<PAGE> 1
As filed with the Securities and Exchange Commission on April 4, 1996
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
DANNINGER MEDICAL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 31-1013521
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
---------------------------
4140 Fisher Road
Columbus, Ohio 43228
(614) 276-8267
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
---------------------------
Joseph A. Mussey
President and Chief Executive Officer
Danninger Medical Technology, Inc.
4140 Fisher Road
Columbus, Ohio 43228
(614) 276-8267
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
Copies of Correspondence to:
Curtis A. Loveland, Esq. James P. Mulroy, Esq.
Porter, Wright, Morris & Arthur Squire, Sanders & Dempsey
41 South High Street 41 South High Street
Columbus, Ohio 43215 Columbus, Ohio 43215
(614) 227-2004 (614) 365-2728
---------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. / /
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH OFFERING AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
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00% Convertible Subordinated
Debentures due 2003 $5,250,000(2) 100% $5,250,000 $1,811
Common Shares, $.01 par value (3) -- -- --
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes $250,000 principal amount of Debentures subject to an
over-allotment option.
(3) There are being registered hereunder the number of shares of Common Stock
required at the initial conversion price for conversion of the Debentures
registered hereunder, together with such additional indeterminate number of
shares of Common Stock as may become issuable upon conversion by reason of
adjustments in the conversion price.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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CROSS REFERENCE SHEET
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REGISTRATION STATEMENT ITEM AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
--------------------------------------- ---------------------------------
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus. Outside Front Cover
2. Inside Front and Outside Back Cover
Pages of Prospectus. Inside Front Cover; Outside Back Cover; Available
Information
3. Summary Information, Risk Factors and Prospectus Summary; Risk Factors
Ratio of Earnings to Fixed Charges.
4. Use of Proceeds. Use of Proceeds
5. Determination of Offering Price. Outside Front Cover Page of Prospectus
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Be Description of Debentures; Description of
Registered. Capital Stock
10. Interests of Named Experts and Counsel. Legal Matters; Experts
11. Information with Respect to the Outside and Inside Front Cover Pages of Prospectus;
Registrant. Risk Factors; Price Range of Common Stock and
Dividend Policy; Selected Consolidated Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Description of Debentures; Description of
Capital Stock
12. Incorporation of Certain Information Incorporation of Certain Documents by Reference
by Reference.
13. Disclosure of Commission Position Description of Capital Stock
on Indemnification for Securities
Act Liabilities.
</TABLE>
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* Item is omitted from Prospectus because it is not applicable or the answer
thereto is negative.
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PROSPECTUS
$5,000,000
[LOGO]
DANNINGER MEDICAL TECHNOLOGY, INC.
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003
The % Convertible Subordinated Debentures due 2003 (the "Debentures")
issued by Danninger Medical Technology, Inc. (the "Company"), offered hereby
will mature on June 1, 2003, unless previously redeemed or repurchased. Interest
on the Debentures is payable semi-annually on the first day of June and December
of each year beginning June 1, 1996 and continuing through maturity. The
Debentures are convertible at any time before maturity, unless previously
redeemed, into shares of Common Stock of the Company ("Common Stock") at a
conversion price of $ per share (the "Conversion Price"), subject to
adjustment in certain events. See "Description of Debentures." The Company's
Common Stock is traded on the Nasdaq SmallCap Market under the symbol "DANN."
On April 2, 1996, the last bid price for the Common Stock, as reported on the
Nasdaq SmallCap Market, was $6.875 per share. See "Price Range of Common Stock
and Dividend Policy." The Company does not intend to list the Debentures on
Nasdaq or on any exchange. The Underwriter has informed the Company that it
intends to make a market in the Debentures.
Beginning July 1, 1999, debentures that are presented for redemption by
June 1, 1999, or June 1 of any succeeding year, will be redeemed on the next
July 1 at par plus accrued interest up to an annual maximum of $25,000 per
holder or beneficial owner and an annual aggregate maximum of 5% of the gross
amount of Debentures sold. Additionally, the Company will redeem at any time
Debentures presented by the personal representative or surviving joint tenant of
a deceased holder subject to the same annual maximums. Upon the occurrence of
certain changes in control of the Company, the Company is obligated to purchase
Debentures at the holder's option at 101% of the principal amount thereof plus
accrued interest. Prior to June 1, 1999, the Debentures are not redeemable at
the option of the Company unless the closing bid price of the Company's Common
Stock is at least 140% of the Conversion Price for at least 20 trading days
within a 30 consecutive trading day period ending no later than five trading
days prior to the notice of redemption. No sinking fund will be established to
redeem the Debentures. See "Description of Debentures."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN INFORMATION THAT SHOULD BE
CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBENTURES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECUR-
ITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS (1) COMPANY (2)
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Per Debenture........... 100.0%
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Total (3)............... $5,000,000 $ $
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(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $225,000 payable by the Company.
(3) The Company has granted the Underwriter a 30-day option to purchase up to
an additional $250,000 principal amount of Debentures at par plus accrued
interest to cover over-allotments, if any. If all such Debentures are
purchased by the Underwriter, the total Price to Public will be $5,250,000,
the total Underwriting Discount will be $____ and the total Proceeds to
Company will be $____ . See "Underwriting."
------------------
The Debentures are offered subject to receipt and acceptance by the
Underwriter, to prior sale and to the Underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that certificates for the Debentures will be available for delivery
on or about _______________, 1996.
------------------
THE OHIO COMPANY
____________, 1996
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES OR
THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
CERTAIN SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE
IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ
SMALLCAP MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE
ACT OF 1934. SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act, with respect to the Debentures offered hereby and
the Common Stock into which they are convertible. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Securities and Exchange Commission (the "Commission"). For further
information with respect to the Company and the Debentures offered hereby,
reference is made to the Registration Statement and the exhibits thereto.
Statements herein contained concerning the provisions of any document are not
necessarily complete and in each instance, reference is made to the copy of such
document filed as an exhibit to the Registration Statement. The Registration
Statement and the exhibits may be inspected without charge at the offices of the
Commission described above or copies obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following Regional Offices of the Commission: New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048;
and Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such reports, proxy statements and other
information can also be inspected at the offices of The Nasdaq SmallCap Market
at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 has been filed by the Company with the Commission (File No. 0-16893)
pursuant to Section 13(a) of the Exchange Act and is incorporated herein by
reference. Each document filed subsequent to the date of this Prospectus
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including a
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated herein by reference (other than exhibits unless such exhibits are
expressly incorporated by reference in such documents). Requests should be
directed to Paul A. Miller, Vice President and Chief Financial Officer,
Danninger Medical Technology, Inc.,4140 Fisher Road, Columbus, Ohio 43228.
Telephone requests may be directed to the Company at (614) 276-8267.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated in this Prospectus, all information assumes no
exercise of the Underwriter's over-allotment option.
THE COMPANY
Danninger Medical Technology, Inc. ("Danninger") and its wholly-owned
subsidiary, Cross Medical Products, Inc. ("Cross"), engage in two distinct
business segments of the orthopedic device industry. Danninger designs,
manufactures and distributes orthopedic rehabilitation products, primarily
continuous passive motion therapy devices ("CPM devices") and other orthopedic
rehabilitation products (together with CPM devices "recovery products"). CPM
devices are used in rehabilitation therapy to slowly and continuously move an
injured joint without assistance of the patient's muscle power. This therapy is
most commonly used after joint surgery to improve blood flow, reduce swelling,
increase the range of motion, maintain muscle tone and speed healing. The
Company's wholly owned subsidiary, Recovery Services, Inc. ("RSI"), rents
recovery products directly to end users. Cross designs, manufactures and markets
implants and instruments for the surgical treatment of degenerative diseases,
deformities and trauma of the spine ("spinal implants"). Unless the context
otherwise requires, Danninger, RSI and Cross are hereinafter collectively
referred to as (the "Company").
The sale of recovery products has historically generated the substantial
portion of Company sales and all of its operating income. In 1988, the Company
entered the spinal implant market with its first implant system, which was
offered in the United States for clinical study only. In 1992, the Company
determined to aggressively pursue its strategy to utilize a substantial portion
of the cash flow generated from its position as a leading manufacturer of CPM
devices to fund the development of its spinal implant business. The Company
formed its Medical Advisory Board of prominent spinal surgeons and began
development of the SYNERGY(TM) Spinal Implant System. The SYNERGY(TM) Spinal
Implant System is a "universal" implant system that allows surgeons to treat
both the thoracic (middle) and lumbar (lower) portions of the spine, which the
Company believes covers approximately 70% of all instrumented spinal fusion
surgeries in the United States. The Company received 510(k) clearance from the
U.S. Food and Drug Administration ("FDA") to market the anterior portion of the
SYNERGY(TM) Spinal Implant System in October 1994 and to market the posterior
portion of the system in July 1995. The Company's revenue from its implant
business has increased from $347,000, or less than 5% of total Company revenue,
in 1992 to $4,091,000 in 1995, or approximately 33% of total Company revenue.
The Company's predecessor was incorporated in 1980 and commenced operations
in 1983. In 1986, the Company's predecessor was merged into the Company solely
for the purpose of changing the Company's jurisdiction of incorporation to
Delaware. The Company's offices are located at 4140 Fisher Road, Columbus, Ohio
43228 and its telephone number is (614) 276-8267.
The following are the principal elements of the Company's business
strategy.
Develop United States Distribution. The Company believes that a strong
force of qualified sales and service representatives is essential to increase
its share of the United States spinal implant market, which market was estimated
to exceed $200 million in 1995. The Company utilizes its Medical Advisory Board
to educate spinal surgeons throughout the United States in the use of the
Company's spinal implant systems. With approval of the SYNERGY(TM) Spinal
Implant System by the FDA in 1995, the Company began the process of rapidly
expanding its network of independent sales agencies.
Develop International Distribution. The Company believes that the total
foreign market for spinal implant products is approximately equal in size to the
United States market. The Company has marketed its spinal implant systems in
foreign countries for a number of years, generally obtaining regulatory
clearance to market products in these countries prior to clearance in the United
States. The Company currently markets its spinal implant products and
instruments in 16 foreign countries and plans to add qualified distributors in
other foreign markets. In 1995, foreign sales represented approximately $1.4
million, or approximately 35%, of the Company's total implant product revenue.
Develop New Products. The Company intends to continue its investment in the
research and development of new spinal implant products and the improvement of
existing recovery products. The Company believes that technologically superior
products are needed to compete in both the recovery products market and the
spinal implant market. The
3
<PAGE> 7
Company has historically devoted a substantial portion of its resources to
research and development. In recent years the Company has devoted an increasing
amount of its research and development expenditures to spinal implant products.
The Company's research and development expenditures during the fiscal years
ended December 31, 1995, 1994, and 1993 were $1,147,000, $1,324,000, and
$1,248,000, respectively.
Continue Strong Position in Recovery Products Market. The Company believes
that it is one of the largest manufacturers of CPM devices in the United States.
The Company is striving to improve its position in recovery products through
research and development and increased international distribution. The Company,
through RSI, has recently commenced the direct rental of recovery products in
selected markets.
THE OFFERING
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Securities Offered................ % Convertible Subordinated Debentures Due 2003.
Maturity Date..................... June 1, 2003.
Amount of Offering................ $5,000,000 ($5,250,000 if the over-allotment option is
exercised in full.
Interest Payment Dates............ Semi-annually on each June 1 and December 1 beginning
June 1, 1996.
Conversion Rights................. Convertible, prior to maturity or redemption, into Common
Stock, at a conversion price of $0.00 per share, subject to
adjustment in certain events.
Redemption at Holder's Option..... Beginning July 1, 1999, the Company will be obligated to
redeem Debentures tendered by June 1, 1999 or June 1 of
any succeeding year at 100% of their principal amount plus
accrued interest, subject to an annual maximum of $25,000
per holder or beneficial owner and an annual aggregate
maximum of 5% of the gross amount of Debentures sold in
the offering ($250,000; $262,500 if the Underwriter's over-
allotment option is exercised in full). Any Debenture
presented by the personal representative or surviving joint
tenant of a deceased holder or beneficial owner will be
redeemed, beginning immediately, within 60 days of
presentation of necessary documentation, at the same
redemption price subject to the same per holder or
beneficial owner and aggregate maximums. See
"Description of Debentures - Limited Right of Redemption
by Holder."
Repurchase on Change of Control... Upon the occurrence of certain changes of control of the
Company, the Company is obligated to purchase
Debentures at the holder's option at 101% of the principal
amount thereof plus accrued interest. See "Description of
Debentures - Repurchase of Debentures at the Holder's
Option After a Change of Control."
Redemption at Company's Option.... The Debentures are not redeemable at the option of the
Company prior to June 1, 1999, unless the closing bid price
of the Company's Common Stock is at least 140% of the
Conversion Price for at least 20 trading days within a 30
consecutive trading day period ending no later than five
trading days prior to the notice of redemption. The
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redemption price for the year beginning June 1, 1996 will be
108% of par, with such redemption price declining each
year thereafter to 100% on June 1, 2002. See "Description of
Debentures - Redemption at Option of the Company."
Subordination....... Subordinated to all existing and future Senior Indebtedness,
as defined. See "Description of Debentures -
Subordination."
Trustee............. Fifth Third Bank, Columbus, Ohio.
Use of Proceeds..... To repay certain indebtedness and for working capital. See
"Use or Proceeds."
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SUMMARY CONSOLIDATED FINANCIAL DATA
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YEARS ENDED DECEMBER 31,
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1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
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STATEMENT OF OPERATIONS DATA:
Revenue.................................. $12,584 $10,154 $9,313 $7,394 $8,444
Gross margin............................. 6,224 5,026 3,885 3,653 4,103
Operating income (loss).................. (138) 308 (564) 77 617
Interest expense......................... 289 158 156 192 144
Income (loss) before income taxes........ (431) 210 (682) (103) 516
Net income (loss)........................ (359) 81 (774) (48) 401
Net income (loss) per share.............. $ (0.08) $ 0.02 $(0.18) $(0.01) $ 0.09
OTHER HISTORICAL DATA:
EBITDA(1)................................ 119 565 (221) 399 939
Ratio of EBITDA to interest.............. 0.41 3.58 (1.42) 2.08 6.52
Ratio of earnings to fixed charges (2)... --- (3) 2.01 --- (4) 0.56 3.76
Proforma ratio of earnings
to fixed charges (2).................... --- (5)
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DECEMBER 31, 1995
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BALANCE SHEET DATA: ACTUAL AS ADJUSTED (6)
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Working capital..................... $ 3,186 7,661
Total assets........................ 9,517 11,517
Short term obligations.............. 3,406 406
Long term obligations............... 874 5,874
Total shareholders' equity.......... 3,522 3,522
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(1) As used herein, EBITDA is defined as operating income (loss) plus
depreciation and amortization included therein. The Company believes that
EBITDA is generally recognized as an indicator of a Company's ability to
service its debt and capital expenditure requirements. However, EBITDA is
not intended to be a performance measure that should be regarded as an
indicator of operating performance or cash flows as a measure of liquidity,
as determined in accordance with generally accepted accounting principles.
(2) For purposes of calculating the ratio of earnings to fixed charges,
earnings include income before income taxes plus fixed charges. Fixed
charges consist of interest expense and the estimated interest
component of operating leases (assumed to be one-third of total rental
expense). The proforma ratio of earnings to fixed charges assumes the
application of $3,000,000 of net proceeds to repay outstanding
indebtedness.
(3) Reflects a deficiency of ($431,000).
(4) Reflects a deficiency of ($682,000).
(5) Reflects a proforma deficiency of ($511,000).
(6) Adjusted for the sale of the $5,000,000 principal amount of Debentures
offered by the Company and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Debentures offered hereby.
LIMITED HISTORY OF PROFITABILITY
In fiscal 1995, the Company incurred a net loss of $359,000 and has
incurred net losses in three of the last four years, primarily as a result of
the costs associated with the development of its SYNERGY(TM) Spinal Implant
System. The Company will continue to invest to expand the distribution and
marketing of the SYNERGY(TM) Spinal Implant System as well as to invest in
research and development to expand the system to include a cervical version and
a titanium version. The Company believes that the SYNERGY(TM) Spinal Implant
System has technological advantages over existing spinal implant systems,
although certain competitors have much greater market share and well-developed
distribution networks. There can be no assurance that the Company will be
successful in establishing a competitive distribution network to enable it to
increase its sales of spinal implants to a profitable level. See "Business."
COMPETITION
The orthopedic device industry is intensely competitive with respect to
technology, distribution, price, service, quality and variety, and there are
many well-established competitors with substantially greater financial and other
resources than the Company. Some of the Company's competitors have been in
existence for a substantially longer period than the Company and many are better
established with orthopedic physicians in the markets where the Company
distributes its products. See "Business - Competition."
LEVERAGE
As of December 31, 1995, as adjusted for the issuance of the Debentures
and the application of the estimated net proceeds therefrom, the Company's
total long-term debt and shareholders' equity would have been approximately
$5,874,000 and $3,522,000, respectively, and the Company's fixed charges would
have exceeded earnings before fixed charges, reflecting a deficiency of
earnings to fixed charges in the amount of $511,000 for the year ended
December 31, 1995. Subject to any limitations imposed by its lenders, the
Company expects to incur, from time to time, additional borrowings or other
obligations which would be Senior Indebtedness. The debt service requirements
of any such additional indebtedness could make it more difficult for the
Company to make principal and interest payments on the Debentures. The
Company's ability to satisfy its obligations will be dependent upon its future
performance, which is subject to prevailing economic conditions and financial,
business and other factors, including factors beyond the Company's control.
There can be no assurance that the Company's operating cash flow will be
sufficient to meet its debt service requirements or to repay the Debentures at
maturity or that the Company will be able to refinance the Debentures or other
indebtedness at maturity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
SUBORDINATION; UNSECURED OBLIGATIONS
The Debentures will be unsecured, subordinated obligations of the Company
and will be subordinated in right of payment to all present and future Senior
Indebtedness. In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Debentures only after all Senior Indebtedness has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Debentures then outstanding. As of December 31, 1995, after giving effect to the
application of the estimated net proceeds from the sale of the Debentures
offered hereby, the Company had approximately $1,140,000 of outstanding Senior
Indebtedness. In the event of a default with respect to Senior Indebtedness, no
payments may be made on account of the Debentures until such default has been
cured or waived. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Description of Debentures - Subordination."
PRODUCT LIABILITY LITIGATION AND INSURANCE COVERAGE
The orthopedic device industry has been historically litigious and the
Company faces an inherent business risk of financial exposure to product
liability claims. Such claims against the Company, regardless of their merit or
eventual outcome, could have a material adverse effect upon the Company's
business, financial condition and results of operations.
6
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Since the Company's spinal products are designed to be permanently implanted in
the human body, manufacturing errors or design defects could result in injury or
death to the patient, and could result in a recall of the Company's products and
substantial monetary damages. The Company has been named as a defendant in more
than 500 cases alleging principally that the Company participated in an
industry-wide conspiracy to market pedicle screw implants. The Company
anticipates that additional similar suits will be filed in the future. The
Company has also been named a defendant in approximately 17 cases alleging
claims of product liability for defective products manufactured by the Company.
The Company's current liability insurance coverage limits are $5,000,000 per
occurrence per year and $5,000,000 in the aggregate per year. There can be no
assurance that the Company will not experience losses to the extent that its
insurance coverage is not adequate to cover the cost of defending these and
similar suits that may be filed in the future or the cost of settling such
claims or paying any adverse judgements. Such insurance is expensive, difficult
to obtain and may not be available in the future on acceptable terms, or at all.
See "Business - Legal Proceedings and Insurance Coverage."
GOVERNMENT REGULATION
The manufacture and marketing of the Company's products are subject to
regulation by the FDA pursuant to the U.S. Food, Drug and Cosmetic Act, as
amended, and regulations promulgated thereunder (collectively the "FDA Act") and
numerous other federal, state and foreign governmental authorities. Although the
Company has obtained all necessary clearances for the manufacture and sale of
all the products that the Company currently produces and sells, any products
developed in the future are likely to require FDA approval before they can be
sold in the United States.
To date, all FDA approvals of the Company's products have been obtained
under Section 510(k) of the FDA Act, which provides for FDA marketing approval
on an expedited basis for products that can be shown to be substantially
equivalent to devices in interstate commerce prior to May 1976, the date of
enactment of the FDA Act. The Company anticipates that substantially all of the
products currently being developed will qualify for marketing approval under
Section 510(k). However, if marketing approval for any product cannot be
obtained under Section 510(k), alternative approval procedures are likely to be
costly and time consuming and there can be no assurance that the required
approvals for marketing any newly developed products will be obtained. All
products and manufacturing facilities are subject to continual review and
periodic inspection by the FDA. The discovery of previously unknown problems
with the Company or its products or facilities may result in product labeling
restrictions, recall or withdrawal of the products from the market. The Company
is required to obtain similar approvals, and is subject to similar regulation
for the sale of its products in foreign countries and is subject to similar
risks relating to the inability to obtain or the revocation of such approvals.
See "Business - Government Regulation."
LIMITED SALES AND MARKETING EXPERIENCE
The Company anticipates the majority of its sales growth, if any, in the
future will be in spinal implants. The Company has sold its spinal implant
products in the United States through a limited direct sales and marketing staff
and a network of independent commissioned sales agencies supported by the
Company's technical support staff. Independent commissioned sales agencies
typically market orthopedic and neurological implants and instruments for a
variety of manufacturers. The Company provides extensive sales training,
however, existing or future sales agencies may not have prior experience selling
spinal implants. There can be no assurance that the Company will be able to
develop an effective distribution network or that such commissioned sales
agencies will be able to successfully sell the Company's products. See "Business
- - Marketing and Distribution."
DEPENDENCE ON MANAGEMENT AND MEDICAL ADVISORY BOARD
The Company's success will depend to a great extent on its senior
management, including Joseph A. Mussey, Chief Executive Officer. The Company's
operations could be adversely affected if, for any reason, one or more key
executive officers ceases to be active in the Company's management or in the
event that any member of the Company's Medical Advisory Board would choose to
leave the board and support a competing spinal implant system. In addition, the
Company's success depends in large part on its ability to attract and retain
highly qualified scientific, technical, management and marketing personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able to attract and retain the personnel necessary for the
development and operation of its business. The loss of the services of key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management."
7
<PAGE> 11
PRODUCT CONCENTRATION AND OBSOLECENSE
The Company anticipates that most of its spinal implant sales and sales
growth in the future, if any, will come from the SYNERGY(TM) Spinal Implant
System. In addition, the Company's current primary product development efforts
involve a cervical version and a titanium version of the SYNERGY(TM) Spinal
Implant System. There can be no assurance that the Company will be successful in
marketing the SYNERGY(TM) Spinal Implant System or that a competitor will not
introduce a superior product or technology. In either event, the Company may not
be able to produce sufficient sales to achieve profitability.
DEPENDENCE ON SUPPLIERS
The Company does not manufacture most of the components for its CPM
devices and its spinal implants and instruments and is dependent upon several
suppliers for the production of such components. The Company expects to continue
to be dependent upon such manufacturers for the foreseeable future. The Company
is dependent upon these manufacturers for timely and cost-effective
manufacturing services. In the event that the Company is unable to obtain
components, or obtain such components on commercially reasonable terms, it may
not be able to manufacture or distribute its products on a timely and
competitive basis, or at all. See "Business - Manufacturing and Quality
Control."
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
The Company's ability to sell its products will depend in part on the
extent to which reimbursement for the cost of such products and related
treatments will be available to patients under domestic and foreign governmental
health , private health, managed care, workers' compensation, and other similar
programs. Over the past decade, the cost of health care has risen significantly,
and there have been numerous proposals by legislators, regulators and
third-party health care payers to curb these costs. Some of these proposals have
involved limitations on the amount of reimbursement for certain surgical
procedures. There can be no assurance that adequate third-party reimbursement
will continue to be available for the Company's products. In addition, certain
health care providers are moving towards a managed care system in which such
providers contract to provide comprehensive health care for a fixed cost per
person. Managed care providers are attempting to control the cost of health care
by authorizing fewer elective surgical procedures, such as spinal fusions. The
Company is unable to predict what changes will be made in the reimbursement
methods utilized by third-party health care payors. In addition, hospitals and
other health care providers have become increasingly price competitive and, in
some cases, have put pressure on medical suppliers to lower their prices. Any
reductions in coverage or price limitations by third-party payors could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business - Third-Party Reimbursement."
CONCENTRATION OF OWNERSHIP; ANTI-TAKEOVER PROVISIONS
The Company's directors and officers and their affiliates beneficially
own approximately 40.9% of the outstanding Common Stock. Accordingly, these
persons have the ability to exert significant influence over the business
affairs of the Company, including the ability to influence the election of
directors and the results of voting on all matters requiring stockholder
approval. The Company has adopted certain anti-takeover measures which,
individually or collectively, may be disadvantageous in that they may discourage
takeovers in which stockholders might receive a substantial premium for some or
all of their shares of Common Stock. See "Management," "Description of
Debentures" and "Description of Capital Stock."
VOLATILITY OF MARKET PRICE
From time to time after this offering there may be significant volatility
in the market price for the Debentures and the Common Stock. Because the
Debentures are convertible into Common Stock, the prices at which the Debentures
trade in the market will likely be affected by the price of the Common Stock. In
addition, market prices for securities of orthopedic device companies have
historically been highly volatile. Quarterly operating results of the Company,
the announcement of technological innovations or new products by the Company or
its competitors, governmental regulation, timing of regulatory approvals,
developments related to patents or proprietary rights or publicity regarding
actual or potential malfunctions of the Company's or its competitors' products
may cause the market price of the Common Stock and the Debentures to fluctuate
substantially.
8
<PAGE> 12
ABSENCE OF PUBLIC MARKET FOR THE DEBENTURES
The Debentures are a new issue of securities for which there is currently
no public market. There can be no assurance as to the liquidity of the market
for the Debentures that may develop, the ability of the holders to sell their
Debentures or the prices at which holders of the Debentures would be able to
sell their Debentures. If a market for the Debentures does develop, the
Debentures may trade at a discount from their initial public offering price,
depending on prevailing interest rates, the market for similar securities,
performance of the Company, performance of the health care industry and other
factors. The Underwriter has informed the Company that it intends to make a
market for the Debentures. However, the Underwriter is not obligated to do so
and any such market-making may be discontinued at any time without notice. The
Company does not intend to apply for listing of the Debentures on Nasdaq or any
securities exchange. Therefore, no assurance can be given as to whether an
active trading market will develop or be maintained for the Debentures. See
"Underwriting."
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded in the over-the-counter market and
is quoted on the Nasdaq SmallCap Market under the symbol "DANN." The following
table sets forth, for the periods indicated, the high and low bid prices per
share for the Common Stock as reported by the Nasdaq SmallCap Market. Such bid
prices reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1993
First Quarter.................... $ 3.125 $ 2.00
Second Quarter................... 2.75 2.00
Third Quarter.................... 2.50 2.0625
Fourth Quarter................... 2.125 1.50
1994
First Quarter.................... $ 4.375 $1.8125
Second Quarter................... 4.125 2.625
Third Quarter.................... 4.125 3.125
Fourth Quarter................... 4.50 3.625
1995
First Quarter.................... $ 4.375 $ 3.875
Second Quarter................... 10.00 4.00
Third Quarter.................... 10.50 7.125
Fourth Quarter................... 7.875 5.375
1996
First Quarter.................... $ 7.50 $ 5.75
Second Quarter
(through April 2, 1996)....... 6.875 6.875
</TABLE>
On April 2, 1996, the last reported bid price of the Common Stock on
The Nasdaq SmallCap market was $6.875. At March 25, 1996, there were 418 holders
of record of the outstanding Common Stock.
The Company has not declared or paid any cash dividends or
distributions on the Common Stock. The Company intends to retain its earnings to
finance the growth and development of its business and does not expect to
declare or pay any cash dividends in the foreseeable future. The declaration of
dividends is within the discretion of the Company's Board of Directors, subject
to the terms of the Company's revolving credit agreement.
9
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Debentures offered
hereby are estimated to be $4,475,000 ($4,710,000 if the Underwriters'
over-allotment option is exercised in full), after deducting the underwriting
discount and estimated offering expenses. The Company will utilize the net
proceeds to repay the revolving credit amount outstanding under its loan
facility, which at December 31, 1995 was $3,000,000 and bears interest at the
lender's prime rate plus one-half percent (total of 9.25% at December 31, 1995).
The remaining net proceeds will be used for working capital purposes.
The Company's loan facility provides for a term loan in the initial
principal amount of $1,000,000 and a revolving line of credit in an amount of up
to $3,000,000. Outstanding revolving credit borrowings are due on June 30, 1996.
The Company anticipates renewing the loan facility on or prior to its expiration
on substantially similar terms. All of the Company's assets collateralize the
loan facility, which contains covenants that restrict the payment of dividends,
limit the incurrence of additional debt and require the maintenance of certain
financial ratios. The Company has used the proceeds from the revolving credit
line to finance its working capital requirements. The Company believes that the
net proceeds from this offering, cash flows generated from operations,
borrowings under its revolving credit line and equipment leasing arrangements
will be sufficient to finance the Company's currently anticipated growth for the
foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and
"Business."
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995 and as adjusted to reflect the sale by the Company of the
$5,000,000 principal amount of Debentures offered hereby and the application of
the estimated net proceeds therefrom as described in "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term obligations(1):
Revolving line of credit ........................... $3,000 $ --
Current maturities of term debt
and capital leases .............................. 406 406
------ ------
Total short-term obligations .............. $3,406 $ 406
====== ======
Long-term obligations, excluding current maturities(1):
Bank agreement ..................................... $ 700 $ 700
Other long-term debt and capital leases ............ 174 174
% Convertible Subordinated Debentures due 2003 ... -- 5,000
------ ------
Total long-term obligations ............... 874 5,874
------ ------
Shareholders' equity:
Common Stock, $.01 par value:
Authorized 10,000,000 shares; issued and
outstanding 4,707,490 shares(2) ............. 47 47
Paid-in capital .................................... 3,367 3,367
Retained earnings .................................. 108 108
------ ------
Total shareholders' equity ................ 3,522 3,522
------ ------
Total capitalization .................. $4,396 $9,396
====== ======
</TABLE>
- -------------------------
(1) See Notes 4 and 5 of Notes to the Consolidated Financial Statements.
(2) Does not include 516,500 shares of Common Stock issuable upon the
exercise of outstanding options granted pursuant to the Company's
existing stock option plans and shares, subject to adjustment
issuable upon conversion of the Debentures.
10
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of
the end of, each of the years in the five year period ended December 31, 1995 is
derived from the audited financial statements of the Company, certain of which
statements appear elsewhere in this Prospectus. The following selected
consolidated financial data should be read in conjunction with the Company's
consolidated financial statements and related notes and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ........................................ $ 12,584 $ 10,154 $ 9,313 $ 7,394 $ 8,444
Cost of goods sold ............................. 6,360 5,128 5,428 3,741 4,341
Gross margin ................................... 6,224 5,026 3,885 3,653 4,103
Selling, general and administrative expenses ... 5,215 3,394 3,201 2,594 2,525
Research and development expenses .............. 1,147 1,324 1,248 982 961
Operating income (loss) ........................ (138) 308 (564) 77 617
Interest expense ............................... 289 158 156 192 144
Income (loss) before income taxes .............. (431) 210 (682) (103) 516
Net income (loss) .............................. (359) 81 (774) (48) 401
Net income (loss) per share .................... ($ 0.08) $ 0.02 ($ 0.18) ($ 0.01) $ 0.09
OTHER HISTORICAL DATA:
EBITDA (1) ..................................... 119 565 (221) 399 939
Ratio of EBITDA to interest .................... 0.41 3.58 (1.42) 2.08 6.52
Ratio of earnings to fixed charges (2) ......... -- (3) 2.01 -- (4) 0.56 3.76
Proforma ratio of earnings to fixed
charges(2) .................................... -- (5)
BALANCE SHEET DATA:
Working capital ................................ $ 3,186 $ 2,614 $ 2,025 $ 3,767 $ 3,510
Total assets ................................... 9,517 7,433 5,798 7,667 6,955
Short-term obligations ......................... 3,406 2,177 1,800 898 529
Long-term obligations .......................... 874 8 45 2,138 1,553
Total shareholders' equity ..................... 3,522 3,390 3,008 3,727 3,745
</TABLE>
- -----------
(1) As used herein, EBITDA is defined as operating income (loss) plus
depreciation and amortization included therein. The Company believes that
EBITDA is generally recognized as an indicator of a Company's ability to
service its debt and capital expenditure requirements. However, EBITDA is
not intended to be a performance measure that should be regarded as an
indicator of operating performance or cash flows as a measure of
liquidity, as determined in accordance with generally accepted accounting
principles.
(2) For purposes of calculating the ratio of earnings to fixed charges,
earnings include income before income taxes plus fixed charges. Fixed
charges consist of interest expense and the estimated capitalized interest
component of operating leases (assumed to be one-third of total rental
expense). The proforma ratio of earnings to fixed charges assumes the
application of $3,000,000 of net proceeds to repay outstanding
indebtedness.
(3) Reflects a deficiency of ($431,000).
(4) Reflects a deficiency of ($682,000).
(5) Reflects a proforma deficiency of ($511,000).
11
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company participates in two segments of the orthopedic device market,
spinal implants and orthopedic recovery products. Since the Company's entry into
the spinal implant market in 1988, revenues from spinal implant sales have grown
to over $4,000,000 in 1995. As a result of the receipt of FDA marketing
clearance for the SYNERGY(TM) Spinal Implant System in July 1995, the Company
believes spinal implant revenues will continue to grow. The Company is also a
major supplier of CPM devices to the orthopedic rehabilitation market. The
Company has been manufacturing CPM devices and other recovery products since
1983. In 1994, the Company implemented a strategy to enter the orthopedic home
care rental market in order to expand the geographic distribution of the
Company's recovery products into those areas where the Company did not have a
strong distribution network.
Shown below for the years indicated are the percentages that certain
items in the Company's Consolidated Statement of Operations bear to total
revenue.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net sales .................... 93.7% 99.3% 99.4%
Lease and rental revenue ..... 6.3 0.7 0.6
------ ------ ------
100.0% 100.0% 100.0%
Cost of goods sold ........... 50.5 50.5 58.3
Sales and marketing .......... 25.4 18.3 18.8
General and administrative ... 16.0 15.1 15.6
Research and development ..... 9.1 13.0 13.4
Interest expense ............. 2.3 1.6 1.7
Other income (expense) ....... -- 0.6 0.4
Income (loss) before taxes ... (3.4) 2.1 (7.3)
Income taxes (benefit) ....... (0.6) 1.3 1.0
Net income (loss) ............ (2.8)% 0.8% (8.3)%
</TABLE>
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995
AND 1994
For 1995 total revenue increased 24% to $12,584,000 from $10,154,000 for
1994. The revenue increase was primarily attributable to an increase in net
sales of spinal implant products and increased recovery products lease and
rental revenue. Spinal implant product net sales increased 42% to $4,091,000 for
1995 compared to $2,880,000 for 1994. This increase was principally a result of
the Company's receipt of 510(k) marketing clearance for its SYNERGY(TM) Spinal
Implant System in July 1995. Sales and rentals of the Company's CPM devices and
other orthopedic recovery products increased 17% to $8,493,000 in 1995 from
$7,274,000 in 1994. The increase was primarily a result of penetration into the
recovery products home care rental market.
Cost of goods sold was 50.5% of total revenue for both 1995 and 1994.
Cost of goods sold totaled $6,360,000 for 1995 and $5,128,000 for 1994. Cost of
goods sold relating to spinal implant products increased as a percentage of
spinal implant product revenue to 48.8% in 1995 from 41.3 % in 1994. This
increase was primarily related to an inventory allowance established for the
Company's Puno/Winter/Byrd spinal implant systems as well as a higher percentage
of lower margin sales of surgical instruments in connection with the
introduction of the SYNERGY(TM) Spinal Implant System. Without these factors,
cost of goods sold as a percentage of spinal implant product net sales would
have remained constant in 1995. Cost of goods sold related to the sale and
rental of recovery products decreased to 51.4% of recovery product revenue in
1995 from 54.2% in 1994 as revenue from lower cost products and rental services
increased in 1995. The Company continually evaluates material and production
costs in an effort to reduce costs on all products and rental services.
Selling, general and administrative expenses increased to 41.4% in 1995
from 33.4% in 1994. In 1995, the Company commenced marketing the SYNERGY(TM)
Spinal Implant System in the United States after FDA marketing clearance was
received in the third quarter. The increased expenses related to these efforts
include, but are not limited to, those associated with the expansion of the
Company's distribution network, increased surgeon training, and additional
12
<PAGE> 16
promotional and marketing expenses. As a percentage of spinal implant products
net sales, selling, general and administrative expenses decreased to 63.9% in
1995 from 65.9% in 1994. It is anticipated that, as a percentage of spinal
implant products net sales, these expenses will continue to decrease if sales of
spinal implants increase as planned. The Company also incurred additional
selling, general and administrative expenses relating to the sale and rental of
its recovery products as it entered the recovery products home care rental
market. As a percentage of recovery products revenue, selling, general and
administrative expenses increased to 30.6% in 1995 from 20.5% in 1994. By
entering the home care rental market, the Company is able to provide
distribution of recovery products in territories where the Company has had
little or no distribution network. It is anticipated that, as a percentage of
recovery products revenue, these expenses will begin decreasing if the Company
continues its penetration into the recovery products home rental market as
planned.
Research and development expenses decreased as a percentage of revenue to
9.1% in 1995 from 13.0% in 1994. In 1995, the Company continued its investment
in research and development in spinal implant products. As a percentage of
spinal implant products net sales, the investment decreased to 21.0% in 1995
from 33.9% in 1994. However, in actual dollars, the reduction was only
approximately $118,000 due to increased investment in 1994 relating to the
submission of the SYNERGY(TM) Spinal Implant System to the FDA for marketing
clearance. In 1996, the Company will continue to invest in the development of
new spinal implant products and anticipates additional product submissions to
the FDA for marketing clearance. Research and development expenses relating to
the recovery products business were less than 5% of recovery products revenue in
both years. The Company continues to explore ways to expand its recovery
products line and maintains a program to improve the current product line.
Interest expense for the year increased primarily as a result of
additional borrowings for working capital.
The Company recognized a tax benefit of $72,000 in 1995 compared with a
tax expense of $129,000 in 1994. The Company's effective tax rate is less than
statutory rates as a result of an increase in the valuation allowance used to
reduce the benefit of research and development tax credits and net operating
losses. Research and development tax credit carryforwards were approximately
$361,000 at December 31, 1995, expiring at various times through December 31,
2010. The Company believes that the valuation allowance is appropriate until
such time as the operations of its spinal implant products segment becomes
profitable.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1993
Total revenue increased 9% to $10,154,000 in 1994 from $9,313,000 in 1993
as a result of steady sales of the Company's recovery products and increased
sales of spinal implant products. Spinal implant net sales increased to
$2,880,000 in 1994 from $1,360,000 in 1993. Recovery product revenue decreased
to $7,274,000 in 1994 from $7,953,000 in 1993 primarily as a result of customer
concerns about proposed health care reform.
Cost of goods sold decreased to 50.5% in 1994 from 58.3% in 1993. Cost of
goods sold relating to spinal implant products increased as a percentage of
spinal implant product revenue to 41.3% in 1994 from 26.3% in 1993 as the
Company initiated international sales of the SYNERGY(TM) Spinal Implant System.
The increase was caused by a higher percentage of lower margin sales to
international distributors in connection with the introduction of the
SYNERGY(TM) Spinal Implant System into foreign markets. Cost of goods sold for
the Company's recovery products as a percentage of recovery product revenue
decreased to 54.2% in 1994 from 63.7% in 1993. This decrease was impacted by a
charge to cost of goods sold in 1993 for excess and obsolete inventory of
approximately $600,000 or 7.5% of revenue.
Selling, general and administrative expenses decreased slightly to 33.4%
in 1994 from 34.3% in 1993. As spinal implant net sales grew in 1994, the
expenses relating to the spinal implant business decreased, as a percentage of
spinal implant net sales, to 65.9% in 1994 from 98.9% in 1993. For the recovery
products business, these expenses decreased as a percentage of recovery products
revenue to 20.5% in 1994 from 23.3% in 1993, due primarily to a reserve
established for approximately $185,000 owed to the Company by a financially
distressed customer. In 1994, the Company repossessed substantially all of the
assets of the customer and recovered approximately $110,000 of the amount
previously reserved. Excluding this transaction, selling, general and
administrative expenses as a percentage of recovery products revenue increased
slightly to 22.1% in 1994 from 21.0% in 1993.
Research and development expenses decreased as a percentage of revenue
from 13.0% in 1994 from 13.4% in 1993, while total expenditures increased by
$76,000. In 1994, research and development expenses relating to spinal implant
products decreased as a percentage of spinal implant product net sales to 33.9%
in 1994 from 58.8% in 1993. However, in actual dollars, spinal implant research
and development expenses increased approximately $177,000.
13
<PAGE> 17
Interest expense remained constant in actual dollars and as a percentage
of total revenue in 1994 from 1993.
The Company recorded a tax expense of $129,000 in 1994 compared to a tax
expense of $92,000 in 1993. The 1994 effective income tax rate was in excess of
statutory tax rates primarily as a result of an increase in the valuation
allowance used to reduce the tax benefit of research and development tax credit
carryforwards and the future tax benefit of deductions generated principally by
reserves established in prior years.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $3,186,000 at December 31, 1995 from
$2,614,000 at December 31, 1994. The current ratio (ratio of current assets to
current liabilities) remained constant at 1.6 to 1 at December 31, 1995 and
December 31, 1994.
In 1995, the cash flows used in operating activities were $2,311,000
compared to $556,000 in 1994. The primary reason for reduced cash flows from
operating activities in 1995 related to increases in accounts receivable and
inventories. Accounts receivable increased 29% to $3,497,000 at December 31,
1995 from $2,705,000 at December 31, 1994, as a result of the increase in
revenue in 1995. Inventories increased 27% to $4,227,000 at December 31, 1995
from $3,316,000 at December 31, 1994, reflecting an increase in inventory to
support the higher level of sales and the market introduction of the SYNERGY(TM)
Spinal Implant System.
Cash flows used in investing activities were $162,000 in 1995 compared to
$90,000 in 1994. Capital expenditures were $183,000 in 1995 compared to $295,000
in 1994. In 1994, the Company sold manufacturing equipment related to its
recovery products business for $318,000, of which $205,000 was received in cash.
Cash flows provided by financing activities were $2,470,000 in 1995
compared to $603,000 in 1994. The primary source of cash flows from financing
activities in 1995 was from additional borrowings and proceeds from the exercise
of stock options and warrants. In 1995, the Company increased its revolving line
of credit facility to $3,000,000 and added a $1,000,000 five year term note.
The nature of the Company's business subjects the Company to product
liability and related claims from time to time. The Company believes that it has
adequate insurance for its business, but there can be no assurance that the
Company's liquidity will not be materially adversely affected by the final
resolution of pending cases or future claims.
At December 31, 1995, the Company had borrowed $3,000,000 of its
revolving line of credit and reported an overdraft of $167,000. At that date,
the Company was not in compliance with certain of the financial covenants in the
loan facility agreement. Effective as of December 31, 1995, the bank waived the
noncompliance and amended the financial covenants to make them less restrictive.
The revolving credit line facility expires on June 30, 1996. The Company
believes that it will be able to renew the facility on substantially similar
terms on or prior to that date. If the Company's SYNERGY(TM) Spinal Implant
System sales increase as planned, the Company recognizes the need for capital to
support the anticipated growth. The Company believes that the proceeds of this
offering, its bank loan facility, working capital, and funds anticipated to be
generated by operations will be sufficient to fund the Company's growth plans
for the foreseeable future.
