-----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, OSbtaLADLRuFUBlMNA32IbEhmoueMi3PQx+YYyXsgbSHfpLDbqRwV4M4WWI17eQa R6p7mE+L8Fh8TOBCIFbm+w== 0000912057-96-014654.txt : 19960725 0000912057-96-014654.hdr.sgml : 19960725 ACCESSION NUMBER: 0000912057-96-014654 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960715 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEMOREX TELEX N V CENTRAL INDEX KEY: 0000818035 STANDARD INDUSTRIAL CLASSIFICATION: 3575 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19862 FILM NUMBER: 96594951 BUSINESS ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: 1101 BA CITY: IRVING STATE: TX ZIP: 75062-3931 BUSINESS PHONE: 2144443500 MAIL ADDRESS: STREET 1: 545 E. JOHN CARPENTER FREEWAY CITY: IRVING STATE: TX ZIP: 75062 10-K 1 FORM 10-K - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------- FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED MARCH 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 0-19862 ---------------------------------------------------------------- MEMOREX TELEX N.V. (Exact name of registrant as specified in its charter) THE NETHERLANDS NOT APPLICABLE (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 545 EAST JOHN CARPENTER FREEWAY IRVING, TEXAS 75062-3931 TELEPHONE NO.: (214) 444-3500 (Address, including Zip Code, and telephone number, including area code, of authorized representative in United States) ---------------------------------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: AMERICAN DEPOSITORY RECEIPTS EVIDENCING AMERICAN DEPOSITORY SHARES WHICH REPRESENT COMMON STOCK, 0.10 DFL. NOMINAL VALUE Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No --- --- Indicate by checkmark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a Court. Yes X No --- --- The aggregate market value of the voting stock held by non-affiliates of the registrant at May 31, 1996 was $36,110,397. The number of shares of the registrant's Common Stock, 0.10 DFL. Nominal Value, outstanding as of May 31, 1996 was 25,076,665. DOCUMENT INCORPORATED BY REFERENCE: NONE - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- - - - -------------------------------------------------------------------------------- Memorex Telex N.V. Index to Annual Report on Form 10-K For the Fiscal Year Ended March 31, 1996 Page ---- PART I Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 6 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 6 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 7 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . 9 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . . . 15 PART III Item 10. Directors and Executive Officers of the Registrant. . . . . . . 16 Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . 19 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Item 13. Certain Relationships and Related Transactions. . . . . . . . . 23 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 57 PART I ITEM 1. BUSINESS GENERAL Memorex Telex N.V. and its subsidiaries (the "Company") is a provider of information technology solutions including the distribution and integration of data network and storage products and the provision of related services. The market for information technology solutions includes the sales and leasing of network and storage products along with the provision of design, integration and support services. Memorex Telex N.V., a Netherlands corporation, is a holding company that operates its business through subsidiaries in eighteen countries and with distributors in other countries. Data network and storage equipment are fundamental building blocks for the information technology environments of large organizations. Networking products provide the infrastructure that allows users to communicate with applications, other users and systems inside or increasingly outside of their enterprise. Storage products provide solutions that address the growing requirements for the retention or backup of data. Advances in technology and the multivendor environment created by the implementation of open systems have created a knowledge gap in the marketplace and fueled the growing requirement for design, integration and support service expertise. The Company is continuing a comprehensive strategic transformation to adapt to the structural changes occurring in the information technology marketplace. The Company was formerly a manufacturer of plug compatible peripherals, principally for the mainframe environment. As part of this continuing transformation, the Company has eliminated product manufacturing, migrated engineering to a sustaining role, reduced headcount, consolidated executive functions and streamlined its sales organization. Today, the Company is a worldwide distributor of data network and storage solutions and provider of a full range of information technology services. The Company's ability to provide these products and services originates from its multinational distribution network and sales force, extensive service organization, reorganized expertise in key technologies and relationships with key industry suppliers. MARKETS The Company, through its approximately 830 sales and marketing personnel and indirect sales channels provides a range of networking, storage and service solutions to Fortune 1000 corporations and their foreign equivalents, large state institutions and government agencies, the financial community, and major medical facilities. 1 PRODUCTS AND SERVICES The Company is a provider of information technology solutions including the distribution and integration of data network and storage products and the provision of related services. NETWORKS Network solutions consist of desktop, connectivity, and server products and related design, integration and support services. These solutions are typically utilized as part of a client enterprise network infrastructure. The Company's networking strategy emphasizes complete end to end connectivity across diverse hardware platforms, operating systems and communications standards. The sale of the network products described in the following paragraphs represented approximately 48% of the Company's revenues for its fiscal year ended March 31, 1996. Desktop products include fixed function displays, personal computers, emulators, and printers for attachment and access to multiple network environments. The Company distributes a line of displays with a wide variety of features. The Company also distributes personal computers of varying processor types for use in networks or as independent personal computing devices. These personal computers are configured through third parties. The Company markets terminal emulation products for a wide variety of network types. The Company also offers a wide variety of printers utilizing both impact and nonimpact technology. These printers can communicate with a mainframe via a network controller, can connect directly to midrange systems or local area networks ("LANs"), or can attach to a display or desktop personal computer for local output. Connectivity products provide the infrastructure necessary to manage and support client/server networks and integrate multiple network environments. The products include network controllers, gateways, interface cards, wiring hubs, bridges and routers. Network controllers connect LANs to host/servers. Gateways enable communication between different network architectures. Network interface cards, wiring hubs, bridges and routers form the network infrastructure necessary to connect, manage and support client/server open systems applications. Server products offer a range of single and multiple-processor servers sourced from the industry's leaders in this technology. Servers are powerful central processing units ("CPUs") that provide file and application sharing as well as storage services to networks. The Company offers a complete range of products in the market for midrange and super servers. Midrange servers are designed to be an open systems device for small to medium sized networks which provide services such as file and print serving capabilities at a low cost with PC compatibility. Super servers are a class of server designed to make use of standard microprocessor, memory, and storage components as well as industry- standard network and peripheral interfaces to provide high performance and reliability. Super servers have a PC's ease of use and speed to meet a variety of enterprise computing and communications needs. 2 STORAGE Storage solutions sold by the Company include multi-platform disk and tape cartridge subsystems, automated tape libraries, software and related services for comprehensive data storage throughout multiple environments. These storage products are designed for attachment to large and midrange CPUs and contain controllers to manage the flow of information between the CPU and the storage device. The Company currently sells tape drives and automated tape libraries to the large systems market, and disk, tape and automated tape libraries to the midrange systems market. The sale of storage products represented approximately 8% of the Company's revenues for fiscal 1996. SERVICES The Company's service offerings are targeted at providing a full range of services that add value to its network and storage solutions as well as providing critical on-going support for customer environments. These services are focused in four key areas: STRATEGIC SERVICES, including full-scale capabilities for planning, designing, building, and managing network systems; INTEGRATION SERVICES, including connectivity and implementation services, and cabling; EDUCATION SERVICES, including a full range of learning methods and conventional training for customers; PERFORMANCE CONTROL SERVICES, including traditional services such as contract maintenance of time and materials service for the Company's networks and storage products, third-party maintenance of other equipment manufacturer's products, as well as services that monitor, diagnose, and correct network problems. Service revenues represented approximately 42% of the Company's revenues for fiscal 1996. GEOGRAPHIC INFORMATION Information regarding the Company's operations by geographic area is included herein under Item 14(a), of the March 31, 1996 Consolidated Financial Statements in Note 14 entitled "Geographic Data". BACKLOG At March 31, 1996, the Company had a backlog of $57.3 million compared with a backlog of $56.6 million at March 31, 1995. The Company expects to fulfill its March 31, 1996 backlog within the current fiscal year. The Company's backlog is principally related to the sale of network and storage products, and does not include ongoing operating lease contracts or maintenance contracts for service of installed equipment. 3 RESEARCH AND DEVELOPMENT The Company has a research and development program principally relating to the design of selected network products and the development of software for storage systems. The Company expensed approximately $12.4 million, $15.7 million, and $25.6 million on research and development in the fiscal years ended March 31, 1996, 1995 and 1994, respectively. The Company has reduced research and development expenses by relying on outside vendors and will continue to transition this function to primarily continuation engineering. COMPETITION There are a large number of competitors that provide data network, storage and service solutions. Competitors include divisions of vertically integrated manufacturers, local and national distributors, consulting firms and system integrators such as Compucom and Vanstar. In addition, other small companies compete with the Company in the sale of displays, controllers and printers to the communications market. Various companies, including IBM and Storage Technology Corporation, compete with the Company in the sale of storage peripherals. In the service market, the Company competes with the service operations of proprietary hardware manufacturers and third party service providers. There are a large number of competitors that supply personal computers and other networking products to business users. The Company also competes with a number of system integrators in the delivery of network and storage solutions. The Company believes that product performance, service capabilities and pricing are the principal elements of competition within the various areas of the computer industry. CUSTOMERS The Company's customers are generally Fortune 1000 corporations and their foreign equivalents, large state institutions and government agencies, the financial community, and major medical facilities that use large or midrange systems, personal computers, or LANs to meet their data processing needs. Typically, the Company's customers are substantial companies, institutions and agencies with whom the Company has had long-term business relationships. None of the Company's customers accounted for more than 10% of the Company's gross revenues for fiscal 1996. SUPPLIERS The Company has developed a series of strategic relationships with suppliers which enable the Company to obtain a wide range of technology. With this bias-free approach, the Company implements the best available and most appropriate products and services on behalf of its customers. Since most products are sourced from third-party vendors, these arrangements limit the Company's technological risk. Although alternative suppliers are available for most of the Company's product offerings, the termination of a principal supplier for a specific product might adversely affect the Company within a product area. However, there is no single source or group of suppliers which is material to the Company as a whole, and none of the Company's 4 product offerings for which there are no alternative suppliers is material to the Company as a whole. EMPLOYEES AND LABOR RELATIONS None of the Company's approximately 4,100 employees are covered by a collective bargaining agreement. The Company considers its labor relations to be good. TRADEMARKS The Company owns several trademarks, including the Memorex-Registered Trademark- and Telex-Registered Trademark- names. Substantially all products sold by the Company are sold under the Memorex Telex-Registered Trademark- name. In connection with the sale by a predecessor corporation of its consumer products division to Tandy Corporation in 1982, the predecessor corporation granted to Tandy Corporation an exclusive limited license to use the Memorex-Registered Trademark- trademark and designs in sales of certain consumer products, including audio and video tapes. In December 1993, the Company consented to the assignment of the license by Tandy Corporation to Hanny Magnetics (B.V.I.) Ltd. ("Hanny"). The license expires on December 31, 2011; however, Hanny may extend the term of the license for an additional 30 years by payment of $3 million to the Company. In October 1993, in connection with the sale of the Memorex Computer Supplies business in Europe to Boeder AG, the Company granted an exclusive limited license to use the Memorex-Registered Trademark- trademark (and other marks owned by the Company) in the sale of computer media products and computer related supplies and accessories. The license is terminable upon twenty-four months prior notice, but in no event prior to October 1, 2003. In December 1993, in connection with the sale of the Memorex Computer Supplies businesses in the United States and Canada to Hanny, the Company granted an exclusive limited license to use the Memorex-Registered Trademark- trademark in the sale of computer media products and computer related supplies and accessories. The term of the license is until December 31, 2013 and is renewable upon the mutual agreement of the Company and Hanny. In February 1995, the Company entered into an agreement with Hanny and BASF PLC to license BASF to use the Memorex-Registered Trademark- trademark and design in the sale of audio and video tape and related products during a period of three years in a territory comprising the member states of the European Union and certain other countries. In May 1989, in connection with the sale of the assets of Telex Communications, Inc., the Company has granted a royalty free perpetual license to use the Telex-Registered Trademark- name and a royalty bearing license until 1999 to use the Memorex-Registered Trademark- trademark in the sale of hearing aids. REGULATORY MATTERS The Company obtains export and import licenses in various countries relating to certain products as required. The Company has not experienced any problems in obtaining such licenses and has no reason to believe that problems will be encountered in the future. The Company supplies products to and performs certain maintenance and repair services for the United States government. 5 ITEM 2. PROPERTIES The Company leases approximately 40,000 square feet of office space in Irving, Texas for executive offices, and approximately 6,500 square feet of office space in Amsterdam, The Netherlands. The Company operates engineering, repair and distribution facilities in Oklahoma, North Carolina, and The Netherlands. The Company owns office space of approximately 184,000 square feet in Tulsa, Oklahoma, used for the North American Customer Satisfaction Center, Network Control Center, training and certain regional sales operations. The Company leases 55,000 square feet of office and laboratory space and 50,400 square feet of warehouse and distribution space in Raleigh, North Carolina. The Company owns two facilities in The Netherlands, a repair facility in Gronsveld comprising 50,000 square feet and an office and warehouse facility in Beek comprising 85,000 square feet which is leased to a third party. The Company also owns approximately 59,000 square feet of manufacturing and office space in Liege, Belgium, which is leased to third parties. The Company is attempting to sell the facilities leased to third parties. Additionally, the Company leases offices and storage facilities in the United States and in other countries through which it conducts its sales and service operations. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in various lawsuits in which the plaintiffs seek recovery for repetitive stress injuries allegedly incurred while using keyboards used in computer systems sold by the Company. The plaintiffs are proceeding against the Company and other suppliers of keyboards under theories of negligence and strict products liability. Certain of the suits contain a claim for punitive damages in the amount of $10 million. The Company has paid no settlement amounts with respect to any of these lawsuits. The Company is contesting these actions vigorously, and believes that the probability of an unfavorable outcome in excess of available insurance coverage is remote. In the event that plaintiffs were to succeed with respect to these claims, the aggregate liability of the Company to plaintiffs in these lawsuits is likely to exceed available insurance coverage and could have a material adverse impact upon the financial position and results of operations of the Company. The Company is involved in various other claims and proceedings incurred in the ordinary course of business which, in the opinion of management, do not involve significant amounts and are not material to the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 6 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock, DFL 0.10 nominal value which is listed on the NASDAQ National Market System ("NASDAQ") in the form of American Depository Receipts ("ADRs"), began trading on a when-issued basis on March 28, 1994, and on a regular basis on May 19, 1994 under the NASDAQ symbol MEMXY. The high and low closing sales prices on the Company's common stock ranged as follows: QUARTER ENDED HIGH LOW ------------- ---- --- June 30, 1994 $ 7.13 $ 3.78 September 30, 1994 4.00 1.38 December 31, 1994 2.56 0.44 March 31, 1995 1.13 0.34 June 30, 1995 2.53 0.72 September 30, 1995 2.69 1.06 December 31, 1995 1.31 0.50 March 31, 1996 1.38 0.69 The approximate number of record holders of the Company's ADRs at March 31, 1996 was 114. Under the terms of the Company's debt agreements, the Company is presently restricted from making cash dividend payments. ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below is denominated in United States dollars and has been prepared in accordance with United States generally accepted accounting principles. As more fully described in Note 1 of the March 31, 1996 Consolidated Financial Statements, the Company continues to experience declines in revenues and gross margins primarily resulting from the decline in liquidity which has negatively impacted the Company's ability to purchase product for resale. As more fully described in Note 6, the Company is in default of certain covenants under the Credit Facility and the Term Loan, as of March 31, 1996, and may be required to make significant debt repayments during fiscal 1997 (see Note 6 of the Financial Statements). Ernst & Young LLP's opinion indicated that these conditions raised substantial doubt about the Company's ability to continue as a going concern. As more fully described in Note 2 of the March 31, 1996 Consolidated Financial Statements, effective March 24, 1994, the Company emerged from protection under chapter 11 of the U.S. Bankruptcy Code pursuant to the Reorganization Plan. In accordance with AICPA Statement of Position 90-7, ("SOP 90-7"), the Company adopted fresh start reporting whereby its assets, liabilities, and new capital structure were adjusted to reflect fair values as of March 31, 1994. As a result, the Company's consolidated financial statements for periods prior to March 31, 1994, are not comparable to consolidated financial statements presented on or subsequent to March 31, 1994. A similar restructuring was completed March 31, 1992, at which time the Company also applied fresh start reporting. For financial reporting purposes, all 7 balances prior to March 31, 1994 are considered to be related to the Predecessor Companies. A black line has been drawn on the financial statements to distinguish between the Reorganized Company and Predecessor Companies' balances (as defined in Note 2 of the March 31, 1996 Consolidated Financial Statements). SELECTED FINANCIAL DATA (In thousands, except per share amounts)
Reorganized Company Predecessor Companies -------------------------- -------------------------------------------- Year Ended March 31, ------------------------------------------------------------------------- 1996 1995 | 1994 1993 1992 ---- ---- | ---- ---- ---- | Statement of Operations Data: | Total revenues $ 834,053 $ 909,751 | $ 1,015,574 $ 1,326,372 $ 1,499,146 Gross margin 202,460 258,724 | 309,914 361,327 457,842 Depreciation and amortization of intangibles(1) 235,032 135,171 | 38,359 44,110 60,470 Operating income (loss)(2) (207,475) (84,860) | 32,247 (266,783) 14,099 Interest expense(1) (19,844) (20,127) | (100,433) (98,224) (158,371) Loss before income taxes(2) (246,738) (103,904) | (491,833) (382,559) (428,700) Preferred stock dividend requirements of | subsidiaries 0 0 | 0 0 25,498 Extraordinary item 0 0 | 728,996 (3) 0 601,531 (3) Net income (loss) (246,738) (108,011) | 227,005 (395,822) 104,333 Net income (loss) per common share $ (9.84) $ (4.32) | Note 4 Note 4 Note 4 Reorganized Company Predecessor Companies -------------------------- -------------------------------------------- Year Ended March 31, ------------------------------------------------------------------------- 1996 1995 1994 | 1993 1992 ---- ---- ---- | ---- ---- Balance Sheet Data: | Total assets $ 268,168 $ 536,466 $ 721,253 | $ 1,138,985 $ 1,451,804 Debt (including debt in default classified 118,273 85,126 94,472 | 811,816 737,323 as current)(5) | Stockholders' equity (deficit) (277,351) (30,827) 75,000 | (233,970) 175,000
- - - ------------------------------ (1) Excludes amortization of debt issuance costs for the year ended March 31, 1992 of $5,652. Additionally, excludes accretion of debt discount of $20,700, $20,455 and $20,904 for the years ended March 31, 1996, 1994 and 1993, respectively. Includes the write-off of the remaining reorganization value of $99,334 as of March 31, 1996. (2) Includes reorganization items of $406,536 and $284,328 for the years ended March 31, 1994 and 1992, respectively. (3) Extraordinary gains resulting from reorganizations under prepackaged plans for the years ended March 31, 1994 and 1992. (4) Predecessor Companies income (loss) per common share amounts are not relevant due to the reorganization under the prepackaged plan. (5) Excludes obligations in respect of non-recourse debt secured by leasebase receivables of $1,208 at March 31, 1996, $2,309 at March 31, 1995, $3,315 at March 31, 1994, $5,982 at March 31, 1993, and $6,075 at March 31, 1992. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY During the year ended March 31, 1996, the Company's net loss, excluding the non-cash charges for depreciation, amortization, debt discount accretion, and gain from sale of assets provided cash of $2.5 million. Cash was also provided from the sale of assets discussed in Note 3 ($13.9 million), a decrease in accounts receivable ($5.2 million), and a term loan discussed in Note 6 ($12.0 million). The existing cash and cash sources was primarily used for workforce reductions, closure costs and unfavorable contractual obligations as discussed in Note 11 ($27.3 million), reductions in royalty obligations ($3.8 million), capital expenditures ($4.9 million), reduced deferred revenues on contract maintenance and warranty obligations ($5.2 million), and cash income tax payments ($2.4 million). As a result of the above, cash and cash equivalents, including restricted cash deposits, decreased $10.0 million. The Company continues its transformation from a developer and manufacturer of computer hardware to a provider of networking and storage solutions. As part of this transformation, the Company continues to reengineer its selling, service, product development, fulfillment, and finance and administrative processes. This effort has resulted in workforce reductions, the consolidation of functions, disposition of certain facilities, and closure or sale of unprofitable operations. The cost of these initiatives, together with the cumulative decline in revenues and gross margins has impeded the operating cash flow during the second half of the year and particularly during the fourth quarter. This decline in liquidity has negatively impacted the Company's ability to fulfill customer orders on a timely basis. As discussed in Footnote 7, the Company has reached an agreement to sell its Asia/Pacific operations for $25 million. The Company believes it has reached an agreement in principal with the lenders to its $100 million Restructured Credit Facility (the "Credit Facility") for $9 million of the proceeds to be used to reduce debt and the remaining $16 million to be used to meet working capital requirements including accrued interest payments. As discussed in Footnote 6, the Company believes it also has an agreement in principal with the lenders to its Credit Facility to cure events of default that existed under this agreement at March 31, 1996 and deferral through October 31, 1996, of interest payments otherwise due prior to such date. In connection with these agreements with the lenders, the Company will agree to a modification of the Credit Facility to include a change in maturity date from December 31, 1998 to March 31, 1997, a change in the amortization schedule and certain other conditions. The Company has also obtained waivers of existing events of default under the Term Loan subject to finalization of the agreement in principal with the Credit Facility lenders. The proceeds from the sale of the Asia/Pacific operations and the deferral of interest payments will improve short-term liquidity, assisting the Company in its efforts to expedite new solution introductions, fulfill customer orders and enhance worldwide customer satisfaction. 9 As discussed in Footnote 1, the Company continues discussions with financial and strategic investors and financial institutions concerning a new credit facility or other financing to repay the amounts owing under the Credit Facility and for working capital. In addition, the Company will continue to emphasize working capital management, particularly accounts receivable and inventory as potential sources of cash. The Company expects to also pursue other non-operating sources of funds such as increased factoring of accounts receivable, increased subsidiary lines of credit or, if necessary, undertake an asset disposition program. The Company believes that operating cash flow, non-operating sources of funds, and other new financing will enable the Company to continue to meet its obligations, however, there is no assurance that management's plans will be successful or what other actions might be necessary. RESULTS OF OPERATIONS TWELVE MONTHS ENDED MARCH 31, 1996 ("FISCAL 1996") COMPARED WITH THE TWELVE MONTHS ENDED MARCH 31, 1995 ("FISCAL 1995") The Company's 1996 operating income, excluding the amortization of intangibles and revaluation of reorganization intangibles, has declined from $40.3 million and $55.7 million for fiscal 1995 and 1994, respectively, to $17.0 million in fiscal 1996. However, the Company has reported three consecutive years of operating income excluding amortization of intangibles and reevaluation of reorganization costs. Despite some progress, the transformation of the business and corresponding improved operating results have been slower than originally anticipated. Fiscal 1996 results did not achieve the operating levels achieved in fiscal 1995, primarily as a result of shortfalls in anticipated revenues and margins. The following table sets forth the Company's revenues and gross margins for its product groups for fiscal 1996 and fiscal 1995 ($ in millions): Revenues Gross Margin Gross Margin % -------- ------------ -------------- 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- Networks $397.2 $433.7 $92.1 $122.4 23.2% 28.2% Storage 66.3 96.2 18.2 30.9 27.5% 32.1% Service 346.1 351.6 82.6 96.6 23.9% 27.5% Other 24.5 28.3 9.6 8.8 39.2% 31.1% -------- -------- -------- -------- -------- -------- Total $834.1 $909.8 $202.5 $258.7 24.3% 28.4% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Networks revenues and gross margins declined when compared to fiscal 1995 as sales of network connectivity products have grown 31% but not enough to offset the 26% decline in the sales of traditional fixed function display and mainframe network products. While revenues from personal computer products have remained relatively unchanged in the current year, gross margin dollars have experienced a decline of 16% due to price competition. The decline in sales of traditional fixed function display and mainframe network products was in line with Company expectations as the market place continues to move quickly to open systems. Since 10 these products are among the Company's highest margin products, the decline in their revenues had a significant unfavorable impact on gross margin dollars and percentages in fiscal 1996. The Company expects growth in the sales of network connectivity products next year as the market continues to move to open systems. Storage revenues declined 31% in fiscal 1996 when compared to fiscal 1995. The decline was primarily attributed to decreased sales of stand-alone tape and tape library products in the current year. Sales of midrange storage products were adversely affected by the Company's delayed launch of new products and competitor announcements of new advanced products which further slowed sales. Storage margins as a percentage of revenues when compared to the prior year declined in the current year primarily as a result of price competition. Service revenues have decreased slightly in fiscal 1996 when compared to fiscal 1995 as the growth in advanced services revenue was exceeded by the decline in revenues from traditional maintenance. Service gross margins as a percentage of revenues declined as a result of increased price competition and the change in mix of services provided. In fiscal 1996, margins suffered as the decline in high margin traditional maintenance contracts has largely been replaced with lower margin subcontracted services for cabling and third party maintenance contracts partially offset by increased revenues from higher margin advanced services products such as network design, support, and installation. The Company expects the continued erosion of traditional maintenance contract revenues and continued growth in the advanced services market. To capitalize on the Company's strengths and reduce the gross margin impact of these trends, a highly trained and experienced consulting services group has been established to especially focus resources and target opportunities to provide services to the higher margin segments of the growing advanced services market. Other revenues have declined in the current year as a result of declines in brokerage and media, while margins were relatively flat due to the increase of higher margin revenues. The Company estimates that the weaker U.S. dollar, when compared with the prior year, favorably affected revenues approximately $24.6 million and margins approximately $9.1 million in the current year. Selling, general and administrative expenses in fiscal 1996 declined $35.7 million when compared to fiscal 1995. The decline reflects the impact of re- engineering processes to reduce administrative costs and reductions provided by the Company's transition from a hardware manufacturer to a solutions provider which requires less investment in development and engineering. Additionally, the continued effect of the Company's cost reduction programs have favorably affected selling, general and administrative expenses in the current year. The weaker U.S. dollar, when compared with the prior year, unfavorably affected selling, general and administrative expenses by approximately $4.5 million when compared with fiscal 1995. Management will continue to take actions to reduce operating costs to a level commensurate with the level of expected future revenues. 11 Other income and expenses for fiscal 1996 reflect a net other income of $4.5 million, compared with a net other expense of $2.5 million in fiscal 1995. The increase in the current year is attributed to increased foreign currency gains and gains recognized from the sale of assets. Interest expense has declined slightly when compared with the prior year. Interest includes amounts paid in respect to off balance sheet financing of accounts receivable. Due to an amendment entered into during the fourth quarter of fiscal year 1996, the potential discount available under the Credit Facility was eliminated and as such, the Credit Facility debt was adjusted to reflect the full principal amount due, thereby resulting in a charge to expense of $12.8 million. The Company accreted $7.9 million during fiscal 1996 for the loss of debt forgiveness prior to the signing of the amendment in the fourth quarter. The Company does not believe that inflation has had a material impact on its results of operations. 12 TWELVE MONTHS ENDED MARCH 31, 1995 ("FISCAL 1995") COMPARED WITH THE TWELVE MONTHS ENDED MARCH 31, 1994 ("FISCAL 1994") The Company's 1995 operating income, excluding the amortization of intangibles and realignment costs, has improved from a loss of $57.0 million in fiscal 1993 to a gain of $40.3 million and $55.7 million for fiscal 1995 and 1994, respectively, all calculated on the same basis. Fiscal 1995 results did not achieve the operating levels achieved in fiscal 1994 nor the operating results anticipated in the Company's forecast of operations included in the Reorganization Plan, primarily as a result of shortfalls in anticipated revenues and margins. The following table sets forth the Company's revenues and gross margins for its product groups for fiscal 1995 and fiscal 1994 ($ in millions): Revenues Gross Margin Gross Margin % -------- ------------ -------------- 1995 1994 1995 1994 1995 1994 ---- ---- ---- ---- ---- ---- Networks $433.7 $491.3 $122.4 $156.3 28.2% 31.8% Storage 96.2 125.2 30.9 34.6 32.1% 27.6% Service 351.6 348.1 96.6 107.6 27.5% 30.9% Other 28.3 51.0 8.8 11.4 31.1% 22.3% -------- -------- -------- -------- -------- -------- Total $909.8 $1,015.6 $258.7 $309.9 28.4% 30.5% -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Networks revenues and gross margins declined when compared to fiscal 1994 as sales of network connectivity products have grown 52% but not enough to offset the 30% decline in the sales of traditional fixed function display and mainframe network products. Revenues and gross margins from personal computer products have remained relatively unchanged in the current year. The decline in sales of traditional fixed function display and mainframe network products has been faster than expected as the market place continues to move quickly to open systems. Since these products are among the Company's highest margin products, the decline in their revenues had a significant unfavorable impact on gross margin dollars and percentages in fiscal 1995. The Company expects the decline in revenues from traditional fixed function display and mainframe network products and growth in the sales of network connectivity products to continue as the market continues to move to open systems. Storage revenues declined 23% in fiscal 1995 when compared to fiscal 1994. The decline was primarily attributed to the phase-out sale of mainframe disk storage products in the prior year and lower than expected sales of midrange storage products in the current year. Sales of midrange storage products were adversely affected by the Company's delayed launch of new products and competitor announcements of new advanced products which further slowed sales. Storage margins as a percentage of revenues when compared to the prior year improved in the current year primarily as a result of improved margins achieved on the sale of tape and tape library products and from sales of new disk array products. Service revenues have increased slightly in fiscal 1995 when compared to fiscal 1994 as the growth in advanced services revenue exceeded the decline in revenues from traditional maintenance. Service gross margins as a percentage of revenues declined however, as a result 13 of increased price competition and the change in mix of services provided. In fiscal 1995, margins suffered as the decline in high margin traditional maintenance contracts has largely been replaced with lower margin subcontracted services for cabling and third party maintenance contracts partially offset by increased revenues from higher margin advanced services products such as network design, support, and installation. The Company expects the continued erosion of traditional maintenance contract revenues and continued growth in the advanced services market. To capitalize on the Company's strengths and reduce the gross margin impact of these trends, a highly trained and experienced consulting services group has been established to especially focus resources and target opportunities to provide services to the higher margin segments of the growing advanced services market. Other revenues and margins have declined in the current year as a result of declines in brokerage, media and original equipment manufactured parts sales. The Company estimates that the weaker U.S. dollar, when compared with the prior year, favorably affected revenues approximately $24.0 million and margins approximately $14.0 million in the current year. Selling, general and administrative expenses in fiscal 1995 declined $32.7 million when compared to fiscal 1994. The decline reflects the impact of re-engineering processes to reduce administrative costs and reductions provided by the Company's transition from a hardware manufacturer to a solutions provider which requires less investment in development and engineering. Additionally, the continued effect of the Company's cost reduction programs have favorably affected selling, general and administrative expenses in the current year. The weaker U.S. dollar, when compared with the prior year, unfavorably affected selling, general and administrative expenses by approximately $4.0 million when compared with fiscal 1994. Management will continue to take actions to reduce operating costs to a level commensurate with the level of expected future revenues. Effective October 31, 1994, the Company suspended indefinitely the accrual of benefits under its U.S. defined benefit pension plan. This suspension was accounted for as a curtailment under Statement of Financial Accounting Standards No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." This curtailment resulted in the Company recording a gain of $9.7 million during fiscal 1995. Other income and expenses for fiscal 1995 reflect a net other expense of $2.5 million, compared with a net other income of $4.2 million in fiscal 1994. The decline in the current year is attributed to increased foreign currency losses and a decrease in the gains recognized from the sale of assets. These declines were partially offset by decreased equity losses from investments and increased royalty income in the current year. Amortization of intangibles significantly increased when compared with the prior year due to the approval of the Reorganization Plan which required the application of "fresh start" reporting for the Company (See Note 2 of the March 31, 1996 Consolidated Financial Statements). The Company's reorganization value in excess of amounts allocated to identifiable assets was amortizing over a thirty year period prior to the application of "fresh 14 start". The Reorganized Company is amortizing the reorganization value in excess of amounts allocated to identifiable assets over a three year period. During the fourth quarter of fiscal year 1996, the Company wrote-off the reorganization value in excess of amounts allocated to identifiable assets (see Note 2 of the March 31, 1996 Consolidated Financial Statements). Interest expense has significantly declined when compared with the prior year due to the successful restructuring of the Company's indebtedness which converted a significant portion of debt to equity. Interest includes amounts paid in respect to off balance sheet financing of accounts receivable. The Company does not believe that inflation has had a material impact on its results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated financial statements for the Company, notes thereto and related schedules are annexed hereto as pages 27 through 56. An index to such materials is set forth at page 24. