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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GENERAL DATACOMM INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 06-0853856
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
1579 STRAITS TURNPIKE,
MIDDLEBURY, CONNECTICUT 06762-1299
(203) 574-1118
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
HOWARD S. MODLIN, ESQ.,
WEISMAN CELLER SPETT & MODLIN, P.C.
445 PARK AVENUE,
NEW YORK, NEW YORK 10022
(212) 371-5400
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE).
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
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7 3/4% Convertible Senior Subordinated Debentures due
2002................................................ $25,000,000 $1,000(1) $25,000,000 $7,375
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Non-Convertible Senior Subordinated Notes due 2002.... $25,000,000 NA NA NA(2)
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Common Stock, par value, $.10 per share............... 4,287,429 NA NA NA(3)
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(1) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee based upon the $1,000 initial sale price of the 7 3/4%
Convertible Senior Subordinated Debentures due 2002 (the "Debentures").
(2) No additional consideration will be received by the Registrant in the event
of the issuance of the Non-Convertible Senior Subordinated Notes due 2002
("Notes") in exchange for the Debentures. Accordingly, no additional
registration fee is required in respect of the Notes pursuant to Rule 457(i)
under the Securities Act.
(3) No additional consideration will be received by the Registrant for the
issuance of shares of the Registrant's Common Stock, par value $.10 per
share (the "Common Stock") upon conversion of the Debentures. Accordingly,
no additional registration fee is required in respect of such shares of
Common Stock.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
SUBJECT TO COMPLETION DATED JANUARY 7, 1998
GENERAL DATACOMM INDUSTRIES, INC.
$25,000,000 PRINCIPAL AMOUNT OF 7 3/4% CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES DUE 2002
$25,000,000 PRINCIPAL AMOUNT OF NON-CONVERTIBLE SENIOR SUBORDINATED NOTES DUE
2002
4,287,429 SHARES OF COMMON STOCK (PAR VALUE, $.10 PER SHARE)
This Prospectus relates to the offering of the following securities
(collectively, the "Securities") consisting of $25,000,000 aggregate principal
amount of 7 3/4% Convertible Senior Subordinated Debentures due 2002 (the
"Debentures") of General DataComm Industries, Inc., a Delaware corporation
("GDC" or the "Company"), the $25,000,000 aggregate principal amount of
Non-Convertible Senior Subordinated Notes due 2002 (the "Notes") issuable upon
exchange of the Debentures and the maximum 4,287,429 shares of Common Stock,
$.10 par value, issuable upon conversion of the Debentures, if the maximum reset
of the conversion price occurs.
The Debentures were initially issued and sold on September 26, 1997 in
transactions exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), to persons reasonably believed by the
Company to be "qualified institutional buyers" (as defined by Rule 144A under
the Securities Act) ("Rule 144A"), or "Accredited Investors" (as defined in Rule
501(a)(1),(2),(3), (5) or (7) under the Securities Act). The Securities may be
offered and sold from time to time by the holders named herein (see "Plan of
Distribution") (collectively, the "Selling Holders") pursuant to this
Prospectus.
Interest on the Debentures accrues at the rate of 7 3/4% per annum and is
payable semi-annually on the 30th day of March and September of each year
commencing March 30, 1998. The Debentures are subordinated in right of payment
to all existing and future Senior Indebtedness (as defined herein) of the
Company.
Each Debenture may be converted at any time at the option of the holder
into shares of Common Stock, at a conversion price of $6.86 per share
(equivalent to a conversion rate of approximately 145.8 shares of Common Stock
for each $1,000 principal amount of the Debentures, subject to adjustment in
certain circumstances. Such Conversion Price will be reset on each of March 30,
1998 and September 30, 1999 (each a "Reset Date") to the average Closing Price
(as defined herein) of Common Stock for the ten previous trading days preceding
a Reset Date plus the original premium thereof if lower than the initial
Conversion Price. In no event may the Conversion Price be reset at a price lower
than 15% below the initial Conversion Price or be reset on the second Reset Date
at a price higher than the Conversion Price set on the first Reset Date. On
January 5, 1998 the closing price of the Common Stock (symbol "GDC") as reported
on the New York Stock Exchange was $4.38 per share.
(Continued on next page)
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER MATTERS DISCUSSED UNDER THE
CAPTION "RISK FACTORS" ON PAGES 7 TO 12.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is , 1998.
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The Debentures may not be redeemed prior to September 30, 2000. The
Debentures are redeemable in whole or in part, at the sole option of the
Company, at the redemption prices set forth herein at any time on or after
September 30, 2000, plus accrued interest to the date fixed for redemption,
provided, however, that the Debentures are not redeemable on and after September
30, 2000 and prior to September 30, 2001 unless the closing price (as defined)
of the Common Stock has equaled or exceeded 150% of the conversion price then in
effect for at least 20 trading days within 30 consecutive trading days ending
within five trading days before notice of redemption is mailed.
In addition, during the 30 day period commencing September 30, 2000, each
holder of the Debentures shall have the right to require the Company to
repurchase such Debentures at a repurchase price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest. The Company may
satisfy such repurchase obligations through the issuance of the Notes which will
be subordinated to the same extent and due on the same maturity date as the
Debentures, and have substantially the same terms as the Debentures, except the
Notes shall not be convertible and shall bear a rate of interest in order to
have a market value of 100% of their principal amount on the date of repurchase,
as determined by a nationally recognized investment banking firm chosen by the
Company; provided that the interest rate shall not exceed 14% per annum.
If at any time there occurs a Change in Control (as defined herein), each
holder of the Debentures, and the Notes if issued in exchange therefore, shall
have the right for a limited period to require the Company to repurchase such
Debentures or Notes, as the case may be, at a repurchase price for the
Debentures or Notes of the principal amount of the Debentures or Notes, plus
accrued and unpaid interest. The Company may satisfy its repurchase obligations
upon a Change in Control through the issuance of shares of Common Stock (valued
at the Market Price as defined herein).
Application has previously been made for the Debentures to be designated as
eligible for trading in the National Association of Securities Dealers, Inc.
Private Offering, Resales and Trading through Automated Linkages ("PORTAL")
market.
The Selling Holders will receive all of the net proceeds from the sale of
the Debentures or Notes and the shares of Common Stock issuable upon conversion
of the Debentures and will pay any and all underwriting discounts and selling
commissions applicable to the sale of such Securities. The Registration
Statement on Form S-3 of which this Prospectus is a part (the "Registration
Statement") has been filed with the Securities and Exchange Commission (the
"SEC" or the "Commission") pursuant to the Company's obligations under a
registration rights agreement dated as of September 26, 1997 (the "Registration
Rights Agreement"). The Company is responsible for payment of all other expenses
incident to the registration of the Securities registered hereunder (excluding
personal legal and accounting fees of the Selling Holders).
The Selling Holders and any broker-dealers, agents or underwriters which
participate in the distributions of the Securities offered hereby may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commission received by them or purchases by them of such Securities at a price
less than the initial price to the public may be deemed to be underwriting
commissions or discounts under the Securities Act.
It is estimated that the aggregate amount of fees and expenses payable by
the Company in connection with the registration of the Securities offered hereby
will be approximately $100,000. The Company intends to keep the Registration
Statement effective for a period of two years following the initial issuance of
the Debentures on September 26, 1997, unless the two-year holding period
required by Rule 144(k) under the Securities Act ("Rule 144") is shortened, in
which case the Registration Statement will be kept effective for such shorter
period.
THIS PROSPECTUS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY. SUCH
STATEMENTS REFLECT SIGNIFICANT ASSUMPTIONS AND SUBJECTIVE JUDGMENTS BY THE
COMPANY'S MANAGEMENT CONCERNING ANTICIPATED RESULTS. THESE ASSUMPTIONS AND
JUDGMENTS MAY OR MAY NOT PROVE TO BE
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CORRECT. MOREOVER, SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. FOR A DISCUSSION OF SUCH RISKS,
SEE "RISK FACTORS." INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OCCURRING OR CIRCUMSTANCES ARISING
AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
AVAILABLE INFORMATION
GDC is subject to the informational requirements of the Securities Exchange
Act of 1934 ("Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Commission. Reports, proxy statements
and other information filed by the Company with the Commission may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 and at
the Commission's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661-2511. Copies of such materials may
be obtained from the Public Reference Section of the Commission at Room 1024,
450 Fifth Street, NW, Washington, D.C. 20549 at prescribed rates. The Commission
also maintains a web site that contains reports, proxy statements and
information statements and other information regarding registrants that file
electronically with the Commission, including the Company, at http://
www.sec.gov. The Company's Common Stock is listed on the New York Stock Exchange
and such reports, proxy statements and other information regarding the Company
can also be inspected at the offices of such Exchange. In addition, the Company
has agreed, for so long as any of the Securities remain outstanding, to make
available to any prospective purchaser of the Securities or beneficial holder of
the Securities in connection with any sale thereof, the information required by
Rule 144A(d)(4) until two years (or shorter period if the holding period under
Rule 144 is shortened) after the issuance of the Debentures.
This Prospectus forms a part of a registration statement on Form S-3 filed
by the Company with the Commission under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission.
Statements contained herein concerning the provisions of certain documents are
not necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto can be
inspected and copied at the public reference facilities and regional offices
referred to above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 and proxy statement on Schedule 14A dated December 10, 1997,
which have been filed by the Company with the Commission pursuant to the
Exchange Act, are hereby incorporated by reference in and made a part of this
Prospectus.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the securities
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of filing of such
documents.
Any statement contained in this Prospectus shall he deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained in any subsequently filed document which is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each prospective purchaser to
whom a copy of this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents incorporated by reference in
this Prospectus (not including exhibits to such documents unless such exhibits
are specifically incorporated by reference into such documents) and any other
information requested thereby as described above under "Available Information".
Such written or oral request should be directed to General DataComm Industries,
Inc., 1579 Straits Turnpike, Middlebury, Connecticut, 06762-1299, Attention:
Vice President, Business Development (telephone number 203-574-1118).
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PROSPECTUS SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by reference to the detailed information and consolidated financial
information appearing elsewhere in this Prospectus, or incorporated by reference
herein. Terms not defined in this Summary are defined elsewhere herein.
THE COMPANY
General DataComm Industries, Inc., incorporated in 1969 under the laws of
Delaware, is a provider of internetworking and telecommunications equipment. The
Company is focused on providing multiservice provisioning solutions using ATM
switching and multiservice access products. The Company designs, assembles,
markets, installs and maintains products and services that enable
telecommunications common carriers, governments and corporations to better and
more cost effectively manage their global telecommunications networks.
The Company sells and services its products primarily to corporations,
governments and common carriers (telephone and cable companies) through its own
worldwide sales and service organizations, as well as through Original Equipment
Manufacturers (OEMs), system integrators, distributors and value-added
resellers. The Company's products are assembled primarily in its Naugatuck,
Connecticut facility.
GLOSSARY OF PRODUCT TERMS
The following is a brief explanation of product terms used in the Section
entitled "Risk Factors".
Traditional analog modem and digital data set product lines. A modem
accepts a digital signal from a terminal device (such as personal computer)
and transforms the signal into an analog signal for transmission over a
telecommunications line. At the destination location, another modem
receives the analog signal and transforms it back to a digital signal for
presentation to its associated terminal device. GDC has been producing
modems since 1970. Its "traditional" analog modems operate at lower speeds
up to 19,200 bits per second (bps), or also described as 19.2 Kilobits per
second (Kbps).
Digital data sets are telecommunications devices which connect to a
terminal, such as a personal computer, accepting a digital signal from that
terminal device and transmitting it in digital form over a
telecommunications line to a nearby central office. Digital data sets
provide more error free transmission that do analog modems, but their range
is limited to a few miles, typically connecting a subscriber premise to the
nearest telephone central office. Traditional digital data sets operate at
speeds up to 64 Kbps and have no network management capability.
High-speed network-managed digital data sets. High speed refers to
speeds greater than 128 Kbps; typical devices operate at 768 Kbps and 1.544
Megabits per second (million bits per second) (Mbps). "Network managed"
refers to the capability for the data set connected on the line to be able
to provide information to a management station about the operational status
of the data sets and associated lines.
Advanced Network Access products. These comprise the newer high speed
network managed digital data sets, access multiplexers and analog modems
operating at speeds of 28.8 Kpbs and higher.
ATM cell switches. ATM (Asynchronous Transfer Mode) is a technology
whereby information from a source such as a computer is formatted into
standard length cells, each consisting of multiple bits of information,
which are forwarded through a network to a destination. ATM switches are
devices which accept communication traffic in cell format, and switch the
cells to an outbound circuit for onward transmission to their ultimate
destination. Some ATM switches are especially packaged to meet the
environmental and power system requirements of telephone company central
office environments.
Advanced Network Access product line. Network access products are
communication devices which enable transport of voice and data traffic over
the local telephone line which runs from a subscriber's premises to a
telephone company central office. They provide "Access" to the network
backbone for the subscriber. "Advanced Network Access" is a GDC term for
its family of transmission products.
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Access multiplexers. Multiplexers reduce the number of
telecommunication lines which are required by the customer for the
transmission of data. A multiplexer accepts multiple data signals at one
end of a multiplexing subsystem and consolidates the multiple signals for
transmission over a single telecommunication line; at the other end of the
telecommunication line another multiplexer receives the consolidated signal
and separates it back into multiple signals.
Access multiplexers as provided by GDC are of two types. The first
type is typically located at the customer premises and accepts voice and
data signals which are consolidated into one or two local lines for
connection to the nearest central office. The second type is typically
located in a service provider office and consolidates multiple signals
transmitted from multiple subscribers over local telecommunication lines
using individual low or high speed digital data sets at the subscriber
premises.
Networking Multiplexer equipment. These are multiplexers which are
used in the core of a network. They typically have multiple trunk circuits
that connect to two or more other nodes in the same network. They will also
accept connections of local loops from access equipment located at a remote
subscriber premises.
Enterprise networks. This term is applied to private networks which
are built by business enterprises to support their internal communication
needs.
Wide Area Network (WAN) ATM products. A wide area network is a
communication network which extends beyond the boundary of a single
building or a campus environment. Wide area network ATM products are ATM
switches of various capabilities (5 Gigagbits per second, 10 Gbps, 20 Gbps,
etc.) and have sophisticated networking capabilities to accommodate cell
set up and tear down and control network congestion. Because of these
features, wide area network ATM switches are more expensive than local area
network ATM switches.
Local Area Network (LAN) ATM Products. A local area network typically
provides communications within a single user work group or within a single
building. Local area network ATM products tend to be lower cost and have
lower functionality than wide area network products. Products would include
switches and network interface cards which plug into workstations or
personal computers.
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RISK FACTORS
CONTINUING LOSSES AND AVAILABILITY OF CREDIT
The Company reported losses of $11.5 million and $42.8 million for the
quarter and year ended September 30, 1997, respectively, has sustained losses
for the past twelve quarters, and anticipates that it will sustain a loss for
the quarter ending December 31, 1997. The Company believes such continuing
losses reflect the combined impact of reduced product revenue levels (partially
attributable to slower-than-expected ATM product acceptance) and continued heavy
investments in its Asynchronous Transfer Mode ("ATM") and Advanced Network
Access ("Access") product lines and technologies. For the year ended September
30, 1997 revenues were down $27.4 million, or 11.6%, from one year ago.
Concurrently, gross research and development spending was up by $7.3 million or
15.9% on a year-to-year basis. The combined impact of lower revenues and higher
research and development spending accounted for most of the increase in reported
net losses for the year ended September 30, 1997, as compared to the
corresponding period one year earlier. There can be no assurance that the
Company will not face revenue risks in the future from, among other factors,
delays in obtaining full operating capability of key products, continued lower
than anticipated expenditures by RBOCs, continued downward pricing pressures,
difficulties in maintaining key personnel, over-extension of managerial and
research and development resources, and the continued immaturity of, or the
Company's failure to achieve significant growth in, the market for ATM-based
products. There can be no assurance as to when the Company will achieve net
income and some customers may be or may become concerned with respect to the
Company's ability to support its products.
If the Company continues to sustain losses it may not be in compliance with
relevant covenants and other provisions in its new bank loan and security
agreement requiring, among others, maintaining a stockholders equity (as defined
therein) of not less than $80,000,000 at the end of any quarter, and if a waiver
or amendment is not obtained, the Company may be unable to borrow funds under
such agreement. In such case the Company will be required to seek other
financing to fund its operations and there can be no assurance the Company will
be able to obtain such financing, or if obtained, on terms deemed favorable by
management. Furthermore, in the event the Company does default on its
obligations under such loan and security agreement, such default may result in
the acceleration of the $15 million term loan outstanding under such loan and
security agreement and other outstanding indebtedness.