14
<PAGE> 18
BUSINESS
OVERVIEW
Danninger and its wholly-owned subsidiary, Cross, engage in two
distinct business segments of the orthopedic device industry. Danninger designs,
manufactures and distributes orthopedic rehabilitation products, primarily CPM
devices and other orthopedic rehabilitation products. CPM devices are used in
rehabilitation therapy to slowly and continuously move an injured joint without
assistance of the patient's muscle power. This therapy is most commonly used
after joint surgery to improve blood flow, reduce swelling, increase the range
of motion, maintain muscle tone and speed healing. The Company's wholly owned
subsidiary, RSI, rents recovery products directly to end users. Cross designs,
manufactures and markets implants and instruments for the surgical treatment of
degenerative diseases, deformities and trauma of the spine.
The sale of recovery products has historically generated the
substantial portion of Company sales and all of its operating income. In 1988,
the Company entered the spinal implant market with its first implant system,
which was offered in the United States for clinical study only. In 1992, the
Company determined to aggressively pursue its strategy to utilize a substantial
portion of the cash flow generated from its position as a leading manufacturer
of CPM devices to fund the development of its spinal implant business. The
Company formed its Medical Advisory Board of prominent spinal surgeons and began
development of the SYNERGY(TM) Spinal Implant System. The SYNERGY(TM) Spinal
Implant System is a "universal" implant system that allows surgeons to treat
both the thoracic (middle) and lumbar (lower) portions of the spine, which the
Company believes covers approximately 70% of all instrumented spinal fusion
surgeries in the United States. The Company received 510(k) clearance from the
FDA to market the anterior portion of the SYNERGY(TM) Spinal Implant System in
October 1994 and to market the posterior portion of the system in July 1995. The
Company's revenues from its implant business have increased from $347,000, or
less than 5% of total Company revenue, in 1992 to $4,091,000 in 1995, or
approximately 33%, of total Company revenue.
The following are the principal elements of the Company's business
strategy.
Develop United States Distribution. The Company believes that a strong
force of qualified sales and service representatives is essential to increase
its share of the United States spinal implant market, which market was estimated
to exceed $200 million in 1995. The Company utilizes its Medical Advisory Board
to educate spinal surgeons throughout the United States in the use of the
Company's spinal implant systems. With approval of the SYNERGY(TM) Spinal
Implant System by the FDA in 1995, the Company began the process of rapidly
expanding its network of independent sales representative agencies.
Develop International Distribution. The Company believes that the total
foreign market for spinal implant products is approximately equal in size to the
United States market. The Company has marketed its spinal implant systems in
foreign countries for a number of years, generally obtaining regulatory
clearance to market products in these countries prior to clearance in the United
States. The Company currently markets its spinal implant products and
instruments in 16 foreign countries and plans to add qualified distributors in
other foreign markets. In 1995, foreign sales represented approximately $1.4
million, or approximately 35%, of the Company's total implant product revenue.
Develop New Products. The Company intends to continue its investment in
the research and development of new spinal implant products and the improvement
of existing recovery products. The Company believes that technologically
superior products are needed to compete in both the recovery products market and
the spinal implant market. The Company has historically devoted a substantial
portion of its resources to research and development. In recent years the
Company has devoted an increasing amount of its research and development
expenditures to spinal implant products. The Company's research and development
expenditures during the fiscal years ended December 31, 1995, 1994, and 1993
were $1,147,000, $1,324,000, and $1,248,000, respectively.
Continue Strong Position in Recovery Products Market. The Company
believes that it is one of the largest manufacturers of CPM devices in the
United States. The Company strives to improve its position in recovery products
through research and development and increased international distribution. The
Company has recently commenced the direct rental of recovery products in
selected markets.
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<PAGE> 19
THE SPINAL IMPLANT MARKET
Spinal implants are a fast growing segment of the worldwide orthopedic
market. The Company believes that in 1995 the United States market for spinal
implants exceeded $200 million and the Company expects continued growth in the
market. The Company believes that the international market for spinal implant
devices is approximately equal to the United States market, and should continue
to grow at a similar rate. The Company believes that this growth is being fueled
by:
- An increasing number of surgeons specializing in spine surgery;
- Increasing number of spine fusions;
- Increasing market acceptance of spinal implants as clinical data
shows superior results; and
- Inability of other technologies to satisfactorily reduce lower back
pain or stabilize degenerative and traumatized spinal segments.
In addition, the Company believes that final action by the FDA to reclassify
spinal implants utilizing pedicle screws as Class II devices, which is
anticipated to occur during 1996, may further increase the number of physicians
performing instrumented fusion surgeries and the number of such surgeries
performed by other physicians. Conversely, the failure of the FDA to reclassify
pedicle screw implants could reduce the potential demand for the Company's
implant products. See "Government Regulation" and "Legal Proceedings and
Insurance Coverage."
The objective of spinal vertebral fusion surgery is to eliminate the
excessive vertebral motion (or spinal instability) resulting from degenerative
diseases, deformities and trauma by fusing adjoining vertebrae. Vertebral fusion
involves the surgical implantation of bone graft into the disc space and/or
along the posterior spinal processes. The grafted bone fuses the vertebrae
together over a period of several months. Typically, the implanted bone is
harvested from the patient's hip in a separate surgical procedure. Clinical
studies have shown that vertebral fusion is an effective technique for treating
chronic pain associated with spinal instability caused by degenerative disc
disease. Vertebral fusion surgery can be performed either with or without the
use of spinal implants.
Instrumented fusion involves the surgical attachment of a metal implant
to the vertebrae adjoining one or more diseased discs through an incision in the
patient's back (posterior) or abdomen (anterior) to immobilize the vertebrae of
the spine during fusion. Throughout the 1980s and early 1990s the use of
instrumented fusion procedures increased primarily due to higher fusion success
rates. The number of lumbar spine fusion procedures utilizing implants increased
by 30% annually between 1990 and 1993. Even though the total number of fusion
procedures has historically increased, instrumented fusions plateaued in 1993,
decreased in 1994 and again increased in 1995. The Company believes that the
decrease in 1994 was largely due to the lack of FDA approval for the use of
pedicle screw implants in the lumbar spine and related product liability
litigation regarding these devices. There can be no assurance that the number of
instrumented fusion procedures performed will continue to increase.
SPINAL IMPLANT PRODUCTS
The initial spinal implant system offered by the Company in 1988 was the
Puno/Winter/Byrd Screw/Rod System (the "PWB Screw/Rod System") for fusion of the
lumbar spine. The Company elected to market the PWB Screw/Rod System in the
United States for clinical studies under an Investigational Device Exemption
("IDE"). The IDE allowed the Company to develop a clinical study in order to
gather the data necessary to assess safety and efficacy of the PWB Screw/Rod
System. The IDE did not permit commercial distribution and limited use of the
PWB Screw/Rod System to a small number of surgeons participating in the study.
The study and patient follow-up has been completed and the Company has the
option of filing a Pre-Market Application ("PMA") with the FDA to permit
distribution of the PWB Screw/Rod System in the United States. However, the
Company has not determined whether to proceed with the PMA in light of the
development of the SYNERGY(TM) Spinal Implant System and the potential
reclassification of pedicle screw fixation by the FDA. See "Government
Regulation."
After developing the PWB Screw/Rod System, the Company also developed
lumbar hooks for the treatment of unstable, degenerative conditions of the
lumbar spine. The lumbar hooks, when used in conjunction with rods and sacral
screws, comprise the Puno/Winter/Byrd Lumbosacral System (the "PWB Lumbosacral
System"). The PWB Lumbosacral
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<PAGE> 20
System did not require clinical study and the Company received 510(k) clearance
from the FDA in April 1992, permitting marketing, sale and use of the PWB
Lumbosacral System. In May 1993, the Company received 510(k) clearance from the
FDA to market the INTEGRAL(TM) Screw System. The INTEGRAL(TM) Screw System was
developed to be used with the PWB Lumbosacral System, allowing surgeons the
option of additional diameters as well as a more rigid construct. It also
allowed the Company to expand its potential market penetration as spinal
surgeons sought more rigid constructs, while the Company developed its next
generation of implants.
The Company formed its Medical Advisory Board and began development of
the SYNERGY(TM) Spinal Implant System in 1992. The SYNERGY(TM) Spinal Implant
System is a "universal" implant system that allows surgeons to treat both the
thoracic (middle) and lumbar (lower) portions of the spine, allowing use of the
SYNERGY(TM) Spinal Implant System in approximately 70% of all instrumented
spinal fusion surgeries in the United States. The SYNERGY(TM) Spinal Implant
System is flexible, strong, and easy for surgeons to use. The SYNERGY(TM) Spinal
Implant System does not demand that surgeons follow a single surgical protocol,
rather it provides several options. Implants come in various sizes and types to
meet the surgeon's preferences and the patient's anatomy, providing a secure
anatomic fit for virtually any pathology. The SYNERGY(TM) Spinal Implant System
features unique implant locking mechanism designs, that combined with the use of
nitrogen-strengthened stainless steel, allow surgeons to assemble constructs of
exceptional strength while keeping the profile extremely low. The SYNERGY(TM)
Spinal Implant System was engineered to be easy for surgeons to use, reducing
surgical time and requiring less fiddle. Screws and hooks are top tightening,
rods do not require pre-loading of additional components, and all implants allow
for free rod rotation. The Company received 510(k) clearance from the FDA to
market the anterior portion of the SYNERGY(TM) Spinal Implant System in October
1994 and for the posterior portion of the system in July 1995. The Company is
currently developing a cervical version and a titanium version of the
SYNERGY(TM) Spinal Implant System. The cervical implant version will permit
surgeons to treat cervical (upper) portion of the spine and, if successfully
developed, will expand the Company's product line to cover 100% of instrumented
spinal fusion surgeries. Titanium implant systems are preferred in many foreign
markets and are used in the United States in cases where magnetic resonance
imaging of the spinal area is anticipated to be needed. The Company believes
that the SYNERGY(TM) Spinal Implant System is one of the few "universal" spinal
implant systems on the market.
Spinal Implant Marketing. The Company markets its spinal implant products
to orthopedic and neurological spine surgeons. The Company estimates that more
than 2,000 physicians perform spinal surgery in the United States, primarily in
major metropolitan areas. Typically the surgeon selects the type of spinal
implant system for each procedure.
The Company believes that the keys to its marketing success in the United
States are the superior design of the Company's spinal implant products, support
from prominent surgeons and strong product distribution. Marketing efforts
include direct selling by the Company's independent sales agencies and direct
marketing to surgeons, participation by the Company in sponsoring symposiums and
training workshops, and the education and training efforts of the members of the
Company's Medical Advisory Board.
The Company markets its spinal implant products through a network of
eighteen independent commissioned sales agencies. The Company considers the
quality of its independent sales agencies and the level of training and service
they provide to surgeons to be a very important factor in its success, second
only to the technological advantages of its spinal implant products. The
independent sales agencies are prohibited from marketing competing spinal
implant products. However, they are permitted to market non-competing implants
and other orthopedic products. Independent sales agencies are required to
purchase the Company's proprietary surgical instruments that are used to install
the Company's spinal implant products. Spinal implant products are consigned to
the independent sales agencies. The SYNERGY(TM) Spinal Implant System contains a
variety of related implantable devices from which the surgeon can choose during
each surgical procedure. After each procedure, the hospital is invoiced by the
Company for the implant devices actually used, and the consigned inventory is
replenished.
Foreign sales of spinal implants and instruments represented
approximately $1.4 million, or 35%, of the Company's total sales of spinal
implants and instruments in fiscal 1995. The Company has been able to market the
SYNERGY(TM) Spinal Implant System in those countries where governmental approval
either is not required or was obtained more quickly than in the United States.
The Company markets its spinal implants through individual distributors in each
country who purchase implants and instrumentation directly from the Company. The
Company has distributors in Argentina, Australia, Belgium, Greece, Hungary,
Italy, Japan, Korea, Malaysia, Philippines, Puerto Rico, Singapore, Spain,
Sweden, Turkey and the United Kingdom. The Company intends to continue to seek
qualified distributors in other foreign markets.
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<PAGE> 21
Medical Advisory Board. The Company has established a Medical Advisory
Board consisting of prominent spinal surgeons who have dealt with a wide variety
of spinal conditions and are familiar with virtually every spinal implant system
on the market. The Medical Advisory Board meets periodically to review and
evaluate the Company's research and development efforts and to identify
promising new technology for the Company. Individual members of the Medical
Advisory Board also meet and consult informally with employees of the Company.
In addition, members of the Medical Advisory Board assist the Company in
training other surgeons in the use of the Company's products. Members of the
Medical Advisory Board receive a fixed quarterly payment from the Company and
share an annual royalty payment based on sales of the Company's spinal implant
products. The Company is obligated to pay a royalty, subject to certain
limitations, to its Medical Advisory Board in an amount equal to 6% and
increasing 0.5% each year up to 8% of net sales of most spinal implant products.
The Company's aggregate royalty expense will increase, if and to the extent,
sales of implants increase. The following doctors are members of the Medical
Advisory Board.
<TABLE>
<S> <C>
Robert B. Winter, M.D., Chairman Minneapolis, MN
J. Abbott Byrd, M.D. Norfolk, VA
Rolando M. Puno, M.D. Louisville, KY
John Lonstein, M.D. Minneapolis, MN
Joseph Perra, M.D. Minneapolis, MN
Manuel Pinto, M.D. Minneapolis, MN
Michael Smith, M.D. Minneapolis, MN
</TABLE>
RECOVERY PRODUCTS
Technology Overview. CPM rehabilitation therapy technology in the
orthopedic field employs devices to slowly and continuously move an injured
joint without assistance of the patient's muscle power. This therapy is most
commonly used after joint surgery to improve blood flow, reduce swelling,
increase the range of motion, maintain muscle tone and speed healing.
Prior to the development of CPM therapy, physicians generally believed
that it was necessary to immobilize a bone and adjacent joints in a cast or
splint subsequent to an injury or an operation during the healing process. This
immobilization resulted in muscle atrophy, cartilage degeneration, and tendon
and ligament stiffening, and often required additional rehabilitation to restore
the pre-injury range of motion and strength. Beginning in the early 1970s,
experiments were conducted to determine the rehabilitative benefits of joint
exercise following surgery. These experiments led to the development of CPM
machines to provide the desired exercise with no effort on the part of the
patient. Clinical research has established that CPM therapy can significantly
reduce post-operative joint pain and swelling and increase arterial blood flow,
thus increasing range of motion and reducing the length of hospitalization and
rehabilitation.
At this time, the major market for CPM devices is for use immediately
following knee and hip joint replacement surgeries. The primary function of this
therapy is to rehabilitate injured or diseased joints and to prevent injury to
joints that would otherwise occur through immobilization. The success that CPM
has enjoyed in post-operative knee and hip therapy has generated demand for CPM
devices for the elbow, shoulder, hand, wrist, ankle and toe joints.
Company Recovery Products. The majority of the Company's line of recovery
products is marketed under the trade name Danniflex(TM). The Company offers a
full range of CPM devices: three leg models, a shoulder model, hand and finger
model, wrist model and toe model. The Company periodically refines and updates
its various CPM devices with the addition of new models to expand its existing
line or replace prior models. In addition to CPM devices, the Company continues
to offer product accessories that make CPM devices easier to use and apply.
The Company also offers a thermal therapy unit ("TTU"). The TTU
circulates heated or cooled water through a pad placed on the area designated
for treatment. The TTU has the unique ability to be programmed to cycle between
hot and cold within a wide range of temperature settings and cycle times.
Cycling between hot and cold simplifies extended treatment, reduces thermal
shock, and permits the use of contrast therapy to improve vascular stimulation.
At low temperatures, thermal therapy reduces post-acute or post-operative
swelling and pain and helps control blood loss. At higher temperatures, thermal
therapy relieves chronic pain, improves circulation, and promotes healing.
Applications include oral/maxillofacial, obstetric/gynecologic, urologic,
neurologic, orthopedic, and plastic surgery. The TTU is designed for hospitals,
sports training facilities, rehabilitation clinics, and home use. A disposable,
cold-only, TTU was introduced in 1993 for use by patients at home. The Company
continually seeks to expand and improve its offering of
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<PAGE> 22
TTUs and is exploring opportunities for other devices which utilize its
engineering and manufacturing strengths as well as its distribution networks.
Recovery Products Marketing. CPM devices are used primarily by
post-surgery orthopedic patients in hospitals and in their homes. CPM devices
are also used in nursing homes, sports medicine clinics and private practice
physical therapy clinics.
The Company sells the majority of its CPM devices to independent durable
medical equipment ("DME") dealers. Typically, DME dealers purchase and inventory
CPM devices in sufficient quantity for their rental markets. Dealers may
purchase the unit outright from the Company or finance the purchase through a
third party lessor. Upon receiving a rental order, the dealer transports the
unit to and from the hospital, institution, or home (usually within a 20 to 50
mile radius), aids in setting up the unit and bills the customer for the service
at a daily, weekly or monthly rental rate.
There are approximately five national DME dealers who rent or lease CPM
devices. Three of the five national DME dealers manufacture their own CPM
devices, and thus, are not customers of the Company. The Company sells to the
remaining two national dealers and to numerous smaller regional and local
dealers. In addition, in 1994, the Company formed RSI as a wholly owned
subsidiary to rent recovery products directly to end users. RSI was formed to
expand the geographic scope of the Company's recovery products market in those
areas without suitable DME dealers, to explore alternative distribution methods
for new and existing products, and to assist the Company in assessing the
product needs and requirements of the recovery products market.
Foreign markets represent an additional opportunity for the sale of the
Company's recovery products. The Company believes that the international market
for recovery products is approximately one-half the size of the United States
market. In 1995, approximately 5% of the Company's recovery products sales were
outside the United States. The Company has recently retained an international
independent sales agent to expand sales of recovery products in these markets.
Recovery Products Manufacturing. The Company assembles its recovery
products, fabricating some of the mechanical parts and purchasing the remaining
mechanical and all of the electrical components from a variety of vendors. All
of the Company's Danniflex(TM) line of lower extremity CPM devices share certain
basic structural elements. While the Company is dependent on certain vendors for
several components such as motors, ball screws, transformers and formed plastic
parts, the majority of the products used in the assembly process are widely
available from a variety of vendors. CPM devices are sold with a limited one
year warranty. Claims under the Company's CPM device warranty have been nominal.
COMPETITION
Spinal Implants. Many companies compete in the spinal implant market and
competition is intense. The Company believes that its largest competitors in the
United States offering spinal implant systems are Sofamor Danek Group, Inc. and
Acromed, Inc., each of which has substantially greater sales and financial
resources than the Company. The Company also competes with many other companies
that offer similar products, including large orthopedic product companies that
are now entering, or may in the future enter, the spinal implant market. Other
companies have developed and are marketing products based on technologies that
are different from the Company's, including spinal fusion cages, spinal implants
designed to be used with minimally invasive or laparoscopic surgery,
biodegradable polymer inserts and artificial bone implants. The Company believes
that it competes on the following basis: (a) the technological design and
functional performance of its implant products, (b) the level of training and
service support provided to spinal surgeons, (c) the professional reputation of
members of its Medical Advisory Board and the design and training assistance
they provide, and (d) the ability of its research and development personnel to
produce technologically superior products. Many of the Company's competitors
have capital resources, research and development staff, facilities, experience
in clinical trials and obtaining regulatory approvals, physician relationships
and experience in manufacturing and marketing significantly greater than those
of the Company. There can be no assurance that the Company will be able to
successfully market its spinal implant products, even if they are
technologically superior to others on the market, nor can there be any assurance
that other competing products or technologies will not be technologically
superior to those offered or developed by the Company.
Recovery Products. The Company competes with at least five other CPM
device manufacturers, three of which manufacture principally for their own
equipment rental businesses. While the Company's CPM devices are competitively
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<PAGE> 23
priced, they are at the high end of the price range for CPM devices. The Company
emphasizes design, quality, reliability, ease of use, safety and durability. The
marketing strategy emphasizes that the Danniflex(TM) products are the best value
in the industry because they are designed and manufactured to be reliable, safe,
easy to set up and operate, cost effective and service oriented. The Company
also competes, through its home care rental subsidiary, with numerous national,
regional and local rental concerns, many of which have greater sales and
financial resources than the Company. There can be no assurance that the Company
will be able to maintain or improve its competitive position in the recovery
products market.
RESEARCH AND DEVELOPMENT
The Company continually strives to improve existing products and develop
new products in both the recovery products market and the spinal implant market.
The Company conducts its research and development activities primarily through
its engineering departments and with the assistance of outside consultants. The
Company employs seven professional engineers and a technician engaged
exclusively in research and development.
In addition to research and development conducted by the Company, the
Medical Advisory Board plays an active role in the development of new spinal
implant products. The Company will continue to work with the members of its
Medical Advisory Board to develop new spinal systems which address spinal
deformities and degenerative disease in the cervical spine as well as titanium
implants to be used with the SYNERGY(TM) Spinal Implant System. The Company's
spinal implant research and development is concentrated on the design of these
new systems, and it expects to submit 510(k) applications to the FDA in 1996 for
the cervical version and the titanium version of the SYNERGY(TM) Spinal Implant
System. At the present time, the recovery products efforts are concentrated on
the development of lower cost leg CPM devices and specialty shoulder and elbow
CPM devices.
The Company's research and development expenditures during the fiscal
years ended December 31, 1995, 1994, and 1993 were $1,147,000, $1,324,000, and
$1,248,000, respectively. The Company intends to continue to invest in the
development of new spinal implant products and the improvement of existing
recovery products.
INTELLECTUAL PROPERTY LAW MATTERS
The Company holds the patent, manufacturing and marketing rights to
certain specialty orthopedic products. The SYNERGY(TM) Spinal Implant System is
covered by numerous pending United States and international patent applications
belonging to the Company. Several of these applications have now been issued by
the U.S. Patent and Trademark Office. These patents and applications concern
various aspects of the SYNERGY(TM) Spinal Implant System including the bone
anchor, the rod/anchor interface, instrumentation and transverse connectors.
Broad patent coverage of CPM devices is precluded by prior art. The
Company owns a patent for its shoulder CPM unit, a hand CPM device, a thermal
therapy pad and an air-powered CPM device.
The Company owns a number of United States trademark registrations and
has developed goodwill in several other trademarks. CROSS(R), CROSS
MEDICAL(R), INTEGRAL(TM) and SYNERGY(TM) are trademarks of the Company.
The Company intends to file patent applications on future products, as
appropriate. The mere filing and prosecution of patent applications, however,
cannot guarantee the ultimate issuance of patents. To the extent that the
Company is unsuccessful in securing patents for its devices or for certain
features of its devices which are easily reverse-engineered, there is little to
prevent a competitor from copying the Company's products, although the Company
would have "lead time" in the marketplace during the period needed by its
competitors to copy and secure FDA approval for a duplicate product. Thus, while
the patents may have value, the Company believes that they are of lesser
significance than the innovative skills, technical competence and marketing
ability of the Company's personnel.
GOVERNMENT REGULATION
The health care industry is subject to extensive government regulation on
both the federal and state levels. In particular, the FDA Act provides for
regulation by the FDA of the manufacture and sale of medical devices.
Under the FDA Act, all medical devices are to be classified as Class I,
Class II or Class III devices, depending upon the risk they present. Many Class
I and all Class II and III medical devices must be reviewed or approved for
marketing
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<PAGE> 24
prior to their distribution unless they are specifically excluded from the
requirement to do so. The review/approval process is more or less difficult
depending upon the product Class. In general, Class I devices must comply with
labeling and record keeping requirements and are subject to other general
controls and periodic inspection. In addition to general controls, Class II
devices must comply with performance standards established by the FDA.
Manufacturers of Class II devices also are subject to periodic inspection by the
FDA. Class III devices must receive pre-market approval from the FDA before they
can be commercially distributed in the United States, and manufacturers of Class
III devices are also subject to periodic inspection. The FDA Act also covers all
incoming materials control, processing control, traceability of input materials
and components, traceability of product servicing and other quality and safety
controls. All of these requirements are covered in the broad FDA specifications
known as "good manufacturing practice" regulations.
The Company's CPM devices are Class II devices under FDA regulations. The
Company has received permission from the FDA to market its existing CPM devices
subject to the same FDA controls and performance standards required of other
device manufacturers. The Company has passed all FDA inspections. Additionally,
the Company has received Underwriter's Laboratory approval on all of its
recovery products.
The PWB Screw/Rod System implantable devices are Class III devices. Class
III devices require premarket approval from the FDA before full distribution of
the device may begin. The FDA allows only devices proven to be both safe and
effective to be offered for full distribution. The FDA bases its judgement of
both safety and effectiveness on information gathered during studies conducted
pursuant to an IDE. The Company is following the premarket approval process for
the PWB Screw/Rod System and received an IDE from the FDA for the PWB Screw/Rod
System which permitted it to sell these devices to selected surgeons in the
United States. However, the Company has not determined whether to proceed with
the PMA in light of the development of the SYNERGY(TM) Spinal Implant System and
the potential reclassification of pedicle screw fixation by the FDA from Class
III devices to Class II devices.
The PWB Lumbosacral System and SYNERGY(TM) Spinal Implant System are
Class II devices. The Company has received 510(k) marketing clearance for the
PWB Lumbosacral System and the SYNERGY(TM) Spinal Implant System. The 510(k)
notification is a document submitted to demonstrate that the device in question
is "substantially equivalent" to an already legally marketed device, thus
allowing faster clearance by the FDA than the PMA procedure.
PROPERTIES
The Company leases space for its principal offices and production
facilities in Columbus, Ohio under a rental agreement which expires in June,
1996. The space is allocated to the Company's office and production facilities
as follows: approximately 7,500 square feet are used as office space, 23,000
square feet are used as manufacturing space, and 2,500 square feet are used for
engineering activities. The facility is located at 4140 Fisher Road, Columbus,
Ohio. Additionally, Cross leases office space just over 2,000 square feet at
4168 Fisher Road, Columbus, Ohio.
On February 8, 1996, the Company entered into a lease for its new office
and production facilities in Columbus, Ohio. The lease term begins on May 1,
1996, and terminates on June 1, 2001. The Company anticipates moving all of its
operations into this facility in May 1996. The new lease covers 27,680 square
feet and which the Company plans to use for office, manufacturing, and
engineering activities. The facility is located at 5160-D Paul G. Blazer
Memorial Parkway, Dublin, Ohio 43017.
PERSONNEL
As of March 31, 1996, the Company employed 77 full-time employees. The
Company has no part-time employees. None of the Company's employees are subject
to collective bargaining agreements, and the Company considers its relationship
with its employees to be good.
LEGAL PROCEEDINGS AND INSURANCE COVERAGE
The nature of the Company's business subjects the Company to product
liability and related claims from time to time. The Company maintains a claims
made product liability insurance policy with per occurrence ($50,000) and
aggregate ($250,000) retention limits. Beyond these retention limits, the policy
covers aggregate insured claims made during each policy year up to $5,000,000.
The Company believes that it has adequate insurance for its business, but there
can be no assurance that future operating results will not be materially
adversely affected by the final resolution of pending cases or future claims.
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The Company and other spinal implant manufacturers were named as
defendants in various purported class action product liability lawsuits alleging
that the plaintiffs were injured by spinal implants supplied by the Company and
others. All such lawsuits were consolidated for pretrial proceedings in the
Federal District Court for the Eastern District of Pennsylvania and on February
22, 1995, Chief Judge Emeritus Lewis C. Bechtle denied class certification. The
federal court lawsuits before Judge Bechtle will remain coordinated for further
pretrial purposes but are individual lawsuits. In response to the denial of
class certification, a large number of additional individual lawsuits have been
filed alleging, in addition to damages from spinal implants, a conspiracy among
manufacturers, physicians and other spinal implant industry members. The Company
has been named as a defendant, among others, in approximately 500 such lawsuits.
The Company believes that only 15 of such cases involve individual plaintiffs
utilizing implants supplied by the Company. The Company cannot estimate
precisely at this time the number of such lawsuits that may eventually be filed.
Most of such lawsuits are pending in federal courts and are in preliminary
stages. Discovery proceedings, including the taking of depositions, have
commenced in certain of the lawsuits. Plaintiffs in these cases typically seek
relief in the form of monetary damages, often in unspecified amounts. While the
aggregate monetary damages eventually sought in all of such individual actions
is substantial and exceeds the limits of the Company's products liability
insurance policies, the Company believes that it has affirmative defenses,
including, without limitation, preemption, and that these individual lawsuits
are otherwise without merit. All pending cases are being defended by the
Company's insurance carrier, in some cases under a reservation of rights. There
can be no assurance, however, that the $5,000,000 per policy year limit of the
Company's coverage will be sufficient to cover the cost of defending all
lawsuits or the payment of any amounts that may be paid in satisfaction of any
settlements or judgments. Further, there can be no assurance that the Company
will continue to be able to obtain sufficient amounts of products liability
insurance coverage at commercially reasonable premiums.
In addition to the above, in the ordinary course of business the Company
has been named as a defendant in various other legal proceedings. The Company
has denied liability in all such lawsuits and is vigorously defending the same.
The Company believes that it has adequate insurance for its business, but there
can be no assurance that future operating results will not be materially
adversely affected by the final resolution of these matters.
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MANAGEMENT
The following table sets forth certain information regarding each
executive officer and director of the Company. The terms of the Company's Board
of Directors are separated into three classes, with Class I expiring in 1997,
Class II expiring in 1998, and Class III expiring in 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Edward R. Funk 70 Chairman of the Board of the Company and of
Cross Medical Products, Inc.; Director (Class II)
Joseph A. Mussey 47 President, Treasurer and Chief Executive Officer
of the Company and of Cross Medical Products,
Inc.; Director (Class I)
Ira Benson 40 Vice President-Sales and Marketing of Cross
Medical Products, Inc.
Paul A. Miller 39 Vice President and Chief Financial Officer of the
Company
Thomas E. Zimmer 54 Vice President-Manufacturing of the Company
Curtis A. Loveland 49 Secretary of the Company; Director (Class II)
Daniel A. Funk, M.D. 40 Medical Advisor for the Company;
Director (Class I)
Daniel A. Gregorie, M.D. 46 Director (Class I)
Herbert J. Kahn 55 Director (Class II)
C. Craig Waldbillig 70 Director (Class III)
Peter H. Williams 45 Director (Class III)
Robert J. Williams 63 Director (Class I)
</TABLE>
EDWARD R. FUNK, SC.D. is a founder and director of the Company and has
previously served as President, Chief Executive Officer, and Treasurer of the
Company. Additionally, Dr. Funk has served as Chairman of the Board of the
Company since its inception. Dr. Funk is also a founder of Superconductive
Components, Inc., Columbus, Ohio, and has been a director and President thereof
since its inception in April 1987. Dr. Funk is the father of Dr. Daniel A. Funk,
also a director of the Company.
JOSEPH A. MUSSEY President, Treasurer, and Chief Executive Officer,
joined the Company in August 1990 as the Company's Vice President and Chief
Financial Officer. Mr. Mussey was named President of the Company in April 1991
and Chief Executive Officer in November 1991. Mr. Mussey was previously
Executive Vice President of the Process Automation Business of Combustion
Engineering, Inc., a division of Asea Brown Boveri from 1987 until joining the
Company in August 1990. From 1984 to 1987 he was Vice President, Operations of
the Engineered Systems and Controls Group of Combustion Engineering. Prior
thereto he worked for the B.F. Goodrich Co. where he held positions including
Operations Controller, Director of Marketing for the Industrial Products
Division, and Director of Analysis for the Engineered Products Group.
IRA BENSON was named Vice President, Sales and Marketing for Cross
Medical Products, Inc., the Company's wholly owned subsidiary, in June 1992.
From November 1988 until he joined the Company in June 1992, Mr. Benson was Vice
President, Marketing and Director of Marketing of Orthomet, Inc., Minneapolis,
Minnesota, a manufacturer and distributor of reconstructive hip and knee
orthopedic implants.
23
<PAGE> 27
PAUL A. MILLER was named Vice President and Chief Financial Officer in
July 1994. From July 1991 until joining the Company, Mr. Miller was Chief
Financial Officer and General Counsel for Litter Industries, Inc., a
diversified, family owned distributor in Chillicothe, Ohio. From 1983 until
joining Litter Industries, Inc. Mr. Miller was with Coopers & Lybrand L.L.P.
THOMAS E. ZIMMER was named Vice President, Manufacturing in August 1993
and served as the Company's Director of Manufacturing from May 1991 to August
1993. From May 1988 until joining the Company, Mr. Zimmer was Director of
Manufacturing, Electronic Transmitter Group for ABB Kent-Taylor, a division of
Asea Brown Boveri in Rochester, New York.
CURTIS A. LOVELAND Secretary of the Company since January 1984, has been
a practicing attorney for 23 years and has been a partner in the law firm of
Porter, Wright, Morris & Arthur, Columbus, Ohio since 1979. Mr. Loveland is also
a director of Rocky Shoes & Boots, Inc. and Applied Innovation Inc., both
companies which have a class of equity securities registered pursuant to Section
12 of the Securities Exchange Act of 1934.
DANIEL A. FUNK, M.D. has been an orthopedic surgeon in private practice
in Cincinnati, Ohio, since September 1989 and is a partner with Orthopedic
Consultants of Cincinnati, Inc. Dr. Funk completed a five-year residency in
orthopedic surgery at the Mayo Clinic, Rochester, Minnesota in June 1986. Dr.
Funk then completed a one-year fellowship in sports medicine with Dr. Frank
Noyes, Director of the Cincinnati Sports Medicine Institute, Cincinnati, Ohio,
in June 1987. Thereafter, Dr. Funk was in private practice in Columbus, Ohio,
specializing in orthopedic surgery. From April 1988 to June 1989, Dr. Funk was
Assistant Professor of The Ohio State University School of Medicine, Department
of Orthopedic Surgery. Dr. Funk served as a member of the Company's Technical
Advisory Board from 1984 until he was named as the Company's Medical Advisor in
1990. He is the son of Dr. Edward R. Funk, Chairman of the Board of the Company.
DANIEL A. GREGORIE, M.D. has been the President and Chief Executive
Officer of Choice Care, Cincinnati, Ohio, a managed health care company,
since June 1989.
HERBERT J. KAHN joined CompuServe, Inc. in September 1991 as Vice
President of Administration and is currently an Executive Vice President of that
company. Previously, Mr. Kahn had been the Executive Vice President of ABB
Process Automation Inc., a division of Asea Brown Boveri, from December 1990 to
September 1991. Asea Brown Boveri acquired Combustion Engineering, Inc., in
January 1990, including its Process Automation Business where Mr. Kahn served as
President of the Pulp and Paper Systems Group. Prior to that Mr. Kahn headed
International Operations for the Process Automation Business.
C. CRAIG WALDBILLIG has been Chairman of the Board of Medex, Inc., a
manufacturer of disposable medical supplies and equipment based in Hilliard,
Ohio for more than five years. Mr. Waldbillig also is retired as the Chief
Executive Officer of Medex, Inc. Mr. Waldbillig, as a director of Medex, Inc.,
holds a directorship in a company which has a class of equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934.
PETER H. WILLIAMS has been Senior Vice President of Sena, Weller, Rohs
and Williams, Inc., a registered investment advisory firm in Cincinnati, Ohio,
since March 1989. Mr. Williams was President of Sena, Weller, Rohs and Williams,
Inc. for more than five years prior to the sale of that company in February
1989.
ROBERT J. WILLIAMS has been the Chairman of the Board, President and
Chief Executive Officer of ARTEC, Inc. since 1988. ARTEC is an Indianapolis
based manufacturer of disposable anesthesia and respiratory products. Prior to
joining ARTEC, Inc., Mr. Williams served as President of De Puy Orthopedics in
Warsaw, Indiana for fifteen years. De Puy Orthopedics is a leading manufacturer
and marketer of orthopedic devices.
24
<PAGE> 28
DESCRIPTION OF DEBENTURES
The Debentures are to be issued under an Indenture (the "Indenture") to
be dated as of , 1996, between the Company and Fifth Third Bank as
trustee (the "Trustee"), a copy of which has been filed as an exhibit to the
Registration Statement. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions therein of certain terms. Wherever particular sections or defined
terms of the Indenture are referred to, it is intended that such sections or
defined terms shall be incorporated herein by reference. All parenthetical
references are to sections of the Indenture.
GENERAL
The Debentures will be limited to $5,000,000 aggregate principal amount
($5,250,000 if the Underwriter's over-allotment option is exercised in full),
will be issued only in fully registered form in denominations of $1,000 or any
integral multiple thereof, will bear interest from the date of original issue at
the rate per annum set forth on the cover page of this Prospectus and will
mature on June 1, 2003. Debentures issued pursuant to the over-allotment option
will bear interest from the date of issuance of the original $5,000,000
principal amount of Debentures, and the purchase price for over-allotment option
Debentures will include accrued interest if issued after the date of issuance of
the original $5,000,000 principal amount of Debentures. The Debentures will not
be secured, and the Indenture will not limit the amount of other indebtedness or
securities which may be issued by the Company. The Debentures are not subject to
any sinking fund.
Principal, Change of Control Purchase Price (as defined below), and
premium, if any, are to be payable, and the Debentures will be transferable and
exchangeable at, and conversion may be effected by delivery to, the corporate
trust office of the Trustee in Columbus, Ohio.
Interest on the Debentures will be payable semi-annually on June 1 and
December 1 of each year, commencing June 1, 1996, to registered holders of
record at the close of business on the fifteenth day of the month immediately
preceding such interest payment date. At the option of the Company, interest may
be paid by checks mailed to such registered holders.
The Company has been advised by the Underwriter that they presently
intend to make a market in the Debentures offered hereby; however, they are not
obligated to do so, and any market making activity may be discontinued at any
time. There can be no assurance that a trading market for the Debentures will
develop and continue after the offering. Because the Debentures are convertible
into Common Stock, the prices at which the Debentures may trade in the market
likely will be affected by the price of the Common Stock.
CONVERSION RIGHTS
The Debentures will be convertible into Common Stock (except as described
in the following paragraph) of the Company at any time before the close of
business on June 1, 2003 (unless a Debenture or a portion thereof has been
tendered, repurchased or called for redemption, in which case such Debenture may
be converted prior to and including, but not after, the fifteenth day (or, if
such day is not a business day, then on the next following business day) before
the redemption date in respect of such Debenture or portion thereof tendered or
called for redemption unless the Company defaults in the payment of amounts due
on redemption) at the Conversion Price set forth on the cover page of this
Prospectus, adjusted as described below. (Section 5.01) A Debenture in respect
of which the holder has delivered a Change of Control Purchase Notice (as
defined in Section 4.01) may be converted only if such notice is withdrawn in
accordance with the terms of the Indenture. (Section 4.02)
In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation, there
will be no adjustment of the Conversion Price, but the holder of each Debenture
then outstanding will have the right thereafter to convert such Debenture into
the kind and amount of securities, cash or other property which he would have
owned or have been entitled to receive after such consolidation, merger,
statutory exchange, sale or conveyance had such Debenture been converted
immediately before the effective date of such consolidation, merger, statutory
exchange, sale or conveyance. (Section 5.09) In the case of an all cash merger
of the Company into
25
<PAGE> 29
another corporation or any other cash transaction of the type mentioned above,
the Debentures would thereafter be convertible into the same amount of cash per
share that such holder would have received had such holder converted the
Debentures into Common Stock immediately before the effective date of such cash
merger or transaction. Depending upon the terms of such cash merger or
transaction, the aggregate amount of cash so received on conversion could be
more or less than the principal amount of the Debentures.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including the issuance of Common Stock as a dividend or
distribution on Common Stock; subdivisions, combinations or reclassification of
Common Stock; the issuance to holders of the Common Stock generally of rights or
warrants (expiring within 45 days after the record date for determining
stockholders entitled to receive them) to subscribe for Common Stock at less
than the then current market price as defined; or the distribution to the
holders of Common Stock generally of evidences of indebtedness, assets
(excluding dividends in cash out of retained earnings) or rights or warrants to
subscribe to securities of the Company other than those mentioned above. If, as
a result of such adjustment, the holder of any Debenture thereafter surrendered
for conversion becomes entitled to receive shares of two or more classes of
capital stock or Common Stock and other capital stock of the Company, the Board
of Directors (whose determination shall be conclusive and shall be described in
a statement filed with the Trustee and with any conversion agent) shall
determine in an equitable manner the allocation of the adjusted Conversion Price
between or among the shares of such classes of capital stock or Common Stock and
other capital stock. Upon conversion, no adjustments will be made for accrued
interest or dividends and, therefore, Debentures surrendered for conversion
after the fifteenth day of the month next preceding an interest payment date and
before such interest payment date must be accompanied by payment of an amount
equal to the interest thereon which is to be paid on such interest payment date.
No adjustment of the Conversion Price will be required to be made in any case
until cumulative adjustments amount to 1% or more of the Conversion Price. The
Company reserves the right to make such reductions in the Conversion Price in
addition to those required in the foregoing provisions as the Company in its
discretion may determine to be advisable in order that certain stock-related
distributions hereafter made by the Company to its stockholders will not be
taxable. (Sections 5.02 and 5.04)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness or
assets of the Company, but generally not share dividends) and, pursuant to the
anti-dilution provisions of the Indenture, the Conversion Price of the
Debentures is reduced, such reduction may be deemed to be the receipt of taxable
income by Debenture holders.
Conversion of Debentures may be effected by delivering them to the
Trustee's corporate trust office at 21 E. State Street, Columbus, Ohio 43215.
Fractional shares of Common Stock will not be delivered upon conversion,
but a cash payment will be made in respect of such fractional interests, based
on the then current market price of the Common Stock. (Section 5.03)
SUBORDINATION
The Debentures will be subordinated and subject, to the extent and in the
manner set forth in the Indenture, in right of payment to the prior payment in
full of all Senior Indebtedness of the Company. (Section 17.01) Senior
Indebtedness is defined as any indebtedness of the Company or a subsidiary for
money borrowed from banks, trust companies, insurance companies or other
financial institutions and any indebtedness evidenced by notes, bonds or
debentures (whether or not certificated) issued under the provisions of a trust
indenture or similar instrument between the Company and a bank, trust company or
other corporate trustee, which is outstanding on the date hereof or is hereafter
created, incurred or assumed and all deferrals, renewals, extensions and
refundings thereof, other than indebtedness as to which, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such indebtedness is subordinate to or equally subordinate with
the Debentures. (Section 1.01 ) At December 31, 1995, the Company had $4,140,000
of outstanding Senior Indebtedness. The Company expects to incur, from time to
time, additional borrowings or other obligations which would be Senior
Indebtedness. The Indenture does not limit the amount of Senior Indebtedness
which the Company may incur, nor does the Indenture prohibit the Company from
creating liens on its property for any purpose. In addition to the subordination
of the Debentures to Senior Indebtedness, the Trustee has a lien prior to the
Debentureholders upon all property and funds held or collected by the Trustee
for its fees and expenses, including fees and expenses of its agents, attorneys
and counsel.
26
<PAGE> 30
No payment shall be made by or on behalf of the Company on account of
principal of, or premium on, if any, or interest on, or on account of the
purchase, redemption or other acquisition or defeasance of the Debentures
(including any purchase required as a result of a Change of Control) if there
shall have occurred and be continuing any default in the payment of any Senior
Indebtedness beyond the period of grace, if any, specified in the instrument
evidencing such Senior Indebtedness (a "Payment Default"). In addition, if any
event of default with respect to any Senior Indebtedness, other than a Payment
Default, occurs and is continuing and as a result thereof the maturity of such
Senior Indebtedness is or may be accelerated (a "Covenant Default"), and the
Company and the Trustee receive written notice (such notice being herein
referred to as a "Deferral Notice") thereof from the holders of at least 10% in
principal amount of Senior Indebtedness, then no payment shall be made by or on
behalf of the Company on account of the Debentures or on account of the
purchase, redemption or other acquisition or defeasance of the Debentures
(including any purchase required as a result of a Change of Control) until the
earlier to occur of (x) the date such Covenant Default is cured, effectively
waived in writing by the holders of such Senior Indebtedness or otherwise ceases
to exist in accordance with the terms of the instruments or agreements creating
or evidencing such Senior Indebtedness, (y) the date the holders of such Senior
Indebtedness or other respective representatives shall have delivered to the
Trustee a written notice of waiver of the benefits of this sentence, or (z) the
179th day after receipt by the Company or the Trustee of such Deferral Notice,
if in any such case such payment is otherwise permitted at such time; provided,
however, that any number of Deferral Notices may be given, but during any 365
consecutive day period only one such period during which such payments on the
Debentures may not be made may commence and the duration of such period may not
exceed 179 days, and provided, further, that no subsequent Deferral Notice
relating to the same or any other Covenant Default existing or continuing on the
date of receipt of any prior Deferral Notice, whether or not such subsequent
Deferral Notice is received by the Company or Trustee within 365 days after
receipt of such prior Deferral Notice, shall be effective to further prohibit
such payments on the Debentures unless all events of default in respect of such
Senior Indebtedness shall have been cured or waived after the date of receipt of
such prior Deferral Notice for a period of not less than 180 consecutive days.
