<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission File Number 1-3410
AMERICAN BANKNOTE CORPORATION
(Exact name of Registrant as specified in its charter)
A Delaware I.R.S. Employer
Corporation No. 13-0460520
200 Park Avenue, New York, New York 10166-4999
Telephone - Area Code 212-557-9100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing for
the past 90 days. Yes X No
At August 5, 1997 - 20,279,848 shares of common stock were
outstanding.
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AMERICAN BANKNOTE CORPORATION
FORM 10-Q
I N D E X
PAGE
NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 . . . . . . . . . 3
Unaudited Condensed Consolidated Statements of Operations
For the Six and Three Months Ended June 30, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . . 4
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1997 and 1996 . . . 5
Unaudited Condensed Consolidated Statement of Stockholders'
Equity For the Six Months Ended June 30, 1997 . . . . 6
Notes to Unaudited Condensed Consolidated
Financial Statements. . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 17
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PART I - Financial Information
ITEM 1. Financial Statements
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share data)
June December
30, 1997 31, 1996
ASSETS (Unaudited)
Current assets
Cash and cash equivalents . . . . . . . . . . $ 9,886 $ 14,256
Marketable securities - at market,
(cost $826 and $1,746). . . . . . . . . . . 993 2,133
Accounts receivable, net of allowance for
doubtful accounts of $945 and $981. . . . . 39,530 47,501
Inventories . . . . . . . . . . . . . . . . . 38,199 35,622
Deferred income taxes . . . . . . . . . . . . 4,756 4,261
Prepaid expenses and other. . . . . . . . . . 13,105 9,362
Total current assets . . . . . . . . . . 106,469 113,135
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization of $104,170 and $96,385 . . . . 249,109 253,987
Other assets . . . . . . . . . . . . . . . . . 27,603 27,974
Excess of cost of investment in subsidiaries
over net assets acquired, net of accumulated
amortization of $7,288 and $5,662 . . . . . . 88,156 85,282
$471,337 $480,378
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving credit. . . . . . . . . . . . . . . $ 5,049 $ 3,103
Current portion of long-term debt . . . . . . 16,621 14,450
Accounts payable and accrued expenses . . . . 55,550 60,049
Total current liabilities. . . . . . . . 77,220 77,602
Long-term debt . . . . . . . . . . . . . . . . 255,611 263,548
Other liabilities. . . . . . . . . . . . . . . 26,493 24,706
Deferred income taxes . . . . . . . . . . . . 43,345 47,456
Minority interest. . . . . . . . . . . . . . . 20,451 20,789
423,120 434,101
Commitments and Contingencies
Stockholders' equity
Preferred Stock, authorized 5,000,000 shares,
no shares issued or outstanding . . . . . .
Common Stock, par value $.01 per share,
authorized 50,000,000 shares; issued
20,279,848 shares and 20,137,880 shares . . 203 202
Capital surplus . . . . . . . . . . . . . . . 69,298 68,609
Retained-earnings (deficit) . . . . . . . . . (19,106) (21,362)
Treasury stock, at cost (281,000 shares) . . (1,253) (1,253)
Cumulative currency translation adjustment . (925) 81
Total stockholders' equity . . . . . . . 48,217 46,277
$471,337 $480,378
See notes to condensed consolidated financial statements.
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AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(Amounts in thousands, except per share data)
Six Months Ended Three Months Ended
June 30 June 30
1997 1996 1997 1996
Sales. . . . . . . . . . . . . . . . $160,264 $130,681 $79,168 $70,764
Costs and expenses:
Cost of goods sold. . . . . . . . . 107,828 88,570 52,457 46,566
Selling and administrative . . . . 22,919 19,228 10,994 10,148
Depreciation and amortization . . . 11,453 8,697 5,706 5,156
142,200 116,495 69.157 61,870
18,064 14,186 10,011 8,894
Other (expense) income:
Interest expense. . . . . . . . . . (15,902) (12,641) (8,130) (6,573)
Foreign translation losses, net . . (107) (136) (26) (82)
Other, net. . . . . . . . . . . . . 1,659 380 1,061 569
(14,350) (12,397) (7,095) (6,086)
Income before taxes on income
and minority interest . . . . . . . 3,714 1,789 2,916 2,808
Taxes on income (benefit). . . . . . (436) (501) (269) 364
Income before minority interest . . 4,150 2,290 3,185 2,444
Minority interest. . . . . . . . . . 1,894 1,727 1,046 1,079
Net Income . . . . . . . . . . . . $ 2,256 $ 563 $ 2,139 $ 1,365
Weighted average number of common
and common equivalent shares
outstanding . . . . . . . . . . . . 21,050 20,000 21,130 20,210
Net income per share. . . . . . . . $ .11 $ .03 $ .10 $ .07
See notes to condensed consolidated financial statements.
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AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(Dollars in thousands)
Six Months Ended
June 30
1997 1996
Operating Activities:
Net cash from operations, after adjustments
to reconcile income to net cash provided by
operating activities. . . . . . . . . . . $12,738 $ 9,693
Marketable securities . . . . . . . . . . 1,175 (650)
Accounts receivables. . . . . . . . . . . 7,333 (10,834)
Inventories . . . . . . . . . . . . . . . (3,140) 1,426
Prepaid and other assets. . . . . . . . . (3,666) (535)
Accounts payable and accrued expenses . . (8,667) (3,809)
Other . . . . . . . . . . . . . . . . . . (1,336) (3,136)
Net cash provided by (used in)
operating activities . . . . . . . . . . 4,437 (7,845)
Investing Activities:
Acquisitions . . . . . . . . . . . . . . . (2,520) 1,789
Capital expenditures . . . . . . . . . . . (4,117) (10,964)
Net cash used in investing activities. . . (6,637) (9,175)
Financing Activities:
Borrowings . . . . . . . . . . . . . . . . 6,191 7,349
Revolving credit borrowings. . . . . . . . 1,946 1,920
Dividend to minority shareholder . . . . . (2,533) (685)
Payment of long-term debt. . . . . . . . . (7,854) -
Net cash provided by or (used in)
financing activities . . . . . . . . . . (2,250) 8,584
Effect of foreign currency exchange rate
changes on cash and cash equivalents . . . 80 (67)
Decrease in cash and cash equivalents. . . . (4,370) (8,503)
Cash and cash equivalents
beginning of period . . . . . . . . . . . 14,256 23,525
Cash and cash equivalents
end of period . . . . . . . . . . . . . . $ 9,886 $15,022
Supplemental cash payments:
Taxes. . . . . . . . . . . . . . . . . . . $ 3,400 $ 4,300
Interest . . . . . . . . . . . . . . . . . $14,200 $11,200
See notes to condensed consolidated financial statements.
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AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - UNAUDITED
SIX MONTHS ENDED JUNE 30, 1997
(Amounts in thousands)
[CAPTION]
<TABLE>
Cumulative
Retained Currency
Common Stock Capital Earnings Treasury Transl. Total
Shares Amount Surplus (Deficit) Stock Adjust. Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
January 1, 1997 20,138 $202 $68,609 $(21,362) $(1,253) $ 81 $46,277
Issuances in
connection
with option and
compensation
plans 141 1 689 690
Foreign
currency
translation
adjustment
for period (1,006) (1,006)
Net income 2,256 2,256
Balance -
June 30, 1997 20,279 $203 $69,298 $(19,106) $(1,253) $ (925) $48,217
</TABLE>
See notes to condensed consolidated financial statements.
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AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
do not contain all disclosures required by generally accepted
accounting principles. Reference should be made to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. The
accompanying unaudited condensed consolidated financial statements
reflect all adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair
statement of the results of the interim periods presented and are not
necessarily indicative of the results which may be expected for a full
fiscal year.
Primary and fully-diluted income per share are the same.
Note B - Inventories
June December
30, 1997 31, 1996
(in thousands)
Finished goods. . . . . . . . . . . . . $ 5,139 $ 6,288
Work in process . . . . . . . . . . . . 17,319 14,905
Raw materials and supplies. . . . . . . 15,741 14,429
$38,199 $35,622
Note C - Commitments and Contingencies
The Company is involved in various litigation, reference is made to
"Part II - Other Information, Item 1. Legal Proceedings"
In June 1997, the Company entered into agreements to acquire, through
an unrestricted subsidiary, several small printing companies for
shares of the Company's Common Stock and cash for an aggregate
purchase price of approximately $11 million. The cash portion of the
acquisition is expected to be financed by non-recourse borrowings.
The Company and its subsidiaries are parties to various additional
lawsuits (as both plaintiff and defendant) related to various matters
in the normal course of business, which in the opinion of management,
are not anticipated to have a material adverse impact on its
consolidated financial position or results of operation.
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AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note D - Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings
per Share", was issued in February 1997 and is effective for interim
and annual periods ending after December 15, 1997. SFAS No. 128,
establishes standards for comparing and presenting earnings per share
and will require the restatement of all prior-period earnings-per-share data.
The implementation of SFAS No. 128 will not have a
material impact on the Company's earnings per share. SFAS No. 129,
"Disclosure of Information about Capital Structure", was issued in
February 1997 and is effective for periods ending after December 15,
1997. This statement establishes standards for disclosing information
about an entity's capital structure by superseding and consolidating
previously issued accounting standards. The financial statements of
the Company are prepared in accordance with the requirements of SFAS
No. 129
Note E - Subsequent Events
On July 24, 1997, the Company sold in a private placement $5 million
principal amount of a Zero Coupon Subordinated Convertible Debenture,
due August 2, 2002 (the "Security") plus warrants, the proceeds of
which may be used in connection with operating expenses, general
corporate purposes and acquisitions. At maturity, the outstanding
Security is automatically converted into Common Stock resulting in the
Security being treated as a component of stockholders' equity, which
will increase from approximately $48 million to $53 million. Interest
will accrete at 6% per annum on the Security.
