180 19,130 17,545 Amortization of deferred compensation...................... 4,669 3,866 4,265 Decrease in other liabilities.............................. (3,708) (8,263) (656) Net book value of fixed asset disposals.................... 8,858 6,399 6,791 Other non-cash items, net.................................. 2,368 (299) 7,232 Changes in operating assets and liabilities, net of effects from sale of facilities and other assets (Increase) decrease in receivables....................... (46,514) (9,268) 11,267 (Increase) decrease in inventories....................... (28,876) 1,567 (2,946) (Increase) decrease in other current assets.............. (4,313) 2,080 3,761 Increase in accounts payable............................. 36,389 6,627 23,897 Increase (decrease) in other current liabilities, excluding debt......................................... 2,484 (27,191) 17,810 ---------- ---------- --------- Net cash provided from operating activities................ 126,640 105,123 117,105 ---------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant, and equipment.............. (110,505) (94,670) (96,471) Purchase of marketable securities............................ (221,859) (84,224) (240,507) Proceeds from sales and maturity of marketable securities.... 89,131 150,080 216,755 Capitalized software development costs....................... (36,283) (30,714) (27,493) Net proceeds from sale of facilities and other assets........ - 12,797 - Investment in equity securities.............................. - (2,000) (600) ---------- ---------- ---------- Net cash used by investing activities...................... (279,516) (48,731) (148,316) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Cash provided from stock plans, net.......................... 17,049 9,684 7,740 Repayment of notes payable................................... (1,794) - (607) Repayment of long-term debt.................................. (27,177) (3,000) (3,500) Proceeds from long-term debt, net............................ 206,853 - - ---------- ---------- ---------- Net cash provided from financing activities................ 194,931 6,684 3,633 ---------- ---------- ---------- Effect of foreign currency rate fluctuations on cash and temporary cash investments................................... (4,238) (1,280) 2,331 ---------- ---------- ---------- Increase (decrease) in cash and temporary cash investments.................................................. 37,817 61,796 (25,247) Cash and temporary cash investments - beginning of the period................................................ 178,997 117,201 142,448 ---------- ---------- ---------- Cash and temporary cash investments - end of the period............................................... $ 216,814 $ 178,997 $ 117,201 ========== ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid............................................. $ 11,772 $ 12,797 $ 12,762 Income taxes paid......................................... $ 5,951 $ 1,716 $ 1,696 Results of operations are for 52-week periods except for 1995 which is a 53-week period. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
22 DATA GENERAL CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED ------------------------------------- SEPT. 27, SEPT. 28, SEPT. 30, IN THOUSANDS 1997 1996 1995 - ------------------------------------------------------------------------------- COMMON STOCK Beginning balance..................... $ 460,312 $ 446,762 $ 434,757 Shares issued under stock plans, net.. 17,049 9,684 7,740 Amortization of deferred compensation. 4,669 3,866 4,265 Debt conversion to Common Stock....... 125,100 - - --------- ---------- --------- Ending balance........................ 607,130 460,312 446,762 --------- ---------- --------- ACCUMULATED DEFICIT Beginning balance..................... (135,481) (163,626) (116,923) Net income (loss) for year............ 55,900 28,145 (46,703) ---------- ---------- --------- Ending balance........................ (79,581) (135,481) (163,626) ---------- ---------- --------- UNREALIZED GAINS ON MARKETABLE SECURITIES Beginning balance..................... 9,708 - - Net adjustment for year............... (6,896) 9,708 - ---------- ---------- --------- Ending balance........................ 2,812 9,708 - ---------- ---------- --------- CUMULATIVE TRANSLATION ADJUSTMENT Beginning balance..................... (5,475) (3,592) (9,222) Net translation adjustment for year... (6,106) (1,883) 5,630 ---------- ---------- --------- Ending balance........................ (11,581) (5,475) (3,592) ---------- ---------- --------- Total stockholders' equity............... $ 518,780 $ 329,064 $ 279,544 ========== ========== ========== Results of operations are for 52-week periods except for 1995 which is a 53-week period. The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
23 DATA GENERAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS Data General Corporation (the "Company") designs, manufactures, markets, and supports a family of open computer systems including servers and mass storage products. The Company's products provide solutions for high-performance customer applications such as database management, transaction processing, decision support, accounting and finance, healthcare information systems, telecommunications and video storage, manufacturing planning and control, human resources management, and data warehousing. The Company focuses on providing enterprise-level solutions for businesses of all sizes, healthcare providers and government agencies, and has a worldwide sales, service, and support network. The principal markets are North America and Europe. NOTE 2. ACCOUNTING POLICIES FISCAL YEAR. The Company's fiscal year ends on the last Saturday in September. Fiscal year 1997 consisted of 52 weeks. Fiscal years 1996 and 1995 consisted of 52 and 53 weeks, respectively. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Data General Corporation and its domestic and foreign subsidiaries. All significant intercompany transactions have been eliminated. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSACTIONS. The functional currencies for the Company's operations in Australia, Canada, Europe, Japan, and New Zealand are the local currencies. Assets and liabilities of these operations are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Translation adjustments are reported as a separate component of stockholders' equity. For the Company's other foreign operations, the U.S. dollar is the functional currency. Assets and liabilities of these operations are remeasured into U.S. dollars at exchange rates in effect at the balance sheet date, except for inventories and property, plant, and equipment, which are remeasured at historical exchange rates. Income and expense items are remeasured at average rates for the period, except for cost of sales and depreciation, which are remeasured at historical exchange rates. Gains and losses resulting from remeasurement, not material in amount, are included in the results of operations. The Company enters into foreign exchange contracts as a hedge against exposure to fluctuations in exchange rates associated with certain transactions denominated in foreign currencies, principally intercompany accounts receivable. Market value gains or losses on these contracts are included in the cost of product revenues and generally offset exchange gains or losses on the related transactions. Foreign exchange transaction gains and losses, not material in amount for the periods ended September 27, 1997, September 28, 1996, and September 30, 1995, are included in the cost of product revenues. Cash flows from foreign exchange contracts that are accounted for as hedges of identifiable foreign exchange transactions are classified as cash flows from operating activities in accordance with the nature of the transactions being hedged. TEMPORARY CASH INVESTMENTS AND MARKETABLE SECURITIES. Temporary cash investments consist of highly liquid time deposits, commercial paper, and U.S. Treasury bills and notes with original maturities of 90 days or less. Marketable securities consist of U.S. Treasury bills and notes, commercial paper, and notes issued by U.S. government agencies with original maturities of 91 to 365 days, as well as an equity security. All of the Company's investments in U.S. Treasury bills and notes, commercial paper, and notes issued by U.S. government agencies have maturities of less than one year, and have been classified as held-to-maturity. These investments are recorded at amortized cost, which approximates market value. In March 1996, an equity security held by the Company as an investment and previously accounted for under the cost method, began trading on a public stock exchange. In accordance with SFAS 115, this security is considered to be readily marketable and is classified as available-for-sale. This investment is accounted for at fair market value at September 27, 1997 and September 28, 1996 which totaled $4 million and $10.9 million, respectively. The unrealized gain on marketable securities of $2.8 million and $9.7 million is recorded as a separate component of stockholders' equity at September 27, 1997 and September 28, 1996, respectively. INVENTORIES. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Inventories consist primarily of components and subassemblies and finished products held for sale. Rapid technological change and new product introductions and enhancements could result in excess or obsolete inventory. To minimize this risk, the Company evaluates inventory levels and expected usage on a periodic basis and records adjustments as required. Certain components and products that meet the Company's requirements are available only from a single supplier or a limited number of suppliers. Among those components are disk drives, microprocessors, and certain proprietary integrated circuits. The rapid rate of technological change and the necessity of developing and manufacturing products with short life-cycles may intensify these risks. The inability to obtain components and products as required, or to develop alternative sources, if and as required in the future, could result in delays or reductions in product shipments, which in turn could have a material adverse effect on the Company's business, financial condition, and results of operations. PROPERTY, PLANT, AND EQUIPMENT. Property, plant, and equipment is stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method, based on the following estimated useful lives: land improvements, 10-12 years; buildings and building improvements, 3-25 years; equipment, 3-10 years; application software, 5-10 years. Included in property, plant, and equipment are computer equipment spares which are not available for resale. These spares are used to support systems the Company has sold or is using internally. Spares are depreciated over a 3-year estimated useful life. 24 REVENUE RECOGNITION AND MAJOR CUSTOMERS. Product revenues are recognized at the time of shipment, provided that there are no significant uncertainties regarding customer's acceptance and collection of the related receivable is probable. Service revenues, including post-contract customer support, are recognized ratably over applicable contractual periods or as services are performed. The costs of these service revenues are charged to expense when incurred. During the year ended September 27, 1997 and September 28, 1996, revenues from a single customer totaled $238 million and $201 million, or approximately 16% and 15% of total revenues, respectively. The Company did not have any customers with revenues exceeding 10% of the Company's total revenues during fiscal 1995. RESEARCH & DEVELOPMENT, SOFTWARE DEVELOPMENT, AND WARRANTY COSTS. Research, engineering, and product development costs are expensed as incurred. Software development costs incurred after reaching technological feasibility and prior to first customer shipment are capitalized and amortized to cost of product revenues over a period not to exceed 4 years for operating system software and 3 years for application software, which approximates the estimated economic lives of these software products. On a quarterly basis, the Company evaluates the recoverability of capitalized software costs. In performing its evaluation, the Company must make estimates of anticipated future gross revenues as well as the remaining economic life of the product. It is reasonably possible that the estimates of the remaining estimated economic lives of these software products may be reduced. As a result, the carrying amount of the capitalized software costs for a particular software product may be reduced. Unamortized software development costs were $76.8 million at September 27, 1997 and $60.7 million at September 28, 1996. Writeoffs of certain capitalized software development costs totaled approximately $0.5 million, $2.7 million, and $1.3 million for fiscal years 1997, 1996, and 1995, respectively. Estimated direct on-line diagnostic support and warranty costs are accrued at the time of product shipment. ADVERTISING. Advertising costs are charged to operations when incurred. The Company has not incurred any costs associated with direct-response advertising during fiscal years 1997, 1996, and 1995, and there were no capitalized advertising costs at September 27, 1997 or September 28, 1996. Advertising expenses for fiscal 1997, 1996, and 1995 were $14.7 million, $12.6 million, and $21.0 million, respectively. RETIREMENT/POST-EMPLOYMENT BENEFITS. Net pension cost for the Company's domestic defined benefit pension plan is funded as accrued, to the extent that current pension cost is deductible for U.S. Federal tax purposes and to comply with the General Agreement on Tariff and Trade Bureau (GATT) additional minimum funding requirements for the plan year beginning October 1, 1995. The plan's transition surplus is amortized over 18 years. Net pension cost for the Company's international defined benefit pension plans is generally funded as accrued. The net transition surplus or obligation for these plans is amortized over periods ranging from 15 to 20 years. Net post-retirement benefit costs for the Company's domestic post-retirement benefits plan are generally funded as accrued, to the extent that current cost is deductible for U.S. Federal tax purposes. The net transition obligation for the plan is amortized over 18 years. IMPAIRMENT OF LONG-LIVED ASSETS. The Company periodically assesses whether any events or changes in circumstances have occurred that would indicate that the carrying amount of a long-lived asset may not be recoverable. If such an event or change in circumstance occurs, the Company evaluates whether the carrying amount of such asset is recoverable by comparing the net book value of the asset to estimated future undiscounted cash flows, excluding interest charges, attributable to such asset. If it is determined that the carrying amount is not recoverable, the Company will recognize an impairment loss equal to the excess of the carrying amount of the asset over its estimated fair value of such asset. INCOME TAXES. The Company utilizes the asset and liability method of accounting for income taxes, as set forth in SFAS 109, "Accounting for Income Taxes". Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the Company's Financial Statements or tax returns. Deferred tax expense represents the change in the net deferred tax asset or liability balance. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. STOCK-BASED COMPENSATION PLANS. In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS 123, "Accounting for Stock-Based Compensation". In accordance with provisions of SFAS 123, the Company applies Accounting Principles Board Opinion Number 25 and related Interpretations in accounting for its stock option and purchase plans. Note 9 to the Consolidated Financial Statements contains a summary of the pro forma effects to reported net income and net income per share for fiscal years 1997 and 1996 as if the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS 123. EARNINGS PER SHARE. Primary net income (loss) per share is based upon the weighted average number of common shares outstanding, including dilutive common stock equivalents. Common stock equivalents represent the net additional shares resulting from the assumed exercise of options outstanding under the Company's stock option plans, using the "treasury stock" method. Net income (loss) per share assuming full dilution is based upon the weighted average number of common shares outstanding, including dilutive common stock equivalents and assumed conversion of the Company's convertible debentures, if dilutive. For fiscal 1997, 1996, and 1995, these debentures are anti-dilutive and have been excluded from the calculation. During fiscal 1997, 6.5 million shares of Common Stock were issued upon conversion of $124.8 million of 7 3/4% Convertible Subordinated Debentures due 2001. Had this conversion occurred on September 29, 1996, primary earnings per share would have been $1.28 for fiscal year 1997. 25 OTHER RECENT PRONOUNCEMENTS. In July 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" and SFAS 131, "Disclosures About Segments of an Enterprise and Related Information". In October 1997, the Accounting Standards Executive Committee of American Institute of Certified Public Accountants issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition". All these statements are effective for fiscal years beginning after December 15, 1997. The Company will implement these statements as required. The future adoption of SFAS 130, SFAS 131, and SOP 97-2 is not expected to have a material effect on the Company's consolidated financial position or results of operations. NOTE 3. RESTRUCTURING During fiscal year 1995, the Company recorded restructuring provisions of $43 million. The amounts accrued and charged against the established provisions were as follows:
BEGINNING CURRENT YEAR ENDING IN MILLIONS BALANCE CHARGES BALANCE - -------------------------------------------------------------------------------------------- FISCAL 1997 ACTIVITY Provision related to terminated employees........ $ 2.5 $ (1.7) $ 0.8 Provisions for leases............................ 10.0 (4.4) 5.6 Writedown of assets to be sold or discarded and other........................................ 2.0 (0.8) 1.2 ------ -------- ------ Total......................................... $ 14.5 $ (6.9) $ 7.6 ------ -------- ------ FISCAL 1996 ACTIVITY Provision related to terminated employees........ $ 12.4 $ (9.9) $ 2.5 Provisions for leases............................ 17.4 (7.4) 10.0 Writedown of assets to be sold or discarded and other........................................ 7.1 (5.1) 2.0 ------ -------- ------ Total......................................... $ 36.9 $ (22.4) $ 14.5 ------ -------- ------
