-----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, HwGOuwc1pPvuZt58gIT9idAPyU+17QuQ5MFspdwiEy3VgPMFWwFizUDG8PdRY40F O5/KwjWVd2IYAw8/3drR7g== 0000950133-96-000268.txt : 19960329 0000950133-96-000268.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950133-96-000268 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENICOM CORP CENTRAL INDEX KEY: 0000766738 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 510271821 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14685 FILM NUMBER: 96539498 BUSINESS ADDRESS: STREET 1: 14800 CONFERENCE CNTR DR STREET 2: STE 400 WESTFIELDS CITY: CHANTILLY STATE: VA ZIP: 22021-3806 BUSINESS PHONE: 7038029200 10-K 1 GENICOM CORPORATION FORM 10-K FOR 12/31/95. 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission File No.: 0-14685 GENICOM CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 51-0271821 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14800 CONFERENCE CENTER DRIVE SUITE 400, WESTFIELDS, CHANTILLY, VIRGINIA 22021-3806 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 802-9200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months 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, 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. --- As of February 2, 1996, there were 10,852,999 shares of Common Stock of the Registrant outstanding. The aggregate market value of the shares of Common Stock held by non-affiliates (without admitting that any person whose shares are not included in determining such value is an affiliate) was approximately $49,770,130 based upon the closing price of the shares in the NASDAQ over-the-counter market on February 2, 1996. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement with respect to the Annual Meeting of Stockholders to be held on May 1, 1996: Part III 2 GENICOM CORPORATION AND SUBSIDIARIES FORM 10-K INDEX PART I Item 1. Business 3 Item 2. Properties 13 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 14 Executive Officers of the Registrant. 14 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 15 Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 43 PART III Item 10. Directors and Executive Officers of the Registrant 44 Item 11. Executive Compensation 44 Item 12. Security Ownership of Certain Beneficial Owners and Management 44 Item 13. Certain Relationships and Related Transactions 44 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 45 Signatures 48 Index to Financial Statements and Schedules F-1 Index to Exhibits E-1
2 3 ITEM 1. BUSINESS GENERAL GENICOM Corporation ("GENICOM" or the "Company"), through its worldwide operations, provides maintenance and repair services for computer systems produced by multiple vendors, network planning, integration and optimization services and develops and distributes printers and related products. Through its acquisition of substantially all of the assets and certain liabilities of Harris Adacom Network Services, Inc., the Company is developing into a fully integrated provider of multivendor business services. GENICOM's service businesses include (i) multivendor support (i.e. hardware installation and repair and maintenance contracts) and (ii) network management services (i.e. software and network consulting services, system specification and evaluation, hardware and software design and integration, documentation and contract labor). GENICOM continues to design and provide distribution of impact and page printers for (i) use in cost sensitive environments; (ii) the printing of multi-part forms and bar-codes; and (iii) providing printing connectivity in proprietary systems. The Company also provides spare parts and supplies, such as, print heads, printed wire boards, ribbons and printer cartridges for both the Company's as well other manufacturers' printers. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company's businesses are reported in two business segments: Enterprising Service Solutions and Document Solutions. Financial information by business segment and geographic location appears on pages 40 and 41 of this Annual Report on Form 10-K. This information includes sales and service revenues, operating income and identifiable assets for the year ended December 31, 1995. Operation of the Company's subsidiaries in Australia, Canada, and Europe is subject to various risks associated with political and economic developments in such countries, such as tariffs imposed to discourage imports, varying product standards and specifications, and value added and excise taxes. In addition, GENICOM is exposed to currency fluctuation risks as a result of its international sales and sourcing of products from foreign vendors. Accordingly, sales or cost of components may decrease or increase as the value of the United States dollar appreciates or depreciates relative to the currency of the source country. The Company usually hedges these currency risks through the purchase of forward exchange contracts and expects to continue this practice in the future. In December 1994, the Mexican peso suffered a devaluation of approximately 30%. The impact on the Company's financial position, results of operations and liquidity was immaterial. ENTERPRISING SERVICE SOLUTIONS GENERAL GENICOM performs a wide range of service solutions related activities through its Enterprising Service Solutions company. These operations, which are classified into the Company's Multivendor Services and Integrated Network Services operations, include the provision of services for customers of both other vendors' products and GENICOM products - Multivendor Services - and for customers in need of network consultation - Integrated Network Services. Multivendor Services accounted for 80.8 percent of Enterprising Service Solutions revenue while Integrated Network Services provided the remaining 19.2 percent in 1995. 3 4 MULTIVENDOR SERVICES Through its Multivendor Services operations, the Company performs a variety of service related activities for customers utilizing not only GENICOM products but also products manufactured by other vendors. Products serviced by Multivendor Services include servers and midrange systems, personal computers, workstations, networking products, controllers, routers, hubs, terminals, printers, peripherals, and storage devices. Services are typically provided on a subcontracted basis for major hardware vendors such as IBM and Canon, or directly under contract with system users, such as NASDAQ or USX. Service contracts, which comprise the major portion of Multivendor Services revenue, typically extend for several years, with payment due monthly, quarterly or annually, in advance. Service is generally available Monday through Friday, during normal working hours, with response times ranging from 4 to 8 working hours in metro areas and less than 16 working hours outside metro areas. Standard depot repair time is five working days. The Company's service activities include the following: Preventive maintenance Regularly scheduled visits to customer sites and to provide routine maintenance. Depot repair Unit repair or refurbishment in GENICOM's quality controlled repair facility by qualified depot technicians. Onsite support Repair of down equipment accomplished at customer site by qualified field engineers. Technical support Phone service for customers and field engineers providing technical and operating information for products and software. Installation Installation of hardware and software products at customer's site. Training Hands on training for customers, field engineers, and partners at our training facility or at customer's site. Documentation Training and service manuals and videos for a broad portfolio of hardware products. Systems integration Customer tailored solutions providing hardware, software and services to meet unique customer information technology needs.
Multivendor Services seeks to become a leading provider of information-related services in those markets in which it competes. Thus, it strives to maintain a strong focus on existing customers, while simultaneously developing growth opportunities that become available. To that end, the Company significantly expanded its presence in the multivendor services market by acquiring substantially all of the assets and certain liabilities of Harris Adacom Network Services, Inc. ("HANS"), including all of the stock of HANS' Canadian subsidiary, Harris Adacom Inc., on March 1, 1995. Through this acquisition, the Company added HANS' computer and peripherals field and depot repair service operations to the Multivendor Services operation, significantly expanding the Company's core competencies and improving its efficiency in these markets. Multivendor Services operations now provide a "one stop" maintenance service approach that includes hardware maintenance and repair, quality assurance, configuration management, and asset management. Given the wide variety of computer equipment brands used by individual customers, Multivendor Services focuses on third party maintenance of hardware and peripheral equipment, 4 5 employing some of the most knowledgeable technicians in the industry who are able to service a wide breadth of equipment. As of March 1996, the Company services over 14,000 customers and 281,000 devices through its domestic Multivendor Services operations. Such operations are classified into depot and field repair services. Depot Repair Depot repair services are employed when, due either to complexity of repair or cost related issues, the repair of a customer's defective hardware cannot be completed in the field. The Company has established two facilities to conduct domestic depot repair operations, one in Waynesboro, Virginia, where printers, keyboards, personal computers, controllers and other network-related hardware are serviced, and another in Bedford, Massachusetts, where workstations, systems and monitors are serviced. The Waynesboro facility performs less complex high volume services on both GENICOM and multivendor products, whereas the Bedford facility primarily services multivendor products which employ complex technologies. In 1994 and 1995, the Bedford facilities and in 1995, the Waynesboro facilities were certified for compliance with the provisions of ISO 9002 International Quality System Standard, in recognition of the Depot Repair operations consistent quality of service. Field Repair Field repair services are traditionally employed to repair equipment which utilizes less complex technologies where it is more efficient to repair the product in the field rather than to ship it to one of the Company's depot repair facilities. The Company segregates domestic field repair operations by geographic location, and within each service center by field engineer skill type. The Company deploys over 340 field engineers and 164 service vans from 140 service centers in all 50 states, including all major metro areas. Field repair and maintenance operations are, like depot repair work, typically performed under contract with hardware vendors such as Computervision or Canon or provided directly to the hardware user. Field clients and company engineers are categorized through an internal grading system which allows the Company to more efficiently assign Company repair engineers based on their levels of expertise and cost, after GENICOM customer service representatives assess the technical skill level required to adequately serve the customer. Through such orderly scheduling of its field technicians, the Company attempts to minimize its cost structure. GENICOM provides its Canadian and European customers parts and services through the Company's international subsidiaries. GENICOM services its Latin American, Middle Eastern, African and Pacific Rim customers through authorized distributors of GENICOM products. Sales, Marketing and Competition Multivendor Services has increased its sales and marketing efforts. Through alliances with key OEM customers and the HANS acquisition, Multivendor Services has been able to expand its offerings to meet a broader range of customer needs. Multivendor Services competes with, among others, independent providers of repair services, in-house repair centers of OEMs and third party maintenance organizations (TPMs). Multivendor Services believes that it offers cost-effective maintenance and repair solutions to OEMs and TPMs and, therefore, considers these entities potential customers. 5 6 The Company believes that Multivendor Services competes primarily on the basis of price and the scope and quality of its services. Due in part to the capital costs necessary to maintain adequate inventory and equipment to service large OEMs and TPMs, Multivendor Services believes the capital constraints of small maintenance and repair companies preclude them from competing with Multivendor Services for large programs. Multivendor Services also believes that the scope of its maintenance and repair operations and capabilities provides it with competitive advantages over many of its competitors. INTEGRATED NETWORK SERVICES Centralized network systems management and control solutions have evolved to meet the needs of network managers responsible for the expanding corporate distributed computing environments. Many companies now outsource their network service activities to companies such as GENICOM which can provide total network planning, integration and optimization services across a variety of software and hardware platforms. Through the acquisition of HANS, the Company acquired knowledgeable marketing personnel, a proven sales force, highly regarded technicians and an established customer base, which have allowed the Company to establish the Integrated Network Services operation and to expand its services into the high growth market of network integration and management. Integrated Network Services provides turnkey network solutions for clients through system software and hardware planning, system installation, integration and training, as well as post-implementation facilities management and technical services. Integrated Network Services personnel essentially tailor logical or physical network infrastructures to meet customers' information gathering, processing and reporting system needs by recommending, selecting, benchmarking and sometimes installing the requisite hardware, software and computer services. Integrated Network Services often performs client need assessments, then designs, selects and installs systems structured to meet client needs, and then trains client personnel with respect to the use of such systems. Typically, the Company contracts its Integrated Network Services computer technicians and systems engineers to clients on a per diem basis. Integrated Network Services also provides diagnostic and monitoring services for the evaluation of existing computer networks. Such services are primarily provided on a contract labor basis or annual fees to support customers' existing information technology systems, including concept formulation, system specification, system engineering design/development and project management. Such services are important for managing the growth of and optimizing usage from existing networks. Typically, Integrated Network Services establishes and reports on an existing system's capabilities, including usage, software and hardware inventory and network functionality, and then provides remote network monitoring services to continue to evaluate the network's capacity and usage, allowing clients to regularly track the value provided by the network. The establishment of Integrated Network Services provides the Enterprising Service Solutions company the opportunity to leverage its existing technical capabilities and established customer base with additional value-added business services. The Company generally can offer systems to customers to meet configuration and capacity needs identified through the rendering of diagnostic and monitoring services. Further, on-going network monitoring activities frequently identify network component breakdowns which may be referred to Multivendor Services for repair. Thus, the establishment of Integrated Network Services and in particular the integration of HANS' systems integration and network diagnostic and monitoring operations has provided the Company new opportunities to provide its customers a total application solution through the Enterprising Service Solutions company. 6 7 DOCUMENT SOLUTIONS PRINTERS AND RELATED PRODUCTS The Company offers a wide range of serial (one character at a time), line (one or more lines at a time) and page (one page at a time) printers, with performance features and prices suitable for a varied range of printing applications. Besides offering a wide range of technologies and print speeds, GENICOM's printers offer multiple combinations of features that make them suitable for diverse applications. Such features include multiple copy and extensive paper handling capabilities, multiple type styles (fonts) and bar codes. GENICOM's printers are used with desktop workstations and with various networks and stand alone configurations in conjunction with micro, mini, super-mini and mainframe computers. Document Solutions also sells spare parts and supplies, for both GENICOM products and those manufactured by other vendors. Supplies include items that have a relatively short life such as printer ribbons and cartridges, while spare parts include items that have generally a longer life such as print heads and printed wire boards. The following table reports the composition of Document Solutions revenue:
1995 1994 1993 -------- -------- -------- Impact Printers 44.9 % 46.2 % 53.9 % Nonimpact Printers 11.1 9.3 9.7 Spares 11.3 11.7 9.7 Supplies 32.7 32.6 26.7 TOTAL DOCUMENT SOLUTIONS -------- -------- -------- 100.0 % 100.0 % 100.0 % ======== ======== ========
The following table sets forth a summary of certain performance features of GENICOM's principal printer products. Manufacturer's List Price Range is as of January 1996. Sales price may vary depending on features installed, customization, discounts and other factors.
Manufacturer's Suggested Printer Technology Draft List Price Product Family Type Print Speed Features Options Range --------------------------------------------------------------------------------------------------------------------------- IMPACT-SERIES 2000 Series 9 wire serial 60 to 150 cps teleprinters for desktop paper handling $2,906 - $3,008 matrix applications options, current interface and pedestal 2400 Series 9 wire serial 270 to 320 cps designed for attachment to $1,492-$1,658 matrix IBM 3270 controllers (coax and IBM AS/400 twinax) with versatile paper handling 3000 Series 9 or 18 wire 240 to 400 cps wide range of models for additional fonts, $2,079 - $3,130 parallel or different environments, graphic buffer staggered color and bar codes expansion, paper serial matrix handling options 3400 Series (1) 9 or 24 wire 400 to 480 cps mid-range network printer, paper handling $1,329-$1,645 serial matrix advanced paper handling to options, colorkit and include dual tranctors and pedestal auto sheet feeder, postnet and bar codes, with automatic switching serial (parallel interface) 3800 Series 18 wire 600 cps high-speed, network printer, additional fonts, $2,125 - $2,499 parallel advanced paper handling and oversize characters serial matrix single/dual path, postnet and and DEC LA210, bar codes pedestal and paper handling options
7 8 3900 Series 18 wire 600 cps designed for attachment to additional fonts, $2,999 - $4,520 parallel IBM 3270 controllers (coax) pedestal and paper serial matrix and IBM Systems 3X or AS/400 handling options (twinax), high-speed, advanced paper handling and bar codes IMPACT-LINE 4000 Series shuttle matrix 400 to 1400 lpm heavy-duty cycle, maintenance additional fonts and $6,195 - $10,158 line printer free features, advanced paper paper motion detector handling, graphics and bar QMS bar codes codes band line 800 to 1200 lpm fully-formed letter quality special character $8,685 - $11,990 printers print, rugged band printer bands features and postnet 4500 Series shuttle matrix 1200 to 1400 lpm designed for attachment to additional fonts $7,790 - $11,158 line printer IBM 3270 controllers (coax), QMS bar codes IBM Systems 3X or AS/400 (twinax) and bar codes 4800 Series shuttle matrix 400 to 800 lpm reliable, low cost of QMS & IPG graphics $5,995 - $8,013 line printer ownership, printer designed IBM twinax and coax for connectivity to Ethernet, TCP/IP, Token Ring, AT&T SSI and LANS 4900 Series shuttle matrix 400 to 800 lpm designed for attachment to additional fonts $7,047 - $9,265 line printer IBM 3270 controllers (coax), QMS/IGP bar codes IBM Systems 3X or AS/400 (twinax) and bar codes NONIMPACT 7000 Series page printers 10 to 17 ppm and desktop, network and interconnection with $995 - $3,979 (laser) and color thermal multiuser environments, high Geniscript, thermal transfer printer resolution, multiple resident (Postscript language transfer at 2.5 min per fonts, PCL5 & PCL5E compatible printer page compatibles, supports various interpreter), paper sizes including large multipurpose feeder, format printing up to 11" x versatile 17" input/output paper handling devices and duplexing 7900 Series (1) page printers 10 to 16 ppm Multiuser, IBM client server MarkNet internal $1,399 - $5,665 (laser) environments, full IBM 4028 network adapter IPDS emulation, PCL5E & connects up to 18 Postscript Level 2 compatible different operating up to 1200 dpi, bar codes, systems, versatile labels, graphics, electronic input/output paper forms handling devices and duplexing, various memory options 7930/40 Series page printers 30 to 40 ppm multi-user materials, IBM Internal network $18,316-$32,333 (1) (LED array) client server environments, connectivity options full IBM 4028 IPDS emulation, & printer cabinet PCL5E and Postscript Level 2 comparability , hard drive for software upgradability and storage of forms and fonts 9000 Series page printers 8 to 17 ppm desktop, network and interconnection with $4,195 - $4,395 (laser) multiuser environments, high Geniscript, resolution, multiple resident (Postscript language fonts, PCL5 compatibles, compatible supports various paper sizes interpreter), including large format multipurpose feeder, printing up to 11" x 17" versatile input/output paper handling devices and duplexing