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company was formed in 1986 under Netherlands law and, since its formation, has had a voluntary two-tier management system consisting of a Management Board and a Supervisory Board. The Management Board is responsible for the management and operation of the Company and for its dealings with third parties. Each member of the Management Board has the power to represent and legally bind the Company. The Supervisory Board assists the Management Board by rendering advice and supervises the policy of the Management Board and the general business of the Company. Members of the Supervisory Board do not have the power to represent or legally bind the Company. The members of both the Management Board and the Supervisory Board are appointed by the stockholders of the Company. Under the laws of the Netherlands, the Company is not required to have a Supervisory Board. The Company maintains the Supervisory Board, which may consist only of individuals who are not members of the Management Board, to assure adequate supervision of the policy of the Management Board and the general business of the Company. SUPERVISORY BOARD The following information is furnished with respect to each incumbent member of the Supervisory Board. All members are citizens of the United States and have served on the Supervisory Board since June 1994 except Catherine Y. Selleck who was elected to the Supervisory Board on September 30, 1994. Hon. Peter H. Dailey resigned from the Supervisory Board as of March 31, 1996 to become the Company's Chief Executive Officer. Each member of the Supervisory Board is entitled to receive a $25,000 annual fee and $1,000 per diem (including travel time) plus reimbursement for all out-of-pocket expenses incurred in connection with attendance at meetings of the Supervisory Board and committees of the Supervisory Board. The amount of these fees was set by the stockholders of the Company. HON. PETER H. DAILEY, 66, has been the Chairman of Enniskerry Financial Ltd. since 1985. He was previously United States Ambassador to Ireland and Special Envoy to NATO, and thereafter was a member of the President's Advisory Commission on Arms Control and Disarmament. He also served as Vice Chairman of the Interpublic Group of Companies and the Dailey Group. Mr. Dailey is currently a director of Chicago Title and Trust Company, Sizzler International, Inc., Pinkerton's, Inc., and Jacobs Engineering Group Inc. Also, Mr. Dailey previously also served as a director of the Walt Disney Company and the Interpublic Group of Companies. HAROLD FIRST, 60, has been an independent financial consultant since January 1993. From December 1990 through December 1992, Mr. First was the Chief Financial Officer of Icahn Holding Corp. Mr. First is currently a director of Taj Mahal Realty Corporation, Tel-Save Holdings, Inc. and Cadus Pharmaceutical Corporations. Mr. First also previously served as a director of ACF Industries, Inc., American Property Investors, Inc., Trans World Airlines, Inc., and Taj Majal Holding Corporation. 16 MICHAEL S. GROSS, 35, is one of the founding principals of Apollo Advisors, L.P. which, together with certain affiliates, acts as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P., and the recently formed Apollo Investment Fund III, L.P. (collectively, the "Apollo Funds"), private securities investment funds, and of Lion Advisors, L.P. which acts as financial advisor to and representative for certain institutional investors with respect to securities investments. Prior to 1990, Mr. Gross was an investment banker with Drexel Burnham Lambert Incorporated. Mr. Gross is currently a director of Buster Brown Apparel, Inc., Converse, Inc., The Florsheim Shoe Company, Furniture Brands International, Inc., Profitt's, Inc., and UROHEALTH, Inc. JOSHUA J. HARRIS, 32, has been a limited partner of Apollo Advisors and Lion Advisors since 1990. Apollo Advisors, together with certain affiliates, acts as managing general partner of the Apollo Funds. Lion Advisors acts as financial advisory to and representative for certain institutional investors with respect to securities investments. Mr. Harris is currently a director of Brueners Home Furnishings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc., and Furniture Brands International, Inc. WALTER J. HUMANN, 58, has been with Hunt Consolidated, Inc., since 1975. During that period he has held various executive positions, including Director, Chief Operating Officer, and Chairman of the Executive Committee. Earlier, he was Vice President for commercial operations, LTV Corporation. He has degrees from M.I.T., Harvard Business School, and SMU Law School. Mr. Humann is currently a director of the RAND Corporation. Mr. Humann previously also served as a director of various manufacturing, service, and financial organizations. JAMES E. OUSLEY, 50, has been employed by the Control Data Corporation since 1968 in a number of positions, including Chief Executive Officer and President of Control Data Systems, Inc., from 1992 to the present, President, Computer Products Group from 1989 to 1991, Vice President - Marketing and Sales, Computer Products Group in 1989, Vice President - World Wide Sales and Services, Imprimus Technology Incorporated from 1988 to 1989, and Vice President - Sales and Strategies Alliance, Data Storage Products Group from 1987 to 1988. Mr. Ousley is currently a director of Control Data Systems, Inc., and Metaphase Technology, Inc. CATHERINE Y. SELLECK, 62, has been an independent consultant to the computer industry since January 1994. From January 1992 through January 1994, Ms. Selleck was the President and Chief Executive Officer of Metaphor, Inc. Ms. Selleck is currently a director of Right Management Consultants, Inc. Previously, Ms. Selleck held several executive positions with IBM Corporation, including Corporate Director of Office and Decision Support Systems from 1989 to 1991, Vice President, Field Operations, National Distribution Divisions from 1986 to 1988, and Vice President, Information Systems and Administration, National Distribution Division from 1984 to 1985. 17 MANAGEMENT BOARD The following information is furnished with respect to each incumbent member of the Management Board. All executive authority to make policy decisions emanates from the Management Board. DAVID J. FAULKNER, 57, is the Managing Director and the Chief Financial Officer of the Company. He is also the Chief Financial Officer of Memorex Telex Corporation and the Vice Chairman of its Board of Directors. Mr. Faulkner has served as Chief Financial Officer of the Company since October 1989. Prior to his employment with the Company, Mr. Faulkner was a Senior Partner with Arthur Young & Co. Mr. Faulkner is a citizen of the United States. ABN Trustcompany (Nederland) B.V. ("ABN") also serves as a member of the Management Board. Under a management agreement, ABN performs certain administrative functions for the Company. The management agreement provides for the payment by the Company of an annual management fee of DFL. 10,000, an annual administration fee of DFL. 2,000, and the out-of-pocket expenses incurred by ABN in the performance of its duties. The management agreement may be terminated by either party upon 30-day notice given prior to each anniversary date. In addition, ABN may resign as a member of the Management Board at any time by giving two months notice to the other members of the Management Board. Hon. Peter H. Dailey resigned from the Supervisory Board as of March 31, 1996 to become the Company's Chief Executive Officer. The Supervisory Board of the Company intends to nominate Mr. Dailey for election to the Management Board of the Company at the annual general meeting of stockholders of the Company to be held no later than September 30, 1996. 18 ITEM 11. EXECUTIVE COMPENSATION The following table provides information about the compensation for Messrs. Gumucio, Faulkner, Morin, (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION (2) COMPENSATION ----------------------------------------- -------------- AWARDS OTHER -------------- ALL ANNUAL SECURITIES OTHER COMPEN- UNDERLYING COMPEN- SATION OPTIONS/ SATION NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (3) SARS (5) --------------------------- ---- ------ ----- ------------ -------------- -------- Marcelo A. Gumucio 1996 $ 800,000 $ 412,500 $ 186,307 0 $ 1,585 Chairman, President and 1995 800,000 420,000 441,800 875,000 (4) 1,480 Chief Executive Officer (1) 1994 900,000 1,000,000 600 David Faulkner 1996 400,000 226,125 16,125 0 9,500 Vice Chairman and Chief 1995 400,000 120,000 370,000 150,000 (4) 2,225 Financial Officer 1994 500,000 500,000 600 Rudolph G. Morin 1996 305,760 155,387 0 0 11,307 Senior Vice-President (6) 1995 315,000 75,000 292,633 50,000 (4) 1,745
- - - ------------------------------ (1) Mr. Gumucio resigned from the Company in March 1996. (2) Compensation information is provided for fiscal 1996, 1995, and 1994. (3) The amounts listed, for 1995, include discretionary relocation allowances $387,000 for Mr. Gumucio, $370,000 for Mr. Faulkner and $292,633 for Mr. Morin.. The amounts listed for 1996 include discretionary relocating allowances of $132,461 for Mr. Gumucio and $16,125 for Mr. Faulkner. Mr. Gumucio also received $53,846 in vacation allowance. (4) The numbers listed are for employee stock options granted during fiscal 1995. As of March 31, 1995, no options have been exercised. (5) The amounts listed are contributions paid by the Company to their 401(k) plan for the benefit of each of Messrs. Gumucio, Faulkner, and Morin. (6) Mr. Morin resigned from the Company in March 1996. EMPLOYMENT CONTRACTS The Company has entered into employment agreements with Messrs. Dailey and Faulkner. The following is a summary of the principal terms of these agreements. The term of Mr. Dailey's employment agreement as the Chief Executive Officer of the Company commenced on April 1, and will continue until March 31, 1997. This initial term will be automatically renewed for successive one year periods unless either party provides the other with three (3) months notice of termination. Mr. Dailey is entitled to an annual base salary of $500,000 and an annual incentive bonus of up to 100% of his base salary, based upon performance goals. The employment agreement provides for the grant of options to purchase 250,000 shares of the Company's common stock in accordance with the terms of the Company's Amended and Restated Stock Option Plan for Management. The employment agreement also provides for the participation in all employee incentive and benefit programs of the Company including the Company's pension plan, and certain perquisites. Upon any 19 termination of Mr. Dailey's employment by the Company without cause, he will be entitled to continued payments of his then-current annual base salary for the current term of employment. The current employment agreement for Mr. Faulkner provides for his employment as Vice Chairman, Chief Financial Officer, and Managing Director of the Company. Mr. Faulkner receives an annual base salary of $400,000 and participates in the Company's management incentive plan, stock option plan, and U.S. employee benefits program. The employment agreement provides for a guaranteed incentive plan payment of $180,000 for the fiscal year ending March 31, 1997. Mr. Faulkner's employment may be terminated by either party upon 60-day notice. Upon any termination of Mr. Faulkner's employment by the Company without cause he will be entitled to a severance payment equal to his then current annual base salary. The employment agreement further provides for a two year severance payment if he is terminated without cause within twelve months of a change in control or a fundamental securities transaction. Upon any termination by the Company without cause, Mr. Faulkner in entitled to certain healthcare benefits, outplacement assistance of up to $25,000, and relocation assistance. "Change in control" is defined to include (i) any person or group, other than current shareholders or debtholders, becoming the beneficial owner of at least 35% of the Company's voting stock, if Mr. Faulkner is terminated within 60 days thereafter, or 50% of the Company's voting stock, (ii) any adoption of a liquidation plan by the Company, and (iii) any disposition of the business of the Company by sale, merger, consolidation, or other transaction. Fundamental Securities Transaction is defined to mean the purchase or agreement to purchase by any person or group any securities, whether convertible to common stock or not, which carries with it the right of the purchasing person or group to purchase 35% or more of the Company's voting capital securities at any time. 20 PENSION PLANS The Company does not maintain a unified pension plan for its employees, but rather maintains separate pension plans in most of the countries in which the Company or its subsidiaries operate. The pension plan for the United States is the Memorex Telex Employees' Pension Plan (the "Pension Plan"). The following table shows the estimated annual benefits payable upon retirement, assuming the final average compensation and years of service indicated. PENSION PLAN TABLE Remuneration Years of Service - - - ------------ ----------------------------------------------- 15 20 25 30 35 ------- ------- ------- ------- ------- $125,000 $26,302 $35,069 $43,836 $52,603 $61,370 $150,000 and above $31,927 $42,569 $53,211 $63,853 $74,495 Benefits are calculated based on the following formula: 1% of Final Average Compensation times Years of Service (maximum 35 years), plus 0.5% of Final Average Compensation in excess of Social Security Covered Compensation times Years of Service (maximum 35 years). The foregoing table takes into account the earnings limit of $150,000 for qualified defined benefit pension plans imposed by Section 401(a)(17) of the Internal Revenue Code of 1986, as amended, which provision became effective on January 1, 1994. Benefits shown in the table are not subject to reduction for social security benefits or other offsetting amounts. Benefits under the Pension Plan vest after five years of service. Covered compensation includes salaries and bonus awards from participation in the Company's management bonus plan up to the maximum recognizable compensation permitted for qualified pension plans. On October 31, 1994 benefit accrual in the pension plan was suspended. The foregoing table reflects the years of service, Final Average Compensation, and Covered Compensation as of October 31, 1994. Mr. Faulkner is a participant in the Pension Plan. Mr. Faulkner is also entitled to supplemental retirement benefits. The estimated annual benefits payable to Mr. Faulkner under the Pension Plan upon retirement at age 65 are $8,944, and under his supplemental retirement benefit agreement at age 60 are $24,013. STOCK OPTIONS/SAR GRANTS IN LAST FISCAL YEAR There were no new stock option grants for the period ending March 31, 1996. 21 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of May 31, 1996, with respect to the beneficial ownership of shares of the Common Stock by all persons believed by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Common Stock, by the Named Executive Officers, by members of the Management Board and Supervisory Board, and by all Named Executive Officers, all members of the Management Board and Supervisory Board and the nominee for the Supervisory Board as a group. The information set forth below is based upon the Company's records, and information obtained by the Company from the persons named below: NUMBER OF SHARES PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS (1) - - - ------------------------------------ -------------------- ----------- Apollo Investment Fund. L.P. c/o CIBC Bank and Trust Company (Cayman) Limited Edward Street Georgetown, Grand Cayman Cayman Islands British West Indies -and- Lion Advisors, L.P. Two Manhattanville Road Purchase, New York 10577 4,255,279 (2) 14.38% Carl C. Icahn 100 South Bedford Road Mount Kisco, New York 10549 2,201,248 (3) 7.44% Hon. Peter H. Dailey 250,000 (4) * David J. Faulkner 150,000 (5) * All Named Executive Officers, members of the Management Board and Supervisory Board and nominee for the Supervisory Board, as a group (12 persons) 1,075,000 (6) 3.63% * Less than 1%. (1) Based upon the aggregate number of shares of Common Stock outstanding and the number of shares of Common Stock issuable upon exercise of stock subscription warrants (the "$2.00 Warrants") to purchase shares of Common Stock at $2 per share, issuable upon exercise of 22 stock subscription warrants (the "$14.00 Warrants") to purchase shares of Common Stock at $14 per share, and issuable upon exercise of stock options granted under the Company's Stock Option Plan. (2) Includes (i) 3,465,847 shares of Common Stock, (ii) 512,148 shares of Common Stock issuable upon exercise of $2.00 Warrants, and (iii) 277,284 shares of Common Stock issuable upon exercise of $14.00 Warrants. Apollo Investment beneficially owns 904,738 shares of Common Stock, $2.00 Warrants representing the right to purchase 134,840 shares of Common Stock, and $14.00 Warrants representing the right to purchase 59,479 shares of Common Stock. AIF beneficially owns 601,219 shares of Common Stock and $2.00 Warrants representing the right to purchase 89,604 shares of Common Stock. The managing general partner of both Apollo Investment and AIF is Apollo Advisors, and the administrative general partner of both Apollo Investment and AIF is Apollo Fund Administration Limited. Lion Advisors, beneficially owns, for the benefit of certain investment accounts, 1,959,890 shares of Common Stock and $2.00 Warrants representing the right to purchase 287,704 shares of Common Stock. and $14.00 Warrants representing the right to purchase 217,805 shares of Common Stock. Lion Advisors has sole voting and dispositive power with respect to such investment accounts. (3) Includes (i) 2,065,541 shares of Common Stock, and (ii) 135,707 shares of Common Stock issuable upon exercise of $14.00 Warrants. Tortoise Corp. ("Tortoise") beneficially owns 2,187,075 shares of Common Stock, and Chelonian Corp. ("Chelonian") beneficially owns 14,173 shares of Common Stock (including in each case shares of Common Stock issuable upon exercise of $14.00 Warrants). Tortoise is a wholly-owned subsidiaries of Chelonian. Chelonian is a wholly-owned indirect subsidiary of Highcrest Investors Corp., which is approximately 99.5% owned by Icahn Holding Corporation. Mr. Icahn is the sole stockholder of Icahn Holding Company. (4) Includes 250,000 shares of Common Stock issuable upon exercise of stock options granted under the Company's Stock Option Plan. (5) Includes 150,000 shares of Common Stock issuable upon exercise of stock options granted under the Company's Stock Option Plan. (6) Includes 1,075,000 shares of Common Stock issuable upon exercise of stock options granted under the Company's Stock Option Plan. Does not include 4,255,242 shares of Common Stock beneficially owned by Apollo Investment, AIF, and Lion Advisors, with which Messrs. Gross and Harris are associated. See "Supervisory Board - Incumbent Members of the Supervisory Board." Messrs. Gross and Harris disclaim beneficial ownership of the shares of Common Stock owned beneficially by Apollo Investment, AIF, and Lion Advisors. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES 1. Consolidated Financial Statements: Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheets at March 31, 1996 and 1995 Years ended March 31, 1996, 1995 and 1994: Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders' Equity (Deficit) Notes to Consolidated Financial Statements 2. Consolidated Financial Statement Schedule, years ended March 31, 1996, 1995 and 1994: Schedule II Valuation and Qualifying Accounts All other schedules have been omitted because the information is not applicable or is not material or has been included in the Consolidated Financial Statements or the notes thereto. (b) REPORTS ON FORM 8-K On April 4, 1996, the registrant filed a current report on Form 8-K reporting the resignation of Marcelo Gumucio, on March 19, 1996, as Chief Executive Officer and as a Member of the Management Board of the Company. Effective March 31, 1996, Peter H. Dailey, who had previously been Chairman of the Company's Supervisory Board, became its Chief Executive Officer. Additionally, effective March 22, 1996, Memorex Telex Corporation, a subsidiary of the Company, entered into a Credit and Guaranty Agreement with Foothill Capital Corporation pursuant to which it borrowed $12 million through a two-year term loan facility to be used for the purchase of additional inventory. In connection with the Foothill Agreement, the Company sought and received from its existing lenders a modification of the existing credit facility deferring interest payments accruing prior to March 31, 1996, and scheduled principal payments until maturity of the Foothill Agreement. In consideration for the modification, the Company agreed to additional covenants which include additional reporting and financial conditions and an increase in the effective interest rate of 1%. 24 (c) EXHIBITS 2.1* Disclosure Statement dated January 6, 1994. 2.2* Joint Plan of Reorganization confirmed by the United States Bankruptcy Court for the District of Delaware on March 14, 1994, and effective on March 24, 1994. 3.1** English translation of Restated Articles of Association of Memorex Telex N.V. 4.1* Specimen Certificate for common stock, DFL. 0.10 nominal value per share, of the Company. 4.2* Form of $2.00 Warrant. 4.3* Form of $14.00 Warrant. 10.11* Management Agreement dated as of October 23, 1986, between ABN Trust Company and Memorex Telex N.V. 10.12* Technology Transfer Agreement dated as of May 11, 1990 between Memorex Telex Corporation and American Telephone and Telegraph Company (the "AT&T Agreement"). 10.13** Settlement Agreement and Stipulation dated as of February 5, 1992, between Memorex Telex Corporation, Memorex Corporation and Tulsa Computer Products, Ltd. and the Department of Justice. 10.14*** Amending Agreement dated February 3, 1994 to the AT&T Agreement. 10.15*** Restructured Credit and Guaranty Agreement dated as of March 24, 1993 among certain subsidiaries of the Company as Borrowers and Guarantors, the Company as Guarantor, the Lenders listed therein and Morgan Guaranty Trust Company of New York as Agent. 10.15(a)**** Amendment No. 1 to the Restructured Credit and Guaranty Agreement. 10.15(b)**** Amendment No. 2 to and Waiver under the Restructured Credit and Guaranty Agreement. 10.15(c) Amendment and Waiver No. 3 under Restructured Credit and Guaranty Agreement. 10.15(d) Amendment No. 4 to Restructured Credit and Guaranty Agreement. 10.15(e) Amendment No. 5 to Restructured Credit and Guaranty Agreement. 10.15(f) Amendment No. 6 to Restructured Credit and Guaranty Agreement. 10.21** Employment Agreement dated as of November 4, 1992, between the Company and Marcelo A. Gumucio. _____________________________________ * Previously filed as an Exhibit to the Company's Registration Statement on Form S-4 (Registration No. 33-67988) and incorporated herein by reference. ** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1993 and incorporated herein by reference. *** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1994 and incorporated herein by reference. **** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1995 and incorporated herein by reference. 25 10.21(a)**** Amendment No. 1 effective as of April 1, 1995 to the Employment Agreement made as of November 4, 1992, between the Company and Marcelo A. Gumucio. 10.22*** Employment Agreement dated as of June 29, 1993, between the Company and Rudolph G. Morin. 10.23*** Employment Agreement dated as of April 1, 1994, between the Company and David J. Faulkner. 10.23(a)*** Amended and Restated Employment Agreement effective as of April 1, 1995, between the Company and David J. Faulkner. 10.23(b) Employment Agreement dated as of April 1, 1996, between the Company and Peter H. Dailey. 10.24 Credit and Guaranty Agreement dated as of March 5, 1996 among certain subsidiaries of the Company as borrowers and guarantors, the Company as guarantor and Foothill Capital Corporation. 23.1 Consent of Ernst & Young LLP, Independent Auditors 27 Financial Data Schedule - - - ------------------------------------- *** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1994 and incorporated herein by reference. **** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1995 and incorporated herein by reference. 26 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Supervisory Board Memorex Telex N.V. We have audited the accompanying consolidated balance sheets of Memorex Telex N.V. and subsidiaries (the "Company") as of March 31, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for each of the three years in the period ended March 31, 1996. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Memorex Telex N.V. and subsidiaries at March 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying consolidated financial statements have been prepared assuming that Memorex Telex N.V. will continue as a going concern which contemplates realization of assets and the liquidation of liabilities in the ordinary course of business. During the 1996 fiscal year, the Company incurred significant negative operating cash flow and as of March 31, 1996, has a significant working capital deficiency which includes significant debt repayment obligations during fiscal year 1997. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Memorex Telex N.V. plans to deal with these issues as described in Note 1, Financial Condition and Future Financial Plans. The financial statements do not include any adjustments of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. ERNST & YOUNG LLP Dallas, Texas June 28, 1996 27 MEMOREX TELEX N.V. (A Netherlands Corporation) CONSOLIDATED BALANCE SHEETS (In thousands, except for share amounts) MAR. 31, 1996 MAR. 31, 1995 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents including restricted deposits and guarantees of $7,592 and $14,669 at March 31, 1996 and 1995, respectively $ 26,838 $ 36,886 Accounts receivable, less allowance for doubtful accounts of $10,161 and $12,357 at March 31, 1996 and 1995, respectively 108,021 113,213 Inventories, primarily finished goods 34,891 30,730 Service parts 31,697 35,765 Other current assets 4,104 3,756 --------- --------- Total current assets 205,551 220,350 Property, plant and equipment, net 28,622 33,866 Reorganization value in excess of amounts allocable to identifiable assets, net 0 250,245 Other assets 33,995 32,005 --------- --------- $ 268,168 $ 536,466 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Current debt obligations $ 114,578 $ 15,960 Accounts payable 119,197 119,997 Accrued liabilities 169,098 183,262 --------- --------- Total current liabilities 402,873 319,219 Debt obligations 4,903 71,475 Other long-term liabilities 137,743 176,599 Stockholders' Deficit: Common stock, 124,996,000 shares each with a nominal value of ten Dutch cents (DFL 0.10) authorized; 25,076,665 and 25,053,296 shares issued and outstanding in 1996 and 1995, respectively 1,338 1,336 Additional paid-in capital 73,726 73,702 Accumulated deficit (354,749) (108,011) Foreign currency translation adjustment 2,334 2,146 --------- --------- Total stockholders' deficit (277,351) (30,827) --------- --------- $ 268,168 $ 536,466 --------- --------- --------- --------- See accompanying notes. 28 MEMOREX TELEX N.V. (A Netherlands Corporation) CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except for share amounts)
PREDECESSOR REORGANIZED COMPANY COMPANY ---------------------------- ----------- Year Ended March 31, ----------------------------------------- 1996 1995 | 1994 ----------- ----------- | ----------- | Revenues $ 834,053 $ 909,751 | $ 1,015,574 Cost of revenues 631,593 651,027 | 705,660 ----------- ----------- | ----------- Gross margin 202,460 258,724 | 309,914 Selling, general, and administrative expenses 189,982 225,676 | 258,400 Curtailment gain on benefit plan 0 (9,744) | 0 Amortization of intangibles 224,456 125,122 | 23,459 Other (income) expenses, net (4,503) 2,530 | (4,192) ----------- ----------- | ----------- Operating income (loss) (207,475) (84,860) | 32,247 Interest income 1,281 1,083 | 3,344 Interest expense (19,844) (20,127) | (100,433) Accretion of debt forgiveness discount (20,700) 0 | (20,455) ----------- ----------- | ----------- Loss before reorganization items and | income taxes (246,738) (103,904) | (85,297) Reorganization items: | Fair value adjustments 0 0 | (342,712) Loss on restructuring of operations 0 0 | (51,558) Reorganization related professional fees 0 0 | (12,266) ----------- ----------- | ----------- Loss before income taxes (246,738) (103,904) | (491,833) Provision for income taxes 0 (4,107) | (10,158) ----------- ----------- | ----------- Loss before extraordinary items (246,738) (108,011) | (501,991) Extraordinary item, gain on extinguishment of debt 0 0 | 728,996 ----------- ----------- | ----------- Net income (loss) $ (246,738) $ (108,011) | $ 227,005 ----------- ----------- | ----------- ----------- ----------- | ----------- Net loss per common share $ (9.84) $ (4.32) | * Weighted average common shares outstanding 25,068,626 25,014,724 | *
See accompanying notes. 29 MEMOREX TELEX N.V. (A Netherlands Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
PREDECESSOR REORGANIZED COMPANY COMPANY ---------------------------- ----------- Year Ended March 31, ----------------------------------------- 1996 1995 | 1994 ----------- ----------- | ----------- | Cash flows from operating activities: | Loss before extraordinary item $ (246,738) $ (108,011) | $ (501,991) | Adjustments to reconcile loss before extraordinary | item to net cash provided (used) by operating | activities: | Depreciation and amortization 235,032 135,171 | 38,359 Gain from asset sales (6,549) 0 | 0 Curtailment gain on benefit plan 0 (9,744) | 0 Accretion of debt forgiveness discount 20,700 0 | 20,455 Realignment and reorganization charges 0 0 | 397,520 Interest on 10% Senior Guaranteed Notes, | paid in additional notes 0 0 | 28,176 Changes in components of working capital | excluding short-term debt 1,265 (7,761) | (11,114) Other long-term liabilities (36,929) 8,055 | (20,900) Other assets 2,790 (700) | 18,495 Other 6 (1) | (2,634) ----------- ----------- | ----------- Net cash provided (used) by operating activities (30,423) 17,009 | (33,634) | Cash flows from investing activities: | Proceeds from asset sales 13,924 14,173 | 35,238 Capital expenditures (4,921) (9,309) | (6,220) ----------- ----------- | ----------- Net cash provided (used) by investment activities 9,003 4,864 | 29,018 | Cash flows from financing activities: | Issuance of common stock 26 38 | 0 Issuance of debt 26,322 37,676 | 23,355 Redemption of debt (14,976) (48,028) | (37,054) ----------- ----------- | ----------- Net cash provided (used) by financing activities 11,372 (10,314) | (13,699) ----------- ----------- | ----------- | Net increase (decrease) in cash and cash equivalents (10,048) 11,559 | (18,315) | Cash and cash equivalents at beginning of year 36,886 25,327 | 43,642 ----------- ----------- | ----------- Cash and cash equivalents at end of year $ 26,838 $ 36,886 | $ 25,327 ----------- ----------- | ----------- ----------- ----------- | -----------
See accompanying notes. 30 MEMOREX TELEX N.V. (A Netherlands Corporation) CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (In thousands)