FUTURE SALES DEPENDENT ON SHIFT IN PRODUCT MIX
The Company's product mix is still shifting from its traditional analog
modem and digital data set product lines, to high-speed network-managed digital
data sets, Advanced Network Access products and ATM cell switches. In the
Company's Advanced Network Access product line, sales of analog modems and
non-managed digital data sets are declining while sales of high-speed,
network-managed digital data sets and access multiplexers are increasing. The
Company is experiencing price pressures in both sectors. The markets for the
Company's traditional analog products are mature and generally declining with
corresponding pricing decreases. For fiscal 1997, Advanced Network Access
product sales (including licensing fees) accounted for approximately 47% of net
product sales, as compared to approximately 49% in fiscal 1996. Sales of
Networking Multiplexer equipment declined from approximately 35% of total
product sales in fiscal 1995 to 28% and 29% in fiscal 1996 and 1997,
respectively. The Company believes this decline is primarily due to changes in
networking technology being used in enterprise networks. Revenues from ATM
switches and related products accounted for approximately 15% of product sales
in fiscal 1995, and grew to 23% and 24% of product sales in fiscal 1996 and
fiscal 1997, respectively. The ability of the Company to maintain or increase
revenues during the next several years is dependent upon sales of its ATM cell
switches and expansion of its access multiplexer product lines, including its
Metroplex 6000 and Universal Access 7000 product lines. There can be no
assurance that the Company will be able to significantly increase sales of such
products.
SLOWER THAN EXPECTED MARKET DEVELOPMENT; CONTINUING IMMATURITY OF ATM MARKET AND
ATM PRODUCTS.
In 1997, the Company found that sales of ATM-based products fell below both
the Company's internal and market expectations. There can be no assurance that
the market for ATM-based products will develop
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significantly. Moreover, there is already intense competition among ATM product
manufacturers and the ATM market is subject to both rapid advances in technology
and greater demand for more flexible, cost-effective solutions. The development
of the Company's ATM-based products has required and will continue to require
significant research and development expenditures. Any failure by the Company to
anticipate or respond adequately to changes in technology or customer
preferences, or any significant delays in product development, introduction or
delivery would materially adversely affect the Company's ability to develop the
market for its ATM-based products. There cannot be any assurance that the
Company's products will meet evolving market requirements and that the Company
will be successful in gaining market acceptance for its own products.
Although many network equipment suppliers have introduced ATM-based
products, the Company believes ATM market is still in the "early adopter" phase
of its development. Though it may have advanced to later stages of such "early
adopter" phase, the Company believes buying motivations of its customers are
still driven by technology and features. There are two distinct market segments:
Wide Area Network (WAN) ATM products and Local Area Network (LAN) ATM products.
The Company's ATM products are oriented to WAN applications. WAN deployment of
ATM technology in the carrier market segment has been sporadic, and buying and
validation cycles for traditional service providers are long and costly. While
ATM technology is being deployed, the timing and extent of any broader
deployment cannot be predicted. Certain other large-scale telecommunications
technology "breakthroughs", such as Integrated Services Digital Network
("ISDN"), have taken longer to be deployed than originally anticipated. ATM
technology requires an extended cycle to prove ease-of-use, functionality,
predictability, manageability and cost.
Even if ATM technology gains broader market acceptance, there can be no
assurance the Company's ATM cell switches will be purchased in significantly
increased quantities. Although a number of telecommunications carriers and
corporations are implementing the Company's ATM switches, these entities are not
obligated to continue to purchase any of GDC's switches. Moreover, there already
is intense competition among ATM switch manufacturers, and the ATM market will
be subject to both rapid advances in technology and greater demand for more
flexible, cost-effective solutions. In addition, the success of the Company's
ATM switching technology is dependent on the adequacy of the Company's continued
development of such products, its financial resources and its manufacturing and
support services capabilities. Failure of the Company to attain success in the
market for ATM-based products will have a material adverse effect on the
Company.
DEPENDENCE ON KEY PRODUCTS; HIGH ATM RESEARCH AND DEVELOPMENT COSTS.
The Company is dependent upon the success of its ATM-based products. The
Company continued to invest heavily in ATM research and development during
fiscal 1997. Gross research and development spending increasing by $7.3 million,
or 15.9%, as compared to fiscal 1996. Spending related to ATM products,
including development of the Company's next-generation Strobos product line,
accounted for the entire year-to-year increase and was principally comprised of
costs related to compensation, outsourced development costs and prototype build
costs for the Strobos product line. Fiscal 1997 ATM-related research and product
development expenditures amounted to 54% of total research and product
development spending, as compared to 47% in fiscal 1996. Fiscal 1997 gross
research and development spending amounted to 25.5% of consolidated revenue, up
from 19.4% in fiscal 1996, reflecting the combined impact of an elevated
spending level and a reduced revenue base. The complexity of the ATM technology
has in the past demanded, and will continue to demand, significant research and
product development investment. There can be no assurance that the Company will
attain sufficient market acceptance for its ATM-based products in the near
future.
CURRENT CREDIT FACILITY; RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S
INDEBTEDNESS.
The Company currently has in place a new $40 million loan and security
agreement comprised of a $25.0 million (maximum value) revolving credit facility
and a $15.0 million term loan facility (proceeds received on October 22, 1997).
Most assets of the Company, including accounts receivable and inventories, are
pledged as collateral. The amount of available borrowings may be reduced to less
than $25 million in accordance with a borrowing base formula related to levels
of certain accounts receivable and inventories. The borrowing base
8
<PAGE> 10
under the formula tends to decline at interim points of a quarter and increase
at the end of each quarter due to a cycle of increased shipments and related
accounts receivable toward the end of any quarter. At November 30, 1997, the
maximum amount available for borrowing under the borrowing base formula
approximated $20.7 million, of which none was used for outstanding borrowings
and $0.9 million was used for outstanding letters of credit, and the balance of
$19.8 million remained available to the Company for future use.
The new loan and security agreement does include covenants which may limit
access to future borrowings and may accelerate payment requirements on
outstanding borrowings. The most restrictive covenant requires the maintenance
of a minimum balance of $80 million for the sum of stockholders' equity
(excluding future foreign currency translation adjustments) and the outstanding
Debentures. As such balance at September 30, 1997 was $105 million, this
covenant effectively limits the sum of cumulative future losses and preferred
stock dividend payments, less 60 percent of the value of new capital stock
issued, to $25 million. In the event of non-compliance with financial or other
covenants, the Company would have to obtain a waiver or amendment from the
lender. However, there is no assurance that the lender would grant such a waiver
or amendment and in such case the Company would have to pursue other sources of
financing. In the past the Company has relied on its ability to offer for sale
its common stock, preferred stock, convertible debentures and/or warrants as
viable alternative sources of financing. The availability and terms of such
offerings in the future will depend on such items as the Company's future
financial performance and its ability to demonstrate favorable trends in
reported financial results. As a result, these sources may not be available, or
may be available on less favorable terms, in the future. The Company's inability
to have access to the new loan and security agreement and/or alternative
financing sources would have a material adverse effect on the Company's
financial condition.
Since the Company realized losses of $11.5 million and $42.8 million,
respectively, for the quarter and year ended September 30, 1997, a combination
of cost reductions and revenue growth is required in fiscal 1998 to maintain
compliance with the loan's financial covenants. Management has implemented and
is committed to execute further cost reduction actions as necessary to improve
the Company's operating results and maintain availability of the new loan and
security agreement.
COMPETITION
Each of the segments of the telecommunications and networking industries is
intensely competitive. Many of GDC's current and prospective competitors have
greater name recognition, a larger installed base of networking products, more
extensive engineering, manufacturing, marketing, distribution and support
capabilities and greater financial, technological and personnel resources.
Many of the participants in the networking industry, including, among
others, Nortel, Cisco, ADC Telecommunications, Ascend Communications, Siemens,
FORE Systems, and Newbridge Networks have targeted the WAN ATM market segment.
Other companies are expected to follow. In addition, traditional suppliers of
central office switching equipment, such as Alcatel, Lucent Technologies, DSC
Communications, Fujitsu, Hitachi, and LM Ericsson have already or are expected
to offer ATM-based switches for central offices. Each competitor offers a unique
solution and all are formidable competitors. The Company is not anticipating
growth in its market share for its ATM-based products. However, the Company
believes it can maintain such share as the over-all market for ATM-based
products expands. There can be no assurance that the Company will be able to
attain this objective.
RAPID TECHNOLOGICAL CHANGES
The markets for the Company's products are characterized by rapid
technological development, evolving industry standards, emerging network
architectures and frequent new product introductions. Rapid technological
development substantially shortens product life cycles and may lead to
technological obsolescence. The Company's success will depend, in part, upon its
ability to influence the development of industry standards, to enhance and
expand existing products and to select, develop, manufacture and market, in a
timely, cost-effective manner, new products that achieve market acceptance.
Moreover, announcements of product enhancements or new product offerings may
cause customers to defer purchasing of existing GDC products.
9
<PAGE> 11
In the ATM market, the development of comprehensive industry standards is
evolving. The Company believes that its ability to compete successfully in the
ATM market is also dependent upon the compatibility and interoperability of its
products with products and architectures of other vendors. The Company
anticipates adding various features to its ATM cell switches in the future but
there can be no assurances that the Company will be able to effect such product
enhancements or that it will be able to do so on a timely and cost-effective
basis. In the past, the Company has on occasion experienced delays in its
introductions of product enhancements and new products. Current product line
expansion is directed towards the area of low cost ATM access, multimedia,
voice, video and switch capacity increases. Delays in product development,
enhancement, production or marketing could have a material adverse effect on the
Company.
LOW PATENT PROTECTION
The Company has a number of patents covering key elements of its products.
However, the Company believes that patent protection does not constitute a
significant barrier to entry into the market and that the Company competes
primarily on the basis of timeliness and effectiveness of its product
development enhancement and delivery. There can be no assurance that the Company
will be able to compete successfully on such bases.
MANUFACTURING AND SUPPORT SERVICES CAPABILITY
Any delay or interruption in the manufacturing and/or customer service and
support of GDC products could adversely affect market acceptance of the
Company's products. As features and/or enhancements are added to the Company's
ATM switches and access products, software errors, functional limitations and
manufacturing problems have previously arisen and may arise in the future. If
such issues are not resolved in a timely and adequate manner upon occurrence,
customer acceptance of such products may be adversely affected.
RELIANCE ON KEY COMPONENTS AND SUBCONTRACTORS
The Company's products use certain components, such as microprocessors,
memory chips and pre-formed enclosures that are acquired or available from one
or a limited number of sources. The Company has generally been able to procure
adequate supplies of these components in a timely manner from existing sources.
However, the Company's inability to obtain a sufficient quantity of these
components as required, to obtain components with the requisite technical
capabilities, or to negotiate agreements with alternative sources at acceptable
prices and within a reasonable time, could result in delays or reductions in
product shipments which could materially affect the Company's operating results.
In addition, the Company sometimes relies on subcontractors and anticipates
expanding such reliance. The inability of such subcontractors to deliver
products in a timely fashion or in accordance with the Company's quality
standards could have a material adverse effect on the Company's operating
results.
QUARTERLY EARNINGS FLUCTUATIONS
The Company's quarterly operating results may vary significantly depending
on various tractors, some of which are not within the control of the Company.
Additionally, a significant portion of the Company's shipments typically occurs
in the last few weeks of a quarter. As a result, the Company's revenues have and
may in the future shift from one quarter to the next, having a significant
effect on reported results.
VOLATILITY OF STOCK PRICE
The trading price of the Common Stock has fluctuated widely in response to
quarter-to-quarter operating results, industry conditions, awards of orders to
the Company or its competitors, new product or product development announcements
by the Company or its competitors, and changes in earnings estimates by
analysts. Any shortfall in revenue or earnings from expected levels could have
an immediate and significant adverse effect on the trading price of the
Company's Common Stock in any given period. As a result of this volatility, it
may be difficult for an investor to make an investment decision with respect to
the Company's
10
<PAGE> 12
Common Stock or other securities. There can be no assurance that the volatility
on the price of the Company's Common Stock will diminish at any time in the near
future. In addition, the volatility of the stock markets in recent years has
caused wide fluctuations in trading prices of stock of high technology companies
independent of their individual operating results.
INTERNATIONAL OPERATIONS AND SALES
International operations represented approximately 52% of the Company's
revenues in fiscal 1997 as compared to 47% in fiscal 1996, and the Company is
seeking to expand its international presence. The Company maintains full
subsidiary operations in Canada, the United Kingdom, Mexico, France, Germany,
Russia, Singapore, Venezuela, Brazil and Australia. Sales and technical support
offices are maintained in Sweden, Japan, Hong Kong, China and Argentina. All
other international sales are denominated in U.S. dollars. In total, the Company
manages a worldwide distribution network with representatives in more than 60
countries. GDC's foreign operations are subject to all the risks inherent in
international operations.
The Company's foreign subsidiaries are exposed to foreign currency
fluctuation risk since they are invoicing customers in local currencies while
liabilities for product purchases from the parent company are transacted in U.S.
dollars. The impact of foreign currency fluctuations on these U.S. dollar
denominated liabilities resulted in currency exchange losses of $1,038,000,
$325,000 and $323,000 in fiscal 1997, 1996 and 1995, respectively. The fiscal
1997 exchange loss is principally attributable to the impact of the strength of
the U.S. dollar relative to the French franc and the German mark. Future
unfavorable fluctuations in currency exchange rates may have an adverse impact
on the Company's revenues and operating results. The Company historically has
not entered into hedge contracts or any form of derivative or similar
investment.
In addition, a number of the Company's products, or components thereof, are
manufactured abroad. Economic, political, business and military conditions in
certain countries present operational risks which are greater than those in the
United States.
HOLDING COMPANY STRUCTURE; RANKING
The Company is a holding company that conducts substantially all of its
operations through subsidiaries, and its ability to make debt service payments
is dependent on the operations of its subsidiaries. The Debentures are
effectively subordinated to all existing and future secured and other Senior
Indebtedness of the Company (excluding Subordinated Indebtedness as defined
herein) and to all existing and future indebtedness and other liabilities of the
Company's subsidiaries.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the retention
and attraction of executive officers and key management employees and technical
personnel, including Charles P. Johnson, Chairman of the Board and Chief
Executive Officer and Ross Belson, President and Chief Operating Office, Mr.
Johnson is a founder of the Company. Neither of these executives has an
employment agreement with the Company.
CONCENTRATION OF OWNERSHIP; EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
As of November 28, 1997, Mr. Charles P. Johnson, Chairman of the Board and
Chief Executive Officer of the Company, and all directors and executive officers
of the Company, as a group, beneficially own, directly or indirectly, 67.1% and
91.7%, respectively, of the Company's Class B Stock and 1.9% and 6.2%,
respectively, of the Company's Common Stock (including shares which could be
acquired by the exercise of stock options within 60 days of November 28, 1997).
The Company's Restated Certificate of Incorporation contains certain
provisions that could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock, thus making it less likely that a shareholder will receive a
premium in any sale of shares. Certain of such provisions allow the Company to
11
<PAGE> 13
issue preferred stock with rights senior to those of the Common Stock and impose
various procedural and other requirements which could make it more difficult for
stockholders to effect certain corporate actions. Moreover, the Company's Board
of Directors is divided into three classes, each of which serves for a staggered
three-year term, making it more difficult for a third party to gain control of
the Company's Board. In addition, the holders of the Company's Class B Stock
have, under certain circumstances, greater voting power in the election of
directors. Since the holders of Common Stock and Class B Stock vote separately
as a class on all matters requiring an amendment to the Company's Restated
Certificate of Incorporation, as well as on mergers, consolidations and certain
other significant transactions for which stockholder approval is required under
Delaware law, Mr. Johnson individually and the executive officers and directors
as a group could veto any such transactions. See "Description of Capital Stock".
RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has never declared or paid any cash dividends on its Common and
Class B stock. In addition, the terms of the Company's loan and security
agreement prohibit the Company from paying cash dividends on its Common Stock,
Class B Stock or any class of Preferred or Common Stock except the Company is
permitted to pay cash dividends with respect to the Company's outstanding 9%
Cumulative Convertible Exchangeable Preferred Stock ("9% Preferred Stock"), so
long as there is no event of default and the Company has excess availability of
at least $5,000,000 under such agreement. As a result, it is not anticipated
that cash dividends will be paid in the foreseeable future on the Common Stock.
See "Description of Capital Stock".
