<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MERIDIAN DIAGNOSTICS, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-0888197
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3471 RIVER HILLS DRIVE
CINCINNATI, OHIO 45244
(513) 271-3700
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
ROBERT E. COLETTI, ESQ.
KEATING, MUETHING & KLEKAMP
1800 PROVIDENT TOWER
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-6468
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
WITH COPIES TO:
TIMOTHY E. HOBERG, ESQ.
TAFT, STETTINIUS & HOLLISTER
STAR BANK CENTER
425 WALNUT STREET
CINCINNATI, OHIO 45202
(513) 381-2838
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please 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. / /
<TABLE>
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
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% Convertible Subordinated
Debentures due 2006............. $14,375,000(1) 100%(2) $14,375,000(1)(2) $4,957
- ----------------------------------------------------------------------------------------------------------
Common Stock, no par value........ (3) (4) (4) (4)
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</TABLE>
(1) Includes $1,875,000 principal amount of Debentures issuable upon exercise of
the Underwriters' over-allotment option.
(2) Plus accrued interest, if any.
(3) Such indeterminate number of shares as may be issued upon conversion of the
Debentures.
(4) No additional consideration will be received for the Common Stock and
therefore no registration fee is required pursuant to Rule 457(i).
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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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996
$12,500,000
Meridian Diagnostics, Inc.
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006
The Debentures are convertible at any time prior to maturity, unless
previously redeemed or repurchased, into shares of Common Stock, no par value,
of Meridian Diagnostics, Inc. (the "Company") at a conversion price of $ per
share, subject to adjustment in certain events. On August 28, 1996, the last
reported sale price of the Company's Common Stock, as reported on The Nasdaq
National Market under the symbol "KITS," was $13 11/16 per share. See "Price
Range of Common Stock."
Interest on the Debentures is payable semi-annually on March 1 and
September 1, commencing March 1, 1997, and the Debentures will mature on
September 1, 2006, unless previously redeemed. The Debentures are redeemable at
the option of the Company, at any time in whole or in part, at the redemption
prices set forth herein, plus accrued interest; provided, however, that prior to
September 1, 1999, the Debentures may not be redeemed unless the closing sales
price of the Common Stock equals or exceeds 140% of the then current conversion
price for at least 20 trading days within 30 consecutive trading days ending not
more than five trading days prior to the date of the notice of redemption. In
the event of a Repurchase Event (as defined), each holder of Debentures may
require the Company to repurchase the Debentures, in whole or in part, for cash,
at 101% of the principal amount thereof, plus accrued interest. The Debentures
will be unsecured general obligations of the Company subordinated to all
existing future Senior Indebtedness (as defined). See "Description of
Debentures."
-------------------------
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------------------------
Per Debenture................................ % % %
- ------------------------------------------------------------------------------------------------
Total(4)..................................... $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from date of issuance.
(2) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(3) Before deducting expenses of the offering payable by the Company estimated
at $300,000.
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional $1,875,000 in principal amount of the Debentures on the same
terms and conditions to cover over-allotments, if any. If all such
additional principal amount of the Debentures is purchased, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $14,375,000, $ and $ , respectively. See
"Underwriting".
-------------------------
The Debentures are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
Debentures will be made against payment thereof on or about , 1996.
-------------------------
Roney & Co.
, 1996
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Northwestern Atrium, 500 West Madison Street, Suite 1400, Chicago,
Illinois, and at 7 World Trade Center, Suite 1300, New York, New York. Copies of
such material can also be obtained, at prescribed rates, by mail from the Public
Reference Section of the Commission at its Washington, D.C. address set forth
above. In addition, material filed by the Company can be obtained and inspected
at the offices of the Nasdaq Stock Market, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850, on which the Common Stock is quoted. The Company is
an electronic filer, and the Commission maintains a Web site (located at
http://www.sec.gov) that contains reports, proxy statements and other
information regarding registrants that file electronically.
This Prospectus constitutes part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act of 1933 (the
"Securities Act"). This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company. Any statements contained in this Prospectus as to the terms of any
document are not necessarily complete, and in such instance reference is made to
the copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS RELATING TO THE
COMPANY WHICH ARE NOT DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN THE
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, ON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED. Written or
telephone requests should be directed to Gerard Blain, 3471 River Hills Drive,
Cincinnati, Ohio 45244, telephone (513) 271-3700. The following documents, which
have been filed by the Company with the Commission, are hereby incorporated by
reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1995, March 31, 1996 and June 30, 1996;
(3) The Company's Current Report on Form 8-K dated June 24, 1996; and
(4) The description of the Common Stock contained in the Registration
Statement on Form 8-A filed on August 15, 1986 and amended August 20, 1986.
All documents filed by Meridian Diagnostics, Inc. pursuant to Sections
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 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 other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
The Company owns the following trademarks: CALAS(R), FiltraCheck-UTI(R),
ImmunoCard(TM), Merifluor(R), Meritec(TM), MeriStar(R), Macro-Con(R),
MONOLERT(R), MONOSPOT(R), ECOFIX(R), HYDROFLUOR(R), Cytoclone(R), Rotaclone(R),
Adenoclone(R) and Para-Pak(R).
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's Financial Statements and
Notes thereto, appearing elsewhere in or incorporated by reference into this
Prospectus. Unless otherwise indicated, information in this Prospectus relating
to share data reflects 3-for-2 stock splits effective March 27, 1992 and October
2, 1995, 3% stock dividends effective December 23, 1993 and December 8, 1994 and
a 5% stock dividend effective December 14, 1992 and assumes that the
Underwriters' over-allotment option is not exercised. The Company's fiscal year
ends on September 30. See "Glossary of Selected Terms" for definitions of
certain terms used herein.
THE COMPANY
Meridian Diagnostics, Inc. develops, manufactures and markets a diverse
line of disposable diagnostic test kits and related diagnostic products used for
the rapid diagnosis of infectious diseases. The Company's products aid in the
diagnosis of such common medical conditions as gastrointestinal infections,
mononucleosis, urinary tract infections and respiratory infections. The
Company's products provide accuracy, simplicity and speed, enabling healthcare
providers to reduce costs while improving quality. All of the Company's products
are used in procedures performed in vitro (outside the body) and require little
or no special instrumentation or equipment.
The global market for infectious disease tests continues to expand as new
disease states are identified, new therapies become available and worldwide
standards of living and access to healthcare improve. Technological advances
permitting accurate diagnostic testing to occur outside the traditional hospital
or laboratory setting have affected this market. These technological advances
have contributed to the emergence of alternate site markets, such as physicians'
offices, outpatient clinics, nursing homes and health maintenance organizations
(HMOs), as important diagnostic product segments. The increasing pressures to
contain global healthcare costs have accelerated this shift to alternate site
markets and also increased the use of diagnostic tests. With rapid and accurate
diagnoses of infectious diseases, physicians can pinpoint therapies quickly,
leading to faster recovery, shorter hospital stays and reduced expense. These
technological advances should also contribute to the development of new markets,
including veterinary laboratories, water treatment facilities and consumer
self-testing in the over-the-counter market.
The Company's product line consists of over 100 diagnostic products
relating to five major disease states. The Company's diagnostic tests, which
generally range from $1 per test to $13 per test, provide rapid results (often
in minutes or hours), are easy to use and require less technical expertise than
conventional tests. Conventional diagnostic testing requires highly skilled
technicians to perform complicated test procedures that generally have
turnaround times of 24 to 48 hours. For many specific diseases, the Company has
the broadest product line or the only alternative to more expensive, time
consuming conventional procedures.
The Company's products are based on multiple core diagnostic technologies,
each of which enables visualization and identification of antigen/antibody
reactions for specific pathogens. As a result, the Company is able to develop
and manufacture diagnostic tests in a variety of formats that satisfy customer
needs and preferences. The Company targets niche diagnostic test markets, which
are characterized by a large number of users. Historically, the larger
diagnostic companies have not concentrated on this segment of the market.
The Company's marketing group utilizes industry contacts and key customer
focus sessions to identify new product opportunities. Through the use of
cross-functional teams that include marketing, research and development and
manufacturing personnel, the marketing group guides the development process to
meet customers' needs with products that are easier to use, require less
technical expertise and yield faster results. The Company believes it is well
positioned to develop partnerships with key customers because it is an
integrated manufacturer, has a broad product line, offers tests in multiple
formats and is willing to invest resources in building relationships and
facilitating open communications with those customers. To illustrate, in January
1996, the Company signed a three-year exclusive agreement, with the Columbia/HCA
Healthcare Corporation, a hospital alliance of approximately 350 hospitals, for
all parasitology transport products and specific infectious disease diagnostic
products. In April 1996, the Company signed a three-year, primary source
agreement with Laboratory Corporation of America, consisting of over 35
laboratories, for the supply of certain products for parasitology, virology and
other infectious diseases.
3
<PAGE> 5
The Company's research and development activities focus on developing
diagnostic solutions. Over the past five years, the Company has developed
internally 19 new products. The Company believes that its ability to bind
various chemicals to various solid phases, including plastics, membranes, latex
beads and immunofluorescent dyes to develop testing formats, gives it a
competitive advantage. The Company estimates that, from the conceptualization of
a product, it takes approximately 18 to 24 months to begin to generate revenues.
The Company markets its products through a direct sales force, in the U.S.
and Italy, supplemented by a network of U.S. and international distributors.
Over the last three years, the Company's international sales have nearly tripled
from $2.1 million in fiscal 1992 to $5.8 million in fiscal 1995 and represented
27% of net sales for the nine months ended June 30, 1996.
The Company has developed and implemented a strategy for growth consisting
of the following six principal elements:
- Developing New Product Applications from Core Technologies and Formats
- Acquiring and Licensing Products and Technology
- Increasing International Sales
- Developing Partnerships with Consolidated Healthcare Organizations
- Entering New Markets
- Accessing Alternate Site Markets for Diagnostic Testing
Since 1990, the Company has realized substantial growth in net sales and
primary net earnings per share. Net sales increased to $25.1 million in fiscal
1995 from $8.5 million in fiscal 1990, a compound annual growth rate of
approximately 24%. Over the same period, primary earnings per share increased at
a compound annual growth rate of approximately 37%.
On June 24, 1996, the Company acquired the enteric product line of
Cambridge Biotech Corporation. The diagnostic products identify Adenovirus,
Rotavirus, C. difficile and Lyme disease. The current sales volume of the
acquired products is approximately $4 million annually.
The Company is an Ohio corporation, its principal executive offices are
located at 3471 River Hills Drive, Cincinnati, Ohio 45244, and its telephone
number is (513) 271-3700.
THE OFFERING
Securities Offered......... $12,500,000 ($14,375,000 if the Underwriters'
over-allotment option is exercised in full)
principal amount of % Convertible Subordinated
Debentures due September 1, 2006 (the
"Debentures").
Payment of Interest........ Semi-annually on each March 1 and September 1,
commencing March 1, 1997, with interest accruing
from the date of issuance.
Conversion Rights.......... The Debentures are convertible into shares of the
Company's Common Stock, no par value (the "Common
Stock") at any time prior to maturity, unless
previously redeemed or repurchased, at a conversion
price of $ per share, subject to adjustment in
certain events as described herein. Accordingly,
each $1,000 principal amount of Debentures is
convertible into shares of Common Stock,
subject to adjustment, for an aggregate of
shares, representing approximately % of
the Common Stock on a fully diluted basis. See
"Capitalization."
Optional Redemption........ Redeemable at the Company's option, at any time in
whole or in part, at the redemption prices set
forth herein, plus accrued interest; provided,
however, that prior to September 1, 1999, the
Debentures may not be redeemed unless the closing
sale price of the Common Stock equals or exceeds
140% of the then current conversion price for at
least 20 trading days within 30 consecutive trading
days ending not more than five trading days prior
to the date of notice of redemption.
4
<PAGE> 6
Repurchase at Option of
Holders Upon Certain
Events................... Upon a Repurchase Event (as defined), the Company
is required to repurchase, at the option of
holders, any Debentures delivered to it for
redemption at 101% of the principal amount thereof,
plus accrued interest. A Repurchase Event is
generally defined to include: (i) certain
acquisitions of Company voting stock such that a
person (other than a present holder of 5% or more
of Company capital stock) owns more than 50% of the
outstanding Company voting stock; (ii) a change in
the composition of the Board of Directors such that
there is a shift of a majority of the members
thereof; (iii) certain consolidations, mergers or
sales of assets of the Company the effect of which
is that a person (other than a present holder of 5%
or more of Company capital stock) owns more than
50% of the outstanding Company capital stock; (iv)
the acquisition by the Company of more than 30% of
its outstanding shares of capital stock in any
12-month period; and (v) certain Company
acquisitions and distributions in respect of its
capital stock in excess of 30% of the value of such
stock. See "Description of Debentures -- Repurchase
Event."
Subordination.............. The Debentures will be subordinated to all existing
and future Senior Indebtedness (as defined) of the
Company. There is no limitation on the amount of
Senior Indebtedness that may be incurred by the
Company.
Use of Proceeds............ Possible acquisitions and licensing of products or
technologies and general corporate purposes.
Common Stock Outstanding... 14,277,509 shares.(1)
Common Stock Traded........ Nasdaq National Market System (KITS)
- ---------------
(1) Does not include 780,952 shares of Common Stock issuable upon the exercise
of outstanding stock options.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
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1991 1992 1993 1994 1995 1995 1996
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STATEMENT OF EARNINGS DATA
Net sales..................... $11,085 $14,003 $16,171 $21,877 $25,110 $18,357 $20,336
Gross profit.................. 7,112 9,421 11,073 14,359 17,101 12,277 14,139
Operating income.............. 1,356 2,616 3,525 4,814 6,576 4,520 5,590
Earnings before income
taxes...................... 1,518 2,605 3,101 3,983 5,960 4,037 5,862
Net earnings.................. 959 1,653 1,889 2,441 3,524 2,361 3,483
Primary earnings per common
share...................... 0.08 0.13 0.15 0.20 0.29 0.19 0.25
Dividends paid per common
share
Regular.................... 0.02 0.04 0.06 0.08 0.10 0.08 0.10
Special.................... 0.02(1) 0.01(1) --(1) --(1) -- -- 0.03
Primary weighted average
number of common shares
outstanding................ 12,129 12,222 12,264 12,277 12,355 12,313 14,137(2)
Fully diluted earnings per
common share............... -- -- -- -- $ 0.28 -- $ 0.24
Fully diluted weighted average
number of common shares.... -- -- -- -- 14,542 -- 14,794
Ratio of earnings to fixed
charges(3)................. 43.3x 25.8x 16.9x 4.6x 6.2x 5.7x 19.9x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
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ACTUAL AS ADJUSTED(4)
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BALANCE SHEET DATA
Cash and short-term investments.................................... $ 7,972 $ 19,516
Working capital.................................................... 9,574 21,118
Total assets....................................................... 41,602 54,102
Long-term debt, including current maturities....................... 2,812 15,312
Shareholders' equity............................................... 28,202 28,202
</TABLE>
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(1) The Company paid a special 5% stock dividend in fiscal 1992 and special 3%
stock dividends in fiscal 1993 and fiscal 1994. See "Dividend Policy."
(2) Reflects conversion of the Company's 7 1/4% Convertible Subordinated
Debentures into shares of Common Stock.
(3) The ratio of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, "earnings" consist of earnings before
income taxes and "fixed charges," and "fixed charges" consist of interest
on indebtedness and the portion of rental expense which is deemed to be
representative of the interest component.
(4) Adjusted to give effect to the sale of the Debentures and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as other information included elsewhere herein or incorporated
herein by reference, prior to purchasing the Debentures offered hereby.
IMPACT OF ACQUISITIONS
Although additional acquisitions may enhance the opportunity to increase
net earnings over time, such acquisitions could result in greater administrative
burdens, increased exposure to the uncertainties inherent in marketing new
products, financial risks of additional operating costs and additional interest
costs. The principal benefits expected to result from any acquisitions made by
the Company will not be achieved fully unless the operations of the acquired
entities are successfully integrated with those of the Company. There can be no
assurance that the Company will be able to conclude any acquisition in the
future on terms favorable to it.
In June 1996, the Company acquired the enteric product line of Cambridge
Biotech Corporation. The Company's results of operations could be adversely
affected if the integration of this product line is not successfully completed.
See "Business -- Acquisition Overview." In addition, gross profit as a
percentage of net sales for the fiscal quarter and fiscal year ending September
30, 1996 and for fiscal 1997 is expected to decline modestly as a result of the
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEW PRODUCT DEVELOPMENT AND ACQUISITIONS
The diagnostic test industry is characterized by ongoing technological
developments and changing customer requirements. As a result, the Company's
success and continued growth depend, in part, on its ability in a timely manner
to develop or acquire rights to, and successfully introduce into the
marketplace, enhancements of existing products or new products that incorporate
technological advances, meet customer requirements and respond to products
developed by the Company's competition. There can be no assurance that the
Company will be successful in developing or acquiring such rights to products on
a timely basis or that such products will adequately address the changing needs
of the marketplace. See "Business -- Strategy," "-- Products," "-- Marketing and
Sales" and "-- Research and Development."
INTERNATIONAL OPERATIONS
Approximately 23% of the Company's net sales for fiscal 1995 and
approximately 27% through the nine months ended June 30, 1996 were attributable
to international sales, primarily in Western Europe. Although the majority of
the Company's international sales have been made in U.S. dollars, the Company is
subject to the risks associated with fluctuations in currency exchange rates.
The Company is also subject to other risks associated with international
operations, including tariff regulations, requirements for export licenses and
medical licensing and approval requirements. See "Business -- Strategy."
CHANGING MARKET CONDITIONS
The healthcare industry is in transition with a number of changes that
affect the market for diagnostic test products. Changes in the healthcare
delivery system have resulted in major consolidation among reference
laboratories and in the formation of multi-hospital alliances, reducing the
number of institutional customers for diagnostic test products. There can be no
assurance that the Company will be able to enter into and/or sustain contractual
or other marketing or distribution arrangements on a satisfactory commercial
basis with these institutional customers. See "Business -- Market Trends."
COMPETITION
The market for the Company's products is characterized by substantial
competition and rapid change. Hundreds of companies in the United States supply
immunodiagnostic tests. These companies range from multinational healthcare
entities, for which immunodiagnostics is one line of business, to small start-up
companies. Many of the Company's competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company.
See "Business -- Competition."
7
<PAGE> 9
DEPENDENCE ON KEY DISTRIBUTORS
The Company's sales to two of its distributors were approximately $8.6
million, or approximately 34% of total sales, in fiscal 1995. These distributors
resell the Company's products and other laboratory products to end-user
customers. The loss of either of these distributors could have a material
adverse effect on the Company's sales and results of operations. See
"Business -- Marketing and Sales" and "-- Customers."
ABSENCE OF FINANCIAL COVENANTS
The Indenture does not contain any financial performance covenants.
Consequently, the Company is not required under the Indenture to meet any
financial tests such as those that measure the Company's working capital,
interest coverage, fixed charge coverage or net worth in order to maintain
compliance with the terms of the Indenture.
SUBORDINATION
The Debentures will be subordinated to all current and future Senior
Indebtedness (as defined) of the Company. There are no restrictions in the
Indenture on the incurrence of additional Senior Indebtedness. By reason of such
subordination, in the event of any insolvency, receivership, liquidation or
other reorganization of the Company, holders of Senior Indebtedness must be paid
in full before the holders of the Debentures may be paid. Accordingly, there may
be insufficient assets remaining after payment of prior claims to pay amounts
due on the Debentures.
GOVERNMENT REGULATION
The Company's products generally require governmental clearance before
marketing in the U.S. and in certain foreign countries. The Company may be
required to submit test data from clinical trials to establish "substantial
equivalence" of its products with previously approved products. If so required,
the Company may commence marketing in the U.S. only when the regulatory agency
issues a written order finding such "substantial equivalence," which may take
longer than the 90-to 120-day period estimated for such review. Any product for
which "substantial equivalence" cannot be established must proceed through the
more lengthy pre-market approval procedures. There is no assurance that the
Company will be able to obtain the necessary clearances or timely clearances to
market future products. See "Business -- Government Regulation."
Third party payors (including state and federal governments) are
increasingly concerned about escalating health care costs and can indirectly
affect the pricing or the relative attractiveness of the Company's products by
regulating the maximum amount of reimbursement they will provide for diagnostic
testing services. If reimbursement amounts for diagnostic testing services are
decreased in the future, such decreases may reduce the amount that will be
reimbursed to hospitals or physicians for such services and consequently could
reduce the price the Company can charge for its products.
In recent years, the federal government has been examining the nation's
health care system from numerous standpoints, including the cost of and access
to health care and health insurance. Proposals impacting the health care system
are constantly under consideration and could be adopted at any time. It is
unclear what effect the enactment of such proposals would have on the Company.
COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The Company's officers, directors, principal shareholders and their
affiliates beneficially own approximately 38% of the Company's outstanding
Common Stock, all of which shares are eligible for sale under Securities and
Exchange Commission Rule 144 under the Securities Act of 1933. As a result,
these shareholders, if they were to act in concert, would have the ability to
influence significantly most matters requiring approval by shareholders of the
Company, including the election of a majority of the directors. In addition, the
Board of Directors has the authority to issue up to 1,000,000 shares of
undesignated preferred stock and to determine the rights, preferences,
privileges and restrictions, including voting rights, of such shares without any
future vote or action by the shareholders. The voting power of these principal
shareholders, officers and directors or the issuance of preferred stock under
certain circumstances could have the effect of delaying or preventing a change
in control of the Company. Ohio corporation law contains provisions that may
8
<PAGE> 10
discourage takeover bids for the Company that have not been negotiated with the
Board of Directors. Such provisions could limit the price that investors might
be willing to pay in the future for shares of the Common Stock. In addition,
sales of substantial amounts of such shares in the public market could adversely
affect the market price of the Common Stock and the Company's ability to raise
additional capital at a price favorable to the Company. See "Description of
Capital Stock."
NO ASSURANCE OF A PUBLIC MARKET
No assurance can be given that an active market for the Debentures will
develop or, if developed, will continue. If no active market develops, it may be
difficult for purchasers to resell their Debentures. The representative for the
Underwriters has advised the Company that it intends to make a market for the
Debentures although it is under no obligation to continue to do so and were such
market making to be discontinued, investors would encounter difficulty effecting
purchase or sale transactions in the absence of alternative market makers. See
"Underwriting."
9
<PAGE> 11
CAPITALIZATION
The table sets forth the capitalization of the Company at June 30, 1996 and
as adjusted to give effect to the issuance and sale of the Debentures offered
hereby and the proposed application of the estimated net proceeds therefrom. See
"Use of Proceeds." The table should be read in conjunction with the Company's
Consolidated Financial Statements and related notes thereto appearing elsewhere
in this Prospectus or incorporated herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
Long-term debt, including current maturities(1)........................ $ 2,812 $15,312
------- -------
Shareholders' equity:
Preferred stock, without par value; 1,000,000 shares authorized, none
issued............................................................ -- --
Common stock, without par value; 50,000,000 shares authorized,
14,276,638 shares outstanding(2).................................. 2,385 2,385
Additional paid-in capital........................................... 20,498 20,498
Retained earnings.................................................... 5,501 5,501
Foreign currency translation adjustment.............................. (182) (182)
------- -------
Total shareholders' equity........................................ 28,202 28,202
------- -------
Total capitalization......................................... $31,014 $43,514
======= =======
</TABLE>
- ---------------
(1) The Company has an unused $10,000,000 line of credit with a commercial bank.
(2) As of June 30, 1996, options to acquire 782,735 shares of Common Stock were
outstanding.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Debentures offered hereby are estimated to be $11,543,750 ($13,320,313 if the
Underwriter's over-allotment option granted by the Company is exercised in full)
after deducting underwriting discounts and commissions and estimated offering
expenses.
Historically, the Company has aggressively pursued the acquisition and
licensing of products and technologies. In recent years, the Company has
acquired the infectious disease and mononucleosis diagnostic product lines from
Johnson & Johnson, for $3.45 million and $3.38 million, respectively, and in
June 1996, the enteric product line of Cambridge Biotech Corporation for $6.6
million (including inventories and transaction expenses). See
"Business -- Acquisition Overview." The Company has also made smaller product
acquisitions and entered into a number of licensing arrangements. The Company
intends to use the net proceeds from the sale of the Debentures to continue to
seek acquisitions of products and product lines and the licensing of new
products, some of which transactions could be larger than those previously
consummated. The Company currently has no understandings, commitments or
agreements with respect to any such acquisitions or licensing arrangements, and
there can be no assurance as to the timing of any such acquisitions or licensing
arrangements or that any such acquisitions or licensing arrangements will be
made. In addition, net proceeds may be used for general corporate purposes.
Pending their use, the proceeds will be placed in short-term, interest-bearing
securities, certificates of deposit or direct or guaranteed obligations of the
United States of America.
10
<PAGE> 12
DIVIDEND POLICY
The Company follows a cash dividend policy consisting of regular quarterly
and special year-end dividends. The Board has set a targeted payout ratio of 45%
to 55% of annual net earnings. Approximately 30% to 35% of forecasted annual net
earnings is intended to be paid in regular quarterly dividends with any balance
being paid as a year-end special dividend. All or a portion of the year-end
dividend may be paid in stock. The declaration and amount of dividends are
determined by the Board of Directors in its discretion based upon its evaluation
of earnings, cash flow requirements and future business developments. There is
no assurance that dividends will continue.
On January 25, 1996, the Company increased its quarterly dividend rate to
$0.035 per share. The third of such dividends was paid on August 13, 1996.
The Company paid a $0.02 per share cash dividend in the first quarter of
fiscal 1995 and paid $0.0267 per share cash dividends for each other quarter of
fiscal 1995. In addition, the Company declared and paid a three-for-two stock
split payable on October 2, 1995. On December 1, 1995, the Company paid a
special fiscal 1995 year-end dividend of $0.025 per share.
The Company paid a $0.016 per share cash dividend in the first quarter of
fiscal 1994 and $0.02 per share cash dividends for each other quarter of fiscal
1994. In addition, the Company declared and paid a special fiscal 1994 year-end
dividend in the form of a 3% stock dividend effective December 1, 1993.