Foreign Total Additional Accum- Currency Stockholders' Common Paid-in ulated Translation Equity Stock Capital Deficit Adjustment (Deficit) ----- ------- ------- ---------- --------- PREDECESSOR COMPANY: - - - -------------------- Balances at March 31, 1993 $ 5,455 $ 169,667 $ (395,822) $ (3,270) $ (223,970) Net income 0 0 227,005 0 227,005 Foreign currency translation adjustment 0 0 0 (3,035) (3,035) Issuance of stock and application of fresh start reporting (4,122) (96,000) 168,817 6,305 75,000 ---------- ---------- ---------- ---------- ---------- REORGANIZED COMPANY: - - - -------------------- Balances at March 31, 1994 1,333 73,667 0 0 75,000 Issuance of common stock 3 35 0 0 38 Net loss 0 0 (108,011) 0 (108,011) Foreign currency translation adjustment 0 0 0 2,146 2,146 ---------- ---------- ---------- ---------- ---------- Balances at March 31, 1995 1,336 73,702 (108,011) 2,146 (30,827) Issuance of common stock 2 24 0 0 26 Net loss 0 0 (246,738) 0 (246,738) Foreign currency translation adjustment 0 0 0 188 188 ---------- ---------- ---------- ---------- ---------- Balances at March 31, 1996 $ 1,338 $ 73,726 $ (354,749) $ 2,334 $ (277,351) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes. 31 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 1. FINANCIAL CONDITION AND FUTURE FINANCIAL PLANS The Company is continuing a comprehensive transformation from a manufacturing to a provider of information technology solutions including the distribution and integration of data network and storage products and the provision of related services. The Company's revenues and gross margins experienced declines of 8.3% and 21.7%, respectively, in fiscal year 1996 as a result of insufficient working capital to accomplish the necessary transformation, thereby causing a level of business activity lower than planned. These declines have not been sufficiently offset by corresponding declines in the operating costs of the Company. Management's plans to deal with these working capital and operating issues include the following: 1) Complete the sale of the stock of its operations in Australia, Hong Kong, Singapore, and Taiwan (collectively referred to herein as "Asia/Pacific Operations"), See Note 7 for further discussion, 2) Finalize the agreements in principal with the Credit Facility and Term Loan lenders to cure defaults that exist under these facilities, 3) Obtain additional financing from financial and strategic investors, 4) Continue the transition of the Company as specified in its business plan discussed below, and 5) Sell other operations as necessary. There can be no assurance as to whether management's plans will be successful or what other actions might become necessary. The Company's business plan is to continue to transform from a developer and manufacturer of computer hardware to a provider of networking and storage solutions. As part of this transformation, the Company continues to re-engineer its selling, service, product development, fulfillment, and finance and administrative processes. A summary table of remaining reorganization and realignment cost reserves is presented in Note 11. These initiatives should continue to lower costs and are aimed at improving operating cash flow but will require additional funding in order to implement all of the initiatives. The financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. However, if it is necessary for the Company to attempt to sell additional operations in order to accomplish management's plans and satisfy its various cash obligations, no assurance can be given that the Company will be able to sell additional operations or if such sales occur the Company will not incur substantial additional losses or incur additional liabilities from such disposition program. 32 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles and are presented in United States dollars. The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany balances and transactions have been eliminated. Certain reclassifications were made to the prior years' balances to conform to the current year's presentation. REORGANIZATION PLAN Based on a solicitation of votes completed February 9, 1994, the Company received support from the impaired debt and equity holders for a voluntary plan of reorganization under chapter 11 of the United States Bankruptcy Code. On March 24, 1994 the Company's prepackaged plan of reorganization (the "Reorganization Plan") was confirmed and became effective. The Reorganization Plan was accounted for pursuant to Statement of Position 90-7 ("SOP 90-7") of the American Institute of Certified Public Accountants, entitled "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". The accompanying consolidated financial statements reflect the use of "fresh start" reporting as required by SOP 90-7, in which assets and liabilities were adjusted to their fair values and resulted in the creation of a new reporting entity (the "Company" or the "Reorganized Company") with no retained earnings or accumulated deficit as of March 31, 1994. Accordingly, the consolidated financial statements for the periods prior to March 31, 1994 (the "Predecessor Company") are not comparable to consolidated financial statements presented on or subsequent to March 31, 1994. A black line has been drawn on the accompanying consolidated financial statements and notes thereto to distinguish between the Company and the Predecessor Company balances. The Reorganization Plan provided for the exchange of the Predecessor Company's debt and accrued interest for a substantially reduced amount of new debt, all of the new common stock of the Company, and certain warrants to purchase new common stock of the Company. The stockholders of the Predecessor Company received warrants to purchase new common stock of the Company. See Note 10 for additional information on the warrants exchanged. As a result of the debt restructuring and the application of "fresh start" accounting as required by SOP 90-7, a gain on the extinguishment of debt of approximately $729.0 million and reorganization items of approximately $406.5 million were recorded in the prior year. See Note 11 for the detail of the expenses included in reorganization items for the year ended March 31, 1996. 33 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) The Stockholders' deficit of the Predecessor Company was eliminated in the restructuring as follows: Stockholders' deficit before restructuring $ (322,460) Reorganization costs and fair value adjustments (406,536) Gain on debt restructure 728,996 ------------ Stockholders' deficit after restructuring $ 0 ------------ ------------ USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. ACCOUNTS RECEIVABLE The Company services a highly diversified customer base composed primarily of Fortune 1000 corporations and foreign equivalents, large government agencies, the financial community, and medical facilities, which mitigates exposure to concentrations of credit risk. Trade receivables are generally due between 45-60 days and collateral is generally not required. The Company performs periodic credit evaluations of its customers' financial condition. Excluded from accounts receivables are United States trade receivables sold under an agreement with a financial institution to sell a portion of its United States accounts receivable. The maximum amount of receivables which can be sold is $40.0 million. At March 31, 1996 and 1995, the amount of United States receivables sold were $38.3 and $40.0 million, respectively, and are reflected as a reduction of accounts receivable in the Consolidated Balance Sheets. The agreement can be terminated by either party on a monthly basis and, if terminated, the Company would be forced to obtain additional working capital financing. While the Company believes such agreements with the financial institution will continue, there can be no assurances that such agreement will continue. INVENTORIES Inventories are stated at the lower of cost (determined using the first-in, first-out method) or market. Inventories associated with discontinued products and lines of business are valued at estimated net realizable value as determined using estimated selling prices less costs to dispose of the products. 34 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost and primarily consists of buildings and improvements, equipment, and furniture and fixtures. Depreciation is computed using the straight-line method with lives ranging up to 30 years on buildings and improvements, four years on office equipment, and 10 years on equipment and furniture and fixtures. Accumulated depreciation is $16.5 million and $9.0 million at March 31, 1996 and 1995, respectively. REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS Reorganization value in excess of amounts allocable to identifiable assets resulted from the application of "fresh start" reporting, as discussed above, which requires the Predecessor Company's unidentified intangibles, net of amortization, to be reduced to zero and a new amount to be recorded equaling the excess of the fair value of the Company over the fair value allocated to its identifiable assets. This excess is classified as reorganization value in excess of amounts allocable to identifiable assets (the "Reorganization Value"). The reorganized value was originally determined to be amortized over a three- year period. In March 1996 it was determined that the remaining Reorganization Value was not recoverable through future operations. This conclusion was based on a number of factors including, but not limited to the continued decline in operating results compared to the Reorganization Plan from which the Reorganization Value was based and discussions with potential investors which provided an indication as to an enterprise value for the Company. Accordingly, the residual Reorganization Value, net of adjustments including the allocation of $16 million of the reorganization value to the Asia/Pacific operations and certain other restructuring reserve revaluations (see Note 11), of approximately $99.3 million was included as a component of amortization of intangibles in the Consolidated Statement of Operations. ACCOUNTS PAYABLE Included in accounts payable is approximately $17.6 million for the years ended March 31, 1996 and 1995 which is due at various times up to September 1996 under an extended term agreement with a vendor which currently expires on March 31, 1997. The extended term agreement provides for outstanding product purchases up to $18.0 million and bears interest at market rates. The payable is collateralized by the Company's investment in an affiliate accounted for under the equity method. The Company has certain other informal agreements with major vendors where interest accrues on overdue accounts payable. 35 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) PRODUCT WARRANTY COSTS The Company provides warranty on certain products for varying periods of time up to three years and recognizes the estimated cost of warranty at the time the sale is recorded. FOREIGN CURRENCIES Translation adjustments are recorded in the foreign currency translation adjustment account included in stockholders' equity, and transaction gains or losses are included in the results of operations for the period as part of other income and expenses (approximately $3.4 million of net exchange gain in 1996, approximately $5.5 million of net exchange loss in 1995, and approximately $4.7 million of net exchange gain in 1994). REVENUE RECOGNITION Revenue is recognized upon shipment or certification of acceptance depending on individual contract terms. Service revenue is recognized ratably over the term of the service contract. CASH AND CASH EQUIVALENTS Cash generally includes all highly liquid investments with a maturity of three months or less, but also includes deposits principally used for guarantees and sureties for casualty insurance, Company performance and customs. The deposits and guarantees are restrictive and can extend for periods up to a year. 36 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 3. ASSET SALES The Company had assets sales during fiscal 1996 with total proceeds of $13.9 million, which consisted primarily of a portion of the common stock of an investment in an affiliate. In fiscal 1995, the Company completed a series of transactions which disposed of land and buildings with total proceeds of $14.2 million. These dispositions included two properties used for assembly and distribution located in Tulsa, Oklahoma and Raleigh, North Carolina, a manufacturing facility which was not in use located in Santa Clara, California, and office space located in Tulsa, Oklahoma and in the United Kingdom. The gains resulting from these asset sales were approximately $6.5 million and $2.4 million and are included as other income within the Consolidated Statements of Operations for the respective years ended March 31, 1996 and 1995. 4. ACCRUED LIABILITIES Accrued liabilities consist of the following at March 31: 1996 1995 Realignment and reorganization cost $ 16,400 $ 25,000 Income taxes payable 12,048 11,676 Deferred revenue 54,450 57,300 Compensation and related benefits 32,016 33,068 Accrued interest 6,897 2,438 Warranty reserves 12,341 15,481 Royalty obligation 3,353 5,085 Other 31,593 33,214 ---------- ---------- $ 169,098 $ 183,262 ---------- ---------- ---------- ---------- 37 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 5. INCOME TAXES The Company has operations in various countries which have differing tax laws and rates. Consequently, the effective tax rate on consolidated income before income taxes may vary from year to year according to the sources of earnings by country. Loss before income taxes consists of the following: Year Ended March 31, ---------------------------------------- 1996 1995 | 1994 ---- ---- | ---- | Domestic (Netherlands) $ (8,500) $ (56,764) | $ (70,673) Foreign (238,238) (47,140) | (421,160) --------- --------- | --------- Total $ (246,738) $ (103,904) | $ (491,833) --------- --------- | --------- --------- --------- | --------- The provision for income taxes consists of the following: Year Ended March 31, ---------------------------------------- 1996 1995 | 1994 ---- ---- | ---- | Current $ 297 $ (8,678) | $ (10,409) Deferred (297) 4,571 | 251 --------- --------- | --------- Total $ 0 $ (4,107) | $ (10,158) --------- --------- | --------- --------- --------- | --------- There is no provision for income taxes for the year ended March 31, 1996, due to the utilization of post March 31, 1994 net operating losses and adjustments to prior income tax accruals. The current provisions for the years ended March 31, 1995 and 1994 include additional provisions of $8,050 and $11,749, respectively, as a result of examinations and settlements with taxing authorities in the United States and other jurisdictions. Total income taxes payable included in accrued liabilities and other long-term liabilities were $73,040 and $75,100 at March 31, 1996 and 1995, respectively. 38 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) Deferred income taxes reflect the net tax effects of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of March 31, 1996 and 1995 are as follows: 1996 1995 ---- ---- Deferred tax liabilities: Sales type leases $ 3,863 $ 4,778 Other 539 694 -------- -------- Total deferred tax liabilities 4,402 5,472 -------- -------- Deferred tax assets: Depreciation 3,594 5,661 Deferred expenses 50,892 52,455 Reorganization costs 11,593 30,206 Other financial reserves 19,875 21,467 Other 12,758 13,940 3/31/93 - 3/31/94 NOL carryforwards (U.S.) 39,956 39,956 Post 3/31/94 net operating loss (U.S.) 39,168 26,851 Net operating loss (non-U.S.) 84,449 80,799 -------- -------- Total deferred tax assets 262,285 271,335 -------- -------- Net deferred tax assets 257,883 265,863 Valuation allowance for deferred tax assets (254,107) (261,986) -------- -------- Net deferred tax assets $ 3,776 $ 3,877 -------- -------- -------- -------- The valuation allowance decreased approximately $8.0 million during the year due primarily to realization of tax assets relating to reorganization costs offset by increases in net operating losses. Any tax benefits for items related to pre-reorganization periods will be credited to paid-in capital since reorganization value in excess of amounts allocable to identifiable assets was fully amortized in the current year. Effective March 31, 1994, the Company completed its second reorganization under a prepackaged plan which resulted in a change in the ownership of the Company. Under provisions of the U.S. Internal Revenue Code, certain aspects of the reorganization under the prepackaged plan have substantially restricted the Company's ability to use the U.S. net operating loss carryforwards prior to the effective date. At March 31, 1996, the Company had restricted U.S. net operating loss carryforwards of approximately $114.0 million which expire in the years 2008 and 2009. Additionally, the Company had unrestricted U.S. net operating loss carryforwards of approximately $112.0 million which expire in the year 2010 and 2011. At March 31, 1996, certain non-U.S. subsidiaries had net operating loss carryforwards of approximately $411 million which may be utilized in future years. 39 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) At March 31, 1996, foreign earnings of approximately $35 million have been retained indefinitely by subsidiaries for reinvestment. If repatriated, these earnings are exempt from Netherlands tax, but would incur other withholding taxes of approximately $.8 million. The difference between the consolidated effective tax rate and the statutory Netherlands Corporate tax rate of 35% is reconciled as follows: Year Ended March 31, ---------------------------------------- 1996 1995 | 1994 ---- ---- | ---- | Tax benefit at statutory rate $ 86,359 $ 36,366 | $ 172,142 Net operating losses and net deferred | tax assets for which no tax benefit | has been recognized (18,434) (2,757) | (162,594) Foreign taxes at different rates 11,160 7,208 | 254 Reorganization value amortization (79,085) (36,874) | (8,211) Accrual for prior year taxes 0 (8,050) | (11,749) --------- --------- | --------- Total $ 0 $ (4,107) | $ (10,158) --------- --------- | --------- --------- --------- | --------- 40 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 6. DEBT OBLIGATIONS Debt obligations consist of the following at March 31: 1996 1995 ---- ---- Restructured Credit Facility, net of $20.7 million of discount at 1995 $ 97,500 $ 76,800 Term Loan Credit and Guaranty Agreement 12,000 0 Obligations in respect of non-recourse debt secured by lease assets 1,208 2,309 Other debt 8,773 8,326 -------- -------- 119,481 87,435 Less current debt: Long-term debt classified as current 109,500 14,281 Local borrowings by subsidiaries 5,078 1,679 -------- -------- 4,903 71,475 -------- -------- -------- -------- CURRENT STATUS As of March 31, 1996, the Company was in default of covenants under the Credit Facility as amended, and the $12,000 Term Loan Credit and Guaranty Agreement (the "Term Loan"). In late June 1996, the Company reached an agreement in principal with the Lenders under the Credit Facility whereby the then existing events of default would be waived. In connection with these waivers, the Company has agreed to obtain a new credit facility or other financing or capital sufficient in amount to repay the amounts owed under the Credit Facility by September 30, 1996. If the Company is unable to obtain such new financing or capital, then the Company will agree to undertake a strategic asset disposition program in order to permit the Company to repay the amounts due under the Credit Facility at the earliest possible date. Such agreement in principal further provides for $9,000 of the proceeds from the Asia/Pacific operations sale to be paid to the Credit Facility Lenders and for the Credit Facility's unpaid principal not to exceed $80,000 by October 31, 1996, $70,000 by November 30, 1996, $60,000 by December 31, 1996, $40,000 by January 31, 1997, $20,000 by February 28, 1997, and $0 by March 31, 1997. The agreement in principal further provides for waivers for continuing noncompliance with the requirements to maintain certain defined interest coverage ratios and for the deferral of substantiallY all scheduled interest payments due under the terms of the Credit Facility until October 31, 1996. The Credit Facility, as a result of continuing defaults, is classified as a current obligation in the accompanying March 31, 1996 Consolidated Balance Sheets. However, the 41 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) finalization of the agreement in principal will result in the Credit Facility continuing to be classified as current based on the revised payment terms. The Company has received waivers of existing events of defaults under the Term Loan. The waivers are contingent upon the finalization of the agreement in principal with the Credit Facility lenders. The Term Loan, by its terms, is to be repaid prior to repayment of any principal amounts on the Credit Facility and accordingly, is classified as current. While the Company believes the description of the agreements in principal with the Credit Facility and Term Loan lenders is an accurate description of such agreements, there can be no assurance that amendments will be concluded, or if concluded, that the final amendments to the Credit Facility and the Term Loan will be the same in all respects as the description. DEBT AGREEMENTS The following is a description of the $100,000 Restructured Credit Facility, which was the new debt received in connection with the Reorganization Plan, and the $12,000 Term Loan Guaranty and Credit Agreement, which was obtained during fiscal year 1996. $100,000 RESTRUCTURED CREDIT FACILITY The Credit Facility is composed of two tranches, a Working Capital Tranche of $66,000 and the Continuing Tranche A Loans of $34,000, as defined by the Restructured Credit Facility Agreement, resulting in an aggregate original principal amount of $100,000. The Credit Facility contained certain provisions that allowed the Company to obtain certain discounts upon prepayments made at various times over the life of the Credit Facility. The discount was being accreted monthly as the associated discount opportunities expired. However, due to an amendment entered into during the fourth quarter of fiscal year 1996, the potential discount available to the Company under the terms of the Credit Facility was eliminated and as such, the amounts due under the Credit Facility were adjusted to reflect the principal amount currently due, which resulted in a charge to expense of $12.8 million. The Credit Facility bore interest at LIBOR plus 2.25% through March 5, 1996, at which time the Company and the Lenders revised the Credit Facility to waive all defaults which might arise from the Company entering into the $12,000 Term Loan Credit and Guaranty Agreement and deferred all payments of principal and interest accruing through March 31, 1996 until March 5, 1998. In return, the Lenders received a 1% increase in the interest rate on certain amounts where amortization has been deferred. Interest accruing subsequent to March 31, 1996 continues to be payable at the end of each three month period. 42 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) During fiscal year 1995, the Company and the holders of the Credit Facility revised the terms of the agreement to provide that the proceeds from the sale of certain designated assets prior to September 30, 1995 were required to be deposited into a collateral account controlled by an agent of the holders of the Credit Facility (the agent). These designated asset sales included a portion of the dispositions discussed in Note 3, for the sales of properties used for assembly and distribution located in Tulsa and North Carolina and sales of stock of the Company's equity investee. The revised terms allowed the Company to receive the proceeds in excess of $4,000 from these asset sales upon request from the agent, provided that the funds released pay vendors or were used to retire the Credit Facility. All such proceeds were used to pay vendors. During fiscal year 1996, the Company requested and received a waiver from the Lenders under the Credit Facility that released the remaining $4,000 of funds generated from the sale of assets which were on deposit with the agent. The obligation under the Credit Facility is guaranteed by Memorex Telex N.V. and certain other subsidiaries. The guarantees are subordinate to the Term Loan discussed below but rank senior to all other obligations and are secured on a first priority basis to substantially all assets of the Company. The obligation under the Credit Facility is subject to the following restrictive financial and operating covenants: (a) limitations on aggregate indebtedness, with certain limited exceptions, (b) restrictions from making certain payments including dividend payments, (c) limitations on capital expenditures, (d) requirements to maintain certain defined interest coverage ratios, (e) limitations on assets sales, with certain designated asset sales subject to specified treatment as described above, (f) requirements to reduce the facility outstanding to the extent that the Company has "Adjusted Free Cash Flow" as defined by the agreement, (g) limitations on investments, consolidations, and mergers with certain limited exceptions, and other limitations. See discussion above regarding violations of certain restrictive covenants. $12,000 TERM LOAN CREDIT AND GUARANTY AGREEMENT The Company obtained the $12,000 Term Loan Credit and Guaranty Agreement during fiscal year 1996 to finance the Company's purchase of inventory to fulfill outstanding sales orders. The Term Loan matures on March 5, 1998, and bears interest at prime rate through the first anniversary of the funding date, and prime rate plus two percent thereafter, subject to a seven percent minimum interest rate. Interest is payable monthly, with any unpaid interest becoming a part of the principal and accruing interest thereon. Any asset 43 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) sale proceeds are required to be used to pay down the principal balance of the Term Loan, with the exception of the sale of the Asia/Pacific operations discussed in Note 7. The Term Loan provides for payment of a $750 closing fee at the time of principal repayment. The Company will expense this fee over the term of the loan. The obligation under the Term Loan is guaranteed by Memorex Telex N.V. and certain other subsidiaries. The guarantees rank senior to all other obligations and are secured on a first priority basis to substantially all assets of the Company. The obligation under the Term Loan is subject to the following restrictive financial and operating covenants: (a) limitations on aggregate indebtedness, (b) limitations on the principal amount outstanding of the Term Loan, (c) restrictions from making certain payments including dividend payments, (d) limitations on capital expenditures and certain investments, (e) limitations on assets sales, subject to conditions specified above, (f) limitations on investments, consolidations, and mergers with certain limited exceptions, and other limitations. As noted above the Company is also in default of certain provisions of the Term Loan. Other borrowings include local borrowings by subsidiaries which are generally unsecured and mortgage obligations on certain facilities. Other borrowings have weighted average interest rates of 11.3% at March 31, 1996 and 1995. 7. ASSETS HELD FOR SALE In 1996, the Company began to actively pursue the sale of its Asia/Pacific operations. On June 28, 1996, the Company reached an agreement to sell these subsidiaries to Kanematsu Corporation for approximately $25.0 million. The completion of the transaction is subject to certain conditions, primarily, the Company reaching an agreement with its Lenders as to the distribution of proceeds, in order to secure the release of the collateral. A tentative agreement has been reached with the Lenders (see Note 6). Asia/Pacific operations consist of the Australia, Taiwan, Singapore, and Hong Kong subsidiaries. The carrying value of Asia/Pacific operations is approximately $25.0 million (including the $16.0 million of allocated reorganization value, see Note 2) and no significant gain or loss is expected to be recognized on the sale of the operations. The sale of these operations is expected to be closed in July 1996. The buyer is to deposit the proceeds with an escrow agent pending completion of closing conditions, primarily, the Company providing certain documentation necessary for closing. If this sales transaction is not completed, then the carrying value of the allocated reorganized value assigned to the Asia/Pacific operations will be reassessed. See Note 14 for information with regards to the Asia/Pacific operations. 44 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 8. RETIREMENT BENEFITS The majority of the Company's United States employees are covered by a non- contributory defined benefit pension plan. Benefits are based on years of service and average final compensation. The Company's funding policy is to contribute at least the minimum amount required by ERISA. Plan assets consist primarily of equity and debt securities and cash equivalents. Effective October 31, 1994, the Company suspended indefinitely the accrual of benefits under its U.S. defined benefit pension plan. In exchange the Company elected to lift the limitation on matching contributions on its U.S. defined contribution plan (described below). This suspension was accounted for as a curtailment under Statement of Financial Accounting Standards No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." This curtailment resulted in the Company recording a gain of approximately $9.7 million during the year ended March 31, 1995. The Company continues to administer the plan, including the monitoring and investment of assets and distribution of benefit payments. Pension expense for the United States pension plan for the years ended March 31 was as follows:
1996 1995 | 1994 ---- ---- | ---- | Service cost-benefits earned during the period $ 0 $ 2,186 | $ 4,487 Interest cost on projected benefit obligations 4,521 5,148 | 6,227 Actual return on plan assets (10,489) (3,975) | (1,116) Net amortization and deferrals 5,775 (1,123) | (5,472) -------- -------- | -------- Net pension expense (193) 2,236 | 4,126 Net curtailment gain 0 (9,744) | 0 Fresh start loss 0 0 | 11,805 -------- -------- | -------- Net pension expense (income) of U.S. defined benefit plan $ (193) $ (7,508) | $ 15,931 -------- -------- | -------- -------- -------- | --------
45 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) The funded status of the United States plan at March 31 was as follows: 1996 1995 Actuarial present value of benefit obligations: Vested $ 57,669 $ 57,324 Nonvested 1,123 1,751 -------- -------- Accumulated benefit obligations 58,792 59,075 Effect of projected future compensation levels 0 0 -------- -------- Projected benefit obligations 58,792 59,075 Plan assets at market value (55,938) (53,216) -------- -------- Plan assets less than projected benefit obligations 2,854 5,859 Unrecognized net gain 3,132 320 -------- -------- Pension liability included in balance sheet $ 5,986 $ 6,179 -------- -------- -------- -------- In 1996 and 1995 the discount rate used to measure the present value of benefit obligations was 7.75% and 8.0%, respectively. The projected long-term rate of return on plan assets was 9.5% in 1996 and 1995 and 10% in 1994. The "fresh start" loss for the year ended March 31, 1994 resulted from the immediate recognition of deferrals from prior years. In addition to the non-contributory defined benefit pension plan described above, the Company also sponsors a U.S. defined contribution plan. The plan covers substantially all of the Company's full-time U.S. employees. In 1994, the Company's contributions consisted of matching 40% of each participant's contributions up to the first six percent of the participant's pay with a cap of six hundred dollars per year. During 1995, in conjunction with the suspension of accrual of benefits under its U.S. defined benefit pension plan, the Company decided to lift its six hundred dollar limitation on matching contributions. The Company's contribution expense was approximately $1.7 million in 1996, and $1.2 million in 1995 and $1.3 million in 1994. The Company and its subsidiaries have several non-United States pension plans, as generally dictated by local business practice and statutory requirements, covering substantially all of their employees in those countries where pension plans exist. Plan assets consist primarily of insurance contracts, debt and equity securities, and cash equivalents. The pension expense for the non-United States defined benefit pension plans for the years ended March 31 was as follows: 46 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts)
1996 1995 | 1994 ---- ---- | ---- | Service cost-benefits earned during the period $ 1,703 $ 2,229 | $ 2,293 Interest cost on projected benefit obligations 2,315 2,237 | 2,006 Actual return on plan assets (2,876) 613 | (2,141) Net amortization and deferrals 1,194 (2,342) | 534 Employee contributions (283) (301) | (347) --------- --------- | --------- Net pension expense of non-US pension plans 2,053 2,436 | 2,345 Net curtailment gain 0 0 | (666) FAS 88 loss 382 0 | 2,695 --------- --------- | --------- Net pension expense of non-US defined benefit plans $ 2,435 $ 2,436 | $ 4,374 --------- --------- | --------- --------- --------- | ---------
The funded status of the non-United States pension plans at March 31 was as follows:
1996 1995 --------------------------- --------------------------- Plan Assets Accumulated Plan Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Plan Assets Benefits Plan Assets --------------------------- --------------------------- Actuarial present value of benefit obligations: Vested $ 12,496 $ 12,916 $ 9,719 $ 14,282 Nonvested 170 839 247 1,061 --------- --------- --------- --------- Accumulated benefit obligations 12,666 13,755 9,966 15,343 Effect of projected future compensation levels 2,378 2,169 2,380 4,240 --------- --------- --------- --------- Projected benefit obligations 15,044 15,924 12,346 19,583 Plan assets at market value (17,937) (5,640) (15,566) (7,859) --------- --------- --------- --------- Plan assets net of projected benefit obligations (2,893) 10,284 (3,220) 11,724 Unrecognized net gain/(loss) 2,010 1,779 (419) 2,485 --------- --------- --------- --------- Pension (asset) liability included in balance sheet $ (883) $ 12,063 $ (3,639) $ 14,209 --------- --------- --------- --------- --------- --------- --------- ---------
The range of assumptions used for the non-United States pension plans reflects the different economic environments within the various countries. The discount rates used to measure the present value of benefit obligations in 1996 ranged from 4.75% to 9.0% and 4.75% to 10% in 1995. The assumed rates of increase in future compensation levels for the majority of the employees covered by the plans ranged from 2.5% to 7% in 1996 and 3.5% to 6.0% in 1995. 9. COMMITMENTS AND CONTINGENCIES The Company rents facilities and equipment in the normal course of its business. Rent expense under these operating leases was approximately $27.1 million, $30.1 million and $40.2 million, in years ended March 31, 1996, 1995 and 1994, respectively. Future minimum rental 47 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) commitments under non-cancelable operating leases at March 31, 1996 are as follows: 1997 - $15,734; 1998 - $10,733; 1999 - $7,495; 2000 - $3,706; 2001 - $3,454, and thereafter - $0. The Company is involved in various legal actions and claims which arise in the normal course of business. In the opinion of management, the final disposition of these matters will not have a material adverse effect on the Company's financial position or results of operations. 10. STOCKHOLDERS' DEFICIT Under the terms of the Credit Facility and Term Loan, the Company is restricted from making cash dividend payments. $2.00 WARRANTS AND $14.00 WARRANTS Upon consummation of the Reorganization Plan discussed in Note 2, the Company issued to holders of the Predecessor Company's debt and old common stock, new warrants to purchase 1,532,156 shares, and 1,000,000 shares of the Company's common stock at an exercise price of $2.00 and $14.00 per share, respectively. The $2.00 and $14.00 warrants are exercisable for five and seven years, respectively from the date of issuance and have certain anti-dilution protection from future issuances. STOCK OPTION AND STOCK PURCHASE PLANS The Company has stock options outstanding to participants under the Memorex Telex Stock Option Plan (the "Stock Option Plan"), approved by stockholders on April 13, 1994. Under this plan, both non-qualified options and incentive stock options may be granted at an exercise price per share not less than fair market value at the date of the grant. Options granted become exercisable in such amounts, at such intervals and subject to such terms and conditions as determined by the compensation and stock option committee of the supervisory board. The Company also maintains a stock purchase plan under the Memorex Telex Employees' Stock Purchase Plan ("Stock Purchase Plan"), approved by stockholders on April 13, 1994. The plan allows participants to purchase new common stock at 85% of the lower of the fair market value at the last trading day before the calendar month of participation and the last trading day of the calendar month of participation. Employee contributions can be made through lump sum contributions or periodic payroll deductions up to annual plan specified limits. The shares purchased under this plan were 23,369 and 53,296 in fiscal 1996 and 1995, respectively. In November 1995, the Management Board of Memorex Telex indefinitely suspended the Stock Purchase Plan. 48 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) The Stock Option and Stock Purchase Plans provided for the issuance of a maximum of 3,110,978 and 466,647 shares, respectively, of the Company's new common stock in the form of ADRs. During fiscal 1996, 1,047,500 options were terminated under the Stock Option Plan. The amount of stock options outstanding was 1,187,500 and 2,002,500 at March 31, 1996 and 1995, respectively and have an option price of $4.00. Total shares exercisable were 471,250 and 0 at March 31, 1996 and 1995, respectively. The Stock Option and Stock Purchase Plans have 2,155,978 and 389,982 shares available for future grants and issuance, respectively. At March 31, 1996, 3,500,960 shares were reserved for issuance under the Stock Option and Stock Purchase Plan. 11. REORGANIZATION AND REALIGNMENT COSTS Since fiscal 1993, the Company has made a series of announcements defining plans to restructure its worldwide operations. The Company continues its transition from a manufacturer of computer hardware to a provider of networking and storage solutions. As part of this transformation, the Company continues to implement its plans for re-engineering its business processes which will result in workforce reductions, consolidation of functions, disposition of facilities, and closure or sale of certain unprofitable operations. In connection with the Company's Reorganization Plan, as discussed in Note 2, the Company recorded a $406.5 million reorganization charge in fiscal 1994. This reorganization charge included "fresh start" adjustments to fair value individual assets and liabilities (approximately, $342.7 million), workforce reductions, and consolidation and closure costs (approximately, $51.6 million), and professional fees associated with the restructuring (approximately, $12.3 million). The fair value adjustments were based on independent appraisals, discounted cash flow analyses, evaluations, estimations and other studies which resulted in adjustments including the reorganization value in excess of amounts allocable to identifiable assets (approximately, $281.5 million), projected benefit obligations on pensions (approximately, $15.0 million), property, plant and equipment (approximately, $8.8 million), inventories (approximately, $5.8 million) and unfavorable contractual obligations and commitments (approximately, $25.8 million). During fiscal 1994, it was determined that the Company had overestimated its 1993 realignment charge by approximately $6.8 million. This amount was included as a reduction of the 1994 reorganization charge. The remaining liability for the 1993 realignment initiatives has been combined with the 1994 reorganization charge for tracking of restructuring activities. 49 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) The following presents the Company's reorganization activities and the remainder of charges to be utilized:
Reorganization Items ----------------------------------------------------------------------------------------- Professional Unfavorable Workforce Consolidation Fees for Asset and Contractual Reductions & Closure Reorgan- Liability Obligations & Other Total Costs ization Valuations Commitments ----------- ------------- ----------- ------------ -------------- ----------- ----------- Reorganization charges in 1994 $40,362 $11,196 $12,266 $311,114 $25,803 $5,795 $406,536 Noncash items & transfers in 1994 (506) (12,266) (311,114) - (877) (324,763) Remaining realignment charges from 1993 24,546 794 - - 8,681 2,895 36,916 Reorganization & realignment reserve ----------- ------------- ----------- ------------ -------------- ----------- ----------- at March 31, 1994 64,908 11,484 - - 34,484 7,813 118,689 Reclassifications and transfers of reserves (7,827) (1,447) - - 1,968 1,990 (5,316) Noncash items - - - - (6,607) - (6,607) Cash payments (23,793) (3,873) - - (8,970) (1,412) (38,048) Reorganization & realignment reserve ----------- ------------- ----------- ------------ -------------- ----------- ----------- at March 31, 1995 33,288 6,164 - - 20,875 8,391 68,718 Reclassifications and transfers of reserves (1,232) 1,057 - - (1,057) 1,232 0 Release of excess reserves (2,132) (197) - - (3,347) (4,113) (9,789) Noncash items - - - - 3,534 408 3,942 Cash payments (10,084) (5,496) - - (10,322) (1,407) (27,309) Reorganization & realignment reserve ----------- ------------- ----------- ------------ -------------- ----------- ----------- at March 31, 1996 19,840 1,528 - - 9,683 4,511 35,562