ABSENCE OF PUBLIC MARKET FOR THE DEBENTURES ON RESALE
Prior to issuance, there was no trading market for the Debentures. Although
the Placement Agent has advised the Company that it currently intends to make a
market in the Debentures, it is not obligated to do so and may discontinue such
market making at any time without notice. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act. Accordingly, there can be no assurance that any market for the
Debentures will develop or, if one does develop, that it will he maintained. If
an active market for the Debentures fails to develop or be sustained, the
trading price of the Debentures could be materially adversely affected.
The Debentures have not been registered under any state securities laws
and, unless and until so registered, may not be offered or sold except pursuant
to an exemption from, or in a transaction not subject to, registration under
applicable state securities laws. See "Registration Rights Agreement" and "Plan
of Distribution".
USE OF PROCEEDS
The Selling Holders will receive all of the net proceeds from any sale of
the Debentures, Notes issuable in exchange for the Debentures and the shares of
Common Stock issuable upon conversion of the Debentures, and accordingly, the
Company will receive none of the proceeds from the sales thereof.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth historical financial and other data of the
Company as of and for the fiscal years ended September 30, 1995, 1996 and 1997,
all of which was derived from the Company's audited Consolidated Financial
Statements incorporated by reference herein. Separately, the table sets forth
certain unaudited pro forma financial (loss per share) data for the years ended
September 30, 1996 and 1997. The unaudited pro forma loss per share data assumes
issuance of the Debentures on October 1, 1995 and is based on available
information and certain assumptions that management believes are reasonable. The
pro formal loss per share data does not purport to represent what the Company's
loss per share would actually have been had the Debentures been issued on
October 1, 1995.
The following table should be read in conjunction with the Financial
Statements and other data incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
--------------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Net product sales............................ $178,092 $189,019(1) $163,857
Service revenue.............................. 37,110 39,022 38,677
Lease revenue................................ 5,991 7,088 5,232
----------
-------- --- ----------
235,129
221,193 207,766
COSTS AND EXPENSE:
Cost of product sales........................ 85,406 90,194 79,798
Inventory write-down and other items......... 7,600 -- --
Amortization of capitalized software
development costs.......................... 11,500 11,600 12,000
Cost of services............................. 23,993 26,350 26,706
Cost of lease revenue........................ 836 856 609
Selling, general and administrative.......... 88,232 86,734 86,196
Research and product development............. 28,244 34,121 40,876
----------
-------- --- ----------
249,855
245,811 246,185
----------
-------- --- ----------
OPERATING LOSS............................... (14,726)
(24,618) (38,419)
OTHER INCOME (EXPENSE):
Interest, net................................ (2,355) (2,051) (2,823)
Other, net................................... 493 807(2) (1,109)
----------
-------- --- ----------
(1,244)
(1,862) (3,932)
----------
-------- --- ----------
LOSS BEFORE INCOME TAXES..................... (15,970)
(26,480) (42,351)
Income tax provision......................... 1,200
1,150 400
----------
-------- --- ----------
NET LOSS..................................... $(17,170)
$(27,630) $(42,751)
=============
======== ==========
LOSS PER SHARE:.............................. $ (0.83)(1)(2)(4)
$ (1.40) $ (2.11)(3)(4)
=============
======== ==========
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 26,264 $ 21,526
Receivables............................................................ 39,828 33,193
Inventories............................................................ 44,588 41,749
Total assets........................................................... 205,054 187,335
Long-term debt (including current portion)............................. 29,314 56,862
Stockholders' equity................................................... 122,186 80,028
</TABLE>
- ---------------
(1) Includes technology license revenue of $2,459,000, or $0.12 per share,
received from one customer, a significant portion of which represented a
retroactive application of license fees.
(2) Includes a $1.0 million, or $0.05 per share, gain from the sale of real
estate.
(3) Includes $(0.08) loss per share reflecting the impact of $1,800,000 paid for
preferred stock dividends.
(4) Pro forma loss per share for the years ended September 30, 1996 and 1997 are
$(0.94) per share and $(2.22) per share, respectively. The pro forma amounts
include adjustments to previously reported net loss per share amounts to
reflect the interest (and other) expense as if the Debentures had been
issued on October 1, 1995.
14
<PAGE> 16
SELLING HOLDERS
The Debentures were issued and sold September 26, 1997 in transactions
exempt from the registration requirements of the Securities Act to persons
reasonably believed by the Company to be "qualified institutional buyers" (as
defined by Rule 144A) or Accredited Investors as defined in Rule 501(a)(1)(2)(3)
(5) or (7) under the Securities Act. The Debentures and the shares of Common
Stock issuable upon conversion of the Debentures or the Notes issuable in
exchange for the Debentures may be offered and sold from time to time by the
Selling Holders pursuant to this Prospectus. The Registration Statement of which
this Prospectus is a part has been filed with the SEC pursuant to the
Registration Rights Agreement.
The Registration Statement has been filed pursuant to Rule 415 under the
Securities Act to afford the holders of the Securities offered hereby the
opportunity to sell such Securities in a public transaction rather than pursuant
to an exemption from the registration and prospectus delivery requirements of
the Securities Act.
The following are the Selling Holders who have requested registration:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF DEBENTURES
NAME AND ADDRESS HELD OFFERED
------------------------------------------------ ---------------- ----------
<S> <C> <C>
Baker Nye....................................... $ 750,000 $ 750,000
767 Fifth Avenue
New York, NY 10153
June H. Barrows................................. $ 50,000 $ 50,000
2 North LaSalle, 400
Chicago, IL 60602
Catholic Mutual Relief Society Retirement Plan &
Trust......................................... $ 150,000 $ 150,000
4223 Center Street
Omaha, NE 68105
Catholic Mutual Relief Society of America....... $ 250,000 $ 250,000
4223 Center Street
Omaha, NE 68105
Connor Clarke & Company Ltd. ................... $ 50,000 $ 50,000
40 King Street West
Toronto, Ontario M5H3Y2
Corbel Investments.............................. $ 130,000 $ 130,000
48 Par-La-Ville Roade, Suite #708
Hamilton, HM 11, Bermuda
Couderay Partners............................... $ 200,000 $ 200,000
2 North LaSalle, 400
Chicago, IL 60602
Damask Capital Ltd.............................. $ 120,000 $ 120,000
PO Box 438 Tropic Isle Bldg
Road Town Tortola
British Virgin Islands
Deeprock & Co................................... $1,000,000 $1,000,000
c/o Camden Asset Management L.P.
10100 Santa Monica Blvd. Suite 770
Los Angeles, CA 90067-4007
First Delta Securities.......................... $ 250,000 $ 250,000
350 Bay Street, Suite 400
Toronto, Ontario M5H256
Forest Convertible Opportunity Fund............. $ 100,000 $ 100,000
53 Forest Avenue
Old Greenwich, CT 06870
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF DEBENTURES
NAME AND ADDRESS HELD OFFERED
------------------------------------------------ ---------- ----------
<S> <C> <C>
Forest Fulcrum Fund, L.P........................ $ 900,000 $ 900,000
53 Forest Avenue
Old Greenwich, CT 06870
Forest Global Convertible Fund Ser A-5.......... $ 700,000 $ 700,000
c/o Olympia Capital Williams House
20 Reid St., Hamilton Bermuda
Forest Global Convertible Fund Ser B-1.......... $ 50,000 $ 50,000
c/o Olympia Capital
Williams House
20 Reid Street
Hamilton, Bermuda
Forest Performance Fund......................... $ 50,000 $ 50,000
53 Forest Avenue
Old Greenwich, CT 06870
Forest Performance Greyhound.................... $ 50,000 $ 50,000
53 Forest Avenue
Old Greenwich, CT 06870
Fox Family Portfolio Partnership................ $ 100,000 $ 100,000
7701 Forsyth Blvd.
St. Louis, MO 63105
Roxanne H. Frank Trust.......................... $ 200,000 $ 200,000
2 North LaSalle, 400
Chicago, IL 60602
Global Bermuda Limited Partnership.............. $3,950,000 $3,950,000
By: Global Capital Management, Inc., General
Partner
601 Carlson Parkway, Suite 200
Minnetonka, MN 55305
Harris Foundation............................... $ 100,000 $ 100,000
2 North LaSalle
Chicago, IL 60602
Irving Harris Foundation A...................... $ 50,000 $ 50,000
North LaSalle, 400
Chicago, IL 60602
Irving Harris Foundation B...................... $ 50,000 $ 50,000
2 North LaSalle, 400
Chicago, IL 60602
Highbridge International LOC.................... $1,000,000 $1,000,000
P.O. Box 30554 Seven Mile Beach
Grand Cayman, Cayman Islands
British West Indies
JMG Convertible Investments, L.P................ $ 300,000 $ 300,000
1999 Avenue of the Stars, #1950
Los Angeles, CA 90067
KA Management Ltd. ............................. $2,279,997 $2,279,997
1712 Hopkins Crossroads
Minnetonka, MN 55305
KA Trading L.P.................................. $1,720,003 $1,720,003
1712 Hopkins Crossroads
Minnetonka, MN 55305
Lakeshore International Ltd..................... $2,500,000 $2,500,000
By: Global Capital Management, Inc.
Investment Manager
601 Carlson Parkway, Suite 200
Minnetonka, MN 55305
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF DEBENTURES
NAME AND ADDRESS HELD OFFERED
------------------------------------------------ ---------------- ----------
<S> <C> <C>
LLT LTD......................................... $ 50,000 $ 50,000
Washington Mall One
Church St., 4th Floor
Hamilton, HM
Bermuda
Millenium Partner .............................. $1,250,000 $1,250,000
111 Broadway, 20th Floor
New York, NY 10006
D.E. Shaw Investments, L.P. .................... $ 250,000 $ 250,000
120 West 45th Street, 39th Floor
New York, NY 10036
D.E. Shaw Securities, L.P. ..................... $ 750,000 $ 750,000
120 West 45th Street, 39th Floor
New York, NY 10036
Soundshore Partners L.P......................... $1,000,000 $1,000,000
29 Richmond Road
Pembroke HM 08 Bermuda
Toronto Dominion (New York) Inc................. $ 500,000 $ 500,000
31 West 52nd Street, 21st Floor
New York, NY 10019
Triton Capital Investments L. P................. $ 300,000 $ 300,000
1999 Avenue of the Stars, Suite 1950
Los Angeles, CA 90067
W.H.I. Growth Fund, L.P......................... $ 500,000 $ 500,000
2 North LaSalle Street, 400
Chicago, IL 60602
AAM/Zazove Institutional Income Fund, L.P....... $1,350,000 $1,350,000
4801 W. Peterson, Suite 615
Chicago, IL 60646
Zazove Convertible Fund, L.P.................... $1,000,000 $1,000,000
4801 W. Peterson, Suite 615
Chicago, IL 60646
</TABLE>
Except for certain holders who own shares of the Company's 9% Preferred
Stock, none of the holders has any relationship to the Company. If required, the
names of any agents or underwriters involved in the sale of the Securities in
respect of which this Prospectus is being delivered, along with any applicable
agent's commission, dealer's purchase price or underwriter's discount, will be
set forth in any accompanying supplement to this Prospectus (the "Prospectus
Supplement"). Furthermore, information concerning Selling Holders set forth
herein may change from time to time, and the changes will be set forth in such a
Prospectus Supplement.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Debentures,
Notes and Common Stock (collectively "Securities") offered hereby may be sold by
the Selling Holders from time to time in transactions on PORTAL or the
over-the-counter market (or the New York Stock Exchange with respect to the
Common Stock) in negotiated transactions, or a combination of such methods of
sale, at fixed prices which may be changed, at market prices prevailing at the
time of sale, at prices related to prevailing market prices or at negotiated
prices. The Selling Holders may effect such transactions by selling the
Securities to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Holders and/or the purchasers of the Securities for which such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
17
<PAGE> 19
In order to comply with the securities laws of certain states, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The Selling Holders and any broker-dealers or agents that participate with
the Selling Holders in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Securities purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities may not simultaneously engage in
market making activities with respect to the Securities of the Company for
specified periods prior to the commencement of such distribution. In addition
and without limiting the foregoing, each Selling Holder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Regulation M and Rules 101, 102 and
104 thereunder which provisions may limit the timing of purchases and sales of
the Company's Securities by the Selling Holders.
The Company has agreed to indemnify the Selling Holders against certain
civil liabilities in connection with the Registration Statement, including
certain liabilities under the Securities Act.
DESCRIPTION OF DEBENTURES
The Debentures were issued under an Indenture (the "Indenture") entered
into between the Company and Continental Stock Transfer & Trust Company as
Trustee (the "Trustee"). The Debentures are limited to an aggregate principal
amount of $25,000,000 and are unsecured, senior subordinated obligations of the
Company. The Debentures will be issued only as fully registered debentures,
without coupons, in denominations of $1,000 and integral multiples of $1,000.
All Debentures must bear a certificate of authentication executed by the
Trustee. The Debentures will be transferable at the office maintained by the
Trustee for such purpose, in the Borough of Manhattan, City and State of New
York.
The following is a brief description of the Debentures, which does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Indenture, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
MATURITY AND INTEREST
The Debentures will mature on September 30, 2002, and bear interest from
date of issue at the rate of 7 3/4% per annum, payable semi-annually on March 30
and September 30 of each year commencing March 30, 1998. Interest on the
Debentures will be payable to the persons in whose names they are registered at
the close of business on the 15th day of March and September. The Debentures are
payable both as to principal and interest at the office maintained by the
Company for such purpose, in the Borough of Manhattan, City and State of New
York, provided that, at the option of the Company, payment of interest may be
made by check mailed to the registered Debentureholders entitled thereto at
their addresses as they appear on the registry books for the Debentures.
CONVERSION RIGHTS
The holders of Debentures are entitled at any time prior to maturity to
convert the principal amount into the Common Stock at the conversion price of
$6.86 per share (equivalent to a conversion rate of approximately 145.8 shares
of Common Stock for each $1,000 principal amount of the Debentures) as the same
may be adjusted and as may further be adjusted on the two Reset Dates of March
30, 1998 and September 30, 1999 as set forth on the cover page of this
Prospectus, except that the right to convert Debentures which are called for
redemption expires at the close of business on the redemption date unless the
Company defaults in the payment of the redemption price, in which case the
conversion right shall terminate at the close of business on the date such
default is cured and such Debentures are redeemed. Holders of
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<PAGE> 20
Debentures at the close of business on an interest payment record date shall be
entitled to receive the interest payable on such Debentures on the corresponding
interest payment date notwithstanding the conversion thereof following the close
of business on such interest payment date. However, Debentures surrendered for
conversion during the period between the close of business on any interest
payment record date and the close of business on the corresponding interest
payment date (except Debentures called for redemption on a redemption date) must
be accompanied by payment of an amount equal to the interest payment to be
received on such interest payment date with respect to such Debentures presented
for conversion. Except as provided above, the Company shall make no payment or
allowance for unpaid interest on converted Debentures or for dividends on the
shares of Common Stock issued upon such conversion.
No adjustment with respect to interest on Debentures or any dividend on the
Common Stock issued upon conversion will be made upon conversion of Debentures.
No fractional shares will be issued upon conversion and, in lieu thereof,
an adjustment in cash will be paid based upon the closing price (as defined in
the Indenture) on the last trading day prior to the date of such conversion.
The conversion rate applicable to the Debentures is subject to adjustment
upon the occurrence of certain events, including: (i) the subdivision or
combination of outstanding shares of Common Stock; (ii) the issuance of shares
of Common Stock as a dividend or distribution on the Common Stock; (iii) the
issuance of rights, options or warrants to holders of Common Stock entitling
them to subscribe for or acquire shares of Common Stock (or securities
convertible into such shares) at less than the current Market Price per share
(as defined) of Common Stock; and (iv) the distribution to holders of Common
Stock of evidences of indebtedness or securities or assets (excluding cash
dividends payable out of consolidated earnings or retained earnings or dividends
payable in shares of Common Stock) or rights, options or warrants to subscribe
for securities of the Company or any of its subsidiaries (other than those
referred to above). No adjustment of the conversion rate will be required unless
it would result in at least a 1% increase or decrease in the conversion rate;
however, an adjustment not made is carried forward and taken into account in the
next subsequent adjustment. Issuances of options and securities convertible into
Common Stock are deemed to be issuances of the underlying Common Stock for
purposes of adjustments to the conversion price. Whenever the conversion price
is adjusted, the Company shall promptly mail to holders of the Debentures a
notice of adjustment briefly stating the facts requiring the adjustment and the
manner of computing it.