(Section 17.03)
Upon any acceleration of the principal due on the Debentures or any
payment or distribution of assets of the Company to creditors upon any total or
partial dissolution, winding up, liquidation, reorganization or receivership,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all principal of (and premium, if any) and interest due or to
become due on all Senior Indebtedness must be paid in full before the
Debentureholders are entitled to receive or retain any Payment (other than
shares of stock or subordinated indebtedness provided by a plan of
reorganization or adjustment which does not alter the rights of holders of
Senior Indebtedness). (Section 17.02) When the Senior Indebtedness is paid in
full, the Debentureholders will be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to Senior Indebtedness until the Debentures are paid in full.
(Section 17.05) By reason of the subordination described above, holders of
Senior Indebtedness may recover more, ratably, than the Debentureholders in the
event of the insolvency of the Company.
In the event of a recapitalization of the Company (in which a Change of
Control did not occur), the Debentures may remain outstanding; however, the
Conversion Price (including securities into which the Debentures are
convertible) may be adjusted. In the event of a liquidation of the Company, no
payment on account of principal of (or premium, if any) or interest on the
Debentures would be made until all Senior Indebtedness had been paid in full,
but holders of Debentures would be entitled to payment in full of the principal
amount of the Debentures before any distributions are made to any holders of
capital stock of the Company.
LIMITED RIGHT OF REDEMPTION BY HOLDER
Except for personal representative(s) or joint tenant(s) of deceased
Debentureholders, who may present Debentures at any time after June 1, 1996,
holders may present Debentures for payment prior to maturity at 100% of their
principal amount plus accrued interest (but without any premium), subject to the
limitation that the Company is not obligated to redeem any Debentures during the
period beginning with the original issuance of the Debentures and ending prior
to June 1, 1999, and during any 12-month period ending each June 1 thereafter
(i) the portion of the Debenture or Debentures exceeding an aggregate principal
amount of $25,000 per holder or (ii) Debentures in an aggregate principal amount
exceeding $250,000 ($262,500 if the Underwriter's over-allotment option is
exercised in full). Redemption of the Debentures presented for payment by the
last day (June 1) of each such period will be made on the July 1 immediately
following such date, beginning July 1, 1999. Debentures not redeemed in any such
period because they have not been presented by the last day (June 1) of that
period or because of the $25,000 or $250,000 limitations, will be held in order
of their receipt for redemption during the following 12-month period (s) until
redeemed, unless sooner withdrawn by the holder. Subject to the $25,000 and
$250,000 limitations, the Company will, upon the death of any holder, redeem
27
<PAGE> 31
Debentures within 60 days following receipt by the Trustee of a proper written
request therefor from such holder's personal representative or surviving joint
tenant(s), tenant by the entirety or tenant(s) in common. Debentures will be
redeemed in order of their receipt by the Trustee except Debentures presented
for payment in the event of death of the holder, which will be given priority in
order of their receipt. For purposes of a holder's request for redemption, a
Debenture held in tenancy by the entirety or tenancy in common will be deemed to
be held by a single holder and the death of a tenant by the entirety, joint
tenant or tenant in common will be deemed the death of a holder. The death of a
person who, during his lifetime, was entitled to substantially all of the
beneficial ownership interests of a Debenture will be deemed the death of a
holder, regardless of the registered holder, if such beneficial ownership
interest can be established to the satisfaction of the Trustee. (Section 4.05)
For purposes of a holder's request for redemption or a request for
redemption on behalf of a deceased holder, a beneficial interest shall be deemed
to exist in cases of street name or nominee ownership, ownership under the
Uniform Gift to Minors Act, community property or other joint ownership
arrangements between a husband and wife (including individual retirement
accounts or Keogh [H.R. 10] plans maintained solely by or for the holder or
decedent and his or her spouse), and trusts and certain other arrangements where
a person has substantially all of the beneficial ownership interests in the
Debentures during his or her lifetime. Beneficial ownership shall include the
power to sell, transfer or otherwise dispose of the Debenture and the right to
receive the proceeds therefrom, as well as interest and principal payable with
respect thereto. (Section 4.05)
Subject to the foregoing, Debentures must be presented for redemption by
delivering to the Trustee no later than 4:00 p.m., Columbus, Ohio time, on June
1 of any Redemption Period (i) a written request for redemption, in form
satisfactory to the Trustee, signed by the registered holder(s) or his duly
authorized representative, (ii) the Debenture to be redeemed, free and clear of
any liens or encumbrances of any kind, and (iii) in the case of a request made
by reason of the death of a holder, appropriate evidence of death and, if made
by a representative of the deceased holder, appropriate evidence of authority to
make such request. (Section 4.05) Any Debentures presented for redemption at the
option of the holder may be withdrawn by the person (s) presenting the same upon
delivery of a written request for such withdrawal to the Trustee no later than
4:00 p.m., Columbus, Ohio time, on June 1 of any Redemption Period, or prior to
the issuance of a check in payment thereof in the case of Debentures presented
by reason of the death of a holder. (Section 4.06)
In the case of Debentures registered in the names of banks, trust
companies or broker-dealers who are members of a national securities exchange or
the National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the redemption limitations described above will apply to each beneficial owner
of Debentures held by any Qualified Institution and the death of a beneficial
owner shall entitle a Qualified Institution to seek redemption of such
Debentures as if the deceased beneficial owner were the record holder. Such
Qualified Institution, in its request for redemption on behalf of such
beneficial owners, must submit evidence, satisfactory to the Trustee, that it
holds the Debentures subject to the request on behalf of such beneficial owner
and must specify the aggregate principal amount of Debentures being presented
for redemption on behalf of such beneficial owner. (Section 4.05)
The Company is legally obligated to redeem the Debentures properly
presented for redemption in accordance with the terms and conditions of the
Indenture, subject to the foregoing limitations. This redemption obligation is
not cumulative. Holders of the Debentures have no assurance, however, that all
of their Debentures presented for redemption will be redeemed prior to maturity
due to the application of the pro rata and annual amount limitations. The
Company is not required and does not intend to establish a sinking fund or
otherwise to set aside funds for prepayment of the Debentures prior to their
maturity.
Nothing in the Indenture prohibits the Company from redeeming, in
acceptance of tenders made pursuant to the Indenture, Debentures in excess of
the principal amount that the Company is obligated to redeem, nor does anything
in the Indenture prohibit the Company from purchasing any Debentures in the open
market. However, the Company may not use any Debentures purchased in the open
market as a credit against its redemption obligation.
REDEMPTION AT OPTION OF THE COMPANY
The Debentures may be redeemed, in whole or in part, at any time on or
after June 1, 1996, on at least 30 and not more than 60 days' notice at the
option of the Company, if then permitted by the Company's other debt
instruments; provided, however, that the Debentures may not be redeemed prior to
June 1, 1999, unless the average closing bid price per share of the Common Stock
is at least 140% of the Conversion Price in effect on each Trading Day (as
defined) for a period of not less than 20 Trading Days with a period of 30
consecutive Trading Days ending within five Trading Days
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<PAGE> 32
immediately prior to the date on which notice of redemption is first given to
any Debentureholder. (Sections 3.01 and 3.02) The redemption prices for
Debentures redeemed on or after June 1, 1996 are as follows (expressed in
percentages of principal amounts):
If redeemed during the 12-month period beginning June 1,
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1996...................................... 108%
1997...................................... 107%
1998...................................... 106%
1999...................................... 105%
2000...................................... 104%
2001...................................... 102%
</TABLE>
and thereafter at 100% of the principal amount thereof, in each case together
with accrued interest to the date fixed for redemption. In the event the Company
notifies the holder of Debentures that the Company intends to redeem the
Debentures and the holder elects to convert the Debentures, no payment or
adjustment shall be made on such conversion for interest accrued on the
Debentures surrendered for conversion. (Section 5.02)
Notice of redemption will be given to holders of Debentures to be
redeemed by first class mail at their last addresses on the registry books of
the Company. (Section 3.02)
REPURCHASE OF DEBENTURES AT THE HOLDER'S OPTION AFTER A CHANGE OF CONTROL
In the event of any Change of Control of the Company, each holder of
Debentures will have the right, at the holder's option, subject to the terms and
conditions of the Indenture, to require the Company to become obligated to
purchase all or any part (provided that the principal amount at maturity of such
part must be $1,000 or an integral multiple thereof) of the holder's Debentures
on the date that is 35 business days after the occurrence of such Change of
Control (the "Change of Control Purchase Date") at a price equal to 101% of the
principal amount thereof plus accrued interest to the Change of Control Purchase
Date (the "Change of Control Purchase Price"). (Section 4.01)
Within 20 business days after the Change of Control, the Company is
obligated to provide to all holders of Debentures at their addresses shown on
the registry books of the Company (and to beneficial owners if required by
applicable law) a notice regarding the Change of Control, which notice shall
state, among other things, (i) the date of such Change of Control and the events
causing such Change of Control, (ii) the last date by which the Change of
Control Purchase Notice must be given, (iii) the Change of Control Purchase
Date, (iv) the Change of Control Purchase Price, (v) the place to surrender
Debentures in exchange for the Change of Control Purchase Price, (vi) the
current Conversion Price, (vii) that Debentures as to which a Change of Control
Purchase Notice has been given may be converted into Common Stock only if the
Change of Control Purchase Notice has been withdrawn in accordance with the
terms of the Indenture, (viii) the procedures the holder must follow to exercise
these rights and (ix) the procedures for withdrawing a Change of Control
Purchase Notice. (Section 4.01)
To exercise this right, the holder must deliver the Change of Control
Purchase Notice to the Company prior to the close of business on the Change of
Control Purchase Date. The Change of Control Purchase Notice shall state (i) the
certificate numbers of the Debentures to be delivered by the holder thereof for
purchase by the Company, (ii) the portion of the principal amount of Debentures
to be purchased, which portion must be $1,000 or an integral multiple thereof,
and (iii) that such Debentures are to be purchased by the Company pursuant to
the applicable provisions of the Indenture. (Section 4.01)
Any Change of Control Purchase Notice may be withdrawn by the holder by a
written notice of withdrawal delivered to the Company prior to the close of
business on the Change of Control Purchase Date. The notice of withdrawal shall
state the principal amount and the certificate numbers of the Debentures as to
which the withdrawal notice relates and the principal amount, if any, that
remains subject to a Change of Control Purchase Notice. (Section 4.02)
Payment of the Change of Control Purchase Price for a Debenture for which
a Change of Control Purchase Notice has been delivered and not validly withdrawn
is conditioned upon delivery of such Debenture (together with necessary
endorsements) to the Company at any time (whether prior to, on or after the
Change of Control Purchase Date) after the
29
<PAGE> 33
delivery of such Change of Control Purchase Notice. (Section 4.01) Payment of
the Change of Control Purchase Price for such Debenture will be made promptly
following the later of the Change of Control Purchase Date or the time of
delivery of such Debenture. (Section 4.01)
Under the Indenture, a "Change of Control" of the Company is deemed to
have occurred at such time, as (i) any person (including such person's
Affiliates and Associates) other than the Company, its subsidiaries or their
employee benefit plans, files a Schedule 13D or 14D-1 (or any successor
schedule, form or report under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), disclosing that such person has become the beneficial
owner of 50% or more of the Common Stock, (ii) there shall be consummated any
consolidation or merger of the Company into any other entity, or conveyance,
transfer or lease of all or substantially all of its assets to any person or any
other corporation merges into the Company, other than, in any case, a
transaction in which the stockholders of the Company immediately prior to such
transaction own immediately following such transaction at least 70% of the
combined voting power of the outstanding voting stock of the corporation
resulting from such transaction in substantially the same proportion as their
ownership of Common Stock of the Company immediately before such transaction, or
(iii) there is (a) declared effective by the Commission a registration statement
pursuant to the Securities Act of 1933, as amended (or any successor thereto),
which includes shares of voting capital stock of any Material Subsidiary of the
Company, or (b) a distribution by the Company, by way of dividend or any other
form of transfer or conveyance to its then existing stockholders or other
persons in a corporate reorganization, recapitalization or spin-off transaction,
of any shares of voting capital stock of any Material Subsidiary of the Company.
(Section 1.01) A Change of Control does not include other events that might
adversely affect the financial condition of the Company or result in a downgrade
in the credit rating of the Debentures if indeed such a rating is publicly
available.
The Board of Directors of the Company does not have the right to limit a
Debentureholder's right to receive the Change of Control Purchase Price by
approving a Change of Control, including any Change of Control involving the
Company's management.
The Company will comply with the provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act which may then be applicable and will
file a Schedule 13E-4 or any other schedule required thereunder in connection
with any offer by the Company to purchase Debentures at the option of holders
upon a Change of Control. (Section 4.04)
The Change of Control purchase feature of the Debentures may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. The Change of Control purchase
feature of the Debentures, however, is not the result of management's knowledge
of any specific effort to accumulate Common Stock or to obtain control of the
Company by means of a merger, tender offer, solicitation or otherwise, or part
of a plan by management to adopt a series of antitakeover provisions. Instead,
the Change of Control purchase feature is a standard term contained in other
convertible debt offerings that have been marketed by the Underwriter and the
terms of such feature result from negotiations between the Company and the
Underwriter.
There can be no assurance that the Company would have sufficient funds to
pay the Change of Control Purchase Price for all Debentures tendered by the
holders thereof if a Change of Control were to occur. In addition, the Company's
ability to purchase Debentures with cash may be limited by the terms of its then
existing borrowing agreements. A default by the Company on its obligation to pay
the Change of Control Purchase Price would result in an Event of Default and
could result in acceleration of the maturity of other indebtedness of the
Company at the time outstanding pursuant to cross-default provisions. See
"Events of Default." In such event, the ability of a holder to receive the
Change of Control Purchase Price may be limited unless and until such default or
acceleration can be cured, waived or cease to exist. In general, however, no
such default would occur as long as the Company were permitted under its other
loan agreements to purchase the Debentures tendered for purchase. No Debentures
may be purchased if an Event of Default described under "Events of Default"
below has occurred and is continuing (other than a default in the payment of the
Change of Control Purchase Price with respect to such Debentures). (Section
4.02)
Because the Indenture does not limit the amount of Senior Indebtedness,
in the event that the Company undertakes a highly leveraged transaction in which
no Change of Control occurs, holders of the Debentures would have no right to
require repurchase of the Debentures after such an event.
30
<PAGE> 34
EVENTS OF DEFAULT
Events of Default are defined in the Indenture as being: default in
payment of any interest installment due on the Debentures and not cured within
21 business days; default in payment of principal, Change of Control Purchase
Price, or premium, if any; failure to make any redemption payment with respect
to any of the Debentures as and when the same shall have become due and payable
and continuance of such default for a period of 10 business days; default in
performance of any other covenant in the Indenture continuing for 60 days after
notice to the Company by the Trustee or to the Company and the Trustee by the
holders of 25% in principal amount of the outstanding Debentures; default by the
Company or any subsidiary under any mortgage, indenture, loan agreement or other
financial obligation providing for indebtedness or securing indebtedness of the
Company in excess of $1,000,000 and such default results in acceleration of such
indebtedness which acceleration is not rescinded or annulled within 30 days
after written notice to the Company from the Trustee or to the Company and the
Trustee from holders of not less than 25% in aggregate principal amount of
Debentures then outstanding; and certain events of bankruptcy, insolvency and
reorganization of the Company. (Section 8.01)
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during default to act with the required standard of care, to
be indemnified by the Debentureholders before proceeding to exercise any right
or power under the Indenture at the request of Debentureholders. (Section 9.01)
The Indenture also provides that the holders of a majority in principal amount
of the outstanding Debentures may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, and prior to any declaration
accelerating the maturity of the Debentures, may waive certain past defaults
under the Debentures. (Section 8.07)
The Indenture provides that no Debentureholder may institute any action
against the Company under the Indenture (except actions for payment of overdue
principal, payment upon redemption, Change of Control Purchase Price, interest
or any premium) unless such Debentureholder previously shall have given to the
Trustee written notice of default and continuance thereof, and unless the
holders of at least 25% in principal amount of Debentures then outstanding shall
have requested the Trustee to institute such action and shall have offered the
Trustee reasonable indemnity, the Trustee shall not have instituted such action
within 60 days of such request and the Trustee shall not have received direction
inconsistent with such written request by the holders of not less than 50% in
aggregate principal amount of the Debentures then outstanding. (Section 8.04)
The Indenture contains a covenant that the Company will file annually
with the Trustee a certificate as to compliance with the terms and provisions of
the Indenture. (Section 6.05)
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee
with the consent of the holders of 66 2/3% in principal amount of the
outstanding Debentures, to execute supplemental indentures adding any provisions
to or changing or eliminating any of the provisions of the Indenture or
modifying the rights of the Debentureholders, except that no such supplemental
indenture may (i) extend the fixed maturity of any Debenture, reduce the rate or
extend the time of payment of interest thereon, reduce the principal amount
thereof or premium thereon, change the currency of payment of the Debentures or
impair the right to convert or redeem the Debentures or the terms upon which the
Debentures may be converted or redeemed or impair the right of a Debentureholder
to receive the Change of Control Purchase Price upon a Change of Control,
without the consent of the holder of each Debenture so affected, or (ii) reduce
the aforesaid percentage of Debentures, the holders of which are required to
consent to any such supplemental indenture, without the consent of the holders
of all outstanding Debentures. (Section 12.02)
REPORTS TO DEBENTUREHOLDERS
The Company intends to furnish to holders of the Debentures all quarterly
and annual reports which it furnishes to holders of its Common Stock.
31
<PAGE> 35
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, $0.01 par value. The following summary of the Company's capital
stock is subject to, and qualified in its entirety by, the Company's Restated
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
and the Amended and Restated Bylaws (the "Bylaws") that are included as exhibits
to the Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.
COMMON STOCK
At March 1, 1996, there were 4,716,990 shares of Common Stock
outstanding. In addition, at December 31, 1995, 516,500 shares of Common Stock
were reserved for issuance upon exercise of outstanding stock options. Holders
of Common Stock are entitled to one vote per share on any matter submitted to
the vote of stockholders. Cumulative voting is prohibited in the election of
directors. Accordingly, the holders of a majority of the outstanding shares have
the power to elect all directors and to control the resolution of most issues
put to a vote of the stockholders. The holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Price Range
of Common Stock and Dividend Policy." The Common Stock is not redeemable, does
not have any conversion rights and is not subject to call. Holders of shares of
Common Stock have no preemptive rights to maintain their respective percentage
of ownership in future offerings or sales of stock by the Company. The shares of
Common Stock presently outstanding are fully paid and nonassessable.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation limits the liability of
directors to the extent currently permitted by the Delaware General Corporation
Law. In addition, the Company's Bylaws provide that the Company shall indemnify
directors and officers of the Company to the extent permitted by such law. The
Company has entered into an indemnification agreement with each of its
directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the above referenced
provisions, or otherwise, the Company has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with an interested stockholder for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers, and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
In general, Section 203 defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of a
Delaware corporation and any entity or person associated with or controlling or
controlled by such an entity or person. Section 203 defines business combination
to include: (i) any merger or consolidation involving the corporation and the
interested stockholder, (ii) any sale, transfer, pledge or other disposition
involving the interested stockholder of 10% or more of the assets of the
corporation; (iii) subject to certain exceptions, any transaction which results
in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder, (iv) any transaction involving the corporation
which has the effect of increasing the proportionate share of the stock of any
class or series of the corporation beneficially owned by the interested
stockholder, or (v) the receipt by
32
<PAGE> 36
the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS; BUSINESS
COMBINATION PROVISIONS
The Company's Certificate of Incorporation and Bylaws contain various
provisions that may have the effect, either alone or in combination with each
other, of making more difficult or discouraging a business combination or an
attempt to obtain control of the Company that is not approved by the Board of
Directors. These provisions include (i) the right of the Board of Directors to
issue shares of unissued and unreserved Common Stock without stockholder
approval, (ii) the division of the Board of Directors into three classes, (iii)
the requirement of the vote of the holders of not less than 80% of the
outstanding voting stock to remove a director, unless the removal is recommended
by at least 80% of the entire Board of Directors, (iv) prohibitions on the right
of stockholders to call a special meeting, of stockholders, and (v) the right of
a majority of the directors then in office to fill any vacancies in the Board of
Directors or newly created directorships.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Fifth Third
Bank.
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, The Ohio Company (the "Underwriter") has agreed to purchase
from the Company $5,000,000 of Debentures.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions contained therein, to purchase the entire $5,000,000
principal amount of Debentures offered hereby if any are purchased.
The Company has been advised by the Underwriter that it proposes
initially to offer the Debentures to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of ____% of the principal amount of the
Debentures. The Underwriter may allow and such dealers may reallow a concession
not in excess of ____% of the principal amount of the Debentures to certain
other dealers. After the Debentures are released for sale to the public, the
offering price and such concessions may be changed.
The offering of the Debentures is made for delivery when, as and if,
accepted by the Underwriter and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriter
reserves the right to reject any order for the purchase of the Debentures.
The Company has granted to the Underwriter an option, exercisable not
later than 30 days from the date of this Prospectus, to purchase up to an
additional $250,000 principal amount of Debentures to cover overallotments. To
the extent that the Underwriter exercises this option, the Underwriter will have
a firm commitment to purchase such Debentures and the Company will be obligated,
pursuant to the option, to sell such Debentures to the Underwriter. The
Underwriter may exercise such option only to cover over-allotments made in
connection with the sale of the Debentures offered hereby. If purchased, the
Underwriter will sell such additional Debentures on the same terms as those on
which the $5,000,000 principal amount are being offered.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter and controlling persons, if any, against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
which the Underwriter or any such controlling persons may be required to make in
respect thereof.
In connection with this offering, certain selling group members (if any)
or their respective affiliates who are qualifying registered market makers on
The Nasdaq SmallCap Market may engage in passive market making transactions in
the Common Stock on The Nasdaq SmallCap Market in accordance with Rule 10b-6A
under the Exchange Act during the two business day period before commencement of
offers or sales of the Debentures. The passive market making transactions must
comply with applicable volume and price limits and be identified as such. In
general, a passive market maker may display its bid at a price not in excess of
the highest independent bid for the security; if all independent bids
33
<PAGE> 37
are lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the Debentures offered hereby is being passed upon for
the Company by Porter, Wright, Morris & Arthur, Columbus, Ohio. Curtis A.
Loveland, Esq., a director and Secretary of the Company and a partner at
Porter, Wright, Morris & Arthur, beneficially owns 559,378 shares of the
Company's Common Stock, or 11.83% of the outstanding shares, including 27,460
shares held by Mr. Loveland directly or in a self-directed retirement account,
12,500 shares subject to exercisable options, and 519,418 shares held as
trustee for various irrevocable trusts for the benefit of Dr. Edward R. Funk
and/or members of his family. Certain legal matters will be passed upon for
the Underwriter by Squire, Sanders & Dempsey, Columbus, Ohio.
EXPERTS
The financial statements and the related financial statement schedules
as of December 31, 1995 and December 31, 1994 and for each of the three years in
the period ended December 31, 1995 included or incorporated by reference in
this Prospectus have been audited by Coopers & Lybrand L.L.P., independent
accountants, as stated in their reports, which are included or incorporated by
reference herein, and have been so included or incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
34
<PAGE> 38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants................................................................ F-2
Consolidated Balance Sheet as of December 31, 1995 and 1994...................................... F-3
Consolidated Statement of Operations for the three years ended
December 31, 1995, 1994 and 1993....................................................... F-4
Consolidated Statement of Changes in Shareholders' Equity for
the three years ended December 31, 1995, 1994 and 1993................................. F-5
Consolidated Statement of Cash Flows for the three years ended
December 31, 1995, 1994 and 1993....................................................... F-6
Notes to the Consolidated Financial Statements................................................... F-8
</TABLE>
F-1
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Danninger Medical Technology, Inc.
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of Danninger
Medical Technology, Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Danninger Medical
Technology, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Columbus, Ohio
March 27, 1996
F-2
<PAGE> 40
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, December 31, 1995 and 1994
(In thousands)
-------
ASSETS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C>
Current assets:
Cash $ 3
Accounts receivable trade (net of allowance for
doubtful accounts of $204 and $131 for 1995
and 1994, respectively $3,497 2,705
Inventories 4,227 3,316
Prepaid expenses and other current assets 409 498
Deferred income taxes 174 127
------ ------
Total current assets 8,307 6,649
------ ------
Property and equipment, net 724 487
------ ------
Other assets:
Notes receivable 85
Other assets 304 171
Deferred taxes 182 41
------ ------
Total assets $9,517 $7,433
====== ======
</TABLE>
Continued
F-3
<PAGE> 41
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, Continued
(In thousands except for share amounts)
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current liabilities:
Cash overdraft $ 167
Current portion, term debt 3,380 $2,140
Current portion, capital lease obligations 26 37
Accounts payable, trade 1,146 1,532
Accrued expenses and other liabilities 402 326
------ ------
Total current liabilities 5,121 4,035
------ ------
Term debt, net of current maturities 839
------
Obligations under capital leases, net
of current maturities 35 8
------ ------
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value:
Authorized, 10,000,000 shares; issued and
outstanding 4,707,490 and 4,551,390 shares
for 1995 and 1994, respectively 47 46
Paid-in capital 3,367 2,877
Retained earnings 108 467
------ ------
Total shareholders' equity 3,522 3,390
------ ------
Total liabilities and shareholders' equity $9,517 $7,433
====== ======
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 42
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
for the three years ended December 31, 1995, 1994 and 1993
(In thousands except share amounts)
---------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue:
Net sales $ 11,785 $ 10,083 $ 9,254
Lease and rental revenue 799 71 59
----------- ----------- -----------
12,584 10,154 9,313
Cost of goods sold 6,360 5,128 5,428
----------- ----------- -----------
Gross margin 6,224 5,026 3,885
----------- ----------- -----------
Operating expenses:
Sales and marketing 3,201 1,858 1,750
General and administrative 2,014 1,536 1,451
Research and development 1,147 1,324 1,248
----------- ----------- -----------
6,362 4,718 4,449
----------- ----------- -----------
Operating income (loss) (138) 308 (564)
Other income (expense):
Interest expense (289) (158) (156)
Other income (expense), net (4) 60 38
----------- ----------- -----------
(293) (98) (118)
----------- ----------- -----------
Income (loss) before income taxes (431) 210 (682)
----------- ----------- -----------
Income taxes (benefit):
Federal:
Current 155
Deferred (100) 100 (101)
State and local 28 29 38
----------- ----------- -----------
(72) 129 92
----------- ----------- -----------
Net income (loss) $ (359) $ 81 $ (774)
=========== =========== ===========
Earnings per share:
Net income (loss) per share ($ .08) $ .02 ($ .18)
=========== =========== ===========
Weighted average shares
outstanding including common
stock equivalents 4,661,332 4,695,418 4,420,312
=========== =========== ===========
</TABLE>
See notes to the consolidated financial statements.
F-5
<PAGE> 43
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the three years ended December 31, 1995, 1994 and 1993
(In thousands)
----------
<TABLE>
<CAPTION>
Number
Of Shares Common Paid-In Retained
Outstanding Stock Capital Earnings Total
----------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 4,401 $ 44 $2,523 $1,160 $3,727
Exercise of stock options
for shares of common stock 30 49 49
Tax benefit from stock options
exercised 6 6
Net loss (774) (774)
------ ------ ------ ------ ------
Balance, December 31, 1993 4,431 44 2,578 386 3,008
Exercise of stock options and warrants
for shares of common stock 121 2 262 264
Tax benefit from stock options
exercised 37 37
Net income 81 81
------ ------ ------ ------ ------
Balance, December 31, 1994 4,552 46 2,877 467 3,390
Exercise of stock options and warrants
for shares of common stock 156 1 402 403
Tax benefit from stock options
exercised 88 88
Net loss (359) (359)
------ ------ ------ ------ ------
Balance, December 31, 1995 4,708 $ 47 $3,367 $ 108 $3,522
====== ====== ====== ====== ======
</TABLE>
See notes to the consolidated financial statements.
F-6
<PAGE> 44
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three years ended December 31, 1995, 1994, and 1993
(In thousands)
----------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (359) $ 81 $ (774)
------- ------- -------
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 257 257 343
Reserves for doubtful accounts 118 (53) 188
Gain on sale of fixed assets (50) (21)
Deferred income taxes (100) 100 (100)
Changes in assets and liabilities:
Accounts receivable (878) (1,248) (326)
Net investment in sales-type leases 206 1,586
Inventories (1,113) (580) 252
Prepaid expenses and other assets 52 (105) (77)
Federal income taxes refundable (76)
Accounts payable, accrued
expenses and other liabilities (288) 912 204
------- ------- -------
Total adjustments (1,952) (637) 2,047
------- ------- -------
Net cash provided by (used
in) operating activities (2,311) (556) 1,273
------- ------- -------
Cash flows from investing activities:
Payments received on notes receivable 21 83
Purchases of property and equipment (183) (295) (209)
Proceeds from sale of property and equipment 205 60
------- ------- -------
Net cash used in investing activities (162) (90) (66)
------- ------- -------
</TABLE>
Continued
F-7
<PAGE> 45
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
(In thousands)
----------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from term debt $ 4,331 $ 395 $ 435
Repayment of term debt and
capitalized lease obligations (2,431) (56) (1,626)
Proceeds from exercise of stock
options and Warrants 403 264 49
Cash overdraft 167 (19)
------- ------- -------
Net cash (used in) provided
by financing activities 2,470 603 (1,161)
------- ------- -------
Net increase (decrease)
in cash (3) (43) 46
Cash balance at beginning of year 3 46 0
------- ------- -------
Cash balance at end of year $ 0 $ 3 $ 46
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 289 $ 158 $ 156
======= ======= =======
Income taxes (refunds) $ 28 $ 97 $ (160)
======= ======= =======
</TABLE>
See notes to the consolidated financial statements.
F-8
<PAGE> 46
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Description of Business:
Danninger Medical Technology, Inc. (Danninger) designs, manufactures,
and markets, through dealers, products that assist orthopedic patients
in their recovery following surgery or trauma. Recovery Services, Inc.
(RSI) was established to rent and sell durable medical equipment to
orthopedic patients. Cross Medical Products, Inc. (Cross) develops and
markets orthopedic surgical instrumentation and implants. In 1992, Cross
received the Food & Drug Administration (FDA) 510(k) marketing clearance
for general distribution of its Puno\Winter\Byrd (PWB) Lumbosacral
System. In 1995 Cross received FDA 510(k) marketing clearance for
general distribution of its Synergy Spinal Implant system.
2. Summary of Significant Accounting Policies:
The following is a summary of certain significant accounting policies
followed in the preparation of these consolidated financial statements:
Basis of Presentation:
The consolidated financial statements include the accounts of
Danninger Medical Technology, Inc. and its wholly-owned
subsidiaries, Cross Medical Products, Inc. and Recovery Services,
Inc. (collectively, the "Company"). All significant intercompany
accounts and transactions have been eliminated.
Accounting Estimates:
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Earnings Per Share:
Primary earnings per share is calculated based on the weighted
average number of common shares and common share equivalents
outstanding. Common share equivalents include options and warrants
to purchase common shares that are potentially dilutive using the
treasury stock method.
Inventories:
Inventories are valued at the lower of first-in, first-out cost or
market and consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Raw materials $ 671 $1,086
Work-in-process 108 99
Finished goods 2,686 1,790
Consigned inventory 762 341
------ ------
$4,227 $3,316
====== ======
</TABLE>
F-9
<PAGE> 47
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is
computed using the straight-line method at rates designed to
amortize the costs of such items over their estimated useful lives.
Depreciation expense for the years ended December 31, 1995, 1994 and
1993 was $251,000, $255,000 and $340,000, respectively.
Expenditures for major improvements are capitalized, while
expenditures for repairs and maintenance are charged to operations
as incurred. When property and equipment are retired or sold, the
cost and related accumulated depreciation or amortization are
removed from the accounts with any gain or loss reflected in the
results of operations.
The Company transferred $222,000 and $95,000 of inventory to rental
equipment during 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Property and equipment are comprised of: 1995 1994
---- ----
(in thousands)
<S> <C> <C>
Machinery and equipment $ 656 $ 571
Rental equipment 453 134
Office furniture and fixtures 286 233
Computer equipment 569 492
Leasehold improvements 242 242
------ ------
2,206 1,672
Less accumulated depreciation 1,482 1,185
------ ------
$ 724 $ 487
====== ======
</TABLE>
Intangibles:
Other assets include patents and goodwill. Intangible assets including
goodwill are amortized on a straight-line basis over their estimated
useful lives ranging from five to 17 years. Management periodically
evaluates the recoverability of all intangible assets based on estimated
future cash flows. Amortization expense for the years ended December 31,
1995, 1994, and 1993 was $6,000, $3,000 and $3,000, respectively.
Product Warranty Costs:
The Company accrues estimated future costs for product warranty expense
based on the number of units in service and the anticipated cost per
unit of fulfilling its warranty obligation. Included in accrued expenses
at December 31, 1995 and 1994 was $40,000 of accrued product warranty
cost.
F-10
<PAGE> 48
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
Revenue Recognition:
Revenue from the sales of products is recognized upon shipment. Revenue
from the rental of equipment is recorded over the period during which
the unit is rented.
Income Taxes:
Income tax expense is determined on the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of the assets
and liabilities and net operating loss and tax credit carryforwards for
which income tax benefits will be realized in future years using enacted
tax rates. Valuation allowances are provided against deferred tax assets
based on estimated future recoverability of the assets.
Stock Compensation:
In December 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123, Accounting
for Stock-Based Compensation, which changes the measurement, recognition
and disclosure standards for stock-based compensation. Management is
currently evaluating the provisions of SFAS No. 123 on the results of
operations, and the method of disclosure has not been determined.
3. Sales-Type Leases:
Prior to 1992, the Company marketed several products through lease
arrangements. The leases generally had four-year terms with no buyout or
renewal options. The leases were accounted for as sales-type leases with
unearned income recognized on the interest method over the term of the
lease. During 1992, the Company discontinued this program and
renegotiated substantially all of its sales-type leases to amend payment
terms.
In 1994, the Company acted upon a security interest granted by a
customer in default of its lease agreement and repossessed substantially
all of the assets of the customer. Prior to repossession, the Company's
net investment in sales-type leases relating to this customer was
$145,000.
F-11
<PAGE> 49
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
4. Term Debt:
Term debt at December 31, 1995 and 1994 was:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
---- ----
<S> <C> <C>
Revolving credit agreement $3,000 $2,140
Note payable, bank, due in monthly installments of $16,667 plus
accrued interest of prime (8.75% at December 31, 1995) plus .75%,
maturing in June 2000. 917
Note payable, finance company, due in monthly principal payments of
$6,997 plus accrued interest of prime (8.75% at December 31, 1995)
plus 1.5%, maturing in June 1998. 223
Note payable, related party, payable on demand. 79
------ ------
4,219 2,140
Less current maturities 3,380 2,140
------ ------
$ 839 $ 0
====== ======
</TABLE>
Under the terms of the revolving credit agreement, the Company may
borrow up to $3,000,000 at the bank's prime interest rate (8.75% at
December 31, 1995) plus .5%. The weighted average borrowing rate on
short-term borrowings outstanding was 9.34% and 7.80% at December 31,
1995 and 1994, respectively. The borrowings on the revolving credit
agreement are due on June 30, 1996. The agreement contains financial
covenants requiring the Company to maintain certain financial ratios. At
December 31, 1995, the Company was not in compliance with certain of the
financial covenants in the loan facility agreement. The Bank waived the
covenant noncompliance effective December 31, 1995 and amended the
financial covenants effective January 1, 1996 to make them less
restrictive. Substantially all of the Company's assets are pledged as
collateral on the revolving credit agreement and other term debt.
During 1995, the Company obtained a loan from a keyman life insurance
policy in the irrevocable life trust of a significant shareholder and
director at an interest rate of 8%, payable on the anniversary date of
the loan.
F-12
<PAGE> 50
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
Term debt maturities (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $3,380
1997 292
1998 247
1999 200
2000 100
------
$4,219
======
</TABLE>
5. Rental and Lease Agreements:
The Company leases its offices and manufacturing facilities under
operating lease agreements which expire on June 30, 1996. The Company
has entered into a new lease agreement for its offices and manufacturing
facility which will expire on May 31, 2001. Total rent expense was
$178,000, $151,000, and $131,000 in 1995, 1994, and 1993, respectively.
The Company leases certain manufacturing and computer equipment under
noncancelable lease agreements that are accounted for as capitalized
leases. The leases provide that the Company pay taxes, insurance and
maintenance expenses related to the equipment. Leased equipment under
capital leases is included in the accompanying consolidated balance
sheets as property and equipment with an aggregate cost of $305,000 and
$235,000, and accumulated depreciation of $241,000 and $192,000 at
December 31, 1995 and 1994, respectively. New capital lease obligations
in 1995 were $70,000.
Future minimum payments including the new lease arrangement for the
corporate offices and manufacturing facilities (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
------------------------ ------- ---------
<S> <C> <C>
1996 $31 $ 262
1997 22 283
1998 11 270
1999 6 273
2000 3 276
Thereafter 115
--- ------
Total minimum lease payments 73 $1,479
======
Less amount representing interest 12
---
61
Less current maturities 26
---
Long-term obligations under capital leases $35
===
</TABLE>
The Company rents certain medical products to orthopedic patients
following surgery or trauma. The arrangements are accounted for as
operating leases with terms generally less than one year. The carrying
value of rental equipment was $355,000 and $128,000 at December 31, 1995
and 1994, respectively.
F-13
<PAGE> 51
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
6. Notes Receivable:
In December, 1994, the Company acted upon a security interest it had
been granted by a customer and repossessed the collateral which secured
the customer's note. As a result of the repossession, the Company
settled the note and recognized income for the recovery of previously
provided valuation allowances of $76,000 for the year ended December 31,
1994.
During 1994, the Company sold equipment to a major supplier totalling
$113,000. The Company agreed to finance the sale over 48 months at an
interest rate based on the published prime rate on the first business
day of each month plus an additional one-half percent. The monthly
principal payment was $2,360 plus interest calculated on the outstanding
principal balance. In 1995, the major supplier settled the remaining
balance of the note receivable of $92,000 in exchange for amounts owed
by the Company to the supplier.
7. Federal Income Tax:
The components of the deferred tax asset are (in thousands):
<TABLE>
<CAPTION>
Temporary differences: 1995 1994
---- ----
<S> <C> <C>
Deferred tax assets
Accounts receivable $ 68 $ 44
Inventories 205 162
Warranty reserve 12 13
State and local taxes 13 13
Net operating loss 295 64
Tax credit carryforwards 367 332
---- -----
Total deferred tax asset 960 628
Less valuation allowance (600) (456)
Deferred tax liability
Property and equipment (4) (4)
---- -----
Net deferred tax asset $356 $ 168
==== =====
</TABLE>
The current and non-current components of the net deferred tax asset
recognized in the balance sheet are (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net current asset $174 $127
Net non-current asset 182 41
---- ----
Net asset $356 $168
==== ====
</TABLE>
The Company has established a valuation allowance for the future
recoverability of deferred tax assets. The
F-14
<PAGE> 52
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
allowance has been established based on the Company's historical
experience of paying federal income taxes at alternative minimum tax
rates and expected limitations on the future use of research and
development and alternative minimum tax credit carryforwards. Research
and development credit carryforwards were $361,000 at December 31, 1995
and expire as follows: $95,000 in 2006, $77,000 in 2007, $92,000 in
2008, $61,000 in 2009 and $36,000 in 2010.
The following is a reconciliation of income tax expense to the amount
computed at the federal statutory rate:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Income tax (benefit)
expense at statutory rates $(146) $ 72 $(232)
Increase (reduction) in taxes resulting from:
Research and development tax credits (36) (82) (96)
State and local income taxes, net of
federal income tax benefit 18 20 25
Valuation allowance 78 39 391
Other permanent differences 14 80 5
----- ----- -----
Total income tax expense (benefit) $ (72) $ 129 $ 93
====== ===== =====
</TABLE>
Tax benefits credited to equity for stock options exercised were
$88,000, $37,000 and $6,000 for the years ending December 31, 1995, 1994
and 1993, respectively.
8. Shareholders' Equity:
Pursuant to a license agreement for a patent on certain implant devices,
the Company issued warrants to purchase 150,000 shares of common stock
at $2.75 each. The warrants vested 50% in each of February 1994 and 1995
and were exercisable through February 1998. The warrants were exercised
for 100,000 and 50,000 shares of common stock during 1995 and 1994,
respectively.
In January 1984, the Company adopted an Incentive Stock Option Plan
(Incentive Plan) which expired on January 27, 1994. The Incentive Plan
was administered by the Compensation Committee of the Board of Directors
(the Committee) and provided that options be granted to key employees at
exercise prices no less than market value on the date the option was
granted. All options currently outstanding vest prorata over five
F-15
<PAGE> 53
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
years beginning one year from date of grant and expire six years from
date of grant. The Company has reserved 750,000 shares of its common
stock for distribution under the Incentive Plan.
Changes in stock options are:
<TABLE>
<CAPTION>
Number Per Share
Of Shares Option Price
--------- ------------
<S> <C> <C> <C>
1993
Granted 0
Exercised 6,000 $ .9375 - $1.85
Canceled 64,000 $ .9375 - $2.9375
Outstanding at December 31, 1993 229,600 $ .9375 - $2.9375
1994
Granted 82,500 $1.94
Exercised 14,640 $ .9375 - $2.38
Canceled 1,960 $ .9375 - $1.85
Outstanding at December 31, 1994 295,550 $ .9375 - $2.9375
1995
Granted 0
Exercised 20,100 $ .9375 - $2.53
Canceled 6,400 $1.94 - $2.53
Outstanding at December 31, 1995 269,000 $1.75 - $2.9375
</TABLE>
Options outstanding and exercisable under the Incentive Plan at December
31, 1995, represent 160,000 shares. The remaining options become
exercisable in 1996 - 47,500 shares; 1997 - 30,500 shares; 1998 - 15,500
shares; 1999 - 15,500 shares.
F-16
<PAGE> 54
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
In April 1984, the Company adopted a Nonstatutory Stock Option Plan
(Nonstatutory Plan) which expired on April 26, 1994. The Nonstatutory Plan
specified that options be granted to officers, directors, advisors and key
employees at a price specified by the Board of Directors on the date the option
was granted. The options vest prorata over a period of up to five years
beginning one year from date of grant and expire six years from date of grant.
The Company has reserved 300,000 shares for distribution under the Nonstatutory
Plan.
Changes in stock options are:
<TABLE>
<CAPTION>
Number Per Share
Of Shares Option Price
--------- ------------
<S> <C> <C> <C>
1993
Granted 50,000 $2.50
Exercised 24,000 $1.75
Canceled 4,500 $1.75
Outstanding at December 31, 1993 160,000 $.875 - $2.94
1994
Granted 5,000 $1.94
Exercised 56,000 $ .875 - $2.94
Canceled 11,500 $ .875 - $2.5652
Outstanding at December 31, 1994 97,500 $ .875 - $2.94
1995
Granted 0
Exercised 26,000 $1.85 - $2.94
Canceled 0
Outstanding at December 31, 1995 71,500 $1.94 - $2.94
</TABLE>
Options outstanding and exercisable under the Nonstatutory Plan at
December 31, 1995, represent 67,500 shares. The remaining options become
exercisable in 1996 through 1999-1,000 shares each year.