The 1995 restructuring charge included provisions for the termination of approximately 520 employees as part of the Company's continuing cost reduction programs and realignment of the Company's various sales, manufacturing, and administrative operations. The fiscal 1995 provision for leases was primarily for costs associated with vacated leased properties, mainly in Western Europe and Australia, as a result of the Company's ongoing centralization and downsizing of its international operations. At September 27, 1997, the Company had substantially completed the employee terminations related to the 1995 restructuring. The remaining reserves at September 27, 1997 are for the remaining severance payments due to employees impacted by the restructuring actions and for leases for various domestic branch sales offices and excess vacant rental properties, primarily located in Europe. There have been no material changes in the Company's previously announced restructuring actions. NOTE 4. CONSOLIDATED BALANCE SHEET DETAILS
AS OF ---------------------------- SEPT. 27, SEPT. 28, IN THOUSANDS 1997 1996 - -------------------------------------------------------------------------------- INVENTORIES Raw materials................................... $ 16,169 $ 4,560 Work in process................................. 78,335 50,769 Finished systems................................ 44,349 43,710 Field engineering parts and components.......... 27,155 30,744 --------- ---------- Total inventories.......................... $ 166,008 $ 129,783 --------- ---------- PROPERTY, PLANT, AND EQUIPMENT Land............................................ $ 3,512 $ 2,997 Buildings and improvement....................... 75,819 78,493 Manufacturing and design equipment.............. 95,931 91,180 Data processing, office, and other equipment.... 399,812 374,962 Computer equipment spares....................... 82,277 91,340 --------- ---------- Total property, plant, and equipment....... 657,351 638,972 Accumulated depreciation........................ (476,941) (471,300) --------- ---------- Total property, plant, and equipment, net.. $ 180,410 $ 167,672 --------- ---------- OTHER CURRENT LIABILITIES Accrued employee compensation and benefits..... $ 86,268 $ 77,223 Deferred revenues.............................. 50,574 44,621 Accrued restructuring charges.................. 7,649 14,543 Other accrued expenses......................... 92,707 104,309 Current portion of long-term debt.............. - 1,920 --------- ---------- Total other current liabilities........... $ 237,198 $ 242,616 --------- ----------
During the current fiscal year, the Company retired fully depreciated computer equipment spares with an original cost of $20.3 million. NOTE 5. INCOME TAXES Domestic and foreign income (loss) before taxes, and details of the income tax provision (benefit) are as follows:
YEAR ENDED ----------------------------------------- SEPT. 27, SEPT. 28, SEPT. 30, IN THOUSANDS 1997 1996 1995 - -------------------------------------------------------------------------------- INCOME (LOSS) BEFORE TAXES Domestic...................... $62,125 $32,200 $(13,336) Foreign....................... (3,825) (555) (24,762) -------- -------- --------- $58,300 $31,645 $(38,098) -------- -------- --------- INCOME TAX PROVISION (BENEFIT) Current Federal....................... $ 250 $ 650 $ 1,000 Foreign....................... 1,091 1,076 1,175 State......................... 800 800 2,000 -------- -------- ---------- Total Current............ 2,141 2,526 4,175 -------- -------- ---------- Deferred Federal....................... - 1,350 2,500 Foreign....................... 259 (376) 1,930 -------- -------- ---------- Total Deferred........... 259 974 4,430 -------- -------- ---------- $ 2,400 $ 3,500 $ 8,605 -------- -------- ----------
26 Deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Under SFAS 109, the benefit associated with future deductible temporary differences is recognized if it is more likely than not that a benefit will be realized. The Company has recorded a valuation allowance that offsets substantially all deferred tax assets as of the end of each related year. The amount of the deferred tax asset considered realizable is subject to change based on estimates of future taxable income during the carryforward period. The Company will assess the need for the valuation allowance at each balance sheet date based on all available evidence. Principal components of the deferred tax assets and liabilities included on the balance sheet at September 27, 1997 and September 28, 1996 were as follows:
AS OF ----------------------------- SEPT. 27, SEPT. 28, IN THOUSANDS 1997 1996 - -------------------------------------------------------------------------------- DEFERRED TAX ASSETS Inventory........................................ $ 10,618 $ 9,040 Operating expense................................ 54,218 58,563 Intercompany profit in inventory and fixed assets 7,334 5,693 Depreciation..................................... 5,933 4,597 Restructuring.................................... 1,403 5,817 Stock option plans............................... 6,026 5,527 Interest on convertible debentures............... 1,842 1,292 Net operating losses............................. 116,043 122,684 Tax credits...................................... 17,696 11,796 ---------- ---------- Gross deferred tax assets................... 221,113 225,009 Less: Valuation allowances....................... 195,071 204,017 ---------- ---------- Total deferred tax assets................... 26,042 20,992 ---------- ---------- DEFERRED TAX LIABILITIES Capitalized software development costs.......... (28,695) (24,280) Other........................................... (2,748) (1,854) ----------- ----------- Total deferred tax liabilities............. (31,443) (26,134) ----------- ----------- Net deferred tax liabilities............... $ (5,401) $ (5,142) ----------- -----------
Reconciliation of the U.S. Federal statutory rate to the Company's effective tax rate is as follows:
YEAR ENDED ----------------------------------------- SEPT. 27, SEPT. 28, SEPT. 30, 1997 1996 1995 - -------------------------------------------------------------------------------- U.S. Federal statutory rate.............. 35.0% 35.0% (35.0%) State income taxes....................... 1.4 2.5 5.2 Net domestic and foreign losses without tax benefits......... 3.7 15.0 55.5 Net operating loss carryforwards utilized (36.8) (42.1) (10.2) Foreign income taxed at different rates.. 0.4 (1.5) 4.4 Alternative minimum tax.................. 0.4 2.1 2.6 Other.................................... - 0.1 0.1 ------ ------ ------ Effective tax rate....................... 4.1% 11.1% 22.6% ------ ------ ------
The Company has U.S. Federal and foreign operating loss carryforwards of approximately $311 million and tax credit carryforwards of approximately $18 million. The operating loss carryforwards expire in the years 1998 through 2010. The operating loss carryforward expiring in 1998 is an immaterial amount. The tax credit carryforwards expire in the years 2000 through 2004. Provision has not been made for U.S. or additional foreign taxes on approximately $86 million of undistributed earnings of foreign subsidiaries, as those earnings are considered to be permanently reinvested. Such earnings would become taxable upon the sale or liquidation of these foreign subsidiaries or upon the remittance of dividends. It is not practicable to estimate the amount of the deferred tax liability on such earnings. Upon remittance, certain foreign countries impose withholding taxes that are then available, subject to certain limitations, for use as credits against the Company's U.S. tax liability, if any. The amount of withholding tax that would be payable upon remittance of the entire amount of undistributed earnings would approximate $0.9 million. NOTE 6. DEBT
AS OF ------------------------- SEPT. 27, SEPT. 28, IN THOUSANDS 1997 1996 - -------------------------------------------------------------------------------- 6% Convertible Subordinated Notes due 2004............ $212,750 $ - 7 3/4% Convertible Subordinated Debentures due 2001... - 125,000 8 3/8% Sinking Fund Debentures due 2002............... - 26,891 -------- -------- 212,750 151,891 Less: current portion................................. - (1,920) -------- -------- $212,750 $149,971 -------- --------
The 6% Convertible Subordinated Notes are convertible at the option of the holder, at any time prior to maturity, into shares of Common Stock of the Company at a conversion price of $26.194 per share, subject to adjustment for certain events. The Notes are subordinated to all Senior Indebtedness (as defined in an indenture under which the Notes were issued). At any time on or after May 18, 2000, the Company may redeem the Notes at decreasing redemption prices; and they may be redeemed at the option of the holder if there is a Fundamental Change (as defined in the indenture) in the Company's operations. The indenture does not contain any financial covenants or any restrictions on the payment of dividends or the repurchase of the Company's securities. Deferred debt issuance costs at September 27, 1997 of $5.6 million are being amortized to interest expense over the life of the Notes. On October 10, 1996, the Company acquired a $3.9 million principal amount of the 8 3/8% Sinking Fund Debentures at a discount. The transaction resulted in an immaterial gain. On May 21, 1997, the Company redeemed the remaining Sinking Fund Debentures. The Company paid a premium to debenture holders, and the transaction resulted in an immaterial loss. The debentures were retired using a portion of the proceeds of the issuance of 6% Convertible Subordinated Notes due 2004. On August 18, 1997, the Company redeemed $125 million of its 7 3/4% Convertible Subordinated Debentures due 2001 at a redemption price of 103.1% of the principal face value plus accrued interest to the redemption date. The debentures provided for conversion into Common Stock of Data General at a conversion price of $19.20 any time before the