Subject to the applicable rights of the holders of the Debentures upon a
Change in Control, as described below, and subject to the provisions of the
Indenture described below under "Consolidation, Merger, Conveyance or Transfer",
in case of any reclassification or change in the Common Stock (other than a
change in par value or a subdivision or combination), any consolidation or
merger of the Company with or into any other corporation (other than a merger in
which the Company is the surviving corporation), or any sale or transfer of
substantially all the assets of the Company, any holder of Debentures will be
entitled, after the occurrence of any such event, to receive on conversion the
consideration that such holder would have received had he converted immediately
prior to the occurrence of such event. If in connection with any such
reclassification, consolidation, merger, sale, transfer, or share exchange each
holder of shares of Common Stock is entitled to elect to receive either
securities, cash or other assets upon completion of such transaction, the
Company will provide or cause to be provided to each holder of the Debentures
the right to elect to receive the securities, cash or other assets into which
the Debentures held by such holder will be convertible after completion of any
such transaction on the same terms and subject to the same conditions applicable
to holders of the Common Stock (including, without limitation, notice of the
right to elect, limitations on the period in which such election will be made
and the effect of failing to exercise the election). The above will similarly
apply to successive reclassifications, consolidations, mergers, sales, transfers
or share exchanges.
The Company will reserve the right to make such adjustments in the
conversion rate in addition to those required in the foregoing provisions as it
shall determine to be advisable in order that the certain stock-related
distributions which may hereafter be made by the Company to its stockholders
shall not be taxable to them.
The Company will reserve and at all times keep available, free from
preemptive rights, out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Debentures, such number of
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<PAGE> 21
shares of its duly authorized Common Stock as will from time to time be
sufficient to effect the conversion of all outstanding Debentures.
OPTIONAL REDEMPTION BY THE COMPANY
The Debentures will be redeemable at the option of the Company, in whole or
in part, at any time on or after September 30, 2000, on not less than 30 nor
more than 60 days' notice to each holder of the Debentures, at the percentages
of the principal amount of the Debentures set forth below, together with accrued
interest to the date of redemption; provided, however, the Debentures may not be
redeemed on or after September 30, 2000 and prior to September 30, 2001 unless
the Closing Price (as defined) of the Common Stock has equaled or exceeded 150%
of the Conversion Price per share then in effect for at least 20 trading days
within 30 consecutive trading days ending within five trading days before notice
of redemption is mailed.
If redeemed during the 12 month period beginning September 30 of the years
indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
----------------------------------------------------- ----------------
<S> <C>
2000................................................. 103.10%
2001................................................. 101.55%
</TABLE>
and on or after September 30, 2002, at a redemption price equal to 100% of the
principal amount thereof, in all cases plus accrued and unpaid interest to the
date of redemption.
If less than all the Debentures will be redeemed, the Trustee shall by lot
or pro rata, or such other method as the Trustee shall deem to be substantially
equivalent thereto, select in such manner as it shall deem appropriate and fair
in its sole discretion the particular Debentures to be redeemed, provided that
no Debentures shall be redeemed in part in amounts other than $1,000 or integral
multiples thereof.
The term "Closing Price" shall mean the last sale price of the Common Stock
shown on the Composite Tape of The New York Stock Exchange, Inc., or, in case no
such sales take place on such day, the average of the closing bid and asked
prices on the New York Stock Exchange, or if the Common Stock is not listed or
admitted to trading on such exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or if it is
not listed or admitted to trading on any national securities exchange, the
average of the closing bid and asked prices as furnished by any New York Stock
Exchange member firm selected from time to time by the Board of Directors of the
Company for such purpose (other than the Company or a subsidiary thereof).
CHANGE IN CONTROL
The holders of Debentures have special rights that become effective upon
the occurrence of certain types of significant transactions affecting corporate
control or ownership of the Company.
Upon a Change In Control (as below defined), the holders of the Debentures
will have the right, subject to certain conditions and restrictions, to require
the Company to repurchase all or any part of their Debentures at a repurchase
price equal to the principal amount thereof, plus accrued and unpaid interest,
in cash. The Company may satisfy its repurchase obligations through the issuance
of shares of Common Stock valued at the Market Price, as defined below, of the
Common Stock.
A "Change in Control" means the occurrence of any of the following events
after the date of original issuance of the Debentures: (i) any person (including
any entity or group deemed to be a "person" under Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) becomes the direct or indirect beneficial owner
(as determined in accordance with Rule 13d-3 under the Exchange Act) of shares
of the Company's capital stock representing greater than 50% of the total voting
power of all shares of capital stock of the Company entitled to vote in the
election of Directors under ordinary circumstances or to elect a majority of the
Board of Directors of the Company, (ii) the Company sells, transfers or
otherwise disposes of all or substantially all of the assets of the Company,
(iii) when, during any period of 12 consecutive months after the date of
original issuance of the Debentures, individuals who at the beginning of any
such 12-month period constituted the Board of Directors of the Company (together
with any new directors whose election by such Board or whose
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<PAGE> 22
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved), cease for any reason to constitute a majority of the
Board of Directors of the Company then in office (excluding from such
calculation any election of directors by holders of the 9% Preferred Stock), or
(iv) the date of the consummation of the merger or consolidation of the Company
with another corporation where the stockholders of the Company immediately prior
to the merger or consolidation, would not beneficially own immediately after the
merger or consolidation, shares entitling such stockholders to 50% or more of
all votes (without consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders of the corporation
issuing cash or securities in the merger or consolidation would be entitled in
the election of directors, or where members of the Board of Directors of the
Company immediately prior to the merger or consolidation, would not immediately
after the merger or consolidation, constitute a majority of the board of
directors of the corporation issuing cash or securities in the merger or
consolidation. See "Description of Capital Stock -- Class B Stock" for certain
rights of Class B Stockholders.
As used herein, "Market Price" of a share of the Common Stock will be the
average of the daily Closing Prices of the Common Stock for the ten consecutive
trading days ending on the last trading day preceding the date of the Change in
Control.
PUT BY HOLDERS
During the 30 day period commencing September 30, 2000, each holder of the
Debentures shall have the right to require the Company to repurchase such
Debentures at a repurchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest. The Company may satisfy such
repurchase obligations through the issuance of the Notes which will be
nonconvertible senior subordinated notes and subordinated to the same extent and
due on the same maturity date as the Debentures, and having substantially the
same terms as the Debentures, except the Notes shall not be convertible and
shall bear a rate of interest in order to have a market value of 100% of their
principal amount on the date of repurchase, as determined by a nationally
recognized investment banking firm chosen by the Company; provided that the
interest rate shall not exceed 14% per annum.
SUBORDINATION
The indebtedness evidenced by the Debentures is subordinated as summarized
below to all Senior Indebtedness as herein defined and pari passu or senior in
right of payment to any other existing and future indebtedness of the Company.
The Debentures are also effectively subordinated to all existing and future
indebtedness and other liabilities of the Company's subsidiaries. Senior
Indebtedness is defined in the Indenture as the principal of, premium, if any,
and interest on (a) any and all other Senior Indebtedness and obligations of the
Company or (including indebtedness of others guaranteed by the Company) other
than the Debentures, whether or not contingent and whether outstanding on the
date of the Indenture or thereafter created, incurred or assumed, which (i) is
for money borrowed; (ii) is evidenced by any bond, note, debenture or similar
instrument; (iii) represents the unpaid balance on the purchase price of any
property, business, or asset of any kind; (iv) is an obligation of the Company
as lessee under any and all leases of property, equipment or other assets
required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles; (v) is a reimbursement obligation of the Company
with respect to letters of credit; (vi) is an obligation of the Company with
respect to interest swap obligations and foreign exchange agreements or (vii) is
an obligation of others secured by a lien to which any of the properties or
assets (including, without limitation, leasehold interests and any other
tangible or intangible property rights) of the Company are subject, whether or
not the obligations secured thereby shall have been assumed by the Company or
shall otherwise be the Company's legal liability, and (b) any deferrals,
amendments, renewals, extensions, modifications and refundings of any
indebtedness or obligations of the types referred to above; provided that Senior
Indebtedness shall not include (i) the Company's 9% Convertible Subordinated
Debentures due 2006 which may be issued in exchange for the 9% Preferred Stock
(the "9% Debentures"); (ii) any indebtedness or obligation of the Company which,
by its terms or the terms of the instrument creating
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<PAGE> 23
or evidencing it, is both subordinated to any other indebtedness or obligations
of the Company and is not superior in right of payment to the Debentures; (iii)
any indebtedness or obligation of the Company to any of its subsidiaries and
(iv) any indebtedness or obligation which is both incurred by the Company in
connection with the purchase of assets, materials or services in the ordinary
course of business and constitutes an unsecured trade payable.
As of November 28, 1997, the Company had approximately $39,600,000 of
indebtedness which qualified as Senior Indebtedness under the Indenture and, at
November 28, 1997, its subsidiaries had approximately $43,750,000 of
indebtedness. It is likely, however, that the Company will incur other Senior
Indebtedness from time to time in the future. The Indenture will not prohibit or
limit the incurrence of such additional indebtedness. The Company has agreed in
the Indenture that it will not incur any indebtedness which is subordinate in
right of payment to Senior Indebtedness unless such indebtedness will rank pari
passu with or subordinate in right of payment to the Debentures. The Debentures
will rank senior to the 9% Debentures if such 9% Debentures are issued.
No payment may be made by the Company with respect to the principal of or
premium, if any, or interest on the Debentures as and if (i) there shall be a
failure in the payment of principal of or premium, if any, or interest on any
Senior Indebtedness which has matured (whether by acceleration or otherwise) or
(ii) there shall be any other event of default with respect to any Senior
Indebtedness, as such event of default is defined therein, as a result of which
payment of such Senior Indebtedness has been declared to be due and payable or
required to be prepaid prior to the stated maturity thereof, unless, and until,
such event of default shall have been cured or waived or shall have ceased to
exist or such acceleration shall have been rescinded or annulled. In the event
of any payment or distribution of assets of the Company upon dissolution,
winding-up, liquidation or reorganization of the Company, the holders of all
Senior Indebtedness will be entitled to receive payment in full of all
principal, premium, if any, and interest before the holders of the Debentures
will be entitled to receive any payment on account of principal or interest. By
reason of the subordination provisions described herein, the holders of Senior
Indebtedness and general creditors may receive more, ratably, than the holders
of Debentures.
EVENTS OF DEFAULT; RIGHTS ON DEFAULT
The following are "Events of Default" under the Indenture: failure to pay
interest on the Debentures when due for 30 days, whether or not such payment is
prohibited by the subordination provisions of the Indenture; failure to pay
principal of any Debentures as and when such amounts become due and payable or
the redemption price on the redemption date or the purchase price on the
repurchase date thereof, whether or not such payment is prohibited by the
subordination provisions of the Indenture; failure on the part of the Company to
observe any of its other covenants under the Indenture for a period of 60 days
after notice from the Trustee or holders of at least 25% in aggregate principal
amount of the Debentures; and certain events of bankruptcy, insolvency, or
reorganization of the Company.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the Debentureholders notice of all uncured
defaults known to it, provided that, except in the case of default in the
payment of the principal of or interest on any of the Debentures, the Trustee
shall be protected in withholding such notice if in good faith it determines
that the withholding of such notice is in the interests of the Debentureholders.
The Company is required, pursuant to the terms of the Indenture, to furnish
to the Trustee within 120 days after the close of each fiscal year a statement
of certain officers of the Company to the effect that they have reviewed the
activities of the Company and its performance under the Indenture and that, to
the best of their knowledge, no default has occurred (or, if one has occurred,
specifying its nature and status).
The Indenture provides that during the continuance of any Event of Default
(other than an Event of Default resulting from bankruptcy, insolvency or
reorganization), either the Trustee or the holders of not less than 25% of the
Debentures then outstanding may declare the principal of all the Debentures,
plus accrued interest, immediately due and payable by written notice to the
Company (and to the Trustee, if given by the Debentureholders). In case an Event
of Default resulting front certain events of bankruptcy, insolvency or
22
<PAGE> 24
reorganization shall occur, such amounts shall be due and payable without any
declaration or any act on the part of the Trustee or the holders of the
Debentures. Such declaration and its consequences may be rescinded and annulled
in certain circumstances by the holders of a majority in aggregate principal
amount of the outstanding Debentures except a default in the payment of
principal or interest on any Debentures or in respect of a covenant or provision
of the Indenture which cannot be modified or amended without the consent of the
holder of each Debenture. The holders of a majority in aggregate principal
amount of the outstanding Debentures will also have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust power conferred on the Trustee, except as
otherwise provided in the Indenture.
The Indenture provides that in case an Event of Default shall occur (which
shall not have been cured or waived) the Trustee will be required to use the
degree of care and skill of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any of the
Debentureholders, unless they shall have offered to the Trustee reasonable
security or indemnity. Except as specifically provided in the Indenture, nothing
therein will relieve the Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct.
Except to enforce the right to receive payments when due of principal,
premium, if any, and interest, no holder of any Debentures will have the right
to institute suit to enforce the Indenture unless (1) the holder has given
notice of the default to the Trustee, (2) the holders of at least 25% in
aggregate principal amount of the Debentures outstanding have requested the
Trustee to institute suit and have offered to provide the Trustee with
reasonable indemnity against liability in connection with such suit, and (3) the
Trustee has failed to institute such suit within a reasonable time (which in no
event shall be less than 60 days) after receipt of such request and offer of
indemnity.
The Indenture will provide that the right of each holder of the Debentures
to enforce his rights to receive payment of principal of and interest on the
Debentures held by him or to convert such Debentures in accordance with the
provisions of the Indenture will not be impaired without his consent.
SATISFACTION AND DISCHARGE
The Indenture must be fully satisfied on the final maturity date (or date
of full redemption) by the Company's deposit with the Trustee of sufficient
funds to pay the principal and interest due or to become due on the Debentures
to maturity or redemption and all other sums payable pursuant to the terms of
the Indenture, after complying with certain other procedures set forth in the
Indenture. The Indenture may be satisfied prior to maturity by the Company's
delivery to the Trustee of all of the outstanding Debentures for cancellation
and paying all sums required to be paid pursuant to the terms of the Indenture.
CONSOLIDATION, MERGER, CONVEYANCE OR TRANSFER
The Company may not consolidate or merge with any corporation or convey or
transfer its properties and assets substantially as an entirety to any person
unless (a)(i) the Company is the surviving corporation following such merger or
(ii) the corporation (if other than the Company) formed by such consolidation or
into which the Company is merged or the person which acquires by conveyance or
transfer the properties and assets of the Company, is organized under the laws
of the United States or any state thereof or the District of Columbia, and
assumes all obligations of the Company under the Indenture and the Debentures;
(b) immediately after giving effect to such transaction, no Event of Default and
no event which, after notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing; and (c) certain officer's
certificates and legal opinions are obtained.
MODIFICATION OF THE INDENTURE
With certain exceptions, the obligations of the Company and the rights of
the Debentureholders may be modified only with the consent of the Company and of
the holders of not less than a majority in aggregate principal amount of the
Debentures at the time outstanding; provided, however, that, without the consent
of
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<PAGE> 25
the holder of each Debenture so affected no such modification shall change the
stated maturity of any Debentures, or reduce the principal amount thereof or any
premium thereon, or reduce the amount or change the time of payment of interest
thereon, or change the place or currency of payment, or impair the right of any
Debentureholder to institute suit or the enforcement of any such payment when
due, or change the conversion or subordination provisions of the Indenture in a
manner adverse to the Debentureholders, or reduce the aforesaid percentage of
Debentures the consent of the holders of which is required for any such
modification, or the consent of the holders of which is required for any waiver
(of compliance with certain provisions of the Indenture or certain defaults
thereunder and their consequences) provided for in the Indenture, or modify any
of the provisions in the Indenture relating to such modification or the waiver
of default except to increase any such percentage or to provide that certain
other provisions of the Indenture cannot be modified or waived without the
consent of the holders of each Debentures affected thereby. The Company and the
Trustee also are permitted to supplement the Indenture without the consent of
the Debentureholders for certain limited purposes.
TRANSFER AND EXCHANGE
A holder may transfer or exchange the Debentures in accordance with the
Indenture. The Company may require a holder to, among other things, furnish
appropriate endorsements and transfer documents and pay any taxes and fees
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Debentures selected for redemption. Also, the Company
is not required to transfer or exchange any Debentures for a period of 15 days
before a selection of Debentures is to be redeemed.
The registered holder of a Debenture may be treated as the owner of it for
all purposes.