F-17
<PAGE> 55
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
In February 1994, the Company adopted the 1994 Stock Option Plan (1994
Plan). The 1994 Plan was intended to replace both the Incentive Plan and
the Nonstatutory Plan. The 1994 Plan is administered the Committee. The
1994 Plan provides for the granting of nonstatutory or incentive options
to directors, consultants, advisors, or key employees of the Company who
are selected by the Committee. Vesting periods are determined by the
Committee. The Company has reserved 600,000 shares for distribution
under the 1994 Plan.
Changes in stock options are:
<TABLE>
<CAPTION>
Number Per Share
Of Shares Option Price
--------- ------------
<S> <C> <C> <C>
1994
Granted 45,000 $3.50
Exercised
Canceled
Outstanding at December 31, 1994 45,000 $3.50
1995
Granted 150,000 $4.25 - $8.875
Exercised 10,000 $3.50
Canceled 9,000 $4.25
Outstanding at December 31, 1995 176,000 $3.50 - $8.875
</TABLE>
Options outstanding and exercisable under the 1994 Plan at December 31,
1995, represent 45,000 shares. The remaining options become exercisable
in 1996-62,800 shares; 1997-17,800 shares; 1998-16,800 shares; 1999-
16,800 shares; 2000-16,800 shares.
9. Commitments and Contingencies:
The Company maintains a claims made product liability insurance policy
with per occurrence ($50,000) and aggregate ($250,000) retention limits.
Beyond these retention limits, the policy covers aggregate insured
claims made during each policy year up to $5,000,000.
The Company and other spinal implant manufacturers have been named as
defendants in various class action product liability lawsuits alleging
that the plaintiffs were injured by spinal implants supplied by the
Company and others. All such lawsuits were consolidated for pretrial
proceedings in the Federal District Court for the Eastern District of
Pennsylvania and on February 22, 1995, the plaintiffs were denied class
certification. In response to the denial of class certification, a large
number of additional individual lawsuits have been filed alleging, in
addition to damages from spinal implants, a conspiracy among
manufacturers, physicians and other spinal implant industry members. At
March 1, 1996, approximately 500 such lawsuits have been filed in which
the Company is a party. Approximately fifteen of such cases involve
individual plaintiffs utilizing
F-18
<PAGE> 56
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
implants supplied by the Company. The Company cannot estimate precisely
at this time the number of such lawsuits that may eventually be filed.
The vast majority of such lawsuits are pending in federal courts and are
in preliminary stages. Discovery proceedings, including the taking of
depositions, have commenced in certain of the lawsuits. Plaintiffs in
these cases typically seek relief in the form of monetary damages, often
in unspecified amounts. While the aggregate monetary damages eventually
sought in all of such individual actions is substantial and exceeds the
limits of the Company's product liability insurance policies, the
Company believes that it has affirmative defenses, including, without
limitation, preemption, and that these individual lawsuits are otherwise
without merit. An estimate of the amount of loss cannot be made as the
Company does not have sufficient information on which to base an
estimate. All pending cases are being defended by the Company's
insurance carrier, in some cases under a reservation of rights. There
can be no assurance, however, that the $5,000,000 per annum limit of the
Company's coverage will be sufficient to cover the cost of defending all
lawsuits or the payment of any amounts that may be paid in satisfaction
of any settlements or judgements. Further, there can be no assurance
that the Company will continue to be able to obtain sufficient amounts
of product liability insurance coverage at commercially reasonable
premiums.
In addition to the above, in the ordinary course of business the Company
has been named as a defendant in various other legal proceedings. These
actions, when finally concluded, will not, in the opinion of the
Company, have a material adverse effect upon the financial position or
results of operations of the Company. However, there can be no assurance
that future quarterly or annually operating results will not be
materially adversely affected by the final resolution of these matters.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable (domestic and international). The Company follows certain
guidelines in determining the credit-worthiness of domestic and foreign
customers. The credit risk associated with each customer and each
country is reviewed before a credit decision is made. All international
sales are denominated in U.S. dollars.
Certain of the Company's accounts receivable result from third party
reimbursements that may be dependent on limitations imposed by the payor
on the amount of reimbursement. The Company records the receivable and
related revenue net of its estimate of such limitations.
The Company has royalty agreements with the inventors of the spinal
implant systems. The Company is obligated to pay the inventors 6% (and
increasing 1/2% annually up to 8%) of the net revenues generated from
the sales of these spinal implant products.
10. Employee Benefit Plan:
In January 1992, the Company adopted the Danninger Medical Corporation
401(k) Profit Sharing Plan (the Plan) covering substantially all
employees. Pursuant to the Plan, employees may make voluntary
contributions, and the Company may make matching contributions based on
25% of the employee's contribution, up to 4% of the employee's salary,
subject to certain limitations. The Company expensed matching
contributions of $17,000, $12,000 and $14,000 during 1995, 1994, and
1993, respectively.
F-19
<PAGE> 57
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
11. Fourth Quarter Adjustments:
During the fourth quarter of 1995, the Company recognized income for the
recovery of previously provided valuation allowances of approximately
$120,000 relating to inventory which previously was thought would be
slow moving. Subsequent to the previous decision to provide a valuation
allowance for this inventory, sales continued to support a lower
valuation allowance.
During the fourth quarter of 1994, the Company recognized income for the
recovery of previously provided valuation allowances of approximately
$177,000 relating to accounts receivable, sales-type lease and notes
receivable reserves principally related to the repossession of assets
pursuant to a security agreement granted to the Company by a major
customer.
12. Acquisition of Business
During 1995, the Company acquired TROM, Inc., a company that rents and
sells durable medical equipment to orthopedic patients, through the
purchase of identifiable assets of $95,000 and the assumption of
liabilities of $196,000. Other assets in the accompanying consolidated
balance sheet includes $101,000 of goodwill which is amortized over five
years. The acquisition of TROM, Inc. was accounted for under the
purchase method.
13. Information by Industry Group and Geographic Area:
The company operates principally in two business segments: recovery
products and spinal implants. Danninger and RSI operate in the recovery
products industry group, and Cross operates in the spinal implants
industry group.
All assets are located in the United States. Revenues are derived from
sales in the United States, Asia, Europe, and other foreign countries.
F-20
<PAGE> 58
DANNINGER MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
Financial information by Industry Group and Geographic Area for the
years 1995, 1994, and 1993 is presented below:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
INDUSTRY GROUP
Revenue
Recovery Products $ 8,493 $ 7,274 $ 7,953
Spinal Implants 4,091 2,880 1,360
-------- -------- --------
Total revenue $ 12,584 $ 10,154 $ 9,313
======== ======== ========
Operating profit
Recovery Products $ 1,239 $ 1,493 $ 578
Spinal Implants (1,377) (1,185) (1,142)
-------- -------- --------
Total operating profit (loss) $ (138) $ 308 $ (564)
======== ======== ========
Identifiable assets
Recovery Products $ 4,610 $ 5,017 $ 4,351
Spinal Implants 4,907 2,416 1,447
-------- -------- --------
Total assets $ 9,517 $ 7,433 $ 5,798
======== ======== ========
Depreciation and amortization
Recovery Products $ 212 $ 235 $ 325
Spinal Implants 45 22 18
-------- -------- --------
Total depreciation and
amortization $ 257 $ 257 $ 343
======== ======== ========
Capital expenditures
Recovery Products $ 86 $ 222 $ 209
Spinal Implants 97 73
-------- -------- --------
Total capital expenditures $ 183 $ 295 $ 209
======== ======== ========
GEOGRAPHIC AREA
Revenue
United States $ 10,689 $ 8,830 $ 9,011
Foreign 1,895 1,324 302
-------- -------- --------
Total revenue $ 12,584 $ 10,154 $ 9,313
======== ======== ========
</TABLE>
F-21
<PAGE> 59
===============================================================================
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
made hereby and, if given or made, such information or representation must not
be relied upon. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates, or an offer to sell or the solicitation of an offer to buy
such securities in any jurisdiction in which such offer or solicitation may not
be legally made. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
--------------------------
TABLE OF CONTENTS
Page
----
Available Information......................................
Incorporation of Certain Documents by Reference............
Prospectus Summary.........................................
Risk Factors...............................................
Price Range of Common Stock and Dividend Policy............
Use of Proceeds............................................
Capitalization.............................................
Selected Consolidated Financial Data.......................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................
Business...................................................
Management.................................................
Description of Debentures..................................
Description of Capital Stock...............................
Underwriting...............................................
Legal Matters..............................................
Experts....................................................
Index to Consolidated Financial Statements................. F-1
===============================================================================
===============================================================================
$5,000,000
[LOGO]
DANNINGER MEDICAL
TECHNOLOGY, INC.
% CONVERTIBLE
SUBORDINATED DEBENTURES
DUE 2003
------------------
PROSPECTUS
------------------
THE OHIO COMPANY
, 1996
===============================================================================
<PAGE> 60
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table presents a reasonably itemized estimate of all
expenses in connection with the issuance and distribution of the debentures,
other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee .................................... $ 2,500
Printing and engraving fee .............................. 30,000
Legal fees and expenses ................................. 120,000
Accounting fees and expenses ............................ 50,000
Blue Sky fees and expenses (including fees of counsel) .. 5,000
Transfer agent and registrar's fees and expenses ........ 3,000
Miscellaneous expenses .................................. 14,500
--------
TOTAL .............................................. $225,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Reference is made to the Form of Indemnification Agreement between
Danninger Medical Technology, Inc. and its directors (previously filed as
Exhibit 10(x) to Form 10 (file number 1-16893) filed May 3, 1988, and
incorporated herein by reference) and the Schedule identifying material details
of other Indemnification Agreements substantially similar to the Form of
Indemnification Agreement (previously filed as Exhibit 10(o) to Form 10-K (file
number 0-16893) filed March 31, 1995, and incorporated herein by this reference.
ITEM 16. EXHIBITS.
The following Exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NUMBER
- ------- ----------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement. Page _____.
4.1 Reference is made to Articles FOURTH, Previously filed as Exhibit 4 to Form 10
EIGHTH, NINTH and TENTH of the (file number 0-16893) filed May 3, 1988,
Certificate of Incorporation of the and incorporated herein by reference.
Company and Articles II, III, IV, VI, VII
and VIII of the Company's Bylaws.
Instruments defining the rights of holders
of long-term debt will be furnished to the
Securities and Exchange Commission
upon request.
4.2 Form of Indenture dated as of Page _____.
______________ __, 1996, between
Registrant and Fifth Third Bank, as
Trustee.
5 Opinion of Porter, Wright, Morris & Page _____.
Arthur as to the legality of the debentures
and Common Shares being registered.
10(a) Business Purpose Revolving Promissory Previously filed as Exhibit 10(a) to Annual
Note, dated February 13, 1995, in the Report on Form 10-K (file number o-
amount of $400,000 payable to Bank 16893) filed on March 30, 1995, and
One, Columbus, N.A. by Danninger incorporated herein by reference.
Medical Technology, Inc. and Cross
Medical Products, Inc.
</TABLE>
<PAGE> 61
<TABLE>
<S> <C> <C>
10(b) Non-Titled Personal Property Security Previously filed as Exhibit 10(b) to Annual
Agreement, dated February 13, 1995, Report on Form 10-K (file number o-
granting Bank One Columbus, N.A. a 16893) filed on March 30, 1995, and
security interest in all inventory, raw incorporated herein by reference.
materials, work in process, supplies,
accounts, general intangibles, chattel
paper, instruments, other forms of
obligations and receivables, goods,
equipment, machinery, supplies and other
personal property of Danninger Medical
Technology, Inc.
10(c) Non-Titled Personal Property Security Previously filed as Exhibit 10(c) to Annual
Agreement, dated February 13, 1995, Report on Form 10-K (file number o-
granting Bank One Columbus, N.A. a 16893) filed on March 30, 1995, and
security interest in all inventory, raw incorporated herein by reference.
materials, work in process, supplies,
accounts, general intangibles, chattel
paper, instruments, other forms of
obligations and receivables, goods,
equipment, machinery, supplies and other
personal property of Cross Medical
Products, Inc.
10(d) Loan Agreement, dated September 23, Previously filed as Exhibit 10 to Form 10
1994, in the amount of $2,500,000 (file number 0-16893) filed November 14,
payable to Bank One, Columbus, N.A. by 1994, and incorporated herein by
Danninger Medical Technology, Inc., and reference.
Cross Medical Products, Inc., secured by
accounts receivable, lease receivables,
contract rights, chattels, general
intangibles, notes, drafts, acceptances and
other forms of obligations and inventory,
goods, merchandise, and all other
personal property of Danninger Medical
Technology, Inc. and Cross Medical
Products, Inc.
10(e) Loan Agreement, dated June 26, 1995, by Previously filed as Exhibit 10 to Form 10-
and among Danninger Medical Q (file number 0-16893) filed August 14,
Technology, Inc., Cross Medical 1995, and incorporated herein by
Products, Inc., Recovery Services, Inc., reference.
and Bank One, Columbus, N.A.
10(f) Amendment to Loan Agreement, dated Previously filed as Exhibit 10(f) to Form
March 27, 1996, by and among 10-K (file number 0-16893) filed April 1,
Danninger Medical Technology, Inc., 1996, and incorporated herein by
Cross Medical Products, Inc., Recovery reference.
Services, Inc., and Bank One, Columbus,
N.A.
</TABLE>
The following are management contracts and compensatory plans and arrangements
in which directors or executive officers participate:
<TABLE>
<S> <C> <C>
10(g) Confidentiality, Assignment and Previously filed as Exhibit 10(a) to Form
Non-Competition Agreement for Key 10 (file number 0-16893) filed May 3,
Personnel, dated September 10, 1984, 1988, and incorporated herein by
between Danninger Medical Technology, reference.
Inc. and Edward R. Funk.*
10(h) Schedule identifying material details of Previously filed as Exhibit 10(h) to Annual
other agreements substantially identical to Report on Form 10-K (file number o-
Exhibit 10(g).* 16893) filed on March 30, 1995, and
incorporated herein by reference.
Amended and Restated 1984 Incentive Previously filed as Exhibit 10(e) to Annual
10(i) Stock Option Plan, reserving Report on Form 10-K (file number
750,000 shares of Common Stock, as 0-16893) filed March 30, 1993, and
amended by the Board of Directors incorporated herein by reference.
</TABLE>
<PAGE> 62
<TABLE>
<S> <C> <C>
on April 2, 1992.*
10(j) Form of Stock Option Agreement Previously filed as Exhibit 10(f) to Annual
Under the Amended and Restated 1984 Report on Form 10-K (file number
Incentive Stock Option Plan.* 0-16893) filed March 30, 1993, and
incorporated herein by reference.
10(k) Amended and Restated 1984 Previously filed as Exhibit 10(h) to Annual
Non-Statutory Stock Option Plan, Report on Form 10-K (file number
reserving 300,000 shares of Common 0-16893) filed March 30, 1993, and
Stock, as amended by the Board of incorporated herein by reference.
Directors on April 2, 1992.*
10(l) Form of Stock Option Agreement Previously filed as Exhibit 10(i) to Annual
Under the Amended and Restated 1984 Report on Form 10-K (file number
Non-Statutory Stock Option Plan.* 0-16893) filed March 30, 1993, and
incorporated herein by reference.
10(m) 1994 Stock Option Plan, reserving Previously filed as Exhibit 10(c) to Form
600,000 shares of Common Stock.* 10 (file number 0-16893) filed August 12,
1994, and incorporated herein by this
reference.
10(n) Form of Indemnification Agreement Previously filed as Exhibit 10(x) to Form
between Danninger Medical Technology, 10 (file number 0-16893) filed May 3,
Inc. and its directors.* 1988, and incorporated herein by
reference.
10(o) Schedule identifying material details of Previously filed as Exhibit 10(o) to Annual
other Indemnification Agreements Report on Form 10-K (file number o-
substantially identical to Exhibit 10(n).* 16893) filed on March 30, 1995, and
incorporated herein by reference.
10(p) Employment Agreement between Previously filed as Exhibit 10(a) to Form
Danninger Medical Technology, Inc. and 10 (file number 0-16893) filed August 12,
Edward R. Funk.* 1994, and incorporated herein by this
reference.
10(q) Employment Agreement between Cross Previously filed as Exhibit 10(b) to Form
Medical Products, Inc. and Edward R. 10 (file number 0-16893) filed August 12,
Funk.* 1994, and incorporated herein by this
reference.
11 Statement Regarding Computation of Net Previously filed as Exhibit 11 to Form 10-
Income Per Share. K (file number 0-16893) filed April 1,
1996, and incorporated herein by
reference.
12 Statement Regarding Computation of Page ___.
Ratios
23.1 Consent of Coopers & Lybrand L.L.P. Page ___.
23.2 Consent of Porter, Wright, Morris &
Arthur is set forth as part of Exhibit 5
above.
24 Powers of Attorney. Page ___.
27 Financial Data Schedule Page ___.
</TABLE>
- -----------------
* Management Contract or Compensatory Plan
<PAGE> 63
ITEM 17. UNDERTAKINGS.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 4, 1996 DANNINGER MEDICAL TECHNOLOGY, INC.
By: /s/ Joseph A. Mussey
---------------------------------------------
Joseph A. Mussey
President, Chief Executive Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Joseph A. Mussey President, Chief Executive Officer, ) April 4, 1996
- ------------------------------------ Treasurer and Director )
Joseph A. Mussey (Principal Executive Officer) )
)
)
* Vice President and Chief Financial ) April 4, 1996
- ------------------------------------ Officer (Principal Accounting Officer) )
Paul A. Miller
* Chairman of the Board of Directors ) April 4, 1996
- ------------------------------------ )
Edward R. Funk )
)
)
* Director ) April 4, 1996
- ------------------------------------ )
Daniel A. Funk, M.D. )
)
)
* Director ) April 4, 1996
- ------------------------------------ )
Daniel A. Gregorie, M.D. )
)
)
* Director ) April 4, 1996
- ------------------------------------ )
Herbert J. Kahn )
)
)
* Director ) April 4, 1996
- ------------------------------------ )
Curtis A. Loveland )
)
)
* Director ) April 4, 1996
- ------------------------------------ )
C. Craig Waldbillig )
)
)
* Director ) April 4, 1996
- ------------------------------------ )
Peter H. Williams )
)
)
</TABLE>
<PAGE> 65
<TABLE>
<S> <C> <C>
* Director ) April 4, 1996
- ------------------------------------ )
Robert J. Williams )
)
*By: /s/ Joseph A. Mussey
----------------------------------
Joseph A. Mussey, attorney-in-fact
for each of the persons indicated
</TABLE>
<PAGE> 1
EXHIBIT 1.1
DANNINGER MEDICAL TECHNOLOGIES, INC.
$5,000,000
__% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003
UNDERWRITING AGREEMENT
April __, 1996
THE OHIO COMPANY
155 East Broad Street, 20th Floor
Columbus, Ohio 43215
Ladies and Gentlemen:
Danninger Medical Technologies, Inc., a Delaware corporation (the
"Company"), proposes to sell to The Ohio Company (the "Underwriter") an
aggregate $5,000,000 principal amount of its __% Convertible Subordinated
Debentures due 2003 (the "Firm Debentures"). The Company also proposes to
grant to the Underwriter an option to purchase up to $250,000 in principal
amount of its __% Convertible Subordinated Debentures due 2003 for the purpose
of covering over-allotments (the "Option Debentures"). The Firm Debentures and
the Option Debentures purchased pursuant to this Agreement are herein called
the "Debentures." The Debentures are to be issued pursuant to an Indenture,
dated as of April __, 1996, by and between the Company and Fifth Third Bank,
Columbus, Ohio, as trustee (the "Trustee"). (Such Indenture. as amended and
supplemented, is herein referred to as the "Indenture".)
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of
1933, as amended (the "Securities Act"), a registration statement on
Form S-2 (Registration No. 33-_____), including the related
preliminary prospectus relating to the Debentures, and has filed such
amendments thereto, if any, and such amended preliminary prospectuses
as may have been required to the date hereof, and will-file such
additional amendments thereto and such amended prospectuses as may be
hereafter required relating to the Debentures. The Company has met
all of the eligibility requirements for the use of a registration
statement on Form S-2. Copies of such registration statement and any
amendments, including any post-effective amendments, and all forms of
the related prospectuses contained therein and any supplements
thereto, have been delivered to you. Such registration statement,
including the prospectus, Part II, any documents or information
incorporated by reference therein, all financial schedules and
exhibits thereto, and all information deemed to be a part of such
registration statement pursuant to Rule 430A(b) under the Securities
Act, as amended at the time when it shall become effective, is herein
referred to as the "Registration Statement," and the prospectus
included as part of the Registration Statement on file with the
Commission that discloses all the information that was omitted from
the prospectus on the effective date pursuant to Rule 430A of the
Rules and Regulations (as defined below) and in the form filed
pursuant to Rule 424(b) under the Securities Act is herein referred to
as the "Final Prospectus." The prospectus included as part of the
Registration Statement on the date when the Registration Statement
became effective is referred to herein as the "Effective Prospectus."
Any prospectus included in the Registration Statement and in any
amendment thereto prior to the effective date of the Registration
Statement is referred to herein as a "Preliminary Prospectus." For
purposes of this Agreement, "Rules and Regulations" mean the rules and
regulations promulgated by the Commission under either the Securities
Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations, and
did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the
<PAGE> 2
statements therein, in light of the circumstances under which they
were made not misleading; except that the foregoing does not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by the Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the Cover Page and in the first, second and third
paragraphs under the caption "Underwriting" in the Final Prospectus.
When the Registration Statement becomes effective and at all times
subsequent thereto up to and including the First Closing Date (as
hereinafter defined), (i) the Registration Statement, the Effective
Prospectus and Final Prospectus and any amendments or supplements
thereto will contain all statements which are required to be stated
therein in accordance with the Securities Act and the Rules and
Regulations and will comply with the requirements of the Securities
Act and the Rules and Regulations, and (ii) neither the Registration
Statement, the Effective Prospectus nor the Final Prospectus nor any
amendment or supplement thereto will include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading; except that the
foregoing does not apply to statements or omissions made in reliance
upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use therein (it being
understood that the only information so provided is the information
included in the last paragraph on the cover page and, in the first,
second and third paragraphs under the caption "Underwriting" in the
Prospectus).
(c) The Company and each subsidiary of the Company (as
used herein, the term "subsidiary" includes any corporation, joint
venture or partnership in which the Company or any subsidiary of the
Company has an ownership interest) is duly organized and validly
existing and in good standing under the laws of the respective
jurisdictions of their organization or incorporation, as the case may
be, with full power and authority (corporate, partnership and other,
as the case may be) to own their properties and conduct their
businesses as now conducted and are duly qualified or authorized to do
business and are in good standing in all jurisdictions wherein the
nature of their business or the character of property owned or leased
may require them to be qualified or authorized to do business or where
the failure to be so qualified would not have a materially adverse
affect upon the Company. The only subsidiaries of the Company are two
wholly owned companies, Cross Medical Products, Inc. and Recovery
Services, Inc. The Company and its subsidiaries hold all licenses,
consents and approvals, and have satisfied all eligibility and other
similar requirements imposed by federal and state regulatory bodies,
administrative agencies or other governmental bodies, agencies or
officials, in each case as required for the conduct of the respective
businesses in which they are engaged and are contemplated to be
engaged in the Effective Prospectus and the Final Prospectus.
(d) The issued shares of capital stock of each of the
Company's wholly owned subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and are all owned
beneficially by the Company free and clear of any security interests,
liens, encumbrances, entities or claims.
(e) The Debentures have been duly and validly authorized
and, when executed and authenticated in accordance with the Indenture
and delivered and paid for by the Underwriter pursuant to this
Agreement, will constitute legal and binding obligations of the
Company entitled to the benefits of the Indenture and will conform in
all material respects to the description thereof contained in the
Effective Prospectus and the Final Prospectus.
(f) The capitalization of the Company as of December 31,
1995 is as set forth under the caption "Capitalization" in the
Effective Prospectus and the Final Prospectus, and the Company's
capital stock conforms to the description thereof contained under the
caption "Description of Capital Stock" in the Effective Prospectus and
the Final Prospectus. All the issued shares of capital stock of the
Company have been duly authorized and validly issued, are fully paid
and nonassessable. None of the issued shares of capital stock of the
Company have been issued in violation of any preemptive or similar
rights. There are no preemptive rights or other rights to subscribe
for or to purchase, or any restriction upon the transfer
2
<PAGE> 3
of, any shares of the Company's capital stock pursuant to the
Company's certificate of incorporation, bylaws or other governing
documents or any agreement or other instrument to which the Company is
a party or by which it may be bound except as described in the
Effective Prospectus and the Final Prospectus. Neither the filing of
the Registration Statement nor the offer or sale of the Debentures by
the Company as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of capital stock of the
Company or any other securities of the Company. The Underwriter will
receive good and marketable title to the Debentures to be issued and
delivered by the Company hereunder, free and clear of all liens,
encumbrances, claims, security interests, restrictions, shareholders'
agreements and voting trusts whatsoever.
(g) All offers and sales of the Company's securities
prior to the date hereof were at all relevant times duly registered or
exempt from the registration requirements of the Securities Act and
were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue
Sky laws.
(h) The Company has full legal right, power and authority
to enter into this Agreement and the Indenture and to sell and deliver
the Debentures to the Underwriter as provided herein, and this
Agreement and the Indenture have been duly authorized, executed and
delivered by the Company and constitute valid and binding agreements
of the Company enforceable against the Company in accordance with
their terms except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws generally affecting the rights of creditors, and by the
application of principles of equity (whether sought in a proceeding in
equity or in law). No consent, approval, authorization or order of
any court or governmental agency or body or third party is required
for the performance of this Agreement or the Indenture by the Company
or the consummation by the Company of the transactions contemplated
hereby, except such as have been obtained and such as may be required
by the National Association of Securities Dealers, Inc. (the "NASD")
or under the Securities Act, the TIA or state securities or Blue Sky
laws in connection with the purchase and distribution of the
Debentures by the Underwriter. The issue and sale of the Debentures
by the Company, the Company's performance of this Agreement and the
Indenture and the consummation of the transactions contemplated hereby
or thereby will not result in a breach or violation of, or conflict
with, any of the terms and provisions of, or constitute a default by
the Company or any of its subsidiaries under, any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party or to which
the Company or any of its subsidiaries or any of their respective
properties is subject, the certificate of incorporation, or bylaws of
the Company or any of its subsidiaries or the partnership agreements
of any partnership or any statute or any judgment, decree, order, rule
or regulation of any court or governmental agency or body applicable
to the Company, or any subsidiary or any of their respective
properties. Neither the Company nor any subsidiary is in violation of
its certificate of incorporation, partnership agreement or joint
venture agreement, as the case may be, or bylaws or any law,
administrative rule or regulation or arbitrators' or administrative or
court decree, judgment or order or in violation or default (there
being no existing state of facts which with notice or lapse of time or
both would constitute a default), in the performance or observance of
any obligation, agreement, covenant or condition contained in any
contract, indenture, deed of trust, mortgage, loan agreement, note,
lease, agreement or other instrument or permit to which it is a party
or by which it or any of its properties is or may be bound.
(i) The consolidated financial statements and the related
notes of the Company included or incorporated by reference in the
Registration Statement, the Effective Prospectus and the Final
Prospectus present fairly the financial position, results of
operations and changes in financial position and cash flow of the
Company and its subsidiaries, at the dates and for the periods to
which they relate and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods indicated. The other financial statements and
schedules included in or as schedules to the Registration Statement
conform to the applicable requirements of the Securities Act, the
Exchange Act and the Rules and Regulations and present fairly the
information presented therein for the periods shown. The financial
and statistical data set forth in the Effective Prospectus and the
Final Prospectus
3
<PAGE> 4
under the captions "Prospectus Summary," "Use of Proceeds,"
"Capitalization," "Selected Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business" fairly presents the information set forth therein on the
basis stated in the Effective Prospectus and the Final Prospectus.
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") whose reports appear
in the Effective Prospectus and the Final Prospectus, are independent
accountants as required by the Securities Act and the Rules and
Regulations.
(j) Subsequent to December 31, 1995, neither the Company
nor any subsidiary has sustained any material loss or interference
with its business or properties from fire, flood, hurricane, accident
or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, which
is not disclosed in the Effective Prospectus and the Final Prospectus;
and subsequent to the respective dates as of which information is
given in the Registration Statement, the Effective Prospectus and the
Final Prospectus, (i) neither the Company nor any of its subsidiaries
has incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions not in the
ordinary course of business, and (ii) there has not been any material
change in the capital stock, partnership interests, joint venture
interests, long-term debt, obligations under capital leases or
short-term borrowings of the Company and its subsidiaries or any
issuance of options, warrants or rights to purchase the capital stock
of the Company, or any material adverse change, or any development
involving a prospective material adverse change, in the general
affairs, management, business, prospects, financial position, net
worth or results of operations of the Company or its subsidiaries,
except in each case as described in or contemplated by the Effective
Prospectus and the Final Prospectus.
(k) Except as described in the Prospectus, there is not
pending, or to the knowledge of the Company threatened, any action,
suit, proceeding, inquiry or investigation, to which the Company, any
of its subsidiaries or any of their officers or directors is a party,
or to which the property of the Company or any subsidiary is subject,
before or brought by any court or governmental agency or body, wherein
an unfavorable decision, ruling or finding could prevent or materially
hinder the consummation of this Agreement or result in a material
adverse change in the business condition (financial or other),
prospects, financial position, net worth or results of operations of
the Company or its subsidiaries.
(l) There are no contracts or other documents required by
the Securities Act or by the Rules and Regulations to be described in
the Registration Statement, the Effective Prospectus or the Final
Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required.
(m) Except as described in the Effective Prospectus and
the Final Prospectus, the Company and each of its subsidiaries have
good and marketable title to all real and material personal property
owned by them, free and clear of all liens, charges, encumbrances or
defects except those reflected in the financial statements hereinabove
described. The real and personal property and buildings referred to
in the Effective Prospectus and the Final Prospectus which are leased
from others by the Company are held under valid, subsisting and
enforceable leases. The Company or its subsidiaries owns or leases
all such properties as are necessary to its operations as now
conducted.
(n) The Company's system of internal accounting controls
taken as a whole is sufficient to meet the broad objectives of
internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that
would be material in relation to the Company's financial statements;
and, except as disclosed in the Effective Prospectus and the Final
Prospectus, neither the Company nor any of its subsidiaries nor any
employee or agent of the Company or any subsidiary has made any
payment of funds of the Company or any subsidiary or received or
retained any funds in violation of any law, rule or regulation.
(o) The Company and its subsidiaries have filed all
federal, state and local income and franchise tax returns required to
be filed through the date hereof and have paid all taxes shown as due
4
<PAGE> 5
therefrom; and there is no tax deficiency that has been, nor does the
Company or any subsidiary have knowledge of any tax deficiency which
is likely to be, asserted against the Company or its subsidiaries,
which if determined adversely could materially and adversely affect
the earnings, assets, affairs, business prospects or condition
(financial or other) of the Company or its subsidiaries taken as a
whole.
(p) Except as specifically disclosed in the Effective
Prospectus and the Final Prospectus, the Company and its subsidiaries
operate their business in conformity in all material respects with all
applicable statutes, common laws, ordinances, decrees, orders, rules
and regulations of governmental bodies and has all licenses, approvals
or consents required to operate as currently being operated, and the
Company and its subsidiaries are not aware of any existing or imminent
matter which may adversely impact their operations or business
prospects.
(q) Neither the Company nor any of its subsidiaries have
failed to file with the applicable regulatory authorities any
statement, report, information or form required by any applicable law,
regulation or order; all such filings or submissions were in
compliance with applicable laws when filed and no deficiencies have
been asserted by any regulatory commission, agency or authority with
respect to such filings or submissions. Neither the Company nor any
of its subsidiaries have failed to maintain in full force and effect
any license or permit necessary or proper for the conduct of its
business, or received any notification that any revocation or
limitation thereof is threatened or pending, and, except as disclosed
in the Effective Prospectus and the Final Prospectus, there is not
pending any change under any law, regulation, license or permit which
could materially and adversely affect its businesses, operations,
property or business prospects. Neither the Company nor any of its
subsidiaries have received any notice of violation of or been
threatened with a charge of violating and are not under investigation
with respect to a possible violation of any provision of any law,
regulation or order.
(r) No labor dispute exists with the Company's employees
or with employees of its subsidiaries or is imminent which could
materially adversely affect the Company or any of its subsidiaries.
The Company is not aware of any existing or imminent labor disturbance
by its employees or by any employees of its subsidiaries which could
be expected to materially and adversely affect the condition
(financial or otherwise), results of operations, properties, affairs,
management, business affairs or business prospects of the Company or
any of its subsidiaries.
(s) Except as disclosed in the Effective Prospectus and
the Final Prospectus, the Company and its subsidiaries own or possess,
or can acquire on reasonable terms, the licenses, copyrights,
trademarks, service marks and trade names presently employed by them
in connection with the businesses now operated by them, and neither
the Company nor any of its subsidiaries have received any notice of
infringement of or conflict with asserted rights of others with
respect to any of the foregoing which, alone or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects
of the Company or its subsidiaries.
(t) Neither the Company nor any of its subsidiaries, nor
any of the directors, officers, employees or agents of the Company and
its subsidiaries have taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or
which might be expected to constitute, stabilization or manipulation
of the price of the common stock, par value $.01 per share ("Common
Stock") of the Company.
(u) The Common Stock is traded in the over-the-counter
market and is quoted on The Nasdaq Small Cap Market System (the
"Nasdaq Small Cap Market") under the symbol "DANN."
(v) The Company has filed with the Commission and the
NASD all reports, documents and statements required to be filed by the
Company pursuant to the Securities Act, the Exchange Act, the Rules
and Regulations and all the rules and regulations of the NASD relating
to qualification for trading on the
5
<PAGE> 6
Nasdaq Small Cap Market, and each of such reports, documents and
statements, at the time that they were filed, complied in all material
respects with the requirements of the Securities Act, the Exchange Act
and the Rules and Regulations.
2. Purchase, Sale and Delivery of the Debentures. (a) On the
basis of the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell the Firm Debentures to the Underwriter, and the Underwriter
agrees to purchase at a purchase price of $_____ per each $_____ principal
amount, the Firm Debentures.
(b) The Company also grants to the Underwriter an option to
purchase, solely for the purpose of covering over-allotments in the sale of
Firm Debentures, all or any portion of the Option Debentures at the purchase
price set forth above plus accrued interest. The option granted hereby may be
exercised as to all or any part of the Option Debentures at any time (but only
once) within thirty (30) days after the date of the Final Prospectus. The
Underwriter shall not be under any obligation to purchase any Option Debentures
prior to the exercise of such option. The option granted hereby may be
exercised by the Underwriter by giving written notice to the Company setting
forth the amount of Option Debentures to be purchased and the date and time for
delivery of and payment for such Option Debentures and stating that the Option
Debentures referred to therein are to be used for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm
Debentures. If such notice is given prior to the First Closing Date (as
defined herein), the date set forth therein for such delivery and payment shall
not be earlier than two (2) full business days thereafter or the First Closing
Date, whichever occurs later. If such notice is given on or after the First
Closing Date, the date set forth therein for such delivery and payment shall
not be earlier than three (3) full business days thereafter. In either event,
the date so set forth shall not be more than fifteen (15) full business days
after the date of such notice. The date and time set forth in such notice is
herein called the "Option Closing Date." Upon exercise of the option, the
Company shall become obligated to sell to the Underwriter, and, subject to the
terms and conditions herein set forth, the Underwriter shall become obligated
to purchase the amount of Option Debentures specified in such notice.
(c) Certificates in definitive form for the Firm Debentures which
the Underwriter has agreed to purchase hereunder shall be delivered by or on
behalf of the Company to the Underwriter against payment by the Underwriter of
the purchase price therefor by certified or official bank check or checks in
Columbus, Ohio Clearing House (next day) funds to the order of the Company, at
the offices of The Ohio Company ("The Ohio Co."), 155 East Broad Street, 20th
Floor, Columbus, Ohio 43215, or at such other place as may be agreed upon by
The Ohio Co. and the Company, at 10:00 A.M., Columbus time, on the third full
business day after this Agreement becomes effective, or at such other time not
later than the fifth full business day thereafter as the Underwriter and the
Company may determine, such time of delivery against payment being herein
referred to as the "First Closing Date." The First Closing Date and the Option
Closing Date are herein individually referred to as the "Closing Date" and
collectively referred to as the "Closing Dates." Certificates in definitive
form for the Option Debentures which the Underwriter shall have agreed to
purchase hereunder shall be similarly delivered by or on behalf of the Company
on the Option Closing Date. The certificates in definitive form for the
Debentures to be delivered will be in good delivery form and in such
denominations and registered in such names as The Ohio Co. may request not less
than twenty-four (24) hours prior to the First Closing Date or the Option
Closing Date, as the case may be. Such certificates will be made available for
checking and packaging at a location in Columbus, Ohio as may be designated by
you, at least twelve (12) hours prior to the First Closing Date or the Option
Closing Date, as the case may be.
3. Offering by the Underwriter. After the Registration Statement
becomes effective, the Underwriter proposes to offer for sale to the public the
Firm Debentures and any Option Debentures which may be sold at the price and
upon the terms set forth in the Final Prospectus.
4. Covenants of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company shall comply with the provisions of and
make all requisite filings with the Commission pursuant to Rules 424
and 430A of the Rules and Regulations and to notify you promptly (in
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writing, if requested) of all such filings. The Company shall notify
you promptly of any request by the Commission for any amendment of or
supplement to the Registration Statement, the Effective Prospectus or
the Final Prospectus or for additional information; the Company shall
prepare and file with the Commission, promptly upon your request, any
amendments of or supplements to the Registration Statement, the
Effective Prospectus or the Final Prospectus which, in your opinion,
may be necessary or advisable in connection with the distribution of
the Debentures; and the Company shall not file any amendment of or
supplement to the Registration Statement, the Effective Prospectus or
the Final Prospectus which is not approved by you after reasonable
notice thereof. The Company shall advise you promptly of the issuance
by the Commission or any jurisdiction or other regulatory body of any
stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any
Preliminary Prospectus, the Effective Prospectus or the Final
Prospectus or suspending the qualification of the Debentures for
offering or sale in any jurisdiction, or of the institution of any
proceedings for any such purpose; and the Company shall use its best
efforts to prevent the issuance of any stop order or other such order
and, should a stop order or other such order be issued, to obtain as
soon as possible the lifting thereof.
(b) The Company will take or cause to be taken all
necessary action and furnish to whomever you direct such information
as may be reasonably required in qualifying the Debentures and the
Common Stock into which the Debentures are convertible for offer and
sale under the securities or Blue Sky laws of such jurisdictions as
the Underwriter may designate and will continue such qualifications in
effect for as long as may be reasonably necessary to complete the
distribution.
(c) Within the time during which a Final Prospectus
relating to the Debentures is required to be delivered under the
Securities Act, the Company shall comply with all requirements imposed
upon it by the Securities Act, as now and hereafter amended, and by
the Rules and Regulations, as from time to time in force, so far as is
necessary to permit the continuance of sales of or dealings in the
Debentures as contemplated by the provisions hereof and the Final
Prospectus. If during such period any event occurs as a result of
which the Final Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances then existing, not misleading, or if during such
period it is necessary to amend the Registration Statement or
supplement the Final Prospectus to comply with the Securities Act, the
Company shall promptly notify you and shall amend the Registration
Statement or supplement the Final Prospectus (at the expense of the
Company) so as to correct such statement or omission or effect such
compliance.
(d) The Company will furnish without charge to the
Underwriter copies of the Registration Statement (four of which shall
be signed and shall be accompanied by all exhibits, including any
which are incorporated by reference, which have not previously been
furnished), each Preliminary Prospectus, the Effective Prospectus and
the Final Prospectus, and all amendments and supplements thereto,
including any prospectus or supplement prepared after the effective
date of the Registration Statement, in each case as soon as available
and in such quantities as the Underwriter may reasonably request.
(e) The Company will (i) deliver to you at such office or
offices as you may designate as many copies of the Preliminary
Prospectus and Final Prospectus as you may reasonably request, and
(ii) for a period of not more than nine (9) months after the
Registration Statement becomes effective, send to the Underwriter as
many additional copies of the Final Prospectus and any supplement
thereto as you may reasonably request.
(f) The Company shall make generally available to its
security holders, in the manner contemplated by Rule 158(b) under the
Securities Act as promptly as practicable and in any event no later
than forty-five (45) days after the end of its fiscal quarter in which
the first anniversary of the effective date of the Registration
Statement occurs, an earnings statement satisfying the provisions of
Section 11(a)
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<PAGE> 8
of the Securities Act covering a period of at least twelve (12)
consecutive months beginning after the effective date of the
Registration Statement.
(g) The Company will apply the net proceeds from the sale
of the Debentures by the Company as set forth under the caption "Use
of Proceeds" in the Final Prospectus.
(h) The Company will, at all times when the Debentures
are outstanding, reserve and continue to reserve for issuance shares
of Common Stock in numbers sufficient to accommodate conversion of all
Debentures as set forth in the Indenture which, when issued and
converted in accordance with the Indenture, will be validly issued,
fully paid and nonassessable.
(i) During a period of five (5) years from the effective
date of the Registration Statement or such longer period as the
Underwriter may reasonably request, the Company will furnish to the
Underwriter copies of all reports and other communications (financial
or other) furnished by the Company to its shareholders and, as soon as
available, copies of any reports or financial statements furnished or
filed by the Company to or with the Commission or any national
securities exchange on which any class of securities of the Company
may be listed.
(j) The Company will, from time to time, after the
effective date of the Registration Statement file with the Commission
such reports as are required by the Securities Act, the Exchange Act
and the Rules and Regulations, and shall also file with state
securities commissions in states where the Debentures have been sold
by you (as you shall have advised us in writing) such reports as are
required to be filed by the securities acts and the regulations of
those states.
(k) If at any time during the twenty-five (25) day period
after the Registration Statement is declared effective, any rumor,
publication or event relating to or affecting the Company shall occur
as a result of which, in your opinion, the market price for the
Debentures or the Common Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Final Prospectus),
the Company will, after written notice from you advising it as to the
effect set forth above, prepare, consult with you concerning the
substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting
on such rumor, publication or event.
(l) The Company will not take, directly or indirectly,
any action designed to cause or result in, or which might constitute
or be expected to constitute, stabilization or manipulation of the
price of the Debentures or the Common Stock.
5. Expenses. The Company agrees with the Underwriter that
whether or not the transactions contemplated by this Agreement are consummated
or this Agreement becomes effective or is terminated, the Company will pay (a)
all fees and expenses incident to the performance of the obligations of the
Company hereunder, including, but not limited to, (i) the Commission's
registration fee, (ii) the expenses of printing (or reproduction) and
distributing the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), each Preliminary Prospectus,
the Effective Prospectus, the Final Prospectus, any amendments or supplements
thereto, and this Agreement and other Underwriting documents and Blue Sky
Memoranda, (iii) fees and expenses of accountants and counsel for the Company,
(iv) expenses of registration or qualification of the Debentures under state
Blue Sky and securities laws, including the fees and disbursements of counsel
to the Underwriter in connection therewith, (v) filing fees paid or incurred by
the Underwriter and related fees and expenses incurred by counsel to the
Underwriter in connection with filings with the NASD, (vi) any applicable
listing fees, (vii) all travel, lodging and reasonable living expenses incurred
by the Company in connection with marketing, dealer and other meetings attended
by the Company and the Underwriter in marketing the Debentures, (viii) the
costs and charges of the Company's transfer agent and registrar and the cost of
preparing the certificates for the Debentures, (ix) fees and expenses of the
Trustee in connection with the Indenture and the Debentures and (x) all other
costs and expenses incident to the performance of their obligations hereunder
not
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<PAGE> 9
otherwise provided for in this Section; and (b) the Underwriter's counsel fees,
disbursements and expenses not in excess of $50,000.