The following are trademarks or registered trademarks of their respective companies: DEC of Digital Equipment Corporation; Geniscript of GENICOM Corporation; IBM and IBM Proprinter of International Business Machines Corporation; PCL5 & PCL5E of Hewlett-Packard Company, Postscript of Adobe Systems, Inc. Definitions: cps-characters per second, lpm-lines per minute, ppm-pages per minute (1) Volume shipments for these products began in 1995. 8 9 RELAY PRODUCTS The Company offers a line of relays that are used principally in signal switching applications requiring high functional reliability and product quality and are sold primarily for aerospace and defense applications, automatic test equipment applications and, to a lesser extent, communication, industrial control and transportation control applications. GENICOM believes that its certified and proprietary designs should enable it to continue to participate in future major space and weapons programs. Relay revenues have declined since 1990 due to decreased spending by defense contractors. There are relatively few competitors in the relay market that GENICOM serves. Relay revenues, as a percentage of total revenues, were 4.0%, 6.4% and 6.8% in 1995, 1994 and 1993, respectively. Manufacturing Document Solutions products are manufactured and assembled primarily at facilities in Reynosa, Mexico and McAllen, Texas and to a lesser extent at the Company's facility in Waynesboro, Virginia. Certain GENICOM designed products are produced by a third party manufacturer located in the Republic of India. The Reynosa facility assembles certain impact printer product lines and produces printed circuit boards, high-speed matrix printheads, ribbon cartridges and a variety of conventional electromechanical assemblies. The Waynesboro facility is used primarily for depot repair and relay manufacturing. In December of 1995, the Company entered into a five year agreement (renewable annually after 5 years) with Atlantic Design Company, a subsidiary of Ogden Services Corporation, ("ADC") pursuant to which ADC acquired the Company's manufacturing operations in McAllen, Texas and Reynosa, Mexico. Under the agreement, ADC is committed to manufacturing substantially all of the Company's impact printer products, printed circuit boards, related supplies and spare parts, while the Company retains design, intellectual and distribution rights with respect thereto. Pursuant to the agreement, the Company will be a preferred provider of impact and page printers and multivendor information technologies service to Ogden Services Corporation. The agreement also requires the Company to purchase from ADC, $54.0 million of product by April 1997 or to pay to ADC lost profits for the Company's failure to do so. Sales and Marketing The major portion of printer and relay sales are made pursuant to purchase agreements, blanket purchase orders and similar arrangements whereby products are deliverable only after the customer issues a purchase order, release or schedule covering specific numbers of units and specifying firm delivery dates. Such arrangements usually contain price protection provisions which provide that if the Company decreases its prices, customers will receive the benefit of such price decreases for products then held in inventory. The Company's agreements with larger OEMs for printer sales generally require the customer to provide GENICOM with continuously updated forecasts of its requirements and to issue firm orders for deliveries for up to a twelve month period. GENICOM markets its products and services through several domestic and international channels. GENICOM's distribution channels consist of (1) national and regional distributors who sell to value added resellers ("VARs"), dealers and end users, and (2) a direct sales force which sells to OEMs, end users and value added resellers and dealers. 9 10 Most printers are available in several standard models, enabling Document Solutions to serve a wide range of customer requirements. A combination of accessories satisfies various printing applications. In addition, standard models are customized for OEMs and end users using GENICOM's engineering design capabilities. No customer accounted for more than 10% of GENICOM's total sales in 1995. GENICOM maintains international sales and marketing subsidiaries in Australia, Canada, France, Germany, Italy and the United Kingdom. These subsidiaries offer GENICOM products and services to distributors, small OEMs, system houses, VARs and retail dealers in over 66 countries in primarily local currencies. See "Business Segment and Geographic Information." Competition Document Solutions' printer products compete in markets characterized by rapid technological change and strong competition. The Company competes primarily in the medium and high-performance segments of the printer market where users require reliable printers principally for word processing, shared network printing, graphics, bar codes and other business applications. The Company competes against many well-established companies, some with financial, technical and operating resources greater than GENICOM. Such competitors include large computer system manufacturers that produce printers for their own product lines and, in certain cases, for sale to other suppliers or end users. In addition, there are a number of independent printer manufacturers producing printers that compete with those offered by GENICOM. Competitive factors within the printer market include price, performance, reliability, cost of ownership, versatility, ease of maintenance, applications solutions support, after-sales service and support and marketing channels. As the computer industry continues to move toward product standardization and relies less on proprietary designs, GENICOM will be challenged to continue to differentiate its products based on these competitive factors. The Company believes that its ability to maintain a competitive market position depends on the following: development of applications solutions to customer needs, continued growth of nonimpact printer technologies, sustained migration to shared printing environments, effective channels to market, continued enhancement of the Company's product line and improvements in the Company's productivity. To enhance its competitive position in the nonimpact market, the Company purchased Printer Systems Corporation ("PSC") on February 16, 1995. PSC provides Document Solutions with proprietary software and hardware technology for distributed communications, data stream management and imaging with emphasis on complex raster image command languages for page printers and IBM network transmission protocols. Raster imaging is a widely employed technology used in translation and creation of images for nonimpact printing and other applications. Utilizing PSC expertise, the Company has introduced a new series of desktop laser printer products for small workgroups or departmental printing. The Company has broadened its page printer product line and increased its penetration in the IBM compatible market and built on its value added application solution strategy with the PSC acquisition. The Company believes that the market for impact printers has largely shifted to shared-resource, application-specific environments such as bar coding and multipart forms. As this happens, the Company is narrowing its focus to these niche markets, de-emphasizing or discontinuing low-end offerings and channeling resources to markets where growth potential is greatest. As the market for this technology has declined, the Company is also focusing on the replacement market. By addressing connectivity issues and applications such as industrial graphics and labels, the Company has designed products which appeal to the existing user base as well as new customers. Impact printers continue to meet customer application needs not yet satisfied by nonimpact technologies, in such areas as multipart forms, high-volume reliability and low cost ownership. 10 11 GENERAL ENVIRONMENTAL MATTERS As a result of manufacturing processes, the Company generated and managed hazardous wastes at its facilities. The Company does not believe that compliance with Federal, State and local regulations will have a material effect on its capital expenditures, financial condition or results of operations. See "Legal Proceedings." BACKLOG The Company's order backlog at December 31, 1995 was approximately $47.5 million, compared with approximately $48.9 million at January 1, 1995. GENICOM's reportable backlog includes all orders associated with relays, service, systems integration, network monitoring and those orders for printers, spare parts and supplies for which a delivery date within approximately six months has been specified by the customer. The Company expects to ship substantially all printer, spares and supplies orders in reported backlog within fiscal year 1996. The Company normally experiences lower sales each year in its third quarter due to European holidays. GENICOM's working capital practices are consistent with the working capital practices of the printer industry. GENICOM's customer payment terms generally require invoices to be paid within thirty days of the date of issue. ENGINEERING, RESEARCH AND PRODUCT DEVELOPMENT GENICOM incurs engineering, research and product development costs for the following purposes: development of new products; applications solutions development; modification, enhancement and achievement of cost reductions for existing product lines; customization of products for OEMs; market research; and development of process inspection criteria to ensure new products are built to specification. GENICOM's expenditures for engineering, research and product development were $8.4 million, $7.7 million and $9.8 million in 1995, 1994 and 1993, respectively. $0.5 million of the 1993 amount related to restructuring costs. In 1995, 1994 and 1993 the Company expended 5.0%, 4.6% and 5.6% of products revenue, respectively, in engineering research and product development. GENICOM maintains in-house capabilities and facilities available to support its engineering and design activities. The Company also engages a number of highly specialized independent firms to supplement its own engineering capabilities and to design certain software and components for its products. PROPRIETARY RIGHTS GENICOM relies on patent, copyright and trade secret laws to protect its proprietary and technology rights. GENICOM obtained certain patents, licenses and cross-licenses when it acquired the Data Communication Products Business Department from General Electric Company (collectively "G.E.") in 1983, when it acquired the Printer related assets of Ekco Group, Inc. (formerly Centronics Data Computer Corporation, "Centronics") in 1987, and when it acquired Harris Adacom Network Services, Inc. and Printer Systems Corporation in 1995. GENICOM continues to patent certain developments, holds certain patents pending and retains numerous patents expiring at various times between 1995 and 2011. In addition, the Company has a cross-licensing agreement with IBM that expires 17 years after the date of issue of certain patents pending prior to January 1, 1991. 11 12 "GENICOM" and certain other marks used in connection with the sale of the Company's products are registered trademarks of GENICOM in the United States and, in some cases, certain foreign countries. Under United States law, a registered trademark remains valid for 10 years if affirmed at the end of the sixth year. There is no limit to the number of times the registration may be renewed for additional 10-year periods. Thereafter, each registration may be renewed for additional 10 year periods; otherwise the registration will expire automatically. GENICOM's Laser Printing Solutions strategic business unit specializes in raster imaging technology and has numerous related patents and trademarks which should assist in GENICOM's continued penetration into the nonimpact market in 1996. In connection with the acquisition of the printer-related assets of Centronics, GENICOM acquired a license to use the name "Centronics" as a trademark, tradename and service name. HP Laserjet is a registered trademark of Hewlett-Packard Company. SUPPLIERS GENICOM currently purchases raw materials, components and printers from various domestic and foreign suppliers. GENICOM utilizes supply agreements and other arrangements whereby volume discounts can be obtained. GENICOM purchases certain products - printers, options, supplies and component parts, including print engines, from sole suppliers who have developed proprietary processes that the Company incorporates into its products. In the event that those suppliers were unable or unwilling to supply these products, the Company believes it could establish alternate sources for these products or similar products. The time required to establish an alternate source could disrupt the manufacture or distribution of these products, thus causing delays that could adversely affect revenues. Currently, the Company considers its relationships with these vendors to be good and does not anticipate any disruption in the supply of these products. In 1995, GENICOM procured 16% of its total purchases from TEC Corporation ("TEC") which supplies the Company with certain nonimpact printer products. No other supplier accounted for a significant portion of GENICOM's total 1995 purchases. In 1994, Toshiba Corporation accounted for 13% of GENICOM's total purchases related to printers. In December 1995, the Company entered into an agreement for the term of five years with Atlantic Design Company ("ADC") in which ADC would take over the Company's manufacturing operations and employees in McAllen, Texas and Reynosa, Mexico. ADC is committed to manufacturing all of the Company's impact printer products, printed circuit boards, related supplies and spare parts (See "Management's Discussion and Analysis"). EMPLOYEES As of December 31, 1995, the Company and its subsidiaries employed 1,638 employees. The Company believes its relations with its employees are satisfactory. The Company's production and maintenance employees at its Waynesboro facility are represented by the United Electrical, Radio and Machine Workers of America Local 124, under a collective bargaining agreement which expires in July 1996. 12 13 ITEM 2. PROPERTIES The following table sets forth certain information with respect to the Company's owned or leased property as of December 31, 1995:
SQUARE OWNED OR YEAR LEASE LOCATION PRINCIPAL USES FEET LEASED EXPIRES ------------------- ------------------------------- -------- ------- ---------- Chantilly, Virginia Corporate Headquarters 23,000 Leased 1998 Waynesboro, Virginia Service, Manufacturing, Office 377,000 Owned -- Reynosa, Mexico (1) Manufacturing 120,000 Owned -- McAllen, Texas (1) Distribution 37,500 Leased 1997 Bedford, Mass. Service 75,000 Leased 1996 New Carrollton, Texas Service 105,000 Leased 2002
(1) These facilities are currently being subleased by Atlantic Design Company as part of the manufacturing agreement mentioned above. GENICOM's leased property is occupied under standard industrial leases. Each lease generally contains an optional renewal provision. The Company's Waynesboro property is subject to a lien in favor of the Company's lenders under its loan agreement. ITEM 3. LEGAL PROCEEDINGS The Company and the former owner of its Waynesboro, Virginia facility, General Electric Company ("G.E."), have generated and managed hazardous wastes at the facility for many years as a result of their use of certain materials in manufacturing processes. The Company and the United States Environmental Protection Agency ("EPA") have agreed to a corrective action consent order (the "Order"), which became effective on September 14, 1990. The Order requires the Company to undertake an investigation of solid waste management units at its Waynesboro, Virginia facility and to conduct a study of any necessary corrective measures that may be required. Although the Order is currently being implemented, it is not possible for the Company to reliably estimate the total cost of the investigation and the study required by the Order. If, as a result of the investigation and study, corrective measures are required, the Company expects that it will then enter into discussions with the EPA concerning a further order for that purpose. The Company has been notified by the EPA that it is one of 700 potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, for necessary corrective action at a hazardous waste disposal site in Greer, South Carolina. In prior years, the Company arranged for the transportation of wastes to the site for treatment or disposal. During 1995, the PRPs entered into an administrative consent order with EPA under which they will undertake a remedial investigation and feasibility study. With respect to the above mentioned actions, the Company believes its share of the costs of the investigation and any corrective action that may be required are not likely to have a material effect upon the financial condition, results of operations or liquidity of the Company. The Company has been named as a defendant in an Original Petition and Petition for Injunctive Relief filed in August 1995 which alleges that the Company and certain other defendants are strictly liable for damages allegedly suffered by the plaintiffs as a result of contamination of groundwater at the Linn-Faysville Aquifer, in Texas, due to the disposal of dangerous products and materials at a landfill which is alleged to be the source of the contamination. 13 14 The Company is currently unable to make any estimates as to whether this action will have a material effect upon the financial condition, results of operations or liquidity of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with respect to the Company's executive officers as of December 31, 1995:
NAME AGE TITLE - ------------ ---- ----------------------------------------------- Paul T. Winn 51 Director, President and Chief Executive Officer James C. Gale 53 Senior Vice President Finance and Chief Financial Officer Raymond D. Stapleton 56 Senior Vice President, International Subsidiaries James A. Jones 38 Vice President, Corporate Controller and Treasurer C. Bruce Meyer 46 Vice President Human Resources and Corporate Communications B. Garrett Buttner 47 Vice President and General Manager, Annuities Harold L. McIlroy 57 Vice President, Quality, Customer Service and Partnerships Arthur D. Gallo 53 Corporate Vice President and General Manager, Document Solutions Company Michael J. Shelor 47 Corporate Vice President and General Manager, Enterprising Service Solutions Company
Mr. Winn joined the Company in April 1990 as President and Chief Executive Officer and became a director in May 1990. Previously, Mr. Winn was employed by IBM Corporation, where he served for 22 years in various capacities, most recently as Vice President of Graphics Systems in the Advanced Work Station Division. Prior to that position, Mr. Winn served as Vice President of Worldwide System Printers, responsible for technology, software, product development and manufacturing. Mr. Gale joined the Company as Senior Vice President Finance and Chief Financial Officer in August 1991. Previously, Mr. Gale was employed by General Foods Corporation, where he served for 25 years in various capacities, most recently as Vice President of Finance for General Foods Corporation and in that role acted as Chief Financial Officer of General Foods, USA. Mr. Stapleton became Senior Vice President International Subsidiaries in August 1994 after serving the Company and its predecessor, G.E., in various capacities for 30 years, most recently as Senior Vice President and General Manager Enterprising Service Solutions Division. Mr. Jones served the Company as Corporate Controller since November 1988, and Treasurer since March 1990 until his resignation in January 1996. Mr. Meyer was appointed Vice President of Human Resources in September 1991 after serving the Company, and its predecessor, G.E., in various human resources capacities since 1973. Mr. Buttner was appointed Vice President and General Manager, Annuities in November 1995 after having served as Vice President and General Manager Supplies Business Unit since April 1993. Prior to his appointment as a corporate officer, Mr. Buttner had served in sales, marketing and 14 15 business management positions with GENICOM since 1988. Previously, Mr. Buttner was employed by G.E. for 15 years. Mr. McIlroy was appointed Vice President in July 1995 after joining the Company October 1991 and serving in various operations management capacities. Previously Mr. McIlroy was employed by IBM for 30 years. Mr. Arthur D. Gallo was appointed Corporate Vice President and General Manager, Document Solutions Company in November 1995 after having been the President of Printer Systems Corporations since 1985. Mr. Shelor was appointed Corporate Vice President and General Manager, Enterprising Service Solutions Company in November 1995 after serving the Company and its predecessor, G.E., in various operating positions since 1969. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Stock Trading: GENICOM's common stock is quoted and traded on the Nasdaq National Market System (Symbol: GECM). As of February 2, 1996, there were approximately 610 shareholders of record. The following table sets forth, for the periods indicated, the high and low closing prices per share of GENICOM common stock as reported by Nasdaq:
1995 1994 --------------------------- ------------------------------ HIGH LOW High Low First Quarter $ 2 7/8 $ 2 $ 1 5/8 $ 1 1/16 Second Quarter 4 3/4 2 1/8 2 3/8 1 Third Quarter 5 7/8 4 1/8 3 1/4 1 3/4 Fourth Quarter 5 3/8 4 2 7/8 1 7/8
Additionally, GENICOM has not paid a cash dividend on its common stock. The Company intends to retain earnings from operations for use in its business, and therefore does not anticipate paying any cash dividends in the foreseeable future. 15 16 ITEM 6. SELECTED FINANCIAL DATA The information is set forth below:
GENICOM CORPORATION AND SUBSIDIARIES FIVE YEAR FINANCIAL HISTORY (UNAUDITED) Fiscal year, (1) 1995 1994 1993 1992 1991 (In thousands, except per ---------- ---------- ---------- ---------- ---------- share and other data) INCOME STATEMENT DATA: Revenues $ 294,052 $ 233,797 $ 221,865 $ 222,692 $ 217,021 Operating costs and expenses (2) 278,874 224,629 219,220 214,176 224,363 ---------- ---------- ---------- ---------- ---------- Operating income (loss) 15,178 9,168 2,645 8,516 (7,342) Interest expense, net 7,741 7,458 7,559 7,742 9,122 Other income (3) 1,908 1,741 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes and extraordinary gain 7,437 3,618 (3,173) 774 (16,464) Income tax expense (benefit) 1,285 1,048 56 450 275 ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary gain 6,152 2,570 (3,229) 324 (16,739) Extraordinary gain (4) 1,273 3,691 ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 6,152 $ 2,570 $ (3,229) $ 1,597 $ (13,048) ========== ========== ========== ========== ========== Earnings (loss) per share (fully diluted): Income (loss) before extraordinary gain $ 0.51 $ 0.23 $ (0.30) $ 0.03 $ (1.58) Extraordinary gain 0.12 0.35 ---------- ---------- ---------- ---------- ---------- Net income (loss) $ 0.51 $ 0.23 $ (0.30) $ 0.15 $ (1.23) ========== ========== ========== ========== ========== Weighted average shares (fully diluted) 12,056 11,416 10,621 10,833 10,592 ========== ========== ========== ========== ========== BALANCE SHEET DATA: Working capital $ 34,530 $ 40,780 $ 33,642 $ 54,915 $ 47,193 Total assets 161,539 127,267 141,159 146,806 137,299 Total debt obligations 51,544 47,563 69,020 69,311 64,027 Stockholders' equity 34,533 28,083 24,575 28,524 27,804 OTHER DATA: Employees (5) 1,638 2,382 2,147 2,488 2,512 Price range per common share: Low $ 2 $ 1 $ 1 1/8 $ 7/8 $ 7/8 High 5 7/8 3 1/4 3 1/2 2 2 3/4
(1) The Company's fiscal year ends on the Sunday nearest December 31. Accordingly, the Company is reporting for 52-week periods for all years presented, except for fiscal year 1992 which is a 53-week period. (2) Includes restructuring costs of $1.0 million and $15.0 million in 1993 and 1991, respectively. In addition, includes $1.2 16 million for acquisition related charges in 1995. (3) The company recognized a gain of $0.9 million and $1.7 million from the sale of its investment in a Belgian printer development and manufacturing company in 1994 and 1993, respectively. The Company also recognized a gain of $1.0 million on the early extinguishment of $9.2 million principal amount of its Senior Securities Subordinated Notes in 1994. (4) The Company recognized extraordinary gains of $1.3 million and $3.7 million, net of taxes of $0.1 million and $0.5 million, on the early extinguishment of $4.0 million and $13.3 million principal amount of it Senior Subordinated Notes in 1992 and 1991, respectively. (5) Substantial staff reductions occurred in 1995 as a result of the service agreement with ADC. 16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL GENICOM Corporation ("GENICOM" or the "Company") is comprised of two distinct operating companies. The Enterprising Service Solutions company provides logo and multivendor product field support, depot repair, express parts, professional services and network information technology and services. The Document Solutions company designs and markets page and impact printers for a variety of business applications as well as related supplies and spare parts. The production and sales of relay products, which comprises less than 10% of consolidated revenue, operating income and assets, are included with the Document Solutions company. NET REVENUE In 1995, the Company reported revenue of $294.0 million, an increase of 25.8% from fiscal 1994. This growth in revenue was primarily attributable to the Company's Enterprising Service Solutions company which had total revenues of $125.6 million in 1995 and reflects internal growth achievements as well as the effects of the first quarter 1995 business acquisition of Harris Adacom Network Services, Inc. The Document Solutions company also demonstrated growth with total revenue, excluding relays, of $156.7 million. Relay revenues were $11.7 million, a decrease of $3.4 million from 1994. Total consolidated revenue was $233.8 million and $221.9 million for the fiscal years ending January 1, 1995 and January 2, 1994, respectively. For the fiscal year ending January 1, 1995, revenue was 5.4% higher than for the fiscal year ending January 2, 1994. The increase in revenue for 1994 was primarily attributable to service and supplies revenue which increased $29.1 million and offset a decline in printer revenues of $18.7 million. Relay revenues decreased $0.1 million in 1994 as compared to 1993. ORDER BACKLOG Order backlog was $47.5 million at December 31, 1995, a decrease of $1.4 million or 2.8% from January 1, 1995. Order backlog increased $14.8 million or 43.2% in 1994 as compared with 1993. The decrease in order backlog in 1995 is primarily attributable to printers and services but was partially offset by a significant increase in the relay backlog. The Company's backlog as of any particular date should not be the sole measurement used in determining sales for any future period. GROSS PROFIT Gross profit, as a percentage of revenue, experienced a slight increase in 1995 as compared to 1994 due to an improvement in sales of higher margin printer products. In 1994, gross margin increased slightly as compared to 1993 as a result of a larger portion of consolidated revenues being associated with higher margin products such as spares and supplies. OPERATING EXPENSES Operating expenses in 1995 increased in actual dollars but decreased as a percentage of revenue over 1994. The increased expenses were primarily attributable to business growth as well as a result of the Company's acquisition of Harris Adacom Network Services, Inc. This comparison was affected by a non recurring charge in the second quarter of 1995 of $1.2 million for costs representing a proposed acquisition which was terminated and non-capitalized costs associated with the two acquisitions completed in 1995. In January 1994, the Company initiated a cost reduction 17 18 program which included personnel, salary and benefit reductions for the Company's worldwide operations. Operating expenses in 1994 as compared with 1993 decreased overall and as a percentage of revenue, due to the favorable impact of the Company's January 1994 cost reduction program that included personnel, salary and benefit reductions for the Company's worldwide operations, partially offset by increased costs associated with the growth in the service area. OPERATING INCOME The Company's operating income increased $6.0 million in 1995 as compared to 1994 as a result of the increased revenues mentioned above and the reduction of operating expenses as a percent of revenue. The relay operating loss was $1.4 million in 1995, an increase of $0.4 million from 1994. Operating income increased $6.5 million in 1994 compared to 1993 as a result of cost controls implemented in 1994 and an increase in service and supplies revenue which yielded a higher gross profit. INTEREST EXPENSE Interest expense increased 3.8% or $0.3 million in 1995 as compared to 1994 as a result of the increase in the Company's borrowings under its senior credit facility. These increased borrowings resulted from the Company's 1995 business acquisitions and increased working capital requirements to support the higher business activity. The decrease in interest expense of $0.7 million or 8.7% from 1993 to 1994 reflects the impact of the Company's repurchase of its 12.5% Senior Subordinated Notes ("Notes") in the second and fourth quarter of 1994 and a decrease in borrowings as a result of reduced working capital investment. Interest expense in 1993 was also favorably affected by a first quarter interest payment receipt from the Internal Revenue Service of $0.6 million related to the settlement of prior year tax matters. OTHER INCOME The Company had no material other income in 1995 as compared to 1994. This absence of income compares to 1994 when the Company recognized a pre-tax gain of $0.9 million on the sale of its remaining investment in Xeikon N.V., ("Xeikon"), a Belgian printer development and manufacturing company and an additional pre-tax gain of $1.0 million from the repurchase of Notes. INCOME TAX The Company's effective income tax rate for fiscal year 1995 was 17.3% compared with 29.0% and (1.8)% for fiscal years 1994 and 1993, respectively. The rate in 1995 was affected by reversal of a portion of the valuation allowance associated with the Company's deferred tax assets including certain net operating loss carryforwards. Such assets were previously fully reserved due to uncertainties regarding their ultimate recoverability. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased to $34.5 million in 1995 as compared to $40.8 million in 1994. The 1995 decrease was primarily the result of an increase in long-term debt being classified as current. In 1994, the Company had repurchased a sufficient amount of the Notes to meet the sinking fund payment due in 1995, reducing the portion of debt classified as current. The 18 19 Company's current ratio was 1.5 to 1 at the end of fiscal year 1995 compared to 1.9 to 1 at the end of fiscal year 1994. Cash and cash equivalents increased $3.6 million since January 1, 1995. Net cash generated by operations was $16.6 million during 1995. The major source of cash was earnings, depreciation and amortization which were partially offset by an increase in accounts receivable associated with the Company's significant revenue increase. During 1995, the Company used $23.8 million of cash for investments. These investments related to the acquisition of Harris Adacom Network Services Inc. and Printer Systems Corporation (see "Other Matters") and capital expenditures required to support increased levels of operation as a result of business growth in services. The Company does not have any material commitments of funds for capital expenditures other than to support the current level of operations. In 1995, the Company retired $9.0 million of its previously purchased Notes in fulfillment of its annual sinking fund requirement. As of December 31, 1995, the Company had $3.4 million of the Notes in treasury which were applied to the retirement of all the remaining outstanding Notes in February 1996 (see "Other Matters"). In December 1995, the Company received $14.5 million as a result of its agreement with Atlantic Design Company, a subsidiary of Ogden Services Corporation, ("ADC") (see "Other Matters"). Of the proceeds, $3.0 million was payment for machinery and equipment which was sold to ADC and $11.5 million was related to the transfer of inventory to ADC. The Company continues to recognize in its financial statements the inventory of $12.3 million associated with the ADC agreement and a corresponding account payable of $10.5 million as of December 31, 1995. It is expected that the Company will have no material liability with regards to this inventory by the end of the second quarter of 1996. ENVIRONMENTAL MATTERS The Company and the former owner of its Waynesboro, Virginia facility, General Electric Company ("G.E."), have generated and managed hazardous wastes at the facility for many years as a result of their use of certain materials in manufacturing processes. The Company and the United States Environmental Protection Agency ("EPA") have agreed to a corrective action consent order (the "Order"), which became effective on September 14, 1990. The Order requires the Company to undertake an investigation of solid waste management units at its Waynesboro, Virginia facility and to conduct a study of any necessary corrective measures that may be required. Although the Order is currently being implemented, it is not possible for the Company to reliably estimate the total cost of the investigation and the study required by the Order. If, as a result of the investigation and study, corrective measures are required, the Company expects that it will then enter into discussions with the EPA concerning a further order for that purpose. The Company has been notified by the EPA that it is one of 700 potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, for necessary corrective action at a hazardous waste disposal site in Greer, South Carolina. In prior years, the Company arranged for the transportation of wastes to the site for treatment or disposal. During 1995, the PRPs entered into an administrative consent order with EPA under which they will undertake a remedial investigation and feasibility study. With respect to the above mentioned actions, the Company believes its share of the costs of the investigation and any corrective action that may be required are not likely to have a material effect upon the financial condition, results of operations or liquidity of the Company. 19 20 The Company has been named as a defendant in an Original Petition and Petition for Injunctive Relief filed in August 1995 which alleges that the Company and certain other defendants are strictly liable for damages allegedly suffered by the plaintiffs as a result of contamination of groundwater at the Linn-Faysville Aquifer, in Texas, due to the disposal of dangerous products and materials at a landfill which is alleged to be the source of the contamination. The Company is currently unable to make any estimates as to whether this action will have a material effect upon the financial condition, results of operations or liquidity of the Company. OTHER MATTERS On January 12, 1996, the Company reached an agreement with NationsBank of Texas, N.A., as agent for a group of banks, ("NationsBank") on $75 million of credit facilities. Under the agreement, NationsBank is providing a $35 million revolving credit facility and two term loans totaling $40 million. In a separate transaction, the Company entered into an interest rate swap arrangement with NationsBank which fixes the interest rate for five years on a substantial portion of the debt. The fixed rate at the time the agreement was executed averaged 8.25%. As of February 13, 1996, the Company had $22.2 million available for borrowing under the revolving credit facility. Principal payments on the term loans are $3.5 million in 1996, $4 million in 1997 and 1998, $5 million in 1999 and $6 million in 2000. The Company has used this new credit agreement to retire all the debt associated with its former credit agreement with CIT and to retire all of the Company's outstanding Notes. In December 1995, the Company entered into an agreement for the term of five years with Atlantic Design Company, a subsidiary of Ogden Services Corporation, ("ADC") in which ADC would take over the Company's manufacturing operations and employees in McAllen, Texas and Reynosa, Mexico. The agreement is automatically renewed unless notice is given. ADC is committed to manufacturing all of the Company's impact printer products, printed circuit boards, related supplies and spare parts. The Company will retain design, intellectual and distribution rights. As part of this agreement, the Company will be a preferred provider of impact and page printers and multivendor information technologies service to Ogden Services Corporation. The Company, as part of the agreement, has agreed to purchase from ADC $54 million of product by April 1997. In the event that the minimum purchase commitment is not met, the Company would be required to pay ADC the lost profits on the amount not achieved. At December 31, 1995, the Company had recorded $12.3 million of inventory and a related payable of $10.5 million associated with a commitment to repurchase certain inventories which were transferred to ADC during December 1995. It is expected that this inventory will have been used by the end of the second quarter of 1996 and any remaining amount will not be material. GENICOM provides an array of services and products addressing different niches of the information processing industry, competing against a wide range of companies from large multi-nationals to small domestic entrepreneurs. The Company has the risk of obsolescence due to the rapid change of technology in the markets in which it competes. In 1994 and 1995, SFAS No. 114 "Accounting by Creditors for Impairment of a Loan", SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure - Amendment of SFAS No. 114", and SFAS No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments" became effective. The implementation of these accounting standards did not have a material impact on the financial condition, results of operations or liquidity of the Company. 20 21 In 1996, SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" will become effective. Management believes this standard will not have a material impact on the financial condition, results of operations or liquidity of the Company. SFAS No. 123 "Accounting for Stock-Based Compensation" will not be adopted by the Company for accounting purposes, however, the Company will be required to disclose the effects of this pronouncement on a pro forma basis in 1996. 21 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
DECEMBER 31, January 1, January 2, Year Ended, 1995 1995 1994 (In thousands, except per share data) ============ ------------ ------------ REVENUES, NET: Products $ 168,394 $ 166,518 $ 176,432 Services 125,658 67,279 45,433 ------------ ------------ ------------ 294,052 233,797 221,865 ------------ ------------ ------------ OPERATING COSTS AND EXPENSES: Cost of revenues: Products 116,842 120,455 129,274 Services 100,771 53,439 36,537 Selling, general and administration 52,780 43,015 43,584 Engineering, research and product development 8,481 7,720 9,825 ------------ ------------ ------------ 278,874 224,629 219,220 ------------ ------------ ------------ OPERATING INCOME 15,178 9,168 2,645 Interest expense, net 7,741 7,458 7,559 Other income 1,908 1,741 ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES 7,437 3,618 (3,173) Income tax expense 1,285 1,048 56 ------------ ------------ ------------ NET INCOME (LOSS) $ 6,152 $ 2,570 $ (3,229) ============ ============ ============ EARNINGS (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT (PRIMARY AND FULLY DILUTED): $ 0.51 $ 0.23 $ (0.30) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING: Primary 12,038 11,345 10,621 Fully diluted 12,056 11,416 10,621 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 22 23 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, January 1, 1995 1995 (In thousands, except share data) ------------ ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,271 $ 673 Accounts receivable, less allowance for doubtful accounts of $1,616 and $1,479 53,572 37,846 Other receivables 3,767 2,711 Inventories 43,079 43,368 Prepaid expenses and other assets 1,432 2,329 ---------- ---------- TOTAL CURRENT ASSETS 106,121 86,927 Property, plant and equipment 30,896 26,215 Goodwill 21,632 9,293 Other assets, principally intangibles 2,890 4,832 ---------- ---------- $ 161,539 $ 127,267 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 7,070 $ 371 Accounts payable and accrued expenses 52,910 37,540 Deferred income 11,611 8,236 ---------- ---------- TOTAL CURRENT LIABILITIES 71,591 46,147 Long-term debt, less current portion 44,474 47,192 Other non-current liabilities 10,941 5,845 ---------- ---------- TOTAL LIABILITIES 127,006 99,184 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; 18,000,000 and 15,000,000 shares authorized, 10,839,399 and 10,638,299 shares issued 108 106 Additional paid-in capital 26,023 25,760 Retained earnings 10,503 4,351 Foreign currency translation adjustment (1,331) (1,435) Pension liability adjustment (770) (699) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 34,533 28,083 ---------- ---------- $ 161,539 $ 127,267 ========== ==========
The accompanying notes are an integral part of these financial statements. 23 24 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended, DECEMBER 31, January 1, January 2, (In thousands) 1995 1995 1994 ----------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 6,152 $ 2,570 $ (3,229) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation 13,981 9,374 6,703 Amortization 4,125 3,149 2,400 Effect of gain on early extinguishment of notes (1,009) Effect of investment gain (901) (1,741) Acquisition related costs 654 Effect of restructuring accrual (3,380) Effect of environmental recovery from G.E. (862) Deferred tax benefit (1,830) Changes in assets and liabilities: Accounts receivable (9,406) 1,031 2,099 Inventories 3,348 10,882 1,710 Accounts payable and accrued expenses (1,730) 2,521 1,733 Other 1,338 938 (190) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 16,632 28,555 5,243 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for businesses, net of cash acquired (10,309) Additions to property, plant and equipment (16,325) (11,067) (5,724) Proceeds from sale of investment 3,436 Proceeds from sale of equipment 3,031 Other investing activities (239) (581) (1,456) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (23,842) (8,212) (7,180) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from long-term debt 31,594 21,537 26,818 Payments on long-term debt (31,939) (33,985) (26,697) Proceeds from Atlantic Design agreement 11,502 Purchases of senior subordinated notes (8,123) -------- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,157 (20,571) 121 -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (349) (896) 612 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 3,598 (1,124) (1,204) Cash and cash equivalents at beginning of year 673 1,797 3,001 -------- -------- -------- Cash and cash equivalents at end of year $ 4,271 $ 673 $ 1,797 ======== ======== ======== SUPPLEMENTAL DATA: Cash paid (received) during the year for: Income taxes $ 1,483 $ 28 $ (501) Interest 8,040 7,491 7,953
The accompanying notes are an integral part of these financial statements. 24 25 GENICOM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1995, January 1, 1995 and January 2, 1994 (In thousands) Foreign Common Stock Additional Currency Pension -------------------- Paid-in Retained Translation Liability Shares Amount Capital Earnings Adjustment Adjustment ------ ------ ------- -------- ----------- ---------- BALANCE AS OF JANUARY 3, 1993 10,605 $ 106 $ 25,730 $ 5,010 $ (1,795) $ (527) Exercise of stock options 17 14 Net loss (3,229) Cumulative translation adjustment (162) Pension liability adjustment (572) ------ -------- --------- -------- --------- -------- BALANCE AS OF JANUARY 2, 1994 10,622 106 25,744 1,781 (1,957) (1,099) Exercise of stock options 16 16 Net income 2,570 Cumulative translation adjustment 522 Pension liability adjustment 400 ------ -------- --------- -------- --------- -------- BALANCE AS OF JANUARY 1, 1995 10,638 106 25,760 4,351 (1,435) (699) Exercise of stock options 201 2 263 Net income 6,152 Cumulative translation adjustment 104 Pension liability adjustment (71) ------ -------- --------- -------- --------- ------- BALANCE AS OF DECEMBER 31, 1995 10,839 $ 108 $ 26,023 $ 10,503 $ (1,331) $ (770) ====== ======== ========= ======== ========= =======
The accompanying notes are an integral part of these financial statements. 25 26 GENICOM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1:SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of GENICOM Corporation (the "Company") and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The 1995 financial statements include the results of two acquisitions, Printer Systems Corporation ("PSC") and Harris Adacom Network Services, Inc. ("HANS") from their respective acquisition dates. PSC was acquired on February 16, 1995 and HANS was acquired on March 1, 1995. Fiscal Year The Company's fiscal year ends on the Sunday nearest December 31. Accordingly, the Company is reporting for the 52-week periods ended December 31, 1995, January 1, 1995 and January 2, 1994. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Inventories Inventories are stated at the lower of cost, determined on the first-in first-out method, or market. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method for financial reporting purposes based on estimated lives at acquisition date (generally 10 to 25 years for buildings and 18 months to 10 years for machinery and equipment) and accelerated methods for income tax purposes. Significant improvements and the cost of tooling are capitalized, while repairs and maintenance costs are charged to operations. Goodwill and Intangibles Goodwill includes the excess of acquisition costs over the fair market value of net assets of acquired businesses and is being amortized on a straight-line basis over 5 to 20 years. Intangible assets, including patents, copyrights, trademarks, licenses and organization and financing costs, are amortized on a straight-line basis over periods ranging from 3 to 15 years. The Company assesses at each balance sheet date whether there has been a permanent impairment in the value of the respective assets. This is accomplished by determining whether projected undiscounted future cash flows from operations over the remaining life exceed the net book value of the assets as of such balance sheet date. The aggregate amount of accumulated amortization for goodwill and intangibles was $14.5 million and $12.9 million at December 31, 1995 and January 1, 1995, respectively. 26 27 Research and Development Costs and Capitalized Software Costs incurred in basic research and development are expensed as incurred. Certain costs relating to software and product development are capitalized and amortized over the estimated economic life of the product. The Company capitalized software costs of $0.1 million and $0.6 million in 1995 and 1994, respectively. The related amortization expenses were $1.2 million and $1.0 million in 1995 and 1994, respectively. As of December 31, 1995 and January 1, 1995, capitalized software, net of amortization, was $0.4 million and $1.5 million, respectively. Income Taxes The Company accounts for income taxes under the liability method in accordance with SFAS No. 109 "Accounting for Income Taxes". Certain expenses are recognized in different periods for financial reporting and Federal income tax purposes. Research and development credits are recognized as a reduction of income tax expense in the year they are recognized for Federal tax purposes. The Company does not provide deferred taxes on the undistributed earnings of its foreign subsidiaries as such earnings are intended to be permanently reinvested in those operations. Foreign Operations The consolidated balance sheets include foreign assets and liabilities of $54.4 million and $16.0 million as of December 31, 1995, respectively, and $55.5 million and $14.7 million as of January 1, 1995, respectively. The net effects of foreign currency transactions reflected in income were immaterial in fiscal years 1995, 1994 and 1993. Assets and liabilities of most of the Company's foreign operations are translated into U.S. dollars using exchange rates in effect at the balance sheet date and results of operations items are translated using the average exchange rates prevailing throughout the period. The resulting translation adjustments are recorded as a separate component of stockholders' equity. The Company's Mexican subsidiary, of which the operating assets were transferred to Atlantic Design Company in December 1995 (see "Note 8"), remeasures its financial statements in U.S. dollars, as this is the currency of the primary economic environment in which the entity operates. Prior to 1993, the Mexican subsidiary was considered to operate in a highly inflationary economy. Accordingly, its translation adjustments, which are not material, are included in results of operations. Off-Balance Sheet Risk and Concentrations of Credit Risk The Company periodically hedges against foreign currency fluctuations through the use of forward exchange contracts. Gains and losses on contracts to hedge foreign currency commitments are deferred and accounted for as part of the commitment transaction except for losses expected to be incurred in future periods which are recorded when identified. The forward exchange contracts which the Company uses as hedges are subject to off-balance sheet market risk. The Company believes that its risk due to non-performance by the other parties to these contracts is remote. The Company had $4.4 million and $0.6 million of forward exchange contracts outstanding as of December 31, 1995 and January 1, 1995, respectively. Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of receivables. The Company extends credit to various customers that are primarily in the computer and computer peripherals industries. These specific industries may be similarly affected by economic factors, however, the Company performs ongoing credit evaluations of its customers and establishes an allowance for doubtful accounts for specific customers that it determines to have significant credit risk. 27 28 Generally, the Company does not require collateral from its customers and has, historically, not experienced significant credit related losses. Revenue Recognition and Warranty Costs Revenues from the sales of products, which include printers and relays, are recorded when products are shipped to customers. Revenues from services, which include service and rentals, are recognized monthly as earned. Advance billings for customer maintenance contracts are deferred and amortized over the contract life on a straight-line basis. Estimated warranty costs for equipment sales are provided for in the year of sale. Net Income (Loss) Per Share Net income (loss) per common share and common share equivalent is computed by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding during each year. Common share equivalents include the weighted average number of shares issuable upon the exercise of outstanding stock options, assuming the applicable proceeds from such exercise are used to acquire treasury shares. Recent Accounting Pronouncements In 1994 and 1995, SFAS No. 114 "Accounting by Creditors for Impairment of a Loan", SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure - Amendment of SFAS No. 114", and SFAS No. 119 "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments" became effective. The implementation of these accounting standards did not have a material impact on the financial condition, results of operations or liquidity of the Company. In 1996, SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" will become effective. Management believes this standard will not have a material impact on the financial condition, results of operations, or liquidity of the Company. SFAS No. 123 "Accounting for Stock-Based Compensation" will not be adopted by the Company for accounting purposes, however, the Company will be required to disclose the effects of this pronouncement on a pro forma basis beginning in 1996. Nature of Operations GENICOM Corporation is an international supplier of network systems, service and printers. The Company's Enterprising Service Solutions company provides logo and multivendor product field support and depot repair, express parts, integrated network systems, technology consulting, diagnostic and monitoring services and other professional services. The Company's Document Solutions company designs and markets a wide range of computer printer technologies for general purpose applications. The Company markets it products and services through several domestic and international channels including national and regional distributors, value added resellers and direct sales forces. GENICOM has positioned its products as mid-range solutions to corporate customers. Operating on a worldwide basis, the Company has operations in the United States, Canada, Europe and Australia. 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 as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 28 29 NOTE 2:SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of: DEC. 31, JAN. 1, (in thousands) 1995 1995 --------- --------- Raw materials $ 2,594 $ 14,354 Work in process 4,899 6,639 Finished goods 23,327 22,375 Atlantic Design inventory (see Note 8) 12,259 --------- --------- $ 43,079 $ 43,368 ========= ========= Property, plant and equipment consists of: DEC. 31, Jan. 1, 1995 1995 (in thousands) --------- --------- Land $ 714 $ 714 Buildings 11,038 10,406 Machinery and equipment 77,372 77,274 Construction in progress 461 361 --------- --------- 89,585 88,755 Less: accumulated depreciation 58,689 62,540 --------- --------- $ 30,896 $ 26,215 ========= ========= Accounts payable and accrued expenses consist of: DEC. 31, Jan. 1, 1995 1995 (in thousands) --------- --------- Trade accounts payable $ 21,388 $ 18,918 Atlantic Design account payable (see Note 8) 10,500 Accrued liabilities: Accrued compensation and benefits 9,088 8,900 Interest 1,867 1,883 Other 10,067 7,839 --------- --------- $ 52,910 $ 37,540 ========= =========
29 30 NOTE 3: DEBT OBLIGATIONS
Long-term debt consists of: (in thousands) DEC. 31, Jan. 1, 1995 1995 --------- ---------- Revolving credit notes and term loans $ 12,022 $ 10,897 Senior subordinated notes 36,364 36,532 Other subordinated notes 3,158 134 --------- ---------- 51,544 47,563 Less: current portion 7,070 371 --------- ---------- $ 44,474 $ 47,192 ========= ==========