11
<PAGE> 13
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"KITS." The following table sets forth, for the fiscal periods indicated, the
high and low closing sales prices for the Common Stock as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1994
First Quarter............................................................... $ 6 1/2 $ 5 1/4
Second Quarter.............................................................. 7 1/8 5 1/2
Third Quarter............................................................... 6 1/8 5
Fourth Quarter.............................................................. 5 1/2 4 3/8
FISCAL YEAR ENDED SEPTEMBER 30, 1995
First Quarter............................................................... 5 4 3/8
Second Quarter.............................................................. 6 1/2 4 5/8
Third Quarter............................................................... 7 3/8 5 7/8
Fourth Quarter.............................................................. 9 1/2 6
FISCAL YEAR ENDED SEPTEMBER 30, 1996
First Quarter............................................................... 12 1/4 7 3/4
Second Quarter.............................................................. 11 3/8 9 1/8
Third Quarter............................................................... 15 5/16 9 1/8
Fourth Quarter (through August 28).......................................... 15 10 3/4
</TABLE>
On August 28, 1996, the last reported sales price for the Common Stock on
the Nasdaq National Market was $13 11/16 per share. As of June 30, 1996, there
were approximately 850 holders of record of the Common Stock, which the Company
believes represents a total of approximately 6,000 beneficial shareholders.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth the Company's selected historical
consolidated financial data for the fiscal years 1991 through 1995 and for the
nine months ended June 30, 1995 and 1996. The selected consolidated financial
data for the five fiscal years in the period ended September 30, 1995 are
derived from the financial statements of the Company which have been audited by
Arthur Andersen LLP. The selected financial data for the nine months ended June
30, 1995 and 1996 are derived from the Company's unaudited quarterly financial
statements. In the opinion of management, the nine month financial data reflect
all adjustments necessary for a fair presentation of such data. The results for
the first nine months of fiscal 1996 are not necessarily indicative of the
results to be expected for the full year. The information below should be read
in conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net sales............................... $11,085 $14,003 $16,171 $21,877 $25,110 $18,357 $20,336
Cost of sales........................... 3,973 4,582 5,098 7,518 8,009 6,079 6,196
------- ------- ------- ------- ------- ------- -------
Gross profit..................... 7,112 9,421 11,073 14,359 17,101 12,277 14,139
------- ------- ------- ------- ------- ------- -------
Research and development................ 1,102 1,157 1,165 1,433 1,432 1,083 1,106
Selling and marketing................... 2,564 3,166 3,716 4,747 5,229 3,824 4,379
General and administration.............. 2,090 2,482 2,667 3,365 3,864 2,850 3,065
------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 5,756 6,805 7,548 9,545 10,525 7,757 8,549
------- ------- ------- ------- ------- ------- -------
Operating income................. 1,356 2,616 3,525 4,814 6,576 4,520 5,590
Net interest (expense) income........... 135 (39) (122) (839) (699) (550) 32
Other (expense) income.................. 27 28 (302) 8 83 67 240
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes..... 1,518 2,605 3,101 3,983 5,960 4,037 5,862
Income taxes............................ 559 952 1,212 1,542 2,436 1,676 2,378
------- ------- ------- ------- ------- ------- -------
Net earnings..................... $ 959 $ 1,653 $ 1,889 $ 2,441 $ 3,524 $ 2,361 $ 3,483
======= ======= ======= ======= ======= ======= =======
Primary earnings per common share....... $ 0.08 $ 0.13 $ 0.15 $ 0.20 $ 0.29 $ 0.19 $ 0.25
Dividends paid per common share
Regular............................... 0.02 0.04 0.06 0.08 0.10 0.08 0.10
Special............................... 0.02 0.01 -- -- -- -- 0.03
Primary weighted average
number of common shares outstanding... 12,129 12,222 12,264 12,277 12,355 12,313 14,137(1)
Fully diluted earnings per common
share................................. -- -- -- -- $ 0.28 $ -- $ 0.24
Fully diluted weighted average number of
common shares......................... -- -- -- -- 14,542 -- 14,794
Ratio of earnings to fixed charges(2)... 43.3x 25.8x 16.9x 4.6x 6.2x 5.7x 19.9x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
SEPTEMBER 30, -----------------
----------------------------------------------- AS
1991 1992 1993 1994 1995 ACTUAL ADJUSTED(3)
------- ------- ------- ------- ------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and short-term
investments........................... $ 1,590 $ 1,810 $ 9,476 $ 8,832 $ 8,919 $ 7,972 $19,516
Working capital......................... 4,046 5,164 13,759 13,000 15,826 9,574 21,118
Total assets............................ 10,997 14,099 26,247 32,329 34,569 41,602 54,102
Long-term debt, including current
maturities............................ 99 1,808 12,812 15,051 12,881 2,812 15,312
Shareholders' equity.................... 9,519 10,676 11,617 13,232 18,878 28,202 28,202
</TABLE>
- ---------------
(1) Reflects conversion of the Company's 7 1/4% Convertible Subordinated
Debentures into shares of Common Stock.
(2) The ratio of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, "earnings" consist of earnings before
income taxes and "fixed charges," and "fixed charges" consist of interest on
indebtedness and the portion of rental expense which is deemed to be
representative of the interest component.
(3) Adjusted to give effect to the sale of the Debentures and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus or incorporated herein by reference.
GENERAL
Since its founding in 1976, the Company has evolved into a fully integrated
medical diagnostic company with a diverse product line, an established
distribution network and a highly focused product development effort. Since
1991, the Company has realized substantial growth in net sales and net earnings,
primarily as the result of developing, licensing, acquiring or entering into
supply agreements for new products, improving these products, expanding
international sales and realizing operating efficiencies.
The Company utilizes its core technologies to develop and offer products
that aid in the diagnosis of various disease states. The Company's current
product line consists of nearly 100 medical diagnostic products which test for
specific diseases within five major disease states. The product lines which have
the largest impact on Company sales are used for the collection, transportation
and concentration of parasites, and products used to diagnose C. difficile and
certain viral and respiratory diseases. See "Business-Products."
On October 10, 1995, the Company called for the redemption of the
outstanding balance of its 7 1/4% Convertible Subordinated Debentures due in
2001. At that time, approximately $7,400,000 of the principal amount of the
Debentures was outstanding. Of the originally issued $11,500,000 principal
amount, $113,000 was redeemed for cash on November 30, 1995. The balance was
converted into Common Stock at $5.97 per share.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
------------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 31.5 34.4 31.9 33.1 30.5
----- ----- ----- ----- -----
Gross profit........................... 68.5 65.6 68.1 66.9 69.5
----- ----- ----- ----- -----
Research and development......................... 7.2 6.5 5.7 5.9 5.4
Selling and marketing............................ 23.0 21.7 20.8 20.8 21.5
General and administrative....................... 16.5 15.4 15.4 15.5 15.1
----- ----- ----- ----- -----
Total operating expenses............... 46.7 43.6 41.9 42.2 42.0
----- ----- ----- ----- -----
Operating income....................... 21.8 22.0 26.2 24.7 27.5
Net interest (expense) income.................... (0.8) (3.8) (2.8) (3.0) 0.2
Other expense (income)........................... (1.8) -- 0.3 0.3 1.1
----- ----- ----- ----- -----
Earnings before income taxes........... 19.2 18.2 23.7 22.0 28.8
Income taxes..................................... 7.5 7.0 9.7 9.1 11.7
----- ----- ----- ----- -----
Net earnings........................... 11.7% 11.2% 14.0% 12.9% 17.1%
===== ===== ===== ===== =====
</TABLE>
Comparison of Nine Months ended June 30, 1996 and 1995
Net sales increased $1,979,000, or 11%, to $20,336,000 for the nine months
ended June 30, 1996. These increases stem primarily from strong unit volume
growth in the Premier, Para-Pak and ImmunoCard lines. In the Premier and
ImmunoCard formats, this growth continues to be attributable to those products
used for identification of Toxin A, H pylori, EHEC, Mycoplasma and Rotavirus. In
Para-Pak, the growth continues to be attributable to the core parasitology
transport format, Para-Pak Ultra, introduced last fall and Para-Pak Plus. In
addition, the Inova line of products, licensed for Italy last year, added over
$343,000 of sales volume
14
<PAGE> 16
for the nine months results. The enteric products acquired from Cambridge
Biotech Corporation on June 24, 1996 contributed $47,000.
OEM sales, consisting of products sold to Johnson & Johnson,
Carter-Wallace, Inc. and Becton, Dickinson and Company, were down for the nine
months approximately $270,000 which is largely a result of timing of orders.
Also, offsetting the above increases for the nine months period are sales of the
mononucleosis line, down about 10%. This decline is attributable to the
wind-down of production of the MONOSPOT product, previously supplied by Ortho
Diagnostics Systems, Inc. and the transition to the Company-produced new
mononucleosis latex products.
Following is a summary of the increase in sales broken down by volume,
price and currency:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, 1996
---------------------
$ CHANGE % CHANGE
---------- --------
<S> <C> <C>
Volume............................................. $1,704,000 9.3%
Price.............................................. 99,000 0.5
Currency........................................... 176,000 1.0
---------- ----
Total.............................................. $1,979,000 10.8%
========== ====
</TABLE>
European sales increased from $3,829,000 to $4,811,000, or 26%, for the
nine month period principally from volume growth in the Premier line and the new
volume from the Inova line, ImmunoCard and Para-Pak formats.
The increase in sales broken down by volume, price and currency for
European sales are summarized below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, 1996
-------------------
$ CHANGE % CHANGE
-------- --------
<S> <C> <C>
Volume.............................................. $855,000 22.3%
Price............................................... (49,000) (1.3)
Currency............................................ 176,000 4.6
-------- ----
Total............................................... $982,000 25.6%
======== ====
</TABLE>
Gross profit as a percentage of net sales improved to 69.5% for the
nine-month period, up over two and one half points for the nine months compared
to the prior year. Product mix, driven by growth in excess of 17% for Premier
and 27% for ImmunoCard coupled with a decrease in lower margin OEM sales were
the primary factors accounting for the improvement. In addition, the 9% increase
in volume and reduced scrap and depreciation expenses were also contributing
factors to the improved margin.
Gross profit as a percentage of net sales for the fiscal quarter and fiscal
year ending September 30, 1996 and for the fiscal year ending September 30, 1997
is expected to decline modestly as a result of the acquisition of the enteric
product line of Cambridge Biotech Corporation. See "Business -- Acquisition
Overview." Under the purchase agreement, the Company will purchase approximately
one year of inventory at a negotiated cost that is expected to be higher than
the Company's cost of manufacturing once the purchased product line is fully
integrated into its manufacturing facilities in Cincinnati. Also, certain
additional acquisition costs will be amortized, further diluting the gross
profit percentage.
Total operating expenses increased $792,000 or 10% for the nine months
ended June 30, 1996, compared to the prior year. Total operating expenses were
42.0% of net sales for the nine months, down 0.2 percentage points.
Research and development expenses increased $22,000, or 2%, for the
nine-month period. Increases in personnel costs associated with initial
development work on the Premier EHEC in food and agricultural applications plus
development of H. pylori antigen in stool were offset in part by lower clinical
trial expense.
15
<PAGE> 17
Selling and marketing expenses increased 15% for the nine months. The
increases are attributable to personnel costs in the U.S. associated with the
addition of a third sales region and in Europe from added personnel in the sales
support and product management functions. Other significant increases included
expenses for an expanded international distributors' meeting in Cincinnati,
depreciation expense associated with the new U.S. headquarters facility and the
impact of exchange from the stronger Lira versus the dollar.
General and administrative expenses increased approximately 8% for the nine
month period. Personnel costs in the U.S. and in Europe, outside services
associated with computer information systems, facility expenses related to the
new administrative headquarters, the impact of exchange from the stronger Lira
and higher international travel are the primary reasons for the increase. In
addition to these increases, the one time state filing fee for the increase in
the number of the Company's authorized shares of common stock accounted for the
nine months increase.
Operating income, as a result of the above, increased $1,070,000, or 24%
compared to the sales increase of 11% for the nine month period last year. As a
percent of sales, operating income improved almost three points for the nine
months.
Other income (net) increased $755,000 for the nine month period ended June
30, 1996. Interest income (net) improved $582,000 for the nine month period
primarily from the reduction in interest expense as a result of the conversion
of the convertible debentures as of November 30, 1995. Included in the nine
month period was a gain of $150,000 from payment of a fully reserved note
related to a March 1994 Agreement wherein the Company sold to VAI Diagnostics,
Inc. tissue culture products acquired in January 1994 from an affiliate of Ortho
Diagnostic Systems, Inc. Gains/losses in foreign exchange for the nine month
period were not material. The cumulative foreign currency translation adjustment
increased by $71,000 during the nine month period as a result of the Lira
strengthening against the U.S. dollar.
The Company's effective tax rate is down approximately 1% for the nine
month period compared to the prior year.
Net earnings increased $1,123,000, or 48% to $3,483,000 from $2,361,000 for
the nine months ended June 30, 1996 compared to the prior year. The
corresponding increase in primary earnings per share for the comparable periods
was approximately 32%. The lower growth rates in earnings per share results from
the increase in outstanding shares associated with the conversion of the
convertible debentures. Through the first nine months of fiscal 1996, primary
earnings per share are $0.25, or 86% of the full 1995 fiscal year earnings of
$0.29. Fully diluted earnings per share, applicable only to the 1996 nine month
period, include the impact of outstanding stock options.
Comparison of Fiscal Years ended September 30, 1995 and 1994
Net sales increased $3,233,000, or 15%, to $25,110,000 in fiscal 1995 from
$21,877,000 in fiscal 1994. This increase was primarily from unit volume growth
in the Premier, ImmunoCard, Merifluor and mononucleosis lines plus OEM sales of
Epstein-Barr Virus. The major growth areas are in those tests used for
identification of infectious diseases such as C. difficile, Toxin A,
mononucleosis, Mycoplasma and Herpes simplex virus. Of the increase of
$3,233,000, $1,112,000, or 34%, was attributable to the full year sales of the
infectious disease product line acquired in January 1994 from an affiliate of
Ortho Diagnostics Systems, Inc. (ODSI).
The increase in sales of $3,233,000 was more than accounted for by volume
of $3,271,000, or 15%, offset marginally by price decreases of $38,000 with no
impact from currency translation. European sales increased $1,175,000, or 30%,
to $5,102,000 from $3,927,000 as a result of continued strong unit growth in the
Premier line, up 45% (Toxin A, H. pylori and EHEC -- introduced during the
second quarter); the mononucleosis line, up 21%; ImmunoCard, which almost
tripled largely from new products (Mycoplasma, mononucleosis, Rotavirus and H.
pylori); and Merifluor, up 81%. The increase in net sales was accounted for by
volume, $951,000, or 24%, and price, $223,000, or 6%. The effect of currency
translations was negligible.
Gross profit increased $2,742,000, or 19%, to $17,101,000 for fiscal 1995
from $14,359,000 in fiscal 1994. As a percentage of sales, gross profit
increased to 68.1% in fiscal 1995 from 65.6% in fiscal 1994. This improvement
was due primarily to the transfer and in-house manufacture of the product lines
acquired from
16
<PAGE> 18
ODSI in June 1993 and January 1994, which prior to October 1994 were purchased
under a supply agreement with ODSI. Fiscal 1994 costs also included integration
of the ODSI infectious disease product line into Meridian's manufacturing
facilities in Cincinnati. Other factors contributing to the improvement included
continued favorable efficiency and volume variances from the sales increase, the
new warehouse facilities, and the reduction in factory overhead including
decreased rent expense from the new on-site warehouse, lower insurance and
employee benefit expense, plus a reduction in travel.
Operating expenses increased $980,000, or 10%, to $10,525,000 for fiscal
1995 from $9,545,000 in fiscal 1994, but declined as a percentage of sales from
43.6% in fiscal 1994 to 41.9% in fiscal 1995. Research and development expenses
were marginally lower than the prior year, and decreased from $1,433,000 in
fiscal 1994 to $1,432,000 in fiscal 1995. Selling and marketing expenses
increased $481,000, or 10%, versus fiscal 1994, mainly from higher personnel
costs in the U.S. and Europe, higher convention, meeting, sample and promotion
expenses associated with new product introductions and the full year impact of
the infectious disease product line acquired from ODSI. General and
administrative expenses increased $499,000, or 15%, due to increased personnel
costs in the U.S. and Europe stemming from the higher level of business, an
increase in depreciation from the expanded office facilities plus the full year
impact of depreciation from assets acquired from ODSI and a general increase in
the provision for doubtful accounts to reflect added coverage given the
increasing sales level.
Operating income increased $1,762,000, or 37%, to $6,576,000 in fiscal 1995
from $4,814,000 in fiscal 1994 primarily due to the factors described above. As
a percent of sales, operating income improved to 26.2% in fiscal 1995 compared
to 22.0% in fiscal 1994.
Other expenses decreased $214,000, or 26%, to $616,000 compared to $831,000
in fiscal 1994. This decrease was more than accounted for from higher investment
income stemming from an improvement in interest rates compared to fiscal 1994
plus commission income related to the sale of certain tissue culture products
acquired from ODSI and sold to VAI Diagnostics, Inc. in March 1994. Gains/losses
in foreign exchange were not material in either fiscal year. The cumulative
foreign currency translation adjustment changed by $32,000 during the year as a
result of strengthening of the U.S. dollar against the lira during the period.
The Company's effective tax rate increased for the year as a result of a
higher proportion of income from the Company's European subsidiary in Italy,
which is taxed at a significantly higher rate than the U.S. domestic rate. The
effective tax rate was 40.9% in fiscal 1995 compared to 38.7% for the prior
year.
Comparison of Fiscal Years ended September 30, 1994 and 1993
Net sales increased $5,706,000, or 35%, to $21,877,000 in fiscal 1994 from
$16,171,000 in fiscal 1993. This increase resulted primarily from higher unit
volumes resulting from the June 1993 acquisition of the infectious mononucleosis
product line and the January 1994 acquisition of the infectious disease product
line from ODSI, plus strong unit growth in the ImmunoCard and Merifluor product
lines.
The increase in sales of $5,706,000 was comprised of volume of $5,139,000,
or 32%, price of $899,000, or 5%, offset by currency of ($332,000) or (2%).
European sales increased $1,447,000, or 58%, to $3,927,000 from $2,480,000
largely due to MONOSPOT and MONOLERT products acquired from ODSI in June 1993,
plus unit growth in the Para-Pak, Merifluor and Premier product lines. This
increase in net sales was attributed to volume of $1,114,000, or 45%, price of
$665,000, or 27%, offset by currency of ($332,000), or (14%). The increase from
pricing stemmed from the expiration in fiscal 1994 of contract supply prices in
effect at the time of the mononucleosis product line acquisition in fiscal 1993.
Gross profit increased $3,286,000, or 30%, to $14,359,000 for the year,
from $11,073,000 in fiscal 1993. As a percentage of sales, gross profit declined
to 65.6% in fiscal 1994 from 68.5% in fiscal 1993. This decline is due to
several factors including the impact of the lower margin ODSI product line
acquisitions -- in part provided under a supply agreement -- which ended June
30, 1994, except for MONOSPOT which ended in October 1995. Other factors
impacting gross profit were increased manufacturing costs, higher scrap and
obsolescence costs stemming from product development including validation
batches, minor product discontinuations and additional costs associated with
packaging standardization. Also impacting manufacturing cost
17
<PAGE> 19
was the transfer and integration of the ODSI infectious disease product line
into Meridian's facilities in Cincinnati.
Operating expenses increased $1,997,000, or 26%, to $9,545,000 for fiscal
1994 from $7,548,000 in fiscal 1993, but declined as a percentage of sales to
43.6% in fiscal 1994 from 46.7% in fiscal 1993. Research and development expense
increased $268,000, or 23%, over fiscal 1993 primarily from higher personnel
costs, increased clinical trial activity and laboratory supplies associated with
new product development and depreciation expense stemming from equipment
acquired during the year from ODSI. Selling and marketing expenses increased
$1,031,000, or 28%, primarily as a result of the amortization of the purchase
price of the ODSI product line acquisitions, higher personnel costs in the U.S.
and Europe from the addition of sales representatives and higher promotional
expenses in the U.S. associated with new products and, in Europe, from the
expansion of the direct sales and distribution to customers in Italy. General
and administrative expenses increased $698,000, or 26%, due to amortization of
the ODSI acquisitions, increased personnel costs in the U.S. and Europe to
support the continued growth in the business, higher depreciation expense
related to equipment acquired from ODSI plus an increase in the provision for
potential doubtful accounts.
Operating income as a result of the above increased $1,289,000, or 37%, to
$4,814,000 in fiscal 1994 from $3,525,000 in fiscal 1993.
Other expense increased in fiscal 1994 by $406,000, which was more than
accounted for by higher interest expense and amortization of debt expenses
attributed to the $11,500,000 of 7 1/4% Convertible Subordinated Debentures
issued in September 1993. These increases in debenture-related expenses were
offset by the one time write-off of $405,000 in fiscal 1993 of expenses
associated with the Company's planned offering of Common Stock, which was
withdrawn on July 29, 1993. The after tax impact on earnings of this withdrawal
cost was $255,000 or $0.02 per share in 1993, as adjusted.
The Company's effective tax rate declined marginally for the year as a
result of a higher proportion of the income in the U.S. which is taxed at a
significantly lower rate than in Italy. The effective tax rate was 38.7% in
fiscal 1994 compared to 39.1% in fiscal 1993. Effective October 1, 1993 the
Company adopted Financial Accounting Standards Statement No. 109, "Accounting
for Income Taxes." Prior period financial statements have not been restated to
reflect the new accounting method since the cumulative effect of this change as
well as the effect of this new standard on income tax expense for fiscal 1994
was not material.
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected unaudited consolidated quarterly
results of operations of the Company for fiscal 1994, fiscal 1995 and the first
three quarters of fiscal 1996. Historically, the fourth quarter of the fiscal
year has been the strongest. The results of operations for any quarter are not
necessarily indicative of results for any future period. Quarterly earnings per
share do not necessarily total to year-end amounts due to rounding.
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995 FISCAL 1996
------------------------------------ ------------------------------------ --------------------------
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- -------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $3,625 $5,891 $5,717 $6,644 $5,106 $6,469 $6,782 $6,753 $5,522 $7,255 $7,559
Net earnings.......... 200 610 603 1,028 430 945 985 1,164 629 1,355 1,499
Primary earnings per
common share........ .01 .05 .05 .09 .04 .08 .08 .09 .05 .10 .11
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
On June 24, 1996, the Company acquired the enteric product line of
Cambridge Biotech Corporation for a cash payment of $6,588,000. The price has
been allocated as follows: an advance on royalties of $200,000; inventory valued
at $830,000; fixed assets valued at $200,000 and intangibles valued at
$5,358,000. This acquisition was funded by proceeds of a note under a line of
credit with the Company's commercial bank while short-term investments were
being liquidated. The note was paid off July 5, 1996.
At June 30, 1996, the Company had cash and short-term investments of
$7,972,000 and working capital of $9,574,000. Trade accounts receivable
increased $1,004,000, or 15%, primarily as a result of increased
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<PAGE> 20
European sales which were up 26% for the nine month period versus the prior
year. Inventories increased $1,163,000 or 38% largely as a result of the
acquisition of the enteric product line of Cambridge Biotech Corporation
compared to September 30, 1995.
Net cash flow provided by operating activities was $4,697,000 for the nine
month period ended June 30, 1996, up $2,813,000 from the prior year period. This
increase resulted from accounts payable reflecting the December 1994 payment for
goods purchased from Ortho Diagnostic Systems, Inc. during fiscal 1994, the
increase in net earnings and the timing of estimated income tax payments.
On October 10, 1995, the Company called for the redemption of the
outstanding balance of its 7 1/4% Convertible Subordinated Debentures due in
2001. At that time approximately $7,400,000 of the principal amount of those
debentures was outstanding. Of the originally issued $11,500,000 principal
amount, $113,000 was redeemed for cash on November 30, 1995. The balance was
converted into Common Stock at $5.97 per share.
Capital expenditures for the nine months ended June 30, 1996 were
$1,199,000, a decrease of $661,000 from the prior year period. The lower
expenditures reflect the completion of construction of additional manufacturing
and administrative space in September 1995. In October 1995, renovation of the
former administrative offices and laboratory manufacturing space commenced. This
phase, which is projected to cost $1,600,000, is expected to be completed by
September 1996. The Company's anticipated total capital expenditures for fiscal
1996 are $2,200,000.
On April 16, 1996 the Company paid off the outstanding balance of its
mortgage loans reducing long-term debt by $2,418,000.
Net cash flow from operations is expected to continue to fund working
capital requirements for the foreseeable future. Currently, the Company has an
unused $10,000,000 line of credit with a commercial bank and cash and short-term
investments of approximately $1,600,000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121 (Statement 121) on accounting for the impairment of long-lived
assets to be held and used. Statement 121 also establishes accounting standards
for long-lived assets that are to be disposed. Statement 121 is required to be
applied prospectively for assets to be held and used. The initial application of
Statement 121 to assets held for disposal is required to be reported as the
cumulative effect of a change in accounting principle. The Company is required
to adopt Statement 121 no later than fiscal 1997. The Company will adopt
Statement 121 in fiscal 1997 and, based on current circumstances, does not
believe the effect of adoption will have a material impact on its financial
position or results of operations.
In October 1995, the FASB issued Statement No. 123 (Statement 123)
establishing financial accounting and reporting standards for stock-based
employee compensation plans. Statement 123 encourages the use of the fair value
based method to measure compensation cost for stock-based employee compensation
plans, however, it also continues to allow the intrinsic value based method of
accounting as prescribed by APB Opinion NO. 25, which is currently used by the
Company. If the intrinsic value based method continues to be used, Statement 123
requires pro forma disclosures of net income and earnings per share, as if the
fair value based method of accounting had been applied. The fair value based
method requires that compensation cost be measured at the grant date based upon
the value of the award and recognized over the service period, which is normally
the vesting period. The Company intends to adopt Statement 123 in fiscal 1997 by
making the required footnote disclosures only. Therefore, the adoption of this
Statement is not expected to have a material effect on the Company's financial
position or results of operations.
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<PAGE> 21
BUSINESS
GENERAL
The Company develops, manufactures and markets a diverse line of disposable
diagnostic test kits and related diagnostic products used for the rapid
diagnosis of infectious diseases. To meet market demands, the Company's products
provide accuracy, simplicity and speed, leading to opportunities for
improvements in diagnosis and reductions in health care costs. All of the
Company's products are used in procedures performed in vitro (outside the body)
and require little or no special instrumentation or equipment.
The Company's product development strategy is to combine existing
technologies with new product designs both through internal product development
and through product acquisitions, licensing or supply arrangements. Internal
product development activities focus on the development or enhancement of
immunodiagnostic technologies and applications to simplify, accelerate or
increase the accuracy of diagnoses of certain infectious diseases. Since 1991,
the Company has also acquired or obtained rights to distribute a number of
products and technologies.
The Company utilizes its resources to serve each of the strategic domestic
and international medical markets it has targeted: hospital networks and
clinical and hospital laboratories; alternate site markets, including
physicians' offices, outpatient clinics, nursing homes and health maintenance
organizations (HMOs); and new markets, including veterinary laboratories, water
treatment facilities and consumer self-testing. The Company currently markets
approximately 100 products representing five major disease states through a
direct sales force, in the U.S. and Italy, supplemented by a network of national
and international distributors. International sales in approximately 50
countries were approximately 23% of total fiscal 1995 sales, with approximately
88% of international sales originating in Western Europe. The majority of the
remaining international sales were in Canada, Mexico and the Pacific Rim.
ACQUISITION OVERVIEW
An important facet of the Company's long-term business strategy is the
acquisition, licensing or entrance into supply arrangements to obtain innovative
diagnostic testing technologies, product formats and products that complement
its existing operations and address the needs of the Company's existing and
targeted customer base. Historically, Company management has pursued the
acquisition and licensing of products and technologies that fit the Company's
niche diagnostic test markets, which are characterized by a large number of
users. Examples of this strategy include the acquisitions of the infectious
disease and mononucleosis product lines from Johnson & Johnson for $3.45 million
and $3.38 million, respectively, the June 24, 1996 acquisition of the enteric
product line of Cambridge Biotech Corporation for $6.6 million and numerous
smaller product acquisitions and licensing arrangements. A key component in the
success of the Company's acquisition and licensing of new products and
technologies has been the ability of Company management to respond quickly to
acquisition and licensing opportunities as they arise in the marketplace. The
success of this strategy has also been due in part to management's selective
acquisition and licensing philosophy as well as availability of cash on the
Company's balance sheet. The Company intends to use the net proceeds of the
Offering to continue to seek acquisitions of products and product lines and the
licensing of new products, some of which could be larger than those previously
consummated.