6. Conditions of the Underwriter's Obligation. The obligation of
the Underwriter to purchase and pay for the Firm Debentures shall be subject,
in its discretion, to the accuracy of the representations and warranties of the
Company herein as of the date hereof and as of the Closing Date as if made on
and as of the Closing Date, to the accuracy of the statements of the Company's
officers made pursuant to the provisions hereof, to the performance by the
Company of all of its covenants and agreements hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective not later than 5:30
P.M., Washington, D.C. time, on the day following the date of this
Agreement, or such later time and date as shall have been consented to
by the Underwriter and all filings required by Rule 424 and Rule 430A
of the Rules and Regulations shall have been made; no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened or, to the knowledge of the Company or the
Underwriter, shall be contemplated by the Commission; any request of
the Commission for additional information (to be included in the
Registration Statement or the Final Prospectus or otherwise) shall
have been complied with to your satisfaction; and the NASD, upon
review of the terms of the public offering of the Debentures, shall
not have objected to such offering, such terms or the Underwriter's
participation in the same.
(b) The Underwriter shall not have advised the Company
that the Registration Statement, Preliminary Prospectus, the Effective
Prospectus or Final Prospectus, or any amendment or any supplement
thereto, contains an untrue statement of fact which, in your judgment,
is material, or omits to state a fact which, in your judgment, is
material and is required to be stated therein or necessary to make the
statements therein not misleading and the Company shall not have cured
such untrue statement of fact or stated a statement of fact required
to be stated therein.
(c) The Underwriter shall have received an opinion, dated
the Closing Date, from Porter, Wright, Morris & Arthur, counsel for
the Company, to the effect that:
(i) The Company has been duly organized and is
validly existing in good standing as a corporation under the
laws of the State of Delaware, with corporate power and
authority to own its properties and conduct its business as
now conducted, and is duly qualified to do business as a
foreign corporation in good standing in all other
jurisdictions where the failure to so qualify would have a
material adverse effect upon the Company. The Company holds
all licenses, certificates, permits, franchises and
authorizations from governmental authorities necessary for the
conduct of its business in all locations in which such
business is currently being conducted except where the failure
to hold such licenses, certificates, permits, franchises and
authorizations would not have a materially adverse affect upon
the Company.
(ii) Each of the Company's subsidiaries is validly
existing and in good standing under the laws of the state of
its incorporation or organization, as the case may be, with
power and authority to own its properties and conduct its
business as now conducted, and is duly qualified or authorized
to do business and is in good standing in all other
jurisdictions where the failure to so qualify would have a
material adverse effect upon the business of the Company and
its subsidiaries. No options or warrants or other rights to
purchase, agreements or other obligations to issue or other
rights to convert any obligations into any shares of capital
stock or of ownership interests in any of the Company's
subsidiaries are outstanding.
(iii) As of the dates specified therein, the
Company had authorized and issued capital stock as set forth
under the caption "Capitalization" in the Final Prospectus.
All of the
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outstanding shares of Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable; none of
the issued shares have been issued in violation of or subject
to any preemptive rights provided for by law or by the
Company's certificate of incorporation. The Company has
reserved for issuance shares of Common Stock in numbers
sufficient to accommodate conversion of all of the Debentures
as set forth in the Indenture, which, when issued and converted
in accordance with the Indenture will be validly issued, fully
paid and nonassessable. There are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon
the transfer of, the Debentures pursuant to the Company's
certificate of incorporation or bylaws or other governing
documents any agreement or other instrument to which the
Company is a party or by which it may be bound except as
described in the Effective Prospectus and Final Prospectus.
Neither the filing of the Registration Statement nor the offer
or sale of the Debentures as contemplated by this Agreement
gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any
shares of Common Stock or any other securities of the Company.
The Underwriter will receive good and marketable title to the
Debentures to be issued and delivered pursuant to this
Agreement, free and clear of all liens, encumbrances, claims,
security interests, restrictions, shareholders agreements and
voting trusts whatsoever. The capital stock of the Company and
the Debentures conform to the description thereof contained in
the Final Prospectus. All sales of the Company's securities
outstanding on the date hereof were at all relevant times duly
registered or exempt from the registration requirements of the
Securities Act and were duly registered or the subject of an
exemption from the registration requirements of applicable
state securities or Blue Sky laws.
(iv) No consent, approval, authorization or order
of any court or governmental agency or body or third party is
required for the performance of this Agreement by the Company
or the consummation by the Company of the transactions
contemplated hereby, except such as have been obtained from
Bank One, Columbus, NA and except such as have been obtained
under the Securities Act and such as may be required by the
NASD and under state securities or Blue Sky laws in connection
with the purchase and distribution of the Debentures by the
Underwriter. The performance of this Agreement by the Company
and the consummation by the Company of the transactions
contemplated hereby will not conflict with or result in a
breach or violation by the Company of any of the terms or
provisions of, or constitute a default by the Company under,
any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument known to such counsel to
which the Company is a party or to which the Company or its
properties is subject, the certificate of incorporation or
bylaws of the Company, any statute, or any judgment, decree,
order, rule or regulation known to such counsel of any court
or governmental agency or body applicable to the Company or
any of its subsidiaries or their properties.
(v) The Company has full legal right, power and
authority to enter into this Agreement and the Indenture and
to issue, sell and deliver the Debentures to be sold by it to
the Underwriter as provided herein and therein, and this
Agreement and the Indenture have been duly authorized,
executed and delivered by the Company and constitute the valid
and legally binding obligations of the Company enforceable
against the Company in accordance with their terms except as
the enforcement thereof may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar
laws generally affecting the rights of creditors, and by the
application of principles of equity (whether sought in a
proceeding in equity or in law).
(vi) Except as described in the Final Prospectus,
there is not pending, or to the knowledge of such counsel
threatened, any action, suit, proceeding, inquiry or
investigation, to which the Company or any of its subsidiaries
is a party, or to which the property of the Company or any of
its subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to
the Company or any of its subsidiaries, could result in any
material adverse change in the business, financial position,
net worth or results of operations,
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or could materially adversely affect the properties or assets,
of the Company and any of its subsidiaries.
(vii) To the best knowledge of such counsel, no
default exists, and no event has occurred which with notice or
after the lapse of time to cure or both, would constitute a
default, in the due performance and observance of any term,
covenant or condition of any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party or
to which they or their properties are subject, or of the
certificate of incorporation or bylaws of the Company or any
of its subsidiaries.
(viii) To the best knowledge of such counsel after
reasonable inquiry, neither the Company nor any of its
subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable
to the Company or any of its subsidiaries or any decree of any
court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries.
(ix) The Registration Statement and all post
effective amendments thereto have become effective under the
Securities Act, and, to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are threatened, pending or
contemplated by the Commission. All filings required by Rule
424 and Rule 430A of the Rules and Regulations have been made;
the Registration Statement, the Effective Prospectus and Final
Prospectus, and any amendments or supplements thereto, as of
their respective effective or issue dates, complied as to form
in all material respects with the requirements of the
Securities Act and the Rules and Regulations; the descriptions
in the Registration Statement, the Effective Prospectus and
the Final Prospectus of statutes, regulations, legal and
governmental proceedings, and contracts and other documents
are accurate in all material respects and present fairly the
information required to be stated; and such counsel does not
know of any pending or threatened legal or governmental
proceedings, statutes or regulations required to be described
in the Final Prospectus which are not described as required
nor of any contracts or documents of a character required to
be described in the Registration Statement or the Final
Prospectus or to be filed as exhibits to the Registration
Statement which are not described and filed, as required.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that the
Registration Statement, the Effective Prospectus and the Final
Prospectus or any amendment or supplement thereto contains an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading (except that such counsel need express no view
as to financial statements, schedules and other financial information
included therein).
Such opinion may be limited to federal law and, as to state
law matters, to the laws of the State of Delaware and the State of
Ohio. Such counsel may also rely on opinion of other counsel as to
matters of local law provided that such counsel shall state that they
believe both they and you are justified in relying on such opinion.
(d) The Underwriter shall have received an opinion or
opinions, dated the Closing Date, of Squire, Sanders & Dempsey,
counsel for the Underwriter, with respect to the Registration
Statement and the Final Prospectus, and such other related matters as
the Underwriter may require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the
purpose of enabling them to pass upon such matters.
(e) The Underwriter shall have received from Coopers &
Lybrand, a letter dated the date hereof and, at the Closing Date, a
second letter dated the Closing Date, in form and substance
satisfactory
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to the Underwriter, stating that they are independent public
accountants with respect to the Company and its subsidiaries within
the meaning of the Securities Act and the applicable Rules and
Regulations, and to the effect that:
(i) In their opinion, the financial statements
and schedules examined by them and included or incorporated by
reference in the Registration Statement comply as to form in
all material respects with the applicable accounting
requirements of the Securities Act and the published Rules and
Regulations and are presented in accordance with generally
accepted accounting principles; and they have made a review in
accordance with standards established by the American
Institute of Certified Public Accountants of the consolidated
interim financial statements, selected financial data and/or
condensed financial statements derived from audited financial
statements of the Company;
(ii) The unaudited selected financial information
included in the Preliminary Prospectus and the Final
Prospectus under the captions "PROSPECTUS SUMMARY" and
"SELECTED CONSOLIDATED FINANCIAL DATA" for the three fiscal
years and five fiscal years, respectively, ended December 31,
1995, December 31, 1994, December 31, 1993, December 31, 1992,
and December 31, 1991, agrees with the corresponding amounts
in the audited financial statements included in the Final
Prospectus or previously reported on by them;
(iii) On the basis of a reading of the latest
available interim consolidated financial statements
(unaudited) of the Company and its subsidiaries, a reading of
the minute books of the Company and its subsidiaries,
inquiries of officials of the Company responsible for
financial and accounting matters and other specified
procedures, all of which have been agreed to by the
Representatives, nothing came to their attention that caused
them to believe that:
(A) the unaudited financial statements
included in the Registration Statement do not comply
as to form in all material respects with the
accounting requirements of the federal securities
laws and the related published rules and regulations
thereunder or are not in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with the basis for the
audited financial statements contained in the
Registration Statement;
(B) any other unaudited financial
statement data included in the Final Prospectus do
not agree with the corresponding items in the
unaudited financial statements from which data was
derived and any such unaudited data were not
determined on a basis substantially consistent with
the basis for the corresponding amounts in the
audited financial statements included or incorporated
by reference in the Prospectus;
(C) at a specified date not more than
five (5) days prior to the date of delivery of such
respective letter, there was any change in the
consolidated capital stock, decline in stockholders'
equity or increase in long-term debt of the Company
and its subsidiaries, or other items specified by the
Underwriter in each case as compared with amounts
shown in the latest balance sheets included in the
Final Prospectus, except in each case for changes,
decreases or increases which the Final Prospectus
discloses have occurred or may occur or which are
described in such letters; and
(D) for the period from the closing date
of the latest consolidated statements of earnings
included in the Effective Prospectus and the Final
Prospectus to a specified date not more than five (5)
days prior to the date of delivery of such respective
letter, there were any decreases in total revenues or
net income of the Company, or other items specified
by the Underwriter, or any increases in any items
specified by the Underwriter, in each case as
compared with the corresponding period of the
preceding year, except in
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each case for decreases which the Final Prospectus
discloses have occurred or may occur or which are
described in such letter.
(iv) They have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information specified by
you which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the
Effective Prospectus and the Final Prospectus and have
compared and agreed such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries or to analyses and schedules prepared by the
Company and its subsidiaries from its detailed accounting
records.
In the event that the letters to be delivered referred to
above set forth any such changes, decreases or increases, it shall be
a further condition to the obligation of the Underwriter that the
Underwriter shall have determined, after discussions with officers of
the Company responsible for financial and accounting matters and with
Coopers & Lybrand, that such changes, decreases or increases as are
set forth in such letters do not reflect a material adverse change in
the stockholders' equity or long-term debt of the Company as compared
with the amounts shown in the latest balance sheets of the Company
included in the Final Prospectus, or a material adverse change in
total revenues or net income, of the Company, in each case as compared
with the corresponding period of the prior year.
(f) There shall have been furnished to you a certificate,
dated the Closing Date and addressed to you, signed by the Chief
Executive Officer and by the Chief Financial Officer of the Company to
the effect that:
(i) the representations and warranties of the
Company in Section 1 of this Agreement are true and correct,
as if made at and as of the Closing Date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings
for that purpose have been initiated or are pending, or to
their knowledge, threatened under the Securities Act;
(iii) all filings required by Rule 424 and Rule 430A
of the Rules and Regulations have been made;
(iv) they have carefully examined the Registration
Statement, the Effective Prospectus and the Final Prospectus,
and any amendments or supplements thereto, and such documents
do not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and
(v) since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amendment or supplement to the Registration
Statement, the Effective Prospectus or the Final Prospectus
which has not been so set forth.
(g) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Final
Prospectus, and except as stated therein, the Company and its
subsidiaries have not sustained any material loss or interference with
their respective business or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any court or governmental action, order or
decree, or become a party to or the subject of any litigation which is
material to the Company and its subsidiaries taken as a whole, nor
shall there have been any material adverse change, or any development
involving a prospective material adverse change, in the business,
properties, key personnel, capitalization, net worth, results of
operations or condition (financial
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<PAGE> 14
or other) of the Company and its subsidiaries taken as a whole, which
loss, interference, litigation or change, in your judgment shall
render it unadvisable to commence or continue with the public offering
or the delivery of the Debentures.
(h) At or prior to the Closing Date, none of the
following events shall have occurred: (i) suspension in the trading in
securities on the New York Stock Exchange, the American Stock Exchange
or the over-the-counter market; (ii) the establishment of minimum or
maximum prices on the New York Stock Exchange, the American Stock
Exchange or the over-the-counter market; (iii) the declaration of a
banking moratorium by federal or state authorities; or (iv) a material
change in general economic, political or financial conditions or the
effect of international conditions on the financial markets in the
United States shall, in your reasonable judgment, make it inadvisable
to proceed with the public offering.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Underwriter and its counsel. The Company
shall furnish to the Underwriter such conformed copies of such opinions,
certificates, letters and documents in such quantities as the Underwriter shall
reasonably request.
The obligation of the Underwriter to purchase and pay for the Option
Debentures shall be subject, in its discretion, to each of the foregoing
conditions to purchase the Firm Debentures, except that all references to the
"Closing Date" shall be deemed to refer to the Option Closing Date, if it shall
be a date other than the Closing Date.
7. Condition of the Company's Obligations. The obligations
hereunder of the Company are subject to the condition set forth in Section 6(a)
hereof.
8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless the Underwriter, and each person, if any, who
controls the Underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the
Underwriter or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based in whole or in part upon
(i) any untrue statement made by the Company in the representations and
warranties of the Company contained herein, (ii) any failure of the Company to
perform its obligations hereunder or under law, (iii) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or Final
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
application or other written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Debentures
under the securities laws thereof (a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or Final
Prospectus or any amendment or supplement thereto or any Blue Sky Application a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (iv) any untrue statement or alleged untrue statement
of any material fact contained in any audio or visual materials prepared by the
Company and used in connection with the marketing of the Debentures, including,
without limitation, slides, videos, films and tape recordings, and will
reimburse the Underwriter and each such controlling person for any legal or
other expenses reasonably incurred by the Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage, or liability arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, the Preliminary Prospectus, the Effective
Prospectus or Final Prospectus or such amendment or such supplement or any Blue
Sky Application in reliance upon and in conformity with written information
furnished to the Company by the Underwriter specifically for use therein (it
being understood that the only information so provided is the information
included in the last paragraph on the Cover Page and in the first, second, and
third paragraphs under the caption "Underwriting" in any Preliminary Prospectus
and the Final Prospectus and the Effective Prospectus.)
14
<PAGE> 15
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Securities Act against any losses, claims, damages or liabilities to
which the Company or any such director, officer or controlling person may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or Final Prospectus, or any amendment or supplement
thereto, or any Blue Sky Application, or arise out of or are based upon the
omission or the alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus or any
amendment or supplement thereto or any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by the Underwriter specifically for use therein (it being
understood that the only information so provided is the information included in
the last paragraph on the Cover Page and in the first, second and third
paragraphs under the caption "Underwriting" in any Preliminary Prospectus and
in the Effective Prospectus and the Final Prospectus).
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, including governmental
proceedings, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 8 notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation except that you shall have
the right to employ separate counsel if, in your reasonable judgment, it is
advisable for you and the Underwriter to be represented by separate counsel,
and in that event the fees and expenses of separate counsel shall be paid by
the Company.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the preceding
part of this Section 8 is for any reason held to be unavailable to the
Underwriter or the Company or is insufficient to hold harmless an indemnified
party, then the Company shall contribute to the damages paid by the
Underwriter, and the Underwriter shall contribute to the damages paid by the
Company provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. In determining the amount of contribution to
which the respective parties are entitled, there shall be considered the
relative benefits received by each party from the offering of the Debentures
(taking into account the portion of the proceeds of the offering realized by
each), the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to correct
and prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. The Company and the Underwriter agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation. The Underwriter or person
controlling the Underwriter shall not be obligated to make contribution
hereunder which in the aggregate exceeds the underwriting discount applicable
to the Debentures purchased by the Underwriter under this Agreement, less the
aggregate amount of any damages which the Underwriter and its controlling
persons have otherwise been required to pay in respect of the same or any
similar claim. For purposes of this Section, each person, if any, who controls
the Underwriter within the meaning of Section 15 of the Securities Act shall
have the same rights to contribution as the Underwriter, and each director of
the Company, each officer of the Company who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act, shall have the same rights to contribution as the
Company.
15
<PAGE> 16
9. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person, (ii) any termination of this Agreement and (iii) delivery
of and payment for the Debentures.
10. Effective Date. This Agreement shall become effective at such
time after the Registration Statement has become effective as the Underwriter
shall release the Firm Debentures for sale to the public; provided, however,
that the provisions of Sections 5, 8, 9 and 10 hereof shall at all times be
effective. For purposes of this Section 10, the Firm Debentures shall be
deemed to have been so released upon the release by the Underwriter for
publication, at any time after the Registration Statement has become effective,
of any newspaper advertisement relating to the Firm Debentures or upon the
release by the Underwriter of telegrams offering the Firm Debentures for sale
to securities dealers, whichever may occur first.
11. Termination. (a) The Company's obligations under this
Agreement may be terminated by the Company by notice to the Underwriter (i) at
any time before it becomes effective in accordance with Section 10 hereof, or
(ii) in the event that the condition set forth in Section 7 shall not have been
satisfied at or prior to the First Closing Date.
(b) This Agreement may be terminated by the Underwriter by notice
to the Company (i) at any time before it becomes effective in accordance with
Section 10 hereof; (ii) in the event that at or prior to the First Closing Date
the Company shall have failed, refused or been unable to perform any agreement
on the part of the Company, to be performed hereunder or any other condition to
the obligation of the Underwriter hereunder is not fulfilled; (iii) if at or
prior to the Closing Date trading in securities on the New York Stock Exchange,
the American Stock Exchange or the over-the-counter market shall have been
suspended or materially limited or minimum or maximum prices shall have been
established on either of such Exchanges or such market, or a banking moratorium
shall have been declared by Federal or state authorities; (iv) if at or prior
to the Closing Date trading in securities of the Company shall have been
suspended; or (v) if there shall have been such a material adverse change in
general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States shall be
such as, in your reasonable judgment, makes it inadvisable to commence or
continue with the public offering or the delivery of the Debentures.
(c) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party other than as
provided in Sections 5 and 8 hereof.
12. Notices. All communications hereunder shall be in writing
and, if sent to the Underwriter, shall be mailed or delivered or telegraphed in
care of The Ohio Company, 155 East Broad Street, 20th Floor, Columbus, Ohio
43215, Attention: Curtis D. Milner or if sent to the Company shall be mailed,
delivered or telegraphed and confirmed in writing to the Company in care of the
Company at 4140 Fisher Road, Columbus, Ohio 43228, Attention: Joseph A. Mussey.
13. Miscellaneous. This Agreement shall inure to the benefit of
and be binding upon the Underwriter, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement.
This Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the Company and the Underwriter and for the
benefit of no other person except that (i) the representations and warranties
of the Company contained in this Agreement shall also be for the benefit of any
person or persons who control the Underwriter within the meaning of Section 15
of the Securities Act, and (ii) the indemnities by the Underwriter shall also
be for the benefit of the directors of the Company, officers of the Company who
have signed the Registration Statement and any person or persons who control
the Company within the meaning of Section 15 of the Securities Act. No
purchaser of Debentures from the Underwriter will be deemed a successor because
of such purchase. The validity and interpretation of this Agreement shall be
16
<PAGE> 17
governed by the laws of the State of Ohio. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please indicate your acceptance thereof in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among the Company and the Underwriter.
Very truly yours,
DANNINGER MEDICAL TECHNOLOGIES, INC.
By:_____________________________________
Title:__________________________________
Confirmed and accepted as of
the date first above written.
THE OHIO COMPANY
By:_______________________________
Its:______________________________
17
<PAGE> 1
Exhibit 4.2
- --------------------------------------------------------------------------------
DANNINGER MEDICAL TECHNOLOGY, INC.
AND
FIFTH THIRD BANK
Trustee
INDENTURE
Dated ____________ __, 1996
___% CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2003
- --------------------------------------------------------------------------------
<PAGE> 2
TIE-SHEET
of provisions of Trust Indenture Act of 1939 with Indenture dated ____________
__, 1996, between Danninger Medical Technology, Inc. and Fifth Third Bank,
Trustee:
<TABLE>
<CAPTION>
Section
Section of Act of Indenture
- -------------- ------------
<S> <C>
310 (a)(1) and (2) .......................................... 9.08
310 (b) ..................................................... 9.07 and 9.09
312 (c) ..................................................... 7.01
314 (a) ..................................................... 7.02
314 (a)(4) .................................................. 6.05
314 (c)(1) and (2) .......................................... 16.05
314 (e) ..................................................... 16.05
315 (b) ..................................................... 8.08
316 (a)(1)(A) ............................................... 8.01 and 8.07
316 (a)(1)(B) ............................................... 8.07
316 (a) last sentence ....................................... 10.04
316 (b) ..................................................... 8.04
317 (a)(1) and (2) .......................................... 8.02
318 (a) ..................................................... 16.07
</TABLE>
- -------------------
This tie-sheet does not constitute a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS*
ARTICLE ONE
DEFINITIONS
<TABLE>
<S> <C>
Section 1.01. Definitions.................................................. 10
Affiliate .................................................................. 10
Associate .................................................................. 10
Board of Directors ......................................................... 10
Business Day ............................................................... 10
Change of Control .......................................................... 11
Change of Control Purchase Date ............................................ 11
Change of Control Purchase Notice........................................... 11
Change of Control Purchase Price............................................ 11
Common Stock................................................................ 12
Company..................................................................... 12
Conversion Price............................................................ 12
Corporate Trust Office of the Trustee....................................... 12
Current Market Price; Market Price.......................................... 12
Debenture or Debentures; Outstanding........................................ 12
Debentureholder............................................................. 12
Event of Default............................................................ 12
Exchange Act................................................................ 12
Indenture .................................................................. 12
Officers' Certificate ...................................................... 13
Opinion of Counsel.......................................................... 13
Original Issue Date......................................................... 13
Over-allotment Option....................................................... 13
Person...................................................................... 13
Redemption Period........................................................... 13
Redemption Period Maximum Amount ........................................... 13
Responsible Officer......................................................... 13
Senior Indebtedness......................................................... 13
Subsidiary ................................................................. 13
Trading Day................................................................. 13
Trustee .................................................................... 14
Trust Indenture Act of 1939 or TIA.......................................... 14
</TABLE>
- ------------
*This table of contents shall not, for any purpose, be deemed to be a part of
the Indenture.
i
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE TWO
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF DEBENTURES
Section 2.01. Designation, Amount and Issue of Debentures............... 14
Section 2.02. Form of Debentures........................................ 14
Section 2.03. Denominations, Dates, Interest Payment and Record Dates... 14
Section 2.04. Execution of Debentures................................... 15
Section 2.05. Exchange and Registration of Transfer of Debentures....... 15
Section 2.06. Mutilated, Destroyed, Lost or Stolen Debentures........... 16
Section 2.07. Temporary Debentures...................................... 16
Section 2.08. Cancellation of Debentures Paid, etc...................... 16
ARTICLE THREE
REDEMPTION OF DEBENTURES AT COMPANY'S OPTION
Section 3.01. Redemption Prices ........................................ 17
Section 3.02. Notice of Redemption ..................................... 17
Section 3.03. Selection of Debentures................................... 17
Section 3.04. Payment of Debentures on Redemption;
Deposit of Redemption Price............................... 18
ARTICLE FOUR
REDEMPTION OF DEBENTURES AT HOLDER'S OPTION
Section 4.01. Purchase of Debentures by the Company at Option of
the Holder Upon Change of Control......................... 18
Section 4.02. Effect of Change of Control Purchase Notice;
Withdrawal Notice......................................... 20
Section 4.03. Debentures Purchased in Part.............................. 20
Section 4.04. Covenant to Comply With Securities Laws upon
Purchase of Debentures.................................... 20
Section 4.05. Redemption Right at Debentureholder's Option.............. 21
Section 4.06. Withdrawal................................................ 22
Section 4.07. Redemption Register....................................... 22
Section 4.08. Redemption of Debentures Subject to Article Three......... 22
ARTICLE FIVE
CONVERSION OF DEBENTURES
Section 5.01. Conversion Privilege...................................... 23
Section 5.02. Manner of Exercise of Conversion Privilege................ 23
Section 5.03. Payment in Lieu of Fractional Shares...................... 24
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
Section 5.04. Adjustment of Conversion Price............................ 24
Section 5.05. Notice of Certain Corporate Action........................ 26
Section 5.06. Company to Provide Stock.................................. 26
Section 5.07. Taxes on Conversions ..................................... 26
Section 5.08. Covenant as to Stock...................................... 27
Section 5.09. Consolidation or Merger................................... 27
Section 5.10. Disclaimer of Responsibility for Certain Matters.......... 27
ARTICLE SIX
PARTICULAR COVENANTS OF THE COMPANY
Section 6.01. Payment of Principal, Change of Control Purchase
Price, Premium and Interest............................... 28
Section 6.02. Office for Notices, Payments and Conversions, etc......... 28
Section 6.03. Appointments to Fill Vacancies in Trustee's Office........ 28
Section 6.04. Provision as to Paying Agent.............................. 28
Section 6.05. Annual Statement.......................................... 29
ARTICLE SEVEN
DEBENTUREHOLDERS LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE
Section 7.01. Disclosures of Names and Addresses of Holders............. 29
Section 7.02. Reports by the Company.................................... 29
Section 7.03. Reports by Trustee........................................ 30
ARTICLE EIGHT
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
Section 8.01. Events of Default......................................... 30
Section 8.02. Payment of Debentures on Default; Suit Therefor........... 31
Section 8.03. Application of Moneys Collected by Trustee................ 32
Section 8.04. Proceedings by Debentureholders........................... 32
Section 8.05. Proceeding by Trustee..................................... 33
Section 8.06. Remedies Cumulative and Continuing........................ 33
Section 8.07. Direction of Proceeding and Waiver
Defaults by Majority of Debentureholders.................. 33
Section 8.08. Notice of Defaults........................................ 33
Section 8.09. Undertaking to Pay Costs.................................. 34
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE NINE
CONCERNING THE TRUSTEE
Section 9.01. Reliance on Documents, Opinions, etc...................... 34
Section 9.02. No Responsibility for Recitals, etc....................... 35
Section 9.03. Trustee, Paying Agent, Conversion Agent or
Registrar May Own Debentures.............................. 35
Section 9.04. Moneys to Be Held in Trust ............................... 35
Section 9.05. Compensation and Expenses of Trustee...................... 35
Section 9.06. Officers' Certificate as Evidence......................... 36
Section 9.07. Succession by Merger, etc................................. 36
Section 9.08. Eligibility of Trustee ................................... 36
Section 9.09. Resignation or Removal of Trustee......................... 36
Section 9.10. Acceptance by Successor Trustee........................... 37
ARTICLE TEN
CONCERNING THE DEBENTUREHOLDERS
Section 10.01. Action by Debentureholders................................ 38
Section 10.02. Proof of Execution by Debentureholders.................... 38
Section 10.03. Who Deemed Absolute Owners................................ 38
Section 10.04. Company-Owned Debentures Disregarded...................... 38
Section 10.05. Revocation of Consents; Future Holders Bound.............. 38
Section 10.06. Record Date for Debentureholder Acts...................... 39
ARTICLE ELEVEN
DEBENTUREHOLDERS' MEETINGS
Section 11.01. Purposes of Meetings...................................... 39
Section 11.02. Call of Meetings by Trustee............................... 39
Section 11.03. Call of Meetings by Company or Debentureholders........... 39
Section 11.04. Qualifications for Voting................................. 40
Section 11.05. Regulations .............................................. 40
Section 11.06. Voting.................................................... 40
Section 11.07. Rights of Trustee or Debentureholders Not Delayed......... 40
</TABLE>
iv
<PAGE> 7
<TABLE>
<S> <C>
ARTICLE TWELVE
SUPPLEMENTAL INDENTURES
Section 12.01. Supplemental Indentures without Consent of
Debentureholders.......................................... 41
Section 12.02. Supplemental Indentures with Consent of
Debentureholders.......................................... 41
Section 12.03. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures................................... 42
Section 12.04. Notation on Debentures.................................... 42
Section 12.05. Evidence of Compliance of Supplemental Indenture
to Be Furnished Trustee................................... 42
ARTICLE THIRTEEN
CONSOLIDATION, MERGER AND SALE
Section 13.01. Company May Consolidate, etc. on Certain Terms............ 43
Section 13.02. Successor Corporation to Be Substituted................... 43
Section 13.03. Opinion of Counsel to Be Given to Trustee................. 43
ARTICLE FOURTEEN
SATISFACTION AND DISCHARGE OF INDENTURE
Section 14.01. Discharge of Indenture.................................... 43
Section 14.02. Deposited Moneys to Be Held in Trust by Trustee........... 44
Section 14.03. Paying Agent to Repay Moneys Held......................... 44
Section 14.04. Return of Unclaimed Moneys................................ 44
ARTICLE FIFTEEN
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 15.01. Indenture and Debentures Solely Corporate Obligations.... 44
ARTICLE SIXTEEN
MISCELLANEOUS PROVISIONS
Section 16.01. Provisions Binding on Company's Successors............... 45
Section 16.02. Official Acts by Successor Corporation................... 45
Section 16.03. Addresses for Notices, etc............................... 45
Section 16.04. Governing Law ........................................... 45
Section 16.05. Evidence of Compliance with Conditions Precedent ........ 45
</TABLE>
v
<PAGE> 8
<TABLE>
<S> <C>
Section 16.06. Legal Holidays........................................... 46
Section 16.07. Trust Indenture Act to Control........................... 46
Section 16.08. Table of Contents, Headings, etc......................... 46
Section 16.09. Execution in Counterparts................................ 46
Section 16.10. Manner of Mailing Notice to Debentureholders............. 46
ARTICLE SEVENTEEN
SUBORDINATION OF DEBENTURES
Section 17.01. Debentures Subordinate to Senior Indebtedness............ 46
Section 17.02. Distribution on Dissolution, Liquidation, Bankruptcy
or Reorganization........................................ 46
Section 17.03. Default on Senior Indebtedness........................... 47
Section 17.04. When Distribution Must Be Paid Over...................... 48
Section 17.05. Subrogation.............................................. 48
Section 17.06. Relative Rights.......................................... 48
Section 17.07. Payments on Debentures Permitted......................... 48
Section 17.08. Trustee to Effectuate Subordination...................... 49
Section 17.09. Trustee Not Charged with Knowledge of Prohibition........ 49
Section 17.10. Rights of Trustee as Holder of Senior Indebtedness....... 49
Section 17.11. Trustee Not Fiduciary for Holders of Senior
Indebtedness............................................. 49
Section 17.12. Article Applicable to Paying Agents...................... 49
Section 17.13. No Impairment of Subordination........................... 49
</TABLE>
vi
<PAGE> 9
THIS INDENTURE, dated ____________ __, 1996, between Danninger Medical
Technology, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (hereinafter sometimes called the "Company"), and Fifth
Third Bank, a ____________________________ duly organized and existing under the
laws of the United States (hereinafter sometimes called the "Trustee").
WITNESSETH:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issue of its ___% Convertible Subordinated Debentures Due 2003
(hereinafter sometimes called the "Debentures") in the aggregate principal
amount of up to $5,250,000 and, to provide the terms and conditions upon which
the Debentures are to be authenticated, issued and delivered, the Company has
duly authorized the execution of this Indenture;
WHEREAS, the Debentures and the Trustee's certificate of authentication
to be borne by the Debentures are to be substantially in the following forms,
respectively:
[FORM OF FACE OF DEBENTURE]
No.R- REGISTERED
$___________
DANNINGER MEDICAL TECHNOLOGY, INC.
___% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2003
Danninger Medical Technology, Inc., a corporation organized and existing
under the laws of the State of Delaware (hereinafter called the "Company," which
term shall include any successor corporation as defined in the Indenture
referred to on the reverse side hereto, for value received, hereby promises to
pay to _____________ , or registered assigns, the sum of ________________
Dollars at the office or agency of the Company in Columbus, Ohio, initially the
principal corporate trust office of Fifth Third Bank, Columbus, Ohio, on June 1,
2003, in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts, and
to pay interest semiannually on each June 1 and December 1 of each year,
commencing June 1, 1996, at said office or agency, in like coin or currency, at
the rate per annum specified in the title of this Debenture, from the next
preceding interest payment date to which interest has been paid, unless the date
hereof is a date to which interest has been paid, in which case from the date of
this Debenture, or, if no interest has been paid on this Debenture, from the
Original Issue Date (as defined in the Indenture referred to on the reverse side
hereof), until payment of said principal sum has been made or duly provided for.
The interest so payable on any interest payment date will, subject to certain
exceptions provided in the Indenture referred to on the reverse hereof, be paid
to the person in whose name this Debenture is registered at the close of
business on the fifteenth day of the month immediately preceding such interest
payment date, whether or not such day is a business day, and may, at the option
of the Company, be paid by check mailed to the registered address of such
person.
Reference is made to the further provisions of this Debenture set forth
on the reverse hereof. Such further provisions shall for all purposes have the
same effect as though fully set forth at this place.
This Debenture shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been signed by the
Trustee under the Indenture referred to on the reverse hereof.
1
<PAGE> 10
IN WITNESS WHEREOF, Danninger Medical Technology, Inc. has caused this
Instrument to be signed in its name by the facsimile signature of its President
and a facsimile of its corporate seal to be imprinted hereon, and attested by
the facsimile signature of its Secretary or Assistant Secretary.
Dated:___________________ DANNINGER MEDICAL TECHNOLOGY, INC.
By:_______________________________
Joseph A. Mussey, President
Attest:
_________________________________
Curtis A. Loveland, Secretary
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Debentures described in the within-mentioned Indenture.
FIFTH THIRD BANK,
as Trustee
By:_______________________________
Authorized Officer
2
<PAGE> 11
[FORM OF REVERSE OF DEBENTURE]
This Debenture is one of a duly authorized issue of Debentures of the
Company, designated as set forth on the face hereof (herein called the
"Debentures"), limited to the aggregate principal amount of up to $5,250,000,
all issued or to be issued under and pursuant to an indenture dated ___________
__, 1996 (herein called the "Indenture"), duly executed and delivered by the
Company to Fifth Third Bank, Trustee (herein called the "Trustee"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Trustee, the Company, the holders of the Debentures
and holders of Senior Indebtedness (as defined in the Indenture). Any
capitalized term used herein and not defined herein shall have the meaning
ascribed to that term in the Indenture.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than 66-2/3% in aggregate
principal amount of the Debentures at the time outstanding, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any supplemental indenture or modifying in any manner the rights of the
holders of the Debentures; provided, however, that no such supplemental
indenture shall (i) extend the fixed maturity of any Debenture, or reduce the
rate or extend the time of payment of interest thereon, reduce the principal
amount thereof or any premium thereon, make the principal thereof or any premium
or interest thereon payable in any coin or currency other than that hereinbefore
provided, impair the right to convert or redeem the Debentures into shares of
Common Stock (as defined in the Indenture) or cash, securities or other property
or the terms upon which the Debentures may be converted or redeemed subject and
pursuant to the terms set forth in the Indenture or impair the right to
prepayment of the Debentures or the right of the holders of Debentures to
receive the Change of Control Purchase Price (as defined in the Indenture) upon
a Change of Control (as defined in the Indenture), without the consent of the
holder of each Debenture so affected, or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Debentures
then outstanding. It is also provided in the Indenture that, prior to any
declaration accelerating the maturity of the Debentures, the holders of a
majority in aggregate principal amount of the Debentures at the time outstanding
may on behalf of the holders of all of the Debentures waive any past default
under the Indenture and its consequences except a default in the payment of
principal of, or premium, if any, or interest on, the Debentures or in respect
of conversion of any Debentures in accordance with the Indenture or the payment
of any Change of Control Purchase Price upon a Change of Control in accordance
with the Indenture. Any such consent or waiver (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future holders and owners of this Debenture and any Debentures which may be
issued in exchange or substitution herefor, irrespective of whether or not any
notation thereof is made upon this Debenture or such other Debentures.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Debenture at the place, at the respective times, at the rate
and in the coin or currency herein prescribed.
Subject to and upon compliance with the provisions of the Indenture, the
registered holder of this Debenture has the right, at his option, at any time
prior to June 1, 2003 (or in case this Debenture or any portion hereof shall be
tendered for or called for redemption prior to the business day (as defined in
the Indenture) immediately preceding such date, then at any time prior to and
including but not after the close of business on the fifteenth day (or, if such
day is not a business day, then on the next following business day) preceding
the redemption date, unless the Company shall fail to redeem such Debenture, in
which case such Debenture shall remain convertible as provided in the Indenture)
to convert the principal amount hereof, or any portion of such principal amount
which is $1,000 or an integral multiple thereof, into that number of fully paid
and non-assessable shares of Common Stock (calculated to the nearest 1/100th of
a share) obtained by dividing the principal amount of the Debenture or portion
thereof to be converted by the
3
<PAGE> 12
conversion price of $________ per share, or the conversion price as adjusted
from time to time as provided in the Indenture, upon surrender of this Debenture
to the Company at its office or agency for such purpose in Columbus, Ohio,
initially the principal corporate office of the Trustee, accompanied by notice
of conversion in the form provided hereon, duly executed by the registered
holder or his duly authorized attorney and, if the shares of Common Stock to be
issued on conversion are to be issued in any name other than that of the
registered holder of this Debenture, accompanied by instruments of transfer, in
the form provided hereon, duly executed by the registered holder or his duly
authorized attorney and, in case such surrender shall be made during the period
from the close of business on the fifteenth day of the month, or the next
preceding business day if such fifteenth day is not a business day, preceding
any June 1 or December 1, to the opening of business on such June 1 or December
1 (unless this Debenture or the portion thereof being converted has been called
for redemption during such period), also accompanied by payment in nextday funds
or other funds acceptable to the Company, of an amount equal to the interest
payable on such June 1 or December 1 on the principal amount of this Debenture
then being converted. Subject to the aforesaid requirement for a payment in the
event of conversion after the close of business on the fifteenth day immediately
preceding an interest payment date, no payment or adjustment shall be made on
conversion for interest accrued hereon or for dividends on Common Stock
delivered on conversion. The right to convert this Debenture is subject to the
provisions of the Indenture relating to conversion rights in the case of certain
consolidations, mergers, statutory exchanges, or sales or conveyances of
substantially all of the Company's assets.
A Debenture in respect of which the registered holder has delivered a
Change of Control Purchase Notice (as defined in the Indenture) may be converted
only if such notice is withdrawn in accordance with the terms of the Indenture.
The Company is not required to issue fractional shares upon any such
conversion, but shall make an adjustment therefor in cash on the basis of the
current market value of such fractional interest as provided in the Indenture.
The indebtedness evidenced by the Debenture is, to the extent and in the
manner set forth in the Indenture, expressly subordinated and subject in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
in the Indenture) and this Debenture is issued subject to such provisions of the
Indenture, and each holder of this Debenture, by accepting the same, agrees to
and shall be bound by such provisions and authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate such subordination as provided in the Indenture and appoints the
Trustee his attorney-in-fact for any and all such purposes.
The Debentures are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. In the manner and
subject to the limitations provided in the Indenture, but without the payment of
any service charge, Debentures may be exchanged for an equal aggregate principal
amount of Debentures of other authorized denominations at the office or agency
of the Company maintained for such exchange in Columbus, Ohio, initially the
principal corporate trust office of the Trustee.
The Debentures may be redeemed at the option of the Company as a whole,
or from time to time in part, on any date on or after June 1, 1996 and prior to
maturity, upon mailing a notice of such redemption not less than 30 nor more
than 60 days prior to the date fixed for redemption to the holders of Debentures
to be redeemed at their last registered addresses; provided, however, that
during the period from June 1, 1996 through May 31, 1999 the Debentures are not
redeemable by the Company, unless the average closing bid price of the Common
Stock , as reported by the Nasdaq SmallCap Market or the last reported sale
price on the Nasdaq National Market (or the National Quotation Bureau,
Incorporated if no longer traded on either such Nasdaq market), is at least 140%
of the Conversion Price for a period of at least 20 trading days within 30
consecutive trading days ending no later than five trading days prior to the
notice of redemption, all as provided in the Indenture, at the following
redemption prices (expressed in percentages of the principal amount).
The redemption prices for Debentures reduced on or after June 1, 1996
are as follows (expressed as a percentage of principal amounts):
4
<PAGE> 13
If redeemed during the twelve-month period beginning June 1,
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1996................................................ 108%
1997................................................ 107%
1998................................................ 106%
1999................................................ 105%
2000................................................ 104%
2001................................................ 102%
</TABLE>
and thereafter at 100% of the principal amount thereof, in each case together
with accrued interest to the date fixed for redemption.
Unless the Debentures have been declared due and payable prior to
maturity by reason of an Event of Default, the holder of this Debenture has the
right to present it for payment prior to maturity, and the Company will redeem
the same (or any portion of the principal amount thereof which is $1,000 or an
integral multiple thereof, as the holder shall specify), for Debentures up to an
aggregate principal amount equal to the Redemption Period Maximum Amount (as
defined in the Indenture), which Amount is referred to hereinafter as the
"$250,000 limitation," presented during the period commencing with the original
issuance of the Debentures and ending June 1, 1999 and during the twelve month
period ending on each June 1 thereafter, (each of which periods constitutes a
Redemption Period, as defined in the Indenture) at a price of 100% of the
principal amount thereof plus accrued interest to the date of redemption. Such
limitation is non-cumulative. Redemption of Debentures presented for payment by
the last day (June 1) of any Redemption Period will be made on the July 1
immediately following the end of such Redemption Period, beginning July 1, 1999.
Debentures not redeemed in any such period for any reason will be returned
promptly to the registered holder thereof.