Holders may convert the Security, from time to time, at 100% of the
average of the two consecutive trading days' closing prices yielding
the lowest average price during 25 trading days prior to conversion or
$6.00, whichever is lower, except during the 25 days following
issuance when the conversion price is $4.5625 (the closing price on
the date of issuance). The Security may be redeemed in cash at the
election of the Company in lieu of issuing shares of Common Stock if
the closing price is below $3.50 per share and, beginning 90 days
after the effectiveness of registration of the Common Stock, at any
time the closing price during 10 consecutive days is greater than
$6.50 per share. Redemption prices vary depending on the type of
redemption transaction from the closing price on the date of
conversion (or an average of 5 days prices) multiplied by the number
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AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note E - Subsequent Events - Continued
of shares that would have been issued upon conversion to 110% of the
principal amount called for redemption. No more than 20% of the
Security may be converted during the first 90-day period and each
successive 60-day period until the 210th day, and 20% each 90 days
thereafter following closing unless the closing price exceeds $6.50 or
is greater than 115% of the prior day's closing price, whereupon full
conversion is permitted on that day.
In connection with the Security, the Company issued 140,000 two-year
warrants exercisable at $5.70 (125% above the closing price on the
date of issuance), and 75,000 three-year warrants at $6.4125, (140%
above the closing price on the date of issuance) and the value of the
warrants will be accreted over the 5-year term of the Security. If the
Company redeems the Security, additional warrants for 21 shares for
each $1,000 redeemed are issuable with an exercise price equal to the
closing price. The Security is subordinated to all existing or future
bank, institutional, financial transaction or acquisition
indebtedness.
The Company has agreed to seek registration for re-sale of the Common
Stock into which the Security is convertible within 120 days of
closing.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
On June 3, 1996, the Company acquired a 55% equity interest in ABN
Australasia Limited ("ABAL"), and as of October 1, 1996, acquired the
remaining 45% equity interest. The acquisition of ABAL, also known as
Leigh-Mardon, was accounted for as a purchase transaction and its
operations have been included in the consolidated operations since the
acquisition dates. The acquisition had a significant impact on the
operations of the Company beginning in the third quarter of 1996.
COMPARISON OF RESULTS OF THE SIX MONTHS ENDED JUNE 30, 1997
WITH THE SIX MONTHS ENDED JUNE 30, 1996
The Company operates in a single industry, secured products and
systems, with three principal product lines. The following table
presents these product lines for the six-month periods ended
June 30:
1997 1996
(in millions)
$ % $ %
Transaction Cards & Systems . . . . 55.5 34.6 48.4 37.0
Printing Services
& Document Management . . . . . . 26.7 16.7 25.5 19.5
Security Printing Solutions . . . . 78.1 48.7 56.8 43.5
160.3 100.0 130.7 100.0
Sales increased by $29.6 million or 22.6% from 1996. Sales of
Transaction Cards & Systems increased $7.1 million or 14.7%, sales of
Printing Services & Document Management increased $1.2 million or
4.7%, and sales of Security Printing Solutions increased $21.3 million
or 37.5%. The increase in sales is principally due to the inclusion
of ABAL's sales in 1997. Sales by foreign subsidiaries represented
71.8% of consolidated sales in 1997 as compared to 65.6% in 1996,
primarily due to the ABAL acquisition discussed above.
Cost of goods sold increased $19.3 million or 21.7%, principally due
to the inclusion of ABAL's cost of sales in 1997. However, as a
percentage of sales, cost of goods sold declined to 67.3% in 1997 from
67.8% in 1996. This decrease is primarily attributable to product
mix. The product mix in any given period is not indicative of the
expected product mix in future periods.
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COMPARISON OF RESULTS OF THE SIX MONTHS ENDED JUNE 30, 1997
WITH THE SIX MONTHS ENDED JUNE 30, 1996 - Continued
Selling and administrative expenses increased $3.7 million (19.2%)
from 1996, principally due to the ABAL acquisition. As a percentage
of sales, selling and administrative expenses were 14.3% in 1997 as
compared to 14.7% in 1996.
Depreciation expense increased $2.8 million, due to the ABAL
acquisition and the expansion of manufacturing capacity.
Interest expense increased $3.3 million in 1997, primarily due to
non-recourse debt incurred in Australia to acquire ABAL and debt in
Brazil to fund increased manufacturing capacity.
Foreign translation losses, net, are a result of the translation of
Brazilian local currency financial statements into US dollars.
Other income, net, increased $1.3 million, due to increased interest
income and a decrease in other expenses.
The cumulative tax provision is calculated using an estimated annual
effective income tax rate at the end of each reporting period. The
rate is reviewed and adjusted periodically to reflect changes in
estimates by tax jurisdictions in regulations, rates, deductibility of
expenses, utilization of tax credits, potential tax exposures, and
state and local taxes. Reductions in liabilities for taxes no longer
required considerably impacted the estimated annual effective income
tax rate.
Minority interest is principally the 22.5% minority interest in
ABN-Brazil.
COMPARISON OF RESULTS OF THE THREE MONTHS ENDED JUNE 30, 1997
WITH THE THREE MONTHS ENDED JUNE 30, 1996
The following table presents the three product lines for the three-
month periods ended June 30:
1997 1996
(in millions)
$ % $ %
Transaction Cards & Systems . . . . 28.9 36.5 28.4 40.1
Printing Services
& Document Management . . . . . . 11.5 14.5 12.5 17.7
Security Printing Solutions . . . . 38.8 49.0 29.9 42.2
79.2 100.0 70.8 100.0
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COMPARISON OF RESULTS OF THE THREE MONTHS ENDED JUNE 30, 1997
WITH THE THREE MONTHS ENDED JUNE 30, 1996 - Continued
Sales increased by $8.4 million or 11.9% from 1996. The overall
increase is mainly due to the inclusion of ABAL's sales in 1997. The
modest increase in Transaction Cards & Systems sales reflects the
decreased deliveries of stored-value telephone cards in Brazil from
the prior period.
Cost of goods sold increased $5.9 million or 12.7%, principally due to
the inclusion of ABAL's cost of sales in 1997. As a percentage of
sales, cost of goods sold increased to 66.3% in 1997 from 65.8% in
1996. This increase is primarily attributable to higher fixed costs
incurred in Brazil for future manufacturing capacity offset in part by
product mix. The product mix in any given period is not indicative of
the expected product mix in future periods.
Selling and administrative expenses increased $0.8 million (8.3%) from
1996, principally due to the ABAL acquisition. As a percentage of
sales, selling and administrative expenses were 13.9% in 1997 as
compared to 14.3% in 1996.
Depreciation expense increased $0.6 million, due to the ABAL
acquisition and the expansion of manufacturing capacity.
Interest expense increased $1.6 million in 1997, primarily due to
non-recourse debt incurred in Australia to acquire ABAL and debt in
Brazil to fund increased manufacturing capacity.
Foreign translation losses, net, are a result of the translation of
Brazilian local currency financial statements into US dollars.
Other income, net, increased $0.5 million, due to increased interest
income and a decrease in other expenses.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flows increased $3.0 million for the six months of 1997
as compared to the same period in 1996 (before changes in operating
assets and liabilities) primarily as a result of increased earnings
and higher depreciation and amortization. The increase in certain
non-cash charges, such as depreciation and amortization, is due mainly
to the ABAL acquisition and increased capital expenditures.
There is a $9.2 million increase in operating cash flows from changes
in operating assets and liabilities from the prior period. However,
the unfavorable changes in operating assets and liabilities in 1996
included approximately $9.0 million as a result of the ABAL
acquisition. Other changes are principally due to the timing of
accounts receivable collections and payments of accounts payable and
accrued expenses.
Investing activities for 1997 included $2.5 million for an acquisition
in Brazil of a leading supplier of personalized financial transaction
cards. The acquisition did not have a significant effect on the
Company's results of operations for the second quarter. The higher
level of capital expenditures in 1996 reflected the expansion of
manufacturing capacity in Brazil.
Financing activities for the first six months of 1997 included
increased debt payments, reduced borrowings and an increased dividend
payment to ABN-Brazil's minority shareholder.
At June 30, 1997, the Company had approximately $10.9 million in cash
and cash equivalents and marketable securities and approximately $12.1
million of availability under its Credit Agreement before reductions
for $0.4 million of outstanding letters of credit and $5.0 million of
borrowings. In addition, ABAL had approximately $3.3 million available
under a line of credit. The Company's long-term debt included $126.5
million of 10 3/8% Senior Notes outstanding, $65.0 million of 11 5/8%
Senior Notes outstanding, $60.6 million of non-recourse debt at ABAL,
$11.2 million of borrowings in Brazil and $9.8 million of other debt.
<PAGE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES - continued
The Company's Brazilian subsidiary received an extension of its
current stored-value telephone card contract to November 1997. During
the extension period, a proposal will be submitted for a two-year
supply contract beginning December 1, 1997.
Management of the Company believes that cash flows from operations
together with cash balances and availability of funds under its and
its subsidiaries credit facilities and asset sales will be sufficient
to service debt and fund capital expenditures for the foreseeable
future. The Company also believes that it and its subsidiaries
possess sufficient unused debt capacity and access to debt and equity
markets to pursue additional acquisition opportunities and meet
extraordinary working capital needs as they arise. See Note E of Notes
to Condensed Consolidated Financial Statements.
Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 "Liquidity and Capital Resources."
IMPACT OF INFLATION
Reference is made to the Company's Form 10-K for the year ended
December 31, 1996 "Impact of Inflation."
Currently, as a result of hyper-inflation in Brazil in prior years,
gains and losses for ABN-Brazil resulting from foreign currency
translation and transactions are determined using a combination of
current and historical rates. The inflation rates in Brazil have
declined substantially in recent years. As a result, the method of
translating ABN-Brazil's financial statements may be changed to the
method used to translate ABAL's financial statements. ABAL's results
of operations are translated into US dollars using average exchange
rates during the period, while assets and liabilities are translated
using current rates. Resulting translation adjustments are
accumulated as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are included in earnings. The
change in the method of translating ABN-Brazil's balance sheet is not
anticipated to have a material impact on the consolidated balance
sheet.
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q and in certain documents
incorporated by reference herein constitute "forward-looking"
statements within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Such "forward-looking"
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be materially
different from any future results, performance, or achievements
expressed or implied by such "forward-looking" statements. Such
factors are more fully described in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 which should be
considered in connection with a review of this report.