June 24, 1996 Acquisition
On June 24, 1996, the Company acquired the enteric product line of
Cambridge Biotech Corporation. The line consists of diagnostic products which
identify Adenovirus, Rotavirus, C. difficile and Lyme disease, all of which are
enzyme immunoassay microtiter formats, similar to the Company's existing Premier
products. This line consists of the branded products Adenoclone, Rotaclone,
Cytoclone and a product for the detection of Lyme disease. Along with the
Company's Meritec and Immunocard products, the addition of Rotaclone and
Adenoclone makes the Company an industry leader in the pediatric diarrhea
diagnostic market. Cytoclone is Meridian's fifth product in the C. difficile
market, enhancing the Company's market leadership position, and is the first
direct test available for the detection of the Toxin B. The Lyme disease
diagnostic test is a complementary product offering in the Company's parasitic
disease area.
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<PAGE> 22
The Company paid Cambridge Biotech Corporation $6.6 million in cash for the
acquired product line and related rights and assets allocated to: an advance on
royalties of $200,000; inventory valued at $830,000; fixed assets valued at
$200,000 and intangibles valued at $5,358,000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation." The Company also
assumed certain royalty obligations of Cambridge Biotech Corporation.
The acquired products will be distributed on a direct basis throughout the
United States by the Company's own sales force and through current distributors
internationally, primarily in Germany and Japan. Approximately 65% of the
acquired products are sold in the U.S. and the balance in the rest of the world.
IMMUNODIAGNOSTICS OVERVIEW
In vitro diagnostic testing is the process of analyzing constituents of
blood, urine, stool, other bodily fluids or tissue for the presence of specific
infectious diseases. Immunodiagnostic testing, which is the leading method of in
vitro testing for infectious diseases, tests for antigens and antibodies. When
an infectious disease caused by pathogens, such as bacteria, viruses and fungi,
and their related antigens is present, the body responds by producing an
antibody. The antibody binds specifically with the antigen in a lock-and-key
fashion and initiates a biochemical reaction to attempt to neutralize and
ultimately to eliminate the antigen. The ability of an antibody to bind with a
specific antigen provides the basis for immunodiagnostic testing.
Immunodiagnostic testing detects the presence of specific infectious
diseases through the "visualization," such as color changes or the formation of
visible aggregates, of the biochemical reactions caused by the antigen/antibody.
Most immunodiagnostic tests utilize one of two alternative methods to determine
the presence of a specific disease in a patient specimen. In one method, the
test employs the antibody to detect directly the presence of an antigen. When
the antigen is difficult to detect, a test employs the antigen to detect the
presence of an antibody.
MARKET TRENDS
The global market for infectious disease tests continues to expand as new
disease states are identified, new therapies become available and worldwide
standards of living and access to healthcare improve. More importantly, within
this market there is a continuing shift from conventional testing, which
requires highly trained personnel and lengthy turnaround times for test results,
to more technologically advanced testing which can be performed and completed in
minutes or hours by less highly trained personnel.
Technological advances permitting accurate testing to occur outside the
traditional hospital or laboratory setting have also affected the diagnostic
products market. These technological developments have contributed to the
emergence of alternate site markets, such as physicians' offices, outpatient
clinics, nursing homes and HMOs, as important diagnostic market segments. These
technological advances should also contribute to the development of new markets
for the Company's products, including veterinary laboratories, water treatment
facilities and consumer self-testing in the over-the-counter market.
The increasing pressures to contain total healthcare costs have accelerated
the increased use of diagnostic testing and the market shift to alternate sites.
With rapid and accurate diagnoses of infectious diseases, physicians can
pinpoint appropriate therapies quickly, leading to faster recovery, shorter
hospital stays and less expense. In addition, these pressures have led to a
major consolidation among reference laboratories and the formation of
multi-hospital alliances that has reduced the number of institutional customers
for diagnostic products and resulted in changes in buying practices.
Specifically, multi-year exclusive or primary source marketing or distribution
contracts with institutional customers have become more common, replacing less
formal distribution arrangements of shorter duration and involving lower product
volumes.
STRATEGY
The Company continues to execute its long-term strategy consisting of the
following elements:
- Developing New Product Applications from Core Technologies and
Formats. The Company employs a market-driven product development strategy
to adapt or enhance diagnostic testing technologies and product formats in
response to newly identified disease states and to customer demands for
improvements in product accuracy, simplicity, speed and cost-efficiency.
The Company accomplishes this by
21
<PAGE> 23
monitoring existing markets, interacting closely with customers and
recognizing emerging diseases and therapies. Since 1991, the Company has
developed and introduced 19 internally developed products.
- Acquiring and Licensing Products and Technology. The Company intends to
acquire, license or enter into supply arrangements to obtain innovative
diagnostic testing technologies, product formats and products that
complement its existing operations and address the needs of the Company's
existing and targeted customer base. Management regularly identifies and
reviews opportunities through its broad industry contacts and recognized
position in the industry. Since 1991, the Company has acquired, licensed
or entered into supply arrangements relating to 24 products, five of which
were acquired in July 1996 as part of the enteric product line of
Cambridge Biotech Corporation.
- Increasing International Sales. The Company has targeted increasing
international sales as an attractive source of growth. The Company has
made recent investments to develop a major presence in Italy through its
Italian subsidiary Meridian Diagnostics Europe srl (MDE), added management
to expand its ability to serve Latin American markets and strengthened its
distribution channels into the European market. Over the last three years,
the Company's international sales have almost tripled from $2.1 million in
fiscal 1992 to $5.8 million in fiscal 1995 and represented 23% of total
consolidated sales in fiscal 1995.
- Developing Partnerships with Consolidated Healthcare Organizations. The
Company seeks to develop strategic partnerships with the major reference
laboratories and other consolidated healthcare providers. The Company
believes it is well positioned to develop partnerships with key customers
because it is an integrated manufacturer, has a broad product line, offers
tests in multiple formats, and is willing to invest resources in building
relationships and facilitating open communications with those customers.
In January 1996, the Company signed a three-year exclusive agreement with
the Columbia/HCA Healthcare Corporation, a hospital alliance of
approximately 350 hospitals, for the Company to provide all parasitology
transport products and specific infectious disease diagnostic products. In
April 1996, the Company signed a three-year, primary source agreement with
Laboratory Corporation of America, consisting of over 35 laboratories, for
the supply of certain products for parasitology, virology and other
infectious diseases.
- Entering New Markets. The Company continues to monitor and identify the
emergence of new immunodiagnostic testing opportunities arising from the
discovery of new pathogens or new linkages between existing pathogens and
new diseases. In April 1995, the Company introduced the first
immunodiagnostic test for toxigenic E. coli, a bacteria found in
inadequately cooked meats. The Company plans to apply for approvals to
test both animals (United States Department of Agriculture (USDA)) and
food products (Association of Analytical Chemists (AOAC)) that may contain
this highly toxic organism. On September 1, 1996, the Company will begin
marketing its two tests for the detection of E. coli contamination to U.S.
food testing laboratories via an exclusive distribution agreement with
Fisher Scientific Inc. In July 1994, the Company agreed to provide its
Hydrofluor product, the first product that tests for water-borne parasitic
pathogens, specifically Giardia and Cryptosporidium, for distribution
through an independent supplier to water treatment facilities. The Company
has entered into an agreement with Johnson & Johnson to market the
Company's rapid diagnostic test for urinary tract infections to the
consumer market, subject to pre-market approval by the FDA, the timing of
which cannot be predicted.
- Accessing Alternate Site Markets for Diagnostic Testing. The Company
seeks strong licensing/ distribution partners having sales and marketing
strengths to enable it to more effectively promote the Company's products
into alternate site markets. The Company believes that its products are
readily adaptable for use in alternate site markets. In August 1995, the
Company entered into an exclusive licensing agreement with a third party
which through its 90 representatives will distribute the Company's urinary
tract infection product to the physician office market. The Company
continues to evaluate the suitability of certain of its other products for
the consumer market.
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<PAGE> 24
PRODUCTS
The Company has expertise in the development and manufacture of products
based on multiple core diagnostic technologies, each of which enables the
visualization and identification of antigen/antibody reactions for specific
pathogens. As a result, the Company is able to develop and manufacture
diagnostic tests in a variety of formats that satisfy customer needs and
preferences, whether in a hospital, commercial or reference laboratory or
alternate site location. These technologies include enzyme immunoassay,
immunofluorescence, particle agglutination, membrane filtration/concentration,
immunodiffusion, complement fixation and chemical stains.
Enzyme Immunoassay (EIA). Products incorporating the EIA technology
achieve extremely high levels of accuracy in detecting disease-related antigens
or antibodies through the use of special color-based enzyme-substrate reactions.
The Company utilizes this technology in its multiple test format -- Premier --
for large volume users, and in its single test formats -- ImmunoCard and
MONOLERT -- for single physician users.
Immunofluorescence. When the microscopic visualization of an
antigen-antibody reaction is necessary or desired, immunofluorescence technology
is frequently utilized. Fluorescing immunochemicals, in the presence of the
target antigen or antibody, can be viewed via a special microscope. The Company
utilizes this technology in its Merifluor products.
Particle Agglutination. This technology utilizes microparticles (e.g.,
latex, red blood cells) coated with specific antigens or antibodies that form
visible aggregates in the presence of a specimen containing the complementary
antigen or antibody. This technology is rapid and economical and is used in the
Company's Meritec, MeriStar and MONOSPOT products.
Membrane Filtration/Concentration. The Company utilizes this technology to
detect infection-causing bacteria present in human urine. These bacteria are
concentrated on a unique filter membrane for detection via the addition of a
special dye solution. This technology is utilized in the Company's proprietary
rapid, single-unit FiltraCheck-UTI test format.
Other Technologies. The Company utilizes other technologies that include
immunodiffusion, complement fixation and chemical stains. The Company also
manufactures and markets specimen collection, transportation, preservation and
concentration products, such as Para-Pak and Macro-Con.
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<PAGE> 25
The Company's product line consists of approximately 100 medical diagnostic
products representing five major disease states. Currently, the most important
product lines from the perspective of sales are Para-Pak and related products
and products to diagnose C. difficile, viral diseases and respiratory diseases.
The Company's products generally range in list price from $1 per test to $13 per
test. A discussion of the Company's key products and their competitive advantage
is reflected in the table below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INFECTIOUS DISEASE CATEGORY KEY PRODUCT(S) PRODUCT APPLICATION
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PARASITIC DISEASES
-- Giardiasis Para-Pak, Premier, Meritec Products for the diagnosis and collection,
-- Cryptosporidiosis Para-Pak Ultra, Para-Pak preservation, transportation and
-- Amebiasis Plus, concentration of parasites.
-- Lyme Disease Macro-Con
- ------------------------------------------------------------------------------------------------------------------
GASTROINTESTINAL DISEASES
-- Stomach Ulcers (H. pylori) Premier, ImmunoCard U.S. patients make 20 million annual
visits to their physicians for gastric
distress. The H. pylori bacteria has been
associated with more than 90% of duodenal
ulcers and may be related to cancer of the
stomach.
-- Toxigenic E. coli Premier E. coli is a potentially lethal bacteria
that infects undercooked food and can
cause kidney failure.
-- Antibiotic-associated Diarrhea Premier, ImmunoCard, Toxin producing strains of C. difficile
(C. difficile) Meritec, Cytoclone can cause PMC (pseudomembranous colitis)
that results in rapid colon degeneration.
-- Pediatric Diarrhea (Rotavirus, ImmunoCard, Meritec These viral diseases, which cause rapid
Adenovirus) Rotaclone, Adenoclone dehydration, are transmitted rapidly
through pediatric populations in
hospitals, schools and daycare settings.
- ------------------------------------------------------------------------------------------------------------------
RESPIRATORY DISEASES
-- Pneumonia (Mycoplasma ImmunoCard, MeriStar Pneumonia is the fifth leading cause of
pneumoniae) death worldwide, 20% of which is caused by
Mycoplasma pneumoniae
-- Valley Fever (Coccidioides Premier, Meritec Fungal pathogens can cause flu-like
immitis) illness and/or severe pneumonia, that are
life-threatening in AIDS and other
immuno-compromised patients.
- ------------------------------------------------------------------------------------------------------------------
UROGENITAL DISEASE
-- Urinary Tract Infection FiltraCheck-UTI In the U.S., 65 million cultures are
performed yearly to detect potential
urinary tract infection.
-- Chlamydia Premier, Merifluor Chlamydia is the leading
sexually-transmitted disease.
- ------------------------------------------------------------------------------------------------------------------
VIRAL DISEASES
-- Infectious Mononucleosis ImmunoCard, MONOLERT, Infectious mononucleosis, a viral disease
MONOSPOT common among young adolescents, is
transmitted easily from person-to-person.
-- Herpes simplex Virus (HSVI and Premier Oral Herpes infections affect up to 80% of
HSVII) the population. Genital Herpes can be
life-threatening to newborns.
-- Cytomegalovirus Merifluor Cytomegalovirus infections are potentially
deadly in transplant procedures and among
immuno-compromised blood recipients.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 26
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE COMPANY'S COMPETITIVE ADVANTAGE MARKET
----------------------------------------------------------------------------------------------------
<S> <C>
Leading supplier of parasitology diagnostics. In October 1995, - Hospital Laboratories
introduced two new products that resulted in easier processing, - Reference Laboratories
safer handling and reduced processing time of the specimen and - Veterinary Laboratories
lower cost disposal of the transport container.
- ----------------------------------------------------------------------------------------------------
Historically, a physician-performed endoscopy, an extremely - Hospital Laboratories
uncomfortable and expensive procedure, was employed to diagnose - Reference Laboratories
gastric distress. The Company's tests allow accurate, quick - Veterinary Laboratories
diagnoses utilizing patient blood serum. The Company is the only
manufacturer to provide testing formats which accommodate both
small and large volume users.
In November 1995, introduced the first and only FDA cleared
diagnostic test that rapidly detects all toxigenic strains of E.
coli directly from stool samples. Previous techniques required a
minimum of 24 hours to culture E. coli organisms.
Market leader with a broad range of products.
Offers the clinician rapid results which are critical in
preventing the spread of these highly infectious viruses.
- ----------------------------------------------------------------------------------------------------
The Company provides the broadest range of diagnostic reagents - Hospital Laboratories
for detecting respiratory diseases. The product is a rapid test - Reference Laboratories
providing results in only ten minutes. The product provides - State Health Laboratories
increased accuracy over common diagnostic methods, allowing for a - Veterinary Laboratories
safer, more effective treatment.
- ----------------------------------------------------------------------------------------------------
This product allows for rapid screening for the presence of - Hospital Laboratories
urinary tract infection. Therapy can be rapidly administered, - Reference Laboratories
often while the patient is still in the physician's office. - Physicians' Office
Both product formats enable rapid, accurate testing. Laboratories
- Consumer (pending)
- Public Health Laboratories
- ----------------------------------------------------------------------------------------------------
The Company provides a broad range of innovative technologies - Hospital Laboratories
including MONOLERT which use synthetic peptides to detect the - Reference Laboratories
virus which causes mononucleosis. - Physicians' Office
Premier HSV Plus detects both HSVI and HSVII rapidly from a Laboratories
variety of body sites. - Student Health Laboratories
Quickly detects "immediate early antigen" in a rapid, direct
fluorescence format.
- ----------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 27
MARKETING AND SALES
The Company's marketing efforts are focused on a continual process of
seeking ways to assist healthcare providers in improving outcomes for patients
exposed to serious infectious diseases. Rapid, accurate diagnosis can mean
faster recovery, shorter hospital stays and less expense, both for the patient
and the healthcare system.
The Company believes that its marketing goals are best served by forming
partnerships with key customers to develop concepts for future products and
technology applications. These partnerships facilitate close customer
interaction, including product strategy sessions.
Marketing utilizes its strong industry contacts, plus key customer focus
sessions, to identify new product and other opportunities. Through the use of
cross-functional teams that include marketing, research and development and
manufacturing personnel, marketing guides the development process to meet
customers' needs with products that are easier to use, require less technical
expertise, and yield faster results -- often in minutes or hours rather than
days.
Changes in the healthcare delivery system have resulted in major
consolidation among reference laboratories and the formation of multi-hospital
alliances. The Company has structured its marketing, selling and customer
service to anticipate and respond to these changes. This involved the addition
of sales and marketing personnel; the expansion of technical services staff to
support the Company's customers and distribution network through a toll-free
service hotline; and the implementation of major marketing programs to target
key customers.
The Company markets products through direct sales forces, both domestically
and in Italy, and national and international independent distributors. In the
United States, the Company's direct sales force consists of a director of sales,
three regional sales managers, three regional virology specialists and 17
technical sales representatives. Where the Company utilizes distributors, the
Company nonetheless participates in selling efforts involving key customers. In
Italy, the Company's direct sales force consists of a director of sales, a
product specialist and seven technical sales representatives.
The Company's sales and marketing efforts in Europe, North Africa and the
Middle East are managed through MDE's European headquarters in Milan, Italy.
MDE's strategy has been to appoint one or two distributors in each of the
countries in its targeted markets, and to maintain a direct sales organization
within Italy. The Company has approximately 50 independent distributors in
approximately 50 foreign countries. The Company has additional key distributor
relationships in Canada, Latin America and the Pacific Rim.
RESEARCH AND DEVELOPMENT
The Company's research and development activities focus on developing
diagnostic solutions. Working in conjunction with the marketing department, the
Company's research and development department focuses its activities on
enhancements to and new applications for the Company's technologies. Over the
past five years the Company has developed internally 19 new products. The
research and development department has access to a number of diagnostic
technologies, each of which can be applied to satisfy new product specifications
that marketing has established. A critical expertise of the Company's product
development staff is its ability to bind various chemicals to various solid
phases, including plastics, membranes, latex beads and immunofluorescent dyes,
to develop testing formats. The Company believes that it has certain proprietary
know-how in these areas.
The research and development department initiates the Company's quality
process through its technology transfer mechanism which begins the establishment
of manufacturing standards. By working closely with the manufacturing
department, the same standards can be imposed to ensure consistently
high-quality products. The Company estimates that, from the conceptualization of
a product, it takes approximately 18 to 24 months to begin to generate revenues.
The research and development department is comprised of the Vice President
of Research and Development and 15 research scientists. The disciplines
represented in the group include biochemistry, immunology, mycology,
bacteriology, virology and parasitology. In fiscal 1994 and 1995 and the nine
months
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<PAGE> 28
ended June 30, 1996, the Company spent $1,433,000, $1,432,000 and $1,106,000,
respectively, on its research and development activities.
CUSTOMERS
The principal customers for the Company's products are hospitals,
commercial and reference laboratories and, to an increasing degree, alternate
site markets, such as physicians' offices, outpatient clinics, nursing homes and
HMOs, and new markets, such as veterinary laboratories, water treatment
facilities and consumer self-testing. No end-use customer comprised more than 5%
of the Company's sales in fiscal 1995. Two distributors together accounted for
approximately 34% of the Company's fiscal 1995 sales. However, the Company does
not believe that the loss of either of these distributors would have a long-term
material adverse effect on the Company because of its ability to sell to the
end-use customers served by these distributors through alternative means.
MANUFACTURING
The Company's manufacturing is performed at its Cincinnati facility. All
manufacturing operations are regulated by, and in compliance with, FDA-mandated
Good Manufacturing Practices ("GMPs") for medical devices. To maintain the
highest quality standards, the Company utilizes both external and internal
quality auditors who routinely evaluate the Company's manufacturing processes.
The Company's immunodiagnostic products require the production of highly
specific and sensitive antigens and antibodies. The Company produces
substantially all of its own requirements including: monoclonal antibodies,
polyclonal antibodies, synthetic peptides, plus a variety of fungal, bacterial
and viral antigens. For the majority of its raw materials acquired from third
parties, the Company has developed dual sources. As a result, the Company
believes it has access to sufficient raw materials for its products. Products
are generally produced for inventory and products are sold to customers out of
its finished goods inventory. The Company believes it has sufficient
manufacturing capacity for anticipated growth. Manufacturing backlog is not an
element of the Company's industry. See "-- Properties."
COMPETITION
The market for diagnostic tests is a multi-billion dollar international
industry which is highly competitive. Many of the Company's competitors are
larger with greater financial, research, manufacturing, and marketing resources.
Important competitive factors of the Company's products include product quality,
price, ease of use, customer service and reputation. In a broader sense,
industry competition is based upon scientific and technological capability,
proprietary know-how, access to adequate capital, the ability to develop and
market products and processes, the ability to attract and retain qualified
personnel and the availability of patent protection. To the extent that the
Company's product lines do not reflect technological advances, the Company's
ability to compete in those product lines could be adversely affected.
Companies competing in the diagnostic test industry generally focus on a
limited number of tests or limited segments of the market. As a result, the
diagnostic test industry is highly fragmented and segmented. Hundreds of
companies in the United States alone supply immunodiagnostic tests. These
companies range from multi-national healthcare companies, for which
immunodiagnostics is one line of business, to small start-up companies. Of
central importance in the industry are mid-sized medical diagnostic specialty
companies, like the Company, that offer multiple, broad product lines and have
the ability to deliver high value new products quickly to the marketplace. Among
the companies with which the Company competes in the marketing of one or more of
its products are Abbott Laboratories, Becton, Dickinson and Company, Diagnostic
Products Corporation, QUIDEL Corporation and the Wampole Laboratories Division
of Carter-Wallace, Inc.
INTELLECTUAL PROPERTY, PATENTS AND LICENSES
In general, the Company does not seek patent protection for its products
and instead strives to maintain the confidentiality of its proprietary know-how.
The Company owns or licenses U.S. and foreign patents for 15 of its products.
The patents or licenses thereof for these products were acquired in connection
with the purchase of the products or the licensing of the technology on which
the products are based. In the absence of patent protection, the Company may be
vulnerable to competitors who successfully replicate the Company's
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<PAGE> 29
production and manufacturing techniques and processes. The Company's laboratory
and research personnel are required to execute confidentiality agreements
designed to protect the Company's proprietary products.
The Company has no reason to believe that its products and proprietary
rights infringe the proprietary rights of any third parties. There can be no
assurance, however, that third parties will not assert infringement claims in
the future.
GOVERNMENT REGULATION
FDA Regulation of Medical Devices. The Company's products are regulated by
the FDA as "devices" pursuant to the Federal Food, Drug and Cosmetic Act (the
"FDCA"). Under the FDCA, medical devices are classified into one of three
classes (i.e., Class I, II or III). Class I and II devices are not expressly
approved by the FDA but, instead, are "cleared" for marketing. Class III devices
generally must receive "pre-market approval" from the FDA as to safety and
effectiveness.
A 510(k) clearance will be granted if the submitted data establishes that
the proposed device is "substantially equivalent" to an existing Class I or
Class II medical device or to a Class III medical device for which the FDA has
not required pre-market approval. The 510(k) clearance process for
"substantially equivalent" devices allows product sales to be made after the
filing of an application and upon acknowledgment by the FDA, typically within 90
to 120 days after submission. If the FDA requests additional information, the
product cannot be sold until the application has been supplemented and upon
acknowledgment by the FDA within 90 to 120 days of the supplemental application.
If there are no existing FDA-approved products or processes comparable to a
diagnostic product or process, approval by the FDA involves the more lengthy
pre-market approval procedures.
Each of the products currently marketed by the Company has been cleared by
the FDA pursuant to the 510(k) clearance process or is exempt from such
requirements. The Company believes that most, but not all, products under
development will be classified as Class I or II medical devices and will be
eligible for 510(k) clearance. One example of a product in development that is
subject to the FDA's more lengthy pre-market approval process is the adaptation
of the Company's rapid diagnostic test for urinary tract infections to the
consumer market.
Other Medical Device Regulation. Sales of the Company's products in
foreign countries are subject to foreign government regulation, the requirements
of which vary substantially from country to country. The time required to obtain
approval by a foreign country may be longer or shorter than that required for
FDA approval, and the requirements may differ. The Company is currently pursuing
approvals for its Premier EHEC and Premier Rotaclone products with the
Paul-Ehrlich Institute in Germany and is supporting a number of foreign product
registrations via its international distributors.
Other Approvals. The Company intends to seek appropriate certifications
and approvals from the Association of Analytical Chemists (AOAC) and the United
States Department of Agriculture (USDA) to enable the Company to market an
immunodiagnostic test for toxigenic E. coli in both food products and animals.
The Company has no direct experience in obtaining these certifications and
approvals, but the Company believes the time required and applicable procedures
will be similar to those required for FDA approval. However, there is no
assurance that the Company will receive these certifications and approvals.
The Clinical Laboratory Improvement Act of 1988 ("CLIA 88") prohibits
laboratories from performing in vitro tests for the purpose of providing
information for the diagnosis, prevention or treatment of any disease or
impairment of, or the assessment of, the health of human beings unless there is
in effect for such laboratories a certificate issued by the U.S. Department of
Health and Human Services ("HHS") applicable to the category of examination or
procedure performed.
The Company is an exempt small quantity generator of hazardous waste and
has a U.S. Environmental Protection Agency identification number. All hazardous
waste is manifested and disposed of properly. The Company is in compliance with
the applicable portions of the Federal and state hazardous waste regulations and
has never been a party to any environmental proceeding.
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<PAGE> 30
EMPLOYEES
As of June 30, 1996, the Company had 171 full-time employees, including 52
in sales, marketing and technical support, 72 in manufacturing, 19 in research
and product development and 28 in administration and finance.
None of the Company's employees is represented by a labor organization and
the Company is not a party to any collective bargaining agreement. The Company
has never experienced any strike or work stoppage and considers its relationship
with its employees to be excellent.
PROPERTIES
The Company's corporate offices, manufacturing facility and research and
development facility are located in two buildings totaling 75,000 square feet on
4.1 acres of land in a suburb of Cincinnati. These properties are owned by the
Company. The Company believes these facilities are in good condition, well
maintained and suitable for its long-term needs.
The Company completed construction of a new warehouse in October 1994 and
additional manufacturing and administrative space in September 1995. The Company
expects to complete the renovation of its former administrative offices and
laboratory manufacturing space in September 1996.
The Company believes its manufacturing and laboratory facilities are in
compliance with all applicable rules and regulations and maintained in a manner
consistent with GMPs.
MDE conducts its operations in a two-story building in the Milan, Italy
area consisting of approximately 18,000 square feet. The Company believes these
facilities are in good condition, well maintained and suitable for MDE's
long-term operations.
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<PAGE> 31
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of August 1, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
William J. Motto....................... 55 Chairman of the Board, Chief Executive
Officer and Director
John A. Kraeutler...................... 48 President and Chief Operating Officer
Gerard Blain........................... 56 Vice President, Secretary and Chief
Financial Officer
Christine A. Meda...................... 48 Vice President, Marketing
Ching Sui Arthur Yi, Ph.D.............. 50 Vice President, Research and
Development
Antonio A. Interno..................... 46 Vice President
James A. Buzard, Ph.D.(1)(2)........... 68 Director
Gary P. Kreider(1)(2).................. 58 Director
Robert J. Ready(1)(2).................. 56 Director
Jerry L. Ruyan......................... 50 Director
</TABLE>
- ---------------
(1) Audit Committee Member
(2) Compensation Committee Member
William J. Motto has more than 25 years experience in the pharmaceutical
and diagnostics products industries, is a founder of the Company and has been
Chairman of the Board since March 1977. From that date until June 1986 Mr. Motto
served as President. He served as Chief Executive Officer from June 1986 until
September 1989, and assumed that title again May 1995. Before forming the
Company, Mr. Motto served in various capacities for Wampole Laboratories, Marion
Laboratories, Inc. and Analytab Products, Inc., a division of American Home
Products Corp.