DELIVERY AND FORM
The Debentures will be issued in registered form. Transfers of Debentures
must be made in accordance with the terms of the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. Subject to the Trust Indenture Act, the Trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest, as described in the Trust Indenture Act, it must eliminate
such conflict or resign. The Trustee, which is also the Trustee of the 9%
Debentures if issued in exchange for the 9% Preferred Stock, will resign as such
Trustee for the 9% Debentures prior to any such issuance to avoid a conflict and
will be replaced by the Company with another trustee prior to any proposed
exchange.
REGISTRATION RIGHTS AGREEMENT
On September 26, 1997, the Company and the initial investors entered into
the Registration Rights Agreement providing for the registration of the resales
of the Restricted Securities (as defined below).
Pursuant to the Registration Rights Agreement entered into between the
Company and the initial investors, the Company is required to file with the
Commission, within 90 days after the date of original issuance of the
Debentures, a Shelf Registration Statement to register the resales of the
Restricted Securities by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its reasonable best efforts to
cause the Shelf Registration Statement to become effective within 150 days from
the date of original issuance of the Debentures and to keep such Shelf
Registration Statement effective until the second anniversary of the date of
original issuance of the Debentures unless the two year holding period under
Rule 144(k) is shortened, in which case the Company shall use its reasonable
best efforts to keep such Shelf Registration Statement effective until the
expiration of such shortened holding period under Rule 144(k). For purposes of
the
24
<PAGE> 26
foregoing, "Restricted Securities" means each Debenture, each underlying share
of Common Stock and each Note, as applicable, until the date on which such
Debenture or underlying share of Common Stock or Note, as applicable, has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement, the date on which such Debenture or
underlying share of Common Stock or Note, as applicable, is distributed to the
public pursuant to Rule 144 or the date on which such Debenture or underlying
share of Common Stock or Note, as applicable, may be sold or transferred
pursuant to Rule 144(k) (or any similar provisions then in force).
Holders of the Debentures, Notes and Common Stock will be required to make
certain representations to the Company (as described in the Registration Rights
Agreement) and will be required to deliver information to be used in connection
with the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Rights Agreement in order to have their Securities included in the Shelf
Registration Statement. The Company has agreed to use its reasonable best
efforts to file on a timely basis all such reports required to be filed under
the Exchange Act as, and endeavor in good faith to take such other actions as
are reasonably necessary to enable any beneficial owner of Debentures or shares
of Common Stock issuable upon conversion thereof or Notes issued in exchange for
Debentures to sell Restricted Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144,
as such rule may be amended from time to time, (ii) Rule 144A, as such rule may
be amended from time to time, or (iii) any similar rules or regulations
hereafter adopted by the Commission.
DESCRIPTION OF CAPITAL STOCK
The current authorized capital of the Company consists of 35,000,000 shares
of Common Stock, par value $.10 per share, 35,000,000 shares of Class B Stock,
par value $.10 per share and 3,000,000 shares of Preferred Stock, par value
$1.00 per share.
The Board of Directors is authorized, pursuant to the Company's Restated
Certificate of Incorporation, to provide for the issue of the shares of
Preferred Stock in one or more series with such rights as the Board of Directors
may determine.
COMMON STOCK
The holders of shares of Common Stock of GDC are entitled to one vote per
share on all matters submitted to stockholders. They are also entitled to vote
separately as a class (as are the holders of shares of the Class B Stock
described below) on all matters requiring an amendment to the Company's Restated
Certificate of Incorporation, as well as on mergers, consolidations and certain
other significant transactions for which stockholder approval is required under
Delaware law. Holders of the Common Stock do not have preemptive rights or
cumulative voting rights.
Dividends on the Common Stock will be paid if, and when, declared. However,
if a cash dividend is paid in respect of the Common Stock, a cash dividend must
also be paid on the Class B Stock in an amount per share of Class B Stock equal
to 90% of the amount of the cash dividends paid on each share of the Common
Stock. Otherwise, however, the Common Stock and the Class B Stock rank equally
as to dividends.
The Company has never paid cash dividends on the Common Stock and Class B
Stock and cash dividends (except as provided for by the Company's loan and
security agreement allowing payment of dividends on the 9% Preferred Stock) are
not permitted by the Company's loan and security agreement. Stock dividends on
and stock splits of Common Stock will only be payable or made in shares of
Common Stock.
Upon liquidation, dissolution or winding up of the affairs of the Company,
the holders of the Common Stock ratably with the holders of the Class B Stock
(which are considered for this purpose one class) are entitled to receive the
entire net assets of the Company remaining after payment of all debts and other
claims of creditors and after the holders of each series of preferred stock, if
any, have been paid the preferred liquidating distribution on their shares, if
any, as fixed by the Board of Directors of the Company. The Common Stock is not
convertible into shares of any other equity security of the Company.
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<PAGE> 27
The Common Stock is freely transferable.
CLASS B STOCK
The holders of shares of Class B Stock of GDC are entitled to one vote per
share on all matters submitted to stockholders except that they are entitled to
ten votes per share on the election of directors under certain circumstances.
They are also entitled to vote separately as a class (as are the holders of
shares of Common Stock) on all matters requiring an amendment to the Company's
Restated Certificate of Incorporation, as well as on mergers, consolidations and
certain other significant transactions for which stockholder approval is
required under Delaware law. Holders of the Class B Stock do not have preemptive
rights or cumulative voting rights.
Dividends on the Class B Stock will be paid only as and when dividends on
the Common Stock are declared and paid. Moreover, if a cash dividend is paid in
respect of the Common Stock, a cash dividend must also be paid on the Class B
Stock in an amount per share of Class B Stock equal to 90% of the amount of the
cash dividends paid on each share of Common Stock. Otherwise, however, the
Common Stock and the Class B Stock rank equally as to dividends. Stock dividends
on and stock splits of Class B Stock will only be payable or made in shares of
Class B Stock.
In the event of liquidation or insolvency, each share of Class B Stock will
be entitled to share ratably with the Common Stock in the assets remaining after
payment of all debts and other claims of creditors, subject to the rights of any
outstanding preferred stock.
Holders of Class B Stock may elect at any time to convert any of or all
such shares to shares of the Common Stock on a share-for-share basis. In the
event that the number of outstanding shares of Class B Stock falls below 5% of
the aggregate number of issued and outstanding shares of Common Stock and Class
B Stock, or the Board of Directors and holders of a majority of the outstanding
shares of Class B Stock approve the conversion of the Class B Stock into Common
Stock, then the Class B Stock will automatically be converted into shares of
Common Stock. In the event of such conversion, certificates formerly
representing outstanding shares of Class B Stock will thereafter be deemed to
represent the number of shares of Common Stock corresponding to the number of
shares of Class B Stock thus converted.
The Class B Stock is not transferable except to certain family members and
related entities of the holder thereof.
SPECIAL VOTING REQUIREMENTS
The Company's Restated Certificate of Incorporation contains a provision
requiring a two-thirds vote on any merger or consolidation or any sale or other
disposition of all or substantially all the Company's assets. It also contains a
"fair price" provision requiring all stockholders to receive equal treatment in
the event of a takeover which may be coercive. This "fair price" provision may
not be amended except by a four-fifths vote of the stockholders and may be
considered to have the effect of discouraging tender offers, takeover attempts,
acquisitions or business combinations involving the Company. That provision also
requires that business combinations involving the Company and certain "Acquiring
Persons" (defined to include any person or entity which directly or indirectly
owns or controls at least 5% of the voting stock of the Company) be approved by
the holders of four-fifths of the Company's outstanding shares entitled to vote
(other than shares held by an Acquiring Person with which or by or on whose
behalf a business combination is proposed) unless such business combination
either:
(1) has been authorized by the Board of Directors of the Company prior
to the time that the Acquiring Person involved in such business combination
became an Acquiring Person; or
(2) will result in the receipt by the other stockholders of the
Company of a specified minimum amount and form of payment for their shares.
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<PAGE> 28
ANTI-TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law ("DGCL") is applicable
to corporate takeovers in Delaware. Subject to certain exceptions set forth
therein, Section 203 of the DGCL provides that a corporation shall not engage in
any business combination with any "interested stockholder" for a three-year
period following the date that such stockholder becomes an interested
stockholder unless (a) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (b) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (c) on or subsequent to such date, the
business combination is approved by the board of directors of the corporation
and by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. Except as specified therein,
an interested stockholder is defined to include any person that is the owner of
15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date, and the affiliates and associates of
such person. Under certain circumstances, Section 203 of the DGCL makes it more
difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three-year period although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or by-laws, elect not to be governed by this section, effective
twelve months after adoption. The Certificate of Incorporation and the By-laws
do not exclude GDC from the restrictions imposed under Section 203 of the DGCL.
PREFERRED STOCK
Preferred stock, including the Company's 9% Preferred Stock, may be issued
in one or more series from time to time by action of the Board of Directors of
GDC. The shares of any series of preferred stock may be convertible into Common
Stock, may have priority over the Common Stock and Class B Stock in the payment
of dividends and as to the distribution of assets in the event of liquidation,
dissolution or winding up of the Company and may have preferential or other
voting rights, in each case, to the extent, if any, determined by the Board of
Directors of the Company at the time it creates the series of preferred stock.
The 9% Preferred Stock is the only class of preferred stock outstanding.
The Company has outstanding 800,000 shares of 9% Preferred Stock. The 9%
Preferred Stock has a liquidation preference of $25.00 per share and ranks as to
dividends and liquidation prior to the Common Stock. The 9% Preferred Stock is
fully paid and nonassessable. Holders of 9% Preferred Stock do not have any
preemptive rights. The 9% Preferred Stock is not subject to any sinking fund or
other obligation of the Company to redeem or retire such stock. Unless
converted, redeemed or exchanged, the 9% Preferred Stock will remain outstanding
indefinitely.
Holders of shares of 9% Preferred Stock will be entitled to receive, when,
if and as declared by the Board of Directors of the Company out of funds of the
Company legally available for payment, cash dividends at the annual rate of 9%
or $2.25 per share. Dividends are payable quarterly in arrears on March 31, June
30, September 30, and December 31 of each year. Dividends on the 9% Preferred
Stock are cumulative from the date of original issue.
So long as the 9% Preferred Stock is outstanding, the Company may not
declare or pay any dividend on Common Stock or other stock ranking junior to or
on a parity with the 9% Preferred Stock or acquire Common Stock or any other
stock ranking junior to or on a parity with the 9% Preferred Stock (except by
conversion into or exchange for stock of the Company ranking junior to the 9%
Preferred Stock), unless the full cumulative dividends on the 9% Preferred Stock
have been paid, or contemporaneously are declared and paid, through the last
dividend payment date. Should dividends not be paid in full on the 9% Preferred
Stock, and any other preferred stock ranking on a parity as to dividends with
the 9% Preferred Stock, all dividends declared on the 9% Preferred Stock and any
other preferred stock ranking on a parity as to dividends with the 9% Preferred
Stock will be declared pro rata, so that the amount of dividends declared per
share on the
27
<PAGE> 29
9% Preferred Stock and such other preferred stock will bear to each other the
same ratio that accumulated dividends per share on the shares of 9% Preferred
Stock and such other preferred stock bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the 9% Preferred Stock which may be in arrears.
Pursuant to the Company's loan and security agreement and the relevant
covenants therein, the Company is permitted to pay cash dividends on the 9%
Preferred Stock, so long as there is no Event of Default and the Company has
excess availability of $5,000,000 under such agreement.
The holders of the 9% Preferred Stock are entitled at any time to convert
the shares of the 9% Preferred Stock into Common Stock at the conversion rate of
$13.65 per share subject to adjustment, except that, with respect to shares of
the 9% Preferred Stock called for redemption or exchange, conversion rights will
expire at the close of business on the redemption or exchange date, unless the
Company defaults in the payment of the redemption price, in the issuance of 9%
Debentures in exchange for the 9% Preferred Stock, or in the payment of the
final dividend on the exchange date.
The 9% Preferred Stock is exchangeable in whole, but not in part, at the
sole option of the Company, for Debentures on any Dividend Payment Date on or
after September 30, 1998 at a rate of $25.00 principal amount of the 9%
Debentures for each share of the 9% Preferred Stock. The Company may not
exchange any shares of the 9% Preferred Stock unless full cumulative dividends
have been paid or set aside for payment on the 9% Preferred Stock and on any
preferred stock ranking as to dividends on a parity with the 9% Preferred Stock.
On and after the date of exchange of 9% Preferred Stock for 9% Debentures,
the 9% Preferred Stock will cease to accumulate dividends, will no longer be
deemed to be outstanding and will represent only the right to receive the 9%
Debentures and accrued and unpaid dividends, if any, to the Exchange Date.
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the holders of shares of the 9% Preferred Stock will
be entitled to receive, out of the assets of the Company available for
distribution to stockholders, before any distribution or payment is made to
holders of Common Stock or any other stock of the Company ranking junior upon
liquidation to the 9% Preferred Stock, liquidating distributions in the amount
of $25.00 per share plus all accumulated and unpaid dividends to the date of
liquidation.
The 9% Preferred Stock is redeemable in whole or in part, at the sole
option of the Company, at the redemption price of $25.00 per share at any time
on or after September 30, 1999, plus accumulated and unpaid dividends to the
date fixed for redemption, provided, however, the shares of the 9% Preferred
Stock are not redeemable on and after September 30, 1999 and prior to September
30, 2000 unless the closing price (as defined) of the Common Stock has equaled
or exceeded 150% of the conversion price then in effect for at least 20 trading
days within 30 consecutive trading days ending within five trading days before
notice of redemption is mailed.
Unless full cumulative dividends on all outstanding shares of 9% Preferred
Stock and any other preferred stock ranking on a parity with the 9% Preferred
Stock have been or contemporaneously are declared and paid for all past dividend
periods, the 9% Preferred Stock may not be redeemed and the Company may not
purchase or otherwise acquire any shares of the 9% Preferred Stock.
Except as indicated below or as required by the Delaware General
Corporation Law, the holders of the 9% Preferred Stock are not entitled to vote.
If at any time dividends payable on the 9% Preferred Stock are in arrears
and unpaid in an amount equal to or exceeding the amount of dividends payable
thereon for six quarterly dividend periods, the holders of the 9% Preferred
Stock, voting separately as a class with the holders of any other series of
preferred stock of the Company so entitled as provided in the certificate of
such series, will have the right to elect two (2) directors of the Company, such
directors to be in addition to the number of directors constituting the Board of
Directors of the Company immediately prior to the accrual of that right. So long
as the Company's Board of Directors is divided into classes, the directors of
the Company so elected by the holders of shares of the 9% Preferred
28
<PAGE> 30
Stock and of such other series of preferred stock so entitled will be elected to
the classes with the longest remaining terms. Such voting rights will continue
for the 9% Preferred Stock until all dividends accumulated and payable on that
stock have been paid in full, at which time such voting rights of the holders of
the 9% Preferred Stock will terminate, subject to revesting in the event of a
subsequent similar arrearage. Upon any termination of such voting right with
respect to the 9% Preferred Stock and any other series of preferred stock which
may then have such right, subject to the requirements of the Delaware General
Corporation Law, the term of office of all the directors so elected by preferred
stockholders voting separately as a class will terminate.
The approval of the holders of at least a majority of the shares of the 9%
Preferred Stock then outstanding will be required to amend, alter or repeal any
of the provisions of the Restated Certificate of Incorporation or the
Certificate of Designation or to authorize any reclassification of the 9%
Preferred Stock, in either case so as to affect adversely the preferences,
special rights or privileges or voting power of the 9% Preferred Stock, either
directly or indirectly. A similar majority vote of the holders of the shares of
the 9% Preferred Stock then outstanding is required (a) to authorize or create
any class of stock senior to the 9% Preferred Stock as to dividends or
distributions upon liquidation or (b) to create, issue or increase the
authorized number of shares of any series of the Company's authorized preferred
stock ranking senior to the 9% Preferred Stock as to dividends or distributions
upon liquidation.
The 9% Preferred Stock has special rights that become effective upon the
occurrence of certain types of significant transactions affecting corporate
control or ownership of the Company. The holders of the 9% Preferred Stock shall
have the right effective for thirty days following the mailing date of a notice
disclosing a Change in Control, as defined below, to require the Company to
repurchase all or any part of their shares of 9% Preferred Stock on the date
that is no later than 45 days after the date of such repurchase right notice, at
a repurchase price equal to $25.00 per share, plus accrued and unpaid dividends
to the repurchase date with respect to such shares. The Company may satisfy its
repurchase obligations through the issuance of shares of Common Stock (valued at
the Market Price of the Common Stock).