The Company had an agreement (the "Loan Agreement") with a lender to provide credit facilities to a maximum borrowing of $35.0 million. The Loan Agreement was amended on June 9, 1994, to extend its term to December 30, 1996. The Company had pledged as collateral generally all assets of the Company. The Loan Agreement provided for financing based on formulas applied to certain adjusted asset balances, such balances being determined at the lender's sole discretion, an annual fee of 4.0% of the amount by which average daily borrowings were below $10.0 million, and interest at a posted prime rate plus 3.0% (11.5% as of December 31, 1995). Prior to June 9, 1994, the interest rate was the posted prime rate plus 2.25% (8.25% as of January 2, 1994). Also, the Loan Agreement had provisions for automatic renewal for successive one (1) year terms should certain notice provisions not be exercised by either party. Moreover, upon the termination of the Loan Agreement by either the lender, pursuant to an event of default, or the Company, a termination fee was payable by the Company. The Company maintained a term loan agreement (the "Term Loan") with the same lender which amortized monthly and bore the same interest rate. The Term Loan would have matured on the earlier of the maturity date of the Loan Agreement or September 1, 1997. On January 12, 1996, the Company reached an agreement with NationsBank of Texas, N.A., as agent for a group of banks, ("NationsBank") on $75 million of credit facilities. Under the agreement, NationsBank is providing a $35 million revolving credit facility and two term loans totaling $40 million. The revolver matures in five years; while the term loans are for five and seven years, respectively. The rate of interest on the credit facilities is tied to LIBOR or NationsBank's prime rate and is also dependent upon the Company's performance. Principal payments on the term loans are $3.5 million in 1996, $4 million in 1997 and 1998, $5 million in 1999 and $6 million in 2000. In a separate transaction, the Company entered into an interest rate swap arrangement with NationsBank which fixes the interest rate for five years on a substantial portion of the debt. The fixed rate at the time the agreement was executed averaged 8.25%. The proceeds from NationsBank were used to retire the outstanding borrowings under the Company's prior Loan Agreement. The principal amount of this payment was $10.5 million. The Company recognized a loss on extinguishment of debt associated with this repayment of $0.3 million after tax in January 1996. The Company's international subsidiaries maintain various credit facilities for their local operations. Borrowings under such credit facilities bear interest at prevailing or negotiated rates. The Company issued senior subordinated notes (the "Notes") on February 13, 1987, with an aggregate principal amount of $76.0 million. The Notes, which bore interest at 12.5% payable semiannually, were redeemable at the option of the Company, in whole or in part, at any time on or after February 15, 1992. Sinking fund payments to retire $9.0 million annually began in 1992, with the Notes maturing on February 15, 1997. The Notes were subordinated to all senior indebtedness. 30 31 On February 14 and 15, 1996, the Company used proceeds from the credit arrangement with NationsBank to retire the remaining outstanding Notes. Approximately $27 million of the Notes were redeemed at 100% of their face value and approximately $9.4 million of the Notes were redeemed at 101.2% of their face value. The Company recognized a $0.1 million after tax loss on extinguishment of debt associated with the retirement of the Notes in February 1996. The Company retired $9 million of the Notes in 1995 as part of the sinking fund requirement. In 1994 and 1992, the Company used cash flow from operations and borrowings under the Loan Agreement to purchase $9.2 million and $4.0 million, respectively, principal amount of its Notes prior to their scheduled maturity. Such purchases were at market prices below face value and, as a result, the Company recognized gains of $0.7 million and $1.3 million, net of income taxes and the write-off of related unamortized discount and debt issuance costs. Notes purchased by the Company had been applied to the Notes' sinking fund requirements. The prior Loan Agreement and the Notes contained certain restrictive covenants which included, among other things, required minimum net worth of $22.8 million, restrictions on additional borrowing and the sale or disposition of certain assets and limitations on the payment of dividends. Under the new credit facilities with NationsBank, the Company will be subject to certain other covenants which will require the Company, among other things, to maintain a consolidated tangible net worth of $10.5 million plus 50 % of cumulative net income and 100% of cumulative equity transactions, a funded debt coverage ratio of at least 3.5 to 1 for 1996, a fixed charges coverage ratio of at least 2 to 1 for 1996 and a debt to capitalization ratio of .7 to 1 for 1996. As part of the purchase agreement with Printer Systems Corporation ("PSC" - see "Note 12"), the Company has recorded the present value of a note payable with payments of $400,000 each due in 1996, 1997 and 1998. In addition to these payments, the Company has possible contingent payments based on performance due in 1996, 1997 and 1998. The maximum amount due under the contingent arrangement is $2.8 million. NOTE 4:EMPLOYEE BENEFIT PLANS The Company provides postretirement medical and life insurance benefits to hourly and salaried employees hired before March 22, 1993, who retire after attaining age 60 with at least 5 years of service. Under certain conditions, benefits may be extended to the retirees' spouse and dependents. Salaried employees hired after March 22, 1993 are eligible for postretirement medical and life insurance benefits only upon attainment of Social Security retirement age and completion of 10 years of service, and no spouse or dependent coverage is provided. The postretirement medical coverage is contributory, while the life insurance coverage is noncontributory. On January 4, 1993, the Company adopted the provisions of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions", which requires the accrual of the cost of providing postretirement benefits during an employee's active service. 31 32 The components of net periodic postretirement benefit costs were:
DEC. 31, Jan. 1, (in thousands) 1995 1995 --------- -------- Service cost - benefits attributed to service during the period $ 337 $ 396 Interest cost on accumulated postretirement benefit obligation 1,339 1,334 Amortization of unrecognized transition obligation over 20 years 840 878 ------- ------- Net periodic postretirement benefit cost $ 2,516 $ 2,608 ======= =======
The following table sets forth the combined funded status for the Company's postretirement benefit obligation as of the indicated actuarial valuation dates:
DEC. 31, Jan. 1, (in thousands) 1995 1995 --------- --------- Accumulated postretirement benefit obligation: Retirees $ 7,280 $ 9,296 Active plan participants 8,173 8,045 --------- --------- 15,453 17,341 Unrecognized transition obligation 14,926 15,805 Unrecognized net gain (5,087) (2,309) --------- --------- Accrued postretirement benefit cost $ 5,614 $ 3,845 ========= =========
For measurement purposes, 9.5% and 11.0% annual rates of increase in the per capita cost of covered health care benefits were assumed for 1996 and 1995, respectively; both rates were assumed to decrease gradually to 5.5% for 2001 and remain at that level thereafter. If the health care cost trend rate was to increase 1.0%, the accumulated postretirement benefit obligation as of December 31, 1995 and January 1, 1995, would have increased by 5.3% and 7.0%, respectively. The effect of this change on the aggregate service and interest costs for 1995 and 1994 would be increases of 5.8% and 7.1%, respectively. The weighted-average discount rates used in determining the accumulated postretirement benefit obligation was 7.25% and 8.0% in 1995 and 1994, respectively. Substantially all domestic non-collective bargaining employees are eligible to participate in the Company's retirement savings plan (the "Savings Plan"), which qualifies under section 401(k) of the Internal Revenue Code. The Company makes certain matching contributions which are allocated to the participants and vest based on the employee's years of service. The Company's expense under the Savings Plan was $0.8 million, $0.5 million and $1.2 million in fiscal years 1995, 1994 and 1993, respectively. The Company's domestic collective bargaining employees are covered by a contributory defined benefit pension plan (the "Pension Plan"). The Pension Plan benefits are based on years of credited service and the participant's compensation. Eligible employees must elect to participate and contribute 3.0% of compensation between $12,000 and $25,650 per calendar year. The Company makes contributions to the Pension Plan sufficient to meet federal funding requirements. 32 33 Components of periodic pension costs were:
DEC. 31, Jan. 1, Jan. 2, 1995 1995 1994 (in thousands) ------------- ---------- ---------- Service cost $ 340 $ 445 $ 442 Interest cost on projected benefit obligation 806 731 660 Actual return on plan assets (2,277) 131 (753) Net amortization and deferral 1,681 (673) 243 ------------- ---------- --------- Net periodic pension expense $ 550 $ 634 $ 592 ============= ========== =========
The following table sets forth the Pension Plan's funded status as of the indicated actuarial valuation dates:
DEC. 31, Jan. 1, (in thousands) 1995 1995 ----------------- ----------------- Actuarial present value of benefit obligation: Vested benefits $ 10,834 $ 8,621 Non-vested benefits 664 555 ----------------- ----------------- Total accumulated benefit obligation 11,498 9,176 Effect of projected future compensation levels 555 734 ----------------- ----------------- Projected benefit obligation 12,053 9,910 Fair value of plan assets 10,912 8,097 ----------------- ----------------- Fair value of plan assets less than projected benefit obligation (1,141) (1,813) Unrecognized net liability existing at January 1, 1987 272 318 Unrecognized net loss from actuarial experience 1,477 1,753 Adjustment to recognize minimum liability (1,194) (1,337) ----------------- ----------------- Accrued pension cost $ (586) $ (1,079) ================= =================
The Company's assumptions used in determining the pension cost and pension liability shown above were as follows:
DEC. 31, Jan. 1, Jan. 2, 1995 1995 1994 -------- -------- -------- Discount rate 7.25 8.00 7.25 Rate of compensation progression 4.00 5.00 5.00 Rate of return on plan assets 9.00 9.00 9.00
Pension Plan assets consist primarily of treasury notes, government and corporate bonds, corporate equities and cash equivalent funds. The Company makes contributions to various employee benefit plans for certain of its foreign subsidiaries and the expense for these plans was not material in fiscal years 1995, 1994 and 1993. On January 3, 1994, the Company adopted the provisions of SFAS No. 112 "Employers' Accounting for Postemployment Benefits" which requires employers to accrue costs of providing 33 34 postemployment benefits other than pensions. The implementation of SFAS No. 112 did not have a material effect on the Company's financial condition, results of operations or liquidity. NOTE 5: STOCK OPTIONS Under the Company's stock option plan, 2,112,268 shares of unissued common stock are reserved for issuance pursuant to options outstanding and to be granted. Stock option activity for the respective fiscal periods is as follows:
Option Number of Amount Shares Per Share Total ------------- --------------- ------------ OUTSTANDING, JANUARY 3, 1993 1,135,067 $ 0.15-7.50 $ 1,529,140 Granted 406,500 1.00-1.50 412,500 Exercised (17,000) 0.15-1.75 (17,975) Cancelled (42,000) 0.15-1.50 (51,500) ------------- --------------- ------------ OUTSTANDING, JANUARY 2, 1994 1,482,567 1.00-7.50 1,872,165 Granted 460,000 1.00-2.38 471,688 Exercised (16,600) 1.00 (16,600) Cancelled (166,833) 1.00-7.50 (196,823) ------------- --------------- ------------ OUTSTANDING, JANUARY 1, 1995 1,759,134 1.00-7.50 2,130,430 Granted 410,000 1.75-4.50 804,375 Exercised (201,100) 1.00-2.13 (264,824) Cancelled (195,467) 1.00-7.50 (253,328) ============= =============== ============ OUTSTANDING, DECEMBER 31, 1995 1,772,567 $ 1.00-7.50 $ 2,416,653 ============= =============== ============= OPTIONS EXERCISABLE, DECEMBER 31, 1995 819,967 $ 1.00-7.50 $ 1,041,753 ============= =============== ============= OPTIONS AVAILABLE FOR FUTURE GRANTS 339,701 =============
Options granted under the stock option plan are granted at prices not less than 85.0% of the fair market value of the common stock and become exercisable in installments at dates ranging from one to ten years from the date of grant, as determined by the Board of Directors or the Compensation Committee thereof. In 1992 and 1993, the stockholders approved nonstatutory stock option grants of 100,000 and 10,000 shares of common stock, respectively, to certain members of the Company's Board of Directors. The stock options become exercisable at a rate of 33.3% per year beginning one year from grant date. However, the stock options become fully exercisable upon the merger of the Company into another entity or the acquisition of the Company by another entity or the sale or transfer of substantially all assets of the Company to another entity. As of December 31, 1995, none of these stock options had been exercised. 34 35 NOTE 6: INCOME TAXES The components of income (loss) before income taxes were as follows:
(in thousands) DEC. 31, Jan. 1, Jan. 2, 1995 1995 1994 ------- -------- -------- Domestic $ 7,860 $ 4,524 $ 1,767 Foreign (423) (906) (4,940) ------- -------- -------- $ 7,437 $ 3,618 $ (3,173) ======= ======== ========
Income tax expense (benefit) consists of the following:
(in thousands) DEC. 31, Jan. 1, Jan. 2, 1995 1995 1994 ------- ------ ------ Current: Federal $ 2,299 $ 164 $ (27) State 557 568 23 Foreign 259 148 60 ------- ------ ------ 3,115 880 56 ------- ------ ------ Deferred: Federal (1,830) 168 Foreign ------- -------- ----- (1,830) 168 ------- -------- ----- $ 1,285 $ 1,048 $ 56
======= ======== ===== 35 36 A reconciliation of the U.S. statutory Federal tax rate of 34.0% to the Company's effective tax rate is as follows:
(in thousands) DEC. 31, Jan. 1, Jan. 2, 1995 1995 1994 ----------- ----------- --------- Tax expense (benefit) at statutory rate $ 2,529 $ 1,230 $ (1,079) Increase (decrease) related to: State income taxes, net of Federal tax benefit 557 568 23 Foreign income tax 259 148 60 Foreign operating losses generating no current tax benefit 144 279 1,642 Domestic operating profit not taxed due to carryfoward losses (383) (1,331) (563) Reduction in valuation allowance (1,830) Other, net 9 154 (27) ----------- ----------- --------- $ 1,285 $ 1,048 $ 56 ----------- ----------- --------- 17.3% 29.0% (1.8)% =========== =========== =========
Deferred tax assets and liabilities are recorded based on temporary differences between earnings as reported in the financial statements and earnings for income tax purposes. The major components of the Company's deferred tax assets and liabilities are as follows:
(in thousands) DEC. 31, Jan. 1, 6/17/05 6/17/05 ----------- ------------ DEFERRED TAX ASSETS: Net operating loss carryforwards $ 9,214 $ 12,838 Inventory valuation 2,275 3,475 Vacation accrual 1,231 1,049 Bad debt reserve 701 554 Employee benefits 1,884 1,580 Other 4,758 93 Valuation allowance (12,521) (16,747) ----------- ------------ Total deferred tax asset $ 7,542 $ 2,842 =========== ============ DEFERRED TAX LIABILITIES: Depreciation 263 1,481 Other intangible assets 5,364 Foreign currency translation gain 456 Other 85 905 ----------- ------------ Total deferred tax liability $ 5,712 $ 2,842 =========== ============
36 37 During 1995, the Company recorded a deferred tax benefit of approximately $1.8 million, relating to the reversal of a portion of the Company's valuation allowance for its domestic deferred tax assets. Such assets were previously fully reserved due to uncertainties regarding their ultimate recoverability. The benefit was recorded in 1995 based upon management's estimate of amounts which are expected to be recoverable through future earnings or reversals of temporary differences. During 1996, management will continue to assess the recoverability of its deferred tax assets. Should domestic earnings continue at levels achieved in 1995, it is possible that the remaining domestic valuation allowance of approximately $3.0 million will be reversed. The cumulative amount of undistributed earnings of foreign subsidiaries which the Company intends to permanently invest and upon which no deferred U.S. income taxes have been provided is $8.3 million. The Company cannot practically determine the amount of deferred income tax liability that would result had such earnings actually been remitted. The amount of foreign withholding taxes, at current rates, that would have been due on the earnings had they actually been remitted was $0.4 million. NOTE 7: OTHER INCOME, ACQUISITION AND RESTRUCTURING COSTS During 1995, the Company charged against pre-tax income $1.2 million related to a proposed acquisition which was terminated and non-capitalized costs associated with the Company's 1995 business acquisitions. During fiscal 1994, the Company reported gains of $1.0 million from the early extinguishment of $9.2 million of its Notes. During fiscal 1994 and 1993, the Company sold 35.0% and 65.0%, respectively, of its investment in Xeikon N.V., a Belgian printer development and manufacturing company. These transactions added approximately $0.9 million and $1.7 million of pre-tax income to fiscal 1994 and 1993, respectively. During fiscal 1993, the Company incurred costs totaling $1.0 million associated with the reorganization and restructuring of the Company's sales and marketing, development and administrative operations including the formation of an application solutions function. Such costs are reflected in the Company's operating expenses. NOTE 8: COMMITMENTS AND CONTINGENT LIABILITIES Leasing arrangements: As lessee: The Company leases certain manufacturing and warehousing properties. Rent expense amounted to $7.2 million, $6.7 million and $6.3 million in 1995, 1994 and 1993, respectively. Minimum future lease commitments for operating leases as of December 31, 1995, are as follows: 1996 - $4.9 million, 1997 - $3.3 million, 1998 - $2.3 million, 1999 - $1.4 million, 2000 - $1.3 million, and $3.9 million thereafter. 37 38 As lessor: The Company has rental agreements for the leasing of printers. Operating lease terms vary, generally from one to sixty months. Rental revenue was $2.3 million, $0.7 million and $1.1 million for 1995, 1994 and 1993, respectively. On December 31, 1995 and January 1, 1995, the cost of equipment leased was $3.0 million and $1.1 million, respectively, which is included in property, plant and equipment, net of accumulated depreciation of $1.2 million and $0.9 million, respectively. Environmental matters: The Company and the former owner of its Waynesboro, Virginia facility, General Electric Company ("G.E."), have generated and managed hazardous wastes at the facility for many years as a result of their use of certain materials in manufacturing processes. The Company and the United States Environmental Protection Agency ("EPA") have agreed to a corrective action consent order (the"Order"), which became effective on September 14, 1990. The Order requires the Company to undertake an investigation of solid waste management units at its Waynesboro, Virginia facility and to conduct a study of any necessary corrective measures that may be required. Although the Order is currently being implemented, it is not possible for the Company to reliably estimate the total cost of the investigation and the study required by the Order. If, as a result of the investigation and study, corrective measures are required, the Company expects that it will then enter into discussions with the EPA concerning a further order for that purpose. On December 9, 1993, the Company entered into a Cooperation Agreement ("Agreement") with G.E. covering certain environmental matters at the Company's Waynesboro, Virginia site. One of the matters covered is the cost of responding to the Order. The Agreement provides that G.E. will bear 70.0% of the allocable costs relating to the Order. In 1993, the Company recorded a $1.2 million recovery from G.E. of previously incurred allocable costs relating to the Order. The Company's financial statements as of December 31, 1995 reflect a receivable from G.E. of $0.8 million. As a result of the continuing financial obligation which G.E. has with respect to releases at the facility and the protracted nature of the investigation, the Company believes that the costs of the investigation and study and any corrective action that may be required are not likely to have a material effect upon the financial condition, results of operations or liquidity of the Company. The Company has been notified by the EPA that it is one of 700 potentially responsible parties (PRPs) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, for necessary corrective action at a hazardous waste disposal site in Greer, South Carolina. In prior years, the Company arranged for the transportation of wastes to the site for treatment or disposal. During 1995, the PRPs entered into an administrative consent order with EPA under which they will undertake a remedial investigation and feasibility study. Based on information currently available, the Company believes its share of the costs of the investigation and any necessary corrective action is not likely to have a material effect upon the financial condition, results of operations or liquidity of the Company. The Company has been named as a defendant in an Original Petition and Petition for Injunctive Relief filed in August 1995 which alleges that the Company and certain other defendants are strictly liable for damages allegedly suffered by the plaintiffs as a result of contamination of groundwater at the Linn-Faysvilles Aquifer, in Texas, due to the disposal of dangerous products and materials at a landfill which is alleged to be the source of the contamination. The Company is currently unable to make any estimates as to whether this action will have a material effect upon the financial condition, results of operations or liquidity of the Company. 38 39 Atlantic Design: In December 1995, the Company entered into an agreement for the term of five years with Atlantic Design Company, a subsidiary of Ogden Services Corporation, ("ADC") in which ADC would take over the Company's manufacturing operations and employees in McAllen, Texas and Reynosa, Mexico. The agreement is automatically renewed unless notice is given. ADC is committed to manufacturing all of the Company's impact printer products, printed circuit boards, related supplies and spare parts. The Company will retain design, intellectual and distribution rights. As part of this agreement, the Company will be a preferred provider of impact and page printers and multivendor information technologies service to Ogden Services Corporation. The Company as part of the agreement has agreed to purchase from ADC $54.0 million of product by April 1997. In the event the minimum purchase commitment is not met, the Company would be required to pay ADC the lost profits on the amount not achieved. At December 31, 1995, the Company had $12.3 million of inventory and a related payable of $10.5 million associated with a commitment to repurchase certain inventories which were transferred to ADC during December 1995. It is expected that this inventory will have been used by the end of the second quarter of 1996 and any remaining amount will not be material. Other matters: In the ordinary course of business, the Company is party to various environmental, administrative and legal proceedings. In the opinion of management, the Company's liability, if any, in all pending litigation or other legal proceedings, other than those discussed above, will not have a material effect upon the financial condition, results of operations or liquidity of the Company. NOTE 9: RELATED PARTY TRANSACTIONS G.E. is one of the principal stockholders of the Company. Sales by the Company to G.E. and its affiliates amounted to $2.4 million, $4.6 million and $4.6 million in 1995, 1994 and 1993, respectively. Amounts receivable from G.E. were $0.1 million and $1.8 million as of December 31, 1995 and January 1, 1995, respectively. 39 40 NOTE 10: SEGMENT AND GEOGRAPHIC INFORMATION Industry Segments The Company operates in the serial, line and page printer business where it designs and markets printers as well as in the related supplies and spare parts (Document Solutions company). The Company's operation in services provides customers with a full range of network information technology and services with field services, depot repair, parts, logistics and network products (Enterprising Service Solutions company). The production and sales of relay products comprise less than 10% of revenue, operating income and identifiable assets and are included in the Document Solutions segment. Revenue between industry segments are not material. The Company is reporting segment information by industry group for only 1995 as prior to 1995 and the acquisition of Harris Adacom Network Services, Inc., the Company operated only in one segment, the computer peripheral sales and service business.