John A. Kraeutler has more than 20 years of experience in the medical
diagnostics industry and joined the Company as Executive Vice President and
Chief Operating Officer in January 1992. In July 1992, Mr. Kraeutler was named
President of the Company. Mr. Kraeutler most recently served as Vice President,
General Manager for a division of Carter-Wallace, Inc. Prior to that, he held
key marketing and technical positions with Becton, Dickinson and Company and
Organon, Inc.
Gerard Blain joined the Company as Vice President and Chief Financial
Officer on March 1, 1994. He was elected Secretary in April 1996. Prior to
joining the Company, Mr. Blain was Vice President and Controller of Marion
Merrell Dow, Inc. Mr. Blain had been with Marion Merrell Dow, Inc. and its
predecessor companies since 1966.
Christine A. Meda has 15 years of experience in the diagnostics industry
and joined the Company as Senior Director of Marketing in July 1994. In October
1995, she was appointed Vice President of Marketing. Ms. Meda served as Director
of Sales and Marketing of Diagnostic Products Corporation from 1991 until
joining the Company. During the period 1984 to 1991, she held various other
management positions in both sales and marketing at Diagnostic Products
Corporation.
Ching Sui Arthur Yi, Ph.D., has more than 17 years experience in the
diagnostics industry and has been Vice President, Research and Development of
the Company since August 1989. From May 1986 until he joined the Company, he was
Director of Product Development of Cambridge BioScience Corporation. Previously
he was a partner of BioClinical System Inc. from July 1983 to April 1986,
Manager of Research and Development, Terumo Medical Corporation From March 1982
to June 1983 and Senior Scientist of Leeco Diagnostics from August 1979 to
February 1982.
Antonio A. Interno was appointed as a Vice President in August 1991. He has
been Managing Director of MDE since February 1990. Prior to that time, he was
the marketing manager for Diagnostics International Distribution SPA, a major
Italian diagnostics distributor.
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<PAGE> 32
James A. Buzard, Ph.D., has been a Director of the Company since May 1990
and serves as Chairman of the Compensation Committee. From March 1981 until
December 1989, he was Executive Vice President of Merrell Dow Pharmaceuticals
Inc. From December 1989 until his retirement in February 1990 he was Vice
President of Marion Merrell Dow Inc. He has been a business consultant since
February 1990.
Gary P. Kreider has been a Director since 1991. For over five years Mr.
Kreider has been a Senior Partner of the Cincinnati law firm of Keating,
Muething & Klekamp, counsel to the Company.
Robert J. Ready has been a Director of the Company since May 1986 and
serves as Chairman of the Audit Committee. In 1976, Mr. Ready founded LSI
Industries, Inc., Cincinnati, Ohio, which engineers, manufactures and markets
commercial/industrial lighting and graphics products, and has served as its
President and Chairman of its Board of Directors since that time.
Jerry L. Ruyan has more than 20 years experience in the diagnostics
products and medical industries, is a founder of the Company and has been a
Director of the Company since March 1977. Currently, Mr. Ruyan's principal
occupation is investment in business ventures, primarily privately held
organizations and presently as a partner in Redwood Ventures LLC. Mr. Ruyan
served as Chief Executive Officer of the Company from July 1992 to May 1995. In
May 1995, Mr. Ruyan reduced his day-to-day involvement in the Company in order
to pursue outside interests. He relinquished the title of Chief Executive
Officer at that time and continues to serve as a Director and an employee. Mr.
Ruyan served as the President of the Company from June 1986 to July 1992. From
June 1986 through January 1992, Mr. Ruyan served as Chief Operating Officer.
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<PAGE> 33
DESCRIPTION OF DEBENTURES
The Debentures will be issued under an Indenture (the "Indenture") to be
dated as of September 1, 1996, between the Company and Star Bank, National
Association as Trustee (the "Trustee"). The Debentures will represent unsecured
general obligations of the Company, subordinate in right of payment to certain
other obligations of the Company as described under "Subordination of
Debentures" and convertible into Common Stock as described under "Conversion of
Debentures." The Debentures will be limited to $12,500,000 aggregate principal
amount ($14,375,000 if the Underwriters' over-allotment option is exercised),
will be issued in fully registered form only in denominations of $1,000 or any
integral multiple thereof and will mature on September 1, 2006.
The following statements are subject to the detailed provisions of the
Indenture and are qualified in their entirety by reference to the Indenture, a
copy of which is filed as an exhibit to the Registration Statement and is also
available for inspection at the office of the Trustee. Whenever particular
provisions of the Indenture are referred to, such provisions are incorporated by
reference as a part of the statements made, and the statements are qualified in
their entirety by such reference.
Interest at the annual rate set forth on the cover page hereof is payable
semi-annually on March 1 and September 1, commencing on March 1, 1997, to
holders of record at the close of business on the preceding February 15 and
August 15, respectively. Interest on the Debentures offered hereby will accrue
from the date of initial issuance.
Principal and premium, if any, will be paid and the Debentures may be
presented for conversion, registration of transfer, and exchange, without
service charge, at the corporate trust office of the Trustee in Cincinnati,
Ohio. Interest will be paid by checks mailed to holders of record unless other
arrangements are made.
CONVERSION OF DEBENTURES
The holders of Debentures will be entitled at any time prior to the close
of business on September 1, 2006, subject to prior redemption, to convert the
Debentures or portions thereof (which are $1,000 or integral multiples thereof)
into shares of Common Stock of the Company, at the conversion price set forth on
the cover page of this Prospectus, subject to adjustment as described below.
Except as described below, no adjustment will be made on conversion of any
Debenture for interest accrued thereon or for dividends on any shares of Common
Stock issued. If any Debenture not called for redemption is converted between a
record date for the payment of interest and the related interest payment date,
the Debenture must be accompanied by funds equal to the interest payable on such
interest payment date on the principal amount so converted. The Company is not
permitted to issue fractional shares of Common Stock upon conversion of
Debentures and, in lieu thereof, will pay a cash adjustment based upon the
market price of the Common Stock on the last trading day prior to the date of
conversion. In the case of Debentures called for redemption, conversion rights
will expire at the close of business on the redemption date.
The conversion price is subject to adjustment under formulas as set forth
in the Indenture in certain events, including: the issuance of shares of Common
Stock of the Company as a dividend or distribution on the Common Stock;
subdivisions, combinations, and reclassifications of the Common Stock; the
issuance to all holders of Common Stock of certain rights or warrants entitling
them for a period not exceeding 45 days to subscribe for Common Stock at less
than the then current market price (as defined); and the distribution to all
holders of Common Stock of any securities (other than Common Stock) or evidences
of indebtedness of the Company or of assets (excluding cash dividends or
distributions from retained earnings) or rights or warrants to subscribe for or
purchase any of its securities (excluding those referred to above). No
adjustment in the conversion price will be required unless such adjustment would
require a change of at least 1% in the conversion price then in effect;
provided, however, that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. The Company reserves the right to make such reductions in the
conversion price, in addition to those required by the foregoing provisions, as
the Company in its discretion shall determine to be advisable in order that
certain share-related distributions made by the Company to its shareholders
after the date of this Prospectus will not be taxable. Except as stated above,
the conversion price will not be adjusted for the issuance of shares of Common
Stock
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<PAGE> 34
or any securities convertible into or exchangeable for Common Stock, or carrying
the right to purchase any of the foregoing, in exchange for cash, property, or
services.
In the case of a consolidation, merger or statutory share exchange
involving the Company as a result of which holders of Common Stock will be
entitled to receive stock, securities or other property or assets (including
cash) with respect to or in exchange for shares of Common Stock or in the case
of a sale or conveyance to another corporation of all or substantially all the
property and assets of the Company, the holders of the Debentures then
outstanding will be entitled thereafter to convert such Debentures into the kind
and amount of shares of stock, other securities or other property or assets
which they would have owned or been entitled to receive upon such consolidation,
merger, statutory share exchange, sale or conveyance had such Debentures been
converted to shares of Common Stock immediately prior to such consolidation,
merger, statutory share exchange, sale or conveyance.
In the event of a taxable distribution to holders of Common Stock which
results in an adjustment of the conversion price, the holders of Debentures may,
in certain circumstances, be deemed to have received a distribution subject to
United States income tax as a dividend; the absence of such an adjustment in
certain other circumstances may also result in a taxable dividend to the holders
of Common Stock.
OPTIONAL REDEMPTION
The Debentures will be redeemable on at least 15 and not more than 60 days'
notice, at the option of the Company, as a whole or in part, at any time after
issuance, at the following prices (expressed as percentages of the principal
amount), together with accrued interest to the date fixed for redemption:
If redeemed during the 12-month period beginning September 1:
<TABLE>
<CAPTION>
YEAR PERCENTAGE YEAR PERCENTAGE
- ---- ---------- ---- ----------
<S> <C> <C> <C>
1997 % 2000 %
1998 2001
1999 2002
</TABLE>
and 100% if redeemed on or after September 1, 2003; provided, however, that the
Debentures may not be redeemed prior to September 1, 1999, unless the last
reported sales price (determined as provided in the Indenture) of the Common
Stock equals or exceeds 140% of the then effective conversion price (as
described above) for at least 20 trading days within a period of 30 consecutive
trading days ending no earlier than five trading days prior to the date of the
notice of redemption.
SUBORDINATION OF DEBENTURES
The indebtedness evidenced by the Debentures is subordinate to the prior
payment in full of all Senior Indebtedness (as defined). During the continuance
beyond any applicable grace period of any default in the payment of principal,
interest or rental on any Senior Indebtedness, no payment of principal of,
premium, if any, or interest on the Debentures shall be made by the Company. In
addition, upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization, the payment of the principal of,
premium, if any, and interest on the Debentures is to be subordinated to the
extent provided in the Indenture in right of payment to the prior payment in
full of all Senior Indebtedness. By reason of such subordination, in the event
of the Company's dissolution, holders of Senior Indebtedness may receive more,
ratably, and holders of the Debentures may receive less, ratably, than the other
creditors of the Company or may receive no consideration at all. Such
subordination will not prevent the occurrence of any Event of Default under the
Indenture.
The term "Senior Indebtedness" will be defined to mean the following,
whether outstanding on the date of execution of the Indenture or thereafter
created, incurred, assumed or guaranteed:
(a) Principal of and premium, if any, and interest on indebtedness of
the Company for money borrowed (including any indebtedness secured by a
mortgage or other lien which is (i) given to secure all or part of the
purchase price of property subject thereof, whether given to the vendor of
such property or to another, or (ii) existing on property at the time of
acquisition thereof) evidenced by notes or other written obligations;
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<PAGE> 35
(b) Principal of and premium, if any, and interest on indebtedness of
the Company evidenced by notes, debentures, bonds or other securities of
the Company;
(c) The amount of the Company's liability determined under generally
accepted accounting principles under any lease required to be classified as
a liability on the Company's balance sheet;
(d) Principal of and premium, if any, and interest on indebtedness of
others of the kinds described in either of the preceding clauses (a) or
(b), or, to the extent set forth in the preceding clause (c), leases of
others of the kind described in the preceding clause (c) assumed by or
guaranteed in any manner by the Company or in effect guaranteed by the
Company through an agreement to purchase, contingent or otherwise; and
(e) Principal of and premium, if any, and interest on renewals,
extensions, or refundings of indebtedness of the kinds described in any of
the preceding clauses (a), (b) or (d) or, to the extent set forth in the
preceding clause (c), renewals or extensions of leases of the kinds
described in either of the preceding clauses (c) or (d);
unless, in the case of any particular indebtedness, lease, renewal, extension,
or refunding, the instrument or lease creating or evidencing the same or the
assumption or guarantee of the same expressly provides that such indebtedness,
lease, renewal, extension, or refunding is subordinate to any other indebtedness
of the Company or that such indebtedness, lease, renewal, extension, or
refunding is not superior in right of payment to the Debentures.
The Indenture permits the Trustee to become a creditor of the Company and
does not preclude the Trustee from enforcing its rights as a creditor, including
rights as a holder of Senior Indebtedness.
REPURCHASE EVENT
Upon the occurrence of a Repurchase Event, each holder of Debentures shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Debentures pursuant to
the offer described below (the "Repurchase Offer") at a purchase price equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase (the "Repurchase Payment"). Within 30 days after
the occurrence of a Repurchase Event, the Company shall mail a notice to each
holder stating among other things: (1) the Repurchase Payment and the purchase
date, which shall not be earlier than 45 days nor later than 60 days from the
date such notice is mailed or such later date as may be necessary for the
Company to comply with the requirements of the 1934 Act (the "Repurchase Date");
(2) that any Debenture not tendered will continue to accrue interest; (3) that,
unless the Company defaults in the payment of the Repurchase Payment, all
Debentures accepted for payment pursuant to the Repurchase Offer shall cease to
accrue interest after the Repurchase Date; and (4) certain other procedures that
a holder must follow to accept a Repurchase Offer or to withdraw such
acceptance. The Company will comply with any applicable requirements of the
Exchange Act and other securities laws, and the regulations thereunder,
governing the repurchase of the Debentures in connection with a Repurchase Event
and may modify a Repurchase Offer to effect such compliance.
A Repurchase Event is generally defined to include (i) the acquisition of
50% or more of the Company's voting stock by a person or group, other than any
current holder of 5% or more of the Company's Common Stock (or a group including
such a holder); (ii) a change, over a two-year period, in the composition of the
Company's Board of Directors such that, with limited exceptions, the Board
members at the beginning of the period no longer constitute a majority of the
Board; (iii) certain consolidations and mergers involving the Company or sales
of assets of the Company, if the primary effect is that, after the transaction,
a person or group, other than a current holder of 5% or more of the Company's
Common Stock (or group including such a holder), has more than 50% of the
ordinary voting power of the surviving corporation; (iv) the acquisition by the
Company of over 30% of the outstanding shares of its capital stock during any
12-month period; and (v) certain (A) distributions in respect of the Company's
capital stock or (B) acquisitions by the Company of its capital stock, if, in
either case, the sum of the (x) ratio of the fair market value of the price paid
in the current distribution or acquisition to the then-fair market value of the
Company's outstanding capital stock plus (y) the similar ratios for all other
distributions or acquisitions, respectively, during the prior 12-month period,
exceeds 30%. For purposes of the Repurchase Event tests, the Company's "voting
stock" means the Common
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<PAGE> 36
Stock plus any other class or classes of stock which may be issued and have
general voting power in the election of the Company's Board of Directors. The
Company's "capital stock" means any stock which does not have dividend or
liquidation priority over other stock of the Company, irrespective of relative
voting powers. Currently, the Company's only "voting stock" and "capital stock"
is its Common Stock.
On the Repurchase Date, the Company will deposit with the Trustee an amount
equal to the Repurchase Payment in respect of all Debentures or portions thereof
that have been tendered. The Trustee shall promptly mail to each holder of
Debentures accepted for payment an amount equal to the Repurchase Price for such
Debentures, and the Trustee shall promptly authenticate and mail to each holder
a new Debenture equal in principal amount to any unpurchased portion of the
Debentures surrendered.
Except as described above with respect to a Repurchase Event, the Indenture
does not contain any other provisions that permit the holders of the Debentures
to require that the Company repurchase or redeem the Debentures in the event of
a takeover or similar transaction. The provisions of the Indenture relating to
the purchase of Debentures upon a Repurchase Event may impede the completion of
a merger, tender offer or other takeover attempt. See "Description of Capital
Stock." Neither the Trustee nor the Company's Board of Directors may relieve the
Company of its obligation to repurchase Debentures.
Any future credit agreements or other agreements relating to Senior
Indebtedness to which the Company becomes a party may prohibit the Company from
purchasing any Debentures or may provide that certain change in control events
with respect to the Company would constitute a default under such agreements. In
the event a Repurchase Event occurs at a time when the Company is prohibited
from purchasing Debentures, the Company could seek the consent of its lenders
for the purchase of Debentures or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or repay
such borrowings, the Company will remain prohibited from purchasing Debentures.
In such case, the Company's failure to purchase tendered Debentures would
constitute an Event of Default under the Indenture. In such circumstances, the
subordination provisions in the Indenture would restrict payments to the holders
of Debentures.
EVENTS OF DEFAULT
An Event of Default will be defined in the Indenture as being: 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 15 days; default in payment of principal or premium, if any, on the
Debentures when the same becomes due and payable at maturity, upon redemption or
otherwise, whether or not prohibited by the subordination provisions of the
Indenture; default by the Company for 30 days after notice in the observance or
performance of any other covenant in the Indenture; default under any
obligations for money borrowed aggregating $1,000,000 or more; or certain events
involving bankruptcy, insolvency, or reorganization of the Company. The
Indenture will provide that the Trustee is required, within 90 days after the
occurrence of a default which is known to the Trustee and is continuing, to give
to the holders of the Debentures notice of such default; provided that, except
in the case of default in the payment of principal or premium, if any, or
interest on any of the Debentures, the Trustee shall be protected in withholding
such notice if it in good faith determines that the withholding of such notice
is in the interest of the holders of the Debentures.
The Indenture will provide that if any Event of Default shall have occurred
and be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Debentures then outstanding may declare the principal of all the
Debentures to be due and payable immediately, but if the Company shall cure all
defaults (other than the nonpayment of interest and premium, if any, on and
principal of any Debentures which shall have become due solely by reason of
acceleration) and certain other conditions are met, such declaration may be
annulled and past defaults may be waived by the holders of a majority in
principal amount of the Debentures then outstanding.
The holders of a majority in principal amount of the Debentures then
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee subject to
certain limitations specified in the Indenture.
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<PAGE> 37
In certain cases, the holders of a majority in principal amount of the
outstanding Debentures may on behalf of the holders of all Debentures waive any
past default or Event of Default except, unless theretofore cured, a default in
the payment of the principal of, premium, if any, or interest on any of the
Debentures (other than the nonpayment interest and premium, if any, on and
principal of any Debentures which shall become due by acceleration) or a default
relating to an obligation of the Company which cannot be modified without the
consent of the holder of each Debenture affected.
MERGERS AND SALES OF ASSETS BY THE COMPANY
Subject to the provisions described above under "Repurchase Event," the
Company may consolidate with or merge into any other corporation, or sell or
transfer all or substantially all of its assets to any corporation, provided
that the successor corporation shall be a corporation organized and existing
under the laws of the United States or any State thereof and shall assume all of
the obligations of the Company under the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture will contain provision permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Debentures at the time outstanding, to modify the
Indenture or any supplemental indenture or the rights of the holders of the
Debentures except that no such modification shall, without the consent of the
holder of each Debenture so affected (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 redemption premium thereon, impair or
affect the right of a holder to institute suit for the payment thereof, change
the currency in which the Debentures are payable or impair the right to convert
the Debentures into shares of Common Stock subject to the terms set forth in the
Indenture, or (ii) reduce the aforesaid percentage of Debentures, the consent of
the holders of which is required for any such modification.
MISCELLANEOUS
No holder of a Debenture may institute any action against the Company under
the Indenture (except actions for payment of overdue principal, premium, if any,
or interest or the conversion of the Debentures) unless the holders of at least
25% of the principal amount of Debentures then outstanding shall have requested
the Trustee to institute such action, and the Trustee shall not have instituted
such action within 60 days of such request.
A director, officer, employee or shareholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Debentures
or the Indenture, or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each holder of Debentures by accepting a
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Debentures.
Whether or not required by the rules and regulations of the Commission, so
long as any Debentures are outstanding, the Company will furnish holders of
Debentures all quarterly and annual information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K as if the
Company were required to file such Forms. See "Available Information."
CONCERNING THE TRUSTEE
Star Bank, National Association, the Trustee under the Indenture, may at
times be a depository for funds of, make loans to or perform services for the
Company and its subsidiaries in the normal course of business. The Indenture
does not preclude the Trustee from enforcing its rights as a creditor, including
rights as a holder of Senior Indebtedness.
36
<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, without par value, and 1,000,000 shares of preferred stock,
without par value. The following description of certain matters relating to the
capital stock of the Company is a summary and is qualified in its entirety of
the provisions of the Company's Articles of Incorporation and Code of
Regulations.
COMMON STOCK
The Company had 14,277,509 shares issued and outstanding immediately prior
to the date of this Prospectus. Holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of
shareholders. Shareholders have the right to cumulate their votes in the
election of directors.
Subject to preferences which may be granted to holders of preferred stock,
holders of Common Stock are entitled to share in such dividends as the Board of
Directors, in its discretion, may validly declare from funds legally available.
In the event of liquidation, each outstanding share of Common Stock entitles its
holder to participate ratably in the assets remaining after payment of
liabilities and any preferred stock liquidation preferences.
Shareholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or any other securities of the
Company and there are no redemption or sinking fund provisions with regard to
the Common Stock. All outstanding shares of Common Stock are fully paid, validly
issued, and non-assessable.
The vote of the holders of 66 2/3% of all outstanding shares is required to
amend the Articles of Incorporation and to approve mergers, reorganizations and
similar transactions.
PREFERRED STOCK
Preferred stock may be issued from time to time in series having such
designated preferences and rights, qualifications and limitations as the Board
of Directors may determine without any approval of shareholders. Preferred stock
could be given voting and conversion rights which would adversely affect the
voting power and equity of holders of Common Stock and could have preference to
Common Stock with respect to dividend and liquidation rights. The preferred
stock could have the effect of acting as an anti-takeover device to prevent a
change of control of the Company. None of the preferred stock is outstanding and
the Company has no plans at present to issue any such shares.
PROVISIONS AFFECTING BUSINESS COMBINATIONS
Ohio law governs the rights of shareholders of the Company. Chapter 1704 of
the Ohio Revised Code may be viewed as having an antitakeover effect. This
statute, in general, prohibits an "issuing public corporation" (the definition
of which would include the Company) from entering into a "Chapter 1704
Transaction" with the beneficial owner (or affiliates of such beneficial owner)
of 10% or more of the outstanding shares of the corporation (an "interested
shareholder") for at least three years following the date on which the
interested shareholder attains such 10% ownership, unless the board of directors
of the corporation approves, prior to such person becoming an interested
shareholder, either the transaction or the acquisition of shares resulting in a
10% ownership. A "Chapter 1704 Transaction" is broadly defined to include, among
other things, a merger or consolidation with, sale of substantial assets to, or
the receipt of a loan, guaranty or other financial benefit (which is not
proportionately received by all shareholders) by the interested shareholder.
Following the expiration of such three-year period, a Chapter 1704 Transaction
with the interested shareholder is permitted only if either (i) the transaction
is approved by the holders of at least two-thirds of the voting power of the
corporation (or such different proportion as set forth in the corporation's
articles of incorporation), including a majority of the outstanding shares,
excluding those owned by the interested shareholder, or (ii) the business
combination results in the shareholders other than the interested shareholder
receiving a prescribed "fair price" for their shares. One significant effect of
Chapter 1704 is to cause an interested shareholder to negotiate with the board
of directors of a corporation prior to becoming an interested shareholder.
37
<PAGE> 39
In addition, Section 1707.043 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
Section 1701.831 of the Ohio Revised Code contains provisions which permit
a "control share acquisition" of an "issuing public corporation" only with the
prior authorization of a majority of the disinterested shareholders, which could
operate as a deterrent to an acquisition of the Company. However, as permitted
by this Section, the Company's Articles of Incorporation contain a provision
exempting the Company from the operation of this Section. As a result, these
provisions of the Ohio Revised Code will not act as a deterrent to an
acquisition of the Company or the accumulation of a large amount of the
Company's Common Shares. However, the Company's Articles of Incorporation could
be amended in the future to make Section 1701.831 applicable to the Company with
the vote of two-thirds of the shares eligible to vote on the proposal.
TRANSFER AGENT AND REGISTRAR
The registrar and transfer agent for the Company's Common Stock is The
Fifth Third Bank, Cincinnati, Ohio.
38
<PAGE> 40
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
for whom Roney & Co. is acting as representative (the "Representative"), have
individually agreed to purchase from the Company the principal amounts of
Debentures set forth below opposite their respective names at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of such Debentures if any are
purchased.
<TABLE>
<CAPTION>
PRINCIPAL
NAME AMOUNT
------------------------------------------------------------------------ -----------
<S> <C>
Roney & Co. ............................................................ $
-----------
Total......................................................... $12,500,000
==========
</TABLE>
The Underwriters propose to offer the Debentures to the public initially at
the offering price set forth on the cover page of this Prospectus and to certain
broker dealers at such offering price less a concession not to exceed % of the
principal amount. The Underwriters may allow, and such broker dealers may
re-allow, a concession, not to exceed % of the principal amount, on sales to
other broker dealers. The offering price and concessions to broker dealers may
be changed by the Underwriters after the initial offering.
The offering of the Debentures is made for delivery when, as and if
accepted by the Underwriters, subject to prior sale and withdrawal, cancellation
or modification of the offer without notice.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days from the date of this Prospectus, to purchase up to an
additional $1,875,000 principal amount of Debentures to cover over-allotments.
The Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the $12,500,000 principal amount of Debentures
offered hereby. If purchased, the Underwriters will sell such additional
Debentures on the same terms on which the $12,500,000 principal amount of
Debentures are being offered.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933.
In connection with this offering, certain Underwriters and selling group
members, if any, or their respective affiliates may engage in passive market
making transactions in the Common Stock on The Nasdaq National Market in
accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of, among other things, displaying bids limited by the bid prices of
independent market makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited to a specified percentage of the passive market maker's average daily
trading volume in the Common Stock during a specified prior period and all
possible market making activity must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
39
<PAGE> 41
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Keating, Muething & Klekamp, Cincinnati,
Ohio. Gary P. Kreider, a partner in Keating, Muething & Klekamp, serves as a
director of the Company. Members of that firm beneficially own 34,643 shares of
Common Stock. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Taft, Stettinius & Hollister, Cincinnati,
Ohio.
EXPERTS
The audited financial statements and schedules included or incorporated by
reference in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
40
<PAGE> 42
GLOSSARY OF SELECTED TERMS
The following glossary defines terms used to describe the Company's
business.
ANTIBODY. Highly specific proteins that bind with and counteract antigens.
Immunoassays make use of the specific binding properties of antibodies with
antigens in diagnostic tests.
ANTIGEN. A foreign substance, generally produced by a bacterium, virus or
fungus which immunoassays measure, that induces the formation of antibodies.
ASPERGILLUS. A fungus which is an opportunistic pathogen and may produce a
severe and persistent infection.
ASSAY. Any test procedure used to detect or measure a specific substance
in body fluids.
BLASTOMYCES. A fungus which causes infection due to inhalation through the
pulmonary route. Infection is marked by tumors in the skin or by lesions in the
lungs, bones, tissues, liver, spleen and kidneys.
C. DIFFICILE. A bacteria (Clostridium difficile) which causes a serious
diarrheal disease affecting the digestive system. Toxigenic strains of C.
difficile produce two toxins having pathogenic effects in humans. Toxin A causes
enteric fluid accumulation, diarrhea and intestinal hemorrhaging. It has been
hypothesized that, once the colon is damaged by toxin A, toxin B can enter the
circulatory system and cause widespread tissue deterioration.
COCCIDIOIDES. A fungus which causes infection due to the inhalation of
spores. The primary form of the disease is an acute respiratory infection. It is
primarily endemic in arid areas such as southern Arizona and Southern California
and is commonly known as "Valley Fever".
CRYPTOCOCCUS. An opportunistic yeastlike organism which infects humans,
causing an infection involving the skin, lungs, brain and spinal column,
commonly associated with immunocompromised patients, such as those suffering
from AIDS and cancer.