A "Change in Control" means the occurrence of any of the following events
after the date of original issuance of the 9% Preferred Stock: (i) any person
(including any entity or group deemed to be a "person" under Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) becomes the direct or indirect beneficial
owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of
shares of the Company's capital stock representing greater than 50% of the total
voting power of all shares of capital stock of the Company entitled to vote in
the election of Directors under ordinary circumstances or to elect a majority of
the Board of Directors of the Company, (ii) the Company sells, transfers or
otherwise disposes of all or substantially all of the assets of the Company,
(iii) when, during any period of 12 consecutive months after the date of
original issuance of the 9% Preferred Stock, individuals who at the beginning of
any such 12-month period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors still in office who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved), cease for any reason to constitute a majority of the
Board of Directors of the Company then in office (excluding from such
calculation any election of directors by holders of the 9% Preferred Stock), or
(iv) the date of the consummation of the merger or consolidation of the Company
with another corporation where the stockholders of the Company immediately prior
to the merger or consolidation, would not beneficially own immediately after the
merger or consolidation, shares entitling such stockholders to 50% or more of
all votes (without consideration of the rights of any class of stock to elect
directors by a separate class vote) to which all stockholders of the corporation
issuing cash or securities in the merger or consolidation would be entitled in
the election of directors, or where members of the Board of Directors of the
Company immediately prior to the merger or consolidation, would not immediately
after the merger or consolidation, constitute a majority of the board of
directors of the corporation issuing cash or securities in the merger or
consolidation. See "Description of Capital Stock -- Class B Stock" for certain
rights of Class B Stockholders.
29
<PAGE> 31
As used herein, "Market Price" of a share of the Common Stock will be the
average of the Closing Prices of the Common Stock for the ten trading days
ending on the last trading day preceding the date of the Change in Control.
REGISTRAR AND TRANSFER AGENT
Chase Mellon Shareholder Services, L.L.C., is the Registrar and Transfer
Agent for the 9% Preferred Stock as well as the Common Stock.
30
<PAGE> 32
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain anticipated United States federal
income tax consequences resulting from the purchase, ownership, conversion and
disposition of Debentures and the Common Stock. The summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations,
court decisions and rulings by the Internal Revenue Service (the "IRS") now in
effect, all of which are subject to change, possibly with retroactive effect.
The summary assumes that the Debentures will be held as "capital assets" as
defined in the Code. The summary does not address: (1) tax consequences to any
holder of the Debentures or Common Stock under any federal tax laws (including,
without limitation, estate and gift tax laws) other than income tax laws or
under any foreign, state or local tax laws of any type; (2) special rules
pertaining to integrated transactions of which the ownership of the Debentures
or Common stock is a part, such as hedging, conversion or straddle transactions;
(3) tax consequences to subsequent holders of Debentures or Common Stock; or (4)
tax consequences that result from the tax status or particular circumstances of
the holder. Thus, for example, the summary does not discuss the treatment of
holders that are subject to special tax rules, such as banks, insurance
companies, regulated investment companies, personal holding companies,
corporations subject to the alternative minimum tax, and tax-exempt entities.
PROSPECTIVE PURCHASERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF ACQUIRING, HOLDING OR DISPOSING OF THE
DEBENTURES IN LIGHT OF THEIR PERSONAL INVESTMENT CIRCUMSTANCES, AND THE
CONSEQUENCES UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
CLASSIFICATION OF THE DEBENTURES
Although the characterization of an instrument as debt or equity must be
based on all the facts and circumstances, the Company anticipates that the
Debentures will be treated as debt for federal income tax purposes. Accordingly,
the remainder of this discussion assumes that the Company will treat the
Debentures as debt and that such treatment will be respected.
STATED INTEREST
Stated interest on the Debentures will be includable in income in
accordance with the holder's method of accounting for federal income tax
purposes.
REDEMPTION OR SALE OF DEBENTURES OR COMMON STOCK
Generally, a redemption or sale of the Debentures or the Common Stock will
result in taxable gain or loss equal to the difference between the amount of
cash and fair market value of other property received for such Debentures or
Common Stock and the holder's adjusted tax basis in the Debentures or Common
Stock, as the case may be. To the extent that the amount received is
attributable to accrued and unpaid interest not previously included in income,
however, that amount will be taxed as ordinary income. All other gain or loss
will be a capital gain or loss. In the case of non-corporate taxpayers, capital
gains realized on Debentures or on the Common Stock held (i) one year or less
will be treated as short-term gains and taxed at the individual's ordinary
income tax rate; (ii) more than one year and not more than 18 months will be
treated as mid-term gains and taxed at a rate of 28%; and (iii) more than 18
months will be treated as long-term gains and taxed at a maximum rate of 20%.
Capital gains recognized by corporate taxpayers are subject to tax at the
ordinary income tax rates applicable to corporations.
In addition, holders should consult their own tax advisors regarding the
availability and effect of a certain tax election to mark-to market Debentures
or Common Stock held on January 1, 2001.
CONVERSION OF THE DEBENTURES INTO COMMON STOCK
No gain or loss will generally be recognized upon conversion of the
Debentures into shares of Common Stock, except with respect to any cash paid in
lieu of fractional shares of Common Stock. The tax basis of the Common Stock
received upon conversion will be equal to the tax basis of the Debenture
converted therefor (other than the portion of the tax basis of the Debentures
attributable to a fractional share of Common Stock
31
<PAGE> 33
for which cash is received by the holder) and the holding period of the Common
Stock received upon conversion will include the holding period of the Debentures
converted.
ADJUSTMENT OF CONVERSION PRICE
Holders of convertible debentures may be deemed to have received
constructive distributions where the conversion price is adjusted to reflect
property distributions with respect to stock into which such debentures are
convertible. Adjustments to the conversion price made pursuant to a bona fide
reasonable adjustment formula which has the effect of preventing the dilution of
the interest of the holders of the Debentures, however, will generally not be
considered to result in a constructive distribution of stock. Certain of the
possible adjustments provided in the Debentures may not qualify as being
pursuant to a bona fide reasonable adjustment formula. If such adjustments were
made, the holders of Debentures might be deemed to have received constructive
distributions. Similarly, in certain circumstances, the failure to make
appropriate adjustments to the conversion price of the Debentures may be treated
as a constructive distribution. Such constructive distributions could be taxable
to holders as dividends (subject to a possible dividends received deductions in
the case of corporate holders). Generally, a holder's tax basis in the Debenture
will be increased by the amount of any such constructive distributions.
BACKUP WITHHOLDING
Under the backup withholding provisions of the Code and applicable Treasury
regulations, a holder of the Debentures or Common Stock may be subject to backup
withholding at the rate of 31% with respect to dividends or interest paid on, or
the proceeds of a sale, exchange or redemption of the Debentures or Common
Stock, unless such holder (a) is a corporation or comes within certain other
exempt categories and when required demonstrates this fact or (b) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. The Company will, where required, report to the
holders of the Debentures and the IRS the amount of any "reportable payments"
and amount withheld with respect to the Debentures during the taxable year. The
amount of any backup withholding from a payment to a holder will be allowed as a
credit against the holder's federal income tax liability and may entitle such
holder to a refund, provided that the required information is furnished to the
IRS.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Weisman Celler Spett & Modlin, P.C., New York, New York. Howard S.
Modlin, a member of Weisman Celler Spett & Modlin, P.C., is a Director and
Secretary of the Company.
EXPERTS
The consolidated balance sheets as of September 30, 1997 and 1996 and the
consolidated statements of operations and accumulated deficit and cash flows for
each of the three years in the period ended September 30, 1997 incorporated by
reference in this Prospectus have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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<PAGE> 34
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 4
Prospectus Summary.................... 5
Risk Factors.......................... 7
Use of Proceeds....................... 12
Selected Consolidated Financial and
Operating Data...................... 13
Selling Holders....................... 15
Plan of Distribution.................. 17
Description of Debentures............. 18
Registration Rights Agreement......... 24
Description of Capital Stock.......... 25
Certain Federal Income Tax
Considerations...................... 31
Legal Matters......................... 32
Experts............................... 32
</TABLE>
======================================================
======================================================
GENERAL DATACOMM
INDUSTRIES, INC.
$25,000,000 PRINCIPAL AMOUNT OF
7 3/4% CONVERTIBLE SENIOR SUBORDINATED
DEBENTURES DUE 2002
$25,000,000 PRINCIPAL AMOUNT OF
NONCONVERTIBLE SENIOR SUBORDINATED
NOTES DUE 2002
4,287,429 SHARES OF COMMON STOCK
--------------------
PROSPECTUS
--------------------
, 1998
======================================================
<PAGE> 35
FORM S-3, PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) which other than the SEC registration fee are
estimates, payable by the registrant in connection with the sale and
distribution of the Debentures and other securities registered hereby:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 7,375
Placement agent fees and expenses................................ 1,212,500
Legal and accounting fees and expenses........................... 250,000
Printing expenses................................................ 35,000
Miscellaneous.................................................... 45,125
-------
Total.................................................. $1,550,000
=======
</TABLE>
- ---------------
The Selling Holders will pay any sales commissions or underwriting discounts
incurred in connection with the sale of securities registered hereunder.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Article Tenth of the registrant's Restated Certificate
of Incorporation filed as Exhibit 3.1 to the registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988, which is incorporated by
reference for information concerning indemnification of directors and officers.
Section 145 of the General Corporation Law of the State of Delaware permits or
requires indemnification of officers and directors in the event that certain
statutory standards of conduct are met. However, reference is made to Item 9(d)
with respect to indemnification for liabilities arising under the Securities
Act.
Under an insurance policy with The Chubb Group of Companies, the directors
and certain officers of the undersigned registrant and its subsidiaries are
indemnified against certain losses arising from certain claims which may be made
against such persons, by reason of their being such directors or officers.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
3.1 Restated Certificate of incorporation of the Corporation (Incorporated by reference
from Form 10-Q for quarter ended June 30, 1988, Exhibit 3.1. Amendments thereto are
filed as Exhibit 3.1 to Form 10-Q for quarter ended March 31, 1990.)
3.2 Amended and Restated By-laws of the Corporation (Incorporated by reference from
Exhibit 3.2 to Form 10-K for year ended September 30, 1987.)
4.1 Indenture dated September 26, 1997 (Incorporated by reference from Exhibit 4 to Form
8-K dated October 8, 1997)
5. Opinion of Weisman Celler Spell & Modlin, P.C.
10.1 Registration Rights Agreement
12. Statement of Computation of Ratio of Earnings to Fixed Charges.
23. Consent
(a) Coopers & Lybrand L.L.P.
(b) Weisman Celler Spett & Modlin, P.C. (contained in Exhibit 5)
25. Statement of Eligibility of Trustee.
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933 (ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof which, individually or in the
II-1
<PAGE> 36
aggregate, represent a fundamental change in the information set forth in
this Registration Statement; and (iii) to include any material information
with respect to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in this
Registration Statement, provided, however, that clauses (i) and (ii) do not
apply if the information required to be included in a post-effective
amendment by those clauses is contained in periodic reports filed by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such posteffective amendment shall be deemed to be a
new registration statement relating to the securities offered herein and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that for the purpose of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13 or 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
undersigned registrant pursuant to the foregoing provisions, or otherwise, the
undersigned registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the undersigned registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
undersigned registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act will be governed by the final
adjudication of such issue.
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<PAGE> 37
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 5th day of
January 1998.
GENERAL DATACOMM INDUSTRIES, INC.
By: /s/ CHARLES P. JOHNSON
------------------------------------
Charles P. Johnson, Chairman of the
Board
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
/s/ CHARLES P. JOHNSON Chairman of Board and Chief January 5, 1998
- ------------------------------------------ Executive Officer
Charles P. Johnson
/s/ WILLIAM S. LAWRENCE Senior Vice President-Finance January 5, 1998
- ------------------------------------------ and Chief Financial Officer
William S. Lawrence
/s/ WILLIAM G. HENRY Vice President, Corporate January 5, 1998
- ------------------------------------------ Controller and Principal
William G. Henry Accounting Officer
/s/ HOWARD S. MODLIN Director January 5, 1998
- ------------------------------------------
Howard S. Modlin
/s/ FREDERICK R. CRONIN Director January 5, 1998
- ------------------------------------------
Frederick R. Cronin
Director January 5, 1998
- ------------------------------------------
Lee M. Paschall
Director January 5, 1998
- ------------------------------------------
John L. Segall
</TABLE>
II-3
<PAGE> 38
EXHIBIT INDEX
No. Description
--- -----------
3.1 Restated Certificate of incorporation of the Corporation (Incorporated
by reference from Form 10-Q for quarter ended June 30, 1988, Exhibit
3.1. Amendments thereto are filed as Exhibit 3.1 to Form 10-Q for
quarter ended March 31, 1990.)
3.2 Amended and Restated By-laws of the Corporation (Incorporated by
reference from Exhibit 3.2 to Form 10-K for year ended September 30,
1987.)
4.1 Indenture dated September 26, 1997 (Incorporated by reference from
Exhibit 4 to Form 8-K dated October 8, 1997)
5. Opinion of Weisman Celler Spell & Modlin, P.C.
10.1 Registration Rights Agreement
12. Statement of Computation of Ratio of Earnings to Fixed Charges.
23. Consent
(a) Coopers & Lybrand L.L.P.
(b) Weisman Celler Spett & Modlin, P.C. (contained in Exhibit 5)
25. Statement of Eligibility of Trustee.
<PAGE> 1
Exhibit 5
January 5, 1998
Board of Directors
General DataComm Industries, Inc.
l579 Straits Turnpike
Middlebury, CT 06762-l299
Gentlemen:
Reference is made to the registration statement ("Registration Statement")
which General DataComm Industries, Inc. (the "Corporation") is filing with the
Securities and Exchange Commission under the Securities Act of l933, as amended,
for the registration of $25,000,000 principal amount of 7-3/4% Convertible
Senior Subordinated Debentures due 2002 (the "Debentures"), $25,000,000
principal amount of Non-Convertible Senior Subordinated Notes due 2002 ("Notes")
issuable in exchange for the Debentures and a maximum of 4,287,429 shares of
Common Stock ("Common Stock") issuable upon conversion of the Debentures.
Pursuant to your request, we have examined those of the Corporation's
books and records deemed relevant by us for the purpose of furnishing you with
our opinion concerning the legality and validity of issue of the shares of
Common Stock, and the binding effect of the Debentures and Notes of the
Corporation covered by the Registration Statement.
Based upon the foregoing and upon our investigation and examination of
certain other matters pertaining to the Corporation, we are of the opinion that:
l. The Corporation is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. The Debentures proposed to be registered by the above Registration
Statement are binding obligations of the Corporation.
3. The Notes proposed to be registered by the above Registration
Statement, when issued and exchanged as set forth in said Registration
Statement, will be binding obligations of the Corporation.
<PAGE> 2
4. All of the shares of Common Stock proposed to be registered by the
above Registration Statement, when and if issued upon the conversion of the
above Debentures as set forth in said Registration Statement, will be validly
issued, fully paid and nonassessable by the Corporation, with no personal
liability attaching to the ownership thereof.
We herewith give our consent to the use of this opinion as an Exhibit to
the herein referred to Registration Statement and to the use of our name
therein.
Very truly yours,
WEISMAN CELLER SPETT & MODLIN, P.C.
<PAGE> 1
Exhibit 10.1
GENERAL DATACOMM INDUSTRIES, INC.
------------------------------------------
REGISTRATION RIGHTS AGREEMENT
------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
as of the Closing Date (as defined herein) by and among General DataComm
Industries, Inc., a Delaware corporation, and the Purchaser as defined below
whose signatures appear on the execution pages of this Agreement.
This Agreement is made pursuant to the 7-3/4% Convertible Senior
Subordinated Debenture Purchase Agreement between the Company, the Placement
Agent and each of the purchasers as defined below listed therein (the "Purchase
Agreement" and the "Purchasers"). In order to induce the Purchasers to enter
into the Purchase Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution of this Agreement by the
Company is a condition to closing under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
Capitalized terms used herein without definition shall have their
respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
Closing Date: The date assigned thereto in the Purchase Agreement.
Common Stock: The Common Stock, $.10 par value per share of the
Company.
Company: General DataComm Industries, Inc., a Delaware corporation.
Debentures: The 7-3/4%Convertible Senior Subordinated Debentures due
2002 of the Company sold pursuant to the Purchase Agreement.
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Expiration Date: Two (2) years from the issuance of the Debentures or
such shorter period of time under Rule 144(k) if the two (2) year holding period
thereunder is shortened.
Filing Date: The date of filing of a registration statement effected
pursuant to Section 3(a) hereof.