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<PAGE> 16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has reached a settlement in Vladimir v. United States
Banknote Corporation, et al., the class action pending in the
United States District Court for the Southern District of New York,
pursuant to a Stipulation of Class Action Settlement executed on
June 17, 1997. On July 2, 1997, the Court approved a preliminary
order providing for mailing of notice and proof of claims to class
members and scheduling a hearing on September 26, 1997 to consider the
fairness, reasonableness and adequacy of the proposed settlement.
Pursuant to the settlement terms, insurers for the Company have
deposited into escrow $3.7 million towards the $4.2 million settlement
amount. The settlement terms provide that the Company shall deposit
into escrow by December 1, 1997 an additional $500,000, plus interest
from July 1, 1997, or $800,000 thereafter.
Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As a result of a vote of stockholders at the Annual Meeting of
Stockholders held on June 11, 1997, it was resolved that:
1. The Directors nominated for election were elected with the
votes cast as follows:
Nominee Votes In Favor Votes Withheld
Bette B. Anderson 16,274,071 706,295
Dr. Oscar Arias S. 16,274,473 705,893
C. Gerald Goldsmith 16,274,399 705,967
Ira J. Hechler 16,275,122 705,244
David S. Rowe-Beddoe 16,274,473 705,893
Alfred Teo 16,275,273 705,093
Morris Weissman 16,272,856 707,510
2. The proposal to approve the appointment of Deloitte & Touche
LLP as independent auditors for the fiscal year ending December 31,
1997 was approved by a vote of 16,885,847 in favor, 27,847 against and
66,052 abstained.
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<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number
2.1 Zero Coupon Convertible Subordinated Debenture dated
July 24, 1997 in the principal amount of $5 million **
4.1 Amendment to Credit Agreement dated as of July 1, 1997 among
American Bank Note Company and American Bank Note Holographics,
Inc., the Company and The Chase Manhattan Bank as Agent and
Lender. **
27 Article 5 Financial Data Schedule **
** Filed electronically herewith
(b) Report on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN BANKNOTE CORPORATION
By: s/ John T. Gorman
John T. Gorman
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
Date: August 14, 1997<PAGE>
<PAGE> 18
Exhibit Index
List of Exhibits Pursuant to Item 601 of Regulation S-K:
Exhibit
2.1 Zero Coupon Convertible Subordinated Debenture dated
July 24, 1997 in the principal amount of $5 million **
4.1 Amendment to Credit Agreement dated as of July 1, 1997 among
American Bank Note Company and American Bank Note Holographics,
Inc., the Company and The Chase Manhattan Bank as Agent and
Lender
27 Article 5 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the body of the accompanying Form 10-Q
and is qualified in its entireity by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9886
<SECURITIES> 993
<RECEIVABLES> 40475
<ALLOWANCES> 945
<INVENTORY> 37199
<CURRENT-ASSETS> 106469
<PP&E> 353279
<DEPRECIATION> 104170
<TOTAL-ASSETS> 471337
<CURRENT-LIABILITIES> 77220
<BONDS> 255611
0
0
<COMMON> 203
<OTHER-SE> 48014
<TOTAL-LIABILITY-AND-EQUITY> 471337
<SALES> 1602364
<TOTAL-REVENUES> 160264
<CGS> 107828
<TOTAL-COSTS> 142200
<OTHER-EXPENSES> (1552)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15902
<INCOME-PRETAX> 3714
<INCOME-TAX> (436)
<INCOME-CONTINUING> 2256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2256
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
<PAGE> 1 Exhibit 4.1 AMENDMENT TO CREDIT AGREEMENT DATED
AS OF JULY 1, 1997 AMONG AMERICAN BANK NOTE COMPANY AND
AMERICAN BANK NOTE HOLOGRAPHICS, INC.,THE COMPANY AND THE CHASE
MANHATTAN BANK, AS AGENT AND LENDER
AMENDMENT TO CREDIT AGREEMENT
AMENDMENT TO CREDIT AGREEMENT dated as of July 1, 1997
(this "Amendment"), among American Bank Note Company, a New York
corporation ("ABN"), American Bank Note Holographics, Inc., a
Delaware corporation (together with ABN, the "Borrowers"),
American Banknote Corporation, a Delaware corporation ("ABNC"),
the Guarantors (the "Guarantors") named in the Credit Agreement
(as hereinafter defined), the lenders (the "Lenders") named in
Schedule 2.01 to the Credit Agreement and The Chase Manhattan
Bank (formerly known as Chemical Bank), a New York banking
corporation, as agent (in such capacity, the "Agent") for the
Lenders.
WHEREAS, the Borrowers, ABNC, the Guarantors, the
Lenders and the Agent are party to the Credit Agreement dated as
of January 29, 1996 (as amended, modified or supplemented from
time to time in accordance with its terms, the "Credit
Agreement");
WHEREAS, the Borrowers have requested that the Required
Lenders amend certain provisions of the Credit Agreement.
NOW, THEREFORE, for good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. Unless otherwise specifically
defined herein, all capitalized terms used herein shall have the
respective meanings ascribed to such terms in the Credit
Agreement.
2. Amendment to Credit Agreement. Subject to the
conditions as to effectiveness set forth in Paragraph 4 of this
Amendment, the Credit Agreement is hereby amended as follows:
Section 10.01(a) of the Credit Agreement is hereby
amended by deleting the phrase "(i) Total Availability shall be
less than $2,500,000" wherever it appears therein and
substituting therefor the phrase "(i) Total Availability shall be
less than (x) $1 for the period July 1, 1997 through January 31,
1998 and (y) $2,500,000 thereafter."
3. Representations and Warranties. Each of the
Borrowers hereby jointly and severally represents and warrants as
of the date hereof as follows (which representations and
warranties shall survive the execution and delivery of this
Amendment):
<PAGE>
<PAGE> 2
( a) All representations and warranties
contained in the Credit Agreement and each of the other Loan
Documents are true and correct as of the date hereof with the
same force and effect as if made on such date (except to the
extent that any such representation or warranty relates expressly
to an earlier date).
( b) Each of the Loan Parties has the power to
execute, deliver and carry out the terms and provisions of this
Amendment.
( c) This Amendment has been duly executed and
delivered and constitutes the legal, valid and binding obligation
of each Loan Party, and is enforceable in accordance with its
terms.
( d) No event has occurred and is continuing
which constitutes or would constitute, with the giving of notice
or the lapse of time or both, a Default or an Event of Default
under the Credit Agreement.
4. Conditions Precedent. Notwithstanding any term
or provision of this Amendment to the contrary, Paragraph 2
hereof shall not become effective until the Agent shall have
determined that each of the following conditions precedent shall
have been satisfied:
( a) All required corporate actions in
connection with the execution and delivery of this Amendment
shall have been taken, and each shall be satisfactory in form and
substance to the Agent, and the Agent shall have received all
information and copies of all documents, including, without
limitation, records of requisite corporate action that the Agent
may reasonably request, to be certified by the appropriate
corporate person or government authorities.
( b) All fees, costs and expenses of the
Agent in connection with this Amendment, including, without
limitation, an amendment fee of $2,500 and reasonable fees, costs
and expenses of counsel to the Agent, shall have been paid in
full to the persons entitled thereto in immediately available
funds.
( c) All representations and warranties
made by the Borrowers contained in Paragraph 3 hereof shall be
true and correct with the same effect as though such
representations and warranties had been made on the date of
effectiveness of the amendment contained in this Amendment after
giving effect to such amendment (unless any such representation
or warranty speaks expressly to an earlier date).
( d) Counterparts of this Amendment shall
have been duly executed and delivered on behalf of the Borrowers,
ABNC, the Guarantors, the Required Lenders and the Agent.
<PAGE>
<PAGE> 3
5. References to Credit Agreements. The term
"Agreement", "hereof", "herein" and similar terms as used in the
Credit Agreement, and references in the other Loan Documents to
the Credit Agreement, shall mean and refer to, from and after the
effective date of the amendment contained herein as determined in
accordance with Paragraph 4 hereof, the Credit Agreement as
amended by this Amendment.
6. Continued Effectiveness. Nothing herein shall
be deemed to be a waiver of any covenant or agreement contained
in, or any Default or Event of Default under, the Credit
Agreement, and each of the parties hereto agrees that, as amended
by this Amendment, all of the covenants and agreements and other
provisions contained in the Credit Agreement and the other Loan
Documents are hereby ratified and confirmed in all respects and
shall remain in full force and effect from and after the date of
this Amendment.
7. Counterparts. This Amendment may be executed in
two or more counterparts, each of which shall be an original, and
all of which, taken together, shall constitute a single
instrument. Delivery of an executed counterpart of a signature
page to this Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Amendment.
8. Governing Law. This Amendment shall be
construed in accordance with and governed by the laws of the
State of New York (other than the conflicts of laws principles
thereof).
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above
written.
AMERICAN BANK NOTE COMPANY, as
a Borrower and Guarantor
By:
Name:
Title:
AMERICAN BANK NOTE HOLOGRAPHICS, INC., as
a Borrower
and
Guarantor
By:
Name:
Title:
<PAGE>
<PAGE> 4
AMERICAN BANKNOTE CORPORATION
By:
Name:
Title:
UNITED STATES BANKNOTE COMPANY L.P.,
as a Guarantor
By: AMERICAN BANK NOTE
COMPANY, its general partner
By:
Name:
Title:
HORSHAM HOLDING COMPANY, INC., AS
a Guarantor
By:
Name:
Title:
ABN SECURITY SYSTEMS, INC., as a
Guarantor
By:
Name:
Title:
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as Agent
and a Lender
By:
Name:
Title:
<PAGE> 1
EXHIBIT 2.1 ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURE
DATED JULY 24, 1997 IN THE PRINCIPAL AMOUNT OF $5 MILLION
EXHIBIT A to
Securities Purchase
Agreement
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
1933 ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE BORROWER THAT REGISTRATION IS NOT
REQUIRED UNDER THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE 1933 ACT.
ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURE
New York, New York
July 24, 1997 $5,000,000.00
THIS DEBENTURE (this "Debenture") is one of a duly
authorized issue of subordinated debentures of AMERICAN BANKNOTE
CORPORATION, a corporation duly organized and existing under the
laws of the State of Delaware (the "Borrower"), designated as its
Zero Coupon Convertible Subordinated Debentures Due August 2,
2002, in an aggregate principal amount of Five Million Dollars
($5,000,000.00) (the "Debentures").