CRYPTOSPORIDIUM. A severe parasitic infection of the gastrointestinal
tract causing severe diarrhea, abdominal pain and electrolyte imbalance.
CYTOMEGALOVIRUS. One of a group of herpes viruses that infect humans. This
virus can cause a variety of symptoms, but the majority of infections are very
mild or subclinical.
ENZYME. Protein which accelerates reactions between substances; used to
produce a color in enzyme immunoassays.
ENZYME IMMUNOASSAY ("EIA"). Immunoassay using an enzyme conjugated to the
antigen or a specific antibody which is used to detect its homologous antibody
or antigen.
FUNGAL SEROLOGY. Diagnosis of fungus-related systemic and respiratory
infections.
GIARDIA. The most common single-celled parasite which is spread via
contaminated food and water and direct person-to-person contact. Representing
the most common parasitic disease, it infects the small intestine, producing
diarrhea, gastrointestinal discomfort, electrolyte imbalance, nausea and weight
loss.
H. PYLORI. Helicobacter pylori is the most common and important cause of
gastritis and has been linked to the cause of chronic recurrent duodenal ulcers.
Treatments that eradicate H. pylori have produced dramatic reductions in ulcer
recurrence.
HERPES SIMPLEX VIRUS. A herpes virus which is characterized by the
formation of clusters of small vesicles and causes an inflammatory skin disease.
HISTOPLASMA. A fungus which causes infection due to the inhalation or
ingestion of spores. The infection is usually asymptomatic, but may cause acute
pneumonia.
IMMUNOASSAY. Procedure using antigens and antibodies to detect and measure
minute concentrations of biological materials; includes radioimmunoassay and
nonisotopic assays, which do not use radioactive materials, such as enzyme
immunoassay.
IMMUNODIAGNOSTIC. Diagnosis based on blood serum reactions to antigens.
41
<PAGE> 43
IMMUNODIFFUSION. A technique of study of antigen-antibody reactions by
observing precipitates formed by the combination of specific antigens and
antibodies which have diffused in a gel in which they had been separately
placed.
IMMUNOFLUORESCENCE. The use of fluorescence-labeled antibodies to identify
bacterial, viral or other antigenic material specific to the labeled antibody.
IN VITRO. Outside the living body, for example, in a test tube.
MONONUCLEOSIS. A common, acute, self-limited disease caused by the
Epstein-Barr virus.
MONOCLONAL ANTIBODY. An antibody produced from a single clone of a plasma
cell against a single antigenic epitope.
PARASITOLOGY. The study of the diseased condition resulting from parasitic
infection.
PARTICLE AGGLUTINATION. A test format in which antigens or antibodies bind
to solid particles enabling visualization of test result.
PATHOGEN. An agent that causes disease such as a bacterium, virus or
fungi.
PNEUMOCYSTIS. A microorganism which is the causative agent of a highly
contagious, epidemic pneumonia.
POLYCLONAL ANTIBODY. Antibodies produced from a series of plasma cells
against a variety of antigenic epitopes.
REAGENTS. Biological chemicals required to perform immunoassays; includes
antibodies and antigens.
STREP A. A classification of streptococci based upon cell-wall
carbohydrate antigens. Streptococci Group A are bacteria which cause conditions
such as septic sore throat, scarlet fever, and rheumatic fever.
42
<PAGE> 44
MERIDIAN DIAGNOSTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of September 30, 1995 and 1994....................... F-3
Consolidated Statements of Earnings for the Years Ended September 30, 1995, 1994 and
1993.............................................................................. F-4
Consolidated Statements of Shareholders' Equity for the Years Ended September 30,
1995, 1994 and 1993............................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1994
and 1993.......................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Consolidated Balance Sheets as of June 30, 1996 (unaudited) and September 30,
1995.............................................................................. F-16
Consolidated Statements of Earnings for the Nine Months Ended June 30, 1996 and 1995
(unaudited)....................................................................... F-18
Consolidated Statements of Shareholders' Equity for the Nine Months Ended June 30,
1996 (unaudited).................................................................. F-19
Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 1996 and
1995 (unaudited).................................................................. F-20
Notes to Consolidated Financial Statements (unaudited).............................. F-21
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Meridian Diagnostics, Inc.:
We have audited the accompanying consolidated balance sheets of MERIDIAN
DIAGNOSTICS, INC. and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended September 30, 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 financial position of Meridian Diagnostics, Inc.
and subsidiaries as of September 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
November 10, 1995
F-2
<PAGE> 46
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments (Note 2).................................. $ 8,918,637 $ 8,831,983
Accounts receivable, less allowance of $164,136 in 1995 and $113,183 in
1994 for doubtful accounts.............................................. 6,482,999 5,169,989
Inventories (Note 3)...................................................... 3,032,655 3,020,071
Prepaid expenses and other................................................ 321,775 108,423
Deferred tax assets....................................................... 324,910 282,929
----------- -----------
Total current assets............................................... 19,080,976 17,413,395
----------- -----------
Property, Plant and Equipment:
Land...................................................................... 269,217 273,688
Buildings and improvements................................................ 6,162,668 3,716,649
Machinery, equipment and furniture........................................ 5,525,455 4,595,550
Construction in progress.................................................. -- 1,063,702
----------- -----------
11,957,340 9,649,589
Less -- accumulated depreciation and amortization......................... 4,816,905 4,248,561
----------- -----------
Net property, plant and equipment.................................. 7,140,435 5,401,028
----------- -----------
Other Assets (Notes 1 and 4):
Long-term receivable...................................................... 12,670 --
Deferred tax assets....................................................... 87,879 59,841
Deferred debenture offering costs, net of accumulated amortization of
$133,357 in 1995 and $96,876 in 1994.................................... 395,731 665,595
Covenants not to compete, net of accumulated amortization of $1,827,718 in
1995 and $1,337,375 in 1994............................................. 2,432,876 2,923,219
License agreements, net of accumulated amortization of $772,433 in 1995
and $714,878 in 1994.................................................... 362,680 420,235
Patent, tradenames and distributorships, net of accumulated amortization
of $475,762 in 1995 and $267,365 in 1994................................ 1,837,238 2,045,635
Other intangible assets, net of accumulated amortization of $85,570 in
1995 and $43,503 in 1994................................................ 620,192 685,218
Cost in excess of net assets acquired, net of accumulated amortization of
$458,482 in 1995 and $255,753 in 1994................................... 2,598,511 2,714,964
----------- -----------
Total other assets................................................. 8,347,777 9,514,707
----------- -----------
Total assets....................................................... $34,569,188 $32,329,130
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations (Note 5)......................... $ 381,932 $ 367,969
Current portion of capital lease obligations (Note 5)..................... 63,561 --
Accounts payable.......................................................... 689,869 1,843,489
Accrued payroll and payroll taxes......................................... 723,946 650,530
Other accrued expenses.................................................... 937,348 649,732
Income taxes payable...................................................... 458,707 902,069
----------- -----------
Total current liabilities.......................................... 3,255,363 4,413,789
----------- -----------
Long-Term Obligations (Note 5).............................................. 12,285,668 14,683,369
----------- -----------
Capital Lease Obligations (Note 5).......................................... 149,925 --
----------- -----------
Shareholders' Equity (Note 7):
Preferred stock, no par value, 1,000,000 shares authorized; none issued... -- --
Common stock, no par value, 25,000,000 shares authorized; 12,924,814 and
12,292,935 shares issued and outstanding, respectively, stated at....... 1,487,159 1,179,583
Additional paid-in capital................................................ 13,895,901 10,824,012
Retained earnings......................................................... 3,747,930 1,448,736
Cumulative foreign currency translation adjustment........................ (252,758) (220,359)
----------- -----------
Total shareholders' equity......................................... 18,878,232 13,231,972
----------- -----------
Total liabilities and shareholders' equity......................... $34,569,188 $32,329,130
=========== ===========
</TABLE>
- ---------------
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE> 47
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales........................................... $25,109,711 $21,876,773 $16,170,990
Cost of Sales....................................... 8,008,529 7,518,179 5,097,988
----------- ----------- -----------
Gross profit.............................. 17,101,182 14,358,594 11,073,002
----------- ----------- -----------
Operating Expenses:
Research and development.......................... 1,432,315 1,432,928 1,165,210
Selling and marketing............................. 5,228,717 4,747,398 3,715,517
General and administrative........................ 3,864,294 3,364,584 2,667,172
----------- ----------- -----------
Total operating expenses.................. 10,525,326 9,544,910 7,547,899
----------- ----------- -----------
Operating income.......................... 6,575,856 4,813,684 3,525,103
Other Income (Expense):
Licensing and related fees........................ 102,698 -- 55,000
Interest income................................... 435,686 253,644 56,551
Interest expense.................................. (1,134,844) (1,092,345) (178,950)
Cost of withdrawn stock offering.................. -- -- (404,499)
Other, net........................................ (19,470) 8,420 48,153
----------- ----------- -----------
Total other income (expense).............. (615,930) (830,281) (423,745)
----------- ----------- -----------
Earnings before income taxes.............. 5,959,926 3,983,403 3,101,358
Income Taxes (Note 6)............................... 2,435,815 1,542,282 1,211,904
----------- ----------- -----------
Net earnings.............................. $ 3,524,111 $ 2,441,121 $ 1,889,454
=========== =========== ===========
Primary Weighted Average Number of Common Shares
Outstanding....................................... 12,354,752 12,277,392 12,263,791
=========== =========== ===========
Primary Earnings Per Common Share................... $ .29 $ .20 $ .15
=========== =========== ===========
Fully Diluted Weighted Average Number of Common
Shares Outstanding................................ 14,541,603 NA NA
=========== =========== ===========
Fully Diluted Earnings Per Common Share............. $ .28 NA NA
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 48
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
COMMON FOREIGN
SHARES ADDITIONAL CURRENCY
ISSUED AND COMMON PAID-IN RETAINED TRANSLATION
OUTSTANDING STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
----------- ---------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992... 7,705,453 $ 851,975 $ 7,563,763 $ 2,258,187 $ 2,560 $10,676,485
Net earnings.................... -- -- -- 1,889,454 -- 1,889,454
Cash dividends paid -- $.06 per
share as adjusted............. -- -- -- (702,325) -- (702,325)
Exercise of stock options....... 1,249 900 4,839 -- -- 5,739
3% stock dividend............... 231,201 154,142 1,811,067 (1,965,209) -- --
Foreign currency translation
adjustment.................... -- -- -- -- (252,341) (252,341)
----------- ---------- ----------- ----------- --------- -----------
Balance at September 30, 1993... 7,937,903 1,007,017 9,379,669 1,480,107 (249,781) 11,617,012
Net earnings.................... -- -- -- 2,441,121 -- 2,441,121
Cash dividends paid -- $.08 per
share as adjusted............. -- -- -- (908,209) -- (908,209)
Exercise of stock options....... 18,689 12,638 39,988 -- -- 52,626
3% stock dividend............... 238,698 159,928 1,404,355 (1,564,283) -- --
Foreign currency translation
adjustment.................... -- -- -- -- 29,422 29,422
----------- ---------- ----------- ----------- --------- -----------
Balance at September 30, 1994... 8,195,290 1,179,583 10,824,012 1,448,736 (220,359) 13,231,972
Net earnings.................... -- -- -- 3,524,111 -- 3,524,111
Fractional shares............... (570) (293) (3,049) -- -- (3,342)
Cash dividends paid -- $.10 per
share as adjusted............. -- -- -- (1,224,917) -- (1,224,917)
Exercise of stock options....... 42,849 14,961 34,131 -- -- 49,092
3 for 2 stock split............. 4,097,645 -- -- -- -- --
Debenture Conversions (Note
5)............................ 589,600 292,908 3,040,807 -- -- 3,333,715
Foreign currency translation
adjustment.................... -- -- -- -- (32,399) (32,399)
----------- ---------- ----------- ----------- --------- -----------
Balance at September 30, 1995... 12,924,814 $1,487,159 $13,895,901 $ 3,747,930 $(252,758) $18,878,232
=========== ========== =========== =========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 49
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings............................................... $ 3,524,111 $ 2,441,121 $ 1,889,454
Non-cash items --
Depreciation and amortization of property, plant and
equipment............................................. 863,436 703,190 580,979
Amortization of intangible assets....................... 1,147,987 1,009,950 471,045
Deferred interest expense............................... 154,950 94,978 --
Revenues received in advance recorded in income......... -- -- (55,000)
Deferred income taxes................................... (70,019) (263,977) 28,079
Changes in current assets excluding cash and short-term
investments............................................. (1,611,612) (1,865,471) (1,328,516)
Changes in current liabilities excluding current portion of
long-term obligations................................... (1,150,277) 2,305,066 516,355
Long-term receivable and payable........................... (2,470) -- --
----------- ----------- -----------
Net cash provided by operating activities.......... 2,856,106 4,424,857 2,102,396
----------- ----------- -----------
Cash Flows from Investing Activities:
Property, plant, and equipment acquired, net............... (2,472,177) (1,426,485) (718,135)
Product line acquisition --
Inventory and equipment................................. -- (571,446) (262,972)
Covenants not to compete................................ -- (1,100,000) (1,500,000)
Patent, tradenames, customer lists and other............ -- (1,375,000) (1,394,000)
Cost in excess of net assets acquired................... -- (346,434) (297,722)
Proceeds from sale of product line......................... -- 500,000 --
Acquisition of license agreements.......................... -- (55,898) (80,000)
Advance royalties paid..................................... -- (25,000) --
----------- ----------- -----------
Net cash used for investing activities............. (2,472,177) (4,400,263) (4,252,829)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from subordinated debentures, net of offering
costs................................................... -- -- 10,737,530
Proceeds from other long-term obligations.................. 1,284,005 634,970 --
Repayment of long-term obligations......................... (388,246) (462,339) (219,145)
Dividends paid............................................. (1,224,917) (908,209) (702,325)
Proceeds from issuance of common stock..................... 45,750 52,626 5,739
Effect of exchange rate changes on cash.................... (13,867) 14,749 (6,229)
----------- ----------- -----------
Net cash provided by (used for) financing
activities....................................... (297,275) (668,203) 9,815,570
----------- ----------- -----------
Net Increase (Decrease) in Cash and Short-Term Investments... 86,654 (643,609) 7,665,137
Cash and Short-Term Investments at Beginning of Period....... 8,831,983 9,475,592 1,810,455
----------- ----------- -----------
Cash and Short-Term Investments at End of Period............. $ 8,918,637 $ 8,831,983 $ 9,475,592
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for --
Income taxes............................................ $ 2,882,336 $ 1,034,000 $ 1,195,000
Interest................................................ 883,356 852,265 160,062
Capitalized lease obligations.............................. 259,240 -- --
Estimated contingent consideration related to product line
acquisitions (Note 5)................................... -- 1,972,000 --
Conversion of debentures to common stock, net of
amortization of deferred debenture offering costs of
$186,285 (Note 5)....................................... 3,333,715 -- --
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 50
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Meridian Diagnostics, Inc. and its subsidiaries, Omega
Technologies, Inc., Meridian Diagnostics Europe s.r.1. ("MDE") and Meridian
Diagnostics International, Inc. (collectively, "Meridian" or the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
(B) SHORT-TERM INVESTMENTS -- The Company adopted Statement of Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115), in 1995. In accordance with FAS 115, prior years'
financial statements have not been restated to reflect the change in accounting
method. There was no cumulative effect as a result of adopting FAS 115 in 1995.
Debt securities for which the Company does not have the intent or ability
to hold to maturity are classified as available for sale, along with any equity
securities. At September 30, 1995, the Company's investments in debt and equity
securities were classified as cash and short-term investments due to their
short-term nature. These investments are diversified among high credit quality
securities. The estimated fair value of cash investments approximates cost, and
therefore, there are no unrealized gains or losses as of September 30, 1995.
(C) INVENTORIES -- Inventories are stated at the lower of cost, determined
on a first-in, first-out basis, or market.
(D) PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are
stated at cost. Upon retirement or other disposition of property, plant and
equipment, the cost and related accumulated depreciation and amortization are
removed from the accounts and the resulting gain or loss is reflected in
earnings. Maintenance and repairs are expensed as incurred. Depreciation and
amortization are computed on the straight-line method in amounts sufficient to
writeoff the cost over the estimated useful lives as follows:
Buildings and improvements -- 5 to 33 years
Machinery, equipment and furniture -- 3 to 10 years
(E) OTHER ASSETS -- Other assets are stated at cost less accumulated
amortization and are being amortized on a straight line basis over their
estimated useful lives:
Covenants not to compete -- 7 to 10 years
License agreements -- 3 to 10 years
Patents, tradenames and distributorships -- 10 to 15 years
Cost in excess of net assets acquired and other intangible
assets -- 15 years
Deferred debenture offering costs -- 8 years
Subsequent to their acquisition, the Company continually evaluates whether
subsequent events and circumstances have occurred that indicate the remaining
estimated useful lives of intangible assets may warrant revision or that the
remaining balances of these assets may not be recoverable. When factors indicate
that an intangible asset should be evaluated for possible impairment, the
Company uses an estimate of the related product line's cash flow over the
remaining life of the asset in measuring whether the asset is recoverable.
(F) INCOME TAXES -- The provision for income taxes includes federal,
foreign, state and local income taxes currently payable and those deferred
because of temporary differences between income for financial reporting and
income for tax purposes. Research and experimentation credits are reflected as a
reduction in income taxes when realized.
F-7
<PAGE> 51
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Prior period
financial statements have not been restated to reflect the new accounting
method. The cumulative effect of this change, as well as the effect of this new
standard on income tax expense for the year ended September 30, 1994, and for
each of the quarters in the period then ended, is not material.
(G) EARNINGS PER COMMON SHARE -- Primary earnings per common share are
based on the weighted average number of common shares outstanding during the
year. No material dilution results from outstanding stock options which are the
only common stock equivalent. Fully diluted earnings per share are dilutive for
fiscal 1995 only and include the impact of assuming the convertible subordinated
debentures are converted, net of the impact of pro forma interest expense.
On September 12, 1995, the Company's Board of Directors declared a
three-for-two stock split to shareholders of record on September 22, 1995. On
November 16, 1994, the Company's Board of Directors declared a 3% stock
dividend. On December 1, 1993, the Company's Board of Directors declared a 3%
stock dividend. On November 23, 1992, the Company's Board of Directors declared
a 5% stock dividend, and in March 1992, the Company's Board of Directors
declared a three-for-two stock split. All data with respect to earnings per
share, dividends per share and weighted average number of shares outstanding has
been retroactively adjusted to reflect the stock splits and stock dividends.
(H) RESEARCH AND DEVELOPMENT COSTS -- Research and development costs are
charged to earnings as incurred.
(I) REVENUE RECOGNITION -- Revenue is recognized from sales when a product
is shipped. Income from licensing agreements is recognized as earned and as
stipulated by the respective agreements.
(J) TRANSLATION OF FOREIGN CURRENCY -- Assets and liabilities of foreign
operations are translated using year-end exchange rates and revenues and
expenses are translated using exchange rates prevailing during the year, with
gains or losses resulting from translation included in a separate component of
shareholders' equity. Gains and losses resulting from transactions in foreign
currencies were immaterial.
(K) SEGMENT DATA AND MAJOR CUSTOMERS -- The Company was formed in June 1976
and functions as a research, development, manufacturing, marketing and sales
organization with primary emphasis in the field of diagnostic tests for
infectious diseases. The Company grants credit under normal terms to its
customers, primarily to hospitals, commercial laboratories and distributors in
the United States and Europe.
A summary of the Company's international operations is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales...................................... $5,811,000 $4,609,000 $2,930,000
Operating profit............................... 1,233,000 801,000 462,000
Pre-tax income................................. 979,000 579,000 446,000
Identifiable assets............................ 4,583,000 3,904,000 2,657,000
Accounts receivable............................ 2,538,000 2,052,000 1,313,000
</TABLE>
Consolidated sales in thousands of dollars to individual customers
constituting 10% or more of net sales were as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Customer A............................ $6,033 (24%) $5,042 (23%) $4,254 (26%)
Customer B............................ 2,569 (10%) 2,073 (9%) 1,823 (11%)
</TABLE>
F-8
<PAGE> 52
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments (with maturities of less than 4 months) are
comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash and money market funds................................. $1,562,795 $2,865,966
Commercial paper............................................ 3,655,842 3,996,017
Corporate and municipal put bonds........................... 3,700,000 1,970,000
---------- ----------
$8,918,637 $8,831,983
========== ==========
</TABLE>
At September 30, 1995 and 1994, the market value of the Company's
investments approximated cost. The municipal put bonds are putable every seven
days and the principal balance is secured by a bank letter of credit.
(3) INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Raw materials............................................... $1,165,319 $1,354,412
Work-in-process............................................. 626,077 649,205
Finished goods.............................................. 1,241,259 1,016,454
---------- ----------
$3,032,655 $3,020,071
========== ==========
</TABLE>
(4) PRODUCT AND LICENSE AGREEMENT ACQUISITIONS
(A) PRODUCT LINES -- In January 1994, the Company acquired a product line
from an affiliate of Ortho Diagnostic Systems, Inc. ("ODSI"), a subsidiary of
Johnson & Johnson, comprised of products used primarily for the detection of
certain infectious diseases including Chlamydia, Herpes and various viral
respiratory infections. The Company also acquired inventory, equipment, certain
license rights, a trademark, customer lists, a noncompetition agreement and
technical information for the manufacture of the products.
The purchase included $3,300,000 in cash paid to ODSI and $82,000 of
expenses. As additional consideration, Meridian will pay ODSI up to 6% of
product sales made during the nine-year period beginning in January 1995. The
Company has recorded the estimated present value of this additional
consideration (Note 5).
In a separate agreement dated March 14, 1994, the Company sold to VAI
Diagnostics, Inc. certain tissue culture products and assets acquired in January
1994 from the affiliate of ODSI mentioned above. The $650,000 proceeds consisted
of cash of $500,000, which was paid upon execution of the agreement, and
$150,000 in an unsecured promissory note due in mid-1997. No gain or loss was
recognized on this transaction.
Also, in June 1993, the Company acquired a product line from ODSI which
consisted of the branded products MONOSPOT and MONOLERT, which are rapid tests
for infectious mononucleosis. The acquisition included certain patent and
trademark rights, customer lists, inventory, technical information for the
manufacture of the products, certain equipment and a noncompetition agreement.
The purchase included $3,100,000 in cash paid to ODSI at the acquisition
date, inventory purchased at unit prices specified in the agreement which
aggregated approximately $233,000 and $122,000 of expenses. As
F-9
<PAGE> 53
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional consideration, Meridian will pay ODSI 6% of product sales made during
the three-year period beginning July 1, 1996. The Company has recorded the
estimated present value of this additional consideration (Note 5). The Company
also assumed ODSI's royalty obligations (equal to 4.25% of MONOLERT sales) to
The Scripps Research Institute ("Scripps"). The obligation to pay royalties to
Scripps expires in 2009.
(B) LICENSE AGREEMENTS -- The Company has entered various license
agreements as follows:
<TABLE>
<CAPTION>
DATE ACQUIRED LICENSOR/PRODUCT TERM COST
- -------------- ----------------------- -------------------------- -----------------------
<S> <C> <C> <C>
October 1993 New England Medical fifteen years $81,000 of which
Center Hospital/E. coli $25,000 to be offset
Test against future
royalties
January 1993 Tacoma Trading ten years $80,000
Company/parasitology
concentration and
transport system
July 1991 Texas BioResource five years, option to $100,000 to be offset
Corp./bacterial urinary extend for two additional against future
tract infection test five-year terms royalties, option to
purchase 25,062 shares
of common stock which
vests at the end of the
agreement
April 1991 Disease Detection ten years, option to $442,000
International, extend for two additional
Inc./rapid tests for ten-year terms
the detection of strep
throat, pregnancy,
Toxoplasma, Rubella,
Cytomegalovirus and
Herpes
</TABLE>
F-10
<PAGE> 54
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM OBLIGATIONS, BANK CREDIT ARRANGEMENTS AND COMMITMENTS
(A) LONG-TERM OBLIGATIONS -- Long-term obligations is comprised of the
following at:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Convertible Subordinated Debentures, unsecured, 7 1/4%
annual interest payable semi-annually on March 1 and
September 1, principal due September 1, 2001............ $ 7,980,000 $11,500,000
Domestic bank notes payable, secured by real estate and
accounts receivable:
Interest at 5.5%, payable in monthly installments of
$16,276 with a balloon payment of $32,552 in March
1996................................................. 113,932 292,969
Interest at prime + 1/2% (9.25% at September 30, 1995),
payable in monthly installments of $6,250 with a
balloon payment of $375,000 in March 1997............ 481,250 556,250
Construction loan, interest at 7% to be converted to a 7%,
twenty-year amortization mortgage note, payable in
monthly installments of $14,878 beginning August 1996
and a balloon payment of $1,478,357 due July 2003....... 1,918,975 634,970
Estimated contingent consideration payable to ODSI,
discounted at 7.25%, payable in quarterly variable
installments, based on a percent of certain product
sales, from 1995 to 2004 (Note 4)....................... 2,163,244 2,067,149
Other..................................................... 10,199 --
----------- -----------
12,667,600 15,051,338
Less -- Current portion................................... 381,932 367,969
----------- -----------
$12,285,668 $14,683,369
=========== ===========
</TABLE>
The Convertible Debentures were called for redemption on October 10, 1995.
Holders of the Debentures have the option of converting their Debentures into
shares of Meridian Diagnostics' common stock prior to the redemption date of
November 30, 1995, at a conversion price of $5.97 per share or, upon delivery of
the Debentures, receiving cash. The Debentures will be redeemed at 105% of their
face amount plus accrued interest. The conversion price of $5.97 per share is
equivalent to a conversion rate of 167.5 shares per each $1,000 principal amount
of Debentures. Through September 30, 1995, $3,520,000 of Debentures were
converted to common stock net of $186,000 of deferred debenture offering costs,
which were charged to additional paid-in capital. As of November 10, 1995,
$1,074,000 of Debentures were outstanding.
On a pro forma basis, assuming full conversion of the Debentures as of
October 1, 1994, primary earnings per share for the year ended September 30,
1995 would have been reduced by $0.01 per share from $0.29 per share to $0.28
per share.
The domestic bank notes payable are part of a bank credit arrangement which
also includes a $6,000,000 line of credit which calls for interest at the prime
rate and is part of the same security agreement. There were no borrowings
outstanding on the line of credit at September 30, 1995. In connection with the
bank credit arrangement, the Company has agreed, among other things, to meet
certain financial ratio requirements and to limit additional indebtedness.
F-11
<PAGE> 55
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities on the above long-term obligations are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 381,932
1997............................................................ 771,672
1998............................................................ 379,451
1999............................................................ 372,479
2000............................................................ 285,985
Thereafter...................................................... 10,476,081
-----------
$12,667,600
===========
</TABLE>
(B) CAPITAL LEASE OBLIGATIONS -- The Company leases equipment with cost and
related accumulated depreciation of $259,240 and $56,953, respectively, under
capital leases expiring in various years through 2002. Amortization of assets
under capital leases is included in depreciation expense.
The future minimum annual rentals under the capital leases at September 30,
1995 are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 73,623
1997............................................................ 75,325
1998............................................................ 22,851
1999............................................................ 22,851
2000............................................................ 21,791
Thereafter...................................................... 34,148
--------
Subtotal........................................................ $250,589
Less portion of payments representing interest.................. (37,103)
--------
Present value of lease payments................................. $213,486
========
</TABLE>
(C) COMMITMENTS -- The Company has royalty agreements with various parties
which require the Company to pay a specified percentage of the sales of certain
products (1% to 10%). Royalty expenses for the years ended September 30, 1995,
1994 and 1993 were approximately $408,000, $357,000 and $280,000 respectively.