The Company will redeem, in whole or in part, subject to the $250,000
limitation, Debentures presented for redemption after June 1, 1996, at a price
of 100% of their principal amount plus accrued interest to the date of
redemption (but without any premium), by the personal representative(s) of a
deceased Debentureholder (including a joint tenant) or deceased beneficial owner
within 60 days following receipt by the Trustee of a written request therefor
from the personal representative or surviving joint tenant of such deceased
Debentureholder or deceased beneficial owner (up to a limit per twelve-month
period ending June 1, 1997, and during any twelve-month period ending each June
1 thereafter, of $25,000 per deceased Debentureholder or deceased beneficial
owner). The Company may, but shall not be obligated to, redeem Debentures so
presented in excess of the $25,000 and $250,000 limitations. Upon presentment of
Debentures for redemption, the Trustee must be provided with appropriate
evidence of death, and such other additional documents as the Trustee shall
require, including, but not limited to, inheritance or estate tax waivers and
evidence of authority of the personal representative. Any Debentures presented
or any request for redemption pursuant to such redemption provisions may be
withdrawn upon delivery of a written request for such withdrawal received by the
Trustee prior to the issuance of a check in payment thereof. Debentures not
redeemed because of the $25,000 or $250,000 limitations will be held for
redemption on the July 1 next succeeding the presentment of the Debentures for
redemption, subject to the $25,000 and $250,000 limitations, until paid.
Debentures tendered under the preceding paragraphs will be prepaid up to
$25,000 and $250,000 per Redemption Period limits, in the following order: (i)
Debentures submitted by the personal representative or surviving joint tenant of
a deceased Debentureholder or beneficial owner shall be prepaid first in the
order validly tendered, and (ii) other Debentures will be prepaid in the order
of the Trustee's receipt of a written request for prepayment executed by the
Debentureholder or his duly authorized representative, provided that if such
Debentures are not submitted with the request for prepayments, such Debentures
must be submitted by the Debentureholder and received by the Trustee by
September 1 of that Redemption Period.
Debentures must be presented for redemption by delivering to the Trustee
no later than 4:00 p.m., Columbus, Ohio time on the last day (September 1) of
the Redemption Period: (i) a written request for redemption, in form
5
<PAGE> 14
satisfactory, to the Trustee, signed by the registered holder(s) or his duly
authorized representative, (ii) the Debenture to be redeemed and (iii) in the
case of a request made by reason of the death of a holder, appropriate evidence
of death and, if made by a representative of a deceased holder, appropriate
evidence of authority to make such request. No particular forms of request for
redemption or authority to request redemption are necessary. The price to be
paid by the Company for all Debentures or portions thereof presented to it for
redemption is 100% of the principal amount or respective portions thereof plus
accrued but unpaid interest to the date of redemption. The Company shall deposit
with the Trustee the redemption price computed in the foregoing sentence on or
before the date fixed for redemption. Any acquisition of Debentures by the
Company other than by redemption at the option of any holder shall not be
included in the computation of the Redemption Period Maximum Amount for any
period.
For purposes of a holder's request for redemption, a Debenture held in
tenancy by the entirety, joint tenancy or tenancy in common will be deemed to be
held by a single holder and the death of a tenant by the entirety, joint tenant
or tenant in common will be deemed the death of a holder. The death of a person,
who, during his lifetime, was entitled to substantially all of the beneficial
ownership interests of a Debenture will be deemed the death of the holder,
regardless of the registered holder, if such beneficial interest can be
established to the satisfaction of the Trustee. For purposes of a holder's
request for redemption and a request for redemption on behalf of a deceased
holder, a beneficial interest shall be deemed to exist in cases of street name
or nominee ownership, ownership under the Uniform Gifts to Minors Act, community
property or other joint ownership arrangements between a husband and wife
(including individual retirement accounts or Keogh [H.R. 10] plans maintained
solely by or for the holder or decedent or by or for the holder or decedent and
his spouse), and trusts and certain other arrangements where a person has
substantially all of the beneficial ownership interests in the Debentures during
his lifetime. Beneficial ownership interests shall include the power to sell,
transfer or otherwise dispose of a Debenture and the right to receive the
proceeds therefrom, as well as interest and principal payable with respect
thereto.
In the case of Debentures registered in the names of banks, trust
companies or broker dealers who are members of a national securities exchange or
the National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the $25,000 limitation shall apply to each deceased beneficial owner of
Debentures held by a Qualified Institution and the death of such beneficial
owner shall entitle a Qualified Institution to seek redemption of such
Debentures as if the deceased beneficial owner were the record holder. Such
Qualified Institution, in its request for redemption on behalf of beneficial
owners, must submit evidence, satisfactory to the Trustee, that it holds
Debentures on behalf of such beneficial owners and must specify the aggregate
principal amount of Debentures being presented for redemption on behalf of such
beneficial owner.
In the case of any Debentures which are presented for redemption in part
only or which are only redeemed in part, upon redemption, the Company shall
execute and the Trustee shall authenticate and deliver to or on the order of the
holder of such Debentures, without service charge, a new Debenture(s), of any
authorized denomination or denominations as requested by such holder, in
aggregate principal amount equal to the unredeemed portion of the principal of
the Debentures so presented.
In the case of any Debentures or portion thereof which are presented for
redemption by a holder and which have not been redeemed at the time the Company
gives notice of its election to redeem Debentures at its option, such Debentures
or portion thereof shall first be subject to redemption by the Company at its
option as described above and if any such Debentures or portion thereof are not
redeemed by the Company they shall remain subject to redemption pursuant to
presentment by the holder.
Any Debentures presented for redemption by the holder may be withdrawn
by the person(s) presenting the same upon delivery, of a written request for
such withdrawal to the Trustee (a) in cases other than by reason of death of a
holder, prior to 4:00 p.m., Columbus, Ohio time, on the last day (June 1) of any
Redemption Period, or (b) prior to the issuance of a check in payment thereof in
the case of Debentures presented by reason of the death of a holder.
At the option of the registered holder of this Debenture and subject to
the terms and conditions of the Indenture, the Company shall become obligated to
purchase this Debenture 35 business days after the occurrence of a Change of
6
<PAGE> 15
Control of the Company for a price equal to 101% of the principal amount hereof
plus accrued interest to the date of such purchase. The Redemption Period
Maximum Amount shall not apply to any such redemption.
The registered holder of this Debenture has the right to withdraw any
Change of Control Purchase Notice by delivering to the Company a written notice
of withdrawal in accordance with the terms and provisions of the Indenture.
Transfer of this Debenture may be registered upon books maintained for
that purpose by or on behalf of the Company and upon due presentment for
registration of transfer of this Debenture at the office or agency of the
Company maintained for such registration in Columbus, Ohio; such transfer will
be registered and a new Debenture or Debentures of authorized denominations for
an equal aggregate principal amount will be issued to the transferee in exchange
herefor, subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company, the Trustee, any paying agent, conversion agent and
Debenture registrar may deem and treat the registered holder hereof as the
absolute owner of this Debenture (whether or not this Debenture shall be overdue
and notwithstanding any notation of ownership or other writing hereon), for the
purpose of receiving payment hereof or on account hereof, as herein and in the
Indenture provided, for conversion hereof and for all other purposes and neither
the Company nor the Trustee nor any paying agent nor any conversion agent nor
any Debenture registrar shall be affected by any notice to the contrary. All
such payments and conversions shall effectually satisfy and discharge the
liability upon this Debenture, to the extent of the sum or sums so paid, or the
conversions so made.
No recourse for the payment of the principal of or any premium or
interest on this Debenture, or for any claim based hereon or otherwise in
respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Debenture, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company, or of any successor
corporation either directly or through the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Debenture, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common.
UNIF GIFT MIN ACT -- ____________ Custodian _______________
(Cust.) (Minor)
under Uniform Gifts to Minors Act
_________________________
(State)
Additional abbreviations may also be used though not in the above list.
7
<PAGE> 16
[Form of Conversion Notice]
CONVERSION NOTICE
To Danninger Medical Technology, Inc.:
The undersigned owner of the within Debenture hereby irrevocably
exercises the option to convert the within Debenture, or portion thereof (which
is $1,000 or an integral multiple thereof) below designated, into Common Stock
of Danninger Medical Technology, Inc. in accordance with the terms of the
Indenture referred to in the within Debenture, and directs that the shares
issuable and deliverable upon the conversion, together with any check in payment
for fractional shares and any Debentures representing any unconverted principal
amount of the within Debenture, be issued and delivered to the registered holder
of the within Debenture, unless a different name has been indicated below. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. Any amount
required to be paid by the undersigned on account of interest accompanies the
within Debenture.
Dated:______________________________________________________
____________________________________________________________
Signature of Registered Debentureholder(s)
____________________________________________________________
Such Person's Social Security or Other
Taxpayer Identification No.
____________________________________________________________
Principal Amount to be Converted (in an integral multiple of
$1,000, if less than all)
Fill in for registration of Common Stock if to be issued otherwise than to the
registered Debentureholder(s).
______________________________________
(Name)
______________________________________
(Name)
______________________________________
Please print name and address
including zip code number
______________________________________
Such Person's Social Security or
Other Taxpayer Identification Number
8
<PAGE> 17
[Form of Assignment]
ASSIGNMENT
For value received ________________________________ hereby sells,
assigns and transfers unto ___________________________
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFICATION NUMBER OF ASSIGNEE
________________________________
________________________________
________________________________
________________________________
________________________________________________________________________________
(Please print or type name and address, including zip code, of Assignee)
________________________________________________________________________________
$ _____________ principal amount of the within Debenture and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said principal amount on the books of the Company with full power of
substitution in the premises.
Dated:_________________ __________________________________________
Signature of Registered Debentureholder(s)
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Debenture in every particular without alteration or
enlargement or any change whatsoever.
[End of Reverse of Form of Debenture]
9
<PAGE> 18
WHEREAS, this Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions;
WHEREAS, all acts and things necessary to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, as in
this Indenture provided, and issued, the valid, binding and legal obligations of
the Company, and to constitute these presents a valid agreement according to its
terms, have been done and performed, and the execution of this Indenture and the
issue hereunder of the Debentures have in all respects been duly authorized;
NOW THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Debentures are, and are to be, authenticated, issued and delivered, and in
consideration of the premises, of the purchase and acceptance of the Debentures
by the holders thereof and of the sum of one dollar duly paid to it by the
Trustee at the execution of these presents, the receipt whereof is hereby
acknowledged, the Company covenants and agrees with the Trustee for the equal
and proportionate benefit of the respective holders from time to time of the
Debentures, as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. Definitions. The terms defined in this Section 1.01
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.01. All
other terms used in this Indenture which are defined in the Trust Indenture Act
of 1939, as amended, or which are by reference therein defined in the Securities
Act of 1933, as amended (except as herein otherwise expressly provided for
unless the context otherwise requires), shall have the meanings assigned to such
terms therein; and the terms "cash transaction" and "self-liquidating paper"
shall have the meanings assigned to them in the rules of the Securities and
Exchange Commission adopted under the Trust Indenture Act of 1939, as amended.
Affiliate. The term "Affiliate" shall mean, with respect to any
specified person, any other person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified
person. For the purposes of this definition, "control" when used with respect to
any specified person means the power to direct or cause the direction of the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Associate. The term "Associate" shall have the meaning ascribed to such
term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act,
as in effect on the date hereof.
Board of Directors. The term "Board of Directors" shall mean the Board
of Directors of the Company or the Executive Committee of such Board or any
other Committee of such Board which is duly authorized.
Business Day. The term "business day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is a day on which banking institutions in
Columbus, Ohio are open for business.
Change of Control. A "Change of Control" shall be deemed to have
occurred at such time as any of the following events shall occur:
(i) The Company consolidates with or merges into another
corporation, or conveys, transfers or leases all or substantially all of
its assets to any person, or any other corporation merges into the
Company, other
10
<PAGE> 19
than, in any case, a transaction in which the shareholders of the
Company immediately prior to such transaction owned, directly or
indirectly, immediately following such transaction, at least 70% of the
combined voting power of the outstanding voting stock of the corporation
resulting from such transaction in substantially the same proportion as
their ownership of the Common Stock of the Company immediately prior to
such transaction;
(ii) There is a report filed on Schedule 13D or 14D-1 (or any
successor schedule, form or report) pursuant to the Exchange Act,
disclosing that any person (for the purposes of this definition only, as
the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of 50% or more of the then outstanding Common Stock;
provided that a person shall not be deemed beneficial owner of, or to
own beneficially, (A) any securities tendered pursuant to a tender or
exchange offer made by or on behalf of such person or any of such
person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange thereunder or (B) any securities if
such beneficial ownership (1) arises solely as a result of a revocable
proxy delivered in response to a proxy or consent solicitation made
pursuant to the applicable rules and regulations under the Exchange Act
and (2) is not also then reportable on Schedule 13D (or any successor
schedule) under the Exchange Act. Notwithstanding the foregoing, a
Change of Control shall not be deemed to have occurred by virtue of the
Company, any Subsidiary, any employee stock ownership plan or any other
employee benefit plan of the Company, or any Subsidiary, or any person
holding Common Stock for or pursuant to the terms of any such employee
benefit plan, filing or becoming obligated to file a report under or in
response to Schedule 13D or Schedule 14D-1 (or any successor schedule,
form or report) under the Exchange Act disclosing beneficial ownership
by it of Common Stock whether in excess of 50% or otherwise; or
(iii) There is (a) declared effective by the Securities and
Exchange Commission a registration statement pursuant to the Securities
Act of 1933, as amended (or any successor thereto), which includes
shares of voting capital stock of any Material Subsidiary of the
Company, or (b) a distribution by the Company, by way of dividend or any
other form of transfer or conveyance to its then existing stockholders
or other persons in a corporate reorganization, recapitalization or
spin-off transaction, of any shares of voting capital stock of any
Material Subsidiary of the Company. As used herein, the term "Material
Subsidiary" means any Subsidiary the net revenues of which for the most
recently completed fiscal year were more than 25% of total net revenues
of the Company.
Change of Control Purchase Date. The term "Change of Control Purchase
Date" shall mean the date that is 35 business days after the occurrence of a
Change of Control.
Change of Control Purchase Notice. The term "Change of Control Purchase
Notice" shall have the meaning assigned thereto in Section 4.01(c).
Change of Control Purchase Price. The term "Change of Control Purchase
Price" shall mean an amount in cash equal to 101% of the principal amount in
respect of a Debenture for which a Change of Control Purchase Notice has been
delivered plus accrued unpaid interest to the Change of Control Purchase Date.
Common Stock. The term "Common Stock" shall mean the Common Stock of the
Company as the same exists at the date of this Indenture as originally executed
or as such stock may be constituted from time to time, except that for the
purpose of Article Four the term "Common Stock" shall also mean and include
stock of the Company of any class, whether not or hereafter authorized, which
shall have the right to participate in the distribution of either earnings or
assets of the Company without limitation as to amount or percentage.
Company. The term "Company" shall mean the corporation named as the
"Company" in the first paragraph of this Indenture until any successor
corporation shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall mean such successor corporation.
11
<PAGE> 20
Conversion Price. The term "Conversion Price" shall mean the initial
conversion price specified in the form of Debenture hereinabove set forth, as
adjusted in accordance with the provisions of Article Five.
Corporate Trust Office of the Trustee. The term "corporate trust office
of the Trustee," or other similar term, shall mean the corporate trust office of
the Trustee in Columbus, Ohio, at which at any particular time its corporate
trust business shall be administered, which office is at the date of the
execution of this Indenture located at ___________________________________,
Columbus, Ohio 43215.
Current Market Price; Market Price. The terms "current market price" and
"market price" when used with reference to the Common Stock shall mean the price
of a share of Common Stock on the relevant date, determined on the basis of the
last reported sale price of the Common Stock as reported on any national stock
exchange or The Nasdaq National Market, as applicable, or, on the basis of the
average of the high bid and low asked quotations on the day in question as
reported by The Nasdaq SmallCap Market or, if not so quoted, as reported by
National Quotation Bureau, Incorporated, or similar organization.
Debenture or Debentures; Outstanding. The terms "Debenture" or
"Debentures" shall mean any Debenture or Debentures, as the case may be,
authenticated and delivered under this Indenture.
The term "outstanding," when used with reference to Debentures, shall,
subject to the provisions of Section 10.04, mean, as of any particular time, all
Debentures authenticated and delivered by the Trustee under this Indenture,
except
(a) Debentures theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(b) Debentures, or portions thereof, for the payment or
redemption of which moneys in the necessary amount shall have been
deposited in trust with the Trustee or with any paying agent (other than
the Company) or shall have been set aside and segregated in trust by the
Company (if the Company shall act as its own paying agent), provided
that if such Debentures are to be redeemed prior to the maturity
thereof, notice of such redemption shall have been given as provided in
Article Three, or provision satisfactory to the Trustee shall have been
made for giving such notice, and provided. further, that if such
Debentures are to be purchased after a Change of Control, a Change of
Control Purchase Notice shall have been received by the Company for such
Debentures and not withdrawn; and
(c) Debentures in lieu of or in substitution for which other
Debentures shall have been authenticated and delivered, or which have
been paid, pursuant to the terms of Section 2.06.
Debentureholder. The term "Debentureholder", "holder of Debentures", or
other similar terms, shall mean any person in whose name at the time a
particular Debenture is registered on the Company books kept for that purpose in
accordance with the terms hereof.
Event of Default. The term "Event of Default" shall mean any event
specified in Section 8.01, continued for the period of time, if any, and after
the giving of the notice, if any, therein designated.
Exchange Act. The term "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
Indenture. The term "Indenture" shall mean this instrument as originally
executed or, if amended or supplemented as herein provided, as so amended or
supplemented.
Officers' Certificate. The term "Officers' Certificate", when used with
respect to the Company, shall mean a certificate signed by the Chief Executive
Officer, the President or a Vice President and by the Secretary or an Assistant
Secretary of the Company (except as otherwise provided in Section 6.05 hereof).
Each such certificate shall include the statements provided for in Section 16.05
if and to the extent required by the provisions of such Section.
12
<PAGE> 21
Opinion of Counsel. The term "Opinion of Counsel" shall mean an opinion
in writing signed by legal counsel, who may be an employee of or counsel to the
Company and who shall be satisfactory to the Trustee. Each such opinion shall
include the statements provided for in Section 16.05 if and to the extent
required by the provisions of such Section.
Original Issue Date. The term "Original Issue Date" shall mean
____________ ___, 1996.
Overallotment Option. The term "Overallotment Option" shall mean the
option granted by the Company to The Ohio Company to purchase $250,000 aggregate
principal amount of the Debentures pursuant to the Underwriting Agreement, dated
____________ ___, 1996, among such parties.
Person. The term "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
Redemption Period. The term "Redemption Period" shall mean the period
commencing with the original issuance of the Debentures and ending June 1, 1999,
and the twelve month period ending on each June 1 thereafter.
Redemption Period Maximum Amount. The term "Redemption Period Maximum
Amount" shall mean for each Redemption Period five percent (5%) of the gross
principal amount of the Debentures originally issued by the Company, which
amount shall be a minimum of $250,000 and a maximum of $262,500.
Responsible Officer. The term "responsible officer" or "responsible
officers" when used with respect to the Trustee shall mean one or more of the
following: the chairman of the board of directors, the president, any vice
president, the cashier, the secretary, the treasurer, any trust officer, any
assistant trust officer, any second or assistant vice president, any assistant
cashier, any assistant secretary, any assistant treasurer, or any other officer,
assistant officer or person designated with authority of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers or designated persons, respectively, or to whom any
corporate trust matter is referred because of his knowledge of and familiarity
with the particular subject.
Senior Indebtedness. The term "Senior Indebtedness" shall mean any
indebtedness for money borrowed from banks, trust companies, insurance companies
or other financial institutions and any indebtedness evidenced by notes, bonds
or debentures (whether or not certificated) issued under the provisions of a
trust indenture or similar instrument between the Company or a Subsidiary and a
bank, trust company or other corporate trustee, which is outstanding on the date
hereof or is hereafter created, incurred or assumed and all deferrals, renewals,
extensions and refundings thereof, provided, however, that Senior Indebtedness
shall not include indebtedness which by its terms refers explicitly to the
Debentures issued hereunder and states that such indebtedness shall not be
senior thereto and shall be either equally subordinate and equally junior with
the Debentures issued hereunder or subordinate to the Debentures issued
hereunder.
Subsidiary. The term "Subsidiary" shall mean any corporation of which at
least a majority of the outstanding stock having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency, is at the time, directly or indirectly, owned or
controlled by the Company or by one or more Subsidiaries thereof, or by the
Company and one or more Subsidiaries.
Trading Day. The term "Trading Day" shall mean any day on which the
Nasdaq SmallCap Market is open for business.
Trustee. The term "Trustee" shall mean Fifth Third Bank and, subject to
the provisions of Article Nine, shall also include any successor trustee.
Trust Indenture Act of 1939 or TIA. The terms "Trust Indenture Act of
1939" or "TIA" shall mean the Trust Indenture Act of 1939, as now in effect and
hereafter amended.
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ARTICLE TWO
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF DEBENTURES
Section 2.01. Designation, Amount and Issue of Debentures. The
Debentures shall be designated as set forth in the form of Debenture hereinabove
recited. Debentures in the aggregate principal amount of up to $5,000,000 (and
as otherwise provided in Section 2.06), upon the execution of this Indenture, or
from time to time thereafter, may be executed by the Company and delivered to
the Trustee for authentication, and the Trustee shall thereupon authenticate and
deliver said Debentures to or upon the written order of the Company, signed by
its Chief Executive Officer, the President or a Vice President, without any
further action by the Company hereunder. Upon the exercise of the Overallotment
Option, additional Debentures in the aggregate principal amount of up to
$250,000 may be executed by the Company and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and deliver said
Debentures to or upon the written order of the Company executed as set forth
above, which order shall be accompanied by evidence satisfactory to the Trustee
that the Overallotment Option has been exercised.
Section 2.02. Form of Debentures. The Debentures and the Trustee's
certificate of authentication to be borne by the Debentures shall be
substantially in the form as in this Indenture hereinabove recited. Any of the
Debentures may have imprinted thereon such legends or endorsements as the
officers executing the same may approve (execution thereof to be conclusive
evidence of such approval) and as are not inconsistent with the provisions of
this Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Debentures may be listed, or to conform to usage.
Section 2.03. Denominations, Dates, Interest Payment and Record Dates.
The Debentures shall be issuable as registered Debentures without coupons in the
denominations of $1,000 and any integral multiple of $1,000, and shall be
numbered, lettered, or otherwise distinguished in such manner or in accordance
with such plan as the officers of the Company executing the same may determine
with the approval of the Trustee.
Every Debenture shall be dated the date of its authentication and,
except as provided in this Section 2.03, shall bear interest, payable
semiannually on each June 1 and December 1, commencing June 1, 1996, from the
next preceding June 1 or December 1 to which interest has been paid (unless the
date of such Debenture is a date to which interest has been paid, in which case
from the date of such Debenture, or, if no interest has been paid on the
Debentures, from the Original Issue Date of the Debentures) until payment of the
principal sum has been made or duly provided for. Notwithstanding the foregoing,
when there is no existing default in the payment of interest on the Debentures,
all Debentures authenticated by the Trustee after the close of business on a
record date (as hereinafter in this Section 2.03 defined) for any interest
payment date ( June 1 or December 1) and prior to such interest payment date
shall be dated the date of authentication but shall bear interest from such
interest payment date; provided, however, that no interest shall be paid or
accrue with respect to the Debentures prior to the Original Issue Date of the
Debentures.
Interest shall be calculated on the basis of a 360-day year of twelve
30-day months.
The person in whose name any Debenture is registered at the close of
business on any record date (as hereinafter in this Section 2.03 defined) with
respect to any interest payment date shall be entitled to receive the interest
payable on such interest payment date notwithstanding the cancellation of such
Debenture upon any registration of transfer, exchange or conversion thereof
subsequent to the record date and prior to such interest payment date; provided,
however, that if and to the extent the Company shall default in the payment of
the interest due on such interest payment date, such defaulted interest shall be
paid to the persons in whose names outstanding Debentures are registered at the
close of business on a subsequent record date established by notice given by
first class mail by or on behalf of the Company to the holders of Debentures not
less than 15 days preceding such subsequent record date, such record date to be
not less than five days preceding the date of payment of such defaulted
interest. The term "record date" as used in this Section 2.03 with respect to a
regular quarterly interest payment date shall mean the fifteenth day of the
month next preceding such interest payment date, whether or not such fifteenth
day is a business day.
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Section 2.04. Execution of Debentures. The Debentures shall be signed
manually or by facsimile in the name and on behalf of the Company by its Chief
Executive Officer, President or Vice President (which may, be in the form of a
facsimile thereof and may be printed, engraved or otherwise reproduced thereon)
attested by the manual or facsimile signature of its Secretary or an Assistant
Secretary. Only such Debentures as shall bear thereon a certificate of
authentication substantially in the form hereinabove recited and executed by the
Trustee shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose. Such certificate by the Trustee (which may be
executed on behalf of the Trustee by any Responsible Officer of the Trustee and
need not be executed by the same Responsible Officer for every Debenture) upon
any Debenture executed by the Company shall be conclusive evidence that the
Debenture so authenticated has been duly authenticated and delivered hereunder
and that the holder is entitled to the benefits of this Indenture.
In case any officer of the Company who shall have signed (manually or by
facsimile) any of the Debentures shall cease to be such officer before the
Debentures so signed shall have been authenticated and delivered by the Trustee
or disposed of by the Company, such Debentures nevertheless may be authenticated
and delivered or disposed of as though the person who signed such Debentures had
not ceased to be such officer of the Company, and any Debentures may be signed
on behalf of the Company by such persons as, at the actual date of the execution
of such Debentures, shall be the proper officers of the Company, although at the
date of the execution of this Indenture any such person was not such an officer.
Section 2.05. Exchange and Registration of Transfer of Debentures.
Debentures may be exchanged for an equal aggregate principal amount of
Debentures of other authorized denominations. Debentures to be exchanged shall
be surrendered at any of the offices or agencies to be maintained by the
Company, for such purpose as provided in Section 6.02, and the Company shall
execute and register, and the Trustee shall authenticate and deliver in exchange
therefor, the Debenture or Debentures which the Debentureholder making the
exchange shall be entitled to receive.
The Company shall keep, at one of said offices or agencies, a register
or registers in which, subject to such reasonable regulations as it may
prescribe, the Company shall register or cause to be registered Debentures and
shall register or cause to be registered the transfer of Debentures as provided
in this Article Two. Such register shall be in written form or in any other form
capable of being converted into written form within a reasonable time. At all
reasonable times such register shall be open for inspection by the Trustee. Upon
due presentment for registration of transfer of any Debenture at any such office
or agency, the Company shall execute and register or cause to be registered and
the Trustee shall authenticate and deliver in the name of the transferee or
transferees a new Debenture or Debentures for an equal aggregate principal
amount.
All Debentures presented for registration of transfer or for exchange,
redemption, prepayment, conversion or payment shall be duly endorsed by, or be
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company duly executed by, the holder or his attorney duly
authorized in writing.
No service charge shall be made for any exchange or registration of
transfer of Debentures, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith.
Neither the Company nor the Trustee shall be required to exchange or
register a transfer of (a) any Debentures for a period of 15 days next preceding
any selection of Debentures to be redeemed, or (b) any Debentures selected,
called or being called for redemption except, in the case of any Debenture to be
redeemed in part, the portion thereof not to be so redeemed.
Section 2.06. Mutilated, Destroyed, Lost or Stolen Debentures. In case
any temporary or definitive Debenture shall become mutilated or be destroyed,
lost or stolen, the Company in its discretion may execute, and upon its request
the Trustee shall authenticate and deliver, a new Debenture, bearing a number
not contemporaneously outstanding, in exchange and substitution for the
mutilated Debenture, or in lieu of and in substitution for the Debenture so
destroyed, lost or stolen. In every case, the applicant for a substituted
Debenture shall furnish to the Company, the
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<PAGE> 24
Trustee, any paying agent, conversion agent or Debenture registrar such security
or indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Company and to the Trustee evidence to their satisfaction of the
destruction, loss or theft of such Debentures and of the ownership thereof.
The Trustee may authenticate any such substituted Debenture and deliver
the same upon the written request or authorization of any officer of the
Company. Upon the issuance of any substituted Debenture, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses connected
therewith. In case any Debenture which has matured or is about to mature shall
become mutilated or be destroyed, lost or stolen, the Company may, instead of
issuing a substituted Debenture, permit the conversion of such Debenture if the
conversion privilege with respect thereto has not yet expired, or pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated Debenture) if the conversion privilege has expired or if the
holder thereof has so requested, and if the applicant for such conversion or
payment shall furnish to the Company, the Trustee, any paying agent, conversion
agent or Debenture registrar such security or indemnity as may be required by
them to save each of them harmless and, in case of destruction, loss or theft,
evidence satisfactory to the Company and the Trustee of the destruction, loss or
theft of such Debenture and of the ownership thereof.
Every substituted Debenture issued pursuant to the provisions of this
Section 2.06 by virtue of the fact that any Debenture is destroyed, lost or
Stolen shall constitute an additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Debenture shall be found at any
time, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Debentures duly issued hereunder. All
Debentures shall be held and owned upon the express condition that, to the
extent permitted by law, the foregoing provisions are exclusive with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Debentures
and shall preclude any and all other rights or remedies.
Section 2.07. Temporary Debentures. Pending the preparation of
definitive Debentures the Company may execute and the Trustee shall authenticate
and deliver temporary Debentures (printed or lithographed). Temporary Debentures
shall be issuable in any authorized denomination and substantially in the form
of the definitive Debentures but with such omissions, insertions and variations
as may be appropriate for temporary Debentures, all as may be determined by the
Company. Every such temporary Debenture shall be authenticated by the Trustee
upon the same conditions and in substantially the same manner, and with the same
effect, as the definitive Debentures. Without unreasonable delay the Company
will execute and register and will deliver to the Trustee definitive Debentures
and thereupon any or all temporary Debentures may be surrendered in exchange
therefor, at the principal office of the Trustee, and the Trustee shall
authenticate and deliver in exchange for such temporary Debentures an equal
aggregate principal amount of definitive Debentures. Such exchange shall be made
by the Company at its own expense and without any charge therefor to the
Debentureholders. Until so exchanged, the temporary Debentures shall in all
respects be entitled to the same benefits under this Indenture as definitive
Debentures authenticated and delivered hereunder.
Section 2.08. Cancellation of Debentures Paid, etc. All Debentures
surrendered for the purpose of payment (including Change of Control Purchase
Price), redemption, conversion, exchange or registration of transfer shall, if
surrendered to the Company or any paying or conversion agent or any Debenture
registrar, be surrendered to the Trustee for cancellation and promptly cancelled
by it, or if surrendered to the Trustee, shall be promptly cancelled by it, and
no Debentures shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Indenture. All cancelled Debentures held by the
Trustee shall be destroyed unless the Company shall direct that they be
delivered to it. If the Company shall acquire any of the Debentures other than
upon payment of Change of Control Purchase Price, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Debentures unless and until the same are delivered to the
Trustee for cancellation.
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ARTICLE THREE
REDEMPTION OF DEBENTURES AT COMPANY'S OPTION
Section 3.01. Redemption Prices. The Company may, at its option, redeem
all or, from time to time, any part of the Debentures, on any date on and after
June 1, 1996 and prior to maturity, in the manner specified in this Article
Three, at the redemption prices set forth in the form of Debentures hereinabove
recited, together with accrued interest to the date fixed for redemption;
provided, however, that during the period June 1, 1996 through May 31, 1999 the
Debentures are not redeemable by the Company unless for 20 days within a period
of 30 consecutive Trading Days ending within five Trading Days of the date of
notice of redemption by the Company, the closing bid price of the Company's
Common Stock for such period, as reported by the Nasdaq SmallCap Market or the
last reported sale price on the Nasdaq National Market (or the National
Quotation Bureau, Incorporated if no longer quoted on either such Nasdaq market)
is equal to or greater than 140% of the Conversion Price.
Section 3.02. Notice of Redemption. In case the Company shall desire to
exercise its right to redeem all or any part of the Debentures in accordance
with the right reserved so to do, it shall give notice of such redemption to the
holders of the Debentures to be redeemed as hereinafter in this Section 3.02
provided.
Notice of redemption to each holder of Debentures to be redeemed as a
whole or in part shall be given in the manner provided in Section 16.10 not less
than 30 nor more than 60 days prior to the date fixed for redemption. Any notice
which is given in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the holder receives the notice. In any
case, failure duly to give such notice, or any defect in such notice, to the
holder of any Debenture designated for redemption as a whole or in part shall
not affect the validity of the proceedings for the redemption of any other
Debenture.
Each such notice shall specify the date fixed for redemption, the place
of redemption and the redemption price at which such Debentures are to be
redeemed, and shall state that payment of the redemption price of the Debentures
or portion thereof to be redeemed will be made on surrender of the Debentures to
be redeemed at such place of redemption, that interest accrued to the date fixed
for redemption will be paid as specified in such notice, and that from and after
such date interest thereon will cease to accrue. Such notice shall also state
the current Conversion Price and the date on which the right to convert such
Debentures or portions thereof into Common Stock will expire and the place or
places where such Debentures may be surrendered for conversion. If less than all
the Debentures are to be redeemed, the notice shall specify the Debentures or
portions thereof to be redeemed. In case any Debenture is to be redeemed in part
only, the notice which relates to such Debenture shall state the portion of the
principal amount thereof to be redeemed (which shall be $1,000 or any integral
multiple thereof) and shall state that, upon surrender of such Debenture, a new
Debenture or Debentures in aggregate principal amount equal to the unredeemed
portion thereof will be issued.
Section 3.03. Selection of Debentures. If less than all of the
Debentures are to be redeemed, the Company shall give the Trustee written notice
at least six business days (unless a shorter period shall be acceptable to the
Trustee) in advance of the date fixed for notice of redemption to be given as to
the aggregate principal amount of the Debentures to be redeemed, and thereupon
the Trustee shall select by lot or in such manner as it shall deem appropriate
and fair in its discretion the particular Debentures to be redeemed as a whole
or in part and shall thereafter promptly notify the Company in writing of the
Debentures (and in the case of any Debenture selected for partial redemption,
the principal amount thereof) so to be redeemed. Debentures shall be redeemed
only in denominations of $1,000 or any integral multiple of $1,000.
Section 3.04. Payment of Debentures on Redemption; Deposit of Redemption
Price. If notice of redemption shall have been given as provided in Section
3.02, such Debentures or portions of Debentures called for redemption shall,
unless theretofore converted as provided in Article Five, become due and payable
on the date and at the place fixed for redemption in such notice at the
applicable redemption price, together with interest accrued to the date fixed
for redemption. On and after such date fixed for redemption provided that the
Company shall have deposited with the
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Trustee prior to such date of redemption the amount sufficient to pay the
redemption price together with interest accrued to the date fixed for redemption
and notice of such redemption has theretofore been mailed, interest on the
Debentures or portions thereof so called for redemption shall cease to accrue
and such Debentures or portions thereof shall be deemed not to be entitled to
any benefit under this Indenture except to receive payment of the redemption
price together with interest accrued thereon to the date fixed for redemption.
On presentation and surrender of such Debentures at such place of payment
specified in such notice, such Debentures or the specified portions thereof
shall be paid and redeemed at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption.
The Company shall not redeem or cause to be redeemed any Debentures or
mail or cause to be mailed any notice of redemption of Debentures during the
continuance of any Event of Default known to it, except that where notice of
redemption of any Debentures theretofore has been mailed, the Company shall
cause to be redeemed such Debentures provided that funds have theretofore been
deposited with the Trustee for such purpose. Except as aforesaid, any moneys
thereafter paid to the Trustee for redemption of Debentures shall, during the
continuance of any Event of Default be held as security for the payment of all
the Debentures; provided, however, that, in case such Event of Default shall
have been waived pursuant to this Indenture or otherwise cured, such moneys
shall thereafter be held and applied in accordance with the provisions of this
Article.
Upon surrender of any Debenture redeemed in part only, the Company shall
execute and register, and the Trustee shall authenticate and deliver, a new
Debenture or Debentures of authorized denominations in aggregate principal
amount equal to the unredeemed portion of the Debenture so surrendered.
Any cash deposited in respect of Debentures to be redeemed which are
thereafter converted as provided in Article Five shall be returned to the
Company as promptly as practicable after the date fixed for redemption.
ARTICLE FOUR
REDEMPTION OF DEBENTURES AT HOLDER'S OPTION
Section 4.01. Purchase of Debentures by the Company at Option of the
Holder Upon Change of Control. (a) If at any time there shall have occurred a
Change of Control, Debentures shall be purchased by the Company, at the option
of the holder thereof, at the Change of Control Purchase Price, on the Change of
Control Purchase Date, subject to satisfaction by or on behalf of the holder of
the requirements set forth in Section 4.01(c).
(b) Within 20 business days after the occurrence of a Change of Control,
the Company shall provide a written notice of Change of Control to the Trustee
and to each holder (and to beneficial owners as required by applicable law) as
provided in Section 16.10. The Trustee shall be under no obligation to ascertain
the occurrence of a Change of Control or give notice with respect thereto unless
so requested by the Company upon receipt of the written notice of Change of
Control from the Company. The Trustee may conclusively assume, in the absence of
a written notice to the contrary from the Company, that no Change of Control has
occurred. The notice shall include a form of Change of Control Purchase Notice
and shall state:
(1) the events causing a Change of Control and the date such
Change of Control is deemed to have occurred for purposes of this
Section 4.01;
(2) the date by which and the location where the Change of
Control Purchase Notice pursuant to this Section 4.01 must be given;
(3) the Change of Control Purchase Date;
(4) the Change of Control Purchase Price;
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(5) the place to surrender Debentures in exchange for the Change
of Control Purchase Price;
(6) that the Change of Control Purchase Price for any Debenture
as to which a Change of Control Purchase Notice has been duly given and
not withdrawn will be paid promptly following the later of the Change of
Control Purchase Date and the time of delivery of such Debenture;
(7) the current Conversion Price;
(8) that Debentures as to which a Change of Control Purchase
Notice has been given may be converted prior to the close of business on
the Change of Control Purchase Date only if the Change of Control
Purchase Notice has been withdrawn in accordance with the terms of this
Indenture;
(9) the procedures the holder must follow, to exercise rights
under this Section 4.01;
(10) that holders who wish to convert Debentures must satisfy
the requirements set forth in the Indenture; and
(11) the procedures for withdrawing a Change of Control Purchase
Notice.
(c) A holder may exercise its rights specified in Section 4.01(a) upon
delivery of a written notice of purchase (a "Change of Control Purchase Notice")
to the Company, at any time prior to the close of business on the Change of
Control Purchase Date, stating:
(1) the certificate number of the Debenture that the holder will
deliver to be purchased;
(2) if the Debenture is to be purchased in part, the portion of
the principal amount of the Debenture that the holder will deliver to be
purchased, which portion must be $1,000 or an integral multiple thereof;
and
(3) that such Debenture shall be purchased pursuant to the terms
and conditions specified in this Section 4.01.
The delivery of such Debenture to the Company prior to, on or after the
Change of Control Purchase Date (together with all necessary endorsements) at
any of the offices or agencies to be maintained for such purpose by the Company
pursuant to Section 6.02 shall be a condition to the receipt of the holder of
the Change of Control Purchase Price therefor; provided that such Change of
Control Purchase Price shall be so paid pursuant to this Section 4.01 only if
the Debenture so delivered to the Company shall conform in all respects to the
description thereof set forth in the related Change of Control Purchase Notice.
The Company shall purchase from the holder thereof, pursuant to this
Section 4.01, a portion of a Debenture if the principal amount of such portion
is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that
apply to the purchase of all of a Debenture also apply to the purchase of such
portion of such Debenture.
Any purchase by the Company contemplated pursuant to the provisions of
this Section 4.01 shall be consummated by the delivery of the consideration to
be received by the holder promptly following the later of the Change of Control
Purchase Date and the time of delivery of the Debenture.
Notwithstanding anything herein to the, contrary, any holder delivering
to the Company the Change of Control Purchase Notice shall have the right to
withdraw such Change of Control Purchase Notice at any time prior to the close
of business on the Change of Control Purchase Date by delivery of a written
notice of withdrawal to the Company in accordance with Section 4.02.
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(d) On or before the Change of Control Purchase Date, the Company shall
deposit with the Trustee or with the paying agent (or, if the Company is acting
as the paying agent, shall segregate and hold in trust as provided in Section
6.04) an amount of money sufficient to pay the aggregate Change of Control
Purchase Price of all the Debentures or portions thereof which are to be
purchased.
Section 4.02. Effect of Change of Control Purchase Notice Withdrawal
Notice. (a) Upon receipt by the Company of a Change of Control Purchase Notice,
the holder of the Debenture in respect of which such Change of Control Purchase
Notice was given shall (unless such Change of Control Purchase Notice is
withdrawn as specified in the following two paragraphs or the Company fails to
purchase such Debenture on the Change of Control Purchase Date) thereafter be
entitled to receive solely the Change of Control Purchase Price with respect to
such Debenture. Debentures in respect of which a Change of Control Purchase
Notice has been given by the holder thereof may not be converted as provided in
Article Five on or after the date of the delivery of such Change of Control
Purchase Notice unless such Change of Control Purchase Notice has first been
validly withdrawn as specified in the following paragraph.
(b) A Change of Control Purchase Notice may be withdrawn (before or
after delivery by the holder to the Company of the Debenture to which such
Change of Control Purchase Notice relates) by means of a written notice of
withdrawal delivered by the holder to the office of the Company at any time
prior to the close of business on the Change of Control Purchase Date
specifying:
(1) the certificate number of the Debenture in respect of which
such notice of withdrawal is being submitted,
(2) the principal amount of the Debenture with respect to which
such notice of withdrawal is being submitted, and
(3) the principal amount, if any, of such Debenture that remains
subject to the original Change of Control Purchase Notice and that has
been or will be delivered for purchase by the Company.
(c) There shall be no purchase of any Debentures pursuant to Section
4.01 if there has occurred (prior to, on or after, as the case may be, the
giving by the holders of such Debentures of the required Change of Control
Purchase Notice) and is continuing an Event of Default (other than a default in
the payment of the Change of Control Purchase Price with respect to such
Debentures). The Company will promptly return to the respective holders thereof
any Debentures (x) the Change of Control Purchase Notice with respect to which
has been withdrawn in compliance with this Indenture, or (y) held by it during
the continuance of an Event of Default (other than a default in the payment of
the Change of Control Purchase Price with respect to such Debentures).
Section 4.03. Debentures Purchased in Part. Any Debenture that is to be
purchased pursuant to Section 4.01 only in part shall be surrendered at any of
the offices or agencies to be maintained for such purpose by the Company
pursuant to Section 6.02 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by the holder thereof or such holder's
attorney duly authorized in writing) and the Company shall execute and the
Trustee shall authenticate and deliver to the holder of such Debenture, without
service charge, a new Debenture or Debentures, of any authorized denomination as
requested by such holder in aggregate principal amount at maturity equal to, and
in exchange for, the portion of the principal amount at maturity of the
Debenture so surrendered that is not purchased.
Section 4.04. Covenant to Comply With Securities Laws Upon Purchase of
Debentures. In connection with any offer to purchase or purchase of Debentures
under Section 4.01 hereof (provided that such offer or purchase constitutes an
"issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein,
includes any successor provision thereto) under the Exchange Act at the time of
such offer or purchase), the Company shall (i) comply with Rule 13e-4 under the
Exchange Act, (ii) file the related Schedule 13E-4 (or any successor schedule,
form or report) under the Exchange Act and (iii) otherwise comply with all
Federal and State securities laws so as to permit the rights
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and obligations under Section 4.01 to be exercised to the greatest extent
practicable in the time and in the manner specified in Section 4.01.