FOR VALUE RECEIVED, the Borrower promises to pay to
the holder hereof, or its order (the "Holder"), the principal sum
of Six Million, Seven Hundred Sixty Thousand, Two Hundred Thirty
Dollars and Thirty Cents ($6,760,230.30) (the "Maturity Date
Principal Balance") on August 2, 2002 (the "Maturity Date").
This Debenture has been issued at a purchase price of
$5,000,000 ("Purchase Price"). The Debenture shall be deemed to
accrete principal between the date hereof (the "Issue Date") and
the Maturity Date in accordance with the following formula:
P2 = P1 x [1 + (r/365)]n
Where:
"P1" is the principal amount of this Debenture at
the opening of the accretion period (i.e., the
Purchase Price). P1 may be reduced by conversions
or partial payments of this Debenture in accordance
with Article I below.
<PAGE> 2
"P2" is the principal amount of this Debenture as
increased for accretion at any close of the
accretion period (i.e., the Maturity Date Principal
Balance on the Maturity Date).
"r" shall initially be .06, but is subject to
increase in accordance with the terms of this
Debenture and the Registration Rights Agreement
(as hereinafter defined).
"n" is the number of days in the accretion period.
The accreted amount of any conversions or redemptions
will be calculated with respect to each converted or
redeemed amount separately from any prior
converted or redeemed amount (and P1 will be
adjusted accordingly for any subsequent conversions
or redemptions and further accretion).
The principal balance of this Debenture as accreted
from time to time shall be referred to as the
"Accreted Principal Balance". For example, based
upon a Purchase Price of $5,000,000, after 100 days
the Accreted Principal Balance would be $5,082,864
(assuming no prior conversions or redemptions of the
Debenture).
To the extent not converted into Common Stock,
amounts due under this Debenture are payable in such coin or
currency of the United States of America as of the time of
payment is legal tender for payment of public and private debts,
at the address last appearing on the debenture register of the
Borrower as designated in writing by the Holder hereof from time
to time. If the payments set forth in Section 2(c) of the
Registration Rights Agreement of even date herewith among the
Holder, the other holders of the Debentures and the Borrower (the
"Registration Rights Agreement") are not paid when due, the
Holder may elect to add such cash default payment amounts, in
whole or in part, to the Accreted Principal Balance. Any cash
default payments when so added to the Accreted Principal Balance
due under this Debenture shall, for purposes of this Debenture,
be deemed to have been part of the principal indebtedness
evidenced by this Debenture including, without limitation, for
purposes of determining accretions to principal thereafter and
amounts thereafter convertible into Common Stock hereunder. For
purposes of determining the amount payable at the Maturity Date
or on redemption of this Debenture, and for purposes of
<PAGE>
<PAGE> 3
determining the number of shares issuable on conversion of this
Debenture, the Accreted Principal Balance shall accrete, from and
after the occurrence and during the continuance of a Redemption
Event hereunder (as set forth in Article III), at the rate (i.e.,
"r" in the formula above) equal to the lower of (i) Chase
Manhattan Bank's base lending rate plus two percent (2%) per
annum (but not less than the then applicable "r") or (ii) the
highest rate permitted by law. The Holder has certain additional
rights, remedies and benefits as set forth in the Registration
Rights Agreement and in the Securities Purchase Agreement dated
as of the date hereof among the Holder, the other holders of the
Debentures and the Borrower (the "Purchase Agreement").
As used in this Debenture, the term "business day"
shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are
authorized or required by law or executive order to remain
closed. Each capitalized term used herein, and not otherwise
defined, shall have the meaning ascribed thereto in the Purchase
Agreement. The Maturity Date is subject to extension pursuant to
Section 1.4(a) below.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right.
(a) Subject to the conversion schedule set
forth in Section 1.1(b) and to the terms of Sections 1.1(d) and
1.7 below, the Holder shall have the right from time to time, and
at any time on or prior to the day that all of the Accreted
Principal Balance and other amounts payable hereunder are paid in
full, to convert at any time all or from time to time any part of
the outstanding and unpaid Accreted Principal Balance of this
Debenture of at least $25,000, or such lesser amount as shall
remain unpaid at the time of the conversion into fully paid and
non-assessable shares of Common Stock, as such Common Stock
exists on the date of issuance of this Debenture, or any shares
of capital stock of the Borrower into which such Common Stock
shall hereafter be changed or reclassified (the "Common Stock")
<PAGE>
<PAGE> 4
at the conversion price determined as provided herein (the
"Conversion Price"); provided, however, that unless the Holder
delivers a waiver in accordance with the immediately following
sentence, in no event (other than in connection with an Automatic
Conversion (as hereinafter defined) on the Maturity Date) shall
the Holder be entitled to convert any portion of this Debenture
in excess of that portion of this Debenture upon conversion of
which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of this
Debenture) and (2) the number of shares of Common Stock issuable
upon the conversion of the portion of this Debenture with respect
to which the determination of this proviso is being made, would
result in beneficial ownership by the Holder and its affiliates
of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the proviso in the immediately preceding sentence,
(i) beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended,
and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such proviso and (ii) the Holder may waive the
limitations set forth therein by written notice to the Borrower
upon not less than sixty-one (61) days prior notice (with such
waiver taking effect only upon the expiration of such 61-day
notice period).
(b) The Holder may convert only up to that
percentage of the Accreted Principal Balance specified below
during the time period set forth opposite such percentage.
Percentage Time Period
20% 1-90 days following Issue Date
40% 91-150 days following Issue Date
60% 151-210 days following Issue Date
80% 211-300 days following Issue Date
100% 301 days following Issue Date
; provided, however, that there shall be excluded from any
calculation of the foregoing percentage any conversion(s)
occurring on a Conversion Date on which the Closing Price (as
hereinafter defined) of the Common Stock (i) exceeds $6.50 or
(ii) is greater than 115% of the Closing Price of the Common
Stock on the immediately preceding Trading Day.
<PAGE>
<PAGE> 5
(c) The number of shares of Common Stock to be
issued upon each conversion of this Debenture shall be determined
by dividing the Conversion Amount (as hereinafter defined) by the
Conversion Price in effect on the date a notice of conversion, in
the form attached hereto as Exhibit A (the "Notice of
Conversion"), is delivered to the Borrower by the Holder in
accordance with Section 1.4 below (the "Conversion Date"). The
term "Conversion Amount" means, with respect to any conversion of
this Debenture, the sum of (1) the Accreted Principal Balance of
this Debenture to be converted on such Conversion Date plus (2)
at the Holder's option, any amounts owed to the Holder pursuant
to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement.
(d) In the event that the Closing Price of the
Common Stock is below $3.50 per share on the Conversion Date, the
Borrower shall have the right, in lieu of issuing shares of
Common Stock to the Holder, to redeem the portion of this
Debenture submitted for conversion for an amount equal to the
number of shares that would have otherwise been issued upon
conversion of the Debenture, multiplied by the Redemption Market
Price (as hereinafter defined). "Redemption Market Price" shall
be equal to the Closing Price of the Common Stock on the
Conversion Date. From time to time following the Issue Date, the
Holder may request advance notice as to whether the Borrower will
issue shares of Common Stock or redeem the portion of this
Debenture submitted for conversion pursuant to this Section
1.1(d). Such request shall be made in writing and the Borrower
shall respond in writing within three (3) business days of
receipt of the request. The Borrower will be bound by such
response for a period of twenty (20) days from the date of its
response. A failure to respond within three (3) business days
shall be deemed to be an election to issue Common Stock on
conversion. Notwithstanding the foregoing, if the Borrower is
bound to issue Common Stock in lieu of a redemption pursuant
to this Section 1.1(d), it may by written notice to the Holder by
9:00 a.m. on the Trading Day immediately following the Conversion
Date elect to redeem the shares issuable upon conversion at the
Post-Conversion Redemption Price (as hereinafter defined). The
"Post-Conversion Redemption Price" means the average Closing
Price of the Common Stock over the five consecutive (5) Trading
Days beginning on the Trading Day immediately following the
Conversion Date. Any redemption amounts payable hereunder shall
be paid to the Holder within five (5) Trading Days of the
Conversion Date. The "Closing Price" means, for any security as
of any date, the last sale price on the NYSE as reported by
<PAGE>
<PAGE> 6
Bloomberg Financial Markets ("Bloomberg") or an equivalent,
reliable reporting service mutually acceptable to and hereafter
designated by the Holders of a majority in interest of the
Debentures and the Borrower or, if the NYSE is not the principal
trading market for such security, the last sale price of such
security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last sale price of such
security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if
no last sale price is reported for such security by Bloomberg,
then the average of the bid and ask prices of all active market
makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Price of such security on such date shall be
the fair market value as mutually determined by the Borrower and
the Holders of a majority in interest of Debentures being
converted for which the calculation of the Closing Price is
required in order to determine the Conversion Price of such
Debentures. "Trading Day" shall mean any day on which the Common
Stock is traded for any period on the NYSE, or on the principal
securities exchange or other securities market on which the
Common Stock is then being traded.
1.2 Conversion Price. The Conversion Price
shall be the lesser of (i) the Market Price, where the Market
Price means the average of the daily Closing Prices of the Common
Stock on The New York Stock Exchange (the "NYSE"), or on the
principal securities exchange or other securities market on which
the Common Stock is then being traded, for the two (2)
consecutive Trading Days yielding the lowest average price during
the twenty-five (25) Trading Day period ending one (1) Trading
Day prior to the date the Conversion Notice is sent by the Holder
to the Borrower via facsimile or other reasonable means of
communication (the "Conversion Date"), and (ii) $6.00 (subject,
in each case, to equitable adjustments for stock splits, stock
dividends or rights offerings by the Borrower relating to the
Borrower's securities or relating to the securities of any
subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar
events). Notwithstanding the foregoing, no conversions shall be
permitted during the period beginning on the Issue Date and
ending twenty-five (25) Trading Days from the Issue Date at a
Conversion Price below the Closing Price on the Issue Date.