Note: The reorganization and realignment reserve includes both the current and noncurrent portion of the reorganization and realignment reserve. In fiscal 1996, as initiatives progressed, it was determined that the Company had overestimated its 1994 restructuring charge by approximately $9.8 million. This change is reflected in the release of excess reserves and was netted against the amortization of intangibles in the 1996 Statement of Operations. As of March 31, 1996, the Company has determined that the remaining reorganization and realignment reserve balances are adequate to cover the presently planned remaining restructuring items. However, as discussed in Note 1, the Company's plans may include, if necessary, the disposition of certain other operations. No provision for losses, have been reflected in the financial statements as of March 31, 1996, if such dispositions occur. In fiscal 1995, the Company determined that it was necessary to redistribute by category a portion of the remaining reserves. This redistribution primarily reduced reserve balances designated for workforce actions and increased reserves designated for contractual obligations and commitments and appears on the reclassifications and transfers of reserves line for 1995 activity in the preceding table. The Company anticipates $16.4 million of reserves to be utilized in fiscal 1997. However, the Company believes that it will need additional capital to meet all of the future costs of the re-engineering initiatives remaining. Management's plans to meet its additional capital requirements are discussed further in Note 1. 50 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Certain of the Company's foreign subsidiaries manage their exposure to fluctuations in foreign currency exchange rates relating to certain U.S. dollar inventory purchase obligations by entering into forward foreign currency exchange contracts. The forward contracts are not held for trading purposes. The agreements generally have maturities of six months or less and contain an element of risk that the counterparty may be unable to meet the terms of the agreements. In order to minimize its exposure to credit risk, the Company limits its counterparties to major financial institutions. The Company does not expect any of the counterparties to fail to meet its obligations. At March 31, 1996 and 1995, the Company had forward foreign currency contracts outstanding to purchase U.S. dollars of approximately $19.0 million and $12.0 million, respectively. The current market settlement values of these contracts were not materially different from those recorded. Gains or losses on these contracts are included in the underlying cost of the inventory acquired. The Company offers lease financing of selected products to its customers, which include various industries and governmental agencies in multiple geographic regions, with lease terms of 3-5 years. Certain of these leases are sold on a limited recourse basis. Sales of lease receivables in 1996, 1995, and 1994 were approximately $35.3 million, $35.0 million, $42.0 million, respectively. At March 31, 1996, it is not practicable to estimate the fair value of the Company's borrowings under its Credit Facility or Term Loan because no active marketplace exists and due to the significant expense to obtain an outside appraisal. See Note 6 for discussion of the carrying amount, maturity date, and interest rate of the Company's debt instruments. The Company's investment in a publicly traded company, accounted for under the equity method of accounting, had a fair market value, based on quoted market prices of $24.1 million and $30.7 million, and a carrying value of $7.7 million and $17.7 million, at March 31, 1996 and 1995, respectively. The investment is included in other assets the Consolidated Balance Sheets. See Note 3 for discussion of certain sales of the Company's investment during fiscal year 1996. 51 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 13. OTHER FINANCIAL INFORMATION The following is a summary of certain other financial information: Predecessor Reorganized Company Company ------------------------------------------ Year Ended March 31, ------------------------------------------ 1996 1995 | 1994 ---- ---- | ---- (i) Revenues: | Product $ 463,517 $ 529,846 | $ 620,775 Service 346,112 351,568 | 348,135 Rentals and Brokerage 24,424 28,337 | 46,664 ----------- ----------- | ----------- $ 834,053 $ 909,751 | $ 1,015,574 ----------- ----------- | ----------- ----------- ----------- | ----------- (ii) Cost of Revenues: | Product $ 353,398 $ 378,603 | $ 427,366 Service 263,529 254,970 | 240,492 Rentals and Brokerage 14,666 17,454 | 37,802 ----------- ----------- | ----------- $ 631,593 $ 651,027 | $ 705,660 ----------- ----------- | ----------- ----------- ----------- | ----------- (iii) Cash Flow Information: | Interest Paid $ 15,728 $ 17,646 | $ 27,581 Income Taxes Paid 2,369 5,849 | 6,743 Sources (uses) of working capital excluding changes resulting from realignment and reorganization items reflected in the consolidated statements of cash flows are as follows: Predecessor Reorganized Company Company ----------------------------------------- Year Ended March 31, ----------------------------------------- 1996 1995 | 1994 ---- ---- | ---- | Receivables $ 5,192 $ 28,504 | $ 29,619 Inventories and Service Parts (93) 27,378 | 1,770 Other current assets (348) 3,276 | (1,426) Accounts payable 700 24,474 | (34,129) Accrued liabilities (4,186) (91,393) | (6,948) ---------- ---------- | ---------- $ 1,265 $ (7,761) | $ (11,114) ---------- ---------- | ---------- ---------- ---------- | ---------- 52 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 14. GEOGRAPHIC DATA The Company operates in one business segment. Certain information by geographic area for the years ended March 31, 1996, 1995 and 1994 was as follows:
Revenue Operating ---------------------------------------- Income Identifiable REORGANIZED COMPANY: External Internal Total (Loss) Assets - - - -------------------- -------- -------- ----- ---- ------ 1996: Domestic (Netherlands) $ 15,471 $ 88,304 $ 103,775 $ 9,548 $ 210,041 United States 368,473 30,922 399,395 (13,430) 134,458 Europe (excluding Netherlands) 340,286 4,173 344,459 7,105 111,885 Asia/Pacific Operations(3) 73,258 374 73,632 10,834 35,501 Other (1) 36,565 44 36,609 (222,596) 23,686 Eliminations 0 (123,817) (123,817) 1,064 (247,403) ---------- --------- --------- --------- --------- $ 834,053 $ 0 $ 834,053 $ (207,475) $ 268,168 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- --------- 1995: Domestic (Netherlands) $ 13,096 $ 126,242 $ 139,338 $ 1,885 $ 189,725 United States 438,579 42,605 481,184 30,621 159,535 Europe (excluding Netherlands) 339,572 10,417 349,989 4,839 115,329 Asia/Pacific Operations 73,090 682 73,772 1,118 40,776 Other (1) 45,414 514 45,928 (124,508) 273,541 Eliminations 0 (180,460) (180,460) 1,185 (242,440) ---------- --------- --------- --------- --------- $ 909,751 $ 0 $ 909,751 $ (84,860) $ 536,466 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- --------- 1994: Domestic (Netherlands) $ 16,305 $ 156,343 $ 172,648 $ 1,129 $ 223,668 United States 499,232 75,620 574,852 40,349 190,739 Europe (excluding Netherlands) 362,884 13,727 376,611 2,833 116,545 Asia/Pacific Operations 69,769 500 70,269 2,853 42,750 Other (1) 67,384 1,938 69,322 (19,463) 405,713 Eliminations 0 (248,128) (248,128) 4,546 (258,162) ---------- --------- --------- --------- --------- $ 1,015,574 $ 0 $ 1,015,574 $ 32,247 $ 721,253 (2) ---------- --------- --------- --------- --------- ---------- --------- --------- --------- ---------
Notes: (1) Other includes reorganization value in excess of the amounts allocable to identifiable assets and the associated amortization. Additionally includes the reorganization value write-off discussed in Note 2. (2) Reflects the fair value of identifiable assets of the Reorganized Company at March 31, 1994. (3) Operating income (loss) includes gain of $5.5 million related to sale of shares of equity investee (see Note 3). Sales and transfers between geographic areas are made with reference to prevailing market prices and at prices approximating those charged to unaffiliated distributors. Operating income is revenue less related costs and operating expenses excluding net interest expense. No single customer accounted for 10% or more of the Company's total revenue in the period. 53 MEMOREX TELEX N.V. (A Netherlands Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share amounts) 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Selected quarterly financial data, which is unaudited, for each of the quarters in the fiscal years ended March 31, 1996 and 1995 is as follows:
June 30, September 30, December 31, March 31, 1995 1995 1995 1996 ---- ---- ---- ---- Net revenues $220,551 $207,870 $206,340 $199,292 Gross margin 59,323 51,738 48,153 43,246 Operating loss (23,077) (24,006) (28,495) (131,897) (1) Net loss ($27,729) ($31,522) ($36,131) ($151,357) (2) Net loss per common share ($1.11) ($1.26) ($1.44) ($6.03) June 30, September 30, December 31, March 31, 1994 1994 1994 1995 ---- ---- ---- ---- Net revenues $232,637 $222,988 $232,518 $221,608 Gross margin 67,736 64,656 67,551 58,781 Operating loss (21,759) (26,288) (11,261) (3) (25,552) Net loss ($30,633) ($31,662) ($18,357) ($27,359) Net loss per common share ($1.23) ($1.27) ($0.73) ($1.09)
Notes: (1) Includes amortization and write-off of reorganization value in the amount of $99,334 for the quarter ended March 31, 1996. (2) Includes additional accretion of debt of $12,779 for the quarter ending March 31, 1996. (3) Includes curtailment gain of $9,744 from the suspension of the accrual of benefits for the U.S. defined benefit pension plan. 54 SCHEDULE II MEMOREX TELEX N.V. VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
Additions Additions Balances at charged to charged Balances beginning costs and to other at end of period expenses accounts Deductions of period Description ----------- ---------- --------- ---------- --------- - - - ----------- REORGANIZED COMPANY: - - - -------------------- For the year ended March 31, 1996 Allowance for doubtful accounts $ (12,357) $ (4,606) $ 163 $ 6,639 $ (10,161) For the year ended March 31, 1995 Allowance for doubtful accounts (14,263) (2,926) (651) 5,483 (12,357) PREDECESSOR COMPANY: - - - -------------------- For the year ended March 31, 1994 Allowance for doubtful accounts (17,196) (3,188) 178 5,943 (14,263)
55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MEMOREX TELEX N.V. By: /s/ David J. Faulkner ----------------------------------- (David J. Faulkner) Managing Director July 15, 1996 and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature & Title Date ----------------- ---- By: /s/Peter H. Dailey ------------------------------- (Peter H. Dailey) Chief Executive Officer July 15, 1996 By: /s/David J. Faulkner ------------------------------- (David J. Faulkner) Managing Director and Chief Financial Officer July 15, 1996 By: /s/Gregory S. Wood ------------------------------- (Gregory S. Wood) Senior Vice President and Chief Accounting Officer July 15, 1996 56 EXHIBIT INDEX 2.1* Disclosure Statement dated January 6, 1994. 2.2* Joint Plan of Reorganization confirmed by the United States Bankruptcy Court for the District of Delaware on March 14, 1994, and effective on March 24, 1994. 3.1** English translation of Restated Articles of Association of Memorex Telex N.V. 4.1* Specimen Certificate for common stock, DFL. 0.10 nominal value per share, of the Company. 4.2* Form of $2.00 Warrant. 4.3* Form of $14.00 Warrant. 10.11* Management Agreement dated as of October 23, 1986, between ABN Trust Company and Memorex Telex N.V. 10.12* Technology Transfer Agreement dated as of May 11, 1990 between Memorex Telex Corporation and American Telephone and Telegraph Company (the "AT&T Agreement"). 10.13** Settlement Agreement and Stipulation dated as of February 5, 1992, between Memorex Telex Corporation, Memorex Corporation and Tulsa Computer Products, Ltd. and the Department of Justice. 10.14*** Amending Agreement dated February 3, 1994 to the AT&T Agreement. 10.15*** Restructured Credit and Guaranty Agreement dated as of March 24, 1993 among certain subsidiaries of the Company as Borrowers and Guarantors, the Company as Guarantor, the Lenders listed therein and Morgan Guaranty Trust Company of New York as Agent. 10.15(a)**** Amendment No. 1 to the Restructured Credit and Guaranty Agreement. 10.15(b)**** Amendment No. 2 to and Waiver under the Restructured Credit and Guaranty Agreement. 10.15(c) Amendment and Waiver No. 3 under Restructured Credit and Guaranty Agreement. 10.15(d) Amendment No. 4 to Restructured Credit and Guaranty Agreement. 10.15(e) Amendment No. 5 to Restructured Credit and Guaranty Agreement. 10.15(f) Amendment No. 6 to Restructured Credit and Guaranty Agreement. 10.21** Employment Agreement dated as of November 4, 1992, between the Company and Marcelo A. Gumucio. _____________________________________ * Previously filed as an Exhibit to the Company's Registration Statement on Form S-4 (Registration No. 33-67988) and incorporated herein by reference. ** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1993 and incorporated herein by reference. *** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1994 and incorporated herein by reference. **** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1995 and incorporated herein by reference. 10.21(a)**** Amendment No. 1 effective as of April 1, 1995 to the Employment Agreement made as of November 4, 1992, between the Company and Marcelo A. Gumucio. 10.22*** Employment Agreement dated as of June 29, 1993, between the Company and Rudolph G. Morin. 10.23*** Employment Agreement dated as of April 1, 1994, between the Company and David J. Faulkner. 10.23(a)*** Amended and Restated Employment Agreement effective as of April 1, 1995, between the Company and David J. Faulkner. 10.23(b) Employment Agreement dated as of April 1, 1996, between the Company and Peter H. Dailey. 10.24 Credit and Guaranty Agreement dated as of March 5, 1996 among certain subsidiaries of the Company as borrowers and guarantors, the Company as guarantor and Foothill Capital Corporation. 23.1 Consent of Ernst & Young LLP, Independent Auditors 27 Financial Data Schedule - - - ------------------------------------- *** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1994 and incorporated herein by reference. **** Previously filed as an Exhibit to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1995 and incorporated herein by reference. EX-10.15(C) 2 EXHIBIT 10.15(C) EXHIBIT 10.15(c) [EXECUTION COPY] AMENDMENT AND WAIVER NO. 3 UNDER RESTRUCTURED CREDIT AND GUARANTY AGREEMENT AMENDMENT AND WAIVER NO. 3 dated as of September 30, 1995 among Memorex Telex Corporation, Memorex Telex N.V., Memorex Telex Holding N.V., Memorex Telex Distribution N.V., Tulsa Computer Products, Ltd., the Lenders listed on the signature pages hereof and Morgan Guaranty Trust Company of New York, in its capacity as agent (the "Agent"). W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into the Restructured Credit and Guaranty Agreement dated as of March 24, 1994 (as heretofore amended, the "Agreement"); and WHEREAS, the parties hereto desire to waive certain provisions thereof; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. SECTION 2. AMENDMENTS IN CONNECTION WITH SALES OF SHARES OF MEMOREX TELEX JAPAN LTD. (a) Section 2.04(c)(i) of the Agreement is amended to add the following proviso immediately after the last proviso of such subparagraph: ; and PROVIDED, FURTHER, that in the event of any sales at any time during the period from September 30, 1995 but prior to December 31, 1995 of up to an aggregate 2,000,000 shares of common stock of Memorex Telex Japan Ltd. ("MTJL") owned by the Parent, pursuant to the option to purchase such shares granted by the Parent, the Borrowers shall not be required to make a prepayment pursuant to this clause (c)(i) if the following subclauses (A), (B) and (C) are satisfied: (A) all of the Net Cash Proceeds from such sale and from all prior sales during such period of any shares of common stock of MTJL owned by the Parent shall be paid to Kanematsu Corporation, a Japanese corporation, to satisfy obligations of the Borrowers to Kanematsu Corporation secured by a pledge of such shares or paid to MTJL to satisfy obligations of the Borrowers to MTJL, except that an aggregate cumulative amount of Net Cash Proceeds not to exceed $2,000,000 during such period may be deposited in the Other Designated Asset Proceeds Account in accordance with subclause (C); (B) the consideration for such Asset Sale consists solely of cash and (C) the Net Cash Proceeds not applied to make any such payments to Kanematsu Corporation or to MTJL are deposited in the Other Designated Asset Proceeds Account in a manner satisfactory to the Agent as soon as practicable (and in any event not later than one Business Day) after consummation of such Asset Sale. (b) Section 7.01(f) of the Agreement is amended by amending and restating the first clause (i) therein as follows: (i) no Default shall have occurred and be continuing at the time such release is to occur, other than any Default which shall have been waived by the Required Lenders SECTION 3. WAIVERS OF CERTAIN OBLIGATIONS TO PAY INTEREST AND PRINCIPAL. The Lenders, through the Required Lenders signatory hereto, hereby waive, until the earlier of December 31, 1995 or the occurrence of any other Default (the "Waiver Expiration Date"), any and all Defaults resulting from any failure by the Borrowers to make the payments of interest required to be made pursuant to Section 2.03 at any time during the period from and including September 30, 1995 until the Waiver Expiration Date or resulting from the failure by the Borrowers to make the payments of principal required to be made pursuant to Section 2.04(b) on June 30, 1995 and September 30, 1995 (all such payments of interest and principal, collectively, being referred to herein as the "Deferred Payments"). Upon the Waiver Expiration Date, the waivers set forth in this 2 Section 3 shall cease to be of force or effect and the Deferred Payments shall be due and payable. It is understood that (x) the waivers set forth in this Section 3 do not purport to alter the obligations imposed by Sections 2.03 and 2.04(b), but merely the exercise of rights and remedies predicated upon a Default thereunder, and (y) upon the occurrence of the Waiver Expiration Date, such rights and remedies shall be fully exercisable unless such obligations shall have then been performed. Without limiting the generality of the foregoing, prior to the Waiver Expiration Date, the availability of the amounts referred to in subsection 7.01(f)(C) of the Agreement will by virtue of this Amendment and Waiver No. 3 not be affected by the failure to make the Deferred Payments. SECTION 4. REDUCTION OF CONDITIONAL FORGIVENESS. Notwithstanding anything to the contrary contained in the Agreement or in Waiver No. 2 Under Restructured Credit and Guaranty Agreement, no Triggering Reduction or portion thereof shall give rise to a Forgiveness Amount or a conditional right to forgiveness as provided in Section 3.02 of the Credit Agreement unless the aggregate amount of such Triggering Reduction and all prior Triggering Reductions exceeds, in the aggregate, the sum of the Deferred Designated Asset Amortization Amount (as such term is defined in the Agreement) and $5,500,000. Moreover, any Triggering Reduction with respect to which the foregoing condition is satisfied shall give rise to a Forgiveness Amount and a conditional entitlement to forgiveness only in respect of the portion of such Triggering Reduction which, when taken together with all prior Triggering Reductions, exceeds, in the aggregate, the sum of the Deferred Designated Asset Amortization Amount and $5,500,000. The Agreement shall be deemed amended to the extent required to effectuate the foregoing, and the Borrowers hereby waive any and all Forgiveness Amounts and conditional rights to forgiveness except to the extent contemplated by this paragraph. Upon the effectiveness of this Amendment and Waiver No. 3, Section 3 of Waiver No. 2 Under Restructured Credit and Guaranty shall cease to be operative and shall have no further force or effect. SECTION 5. GOVERNING LAW. This Amendment and Waiver No. 3 shall be governed by and construed in accordance with the laws of the State of New York. SECTION 6. COUNTERPARTS; EFFECTIVENESS. This Amendment and Waiver No. 3 shall become effective as of the date hereof when the Agent shall have received duly executed 3 counterparts hereof signed by (i) all parties hereto other than the Lenders and (ii) the Required Lenders (or in the case of any party from which an executed counterpart shall not have been received, the Agent shall have received facsimile, telegraphic, telex or other written confirmation from such party that a counterpart has been signed by such party). This Amendment and Waiver No. 3 may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver No. 3 to be duly executed as of the date first above written. BORROWERS AND GUARANTOR MEMOREX TELEX N.V. By: ---------------------------------- Name: Title: MEMOREX TELEX CORPORATION By: ---------------------------------- Name: Title: MEMOREX TELEX DISTRIBUTION N.V. By: ---------------------------------- Name: Title: MEMOREX TELEX HOLDING N.V. By: ---------------------------------- Name: Title: 4 TULSA COMPUTER PRODUCTS, LTD. By: ---------------------------------- Name: Title: AGENT: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: ---------------------------------- Name: Title: LENDERS: ABN AMRO BANK N.V., AMSTERDAM BRANCH By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: BANQUE WORMS CAPITAL CORP. By: ---------------------------------- Name: Title: BAYERISCHE VEREINSBANK, AKTIENGESELLSCHAFT, LONDON BRANCH By: ---------------------------------- Name: Title: 5 CERBERUS PARTNERS, L.P. By: ---------------------------------- Name: Title: GRACE BROTHERS, LTD. By: ---------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, LONDON BRANCH By: ---------------------------------- Name: Title: NEW VERNON PARTNERS L.P. By: Whippoorwill Associates, Inc., as agent By: ---------------------------------- Name: Title: PARESCO INC. By: Whippoorwill Associates, Inc., as agent By: ---------------------------------- Name: Title: 6 PEARL STREET L.P. By: ---------------------------------- Name: Title: PEQUA TRADING CORP. By: Whippoorwill Associates, Inc., as agent By: ---------------------------------- Name: Title: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: SARANAC INVESTORS L.P. By: Whippoorwill Associates, Inc., as agent By: ---------------------------------- Name: Title: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: ---------------------------------- Name: Title: 7 THE PRESIDENT AND FELLOWS OF HARVARD COLLEGE By: Whippoorwill Associates, Inc., as agent By: ---------------------------------- Name: Title: THE ROCKEFELLER FOUNDATION By: Whippoorwill Associates, Inc,, as agent By: ---------------------------------- Name: Title: VEGA OFFSHORE FUND TRUST By: Whippoorwill Associates, Inc., as agent By: ---------------------------------- Name: Title: VEGA PARTNERS L.P. By: Whippoorwill Associates, Inc., as General Partner By: ---------------------------------- Name: Title: 8 VEGA PARTNERS II L.P. By: Whippoorwill Associates, Inc., as General Partner By: ---------------------------------- Name: Title: 25307 PARTNERSHIP By: Whippoorwill Associates, Inc., as agent By: ---------------------------------- Name: Title: 9 EX-10.15(D) 3 EXHIBIT 10.15(D) EXHIBIT 10.15(d) EXECUTION COPY AMENDMENT NO. 4 TO RESTRUCTURED CREDIT AND GUARANTY AGREEMENT AMENDMENT dated as of February 1, 1996 among Memorex Telex Corporation (the "Company"), Memorex Telex N.V., Memorex Telex Holding N.V., Memorex Telex Distribution N.V., Tulsa Computer Products, Ltd., the Lenders listed on the signature pages hereof and Morgan Guaranty Trust Company of New York, in its capacity as agent (the "Agent"). WITNESSETH : WHEREAS, the parties hereto have heretofore entered into the Restructured Credit and Guaranty Agreement dated as of March 24, 1994 (as heretofore amended, the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement to provide for additional covenants under the Agreement and to waive certain provisions thereof; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. SECTION 2. DEFERRAL OF PRINCIPAL AND INTEREST. The Lenders agree to defer all payments of interest on the Notes accruing prior to March 31, 1996 to, and all such interest not heretofore paid shall be due and payable on, March 31, 1996. The Lenders further agree to defer the payment of the principal of the Loans that is currently scheduled to be due on December 31, 1995 to, and such payment of principal shall be due and payable on, March 31, 1996. SECTION 3. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. COUNTERPARTS; EFFECTIVENESS. This Amendment shall become effective as of the date hereof when the Agent shall have received duly executed counterparts hereof signed by (i) all parties hereto other than the Lenders and (ii) each of the Lenders (or in the case of any party from which an executed counterpart shall not have been received, the Agent shall have received facsimile, telegraphic, telex or other written confirmation from such party). This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed as of the date first above written. BORROWERS AND GUARANTOR MEMOREX TELEX N.V. By ------------------------------------ Title: MEMOREX TELEX CORPORATION By ------------------------------------ Title: MEMOREX TELEX DISTRIBUTION N.V. By ------------------------------------ Title: MEMOREX TELEX HOLDING N.V. By ------------------------------------ Title: TULSA COMPUTER PRODUCTS, LTD. By ------------------------------------ Title: 3 AGENT: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By ------------------------------------ Title: LENDERS: ABN AMRO BANK N.V., AMSTERDAM BRANCH By ------------------------------------ Name: Title: BANQUE WORMS CAPITAL CORP. By ------------------------------------ Name: Title: BAYERISCHE VEREINSBANK AKTIENGESELLSCHAFT, LONDON BRANCH By ------------------------------------ Name: Title: CERBERUS PARTNERS, L.P. By ------------------------------------ Name: Title: 4 GRACE BROTHERS LTD. By ------------------------------------ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, LONDON BRANCH By ------------------------------------ Name: Title: NEW VERNON PARTNERS L.P. By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: PARESCO INC. By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: PEARL STREET L.P. By ------------------------------------ Name: Title: 5 PEQUA TRADING CORP. By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By ------------------------------------ Name: Title: By ------------------------------------ Name: Title: SARANAC INVESTORS L.P. By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By ------------------------------------ Name: Title: 6 THE PRESIDENT AND FELLOWS OF HARVARD COLLEGE By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: THE ROCKEFELLER FOUNDATION By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: VEGA OFFSHORE FUND TRUST By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: VEGA PARTNERS L.P. By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: 7 VEGA PARTNERS II L.P. By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: 25307 PARTNERSHIP By: Whippoorwill Associates, Inc., as agent By ------------------------------------ Name: Title: 8 EX-10.15(E) 4 EXHIBIT 10.15(E) EXHIBIT 10.15(e) EXECUTION COPY AMENDMENT NO. 5 TO RESTRUCTURED CREDIT AND GUARANTY AGREEMENT AMENDMENT dated as of February 1, 1996 among Memorex Telex Corporation (the "Company"), Memorex Telex N.V., Memorex Telex Holding N.V., Memorex Telex Distribution N.V., Tulsa Computer Products, Ltd., the Lenders listed on the signature pages hereof and Morgan Guaranty Trust Company of New York, in its capacity as agent (the "Agent"). W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into the Restructured Credit and Guaranty Agreement dated as of March 24, 1994 (as heretofore amended, the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement to provide for additional covenants under the Agreement and to waive certain provisions thereof; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof ", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. SECTION 2. BRIDGE LOAN. The Lenders consent to the execution, delivery and performance by the parties thereto of the Term Loan and Guaranty Agreement (as amended from time to time, the "Bridge Agreement") to be entered into by Cardinal Investment Company, Inc. (or an affiliated partnership or other entity or entities) ("Cardinal"), as lender, the Company, as borrower and each of the Obligors, as guarantors, substantially in the form of the draft dated January 31, 1996 previously delivered to the Lenders, including the granting of Liens by the borrowers and guarantors thereunder to secure the loans made thereunder and the loaning by the borrowers of the proceeds of such loans to the Company. The Lenders also waive Section 6.22 of the Agreement in order to allow the Parent to enter into the Definitive Agreement referred to below, it being understood that no Obligor shall take any action which would be required to be taken pursuant to, or in satisfaction of any condition contained in, such Definitive Agreement which is not permitted by the Agreement unless and until all necessary amendments or waivers have been given or made pursuant to the Agreement. SECTION 3. AMENDMENTS TO COVENANTS AND DEFAULTS. The Lenders agree that as part of the amendment and restatement of the Agreement entered into with the consent of each of the parties to the Agreement in connection with the consummation of the transactions contemplated by the Financing Agreement (the "Definitive Agreement") among Cardinal Investment Company, Inc., the Parent and certain Subsidiaries of the Parent (including the Company) substantially in the form of the draft dated January 29, 1996 Previously delivered to the Lenders, the covenants set forth in Article VI of the Agreement shall be amended substantially as set forth in Annex A hereto and the Events of Default set forth in Article VII of the Agreement shall be amended substantially as set forth in Annex B hereto. The effectiveness of such amendment and restatement of the Agreement shall be conditioned upon, among other things, receipt by the Parent of the proceeds of issuance of at least $21,430,000 aggregate principal amount of the Convertible Notes (as defined in the Definitive Agreement). SECTION 4. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 5. COUNTERPARTS; EFFECTIVENESS. This Amendment shall become effective as of the date hereof when the Agent shall have received duly executed counterparts hereof signed by (i) all parties hereto other than the Lenders and (ii) each of the Lenders (or in the case of any party from which an executed counterpart shall not have been received, the Agent shall have received facsimile, telegraphic, telex or other written confirmation from such party). This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed as of the date first above written. BORROWERS AND GUARANTOR MEMOREX TELEX N.V. By ---------------------------------- Title: MEMOREX TELEX CORPORATION By ---------------------------------- Title: MEMOREX TELEX DISTRIBUTION N.V. By ---------------------------------- Title: MEMOREX TELEX HOLDING N.V. By ---------------------------------- Title: TULSA COMPUTER PRODUCTS, LTD. By ---------------------------------- Title: 3 AGENT: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By ---------------------------------- Title: LENDERS: ABN AMRO BANK N.V., AMSTERDAM BRANCH By ---------------------------------- Name: Title: BANQUE WORMS CAPITAL CORP. By ---------------------------------- Name: Title: BAYERISCHE VEREINSBANK AKTIENGESELLSCHAFT, LONDON BRANCH By ---------------------------------- Name: Title: CERBERUS PARTNERS, L.P. By ---------------------------------- Name: Title: 4 GRACE BROTHERS LTD. By ---------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, LONDON BRANCH By ---------------------------------- Name: Title: NEW VERNON PARTNERS L.P. By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: PARESCO INC. By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: PEARL STREET L.P. By ---------------------------------- Name: Title: 5 PEQUA TRADING CORP. By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By ---------------------------------- Name: Title: By ---------------------------------- Name: Title: SARANAC INVESTORS L.P. By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By ---------------------------------- Name: Title: 6 THE PRESIDENT AND FELLOWS OF HARVARD COLLEGE By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: THE ROCKEFELLER FOUNDATION By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: VEGA OFFSHORE FUND TRUST By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: VEGA PARTNERS L.P. By: Whippoorwill Associates, Inc., as General Partner By ---------------------------------- Name: Title: 7 VEGA PARTNERS II L.P. By: Whippoorwill Associates, Inc., as General Partner By ---------------------------------- Name: Title: 25307 PARTNERSHIP By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: 8 EX-10.15(F) 5 EXHIBIT 10.15(F) EXHIBIT 10.15(f) EXECUTION COPY AMENDMENT NO. 6 TO RESTRUCTURED CREDIT AND GUARANTY AGREEMENT AMENDMENT dated as of February 1, 1996 among Memorex Telex Corporation (the "Company"), Memorex Telex N.V., Memorex Telex Holding N.V., Memorex Telex Distribution N.V., Tulsa Computer Products, Ltd., the Lenders listed on the signature pages hereof and Morgan Guaranty Trust Company of New York, in its capacity as agent (the "Agent"). W I T N E S S E T H: WHEREAS, the parties hereto have heretofore entered into the Restructured Credit and Guaranty Agreement dated as of March 24, 1994 (as heretofore amended, the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement to provide for additional covenants under the Agreement and to waive certain provisions thereof; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. DEFINITIONS; REFERENCES. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. SECTION 2. WAIVER. Compliance with the requirement of Section 6.11 of the Agreement that the ratio of EBITDA to Cash Interest Expense for the period of twelve consecutive calendar months ending on December 31, 1995 not be less than 2.50 to 1.00 is hereby waived. SECTION 3. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. COUNTERPARTS; EFFECTIVENESS. This Amendment shall become effective as of the date hereof when the Agent shall have received duly executed counterparts hereof signed by (i) all parties hereto other than the Lenders and (ii) the Required Lenders (or in the case of any party from which an executed counterpart shall not have been received, the Agent shall have received facsimile, telegraphic, telex or other written confirmation from such party). This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed as of the date first above written. BORROWERS AND GUARANTOR MEMOREX TELEX N.V. By ---------------------------------- Title: MEMOREX TELEX CORPORATION By ---------------------------------- Title: MEMOREX TELEX DISTRIBUTION N.V. By ---------------------------------- Title: MEMOREX TELEX HOLDING N.V. By ---------------------------------- Title: TULSA COMPUTER PRODUCTS, LTD. By ---------------------------------- Title: 3 AGENT: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By ---------------------------------- Title: LENDERS: ABN AMRO BANK N.V., AMSTERDAM BRANCH By ---------------------------------- Name: Title: BANQUE WORMS CAPITAL CORP. By ---------------------------------- Name: Title: BAYERISCHE VEREINSBANK AKTIENGESELLSCHAFT, LONDON BRANCH By ---------------------------------- Name: Title: CERBERUS PARTNERS, L.P. By ---------------------------------- Name: Title: 4 GRACE BROTHERS LTD. By ---------------------------------- Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, LONDON BRANCH By ---------------------------------- Name: Title: NEW VERNON PARTNERS L.P. By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: PARESCO INC. By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: PEARL STREET L.P. By ---------------------------------- Name: Title: 5 PEQUA TRADING CORP. By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY By ---------------------------------- Name: Title: By ---------------------------------- Name: Title: SARANAC INVESTORS L.P. By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By ---------------------------------- Name: Title: 6 THE PRESIDENT AND FELLOWS OF HARVARD COLLEGE By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: THE ROCKEFELLER FOUNDATION By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: VEGA OFFSHORE FUND TRUST By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: VEGA PARTNERS L.P. By: Whippoorwill Associates, Inc., as General Partner By ---------------------------------- Name: Title: 7 VEGA PARTNERS II L.P. By: Whippoorwill Associates, Inc., as General Partner By ---------------------------------- Name: Title: 25307 PARTNERSHIP By: Whippoorwill Associates, Inc., as agent By ---------------------------------- Name: Title: 8 EX-10.23(B) 6 EXHIBIT 10.23(B) EXHIBIT 10.23(b) CONFORMED COPY EMPLOYMENT AGREEMENT Employment Agreement dated as of April 1, 1996, between Memorex Telex N.V. organized under the laws of the Netherlands (the "Company"), Memorex Telex Corporation, a Delaware corporation (the "Company Subsidiary") and Peter H. Dailey (the "Executive"). The Company desires to employ the Executive as its Chief Executive Officer, and the Company Subsidiary desires that the Executive shall also perform services in a responsible managerial capacity, and the Executive desires to accept such employment by the Company and the Company Subsidiary, on the terms and subject to the conditions set forth herein. In consideration of the premises and the mutual agreements herein contained, the parties hereto agree as follows: 1. EMPLOYMENT. The Company and the Company Subsidiary hereby employ the Executive, and the Executive hereby accepts employment in the positions and with the duties and responsibilities as set forth in paragraph 3 below subject to the terms and conditions hereinafter set forth. 2. TERM. Subject to the provisions for earlier termination as herein provided, the initial term of employment under this agreement shall be for the period commencing April 1, 1996, and ending March 31, 1997 (the "Initial Term") and shall automatically renew for successive twelve-month periods unless either party notifies the other in writing at least three months prior to the end of the then current term of employment that such term of employment shall no so renew (the Initial Term and any renewal thereof referred to herein, collectively, the "Term of Employment"). 