Section 4.05. Redemption Right at Debentureholder's Option. Except for
the personal representative or joint tenant of a deceased Debentureholder, which
person(s) may present Debentures at any time after June 1, 1996 for prepayment
as set forth herein below, the Company will prepay, in whole or in part, up to
an aggregate of $250,000 of Debentures ($262,500 if the Over-allotment Option is
exercised) tendered for prepayment during the period commencing with the
original issuance of the Debentures and ending June 1, 1999 and thereafter in
any twelve month period ending June 1 (each of which constitutes a Redemption
Period) at a price of 100% of the principal amount thereof plus accrued interest
to the date of payment, subject to the following limitations. In the case of a
deceased Debentureholder or beneficial owner, commencing June 1, 1996, such
prepayment will take place within 60 days following receipt by the Trustee of a
request therefor from the personal representative or surviving joint tenant of
such deceased Debentureholder or beneficial owner (up to a limit of $25,000 per
deceased Debentureholder or beneficial owner per Redemption Period). In the case
of other Debentureholders, the prepayment of Debentures tendered by the
immediately preceding June 1 by such other Debentureholders (up to a limit of
$25,000 per Debentureholder per Redemption Period or, in the case of Qualified
Institutions who hold Debentures on behalf of beneficial owners thereof, $25,000
per beneficial owner per Redemption Period) will commence July 1, 1999 and take
place on each July 1 thereafter. The Company may, but shall not be obligated to,
prepay Debentures so presented in excess of the $25,000 and $250,000 per
Redemption Period limitations.
Debentures tendered under the preceding paragraph will be prepaid up to
$25,000 and $250,000 per Redemption Period limits, in the following order: (i)
Debentures submitted by the personal representative or surviving joint tenant of
a deceased Debentureholder or beneficial owner shall be prepaid first in the
order validly tendered, and (ii) other Debentures will be prepaid in the order
of the Trustee's receipt of a written request for prepayment executed by the
Debentureholder or his duly authorized representative, provided that if such
Debentures are not submitted with the request for prepayments, such Debentures
must be submitted by the Debentureholder and received by the Trustee by June 1
of that Redemption Period.
Debentures must be presented for redemption by delivering to the Trustee
no later than 4:00 p.m., Columbus, Ohio time on the last day (June 1) of the
Redemption Period: (A) a written request for redemption, in form satisfactory to
the Trustee, signed by the registered holder(s) or his duly authorized
representative, (B) the Debenture to be redeemed, free and clear of any liens or
encumbrances of any kind, and (C) in the case of a request made by reason of the
death of a holder, appropriate evidence of death and, if made by a
representative of a deceased holder, appropriate evidence of authority to make
such request. No particular forms of request for redemption or authority to
request redemption are necessary. The price to be paid by the Company for all
Debentures or portions thereof presented to it pursuant to the provisions
described in this Section is 100% of the principal amount thereof or portion
thereof plus accrued but unpaid interest to the date of redemption. The Company
shall deposit with the Trustee the redemption price as computed in the foregoing
sentence on or before the date fixed for redemption. Any acquisition of
Debentures by the Company other than by redemption at the option of any holder
pursuant to this Section shall not be included in the computation of the
Redemption Period Maximum Amount for any period.
The Company will not be required to redeem Debentures in principal
amounts other than $1,000 or integral amounts thereof.
Qualified Institutions (as hereinafter defined), in their request for
redemption on behalf of beneficial owners of Debentures, must submit evidence,
including affidavits, acknowledged requests or other evidence, satisfactory to
the Trustee, (i) that they hold Debentures on behalf of such beneficial owners,
and (ii) specifying the aggregate amount of Debentures being presented on behalf
of such beneficial owner. In addition, any request for redemption made by a
Qualified Institution on behalf of a beneficial owner must be delivered to the
Trustee by registered mail, return receipt requested.
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For purposes of this Section 4.05, a Debenture held in tenancy by the
entirety, joint tenancy or tenancy in common will be deemed to be held by a
single holder and the death of a tenant by the entirety, joint tenant or tenant
in common will be deemed the death of a holder. The death of a person, who,
during his lifetime, was entitled to substantially all of the beneficial
interests of ownership of a Debenture will be deemed the death of the holder,
regardless of the registered holder, if such beneficial interest can be
established to the satisfaction of the Trustee. For purposes of a holder's
request for redemption and a request for redemption on behalf of a deceased
holder, such beneficial interest shall be deemed to exist in cases of street
name or nominee ownership, ownership under the Uniform Gifts to Minors Act,
community property or other joint ownership arrangements between a husband and
wife (including individual retirement accounts or Keogh [H.R. 10] plans
maintained solely by or for the holder or decedent or by or for the holder or
decedent and his spouse), and trusts and certain other arrangements where a
person has substantially all of the beneficial ownership interests in the
Debentures during his lifetime. Beneficial interests shall include the power to
sell, transfer or otherwise dispose of a Debenture and the right to receive the
proceeds therefrom, as well as interest and principal payable with respect
thereto.
In the case of Debentures registered in the names of banks, trust
companies or broker-dealers who are members of a national securities exchange or
the National Association of Securities Dealers, Inc. ("Qualified Institutions"),
the $25,000 limitation shall apply to each beneficial owner of Debentures held
by, a Qualified Institution and the death of such beneficial owner shall entitle
a Qualified Institution to seek redemption of such Debentures as if the deceased
beneficial owner were the record holder. Such Qualified Institution, in its
request for redemption on behalf of such beneficial owners, must submit
evidence, satisfactory to the Trustee, that it holds Debentures on behalf of
such beneficial owner and must specify the aggregate principal amount of
Debentures being presented for redemption on behalf of such beneficial owner.
In the case of any Debentures which are presented for redemption in part
only or are only redeemed in part, upon such redemption the Company shall
execute and the Trustee shall authenticate and deliver to or on the order of the
holder of such Debentures, without service charge, a new Debenture(s), of any
authorized denomination or denominations as requested by such holder, in
aggregate principal amount equal to the unredeemed portion of the principal of
the Debentures so presented. Nothing herein shall prohibit the Company from
redeeming, in acceptance of tenders made pursuant hereto, Debentures in excess
of the principal amount that the Company is obligated to redeem, nor from
purchasing any Debentures in the open market. However, the Company may not use
any Debentures purchased in the open market as a credit against its redemption
obligation hereunder.
Section 4.06. Withdrawal. Any Debentures presented for redemption at the
option of the holder may be withdrawn by the person(s) presenting the same upon
delivery of a written request for such withdrawal to the Trustee (A) in cases
other than by reason of death of a holder prior to 4:00 p.m., Columbus, Ohio
time on the last day (June 1) of the Redemption Period, or (B) prior to the
issuance of a check in payment thereof in the case of Debentures presented by
reason of the death of a holder.
Section 4.07. Redemption Register. The Trustee shall maintain at its
main office a register (the "Redemption Register') in which it shall record, in
order of receipt, all requests for redemption received by the Trustee under
Section 4.05. Unless withdrawn, all requests made by the personal representative
of surviving joint tenant of a deceased Debentureholder shall remain in effect
during the period in which they are received and thereafter from period to
period, until the Debentures which are the subject of such request have been
redeemed. Unless withdrawn, all other requests made under Section 4.05 shall
remain in effect during the period in which they are received and thereafter any
Debentures that have not been redeemed pursuant to such requests shall be
returned to the holder thereof along with the request for redemption.
Section 4.08. Redemption of Debentures Subject to Article Three. In the
case of any Debentures or portion thereof which are presented for redemption
pursuant to this Article Four and which have not been redeemed at the time the
Company gives notice of its election to redeem Debentures pursuant to Article
Three, such Debentures or portion thereof shall first be subject to redemption
pursuant to Article Three and if any such Debentures or portion thereof are not
redeemed pursuant to Article Three they shall remain subject to redemption
pursuant to Article Four.
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ARTICLE FIVE
CONVERSION OF DEBENTURES
Section 5.01. Conversion Privilege. Subject to and upon compliance with
the provisions of this Article Five and subject to Section 4.02, the holder of
any Debenture shall have the right, at his option, at any time on or prior to
June 1, 2003 (or if such Debenture or portion thereof is called for redemption
prior to June 1, 2003, then in respect of such Debenture or portion thereof to
and including but not after the close of business on the fifteenth day (or, if
such day is not a business day, then on the next following business day)
preceding the date fixed for such redemption) to convert the principal amount of
any such Debenture, or any portion of such principal amount which is $1,000 or
an integral multiple thereof, into that number of fully paid and nonassessable
shares of Common Stock (calculated as to each conversion to the nearest 1/100th
of a share) obtained by dividing the principal amount of the Debenture or
portion thereof to be converted by the Conversion Price and by surrender of the
Debenture so to be converted in whole or in part, such surrender to be made in
the manner provided in Section 5.02. Notwithstanding the previous sentence, if
the Company shall fail to redeem a Debenture which has been called for
redemption, the holder of such Debenture shall retain the right to convert such
Debenture as provided in this Article Five.
Section 5.02. Manner of Exercise of Conversion Privilege. In order to
exercise the conversion privilege, the holder of any Debenture to be converted
in whole or in part shall surrender such Debenture at any of the offices or
agencies to be maintained for such purpose by the Company pursuant to Section
6.02, and shall give notice to the Company in the form provided in the
Debenture, duly executed, at such office or agency that the holder elects to
convert such Debenture or the portion thereof specified in said notice. Such
notice also shall state the name or names, together with the address or
addresses and the Taxpayer Identification Number or Numbers, in which the
certificate or certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued. Each Debenture surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the name in which such Debenture is registered, be accompanied by
instruments of transfer, in form satisfactory to the Company, duly executed by
the holder or his duly authorized attorney. Debentures so surrendered during the
period from the close of business on the fifteenth day of the month, or the next
preceding business day if such fifteenth day is not a business day, immediately
preceding any interest payment date to the opening of business on such interest
payment date (excluding Debentures or portions thereof called for redemption
during such period) shall also be accompanied by payment in next-day funds or
other funds acceptable to the Company of an amount equal to the interest payable
on such interest payment date on the principal amount of such Debenture then
being converted; provided, however, that, if the Company shall default on the
payment of said interest, said funds shall be returned to the payor thereof. As
promptly as practicable after the surrender of such Debenture, as aforesaid, the
Company shall issue and shall deliver at such office or agency to such holder,
or on his written order, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of such Debenture or portion
thereof in accordance with the provisions of this Article Five and any
fractional interest in respect of a share of Common Stock arising upon such
conversion shall be settled as provided in Section 5.03. In case any, Debenture
of a denomination greater than $1,000 shall be surrendered for partial
conversion, the Company shall execute and the Trustee shall authenticate and
deliver to or upon the order of the holder of the Debenture so surrendered, at
the expense of the Company, a new Debenture or Debentures in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Debenture. Such conversion shall be deemed to have been
effected immediately prior to the close of business on the date on which such
Debenture shall have been surrendered and such notice received by the Company as
aforesaid, and the person or persons in whose name or names any certificate or
certificates for Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares represented
thereby at such time and such conversion shall be at the Conversion Price in
effect at such time, unless the stock transfer books of the Company shall be
closed on that date, in which event such person or persons shall be deemed to
have become such holder or holders of record at the close of business on the
next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Debenture shall
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have been surrendered and such notice received by the Company. Subject to the
aforesaid requirement for a payment in the event of conversion after the close
of business on the fifteenth day of a month immediately preceding an interest
payment date, no payment or adjustment shall be made on conversion for interest
accrued on the Debentures surrendered for conversion or for dividends on Common
Stock delivered on such conversion.
Section 5.03. Payment in Lieu of Fractional Shares. No fractional shares
of Common Stock shall be issued upon conversion of the Debentures. Instead of
any fractional interest in a share of Common Stock which would otherwise be
deliverable upon the conversion of any Debenture or Debentures, the Company
shall make an adjustment therefor to the nearest 1/100th of a share in cash at
the current market price thereof at the close of business on the business day
next preceding the day of conversion. If more than one Debenture shall be
surrendered for conversion at one time by the same holder, the number of full
shares issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Debentures, or specified portions thereof to
be converted, so surrendered.
Section 5.04. Adjustment of Conversion Price. The Conversion Price shall
be adjusted from time to time as follows:
(a) In case the Company shall hereafter (i) pay a dividend or make a
distribution on its Common Stock in Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares, (iii) combine its
outstanding Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its Common Stock any shares of capital stock of the Company,
the Conversion Price in effect immediately prior to such action shall be
adjusted so that the holder of any Debenture thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock or
other capital stock of the Company which he would have owned immediately
following such action had such Debenture been converted immediately prior
thereto. An adjustment made pursuant to this subsection (a) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this subsection (a), the holder of any Debenture
thereafter surrendered for conversion shall become entitled to receive shares of
two or more classes of capital stock or Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive and
shall be described in a statement filed with the Trustee and with any conversion
agent) shall determine in an equitable manner the allocation of the adjusted
Conversion Price between or among shares of such classes of capital stock or
Common Stock and other capital stock.
(b) In case the Company shall hereafter issue rights or warrants to
holders of its outstanding shares of Common Stock generally entitling them (for
a period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase Common Stock at a price per share less than the
current market price per share (as determined pursuant to subsection (d) of this
Section 5.04) of the Common Stock on the record date mentioned below, the
Conversion Price of the Common Stock shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of issuance of such rights or warrants by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such current market price, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of additional shares
of Common Stock offered for subscription or purchase. Such adjustment shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants.
(c) In case the Company shall hereafter distribute to holders of its
outstanding shares of Common Stock generally evidences of its indebtedness or
assets (excluding any cash dividend paid from retained earnings of the Company
and dividends or distributions payable in stock for which adjustment is made
pursuant to subsection (a) of this Section 5.04) or rights or warrants to
subscribe to securities of the Company (excluding those referred to in
subsection (b) of this Section 5.04), then in each such case the Conversion
Price of the Common Stock shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the
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date of such distribution by a fraction of which the numerator shall be the
current market price per share (determined as provided in subsection (d) of this
Section 5.04) of the Common Stock on the record date mentioned below less the
then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and shall be described in a statement filed
with the Trustee and with any conversion agent) of the portion of the evidences
of indebtedness or assets so distributed to the holder of one share of Common
Stock or of such subscription rights or warrants applicable to one share of
Common Stock, and of which the denominator shall be such current market price
per share of Common Stock. Such adjustment shall become effective immediately
after the record date for the determination of shareholders entitled to receive
such distribution.
(d) For the purposes of any computation under subsections (b) and (c) of
this Section 5.04, the current market price per share of Common Stock on any
date shall be deemed to be the average of the daily market prices for the 30
consecutive business days commencing 45 business days before the day in
question.
(e) In any case in which this Section 5.04 shall require that an
adjustment be made immediately following a record date, the Company may elect to
defer (but only until five business days following the filing by the Company
with the Trustee and any conversion agent of the certificate of independent
public accountants described in subsection (g) of this Section 5.04) issuing to
the holder of any Debenture converted after such record date the shares of
Common Stock issuable upon such conversion over and above the shares of Common
Stock issuable upon such conversion on the basis of the Conversion Price prior
to adjustment.
(f) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% of such price;
provided, however, that any adjustments which by reason of this subsection (f)
are not required to be made shall be carried forward and taken, into account in
any subsequent adjustment, and provided further that adjustment shall be
required and made in accordance with the provisions of this Article Five (other
than this subsection (f)), not later than such time as may be required in order
to preserve the tax-free nature of a distribution to the holders of Debentures
or Common Stock. All calculations under this Section 5.04 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be. Anything
in this Section 5.04 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Conversion Price, in addition to those
required by this Section 5.04, as it in its discretion shall determine to be
advisable in order that any stock dividend, subdivision of shares, distribution
of rights to purchase stock or securities, or distribution of securities
convertible into or exchangeable for stock hereafter made by the Company to its
shareholders shall not be taxable.
(g) Whenever the Conversion Price is adjusted as herein provided, (i)
the Company shall promptly file with the Trustee and any conversion agent a
certificate of a firm of independent public accountants setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment and the manner of computing the same, which
certificate shall be conclusive evidence of the correctness of such adjustment
and (ii) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall forthwith be given by the
Company to the Debentureholders in the manner provided in Section 16.10. Subject
to TIA Section 315(a), (c) and (d), the Trustee and any conversion agent shall
be under no duty or responsibility with respect to any such certificate or the
certificate provided for in Section 5.09 except to exhibit the same from time to
time to any holder of a Debenture desiring an inspection of such certificate.
(h) In the event that at any time as a result of an adjustment made
pursuant to subsection (a) of this Section 5.04, the holder of any Debenture
thereafter surrendered for conversion shall become entitled to receive any
shares of the Company other than Common Stock, thereafter the Conversion Price
of such other shares so receivable upon conversion of any Debenture shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to Common Stock
contained in this Article Five.
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Section 5.05. Notice of Certain Corporate Action. In the event:
(a) the Company shall take any action which would require an adjustment
in the Conversion Price pursuant to Section 5.04(c); or
(b) the Company shall authorize the granting to the holders of its
Common Stock (as a class) of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights, or
(c) there shall be any capital reorganization or reclassification of the
Common Stock (other than a subdivision or combination of the outstanding shares
of Common Stock and other than a change in the par value of the Common Stock),
or any consolidation or merger to which the Company is a party or any statutory
exchange of securities with another corporation and for which approval of any
shareholders of the Company is required, or any sale or transfer of all or
substantially all of the assets of the Company; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be filed with the Trustee and any conversion
agent, and shall cause to be given to the Debentureholders, in the manner
provided in Section 16.10, at least 14 days prior to the applicable date
hereinafter specified, a notice stating (i) the date on which a record is to be
taken for the purpose of such distribution or rights, or, if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such distribution or rights are to be determined, or (ii) the date
on which such Reorganization, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give such notice or any defect therein
shall not affect the legality or validity of the proceeding described in
subsection (a), (b), (c) or (d) of this Section 5.05.
Section 5.06. Company to Provide Stock. The Company covenants that it
will at all times reserve and keep available, free from preemptive rights, out
of the aggregate of its authorized but unissued shares of Common Stock or its
issued shares of Common Stock held in its treasury for the purpose of effecting
conversions of Debentures, the full number of shares of Common Stock deliverable
upon the conversion of all outstanding Debentures not theretofore converted. For
purposes of this Section 5.06, the number of shares of Common Stock which shall
be deliverable upon the conversion of all outstanding Debentures shall be
computed as if at the time of computation all outstanding Debentures were held
by a single holder.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value (if any) of the Common Stock
deliverable upon conversions of the Debentures, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and non-assessable
shares of Common Stock at such adjusted Conversion Price.
The Company will endeavor to list the Common Stock required to be
delivered upon conversion of Debentures prior to such delivery upon each
national securities exchange, if any, upon which the outstanding Common Stock is
listed at the time of such delivery.
Prior to the delivery of any securities which the Company shall be
obligated to deliver upon conversion of the Debentures, the Company will
endeavor to comply with all Federal and State laws and regulations thereunder
requiring the registration of such securities with, or any approval of or
consent to the delivery thereof by, any governmental authority.
Section 5.07. Taxes on Conversions. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversions of Debentures
pursuant hereto; provided, however, that the Company shall not be required to
pay any tax which may be payable in
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respect of any transfer involved in the issue or delivery of Common Stock in a
name other than that of the holder of the Debentures to be converted and no such
issue or delivery shall be made unless and until the person requesting such
issue or delivery has paid to the Company the amount of any such tax or has
established, to the satisfaction of the Company, that such tax has been paid.
Section 5.08. Covenant as to Stock. The Company covenants that all
shares of Common Stock which may be delivered upon conversions of Debentures
will upon delivery be duly and validly issued and fully paid and non-assessable,
free of all liens and charges and not subject to any preemptive rights.
Section 5.09. Consolidation or Merger. Notwithstanding any other
provision herein to the contrary, in case of any consolidation or merger to
which the Company is a party other than a merger or consolidation in which the
Company is the continuing corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, or in the case of any statutory exchange of
securities with another corporation (including any exchange effected in
connection with a merger of a third corporation into the Company), there shall
be no adjustments under Section 5.04 but the holder of each Debenture then
outstanding shall have the right thereafter to convert such Debenture into the
kind and amount of securities, cash or other property which he would have owned
or have been entitled to receive immediately after such consolidation, merger,
statutory exchange, sale or conveyance had such Debenture been converted
immediately prior to the effective date of such consolidation, merger, statutory
exchange, sale or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in this
Article Five with respect to the rights and interests thereafter of the holders
of the Debentures, to the end that the provisions set forth in this Article Four
shall thereafter correspondingly be made applicable, as nearly as may reasonably
be, in relation to any shares of stock or other securities or property
thereafter deliverable on the conversion of the Debentures. Any such adjustment
shall be made by and set forth in a supplemental indenture executed by, the
Company and the Trustee and approved by a firm of independent public
accountants, evidenced by a certificate to that effect; and any adjustment so
approved shall for all purposes hereof conclusively be deemed to be an
appropriate adjustment.
The above provisions of this Section 5.09 shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
The Company shall give notice of the execution of such a supplemental
indenture to the holders of Debentures in the manner provided in Section 16.10
within 30 days after the execution thereof.
The Trustee shall not be under any responsibility to determine the
correctness of any provisions contained in such supplemental indenture relating
either to the kind or amount of shares of stock or securities or property
receivable by Debentureholders upon the conversion of their Debentures after any
such consolidation, merger, statutory exchange, sale or conveyance, or to any
adjustment to be made with respect thereto.
Section 5.10. Disclaimer of Responsibility for Certain Matters. Neither
the Trustee nor any conversion agent shall at any time be under any duty or
responsibility to any holder of Debentures to determine whether any facts exist
which may require any adjustment of the Conversion Price, or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. Neither the Trustee nor any conversion agent shall be
accountable with respect to the listing or registration referred to in Section
5.06 or the validity or value (or the kind or amount) of any shares of Common
Stock, or of any securities or property, which may at any time be issued or
delivered upon the conversion of any Debenture; and neither the Trustee nor any
conversion agent makes any representation with respect thereto. Neither the
Trustee nor any conversion agent shall be responsible for any failure of the
Company to issue, transfer or deliver any shares of Common Stock or stock
certificates or other securities or property or to make any cash payment upon
the surrender of any Debenture for the purpose of conversion or, subject to TIA
Section 315(a), (c) and (d), to comply with any of the covenants contained in
this Article Five.
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ARTICLE SIX
PARTICULAR COVENANTS OF THE COMPANY
Section 6.01. Payment of Principal, Change of Control Purchase Price,
Premium and Interest. The Company covenants and agrees that it will duly and
punctually, on or before the date such payment is due, pay or cause to be paid
by the deposit with the Trustee (or some other duly designated paying agent) of
good funds via wire transfer the principal, Change of Control Purchase Price of
and premium, if any, and interest on each of the Debentures at the place, at the
respective times and in the manner provided in the Debentures and this
Indenture.
Section 6.02. Office for Notices, Payments and Conversions, etc. So long
as any of the Debentures remain outstanding, the Company will maintain an office
or agency where the Debentures may be presented for registration of transfer and
for exchange as in this Indenture provided, where the Debentures may be
presented for conversion, where notices and demands to or upon the Company in
respect of the Debentures or of this Indenture may be served and where the
Debentures may be presented for payment (including payment of Change of Control
Purchase Price), redemption or prepayment provided that the Company may maintain
in such city one or more other offices or agencies for any or all of the
foregoing purposes. The Company will give to the Trustee written notice of the
location of any such office or agency and of any change of location thereof. In
case the Company shall fail to maintain any such office or agency or shall fail
to give such notice of the location or of any change in the location thereof,
presentations may be made and notices and demands may be served at the corporate
trust office of the Trustee. The Company initially appoints the Trustee its
office or agency in Columbus, Ohio for the purpose of presentation of Debentures
for registration, transfer, exchange, conversion, payment, prepayment and
redemption and presentation of notices and demands to or upon the Company in
respect of the Debentures or of this Indenture. The duties of the Trustee under
this appointment shall be limited to the duties and responsibilities of the
Trustee set forth in this Indenture.
Section 6.03. Appointments to Fill Vacancies in Trustee's Office. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 9.09 a Trustee, so that there
shall at all times be a Trustee hereunder.
Section 6.04. Provision as to Paying Agent. (a) If the Company shall
appoint a paying agent other than the Trustee, it will cause such paying agent
to execute and deliver to the Trustee an instrument in which such agent shall
agree with the Trustee, subject to the provisions of this Section 6.04:
(1) that it will hold all sums held by it as such agent for the
payment of the principal of and premium or Change of Control Purchase
Price, if any, or interest on the Debentures (whether such sums have
been paid to it by the Company or by any other obligor on the
Debentures) in trust for the benefit of the holders of the Debentures;
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Debentures) to make any payment
of the principal or Change of Control Purchase Price of and premium, if
any, or interest on the Debentures when the same shall be due and
payable; and
(3) that it will at any time during the continuance of any such
failure, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such paying agent.
(b) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal or Change of Control Purchase Price of and
premium, if any, or interest on the Debentures, set aside, segregate and hold in
trust for the benefit of the holders of the Debentures a sum sufficient to pay
such principal, Change of Control Purchase Price and premium, if any, or
interest so becoming due and will notify the Trustee of any failure to take such
action and of any failure by the Company (or by any other obligor on the
Debentures) to make any payment of the
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principal or Change of Control Purchase Price of and premium, if any, or
interest on the Debentures when the same shall become due and payable.
(c) Anything in this Section 6.04 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by it or any paying agent hereunder, as
required by this Section 6.04, such sums to be held by the Trustee upon the
trusts herein contained.
(d) Anything in this Section 6.04 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 6.04 is subject to
Sections 14.03 and 14.04.
Section 6.05. Annual Statement. The Company will deliver to the Trustee,
within 120 days after the end of each fiscal year, a brief certificate from the
principal executive officer, principal financial officer or principal accounting
officer as to his or her knowledge of the Company's compliance with all
conditions and covenants under this Indenture. For purposes of this Section
6.05, such compliance shall be determined without regard to any period of grace
or requirement of notice under this Indenture.
ARTICLE SEVEN
DEBENTUREHOLDERS LISTS AND REPORTS BY THE COMPANY
AND THE TRUSTEE
Section 7.01. Disclosures of Names and Addresses of Holders. Each and
every holder of the Debentures, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
paying agent nor any Debenture registrar shall be held accountable by reason of
the disclosure of any information as to the names and addresses of the holders
of the Debentures in accordance with TIA Section 312, regardless of the source
from which such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
TIA Section 312(b).
Section 7.02. Reports by the Company. (a) The Company covenants and
agrees to file with the Trustee, within 15 days after the Company is required to
file the same with the Securities and Exchange Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as said Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file with
said Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or,
if the Company is not required to file information, documents or reports
pursuant to either of such sections, then to file with the Trustee and said
Commission, in accordance with rules and regulations prescribed from time to
time by said Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Securities Exchange Act of 1934 in respect of a security listed and registered
on a national securities exchange as may be prescribed from time to time in such
rules and regulations.
(b) The Company covenants and agrees to file with the Trustee and the
Securities and Exchange Commission, in accordance with the rules and regulations
prescribed from time to time by said Commission, such additional information,
documents and reports with respect to compliance by the Company with the
conditions and covenants provided for in this Indenture as may be required from
time to time by such rules and regulations.
(c) The Company covenants and agrees to transmit by first class mail to
all holders of Debentures, as the names and addresses of such holders appear
upon the registry books of the Company, within 30 days after the filing thereof
with the Trustee in the manner and to the extent provided in TIA Section 313(c),
such summaries of any information, documents and reports required to be filed by
the Company pursuant to subsections (a) and (b) of this Section 7.02 as may be
required by rules and regulations prescribed from time to time by the Securities
and Exchange Commission.
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Section 7.03. Reports by Trustee. On or before January 1, 1997 and on or
before January 1 in every year thereafter, so long as any Debentures are
outstanding hereunder, the Trustee shall transmit to the Debentureholders, as
provided in TIA Section 313(c), a brief report dated as of the preceding June 1
if required by TIA Section 313(a).
ARTICLE EIGHT
REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
ON EVENT OF DEFAULT
Section 8.01. Events of Default. In case one or more of the following
Events of Default shall have occurred and be continuing:
(a) default in the payment of any installment of interest upon any of
the Debentures as and when the same shall become due and payable and continuance
of such default for a period of 21 business days; or
(b) default in the payment of the principal of, Change of Control
Purchase Price or premium, if any, on any of the Debentures as and when the same
shall become due and payable, whether at maturity or upon redemption or upon
declaration or otherwise; or
(c) failure to make any redemption payment with respect to any of the
Debentures as and when the same shall become due and payable and the continuance
of such default for a period of ten business days; or
(d) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the
Debentures or in this Indenture contained for a period of 60 days after the date
on which written notice of such failure, requiring the same to be remedied and
stating that such notice is a "Notice of Default" hereunder, shall have been
given to the Company by the Trustee by registered or certified mail, or to the
Company and the Trustee by the holders of at least 25% in aggregate principal
amount of the Debentures at the time outstanding, or
(e) a default under any mortgage, indenture, loan agreement or other
financial obligation under which there may be issued or borrowed, or by which
there may be secured or evidenced, any indebtedness of the Company or any of its
Subsidiaries other than the Debentures the outstanding amount of which is not
less than $1,000,000, whether such indebtedness now exists or shall hereafter be
created, shall happen and such indebtedness shall be due or such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable, and such
acceleration shall not be rescinded or annulled within 30 days after written
notice to the Company from the Trustee or to the Company and to the Trustee from
Debentureholders holding not less than 25% in aggregate principal amount of the
Debentures then outstanding hereunder; or
(f) the entry of a decree or order by a court having jurisdiction in the
premises for relief in respect of the Company under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other applicable
Federal or State bankruptcy, insolvency or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or similar
official of the Company or of any substantial part of its property, or ordering
the windingup or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days; or
(g) the filing by the Company of a petition or answer or consent seeking
relief under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable Federal or State bankruptcy, insolvency or
other similar law, or the consent by it to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Company or of any substantial part
of its property, or the failure of the Company generally to pay its debts as
such debts become due, or the taking of corporate action by the Company in
furtherance of any such action;
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then and in each and every such case, unless the principal of all of the
Debentures shall have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of the Debentures
then outstanding hereunder, by notice in writing to the Company (and to the
Trustee if given by Debentureholders), may declare the principal of all the
Debentures to be due and payable immediately and upon any such declaration the
same shall become and shall be immediately due and payable, anything in this
Indenture or in the Debentures contained to the contrary notwithstanding. This
provision, however, is subject to the condition that if, at any time after the
principal of the Debentures shall have been so declared due and payable, and
before any judgment or decree for the payment of the moneys due shall have been
obtained or entered as hereinafter provided, the Company shall pay or shall
deposit with the Trustee a sum sufficient to pay all matured installments of
interest upon all of the Debentures and the principal and Change of Control
Purchase Price of and premium, if any, on any and all Debentures which shall
have become due otherwise than by acceleration (with interest on overdue
installments of interest (to the extent that payment of such interest is
enforceable under applicable law) and on such principal and premium, if any, at
the rate borne by the Debentures, to the date of such payment or deposit) and
all sums paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any and all defaults under this Indenture, other than the
nonpayment of principal of and accrued interest on Debentures which shall have
become due by acceleration, shall have been remedied then and in every such case
the holders of a majority in aggregate principal amount of the Debentures then
outstanding, by written notice to the Company and to the Trustee, may waive all
defaults and rescind and annul such declaration and its consequences; but no
such waiver or rescission and annulment shall extend to or shall affect any
subsequent default, or shall impair any right consequent thereon.
In case the Trustee or any Debentureholder shall have proceeded to
enforce any right under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for any
other reason or shall have been determined adversely to the Trustee or to such
Debentureholder, then and in every such case the Company, the Trustee and such
Debentureholder shall be restored respectively to their several positions and
rights hereunder, and all rights, remedies and powers of the Company, the
Trustee and such Debentureholder shall continue as though no such proceeding had
been taken.
Section 8.02. Default; Suit Therefor. The Company covenants that (a) in
case default shall be made in the payment of any installment of interest upon
any of the Debentures as and when the same shall become due and payable, and
such default shall have continued for a period of 21 business days, or (b) in
case default shall be made in the payment of the principal of, Change of Control
Purchase Price or premium, if any, on any of the Debentures as and when the same
shall have become due and payable, whether at maturity of the Debentures or upon
redemption or by declaration or otherwise, then, upon demand of the Trustee, the
Company will pay to the Trustee, for the benefit of the holders of the
Debentures, the whole amount that then shall have so become due and payable on
all such Debentures for principal, Change of Control Purchase Price and premium,
if any, or interest, or both, as the case may be, with interest upon the overdue
principal, Change of Control Purchase Price and premium, if any, and (to the
extent that payment of such interest is enforceable under applicable law) upon
the overdue installments of interest at the rate borne by the Debentures; and,
in addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including a reasonable compensation to the
Trustee, its agents, attorneys and counsel, and any expenses or liabilities
incurred by the Trustee hereunder other than through its negligence or bad
faith.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such actions or proceeding to judgment or final decree, and may enforce any such
judgment or final decree against the Company or any other obligor on the
Debentures and collect in the manner provided by law out of the property of the
Company or any other obligor on the Debentures wherever situated the moneys
adjudged or decreed to be payable. The Trustee shall have a lien prior to the
Debentures upon all property and funds held by or collected by the Trustee for
such costs of collection, including compensation to the Trustee, its agents,
attorneys and counsel.
In case there shall be pending proceedings for the bankruptcy or for the
reorganization of the Company or any other obligor on the Debentures under the
Federal Bankruptcy Reform Act or any other applicable law, or in case a
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receiver or trustee shall have been appointed for the property of the Company or
such other obligor, or in the case of any similar judicial proceedings relative
to the Company or other obligor upon the Debentures, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Debentures shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 8.02,
shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of
principal, Change of Control Purchase Price and premium, if any, and interest
owing and unpaid in respect of the Debentures, and, in case of any judicial
proceedings, to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee and of the
Debentureholders allowed in such judicial proceedings relative to the Company or
any other obligor on the Debentures, its or their creditors, or its or their
property, and to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute the same after the deduction
of its charges and expenses; and any receiver, assignee or trustee in bankruptcy
or reorganization is hereby authorized by each of the Debentureholders to make
such payments to the Trustee, and, in the event that the Trustee shall consent
to the making of such payments directly to the Debentureholders, to pay to the
Trustee any amount due it for compensation and expenses, including counsel fees
and expenses incurred by it up to the date of such distribution.
All rights of action and of asserting claims under this Indenture, or
under any of the Debentures, may be enforced by the Trustee without the
possession of any of the Debentures, or the production thereof on any trial or
other proceeding relative thereto, and any such suit or proceeding instituted by
the Trustee shall be brought in its own name as trustee of an express trust, and
any recovery of judgment shall be for the ratable benefit of the holders of the
Debentures.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Debentureholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Debentures or the rights of any holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Debentureholder in any such proceeding.
Section 8.03. Application of Moneys Collected by Trustee. Any moneys
collected by the Trustee pursuant to this Article Eight shall be applied in the
order following, at the date or dates fixed by the Trustee for the distribution
of such moneys, upon presentation of the several Debentures, and stamping
thereon the payment, if only partially paid, and upon surrender thereof if fully
paid:
FIRST: To the payment of all amounts due to the Trustee under Section
9.05;
SECOND: To the payment of the whole amount then owing and unpaid upon
the Debentures for principal, Change of Control Purchase Price and premium, if
any, and interest, as the case may be, ratably, without preference or priority
of any kind, according to such amounts due and payable on the Debentures; and
THIRD: To the payment of the remainder, if any, to the Company, its
successors or assigns, or to whosoever may be lawfully entitled to the same, or
as a court of competent jurisdiction may determine.
Section 8.04. Proceedings by Debentureholders. No holder of any
Debenture shall have any right by virtue of or by availing of any provision of
this Indenture to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Indenture or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless such holder
previously shall have given to the Trustee written notice of default and of the
continuance hereof, as hereinabove provided, and unless also the holders of not
less than 25% in aggregate principal amount of the Debentures then outstanding
shall have made written request upon the Trustee to institute such action, suit
or proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity, as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, the Trustee for 60 days after
its receipt of such notice, request and offer of indemnity shall have neglected
or refused to institute any such action, suit or proceeding, and the Trustee
shall not have received direction inconsistent with such written request by the
holders of not less than 50% in aggregate principal amount of the Debentures
then outstanding, it being understood and intended,
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and being expressly covenanted by the taker and holder of every Debenture with
every other taker and holder and the Trustee, that no one or more holders of
Debentures shall have any right in any manner whatever by virtue of or by
availing of any provision of this Indenture to affect, disturb or prejudice the
rights of any other holder of such Debentures, or to obtain or seek to obtain
priority over or preference to any other such holder, or to enforce any right
under this Indenture, except in the manner herein provided and for the equal,
ratable and common benefit of all holders of Debentures.
Notwithstanding any other provisions in this Indenture, however, the
rights of any holder of any Debenture to receive payment of the principal of,
Change of Control Purchase Price and premium, if any, and interest on such
Debenture, on or after the respective due dates expressed in such Debenture or
this Indenture, or to institute suit for the enforcement of any such payment on
or after such respective dates or to convert Debentures in accordance with this
Indenture shall not be impaired or affected without the consent of such holder.
Section 8.05. Proceeding by Trustee. In case of an Event of Default
hereunder the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
Section 8.06. Remedies Cumulative and Continuing. All powers and
remedies given by this Article Eight to the Trustee or to the Debentureholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive of
any thereof or of any other powers and remedies available to the Trustee or the
holders of the Debentures, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements contained in this
Indenture, and no delay or omission of the Trustee or of any holder of any of
the Debentures in exercising any right or power accruing upon any default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 8.04, every power and remedy
given by this Article Eight or by law to the Trustee or to the Debentureholders
may be exercised from time to time, and as often as shall be deemed expedient,
by the Trustee or by the Debentureholders.
Section 8.07. Direction of Proceeding and Waiver of Defaults by Majority
of Debentureholders. The holders of a majority in aggregate principal amount of
the Debentures at the time outstanding shall have the right to direct the time,
method, and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee; provided,
however, that (subject to the provisions of TIA Section 315(a) through (d)) the
Trustee shall have the right to decline to follow any such direction if the
Trustee being advised by counsel determines that the action or proceeding so
directed may not lawfully be taken or if the Trustee in good faith by its board
of directors or trustees, executive committee, or a trust committee of directors
or trustees or responsible officers shall determine that the action or
proceeding so directed would involve the Trustee in personal liability or would
be unduly prejudicial to the rights of holders not joining in such directions.
Prior to any declaration accelerating the maturity of the Debentures, the
holders of a majority in aggregate principal amount of the Debentures at the
time outstanding may on behalf of the holders of all of the Debentures waive any
past default or Event of Default hereunder and its consequences except a default
in the payment of principal of, Change of Control Purchase Price, or premium, if
any, or interest on the Debentures or in respect of conversion of any Debentures
in accordance with this Indenture. Upon any such waiver the Company, the Trustee
and the holders of the Debentures shall be restored to their former positions
and rights hereunder, respectively, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon. Whenever any default or Event of Default hereunder shall have been
waived as permitted by this Section 8.07, said default or Event of Default shall
for all purposes of the Debentures and this Indenture be deemed to have been
cured and to be not continuing.
Section 8.08. Notice of Defaults. The Trustee shall, within 90 days
after the Trustee has notice of the occurrence of a default, give to all
Debentureholders, in the manner provided in Section 16.10 notice of all defaults
known to the Trustee, unless such defaults shall have been cured before the
giving of such notice (the term "defaults"
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for the purpose of this Section 8.08 being hereby defined to be the events
specified in clauses (a), (b), (c), (d), (e) and (f) of Section 8.01, not
including periods of grace, if any, provided for therein and irrespective of the
giving of the notice specified in clauses (c) or (d) of Section 8.01); and
provided that, except in the case of default in the payment of the principal of,
Change of Control Purchase Price, or premium, if any or interest on any of the
Debentures, the Trustee shall be protected in withholding such notice if and so
long as its board of directors or trustees, executive committee, or a trust
committee of directors or trustees and/or responsible officers in good faith
determines that the withholding of such notice is in the interests of the
Debentureholders. The Trustee shall not be charged with knowledge of any default
or Event of Default unless a responsible officer of the Trustee assigned to the
corporate trust division of the Trustee shall have actual knowledge of such
default or Event of Default.
Section 8.09. Undertaking to Pay Costs. All parties to this Indenture
agree, and each holder of any Debenture by his acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against file Trustee for any action taken or permitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 8.09 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any
Debentureholder, or group of Debentureholders, holding in the aggregate more
than 10% in principal amount of the Debentures outstanding, or to any suit
instituted by any Debentureholder for the enforcement of the payment of the
principal of, Change of Control Purchase Price or premium, if any, or interest
on any Debenture on or after the due date expressed in such Debenture or
provided herein or in respect of conversion of any Debenture in accordance with
this Indenture.
ARTICLE NINE
CONCERNING THE TRUSTEE
Section 9.01. Reliance on Documents, Opinions, etc. Subject to the
provisions of TIA Section 315(a), (c) and (d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company; any notice, request,
direction, order or demand to the Trustee other than a Company request
referenced above shall be in writing;
(c) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or Opinion of
Counsel;
(d) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Debentureholders, pursuant to the
provisions of this Indenture, unless such Debentureholders shall have
offered to the Trustee security or indemnity reasonably acceptable to
the Trustee against the costs, expenses and liabilities which may be
incurred therein or thereby;
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(e) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and
after the curing or waiving of all Events of Default, the Trustee shall
not be bound to make any investigation into the facts or matters stated
in any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond, debenture, coupon or
other paper or document, unless requested in writing to do so by the
holders of not less than a majority in principal amount of the
Debentures then outstanding; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require indemnity reasonably acceptable to
the Trustee against such expense or liability as a condition to such
proceeding;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys; and
(h) whenever this Indenture provides for the Trustee to take any
action deemed advisable to the Trustee or in the discretion or
satisfaction of the Trustee, the reference shall mean action taken in
Trustee's sole discretion or Trustee's sole satisfaction.
Section 9.02. No Responsibility for Recitals, etc. The recitals
contained herein and in the Debentures (except in the certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Debentures. The Trustee shall not be accountable for the use or application by
the Company of any Debentures or the proceeds of any Debentures authenticated
and delivered by the Trustee in conformity with the provisions of this
Indenture.
Section 9.03. Trustee, Paying Agent, Conversion Agent or Registrar May
Own Debentures. The Trustee and any paying agent, conversion agent or Debenture
registrar, in its individual or any other capacity, may become the owner or
pledgee of Debentures with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Debenture registrar.
Section 9.04. Moneys to Be Held in Trust. Subject to the provisions of
Section 14.03, all moneys received by the Trustee shall, until used or applied
as herein provided, be held in trust for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder.
Section 9.05. Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust), and the Company will pay or reimburse the Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith. The
Company also covenants to indemnify the Trustee for, and to hold it hardness
against, any loss, liability or expense incurred without negligence or bad faith
on the part of the Trustee and arising out of or in connection with the
acceptance or administration of this trust, including the costs and expenses of
defending itself against any claim of liability in the premises. The obligations
of the Company under this Section 9.05 to compensate the Trustee and to pay or
reimburse the Trustee for expenses, disbursements and advances shall constitute
additional indebtedness hereunder. Such additional indebtedness shall be secured
by a lien prior to that of the Debentures upon all property and funds held or
collected by the Trustee as such, except funds held in trust for the benefit of
the holders of particular Debentures.
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When the Trustee incurs expenses, makes advances or renders services
after an Event of Default specified in Section 8.01(f) or (g) occurs, such
expenses, advances and the compensation for such services are intended to
constitute expenses of administration under any bankruptcy law.
Section 9.06. Officers' Certificate as Evidence. Subject to TIA Section
315(a), (c) and (d), whenever in the administration of the provisions of this
Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking, suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officers' Certificate delivered to the Trustee, and such Officers' Certificate,
in the absence of negligence or bad faith on the part of the Trustee, shall be
full warrant to the Trustee for any action taken, suffered or omitted by it
under the provisions of this Indenture in reliance thereon.