<PAGE>
<PAGE> 7
1.3 Authorized Shares. The Borrower covenants
that during the period the conversion right exists, the Borrower
will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common
Stock upon the full conversion of the Debentures. As of the date
of issuance of this Debenture, 1,500,000 authorized and unissued
shares of Common Stock have been duly reserved for issuance upon
conversion of this Debentures (the "Reserved Amount"). The
Borrower represents that upon issuance following conversion, such
shares will be duly and validly issued, fully paid and
non-assessable. The Borrower (i) acknowledges that it has
instructed its transfer agent to issue certificates for the
Common Stock issuable upon conversion of this Debenture upon the
procedures properly established for conversion and (ii) agrees
that its issuance of this Debenture shall constitute full
authority to its officers and agents who are charged with the
duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock in accordance
with the terms and conditions of this Debenture and the
Registration Rights Agreement.
If, at any time the Holder of this Debenture submits
a Notice of Conversion, the Borrower does not have sufficient
authorized but unissued shares of Common Stock available to
effect such conversion in accordance with the provisions of this
Article I (a "Conversion Default"), subject to Section 6.8, the
Borrower shall issue to the Holder all of the shares of Common
Stock which are then available to effect such conversion. The
portion of this Debenture which the Holder included in its
Conversion Notice and which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in
accordance with the terms hereof until (and at the Holder's
option at any time after) the date additional shares of Common
Stock are authorized by the Borrower, at which time the
Conversion Price in respect thereof shall be the lower of (i) the
Conversion Price on the Conversion Default Date (as hereinafter
defined) and (ii) the Conversion Price on the Conversion Date
thereafter elected by the Holder in respect thereof. The
Borrower shall pay to the Holder payments ("Conversion Default
Payments") for a Conversion Default in the amount of (N/365) x
.18 x the Excess Amount on the Conversion Date in respect of the
Conversion Default (the "Conversion Default Date"), where (i) N =
the number of days from the Conversion Default Date to the date
(the "Authorization Date") that the Borrower authorizes a
sufficient number of shares of Common Stock to effect conversion
of the full outstanding principal balance of this Debenture. The
Borrower shall use its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable following
the earlier of (i) such time that the Holder notifies the
<PAGE> 8
Borrower or that the Borrower otherwise becomes aware that there
are or likely will be insufficient authorized and unissued shares
to allow full conversion thereof and (ii) a Conversion Default.
The Borrower shall send notice to the Holder of the authorization
of additional shares of Common Stock, the Authorization Date and
the amount of the Holder's accrued Conversion Default Payments.
The accrued Conversion Default Payments for each calendar month
shall be paid in cash or shall be convertible into Common Stock
(at such time as there are sufficient authorized shares of Common
Stock) at the Market Price, at the Borrower's option, as follows:
(a) In the event the Borrower elects to
make such payment in cash, cash payment shall be made to the
Holder by the fifth (5th) day of the month following the month in
which it has accrued; and
(b) In the event the Borrower elects to
make such payment in Common Stock, such amount shall be added to
the Accreted Principal Balance and the Holder may convert such
payment amount into Common Stock at the Conversion Price (as in
effect at the time of conversion) at any time after the fifth day
of the month following the month in which it has accrued (at such
time as there are sufficient authorized shares of Common Stock)
in accordance with the terms of this Article I.
The Borrower's election shall be made in writing to
the Holder at any time prior to 8:00 p.m., New York City Time, on
the third day of the month following the month in which
Conversion Default payments have accrued. If no election is
made, the Borrower shall be deemed to have elected to make
payment in cash. Nothing herein shall limit the Holder's right
to pursue actual damages (to the extent in excess of the
Conversion Default Payments) due to the Borrower's failure to
maintain a sufficient number of authorized shares of Common
Stock.
1.4 Method of Conversion.
(a) The Accreted Principal Balance of this
Debenture may be converted by the Holder in whole or in part
(provided such partial conversion is at least $25,000, or such
lesser amount as shall remain unpaid at the time of the
conversion at any time from time to time after the Issue Date, by
(A) submitting to the Borrower a Notice of Conversion (by
facsimile or other reasonable means of communication dispatched
on the Conversion Date prior to 8:00 p.m., New York City Time)
and (B) subject to Section 1.4(b), surrendering this Debenture at
<PAGE>
<PAGE> 9
the principal office of the Borrower. Each Debenture issued and
outstanding on the Maturity Date automatically shall be converted
into shares of Common Stock on such date at the then effective
Conversion Price in accordance with, and subject to, the
provisions of this Article I (the "Automatic Conversion"),
provided that no Redemption Event has occurred which is
continuing on the Maturity Date. The Maturity Date shall be the
Conversion Date for purposes of determining the Conversion Price
and the time within which certificates representing the Common
Stock must be delivered to the holder. Notwithstanding anything
to the contrary contained herein, the Maturity Date shall be
extended for the aggregate number of days comprising any Allowed
Delays under the Registration Rights Agreement and the Accreted
Principal Balance shall be adjusted accordingly.
(b) Notwithstanding anything to the
contrary set forth herein, upon conversion of this Debenture in
accordance with the terms hereof, the Holder shall not be
required to physically surrender this Debenture to the Borrower
unless the entire unpaid principal amount of this Debenture is so
converted. The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably
satisfactory to the Holder and the Borrower, so as not to require
physical surrender of this Debenture upon each such conversion.
In the event of any dispute or discrepancy, such records of the
Borrower shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if any portion of
this Debenture is converted as aforesaid, the Holder may not
transfer this Debenture unless the Holder first physically
surrenders this Debenture to the Borrower, whereupon the Borrower
will forthwith issue and deliver upon the order of the Holder a
new note of like tenor, registered as the Holder (upon payment by
the Holder of any applicable transfer taxes) may request,
representing in the aggregate the remaining unpaid principal
amount of this Debenture. The Holder and any assignee, by
acceptance of this Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture represented by this Debenture
may be less than the amount stated on the face hereof.
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<PAGE> 10
(c) The Borrower shall not be required to
pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common Stock or
other securities or property on conversion of this Debenture in a
name other than that of the Holder (or in street name), and the
Borrower shall not be required to issue or deliver any such
shares or other securities or property unless and until the
person or persons (other than the Holder or the custodian in
whose street name such shares are to be held for the Holder's
account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to
the satisfaction of the Borrower that such tax has been paid.
(d) Upon receipt by the Borrower from the
Holder of a facsimile transmission (or other reasonable means of
communication) of a Notice of Conversion meeting the requirements
for conversion as provided in this Section 1.4, subject to the
Borrower's redemption rights as provided in Section 1.1(d) above,
the Borrower shall issue and deliver or cause to be issued and
delivered to the Holder certificates for the Common Stock
issuable upon such conversion within three (3) business days
after such receipt (and, solely in the case of conversion of the
entire unpaid principal amount hereof, surrender of this
Debenture) (such third business day being hereinafter referred to
as the "Deadline") in accordance with the terms hereof and the
Purchase Agreement (including, without limitation, in accordance
with the requirement that certificates for shares of Common Stock
issued on or after the effective date of the Registration
Statement (as defined in the Registration Rights Agreement) upon
conversion of this Debenture shall not bear any restrictive
legend).
(e) Upon receipt by the Borrower of a
Notice of Conversion, subject to the Borrower's redemption rights
as provided in Section 1.1(d) above, the Holder shall be deemed
to be the holder of record of the Common Stock issuable upon such
conversion, the Accreted Principal Balance on this Debenture
shall be reduced to reflect such conversion, and, unless the
Borrower defaults on its obligations under this Article I, all
rights with respect to the portion of this Debenture being so
converted shall forthwith terminate except the right to receive
the Common Stock or other securities, cash or other assets, as
herein provided, on such conversion. If the Holder shall have
given a Notice of Conversion as provided herein, the Borrower's
obligation to issue and deliver the certificates for Common
Stock, subject to the Borrower's redemption rights as provided in
Section 1.1(d) above, shall be absolute and unconditional,
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<PAGE> 11
irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Borrower to the
holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any
other circumstance which might otherwise limit such obligation of
the Borrower to the Holder in connection with such conversion.
The date of receipt of such Notice of Conversion shall be the
Conversion Date so long as it is received before 8:00 p.m., New
York City Time, on such date.
(f) In lieu of delivering physical
certificates representing the Common Stock issuable upon
conversion, provided the Borrower's transfer agent is
participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon the
effectiveness of the Registration Statement to be filed pursuant
to the Registration Rights Agreement and upon the request of the
Holder and its compliance with the provisions contained in
Section 1.1 and in this Section 1.4, the Borrower shall endeavor
to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the
account of the Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. Such transmission
shall not affect the manner in which the shares issuable upon
conversion can be sold in accordance with Section 1.5 below or
the Holder's obligation to comply with the applicable prospectus
delivery requirements.
(g) Without in any way limiting the
Holder's right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of
the Common Stock issuable upon conversion of this Debenture is
more than two (2) business day after the Deadline (other than a
failure due to the circumstances described in Section 1.3 above,
which failure shall be governed by such Section) the Borrower
shall pay to the Holder $500 per day in cash, for each of the
first two (2) days beyond the Deadline and $2,500 per day in cash
for each day thereafter that the Borrower fails to deliver such
Common Stock. Such cash amount shall be paid to the Holder by
the fifth (5th) day of the month following the month in which it
has accrued or, at the option of the Holder (by written notice to
the Borrower by the first day of the month following the month in
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<PAGE> 12
which it has accrued), shall be added to the principal amount of
this Debenture, in which event interest shall accrue thereon in
accordance with the terms of this Debenture and such additional
principal amount shall be convertible into Common Stock in
accordance with the terms of this Debenture.