1
<PAGE> 3
Holders: The Persons with a beneficial interest in the Registrable
Securities.
Indenture: The Indenture dated as of September 26, 1997, between the
Company and Continental Stock Transfer & Trust Company, as trustee (the
"Trustee"), pursuant to which the Debentures are to be issued, as such Indenture
is amended or supplemented from time to time in accordance with the terms
thereof.
Majority Holders: The Holders of a majority of the aggregate
principal amount or number of shares of outstanding Registrable Securities at
any given time as applicable.
Person: Shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government agency or political subdivision
thereof.
Placement Agent: Utendahl Capital Partners, L.P.
Prospectus: The prospectus included in any Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
Purchase Agreement: The 7-3/4% Convertible Senior Subordinated
Debenture Purchase Agreement by and among the Company, the Placement Agent and
the Purchasers thereunder pursuant to which the Debentures were or will be
issued.
Registration Expenses: All expenses incurred by the Company in
complying with Section 3 hereof, including, but not limited to, all registration
and filing fees, printing expenses, fees and disbursements of counsel for the
Company, internal expenses, fees and disbursements of all independent certified
public accountants of the Company, any listing fees and expenses and blue sky
fees and expenses in such states reasonably requested but otherwise excluding
all fees and expenses of counsel for the Holders and Purchasers.
Registrable Securities: All Debentures which are Restricted
Securities, and the shares of Common Stock into which the Debentures may be
converted which are Restricted Securities.
2
<PAGE> 4
Registration Statement: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Restricted Securities: The Debentures and the underlying Common Stock
into which the Debentures may be converted, and at all times subsequent thereto
until, in the case of any such security it (i) has been transferred pursuant to
the Registration Statement or another registration statement covering it that
has been filed with the SEC pursuant to the Securities Act, in either case after
such registration statement has become effective under the Securities Act, (ii)
has been transferred pursuant to Rule 144 under the Securities Act, (iii) may be
sold or transferred pursuant to Rule 144(k) under the Securities Act (or any
similar provisions then in force) under the Securities Act or otherwise or (iv)
ceases to be outstanding.,
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
Rule 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
Shelf Registration: A registration effected pursuant to Section 3(a)
hereof.
Suspension Period: The time period in Sections 4(b)(3)(b)(iii) and
4(b)(9).
Underwritten registration or underwritten offering: A registration in
which securities of the Company are sold to or through an underwriter for
reoffering to the public on a firm commitment or best efforts basis.
3
<PAGE> 5
2. Securities Subject to this Agreement
The securities entitled to the benefits of this Agreement are the
Registrable Securities.
3. Shelf Registration
(a) Shelf Registration. The Company shall not later than the 90th day
after the Closing Date (the "Filing Date"), prepare and file with the SEC a
Registration Statement relating to the offer and sale of the Registrable
Securities (including securities deemed registered pursuant to Rule 416 under
the Securities Act) by the Holders from time to time to be made on a continuous
basis pursuant to Rule 415 (or any appropriate similar rule that may be adopted
by the SEC) under the Securities Act (the "Shelf Registration"). The Shelf
Registration shall be on a Form S-3 or other appropriate form (unless the
holders of the Registrable Securities offered thereby reasonably request a
specific form) permitting registration of such Registrable Securities for resale
by the Holders in a public offer and sale.
(b) Effectiveness. The Company shall use its reasonable best efforts
to cause the Shelf Registration to become effective under the Securities Act as
soon as practicable following the Filing Date and in any event no later than 150
days after the Closing Date. Subject to the requirements of the Securities Act
including, without limitation, requirements relating to updating prospectuses
through post-effective amendments or otherwise, the Company shall use its
reasonable best efforts to keep the Shelf Registration continuously effective
until the Expiration Date, provided, that in the event of a Suspension Period,
as set forth in Section 4(b)(3)(b)(9) hereof, the Company shall extend the
period of effectiveness of such Shelf Registration by the number of days of each
such Suspension Period.
(c) Underwriting. The Majority Holders of Registrable Securities
covered by the Shelf Registration Statement who wish to do so may sell such
Registrable Securities in one underwritten offering. In any such underwritten
offering, the investment banker(s) and manager(s) that will manage the offering
will be selected by the holders of a majority of the then outstanding
Registrable Securities included in such offering (with Holders of shares of
Common Stock constituting Registrable Securities being deemed to be Selling
Holders of the aggregate principal amount of Debentures converted into Common
Stock for purposes of such calculation) (after consultation with the Company as
to such selection and upon the written consent of the Company, which consent
shall not be unreasonably withheld or delayed). If such underwritten agreement
is not requested within 90 days after the date hereof, if at the time such
Majority Holders request an underwritten offering the managing underwriters in a
separate written offering on behalf of the Company (to the extent timely
notified in writing by the Company or such managing underwriters) request the
Holders participating in the underwritten offering not to effect any public sale
or distribution of Registrable Securities pursuant to such underwritten
offering, then no such sales will be
4
<PAGE> 6
made by the Holders pursuant to the underwritten Shelf Registration Statement
during the 10 day period prior to and the 90 day period beginning on the
effective date of such underwritten offering. If requested by the underwriters,
the Company will promptly enter into an underwriting agreement reasonably
acceptable to the Company with such underwriters for such offering, such
agreement to contain such representations and warranties by the Company and such
other terms and conditions as are customary for underwriting agreements with
respect to secondary offerings, including without limitation, indemnities to the
effect and to the extent provided in Section 5 hereof. The Holders of
Registrable Securities on whose behalf such securities are being distributed
shall be party to any such underwriting agreement. Such Holders shall not be
required by the Company to make any representations or warranties to the
underwriters with respect to the Company or the Registrable Securities (other
than that the Holders are conveying such securities free and clear of all
pledges, security interests, liens, charges, encumbrances, agreements, equities,
claims and options of whatever nature), and the Holders shall not be required to
indemnify the Company or the underwriters (other than with respect to the
matters, and to the extent, provided in Section 5).
No Holder of Registrable Securities may participate in any
underwritten distribution hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved in accordance with the terms hereof, and (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
4. Expenses and Procedures
(a) Expenses of Registration. The Company shall bear all Registration
Expenses regardless of whether a Registration Statement becomes effective. Each
Holder shall bear all selling commissions, underwriting discounts, sales
concessions and similar type deductions applicable to the sale of securities
attributable to the Registrable Securities sold by such Holder and expenses of
its counsel.
(b) Registration Procedures. In connection with the one Shelf
Registration Statement required by the Company, the following provisions shall
apply:
(1) The Company shall furnish to the Purchasers, prior to the
filing thereof with the Commission, a copy of any Shelf Registration Statement,
and each amendment thereof and each amendment or supplement, if any, to the
Prospectus included therein and shall each use reasonable efforts to reflect in
each such document, when so filed with the Commission, such comments as the
Placement Agent reasonably may propose.
(2) The Company shall take such action as may be necessary so
that (i) the Shelf Registration Statement and any amendment thereto and any
Prospectus forming part thereof and any amendment or supplement thereto (and
each report or
5
<PAGE> 7
other document incorporated therein by reference in each case) complies in all
material respects with the Securities and the Exchange Act and the respective
rules and regulations thereunder, (ii) the Shelf Registration Statement and any
amendment thereto remains effective and usable for resale of Registrable
Securities during the period the Shelf Registration Statement is required under
this Agreement to be effective and usable, (iii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statements of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iv) any Prospectus forming part of any Shelf Registration
Statement, and any amendment or supplement to such Prospectus, does not include
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading, it being understood the Company is
not responsible for an untrue statement or omission or alleged untrue statement
or omission made in reliance upon and in conformity with written information
furnished to the Company by such Purchasers, any Holder or any underwriter in
writing expressly for use in the Shelf Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto).
(3)(a) The Company shall advise the Purchasers and, in the case
of clause (i) below, the Holders and, if requested by the Purchasers or any such
Holder, confirm such advice in writing:
i) when a Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when the Shelf Registration
Statement or any post-effective amendment thereto has become effective;
and
ii) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the Prospectus included
therein or for additional information.
(b) The Company shall advise the Purchasers and the Holders
and, if requested by the Purchasers or any such Holder, confirm such advice in
writing of:
i) the issuance by the Commission of any stop order
suspending effectiveness of the Shelf Registration Statement or the
initiation of any proceedings for that purpose;
ii) the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities included
therein for sale in any jurisdiction or the initiation of any proceeding
for such purpose; and
6
<PAGE> 8
iii) the happening of any event that requires the making
of any changes in the Shelf Registration Statement or the Prospectus so
that, as of such date, the Shelf Registration Statement and the Prospectus
do not contain an untrue statement of a material fact and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(4) The Company shall use its best efforts to prevent the
issuance, and if issued to obtain the withdrawal, of any order suspending the
effectiveness of any Shelf Registration Statement at the earliest possible time.
(5) The Company shall furnish to each Holder of Registrable
Securities included within the coverage of any Shelf Registration Statement,
without charge, at least one copy of such Shelf Registration Statement and any
Post-effective amendment thereto, including financial statements and schedules,
and, if the Holder so requests in writing, all exhibits (including those
incorporated by reference).
(6) The Company shall, until the Expiration Date, deliver to
each Holder of Registrable Securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus or amendment or supplement to a
Prospectus) included in such Shelf Registration Statement and any amendment or
supplement thereto as such Holder may reasonably request.
(7) Prior to any offering of Registrable Securities pursuant to
the Shelf Registration Statement, the Company shall register or qualify or
cooperate with the Holders of Registrable Securities included therein and their
respective counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as any such Holders reasonably request in writing and do
any and all other acts or things necessary or advisable to enable the offer and
sale in such jurisdictions of the Registrable Securities covered by such Shelf
Registration Statement; provided, however, that in no event shall the Company be
obligated to (i) qualify as a foreign corporation or as a dealer in securities
in any jurisdiction where it would not otherwise be required to so qualify but
for this Section 4, (ii) file any general consent to service of process in any
jurisdiction where it is not as of the date hereof then so subject or (iii)
subject itself to taxation in any such jurisdiction if it is not so subject.
(8) Unless any Registrable Securities shall be in book-entry
only form, the Company shall cooperate with the Holders of Registrable
Securities to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold pursuant to any Shelf
Registration Statement free of any restrictive legends and in such permitted
denominations and registered in such names as Holders
7
<PAGE> 9
may request in connection with the sale of Registrable Securities pursuant to
such Shelf Registration Statement.
(9) Upon the occurrence of any event contemplated by paragraph
4(b)(3)(b)(iii) above, the Company shall promptly prepare a post-effective
amendment to the Shelf Registration Statement or an amendment or supplement to
the related Prospectus or file any other required document so that, as
thereafter delivered to purchasers of the Registrable Securities included
therein, the Prospectus will not include an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. If the Company notifies the Holders of the occurrence
of any event contemplated by paragraph 4(b)(3)(b)(iii) above, the Holders shall
suspend the use of the Prospectus until the requisite changes to the Prospectus
have been made.
(10) If required, not later than the effective date of the
Shelf Registration Statement hereunder, the Company shall provide CUSIP numbers
as appropriate for the Securities registered under such Shelf Registration
Statement.
(11) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its security holders or otherwise provide in accordance with
Section 11(a) of the Securities Act as soon as practicable after the effective
date of the Shelf Registration Statement an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act.
(12) The Company shall cause the Indenture and the Debentures
to be qualified under the Trust Indenture Act of 1939, as amended, in a timely
manner as and to extent required thereby. In the event that such qualification
would require the appointment of a new trustee under the Indenture, the Company
shall appoint a new trustee thereunder pursuant to the applicable provisions of
the Indenture.
(13) The Company may require each Holder of Registrable
Securities to be sold pursuant to the Shelf Registration Statement to furnish to
the Company such information regarding the Holder and the distribution of such
Registrable Securities as the Company may from time to time reasonably require
for inclusion in such Shelf Registration Statement and the Company may exclude
from such registration the Registrable Securities of any Holder that fails to
furnish such information within a reasonable time after receiving such request.
(14) The Company shall, if requested, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the Shelf
Registration Statement, such information as the underwriters (in an underwritten
offering undertaken in accordance with the provisions of Section 4 hereto)
reasonably agree, should be included therein and to which the Company does not
reasonably object
8
<PAGE> 10
and shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after they are notified of the
matters to be included or incorporated in such Prospectus supplement or
post-effective amendment.
(15) The Company shall enter into such customary agreements
(including underwriting agreements in customary form) to take all other
appropriate actions in order to expedite or facilitate the registration or the
disposition of the Registrable Securities pursuant to the Shelf Registration
Statement reasonably required of the Company thereunder.
(16) The Company shall in connection with an underwritten
public offering of the Registrable Securities (i) make reasonably available for
inspection by the Holders of Registrable Securities to be registered thereunder,
any underwriter participating in any disposition pursuant to such Shelf
Registration Statement, and any attorney, accountant or other agent retained by
such Holders or any such underwriter all relevant non-privileged financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries; (ii) cause the Company's officers, directors and employees to
make reasonably available for inspection all relevant non-privileged information
reasonably requested by such Holders or any such underwriter, attorney,
accountant or agent in connection with any such Shelf Registration Statement, in
each case, as is customary for similar due diligence examinations; provided,
however, that any information that is designated in writing by the Company, in
good faith, as confidential at the time of delivery of such information shall be
kept confidential and not used by such Holders or any such underwriter,
attorney, accountant or agent except as permitted by law and in connection with
the Shelf Registration Statement, unless such disclosure is made in connection
with a court proceeding or required by law, or such information becomes
available to the public generally or through a third party without an
accompanying obligation of confidentiality; and provided further that the
foregoing inspection and information gathering shall, to the greatest extent
possible, be coordinated on behalf of the Holders and the other parties entitled
thereto by one counsel designated by and on behalf of such Holders and other
parties; (iii) make such representations and warranties to the Holders of
Registrable Securities registered thereunder and the underwriters, if any, in
form, substance and scope as are customarily made by the Company to underwriters
in primary underwritten offerings and covering matters including, but not
limited to, those set forth in the Underwriting Agreement; (iv) obtain opinions
of counsel to the Company and updates thereof (which opinions (in form, scope
and substance) shall be reasonably satisfactory to the underwriters, if any)
addressed to each selling Holder and the underwriters, if any, covering such
matters as are customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by Majority
Holders and underwriters (it being agreed that the matters to be covered by such
opinion or written statement by such counsel delivered in connection with such
opinions shall include in customary form, without limitation, as of the date of
the opinion and as of the effective date of the Shelf Registration Statement or
most recent post-effective amendment thereto, as the case may be, that such
counsel has no
9
<PAGE> 11
reason to believe such Shelf Registration Statement and the prospectus included
therein, as then amended or supplemented, including the documents incorporated
by reference therein, contained an untrue statement of a material fact or
omitted to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (v) obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, any other independent public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included in
the Shelf Registration Statement or incorporated by reference), addressed to
each such Holder of Registrable Securities registered thereunder and the
underwriters, if any, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with primary
underwritten offerings; (vi) deliver such documents and certificates as may be
reasonably requested by the Majority Holders and the underwriters, if any,
including those to evidence compliance with this Section and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company. The foregoing actions set forth in clauses (iii), (iv), (v)
and (vi) of this Section 4(b)(16) shall be performed at the closing of the one
underwritten offering to the extent required thereunder.
(17) The Company will use its best efforts to cause the shares
of Common Stock issuable upon conversion of the Debentures to be listed on the
New York Stock Exchange upon effectiveness of any Shelf Registration Statement
hereunder.
(18) In the event that any broker-dealer registered under the
Exchange Act shall underwrite any Registrable Securities or participate as a
member of an underwriting syndicate or selling group or "assist in the
distribution" (within the meaning of the Rules of Fair Practice and the By-Laws
of the National Association of Securities Dealers, Inc. ("NASD")) thereof,
whether as a Holder of such Registrable Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or otherwise,
the Company will assist such broker-dealer in complying with the requirements of
such Rules and By-Laws, including, without limitation, by (A) such Rules or
By-Laws, including Schedule E thereto, shall so require, engaging a "qualified
independent underwriter" (as defined in Schedule E) to participate in the
preparation of the Shelf Registration Statement relating to such Registrable
Securities and to exercise usual standards of due diligence in respect thereto,
(B) indemnifying any such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the Rules of Fair Practice of
the NASD.