redemption date. Prior to August 18, 1997, $124.8 million of debentures were converted, which resulted in the issuance of 6.5 million shares of Common Stock. The Company does not have any maturity requirements for long-term debt for the next five fiscal years. At September 27, 1997, the Company had a $30 million unsecured letter of credit and reimbursement facility with a group of banks. On September 30, 1997, this facility was replaced with a $110 million unsecured senior revolving credit facility with a group of banks. This latter facility is available for working capital, capital expenditures, permitted acquisitions, and to secure the issuance of letters of credit. It contains certain covenants, including restrictions on particular liens, other indebtedness, and certain investments. The interest rate for borrowings under the revolving credit facility is the lower of 1.25% per annum above LIBOR or the prime rate plus .5%. Commitment fees paid on available funds during fiscal years 1997 and 1996 were not material. There were $5 million and $8 million of letters of credit secured by the $30 million letter of credit and reimbursement facility at September 27, 1997 and September 28, 1996, respectively. At September 30, 1997, those same $5 million of letters of credit became secured by the $110 million credit facility. During fiscal years 1997 and 1996, there were no borrowings under either of these facilities. The current facility has a duration of three years and expires on September 30, 2000. NOTE 7. FINANCIAL INSTRUMENTS, COMMITMENTS, AND CONTINGENCIES FINANCIAL INSTRUMENTS. The Company enters into various types of financial instruments in the normal course of business. Fair values for certain financial instruments are based on quoted market prices. For other financial instruments, fair values are estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future. Fair values for cash and temporary cash investments, marketable debt securities, accounts receivable, notes payable, accounts payable, and accrued expenses approximate carrying value at September 27, 1997 and September 28, 1996, due to the relatively short maturity of these financial instruments. In fiscal year 1996, an equity security, held by the Company as an investment and previously accounted for under the cost method, began trading on a public stock exchange and is classified as available-for-sale. The fair value of this marketable equity security totaled $4 million and $10.9 million at September 27, 1997 and September 28, 1996, respectively. The fair value of investments and notes receivable, included in other assets, was $4 million and $4.2 million at the year-end September 27, 1997 and September 28, 1996, respectively, which is equal to their carrying values in both years. The fair value of long-term debt, including debt due within one year, at September 27, 1997 and September 28, 1996 was $267.8 million and $151.1 million, respectively, compared to carrying values of $212.8 million and $151.9 million, respectively. The Company enters into various forward contracts to limit its exposure to fluctuations in foreign currency exchange rates. As of September 27, 1997, in connection with the Company's foreign exchange hedging programs, the Company had entered into forward exchange contracts to purchase $88.6 million and to sell $172.9 million in various foreign currencies. The Company's exposure to credit risk is believed to be minimal since the counterparties are major financial institutions. The market risk exposure is limited to risk related to currency rate movements. As substantially all of these contracts were entered into shortly before year end, the fair value of outstanding contracts at September 27, 1997, not material in amount, approximates the original value of the forward contracts. Between the end of this fiscal year and September 30, 1997, forward exchange contracts to purchase $88.6 million and to sell $92.4 million in various foreign currencies matured and were settled. The remaining contracts mature at various dates through January 27, 1998. The Company's temporary cash investments, marketable securities, and accounts receivable are subject to potential concentrations of credit risk. The Company's investment policies limit the amount of investments in a single institution and restrict investments to low-risk, highly liquid securities. Portions of the Company's trade receivables are concentrated in the U.S. government and in the healthcare industry. Management does not believe that the Company is subject to any unusual risk beyond the normal credit risk attendant to operating its business. Ongoing credit evaluations of customers' financial condition are performed and generally, collateral is not required. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. In the normal course of business, the Company enters into certain sales-type lease arrangements with customers. These leases are generally sold to third party financing institutions. A portion of these arrangements contains certain recourse provisions under which the Company remains liable. The Company's maximum exposure under the recourse provisions was approximately $13.6 million, net of related reserves. A portion of this contingent obligation is collateralized by security interests in the related equipment. The fair value of the recourse obligation at September 27, 1997 was not determinable as no market exists for these obligations. LEASE COMMITMENTS. Lease agreements are primarily for sales and service offices and the Company's corporate headquarters. The leases expire at various dates through 2017 and some contain options for renewal. Rental expense, including amounts charged against previously established restructuring reserves for vacant and sublet properties, was $29.9 million, $32.2 million, and $32.3 million for fiscal years 1997, 1996, and 1995, respectively. Future minimum rental payments under existing non-cancelable operating leases as of September 27, 1997 are as follows: FISCAL YEAR IN MILLIONS - ------------------------------ 1998.................... 25.9 1999.................... 19.5 2000.................... 16.1 2001.................... 13.7 2002.................... 12.0 Subsequent to 2002...... 72.4 ------- $ 159.6 ------- A majority of the leases contain escalation clauses which provide for increases in base rentals to recover increases in future operating costs. The future minimum rental payments shown above include base rentals, exclusive of any future escalation. Approximately $55 million, prior to amounts expected to be recovered through subleases, of the future minimum rental payments shown above relate to facilities which have been closed or are expected to be closed as the result of the Company's restructuring and cost reduction program. A portion of the future rental obligations for these facilities, net of amounts expected to be recovered through existing and future subleases, has been accrued as part of the restructuring charges. LITIGATION. In fiscal 1995, the Company settled with Northrop Grumman Corporation its six-year copyright infringement and trade secrets litigation against Grumman Support Systems Corporation ("Grumman"). Under the terms of this settlement, Grumman paid the Company $53 million and the parties dismissed all pending litigation. The Company recognized a pre-tax gain, net of related legal fees and other expenses, of $44.5 million resulting from the settlement, which is included in other income, net, in the Consolidated Statements of Operations. The Company has been engaged in patent infringement litigation against IBM Corporation since November 1994. Two lawsuits, both in the discovery stages, are pending in the United States District Court for the District of Massachusetts in Worcester. The Company alleges that several IBM products, including the AS/400 midrange systems and the AS/400 RISC-based computer product line, infringe various Company's patents. Both suits seek compensatory damages and, where appropriate, injunctive relief. IBM has answered both complaints, has denied the Company's infringement claims, and has interposed counterclaims alleging that the Company's AViiON and CLARiiON computer systems infringe IBM patents. Although the Company believes its claims are valid, it cannot predict the outcome of the litigation. In the opinion of management, based on preliminary evaluation of the IBM patents covered in the counterclaim, and subject to the risks of litigation, the counterclaims are without merit, the Company will prevail thereon and the counterclaims will not have a material adverse impact on the results of operations or the financial position of the Company. The Company and certain of its subsidiaries are involved in various other patent infringement, contractual, and proprietary rights suits. In the opinion of management, the conclusion of these suits will not have a material adverse effect on the financial position or results of operations and cash flows of the Company and its subsidiaries. NOTE 8. STOCKHOLDERS' EQUITY The Company has 100,000,000 authorized shares of Common Stock. As of September 27, 1997, 48,808,000 shares of Common Stock have been issued, of which 220,000 shares with a cost of $6.5 million are held by the Company as treasury shares. As of September 28, 1996, 39,821,000 shares of Common Stock had been issued, of which 220,000 shares with a cost of $6.5 million were held by the Company as treasury shares. The Company has 1,000,000 authorized shares of $.01 par value preferred stock. The Company's Board of Directors (the "Board") is authorized to issue shares of preferred stock in such series and with such