1.5 Concerning the Shares. The shares of Common
Stock issuable upon conversion of this Debenture may not be sold
or transferred unless either (i) such shares shall have been
included in an effective registration statement under the Act or
(ii) the Borrower or its transfer agent shall have been furnished
with an opinion or other similar letter of legal counsel
(reasonably acceptable to the Borrower) to the effect that such
sale or transfer is exempt from the registration requirements of
the Act or (iii) such shares are sold pursuant to Rule 144 under
the Act (or a successor rule). Except as otherwise provided in
the Purchase Agreement (and subject to the removal provisions set
forth below), each physical certificate for shares of Common
Stock issuable upon conversion of this Debenture that has not
been so included in an effective registration statement or that
has not been sold pursuant to an effective registration statement
or an exemption that permits removal of the legend, shall bear a
legend substantially in the following form, as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE BORROWER THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the
Borrower shall issue to the Holder a new certificate therefor
free of any transfer legend if (i) the Borrower or its transfer
agent shall have received an opinion or other similar letter of
counsel, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and
any applicable state securities laws and the shares are so sold
or transferred, or the Common Stock issuable upon conversion of
this Debenture (to the extent such securities are deemed to have
been acquired on the same date) can be sold pursuant to Rule 144
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<PAGE> 13
(or a successor rule thereto) without any restriction as to the
number of shares of Common Stock acquired as of a particular date
that can then be immediately sold or (ii) in the case of the
Common Stock issuable upon conversion of this Debenture, a
registration statement under the Act covering such securities is
in effect. Nothing in this Debenture (including the removal of
the foregoing legend from physical certificates or the electronic
transmission of Common Stock for the Holder's account pursuant to
Section 1.4(f)) shall (i) limit the Borrower's obligation under
the Registration Rights Agreement or (ii) affect in any way the
Holder's obligations to comply with applicable prospectus
delivery requirements upon the resale of the securities referred
to herein.
1.6 Effect of Certain Events.
(a) If, at any time when this Debenture is
issued and outstanding, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the
Borrower shall be changed into the same or a different number of
shares of another class or classes of stock or securities of the
Borrower or another entity, or in case of any sale or conveyance
of all or substantially all of the assets of the Borrower other
than in connection with a plan of complete liquidation of the
Borrower, then the Holder of this Debenture shall thereafter have
the right to receive upon conversion of this Debenture, upon the
bases and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or assets which
the Holder would have been entitled to receive in such
transaction had this Debenture been converted immediately prior
to such transaction, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the
Holder of this Debenture to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities or
assets thereafter deliverable upon the exercise hereof. The
above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(b) Subject to Section 2.1, if the Borrower
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<PAGE> 14
shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Common Stock as a dividend,
stock repurchase, by way of return of capital or otherwise
(including any dividend or distribution to the Borrower's
shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off) (a
"Distribution"), the Holder of this Debenture shall be entitled,
upon any conversion of this Debenture after the date of record
for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable
to the Holder with respect to the shares of Common Stock issuable
upon such conversion had the Holder been the holder of such
shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(c) Subject to Section 2.1, if, at any time
when any Debentures are issued and outstanding, the Borrower
issues any convertible securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights")
pro rata to the record holders of Common Stock, then the Holder
of this Debenture will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete
conversion of this Debenture (without regard to any limitations
on conversion contained herein) immediately before the date on
which a record is taken for the grant, issuance or sale of such
Purchase Rights or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(d) Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events
described in this Section 1.6, the Borrower, at its expense,
shall promptly compute such adjustment or readjustment and
prepare and furnish to the Holder of a certificate setting forth
such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request of the Holder, furnish
to the Holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time
in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time
would be received upon conversion of the Debenture.
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<PAGE> 15
1.7 Certain Payments in Lieu of Conversion. If
it is determined (upon written notice from the NYSE) that the
provisions of Rule 312.03(c) of the rules of the NYSE are
applicable to the issuance of Common Stock upon conversion of
this Debenture in accordance with this Article 1, then
notwithstanding anything to the contrary contained herein, in no
event shall the Borrower issue more than the Maximum Share Amount
(as hereinafter defined and subject to adjustment as provided
herein) upon conversion of this Debenture, unless the Borrower
shall have obtained Stockholder Approval (as hereinafter defined)
or a waiver of such requirement by the NYSE. As used herein,
Stockholder Approval means approval by the stockholders of the
Borrower in accordance with Rule 312.03(c) of the rules of the
NYSE. Once the Maximum Share Amount has been issued (the date of
which is hereinafter referred to as the "Maximum Conversion
Date"), unless the Borrower shall have obtained Stockholder
Approval or a waiver of such requirement by the NYSE, in lieu of
any further right to convert this Debenture, and in full
satisfaction of the Borrower's obligations under this Debenture,
the Borrower shall pay to the Holder, within fifteen (15)
business days of the Maximum Conversion Date, an amount equal to
the greater of (i) the sum of (a) 110% times the then Accreted
Principal Balance immediately following the Maximum Conversion
Date plus (b) any optional amounts that may be added thereto at
the Maximum Conversion Date by the Holder in accordance with the
terms hereof (the then Accreted Principal Balance of this
Debenture immediately following the Maximum Conversion Date plus
the amounts referred to in clause (b) above shall collectively be
referred to as the "Remaining Convertible Amount"), or (ii) the
Remaining Convertible Amount divided by the Conversion Price
(based on the twenty-five (25) Trading Day period ending one (1)
Trading Day prior to the date of payment) multiplied by the
Closing Price of the Common Stock on the Trading Day immediately
preceding the date of payment. The Maximum Share Amount shall
mean an aggregate of 3,997,770 shares of Common Stock (19.99% of
the Borrower's outstanding shares of Common Stock as of July 8,
1997), subject to equitable adjustment from time to time for
stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock
occurring after the date hereof. With respect to each Holder of
Debentures, the Maximum Share Amount shall refer to the Holder's
pro rata share thereof determined in accordance with Section 6.8
below. In the event that the Borrower obtains Stockholder
Approval, the approval of the NYSE or otherwise concludes that it
is able to increase the number of shares to be issued above the
Maximum Share Amount (such increased number being the "New
Maximum Share Amount"), the references to Maximum Share Amount,
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<PAGE> 16
above, shall be deemed to be, instead, references to the greater
New Maximum Share Amount. In the event that Stockholder Approval
is not obtained or a registration statement covering the
additional shares of Common Stock which constitute the New
Maximum Share Amount is not effective prior to the Maximum Share
Amount being issued (if such registration statement is necessary
to allow for the public resale of such securities), the Maximum
Share Amount shall remain unchanged; provided, however, that the
Holder may grant an extension of the effective date of such
registration statement. In the event that (a) the aggregate
number of shares of Common Stock issued pursuant to the
Debentures represents at least fifty percent (50%) of the Maximum
Share Amount and (b) the sum of (x) the aggregate number of
shares of Common Stock issued pursuant to the Debentures plus (y)
the aggregate number of shares of Common Stock that remain
issuable pursuant to the Debentures represents at least one
hundred percent (100%) of the Maximum Share Amount (the
"Triggering Event"), unless the Borrower intends to exercise its
redemption election (and provides the Holder with written binding
notification to that effect, together with reasonable assurances
regarding the source of funds therefor), the Borrower will seek
and use its best efforts to obtain Stockholder Approval (or
obtain such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event and before the Maximum Conversion
Date.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as
the Borrower shall have any obligation under this Debenture, the
Borrower shall not without the Holder's written consent (a) pay,
declare or set apart for such payment, any dividend or other
distribution (whether in cash, property or other securities) on
shares of capital stock other than dividends on shares of Common
Stock solely in the form of additional shares of Common Stock
(unless at the time of declaration and payment such action is
permitted to be taken under all of the Borrower's indebtedness
senior to the Debenture).
2.2 Restriction on Stock Repurchases. So long
as the Borrower shall have any obligation under this Debenture,
the Borrower shall not without the Holder's written consent
redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any
one transaction or series of related transactions any shares of
capital stock of the Borrower or any warrants, rights or options
to purchase or acquire any such shares (unless at the time of
declaration and payment such action is permitted to be taken
under all of the Borrower's indebtedness senior to the
Debenture).
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<PAGE> 17
2.3 Trading Restrictions. The Holder covenants
and agrees that, during any period during which a Conversion
Price is computed, neither Holder nor others acting on its behalf
shall be responsible for the low trading price of the Borrower's
Common Stock.
ARTICLE III. REDEMPTION EVENTS
If any of the following redemption events (each, a
"Redemption Event") shall occur:
3.1 Failure to Pay Principal Balance. The
Borrower fails to pay the Accreted Principal Balance hereof when
due, whether at maturity, upon mandatory prepayment pursuant to
Section 1.7, upon acceleration or otherwise;
3.2 Conversion and the Shares. The Borrower
fails to issue shares of Common Stock to the Holder (or announces
that it will not honor its obligation to do so) upon exercise by
the Holder of the conversion rights of the Holder in accordance
with the terms of this Debenture (for a period of at least ninety
(90) days, if such failure is solely as a result of the
circumstances governed by Section 1.3 and the Borrower is using
its best efforts to authorize a sufficient number of shares of
Common Stock as soon as practicable), fails to transfer any
certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture and when required by this Debenture
or the Registration Rights Agreement, or fails to remove any
restrictive legend on any certificate for any shares of Common
Stock issued to the Holder upon conversion of this Debenture as
and when required by this Debenture, the Purchase Agreement or
the Registration Rights Agreement and any such failure shall
continue uncured (or any announcement not to honor conversions
shall not be rescinded) for ten (10) days after the Borrower
shall have been notified thereof in writing by the Holder.