F-12
<PAGE> 56
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Currently payable............................ $1,866,090 $1,337,356 $ 884,296
Temporary differences --
Revenue received in advance............... -- -- 18,700
Tax depreciation (less) than book
depreciation............................ (26,842) (6,800) (6,561)
State franchise taxes..................... (14,335) (26,520) 2,959
Currently nondeductible expenses.......... (13,720) (42,745) 8,809
Intangible asset amortization............. (155,693) (134,627) --
Other, net................................ 117,224 (5,100) 598
---------- ---------- ----------
1,772,724 1,121,564 908,801
State and local................................ 240,662 201,000 104,116
Foreign........................................ 422,429 219,718 198,987
---------- ---------- ----------
Total provision for income taxes..... $2,435,815 $1,542,282 $1,211,904
========== ========== ==========
</TABLE>
The following is a reconciliation between the statutory federal income tax
rate and the effective rate derived by dividing the provision for income taxes
by earnings before income taxes:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed provision for income
taxes at statutory rate..... $2,026,375 34.0% $1,354,357 34.0% $1,054,462 34.0%
Increase/(decrease) in taxes
resulting from --
State and local income
taxes, net of federal
income tax effect........ 158,837 2.7 132,660 3.3 68,684 2.2
Foreign taxes............... 154,399 2.6 64,703 1.6 69,453 2.2
Research and experimentation
tax credits.............. -- -- -- -- (4,000) (.1)
Amortization of cost in
excess of net assets
acquired................. 8,033 .1 8,033 .2 8,033 .3
Tax exempt income........... (38,003) (.6) (14,022) (.4) (2,608) (.1)
Foreign Sales Corporation
benefit.................. (34,250) (.6) (18,333) (.4) (2,000) (.1)
Officers Life Insurance..... 22,384 .4 -- -- -- --
Other, net.................. 138,040 2.3 14,884 .4 19,880 .7
---------- ---- ---------- ---- ---------- ----
Actual provision for
income taxes...... $2,435,815 40.9% $1,542,282 38.7% $1,211,904 39.1%
========== ==== ========== ==== ========== ====
</TABLE>
F-13
<PAGE> 57
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax assets were as follows at:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
State income taxes......................................... $ 67,966 $ 60,573
Currently nondeductible expenses........................... 126,663 104,073
Intangible asset amortization.............................. 321,843 173,686
Other...................................................... 135,455 118,283
--------- ---------
Total.............................................. $ 651,927 $ 456,615
--------- ---------
Deferred tax liabilities:
Depreciation............................................... (27,295) (113,845)
Other...................................................... (211,843) --
--------- ---------
Total.............................................. $(239,138) $(113,845)
--------- ---------
Net deferred tax assets............................ $ 412,789 $ 342,770
========= =========
</TABLE>
No valuation allowances are recorded against deferred tax assets or
deferred tax liabilities at September 30, 1995 or 1994.
(7) EMPLOYEE BENEFITS
(A) SAVINGS AND INVESTMENT PLAN -- The Company has a profit sharing and
retirement savings plan covering substantially all full-time employees. Profit
sharing contributions to the plan, which are discretionary, are determined by
the Board of Directors. The plan permits participants to contribute to the plan
through salary reduction. Under terms of the plan, the Company will match up to
3% of the employee contributions. Discretionary and matching contributions by
the Company to the plan amounted to approximately $273,000, $270,000, and
$219,000, during 1995, 1994 and 1993, respectively.
(B) STOCK OPTIONS -- At September 30, 1995, 1,431,235 of the authorized but
unissued common shares of the Company were reserved for issuance to directors,
executives, key employees and consultants for stock options. Of the reserved
shares, 773,663 were subject to options outstanding at September 30, 1995.
Options may be granted at exercise prices from 95% to 110% of the market value
of the underlying common stock on the date of grant and become exercisable on
vesting schedules established at the time of grant. All options contain
provisions restricting their transferability and limiting their exercise in the
event of termination of employment or the disability or death of the optionee.
Options may be granted both as Incentive Stock Options designed to provide
certain tax benefits under the Internal Revenue Code and as Nonqualified Options
without such tax benefits.
F-14
<PAGE> 58
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions involving the stock options are shown in the table below:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of period (from $1.05 to
$7.57 per share).................................... 659,715 518,580 395,671
Granted (from $4.69 to $6.42 per share)............... 189,188 185,422 125,413
Expired or canceled................................... (17,817) (8,950) (517)
Exercised*............................................ (57,423) (35,337) (1,987)
------- ------- -------
Outstanding at end of period (from $1.05 to $7.57 per
share).............................................. 773,663 659,715 518,580
======= ======= =======
Exercisable at end of period (from $1.05 to $7.57 per
share).............................................. 353,541 227,136 135,477
======= ======= =======
</TABLE>
- ---------------
* Includes 14,574 shares surrendered in conjunction with the exercise of stock
options.
(C) OTHER BENEFITS -- The Company does not provide postretirement or
postemployment benefits to its employees.
(8) QUARTERLY FINANCIAL DATA -- UNAUDITED (Amounts in thousands, except for per
share data)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED IN FISCAL 1995
-----------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 5,106 $6,469 $ 6,782 $6,753
Gross profit................................... 3,397 4,355 4,525 4,824
Net earnings................................... 430 945 985 1,164
Primary earnings per common share.............. .04 .08 .08 .09
Cash dividends per common share................ .02 .02 .03 .03
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED IN FISCAL 1994
-----------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 3,625 $5,891 $ 5,717 $6,644
Gross profit................................... 2,486 3,557 3,685 4,631
Net earnings................................... 200 610 603 1,028
Primary earnings per common share.............. .01 .05 .05 .09
Cash dividends per common share................ .02 .02 .02 .02
</TABLE>
F-15
<PAGE> 59
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments................................. $ 7,972,093 $ 8,918,637
Accounts receivable, less allowance of $125,792 and $164,136
for doubtful accounts........................................ 7,486,777 6,482,999
Inventories..................................................... 4,195,724 3,032,655
Prepaid expenses and other...................................... 586,703 165,553
Deferred tax assets............................................. 390,062 324,910
----------- ------------
Total current assets......................................... 20,631,359 18,924,754
----------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Land............................................................ 276,927 269,217
Building improvements........................................... 5,981,461 6,162,668
Machinery, equipment and furniture.............................. 6,069,077 5,525,455
Construction in progress........................................ 687,187 --
----------- ------------
13,014,652 11,957,340
Less -- Accumulated depreciation and amortization............... 5,230,769 4,816,905
----------- ------------
Net property, plant and equipment............................ 7,783,883 7,140,435
----------- ------------
OTHER ASSETS:
Long-term receivables, including cash surrender value of
insurance policies........................................... 295,387 168,892
Deferred royalties.............................................. 285,459 74,762
Deferred tax assets............................................. 222,879 87,879
Deferred debenture offering costs, net of accumulated
amortization of $133,357..................................... 0 395,731
Covenants not to compete, net of accumulated amortization
of $2,195,478 and $1,827,718................................. 3,325,116 2,432,876
License agreements, net of accumulated amortization of
$815,599 and $772,433........................................ 319,514 362,680
Patents, trade names, customer lists and distributorships, net
of accumulated amortization of $632,059 and $475,762......... 3,486,941 1,837,238
Other intangible assets, net of accumulated amortization of
$117,119 and $85,570......................................... 2,123,881 545,430
Costs in excess of net assets acquired, net of accumulated
amortization
of $611,704 and $458,482..................................... 3,127,817 2,598,511
----------- ------------
Total other assets........................................... 13,186,994 8,503,999
----------- ------------
Total assets................................................. $41,602,236 $ 34,569,188
=========== ============
</TABLE>
F-16
<PAGE> 60
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable -- Bank............................................ $ 6,218,000 $ 0
Current portion of long-term obligations........................ 361,000 381,932
Current portion of capital lease obligations.................... 107,879 63,561
Accounts payable................................................ 692,447 689,869
Accrued payroll and payroll taxes............................... 649,801 723,946
Other accrued expenses.......................................... 2,187,176 937,348
Income taxes payable............................................ 841,106 458,707
----------- ------------
Total current liabilities.................................. 11,057,409 3,255,363
----------- ------------
LONG-TERM OBLIGATIONS............................................. 1,976,529 12,285,668
----------- ------------
CAPITAL LEASE OBLIGATIONS......................................... 366,398 149,925
----------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 1,000,000 shares authorized; none
issued
Common stock, no par value, 50,000,000 shares authorized;
14,276,638 and 12,924,814 shares issued and outstanding
respectively, stated at...................................... 2,384,854 1,487,159
Additional paid-in capital...................................... 20,498,404 13,895,901
Retained earnings............................................... 5,500,542 3,747,930
Foreign currency translation adjustment......................... (181,900) (252,758)
----------- ------------
Total shareholders' equity................................. 28,201,900 18,878,232
----------- ------------
Total liabilities and shareholders' equity................. $41,602,236 $ 34,569,188
=========== ============
</TABLE>
F-17
<PAGE> 61
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
----------- -------------
<S> <C> <C>
NET SALES......................................................... $20,335,897 $18,356,729
COST OF SALES..................................................... 6,196,415 6,079,338
----------- -----------
Gross Profit............................................... 14,139,482 12,277,391
----------- -----------
OPERATING EXPENSES:
Research and development........................................ 1,105,675 1,083,284
Selling and marketing........................................... 4,378,907 3,823,591
General and administrative...................................... 3,064,568 2,850,369
----------- -----------
Total operating expenses................................... 8,549,150 7,757,244
----------- -----------
Operating income........................................... 5,590,332 4,520,147
----------- -----------
OTHER INCOME (EXPENSE):
Licensing and commission fees................................... 41,846 92,806
Investment income............................................... 339,648 306,904
Interest expense and amortization of debt expenses.............. (307,792) (857,268)
Other, net...................................................... 197,532 (25,949)
Currency gains/(losses)......................................... -- --
----------- -----------
Total other income (expense)............................... 271,234 (483,507)
----------- -----------
Earnings before income taxes............................... 5,861,566 4,036,640
INCOME TAXES...................................................... 2,378,393 1,676,023
----------- -----------
Net earnings............................................... $ 3,483,173 $ 2,360,617
=========== ===========
PRIMARY WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...... 14,136,623 12,312,687
=========== ===========
PRIMARY EARNINGS PER COMMON SHARE................................. $ .25 $ .19
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES............ 14,794,029 N/A
=========== ===========
FULLY DILUTED EARNINGS PER COMMON SHARE........................... $ .24 N/A
=========== ===========
</TABLE>
F-18
<PAGE> 62
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
COMMON FOREIGN
SHARES ADDITIONAL CURRENCY
ISSUED AND COMMON PAID-IN RETAINED TRANSLATION
OUTSTANDING STOCK CAPITAL EARNINGS ADJUSTMENT TOTAL
----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1995......................... 12,924,814 $1,487,159 $13,895,901 $ 3,747,930 $ (252,758) $18,878,232
Net earnings................... -- -- -- 3,483,173 -- 3,483,173
Cash dividends paid............ -- -- (1,730,561) -- (1,730,561)
Exercise of stock options...... 33,940 14,352 74,746 -- -- 89,098
Other awards................... 172 117 1,479 -- -- 1,596
Debenture conversion, net...... 1,317,712 883,226 6,526,278 -- -- 7,409,504
Foreign currency translation
adjustment................... -- -- -- -- 70,858 70,858
----------- ---------- ----------- ---------- ----------- -----------
Balance at June 30, 1996....... 14,276,638 $2,384,854 $20,498,404 $ 5,550,542 $ (181,900) $28,201,900
=========== ========== =========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 63
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................................... $ 3,483,173 $ 2,360,617
Noncash items --
Loss on disposal of fixed assets............................. 13,771 --
Amortization of royalties.................................... 26,803 --
Depreciation of property, plant and equipment................ 741,808 718,067
Amortization of intangible assets............................ 767,879 705,079
Deferred interest expense.................................... 121,221 41,660
Deferred income taxes........................................ (200,152) (312,830)
Long term receivables........................................ (126,495) (211,477)
Changes in other current assets and current liabilities --
Accounts receivable, net..................................... (1,003,778) (887,015)
Inventories.................................................. (333,069) (862)
Prepaid expenses and other................................... (421,150) (193,059)
Accounts payable............................................. 2,578 (1,098,367)
Accrued expenses............................................. 1,175,683 912,749
Income taxes payable......................................... 448,779 (150,015)
----------- ------------
Net cash provided by operating activities.................. 4,697,051 1,884,547
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment acquired, net..................... (1,198,829) (1,859,348)
Royalty advanced................................................ (37,500) --
Product line acquisition --
Royalty advanced............................................. (200,000) --
Inventory and equipment...................................... (1,030,000) --
Covenant not to compete...................................... (1,260,000) --
Patents, tradenames, customer list and other assets.......... (3,416,000) --
Cash in excess of net assets acquired........................ (682,527) --
----------- ------------
Net cash used for investing activities..................... (7,824,856) (1,859,348)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations.............................. (2,834,533) (282,808)
Proceeds from long-term obligations............................. 511,032 1,407,334
Dividends paid.................................................. (1,730,561) (895,289)
Proceeds from issuance of common stock, net..................... (53,535) 40,918
Effect of exchange rate changes on cash......................... 70,858 (18,215)
Proceeds from bank line of credit............................... 6,218,000 --
----------- ------------
Net cash provided by (used for) financing activities....... 2,181,261 251,940
----------- ------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS........ (946,544) 277,139
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD............ 8,918,637 8,831,983
----------- ------------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD.................. $ 7,972,093 $ 9,109,122
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for --
Income taxes................................................. $ 1,883,196 $ 2,110,761
=========== ============
Interest..................................................... $ 111,637 $ 538,145
=========== ============
Non-cash activities --
Common stock issued from conversion of subordinated
debentures, net of amortization of deferred debenture
offering costs.............................................. $ 7,409,504 $ 160,000
Cashless exercise of stock option............................ $ 66,380 --
</TABLE>
F-20
<PAGE> 64
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The consolidated financial statements included herein have not been
examined by independent public accountants, but include all adjustments
(consisting of normal recurring entries) which are, in the opinion of
management, necessary for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to the requirements of the Securities and Exchange
Commission, although the Company believes that the disclosures included in these
financial statements are adequate to make the information not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the year.
(2) INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
---------- -------------
<S> <C> <C>
Raw materials.............................................. $1,167,568 $ 1,165,319
Work-in-process............................................ 1,000,459 626,077
Finished goods............................................. 2,027,697 1,241,259
---------- ------------
$4,195,724 $ 3,032,655
========== ===========
</TABLE>
(3) INCOME TAXES
The provisions for income taxes were computed at the estimated annualized
effective tax rates utilizing current tax law in effect, after giving effect to
research and experimentation credits.
(4) EARNINGS PER COMMON SHARE
Net earnings per share has been computed based upon the weighted average
number of shares outstanding during the periods including the effect of the
conversion of the subordinated debentures into common stock. All share and per
share information has been adjusted to reflect the 3 for 2 stock split in
October 1995. Additionally, all share and per share information has been
adjusted for a 3% stock dividend in November 1994.
(5) TRANSLATION OF FOREIGN CURRENCY
Assets and liabilities of foreign operations are translated using
quarter-end exchange rates, and revenues and expenses are translated using
exchange rates prevailing during the year with gains or losses resulting from
translation included in a separate component of shareholders' equity. Gains and
losses resulting from transactions in foreign currencies were immaterial.
(6) RECLASSIFICATIONS
Certain reclassifications have been made to the accompanying financial
statements to conform to the June 30, 1996 presentation.
F-21
<PAGE> 65
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(7) ACQUISITIONS
On June 24, 1996 the Company acquired the enteric product line of Cambridge
Biotech Corporation for approximately $6,588,000. The purchase price was
allocated as follows:
<TABLE>
<S> <C>
Inventory.............................................................. $ 830,000
Fixed Assets........................................................... 200,000
Advanced Royalty....................................................... 200,000
Covenant Not to Compete................................................ 1,260,000
Customer List.......................................................... 1,090,000
Supply Agreement....................................................... 218,000
Patents Trademarks..................................................... 498,000
Manufacturing Procedures............................................... 1,610,000
Cost in Excess of Net Assets Acquired.................................. 682,000
----------
Total........................................................ $6,588,000
==========
</TABLE>
The total purchase price included cash paid to Cambridge Biotech
Corporation, of $6,351,000, expenses of $125,000 and accrued royalties of
$112,000. As additional consideration, Meridian agreed to pay Cambridge a
royalty of 2% on product sales for a five year period beginning June 24, 1996.
Included in the $6,351,000 is an advanced payment of $200,000 on such royalties.
The remaining estimated royalty has been accrued at its present value. Also
included in the $6,351,000 is an amount accrued as of June 30, 1996 for
inventory of $651,000 which was paid on July 23, 1996. Intangible assets
acquired will be amortized over periods ranging from 5 to 15 years.
F-22
<PAGE> 66
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THE DEBENTURES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE DEBENTURES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. 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 TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 7
Capitalization........................ 10
Use of Proceeds....................... 10
Dividend Policy....................... 11
Price Range of Common Stock........... 12
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of
Financial Condition and Results of
Operations.......................... 14
Business.............................. 20
Management............................ 30
Description of Debentures............. 32
Description of Capital Stock.......... 37
Underwriting.......................... 39
Legal Matters......................... 40
Experts............................... 40
Glossary of Selected Terms............ 41
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
===============================================================================
===============================================================================
$12,500,000
Meridian Diagnostics, Inc.
% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2006
-------------------------
PROSPECTUS
-------------------------
Roney & Co.
, 1996
===============================================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee*...................... $ 4,957
National Association of Securities Dealers, Inc. filing fee*.............. 1,938
Accounting fees and expenses.............................................. 30,000
Legal fees and expenses................................................... 40,000
Blue Sky fees and expenses................................................ 10,000
Printing and engraving expenses........................................... 75,000
Marketing expenses........................................................ 10,000
Miscellaneous............................................................. 128,105
--------
TOTAL........................................................... $300,000
========
</TABLE>
- ---------------
* Actual; other expenses are estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ohio Revised Code, Section 1701.13(E), allows indemnification by the
Registrant to any person made or threatened to be made a party to any
proceedings, other than a proceeding by or in the right of the Registrant, by
reason of the fact that he is or was a director, officer, employee or agent of
the Registrant, against expenses, including judgment and fines, if he acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Registrant and, with respect to criminal actions, in which
he had no reasonable cause to believe that his conduct was unlawful. Similar
provisions apply to actions brought by or in the right of the Registrant, except
that no indemnification shall be made in such cases when the person shall have
been adjudged to be liable for negligence or misconduct to the Registrant unless
otherwise deemed appropriate by the court. Indemnification is to be made by a
majority vote of a quorum of disinterested directors or the written opinion of
independent counsel or by the shareholders or by the court. The Registrant's
Code of Regulations extends such indemnification.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1 -- Form of Proposed Underwriting Agreement
4 -- Form of Indenture
5 -- Opinion of Keating, Muething & Klekamp as to legality
12 -- Statement Regarding Computation of Ratios
23.1 -- Consent of Independent Public Accountants
23.3 -- Consent of Keating, Muething & Klekamp (Contained on Exhibit 5)
24 -- Powers of Attorney (contained on the signature page)
25 -- Statement of Eligibility of Trustee on Form T-1
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act 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 Securities Act
and is, therefore, unenforceable. In
II-1
<PAGE> 68
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
Securities Act and will be governed by the final adjudication of such issue.
(b) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's Annual Report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(i)(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 the 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.
(i)(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.
II-2
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has fully caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Cincinnati, State of Ohio, as of the day of
August, 1996.
MERIDIAN DIAGNOSTICS, INC.
By: William J. Motto
---------------------------------
William J. Motto
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. The persons whose names are marked an
asterisk (*) below hereby designate John A. Kraeutler or Gerard Blain to sign
all amendments, including post-effective amendments to this Registration
Statement as well as any related registration statement (or amendment thereto)
filed pursuant to Rule 462(b) promulgated under the Securities Act of 1933.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------------------------------------------- ------------------------------- ----------------
<C> <S> <C>
William J. Motto Chairman of the Board and Chief August , 1996
- --------------------------------------------- Executive Officer (Principal
William J. Motto Executive Officer)
Gerard Blain Vice President, Chief Financial August , 1996
- --------------------------------------------- Officer and Treasurer
Gerard Blain (Principal Financial Officer
and Principal Accounting
Officer)
Jerry L. Ruyan Director August , 1996
- ---------------------------------------------
Jerry L. Ruyan
James A. Buzard Director August , 1996
- ---------------------------------------------
James A. Buzard
Gary P. Kreider Director August , 1996
- ---------------------------------------------
Gary P. Kreider
Robert J. Ready Director August , 1996
- ---------------------------------------------
Robert J. Ready
</TABLE>
II-3
<PAGE> 1
MERIDIAN DIAGNOSTICS, INC.
$12,500,000 Principal Amount of ___%
Convertible Subordinated Debentures
Due ____________ 1, 2006
UNDERWRITING AGREEMENT
September ___ , 1996 DRAFT
-----
RONEY & CO.
As Representative of the Several
Underwriters Named in Schedule 3
One Griswold
Detroit, Michigan 48226
Ladies and Gentlemen:
Meridian Diagnostics, Inc., an Ohio corporation (the "Company"), hereby
confirms its agreement with Roney & Co. and the several Underwriters named in
Schedule 3 (the "Underwriters") as set forth below.
1. SECURITIES. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the Underwriters an aggregate of
$12,500,000 principal amount of ____% Convertible Subordinated Debentures due
__________ 1, 2006. Such $12,500,000 principal amount of Debentures are referred
to in this Agreement as the "Firm Debentures". The Company also proposes to
issue and sell to the Underwriters not more than an aggregate of $1,875,000
principal amount of additional Debentures if requested by the Underwriters as
provided in Section 3 of this Agreement. Any and all Debentures to be purchased
by the Underwriters pursuant to such options are referred to in this Agreement
as the "Option Debentures", and the Firm Debentures and any Option Debentures
are collectively referred to in this Agreement as the "Debentures". The
Debentures are to be issued pursuant to an indenture to be dated as of
___________ 1, 1996 (the "Indenture") between the Company and Star Bank,
National Association (the "Trustee").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company meets the requirements for use of Form S-3
under the Securities Act of 1933, as amended, and the rules and regulations of
the Securities and Exchange Commission (the "Commission") thereunder
(collectively, the "Act"). A registration statement on such Form (File No.
333-________) with respect to the Debentures and the Common Shares, without par
value, of the Company (the "Common Shares") into which the Debentures may be
converted as provided in the Indenture (the "Underlying Common Shares")
(together, the "Securities"), including a prospectus subject to completion, has
been prepared and filed by the Company with the Commission in accordance with
the provisions of the Act, and one or more amendments to such registration
statement may have been so filed. As soon as practicable after the execution of
this Agreement, the Company will file with the Commission either (1) if such
registration statement, as it may have been amended, has been
<PAGE> 2
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed, in such registration statement),
with such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by the Underwriters prior to the execution of this Agreement, or (2) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriters prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is declared
effective, and, in the event of any amendment to such registration statement
after the effective date and before the Firm Closing Date and any Option Closing
Date (as defined in Sections 3(a) and 3(b), respectively), such registration
statement as so amended, but only from and after the effectiveness of such
amendment, including (1) all financial statements, schedules and exhibits
thereto, (2) all documents (or portions thereof) incorporated by reference
therein filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (3) any information omitted therefrom pursuant to Rule 430A
under the Act and included in the Prospectus (as hereinafter defined). As used
in this Agreement, the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective), including all documents (or portions thereof) incorporated
by reference therein filed under the Exchange Act. As used in this Agreement,
the term "Prospectus" means the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no prospectus is required to be
filed pursuant to said Rule 424(b), such term means the prospectus included in
the Registration Statement, at the time the Registration Statement or any
amendment thereto became effective, and, in the event of any supplement or
amendment to such prospectus before the Firm Closing Date and any Option Closing
Date, such prospectus as so supplemented or amended but only from and after the
filing with the Commission of such supplement or the effectiveness of such
amendment, in any case including all documents (or portions thereof)
incorporated by reference therein filed under the Exchange Act.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any Preliminary
Prospectus was filed with the Commission, it (1) contained all statements
required to be stated therein in accordance with, and complied in all material
respects with the requirements of, the Act, the Exchange Act, the Trust
Indenture Act of 1939 as amended, if required (the "Trust Indenture Act"), and
the respective rules and regulations of the Commission thereunder and (2) did
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. When the Registration
Statement or any amendment thereto was or is declared effective and at all times
subsequent thereto up to and including the Firm Closing Date and any Option
Closing Date, it (1) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act, the Trust Indenture Act, if
required, the Exchange Act and the respective rules and regulations of the
Commission thereunder and (2) did not or will 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, in light of the
circumstances
2
<PAGE> 3
under which they were made, not misleading. When the Prospectus or any amendment
or supplement thereto is filed with the Commission pursuant to Rule 424(b) (or,
if the Prospectus or such amendment or supplement is not required to be so
filed, when the Registration Statement or the amendment thereto containing such
amendment or supplement to the Prospectus was or is declared effective), on the
date when the Prospectus is otherwise amended or supplemented and at all times
subsequent thereto up to and including the Firm Closing Date and any Option
Closing Date (as defined in Sections 3(a) and 3(b), respectively), the
Prospectus, as amended or supplemented at any such time, (1) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Act, the Trust Indenture Act, if required, the Exchange Act and the respective
rules and regulations of the Commission thereunder and (2) did not or will not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by you
specifically for use therein.
(c) The Company's only subsidiaries are listed on Schedule 1
to this Agreement. The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the nature or conduct of their respective businesses
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the Company and its subsidiaries, taken as
a whole.
(d) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions of this
Agreement to be carried out by it.
(e) The authorized, issued and outstanding shares of capital
stock of each of the Company's subsidiaries are set forth on Schedule 2 to this
Agreement. Such issued and outstanding shares have been duly authorized and
validly issued, are fully paid and nonassessable and are all owned beneficially
by the Company free and clear of all restrictions on transfer (other than those
imposed by the Act and the securities or Blue Sky laws of various jurisdictions)
and any security interests, liens, encumbrances, equities and claims.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus, under the caption
"Capitalization". All of the issued and outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights and contractual rights to purchase.
The Underlying Common Shares have been duly authorized and duly reserved for
issuance and, upon issuance in accordance with the terms of the Debentures and
the Indenture, the
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<PAGE> 4
Underlying Common Shares will be duly authorized, validly issued, fully paid and
nonassessable. No holder of outstanding shares of capital stock of the Company
is entitled as such to any preemptive or other rights to subscribe for any of
the Securities, and no holder of securities of the Company has any right which
has not been fully exercised or waived to require the Company to register the
offer or sale of any securities owned by such holder under the Act in the public
offering contemplated by this Agreement.
(g) The capital stock of the Company conforms to the
description thereof contained in the Registration Statement and the Prospectus
or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus.
(h) The Indenture has been duly authorized, and when duly
executed and delivered by the Company, will constitute the valid and binding
obligation of the Company, enforceable in accordance with its terms.