terms and conditions as the Board may determine. In connection with the adoption of the Company's Stockholder Rights Plan (see below), as of September 27, 1997, 400,000 shares of preferred stock had been designated as Series A Junior Participating Preferred Stock. On November 5, 1997, an additional 200,000 shares of preferred stock were designated as Series A Junior Participating Preferred Stock. No shares of preferred stock have been issued as of September 27, 1997. Under the Stockholder Rights Plan adopted in 1986, as amended, a dividend of Stock Purchase Rights (the "Rights") was paid. The Rights enable common stockholders to purchase from the Company shares of Series A Junior Participating Preferred Stock under certain circumstances following the acquisition of, or attempt to acquire, 20% or more of the Company's Common Stock or a determination that an "adverse person" has purchased 15% or more of the Common Stock. The Rights also entitle common stockholders to purchase shares of the Company's or an acquirer's Common Stock at one-half of market value under circumstances which include certain transactions by or with a potential acquirer, including "adverse persons", and mergers and certain asset sales. The Rights may be redeemed by the Company under certain circumstances. NOTE 9. STOCK PLANS The Company adopted SFAS 123, "Accounting for Stock-Based Compensation" in fiscal 1997. As permitted by SFAS 123, the Company continues to measure compensation cost in accordance with APB Opinion 25 and related Interpretations in accounting for its plans. Had compensation cost for the Company's stock-based compensation plans, including the employee stock purchase plan, been determined based on the fair value at the grant dates for awards under these plans consistent with the method of SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: YEAR ENDED ---------------------------- SEPT. 27, SEPT. 28, 1997 1996 - -------------------------------------------------------------------------------- Net income (in thousands) As reported............................ $55,900 $28,145 Pro forma.............................. 52,473 26,161 Primary earnings per share As reported............................ $1.26 $0.68 Pro forma.............................. $1.19 $0.64
The effect on net income and earnings per share is not expected to be indicative of the effects on net income and earnings per share in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: YEAR ENDED ----------------------------- SEPT. 27, SEPT. 28, 1997 1996 - -------------------------------------------------------------------------------- Expected volatility.............................. 38.75% 42.91% Risk-free interest rate.......................... 5.9% 5.6% Expected life of options in years................ 4.2 4.2 Expected dividend yield.......................... - -
During fiscal years 1997 and 1996, the weighted average grant-date fair value of options granted was $10.73 and $6.09 per share, respectively, and the exercise price of options granted was $11.70 and $8.65 per share, respectively. EMPLOYEE STOCK OPTION PLANS. The Company has three stock option plans that authorize the grant of either incentive stock options or non-qualified stock options to key employees, to purchase up to 21,500,000 shares of Common Stock. For incentive options, the purchase price is equal to the fair market value on the date of grant. For non-qualified options, the purchase price is determined by the plan committees within limits as set forth in the plans. Options granted under the plans generally are immediately exercisable and include restrictions against disposition of the shares and a requirement, upon termination of employment, to offer unvested shares for resale to the Company at their original purchase price. The periods over which restrictions lapse are determined by the plan committees. Options may expire up to ten years after date of grant. During fiscal 1997, 3,500,000 additional shares of Common Stock were authorized for issuance under the plans. A summary of the status of these stock option plans as of September 27, 1997, September 28, 1996, and September 30, 1995 and changes during the years ending on those dates is presented as follows: NO. OF OPTIONS WTD. AVG. PRICE (000's) PER SHARE - -------------------------------------------------------------------------------- Outstanding, September 24, 1994............. 4,950 $5.51 Options granted........................ 1,632 $5.37 Options exercised...................... (675) $3.82 Options canceled....................... (465) $7.66 ----- Outstanding, September 30, 1995............. 5,442 $5.49 Options granted........................ 624 $6.43 Options exercised...................... (958) $4.25 Options canceled....................... (298) $5.63 ----- Outstanding, September 28, 1996............. 4,810 $5.88 Options granted........................ 1,274 $9.40 Options exercised...................... (1,900) $5.39 Options canceled....................... (151) $6.14 ----- Outstanding, September 27, 1997............. 4,033 $7.22 ===== Exercisable, September 27, 1997............. 1,274 $6.96 Options reserved for future grants, September 27, 1997.......................... 4,902
The following table summarizes information about these plans at September 27, 1997:
Options Options Outstanding Currently Exercisable ====================================================== ============================== Wtd. Avg. Exercise No. of Contractual Wtd Avg. No. of Wtd. Avg. Price Range Options Life(in Years) Exercise Price Options Exercise Price - ----------- ------- -------------- -------------- ------- -------------- (000's) (000's) $1.06 - $3.97 453 6.76 $ 3.27 161 $ 2.89 $4.00 - $7.94 2,106 7.30 $ 5.52 574 $ 5.03 $8.00 - $18.88 1,474 7.79 $10.86 539 $10.22
EMPLOYEE QUALIFIED STOCK PURCHASE PLAN. This plan covers substantially all employees and authorizes the issuance of a maximum of 11,100,000 shares of Common Stock upon exercise of nontransferable options granted semiannually. The options are exercisable six months after grant, at the lower of 85% of market value at the beginning or end of the six-month period, through accumulation of payroll deductions of up to 10% of each participating employee's regular base pay at the beginning of each period. During fiscal 1997, 2,500,000 additional shares of Common Stock were authorized for issuance under the plan, and options were exercised to purchase 579,000 shares at an average price of $11.63 per share. Unissued shares of Common Stock reserved for future issuance under this plan were 2,280,000 shares at September 27, 1997 and 359,000 shares at September 28, 1996. NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. This plan authorizes the grant of an option to purchase 4,000 shares of Common Stock to each non-employee director on the date of the director's annual election(s) to the Board of Directors. The exercise price of options granted is 100% of the closing price per share of Common Stock on the date of grant. An aggregate of 150,000 shares of Common Stock may be issued under the plan. Options granted are immediately exercisable and include restrictions against disposition of the shares. Should the optionee cease to serve as a director, except under certain circumstances, any restricted shares must be offered to the Company at their original purchase price. Restrictions lapse cumulatively to the extent of 25% of the grant on each anniversary of the date of grant. During fiscal 1997, 1996, and 1995, 28,000, 24,000, and 24,000 options were granted at a weighted average price of $20.30, $15.75, and $8.38 per share, respectively. During fiscal 1997, options were exercised to purchase 11,000 shares at a weighted average price of $9.12 per share. There were no options exercised during both fiscal years 1996 and 1995. There were no options canceled during fiscal years 1997, 1996, and 1995. Options to purchase 81,000, 64000, and 40,000 shares at a weighted average price of $14.61, $11.17, and $8.43 per share, respectively, were outstanding at the end of fiscal 1997, 1996, and 1995. As of September 27, 1997, the 81,000 options outstanding in this plan have exercise prices between $8.38 and $33.32 with a weighted average remaining contractual life of 8.2 years, and 19,000 shares were exercisable at a weighted average price of $10.36 per share. There were 58,000 shares reserved for future grants at September 27, 1997. NON-EMPLOYEE DIRECTOR RESTRICTED STOCK OPTION PLAN. This plan authorized the grant of an option to purchase 4,000 shares of Common Stock to each non-employee director upon his initial election to the Board of Directors. The exercise price of options granted is the lesser of 50% of the book value per share of Common Stock at the end of the fiscal year preceding the date of grant or 25% of the fair market value per share on the date of grant. An aggregate of 32,000 shares of Common Stock may be issued under the plan. Options granted are immediately exercisable and include restrictions against disposition of the shares. Should the optionee cease to serve as a director, except under certain circumstances, any restricted shares must be offered to the Company at their original purchase price. Restrictions lapse cumulatively to the extent of 25% of the grant on each anniversary of the date of grant. During fiscal 1995, options to purchase 4,000 shares at a weighted average price of $2.66 per share were issued. There were no options exercised during fiscal 1997. During fiscal years 1996 and 1995, 4,000 and 2,000 options were exercised at a weighted average price of $10.50 and $4.38 per share, respectively. There