3.3 Failure to Effect Registration. The
Borrower fails to obtain effectiveness with the Securities and
Exchange Commission of the Registration Statement prior to
December 31, 1997 or the Registration Statement lapses in effect
(or sales cannot otherwise be made thereunder) for more than
ninety (90) consecutive Trading Days or one hundred fifty (150)
Trading Days in any twelve month period after the Registration
Statement becomes effective;
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<PAGE> 18
3.4 Breach of Covenants. The Borrower breaches
any material covenant or other material term or condition
contained in Sections 1.3, 1.6, 1.7 or 4.1 of this Debenture, or
Sections 4(e), 4(h), 4(i) or 4(j) of the Purchase Agreement and
such breach continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder;
3.5 Breach of Representations and Warranties.
Any representation or warranty of the Borrower made herein or in
any agreement, statement or certificate given in writing pursuant
hereto or in connection herewith (including, without limitation,
the Purchase Agreement and the Registration Rights Agreement),
shall be false or misleading in any material respect when made
and the breach of which has (or with the passage of time will
have) a Material Adverse Effect (as defined in the Purchase
Agreement);
3.6 Receiver or Trustee. The Borrower shall
make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for
a substantial part of its property or business, or such a
receiver or trustee shall otherwise be appointed;
3.7 Bankruptcy. Bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings
for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Borrower (which is
not being contested if commenced against the Borrower); or
3.8 Delisting of Common Stock. The Common Stock
is not listed on at least one of the NYSE, the Nasdaq National
Market, or the American Stock Exchange;
then, upon the occurrence and during the continuation
of any Redemption Event specified in Section 3.1, 3.2, 3.3, 3.4,
3.5 or 3.9, at the option of the Holders of a majority of the
aggregate principal amount of the outstanding Debentures issued
pursuant to the Purchase Agreement, the Borrower shall, and upon
the occurrence of a Redemption Event specified in Section 3.6 or
3.7, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its
obligations hereunder, an amount equal to the greater of (i) the
sum of (w) 110% times the then Accreted Principal Balance of this
Debenture plus (x) any amounts owed to the Holder pursuant to
Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the
Registration Rights Agreement (the then outstanding principal
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<PAGE> 19
amount of this Debenture to the date of payment plus the amounts
referred to in clause (x) shall collectively be known as the
"Default Sum") or (ii) the Default Sum divided by the then
applicable Conversion Price (based on the twenty-five (25)
Trading Day period ending one (1) Trading Day prior to the date
the Holders exercise their option pursuant to this paragraph or
the date of the occurrence of an event referred to in Section 3.6
or 3.7) multiplied by the Closing Price of the Common Stock on
the date the Holders exercise their option pursuant to this
paragraph or the date of the occurrence of an event referred to
in Section 3.6 or 3.7 (the "Default Amount") and all other
amounts payable hereunder shall immediately become due and
payable, all without demand, presentment or notice, all of which
hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses, of collection, and
the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity.
If the Borrower fails to pay the Default Amount
within five (5) business days of written notice that such amount
is due and payable, then the Holder shall have the right at any
time, so long as the Borrower remains in default (and so long and
to the extent that there are sufficient authorized shares), to
require the Borrower, upon written notice, to immediately issue,
in lieu of the Default Amount, the number of shares of Common
Stock of the Borrower equal to the Default Amount divided by the
Conversion Price then in effect as its sole and exclusive remedy.
ARTICLE IV. REDEMPTION
4.1 Redemption. So long as no Redemption Event
shall have occurred and be continuing, beginning ninety (90) days
following the effectiveness of the Registration Statement to be
filed pursuant to the Registration Rights Agreement, in the event
the Closing Price of the Common Stock is greater than $6.50 per
share for ten (10) consecutive Trading Days, the Borrower may
redeem, in whole but not in part, this Debenture upon thirty (30)
days prior written notice (a "Redemption Notice") in accordance
with this Section 4.1. Any notice of redemption (a "Redemption
Notice") shall be delivered to the Holder at its registered
address appearing on the records of the Borrower and shall state
(1) that the Borrower is exercising its right to redeem the
Debentures and (2) the date of redemption. On the date fixed for
redemption (the "Redemption Date"), the Borrower shall make
payment of the Redemption Amount (as hereinafter defined) in cash
to or upon the order of the Holder as specified by the Holder in
writing to the Borrower at least one business day prior to the
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<PAGE> 20
Redemption Date. The Redemption Amount shall be equal to the sum
of (a) 110% times the then Accreted Principal Balance of this
Debenture plus (b) any amounts owed to the Holder pursuant to
Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the
Registration Rights Agreement. In the event that the Borrower
redeems this Debenture pursuant to the immediately preceding
sentence, in addition to the Redemption Amount payable in cash
pursuant to the immediately preceding sentence, on the Redemption
Date the Borrower shall issue to the Holder, a number of warrants
to purchase Common Stock of the Borrower equal to the outstanding
Accreted Principal Balance being redeemed divided by 1,000
multiplied by 21, which warrants will have a five (5) year term,
an exercise price equal to 105% of the Closing Price of the
Common Stock on the date of redemption and shall otherwise be in
the form of the warrant attached as Exhibit "D" to the Purchase
Agreement. Notwithstanding anything to the contrary contained in
this Section 4.1, the Holder shall at all times prior to the
Redemption Date under this Section 4.1 maintain the right to
convert all or any part of this Debenture in accordance with
Article I and any amounts so converted after receipt of a
Redemption Notice and prior to the Redemption Date set forth in
such notice which is otherwise subject to redemption pursuant to
the Redemption Notice.
ARTICLE V. SUBORDINATION
5.1. Agreement to Subordinate. Except as otherwise
provided in Section 1.7, Article III and Article IV of this
Debenture, the Accreted Principal Balance of this Debenture is
payable solely in shares of Common Stock upon conversion in
accordance with Article I hereof. Notwithstanding anything in
this Debenture to the contrary, the Borrower agrees, and by
accepting this Debenture the Holder agrees, that the indebtedness
evidenced by this Debenture is subordinate and subject in right
of payment, to the extent and in the manner expressly provided in
this Article V, to the prior payment in full of all Senior Debt,
and that the subordination is for the benefit of and enforceable
by the holders of Senior Debt. This Debenture shall in all
respects rank at least pari passu with all other present and
future obligations of the Borrower, and only Senior Debt shall
rank senior to this Debenture.
5.2 Insolvency, Bankruptcy, Dissolution of
Borrower. Upon any payment or distribution (whether in cash,
securities or other property) to creditors of the Borrower upon
any Insolvency Event (as hereinafter defined):
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<PAGE> 21
(a) all Senior Debt shall first be paid in
full before the Holder shall be entitled to receive any
payment or other distribution on or in respect of this
Debenture; and
(b) until all Senior Debt is paid in full,
any payment or distribution to which the Holder of this
Debenture would be entitled but for this Article V shall be
made to holders of Senior Debt as their interests may
appear, except that the Holder may receive shares of the
Borrower as reorganized or readjusted or securities of the
Borrower or any other corporation if the payment of such
securities is subordinate to Senior Debt to at least the
same extent as this Debenture is subordinate to Senior Debt.
5.3 Default on Senior Debt. (a) The Borrower
may not pay the Accreted Principal Balance of this Debenture or
make any deposit in respect of this Debenture and may not
repurchase, redeem or otherwise retire this Debenture
(collectively, "pay this Debenture") if (i) the principal of or
interest on any Senior Debt is not paid when due or (ii) any
other default on Senior Debt occurs and the maturity of such
Senior Debt is accelerated in accordance with its terms unless,
in each case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Debt has been paid
in full. During the continuance of any default (other than a
default described in clause (i) or (ii) of the preceding
sentence) with respect to any Senior Debt pursuant to which the
maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods,
the Borrower may not pay this Debenture for a period (a "Payment
Blockage Period") commencing upon the receipt by the Borrower and
the Holder of written notice of such default from a
representative of such Senior Debt specifying an election to
effect a Payment Blockage Period (a "Payment Blockage Notice")
and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the
Borrower from the representative which gave such Payment Blockage
Notice, (ii) by repayment in full of such Senior Debt or (iii)
because the default specified in such Payment Blockage Notice is
no longer continuing and the prior default has been waived).
Notwithstanding the immediately preceding sentence (but subject
to the provisions contained in the first sentence of this
Section), unless the holders of such Senior Debt or the
representative of such holders shall have accelerated the
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<PAGE> 22
maturity of such Senior Debt, the Borrower shall resume payments
(including any missed payments) on this Debenture after the end
of such Payment Blockage Period unless such payment is otherwise
prohibited under this Article V. Multiple Payment Blockage
Periods may be imposed so long as (x) the cumulative period
covered by all such Payment Blockage Periods does not exceed 179
days in any 365 consecutive day period and (y) no more than one
Payment Blockage Period may result from the same default.
(b) The failure to make a payment or
distribution on this Debenture by reason of this Article V shall
not be construed or deemed to prevent the occurrence of a
Redemption Event hereunder; provided that any acceleration of
payment of this Debenture resulting therefrom shall be rescinded
if and when the following conditions shall be simultaneously
satisfied (x) each payment or distribution which gave rise to
such Redemption Event shall be made and (y) no other such
Redemption Event shall have occurred.
5.4 Subordinated Acceleration; Standstill. (a)
The Holder agrees to give the Borrower not less than five (5)
days' prior written notice of its intention to accelerate the
maturity of this Debenture pursuant to Article III hereof. The
Borrower will promptly notify holders of Senior Debt of any
obligation to make payments to be made under Section 1.7.
(b) The Holder will not for a period of
179 days following an acceleration of this Debenture pursuant to
Article III, including by reason of the Borrower's breach of its
covenants under Section 1.7 (other than if an Insolvency Event
shall have occurred or if the Senior Debt shall have been
accelerated) pursue or exercise any other right, power or remedy
arising under Article III of this Debenture.
5.5. Permitted Payments. So as to eliminate any
doubt, except in the event of an Insolvency Event, or as provided
in the first sentence of Section 5.3(a) during any Payment
Blockage Period, as set forth in Sections 5.2 and 5.3,
respectively, accretion of principal, payments under 1.3, 1.4(g),
1.7 and 4.1 of this Debenture, and payments under Section 2(c) of
the Registration Rights Agreement (whether in cash or Common
Stock (as applicable)) (collectively, "Permitted Payments") shall
be credited or made by the Borrower on the terms of this
Debenture.
<PAGE>
<PAGE> 23
5.6 Turnover. If the Holder receives any
payment or other distribution on this Debenture (whether in cash,
property, securities or whatever) at a time when such payment or
distribution should not have been made to the Holder by reason of
this Article V, such payment or distribution shall be deemed to
have been received and held in trust for the benefit of the
holders of the Senior Debt, and shall be segregated from other
property of the Holder and be paid and delivered as promptly as
practicable to the holders of the Senior Debt, as their interests
may appear, for application to, or collateral for, the payment or
prepayment of the Senior Debt.
5.7 Relative Rights. This Article V defines the
relative rights of the Holder and the holders of Senior Debt.