3. POSITION AND DUTIES. During the Term of Employment, the Executive shall be employed as Chief Executive Officer of the Company and shall serve upon election by the shareholders of the Company as a member and Chairman of the Company's Management Board, and, subject to supervision by the Company's Supervisory Board of Directors, shall have overall charge of the business affairs of the Company, with the duties, responsibilities, and authorities normally associated with such position. The Executive shall serve the Company faithfully, diligently, and to the best of his ability and shall devote substantially all of his business time and efforts to his employment, provided however, the Executive may serve as a member of the Board of Directors of other entities with the Employment Agreement Page 2 approval of the Chairman of the Company's Supervisory Board of Directors. Nothing herein shall preclude the Executive from making personal investments and spending time on immaterial business activities unrelated to the Company and its business. The Executive shall also serve as an officer and/or director of the Company Subsidiary and such one or more other subsidiaries of the Company as the Supervisory Board of Directors shall request, and shall be entitled to no additional remuneration for such service. 4. COMPENSATION. During the Initial Term, the Executive shall (a) be paid by the Company Subsidiary an annual base salary of $500,000, payable in accordance with the payroll practices of the Company Subsidiary, which currently provides for bi-weekly pay periods, and (b) be eligible for participation in the Company's management incentive compensation plan which will provide for a bonus of up to one hundred percent (100%) of the Executive's base salary upon one hundred percent achievement of objectives. Of such bonus amount, seventy-five percent will be based upon the Company's results, and twenty-five percent will be based upon mutually agreed, individual objectives determined by the Company's Supervisory Board of Directors. 5. STOCK OPTIONS. The Executive shall receive options to acquire 250,000 shares of common stock of the Company in accordance with the terms of the Company's amended and restated stock option plan for management. 6. EMPLOYEE BENEFIT PROGRAMS. The Executive shall be entitled to participate in all employee incentive and benefit programs of the Company Subsidiary now or hereafter made available to the Company's senior executives or salaried employees generally, as such programs may be in effect from time to time. 7. ADDITIONAL PERQUISITES. The Executive shall be entitled to additional perquisites as follows: a. ANNUAL PHYSICAL. The Executive shall be reimbursed for the cost of an annual physical examination. b. TAX RETURNS. The Company shall pay $10,000.00 for the preparation of the Executive's income tax returns. c. BUSINESS EXPENSES. The Company and the Company Subsidiary shall reimburse the Executive (in accordance with the practice from time to time for other officers of the Company) for all reasonable and necessary travel and other disbursement incurred by the Executive for or on behalf of the Company in the performance his duties hereunder upon presentation by the Executive to the Company of appropriate expense reimbursement claims. Reasonable travel expenses shall include, but not be limited to, the expense of travel to and from the Executive's permanent residence within the continental United States. In addition to such Employment Agreement Page 3 travel expenses, the Company Subsidiary shall during the Initial Term of employment pay up to $80,000.00 of the rental or hotel costs and automobile rental for the Executive at the location of Executive's employment. 8. TERMINATION OF EMPLOYMENT. (a) TERMINATION WITHOUT CAUSE. In the event the Executive's employment is terminated by the Company without Cause (as defined in paragraph 9(a) hereof), which shall not include a termination due to the Executive's death or Disability (as defined in paragraph 9(c) hereof), the Executive shall be entitled to continued payments of his then current base salary for the current term of employment. (b) TERMINATION DUE TO DEATH OR DISABILITY. In the event the Executive's employment is terminated due to his death of Disability, then the Executive or his legal representative shall be entitled to continued payments of his then current base salary for the then current term of employment. (c) OTHER PAYMENTS. Upon the termination of the Executive's employment for any reason, the Executive shall be entitled to receive, in addition to the amounts, if any, payable under paragraph 8(a) hereof, the following: (i) any annual bonus earned during one or more preceding years but not yet paid; (ii) reimbursement for reasonable expenses incurred but not yet reimbursed by the Company; (iii) any other benefits to which the Executive or his legal representative may be entitled under applicable plans and programs of the Company. 9. DEFINITIONS. For purpose of the Agreement, the following terms shall be defined as set forth below: (a) The Executive shall be deemed to be terminated for "Cause" if (i) the Executive shall theretofore have been convicted by any federal, state, or local authority for, or shall have pleaded guilty to, an act constituting a felony, (ii) the Executive shall have habitually abused any substance (such as narcotics or alcohol), or (iii) the Executive is terminated because of (x) acts of fraud, material dishonesty or gross misconduct by the Executive in connection with the business of the Company, or (y) repeated and willful failure by the Executive to perform his duties hereunder after a demand for such performance is delivered to the Executive by the Company's Supervisory Board of Directors. (b) "Disability" means the Executive's inability, for a period of three consecutive months, to render substantially the services provided in this Agreement by reason of mental or physical disability, whether resulting from illness, accident, or otherwise. Employment Agreement Page 4 10. DISCLOSURE OF INFORMATION. The Executive agrees that he will not, at any time during or after any Term of Employment, disclose to any person, firm, corporation, or other business entity (other than agents and representatives of the Company, its subsidiaries who need to know) except as required by law, any non-public information concerning the business, customers, or affairs of the Company or any subsidiary thereof for any reason or purpose whatsoever nor shall the Executive make use of any of such non-public information for his own purposes or for the benefit of any person, firm, corporation, or other business entity except the Company or any subsidiary thereof. 11. COVENANT NOT TO COMPETE. The Executive acknowledges and recognizes that during any Term of Employment he will be privy to trade secrets and confidential proprietary information critical to the business of the Company (including the Company's subsidiaries) and, accordingly, the Executive agrees that, in consideration of the premises contained herein, he will not, from and after the date hereof until the first anniversary of the termination of his employment hereunder, (i) directly or indirectly engage in, represent in any way, or be connected with, any business or activity (such business or activity being hereinafter called a "Competing Business"), directly competing with the Company's business, within any country in which the Company transacts business, whether such engagement shall be as an officer, director, owner, employee, partner, affiliate, or other participant in any Competing Business, except that the provisions of this paragraph 11 shall not be deemed breached merely because the Executive owns not more than five percent of the outstanding common stock of a corporation or other entity if at the time of its acquisition by the Executive, such stock is listed on a national securities exchange, or is regularly traded in the over-the-counter market, (ii) assist others in engaging in any Competing Business in the manner described in the foregoing clause (i), (iii) induce other employees of the Company or any subsidiary thereof to terminate their employment with the Company or any subsidiary thereof, or engage in any Competing Business, or (iv) solicit any of the customers or suppliers of the Company or induce such customers or suppliers to terminate their relationships with the Company. 12. INDEMNIFICATION. The Company and the Company Subsidiary hereby indemnifies and holds harmless the Executive to the fullest extent permitted under the laws and regulations applicable to such entities against all actions, suit, proceedings, and claims, actual or threatened, based upon or arising out of Executive's service as a director, officer, employee, or agent thereof The Executive will also be covered under any directors and officers liability insurance policies applicable to directors and officers of the Company and/or the Company Subsidiary. 13. ASSIGNABILITY; BINDING NATURE. This agreement shall be binding upon, and shall inure to the benefit of; the respective heirs, legal representatives, and successors of the parties hereto. 14. SEVERABILITY. In the event that any provision or portion of the agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the Employment Agreement Page 5 remaining provisions of the agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 15. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of the agreement to the extent necessary to the intended preservation of such rights and obligations. 16. GOVERNING LAW. The Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of California without reference to principles of conflict of laws. The parties hereto hereby irrevocably agree that any legal action or proceeding arising out of; related to, or in connection with this agreement shall be brought in a court of competent jurisdiction in California, and by their execution and delivery of this agreement each party hereby irrevocably accepts and submits to the jurisdiction of such court in person, generally and unconditionally in connection with any such action or proceeding. 17. NOTICES. Any notice given to either party shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned, if to the Company and Company Subsidiary, at their principal office, and if the Executive, 1999 Oak Knoll Avenue, San Marino, California 91108, or at such other address as such party may give notice of. 18. HEADINGS. The headings of the paragraphs contained in the Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of the Agreement. 19. COUNTERPARTS. The Agreement may be executed in two or more counterparts. 20. ENTIRE AGREEMENT; AMENDMENTS. The Agreement contains the entire agreement between the parties hereto concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations, and undertakings, whether written or oral, between them with respect thereto. This Agreement may be amended only by an agreement in writing signed by the parties hereto. [The remainder of this page intentionally left blank.] Employment Agreement Page 6 IN WITNESS WHEREOF, the undersigned have executed the Agreement as of the date first written above. EXECUTIVE /s/ Peter H. Dailey --------------------------------------- MEMOREX TELEX N.V. By: /s/ David J. Faulkner ----------------------------------- Managing Director MEMOREX TELEX CORPORATION By: /s/ Anthony J. Barbieri ----------------------------------- Secretary EX-10.24 7 EXHIBIT 10.24 - - - ----------------------------------------------------------------------------- [LOGO] CREDIT AND GUARANTY AGREEMENT by and among MEMOREX TELEX CORPORATION as Borrower, MEMOREX TELEX SERVICES, INC., MEMOREX TELEX INC., MEMOREX TELEX (UK) LTD., and MEMOREX TELEX N.V. as the Guarantors, and FOOTHILL CAPITAL CORPORATION Dated as of March 5, 1996 - - - ----------------------------------------------------------------------------- CREDIT AND GUARANTY AGREEMENT THIS CREDIT AND GUARANTY AGREEMENT (this "Agreement"), is entered into as of March 5, 1996, among the following: MEMOREX TELEX CORPORATION, a Delaware corporation ("Borrower"), with its chief executive office located at 545 East John Carpenter Freeway, Irving, Texas 75062; MEMOREX TELEX SERVICES, INC., a Delaware corporation ("Services"), with its chief executive office located at 545 East John Carpenter Freeway, Irving, Texas 75062; MEMOREX TELEX INC., a corporation organized under the laws of the Province of Ontario, Canada ("Canada"), with its principal office located at 65 Allstate Parkway, Markham, Ontario, L3R 9X1 Canada; MEMOREX TELEX (UK) LTD., a corporation organized under the laws of England and Wales ("UK"), with its principal office located at Eskdale Road, Winnersh, Workingham, Berkshire RG11 5TS, United Kingdom; MEMOREX TELEX N.V., a corporation organized under the laws of The Netherlands (the "Parent"), with its principal office located at Hoogoorddreef 9, 1101 BA Amsterdam ZO, The Netherlands; and FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333. W I T N E S S E T H : WHEREAS, Borrower, Services, Canada, UK, and the Parent have requested that Foothill provide certain financing to Borrower, guarantied by the Guarantors; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINITIONS. The following terms, as used herein, have the following meanings: "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of an Account. "Accounts" means all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Parent or any of its Consolidated Subsidiaries arising out of the sale or lease of goods or the rendition of services by Parent or such Consolidated Subsidiary, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security therefor. "Affiliate" means (i) any Person that directly, or indirectly through one or more intermediaries, controls an Obligor (a "Controlling Person") and (ii) any Person (other than the Parent or a Subsidiary of the Parent) which controls, is controlled by or is under common control with a Controlling Person. The Agent or any Restructuring Lender which, together with its affiliates, controls less than 10% of the outstanding shares of Voting Stock shall not be deemed to be an Affiliate. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agent" means Morgan Guaranty Trust Company of New York, in its capacity as agent and as trustee for the Restructuring Lenders under the Restructured Credit Agreement, and its successors in such capacity. "Annualized Domestic Eligible Service Revenues" means Annualized Eligible Service Revenues excluding (a) revenues from Service Accounts not created by Borrower or Services and (b) revenues from those Service Accounts that are not payable in Dollars or with respect to which the Account Debtor (i) does not maintain its chief executive office in the United States, or (ii) is not organized under the laws of the United States or any State thereof. "Annualized Eligible Service Revenues" means, as of the date of any determination, an amount equal to: (a) the product of (i) the aggregate amount of revenues from Service Accounts of Parent and its Consolidated Subsidiaries during the immediately preceding three (3) month period, MULTIPLIED BY (ii) four (4); LESS (b) the amount of any deferred revenue at the end of such three (3) month period. 2 "Applicable Margin" means (a) during the period commencing on the Closing Date and ending on the date immediately preceding the first (1st) anniversary of the Closing Date, zero (0) percentage points, and (b) thereafter, two (2) percentage points. "Asia Pacific Sale" means a sale of all or substantially all of the capital stock or assets of those Subsidiaries of the Parent, including, without limitation, Australia, that comprise the Consolidated Company's Asia-Pacific operations (other than Memorex Telex Japan Ltd.), and that are identified on SCHEDULE A-1 attached hereto. "Asia-Pacific Sale Condition" means the consummation of the Asia-Pacific Sale on or before June 1, 1996. "Asset Sale" means any sale, lease or other disposition (including, without limitation, any such transaction effected by way of merger, amalgamation or consolidation) by the Parent or any of its Subsidiaries subsequent to the Closing Date of any asset, including, without limitation, any Sale and Leaseback Transaction, whether or not involving a Capital Lease, but excluding: (i) dispositions of inventory and used, surplus or worn-out equipment in the ordinary course of business; (ii) dispositions of assets by the Parent or any of its Subsidiaries to the Parent or any of its Subsidiaries; (iii) any sale of leasebase receivables of the Parent or any of its Consolidated Subsidiaries; (iv) the sale by Borrower or a Subsidiary of Borrower of the 100,000 shares of Series A Convertible Preferred Stock of Telex Communications Group, Inc. ("TCI") and the 100,000 shares of Series B Preferred Stock of TCI; (v) the sale or other disposition of the capital stock of Memorex Telex Japan Ltd.; and (vi) any sale or other factoring of accounts receivable (other than leasebase receivables and other than Accounts created by UK or Canada); PROVIDED that (A) each sale or factoring of accounts receivable pursuant to this clause (vi) (a "Transferred Account Receivable") shall be without recourse to any Obligor or any of its Subsidiaries (and for purposes of this definition, a lien on such Transferred Account Receivable in favor of the transferee of an interest in such receivable, or any other third party, shall not in and of itself constitute recourse to the transferor of such interest), (B) the sum (the "Transferred Amount") of (1) the aggregate uncollected balances of Transferred Accounts Receivable (exclusive of defaulted accounts receivable) PLUS (2) the aggregate amount of all collections on Transferred Accounts Receivable theretofore received by the seller for the account of the purchaser but not yet remitted to the purchaser MINUS (3) the aggregate unpaid amount of the deferred purchase price, if any, ("holdback") in respect of Transferred Accounts Receivable to the extent that such holdback has 3 not been applied against defaulted accounts receivable, shall not exceed $100,000,000 at any time, and (C) the Transferred Amount in respect of Transferred Accounts Receivable that but for such sale would have constituted Collateral located in the United States shall not exceed $40,000,000 at any time. "Australia" means Memorex Telex Pty Ltd., a corporation organized under the laws of New South Wales, Australia, and its successors. "Authorized Officer" means any corporate officer of Borrower properly authorized in writing by such Borrower to transact business with Foothill. "Bankruptcy Code" means Title I of the Bankruptcy Reform Act of 1978, as amended, as set forth in title 11, Section 101 ET SEQ, of the United States Code. "Benefit Arrangement" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "Borrower" means Memorex Telex Corporation, a Delaware corporation, and its successors. "Borrowing Base" has the meaning set forth in SECTION 2.03. "Business Day" means any day, that is not a Saturday, Sunday, or other day on which national banks are authorized or required by law to close. "Canada" means Memorex Telex Inc., a corporation organized under the laws of Ontario, Canada, and its successors. "Capital Lease" means a lease that would be capitalized on a balance sheet of the lessee prepared in accordance with generally accepted accounting principles and the amount of any Capital Lease obligation shall be the capitalized amount thereof, determined in accordance with generally accepted accounting principles. "Capital Stock" means any and all shares, interests, participations, warrants, options, contingent equity rights or other equivalents (however designated) of or in corporate stock or any other equity interest. 4 "Central Obligors" means the Parent and each Subsidiary of Parent from time to time party to any Restructured Collateral Document. "CFO" means at any time the chief financial officer at such time of the Parent and its Consolidated Subsidiaries. "Closing Date" means the date of the funding of the Loan hereunder. "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. "Collateral" has the meaning set forth in the Restructured Collateral Agency Agreement. "Collateral Access Agreement" means a landlord waiver, mortgagee waiver, bailee letter, or a similar acknowledgement agreement of any warehouseman, processor, or other Person in possession of Inventory, in each case, in form and substance satisfactory to Foothill. "Collateral Agent" means Morgan Guaranty Trust Company of New York in its capacity as collateral agent under the Restructured Collateral Documents and its successors in such capacity. "Collateral Documents" means the (a) the assignments, security agreements, pledge agreements, instruments, acknowledgments and other documents (as the same may be amended, modified, supplemented or waived from time to time) described in SCHEDULE C-1 to this Agreement and (b) all additional assignments, security agreements, pledge agreements, instruments, acknowledgments and other documents (as the same may be amended, modified, supplemented or waived from time to time) which are delivered or to be delivered pursuant hereto (to the extent such document pertains to the Collateral). "Consolidated Capital Expenditures" means, for any period, the aggregate amount of expenditures by the Parent and its Consolidated Subsidiaries for plant, property and equipment during such period which in accordance with generally accepted accounting principles are capitalized in the consolidated financial statements of the Parent and its Consolidated Subsidiaries for such period (reduced, to the extent otherwise reflected therein, by (x) the aggregate principal amount of Debt incurred during such period pursuant to paragraph (iv) or (vi) of Section 5.07(a) and (y)investments in sales-type leases made during such period). 5 "Consolidated Company" means the Parent and its Consolidated Subsidiaries. "Consolidated Debt" means, at any date, the aggregate amount of Debt of the Parent and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Subsidiary" means, at any date with respect to any Person, any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in the consolidated financial statements of such Person as of such date. "Constitutional Documents" means, in relation to any corporate Person, the Memorandum and Articles of Association, Certificate of Incorporation and By-Laws or other constitutional documents of such corporate Person. "Daily Balance" means the amount of an Obligation owed at the end of a given day. "Debt" of any Person means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, (iv) all obligations of such Person as lessee under Capital Leases, (v) all obligations of such Person to purchase securities which arise out of or in connection with the sale of the same or substantially similar securities, (vi) all obligations of such Person, fixed or contingent, to reimburse any other Person for amounts drawn under a letter of credit or similar instrument, (vii) any preferred stock of any Subsidiary of such Person, and any preferred stock of such Person which is subject to redemption otherwise than at the sole option of such Person prior to January 1, 2000; (viii) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (ix) all Debt of others Guaranteed by such Person; PROVIDED that neither (A) obligations of the Parent or any of its Consolidated Subsidiaries in respect of non-recourse dispositions of accounts receivable (including, without limitation, leasebase receivables) accounted for as sales under United States accepted accounting principles in effect on December 31, 1995, nor (B) trade accounts payable arising in the ordinary course of business nor obligations in respect of insurance policies or performance or surety bonds which are not themselves Guarantees of Debt (nor drafts, acceptances or similar instruments evidencing the same nor obligations in respect of letters of credit supporting the payment of the same) shall constitute Debt. 6 "Default" means any condition or event that constitutes an Event of Default or that with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Directly Imposed Foreign Taxes" has the meaning set forth in Section 10.11. "Distribution" means Memorex Telex Distribution N.V., a corporation organized under the laws of The Netherlands with its statutory seat in Amsterdam, and its successors. "Dollars" and the sign "$" mean lawful currency of the United States of America. "Domestic Securitization Reserve" means, as of any date of determination, an amount equal to the Dollar amount of Morgan Delaware's aggregate 'Net Investment' under the Receivables Purchase Agreement in Service Accounts, PLUS the Dollar amount of Morgan Delaware's accrued but unpaid 'Yield' under the Receivables Purchase Agreement. "Eligible Accounts" means those Accounts created by the Non-Parent Obligors in the ordinary course of business that arise out of the sale of goods or rendition of services, and that strictly comply with each and all of the representations and warranties respecting Accounts to Foothill in the Financing Documents. Eligible Accounts shall not include the following: (a) Accounts that the Account Debtor has failed to pay within ninety (90) days of invoice date or Accounts with selling terms of more than thirty (30) days; (b) Accounts with respect to which the Account Debtor is an employee, Affiliate, or agent of any Obligor; (c) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the Account Debtor may be conditional; (d) Accounts that are not payable in Dollars or an Eligible Currency or with respect to which the Account Debtor: (i) does not maintain its chief executive office in the United States or an Eligible Foreign Jurisdiction, or (ii) is not organized under the laws of the United States or any State thereof, Canada, or an Eligible Foreign Jurisdiction, or (iii) is the government of any foreign country or 7 sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof; (e) Accounts with respect to an Account Debtor whose total obligations owing to one or more Non-Parent Obligors exceed twenty percent (20%) of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage; (f) Accounts with respect to which the Account Debtor disputes liability or makes any claim with respect thereto, or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; (g) Accounts the collection of which Foothill, in its reasonable credit judgment, believes to be doubtful by reason of the Account Debtor's financial condition; (h) Accounts with respect to which the goods giving rise to such Account have not been shipped and delivered to and accepted by the Account Debtor or the Account otherwise does not represent a final sale; and (i) Accounts that represent progress payments or other advance billings that are due prior to the completion of performance by the Obligors of the subject contract for goods or services. "Eligible Currency" means: (a) in respect of Accounts created by UK, British Pounds Sterling; and (b) in respect of Accounts created by Canada, Canadian Dollars. "Eligible Foreign Jurisdiction" means any of: (i) the United Kingdom; and (ii) any provinces of Canada other than Quebec, New Brunswick, Prince Edward Island, Newfoundland, and Nova Scotia. "Eligible Inventory" means Inventory consisting of first quality finished goods held for sale in the ordinary course of Borrower's or Services' business, that are located at the Borrower's or Services' premises identified on SCHEDULE E-1, and that strictly comply with each and all of the representations and warranties respecting Inventory made to Foothill in the Financing Documents. In determining the amount to be so included, Inventory shall be valued at the lower of cost or market, net of standard reserves for obsolescence and physical inventory adjustments, on a basis consistent with the current and historical accounting practices of Borrower or Services. An item of Inventory shall not be included in Eligible Inventory if: 8 (a) it is not owned solely by Borrower or Services, or Borrower or Services does not have good, valid, and marketable title thereto; (b) it is not located at one of the locations set forth on SCHEDULE E-1 attached hereto; (c) it consists of service parts, trade-ins, demonstration units, or "holdover inventory;" (d) it is not subject to a valid and perfected first priority security interest in favor of Foothill or the Collateral Agent on behalf thereof; (e) it consists of goods returned or rejected by customers of Borrower or Services, as the case may be, or goods in transit; and (f) it is obsolete or slow moving, a restrictive or custom item, work-in-process, a component that is not part of finished goods, or constitutes spare parts, packaging and shipping materials, supplies used or consumed in the business of Borrower or Services, Inventory subject to a security interest or lien in favor of any third Person, bill and hold goods, defective goods, "seconds," or Inventory acquired on consignment. "Eligible Non-Securitized Account" means, as of any date of determination, any Eligible Account other than an Eligible Securitized Account. "Eligible Securitized Account" means, as of any date of determination, any Eligible Account included in any 'Pool' (as defined in the Receivables Purchase Agreement). "Eligible Transferee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country, and having total assets in excess of $100,000,000; provided that such bank is acting through a branch or agency located in the United States; (c) a finance company, insurance or other financial institution or fund that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $50,000,000; (d) any Affiliate (other than individuals) of Foothill; and (e) any other Person approved by Foothill and Borrower. 9 "Enforceable Judgment" means a judgment or order of a court or arbitral or regulatory authority as to which the period, if any, during which the enforcement of such judgment or order is stayed shall have expired; PROVIDED, that if any judgment requires a monetary payment and does not set a date by which such payment must be made, there shall be deemed to be a five-day period after the entry of such judgment during which such payment may be made prior to such judgement becoming an Enforceable Judgment. A judgment or order which is under appeal or as to which the time in which to perfect an appeal has not expired shall not be deemed an Enforceable Judgment so long as enforcement thereof is effectively stayed pending the outcome of such appeal or the expiration of such period, as the case may be. "Environmental Laws" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "Equipment" means all of the Non-Parent Obligors' present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, fixtures, vehicles (including, without limitation, motor vehicles and trailers), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including, without limitation, (a) any interest of the Non-Parent Obligors in any of the foregoing, and (c) all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "Equity Issuance" has the meaning set forth in Section 2.04(c)(iii) of the Restructured Credit Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended or any successor statute. "ERISA Group" means Borrower, any Subsidiary of Borrower, and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Borrower or any Subsidiary of Borrower, are treated as a single employer under Section 414 of the Code. 10 "Event of Acceleration" means any of the events or conditions set forth in paragraphs (h), (i) and (j) of Section 7.01 with respect to any Material Company. "Event of Default" means any of the events or conditions set forth in Section 7.01. "Financial Obligation" means (i) any Debt, (ii) any obligation in respect of any letter of credit, whether or not constituting Debt, and (iii) any obligation in respect of any interest swap, currency swap, financial option or futures contract or any similar arrangement. "Financing Documents" means this Agreement, the Restructured Collateral Agency Agreement, and the Collateral Documents, any note or notes executed by Borrower and payable to Foothill, and any other agreement entered into, now or in the future, in connection with this Agreement. "Foothill" means Foothill Capital Corporation, a California corporation, and its successors and assigns. "Foothill Expenses" means all reasonable items as follows: costs or expenses (including, without limitation, taxes and insurance premiums) required to be paid by the Obligors under any of the Financing Documents that are paid or incurred by Foothill; fees or charges paid or incurred by Foothill in connection with Foothill's transactions with the Obligors, including, without limitation, fees or charges for photocopying, notarization, telecommunication, public record searches (including, without limitation, tax lien, litigation, and UCC searches), filing, recording, publication, appraisal (including, without limitation, periodic Collateral appraisals), real estate surveys, real estate title policies, and environmental audits; costs and expenses incurred by Foothill in the disbursement of funds to Borrower (by wire transfer or otherwise); charges paid or incurred by Foothill resulting from the dishonor of checks; costs and expenses paid or incurred by Foothill to correct any default or enforce any provision of the Financing Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated; costs and expenses paid or incurred by Foothill in examining any Obligor's books and records; costs and expenses of third party claims or any other suit paid or incurred by Foothill in enforcing or defending the Financing Documents or in connection with the transactions contemplated by the Financing Documents or Foothill's relationship with the Obligors; and Foothill's reasonable attorneys fees and expenses incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing (including, without limitation, attorneys fees and expenses incurred in connection with a "workout", a 11 "restructuring", or an Insolvency Proceeding concerning any Obligor or any other guarantor of the Obligations), defending, or concerning the Financing Documents, irrespective of whether suit is brought. "Foreign Taxes" means any Taxes levied or imposed by any government or any taxing authority of or in any jurisdiction other than Taxes imposed by the United States or any political subdivision or taxing authority thereof or therein. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), PROVIDED that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantors" means, collectively, each of Services, UK, Canada, Australia (from and after the time, if any, that Australia first becomes a Guarantor under Section 3.02 hereof and thereafter for so long as Australia is not released pursuant to Section 8.07 hereof from Australia's guaranty hereunder), and the Parent, and "Guarantor" means any one of the foregoing. "Hazardous Substances" means any toxic, radioactive, caustic or otherwise hazardous substance, including, without limitation, petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "Holding" means Memorex Telex Holding N.V., a corporation organized under the laws of The Netherlands with its statutory seat in Amsterdam, and its successors. "Indemnitee" has the meaning set forth in Section 14.03(b). "Inventory" means all present and future inventory in which the Non-Parent Obligors have any interest, including, without limitation, goods held for sale or lease or to be furnished under a contract of service and all of the Non-Parent Obligors' present 12 and future raw materials, work in process, finished goods, mid packing and shipping materials, wherever located, and any documents of title representing any of the above. "Investment" means any investment m any Person, whether by means of share purchase, capital contribution, loan, purchase of Debt, Guarantee of Debt, time deposit or otherwise. "Investment Grade" means, when used with respect to any security or obligation, that such security or obligation (or in the case of any equity security, a class of debt securities issued by the same Person) shall have been assigned a rating of Baa-3 (or the comparable rating in any successor rating scheme) or better by Moody's Investors Service, Inc. (or any successor thereto) or BBB- (or the comparable rating in any successor rating scheme) or better by Standard and Poor's Corporation (or any successor thereto) "J.V. Investments" means Investments by the Parent or any of its Subsidiaries in: (i) Persons (other than Subsidiaries of the Parent) which are expected to supply products or services to the Parent or any of its Subsidiaries or whose products or services are expected to be marketed in conjunction with the products or services of the Parent or any of its Subsidiaries; or (ii) Persons engaged in business of a type conducted by the Parent or a Subsidiary of the Parent and accounted for by the Parent and its Consolidated Subsidiaries on the equity method. "Leasebase Amount" has the meaning ascribed to that term in Section 5.13(c). "Lender" means Foothill, each assignee of Foothill or another Lender for purposes hereof pursuant to Section 10.08, and their respective successors and assigns. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, or any deposit or maintenance, or use as collateral or support, in connection with any obligation of such asset (including, without limitation, cash) or any other arrangement the economic effect of which is to give a creditor preferential access to such asset to satisfy its claim. For the purpose of this Agreement, the Parent or any of its Subsidiaries shall be deemed to own subject to a Lien (i) any asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement or other title retention agreement relating to such asset or any Capital Lease or (ii) any account receivable transferred by the Parent or any of its Subsidiaries with recourse. 13 "Liquidation" means, in relation to any corporate Person, any dissolution, termination, winding-up or liquidation, by whatsoever name known and in whatsoever jurisdiction, of such Person. "Loan" means the term loan made by Foothill to Borrower, as more fully described in Section 2.01 of this Agreement. "Lockbox Agreement" means, individually and collectively: (i) the Amended and Restated Lockbox Agreement (Hardware), dated as of June 30, 1995, among Borrower, Morgan Delaware, the Collateral Agent, and Bank of America Illinois; and (ii) the Lockbox Agreement (Maintenance), dated as of June 30, 1995, among Services, Morgan Delaware, the Collateral Agent, and Bank of America Illinois; in each case, as amended to, and in effect on, the date hereof and as amended from time to time. "Marketable Securities" means (i) Dollars or direct non-callable obligations of, or non-callable obligations guaranteed as to timely payment or insured by, the United States or any agency or instrumentality thereof for the payment of which obligation or guarantee the full faith and credit of the United States is pledged and (ii) notes, bonds or stock that are listed on a national securities exchange and are Investment Grade. "Material Adverse Change" means with respect to the Consolidated Company, a material adverse change in the business, properties, assets, financial position, results of operations or prospects of the Consolidated Company, taken as a whole. "Material Company" means any Obligor, Central Obligor, or Security Subsidiary. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities exceeding $1,000,000. "Maturity Date" means March 5, 1998 or, if such day is not a Business Day, the next preceding Business Day. "Maximum Rate" means the maximum rate of interest permitted by applicable law as the same exists from day to day during the term of this Agreement. "Morgan Delaware" means J.P. Morgan Delaware, a corporation organized under the laws of Delaware, and its successors. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA 14 Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including, without limitation, for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Net Cash Proceeds" means, with respect to any Asset Sale, an amount equal to the cash proceeds received by the Parent or any of its Subsidiaries from or in respect of such Asset Sale, less (x) any expenses reasonably incurred by the Parent or such Subsidiary in respect of such Asset Sale, (y) the amount of any Debt secured by a Lien on the related asset and required to be discharged from the proceeds of such Asset Sale and (z) any taxes paid or payable by the Parent or such Subsidiary (as are reasonably and in good faith estimated by the CFO) in respect of such Asset Sale; PROVIDED, that, with respect to any Asset Sale, "Net Cash Proceeds", determined as provided above, shall be adjusted by adding the book value (net of any collection fee charged by the buyer) of all accounts receivable being retained by Subsidiaries of the Parent and by subtracting the book value of all accounts payable and other accrued liabilities related to the assets being sold, incurred in the ordinary course of such business, which are not being assumed by the buyer(s) of such assets, so long as the fair market value of the total consideration for such Asset Sale is less than $2,000,000 and the fair market value of the total consideration for all Asset Sales consummated during any fiscal year, the Net Cash Proceeds of which are adjusted pursuant to this PROVISO, is less than $5,000,000; and, PROVIDED, FURTHER, that "Net Cash Proceeds" shall not include (i) the cash proceeds of any Asset Sale by Memorex Telex Japan Ltd. or (ii) to the extent Foothill consents in writing in advance of any particular transaction giving rise thereto, any Other cash proceeds received by any Subsidiary of the Parent which, by reason of any law or regulation of the jurisdiction where such Subsidiary maintains the bank account in which such proceeds are held, are blocked and cannot be remitted from such jurisdiction or can be remitted from such jurisdiction only through incurrence of a material incremental tax liability. The Parent and its Subsidiaries shall be deemed to have received at the closing of any Asset Sale cash in an amount equal to the fair market value of the portion (if any) of the consideration for such sale that consists of either Marketable Securities or Non-Cash Proceeds. "Non-Cash Proceeds" shall have the meaning set forth in Section 5.09(b) hereof. "Non-Parent Obligors" means, collectively, the Obligors other than the Parent, and "Non-Parent Obligor" means any one of them. "Obligations" means all loans, advances, debts, principal, interest (including, without limitation, any interest that, but for the provisions of the Bankruptcy Code, would have accrued), premiums, liabilities (including, without limitation, all amounts 15 charged to Borrower's Loan Account pursuant hereto), obligations, fees, or Foothill Expenses (including, without limitation, any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), guaranties, covenants, and duties owing by the Obligors to Foothill of any kind and description pursuant to or evidenced by the Financing Documents, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including, without limitation, all interest not paid when due and all Foothill Expenses that the Obligors are required to pay or reimburse in connection with the Financing Documents. "Obligors" means, collectively, Borrower and each of the Guarantors, and "Obligor" means any one of them. "Overadvance" has the meaning set forth in SECTION 2.02. "Parent" means Memorex Telex N.V., a corporation organized under the laws of The Netherlands with its statutory seat in Amsterdam, and its successors. "Participant" has the meaning set forth in Section 14.08(b) "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Asia-Pacific Proceeds Application" has the meaning set forth in Section 2.02(a). "Permitted Liens" means those Liens described in clauses (a) through (i) of Section 5.08. "Person" means an individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or other agency or political subdivision thereof or any other entity. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. 16 "Prepackaged Plan" has the meaning ascribed thereto in the Restructured Credit Agreement. "Qualification"' means, with respect to any report of independent public accountants covering financial statements, a qualification to such report (such as a "subject to" or "except for" statement therein) (I) resulting from a limitation on the scope of examination of such financial statements or the underlying data, (ii) with respect to the continued existence of the entity whose financial statements are reported upon, as contemplated by Statement on Auditing Standards No. 34, or (iii) which could be eliminated by changes in financial statements or notes thereto covered by such report (such as, by the creation of or increase in a reserve or a decrease in the carrying value of assets) and which if so eliminated by the making of any such change and after giving effect thereto would occasion a Default; PROVIDED that neither of the following shall constitute a Qualification: (a) a consistency exception relating to a change in accounting principles with which the independent public accountants for the Person whose financial statements are being examined have concurred or (b) a qualification relating to the outcome or disposition of any uncertainty, including but not limited to threatened litigation, pending litigation being contested in good faith, pending or threatened claims or other contingencies, the impact of which litigation, claims, contingencies or uncertainties cannot be determined with sufficient certainty to permit quantification in such financial statements. "Receivables Purchase Agreement" means the Amended and Restated Receivables Purchase Agreement dated as of September 17, 1990, between Borrower and Morgan Delaware, as amended to, and as in effect on, the date hereof and as amended from time to time. "Reference Rate" means the variable rate of interest, per annum, most recently announced by Norwest Bank, Minnesota, N.A. or any successor to such institutions, as its "prime rate", "base rate", or "reference rate", as the case may be, irrespective of whether such announced rate is the best rate available from such financial institution. "Regulation G" means Regulation G of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Restricted Payment" means (i) any dividend or other distribution on any shares of the Capital Stock of the Parent or any of its Subsidiaries (other than stock splits, like-kind stock dividends or the distribution of shares of Capital Stock of the Parent 17 pursuant to the exercise of Warrants issued pursuant to the Prepackaged Plan) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of Capital Stock of the Parent or any of its Subsidiaries or (b) any option, warrant or other right to acquire shares of capital stock of the Parent or any of its Subsidiaries; PROVIDED that payments by any Subsidiary of the Parent to the Parent or any of its Wholly-Owned Subsidiaries shall not constitute Restricted Payments. "Restructured Collateral Documents" means the (a) Restructured Collateral Agency Agreement, (b) the assignments, security agreements, pledge agreements, instruments, acknowledgments and other documents (as the same may be amended, modified, supplemented or waived from time to time) described in Schedule C-1 to the Restructured Collateral Agency Agreement and (c) all additional assignments, security agreements, pledge agreements, instruments, acknowledgments and other documents (as the same may be amended, modified, supplemented or waived from time to time) which the Representatives (as defined in the Restructured Collateral Agency Agreement) from time to time agree by notice to the Collateral Agent shall constitute Collateral Documents for the purposes of the Restructured Collateral Agency Agreement or which are delivered or to be delivered pursuant hereto (to the extent such document pertains to the Collateral) or thereto. "Restructured Collateral Agency Agreement" means the Amended and Restated Restructured Collateral Agency, dated as of the date hereof, among the Borrower, the Parent, certain Subsidiaries of the Parent listed on the signature pages thereof, Foothill, the Agent, the Restructuring Lenders, and the Collateral Agent, as the same may be modified, waived or amended from time to time. "Restructured Credit Agreement" means the Restructured Credit and Guaranty Agreement dated as of March 24, 1994, as amended, among Borrower, Holding, Distribution, Tulsa, the Parent, the lenders listed on the signature pages thereof, and Morgan Guaranty Trust Company of New York, as agent. "Restructuring Lender" means each Person listed as a Lender on the signature pages of the Restructured Credit Agreement, each Assignee which becomes a "Lender" for purposes of the Restructured Credit Agreement pursuant to Section 14.08(c) of the Restructured Credit Agreement, and their respective successors, and "Restructuring Lenders" means all of the foregoing. "Restructured Loans" means the 'Loans' as defined in the Restructured Credit Agreement. 18 "Sale and Leaseback Transaction" means any arrangement with any Person providing for the leasing by the Parent or any of its Subsidiaries of any property that, or of any property similar to and used for substantially the same purposes as any other property that, has been or is to be sold, assigned, transferred or otherwise disposed of by the Parent or any of its Subsidiaries to such Person with the intention of entering into such a lease. "Securitization Reserve" means, as of any date of determination, the Dollar amount of Morgan Delaware's Net Investment under the Receivables Purchase Agreement in Service Accounts. "Security Subsidiaries" means all, and "Security Subsidiary" means any one, of the following Subsidiaries of the Parent: 1. Memorex Telex Corporation 2. Tulsa Computer Products, Ltd. 3. Memorex Telex Inc. 4. Memorex Telex Holding N.V. 5. Memorex Telex AG 6. Memorex Telex Holdings (UK) Limited 7. Memorex Telex (UK) Limited 8. Memorex Telex S.A. (France) 9. Memorex Telex Italia SpA 10. Memorex Telex Distribution N.V. 11. Memorex Telex Nederland B.V. 12. Memorex Telex S.A. (Belgium) 13. Memorex Telex Pty Limited 14. Memorex Telex Wholesale Pty Limited 15. Services, and any other Subsidiary of the Parent some or all of whose capital stock or obligations serve as collateral for the Restructuring Lenders under one or more of the Restructured Collateral Documents and any other Subsidiary of the Parent formed or organized after the Closing Date. "Service Accounts" means Accounts created in the ordinary course of business arising arise out of the rendition of maintenance and other similar services from recurring contracts with Account Debtors. "Services" means Memorex Telex Services Inc., a Delaware corporation, and its successors. 19 "Subsidiary" means, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "Tax" means any present or future tax, duty or other charge (including, without limitation, interest and penalties imposed with respect thereto). "Temporary Cash Investment" means (a) funds of any subsidiary of the Parent or, subject to Section 5.22, of the Parent on deposit with a local bank or (b) any Investment in (i) Dollars or direct non-callable obligations of, or non-callable obligations guaranteed as to timely payment or insured by, the United States or any agency or instrumentality thereof for the payment of which obligation or guarantee the full faith and credit of the United States is pledged, (ii) commercial paper rated at least A-1 by Standard & Poor's Corporation and P-1 by Moody's Investors Service, Inc., (iii) time deposits with, including, without limitation, certificates of deposit issued by, any office located in the United States of any bank or trust company which is organized under the laws of the United States or any state thereof and the senior debt securities of which are rated in one of the two highest categories by a nationally recognized credit rating agency, provided, in each case, that such Investment matures within 90 days from the date of acquisition thereof, or (iv) repurchase obligations with a term of not more than ten days with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iii) above. "Transferee" has the meaning set forth in Section 14.08(d). "Tulsa" means Tulsa Computer Products, Ltd., an Oklahoma corporation, and its successors. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "UK" means Memorex Telex (UK) Ltd., a corporation organized under the laws of England and Wales, and its successors. 20 "U.S." and "United States" means the United States of America. "U.S. Taxes" means any Taxes levied or imposed by the United States of America or any political subdivision or taxing authority thereof or therein. "Voting Stock" means Capital Stock of any class or classes (however designated) having ordinary voting power for the election of managing directors of the Parent, other than Capital Stock having such power only by reason of the happening of a contingency. "Warrants" means either or both (i) the stock subscription warrants representing the right to purchase, in the aggregate, 1,532,156 shares of the authorized common stock, dfl. 0.10 nominal value per share, of Memorex Telex N.V. on and after the effective date of the Prepackaged Plan, at an exercise price of $2.00 per share until the fifth anniversary of the effective date of the Prepackaged Plan, which are authorized to be issued and distributed pursuant to the Prepackaged Plan, or (ii) the stock subscription warrants representing the right to purchase, in the aggregate, 1,000,000 shares of the authorized common stock, dfl. 0.10 nominal value per share, of Memorex Telex N.V. on and after the effective date of the Prepackaged Plan, at an exercise price of $14.00 per share until the seventh anniversary of the effective date of the Prepackaged Plan, which are authorized to be issued and distributed pursuant to the Prepackaged Plan. "Wholly-Owned Subsidiary" means, with respect to any Person, any Subsidiary all of the shares of Capital Stock of which (except directors' qualifying shares and investments by foreign nationals mandated by applicable law) are at the time directly or indirectly owned by such Person. The Special Purpose Domestic Receivables Subsidiary (if any) permitted by Section 5.16 hereof shall be deemed to be a Wholly-Owned Subsidiary. SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with the United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Parent's independent public accountants) with the most recent audited consolidated financial statements of the Parent and its Consolidated Subsidiaries delivered to Foothill; PROVIDED that, if Borrower notifies Foothill that the Borrower wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant or calculation, as the case may be (or if Foothill notifies Borrower that Foothill wishes to amend Article V for such purpose), then Borrower's 21 compliance with such covenant or calculation, as the case may be, shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to Borrower and Foothill. SECTION 1.03. CONVERSION OF AMOUNTS DENOMINATED IN FOREIGN CURRENCY. If for purposes of any determination it is necessary to translate amounts denominated in a currency other than Dollars into Dollars, such translation shall be made: (a) if such determination relates to a matter reflected in the consolidated financial statements, or the books and records, of the Parent and its Consolidated Subsidiaries, on the basis reflected therein consistent with the United States generally accepted accounting principles; and (b) in other cases, for any month, at the exchange rate for such currency designated by Borrower for such month and reported to Foothill hereunder. The foregoing notwithstanding, if Foothill determines in its reasonable judgment that the exchange rate applicable under (a) or (b) above does not reflect the fair market exchange rate therefor, then such translation shall be made at the exchange rate for such currency most recently reported in the WALL STREET JOURNAL or REUTERS WIRE SERVICE at the time of such determination. ARTICLE II LOAN AND TERMS OF PAYMENT. SECTION 2.01 LOAN. Foothill has agreed to make a term loan (the "Loan") on the Closing Date to Borrower in the original principal amount of Twelve Million Dollars ($12,000,000). Borrower promises to repay the Loan in full on the Maturity Date. The outstanding principal balance and all accrued and unpaid interest under the Loan shall be due and payable upon the termination of this Agreement, whether by its terms, by prepayment, by acceleration, or otherwise. The Loan may be prepaid, in whole or in part, without any premium or penalty. All amounts outstanding under the Loan shall constitute Obligations. Principal amounts borrowed under the Loan, once repaid, may not be reborrowed at any time during the term of this Agreement. SECTION 2.02 MANDATORY PREPAYMENT. (a) ASSET SALES. In the event that the Parent or any of its Subsidiaries shall at any time, or from time to time, engage in an Asset Sale, Borrower shall prepay the Obligations in an amount equal to the Net Cash Proceeds of such Asset Sale, to be paid to Foothill on the date on which such Asset Sale is consummated; PROVIDED, HOWEVER, that in the case of the Asia-Pacific Sale, Borrower shall not be obligated to prepay the Obligations 22 to the extent that the Net Cash Proceeds of the Asia-Pacific Sale (the "Asia-Pacific Proceeds") are applied as follows (the "Permitted Asia-Pacific Proceeds Application"): (i) the lesser of (y) the amount of all cash Asia-Pacific Proceeds and (z) Seventeen Million Dollars ($17,000,000) cash is retained and used by the Consolidated Company solely to support the Consolidated Company's continuing operations and not applied toward the obligations under the Restructured Credit Agreement; and (ii) iii the event that the amount of all cash Asia-Pacific Proceeds is in excess of Seventeen Million Dollars ($17,000,000), an amount not to exceed the amount of such cash excess is applied as a partial prepayment toward Borrower's obligations under the Restructured Credit Agreement. (b) OVERADVANCES. If, at any time or for any reason, the amount of Obligations owed by the Borrower to Foothill pursuant to SECTION 2.01 is greater than either the dollar or percentage limitations set forth in SECTION 2.03 (an "Overadvance"), Borrower immediately shall pay to Foothill, in cash, the amount of such excess to be used by Foothill to repay the Obligations. SECTION 2.03 BORROWING BASE. The outstanding principal amount of the Loan shall not exceed, at any time or for any reason, the Borrowing Base. For purposes of this Agreement, "Borrowing Base" shall mean the lowest of: (x) the sum of: (i) the greater of: (A) seventy percent (70%) of the amount of Eligible Securitized Accounts, LESS the Domestic Securitization Reserve; and (B) zero (0); PLUS (ii) seventy percent (70%) of the amount of Eligible Non-Securitized Accounts; PLUS (iii) fifty percent (50%) of the amount of Eligible Inventory; PLUS (iv) Seven Million Dollars ($7,000,000); (y) thirty five percent (35%) of Annualized Eligible Domestic Service Revenues, LESS the Securitization Reserve; and (z) twenty percent (20%) of Annualized Eligible Service Revenues, LESS the Securitization Reserve. SECTION 2.04 INTEREST: RATES, PAYMENTS, AND CALCULATIONS. (a) INTEREST RATE. All Obligations shall bear interest at a per annum rate equal to the lesser of: (i) the Maximum Rate; or (ii) the greater of (A) the Reference Rate plus the Applicable Margin, or (B) seven percent (7.0%) per annum. (b) DEFAULT RATE. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a per annum rate equal 23 to the lesser of: (i) the Maximum Rate; or (ii) the rate otherwise applicable under SECTION 2.04(a)(ii) plus three percent (3.0%) per annum. (c) INTEREST CATCH-UP. Notwithstanding the provisions of Sections 2.05(a) and (b), if at any time the applicable interest rate shall exceed the Maximum Rate and thereafter the applicable interest rate shall become less than the Maximum Rate, the rate of interest payable hereunder shall, at the option of Foothill, be the Maximum Rate until the total interest paid by Borrower equals the amount which would have been paid but for the applicable interest rate having been in excess of the Maximum Rate. If, at maturity of final payment of the Obligations, the total amount of interest paid or accrued on the Obligations under the provisions of Sections 2.03(a) and (b) is less than the total amount of interest which would have been accrued if the applicable interest rate had at all times been in effect, then Borrower, to the fullest extent permitted by law, shall pay to Foothill an amount equal to the difference between (a) the amount of interest which would have accrued on the Obligations if the Maximum Rate had at all times been in effect, and (b) the amount of interest accrued in accordance with the provisions of Sections 2.03(a) and (b). (d) MINIMUM INTEREST. In no event shall the rate of interest chargeable hereunder on any Obligations be less than seven percent (7%) per annum (or, if lower, the Maximum Rate). (e) PAYMENTS. Interest hereunder shall be due and payable on the first day of each month during the term hereof. Borrower hereby authorizes Foothill, at its option, without prior notice to Borrower, to charge such interest, all Foothill Expenses (as and when incurred), and all installments or other payments due under the Loan or the Financing Documents to the Borrower's Loan Account, which amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a pan of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. (f) COMPUTATION. The Reference Rate as of this date is eight and one-quarter percent (8.25%) per annum. In the event the Reference Rate is changed from time to time hereafter, the applicable rate of interest hereunder automatically and immediately shall be increased or decreased by an amount equal to such change in the Reference Rate. The rates of interest charged hereunder shall be based upon the average Reference Rate in effect during the month. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. All interest calculated at the Maximum Rate shall be computed on the basis of a three hundred sixty-five (365) or three hundred sixty-six day year, as appropriate. 24 (g) USURY. It is the intention of the parties hereto to conform strictly to all usury laws applicable to this transaction. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including, without limitation, the laws of any jurisdiction whose laws may be mandatorily applicable notwithstanding the other provisions of this Agreement), then, notwithstanding anything to the contrary in this Agreement or in any other instrument or agreement entered into in connection herewith, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged, or received under this Agreement or under any other instruments or agreements or otherwise in connection herewith shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be credited on the principal amount of the Obligations (or, if the principal amount of the Obligations shall have been paid in full, refunded to Borrower); and (ii) in the event that the maturity of the Obligations is accelerated for any reason under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under applicable law may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the principal amount of the Obligations (or, if the principal amount of the Obligations shall have been paid in full, refunded to Borrower). In determining whether the interest paid or payable with respect to any indebtedness of Borrower to Foothill, under any specific contingency, exceeds the highest lawful rate, Borrower and Foothill shall, to the maximum extent permitted by applicable law, (i) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the full term of such indebtedness so that the actual rate of interest on account of such indebtedness does not exceed the maximum amount permitted by applicable law, and/or (iv) allocate interest between portions of such indebtedness, so that no such portion shall bear interest at a rate greater than that permitted by applicable law. SECTION 2.05 BORROWER'S DESIGNATED ACCOUNT. Foothill is authorized to make the Loan under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Officer of Borrower. Borrower shall designate in writing to Foothill the identity of the deposit account of Borrower (the "Designated Account") established and maintained by Borrower for the purpose of receiving the proceeds of the Loan requested by Borrower and made by Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, the Loan requested by Borrower and made by Foothill hereunder shall be made to Borrower's Designated Account. 25 SECTION 2.06 MAINTENANCE OF LOAN ACCOUNT: STATEMENTS OF OBLIGATIONS. Foothill shall maintain an account on its books in the name of Borrower (the "Loan Account") on which Borrower will be charged with the Loan and all accrued interest, Foothill Expenses, and any other payment Obligations and on which Borrower will be credited with all payments received by Foothill from Borrower or for the Borrower's account, including, without limitation, all amounts received by Foothill from any lockbox account in accordance with the Lockbox Agreement and the Restructured Collateral Agency Agreement. Foothill shall render statements regarding the Loan Account to Borrower, including, without limitation, principal, interest, fees, and including, without limitation, an itemization of all charges and expenses constituting Foothill Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and Foothill unless, within thirty (30) days after receipt thereof by Borrower, Borrower shall deliver to Foothill by registered or certified mail at its address specified under SECTION 10.01, written objection thereto describing the error or errors contained in any such statements. SECTION 2.07 FEES. Borrower shall pay to Foothill the following fees: (a) CLOSING FEE. A one time fee in an amount equal to Seven Hundred Fifty Thousand Dollars ($750,000), which fee is earned, in full, and non-refundable on the Closing Date and is due and payable by Borrower to Foothill in connection with this Agreement on the earliest to occur of: (i) the Maturity Date; (ii) the prepayment in full of the Loan; and (iii) the acceleration by Foothill of the Loan. (b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per examiner and One Thousand Five Hundred Dollars ($1,500) per day per appraiser for financial analyses and examinations and collateral appraisals, plus out-of-pocket expenses for each such financial analysis, examination and appraisal performed by Foothill or its agents; PROVIDED, HOWEVER, that so long as no Event of Default has occurred and is continuing, the appraisal fee payable by Borrower will not exceed the amount of such fee for three (3) appraiser-days. SECTION 2.08 FOOTHILL EXPENSES. Borrower shall pay to Foothill all Foothill Expenses promptly upon demand by Foothill. 26 ARTICLE III CONDITIONS; TERM OF AGREEMENT SECTION 3.01. CONDITIONS PRECEDENT TO THE LOAN. The obligation of Foothill to make the Loan is subject to the fulfillment, to the satisfaction of Foothill and its counsel, of each of the following conditions on or before the Closing Date: (a) receipt by Foothill of counterparts hereof signed by each Obligor and Foothill (or, in the case of any party other than the Obligors, as to which an executed counterpart shall not have been received, receipt by Foothill in form satisfactory to it of telex, facsimile or other written confirmation of execution of a counterpart hereof by such party); (b) receipt by Foothill of counterparts of the Restructured Collateral Agency Agreement, each duly executed by authorized officials of each of the parties listed on the signature pages thereof (including, without limitation, the Agent and each Restructuring Lender); (c) receipt by Foothill of duly executed counterparts of the Collateral Documents (including, without limitation, to the extent practicable, Collateral Documents in respect of the Lien on the assets of Canada and UK located outside the United States), together with evidence satisfactory to Foothill of the effectiveness of the security contemplated thereby; (d) receipt by Foothill of copies of each Lockbox Agreement, together with a certificate of the Secretary of Borrower certifying the same to be true, correct, and complete copies thereof and certifying the lockbox arrangements contemplated thereunder are in fill force and effect; (e) receipt by Foothill of any unpaid fees and expenses (including, without limitation, attorneys fees) accrued or incurred, or estimated to have been accrued or incurred, by or on behalf of Foothill pursuant to or in connection with this Agreement and the Financing Documents; (f) receipt by Foothill of opinions of special counsel for the Obligors, in form satisfactory to Foothill, covering such matters relating to the transactions contemplated hereby as Foothill may reasonably request; (g) receipt by Foothill of a certificate signed by the Chief Financial Officer of Borrower to the effect that (i) such Chief Financial Officer was the Chief Financial Officer on December 31, 1995, (ii) immediately after such effectiveness, no Default shall have occurred and be continuing and, to the best of his knowledge, no Material Adverse Change 27 has occurred since December 31, 1995, and (iii) to the best of his knowledge, each of the representations and warranties made by the Obligors in or pursuant to the Financing Documents is true and correct in all material respects on and as of such Closing Date; (h) receipt by Foothill of a certificate from the Secretary of each Obligor attesting to: (i) the resolutions of such Obligor's board of directors (or foreign equivalent thereof) authorizing its execution, delivery, and performance of this Agreement and the other Financing Documents to which it is a party and authorizing specific officers to execute the same; (ii) the incumbency and signature specimen of each such authorized officer; and (iii) copies of such Obligor's Constitutional Documents, as amended, modified, or supplemented to the Closing Date; in each case, in form and substance satisfactory to Foothill; (i) receipt by Foothill of certificates of corporate status (or the relevant foreign equivalents thereof) with respect to each Obligor, dated within ten (10) days of the Closing Date, by the appropriate officer of the jurisdiction of incorporation of such Obligor, which certificates shall indicate that such Obligor is in good standing (or the relevant foreign equivalent thereof) in such jurisdiction; (j) receipt by Foothill of: (i) certificates of corporate status with respect to Borrower, dated within ten (10) days of the Closing Date, by the appropriate officer of the states of New Jersey, North Carolina, Oklahoma, and Texas; and (ii) a certificate of corporate status with respect to Services, dated within ten (10) days of the Closing Date, by the appropriate officer of the state of Texas; which certificates shall indicate that such Obligor is in good standing in such jurisdiction; (k) receipt by Foothill of searches reflecting the filing of the Collateral Agent's financing statements and fixture filings (and the relevant foreign equivalents thereof); (l) the execution and delivery of all counterpart signature pages to the amendments and waivers in respect of the Restructured Credit Agreement by the Agent each Restructuring Lender, and each Material Company party thereto, whereby, among other things, the execution, delivery, and performance by the Obligors of the Financing Documents and the consummation of the transactions contemplated thereby are permitted by the Restructuring Lenders; (m) receipt by Foothill of copies of the Restructured Credit Agreement (including all amendments and modifications to date) and the Receivables Purchase Agreement (including all amendments and modifications to date), together with a certificate of the Secretary of Borrower certifying the same to be true, correct, and complete copies thereof; 28 (n) receipt by Foothill of certificates of insurance in respect of the Non-Parent Obligors, together with the endorsements thereto (including, without limitation, a 438BFU lender's loss payable endorsement, or an equivalent endorsement in a form satisfactory to Foothill, showing the Collateral Agent as loss payee thereof), as are required by the Restructured Collateral Agency Agreement, the form and substance of which shall be satisfactory to Foothill; (o) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date of the making of the Loan; (p) no Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date of the making of the Loan; (q) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the making of the Loan shall have been issued and remain in force by any governmental authority against 'any Borrower, Foothill, or any of their Affiliates; and (r) the Closing Date shall occur on or before March 22, 1996. SECTION 3.02 CONDITIONS SUBSEQUENT TO THE LOAN. The following shall be conditions subsequent and the failure to satisfy on a timely basis one or more of the same shall constitute an Event of Default hereunder: (a) In the event the Asia-Pacific Sale Condition is not satisfied, then Borrower shall cause Australia to execute and deliver to Foothill, on or before June l, 1996, (i) such joinder documents as Foothill may request, in form and substance satisfactory to Foothill, by which Australia agrees to join in and become bound by the provisions of this Agreement as a Guarantor, and (ii) to the extent practicable, such Collateral Documents as Foothill may request in order to grant the Collateral Agent for the benefit of Foothill a perfected security interest in the personal property Collateral of Australia; (b) To the extent that any Collateral Documents in respect of the Lien on the assets of Canada and UK located outside the United States are not executed and delivered on or before the Closing Date under Section 3.01(c) hereof, UK and Canada shall execute and deliver to Foothill, within thirty (30) days following the Closing Date, such Collateral Documents, together with evidence satisfactory to Foothill of the effectiveness of the security contemplated thereby; 29 (c) Within sixty (60) days following the Closing Date, Foothill shall receive duly executed Collateral Access Agreements for the Obligors' non-owned locations in each of: (i) Raleigh, North Carolina; and (ii) if requested by Foothill, Tulsa, Oklahoma; and (d) Within thirty (30) days following the Closing Date, the Obligors shall deliver to Foothill the certified copies of the policies of insurance, together with the endorsements thereto (including, without limitation, a 438BFU lender's loss payable endorsement, or an equivalent endorsement in a form satisfactory to Foothill, showing the Collateral Agent or Foothill as loss payees thereof (as their interests may appear)), as are required by the Restructured Collateral Agency Agreement, the form and substance of which shall be satisfactory to Foothill. SECTION 3.03 TERM. This Agreement shall become effective upon the execution and delivery hereof by the Obligors and Foothill and shall continue in full force and effect for a term ending on the Maturity Date, unless sooner terminated pursuant to the terms hereof. The foregoing notwithstanding, Foothill shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. SECTION 3.04 EFFECT OF TERMINATION. On the date of termination, all Obligations immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge the Obligors of their duties, Obligations, or covenants hereunder, and Foothill's continuing security interests in the Collateral shall remain in effect until all Obligations have ken fully and finally discharged. SECTION 3.05 EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.03 notwithstanding, Borrower shall have the option, at any time upon sixty (60) days prior written notice to Foothill, to terminate this Agreement by paying to Foothill, in cash, the Obligations. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Obligors jointly and severally represent and warrant to Foothill that: SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each Obligor is a corporation duly incorporated, validly existing and (in the case of each such Person incorporated under the laws of any State of the United States and each other such Person as to which such 30 concept has meaning under the laws of the jurisdiction of its incorporation) in good standing under the laws of its jurisdiction of incorporation and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted (except, to the extent that failure to comply with the foregoing statements could not, in the aggregate, have a material adverse effect on the business, financial position, results of operations or prospects of the Obligors and their Consolidated Subsidiaries, considered as a whole), and each Obligor is duly qualified as a foreign corporation, licensed and (in the case of each such Person incorporated under the laws of any State of the United States and each other such Person as for which such concept has meaning under the laws of the jurisdiction of its incorporation) in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers and in which the failure so to qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results of operations or prospects of the Obligors and their Subsidiaries, considered as a whole. SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution and delivery by each Obligor of each of the Financing Documents to which it is a party and the performance by such Obligor of its obligations thereunder are within the corporate power of such Obligor, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except such as shall have been obtained and be in full force and effect on and after the date of execution and delivery of the related Financing Document by the related Obligor) and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the Constitutional Documents of such Obligor or of any agreement, judgment, injunction, order, decree or other instrument binding upon such Obligor. SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of each Obligor, and the other Financing Documents, when executed and delivered as contemplated by this Agreement, will constitute valid and binding obligations of each Obligor that is a party thereto. SECTION 4.04. FINANCIAL INFORMATION. (a) The unaudited consolidated balance sheet of the Parent and its Consolidated Subsidiaries as of December 31, 1995 and the related unaudited consolidated statements of operations and cash flows for the nine months then ended, set forth in the Parent's quarterly report for the fiscal quarter then ended as filed with the Securities and Exchange Commission on Form 10-Q, a copy of which has been delivered to Foothill, fairly present, in conformity with United States generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (b) of this Section 4.04, the consolidated financial position of the Parent and its Consolidated Subsidiaries as of such date and their consolidated results of 31 operations and cash flows for such six month period (subject to normal year-end audit adjustments). (b) The consolidated balance sheet of the Parent and its Consolidated Subsidiaries as of March 31, 1995 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by Ernst & Young and set forth in the Parent's 1995 Form 10-K, a copy of which has been delivered to Foothill, fairly present, in conformity with United States generally accepted accounting principles, the consolidated financial position of the Parent and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (c) There has been no Material Adverse Change, nor any event which is reasonably likely to result in a Material Adverse Change, since December 31, 1995. SECTION 4.05. LITIGATION. There is no action, suit or proceeding pending against, or to the knowledge of any Obligor threatened against any Obligor or any Subsidiary of any thereof, before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could materially and adversely affect the business, financial position, results of operations or prospects of the Consolidated Company, considered as a whole, or which in any manner questions the validity of any Financing Document. SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.07. TAXES. The Obligors and each Subsidiary of any of them have filed all material Tax returns that are required to be filed by them and have paid all Taxes due pursuant to such returns or pursuant to any assessment received by any of them, except for any such Taxes being diligently contested in good faith and by appropriate proceedings or being paid in accordance with the terms of any settlement agreement entered into by the Obligors. Charges, accruals and reserves have been provided on the books of the Parent and its Subsidiaries in respect of all Taxes or other governmental charges which are 32 adequate in the aggregate in accordance with generally accepted accounting principles, and no Tax liabilities in excess of the amounts so provided are anticipated that could materially and adversely affect the business, financial position, results of operations or prospects of the Consolidated Company, considered as a whole. SECTION 4.08. COMPLIANCE WITH LAWS. Each Obligor is in compliance in all material respects with all applicable laws, rules and regulations, other than such laws, rules or regulations (i) the validity or applicability of which such Obligor is contesting in good faith or (ii) failure to comply with which cannot reasonably be expected to have consequences which would materially and adversely affect the business, financial position, results of operations or prospects of the Obligors and their Consolidated Subsidiaries, considered as a whole. SECTION 4.09. NOT AN INVESTMENT COMPANY. None of the Obligors is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.10. NO DEFAULTS. (a) No Obligor or any Subsidiary thereof is in violation of, or in default under, any term or provision of any charter, by-law, mortgage, indenture, agreement, instrument, statute, rule, regulation, judgment, decree, order, writ or injunction applicable to it, such that such violations or defaults in the aggregate might materially and adversely affect the financial condition, results of operations, business or prospects of the Consolidated Company, considered as a whole, or the ability of any Obligor to perform its obligations under the Financing Documents. (b) Upon the effectiveness of this Agreement, no Default will have occurred and then be continuing. SECTION 4.11. POSSESSION OF FRANCHISES. LICENSES ETC. The Obligors and each Subsidiary of any of them own or possess all franchises, patents, trademarks, service marks, trade names, copyrights, licenses and other rights that are necessary in any material respect for the ownership and operation of their respective properties and businesses, and none of the Obligors or any Subsidiary of any of them is in violation of any provision thereof such that any lack of such ownership or possession or violations in the aggregate might materially and adversely affect the financial condition, results of operation, business or prospects of the Consolidated Company, considered as a whole, or the ability of any Obligor to perform its obligations under the Financing Documents. SECTION 4.12. FULL DISCLOSURE. All information heretofore furnished by the Obligors or any Subsidiary of any of them to Foothill for purposes of or in connection with this Agreement or any transaction contemplated hereby was, and all such information 33 hereafter furnished by the Obligors or any Subsidiary of any of them to Foothill will be, true and accurate in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Obligors have disclosed to Foothill in writing any and all facts which materially and adversely affect or may affect (to the extent the Obligors can now reasonably foresee), the business, properties, financial position, results of operations or prospects of the Consolidated Company, considered as a whole, or the ability of the Obligors to perform their obligations under the Financing Documents. SECTION 4.13. REPRESENTATIONS IN OTHER AGREEMENTS TRUE AND CORRECT. Each of the representations and warranties contained in any Financing Document is true and correct. SECTION 4. 14. ENVIRONMENTAL LAWS. In the ordinary course of its business, the Parent conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Parent and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including, without limitation, any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including, without limitation, employees, and any related costs and expenses). On the basis of this review, the Parent has reasonably concluded that such associated liabilities and costs, including, without limitation, the costs of compliance with Environmental Laws, are unlikely to have a material adverse effect on the business, financial condition, results of operations or prospects of the Parent and its Consolidated Subsidiaries, considered as a whole. SECTION 4.15. LIENS. There are no Liens of any nature whatsoever on any properties of the Obligors or any of their Subsidiaries other than Permitted Liens. No Obligor is a party to any contract, agreement, lease or instrument, the performance of which, either unconditionally or upon the happening of an event, will result in or create a Lien (other than a Permitted Lien) on the property or assets of any Obligor or otherwise result in a violation of any Financing Document. SECTION 4.16. ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time of the creation thereof and as of each date on which Borrower includes them in a Borrowing Base calculation or certification, bona fide existing obligations created by the sale and delivery 34 of Inventory or the rendition of services to Account Debtors in the ordinary course of the Non-Parent Obligors' business, unconditionally owed to the Non-Parent Obligors without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. The property giving rise to such Eligible Accounts have been delivered to the Account Debtor, or to the Account Debtor's agent for immediate shipment to and unconditional acceptance by the Account Debtor. At the time of the creation of an Eligible Account and as of each date on which the Borrower includes an Eligible Account in a Borrowing Base calculation or certification, no Obligor has received notice of actual or imminent bankruptcy, insolvency, or material impairment of the financial condition of any applicable Account Debtor regarding such Eligible Account. SECTION 4.17. ELIGIBLE INVENTORY. All Eligible Inventory is now and at all times hereafter shall be of good and merchantable quality, free from defects. SECTION 4.18. LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment are not stored with a bailee, warehouseman, or similar party (without Foothill's prior written consent) and are located only at the locations identified on SCHEDULE 5.14 or otherwise permitted by SECTION 5.14. SECTION 4.19. INVENTORY RECORDS. The Obligors now keep, and hereafter at all times shall keep, correct and accurate records itemizing and describing the kind, type, quality, and quantity of the Inventory, and the Obligors' cost therefor. ARTICLE V COVENANTS The Obligors jointly and severally agree that, so long as any Obligations remains unpaid, the Obligors will perform and comply with, and will cause their respective Subsidiaries, as applicable, to perform and comply with, each of the following covenants. SECTION 5.01. INFORMATION. Borrower will deliver to Foothill: (a) within 90 days after the end of each fiscal year of the Parent, (i) the consolidated balance sheet of the Parent and its Consolidated Subsidiaries as of the end of such fiscal year, and the related consolidated statements of operations and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion or opinions thereon by Ernst & Young or other independent public accountants of nationally recognized standing, which opinion (x) shall state that such financial statements present fairly the consolidated 35 financial position of the companies being reported upon as of the date of such financial statements and the consolidated results of their operations for the period covered by such financial statements in conformity with generally accepted accounting principles applied on a consistent basis (except for changes with which such accountants concur) and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary in the circumstances and (y) shall not contain any Qualification for any fiscal year after the fiscal year ending March 31, 19%, and (ii) a certificate, certified by the CFO, in the form agreed upon by the Parent and Foothill and setting forth the Parent's calculation of the Leasebase Amount for such fiscal year; (b) within 45 days after the end of each of the first three quarters of each fiscal year of the Parent, the consolidated balance sheet of the Parent and its Consolidated Subsidiaries, and the related consolidated statements of operations and cash flows for such quarter and for the portion of the fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the previous fiscal year, all prepared in accordance with Rule 10-01 of Regulation S-X of the General Rules and Regulations under the Securities Act of 1933, or any successor rule that sets forth the manner in which interim financial statements shall be prepared, and certified (subject to normal year-end audit adjustments) as to fairness of presentation and consistency by the chief financial officer or the chief accounting officer of the Parent; (c) within 45 days after the end of each fiscal quarter of each fiscal year of the Parent, (i) the balance sheet of each Obligor, on a stand-alone basis, and the related statements of operations and cash flows for such quarter and for the portion of the fiscal year ended at the end of such quarter, prepared on a basis consistent with the financial statements referred to in subsection (b)and certified (subject to normal year-end audit adjustments) as to fairness of presentation and consistency by the chief financial officer or the chief accounting officer of the relevant Obligor, (ii) a certificate of the CFO setting forth all cash payments received during such fiscal quarter in respect of any Non-Cash Proceeds held by the Parent or any of its Consolidated Subsidiaries, as permitted by the first PROVISO in Section 5.09(b), and (iii) a certificate of the CFO setting forth the aggregate amount as at the last day of such fiscal quarter of Liens on any asset (including, without limitation, cash) of any Obligor securing any obligation which is not Debt, other than Liens arising in the ordinary course of business which constitute (A) statutory Liens or landlords and carriers', warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like Liens with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings, if a reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles shall have been made 36 therefor; (B) Liens for taxes, assessments, government charges or claims which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provision, if any, as shall be required in conformity with generally accepted accounting principles shall have been made therefor; (C) Liens incurred or deposits made in connection with workers' compensation, unemployment insurance and other types of social security; (D) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering in any material respect with the business of any Obligor; (E) Liens imposed by operation of law which do not materially affect any Obligor's ability to perform its obligations under the Financing Documents; and (F) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (d) within twenty Business Days after the end of each calendar month, (i) consolidated cash forecasts (substantially in the form customarily prepared by the Parent) for a period covering at least the following twelve weeks based upon the Parent's best estimates, information and assumptions at the time, and (ii) the consolidated balance sheet of the Parent and its Consolidated Subsidiaries, and the related consolidated statements of profit and loss and of cash flows for such calendar month, in each case in the form in which such statements are prepared for the Board of Supervisors of the Parent; (e) within 120 days after the end of each fiscal year of the Parent, a projected consolidated balance sheet of the Parent and its Consolidated Subsidiaries as of the end of the following fiscal year, and the related consolidated statements of projected operations land cash flows (in each case substantially in the form customarily prepared by the Parent) for such fiscal year, based on the Parent's best estimates, information and assumptions at the time; (f) simultaneously with the delivery to Morgan Delaware of the daily and monthly reports required under the Receivables Purchase Agreement, copies of such reports; (g) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) of this Section, a certificate of the CFO (i) setting forth in reasonable detail such calculations as are required to establish whether the Parent was in compliance with the requirements of Sections 5.06 through 5.13, inclusive, on the date of such financial statements, (ii) stating whether there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details thereof and the action that the Parent is taking or proposes to take with respect thereto, (iii) stating whether, since the date of the most recent previous delivery of financial statements pursuant to paragraph (a) or (b) of this Section, there has been any Material Adverse Change not reflected in the financial statements delivered simultaneously therewith and, if so, the nature of such 37 Material Adverse Change and (iv) stating whether, since the date of the most recent financial statements previously delivered pursuant to paragraph (a) or (b) of this Section, there has been a change in the generally accepted accounting principles applied in preparing the financial statements then being delivered from those applied in preparing the most recent audited financial statements so delivered which is material to the financial statements then being delivered; (h) simultaneously with the delivery of each set of financial statements referred 10 in paragraph (a) of this Section, a letter from the firm of independent public accountants that reported on such statements stating (i) whether anything has come to their attention in the course of their normal audit procedures to cause them to believe that there existed on the date of such statements any Default and (ii) whether in their opinion the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to paragraph (g) of this Section 5.01, to the extent derived from data contained in the accounting records of the Parent and its Consolidated Subsidiaries, have been determined in accordance with the relevant provisions of this Agreement; (i) forthwith upon the occurrence of any Default, a certificate of the CFO setting forth the details thereof and the action that the Parent is taking or proposes to take with respect thereto; (j) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto) and annual, quarterly or monthly reports that the Parent or any of its Subsidiaries shall have filed with the Securities and Exchange Commission; (k) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such report able event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other' than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or 38 in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Parent setting forth details as to such occurrence and action, if any, which the Parent or applicable member of the ERISA Group is required or proposes to take; (l) as soon as reasonably practicable after any Obligor obtains knowledge of the commencement of, or of a material threat of the commencement of, an action, suit or proceeding against the Parent or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a non-remote possibility of an adverse decision which could materially and adversely affect the business, financial position, results of operations or prospects of the Consolidated Company, considered as a whole, or which in any manner questions the validity of any Financing Document, the Obligors will inform Foothill of the nature of such pending or threatened action, suit or proceeding and will provide such additional information as may be reasonably requested by Foothill; (m) [intentionally omitted] (n) from time to time such additional information regarding the financial position, results of operations, business or prospects of the Parent or any of its Subsidiaries as Foothill may reasonably request; and (o) In addition to the copies of the daily and monthly reports delivered to Morgan Delaware required to be delivered concurrently to Foothill pursuant to Section 5.01(f) hereof, the Obligors shall deliver to Foothill the following documents at the following times in form and substance satisfactory to Foothill: (i) on a weekly basis, (A) Inventory reports in respect of Inventory located at the Obligors' Raleigh, North Carolina location, specifying the Obligors' cost thereof, and (B) a detailed aging, by total, of the Accounts of UK and Canada; (ii) on a monthly basis and, in any event, by no later than the tenth (10th) Business Day of each month during the term of this Agreement, (A) a detailed calculation of the Borrowing Base, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Foothill, (B) a detailed aging, by total, of the Accounts of the Non-Parent Obligors, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Foothill, (C) a summary aging, by vendor, of the Obligors' accounts payable, and the Dollar amount of any book overdraft, and (D) Inventory reports specifying the Obligors' cost of the Obligors' Inventory by category, with additional detail showing additions to and deletions from the Inventory; and (iii) such other reports as to the Collateral or the financial condition of the Obligors as Foothill may request from time to time. 39 SECTION 5.02. PAYMENT OF OBLIGATIONS. The Obligors will, and will cause each other Material Company to, pay and discharge, as the same shall become due and payable, (i) all material claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons which, in any such case, if unpaid, might by law give rise to a Lien upon any of its property or assets, and (ii) all material taxes, assessments and governmental charges or levies upon it or its property or assets, except where any of the items in clause (i) or (ii) above may be contested in good faith by appropriate proceedings, and the relevant Obligor or other Material Company, as the case may be. shall have set aside on its books, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any such items; PROVIDED that the Obligors shall, and shall cause one or more of the appropriate Subsidiaries of the Parent to, exercise any option reasonably available to pay tax claims (including, without limitation, interest thereon if applicable) in installments over any extended period. SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE. The Obligors will, and will cause each other Material Company to: (a) keep all material property useful and necessary in its business in good working order and condition in accordance with generally accepted industry standards applicable to the line of business in which such property is used; (b) maintain with financially sound and responsible insurance companies, insurance on all their respective properties in at least such amounts and against at least such risks (and with such risk retention) as are usually insured against in the same general area by companies of established repute engaged in the same or a similar business; and (c) furnish to Foothill, upon written request from Foothill, information presented in reasonable detail as to the insurance so carried. Notwithstanding the foregoing, the Obligors may, in lieu of maintaining the insurance required by the preceding sentence, self-insure, or cause any other Material Company to self-insure, with respect to the properties and risks referred to in the preceding sentence to the extent that such self-insurance is customary among companies of established repute engaged in the line of business in which such properties are used or to which such risks pertain. SECTION 5.04. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. (a) Subject to Section 5.09, the Obligors will continue, and will cause their respective Subsidiaries to continue, to engage in business of the same general type as now conducted by the Obligors and their respective Subsidiaries, as such business is described in the 1995 Form 10-K, and will preserve, renew and keep in full force and effect, and will cause each other Material Company to preserve, renew and keep in full force and effect, their respective corporate existences and their respective rights, privileges, licenses and franchises necessary or desirable in the normal conduct of business. (b) The Parent shall continue, and shall cause its Subsidiaries to continue to maintain the Lockbox Agreement (or any replacement agreement in substantially similar 40 form which is reasonably satisfactory to Foothill), in substantially the form in effect on the Closing Date or with such amendments, modifications or changes as are satisfactory to Foothill. The Parent shall continue, and shall cause its Subsidiaries to continue, to maintain working capital financing arrangements similar to the Receivables Purchase Agreement or which provide a comparable amount of working capital financing based on the sale or other disposition or the pledge of U.S. accounts receivable. The Parent shall, and shall cause each of its Subsidiaries to, establish in each jurisdiction (other than France) in which Collateral exists under the Collateral Documents, lockbox or other similar arrangements satisfactory to Foothill. SECTION 5.05. INSPECTION OF PROPERTY BOOKS AND RECORDS. The Parent will keep, and will cause each other Material Company to keep, proper books of record and account in which full, true and correct entries in conformity with generally accepted accounting principles shall be made of all dealings and transactions in relation to its business and activities. The Parent, upon reasonable request by Foothill, will permit, and will cause each other Material Company to permit, representatives of Foothill to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times and as often as may reasonably be desired. SECTION 5.06. MAINTENANCE OF STOCK OF SUBSIDIARIES. Except as permitted by Section 5.16 hereof, the Parent will at all times maintain direct or indirect ownership of 100% of the outstanding shares (Other than directors' qualifying shares and investments by foreign nationals mandated by applicable law) of each class of capital stock of each of its Subsidiaries which is a Material Company, other than Persons that have become Subsidiaries of the Parent by way of Investments permitted by Section 5.13 (as to which the Parent will at all times maintain direct or indirect ownership of the maximum percentage of the capital stock of such Subsidiary that the Parent has owned directly or indirectly at any time), except for a disposition by the Parent of its entire Investment in any of its Subsidiaries in accordance with Section 5.09 and except for a sale or disposition of its entire Investment in the capital stock of Memorex Telex Japan Ltd. SECTION 5.07. LIMITATION ON DEBT. (a) The Parent will not, and will not permit any of its Subsidiaries to, incur or at any time be liable with respect to any Debt except Debt under the Financing Documents and: (i) Debt under the Restructured Credit Agreement; PROVIDED that the aggregate principal amount of the Restructured Loans outstanding at any time shall not exceed $100,000,000; 41 (ii) Debt owing to the Parent or a Wholly-Owned Subsidiary of the Parent; (iii) Debt outstanding on the Closing Date and identified on SCHEDULE A-1 of the Restructured Credit Agreement as in effect as of the Closing Date, a copy of which schedule is attached hereto as SCHEDULE 5.07; (iv) Debt of any Person outstanding at the date such Person becomes a Subsidiary of the Parent and not created in contemplation of such event; (v) Debt in respect of Capital Leases entered into in connection with a Sale and Leaseback Transaction permitted by Section 5.09; (vi) Debt secured by a Lien permitted by paragraph (g) of Section 5.08; PROVIDED that with respect to such Liens, the aggregate principal amount of Debt secured thereby shall at no time exceed $10,000,000; (vii) Debt of Memorex Telex Japan Ltd. which is not Guaranteed by the Parent or any other Subsidiary of the Parent; and (viii) Debt not otherwise permitted by this Section 5.07(a) in the aggregate outstanding principal amount (calculated, with respect to Debt denominated in currencies other than Dollars, without regard to variances of less than 5% between the dollar equivalent value of such Debt at the time of its incurrence and its dollar equivalent value at the date of determination under this Section 5.07(a)(viii)) not to exceed $40,000,000 at any time. (b) At no time shall the sum of (i) the outstanding principal amount of the Loan plus the Restructured Loans, (ii) the aggregate outstanding principal amount of borrowings under any other secured or unsecured, committed or uncommitted credit lines available to the Parent or any of its Subsidiaries, and (iii) the aggregate amount of receivables factored (exclusive of holdback, if any) exceed $230,000,000. SECTION 5.08. NEGATIVE PLEDGE. The Parent will not, and will not permit any of its Subsidiaries to, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by the Parent or any of its Subsidiaries, except: (a) Liens securing the Loan and other obligations of the Obligors under the Financing Documents created pursuant to the Collateral Documents. 42 (b) Liens existing on the Closing Date securing Debt that is outstanding on such date and identified on SCHEDULE 5.08; (c) Liens securing the Restructured Loans and other obligations of the Central Obligors created pursuant to the Restructured Credit Agreement and the Restructured Collateral Documents, subject to the provisions of Section 9.01 of the Restructured Collateral Agency Agreement; (d) any Lien existing on any asset prior to the acquisition thereof by such Subsidiary and not created in contemplation of such acquisition; (e) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary of the Parent and not created in contemplation of such event; (f) any Lien created by a Capital Lease otherwise permitted hereunder; (g) any Lien on any asset of a Subsidiary of the Parent securing Debt incurred or assumed by such Subsidiary for the purpose of financing all or any part of the cost of acquiring such asset, PROVIDED that such Lien attaches to such asset concurrently with the acquisition thereof; (h) any Lien on any account receivable of a Subsidiary which is factored by such Subsidiary or as to which an interest has been transferred by such Subsidiary as security for any financing (in each case to the extent permitted and in accordance with the terms of this Agreement), which Lien does not secure any Debt of the Parent or any of its Subsidiaries (other than the obligation to pass on collections of such receivable if any to the extent received by the Parent or any of its Subsidiaries); (i) Liens arising in the ordinary course of business which (i) do not secure Debt and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; and (j) any extension, renewal or replacement, in whole or in part, of any Lien described in the foregoing clauses (b) through (i); PROVIDED that any such extension, renewal or replacement shall be no more restrictive in any material respect than the Lien so extended, renewed or replaced and shall not extend to any other asset of the Parent or any of its Subsidiaries other than such asset originally covered by such Lien or any improvements thereon or additions or accessions thereto. SECTION 5.09. CONSOLIDATIONS, MERGERS AND ASSET SALES. (a) The Parent will not, and will not permit any other Material Company to, consolidate or merge with or into, or 43 sell, lease or otherwise dispose of all or substantially all of its assets to, any other Person, except that any Material Company may merge with any Person (other than a Material Company) if such Material Company is the surviving corporation and if, immediately after such merger (and giving effect thereto), no Default shall have occurred and be continuing; PROVIDED, HOWEVER, that in the case of the merger of any Non-Parent Obligor with a Material Company that is not a Non-Parent Obligor, such Non-Parent Obligor shall be the surviving corporation. (b) The Parent will not, and will not permit any of its Subsidiaries to, make any Asset Sale, unless (i) the consideration therefor is not less than the fair market value of the related asset (as determined in good faith by the Parent) or, in the case of a Sale and Leaseback Transaction giving rise to a Capital Lease, 60% of such fair market value AND (ii) the consideration for such Asset Sale consists solely of cash or Marketable Securities payable at the closing thereof; PROVIDED, HOWEVER, that the consideration for any Asset Sale may consist in whole or in part of assets that are payable upon the closing of such Asset Sale but which are neither cash nor Marketable Securities ("Non-Cash Proceeds") so long as (i) such Non-Cash Proceeds do not exceed $250,000 for any one transaction and (ii) the aggregate fair market value of such Non-Cash Proceeds, calculated for each Asset Sale as of the date on which such Asset Sale is consummated, net of any cash proceeds of such Non-Cash Proceeds received from time to time, does not at any time exceed $1,000,000; PROVIDED FURTHER that the Asia-Pacific Sale shall be permitted to be consummated so long as no Default or Event of Default has occurred and is continuing or would result therefrom and so long as either all Obligations are paid in full in cash or item (i) in the definition of "Permitted Asia-Pacific Proceeds Application" is satisfied. SECTION 5.10. RESTRICTED PAYMENTS. The Parent will not, and will not permit any of its Subsidiaries to, declare or make any Restricted Payment. SECTION 5.11. INVOICING. Subject to the Collateral Documents and the Receivables Purchase Agreement, original sales invoices evidencing daily sales shall be mailed by the Non-Parent Obligors to each Account Debtor and, at the Collateral Agent's direction, the invoices shall indicate on their face that the Account has been assigned to the Collateral Agent and that all payments are to be made directly to the Collateral Agent. SECTION 5.12. LIMITATIONS ON INVESTMENTS. (a) The Parent will not, and will not permit any of its Subsidiaries to, make or acquire any Investment, except: (i) subject to the limitations of Section 5.13, Investments in the Parent and its Consolidated Subsidiaries (ii) subject to the limitations of Section 5.13, J.V. Investments; 44 (iii) temporary cash investments in bank time deposits or money market instruments of recognized credit quality; and (iv) instruments received as consideration for Asset Sales, subject to the limitations of Section 5.09(b) (b) Notwithstanding anything in this Agreement to the contrary, the Parent shall not, and shall not permit any of its Subsidiaries to, exercise any warrant, option or other similar right or any convertible security, if such exercise requires any use or transfer of any asset by the Parent or such Subsidiary, unless the security or other asset received by the Parent or such Subsidiary upon such exercise is sold or otherwise disposed of for cash within 5 days. SECTION 5.13. CAPITAL EXPENDITURES. (a) The Parent and its Subsidiaries may retain and apply up to 66% of the proceeds of any Equity Issuance to make capital expenditures for property, plant and equipment and J.V. Investments. (b) Subject to Section 5.12(b) and to paragraph (c) of this Section 5.13, the Parent and its Subsidiaries may make J.V. Investments; PROVIDED that such J.V. Investments (other than Investments permitted by subsection (a) hereof) do not exceed (i) $2,500,000 individually, (ii) $5,000,000 in the aggregate in any fiscal year and (iii) Foothill is granted a security interest in the equity interest of the Parent and its Subsidiaries in all J.V. Investments entered into on or after the date hereof, subject to any prior claim by any Person who is a participant in such J.V. Investment pursuant to the operative documents of such J.V. Investment. (c) The sum of (i) Consolidated Capital Expenditures for any fiscal year plus (ii) the aggregate amount of J.V. Investments made during such fiscal year (in each case exclusive of capital expenditures and J.V. Investments permitted by subsection (a) hereof) shall not exceed the amount set forth below for such fiscal year: FISCAL YEAR ENDING MARCH 31 AMOUNT --------------- ------ 1996 $15,000,000 1997 $15,000,000 1998 $15,000,000 For purposes of this Section 5.13(c), Consolidated Capital Expenditures for any fiscal year shall include the net amount of leasebase assets to the extent of the amount, if any, by which such net amount at the end of such fiscal year exceeds the Leasebase Amount for 45 such fiscal year (such excess amount being referred to herein as the "Leasebase Increment"). The "Leasebase Amount" shall be, for the fiscal year ending March 31, 1995, $9,000,000 and, for any subsequent fiscal year, the sum of (a) the Leasebase Amount for the prior fiscal year plus (b) the Leasebase Increment for such prior fiscal year. SECTION 5.14. LOCATION OF INVENTORY AND EQUIPMENT. The Non-Parent Obligors shall keep the Inventory and Equipment only at the locations identified on SCHEDULE 5.14; PROVIDED, HOWEVER, that the Non-Parent Obligors shall be permitted to have: (a) Inventory in-transit between any two such locations or from any such location to a destination specified by the purchaser of such Inventory; (b) Inventory consigned by the Non-Parent Obligors located with the consignees thereof; and (c) Inventory sold on approval located with the purchaser thereof; in each case, in the ordinary course of business; PROVIDED FURTHER that the Non-Parent Obligors may amend SCHEDULE 5.14 so long as such amendment occurs by written notice to Foothill not less than thirty (30) days prior to the date on which the Inventory or Equipment is moved to such new location, so long as such new location is within the continental United States, Canada, or the United Kingdom, and so long as, at the time of such written notification, the Non-Parent Obligors provide any financing statements or fixture filings (or foreign equivalents, as applicable) necessary to perfect and continue perfected security interests of Foothill (or the Collateral Agent for the benefit thereof) in such assets and, if requested by Foothill, also provides to Foothill (or the Collateral Agent for the benefit thereof) a Collateral Access Agreement. SECTION 5.15. HEDGING FACILITIES. The Parent will not, and will not permit any of its Subsidiaries to, enter into any interest swap, currency swap, financial option or futures contract or any other similar arrangement except for the purpose of the BONA FIDE hedging of actual financial exposures of the Parent and its Consolidated Subsidiaries incurred in the ordinary course of business. SECTION 5.16. SPECIAL PURPOSE DOMESTIC RECEIVABLES SUBSIDIARY. (a) Foothill agrees that if Borrower creates and owns a Special Purpose Domestic Receivables Subsidiary, (i) Foothill shall not require the Special Purpose Domestic Receivables Subsidiary to, and shall acknowledge and agree that the Special Purpose Domestic Receivables Subsidiary may not, Guaranteed or grant a Lien on its assets to secure, the Obligations under the Financing Documents or the Restructured Loans or any other obligations under the "Financing Documents" (as defined in the Restructured Credit Agreement), and (ii) domestic Accounts of Borrower or Services purchased by the Special Purpose Domestic Receivables Subsidiary shall be free and clear of the Liens of the Collateral Agent, and Foothill authorizes the Collateral Agent to release and terminate its Liens in such Accounts in reliance upon a certificate of Borrower to the effect that such Accounts are being sold in compliance with the requirements of this Agreement and the Restructured Credit Agreement; PROVIDED, HOWEVER, that, in each case, no Default or Event 46 of Default shall exist or be continuing at the time of, or result from, the initial transfer of such Accounts to the Special Purpose Domestic Receivables Subsidiary. (b) As used herein, "Special Purpose Domestic Receivables Subsidiary" means: (i) a wholly-owned Subsidiary of Borrower (PROVIDED that such Subsidiary may be less than wholly-owned to the extent that a DE MINIMIS economic interest in such Subsidiary is held by a third Person for the purpose of effectuating the bankruptcy-remote status of such Subsidiary); (ii) all of the issued and outstanding capital stock of which (except for any such stock owned by a third Person as permitted by clause (i) of this subsection) is at all times subject to a valid and binding first priority Lien in favor of the Collateral Agent; (iii) that is not at any time obligated with respect to any Debt of any Other Person; (iv) that does not create, assume, or suffer to exist any Liens on any of its assets that secure any obligations of any other Person; and (v) that is formed solely for the limited purpose of, and engages in no activities except as are necessary for, effecting financing domestic Accounts originated by Borrower or Services. (c) The foregoing provisions of this Section 5.16 do not amend or waive any provisions of this Agreement that limit or otherwise regulate sales or factoring of Accounts by the Parent and its Subsidiaries or the use of proceeds thereof and such provisions of this Agreement shall govern the sales of domestic Accounts of Borrower and Services to an by the Special Purpose Domestic Receivables Subsidiary, and the application of proceeds of such sales. (d) If and when the transactions contemplated in this Section 5.16 are consummated, the parties hereto agree to modify the applicable provisions of this Agreement, in form and substance satisfactory to Foothill, to effectuate and reflect the substance of this Section 5.16. 