were no options canceled during fiscal years 1997, 1996, and 1995. At September 27, 1997, options to purchase 10,000 shares at exercise prices between $1.81 and $4.38, with a weighted average remaining contractual life of 5.8 years were outstanding, and 7,000 shares were exercisable at a weighted average price of $2.79 per share. This plan terminated on December 31, 1994. Outstanding options can be exercised until their expiration date. No new options can be issued. NOTE 10. BENEFIT PLANS The Company has a noncontributory defined benefit pension plan which covers substantially all U.S. employees. The Company also has a supplemental retirement benefit plan, which covers certain U.S. employees. Benefits under the plans are based on an employee's regular base pay and creditable years of service, as defined in the plans. Certain of the Company's foreign subsidiaries also have retirement plans covering substantially all of their employees. Benefits under these plans are generally based on either career average or final average salaries and creditable years of service, as defined in the plans. The annual cost for these plans is determined using the projected unit credit actuarial cost method which includes significant actuarial assumptions and estimates which are subject to change in the near term. Prior service cost is amortized over the average remaining service period of employees expected to receive benefits under the plan. Funds contributed to the plans are invested primarily in common stocks, mutual funds, global bond funds, and cash equivalent securities. The components of net pension expense are as follows:
YEAR ENDED ------------------------------------- SEPT. 27, SEPT. 28, SEPT. 30, IN THOUSANDS 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost............................... $ 7,886 $ 7,468 $ 7,806 Interest on projected benefit obligation... 14,127 12,736 11,504 Actual return on plan assets............... (32,325) (14,362) (17,460) Deferral of net actuarial gains and amortization of transition surplus and prior service cost....................... 17,261 2,283 7,850 Curtailment loss, net of settlement gain... 316 (50) 817 -------- -------- -------- Net pension expense........................ $ 7,265 $ 8,075 $ 10,517 -------- -------- --------
The funded status of the plans is as follows:
AS OF ------------------------- SEPT. 27, SEPT. 28, IN THOUSANDS 1997 1996 - -------------------------------------------------------------------------------- ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS Vested benefit obligation......................... $174,673 $150,779 -------- -------- Accumulated benefit obligation.................... $183,164 $158,683 -------- -------- Projected benefit obligation...................... $203,070 $178,353 Market value of plan assets............................ 192,424 150,096 -------- -------- Excess of projected benefit obligation over plan assets 10,646 28,257 Unrecognized actuarial gain............................ 15,560 5,871 Unrecognized prior service cost........................ (16,561) (17,995) Unrecognized transition surplus, net................... 6,236 7,062 -------- -------- Net pension liability included in current and other liabilities............................... $ 15,881 $ 23,195 -------- -------- ASSUMPTIONS USED IN COMPUTING THE FUNDED STATUS OF THE PLANS Weighted average discount rate................... 7.63% 8.00% Expected long-term weighted average rate of return of assets............................ 9.41% 9.65% Weighted average rate of increase in compensation levels............................ 4.16% 4.31%
As of October 1, 1997, the U.S. plan was amended to change the benefit for creditable service prior to October 1, 1997 to 1 1/2% of a participant's average base pay on October 1, 1997. The benefit formula for future service did not change. The update will generally result in increased benefits to participants with creditable service prior to October 1, 1997. The amendment resulted in increases of approximately $11.8 million, $13.1 million, and $7.8 million in the fiscal 1998 vested benefit obligation, accumulated benefit obligation, and projected benefit obligation, respectively. As a result of the Company's restructuring and cost containment programs, pension curtailment losses of $0.9 million were recognized in fiscal 1995. This amount was previously reserved as part of the fiscal 1994 and 1993 restructuring charges. The Company also has foreign defined contribution pension plans. Total pension cost charged to expense for these plans was $1.6 million in both fiscal years 1997 and 1996, and $1.7 million in fiscal 1995. The Company's post-retirement benefit plan provides certain medical and life insurance benefits for retired employees. Substantially all U.S. employees of the Company may become eligible for these benefits if they remain employed until normal retirement age and fulfill other eligibility requirements as specified by the plan. With the exception of certain participants who retired prior to 1986, the medical benefit plan requires monthly contributions by retired participants in amounts equal to insured equivalent costs less a fixed Company contribution which is dependent on the participant's length of service and Medicare eligibility. Benefits are continued to dependents of eligible retiree participants for 39 weeks after the death of the retiree. The life insurance benefit plan is noncontributory. Funds contributed to the plan are invested primarily in common stocks, mutual funds, and cash equivalent securities. The components of net periodic post-retirement benefit cost are as follows: YEAR ENDED ----------------------------------- SEPT. 27, SEPT. 28, SEPT. 30, IN THOUSANDS 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost............................... $ 296 $ 293 $ 308 Interest on projected benefit obligation... 687 655 657 Actual return on plan assets............... (26) (56) (150) Deferral of net actuarial gains and amortization of transition surplus and prior service cost....................... 247 282 344 ------- ------- ------- Net pension expense $ 1,204 $ 1,174 $ 1,159
The funded status of the plan is as follows: AS OF --------------------------- SEPT. 27, SEPT. 28, IN THOUSANDS 1997 1996 - ------------------------------------------------------------------------------- ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION Retirees......................................... $ 4,273 $ 3,989 Fully eligible active plan participants.......... 1,206 1,088 Other active plan participants................... 4,085 3,683 ------- ------- Total accumulated post-retirement benefit obligation.. 9,564 8,760 Market value of plan assets........................... 88 66 ------- ------- Excess of accumulated post-retirement benefit obligation over plan assets......................... 9,476 8,694 Unrecognized transition obligation.................... (2,292) (2,468) Unrecognized prior service cost....................... (719) (791) Unrecognized actuarial gain........................... 1,293 1,118 ------- ------- Net post-retirement benefit liability included in current and other liabilities.................... $ 7,758 $ 6,553 ------- ------- ASSUMPTIONS USED IN COMPUTING THE FUNDED STATUS OF THE PLAN Weighted average discount rate................... 7.75% 8.00% Expected long-term weighted average rate of return of assets............................ 10.00% 10.00%
For participants who receive full retiree medical benefits, the medical premium rates were assumed to increase at 7% for fiscal 1997 and thereafter. A 1% increase in the medical trend rate would not have a significant impact on the accumulated post-retirement benefit obligation as of September 28, 1997. NOTE 11. EARNINGS PER SHARE In February 1997, the FASB issued SFAS 128, "Earnings per Share". SFAS 128 specifies modifications to the calculation of earnings per share from that currently used by the Company. SFAS 128 is effective for both interim and annual periods ending after December 15, 1997. As required by the Securities and Exchange Commission, the Company discloses pro forma earnings per share amounts computed in accordance with the SFAS 128 in the notes to the Consolidated Financial Statements prior to required adoption.
YEAR ENDED ---------------------------------------------------------------------------------------- SEP. 27, 1997 SEP 28, 1996 -------------------------------------- ---------------------------------------- in thousands, Income Shares Per-Share Income Shares Per-Share except per share amounts (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount - ------------------------- ----------- ------------- --------- ----------- ------------- ---------- BASIC EARNINGS PER SHARE Net income available to common stockholders $55,900 41,347 $1.35 $28,145 38,769 $0.73 EFFECT OF DILUTIVE SECURITIES Stock Options -- 2,868 -- 2,326 ------- ------ ------- ------ DILUTED EARNINGS PER SHARE Net income available to common stockholders and assumed conversions $55,900 44,215 $1.26 $28,145 41,095 $0.68 ======= ====== ===== ======= ====== =====
For the years ended September 27, 1997 and September 28, 1996, the assumed conversion of convertible debentures, giving effect to the incremental shares and the adjustment to reduce interest expense, is anti-dilutive and has therefore been excluded from the computation. NOTE 12. GEOGRAPHIC SEGMENT DATA The Company's operations involve a single industry segment - the design, manufacture, sale and support of multi-user computer systems, servers, and mass storage devices. Financial information, summarized by geographic area, is presented below.