(in thousands) 1995 ---------- REVENUES Document Solutions* $ 168,394 Enterprising Service Solutions 125,658 ---------- $ 294,052 ========== OPERATING INCOME Document Solutions+ $ 8,349 Enterprising Service Solutions 6,829 ---------- $ 15,178 ========== ASSETS Document Solutions $ 85,130 Enterprising Service Solutions 49,264 Corporate and other 27,145 ---------- $ 161,539 ========== DEPRECIATION AND AMORTIZATION Document Solutions $ 4,471 Enterprising Services Solutions 9,487 Corporate and other 4,148 ---------- $ 18,106 ========== CAPITAL EXPENDITURES Document Solutions $ 2,970 Enterprising Service Solutions 11,680 Corporate and other 1,675 ---------- $ 16,325 ==========
*Includes relay revenues of $11,726 thousand. +Includes relay operating loss of $1,367 thousand. Geographic Segments Transfers (sales) between geographic areas are accounted for at prices approximating market. Information regarding the Company's operations in the Pacific Rim, which are not material relative to total operations, has been combined with its European operations. Additionally, information regarding the Company's former Mexican subsidiary has been combined with its U.S. operations because of the vertical integration and its close proximity to the United States. 40 41 Financial information by geographic area: (in thousands)
United States FISCAL YEAR 1995 and Canada Europe Eliminations Consolidated ------------- ------------ -------------- ------------- Sales to unaffiliated customers $ 231,709 $ 62,343 $ 294,052 Transfers between geographic areas 39,870 $ (39,870) ------------- ------------ -------------- ------------- Total sales $ 271,579 $ 62,343 $ (39,870) $ 294,052 ------------- ------------ -------------- ------------- Operating income $ 15,021 $ 157 $ 15,178 ------------- ------------ -------------- ------------- Identifiable assets $ 125,511 $ 37,733 $ 163,244 ============= ============ ============== ============= United States FISCAL YEAR 1994 and Canada Europe Eliminations Consolidated ------------- ------------ -------------- ------------- Sales to unaffiliated customers $ 174,455 $ 59,342 $ 233,797 Transfers between geographic areas 41,821 $ (41,821) ------------- ------------ -------------- ------------- Total sales $ 216,276 $ 59,342 $ (41,821) $ 233,797 ------------- ------------ -------------- ------------- Operating income (loss) $ 9,262 $ (94) $ 9,168 ------------- ------------ -------------- ------------- Identifiable assets $ 97,517 $ 29,750 $ 127,267 ============= ============ ============== ============= United States FISCAL YEAR 1993 and Canada Europe Eliminations Consolidated ------------- ------------ -------------- ------------- Sales to unaffiliated customers $ 159,504 $ 62,361 $ 221,865 Transfers between geographic areas 43,519 $ (43,519) ------------- ------------ -------------- ------------- Total sales $ 203,023 $ 62,361 $ (43,519) $ 221,865 ------------- ------------ -------------- ------------- Operating income (loss) $ 6,134 $ (3,489) $ 2,645 ------------- ------------ -------------- ------------- Identifiable assets $ 104,461 $ 36,698 $ 141,159 ============= ============ ============== =============
Total sales to customers outside the United States amounted to $84.7 million, $72.3 million and $73.5 million for 1995, 1994 and 1993, respectively; these amounts include export sales from the United States of $1.1 million, $1.5 million and $1.5 million in 1995, 1994 and 1993, respectively. 41 42 NOTE 11: SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share data)
QUARTER ------------------------------------------------------------------------------- 1995 FIRST SECOND THIRD FOURTH ------------ ------------ ------------ ------------ Revenues $ 68,134 $ 71,842 $ 78,506 $ 75,570 Operating income 3,517 3,724 4,070 3,867 Net income 1,301 1,559 1,703 1,589 Earnings per share: Primary 0.11 0.13 0.14 0.13 Fully diluted 0.11 0.13 0.14 0.13 QUARTER ------------------------------------------------------------------------------- 1994 FIRST SECOND THIRD FOURTH ------------ ------------ ------------ ------------ Revenues $ 55,336 $ 59,325 $ 57,350 $ 61,786 Operating income 1,322 3,196 2,408 2,242 Net income 94 1,502 486 488 Earnings per share: Primary 0.01 0.13 0.04 0.04 Fully diluted 0.01 0.13 0.04 0.04
NOTE 12: BUSINESS ACQUISITIONS PRINTER SYSTEMS CORPORATION On February 16, 1995, the Company acquired Printer Systems Corporation ("PSC"), a privately held company whose primary business is the design, manufacture, distribution and support of printer networking products for commercial customers. PSC had 1994 revenues of approximately $10.0 million. Pursuant to the purchase agreement, the Company acquired all of PSC's outstanding common and preferred shares for consideration aggregating to potentially $4.8 million. Of the consideration $0.8 million was payable at closing and $1.2 million is payable over the three subsequent years to closing. The remaining balance of up to $2.8 million in consideration is contingent upon attainment of performance objectives during the three years subsequent to closing, and will be funded from the Company's cash flows from operations and credit facilities. The acquisition has been accounted for as a purchase. The goodwill associated with the purchase is being amortized over seven years. HARRIS ADACOM NETWORK SERVICES, INC. On March 1, 1995, the Company acquired substantially all of the assets and certain liabilities of Harris Adacom Network Services, Inc. ("HANS"), including all of the stock of its Canadian subsidiary, Harris Adacom Inc. for cash and notes totaling $7.3 million. The assets acquired relate to HANS' service depot facility, field service operations, systems integration business, and network baselining and monitoring operations. HANS had 1994 revenues of approximately $36.1 million. The purchase price was funded from the Company's cash flows from operations and credit facilities 42 43 and the acquisition has been accounted for as a purchase. The goodwill associated with the purchase is being amortized over ten years. PRO FORMA FINANCIAL INFORMATION Presented below are the unaudited pro forma statements of operations as if the acquired operations had been integrated into the Company effective January 3, 1994. Accounting adjustments have been made in the pro forma financial information to include estimated costs of the combinations and to reflect the integration and consolidation of facilities and personnel. Included in such integration costs are lease termination fees and relocation costs associated with redundant facilities and employee severance expenses. This pro forma information has been prepared for comparative purposes only and does not purport to be indicative of the results that actually would have been obtained if the acquired operations had been conducted by the Company during the periods presented, and is not intended to be a projection of future results. Presentation is in thousands except for earnings per share amounts.
Period Ended Period Ended December 31, 1995 January 1, 1995 ----------------- --------------- Revenue $ 302,416 $ 279,984 Pre-Tax Income 7,527 2,636 ---------- ---------- Net Income 6,019 1,370 ---------- ---------- Earnings per share $ 0.50 $ 0.12 ---------- ---------- Weighted average share outstanding 12,056 11,416 ---------- ----------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 43 44 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is set forth under the caption "Election of Directors" in the registrant's Proxy Statement for its 1996 annual meeting of stockholders, to be mailed to each stockholder on or about March 31, 1996, which information is incorporated herein by reference and under the heading "Executive Officers of the Registrant" appearing on page 14 of this report. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth on pages 4 through 15 of the registrant's Proxy Statement for its 1996 annual meeting of stockholders, to be mailed to each stockholder on or about March 31, 1996, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth under the caption "Principal Stockholders of the Company" in the registrant's Proxy Statement for its 1996 annual meeting of stockholders, to be mailed to each stockholder on or about March 31, 1996, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth under the caption "Certain Transactions" in the registrant's Proxy Statement for its 1996 annual meeting of stockholders, to be mailed to each stockholder on or about March 31, 1996, which information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules The financial statement schedules filed as part of this report are listed in the Index to Financial Statements and Schedules on page F-1 immediately following the signatures to this report. 44 45 Exhibits Included in Response to Item 601 of Regulation S-K NUMBER DESCRIPTION ------ ----------- 3.1 Restated Certificate of Incorporation effective as of June 15, 1992, incorporated by reference to Exhibit 4.1 to Form S-8 Registration Statement (No. 33-49472) filed with the Commission on July 10, 1992. 3.2 By-laws, dated June 1, 1983, as amended January 23, 1989 - incorporated by reference to Exhibit 3.2 to Form 10-K filed with the Commission on March 29, 1989. 4.1 Indenture, between GENICOM Corporation and Bankers Trust Company (the "Trustee"), dated February 13, 1987 - filed herewith. First Supplemental Indenture dated as of March 22, 1991 - incorporated by reference to Exhibit 4.1 to Form S-1 Registration Statement (No. 33-23007) filed with the Commission on May 14, 1991. 10.1 Loan and Security Agreement, dated September 25, 1990 between GENICOM Corporation and The CIT Group/Credit Finance, Inc. (as successor by assignment to Fidelcor Business Credit Corporation) - incorporated by reference to Exhibit 4.1 to Form 10-Q filed with the Commission on November 13, 1990. First Amendment dated May 1, 1991 and Second Amendment dated March 3, 1992 - incorporated by reference to Exhibit 10.1 to Form 10-K filed with the Commission on March 24, 1992. Extension of and Amendment to Financing Agreements dated September 23, 1992 in reference to the Loan and Security Agreement, dated September 25, 1990 between GENICOM Corporation and The CIT Group/Credit Finance, Inc. - incorporated by reference to Exhibit 10.1 to Form 8-K filed with the Commission on October 6, 1992. Extension of and Amendment to Financing Agreements dated June 9, 1994 in reference to the Loan and Security Agreement, dated September 25, 1990 between GENICOM Corporation and The CIT Group/Credit Finance, Inc. - incorporated by reference to Exhibit 10.1 to Form 8-K/A filed with the Commission on July 15, 1994. 10.2 Registration Rights Agreement, dated October 21, 1983, among the Company and the several Purchasers named therein - incorporated by reference to Exhibit 10.2 to the Form S-1 Registration Statement (No. 33-5458) filed with the Commission on June 25, 1986 (the "June 25, 1986 Registration Statement"). 10.3 Registration Rights Agreement, dated December 20, 1984, among the Company and the several Purchasers named therein - incorporated by reference to Exhibit 10.3 to the June 25, 1986 Registration Statement. 10.4 Registration Rights Agreement, dated December 20, 1984, among the Company and the several Purchasers named therein - incorporated by reference to Exhibit 10.4 to the June 25, 1986 Registration Statement. 10.5 Registration Rights Agreement, dated January 3, 1985, among the Company and the several Purchasers named therein - incorporated by reference to Exhibit 10.5 to the June 25, 1986 Registration Statement. 10.6 Registration rights provisions contained in a Stock Purchase Warrant dated October 21, 1983 granted by the Company in favor of General Electric Company, which Stock Purchase Warrant became void after October 21, 1988 - incorporated by reference to Exhibit 10.6 to the June 25, 1986 Registration Statement. 45 46 NUMBER DESCRIPTION ------ ----------- 10.7# Stock Option Plan, as amended and restated, effective as of February 7, 1991 - incorporated by reference to Exhibit 10 to the Registrant's Quarterly Report on Form 10Q (File No. 0-14685) for the quarter ended March 31, 1991 filed with the Commission on May 15, 1991. First Amendment to the Registrant's Stock Option Plan, dated February 3, 1992 - incorporated by reference to Exhibit 4.2 to Form S-8 Registration Statement (No. 33-49472) filed with the Commission on July 10, 1992. Second Amendment to the Registrant's Stock Option Plan, dated January 17, 1994 - incorporated by reference to Exhibit 4 to Form S-8 Registration Statement (No. 33-53843) filed with the Commission on May 27, 1994. 10.8# Deferred Compensation and Savings Plan, as amended and restated, effective as of January 2, 1989 - incorporated by reference to Exhibit 10.8 to Form 10-K filed with the Commission on March 29, 1991. First Amendment to the Deferred Compensation and Savings Plan, dated as of November 1, 1993 - incorporated by reference to Exhibit 10.1 to Form 8-K filed with the Commission on March 30, 1995. Second Amendment to the Deferred Compensation and Savings Plan, dated as of January 20, 1994 - incorporated by reference to Exhibit 10.2 to Form 8-K filed with the Commission on March 30, 1995. 10.9# Defined Benefit Pension Plan for Hourly Employees, as amended and restated, effective as of January 1, 1989 - incorporated by reference to Exhibit 10.9 to Form 10-K filed with the Commission on March 29, 1991. 10.10# Incentive Compensation Plan, as amended - incorporated by reference to Exhibit 10.13 to the June 25, 1986 Registration Statement. 10.11 Lease agreement with respect to the Company's customer service facilities in Waynesboro dated August 1, 1988 - incorporated by reference to Exhibit 10.10 to Form 10-K filed with the Commission on March 29, 1989. Lease agreement with respect to the Company's manufacturing facilities in Waynesboro - incorporated by reference to Exhibit 10.11 to Form 10-K filed with the Commission on March 24, 1992. 10.12 Lease of McAllen, Texas facility, dated January 20, 1992 - incorporated by reference to Exhibit 10.12 to Form 10-K filed with the Commission on March 24, 1992. 10.13# Terms of employment of Paul T. Winn dated March 26, 1990 - incorporated by reference to Exhibit 10.15 to Form S-1 Registration Statement (No. 33-23007) filed with the Commission on May 17, 1990. 10.14 Yen Agreement Between GENICOM Corporation and TOSHIBA Corporation Relating to Laser Printer G751, Laser Printer G750 and Related Options, Supplies and Service Parts, dated March 31, 1992 - incorporated by reference to Exhibit 10.17 to Form 10-K filed with the Commission on March 31, 1993. 10.15 Agreement with the General Electric Company regarding environmental matters at the Registrants Waynesboro, Virginia facility, dated December 9, 1993 - incorporated by reference to Exhibit 10.1 to Form 8-K filed with the Commission on February 23, 1994. 46 47 NUMBER DESCRIPTION ------ ----------- 10.16 Lease of Bedford and Framingham, Massachusetts facilities, dated March 11, 1994 - incorporated by reference to Exhibit 10.1 and 10.2, respectively to Form 8-K filed with the Commission on May 31, 1994. 10.17 Consulting agreement between GENICOM Corporation and W. Allen Surber, dated October 11, 1994 - incorporated by reference to Exhibit 10.17 to Form 10-K filed with the Commission on March 31, 1995. 10.18# Consulting agreement between GENICOM Corporation and Edward E. Lucente, dated December 6, 1994 - incorporated by reference to Exhibit 10.18 to Form 10-K filed with the Commission on March 31, 1995. 10.19 Agreement to purchase Harris Adacom Network Services, Inc., dated February 23, 1995 - incorporated by reference to Exhibit 2.1 to Form 8-K filed with the Commission on March 16, 1995. 10.20 Financing agreement with NationsBank, dated January 12, 1996 - incorporated by reference to Exhibit 10.1 to Form 8-K filed with the Commission on March 12, 1996. 10.21 Manufacturing agreement between GENICOM Corporation and Atlantic Design Company - incorporated by reference to Exhibit 10.21 to Form 10-K filed with the Commission on March 28, 1996 - filed herewith. 11 Statement regarding the Company's computation of earnings per share - filed herewith. 22 Subsidiaries of the Registrant - filed herewith. 24 Consent of Independent Accountants - filed herewith. 27 Financial Data Schedule - Filed only with EDGAR version. (b) Reports on Form 8-K The Company did not file a Form 8-K during the quarter ended December 31, 1995. Yen Confidential treatment granted with respect to certain provisions pursuant to 17 C.F.R. 200.80 (b) (4). # Management contracts or compensatory plans. 47 48 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto, duly authorized. GENICOM Corporation BY: Paul T. Winn ------------------------------ Paul T. Winn President and Chief Executive Officer Pursuant to the requirement 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 -------------------- ------------------------------------- --------------- Don E. Ackerman Chairman of the Board and Director March 28, 1995 ------------------- Don E. Ackerman Paul T. Winn President and Chief Executive Officer March 28, 1995 ------------------ and Director (Principal Executive Officer) Paul T. Winn James C. Gale Senior Vice President Finance and Chief March 28, 1995 ------------------ Financial Officer (Principal Financial Officer) James C. Gale Edward E. Lucente Director March 28, 1995 ------------------ Edward E. Lucente
48 49 GENICOM CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULES PAGE ---- Independents Accountants' Report F-2 Financial Statement Schedules: Schedule II Valuation and Qualifying Accounts and Reserves F-3 1. All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedules. F - 1 50 INDEPENDENT ACCOUNTANTS' REPORT The Board of Directors and Stockholders of GENICOM Corporation: We have audited the accompanying consolidated balance sheets of GENICOM Corporation and Subsidiaries (the "Company") as of December 31, 1995 and January 1, 1995, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three fiscal years in the period ended December 31, 1995. We have also audited the financial statement schedules listed in the index on page F-1 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of GENICOM Corporation and Subsidiaries as of December 31, 1995 and January 1, 1995, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Note 4 to the financial statements, effective January 4, 1993, the Company changed its method of accounting for postretirement benefits other than pensions. Coopers & Lybrand L.L.P. Washington, D.C. January 31, 1996, except for certain information in Note 3, for which the date is February 15, 1996 F - 2 51 GENICOM CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (In thousands)
ADDITIONS BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT DESCRIPTION BEGINNING COSTS FROM END OF OF PERIOD AND EXPENSES RESERVES PERIOD ------------------------------ ----------- ------------- ----------- ---------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Year ended: JANUARY 2, 1994 $ 1,248 $ 812(1) $ 580 $ 1,480 JANUARY 1, 1995 $ 1,480 $ 365(1) $ 366 $ 1,479 DECEMBER 31, 1995 $ 1,479 $ 1,284(1) $ 1,147 $ 1,616 ALLOWANCE FOR INVENTORY OBSOLESCENCE Year ended: JANUARY 2, 1994 $ 6,853 $ 2,367(2) $ 2,483 $ 6,737 JANUARY 1, 1995 $ 6,737 $ 2,723(2) $ 3,302 $ 6,158 DECEMBER 31, 1995 $ 6,158 $ 2,292(2) $ 305 $ 8,145
1. "Additions" to the allowance for doubtful accounts include a foreign currency translation adjustment of $46, $56, and $(48) in 1995, 1994 and 1993, respectively. Net bad debt expense for 1995, 1994 and 1993 was $1,238, $309 and $859, respectively. 2. Foreign currency translation adjustments were immaterial in 1995, 1994 and 1993. F - 3 52 GENICOM CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS TO FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
EXHIBIT NUMBER DESCRIPTION PAGE ------- ----------- ---- 10.21 Manufacturing agreement between GENICOM and Atlantic Design Company E-2 - E-35 11 Statement regarding computation of per share earnings E-36 22 Subsidiaries of the Registrant E-37 23 Consent of Independent Accountants E-38 27 Financial Data Schedule Filed only with EDGAR version
E-1 EX-10.21 2 SERVICES AGREEMENT WITH ATLANTIC DESIGN COMPANY. 1 SERVICES AGREEMENT ------------------
Table of Contents 1. GRANT OF LICENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ---------------- 2. SCOPE OF SERVICES; MINIMUM GUARANTEE; INITIAL INVENTORY; RIGHT OF FIRST REFUSAL . . . . . . . 2 ------------------------------------------------------------------------------- 3. TERM; TERMINATION OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ------------------------ 4. REACQUISITION CONDITIONS; DEDICATED ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ------------------------------------------ 5. PURCHASE ORDERS; CHANGE ORDERS; PAYMENT AND DELIVERY TERMS . . . . . . . . . . . . . . . . . . 10 ---------------------------------------------------------- 6. PRICE; SAVINGS SPLIT; ADDITIONAL COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 -------------------------------------- 7. RESCHEDULING; CANCELLATION OF PURCHASE ORDERS; REMAINDERS . . . . . . . . . . . . . . . . . . 17 --------------------------------------------------------- 8. QUALITY UNDERTAKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ------------------- 9. PROPRIETARY AND CONFIDENTIAL INFORMATION; NON-COMPETITION . . . . . . . . . . . . . . . . . . 20 --------------------------------------------------------- 10. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 --------- 11. REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 21 ----------------------------------------------- 12. DEFAULT BY GENICOM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ------------------ 13. DEFAULT BY ADC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 -------------- 14. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ------------- 15. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ------- 16. COMPLETENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ------------ 17. SECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 -------- 18. AMENDMENTS AND SUPPLEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 -------------------------- 19. APPLICABLE LAW; NO CONSEQUENTIAL DAMAGES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ---------------------------------------- 20. ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 -----------
E-2 2 21. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ------- 22. OGDEN GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ---------------