47 SECTION 5.17. TRANSACTIONS WITH AFFILIATES. The Parent will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay any funds to or for the account of, make any Investment in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate; PROVIDED, HOWEVER, that the foregoing provisions of this Section 5.17 shall not prohibit (a) the Parent or any of its Subsidiaries from declaring or paying any lawful dividend so long as, after giving effect thereto, no Default shall have occurred and be continuing, (b)the Parent or any of its Subsidiaries from making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on terms and conditions at least as favorable to the Parent or such Subsidiary as the terms and conditions which would apply in a similar transaction with a Person not an Affiliated, (c) the Parent or any of its Subsidiaries from making payments of principal, interest and premium on any Debt of the Parent or such Subsidiary held by an Affiliate if the terms of such Debt are substantially as favorable to the Parent or such Subsidiary as the terms which could have been obtained at the time of the creation of such Debt from a lender which was not an Affiliate, (d) the Parent or any of its Subsidiaries from participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement with any Affiliate if the Parent or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Affiliate participates, (e) the Parent or any of its Subsidiaries from making any Investment permitted by Section 5.12(a)(iii), and (f) the Parent or any of its Subsidiaries (i) from making any payment due in respect of the Loan, or (ii) from providing compensation, indemnification and other benefits to any director or officer of the Parent or such subsidiary who also is an employee, officer, director, trustee or is otherwise affiliated or associated with an Affiliate on terms no more favorable than those on which compensation, indemnification and such other benefits are provided to directors and officers of the Parent or such Subsidiary who are not so affiliated or associated with any Affiliate; and, PROVIDED, FURTHER, that the Parent will not, and will not permit any of its Subsidiaries to, make payments to or for the account of any Affiliate in respect of financial advisory, management, transaction or other similar fees, except as otherwise permitted by this Section 5.17. SECTION 5.18. FISCAL YEAR. The Parent will not change its fiscal year from the twelve months ending March 31. SECTION 5.19. CONSTITUTIONAL DOCUMENTS. The Parent will not permit any Material Company to amend its Constitutional Documents in any manner that could adversely affect the rights of Foothill under the Financing Documents or Foothill's ability to enforce the same. 48 SECTION 5.20. MEETINGS WITH FOOTHILL. The Parent and Borrower will make its respective officers available to meet with representatives of Foothill at a mutually agreeable location within the first 50 days of each fiscal quarter of the Parent during the term of this Agreement for the purpose of reviewing the financial performance during the preceding fiscal quarter, and the then-current financial condition and prospects, of the Parent and its Consolidated Subsidiaries, in general, and of the Obligors, in particular. SECTION 5.21. EXCULPATION AND INJUNCTION. The Parent and each Obligor hereby exculpates, and the Parent hereby causes each other Subsidiary of the Parent to exculpate, Foothill for any actions or omissions in good faith in connection with any exercise of remedies and agrees not to pursue any legal action either to limit or prohibit the exercise of any remedy in accordance herewith by Foothill or to assert any claim for any act or omission relating thereto. SECTION 5.22. NET ASSET OUTFLOW: DISTRIBUTION ACCOUNT BALANCE. Anything to the contrary in this Agreement notwithstanding, from and after the Closing Date until all Obligations are paid in full in cash, the aggregate net outflow (netting inflows from outflows on an aggregate combined basis) of assets from (x) all Non-Parent Obligors on a combined basis, to (y) the Parent or any Subsidiary of the Parent that is not a Non-Parent Obligor on a combined basis, in whatever form, including sales or other dispositions of assets, intercompany loans, dividends, investments, or other transfers, but excluding sales of domestic Accounts of Borrower or Services to the Special Purpose Domestic Receivables Subsidiary permitted by Section 5.16 hereof shall not exceed Ten Million Dollars ($10,000,000) without the prior written consent of Foothill. The Parent shall not permit the balance standing to the credit of the account maintained by Distribution with Bank of America Illinois to exceed $5,000,000 for more than three (3) consecutive Business Days. ARTICLE VI [INTENTIONALLY OMITTED] ARTICLE VII DEFAULTS SECTION 7.01. DEFAULTS. An Event of Default shall have occurred if: (a) Borrower shall fail to pay when due any principal of the Loan; or 49 (b) Borrower shall fail to pay any interest on any Loan or any fees or any other amount payable under this Agreement for a period of five days after the same shall become due; or (c) any Obligor shall fail to observe or perform any covenant contained in Sections 5.06, 5.09, 5.10, 5.12 to 5.15 inclusive, 5.16, 5.19, or 5.21; or (d) any Obligor shall fail to observe or perform any of its covenants or agreements contained in the Financing Documents (other than those covered by paragraph (a), (b) or (c) above) for 10 days after the Parent shall have become aware of such failure, except, in the case of the covenants contained in Sections 5.03, 5.04(a), 5.05, 5.16(a) and 5.18, such period shall be 30 days, instead of 10 days; or (e) any representation, warranty, certification or statement made by any Obligor in any Financing Document or in any certificate, financial statement or other document delivered pursuant thereto shall prove to have been incorrect in any material respect when made; or (f) the Parent or any of its Subsidiaries shall fail to make any payment in respect of any Financial Obligation (other than the Loan) in a principal (or face) amount of $1,000,000 or more when due or within any applicable grace period; or (g) any event or condition shall occur that results in the acceleration of the maturity of any Financial Obligation in a principal (or face) amount of $1,000,000 or more of the Parent or any of its Subsidiaries or enables (or, with the giving of notice or lapse of time or both, would enable) the holder or holders of such Financial Obligation or any Person acting on behalf of such holder or holders to accelerate the maturity thereof, or any security therefor becomes enforceable; or (h) the Parent or any Subsidiary of the Parent shall commence a voluntary case or other proceeding seeking Liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or 50 (i) an involuntary case or other proceeding shall be commenced against the Parent or any Subsidiary of the Parent seeking Liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Parent or any Subsidiary of the Parent under the Federal bankruptcy laws as now or hereafter in effect; or (j) the Parent or any of its Subsidiaries admits its inability to pay its debts as and when they fall due or becomes or is deemed to be unable to pay its debts (whether for the purpose of the Insolvency Act of 1986 of Great Britain or otherwise) or insolvent, or convenes a meeting for the purpose of proposing, or otherwise proposes or enters into, any composition or arrangement with its creditors or any group or class thereof, or anything analogous to, or having a substantially similar effect to, any of the events specified in this paragraph or in paragraph (h) or (i) above occurs in any jurisdiction; or (k) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $1,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing, other than pursuant to a standard termination within the meaning of Section 4041(b) of ERISA in connection with which Borrower has provided Foothill with an opinion of Borrower's independent actuary reasonably acceptable to Foothill that such termination can be effected solely on the basis of existing Plan assets augmented by a commitment to contribute an additional amount not exceeding $1,000,000, PROVIDED, that, in the event, notwithstanding such opinion, any member of the ERISA Group is required to contribute an amount in excess of $1,000,000 in order to effect such standard termination, then such notice of intent shall be deemed to constitute an Event of Default; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c) (5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a payment obligation in excess of $1,000,000; or (l) an Enforceable Judgment for the payment of money in excess of $1,000,000, to the extent not covered by insurance, shall be rendered against the Parent or any of its Subsidiaries; or 51 (m) unless otherwise permitted by Section 5.06, any Material Company shall cease to be a Wholly-Owned Subsidiary of the Parent; or (n) after the Closing Date, any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act, but excluding any shares which such person or group of persons has the right to acquire upon the exercise of any Warrant) of 35% or more of the outstanding shares of Voting Stock; or (o) (i) the CFO in office on the date hereof and any date thereafter (the Incumbent CFO") shall for any reason cease to be CFO and either (x) no successor shall have been appointed within 120 days after such event occurs or (y) a successor to such Incumbent CFO shall have been appointed during such 120-day period but, within 21 days after such appointment becomes effective, Foothill delivers a notice to the Parent that such successor CFO is not reasonably satisfactory to them and such notice is not withdrawn by Foothill within 60 days after the date on which it was delivered to the Parent, or (ii) the Incumbent CFO shall cease to be a member of the managing board of the Parent and the successor to such Incumbent CFO, once appointed to such position, shall not have been duly elected by the shareholders of the Parent to be a member of the managing board of the Parent within 90 days after the date such appointment became effective; or (p) any authorization, approval, consent, license or exemption necessary or, in the opinion of counsel to Foothill, desirable for any Obligor to comply with its obligations under any Financing Document or for the enforceability of any Financing Document expires or is revoked, withheld or modified in a manner unacceptable to Foothill or fails to be granted or to remain in full force and effect and the effect of any of the foregoing is not, or is not able to be, remedied within ten days; or the validity of any Financing Document is contested or denied by any Obligor; or Foothill or the Collateral Agent on behalf thereof does not have, or ceases to have, valid and effective Liens on any material portion of the Collateral securing the Loan with the relative priorities contemplated by the Collateral Documents; or (q) the failure by any Restructuring Lender to deliver to Foothill any payment collected or received, directly or indirectly, by such Restructuring Lender that such Restructuring Lender is required to deliver to Foothill in accordance with Section 9.01(a) of the Restructured Collateral Agency Agreement. If an Event of Default under SECTION 7.01(a), (b), OR (q) shall have occurred and be continuing then, and in every such event, Foothill may, at its option, by notice to Borrower 52 declare the Loan (together with accrued interest thereon) and all other Obligations to be, and the Loan and such other amounts shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Obligors; PROVIDED, HOWEVER, that in the case of any Event of Acceleration, without any notice to any Obligor or any other act by Foothill, the Loan and all other Obligations shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Obligors. If any other Event of Default has occurred and is continuing, Foothill may give such notice to the Collateral Agent as shall cause the Collateral Agent to commence the enforcement of remedies under the Collateral Documents. ARTICLE VIII GUARANTEE SECTION 8.01. THE GUARANTEE. (a) Each Guarantor hereby unconditionally and irrevocably guarantees to Foothill the due and punctual payment of all present and future indebtedness evidenced by or arising out of this Agreement and any other Financing Document, including, but not limited to, the due and punctual payment of principal of and interest on the Loan and the due and punctual payment of all other sums now or hereafter owed by Borrower under this Agreement and the other Financing Documents as and when the same shall become due and payable, whether at maturity, by declaration or otherwise, according to the terms hereof and thereof. In case of failure by any Obligor punctually to pay any indebtedness guaranteed hereby, each Guarantor hereby unconditionally agrees to cause such payment to be made punctually as and when the same shall become due and payable, whether at maturity or by declaration or otherwise, and as if such payment were made by such Obligor. (b) Without prejudice to its obligations to Foothill hereunder, each Guarantor hereby agrees with Foothill to pay to Foothill from time to time on demand all amounts from time to time due and payable by it for the account of Foothill pursuant to any Financing Document to the extent not already paid. Any payment made pursuant to any such demand shall PRO TANTO satisfy such Guarantor's obligations to make payment for the account of Foothill pursuant to such Financing Document. SECTION 8.02. GUARANTEE UNCONDITIONAL. The obligations of each Guarantor under this Article VIII shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: 53 (a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of Borrower under any Financing Document by operation of law or otherwise; (b) any modification or amendment of or supplement to any Financing Document; (c) any modification, amendment, waiver, release, non-perfection or invalidity of any direct or indirect security, or of any guarantee or other liability of any third party, for any obligation of Borrower under any Financing Document; (d) any change in the corporate existence, structure or ownership of Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting Borrower or its assets or any resulting release or discharge of any obligation of Borrower contained in any Financing Document; (e) the existence of any claim, set-off or other rights which such Guarantor may have at any time against Borrower, Foothill, or any other Person, whether or not arising in connection with any Financing Document, PROVIDED that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (f) any invalidity or unenforceability relating to or against Borrower for any reason of any Financing Document, or any provision of applicable law or regulation purporting to prohibit the payment by Borrower of the principal of or interest on the Loan or any other amount payable by Borrower under this Agreement; or (g) any other act or omission to act or delay of any kind by Borrower, Foothill, or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of such Guarantor under this Article VIII. SECTION 8.03. DISCHARGE ONLY UPON PAYMENT IN FULL. Each Guarantor's obligations under this Article VIII shall remain in full force and effect until the principal of and interest on the Loan and all other amounts payable by any Obligor under any Financing Document shall have been paid in fill. SECTION 8.04. WAIVER. Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Obligor or any other Person or against any security. 54 SECTION 8.05. SUBROGATION AND CONTRIBUTION. Each Guarantor irrevocably waives any and all rights to which it may be entitled, by operation of law or otherwise, upon making any payment hereunder (i) to be subrogated to the rights of the payee against any Obligor with respect to such payment or against any direct or indirect security therefor, or otherwise to be reimbursed, indemnified or exonerated by or for, the account of any Obligor in respect thereof or (ii) to receive any payment, in the nature of contribution or for any other reason, from any other Guarantor with respect to such payment. SECTION 8.06. STAY OF ACCELERATION. If acceleration of the time for payment of any amount payable by Borrower under this Agreement is stayed upon the insolvency, bankruptcy or reorganization of Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Guarantors hereunder forthwith on demand by Foothill. SECTION 8.07. RELEASE OF AUSTRALIA AS GUARANTOR. Upon the consummation of the Asia-Pacific Sale as permitted in accordance with Section 5.09(b), the guarantee by Australia hereunder of the Obligations automatically shall be terminated and of no further force and effect, and the definition of 'Guarantors' thereafter shall be deemed to no longer include Australia. SECTION 8.08. LIMITED GUARANTEES OF UK. Anything in this Agreement to the contrary notwithstanding, the maximum aggregate amount recoverable from UK and Memorex Telex Holding (UK) Limited ("UK Holding") under (x) this Agreement, (y) Article II of that certain Subsidiary Guaranty Agreement, dated as of March 24, 1994 (as amended), among Parent, Australia, Memorex Telex Wholesale Pty Limited, and the "Subsidiary Guarantors" referred to therein (including UK and UK Holding), and (z) Article II of the "1992 Guaranty Agreements" (as defined in such Subsidiary Guaranty), collectively, shall be limited to $60,000,000 and the maximum aggregate amount recoverable from UK alone under the foregoing items (x), (y), and (z), collectively, shall be limited to $30,000,000. ARTICLE IX JUDICIAL PROCEEDINGS SECTION 9.01. CONSENT TO JURISDICTION. Each Obligor (a) irrevocably submits to the non-exclusive jurisdiction of any New York State or Federal court sitting in The City of New York over any suit, action or proceeding arising out of or relating to any Financing Document, and (b) to the fullest extent it may effectively do so under applicable law, irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise any claim that it is not subject to the jurisdiction of any such court, any objection that it 55 may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 9.02. ENFORCEMENT OF JUDGMENTS. Each Obligor agrees, to the fullest extent it may effectively do so under applicable law, that a judgment in any suit, action or proceeding of the nature referred to in Section 9.01 brought in any such court shall be conclusive and binding upon such Obligor and may be enforced in the courts of the United States or the State of New York (or any other courts to the jurisdiction of which it is or may be subject) by a suit upon such judgment. SECTION 9.03. SERVICE OF PROCESS. (a) Each Obligor hereby irrevocably designates, appoints, authorizes and empowers as its agent for service of process, O'Sullivan Graev & Karabell, LLP, at its offices presently located at 30 Rockefeller Plaza, New York, New York 10112, to accept and acknowledge for and on behalf of such Obligor service of any and all process, notices or other documents which may be served in any suit, action or proceeding of the nature referred to in Section 9.01 in any New York State or Federal court sitting in The City of New York. Said designation and appointment shall continue until all principal of and interest on the Loan and any other amounts payable by any Obligor under this Agreement or any other Financing Document shall have been paid in full. (b) In lieu of service upon its agent, each Obligor (i) consents to process being served in any suit, action or proceeding of the nature referred to in Section 9.01 by mailing a copy thereof by registered or certified air mail, postage prepaid, return receipt requested, to its address specified in or designated pursuant to Section 10.01, and (ii) agrees that such service (A) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (B) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to it. (c) Without prejudice to the effectiveness of any process served in the manner specified under paragraph (a) above, copies of such process shall also be sent to Borrower at the addresses specified in or designated pursuant to Section 10.01. SECTION 9.04. NO LIMITATION ON SERVICE OR SUIT. Nothing in this Article IX shall affect the right of Foothill to serve process in any manner permitted by law, or limit any right that Foothill may have to bring proceedings against any Obligor in the courts of any jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction. 56 ARTICLE X MISCELLANEOUS SECTION 10.01. NOTICES. Unless otherwise specified herein, all notices, requests and other communications to any party hereunder shall be in,writing (including, without limitation, bank wire, telex, telecopy or similar writing) and shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or by prepaid telex, overnight courier, telefacsimile, or telegram (with messenger delivery specified) to an Obligor or to Foothill, as the case may be, at its address set forth below: If to any Obligor: c/o MEMOREX TELEX CORPORATION 545 East Carpenter Freeway Irving, Texas 75062 Attn: Anthony Barbieri, Esq., General Counsel Fax No. 214.444.3600 with copies to: O'SULLIVAN GRAEV & KARABELL, LLP 30 Rockefeller Plaza, 41st Floor New York, New York 10112 Attn: Robert Seber, Esq. Fax No. 212.408.2420 If to Foothill: FOOTHILL CAPITAL CORPORATION 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025-3333 Attn: Business Finance Division Manager Fax No. 310.575.3435 with copies to: BROBECK, PHLEGER & HARRISON LLP 550 South Hope Street, Suite 2100 Los Angeles, California 90071 Attn: John Francis Hilson, Esq. Fax No. 213.239.1324 Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section 10.01 and the appropriate answerback is received, (ii) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 10.01, (iii) if given by mail, ten days after such communication is deposited in the mails with first class postage prepaid, 57 addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section 10.01; PROVIDED that notices to Foothill under Article II or X shall not be effective until received; PROVIDED FURTHER that each Obligor acknowledges and agrees that notices sent by Foothill in connection with Sections 9-504 or 9-505 of the New York Uniform Commercial Code shall be deemed sent when deposited in the mail or transmitted by telefacsimile or other similar method set forth above. The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. SECTION 10.02. NO WAIVER. No failure or delay by Foothill in exercising any right, power or privilege under any Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in the Financing Documents shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 10.03. EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION. (a) Borrower shall pay (i) all out-of-pocket expenses of Foothill and the Collateral Agent, including, without limitation, fees and disbursements of the law firm(s) acting as special United States counsel for Foothill and the Collateral Agent and such local counsel as may be retained by Foothill or the Collateral Agent, in connection with the preparation and administration of the Financing Documents, any waiver or amendment of any provision thereof, or any Default or alleged Default hereunder or thereunder, within 30 days after the receipt by Borrower of an invoice pertaining thereto from Foothill, and (ii) if any Event of Default occurs, all out-of-pocket expenses incurred by Foothill, including, without limitation, fees and disbursements of counsel, in connection with such Event of Default (including, without limitation, any visit to and inspection of the Parent and its Consolidated Subsidiaries after the occurrence and during the continuance of any Event of Default) and collection and other enforcement proceedings resulting therefrom. Borrower agrees to indemnify Foothill from and hold it harmless against any transfer taxes, documentary taxes, stamp taxes or other similar assessments or charges made by any governmental authority by reason of the execution and delivery of the Financing Documents. (b) Borrower agrees to indemnify Foothill, its affiliates and the respective directors, officers, agents and employees (each, an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel and any settlement costs, which may be incurred after the Closing Date by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of the Financing Documents, or any actual or proposed use of the proceeds of 58 the Loan hereunder, PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction. SECTION 10.04. RIGHT OF SET-OFF. Upon the occurrence of a Default, Foothill is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply (or cause the Collateral Agent or any subagent thereof to do the same) any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Foothill to or for the credit or the account of any Obligor against any and all of the obligations of such Person now or hereafter existing under the Financing Documents, irrespective of whether or not Foothill shall have made any demand under any Financing Document or such deposit obligations may be unmatured. Foothill agrees promptly to notify Borrower after any such set-off and application made by Foothill, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. The rights of Foothill under this Section 10.04 are in addition to other rights and remedies which Foothill may have upon the occurrence and during the continuance of any Default or any Event of Default. SECTION 10.06. AMENDMENTS AND WAIVERS. (a) Any provision of this Agreement or the other Financing Documents may be amended or waived if, and only if, such amendment or waiver is in writing and is signed by Borrower and Foothill (and, if the rights or duties of any other Obligor are affected thereby, by it), PROVIDED that, no such amendment or waiver shall, unless signed by Foothill, (w) reduce the principal of or rate of interest on any Loan or any fees payable hereunder, (x) postpone the date fixed in Section 2.04(b) for any payment of principal of or interest on any Loan or any fees payable hereunder, (y) change the aggregate unpaid principal amount of the Note or any Other provision of this Agreement or (z) subject any Lender to any additional obligation. SECTION 10.07. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT FOOTHILL'S (OR COLLATERAL 59 AGENT'S) OPTION, IN THE COURTS OF ANY JURISDICTION WHERE FOOTHILL (OR COLLATERAL AGENT) ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH PARTY HERETO WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 10.07. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY HERETO REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. SECTION 10.08. SUCCESSORS AND ASSIGNS; PARTICIPATIONS; NOVATION. (a) This Agreement and the other Financing Documents shall bind and inure to the benefit of the respective successors and assigns of each of the parties; PROVIDED, HOWEVER, that no Obligor may assign this Agreement or any other Financing Document or any rights or duties hereunder or thereunder without Foothill's prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Foothill shall release any Obligor from its Obligations. Foothill may assign all or any ratable part of the Obligations and the rights and obligations of Foothill under this Agreement and the other Financing Documents. Any such assignment by Foothill to a Person other than an Eligible Transferee shall be subject to the prior written consent of the Obligors, which consent shall not be unreasonably withheld, conditioned, or delayed. No consent or approval by any Obligor is required in connection with any such assignment by Foothill to an Eligible Transferee. Anything contained herein to the contrary notwithstanding, the consent of the Obligors shall not be required if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of Foothill. Foothill reserves the right to sell, assign, transfer, negotiate, or grant participations in all or any part of, or any interest in Foothill's rights and benefits under the Financing Documents. Any such participation by Foothill to a Person other than an Eligible Transferee shall be subject to the prior written consent of the Obligors, which consent shall not be unreasonably withheld, conditioned, or delayed. No consent or approval by any Obligor is required in connection with any such participation by Foothill to an Eligible Transferee. In connection with any such assignment or 60 participation, Foothill may disclose all documents and information which Foothill now or hereafter may have relating to the Parent and its Subsidiaries, in general, and the Obligors, in particular. To the extent that Foothill assigns its rights and obligations under the Financing Documents to a third Person, Foothill thereafter shall be released from such assigned obligations to the Obligors and such assignment shall effect a novation between the Obligors and such third Person. (b) The Obligors authorize, and hereby cause the Parent on behalf of itself and its Subsidiaries to authorize, Foothill to disclose to any participant or assignee (each a "Transferee") and any prospective Transferee any and all financial information in Foothill's possession concerning the Obligors and the Parent and its Subsidiaries which has been delivered to Foothill by them pursuant to this Agreement or which has been delivered to Foothill by them in connection with Foothill's credit evaluation prior to entering into this Agreement. (c) No Transferee shall be entitled to receive any greater payment under Section 10.03 or 10. 11 than Foothill would have been entitled to receive with respect to the rights assigned, unless such assignment is made with the prior written consent of Borrower. SECTION 10.10. JUDGEMENT CURRENCY. If, for the purpose of enforcing the obligations of the Obligors hereunder or under any other Financing Document, it is necessary to convert a sum due hereunder in Dollars into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures Foothill could purchase Dollars with such other currency at or about 11:00 A.M. (London time) on the Business Day preceding that on which final judgment is given. The obligations of the Obligors in respect of any sum due to Foothill hereunder or under the other Financing Documents shall, notwithstanding any adjudication expressed in a currency other than Dollars, be discharged only to the extent that on the Business Day following receipt by Foothill of any sum adjudged to be so due in such other currency Foothill may in accordance with normal banking procedures purchase Dollars with such other currency; if the amount of Dollars so purchased is less than the sum originally due to Foothill, as the case may be, in Dollars, each Obligor agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such adjudication, to indemnify Foothill against such loss, and if the amount of Dollars so purchased exceeds the sum originally due to Foothill, Foothill agrees to remit such excess to Borrower. SECTION 10.11. FOREIGN TAXES. All payments of principal of and interest on the Loan and of all other amounts payable under this Agreement for the account of Foothill shall be paid without withholding or deduction for or on account of any Foreign Taxes. If any Foreign Taxes are so levied or imposed by way of withholding or deduction, 61 Borrower will pay additional interest or will make additional payments in such amounts so that every net payment of principal of and interest on the Loan and of all other amounts payable under this Agreement, after withholding or deduction for or on account of any Foreign Taxes, will not be less than the amount provided for herein. Borrower shall furnish to Foothill within 30 days official receipts evidencing such withholding or deduction. If any Foreign Taxes are levied or imposed with respect to payment of principal or interest on the Loan or any other amount payable under this Agreement (including, without limitation, this Section 10.11) other than by way of withholding or deduction ("Directly Imposed Foreign Taxes"), Borrower shall promptly pay to Foothill additional interest, or will make additional payments, in such amounts so that every net payment of such additional interest or payments, after withholding or deduction for or on account of any Foreign Taxes, will not be less than the amount of Directly Imposed Foreign Taxes levied or imposed on such Lender. If any additional amount shall become payable pursuant to this Section 10.11, Borrower and Foothill will enter into discussions in good faith with a view to determining whether any means (not being detrimental in the opinion of Foothill to the interests of Foothill) exist by which such amounts may lawfully be mitigated. Foothill shall use reasonable efforts consistent with legal and regulatory restrictions to file any certificate or similar document requested by the Obligors, if the making of such a filing would avoid the need for or reduce the amount of any such Directly Imposed Foreign Taxes attributable to the Loan and would not result in any unreimbursed loss, cost or expense or otherwise be disadvantageous to Foothill as determined in Foothill's sole discretion. SECTION 10.12. COUNTERPARTS; INTEGRATION. This Agreement may be signed in any number of counterparts, each of which shall be an original, and all of which taken together shall constitute a single agreement, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement and the other Financing Documents constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 10.13. CONFIDENTIALITY. Foothill agrees to keep confidential from anyone other than Persons employed or retained by Foothill who are expected to become engaged in evaluating, approving, structuring or administering the Loan any information delivered or made available by Borrower to it and indicated in writing as confidential; PROVIDED that nothing herein shall prevent Foothill from disclosing such information (a) to any Restructuring Under, (b) to any other Person if reasonably incidental to the administration of the Loan or the other Obligations, (c) upon the order of any court or administrative agency, (d) upon the request or demand of, or pursuant to any regulation of, any regulatory agency or authority, (e) to the NAIC or any similar association or authority, (f) which had been publicly disclosed other than as a result of a disclosure by Foothill or any Lender 62 prohibited by this Agreement, (g) in connection with any litigation to which Foothill or its subsidiaries or parent may be a party, (h) to the extent reasonably required in connection with the exercise of any remedy hereunder, (i) to Foothill's legal counsel and its respective independent auditors and (j) to any actual or proposed Transferee of all or part of its rights hereunder provided that such actual or proposed Transferee agrees in writing to the provisions of this Section 10.13. SECTION 10.15. SUBSIDIARY GUARANTY DEED POLL. In the absence of fraud or misconduct by the directors of Australia, Foothill agrees, expressly for the benefit of such directors, not to pursue any action under section 588G of the Corporation Law of Australia in connection with the Subsidiary Guaranty Deed Poll (if any) of Australia. [remainder of page intentionally left blank] 63 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the date first above written. BORROWER: MEMOREX TELEX CORPORATION By: --------------------------------- Name: Title: GUARANTORS: MEMOREX TELEX SERVICES, INC. By: --------------------------------- Name: Title: MEMOREX TELEX INC. By: --------------------------------- Name: Title: MEMOREX TELEX (UK) LTD. By: --------------------------------- Name: Title: 64 MEMOREX TELEX N.V. By: --------------------------------- Name: Title: LENDER: FOOTHILL CAPITAL CORPORATION By: --------------------------------- Name: Title: 65 SCHEDULES: A-1 - Asia-Pacific Subsidiaries E-1 - Eligible Inventory Locations 5.07 - Permitted Existing Debt 5.08 - Permitted Existing Liens 5.14 - Locations of Inventory and Equipment 66 SCHEDULE A-1 ASIA-PACIFIC SUBSIDIARIES [See Attached] 67 SCHEDULE C-1 COLLATERAL DOCUMENTS [See Attached] 68 SCHEDULE E-1 LOCATIONS OF ELIGIBLE INVENTORY [See Attached] 69 SCHEDULE 5.07 PERMITTED EXISTING DEBT [See Attached] 70 SCHEDULE 5.08 PERMITTED EXISTING LIENS [See Attached] 71 SCHEDULE 5.14 LOCATION OF INVENTORY AND EQUIPMENT [See Attached] 72 EX-23.1 8 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-78512), pertaining to the Memorex Telex Stock Option Plan and the Memorex Telex Employees' Stock Purchase Plan, of our report dated June 28, 1996 with respect to the consolidated financial statements and schedule of Memorex Telex N.V. included in the annual report on Form 10-K for the year ended March 31, 1996. Dallas, Texas ERNST & YOUNG LLP July 15, 1996 EX-27 9 FDS
5 1,000 YEAR MAR-31-1996 APR-01-1995 MAR-31-1996 26838 0 108021 (10161) 66588 205551 28622 (16536) 268168 402873 4903 0 0 1338 (278689) 268168 463517 834053 353398 631593 409935 4606 40544 (246738) 0 (246738) 0 0 0 (246738) (9.84) (9.84)
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