OTHER IN THOUSANDS UNITED STATES EUROPE INTERNATIONAL ELIMINATIONS CONSOLIDATED - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED SEPTEMBER 27, 1997 Total revenues Unaffiliated customers.......... $1,133,230 $273,838 $126,101 $1,533,169 Inter-area transfers............ 115,620 - 29,608 $(145,228) - ---------- -------- -------- --------- ---------- Total...................... $1,248,850 $273,838 $155,709 $(145,228) $1,533,169 ---------- -------- -------- --------- ---------- Income (loss) from operations........ $ 70,274 $ (5,031) $ (4,563) $ 2,493 $ 63,173 ---------- -------- -------- --------- ---------- Identifiable assets.................. $ 684,899 $184,554 $ 94,684 $(129,523) $ 834,614 ---------- -------- -------- --------- Corporate assets..................... 300,254 ---------- Total assets............... $1,134,868 ========== YEAR ENDED SEPTEMBER 28, 1996 Total revenues Unaffiliated customers.......... $ 941,916 $263,461 $116,873 $1,322,250 Inter-area transfers............ 120,810 - 26,497 $(147,307) - ---------- -------- -------- --------- ---------- Total...................... $1,062,726 $263,461 $143,370 $(147,307) $1,322,250 ---------- -------- -------- --------- ---------- Income (loss) from operations........ $ 42,277 $ 3,054 $ (9,613) $ 1,559 $ 37,277 ---------- -------- -------- --------- ---------- Identifiable assets.................. $ 562,845 $177,903 $ 88,614 $(106,897) $ 722,465 ---------- -------- -------- --------- Corporate assets..................... 137,978 ---------- Total assets............... $ 860,443 ========== YEAR ENDED SEPTEMBER 30, 1995 Total revenues Unaffiliated customers.......... $ 744,762 $295,357 $119,197 $1,159,316 Inter-area transfers............ 117,811 - 20,416 $(138,227) - ---------- -------- -------- --------- ---------- Total...................... $ 862,573 $295,357 $139,613 $(138,227) $1,159,316 ---------- -------- -------- --------- ---------- Restructure charge................... $ 19,168 $ 18,901 $ 4,931 $ 43,000 ---------- -------- -------- ---------- Income (loss) from operations........ $ (51,686) $(15,108) $(16,050) $ 6,890 $ (75,954) ---------- -------- -------- --------- ---------- Identifiable assets.................. $ 548,503 $193,971 $ 87,746 $(104,248) $ 725,972 ---------- -------- -------- --------- Corporate assets..................... 106,046 ---------- Total assets............... $ 832,018 ==========
United States inter-area transfers primarily represent shipments of equipment and parts to international subsidiaries. Other international inter-area transfers primarily represent shipments of work in process and finished goods inventory from manufacturing facilities to domestic operations. These inter-area shipments are made at transfer prices which approximate prices charged to unaffiliated customers and have been eliminated from consolidated net revenues. United States revenues from unaffiliated customers include direct export sales. Corporate assets consist primarily of temporary cash investments and marketable securities. Total liabilities of international subsidiaries, before intercompany eliminations, were $247.2 million at September 27, 1997 and $223.1 million at September 28, 1996. Cumulative retained earnings of international subsidiaries were $87.7 million at September 27, 1997 and $74.6 million at September 28, 1996 DATA GENERAL CORPORATION REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF DATA GENERAL CORPORATION In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows, and of stockholders' equity present fairly, in all material respects, the financial position of Data General Corporation and its subsidiaries at September 27, 1997 and September 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 27, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Boston, Massachusetts October 29, 1997 SUPPLEMENTAL FINANCIAL INFORMATION QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH FISCAL IN MILLIONS, EXCEPT PER SHARE AMOUNTS QUARTER QUARTER QUARTER QUARTER YEAR ----------------------------------------------------------------------------------------------------------------------- FISCAL 1997: Total revenues....................... $348.5 $389.3 $391.3 $404.1 $1,533.2 Total cost of revenues............... 229.5 260.8 260.9 270.4 1,021.6 Net income........................... 10.4 13.8 14.7 17.0 55.9 Net income per share................. $ 0.25 $ 0.32 $ 0.34 $ 0.35 $ 1.26 FISCAL 1996 Total revenues....................... $327.6 $335.2 $323.2 $336.3 $1,322.3 Total cost of revenues............... 221.7 224.2 211.2 220.6 877.7 Net income........................... 4.7 6.3 7.2 9.9 28.1 Net income per share................. $ 0.12 $ 0.15 $ 0.17 $ 0.24 $ 0.68
STOCK PRICE RANGE The principal markets on which the Company's stock is traded are the New York Stock Exchange ("NYSE") under the symbol "DGN", and the London Stock Exchange. The table below shows the range of reported last sale prices on the NYSE for the Company's Common Stock during each quarterly period for the last two fiscal years.
FISCAL 1997 FISCAL 1996 ---------------- ---------------- HIGH LOW HIGH LOW - -------------------------------------------------------------------------------- First quarter.................. 15 5/8 13 14 3/4 9 1/4 Second quarter................. 20 3/8 14 1/2 19 1/8 11 3/4 Third quarter................. 26 1/2 15 5/8 17 1/8 12 1/4 Fourth quarter................ 37 1/4 25 3/4 14 9 1/4
DATA GENERAL CORPORATION FACILITIES Data General does business in more than 70 countries through direct sales, subsidiaries, distributors, and representatives. The company has approximately 250 sales and service offices. Major administrative,development, manufacturing, and support facilities, and subsidiaries' headquarters locations are listed below. FACILITY LOCATION (Approximate Square Feet) Westborough, Massachusetts (512,000/Leased) corporate headquarters; administration; product development; special systems Southborough, Massachusetts (545,000) manufacturing service division; software reproduction; distribution center; equipment refurbishment; major unit repair; custom product manufacturing; field engineering services and logistics; and the CLARiiON Business Unit Apex, North Carolina (388,000) assembly, test and systems integration facility Research Triangle Park, North Carolina (174,000) advanced systems research and development Norcross, Georgia (105,000/Leased) customer support center Mississauga, Ontario, Canada (32,000/Leased) sales; field engineering; administration Etobicoke, Ontario, Canada (18,000/Leased) product repair center Chihuahua, Mexico (55,000/Leased) product repair center Schwalbach, Germany (48,000/Leased) sales; customer education; services Brentford, England (120,000/Leased)* sales; services; administration; customer education Manila, Philippines (68,000) power supply and transformer manufacturing; communications products assembly and test Melbourne, Australia (31,000/Leased) product repair center; logistics and equipment refurbishment * Includes 30,000 square-feet of sub-leased space. SUBSIDIARY HEADQUARTERS Canada Toronto/Mississauga ASIA/PACIFIC Australia Sydney Hong Kong Japan Tokyo Korea Seoul Malaysia Kuala Lumpur New Zealand Wellington Singapore Thailand Bangkok EUROPE Austria Vienna Belgium Brussels Denmark Copenhagen/Smedeholm France Paris/Velizy Germany Frankfurt/Schwalbach Italy Milan Netherlands Amsterdam Norway Oslo/Voyenenga Portugal Lisbon Spain Madrid Sweden Stockholm/Kista Switzerland Zurich United Kingdom and Ireland London/Brentford LATIN AMERICA Argentina Buenos Aires Brazil Sao Paulo Chile Santiago Mexico Monterrey Peru Lima Puerto Rico San Juan Venezuela Caracas DATA GENERAL CORPORATION OFFICERS AND DIRECTORS Frederick R. Adler Director, Chairman of the Executive Committee; of counsel to Fulbright & Jaworski L.L.P. Attorneys at Law, New York, New York Ethan Allen Jr. Vice President, Services Stephen P. Baxter Vice President, Europe Ferdinand Colloredo-Mansfeld Director; Chairman of the Board, Cabot Partners Limited Partnership, Boston, Massachusetts Jeffrey M. Cunningham* Director; Group Publisher, Forbes, Inc., New York, New York William J. Cunningham Senior Vice President, Manufacturing and Product Development Arthur W. DeMelle Senior Vice President; Chief Financial Officer David J. Ellenberger Vice President, NT Business Unit Jacob Frank Vice President and General Counsel John J. Gavin Jr. Vice President; Controller Larry D. Hemmerich Vice President, CLARiiON Business Unit Carl E. Kaplan Secretary; Senior Partner, Fulbright & Jaworski L.L.P. Attorneys at Law, New York, New York Robert C. McBride Vice President; Treasurer Anthony C. Nicoletti Vice President, Asia and CLARiiON Asia/Pacific James J. Ryan Vice President, Information Management Group Joel Schwartz Senior Vice President, Worldwide Sales Ronald L. Skates President and Chief Executive Officer; Director W. Nicholas Thorndike Director; Corporate Director and Trustee Donald H. Trautlein Director; Retired Chairman, Bethlehem Steel Corporation, Bethlehem, Pennsylvania Richard L. Tucker Director; Managing Director, Trinity Investment Management Corporation, Boston, Massachusetts J. Thomas West Senior Vice President, Advanced Development William L. Wilson Senior Vice President, Marketing * Elected during 1997 DATA GENERAL CORPORATION CORPORATE INFORMATION CORPORATE HEADQUARTERS Data General Corporation 4400 Computer Drive Westborough, Mass. 01580 (508) 898-5000 LEGAL COUNSEL Fulbright & Jaworski L.L.P. New York, New York INDEPENDENT ACCOUNTANTS Price Waterhouse LLP Boston, Mass. DEBENTURE TRUSTEE The Bank of New York Corporate Trust Office 101 Barclay St., Floor 21 West New