E-3 3 1 SERVICES AGREEMENT THIS AGREEMENT is made and entered into as of the 18th day of December 1995, by and between GENICOM CORPORATION, a Delaware corporation, with its principal place of business at 14800 Conference Center Drive, Suite 400, Westfields, Virginia 22021-3806 ("GENICOM"), ATLANTIC DESIGN COMPANY, INC., a New York corporation, with its principal place of business at 5601 Wilkinson Boulevard, Charlotte, North Carolina 28208-3557 ("ADC") and OGDEN SERVICES CORPORATION, a Delaware corporation, with its principal place of business at 2 Pennsylvania Plaza, New York, New York 10121 ("OGDEN") as guarantor. W I T N E S S E T H WHEREAS, GENICOM and ADC are parties to (i) a stock purchase agreement, dated December 15, 1995 (the "Purchase Agreement"), and related agreements, whereby GENICOM has sold and ADC has purchased (A) certain inventory and equipment owned by GENICOM and located at the plant (the "Plant") historically operated in Reynosa, Mexico by GENICOM's subsidiary, Genicom de Mexico, S.A. de C.V. ("GENMEX"), (B) all of the outstanding capital stock of GENICOM's subsidiary, DATACOM de Mexico, S.A. de C.V. ("DATACOM"), and (C) GENICOM's warehouse operations and assets in McAllen, Texas (the "McAllen Facility"); and (ii) an agreement with respect to preferential consideration to be given to GENICOM's products and services by ADC's ultimate parent, Ogden Corporation, and its Affiliates, as defined below (the "Preferential Consideration"); and WHEREAS, as an essential part of the Purchase Agreement, the parties have agreed, inter alia, that ADC shall manufacture and assemble Products and perform Other Services, as those terms are defined herein, for GENICOM; and WHEREAS, the parties have entered into a letter agreement, dated November 27, 1995, as amended (the "Interim Letter Agreement"), and an interim services agreement, dated December 17, 1995 (the "Interim Services Agreement"), whereunder they have completed certain preliminary transactions. NOW, WHEREFORE, in consideration of the sum of One Dollar and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: E-4 4 2 1. GRANT OF LICENSE 1.01 (a) GENICOM hereby grants to ADC and its Affiliates a nonexclusive license (the "License") at no cost for the term of this Agreement to use all GENICOM owned and licensed patents, patent rights, processes, designs, formulas, inventions, trade secrets, specialized technological information and techniques not generally known in the industry, and all enhancements, modifications or updates thereto, whether developed by GENICOM or ADC (the "Intellectual Property"), for the sole purpose of performing its obligations under this Agreement. No rights to the Intellectual Property shall transfer to ADC or its Affiliates hereunder, and GENICOM shall retain all right, title and ownership in and to the Intellectual Property and any enhancements, modifications or updates thereto, including, without limitation, any enhancements, modifications or updates developed by ADC or its Affiliates in the course of performing under this Agreement. (b) If ADC or its Affiliates uses the License in a manner not authorized herein, GENICOM shall give written notice thereof to ADC, and GENICOM will be entitled to specific performance and injunctive relief in addition to any other remedies to which GENICOM may be entitled. 2. SCOPE OF SERVICES; MINIMUM GUARANTEE; INITIAL INVENTORY; RIGHT OF FIRST REFUSAL 2.01 (a) During the term of this Agreement, ADC or its Affiliates shall provide the following services to GENICOM (the "Services"): (i) Manufacture, assemble and test Products, and refurbish and remanufacture Products, pursuant to GENICOM's written specifications, including without limitation, design and manufacturing specifications (the "Specifications"). As used herein, "Products" is defined as the products listed on Schedule 2.01(a)(i), delivered herewith; (ii) Engineering, design and drafting services as mutually agreed upon (the "Engineering Services"); (iii) Warehousing services, including without limitation, integration of sourced Products; pick, pack and ship operations; storage of finished goods and consigned inventory and additional related services as mutually agreed upon (collectively, "Warehouse E-5 5 3 Services"). ("Engineering Services" and "Warehouse Services" shall be collectively referred to herein as "Other Services.") (b) The Services shall initially be performed at the Plant and the McAllen Facility. Alternative or additional locations for the performance of Services hereunder may be added as mutually agreed upon and reflected in a Purchase Order, as defined below, or an amendment to this Agreement. (c) During the term of this Agreement, the parties may add to, change, or delete specific Products and Other Services by mutual agreement. It is anticipated that GENICOM may delete the production of relay coils from the Services to be provided hereunder. (d) It is agreed that the parties shall meet from time to time to discuss new and existing Products and the manufacturing processes associated therewith, as set forth and provided for on Exhibit 2.01(d) (the "Technical Operations Document"). 2.02 (a) During the Minimum Guarantee Period , as defined below, GENICOM guarantees that (i) it shall purchase Products from ADC at a total price to GENICOM of no less than Fifty Four Million ($54,000,000) Dollars and (ii) ADC shall expend no fewer than 980,000 man-hours to meet GENICOM such production requirements (the "Minimum Guarantee"). (b) GENICOM shall use its best efforts to satisfy the Minimum Guarantee during the first Contract Year. If, at the end of the first Contract Year and succeeding four (4) months (the "Minimum Guarantee Period"), GENICOM has failed to purchase Products valued at least as much as $54,000,000 (the "Minimum Guarantee Product Requirements") for any reason, GENICOM shall pay to ADC within thirty (30) days of receipt of an invoice, such payment to be in lieu of any cancellation charges pursuant to Section 7.01(c) that may be assessable in connection with the Minimum Guarantee Product Requirements, an amount equal to ADC's lost profit margin. For the purposes of this subsection (b) only, ADC's profit margin shall be deemed to be six (6%) percent of the difference between $54,000,000 and the amount GENICOM paid to ADC during the Guaranteed Minimum Period in fulfillment of Minimum Guarantee Product Requirements; (c) If ADC does not expend 980,000 or more man-hours during the Minimum Guarantee Period, GENICOM shall pay ADC within thirty (30) days of receipt of an invoice an amount equal to the product E-6 6 4 of Six ($6.00) Dollars per man-hour (the fixed cost portion of ADC's fully-burdened labor rate) and the difference between 980,000 man-hours and actual number of man-hours expended by ADC during the Minimum Guarantee Period. 2.03 (a) It is acknowledged by the parties that GENICOM owned or had on order equipment, tools, and fixtures (the "Equipment"), an inventory of parts and materials necessary for the assembly of the Products to be produced hereunder (the "Initial Inventory"), work in process (the "Initial WIP "). (The Equipment, Initial Inventory and Initial WIP are hereinafter collectively referred as the "Acquired Assets".) It is further acknowledged by the parties that ADC has issued a purchase order for the Equipment the Initial Inventory and Initial WIP pursuant to the Interim Agreements and has made partial payment therefor in accordance with a schedule attached to the Interim Services Agreement. The balance thereunder shall be paid pursuant to the Interim Services and/or Purchase Agreement, in accordance with their terms. (b) ADC is required to inspect the Initial Inventory within forty-five (45) days of its receipt and promptly notify GENICOM of any Obsolete Material, as defined below. As used herein, "Obsolete Material" is defined as Initial Inventory and Initial WIP which is (i) defective, or (ii) not active in the list of parts and material required to manufacture and assemble Products (the "Bill of Material") from GENICOM. GENICOM shall purchase such Obsolete Material in ADC's possession at the end of such forty-five (45) day period at ADC's original cost. (c) At ADC's request, GENICOM shall purchase any remaining Initial Inventory and Initial WIP in ADC's possession at the end of the Minimum Guarantee Period, at such remaining Initial Inventory, or Initial WIP's original cost to ADC plus interest on such amounts at the Prime Rate, as defined below, applied on a monthly basis for the period from the date of payment by ADC to the date of purchase by GENICOM. ADC shall provide GENICOM with the opportunity to verify the amount of any Initial Inventory, Initial WIP or Obsolete Material to be purchased by GENICOM. Thereafter, ADC shall repurchase from GENICOM such remaining Initial Inventory and Initial WIP as needed to fulfill its manufacturing requirements. The repurchase price for such remaining Initial Inventory and Initial WIP shall be the price that ADC would pay at such time of repurchase to third party suppliers in arms-length transactions for the same or similar items, inclusive of shipping and handling charges and taxes. E-7 7 5 (d) ADC shall use its best efforts to expend the Initial Inventory and Initial WIP prior to purchasing any additional materials, parts and other supplies for the production of Products. To the extent that any of the Initial Inventory and Initial WIP is fungible, it will be treated on a "first in-first out" basis. (e) The parties acknowledge and confirm that ADC has observed GENICOM's annual physical count of the Initial Inventory and Initial WIP conducted in October 1995 and has been provided with the opportunity to review (including confirming sampling) GENICOM's practices for tracking decreases and increases in Initial Inventory and Initial WIP since the physical count was made. (f) GENICOM shall introduce ADC to its suppliers of components necessary for manufacturing the Products hereunder and, at the request of ADC, shall use its best efforts ( to cause the terms and conditions of its supplier agreements to inure to the benefit of ADC in furtherance of ADC's obligations hereunder, subject to any limitations imposed thereon by such supplier agreements. It is the intent of the parties hereto to cooperate in those instances where GENICOM's supplier agreements preclude assumption by ADC so that GENICOM and ADC shall be in substantially the same position as if said supplier agreements are so assumed. Details of any supplier rebates or discounts given to GENICOM in respect of the materials used to produce the Products hereunder shall be disclosed in writing to ADC and delivered herewith as Schedule 2.03(f). 2.04 So long as there is no default by ADC hereunder, and no event which, with the giving of notice or the passage of time would become a default by ADC hereunder, has occurred and is continuing, GENICOM shall give ADC a right of first refusal to perform (a) all manufacturing of New Products, as defined below, and Product related new services ("New Services") to be outsourced by GENICOM to a company that is not an Affiliate of GENICOM; and (b) work performed by an existing vendor that GENICOM intends to have another or a different vendor perform ("Existing Vendor Services"). GENICOM shall serve written notice of the right of first refusal on ADC (the "Right of First Refusal Notice") which shall set forth a description of the New Products, New Services or Existing Vendor Services required by GENICOM, Forecasts in connection therewith, and an offer to negotiate prices therefor. ADC shall have thirty (30) days to exercise the rights granted therein from the day on which the Right of First Refusal Notice is delivered by advising GENICOM in writing of ADC's intention to commence such E-8 8 6 negotiations. The parties shall thereupon commence good faith negotiations for the New Products, New Services or Existing Vendor Services. If ADC does not exercise the right of first refusal as granted above or if the parties cannot reach a mutually acceptable agreement for the New Products, New Services or Existing Vendor Services within forty-five (45) days from the date of ADC's exercise notice, then GENICOM shall have the right to negotiate for the provision of the New Products, New Services or Existing Vendor Services with a third party. In the event that GENICOM receives a bona fide third-party offer for such New Products, New Services or Existing Vendor Services (the "Third Party Offer") and ADC's best and final price offer therefor was within three (3%) percent of the Third Party Offer, GENICOM shall award the work to ADC at such best and final price. As used herein, "New Products" is defined as products whose form, fit or function have been substantially changed from existing models 3. TERM; TERMINATION OPTION 3.01 The term of this Agreement shall be five (5) years commencing on the date hereof, and shall be automatically extended for additional one (1) year periods (each an "Option Period") unless either party shall provide the other with written notice of its desire not to extend said term by no later than one hundred eighty (180) days prior to the end of the initial five (5) year period and each Option Period. As used herein, the term "Contract Year" shall be defined as each successive twelve (12) month period commencing on the date hereof. 3.02 (a) Subject to Section 2.04, GENICOM may early terminate this Agreement (the "Termination Option") in the event that: (i) GENICOM, in good faith, intends to order New Products, New Services or Existing Vendor Services from ADC that would increase ADC's overall volume of manufacturing and other activities under this Agreement by twenty (20%) or more sustainable volume above the volume of such activities during the ninety (90) day period immediately preceding the proposed increase (a "Volume Increase"), as measured by the number of Product units in the case of New Products or Existing Vendor Services for Products, man-hours in the case of New Services and Existing Vendor Services for Other Services, and space requirements in the case of new Warehouse Services, and (ii) as provided in Section 2.04, ADC and Genicom do not negotiate mutually acceptable terms regarding such Volume Increase or ADC does not accept an Offer to Match, as defined below, therefor. Such proposed Volume Increase shall be evidenced E-9 9 7 by a Right of First Refusal Notice. GENICOM shall be precluded from exercising the Termination Option if (i) a Right of First Refusal Notice reflecting the proposed Volume Increase is not given to ADC six (6) months or more prior to such Volume Increase, or (ii) such proposed Volume Increase would increase ADC's capital requirements by twenty (20%) percent above ADC's then-current annual fixed capital plan. It shall not be a default under this Agreement if ADC does not accept a Volume Increase. If the Third Party Offer is priced less than ninety-seven (97%) percent of ADC's best and final price, GENICOM shall provide ADC with written notice thereof, including the name of the third party and the terms and conditions of the Third Party Offer, and an offer to substantially match the Third Party Offer or secure an alternate provider upon comparable terms (the "Offer to Match"). ADC shall have thirty (30) days to either accept the Offer to Match in writing or such offer shall be deemed to be withdrawn, and GENICOM may either accept the Third Party Offer and/or exercise the Termination Option. (The "Acceptance Period" is defined as the period commencing on the date of ADC's receipt of the Right of First Refusal Notice to the date on which ADC's right to accept the Offer to Match expires. (b) In the event GENICOM has the right to exercise the Termination Option, as a condition precedent to the termination of this Agreement, GENICOM shall, within thirty (30) days of the date that ADC refuses to accept the Offer to Match, or if none, or the end of the Acceptance Period (whichever is sooner), deliver written notice to ADC of its intent to (i) waive its right to exercise the Termination Option (the "Waiver") or (ii) terminate this Agreement (the "Termination Notice"), specifying an effective date for the termination which shall be no less than thirty (30) days and no more than sixty (60) days following delivery of said Termination Notice (the "Termination Date"). In the event GENICOM delivers a Termination Notice to ADC, GENICOM shall comply with the terms of the Reacquisition Conditions, as set forth and defined in Section 4.01. (c) If GENICOM does not terminate this Agreement pursuant to Sections 3.02(a) and 3.02(b), or fails to deliver a Waiver in a timely manner, GENICOM's right to exercise the Termination Option shall be waived with respect to such proposed Volume Increase only, and ADC shall not be obligated to perform the Services required thereunder. 4. REACQUISITION CONDITIONS; DEDICATED ASSETS E-10 10 8 4.01 (a) GENICOM shall be required to comply with the Reacquisition Conditions in the event that GENICOM (i) exercises the Termination Option, or (ii) is in default of this Agreement and ADC elects to terminate this Agreement due to such default. In such events, GENICOM's compliance with the Reacquisition Conditions shall be a condition precedent to GENICOM's allowing any other person, firm or corporation to perform the Services or operate the Plant or McAllen Facility, or to GENICOM performing the Services or operating the Plant or McAllen Facility on its own behalf. (b) GENICOM may comply with either or both of the Reacquisition Conditions, at GENICOM's option,(i) in the event that ADC is in default of this Agreement and GENICOM elects to terminate this Agreement as a result of such default, or (ii) this Agreement expires or this Agreement terminates due to a Force Majeure Event, as defined below. (c) As used herein, the "Reacquisition Conditions" shall have the following meaning: (i) GENICOM shall purchase the Dedicated Assets, as defined below, at the higher of fair market value (as determined by mutual agreement of GENICOM and ADC) or ADC's then-current net book value for such assets, provided that materials and parts on order shall be treated pursuant to the manner in which non- useable on-order Remainders, as defined below, are treated under Section 7.03; and (ii) GENICOM shall hire the Dedicated Employees, as defined below, at their then-current rates of pay and benefits, or pay ADC the amount of employee benefits required to be paid by ADC to Dedicated Employees terminated by ADC due to the termination of this Agreement, at GENICOM's option. (d) In connection with GENICOM's fullfillment of either or both of the Recquisition Conditions, as applicable, the parties shall take the following actions, as applicable:: (i) ADC or its designee shall transfer, convey and assign to GENICOM, in a manner as the parties shall mutually agree, (A) title to the Dedicated Assets, free and clear of all claims, pledges, security interests, liens, mortgages or encumbrances (collectively, "Liens"), and (B) such agreements, including the Collective Barganing Agreement, and an amount equal to the accruals for employee benefit plans regarding the Dedicated Employees as are E-11 11 9 in the possession or control of ADC or its Affiliates; (ii) ADC shall terminate or assign to GENICOM or its designee (depending on the structure agreed upon by the parties) all other agreements necessary for GENICOM or its designee to reacquire the Plant and McAllen Facility, including without limitation, the Lease Agreement, the Plant Sublease Agreement and the McAllen Sublease Agreement; provided that the parties mutually agree upon a date for the termination of ADC's access to the Plant and the McAllen Facility which would enable ADC to make an orderly transition of its operations into alternate facilities and allow GENICOM to effectively operate the Plant operations and the McAllen Facility as soon as practicable. (iii) The parties shall execute and deliver all such bills of sale, assignment and assumption agreements or other documents reasonably necessary to effect the transactions set forth in subsections 4.01(d)(i) and 4.01(d)(ii) above. (e) As used herein, "Dedicated Assets" means the following items, provided that they are (i) owned or controlled by ADC or its Affiliates; and (ii) on-order, utilized or produced in connection with the Services provided hereunder: (A) equipment, tools, fixtures and inventories of materials, parts, and work in process, purchased, ordered, manufactured or assembled in quantities and types reasonably related to GENICOM-issued Purchase Orders, Change Orders, and Forecasts, and (B) capital improvements made by ADC at the Plant or the McAllen Facility. As used herein, "Dedicated Employees" shall mean the employees at the Plant and McAllen Facility engaged primarily (50% or more of their time) in providing the Services hereunder. 4.02 It is hereby acknowledged by the parties that as of the date hereof, the Acquired Assets acquired by ADC pursuant to the Interim Services Agreement and the Purchase Agreement are Dedicated Assets. If ADC desires to utilize Dedicated Assets for a party other than GENICOM or move the Dedicated Assets from the Plant or the McAllen Facility, ADC shall obtain the prior written consent of GENICOM, which shall not be unreasonably withheld. 4.03 (a) To the extent that any third party (including governmental) consents or approvals are required for the above- described termination transactions, the parties shall use best efforts to obtain the same as soon as possible so that the Plant operations and the McAllen Facility can be effectively operated by E-12 12 10 GENICOM or its designees on or about the Termination Date, subject to the last clause of Section 4.01(d)(ii). (b) ADC shall indemnify and hold harmless GENICOM against all Liens upon any Dedicated Assets acquired by GENICOM pursuant to Section 4.01, and claims arising from the conduct of ADC and its Affiliates hereunder, except as otherwise specifically provided herein. 5. PURCHASE ORDERS; CHANGE ORDERS; PAYMENT AND DELIVERY TERMS 5.01 (a) The Services shall be rendered by ADC in accordance with separate purchase orders ("Purchase Orders") and Change Orders, as defined below, issued by GENICOM to ADC from time to time. All Purchase Orders, Change Orders, confirmations and related documents shall be delivered by electronic data interchange ("Electronic Data Interchange") in accordance with the procedures set forth on Exhibit 5.01(a) hereto. Each Purchase Order shall contain the following information: (i) Description and quantity of Products to be shipped or description of Other Service required; (ii) The Product or Other Service unit price; (iii) The required delivery schedule and place of delivery. The cost of expedited delivery or delivery to a destination other than the FOB Point, as defined below, will be negotiated on a case-by-case basis; and (iv) Specifications or reference thereto if such Specifications have been previously supplied by GENICOM to ADC. (b) Initial Purchase Orders for a particular Product model or design specification shall identify the quantity required to be manufactured and delivered by ADC in the first ninety (90) days following the date of the Purchase Order (the "Manufacturing Period"). GENICOM shall issue a Purchase Order for its Product requirements for the initial Manufacturing Period within five (5) days of the date hereof which shall provide for a written weekly delivery schedule and Forecast, as defined and set forth below. Unfulfilled Purchase Orders issued under the Interim Agreements shall be deemed Purchase Orders under this Agreement. Commencing on the first business day of each succeeding month after the date hereof or more frequently if necessary, subject to Section 7 below, E-13 13 11 GENICOM shall amend and extend such Purchase Order and the 12-Month Forecast (as defined below) portion of such Forecast by thirty (30) days. Industry Trend Data, the GENICOM Strategic Plan, and the GENICOM Annual Operating Plan, as those terms are defined below, shall be updated by GENICOM annually. The parties acknowledge that it is their intent to maintain a minimum of ninety (90) days manufacturing coverage during the term of this Agreement. GENICOM may increase or decrease the quantities or, on an exception basis, the delivery dates for particular Products ordered pursuant to a Purchase Order after the issuance thereof subject to Section 7 hereof or ADC's reasonable approval. (c) GENICOM shall provide ADC with the following type of forecast information, as provided in Section 5.01(b) (the "Forecast"): (i) "12-Month Forecast": Twelve (12) month plan by each GENICOM business unit with a detailed monthly projection of the Services required to be provided hereunder during such period, including without limitation, the quantities and types of Products required. (ii) "Industry Trend Data": Multi-year projection of overall printer markets with a breakdown by printer class, including GENICOM's chosen market cells. Such data as is currently available from industry consultants and is in GENICOM's possession will be provided to ADC on the date hereof and thereafter shall be updated and provided to ADC as set forth in Section 5.01(b). (iii) "GENICOM Strategic Plan": Two (2) year revenue only projection by each GENICOM business unit with Product, industry, and channel detail to generate strategic objectives, including without limitation, Product specific projections, new Product introduction plans, and end of life plans for existing Products. GENICOM's current Strategic Plan will be provided to ADC on the date hereof and thereafter shall be updated and provided to ADC as set forth in Section 5.01(b). (iv) "GENICOM Annual Operating Plan": One (1) year operations plan by each GENICOM business unit with a detailed monthly projection of expenses and revenues by Product, to be used for resource planning, capacity sizing, and expense budgeting for the period covered by such plan. GENICOM's 1996 Operating Plan will be provided on the date hereof and thereafter shall be updated and provided to ADC as set forth in Section 5.01(b). E-14 14 12 5.02 All Purchase Orders and Change Orders shall be subject to this Agreement and acceptance by ADC, such acceptance not to be withheld if the Purchase Order or Change Order is consistent with Forecasts provided pursuant to Sections 5.01(b) and 5.01(c), and not to be unreasonably withheld in all other cases. ADC shall use its best efforts to be ready to serve GENICOM's requirements as set forth hereunder and in Purchase Orders and Change Orders. ADC shall notify GENICOM by Electronic Data Interchange within three (3) days of ADC's acceptance or rejection of any Purchase Order, or such Purchase Order shall be deemed accepted. 