(i) The Debentures have been duly authorized for issuance and
sale pursuant to this Agreement and, when duly executed, authenticated and
delivered to the Underwriters against payment therefor pursuant to the
provisions of the Indenture and this Agreement, will be valid and binding
obligations of the Company enforceable in accordance with their terms, and will
be entitled to the benefits of the Indenture, which will be substantially in the
form previously delivered to you; and the Debentures and the Indenture conform
to all statements relating thereto contained in the Registration Statement and
Prospectus (or if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(j) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial condition of the Company
and its consolidated subsidiaries and the results of operations and cash flows
as of the dates and periods therein specified. Such financial statements and
schedules have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise noted therein). The selected financial data set forth under the
caption "Selected Consolidated Financial Data" in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present, on the basis stated in the Prospectus (or such Preliminary Prospectus),
the information included therein.
(k) To the best knowledge of the Company, Arthur Andersen LLP,
which has certified certain financial statements of the Company and its
consolidated subsidiaries and delivered its report with respect to the audited
consolidated financial statements and schedules included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), are independent public accountants as
required by the Act, the Exchange Act and the related published rules and
regulations thereunder.
(l) The execution and delivery of this Agreement have been
duly authorized by the Company. This Agreement has been duly executed and
delivered by the Company, and assuming due execution by the other parties to
this Agreement, is the legal, valid and binding agreement of the Company,
enforceable by any such party against the Company in accordance with its terms.
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<PAGE> 5
(m) No legal or governmental proceedings are pending 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 that are required to be
described in the Registration Statement or the Prospectus and are not described
therein (or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and no such proceedings have been threatened against the Company or
any of its subsidiaries or with respect to any of their respective properties.
No contract or other document is required to be described in the Registration
Statement or the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required.
(n) The execution and delivery of this Agreement, the
issuance, offering and sale of the Debentures to the Underwriters by the Company
pursuant to this Agreement, the compliance by the Company with the other
provisions of this Agreement and the consummation of the other transactions
contemplated by this Agreement do not (1) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be required under
state securities or blue sky laws and, if the registration statement (as
amended) filed with respect to the Securities is not effective under the Act as
of the time of execution of this Agreement, such as may be required (and shall
be obtained as provided in this Agreement) under the Act or the Trust Indenture
Act, or (2) conflict with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties are bound, or the Articles of
Incorporation or other charter documents, Code of Regulations or by-laws of the
Company or any of its subsidiaries, or any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or any
arbitrator or any other laws applicable to the Company, any of its subsidiaries
or any of their respective properties.
(o) The Company has not, directly or indirectly, (1) taken any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Debentures or (2) since the filing of the registration statement originally
filed with respect to the Securities (A) sold, bid for, purchased, or paid
anyone any compensation for soliciting purchases of, the Debentures or the
Common Shares or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(p) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), (1) the Company
and its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (3) there has not been any
material change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries or any material loss or damage to the
property of the Company or any of its subsidiaries, any material adverse change
in the condition (financial or otherwise), business,
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<PAGE> 6
results of operations, cash flows or prospects of the Company and its
subsidiaries, taken as a whole, except in each case as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(q) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and good and
marketable title to all personal property owned by each of them or described in
the Prospectus as owned by them, in each case free and clear of any security
interests, liens, encumbrances, equities, claims, charges, restrictions and
other defects, except such as do not materially and adversely affect the value
of such property and do not interfere with the use made or proposed to be made
of such property by the Company or such subsidiary, and any real and personal
property and buildings held under lease by the Company or any such subsidiary
are held under valid, subsisting and enforceable leases, with such exceptions as
are not material and do not interfere with the use made or proposed to be made
of such property and buildings by the Company or such subsidiary, in each case
mentioned in this paragraph except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The Company and its subsidiaries own or lease all
properties as are necessary to its operations as now conducted and, except as
otherwise stated in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), as proposed to be conducted as set
forth in the Prospectus.
(r) No labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth, results of operations or cash flows of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
(s) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with
their respective businesses, and neither the Company nor any such subsidiary has
received any notice of infringement of or conflict with asserted rights of any
third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business prospects, net worth, results of operations or cash flows of the
Company and its subsidiaries, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). The expiration of any trademarks, copyrights or patents
held or used by the Company or any of its subsidiaries would not materially
adversely affect the condition (financial or otherwise), business prospects, net
worth, results of operations or cash flows of the Company and its subsidiaries,
except as described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus).
(t) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged. Neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for, and neither the Company nor any such
subsidiary has any reason to believe that it will not be able
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<PAGE> 7
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business prospects, net worth, results of
operations or cash flows of the Company and its subsidiaries, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(u) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or any
other subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(v) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth,
results of operations or cash flows of the Company and its subsidiaries, except
as described in or contemplated by the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(w) The Company will conduct its operations in a manner that
will not subject it to registration as an investment company under the
Investment Company Act of 1940, as amended, and this transaction will not cause
the Company to become an investment company subject to registration under such
Act.
(x) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not have a
material adverse effect on the Company and its subsidiaries) and has paid all
taxes required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being contested in
good faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(y) Neither the Company nor any of its subsidiaries is in
violation of any federal, state or foreign law or regulation relating to
occupational safety and health or to the storage, handling or transportation of
hazardous or toxic materials, and the Company and its subsidiaries have received
all permits, licenses or other approvals required of them under applicable
federal, state and foreign occupational safety and health and environmental laws
and regulations to conduct their respective businesses, and the Company and each
such subsidiary is in compliance with all terms and conditions of any such
permit, license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
which would not, singly or in the aggregate, result in a material adverse
7
<PAGE> 8
change in the condition (financial or otherwise), business prospects, net worth,
results of operations or cash flows of the Company and its subsidiaries, except
as described in or contemplated by the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).
(z) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
(aa) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the Company nor
any such subsidiary owns any shares of stock or any other equity securities of
any corporation or has any equity interest in any firm, partnership, association
or other entity, except as described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus).
(bb) There is no holder of securities of the Company, who, by
reason of the filing of the Registration Statement, has the right to request the
Company to register under the Act, or to include in the Registration Statement,
securities held by such holder, except to the extent such holder has waived such
rights in writing.
(cc) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with management's
general or specific authorizations; (2) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (3) access
to assets is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(dd) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default, in the due
performance and observance of any term, covenant or condition of any bond,
debenture, indenture, note, evidence of indebtedness, mortgage, deed of trust,
lease or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
any of their respective properties is bound or may be affected in any material
adverse respect with regard to property, business or operations of the Company
and its subsidiaries. Neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or bylaws.
(ee) None of the Company, its subsidiaries or any employee of
the Company or its subsidiaries has made any payment of funds of the Company or
its subsidiaries prohibited by law and no funds of the Company or its
subsidiaries have been set aside to be used for any payment prohibited by law.
3. PURCHASE, SALE AND DELIVERY OF THE DEBENTURES.
(a) On the basis of the representations, warranties,
agreements and covenants contained in this Agreement and subject to the terms
and conditions set forth in this Agreement, the Company agrees to sell to each
of the Underwriters, and each of the
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<PAGE> 9
Underwriters, individually and not jointly, agrees to purchase from the Company,
at a purchase price equal to ____% of the principal amount, the respective
principal amount of Firm Debentures set forth opposite the name of such
Underwriter in Schedule 3 to this Agreement. One or more certificates in
definitive form for the Firm Debentures that the several Underwriters have
agreed to purchase under this Agreement, and in such denomination or
denominations and registered in such name or names as you request upon notice to
the Company at least 48 hours prior to the Firm Closing Date, shall be delivered
by or on behalf of the Company to you on the Closing Date for the respective
accounts of the several Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by certified or official bank checks
drawn upon or by a New York Clearing House bank and payable in next-day funds to
the order of the Company or at the option of the Underwriters, by wire transfer
to the account of the Company in same-day funds. Such delivery of, and payment
for, the Firm Debentures shall be made at the offices of Taft, Stettinius &
Hollister, 1800 Star Bank Center, 425 Walnut Street, Cincinnati, OH 45202, at
9:30 A.M., Cincinnati time, on ______________, 1996, or at such other place,
time or date as you and the Company may agree upon or as you may determine
pursuant to Section 9 of this Agreement, such time and date of delivery against
payment being referred to in this Agreement as the "Firm Closing Date". The
Company will make such certificate or certificates for the Firm Debentures
available to you for inspection at the offices in Cincinnati, Ohio of the
Company's transfer agent or registrar or of Roney & Co. at least 24 hours prior
to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Debentures as contemplated
by the Prospectus, the Company hereby grants to the Underwriters options to
purchase, individually and not jointly, the Option Debentures. The purchase
price to be paid for any Option Debentures shall be the same as the price for
the Firm Debentures set forth above in paragraph (a) of this Section 3, plus
accrued interest from ______________, 1996 to the Option Closing Date. The
options granted hereby may be exercised as to all or any part of the Option
Debentures from time to time within 30 days after the date of the Prospectus
(or, if such 30th day shall be a Saturday or a Sunday or a holiday, on the next
business day thereafter when the New York Stock Exchange is open for trading).
The Underwriters shall not be under any obligation to purchase any of the Option
Debentures prior to the exercise of such options. The Underwriters may from time
to time exercise the options granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company setting forth the aggregate
principal amount of Option Debentures as to which the Underwriters are then
exercising the options and the date and time for delivery of and payment for
such Option Debentures. Any such date of delivery shall be determined by the
Underwriters but shall not be earlier than two business days or later than seven
business days after such exercise of the options and, in any event, shall not be
earlier than the Firm Closing Date. The time and date set forth in such notice,
or such other time, date or both as the Underwriters and the Company may agree
upon or as the Underwriters may determine pursuant to Section 9 of this
Agreement, are called the "Option Closing Date" in this Agreement with respect
to such Option Debentures. Upon exercise of the options as provided in this
Agreement, the Company shall become obligated to sell to each of the
Underwriters, and, on the basis of the representations and warranties contained
in this Agreement and subject to the terms and conditions set forth in this
Agreement, each of the Underwriters, individually and not jointly, shall become
obligated to purchase from the Company, the same percentage of the total
principal amount of the Option Debentures as to which the Underwriters are then
exercising the options as
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<PAGE> 10
such Underwriter is obligated to purchase of the aggregate number of Firm
Debentures (subject to such adjustments to provide for purchases of Debentures
in principal amounts that are even multiples of $1,000 as you may determine). If
the options are exercised as to all or any portion of the Option Debentures, one
or more certificates in definitive form for such Option Debentures, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (a) of this Section 3,
except that reference therein to the Firm Debentures and the Firm Closing Date
shall be deemed, for purposes of this paragraph (b), to refer to such Option
Debentures and Option Closing Date, respectively.
(c) Subject to the terms and conditions hereof, the
Underwriters agree that (i) they will offer the Debentures to the public as set
forth in the Prospectus as soon after the Registration Statement becomes
effective as may be practical, (ii) they will offer and sell the Debentures to
the public only in those jurisdictions and in such amounts, where due
qualification and/or registration has been effected or an exemption from such
qualification and/or registration is available under the applicable securities
or blue sky laws of such jurisdictions, and (iii) the Debentures will be offered
and sold only in those jurisdictions where broker/dealer licensing has been
obtained or where there is an exemption from such licensing; it being
understood, however, that such agreement only covers the initial sale of the
Debentures by the Underwriters and not any subsequent sale of such Debentures in
any trading market.
4. OFFERING BY THE UNDERWRITERS. Upon your authorization of the release
of the Firm Debentures, the Underwriters propose to offer their respective
portions of the Firm Debentures for sale to the public upon the terms set forth
in the Prospectus.
5. COVENANTS. COVENANTS OF THE COMPANY. The Company covenants and
agrees with each of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. If required, the Company will file the Prospectus and any amendment or
supplement thereto with the Commission in the manner and within the time period
required by Rule 424(b) under the Act. During any time when a prospectus
relating to the Securities is required to be delivered under the Act (or until
the Firm Closing Date and any Option Closing Date, if later), the Company (1)
will comply with all requirements imposed upon it by the Act, the Trust
Indenture Act, the Exchange Act and the respective rules and regulations of the
Commission thereunder to the extent necessary to permit the continuance of sales
of or dealings in the Securities in accordance with the provisions of this
Agreement and of the Prospectus, as then amended or supplemented, and (2) will
not file with the Commission the Prospectus or the amendment referred to in the
third sentence of Section 2(a) of this Agreement, any amendment or supplement to
such Prospectus or any amendment to the Registration Statement of which the
Underwriters shall not previously have been advised and furnished with a copy a
reasonable period of time prior to the proposed filing or as to which filing you
shall not have given your consent. The Company will prepare and file with the
Commission, in accordance with the Act and the rules and regulations on the
Commission, promptly upon request by the Underwriters or counsel for the
Underwriters, any amendments to the Registration Statement or amendments or
supplements to the Prospectus that may be necessary or advisable in connection
with the
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<PAGE> 11
distribution of the Securities by the Underwriters, and will use its best
efforts to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will advise
you, promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to you of each such filing or effectiveness.
(b) The Company will advise the Underwriters, promptly after
receiving notice or obtaining knowledge thereof, of (1) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or any order directed at any
document incorporated by reference in the Registration Statement or the
Prospectus or any amendment or supplement thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, (2) the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, (3) the institution,
threatening or contemplation of any proceeding for any such purpose or (4) any
request made by the Commission for amending the Registration Statement, for
amending or supplementing any Preliminary Prospectus or the Prospectus or for
additional information. The Company will use its best efforts to prevent the
issuance of any such stop order and, if any such stop order is used, to obtain
the withdrawal thereof as promptly as possible.
(c) The Company will arrange for the registration or
qualification of the Securities for offering and sale under the securities or
blue sky laws of such jurisdictions as you may designate and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities, PROVIDED, HOWEVER, that in connection with such
qualification the Company shall not be required to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction.
(d) If, at any time prior to the later of (1) the final date
when a prospectus relating to the Securities is required to be delivered under
the Act or (2) the Firm Closing Date and any Option Closing Date, any event
occurs as a result of which the Prospectus, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if for any other
reason it is necessary at any time to amend or supplement the Prospectus to
comply with the Act, the Exchange Act, the Trust Indenture Act, the respective
rules or regulations of the Commission thereunder or any other law, the Company
will promptly notify the Underwriters thereof and, subject to Section 5(a) of
this Agreement, will prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment or
supplement to the Prospectus that corrects such statement or omission or effects
such compliance.
(e) The Company will, without charge, provide (1) to each of
the Underwriters and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto), and a conformed
copy of such registration statement and each amendment thereto (in each case
without exhibits thereto) and (2) so long as a prospectus relating to the
Securities is required to be delivered under the Act, as many copies of each
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<PAGE> 12
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
as the Underwriters, counsel for the Underwriters or any dealer may reasonably
request.
(f) The Company, as soon as practicable, will make generally
available to its security holders and to the Underwriters a consolidated
earnings statement of the Company and its subsidiaries that satisfies the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from the sale of
the Securities sold by the Company as set forth under "Use of Proceeds" in the
Prospectus.
(h) The Company will not, directly or indirectly, (1) take any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (2) (A) sell, bid for, purchase, attempt to induce any person to
purchase, or pay anyone any compensation for soliciting purchases of, the
Securities or (B) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(i) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the Option
Closing Date, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your reasonable opinion the market
price of the Common Shares 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 Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
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.
(j) At all times prior to the conversion of the Debentures,
the Underlying Common Shares shall remain duly authorized and duly reserved for
issuance.
(k) For a period of three years from the effective date of the
Registration Statement, the Company shall furnish to you copies of all public
reports filed by the Company and all reports and financial statements furnished
by the Company to its shareholders, The Nasdaq Stock Market, any stock exchange
upon which the Company's securities are traded, or to the Commission pursuant to
the Exchange Act or any rule or regulation of the Commission under the Exchange
Act (except for exhibits, which, however, will be furnished upon request).
6. EXPENSES. Subject to any liability of a defaulting Underwriter under
Section 9 of this Agreement, the Company will pay all costs, expenses, fees and
taxes incident to the performance of its obligations under this Agreement,
whether or not the transactions contemplated by this Agreement are consummated
or this Agreement is terminated pursuant to Section 11 of this Agreement,
including all costs, expenses fees and taxes incident to (1) the preparing,
printing or other production and filing of documents with respect to the
transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto
(including, without limitation, the Registration Statement), any Preliminary
Prospectus and the Prospectus and any amendment
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or supplement thereto, this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Underwriters' Questionnaire and Power of
Attorney, any blue sky memoranda and all other agreements, memoranda,
correspondence and other documents printed and delivered in connection with the
offering of the Securities, (2) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (3) the fees and
disbursements of the counsel, the accountants and any other experts or advisors
retained by the Company, (4) preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Securities, including transfer
agent's and registrar's fees, (5) the registration or qualification of the
Securities under state securities and blue sky laws, including filing fees and
the reasonable legal fees (such legal fees not to exceed $10,000) and
disbursements of counsel for the Underwriters relating thereto or to the "Blue
Sky" survey, (6) the filing fees of the Commission and the National Association
of Securities Dealers, Inc. relating to the Securities and any listing fees
relating to the Securities, (7) the fees and expenses of the Trustee, and (8)
advertising relating to the offering of the Securities (other than as shall have
been specifically approved by the Underwriters to be paid for by the
Underwriters). If the sale of the Securities provided for in this Agreement is
not consummated because any condition to the obligations of the Underwriters set
forth in Section 7 of this Agreement is not satisfied, because this Agreement is
terminated pursuant to Section 11 of this Agreement, because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its or their part to be performed or satisfied under
this Agreement (other than by reason of a default by any of the Underwriters) or
for any other reason (other than because of the Underwriters' refusal (except
for bona fide reasons related to the Company, its officers, directors, employees
or agents) or inability to perform), the Company will reimburse the Underwriters
individually upon demand for all out-of-pocket expenses (including reasonable
counsel fees and disbursements of counsel) that shall have been incurred by them
in connection with the proposed purchase and sale of the Securities. The Company
shall not in any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The several obligations
of each of the Underwriters to purchase and pay for the Firm Debentures shall be
subject, in the Underwriters' sole discretion, to the accuracy of the
representations and warranties of the Company contained in this Agreement as of
the date of this Agreement and as of the Firm Closing Date, as if made on and as
of the Firm Closing Date, to the accuracy of the statements of the Company's
officers made pursuant to the provisions of this Agreement, to the performance
by the Company of its covenants and agreements under this Agreement and to the
following additional conditions:
(a) If the Registration Statement or any amendment to the
Registration Statement filed prior to the Firm Closing Date has not been
declared effective as of the time of execution of this Agreement, the
Registration Statement or such amendment shall have been declared effective not
later than 11:00 A.M., New York City time, on the date on which an amendment to
the registration statement originally filed with respect to the Securities or to
the Registration Statement, as the case may be, containing information regarding
the initial public offering price of the Securities has been filed with the
Commission, or such later time and date as shall have been consented to by you.
If required, the Prospectus and any amendment or supplement thereto shall have
been filed with the Commission in the manner and within the time period required
by Rule 424(b) under the Act. No stop order suspending
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<PAGE> 14
the effectiveness of the Registration Statement or any post-effective amendment
to the Registration Statement and no order directed at any document incorporated
by reference in the Registration Statement or the Prospectus or any amendment or
supplement thereto 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 Underwriters, shall be contemplated by the Commission. The Company shall
have complied with any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise).
(b) You shall have received on the Firm Closing Date an
opinion addressed to the Underwriters (satisfactory to you and counsel for the
Underwriters), dated the Firm Closing Date, of Keating, Muething & Klekamp,
counsel for the Company, to the effect that:
(1) the Company and each of its subsidiaries listed
in Schedule 1 to this Agreement (the "Subsidiaries") have been duly organized
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation and are duly qualified to
transact business as foreign corporations and are in good standing under the
laws of all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective businesses requires
such qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company and its Subsidiaries, taken as a whole;
(2) the Company and each of the Subsidiaries have
corporate power to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and the
Prospectus, and the Company has corporate power to enter into this Agreement and
to carry out all the terms and provisions of this Agreement to be carried out by
it;
(3) the issued and outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and are owned beneficially by the Company free
and clear of any adverse claim, as defined in the applicable Uniform Commercial
Code, or, to the best knowledge of such counsel, any other security interests,
liens, encumbrances, equities or claims;
(4) the Indenture (A) has been duly and validly
authorized, executed and delivered by the Company, (B) is duly qualified under
the Trust Indenture Act or such qualification is not required under the
provisions of the Trust Indenture Act and (C) constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as (i) enforcement thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting enforcement of
creditors' rights generally and (ii) enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law);
(5) the Debentures (A) are in the form contemplated
by the Indenture, (B) have been duly and validly authorized for issuance and
sale by all necessary corporate action, and (C) constitute the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as (a) enforcement thereof may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting enforcement of
creditors' rights generally and (b) enforcement thereof is subject to general
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<PAGE> 15
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law);
(6) the Debentures and the Indenture conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus and the form of certificate used to evidence the
Debentures is in the form required by law and by the Indenture;
(7) the authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization"; all of the issued and outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws and were not issued in violation of, or subject to, any
preemptive rights or other rights to subscribe for or purchase securities; the
certificates for such outstanding capital stock are valid and in proper legal
form; the Underlying Common Shares have been duly authorized and duly reserved
for issuance by all necessary corporate action of the Company and, when issued
and delivered in accordance with the terms of the Debentures and the Indenture,
will be validly issued, fully paid and nonassessable; no holders of outstanding
shares of capital stock of the Company are entitled as such to any preemptive or
other rights to subscribe for any of the Securities; and no holders of
securities of the Company are entitled to have such securities registered under
the Registration Statement;
(8) the statements set forth under the headings
"Description of Debentures" and "Description of Capital Stock" in the
Prospectus, insofar as such statements purport to summarize certain provisions
of the Debentures and capital stock of the Company, provide a fair summary of
such provisions; and the statements set forth under the headings "Business" and
"Legal Matters" in the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to under such
headings, provide a fair summary of such legal matters, documents and
proceedings discussed under such headings;
(9) the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the Company;
(10) after due inquiry and to the best knowledge of
such counsel, no legal or governmental proceedings are pending to which the
Company or any of the Subsidiaries is a party or to which the property of the
Company or any of the Subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and that are not described
therein, and, to the best knowledge of such counsel, no such proceedings have
been threatened against the Company or any of the Subsidiaries or with respect
to any of their respective properties; and no contract or other document is
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not described
therein or filed as required;
(11) the issuance, offering and sale of the
Debentures to the Underwriters by the Company pursuant to this Agreement, the
execution and delivery of this Agreement, the compliance by the Company with the
other provisions of this Agreement and the consummation of the other
transactions contemplated by this Agreement do not (A)
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<PAGE> 16
require the consent, approval, authorization, registration or qualification of
or with any governmental authority, except such as have been obtained and such
as may be required under state securities or blue sky laws, or (B) conflict with
or result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument, known to such counsel, to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the charter
documents, Code of Regulations or bylaws of the Company or any of the
Subsidiaries, or any statute or any judgment, decree, order, rule, regulation or
other law of any court or other governmental authority or any arbitrator known
to such counsel and applicable to the Company or any of the Subsidiaries;
(12) the Registration Statement is effective under
the Act; any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); and no
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment to the Registration Statement and no order directed at
any document incorporated by reference in the Registration Statement or the
Prospectus or any amendment or supplement thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the best
knowledge of such counsel, are contemplated by the Commission;
(13) the registration statement originally filed with
respect to the Securities and each amendment thereto (including, without
limitation, the Registration Statement) and the Prospectus and any supplement or
amendment thereto (in each case, including the documents incorporated by
reference therein but not including the financial statements and other financial
information contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the applicable requirements of
the Act, the Exchange Act, the Trust Indenture Act and the respective rules and
regulations of the Commission thereunder and the Indenture and the Statement of
Eligibility and Qualification of the Trustee on Form T-1, if required to be
filed with the Commission as part of the Registration Statement, comply as to
form in all material respects to the requirements of the Trust Indenture Act of
1939, as amended, and the rules and regulations of the Commission thereunder.
(14) To the best knowledge of such counsel, the
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses; and
(15) this transaction will not cause the Company to
become an investment company subject to registration under the Investment
Company Act of 1940.
Such counsel shall also state that they have no reason to
believe that the Registration Statement or any amendment to the Registration
Statement, as of its effective date or as of the date of such opinion, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement thereto, as of
its date or the date of such opinion, included or includes any untrue statement
of a material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not
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<PAGE> 17
misleading (except that such counsel need not express any belief as to financial
statements and other financial information contained in the Registration
Statement or Prospectus).
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems reasonable, on certificates of
responsible officers of the Company and public officials and, as to matters
involving the application of laws of any jurisdiction other than the State of
Ohio or the United States, to the extent reasonably satisfactory in form and
scope to counsel for the Underwriters, upon the opinion of local counsel
reasonably satisfactory to counsel for the Underwriters, and copies of such
opinion shall be delivered to the Underwriters and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in
this paragraph (b) shall include any amendment or supplement thereto at the date
of such opinion.
(c) You shall have received on the Firm Closing Date an
opinion addressed to the Underwriters, dated the Firm Closing Date, of Taft,
Stettinius & Hollister, counsel for the Underwriters, with respect to the
issuance and sale of the Firm Debentures, the Registration Statement and the
Prospectus, and such other related matters as the Underwriters may reasonably
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. In rendering such opinion, such counsel may rely as to all matters
involving the application of laws of any jurisdiction other than the State of
Ohio or the United States upon the opinion of Keating, Muething & Klekamp
referred to in paragraph (b) above.
