Xerox 2002 Annual Report Download - page 34

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Restricted Assets (the “Restricted Asset Security
Amount”) will vary from time to time with changes
in our consolidated net worth. The amount of security
provided under this formula accrues first to the
benefit of Tranche B loans and then to the benefit of
Tranche A Loans and Revolving Loans, ratably.
The assets of XCE, XCCL and other subsidiaries
guaranteeing the New Credit Facility are not
Restricted Assets because those entities are not
restricted subsidiaries as defined in our public bond
indentures. Consequently, the amount of New Credit
Facility debt secured by their assets is not subject to
the foregoing limits. However, these guarantees are
enforceable only to the extent of the New Credit
Facility borrowings in Europe and Canada.
The New Credit Facility loans generally bear inter-
est at LIBOR plus 4.50 percent, except that the Tranche
B term loan bears interest at LIBOR plus a spread
that varies between 4.00 percent and 4.50 percent
depending on the amount by which the Restricted
Asset Security Amount exceeds the outstanding
Tranche B loan.
The New Credit Facility, a copy of which we have
filed with the SEC as Exhibits 4 (1)(1) and 99.6 to our
Current Reports on Form 8-K dated June 21, 2002 and
September 26, 2002, respectively, contains affirmative
and negative covenants. The New Credit Facility con-
tains financial covenants that the Old Revolver did
not contain. Certain of the more significant covenants
under the New Credit Facility are summarized below
(this summary is not complete and is in all respects
subject to the actual provisions of the New Credit
Facility):
• Excess cash of certain foreign subsidiaries and of
Xerox Credit Corporation, a wholly-owned sub-
sidiary, must be transferred to Xerox Corporation
at the end of each fiscal quarter; for this purpose,
“excess cash” generally means cash maintained by
certain foreign subsidiaries taken as a whole in
excess of their aggregate working capital and other
needs in the ordinary course of business (net of
sources of funds from third parties), including rea-
sonably anticipated needs for repaying debt and
other obligations and making investments in their
businesses. In certain circumstances, we are not
required to transfer cash to Xerox Corporation, if
the transfer cannot be made in a tax efficient man-
ner or if it would be considered a breach of fiduci-
ary duty by the directors of the foreign subsidiary;
• Minimum EBITDA (a quarterly test that is based on
rolling four quarters) ranging from $1.0 to $1.3 bil-
lion; for this purpose, “EBITDA” (Earnings before
interest, taxes, depreciation and amortization) gen-
erally means EBITDA (excluding interest and
financing income to the extent included in consoli-
dated net income), less any amounts spent for soft-
ware development that are capitalized;
• Maximum leverage ratio (a quarterly test that is cal-
culated as total adjusted debt divided by EBITDA)
ranging from 4.3 to 6.0;
• Maximum capital expenditures (annual test) of
$330 million per fiscal year plus up to $75 million of
any unused amount carried over from the previous
year; for this purpose, “capital expenditures” gen-
erally mean the amounts included on our state-
ment of cash flows as “additions to land, buildings
and equipment”, plus any capital lease obligations
incurred;
• Minimum consolidated net worth ranging from
$2.9 billion to $3.1 billion; for this purpose, “consol-
idated net worth” generally means the sum of the
amounts included on our balance sheet as
“Common shareholders’ equity,” “Preferred
stock,” “Company-obligated, mandatorily
redeemable preferred securities of subsidiary trust
holding solely subordinated debentures of the
Company,” except that the currency translation
adjustment effects and the effects of compliance
with SFAS 133 occurring after December 31, 2001
are disregarded, the preferred securities (whether
or not convertible) issued by us or by our sub-
sidiaries which were outstanding on June 21, 2002
will always be included, and any capital stock or
similar equity interest issued after June 21, 2002
which matures or generally becomes mandatorily
redeemable for cash or puttable at holders’ option
prior to November 1, 2005 is always excluded; and
• Limitations on: (i) issuance of debt and preferred
stock; (ii) creation of liens; (iii) certain fundamental
changes to corporate structure and nature of busi-
ness, including mergers; (iv) investments and
acquisitions; (v) asset transfers; (vi) hedging trans-
actions other than those in the ordinary course of
business and certain types of synthetic equity or
debt derivatives, and (vii) certain types of restricted
payments relating to our, or our subsidiaries’, equi-
ty interests, including payment of cash dividends
on our common stock; (viii) certain types of early
retirement of debt, and (ix) certain transactions
with affiliates, including intercompany loans and
asset transfers.
The New Credit Facility generally does not affect
our ability to continue to monetize receivables under
the agreements with GE and others. Although we can-
not pay cash dividends on our common stock during