York, New York 10286 TRANSFER AGENT AND REGISTRAR The Bank of New York 800-524-4458 Address Shareholder Inquiries to: The Bank of New York Shareholder Relations Department - 11E Post Office Box 11258 Church Street Station New York, NY 10286 Send Certificates For Transfer and Address Changes to: The Bank of New York Receive and Deliver Department - 11W Post Office Box 11002 Church Street Station New York, NY 10286 STOCK EXCHANGE LISTING New York Stock Exchange London Stock Exchange Unlisted trading privileges on Boston, Midwest, Philadelphia, Pacific, and Cincinnati exchanges TRADING SYMBOL DGN ANNUAL MEETING The Annual Meeting of Stockholders will be held at 1:00 p.m., January 28, 1998 in the Enterprise Room, State Street Bank Building, 225 Franklin Street, Boston, Mass. NUMBER OF STOCKHOLDERS As of September 27, 1997, there were approximately 10,600 stockholders of record. This number excludes individual stockholders holding stock under nominee security position listings. DIVIDEND POLICY No cash dividends have been declared or paid by the company since its inception. It is the policy of the company to retain any cash flow for future business expansion. The company anticipates no change in this policy in the foreseeable future. PUBLISHED INFORMATION The company's Annual Report, Interim Reports, Form 10-K, and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission, and other published information is available on request to: Investor Relations Department Data General Corporation 4400 Computer Drive, Mail Stop 9S Westborough, Massachusetts 01580 Published information, as well as mailed or faxed copies of quarterly financial press releases, can be obtained by calling 1-800-941-2382. All information is available on Data General's internet website at www.dg.com. In the section titled "About Data General," select "Financial Information for Investors." Investors may also choose to: o Request information using e-mail to info@dg.com o Dial the Company's FAX-back system at 1-800-99-DGFAX (North America only) and press 411 to receive a menu of publications by facsimile o Call Data General Corporation at 1-800-DATAGEN This report contains forward-looking statements under the captions "To Our Stockholders, Customers, and Employees" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" which reflect Management's current views of future events and financial performance. These forward-looking statements involve risks and uncertainties, and are based upon many assumptions and factors, including the effects of period-to-period fluctuations, OEM inventory positions, and new product development and marketing. Many of these factors are discussed in the Company's Securities and Exchange Commission filings, including its annual report on Form 10-K for the year ended September 27, 1997. Any changes in assumptions or factors could produce significantly different results. Data General An Equal Opportunity / Affirmative Action Employer Making a Commitment to Workforce Diversity AViiON, AV Image, CLARiiON, DataGenie, DG/UX, DG/ViiSION, ECLIPSE, and VALiiANT are registered trademarks; Cluster-in-a-Box, Multidimensional Storage Architecture, NTerprise Manager, NUMALiiNE, SiteStak, TeleStor, and THiiN are trademarks; and NTAlert is a service mark of Data General Corporation. Intel, the Intel Inside logo, Pentium, and Pentium Pro are registered trademarks of Intel Corporation. All other brand and product names are trademarks or registered trademarks of their respective holders. The materials contained herein are summary in nature, subject to change, and intended for general information only. Details and specifications regarding Data General equipment and software are included in the applicable technical manuals, available from local sales representatives. All rights reserved. Printed in the USA. (BACK COVER) How to contact Data General World Wide Web www.dg.com E-Mail info@dg.com Mail, Telephone, FAX North American Headquarters Data General Corporation 4400 Computer Drive Westborough, MA 01580 Telephone: 508-898-5000 Literature Requests: 1-800-DATA-GEN FAX: 508-898-1319 European Headquarters Data General Europe Data General Tower Great West Road, Brentford Middlesex TW8 9AN United Kingdom Telephone: +44 (0)181.758.6000 FAX: +44 (0)181.758.6950 Asia/Pacific Headquarters Data General Ltd. 11/F Southwest Wing Warwick House Taikoo Place, 979 Kings Road Quarry Bay, Hong Kong, China Telephone: (852) 2599-6688 FAX: (852) 2506-0221 EX-21 7 FY97 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 Subsidiaries of Data General Corporation. The following are the Company's subsidiaries as of September 27, 1997. All beneficial interests are wholly-owned, directly or indirectly, by the Company, with the exception of Data General Technology (1990) Limited which is 45% owned. All subsidiaries are included in the Company's consolidated financial statements. State or Jurisdiction of Name Organization - ------------------------- ----------------------- Asia Data General Corporation......................... Delaware China Data General Corporation........................ Delaware CLARiiON Storage Systems, Inc......................... Delaware Data General (Canada) Company......................... Nova Scotia Data General A.G...................................... Switzerland Data General A/S...................................... Norway Data General A/S...................................... Denmark Data General AB....................................... Sweden Data General Africa SARL.............................. France Data General Australia Pty., Ltd...................... Australia Data General Bahamas Limited.......................... Bahamas Data General BVI, Ltd................................. British Virgin Islands Data General Chile S.A................................ Chile Data General Computers Sdn, Bhd....................... Malaysia Data General Corporation.............................. Greece Data General Costa Rica S.A........................... Costa Rica Data General de Mexico, S.A. de C.V................... Mexico Data General del Peru, S.A............................ Peru Data General France S.A.S............................. France Data General Gesellschaft mbH......................... Austria Data General GmbH..................................... Germany Data General Graphics, Inc............................ Delaware Data General Hong Kong Sales and Service, Ltd......... Hong Kong Data General Hong Kong, Ltd........................... Hong Kong Data General Computers Hungary Ltd.................... Hungary Data General International Manufacturing Pte., Ltd.... Singapore Data General International Sales Corporation.......... Delaware Data General International, Inc....................... Delaware Data General Investment Corporation................... Delaware State or Jurisdiction of Name Organization - ------------------------- ----------------------- Data General Ireland, Ltd............................. Ireland Data General Israel, Ltd.............................. Israel Data General Japan YKK................................ Japan Data General Korea, Ltd............................... Korea Data General Latin America, Inc....................... Delaware Data General Limited.................................. United Kingdom Data General do Brasil Ltda........................... Brazil Data General Manufacturing, Inc....................... Delaware Data General Nederland BV............................. The Netherlands Data General New Zealand, Limited..................... New Zealand Data General Philippines, Inc......................... Philippines Data General (Portugal) Sociedade de Computadores Lda. Portugal Data General Puerto Rico, Inc......................... Delaware Data General S.A...................................... Belgium Data General S.A...................................... Spain Data General S.p.A.................................... Italy Data General Singapore Pte., Ltd...................... Singapore Data General Systems (Thailand) Limited............... Thailand Data General Technology (1990) Limited................ Israel Data General Telecommunications, Inc.................. Delaware D G Venezula, C.A..................................... Venezuela Data General Wholesale Pty., Ltd...................... Australia Datagen Investment Trust.............................. Massachusetts Datagen, Inc.......................................... Delaware DG Argentina S.A...................................... Argentina D G Foreign Sales Corporation, Inc.................... Barbados Digital Computer Controls, Inc........................ Delaware Digital Computer Controls International, Inc.......... Delaware General Risk Insurance Company Ltd.................... Bermuda EX-23 8 FY97 INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 2-91481, 33-19759, 33-53039, 33-58237, 333-31159 and 333-31549) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-30199) of Data General Corporation of our report dated October 29, 1997 appearing in the 1997 Annual Report to Stockholders which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 23 of this Form 10-K. /s/ PRICE WATERHOUSE LLP Boston, Massachusetts December 17, 1997 EX-27 9 ART. 5 FDS FOR ANNUAL 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FY97 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR SEP-27-1997 SEP-27-1997 216,814 151,455 312,963 16,588 166,008 858,236 657,351 476,941 1,134,868 391,822 212,750 0 0 607,130 (88,350) 1,134,868 1,142,561 1,533,169 772,721 1,021,569 448,427 0 15,422 58,300 2,400 55,900 0 0 0 55,900 1.26 1.27
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