5.03 (a) All changes, modifications and amendments to a Purchase Order shall be set forth in a Change Order. Either party hereto may request a Change Order before the delivery of Product or performance of Other Service hereunder. A Change Order shall reference the Purchase Order it is amending and identify the change with specificity. The effective date of any Specification or engineering change will be mutualy agreed upon in writing. The parties may orally agree to change a Purchase Order provided that a written Change Order reflecting such changes is exchanged via Electronic Data Interchange within twenty-four (24) hours thereafter. As used herein, a "Change Order" is defined as a written amendment to a Purchase Order, including without limitation, the price terms, agreed to in writing by the parties hereto. The term "Change Order" includes purchase and engineering Change Orders. (b) In the event that ADC receives a proposed Change Order, ADC shall, in its sole discretion, make a good faith determination of the cost of such Change Order within five (5) business days, and shall notify GENICOM of the price thereof, if any, which price offer shall remain open for thirty (30) days. ADC shall not commence work on any Change Order unless it is at no additional cost to GENICOM or has obtained GENICOM's prior written acceptance of the price thereof. 5.04 In the event of a conflict between a Purchase Order, a Change Order, this Agreement, the Interim Services Agreement and/or the Interim Letter Agreement, unless the intent of the parties to supersede this Agreement the Interim Services Agreement and/or the Interim Letter Agreement, is clearly reflected in a Change Order, the order of precedence shall be as follows: (1) this Agreement, (2) the Interim Services Agreement, (3) the Interim Letter Agreement, (4) a Change Order, and (5) a Purchase E-15 15 13 Order. 5.05 Delivery shall be FOB such location as the parties may mutually agree upon (the "FOB Point"). The initial FOB Point shall be the McAllen Facility. The time of delivery shall be within five (5) days (plus or minus) of the required delivery schedule, as set forth in the applicable Purchase Order. Title to the Products shall pass from ADC to GENICOM upon delivery to GENICOM at the FOB Point. 5.06 On a weekly basis, ADC will invoice GENICOM through the Electronic Data Interchange for Products delivered to the FOB Point and Other Services performed during the preceding week, net of any credits due to GENICOM; provided, however, that GENICOM shall not be charged for those days of Warehouse Services for Products delivered to the FOB Point more than five (5) days prior to the date specified on the relevant Purchase Order. Payment shall be due net thirty (30) days. GENICOM shall pay an interest charge on outstanding balances ten (10) or more days past due at the Prime Rate. 5.07 Specific parts or materials whose procurement time exceeds (90) days on a non-expedited basis ("Long Lead-Time Items") shall be identified by ADC to GENICOM promptly after ADC becomes aware of such procurement time. ADC shall purchase Long Lead-Time Items in accordance with the Forecasts. Long Lead-Time Items not used due to cancelled Purchase Orders shall be treated as Remainders. 6. PRICE; SAVINGS SPLIT; ADDITIONAL COSTS 6.01 The initial prices for Products to be provided hereunder are set forth on Schedule 2.01(a)(i) and the price for Warehouse Services is One Hundred Two Thousand Eight Hundred Forty Three ($102,843) dollars per month. Said prices shall be fixed for the first Contract Year, except as otherwise provided for herein. 6.02 (a) The parties shall meet no later than thirty (30) days prior to the end of each Contract Year to establish prices (up or down) for the following Contract Year. Such price changes shall be based upon actual changes to ADC's labor, material and overhead costs at the Plant anticipated during the following Contract Year, including without limitation, price changes that may result due to additional or reutilized Dedicated Assets. The percentage change of all prices changes in the aggregate shall not E-16 16 14 exceed the percentage change in the Core Inflation Rate, as defined below, from the start to the end of the then-concluding Contract Year, excepting increases due to mutually agreed-upon capital investments by ADC. As used herein, the "Core Inflation Rate" is defined as the Consumer Price Index for the United States, urban wage earners and clerical workers, exclusive of food and energy prices, as announced from time to time by the Department of Labor s Bureau of Labor Statistics. (b) Notwithstanding anything contained herein to the contrary, prices may be varied by ADC (i) at any time due to (A) cost reductions implemented by either party relating to the subject matter of this Agreement, as provided for in Section 6.03 below; (B) Catastrophic Changes or Beneficial Changes, as those terms are defined below; or (C) End of Life Products, as defined below; and (ii) quarterly due to Economies of Scale, as defined and provided for below. (c) As used herein, a "Catastrophic Change" is defined as an increase in ADC's material cost rates due to printer industry- wide single part cost increases beyond the control of either party in excess of three (3%) percent which cause an increase in the total cost of a Product of more than three (3%) percent. As used herein, a "Beneficial Change" is defined as a printer industry-wide decrease in ADC's material cost rates due to single part cost decreases in excess of three (3%) percent which cause a decrease in the total cost of a Product of more than three (3%) percent. Catastrophic Changes and Beneficial Changes shall be passed on to GENICOM on a dollar-for-dollar basis in the form of price increases or decreases, as the case may be. (d) As used herein, a Product is by definition an "End of Life Product" if (i) GENICOM declares it to be such, or (ii) the manufacturing volume thereof is no longer economically viable for either party hereto, as mutually agreed upon on a case by case basis. Unused parts and materials associated with End of Life Products shall be treated as Remainders under Section 7.03(c). (e) In the event that (i) GENICOM's Purchase Order requirements for Products exceeds the Minimum Guarantee during the Minimum Guarantee Period, or (ii) ADC exceeds the Labor Target, as defined below, ADC may decrease the prices of Products on a prospective basis to reflect any economies of scale enjoyed by ADC due to such increased volume of activity (the "Economies of Scale"). ADC may subsequently increase said prices prospectively E-17 17 15 if the Economies of Scale are not sustained, up to the agreed upon prices for such Contract Year. The parties shall discuss any such price adjustments at their Quarterly Meetings, as defined below. As used herein, the "Labor Target" is defined as a threshold number of man-hours of manufacturing and assembly activity by ADC at the Plant in a given Contract Year, as mutually agreed upon by the parties hereto. The Labor Target shall be reset annually when the parties meet to discuss annual price changes. The Labor Target for the first Contract Year is One Million Two Hundred Thousand (1,200,000) man-hours. (f) ADC will notify GENICOM at least sixty (60) days prior to any mid-Contract Year price adjustments as provided for above. If GENICOM and ADC disagree on the amount of a price adjustment proposed to be made under this Section 6.02, and such disagreement cannot be resolved by discussion between the chief executive officer of GENICOM and the chief operating officer of ADC, the disagreement shall be submitted to arbitration pursuant to Section 20 hereof and the current prices shall remain in effect pending the outcome of the arbitration proceeding. Any price change determined appropriate by the arbitrator shall be retroactively applied to the date established by the parties (or, if necessary, the arbitrator) as appropriate. 6.03 (a) The parties shall make good faith efforts to reduce the cost to GENICOM of the Products and Other Services provided hereunder. In the event that the total of all prices for Products based upon the fixed demand as projected in Schedule 6.03(a) is less than the Baseline, as defined below, the difference shall be divided equally between the parties as a savings split (the "Savings Split"). The "Baseline" is defined as an amount equal to the total of all 1996 Fourth Quarter prices for Products based upon a fixed annual demand, as projected in Schedule 6.03(a). The Savings Split shall not be paid unless and until ADC has recovered the capital investment it made, if any, in connection therewith. (b) The Savings Split shall be paid to the parties for the remaining term of this Agreement as follows: ADC shall reduce the price of Products and Other Services by fifty (50%) percent of the realized savings. In lieu thereof, ADC may issue GENICOM a credit in said amount on a monthly basis applicable to future invoices. (c) The parties shall meet within three (3) months after the date hereof and thereafter on a quarterly basis to establish cost reduction programs for purposes of the Savings Split, their dates E-18 18 16 of implementation, including price adjustments, as mutually agreed, and the means to measure the impact of such cost reduction programs (the "Quarterly Meetings"). At the Quarterly Meetings, the parties shall also review progress in reducing costs, agree on additional cost reduction programs, confirm the amount of price reductions subject to the Savings Split and make any price adjustments pursuant to Section 6.02(e). If Product redesign results in the obsolescence of equipment, tools, materials and parts, and a cost savings benefit subject to the Savings Split, the parties shall share the cost i.e., the difference between the net book value and recovery value, of such obsolete items. 6.04 GENICOM will be responsible for certain additional charges, defined as those charges constituting costs and expenses not contained in Schedule 2.01(a)(i) or the Purchase Orders where the cause is not due to ADC or the performance of its obligations under this Agreement and which fall into one or more of the following categories: (a) Overtime; Downtime/Workflow Interruption. ADC shall obtain a Change Order from GENICOM in advance of incurring any overtime or downtime expense due to a Change Order. There shall be no charge for ADC expenses incurred due to permitted reschedulings made in accordance with Sections 7.01(a) and 7.01(b). As used herein, "downtime expense" means the labor cost incurred by ADC for the period when ADC's normal manufacturing process of a Product to be produced hereunder is halted, delayed or interrupted. (b) Specifications Changes. GENICOM shall be liable for ADC's expenses incurred in connection with any Specification or engineering change initiated by GENICOM, except as provided in Section 7.01(b). ADC shall obtain an engineering Change Order from GENICOM in advance of incurring any expense which ADC believes should be paid by GENICOM, provided that, if such changes will result in cost reductions or in such other circumstances as ADC and GENICOM may determine are appropriate, the sharing of such expenses may be agreed to. (c) Obsoleted Material. Subject to Section 6.03(c), materials (on-hand or subject to non-returnable or non-cancelable orders) which are reasonably related to issued Purchase Orders or Change Orders and which are rendered obsolete as a result of any GENICOM requested specification or engineering change, including without limitation, material purchased by ADC due to a Purchase Order from GENICOM, shall be treated as Remainders. The effective E-19 19 17 date of any specification or engineering change will be mutually agreed upon in writing. (d) Rework Labor Costs. GENICOM shall pay for any additional labor costs required to implement a Change Order calling for rework labor. Prior to beginning any such work, ADC will provide GENICOM with estimated additional labor and material costs and obtain a Change Order therefor. 7. RESCHEDULING; CANCELLATION OF PURCHASE ORDERS; REMAINDERS 7.01 (a) GENICOM may reschedule (increase or decrease)without penalty the delivery of Products and Product groupings ordered pursuant to a Purchase Order in accordance with the following table:
Days Before Scheduled Shipment Percent Rescheduled ------------------------------ ------------------- 0-30 0% 31-60 15% 61-90 30%
(b) GENICOM may reschedule the delivery of Products without penalty due to engineering changes described in Schedule 7.01(b) (the "Reconfiguration Matrix"). (c) In the event that GENICOM causes a change in the delivery schedule except as provided in Sections 7.01(a) and 7.01(b) above, GENICOM shall pay ADC, for work in process, completed but unshipped work, or the material or assemblies being rescheduled in accordance with Section 7.03.. The schedule of a single line item in a Purchase Order may not be changed more than twice during any forty-five (45) day period. Purchase Orders that cannot be rescheduled under this Agreement will be fulfilled in accordance with the schedule set forth in the original applicable Purchase Order or last accepted Change Order pertaining thereto. 7.02 GENICOM may cancel all or any part of any Purchase Order subject to a cancellation charge which the parties hereto undertake to negotiate in good faith on a case-by-case basis, except as provided for in Section 7.04 below, based upon ADC's costs due to such cancellation, including without limitation, any cost related to Remainders, as provided for in Section 7.03 below, actual labor expended, and reasonable out-of-pocket expenditures. In addition, a material burden of three (3%) percent shall be added to such E-20 20 18 costs. 7.03 Remaining parts and materials purchased or ordered by ADC to fulfill Purchase Orders issued by GENICOM and work in process manufactured or assembled hereunder, exclusive of remaining Initial Inventory and Initial WIP,remaining after their scheduled use ("Remainders") shall be treated as set forth in this Section. In the event that any Remainders are useable in the manufacture and assembly of Products for which GENICOM has issued Purchase Orders, GENICOM shall pay ADC interest on ADC's cost of said Remainders during the period commencing on the approximate date of their original intended use and ending on the date of actual use. The applicable rate of interest shall be the prime rate as published in the Wall Street Journal (the "Prime Rate") on the date of such actual use, applied on a monthly basis. If Remainders are not useable as described above, ADC shall use its best efforts to minimize the cost to GENICOM of such items by attempting to return them to suppliers or, in the case of on-order Remainders, attempt to cancel open purchase orders therefor, without a penalty. In the event that all or part of the Remainders are non-useable, non-returnable, non-cancellable, or returnable or cancellable with penalties or other expenses, GENICOM shall (at GENICOM's option, as applicable) either (i) buy them from ADC at ADC's original cost plus seven (7%) percent, (ii) pay ADC for its return or cancellation costs, or (iii) in the case of on-order Remainders, assume ADC's obligations therefor. 7.04 In addition to the payments that may be required under Section 7.01, 7.02 and 7.03, if (i) GENICOM's Purchase Order requirements reduce ADC's manufacturing activities at the Plant in any thirty (30) day period by thirty (30%) percent or more, and (ii) GENICOM fails to provide ADC with thirty (30) days prior written notice of its intent to so reduce its Purchase Order requirements, then GENICOM shall pay ADC an amount equal to either (at GENICOM's option): (A) the employee benefits that would have been paid to DATACOM employees as of the closing date of the Purchase Agreement if such employees had been terminated on such date, provided that such employees are terminated by ADC during said thirty (30) day period, or (B) such employees' salaries and benefits for said thirty (30) day period. 8. QUALITY UNDERTAKING 8.01 (a) ADC agrees that the Products produced hereunder shall conform to all Specifications provided to ADC by GENICOM. E-21 21 19 GENICOM retains the right to inspect items to be purchased hereunder at time of completion and prior to shipment from the Plant to assure conformance with such Specifications. Additionally, GENICOM shall have the right, subject to ADC's reasonable approval as to dates and times, to visit, and have GENICOM's customers visit, and inspect ADC's facilities where Products are being manufactured and assembled and to observe ADC's manufacturing, assembly and other processes. (b) ADC shall develop a written quality assurance program (the "Quality Assurance Program"), a copy of which shall be supplied to GENICOM, for Product manufacturing, assembly and delivery. ADC shall meet or exceed GENICOM's current performance level against the quality and delivery performance standards set forth in Exhibit 8.01(b) (the "Quality Standards") and show continuous improvement to bring such processes towards the objectives set forth in the Quality Standards, subject to the Specifications. The Quality Assurance Program shall be updated and supplied to GENICOM annually. ADC shall maintain the ISO registration of the Plant operations at ISO 9000, except with respect to printed circuit board subassemblies, and shall meet all applicable U.L., F.C.C. and C.S.A. standards for manufacturing processes. The status of ISO, U.L., F.C.C., VDE and C.S.A. standards as of the date hereof is set forth is Schedule 8.01. It is the desire of the parties that ADC show continual improvement in the quality standards of its Product manufacturing and assembly processes. 8.02 ADC agrees that the Products produced hereunder shall be free of defects in material and workmanship under normal use and operation for a period of one (1) year from date of delivery at the FOB Point, except that the undertakings set forth in this Section 8.02 and Sections 8.03 and 8.04 shall not apply to defects due to Specifications or defective material provided by or acquired from GENICOM. 8.03 ADC shall repair (at the Plant or other ADC facility) or replace defective or non-conforming Product, provide GENICOM with a refund therefor or reimburse GENICOM for the costs of repair (parts and labor only) effected by GENICOM. Repaired or replacement units shall be covered by the quality undertaking set forth in Sections 8.01 and 8.02. The form of compensation (repair, replacement, refund or reimbursement) shall be at GENICOM's option, subject to ADC's reasonable approval, and made within thirty (30) days of GENICOM's request. Notwithstanding the foregoing, ADC E-22 22 20 shall only be obligated to reimburse GENICOM for GENICOM's repair costs to the extent that such costs are equal to or less than ADC's cost of repair, refund or replacement. 8.04 Should there be field failures of any Product produced hereunder in excess of three (3%) percent of the total number of such Products delivered to the FOB Point during any three-month period, ADC will, in addition to the remedies provided in Section 8.03 hereof, pay shipping, air freight, or expediting fees incurred by GENICOM in connection with such failed Product. Such reimbursable expenses may include all reasonable and necessary costs of providing field repairs, including transportation and related expenses, provided however, that prior to incurring expenses for field repairs, GENICOM shall provide ADC with written notice thereof and an opportunity to conduct such field repairs on its own account or to send representatives with GENICOM's field engineers or repair technicians to investigate the claimed Product defects. In the event that such field failures are due to Specifications or defective material provided by or acquired from GENICOM, GENICOM shall pay ADC for all reasonable and necessary costs incurred by ADC in connection with said investigation, including transportation and related expenses. 8.05 THE AGREEMENTS SET FORTH IN THIS SECTION 8 SPECIFICALLY EXCLUDE ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ADC DOES NOT UNDERTAKE THAT THE PRODUCTS WILL MEET U.L., F.C.C., CSA OR VDE PRODUCT STANDARDS. THESE UNDERTAKINGS ARE IN LIEU OF ALL OTHER WARRANTIES, WRITTEN OR ORAL, EXPRESSED OR IMPLIED, IN RELATION TO THE PRODUCTS PRODUCED HEREUNDER. IT IS HEREBY EXPRESSLY AGREED THAT ANY IMPLIED OR STATUTORY WARRANTIES UNDER THE SALE OF GOODS ACT, 1893 (AS AMENDED) IN RELATION TO THE PRODUCTS PRODUCED HEREUNDER ARE EXCLUDED TO THE FULLEST EXTENT PERMITTED BY LAW. 8.06 IN NO EVENT SHALL ADC BE LIABLE TO ANY THIRD PARTY FOR ANY CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES DUE TO DEFECTIVE OR NON-CONFORMING PRODUCTS. 9. PROPRIETARY AND CONFIDENTIAL INFORMATION; NON-COMPETITION 9.01 GENICOM and ADC agree to keep in confidence and not disclose to others all knowledge, information and data furnished to it by the other and claimed by either to be proprietary or confidential. GENICOM and ADC agree that neither shall use or reproduce for use in any way any proprietary or confidential E-23 23 21 information of the other except in furtherance of the relationship set forth in this Agreement. Such information includes without limitation, all GENICOM Forecasts, cost data, Product Specifications, Bills of Material and manufacturing processes. GENICOM and ADC agree to protect such proprietary or confidential information with the same standard of care and procedures which each uses to protect its own proprietary or confidential information and shall ensure that their respective parent companies, subsidiaries, directors, officers, employees and agents shall comply with this Section. This Section shall not be applicable and shall impose no obligation on a party with respect to any portion of proprietary or confidential information which: (a) was at the time received or which thereafter becomes, through no act or failure on the part of such party, generally known or available to the public; (b) is known to such party at the time of receiving such information as evidenced by documentation then rightfully in the possession of such party; provided that the proprietary or confidential information provided by GENICOM to persons in its employ who are subsequently employed by ADC shall continue to be considered confidential and proprietary to GENICOM and subject to ADC's obligations of confidentiality contained herein; (c) is rightfully furnished to such party by a third party without restriction by that third party on disclosure and not subject to any obligations of confidentiality owed by the parties hereto or to a third party; or (d) is released from restrictions imposed hereunder by written release given by the owner of the information. 9.02 During the term of this Agreement, neither ADC, GENICOM nor any of their Affiliates shall, directly or indirectly, on their own behalf or on behalf of any other entity (i) solicit any of the customers of the other party for the purpose of competing with such other party; (ii) except as provided for in the Purchase Agreement, hire or attempt to hire any employees of GENICOM; and (iii) ADC and its Affiliates shall not utilize the Plant or the McAllen Facility to compete with GENICOM or on behalf of a competitor of GENICOM in the business of designing and selling high-speed printers. 