Section 9.07. Succession by Merger, etc. Any corporation or banking
association into which the Trustee may be merged or converted or with which it
may, be consolidated, or any corporation or banking association resulting from
any merger, conversion or consolidation to which the Trustee shall be a party,
or any corporation or banking association succeeding to all or substantially all
of the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder without the execution or filing of any paper or any further
act on the part of any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Debentures shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor trustee, and deliver such
Debentures so authenticated; and in case at that time any of the Debentures
shall not have been authenticated, any successor to the Trustee may authenticate
such Debentures either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Debentures or in this Indenture provided
that the certificates of the Trustee shall have; provided, however, that the
right to adopt the certificate of authentication of any predecessor trustee or
authenticate Debentures in the name of any predecessor trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
No corporation or banking association shall succeed as trustee as
provided in this Section 9.07 unless at the time of such succession such
corporation or banking association shall be qualified and eligible under this
Article.
Section 9.08. Eligibility of Trustee. There shall at all times be a
Trustee hereunder which shall be eligible to act as Trustee under TIA Section
310(a)(1) and which shall have a combined capital and surplus of at least
$25,000,000 subject to supervision or examination by Federal, State or District
of Columbia authority. If such corporation or banking association publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section 9.08, the combined capital and surplus of such corporation or
banking association shall be deemed to be its combined capital and surplus as
set forth in the most recent report of condition so published. In case at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section 9.08, the Trustee shall resign immediately in the manner and with
the effect specified in Section 9.09.
Section 9.09. Resignation or Removal of Trustee. (a) The Trustee may at
any time resign by giving written notice of such resignation to the Company and
by mailing notice thereof to the holders of Debentures at their addresses as
they shall appear on the registry books of the Company. Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee by
written instrument, in duplicate, executed by order of the Board of Directors,
one copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 60 days after the mailing of such
notice of resignation to the Debentureholders, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee, or any Debentureholder who has been a bona fide holder of a Debenture
or Debentures for at least six months may, subject to the provisions of Section
8.09, on behalf of himself and all others similarly situated, petition any, such
court for the appointment of a successor trustee. Such court may thereupon,
after such notice, if any, as it may deem proper and prescribe, appoint a
successor trustee.
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(b) In case at any time any of the following shall occur:
(1) The Trustee shall fail to comply with TIA Section 310(b)
after written request therefor by the Company or by any Debentureholder
who has been a bona fide holder of a Debenture or Debentures for at
least six months, or
(2) the Trustee shall cease to be eligible in accordance with
the provisions of Section 9.08 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder, or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then, in any such case, the
Company may remove the Trustee and appoint a successor trustee by
written instrument, in duplicate, executed by order of the Board of
Directors, one copy of which instrument shall the delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to
the provisions of Section 8.09, any Debentureholder who has been a bona
fide holder of a Debenture or Debentures for at least six months may, on
behalf of himself and all other similarly situated Debentureholders,
petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) Subject to Section 9.09(d), the holders of a majority in
aggregate principal amount of the Debentures at the time outstanding may
at any time remove the Trustee and nominate a successor trustee which
shall be deemed appointed as successor trustee unless within 10 days
after such nomination the Company objects thereto, in which case the
Trustee to be so removed or any Debentureholder, upon the terms and
conditions and otherwise as in subsection (a) of this Section 9.09
provided, may petition any court of competent jurisdiction for the
appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and any
appointment of a successor trustee pursuant to any of the provisions of
this Section 9.09 shall become effective upon acceptance of appointment
by the successor trustee as provided in Section 9.10.
Section 9.10. Acceptance by Successor Trustee. Any successor trustee
appointed as provided in Section 9.09 shall execute, acknowledge and deliver to
the Company and to its predecessor trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
9.05, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing in order more fully and certainly to vest in and confirm to such
successor trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a lien upon all property or funds held or collected by such
trustee to secure any amounts then due it pursuant to the provisions of Section
9.05.
No successor trustee shall accept appointment as provided in this
Section 9.10 unless at the time of such acceptance trustee shall be qualified
and eligible under this Article.
Upon acceptance of appointment by a successor trustee as provided in
this Section 9.10, the Company shall mail notice of the succession of such
trustee hereunder to all holders of Debentures as the names and addresses of
such holders appear on the registry books. If the Company fails to mail such
notice in the prescribed manner within 10 days after the acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
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ARTICLE TEN
CONCERNING THE DEBENTUREHOLDERS
Section 10.01. Action by Debentureholders. Whenever in this Indenture it
is provided that the holders of a specified percentage in aggregate principal
amount of the Debentures may take any action (including the making of any demand
or request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action the holders
of such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Debentureholders in person or by agent or proxy appointed in writing, or (b) by
the record of the holders of Debentures voting in favor thereof at any meeting
of Debentureholders duly called and held in accordance with the provisions of
Article Eleven, or (c) by a combination of such instrument or instruments and
any such record of such a meeting of Debentureholders.
Section 10.02. Proof of Execution by Debentureholders. Subject to TIA
Section 315(a), (c) and (d) and to the provisions of Sections 9.01 and 11.05,
proof of the execution of any instruments by a Debentureholder or his agent or
proxy shall be sufficient if made in accordance with such reasonable rules and
regulations as may be prescribed by the Trustee or in such manner as shall be
satisfactory to the Trustee. The ownership of Debentures shall be proved by the
registry books of the Company or by a certificate of the Debenture registrar.
The record of any Debentureholders' meeting shall be proved in the
manner Provided in Section 11.06.
Section 10.03. Who Deemed Absolute Owners. The Company, the Trustee, any
paying agent, conversion agent and Debenture registrar may deem the person in
whose name any Debentures shall be registered upon the registry books of the
Company to be, and may treat him as, the absolute owner of such Debenture
(whether or not such Debenture shall be overdue and notwithstanding any notation
of ownership or other writing thereon) for the purpose of receiving payment of
or on account of the principal of, Change of Control Purchase Price, and
premium, if any, and (subject to Section 2.03) interest on such Debenture, for
the conversion of such Debenture, and for all other purposes; and neither the
Company nor the Trustee nor any providing agent nor any conversion agent nor any
Debenture registrar shall be affected by any notice to the contrary. All such
payments and all such conversions shall be valid and effectual to satisfy and
discharge the liability upon any such Debenture to the extent of the sum or sums
so paid or the conversions so made.
Section 10.04. Company-Owned Debentures Disregarded. In determining
whether the holders of the requisite aggregate principal amount of Debentures
have concurred in any direction, consent or waiver under this Indenture,
Debentures which are owned by the Company or any other obligor on the Debentures
or by any person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company or any other obligor on the
Debentures shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided that, for the purpose of determining whether
the Trustee shall be protected in relying on any such direction, consent or
waiver, only Debentures which the Trustee knows are so owned shall be so
disregarded. Debentures so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section 10.04 if the pledgee
shall establish to the satisfaction of the Trustee the pledgee's right to vote
such Debentures and that the pledgee is not a person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any such other obligor. In the case of a dispute as to such right,
any decision by the Trustee taken upon the advice of counsel shall be full
protection to the Trustee.
Section 10.05. Revocation of Consents: Future Holders Bound. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
10.01, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Debentures specified in this Indenture in connection
with such action, any holder of a Debenture the serial number of which is shown
by the evidence to be included in the Debentures the holders of which have
consented to such action may, by filing written notice with the Trustee at its
principal office and upon proof of holding as provided in Section 10.02, revoke
such action so far as concerns such Debenture. Except as aforesaid, any
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such action taken by the holder of any Debenture shall be conclusive and binding
upon such holder and upon all future holders and owners of such Debenture and of
any Debentures issued in exchange or substitution therefor, irrespective of
whether or not any notation thereof is made upon such Debenture or such other
Debentures.
Section 10.06. Record Date for Debentureholder Acts. If the Company
shall solicit from the Debentureholders any request, demand, authorization,
direction, notice, consent, waiver or other act, the Company may, at its option,
by resolution of the Board of Directors, fix in advance a record date for the
determination of Debentureholders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other act, but the Company
shall have no obligation to do so. Notwithstanding TIA Section 316(c), such
record date shall be the record date specified in or pursuant to such resolution
of the Board of Directors, which shall be a date not earlier than the date 30
days prior to the first solicitation of Debentureholders generally in connection
therewith and not later than the date such solicitation is completed. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other act may be given before or after the record date, but
only the Debentureholders of record at the close of business on the record date
shall be deemed to be Debentureholders for the purposes of determining whether
Debentureholders of the requisite proportion of outstanding Debentures have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other act, and for that purpose the
outstanding Debentures shall be computed as of the record date; provided,
however, that no such authorization, agreement or consent by the
Debentureholders on the record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
ARTICLE ELEVEN
DEBENTUREHOLDERS' MEETINGS
Section 11.01. Purposes of Meetings. A meeting of Debentureholders may
be called at any time and from time to time pursuant to the provisions of this
Article Eleven for any of the following purposes:
(1) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Debentureholders pursuant to any of the
provisions of Article Eight;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article Nine;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 12.02; or
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of the
Debentures under any other provision of this Indenture or under
applicable law.
Section 11.02. Call of Meetings by Trustee. The Trustee may at any time
call a meeting of Debentureholders to take any action specified in Section
11.01, to be held at such time and at such place in Columbus, Ohio, as the
Trustee shall determine. Notice of every meeting of the Debentureholders,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given to holders of
Debentures in the manner provided in Section 16.10. Such notice shall be given
not less than 20 nor more than 90 days prior to the date fixed for such meeting.
Section 11.03. Call of Meetings by Company or Debentureholders. In case
at any time the Company, pursuant to a resolution of its Board of Directors, or
the holders of at least 10% in aggregate principal amount of the Debentures then
outstanding, shall have requested the Trustee to call a meeting of
Debentureholders, by written request
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setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have mailed the notice of such meeting within
20 days after receipt of such request, then the Company or such Debentureholders
may determine the time and the place in Columbus, Ohio, for such meeting and may
call such meeting to take any action authorized in Section 11.01, by giving
notice thereof as provided in Section 11.02.
Section 11.04. Qualifications for Voting. To be entitled to vote at any
meetings of Debentureholders a person shall (a) be a holder of one or more
Debentures or (b) be a person appointed by an instrument in writing as proxy by
a holder of one or more Debentures. The only persons who shall be entitled to be
present or to speak at any meeting of Debentureholders shall be the persons
entitled to vote at such meeting and their counsel and any representatives of
the Trustee and its counsel and any representatives of the Company and its
counsel.
Section 11.05. Regulations. Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Debentureholders, in regard to proof of the holding
of Debentures and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by the Debentureholders as provided in Section 11.03, in which case
the Company or Debentureholders calling the meeting, as the case may be, shall
in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by majority vote of the
meeting.
Subject to the provisions of Section 10.04, at any meeting each
Debentureholder or proxy shall be entitled to one vote for each $1,000 principal
amount of Debentures held or represented by him; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Debenture challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Debentures held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Debentureholders. At
any meeting of Debentureholders duly called pursuant to the provisions of
Section 11.02 or 11.03, the presence of persons holding or representing
Debentures in an aggregate principal amount sufficient to take action or any
business for the transaction for which such meeting was called shall constitute
a quorum. Any meeting of Debentureholders duly called pursuant to the provisions
of Section 11.02 or 11.03 may be adjourned from time to time by a majority of
those present, whether or not constituting a quorum, and the meeting may be held
as so adjourned without further notice.
Section 11.06. Voting. The vote upon any resolution submitted to any
meeting of Debentureholders shall be by written ballots on which shall be
subscribed the signatures of the holders of Debentures or of their
representatives by proxy and the principal amount of Debentures held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record in duplicate of the proceedings of each meeting of Debentureholders shall
be prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was given as provided in Section 11.02. The record shall show the
principal amount of the Debentures voting in favor of or against any resolution.
The record shall be signed and verified by the affidavits of the permanent
chairman and secretary of the meeting and one of the duplicates shall be
delivered to the Company and the other to the Trustee to be preserved by the
Trustee.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 11.07. Rights of Trustee or Debentureholders Not Delayed.
Nothing in this Article Eleven contained shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Debentureholders or
any rights
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expressly or implicitly conferred hereunder to make such call, any hindrance or
delay in the exercise of any right or rights conferred upon or reserved to the
Trustee or to the Debentureholders under any of the provisions of this Indenture
or of the Debentures.
ARTICLE TWELVE
SUPPLEMENTAL INDENTURES
Section 12.01. Supplemental Indentures without Consent of
Debentureholders. The Company, when authorized by resolution of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to make provision with respect to the conversion rights of
holders of Debentures pursuant to Section 5.09;
(b) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to Article Thirteen;
(c) to add to the covenants of the Company such further
covenants, restrictions or conditions for the protection of the holders
of the Debentures as the Board of Directors and the Trustee shall
consider to be for the protection of the holders of the Debentures, and
to make the occurrence, or the occurrence and continuance, of a default
in any of such additional covenants, restrictions or conditions a
default or an Event of Default permitting the enforcement of all or any
of the several remedies provided in this indenture as herein set forth;
provided, however, that in respect of any such additional covenants,
restriction or condition such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or
longer than that allowed in the case of other defaults) or may provide
for an immediate enforcement upon such default or may limit the remedies
available to the Trustee upon such default;
(d) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture which may be
defective or inconsistent with any other provision contained herein or
in any supplemental indenture or to make other provisions in regard to
matters or questions arising under this Indenture, in each case as shall
not adversely affect the interests of the holders of the Debentures.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
Any supplemental indenture authorized by the provisions of this Section
12.01 may be executed by the Company and the Trustee without the consent of the
holders of any of the Debentures at the time outstanding, notwithstanding any of
the provisions of Section 12.02.
Section 12.02. Supplemental Indentures with Consent of Debentureholders.
With the consent (evidenced as provided in Section 10.01) of the holders of not
less than 66 2/3% in aggregate principal amount of the Debentures at the time
outstanding, the Company, when authorized by resolution of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of any supplemental indenture or of modifying in any manner
the rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture,
reduce the rate or extend the time of
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payment of interest thereon, reduce the principal amount thereof or any premium
thereon, make the principal thereof or any premium or interest thereon payable
in any coin or currency other than that provided for in the form of Debenture
hereinabove recited, impair the right to convert the Debentures into Common
Stock or cash, securities or other property or the terms of such conversion or
impair the right to prepayment of the Debentures pursuant to the provisions of
Section 3.04, 4.01 or 4.05 hereof, without the consent of the holder of each
Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures,
the holders of which are required to consent to any such supplemental indenture,
without the consent of the holders of all Debentures then outstanding.
Upon the request of the Company, accompanied by a copy of the resolution
of the Board of Directors certified by its Secretary or an Assistant Secretary
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Debentureholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the Debentureholders under
this Section 12.02 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 12.02 the
Company shall give notice in the manner provided in Section 16.10, setting forth
in general terms the substance of such supplemental indenture, to all holders of
Debentures. Any failure of the Company so to give such notice, or any defect
therein shall not, however, in any way impair or affect the validity of any such
supplemental indenture.
Section 12.03. Compliance with Trust Indenture Act Effect of
Supplemental Indentures. Any supplemental indenture executed pursuant to the
provisions of this Article Twelve shall comply with the Trust Indenture Act of
1939, as then in effect. Upon the execution of any supplemental indenture
pursuant to the provisions of this Article Twelve, this Indenture shall be and
be deemed to be modified and amended in accordance therewith and the respective
rights, limitations of rights, obligations, duties and immunities under this
Indenture of the Trustee, the Company and the holders of Debentures shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 12.04. Notation on Debentures. Debentures authenticated and
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article Twelve may bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company or the Trustee shall so determine, new Debentures so modified as to
conform in the opinion of the Trustee and the Board of Directors, to any
modification of this Indenture contained in any such supplemental indenture may
be prepared and executed by the Company, authenticated by the Trustee and
delivered in exchange for the Debentures then outstanding.
Section 12.05. Evidence of Compliance of Supplemental Indenture to Be
Furnished Trustee. The Trustee, subject to TIA Section 315(a), (c) and (d) and
to the provisions of Section 9.01, may receive an Officer's Certificate and an
Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant hereto complies with the requirements of this Article Twelve.
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ARTICLE THIRTEEN
CONSOLIDATION, MERGER AND SALE
Section 13.01. Company May Consolidate, etc. on Certain Terms. The
Company covenants that it will not merge or consolidate with any other
corporation or sell or convey all or substantially all of its assets to any
person, firm or corporation, unless (i) either the Company shall be the
continuing corporation, or the successor corporation (if other than the Company)
shall be a corporation organized under the laws of the United States of America
or any State thereof and shall expressly assume the due and punctual payment of
the principal of and premium, if any, and interest on all the Debentures,
according to their tenor, and the due and punctual performance and observance of
all of the covenants and conditions of this Indenture to be performed by the
Company, by supplemental indenture satisfactory to the Trustee, executed and
delivered to the Trustee by such corporation, and (ii) the Company or such
successor corporation, as the case may be, shall not, immediately after such
merger or consolidation, or such sale or conveyance, be in default in the
performance of any such covenants or condition.
Section 13.02. Successor Corporation to Be Substituted. In case of any
such consolidation, merger, sale or conveyance, and upon any such assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named herein
as the Company, and the Company shall thereupon be released from all obligations
hereunder and under the Debentures and the Company as the predecessor
corporation may thereupon or at any time thereafter be dissolved, wound up or
liquidated. Such successor corporation thereupon may cause to be signed, and may
issue either in its own name or in the name of Danninger Medical Technology,
Inc. any or all of the Debentures issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee; and, upon the
order of such successor corporation instead of the Company and subject to all
the terms, conditions and limitations in this indenture prescribed, the Trustee
shall authenticate and shall deliver any Debentures which previously shall have
been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Debentures which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All the
Debentures so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Debentures theretofore or thereafter issued in
accordance with the terms of this Indenture as though all of such Debentures had
been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale or conveyance such
changes in phraseology and form (but not in substance) may be made in the
Debentures thereafter to be issued as may be appropriate.
Section 13.03. Opinion of Counsel to Be Given to Trustee. The Trustee,
subject to TIA Section 315(a), (c) and (d) and to Section 9.01, may receive an
Opinion of Counsel as conclusive evidence that any such consolidation, merger,
sale or conveyance and any such assumption complies with the provisions of this
Article Thirteen.
ARTICLE FOURTEEN
SATISFACTION AND DISCHARGE OF INDENTURE
Section 14.01. Discharge of Indenture. When (a) the Company shall
deliver to the Trustee for cancellation all Debentures theretofore authenticated
(other than any Debentures which shall have been destroyed, lost or stolen and
which shall have been replaced or paid as provided in Section 2.06) and not
theretofore cancelled, or (b) all the Debentures not theretofore cancelled or
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption, and the Company shall irrevocably
deposit with the Trustee, in trust, funds sufficient to pay at maturity or upon
redemption all of the Debentures (other than any Debentures which shall have
been mutilated, destroyed, lost or stolen and which shall have been replaced or
paid as provided in Section 2.06) not theretofore cancelled or delivered to the
Trustee for cancellation, including principal and premium, if any, and interest
due or to become due to such date of maturity or redemption date, as the case
may
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be, but excluding, however, the amount of any moneys for the payment of the
principal of and premium, if any, or interest on the Debentures (1) theretofore
deposited with the Trustee and repaid by the Trustee to the Company in
accordance with the provisions of Section 14.04, or (2) paid to any State or to
the District of Columbia pursuant to its unclaimed property or similar laws and
if in either case the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company, then this Indenture shall cease to be of
further effect (except as to any surviving rights of exchange, registration of
transfer or conversion of Debentures herein expressly provided for) and the
Trustee, on demand of the Company accompanied by an Officers' Certificate and an
Opinion of Counsel and at the cost and expense of the Company, shall execute
proper instruments acknowledging satisfaction of and discharging this Indenture.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 9.05 shall survive.
Section 14.02. Deposited Moneys to Be Held in Trust by Trustee. All
moneys deposited with the Trustee pursuant to Section 14.01 shall be held in
trust and applied by it to the payment in accordance with the provisions of the
Debentures and this Indenture, either directly or through any paying agent
(including the Company if acting as its own paying agent), as the Trustee may
determine, to the holders of the particular Debentures for the payment or
redemption of which such moneys have been deposited with the Trustee, of all
sums due and to become due thereon for principal and premium, if any, and
interest.
Section 14.03. Paying Agent to Repay Moneys Held. In connection with the
satisfaction and discharge of this Indenture all moneys then held by any paying
agent (other than the Trustee) shall, upon demand of the Company, be repaid to
it or paid to the Trustee, and thereupon such paying, agent shall be released
from all further liability with respect to such moneys.
Section 14.04. Return of Unclaimed Moneys. Any moneys deposited with or
paid to the Trustee for payment of the principal of, Change of Control Purchase
Price and premium, if any, or interest on Debentures and not applied but
remaining unclaimed by the holders of Debentures for three years after the date
upon which the principal of, Change of Control Purchase Price and premium, if
any, or interest on such Debentures, as the case may be, shall have become due
and payable, shall be repaid to the Company by the Trustee on demand; and the
holder of any of the Debentures shall thereafter look only to the Company for
any payment which such holder may be entitled to collect; provided, however,
that the Trustee, before being required to make any such repayment, may at the
expense of the Company cause to be mailed to each such holder in the manner
provided in Section 16.10 a notice that said moneys have not been so applied and
that after a date specified therein any unclaimed balance of said moneys then
remaining will be returned to the Company.
ARTICLE FIFTEEN
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
Section 15.01. Indenture and Debentures Solely Corporate Obligations. No
recourse for the payment of the principal or Change of Control Purchase Price of
or premium, if any, or interest on any Debenture, or for any claim based thereon
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company, contained in this Indenture or in any
supplements indenture, or in any Debenture, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or any successor corporation, either directly or through the Company or
any successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise, it
being expressly understood that all such liability is hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Indenture and the issue of the Debentures.
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ARTICLE SIXTEEN
MISCELLANEOUS PROVISIONS
Section 16.01. Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements in this Indenture contained by
the Company shall bind its successors and assigns whether so expressed or not.
Section 16.02. Official Acts by Successor Corporation. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board, committee or officer of the Company shall and may be
done and performed with like force and effect by the like board, committee or
officer of any corporation that shall at the time be the lawful sole successor
of the Company.
Section 16.03. Addresses for Notices, etc. Any notice or demand which by
any provision of this Indenture is required or permitted to be given or served
by the Trustee or by the holders of Debentures on the Company may be given or
served by being deposited postage prepaid in a post office letter box addressed
(until another address is filed by the Company with the Trustee) to Danninger
Medical Technology, Inc., 4140 Fisher Road, Columbus, Ohio 43228, to the
attention of the Chief Executive Office or Chief Financial Officer. Any notice,
direction, request or demand by any Debentureholder to or upon the Trustee shall
be deemed to have been sufficiently given or made, for all purposes, if given or
made in writing at the principal office of the Trustee, which at the time of
execution hereof is located at ____________________________________, to the
attention of the Corporate Trust Department.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the person entitled to receive such notice, either
before or after the event or action relating thereto, and such waiver shall be
equivalent of such notice. Waivers of notice by Debentureholders shall be filed
with the Trustee, but such filing shall not be condition precedent to the
validity of any action taken in reliance upon such waiver.
Section 16.04. Governing Law. This Indenture and each Debenture shall be
deemed to be a contract made under the laws of the State of Ohio and for all
purposes shall be construed in accordance with the laws of said State.
Section 16.05. Evidence of Compliance with Conditions Precedent. Upon
any application or demand by the Company to the Trustee to take any action under
any of the provisions of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Each certificate or opinion provided for in this Indenture and delivered
to the Trustee with respect to compliance with a condition or covenant provided
for in this Indenture (other than pursuant to Section 6.05) shall include (1) a
statement that each person making such certificate or opinion has read such
covenant or condition and the definitions relating thereto; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinion contained in such certificate or opinion are
based; (3) a statement that, in the opinion of each such person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of each
such person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Company may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of counsel, unless such officer knows that the certificate or opinion with
respect to the matters upon which his certificate, statement or opinion may be
based as aforesaid is erroneous, or in the exercise of reasonable care should
know that the same is erroneous. Any certificate, statement or opinion of
counsel may be based, insofar as it relates to factual matters or information
which is in the possession of the Company, upon the certificate, statement or
opinion of or representations by an officer or officers of the Company, unless
such counsel knows that the certificate, statement or opinion or representations
with respect to the matters upon which this certificate,
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statement or opinion may be based as aforesaid are erroneous, or in the exercise
of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the Company or of
counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an independent public accountant
or firm of accountants unless such officer or counsel, as the case may be, knows
that the certificate or opinion or representations with respect to the
accounting matters upon which his certificate, statement of opinion may be based
as aforesaid are erroneous, or in the exercise of reasonable care should know
that the same are erroneous. Any certificate or opinion of any independent firm
of public accountants filed with the Trustee shall contain a statement that such
firm is independent.
Section 16.06. Legal Holidays. In any case where the date of maturity of
interest on or principal of the Debentures or the date fixed for redemption of
any Debenture or the last day on which a Debentureholder has the right to
convert his Debenture at a particular Conversion Price is not a business day,
then payment of such interest or principal or premium, if any, or conversion of
the Debenture need not be made on such date but may be made on the next
succeeding business day with the same force and effect as if made on the date of
maturity or the date fixed for redemption or the last day for conversion, and,
in the case of payment, no interest shall accrue for the period from and after
such date.
Section 16.07. Trust Indenture Act to Control. This Indenture is subject
to the provisions of the Trust Indenture Act of 1939 that are required to be
part of this Indenture and shall, to the extent applicable, be governed by such
provisions.
Section 16.08. Table of Contents, Headings, etc. The table of contents
and the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 16.09. Execution in Counterparts. This Indenture may be executed
in any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 16.10. Manner of Mailing Notice to Debentureholders. Any notice
or demand which by any provision of this Indenture is required or permitted to
be given or served by the Trustee or the Company to or on the holders of the
Debentures shall be given or served by first class mail, postage prepaid,
addressed to the holders of such Debentures at their last addresses as the same
appear on the registry books referred to in Section 2.05, and any such notice
shall be deemed to be given or served by being deposited in a post office letter
box in the form and mariner provided in this Section 16.10.
ARTICLE SEVENTEEN
SUBORDINATION OF DEBENTURES
Section 17.01. Debentures Subordinate to Senior Indebtedness. The
Company, for itself, its successors and assigns, covenants and agrees, and each
Debentureholder, by his acceptance thereof, likewise covenants and agrees, that
all Debentures issued hereunder shall be subordinated and subject, to the extent
and in the manner herein set forth, in right of payment to the prior payment in
full of all Senior Indebtedness. The provisions of this Article are made for the
benefit of all holders of Senior Indebtedness, and any such holder may proceed
to enforce such provisions.
Section 17.02. Distribution on Dissolution, Liquidation, Bankruptcy or
Reorganization. Upon any distribution of assets of the Company upon any total or
partial dissolution, winding up, liquidation or reorganization of the Company,
whether in bankruptcy, insolvency, reorganization or receivership proceedings or
upon an assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of the Company or otherwise,
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(a) the holders of all Senior Indebtedness shall be entitled to
receive payment in full of the amounts due on or in respect of such
Senior Indebtedness before the holders of the Debentures are entitled to
receive any direct or indirect payment or distribution on or in respect
of the Debentures; and
(b) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which the
holders of the Debentures or the Trustee (except those sums to which the
Trustee is entitled under Section 9.05) would be entitled except for the
provisions of this Article Seventeen shall be paid by the liquidating
trustee or agent or other person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating trustee or
otherwise (collectively, a "trustee in bankruptcy"), directly to the
holders of Senior Indebtedness or their respective representatives,
ratably according to the aggregate amounts remaining unpaid on account
of such Senior Indebtedness held or represented by each, for application
to or to be held as collateral for the payment or prepayment of such
Senior Indebtedness until all such Senior Indebtedness shall have been
paid in full after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another corporation or the liquidation or dissolution of the Company
following the sale or conveyance of its property or assets as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Thirteen shall not be deemed a dissolution,
winding up, liquidation or reorganization of the Company for the purposes of
this Article Seventeen if such other corporation shall, as a part of such
consolidation, merger, sale or conveyance, comply with the conditions stated in
Article Thirteen.
If the Trustee or any holder of Debentures does not file a proper claim
or proof of debt in the form required in any proceeding referred to above prior
to 30 days before the expiration of the time to file such claim in such
proceeding, then the holder of any Senior Indebtedness (or its representative)
is hereby authorized, and has the right, to file an appropriate claim or claims
for or on behalf of such holder of Debentures.
Section 17.03. Default on Senior Indebtedness. No direct or indirect
payment or distribution shall be made by or on behalf of the Company on account
or in respect of principal of or premium, if any, or interest on the Debentures
or on account or in respect of the purchase, redemption or other acquisition or
defeasance of Debentures (including without limitation any purchase of a
Debenture required as a result of a Change in Control), if there shall have
occurred and be continuing any default in the payment when due (at maturity,
upon acceleration of maturity, upon mandatory prepayment, or otherwise) in
respect of any Senior Indebtedness continuing beyond the period of grace, if
any, specified in the instrument or agreement creating or evidencing such Senior
Indebtedness (a "Payment Default"), unless such default shall have been
effectively waived in writing by the holders of such Senior Indebtedness in
default or unless the holders of such Senior Indebtedness in default shall have
delivered to the Trustee a written notice of waiver of the benefits of this
sentence. In addition, if any event of default with respect to any Senior
Indebtedness, other than a Payment Default occurs and is continuing and as a
result thereof the maturity of such Senior Indebtedness may be accelerated (such
an event of default being referred to herein as a ("Covenant Default"), and the
Company and the Trustee receive written notice (such notice being herein
referred to as a "Deferral Notice") thereof from the holders of at least 10% in
principal amount of Senior Indebtedness, then no direct or indirect payment or
distribution shall be made by or on behalf of the Company on account or in
respect of principal of or premium, if any or interest on the Debentures or on
account of the purchase, redemption or other acquisition or defeasance of
Debentures (including without limitation any purchase of Debenture required as a
result of a Change in Control) until the earlier to occur of (x) the date such
Covenant Default is cured, effectively waived in writing by the holders of such
Senior Indebtedness or otherwise ceases to exist in accordance with the terms of
the instruments or agreements creating or evidencing such Senior Indebtedness,
(y) the date the holders of such Senior Indebtedness or their respective
Representatives shall have delivered to the Trustee a written notice of waiver
of the benefits of this sentence, or (z) the 179th day after receipt by the
Company or the Trustee of such Deferral Notice, if in any such case this Article
Seventeen otherwise permits such payment at such time; provided, however, that
any number of Deferral Notices may be given, but during any 365 consecutive day
period only one such period during which such payments on the Debentures may not
be made may commence and the duration of such period may not exceed 179 days,
and provided, further, that no subsequent Deferral Notice relating to the same
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or any other Covenant Default existing or continuing on the date of receipt of
any prior Deferral Notice, whether or not such subsequent Deferral Notice is
received by the Company or Trustee within 365 days after receipt of such prior
Deferral Notice, shall be effective to further prohibit such payments on the
Debentures unless all events of default in respect of such Senior Indebtedness
shall have been cured or waived after the date of receipt of such prior Deferral
Notice for a period of not less than 180 consecutive days.
The provisions of this Section shall not apply to any payment with
respect to which Section 3.02 would be applicable or to the payments to the
Trustee under Section 9.05.
Section 17.04. When Distribution Must Be Paid Over. In the event that
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, shall be made to the Trustee or any
holder of the Debentures that because of this Article Seventeen should not have
been made to it, the Trustee or such holder who receives such payment or
distribution shall hold it in trust for, and shall immediately pay it over to,
the trustee in bankruptcy or the holders of Senior Indebtedness for application
to or to be held as collateral for the payment of all Senior Indebtedness
remaining unpaid until all such Senior Indebtedness shall have been paid in
full, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness. Upon any payment or distribution of assets
of the Company referred to in this Article Seventeen, the Trustee, subject to
the provisions of Article Nine, and the holders of the Debentures shall be
entitled to conclusively rely upon any order or decree made by a court of
competent jurisdiction or upon any certificate of the liquidating trustee or
agent or other person making any distribution to the Trustee or the holders of
the Debentures for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distribution thereon and all other facts pertinent thereto or
to this Article Seventeen.
Section 17.05. Subrogation. After all Senior Indebtedness is paid in
full and until the Debentures are paid in full, the holders of the Debentures
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company made on behalf of
such Senior Indebtedness until the Debentures are paid in full. A distribution
made under this Article Seventeen to holders of Senior Indebtedness which
otherwise would have been made to holders of the Debentures, and a payment over
to the holders of Senior Indebtedness by holders of the Debentures, is not, as
between the Company, and the holders of the Debentures and the other creditors
of the Company, a payment by the Company on the Senior Indebtedness.
Section 17.06. Relative Rights. It is understood that the provisions of
this Article Seventeen are and are intended solely for the purpose of defining
the relative rights of the holders of the Debentures, on the one hand, and the
holders of Senior Indebtedness, on the other hand. Nothing contained in this
Article Seventeen or elsewhere in this Indenture or in the Debentures is
intended to or shall impair, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the holders of the Debentures, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders of the Debentures the principal of and premium, if any, and interest on
the Debentures as and when the same shall become due and payable in accordance
with their terms, or to affect the relative rights of the holders of the
Debentures and creditors of the Company other than the holders of Senior
Indebtedness, nor shall anything herein or in the Debentures prevent the Trustee
or the holder of any Debenture from exercising all remedies otherwise permitted
by applicable law upon default under this Indenture, subject to the rights, if
any, under this Article Seventeen of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
Section 17.07. Payments on Debentures Permitted. Nothing contained in
this Indenture or in any of the Debentures shall (a) affect the obligation of
the Company to make, or prevent the Company from making, at any time, except as
provided in Sections 17.02 and 17.03, payments of principal of or premium, if
any, or interest on the Debentures, or (b) prevent the application by the
Trustee of any moneys deposited with it hereunder to the payment of or on
account of the principal of or premium, if any, or interest on the Debentures,
unless a Responsible Officer of the Trustee shall have received at its principal
office written notice of the existence of any event prohibiting the making of
such payment more than one Business Day prior to the date of such payment.
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Section 17.08. Trustee to Effectuate Subordination. The holder of each
Debenture by his acceptance thereof authorizes and directs the Trustee in his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the holders of Debentures and the holders
of Senior Indebtedness as provided in this Article and appoints the Trustee as
attorney-in-fact for any and all such purposes.
Section 17.09. Trustee Not Charged with Knowledge of Prohibition.
Notwithstanding the provisions of this Article or any other provision of this
Indenture, but subject to TIA Section 315(a), (c) and (d), the Trustee and any
paying agent shall not be charged with knowledge of the existence of any, Senior
Indebtedness, or of any default in the payment of the principal of (or premium,
if any) or interest on any Senior Indebtedness, or of any facts which would
prohibit the making of any payment of moneys to or by the Trustee or any such
paying agent, unless and until the Trustee or such paying agent shall have
received written notice thereof from the Company or the holders of at least 10%
in principal amount of any kind or category of any Senior Indebtedness or the
representative or representatives of such holders; nor shall the Trustee or any
such paying agent be charged with knowledge of the curing of any such default or
of the elimination of the act or condition preventing any such payment unless
and until the Trustee or such paying agent shall have received an Officers'
Certificate to such effect.
Section 17.10. Rights of Trustee as Holder of Senior Indebtedness. The
Trustee shall be entitled to all the rights set forth in this Article with
respect to any Senior Indebtedness which may at any time be held by it, to the
same extent as any other holder of Senior Indebtedness; and nothing in this
Indenture, shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 9.05.
Section 17.11. Trustee Not Fiduciary for Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Indebtedness and shall not be liable to any such holders if it shall
mistakenly pay over or distribute to Debentureholders or the Company or any
other person moneys or assets to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article or otherwise.
Section 17.12. Article Applicable to Paying Agents. In case at any time
any paying agent other than the Trustee shall have been appointed by the Company
and be then acting hereunder, the term "Trustee" as used in this Article shall
in such case (unless the context shall otherwise require) be construed as
extending to and including such paying agent within its meaning as fully for all
intents and purposes as if such paying agent were named in this Article in
addition to or in place of the Trustee; provided, however, that Sections 17.09,
17. 1 0 and 17.11 shall not apply to the Company if it acts as paying agent.
Section 17.13. No Impairment of Subordination. No right of any present
or future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act in good faith, by any such holder, or by any noncompliance by the
Company with the terms, provisions and covenants of this Indenture, regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with.
Fifth Third Bank hereby accepts the trusts in this Indenture declared
and provided, upon the terms and conditions hereinabove set forth.
IN WITNESS WHEREOF, DANNINGER MEDICAL TECHNOLOGY, INC. has caused this
Indenture to be signed and acknowledged by its President, and the same to be
attested by its Secretary or an Assistant Secretary, and
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<PAGE> 58
Fifth Third Bank has caused this Indenture to be signed and acknowledged by one
of its authorized officers, and the same to be attested by one of its authorized
officers, as of the day and year first written above.
DANNINGER MEDICAL TECHNOLOGY,
INC.
ATTEST: By:___________________________
Joseph A. Mussey, President
__________________________________
Curtis A. Loveland, Secretary
FIFTH THIRD BANK
ATTEST: By:___________________________
__________________________________
Title: Trust Officer
50
<PAGE> 1
Exhibit 5
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215-6194
Telephone: 614-227-2000
Facsimile: 614-227-2100
April 4, 1996
Danninger Medical Technology, Inc.
4140 Fisher Road
Columbus, Ohio 43228-1067
Re: Offering of Convertible Subordinated Debentures due 2003
Gentlemen:
With respect to the registration statement on Form S-2 (the
"Registration Statement") filed by Danninger Medical Technology, Inc. (the
"Company") with the Securities and Exchange Commission relating to the
registration of Convertible Subordinated Debentures due 2003 in an aggregate
maximum principal amount of $5,250,000 (the "Convertible Subordinated
Debentures"), we advise you as follows:
We have participated in the preparation of the Registration Statement
as counsel for the Company. We have reviewed the Company's Certificate of
Incorporation, as amended, the corporate action taken to date in connection with
the Registration Statement and such other documents and authorities as we deem
relevant for the purpose of this opinion.
We understand that the Convertible Subordinated Debentures will be
issued pursuant to an indenture to be dated as of the date of issuance (the
"Indenture") between the Company and Fifth Third Bank, as trustee (the
"Trustee"), which has been filed in preliminary form as an exhibit to the
Registration Statement.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation validly existing under the laws of
the State of Delaware;
2. Upon the taking of appropriate definitive action by the Board of
Directors of the Company or a duly-constituted committee of such
Board with respect to the issuance
<PAGE> 2
Exhibit 5
and sale of the Convertible Subordinated Debentures, the
Convertible Subordinated Debentures will be duly authorized and,
when duly executed, authenticated and issued pursuant to the
Indenture and delivered against payment therefor, will constitute
valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to
the benefits of the Indenture;
3. The execution and delivery of the Indenture have been duly
authorized on behalf of the Company and when duly executed and
delivered by the Company and the Trustee, the Indenture will
constitute a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms; and
4. The shares of common stock, $.01 par value, of the Company to be
issued upon the conversion of the Convertible Subordinated
Debentures are validly authorized and will be legally issued,
fully paid, and nonassessable, assuming that (a) such shares
remain validly authorized on the dates of conversion, (b) no
change occurs in the applicable law or the pertinent facts, and
(c) the Convertible Subordinated Debentures are converted in
accordance with their terms and the terms of the Indenture.
The opinions set forth in paragraphs 2, 3 and 4 are qualified to the
extent that obligations of the Company may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting creditors' rights
generally, and by general equitable principles. No opinion is expressed herein
as to the application of any state securities or Blue Sky laws.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the prospectus included in the Registration Statement.
Very truly yours,
/s/ Porter, Wright, Morris & Arthur
PORTER, WRIGHT, MORRIS & ARTHUR
<PAGE> 1
EXHIBIT 12
DANNINGER MEDICAL TECHNOLOGY, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Years ended December 31
Proforma ----------------------------------------
1995 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes ($511) ($431) $210 ($682) ($103) $516
Fixed charges:
Interest expense 369 289 158 156 192 144
Rental expense 59 59 50 44 44 43
----- ----- ----- ----- ----- -----
Earnings, as defined (83) (83) 418 (482) 133 703
----- ----- ----- ----- ----- -----
Fixed charges:
Interest expense 369 289 158 156 192 144
Rental expense 59 59 50 44 44 43
----- ----- ----- ----- ----- -----
Total fixed charges 428 348 208 200 236 187
----- ----- ----- ----- ----- -----
Ratio of earnings to fixed charges (1) ---(2) ---(3) 2.01 ---(4) 0.56 3.76
</TABLE>
(1) For purposes of calculating the ratio of earnings to fixed charges, earnings
include income before income taxes plus fixed charges. Fixed charges consist of
interest expense and the estimated component of operating lease leases (assumed
to be one-third of total rental expense).
(2) Reflects a proforma deficiency of ($511,000).
(3) Reflects a deficiency of ($431,000).
(4) Reflects a deficiency of ($682,000).
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Danninger Medical Technology, Inc. on Form S-2 (File No. _______________) of
our reports dated March 27, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Danninger Medical Technology,
Inc. as of December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995. We also consent to the reference to our firm
under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
April 3, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned directors and officers of Danninger Medical
Technology, Inc. (the "Corporation") whose signature appears below hereby
appoints Edward R. Funk or Joseph A. Mussey, or either of them, as his
attorney-in-fact to sign, in his name and behalf and in any and all capacities
stated below, and to cause to be filed with the Securities and Exchange
Commission, the Corporation's Registration Statement on Form S-2 (the
"Registration Statement") for the purpose of registering under the Securities
Act of 1933, Convertible Subordinated Debentures (the "Debentures") of the
Corporation, and likewise to sign and file any amendments, including
post-effective amendments, to the Debentures, hereby granting unto such
attorneys and each of them full power and authority to do and perform in the
name and on behalf off the undersigned, and in any and all such capacities,
every act and thing whatsoever necessary to be done in and about the premises as
fully as the undersigned could or might do in person, hereby granting to such
attorney-in-fact full power of substitution and revocation, and hereby ratifying
all that such attorney-in-fact or his substitute may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney in counterparts if necessary, effective as of March 25, 1996.
DIRECTORS/OFFICERS:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Joseph A. Mussey President, Chief Executive Officer, and
- ----------------------------- Treasurer
Joseph A. Mussey (Principal Executive Officer)
/s/ Paul A. Miller Vice President and Chief Financial Officer
- ----------------------------- (Principal Accounting Officer)
Paul A. Miller
/s/ Edward R. Funk Chairman of the Board of Directors
- -----------------------------
Edward R. Funk, Ph.D.
/s/ Daniel A. Funk Director
- -----------------------------
Daniel A. Funk, M.D.
/s/ Daniel A. Gregorie Director
- -----------------------------
</TABLE>
<PAGE> 2
EXHIBIT 24
<TABLE>
<S> <C>
Daniel A. Gregorie, M.D.
/s/ Herbert J. Kahn Director
- -----------------------------
Herbert J. Kahn
/s/ Curtis A. Loveland Director
- -----------------------------
Curtis A. Loveland
/s/ C. Craig Waldbillig Director
- -----------------------------
C. Craig Waldbillig
/s/ Peter H. Williams Director
- -----------------------------
Peter H. Williams
/s/ Robert J. Williams Director
- -----------------------------
Robert J. Williams
</TABLE>
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1, 2, AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,701
<ALLOWANCES> 204
<INVENTORY> 4,227
<CURRENT-ASSETS> 8,307
<PP&E> 2,206
<DEPRECIATION> 1,482
<TOTAL-ASSETS> 9,517
<CURRENT-LIABILITIES> 5,121
<BONDS> 1,219
<COMMON> 47
0
0
<OTHER-SE> 3,475
<TOTAL-LIABILITY-AND-EQUITY> 9,517
<SALES> 12,584
<TOTAL-REVENUES> 12,584
<CGS> 6,360
<TOTAL-COSTS> 6,360
<OTHER-EXPENSES> 6,362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> (431)
<INCOME-TAX> (72)
<INCOME-CONTINUING> (359)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (359)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