(19) The Company will use its best efforts to cause the
Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the
"TIA"), and, in connection therewith, cooperate with the Trustee and the Holders
to
10
<PAGE> 12
effect such changes to the Indenture as may be required for such Indenture to be
so qualified in accordance with the terms of the TIA; and execute, and use its
best efforts to cause the Trustee to execute, all documents as may be required
to effect such changes and all other forms and documents required to be filed
with the SEC to enable such Indenture to be so qualified in a timely manner;
(20) The Company shall use its best efforts to take all other
steps reasonable and necessary to effect the registration, offering and sale of
the Registrable Securities covered by the Shelf Registration Statement
contemplated hereby.
(21) The Company shall not be obligated to bear any extra
expenses relating to an additional underwritten offering of the Shelf
Registration if the underwriters selected by the Holders breach their
obligations to purchase the Registrable Securities or exercise market out rights
under the Underwriting Agreement, which additional expenses shall be borne by
the Holders.
5. Indemnification
(a) Indemnification by Company. The Company shall, without limitation
as to time, indemnify and hold harmless, to the full extent permitted by law,
each Purchaser or Holder of Registrable Securities, each underwriter who
participates in an offering of Registrable Securities and their respective
officers, directors, agents and employees, each person who controls such
Purchaser, Holder or underwriter (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), and the officers, directors,
agents or employees of any such controlling person, from and against all losses,
claims, damages, liabilities, costs (including, without limitation, all
reasonable attorneys' fees) and expenses (collectively, "Losses"), as incurred,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement, Prospectus or
preliminary prospectus, or supplement or amendment thereto including all
documents incorporated by reference therein or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances under
which they were made (in the case of any Prospectus or preliminary prospectus)
not misleading; provided that this indemnity shall not apply to any Losses to
the extent arising out of an untrue statement or omission or alleged untrue
statement or omission based upon and in conformity with written information
furnished to the Company by such Purchasers, any Holder or any underwriter in
writing expressly for use in the Shelf Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto) and
provided, further however, that the Company shall not be liable in any such case
to the extent that any such Loss arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus or Prospectus if (i) such Holder failed to send or
deliver a copy of the Prospectus or Prospectus supplement provided by the
Company in requisite quantities on a timely
11
<PAGE> 13
basis with or prior to the delivery of written confirmation of the sale of
Registrable Securities and (ii) the Prospectus or Prospectus supplement would
have corrected such untrue statement or omission. If requested, the Company
shall also indemnify selling brokers and similar securities industry
professionals participating in the distribution, their officers, directors,
agents and employees and each person who controls such persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
Purchasers, Holders and underwriters of Registrable Securities subject to this
Section 5(a).
(b) Indemnification by Holder of Registrable Securities. In
connection with any Registration Statement in which a holder of Registrable
Securities is participating, such holder of Registrable Securities shall furnish
to the Company in writing such information as the Company may reasonably request
for use in connection with the Shelf Registration Statement and any Prospectus
or Preliminary Prospectus or supplement or amendment thereto issued in
connection thereto. Such Holder hereby agrees to indemnify and hold harmless, to
the full extent permitted by law, the Company, and its officers, directors,
agents and employees, each person who controls the Company (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents or employees of any such controlling person, from
and against all Losses, as incurred, arising out of or based upon any untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary prospectus, or arising out of or based upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made (in the case of
any Prospectus) not misleading, to the extent, but only to the extent, that such
untrue statement or omission contained in any Registration Statement or any
Prospectus or preliminary Prospectus or supplement or amendment thereto was
based upon and in conformity with information so furnished in writing by such
Holder to the Company expressly for use in such Shelf Registration Statement,
Prospectus or preliminary Prospectus. The Company shall be entitled to receive
indemnities from accountants, selling brokers and similar securities industry
professionals participating in the distribution to the same extent as provided
above with respect to information furnished in writing by such persons
specifically for inclusion in the Shelf Registration Statement, Prospectus or
preliminary prospectus, provided, that the failure of the Company to obtain any
such indemnity shall not relieve the Company of any of its obligations
hereunder.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation or inquiry) shall be
brought or any claim shall be asserted against any person entitled to indemnity
hereunder (an "indemnified party"), such indemnified party shall promptly notify
the party from which such indemnity is sought (the "indemnifying party") in
writing, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability which it may have other than unless and to
the extent such failure results in the
12
<PAGE> 14
forfeiture by the Company of substantial defenses. The indemnifying party shall
assume the defense thereof, including the employment of counsel reasonably
satisfactory to the indemnified party and the payment of all fees and expenses
incurred in connection with the defense thereof. Any such indemnified party
shall have the right to employ separate counsel in any such action, claim or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be the expense of such indemnified party unless (a) the
indemnifying party has agreed to pay such fees and expenses, (b) the
indemnifying party shall have failed promptly to assume the defense of such
action, claim or proceeding and to employ counsel reasonably satisfactory to the
indemnified party in any such action, claim or proceeding, or (c) the named
parties to any such action, claim or proceeding (including any impleaded
parties) include both such indemnified party and the indemnifying party, and
such indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the indemnifying party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action, claim or
proceeding on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action,
claim or proceeding or separate but substantially similar or related actions,
claims or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties, unless in the opinion of
counsel for such indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
action, claim or proceeding, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels.
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the release
of such indemnified party from all liability in respect to such claim or
litigation without the written consent of the indemnified party. No indemnified
party shall consent to entry of any judgment or enter into any settlement
without the written consent of the indemnifying party from which indemnity or
contribution is sought.
(d) Contribution. If the indemnification provided for in this Section
5 is unavailable to an indemnified party under Section 5(a) or 5(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any Losses, then each applicable indemnifying party in lieu of indemnifying such
indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the statements or omissions which resulted
in such Losses as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether any untrue statement
13
<PAGE> 15
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, relates to information supplied by, such indemnifying
party or indemnified party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of any Losses shall be deemed
to include, subject to the limitations set forth in Section 5(c), any legal or
other fees or expenses reasonably incurred by such party in connection with any
action, suit, claim, investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 5(d), each director, officer, employee,
trustee, agent and Person, if any, who controls an indemnified party within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
shall have the same rights to contribution as such an indemnified party and each
director, officer, employee, trustee and agent of the Company, and each Person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Company.
The indemnity and contribution agreements contained in this Section 5
(i) are in addition to any contractual liability that any indemnifying party may
otherwise have to any indemnified party and (ii) shall apply to any underwritten
offering under a Registration Statement except to the extent the same are
explicitly stated not to apply in an underwriting agreement to which the Holders
in such underwritten offering are parties.
6. Rule l44
The Company shall file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder, to the extent required from time to time, to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitations of the exemptions provided by Rule l44 and Rule 144A.
Upon the request of any Holder of Registrable Securities, the Company shall
deliver to such Holder a written statement as to whether the Company has
complied with such information and requirements.
14
<PAGE> 16
7. Miscellaneous
(a) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company obtains the written consent of Holders of at
least a majority of the principal amount or number of then outstanding
Registrable Securities as applicable affected by such amendment, modification or
supplement. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and which does not directly or indirectly
affect the rights of Holders of Registrable Securities whose securities are not
being sold pursuant to such Registration Statement may be given by Holders of a
majority of the Registrable Securities being sold by such Holders.
(b) Notices, All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, certified
first-class mail, next day air courier, or telecopy: (i) If to a Holder of
Registrable Securities, at the most current address given by such holder to the
Company in accordance with the provisions of this Section 7(b), which address
initially is, with respect to each Purchaser, the address set forth on the
signature page attached hereto; and (ii) If to the Company initially at the
address set forth on the first page of the Purchase Agreement, attention: Senior
Vice President, Finance, and thereafter at such other address, notice of which
is given in accordance with the provisions of this Section 9(b), with a copy to
Weisman Celler Spett & Modlin, P.C., 445 Park Avenue, New York, NY l0022,
Attention: Howard S. Modlin, Esq.
All such notices and communications shall be deemed to have been duly
given when received by hand or overnight courier or receipt by certified mail,
return receipt requested.
(c) Transfer of Registration Rights. Without any further action on
the part of the Company, the right granted to the Holders pursuant to this
Agreement may be assigned in connection with the transfer, assignment or sale of
any Registrable Security to the extent such securities and rights may be
transferred, assigned, or sold pursuant to applicable laws and to the agreements
to which the particular holder is a party or exchanged.
(d) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
15
<PAGE> 17
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflict of laws.
(g) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, it being intended that all of the
rights and privileges of the parties shall be enforceable to the fullest extent
permitted by law.
(h) AGENT FOR SERVICE OF PROCESS, SUBMISSION TO JURISDICTION. The
Company and each Holder agree that any legal suit, action or proceeding brought
by any party to enforce any rights under or with respect to this Agreement shall
be instituted in any state or federal court in the City of New York, State of
New York having subject matter jurisdiction, and each waives to the fullest
extent permitted by law any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding and irrevocably submits
it to the non-exclusive jurisdiction of any such court in any such suit, action
or proceeding. The Company hereby irrevocably designates and appoints Weisman
Celler Spett & Modlin, P.C. as the Company's authorized agent to receive and
forward on its behalf service of any and all process which may be served in any
such suit, action or proceeding in any such court and agrees that service of
process upon General DataComm Industries, Inc. (or any successor) c/o such agent
at 445 Park Avenue, New York, New York 10022 (or such other address in the
Borough of Manhattan, The City of New York as the Company may designate by
written notice to the Holders) and written notice of said service to the Company
mailed or delivered to General DataComm Industries, Inc., shall be deemed in
every respect effective service of process upon the Company in any such suit,
action or proceeding and shall be taken and held to be valid personal service
upon the Company. Said designation and appointment shall be irrevocable. Nothing
in this Section 7(h) shall affect the right of any party hereto or any Holder to
serve process in any manner permitted by law. The Company agrees to take any and
all action, including the execution and filing of any and all such documents and
instruments, as may be necessary to continue such designation and appointment of
Weisman Celler Spett & Modlin, P.C. in full force and effect so long as this
Agreement or any of the Debentures and/or shares of Common Stock into which the
Debentures may be converted shall be outstanding. To the extent that the Company
or any Holder, has or hereafter may acquire any immunity from jurisdiction of
any court or from any legal process (whether through service of notice,
attachment prior to judgment, attachment in aid of execution, execution or
otherwise) with respect to itself or its property, the Company and each Holder,
respectively hereby irrevocably waive
16
<PAGE> 18
such immunity in respect of its obligations under this Agreement and the
Securities, to the extent permitted by law.
(i) Entire Agreement. This Agreement is intended by the parties to be
a final expression of their agreement and a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties nor
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the Shares sold
pursuant to the Purchase Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties have executed this agreement as of
the date first written above.
GENERAL DATACOMM INDUSTRIES, INC.
By: ____________________________________
17
<PAGE> 19
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
PURCHASER
________________________________
[Please Print]
By: ____________________________
Name:
Title:
Address: _______________________
________________________________
18
<PAGE> 1
EXHIBIT 12
RATIOS OF EARNINGS TO FIXED CHARGES
and
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(continuing operations only: presented in thousands, except ratio factors)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Earnings (loss) before
income taxes $7,141 $(2,870)(1)$(26,480) $(15,970) $(42,351)
Add Fixed Charges:
- ------------------
Interest 1,799 3,335 3,120 2,757 3,300
Interest factor portion
of rentals 2,465 1,384 1,435 1,605 1,575
----------------------------------------------------
4,264 4,719 4,555 4,362 4,875
Earnings (loss) before
income taxes and fixed
charges $11,405 $1,849 $(21,925) $(11,608) $(37,476)
====================================================
Ratio of earnigs to fixed
charges 2.67 0.39(2) --(2) --(2) --(2)
====================================================
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(3) 2.67 0.39(2) --(2) --(2) --(2)
====================================================
(1) Does not include $433,000 of charges for the cumulative effect of
accounting changes for post-retirement benefits ($117,000) and
post-employment benefits ($316,000). The charges resulted from the
adoption of Statement of Financial Accounting Standards No. 106 and
No. 112, respectively.
(2) Earnings were not sufficient to cover "fixed charges" or "combined fixed
charges and preferred stock dividends" as follows (in thousands): $2,870,
$26,480, $15,970 and $42,351 in the fiscal years ended September 30, 1994,
1995, 1996 and 1997, respectively.
(3) The Company commenced payment of preferred stock dividends in fiscal 1997
(in the amount of $1,800,000). As a result, the presented ratios are
unchanged from the ratios of earnings to fixed charges presented for years
preceding fiscal 1997.
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of General DataComm Industries, Inc. and Subsidiaries on Form S-3 of our report,
dated December 22, 1997 on our audits of the consolidated financial statements
and financial statement schedule of General DataComm Industries, Inc. and
Subsidiaries as of September 30, 1997 and 1996 and for the years ending
September 30, 1997, 1996 and 1995, which report is included in the Annual Report
on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
January 5, 1998
<PAGE> 1
Exhibit 25
Form T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Statement of Eligibility and Qualification
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee
Continental Stock Transfer & Trust Company
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
New York 13-2780552
(State of incorporation if not a national bank) (I.R.S. employer identification no.)
</TABLE>
2 Broadway, New York, New York 10004
(Address of principal executive offices) (Zip code)
Jesse R. Meer, 120 W. 45th St., New York, N.Y. 10036, 212-704-0100
(Name, address and telephone number of agent for service)
General DataComm Industries, Inc.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 06-0853856
(State or other jurisdiction of incorporation or I.R.S. employer identification no.)
organization
</TABLE>
1579 Straits Turnpike
Middlebury, Connecticut 06752-1299
(Address of principal executive offices) (Zip code)
7-3/4% Convertible Senior Subordinated Debentures due 2002
(Title of indenture securities)
<PAGE> 2
ITEM 1. General Information
(a) The name and address of each examining or supervising authority to
which the trustee is subject:
Banking Department of the State of New York
2 Rector Street
New York, New York 10006
(b) Whether the trustee is authorized to exercise corporate trust
powers.
The trustee is so authorized
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation:
There was no such affiliation as of December 15, 1997
NOTE: Items 3 through and including 15 are omitted, in accordance
with General Instruction B., based upon the obligor's
representation that it is not in default under other
indentures under which Continental Stock Transfer & Trust
Company is the trustee.
ITEM 16. LIST OF EXHIBITS.
The following exhibits to this Statement of Eligibility and Qualification,
other than Exhibit 7 which is being filed herewith, were filed as exhibits to
the Statements of Eligibility and Qualification on Form T-1 that accompanied the
registration statements of the named obligors in the S.E.C. files specified.
Such exhibits are hereby incorporated by reference to such filings.
1(a). Amended organization certificate of the trustee. Trans-Lux
Corporation, S.E.C. File No. 33-1695.
1(b). Certificate of amendment, dated May 14, 1986, of the trustee's
organization certificate. Howtek, Inc., S.E.C. File No. 33-8971.
2. Certificate of authority of the Banking Department of New York.
Trans-Lux Corporation, S.E.C. File No. 33-1695.
3. Certificate of amendment,. dated December 19, 1984, of the trustee's
organization certificate. Trans-Lux Corporation, S.E.C. File No.
33-1695.
4. By-laws of the trustee. Trans-Lux Corporation, S.E.C. File No.
33-1695.
<PAGE> 3
5. Not applicable.
6. Consent of the trustee as required by Section 321(b) of the Act.
Trans-Lux Corporation, S.E.C. File No. 33-1695.
7. Balance sheet of the trustee, as of December 31, 1996. (The trustee is
not required by the Banking Department to publish a report of its
condition.)
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Continental Stock Transfer & Trust Company, a limited purpose trust
company, organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City and the
State of New York on December 19, 1997.
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By: /s/ MICHAEL NELSON
Michael Nelson, President
<PAGE> 4
EXHIBIT 7
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 803,404
Accounts receivable (net of allowance
for doubtful accounts of $10,000) 1,654,171
Interest receivable 102,583
U.S. Government securities 599,188
Prepaid expenses 66,380
----------
Total current assets 3,225,726
PROPERTY AND EQUIPMENT - Net 358,288
U.S. GOVERNMENT SECURITIES 998,521
OTHER ASSETS 9,832
----------
TOTAL $4,592,367
==========
LIABILITIES AND STOCKHOLDER's EQUITY
CURRENT LIABILITIES:
Accrued expenses and other liabilities $ 37l,455
Customer deposits 800,446
Federal income taxes payable to parent 267,396
State and local income taxes payable to parent 96,766
----------
Total current liabilities $1,538,063
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER's EQUITY:
Capital stock, $100 par value - authorized and outstanding,
5,000 shares (no change during year) 500,000
Additional paid-in capital 1,000,000
Retained earnings 1,554,304
Total stockholder's equity 3,054,304
----------
TOTAL $4,592,367
==========
</TABLE>