10. INSURANCE E-24 24 22 ADC shall be responsible for insuring at fair market value (i) the Dedicated Assets; and (ii) the Product stored by ADC hereunder. ADC shall provide business interruption insurance with respect to its operations hereunder in favor of GENICOM. Coverage shall be provided to the policy limits set forth in Schedule 10. In line fire suppression, if functional as the date hereof, shall be maintained by ADC at the McAllen Facility to minimize insurance premiums. Each party hereto shall cause its respective insurers to waive such insurer's right of subrogation with respect to the other party. 11. REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 11.01 GENICOM hereby represents and warrants to ADC the following: (a) GENICOM has all necessary or appropriate right, title and ownership interest in the Intellectual Property embodied in the Products to be manufactured by ADC for GENICOM hereunder, and has the authority to grant the License to ADC; (b) Based on GENICOM's experience and assuming normal business conditions, GENICOM is not aware of any condition that would cause a material or sole supplier of components used in the manufacture or assembly of the Products to cease supplying such components to GENICOM or DATACOM or to refuse to supply such components to ADC; (c) GENICOM is not in material dispute with any of its suppliers of raw materials relating to the quality of such materials, late deliveries, or sums owed by GENICOM to any such supplier or otherwise; (d) Not more than (10%) percent of the aggregate amount of all the purchases made by GENICOM in the past year have been obtained from the same supplier; and (e) GENICOM's subsidiaries, GENMEX and DATACOM, do not have any supplier arrangements that would have a material affect on the Plant operations or Product manufacturing and assembly if such arrangements were substantially altered or terminated. (f) GENICOM is not in default of the financial covenants in any loan agreement between it and any lender. In the event that GENICOM is in default of any such loan covenants, GENICOM shall E-25 25 23 give prompt oral notice thereof to ADC's chief operating officer, which notice shall be subject to Section 9 and disclosed within ADC and OGDEN on a strict need to know basis. If GENICOM receives notice that any such loan shall be or has been accelerated (whichever notice is received sooner), GENICOM shall promptly notify ADC thereof and ADC may (at ADC's option) terminate this Agreement without regard to any applicable cure period. Such termination shall be deemed to be due to GENICOM's default hereunder. 11.02 Each party represents to the other party that it is duly incorporated in accordance with the laws and regulations of the jurisdiction of its incorporation, and that it has duly executed and delivered this Agreement, and that this Agreement constitutes the legal, valid and binding obligation of such party, enforceable against it in accordance with its terms. The signatories hereto represent that they have full power and all necessary authority to execute and deliver this Agreement. 11.03 (a) ADC and GENICOM shall each indemnify and hold harmless the other party from and against all claims, actions, proceedings, liabilities, losses, costs and expenses (including reasonable attorneys' fees with respect thereto) arising out of or attributable to the breach of any representation or warranty made herein by such breaching party. (b) A party making a claim for indemnification pursuant to this Section 11.03 (the "Indemnitee") shall notify the other party (the "Indemnitor") in writing of the nature of any such claim promptly upon receipt of knowledge of the facts upon which such claim is based, setting forth specifically the representation or warranty with respect to which the claim is made, if applicable, the facts giving rise to the alleged basis for the claim, and the amount of liability asserted, to the extent known. The Indemnitor shall have the right to conduct the defense of any such claim or action against the Indemnitee, provided that it so elects by notice to the Indemnitee promptly upon receipt of notice thereof from the Indemnitee. In defending, compromising or settling any such claim or action, the Indemnitor shall exercise due regard for the Indemnitee's continuing business interests and, where compromising or settling any such claim, shall provide for a complete release of claims in favor of the Indemnittee. The Indemnitee shall fully cooperate with the Indemnitor in defense of all such claims or actions which the Indemnitor elects to defend, and the Indemnitee shall have the right, at its own cost and expense, to employ E-26 26 24 counsel to assist in such defense, which counsel may consult or confer with and advise counsel or other representatives of the Indemnitor with respect thereto. The Indemnitee's cooperation shall include making available the time and assistance of the officers and other employees of the Indemnitee and providing access to and the right to make copies of and excerpts from all pertinent documents, books and records. 12. DEFAULT BY GENICOM In the event that (a) GENICOM shall fail to pay within thirty (30) days after the date when due any amounts due to ADC hereunder and fails to cure within three (3) business days of receipt of notice thereof, or (b) GENICOM shall commit a material breach of any other term, condition or covenant contained herein or in the Purchase Agreement, the Lease Agreement, the Plant Sublease or the McAllen Sublease Agreement, and shall fail to cure same within said thirty (30) days after receipt of written notice from ADC so to do, provided that if such default by its nature cannot be cured within said thirty (30) days and does not involve the payment of money, then if GENICOM shall not immediately upon notice from ADC commence curing such default and diligently and continuously pursue such remedy and cure such default within ninety (90) days; or (c) GENICOM shall make an assignment for the benefit of creditors, or if a proceeding in bankruptcy, receivership or insolvency shall be instituted by or against GENICOM and GENICOM does not move to vacate such proceeding within sixty (60) days thereof, or if a trustee or receiver shall be appointed for GENICOM, then ADC may, at its option, terminate this Agreement and, in such event, GENICOM, upon ADC's written request, shall comply with and pay the sums referred to in the Reacquisition Conditions. The termination of this Agreement by ADC because of the happening of said events of default and the payment to ADC of such sums shall be without prejudice to any claims which ADC may have against GENICOM growing out of GENICOM's default under this Agreement. No failure of ADC to exercise any right, power or privilege shall operate as a waiver thereof, or as a waiver of any other right, power or privilege. 13. DEFAULT BY ADC In the event that (a) ADC (i) shall fail to pay within thirty (30) days after the date when due any amounts due to GENICOM hereunder and fails to cure within three (3) business days of receipt of notice thereof, or (ii) shall commit a material breach of any term, condition or covenant contained herein or in the E-27 27 25 Purchase Agreement, the Lease Agreement, the Plant Sublease Agreement or the McAllen Sublease Agreement, and shall fail to cure same within thirty (30) days after receipt of written notice from GENICOM so to do, or (iii) commits consistent and substantial quality failures as measured by the Quality Assurance Program or delivery failures; provided that if such default by its nature cannot be cured within said thirty (30) days and does not involve the payment of money, then if ADC or OGDEN shall not immediately upon notice from GENICOM commence curing such default and diligently and continuously pursue such remedy and cure such default within ninety (90) days; or (b) ADC shall make an assignment for the benefit of creditors, or if a proceeding in bankruptcy, receivership, or insolvency shall be instituted by or against ADC and ADC does not move to vacate such proceeding within sixty (60) days thereof, or if a trustee or receiver shall be appointed for ADC, then GENICOM may, at its option, terminate this Agreement. In the event that GENICOM terminates this Agreement, GENICOM may, at its option, reacquire either or both of the Dedicated Assets or the Dedicated Employees, as provided in Article 4 by complying with and paying the sums referred to in the Reacquisition Conditions as a condition precedent to such reacquisition. The termination of this Agreement by GENICOM because of the happening of any of such events of default shall be without prejudice to any claims which GENICOM has against ADC growing out of ADC's default under this Agreement. No failure of GENICOM to exercise any right, power or privilege hereunder shall operate as a waiver thereof, or as a waiver of any other right, power or privilege. 14. FORCE MAJEURE 14.01 In the event that either party hereto is prevented from performing or is unable to perform any of its obligations under this Agreement, except for the payment of money, due to any act of God, fire, casualty, flood, war, strike, lockout, epidemic, destruction of production facilities, riot, insurrection, or any other cause (a "Force Majeure Event") beyond the reasonable control of the party invoking this section (the "Non-Performing Party"), the Non-Performing Party shall give prompt written notice thereof to the other party, and the Non- Performing Party's failure to perform shall be excused and the time for performance shall be extended for the period of delay or inability to perform due to such occurrence. 14.02 The Non-Performing Party shall notify the other party in E-28 28 26 writing within fifteen (15) days of the Force Majeure Event of the anticipated date that it will be able to resume substantial performance of its obligations hereunder. In the event that the Non-Performing Party is unable to resume substantial performance within a period of ninety (90) days after such notice, the other party may terminate this Agreement without regard to any applicable cure period and GENICOM may, at its option, reacquire either or both of the Dedicated Assets or the Dedicated Employees, as provided in Article 4 by complying with and paying the sums referred to in the Reacquisition Conditions. 15. NOTICES 15.01 (a) Any notice to be given to any of the parties hereto shall be delivered or sent by telex, facsimile transmission or prepaid registered post to their respective addresses as given herein or such other address as shall have been subsequently notified in writing by them to the person serving such notice: If to GENICOM: Genicom Corporation 14800 Conference Center Drive Suite 400, Westfields Chantilly, Virginia 22021-3806 Attention: President Fax: (703) 802-8618 with a copy to: McGuire, Woods, Battle & Boothe, L.L.P. One James Center Richmond, Virginia 23219 Att.: Jane Whitt Sellers, Esq. Fax: (804) 775-1061 If to ADC or OGDEN: Atlantic Design Company, Inc. 5601 Wilkinson Boulevard Charlotte, North Carolina 28208 Attention: President Fax: (704) 394-1722 with a copy to: Ogden Services Corporation Two Pennsylvania Plaza New York, New York 10121 Attention: General Counsel Fax: (212) 868-5714 E-29 29 27 (b) Any such notice shall be deemed to have been served (if delivered personally) at the time of delivery or (if sent by telex or facsimile) at the time of despatch or (if posted as aforesaid) on the fourth working day after the envelope containing the same shall have been put into the post, provided that if, in the case of a notice sent by telex, facsimile or post, there shall be a cessation or effective suspension (whether total or not and whether or not official) of the relevant service before the deemed time or date of receipt of notice, then such notice shall be deemed to have been served as if it had been sent when the relevant service was effectively resumed. (c) Proof that (i) the envelope containing the notice was properly addressed and posted as a prepaid first class recorded delivery letter, or (ii) a true copy of the notice bears a facsimile machine stamp of the date of transmission and the telephone address of the recipient, shall be sufficient evidence of service. 16. COMPLETENESS This Agreement, the Purchase Agreement, the Lease Agreement, the Plant Sublease Agreement and McAllen Sublease Agreement, the Preferential Consideration and the exhibits annexed hereto and thereto set forth the entire understanding of GENICOM and ADC relating to the subject matter referred to herein and no representations or warranties are made by GENICOM or ADC, except as set forth herein and therein. Such agreements supersede all proposals, oral or written, and all negotiations, conversations or discussions heretofore had between the parties hereto as to the subject matter hereof. 17. SECTIONS All references to sections refer to sections of this Agreement, unless otherwise stated. 18. AMENDMENTS AND SUPPLEMENTS The parties may amend, modify, supplement or waive any provisions of this Agreement in such manner as may be agreed upon in a written instrument executed by the parties. No such amendment, modification, supplement or waiver shall be effective unless it is in writing and signed by the parties hereto. E-30 30 28 19. APPLICABLE LAW; NO CONSEQUENTIAL DAMAGES (a) This Agreement is governed by and is to be interpreted pursuant to the laws of the State of New York. (b) Except as otherwise expressly stated herein, in no event shall any of the parties hereto be liable to any other party to this Agreement, for any consequential, indirect or incidental damages due to a default or breach under this Agreement. 20. ARBITRATION Any controversy, dispute or claim arising out of the interpretation, performance or breach of this Agreement (including disputes as to the jurisdiction of the arbitrator), except for issues pertaining to Intellectual Property and Section 9 shall be resolved at the request of either party hereto ("Initiation") directed to the American Arbitration Association ("AAA") by a binding arbitration conducted in New York, New York by a single Arbitrator reasonably familiar with computer and peripherals manufacturing and contract law in accordance with the Commercial Arbitration Rules ("CAR") of the AAA, except as modified by the terms of this Section. The Arbitrator shall apply New York substantive law to the matter(s) which are the subject of the arbitration. The Arbitrator shall have the power to grant such legal and equitable remedies and award such damages as may be granted or awarded by a trial level judge of the State of New York. The Arbitrator shall prepare and provide to the parties a written decision ("Decision") on all matters which are the subject of the arbitration, including factual findings and the reasons which form the basis of the Decision of the Arbitrator. The Arbitrator shall not have the power to commit errors of law and the award may be vacated or corrected in any New York court of competent jurisdiction for any such error. The Decision shall have the effect and be enforceable as if it were a final judgement. Costs of the arbitration shall be borne as directed by the Arbitrator. The parties hereby agree that the CAR are modified as follows: (a) If the parties have not agreed to an Arbitrator within thirty (30) days after the Initiation of arbitration, then the AAA shall appoint a single neutral Arbitrator as soon thereafter as practicable. (b) The parties shall be permitted discovery under the supervision and rules set by the Arbitrator, including the right to E-31 31 29 take depositions pursuant to New York rules of civil procedure; provided however, that discovery shall be completed within sixty (60) days of selection or appointment of the Arbitrator. The Arbitrator shall have power to impose such sanctions as the Arbitrator deems appropriate for failure of a party or counsel for a party to comply with discovery rules established by the Arbitrator. (c) A hearing before the Arbitrator shall be held no later than one hundred twenty (120) days after Initiation of arbitration, unless a hearing is waived by the parties. (d) No later than ten (10) days from the date of closing of the arbitration hearing, or, if an oral hearing has been waived, from the date of transmitting final statements and proofs to the Arbitrator, the Arbitrator shall render a written Decision. 21. GENERAL 21.01 This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together constitute one and the same instrument. 21.02 In each instance where the consent or approval of GENICOM or ADC is required, unless otherwise provided, such consent or approval shall not be unreasonably withheld or delayed. 21.03 If any clause, term or provision of this Agreement shall be judged invalid by any court or administrative agency, such invalidity shall not affect the validity or operation of any other clause, term or provision; and such invalid clause, item or provision shall be deemed to have been deleted from this Agreement. 21.04 (a) Neither ADC nor GENICOM may (i) transfer or assign this Agreement, except to an Affiliate, or (ii) undergo a Voluntary Change of Control, as defined below, without the other party's approval, which approval shall not be unreasonably withheld. No party may transfer or assign this Agreement to a competitor of the other party. As used herein, "Voluntary Change of Control" shall mean the transfer of a majority of the outstanding shares of capital stock or equivalent interests ordinarily having voting rights in a negotiated transaction to an entity that is not an Affiliate. The term "Affiliate" means any corporation or other entity controlling, controlled by or under common control of the subject company ("control" shall mean the E-32 32 30 ownership of a majority of the outstanding shares of capital stock or equivalent interests ordinarily having voting rights). A party seeking to transfer or assign this Agreement shall provide the other party hereto with no less than thirty (30) days written notice thereof. The party receiving such notice shall have ten (10) days from the date of receipt of the notice to either approve or object in writing to such transfer or assignment. Failure to respond or object in writing during said ten (10) day period shall be deemed an approval of the proposed transfer or assignment. (b) In the event that this Agreement is transferred or assigned (i) with approval, then the other party shall take all necessary actions to effect the assignment of the Lease, the Sublease, the Preferential Consideration, and related agreements to such assignee; (ii) without approval, then the party making such assignment or transfer shall be in default hereunder. 21.05 Each party warrants that the information to be furnished by it to the other hereunder will, to the best of its knowledge and belief, be correct in all material respects. Each party shall notify the other promptly in the event that it comes to such party's attention that information provided by the supplying party contains an error or omission. 21.06 The relationship created by this Agreement is a purchaser-independent contractor relationship. Nothing herein shall create a partnership, joint venture, agency, trust, or other relationship between GENICOM and ADC. 21.07 All payments required hereunder shall be made in the currency of the United States unless expressly stated otherwise. 21.08 The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 21.09 Any waiver by any party hereto of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of that provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions will not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Except as otherwise expressly provided herein, any waiver must be in writing. E-33 33 31 21.10 Except as otherwise expressly stated herein, all payment terms shall be thirty (30) days net. 21.11 Wherever calculations herein are based upon values supplied by one party hereto, the other party shall have the right to examine such supporting material as it may reasonably deem necessary in order to verify such values. 21.12 This Agreement is intended for the benefit of the parties hereto and their permitted transferees or assigns, and no other person shall be entitled to rely upon this Agreement or be entitled to any benefits under this Agreement. 22. OGDEN GUARANTEE By its signature hereon, OGDEN hereby guarantees the performance of ADC hereunder (the "OGDEN Guarantee"), provided however, that the OGDEN Guarantee shall terminate immediately in the event there is a transfer or assignment of either party's rights and obligations hereunder pursuant to Section 21.04, except where such transfer or assignment by ADC is to an Affiliate of ADC or not approved or deemed approved by GENICOM. [The remainder of this page has been left blank intentionally.] E-34 34 32 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date above written. GENICOM CORPORATION ATLANTIC DESIGN COMPANY, INC. - -------------------------- -------------------------- By: James C. Gale By: Its: Senior Vice President Its: Vice President Guarantor: OGDEN SERVICES CORPORATION --------------------------- By: Isaac Palmer Its: Vice President E-35 EX-11 3 COMPUTATION OF PER SHARE EARNINGS. 1 Exhibit 11 GENICOM Corporation and Subsidiaries STATEMENT REGARDING THE COMPANY'S COMPUTATION OF EARNINGS PER SHARE
TWELVE MONTHS ENDED ----------------------------- DECEMBER 31, JANUARY 1, 1995 1995 ------------ --------- SHARES USED IN THIS COMPUTATION: Weighted average common shares outstanding 10,760 10,630 Shares applicable to stock options, net of shares assumed to be purchased from proceeds at average market 1,278 715 ----------- --------- TOTAL SHARES FOR EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS (PRIMARY) 12,038 11,345 Shares applicable to stock options in addition to those used in primary computation due to the use of period-end market price when higher than average 18 71 ----------- --------- TOTAL FULLY DILUTED SHARES 12,056 11,416 =========== =========
E-36 EX-22 4 SUBSIDIARIES. 1 Exhibit 22 SUBSIDIARIES OF REGISTRANT
JURISDICTION SUBSIDIARY OF INCORPORATION - ---------------------------------------------- ---------------- GENICOM International Holdings Corporation Delaware GENICOM International Sales Corporation Delaware Enterprising Service Solutions Corporation Delaware Delmarva Technologies Corporation Delaware Rastek Corporation Delaware Rastek Japan Ltd. Japan GENICOM Relay Products Corporation Delaware Printer Systems Corporation Virginia Printer Connection, Inc. Virginia Printer Systems International, Inc. Virginia GENICOM Canada, Inc. Canada GENICOM Foreign Sales Corporation U.S. Virgin Islands GENICOM Euro Holdings B.V. The Netherlands GENICOM de Mexico, S.A. de C.V. Mexico GENICOM International Limited England GENICOM (No. 1) Limited England GENICOM Ltd. England GENICOM S.A.R.L. France GENICOM S.A. France GENICOM GmbH Germany GENICOM S.p.A. Italy GENICOM (Australia) PTY LTD. Australia GENICOM Pty Limited Australia
E-37 EX-23 5 CONSENT OF INDEPENDENT ACCOUNTANTS. 1 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of GENICOM Corporation and Subsidiaries on Form S-8 (FILE Nos. 33-29388, 33-41148, 33-49472, 33-53843 and 333-01845) of our report dated January 31, 1996, except for certain information in Note 3, for which the date is February 15, 1996, on our audits of the consolidated financial statements and financial statement schedules of GENICOM Corporation and Subsidiaries as of December 31, 1995 and January 1, 1995 and for the three fiscal years in the period ended December 31, 1995, which report is included on page F-2 in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Washington, D.C. March 28, 1996 E-38 EX-27 6 FINANCIAL DATA SCHEDULE.
5 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 4,271 0 53,572 (1,616) 43,079 106,121 89,585 (58,689) 161,539 71,591 44,474 0 0 108 34,425 161,539 168,394 294,052 116,842 217,613 61,261 0 7,741 7,437 1,285 6,152 0 0 0 6,152 0.51 0.51
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