Nothing herein shall:
(a) impair, as between the Borrower and the
Holder, the obligation of the Borrower, which is absolute
and unconditional, to pay principal of, premium, if any, and
interest on this Debenture in accordance with its terms and
to fulfill its other obligations hereunder; or
(b) except as otherwise expressly provided
herein, prevent the Holder from exercising its available
remedies upon a default, subject to the rights of holders of
Senior Debt to receive distributions otherwise payable to
the Holder.
5.8 Agreement to Cooperate. In the event that a
payment may not be made on the Debentures as a result of the
provisions of this Article V, including without limitation, as a
result of an Insolvency Event or a default on any Senior Debt,
the Borrower shall, if requested by the Holder, reasonably assist
the Holder in attempting to purchase such Senior Debt or
otherwise cure such default so that the payment may be made on
the Debenture. Nothing in this Section 5.8 shall obligate the
Holder to purchase such Senior Debt or to attempt to cure any
such default.
<PAGE>
<PAGE> 24
5.9 Conversion. Notwithstanding anything to the
contrary contained in this Article V, nothing in this Article V
shall restrict the rights of the Holder to convert the Conversion
Amount in accordance with Article I, including, without
limitation, after an Insolvency Event and during the pendency of
a default on Senior Debt. To the extent any Permitted Payments
would be payable, but for the provisions of this Article V, in
cash (whether at the Borrower's option or the Holder's option),
such Permitted Payments shall automatically be added to the
Accreted Principal Balance including after an Insolvency Event or
during the pendency of a default on Senior Debt and shall
thereafter and during such pendency be convertible into Common
Stock in accordance with Article I.
5.10 Definitions.
(a) "Bankruptcy Code" means the Bankruptcy
Reform Act of 1978, 11 U.S.C. __ 101 et seq., or any successor
statute thereto.
(b) "Insolvency Event" means (i) any
winding-up, insolvency, bankruptcy, liquidation or reorganization
of the Borrower, whether voluntary or involuntary, (ii) any
proceeding or case for reorganization, liquidation, bankruptcy,
dissolution or other winding-up of the Borrower or its assets,
whether or not involving insolvency or bankruptcy, (iii) any
assignment by the Borrower for the benefit of creditors or (iv)
any receivership or other similar proceeding or any marshalling
of assets of the Borrower.
(c) "Senior Debt" means (i) all
obligations and liabilities of the Borrower or any of its
subsidiaries, whether for or on account of principal,
reimbursement obligations, accrued and unpaid interest (including
without limitation all interest accruing on and after an
Insolvency Event), fees, expenses, indemnities and other amounts
payable under or in connection with any and all bank,
institutional or other financial transaction indebtedness
including, without limitation, under that certain bank agreement
dated January 29, 1996 among the Borrower, its subsidiaries, the
lenders named therein and The Chase Manhattan Bank, as agent, as
amended to date, the 10 3/8% senior secured indebtedness due June
1, 2002 and the 11 5/8% senior indebtedness due August 1, 2002,
and all documents or instruments executed in connection
therewith, as may be amended or restated thereunder, or any
similar replacement, successor or additional indebtedness,
whether outstanding on the date of issuance of this Debenture or
<PAGE>
<PAGE> 25
hereafter created, assumed or incurred and (ii) all obligations
of the Borrower or any of its subsidiaries for deferred purchase
price payments in connection with any business acquisitions by
Borrower or any of its subsidiaries.
ARTICLE VI. MISCELLANEOUS
6.1 Failure or Indulgence Not Waiver. No
failure or delay on the part of the Holder in the exercise of any
power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise
thereof or of any other right, power or privileges. All rights
and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
6.2 Notices. Any notice (including conversion
notices) herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or
sent by United States mail and shall be deemed to have been given
upon receipt if personally served (which shall include telephone
line facsimile transmission) or sent by courier or three (3) days
after being deposited in the United States mail, certified, with
postage pre-paid and properly addressed, if sent by mail. For
the purposes hereof, the address of the Holder shall be as shown
on the records of the Borrower; and the address of the Borrower
shall be American Banknote Corporation, 200 Park Avenue, 49th
Floor, New York, New York 10166-4999, Attention: Secretary,
facsimile number: (212) 338-0747, and a copy to the attention of
Patrick Reddy, Assistant Secretary, facsimile number: (212)
338-0728. Both the Holder and the Borrower may change the
address for service by service of written notice to the other as
herein provided.
6.3 Amendments. This Debenture and any
provision hereof may only be amended by an instrument in writing
signed by the Borrower and the Holder. The term "Debenture" and
all reference thereto, as used throughout this instrument, shall
mean this instrument (and the other Debentures issued pursuant to
the Purchase Agreement) as originally executed, or if later
amended or supplemented, then as so amended or supplemented.
<PAGE>
<PAGE> 26
6.4 Assignability. This Debenture shall be
binding upon the Borrower and its successors and assigns, and
shall inure to be the benefit of the Holder and its successors
and assigns. Each transferee of this Debenture must be an
"accredited investor" (as defined in Rule 501(a) of the 1933
Act). As a condition to any assignment or transfer, the assignee
or transferee shall agree to be bound to the terms of this
Debenture. This Debenture may be pledged as collateral in
connection with a bona fide margin account.
6.5 Cost of Collection. If default is made in
the payment of this Debenture, the Borrower shall pay the Holder
hereof costs of collection, including reasonable attorneys' fees.
6.6 Governing Law. This Debenture shall be
governed by the internal laws of the State of Delaware, without
regard to the principles of conflict of laws.
6.7 Certain Amounts. Whenever pursuant to this
Debenture the Borrower is required to pay an amount in excess of
the Accreted Principal Balance (or the portion thereof required
to be paid at that time), the Borrower and the Holder agree that
the actual damages to the Holder from the receipt of cash payment
on this Debenture may be difficult to determine and the amount to
be so paid by the Borrower represents stipulated damages and not
a penalty and is intended to compensate the Holder in part for
loss of the opportunity to convert this Debenture and to earn a
return from the sale of shares of Common Stock acquired upon
conversion of this Debenture at a price in excess of the price
paid for such shares pursuant to this Debenture.
6.8 Allocations of Maximum Share Amount and
Reserved Amount. The Maximum Share Amount and the Reserved
Amount (including any increases thereto) shall be allocated pro
rata among the Holders of Debentures based on the principal
amount of Debentures then held by the Holder relative to the
aggregate principal amount of the Debentures then outstanding.
6.9 Damages Shares. The shares of Common Stock
that may be issuable to the Holder pursuant to Sections 1.3 and
1.4(g) hereof and pursuant to Section 2(c) of the Registration
Rights Agreement ("Damages Shares") shall be treated as Common
Stock issuable upon conversion of this Debenture for all purposes
<PAGE>
<PAGE> 27
hereof and shall be subject to all of the limitations and
afforded all of the rights of the other shares of Common Stock
issuable hereunder, including without limitation, the right to be
included in the Registration Statement filed pursuant to the
Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof,
except as otherwise provided herein, amounts convertible into
Damages Shares ("Damages Amounts") shall not bear interest but
must be converted prior to the conversion of any outstanding
principal amount hereof, until the outstanding Damages Amounts is
zero.
6.10 Denominations. At the request of the
Holder, upon surrender of this Debenture, the Borrower shall
promptly issue new Debentures in the aggregate outstanding
principal amount hereof, in the form hereof, in such
denominations of at least $100,000 as the Holder shall request.
6.11 Purchase Agreement. By its acceptance of
this Debenture, the Holder agrees to be bound by the applicable
terms of the Purchase Agreement.
6.12 Notice of Corporate Events. Except as
otherwise provided below, the Holder of this Debenture shall have
no rights as the Holder of Common Stock unless and only to the
extent that it converts this Debenture into Common Stock. The
Borrower shall provide the Holder with prior notification of any
meeting of the Borrower's shareholders (and copies of proxy
materials and other information sent to shareholders). In the
event of any taking by the Borrower of a record of its
shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise
acquire (including by way of merger, consolidation,
<PAGE>
<PAGE> 28
reclassification or recapitalization) any share of any class or
any other securities or property, or to receive any other right,
or for the purpose of determining shareholders who are entitled
to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Borrower or any
proposed liquidation, dissolution or winding up of the Borrower,
the Borrower shall mail a notice to the Holder, at least twenty
(20) days prior to the record date specified therein (or thirty
(30) days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and
character of such dividend, distribution, right or other event to
the extent known at such time. Subject to Allowed Delays (as
defined in Section 3(f) of the Registration Rights Agreement),
the Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially
simultaneously with the notification to the Holder in accordance
with the terms of this Section 6.12.
IN WITNESS WHEREOF, the Borrower has caused this
Debenture to be signed in its name by its duly authorized officer
this 24th day of July, 1997.
AMERICAN BANKNOTE CORPORATION
By: s/ Harvey j. Kesner
Name: Harvey J. Kesner
Title: Executive Vice
President, General
Counsel and Secretary<PAGE>
<PAGE> 29
Exhibit A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: American Banknote Corporation
200 Park Avenue, 49th Floor
New York, New York 10166-4999
Attention: Secretary
Facsimile: (212) 338-0747
(1) Pursuant to the terms of the attached Convertible
Debenture (the "Debenture"), the undersigned hereby elects to
convert $ Accreted Principal Balance of the
Debenture into shares of Common Stock of American Banknote
Corporation, a Delaware corporation (the "Borrower").
Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Debenture.
(2) Please issue a certificate or certificates for
the number of shares of Common Stock into which such Accreted
Principal Balance of the Debenture is convertible (_____ shares,
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary,
on an attachment hereto:
_____________________ ______________________
Name Name
_____________________ _______________________
Address Address
_____________________________ ________________________
SS or Tax ID Number SS or Tax ID Number
(3) The Holder acknowledges and affirms that the
Common Stock issued pursuant to this Notice of Conversion has
been or will be sold in accordance with the requirements of the
1933 Act, if applicable, or pursuant to an exemption under the
1933 Act.
(4) Capitalized terms used in this Notice of
Conversion and not otherwise defined herein shall have the
respective meanings provided in the Debenture.
Date_________________ ____________________________
Signature of Registered Holder
(must be signed exactly as
name appears in the Debenture).