(d) You shall have received letters, on and as of the date of
this Agreement and on and as of the Firm Closing Date, from Arthur Andersen LLP,
certified public accountants for the Company, in form and substance satisfactory
to the Underwriters, to the effect that:
(1) they are independent public accountants with
respect to the Company and its consolidated subsidiaries within the
meaning of the Act, the Exchange Act and the applicable rules and
regulations thereunder;
(2) in their opinion, the consolidated financial
statements and schedules of the Company and its consolidated
subsidiaries examined by them and included or incorporated by reference
in the Registration Statement and the Prospectus comply as to form in
all material respects with the applicable accounting requirements of
the Act, the Exchange Act, the related published rules and regulations
thereunder and Staff Accounting Bulletins with respect to registration
statements on Form S-3 and the Exchange Act documents and filings
incorporated by reference therein;
(3) on the basis of a reading of the June 30, 1996
unaudited consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included or incorporated by
reference in the Registration Statement and the Prospectus, a reading
of the latest interim unaudited consolidated financial statements of
the Company and its consolidated subsidiaries, a reading of the minutes
of the meetings of the shareholders, the board of directors and any
committees thereof of the Company and each of its consolidated
subsidiaries, inquiries of certain officials of the Company and its
consolidated subsidiaries who have responsibility for financial
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<PAGE> 18
and accounting matters, such limited review and auditing procedures and
inquiries as may be in accordance with standards for such reviews
promulgated by the American Institute of Certified Public Accountants
and other specific procedures and inquiries, nothing came to their
attention that caused them to believe that:
(A) the unaudited consolidated financial
statements and schedules of the Company and its consolidated
subsidiaries included or incorporated by reference in the
Registration Statement and the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the Act, the Exchange Act and the related
published rules and regulations thereunder and Staff
Accounting Bulletins with respect to registration statements
on Form S-3 and the Exchange Act documents and filings
incorporated by reference therein or such unaudited
consolidated financial statements are not fairly presented in
conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the
audited consolidated financial statements included or
incorporated by reference in the Registration Statement and
the Prospectus or such unaudited schedules, when considered in
relation to the unaudited financial statements included or
incorporated by reference in the Prospectus, do not present
fairly in all material respects the information shown therein;
(B) at the date of the latest balance sheet
read by them and at a subsequent specific date not more than
five business days prior to the date of such letter, there
were any changes in the capital stock or long-term debt of the
Company and its consolidated subsidiaries or any decreases in
net current assets or shareholders' equity of the Company and
its consolidated subsidiaries, in each case compared with
amounts shown on the June 30, 1996 unaudited consolidated
balance sheet included or incorporated by reference in the
Registration Statement and the Prospectus, except for changes
which the Prospectus discloses have occurred or may occur or
which are described in the letter;
(C) at the date of the latest consolidated
balance sheet read by them and at a subsequent specific date
not more than five business days prior to the date of such
letter there were any decreases, as compared with amounts
shown in the unaudited consolidated balance sheet as of June
30, 1996 included or incorporated by reference in the
Prospectus, in consolidated total assets, working capital,
long-term debt or shareholders' equity of the Company and its
consolidated subsidiaries, except for decreases which the
Prospectus discloses have occurred or may occur or which are
described in such letter;
(D) for the period from June 30, 1996 to the
date of the latest consolidated income statement read by them,
and for the period from June 30, 1996 to a subsequent
specified date not more than five business days prior to the
date of such letter, there were any decreases, as compared
with the corresponding period of the preceding year in
consolidated revenues, gross profit, operating income,
earnings before income taxes or the total or per share amounts
of income before extraordinary items or of net income or of
the Company and its consolidated subsidiaries, except for
decreases which the
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Prospectus discloses have occurred or may occur or which are
described in such letter; and
(4) on the basis of their examinations referred to in
their report contained or incorporated by reference in the Prospectus,
the limited procedures referred to in (3) above and the carrying out of
certain other specified procedures, not constituting an audit, they
have compared certain specified amounts, percentages and financial
information included in the Registration Statement and the Prospectus,
in Exhibit 12 to the Registration Statement or in the Company's
Quarterly Reports on Form 10-Q for the fiscal quarters ended December
31, 1995, March 31, 1996, and June 30, 1996 incorporated by reference
in the Registration Statement and Prospectus with the underlying
accounting records of the Company and its consolidated subsidiaries and
with information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation.
(e) If the letters referred to in paragraph (d) above set
forth any such changes, decreases or increases, it shall be a further condition
to the obligations of the Underwriters that (1) such letters shall be
accompanied by a written explanation of the Company as to the significance
thereof, unless the Underwriters deem such explanation unnecessary, and (2) such
changes, decreases or increases do not, in the sole judgment of the
Underwriters, make it impractical or inadvisable to proceed with the purchase
and delivery of the Debentures as contemplated by the Registration Statement.
References to the Registration Statement and the Prospectus in paragraph (d) and
this paragraph (e) with respect to the letters referred to above shall include
any amendment or supplement thereto at the date of such letter.
(f) You shall have received on the Firm Closing Date a
certificate, dated the Firm Closing Date, of the Chief Executive Officer and the
Chief Financial Officer of the Company to the effect that:
(1) the representations and warranties of the Company
in this Agreement are true and correct as if made on and as of the Firm
Closing Date; the Registration Statement, as amended as of the Firm
Closing Date, does 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 the
Prospectus, as amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and the Company has performed all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Firm Closing Date;
(2) no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto and no
order directed at any document incorporated by reference in the
Registration Statement or the Prospectus or any amendment or supplement
thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best of the Company's knowledge,
are contemplated by the Commission; and
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<PAGE> 20
(3) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(i) neither the Company nor any of its subsidiaries has sustained any
material loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and (ii) there has not been any
material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or otherwise),
management, business, net worth, cash flows or results of operations of
the Company or any of its subsidiaries, except in each case as
described in or contemplated by the Prospectus, and (iii) there has not
been any change in the capital stock or a material increase in the
long-term debt of the Company and its subsidiaries, except in each case
as described in or contemplated by the Prospectus, and (iv) the Company
has not incurred any liability or obligation, direct or contingent,
which is material to the Company and its subsidiaries taken as a whole,
except in each case as described in or contemplated by the Prospectus.
(g) On or before the Firm Closing Date, the Underwriters and
counsel for the Underwriters shall have received such further certificates,
documents or other information as they may have reasonably requested from the
Company.
All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions of this Agreement
only if they are reasonably satisfactory in all material respects to the
Underwriters and counsel for the Underwriters. The Company shall furnish to the
Underwriters such conformed copies of such opinions, certificates, letters and
documents in such quantities as the Underwriters and counsel for the
Underwriters shall reasonably request.
The several obligations of each of the Underwriters to
purchase and pay for any Option Debentures shall be subject, in their
discretion, to each of the foregoing conditions to purchase the Firm Debentures,
except that all references to the Firm Debentures and the Firm Closing Date
shall be deemed to refer to such Option Debentures and the related Option
Closing Date, respectively.
8. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter, their respective directors, officers, partners, agents and
employees and each other person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act
(collectively, "Indemnitees") against any losses, claims, damages or
liabilities, joint or several, to which such Indemnitee may become subject under
the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of, relate to, or are
caused by or based upon:
(1) any untrue statement or alleged untrue statement
made by the Company in this Agreement,
(2) any untrue statement or alleged untrue statement
of any material fact contained in (A) the Registration Statement or any
amendment thereto or any Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto or
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<PAGE> 21
(B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in
order to qualify the Securities under the securities or blue sky laws
thereof or filed with the Commission or any securities association or
securities exchange (each an "Application"),
(3) any omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
any Application a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or
(4) any untrue statement or alleged untrue statement
of any material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including, without
limitation, slides, videos, films, and tape recordings, except to the
extent such materials were prepared by the Underwriters,
and will reimburse, as incurred, each Indemnitee for any legal or other expenses
reasonably incurred by such Indemnitee in connection with investigating,
defending against, or appearing as a third-party witness in connection with, any
such loss, claim, damage, liability or action; 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, is related to, or is caused by or
based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or any Application in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter expressly for use
therein; and PROVIDED, FURTHER, that the Company will not be liable to any
Indemnitee with respect to any such untrue statement or omission made in any
Preliminary Prospectus that is corrected in the Prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Debentures from such Underwriter but was not sent or given a
copy of the Prospectus (as amended or supplemented), other than the documents
incorporated by reference therein, at or prior to the written confirmation of
the sale of such Debentures to such person in any case where such delivery of
the Prospectus (as amended or supplemented) is required by the Act and where
delivery of such Prospectus (as amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage or liability, unless such failure
to deliver the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5(d) or 5(e) of this Agreement. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Underwriters, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any such Indemnitee is a
party to such claim, action, suit or proceeding), unless (1) such settlement,
compromise or consent includes an unconditional release of all of the
Indemnitees from all liability arising out of such claim, action, suit or
proceeding and (2) the entire settlement amount and all costs of settlement and
all related costs are borne by the Company.
(b) The Company hereby expressly and irrevocably waives any
and all rights and objections which it may have against any Indemnitee in
respect of any liabilities arising
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<PAGE> 22
out of, or relating to, this Agreement or the offering contemplated by this
Agreement, except to the extent such liabilities are determined, by a final
order of a court of competent jurisdiction, to be the direct and primary result
from the Underwriters' gross negligence or willful misconduct. Each Underwriter,
individually and not jointly, 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 Section 15
of the Act or Section 20 of the Exchange Act against any losses, claims, damages
or liabilities to which the Company, any such director or officer of the
Company, or any such controlling person of the Company may become subject under
the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) are determined, by a final order
of a court of competent jurisdiction, to be the direct and primary result of (1)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or (2) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application 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 is determined by such court to have been made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter expressly for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company or any such director, officer
or controlling person in connection with investigating or defending against any
such loss, claim, damage, liability or action. This indemnity agreement will be
in addition to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action (including any
governmental investigation), 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 of such action; 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 and will not relieve it from any liability under this Section 8 except
to the extent the indemnifying party is actually prejudiced by the failure to
give such notice. 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 reasonably satisfactory to such
indemnified party; PROVIDED, HOWEVER, that if the parties to any such action
(including any impleaded parties) include both the indemnified party and the
indemnifying party or any officers, directors or controlling persons of such
indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the
22
<PAGE> 23
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable out-of-pocket
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (1) the indemnified party shall have
employed separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, which counsel shall be designated by
you in the case of indemnification under paragraph (a) of this Section 8,
representing the indemnified parties under such paragraph (a) who are parties to
such action or actions) or (2) the indemnifying party does not promptly retain
counsel reasonably satisfactory to the indemnified party or (3) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party will not be liable for the
costs and expenses of any settlement of such action effected by such indemnified
party without the written consent of the indemnifying party.
(d) If the indemnity agreement provided for in the preceding
paragraphs of this Section 8 is unavailable or insufficient, for any reason, to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (1) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (2) if the allocation provided by the foregoing
clause (1) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth on the cover
page of the Prospectus. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters, the parties'
relative intents, knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable considerations
appropriate in the circumstances. The Company and the Underwriters agree that it
would not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this paragraph
(d). Notwithstanding any other provision of this paragraph (d), no Underwriter
shall be obligated to make contributions under this paragraph (d) that in the
aggregate exceed the total public offering price of the securities purchased by
such Underwriter under this Agreement, less the aggregate amount of any damages
that such Underwriter has otherwise been required to pay in respect of such
untrue or alleged untrue statement or omission or alleged omission, and no
person guilty of
23
<PAGE> 24
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute under
this paragraph (d) are individual in proportion to their respective underwriting
obligations and not joint. For purposes of this paragraph (d), each person, if
any, who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such 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 Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company.
9. DEFAULT OF UNDERWRITERS. If any one or more of the Underwriters
shall fail or refuse to purchase the Firm Debentures which it or they have
agreed to purchase under this Agreement and the aggregate principal amount of
Firm Debentures which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the total principal
amount of Firm Debentures, each non-defaulting Underwriter shall be obligated
severally, in the proportion which the principal amount of Firm Debentures set
forth opposite its name in Schedule 3 bears to the total principal amount of
Firm Debentures which all non-defaulting Underwriters have agreed to purchase,
or in such other proportion as you may specify, to purchase the Firm Debentures
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase; provided that in no event shall the principal amount of Firm
Debentures which any Underwriter has agreed to purchase pursuant to Section 3 be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
principal amount of Firm Debentures without the written consent of such
Underwriter. If any one or more of the Underwriters shall fail or refuse to
purchase Firm Debentures or Option Debentures under this Agreement and the
principal amount of Firm Debentures with respect to which such default occurs is
more than one-tenth of the total amount of Firm Debentures, and if arrangements
satisfactory to you are not made within 36 hours after such default for the
purchase by other persons (who may include the non-defaulting Underwriters) of
the Debentures with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriters or
the Company other than as provided in Section 10 of this Agreement. In any such
case which does not result in the termination of this Agreement, you shall have
the right to postpone the Firm Closing Date or the Option Closing Date, as the
case may be, established as provided in Section 3 of this Agreement for not more
than seven business days in order that any necessary changes may be made in the
Registration Statement, the Prospectus, the other documents and the arrangements
for the purchase and delivery of the Firm Debentures or Option Debentures, as
the case may be. As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 9. Nothing herein shall
relieve any defaulting Underwriter from liability for its default.
10. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities, contribution agreements and other statements of the
Company and the several Underwriters 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 (1) any investigation made by or on behalf of
the Company, any of its officers or directors, any Underwriter or any
controlling person referred to in Section 8 of this Agreement and (2) delivery
of and payment for the Securities. The respective agreements, covenants,
indemnities
24
<PAGE> 25
and other statements set forth in Sections 6 and 8 of this Agreement shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
11. TERMINATION.
-----------
(a) This Agreement may be terminated with respect to the Firm
Debentures or any Option Debentures in your sole discretion by notice to the
Company given prior to the Firm Closing Date or the related Option Closing Date,
respectively, in the event that the Company shall have failed, refused or been
unable to perform all obligations on its part to be performed under this
Agreement on or before the Firm Closing Date or the Option Closing Date, as
applicable, or if any of the conditions in Section 7 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, or if, at or
prior to the Firm Closing Date or such Option Closing Date, respectively:
(1) the Company or any of its subsidiaries shall
have, in your sole judgment, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company),
in the condition (financial or otherwise), management, business, net
worth, cash flows or results of operations of the Company or any of its
subsidiaries, except in each case as described in or contemplated by
the Prospectus (exclusive of any amendment or supplement thereto);
(2) trading in the Common Shares shall have been
suspended by the Commission or The Nasdaq National Market or trading in
securities generally on the New York Stock Exchange or The Nasdaq
National Market shall have been suspended or minimum or maximum prices
shall have been established on such exchange or market system;
(3) a banking moratorium shall have been declared by
Michigan, New York or United States authorities;
(4) there shall have been (A) an outbreak or
escalation of hostilities between the United States and any foreign
power, (B) an outbreak or escalation of any other insurrection or armed
conflict involving the United States or (C) any other calamity or
crisis or material adverse change in the general economic, political or
financial conditions having an effect on the U.S. financial markets
that, in your sole judgment, makes it impractical or inadvisable to
proceed with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended as of the date
of this Agreement;
(5) the shall have been enacted, published, decreed
or promulgated any federal, state or local statute, regulation, rule or
order of any court or other governmental authority which in your
opinion materially and adversely affects or will materially and
adversely affect the business or operations of the Company; or
25
<PAGE> 26
(6) any actions shall have been taken by any federal,
state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on
the securities markets in the United States.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided in
Section 6 and Section 8 of this Agreement.
12. INFORMATION SUPPLIED BY UNDERWRITERS. The statements set forth in
the last paragraph on the front cover page and under the heading "Underwriting"
in any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter to the Company for the purposes of Section 8 of this Agreement. The
Underwriters confirm that such statements (to such extent) are correct.
13. NOTICES. All communications under this Agreement shall be in
writing and, if sent to you or the Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to Roney & Co.,
One Griswold, Detroit, Michigan 48226, Attention: Dan F. French, Jr.; and if
sent to the Company, shall be delivered or sent by mail, telex or facsimile
transmission and confirmed in writing to the Company at 3471 River Hills Drive,
Cincinnati, Ohio 45244, Attention: Chief Executive Officer.
14. SUCCESSORS. This Agreement shall inure to the benefit of and shall
be binding upon the Underwriters and the Company, and their respective
successors, assigns and legal representatives, and 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, or any provisions contained in this Agreement, this Agreement and all
conditions and provisions of this Agreement being intended to be and being for
the sole and exclusive benefit of such persons and for the benefit of no other
person except that (i) the indemnities of the Company contained in Section 8 of
this Agreement shall also be for the benefit of the Indemnitees, including,
without limitation, any person or persons who control any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons who
control the Company within the meaning of Section 5 of the Act or Section 20 of
the Exchange Act. No purchaser of Securities from any Underwriter shall be
deemed a successor because of such purchase.
15. APPLICABLE LAW. The validity and interpretation of this Agreement,
and the terms and conditions set forth in this Agreement, shall be governed by
and construed in accordance with the laws of the State of Michigan, without
giving effect to any provisions relating to conflicts of laws.
16. COUNTERPARTS. 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.
26
<PAGE> 27
17. ENTIRE AGREEMENT. This Agreement and the Letter of Intent
provisions which are incorporated in this Agreement are the parties' entire
agreement concerning its subject matter, and supersede all prior undertakings
and agreements.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance of this Agreement in the space provided below for that
purpose, whereupon this letter shall constitute an agreement binding the Company
and each of the Underwriters.
Very truly yours,
MERIDIAN DIAGNOSTICS, INC.
By:
--------------------------------
William J. Motto,
Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
RONEY & CO.
By:
-------------------------
Name:
------------------------
Title:
-----------------------
27
<PAGE> 28
SCHEDULE 1
SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Jurisdiction of
Name Incorporation
- ---- -------------
Omega Technologies, Inc. Ohio
Meridian Diagnostics International Barbados
Meridian Diagnostics Europe s.r.l. Italy
</TABLE>
28
<PAGE> 29
SCHEDULE 2
SUBSIDIARY OWNERSHIP
<TABLE>
<CAPTION>
ISSUED AND
OUTSTANDING
AUTHORIZED CAPITAL STOCK
SUBSIDIARY CAPITAL STOCK STOCK OWNERSHIP
---------- ------------- ----- ---------
<S> <C> <C>
Omega Technologies, Inc. 500 Common Shares 90 Common Shares Meridian Diagnositics,
Inc.
Meridian Diagnostics 100 Common Shares 1,000 Common Shares Meridian Diagnostics,
International, Inc. Inc.
Meridian Diagnostics Unlimited 22,725 quotas 99% (22,500 quotas)
Europe s.r.l. owned by Meridian
Diangnostics, Inc. and
1% (225 quotas) owned
by David H. Motto.
</TABLE>
29
<PAGE> 30
SCHEDULE 3
[CAPTION]
Principal Amount of
Firm Debentures
Underwriter to be Purchased
- ----------- ---------------
[S] [C]
RONEY & CO. $
----------
$
----------
$12,500,000
==========
30
<PAGE> 1
Exhibit 4
THIS INDENTURE, dated as of September 1, 1996, between MERIDIAN
DIAGNOSTICS, INC., an Ohio corporation, having its principal office at 3471
River Hills Drive, Cincinnati, Ohio 45244 (the "Company"), and STAR BANK,
NATIONAL ASSOCIATION, a national banking association, having its principal
Corporate Trust Office in Cincinnati, Ohio (the "Trustee").
RECITALS OF THE COMPANY:
The Company has duly authorized the creation, execution and delivery of
its Debentures, to be known as the __% Convertible Subordinated Debentures Due
September 1, 2006 (the "Debentures"), the amount and terms of which are
hereinafter provided; 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.
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, the valid, binding and legal obligations of the Company, and to
constitute these presents as a valid indenture and 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, and
the Company, in the exercise of the legal rights and power vested in it,
executes this Indenture and proposes to make, execute and deliver the
Debentures.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Debentures by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Debentures, as follows:
ARTICLE 1
Definitions and Other Provisions of General Application
Section 1.1 Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) all references in this instrument to designated "Articles,"
"Sections" and other subdivisions are to designated articles, sections and other
subdivisions of this instrument as originally executed. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Indenture as a whole and not to any particular article, section or other
subdivision;
(b) the terms defined in this Article have the meaning assigned to them
in this Article, and include the plural as well as the singular;
<PAGE> 2
- 2-
(c) all other terms used herein which are defined in the Trust
Indenture Act either directly or by reference therein, have the meanings
assigned to them therein; and
(d) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
which, with respect to any computation required or permitted hereunder, shall
mean, except as otherwise herein expressly provided, such accounting principles
as are generally accepted at the date or time of such computation.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Affiliate" of any specified Person means 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 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.
"Authorized Newspaper" means a newspaper of general circulation in
Cincinnati, Ohio, or in such other geographic area in which the office or agency
(maintained by the Company pursuant to Section 9.5) where Debentures may be
presented or surrendered for payment is located, printed in the English language
and customarily published on each Business Day, whether or not published on
Saturdays, Sundays or holidays. Whenever successive weekly publications in an
Authorized Newspaper are required hereunder they may be made, unless otherwise
expressly provided herein, on the same or different days in the week and in the
same or in different Authorized Newspapers.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, which is not a day upon which banking institutions in the City of
Cincinnati, Ohio are authorized or required by law to close.
"Capital Stock" means capital stock of the Company that does not rank
prior, as to the payment of dividends or distribution of assets upon
liquidation, to any other shares of capital stock of the Company.
<PAGE> 3
- 3-
"Closing Price" for any date means the last reported sale price of the
Common Stock regular way on such day or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices
regular way on such day, in either case on the New York Stock Exchange or, if
the Common Stock is not listed or admitted to trading on such exchange, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq National Market System or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
or quoted on such National Market System, the average of the closing bid and
asked prices in the over-the-counter market as furnished by the New York Stock
Exchange member firm selected from time to time by the Company for that purpose.
If the Common Stock is not listed or admitted to trading on any national
securities exchange, quoted on such National Market System or listed in any list
of bid and asked prices in the over-the-counter market, "Closing Price" shall
mean the fair market value of the Common Stock as determined in good faith by
the Board of Directors.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act.
"Common Stock" means the Company's Common Stock, no par value,
authorized at the date of this Indenture as originally executed, and shares of
any class or classes resulting from any reclassification or reclassification
thereof which have no preference in respect of dividends or dissolution or
winding-up of the Company and which are not subject to redemption by the
Company; provided, however, that warrants or other rights to purchase Common
Stock will not be deemed to be Common Stock.
"Company" means Meridian Diagnostics, Inc., an Ohio corporation, until
a successor shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall mean such successor.
"Company Request," "Company Order" and "Company Consent" mean,
respectively, a written request, order or consent signed in the name of the
Company by its President or a Vice President, and by its Treasurer or Secretary
and delivered to the Trustee.
"Conversion Price" has the meaning specified in Section 11.1.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 425 Walnut Street, Cincinnati, Ohio 45202.
"Date of Issue" as to any Debenture, means the date as of which such
Debenture originally issued by the Company to the initial purchaser thereof
shall be dated, which shall be the date upon which it was originally sold to
such initial purchaser as designated by the Company Order requesting
authentication and delivery thereof.
<PAGE> 4
- 4-
"Debenture Register" and "Debenture Registrar" have the respective
meanings specified in Section 3.5.
"Event of Default" has the meaning specified in Article 5.
"Exchange Act" means the Securities and Exchange Act of 1934 or any
successor statute thereto.
"Holder" when used with respect to any Debenture, means a Person in
whose name a Debenture is registered in the Debenture Register.
"Indebtedness" with respect to any Person at any date means and
includes all items of indebtedness or liability which, in accordance with
generally accepted accounting principles, would be included in determining total
liabilities as shown on the liabilities side of the balance sheet of such Person
at such date, and shall include (i) all indebtedness guaranteed or endorsed
(other than for purposes of collection in the ordinary course of business),
directly or indirectly, in any manner, by such Person, and contingent
obligations of such Person in respect of, or to purchase or otherwise acquire,
indebtedness of others, and (ii) all indebtedness secured by any mortgage, lien,
pledge, charge or encumbrance upon property owned by such Person, whether or not
the indebtedness so secured has been assumed by such Person.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Debentures.
"Maturity" when used with respect to any Debenture means the date on
which the principal of such Debenture or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or repurchase, or otherwise.
"Officers' Certificate" means a certificate signed by the President or
a Vice President, and by the Treasurer, the Controller or the Secretary of the
Company, and delivered to the Trustee. Wherever this Indenture requires that an
Officers' Certificate be signed also by an accountant or other expert, such
accountant or other expert, except as otherwise expressly provided in this
Indenture, may be in the employ of the Company, but must have been approved by
the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may,
except as otherwise expressly provided in this Indenture, be counsel for the
Company, who is acceptable to the Trustee.
<PAGE> 5
- 5-
"Outstanding" when used with respect to Debentures means, as of the
date of determination, all Debentures theretofore authenticated and delivered
under this Indenture, except:
(1) Debentures theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(2) Debentures for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders of
such Debentures; provided that, if such Debentures are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and
(3) Debentures in exchange for or in lieu of which other Debentures
have been authenticated and delivered pursuant to this Indenture;
provided, however, that in determining whether the Holders of the requisite
principal amount of Debentures outstanding have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Debentures owned
by the Company or any other obligor upon the Debentures or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Debentures which the Trustee knows to be so owned shall
be so disregarded. Debentures so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Debentures and that
the pledgee is not the Company or any other obligor upon the Debentures or any
Affiliate of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, the premium, if any, or interest on any Debentures on behalf of
the Company.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Debentures" of any particular Debenture means every
previous Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Debenture; and, for the purposes of this
definition, any Debenture authenticated and delivered under Section 3.6 in
exchange for or in lieu of a lost, destroyed or stolen Debenture shall be deemed
to evidence the same debt as the lost, destroyed or stolen Debenture.
<PAGE> 6
- 6-
"Redemption Date" when used with respect to any Debenture to be
redeemed means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price" when used with respect to any Debenture to be
redeemed means the price at which it is to be redeemed pursuant to this
Indenture.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the date specified in Article 3.
"Repurchase Event" means
(a) such time as a "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act), other than any holder on the date
hereof of five percent (5%) or more of the outstanding Common Stock or any group
including such holder, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than fifty percent (50%) of the total voting
power of the then outstanding Voting Stock of the Company; or
(b) a change in the composition of the Board of Directors of the
Company in which individuals who, at the beginning of the two-year period
immediately preceding such change, constituted the Board of Directors of the
Company (together with any other director whose election by the Board of
Directors of the Company or whose nomination for election by the shareholders of
the Company was approved by a vote of at least two-thirds of the directors then
in office who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the directors then in office; or
(c) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or any
sale or transfer of 66 2/3% or more of the assets of the Company to another
Person (other than (i) a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Capital Stock (as
defined below), (ii) a merger which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into shares
of Common Stock, (iii) any consolidation with or merger of the Company into a
Wholly Owned Subsidiary of the Company, or any sale or transfer by the Company
of 66 2/3% or more of its assets to one or more of its Wholly Owned
Subsidiaries, in any one transaction or a series of transactions, provided, in
any such case, that the resulting corporation or each such Wholly Owned
Subsidiary assumes the Company's obligations under the Debentures and provides
for appropriate conversion rights or (iv) any such transaction where (y) the
outstanding Voting Stock of the Company is reclassified or changed into or
exchanged for Voting Stock of the surviving corporation and (z) no "person" or
"group," other than any holder on the date hereof of five percent (5%) or more
of the outstanding Common Stock or any group including such holder, is or
becomes the "beneficial owner" of
<PAGE> 7
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more than fifty percent (50%) of the total voting power of the Voting Stock of
the surviving corporation immediately after such transaction); or
(d) the purchase or other acquisition by the Company, directly or
indirectly, of beneficial ownership of its Capital Stock if the sum of the
percentage of the total Capital Stock acquired in such acquisition and the like
percentages of the Capital Stock acquired in all other such acquisitions
effected after the date of original issue of the Debentures and within the 12-
month period ending on the date of such acquisition exceeds thirty percent
(30%); or
(e) either (i) the distribution by the Company, directly or indirectly,
of cash, securities or other property in respect of its Capital Stock (other
than a distribution paid solely in Capital Stock or rights to acquire Capital
Stock), or (ii) the purchase or other acquisition by the Company, directly or
indirectly, of any Capital Stock (other than an acquisition of Capital Stock
solely in exchange for or upon conversion of Capital Stock or rights to acquire
Capital Stock), if the sum of the Applicable Equity Percentages (as defined
below) for such distribution or acquisition and all other such distributions and
acquisitions effected after the date of original issue of the Debentures and
during the 12-month period ending on the date on which such distribution or
acquisition is effected exceeds thirty percent (30%).
For purposes of this definition, "Applicable Equity Percentage" means,
for any distribution or acquisition, the percentage obtained by dividing (A) the
fair market value on the Valuation Date (as defined below) of the cash,
securities and other property distributed in respect of, or paid or otherwise
exchanged to acquire, Capital Stock in such distribution or acquisition, by (B)
the fair market value on the Reference Date (as defined below) of the Capital
Stock outstanding on such Reference Date; and "Valuation Date" means (A) for any
distribution, the record date therefor or (B) for any acquisition, the date
thereof; "Reference Date" means (A) for any distribution, the day before the
earlier of the record date for such distribution or the first date on which the
Capital Stock trades without the right to receive such distribution or (B) for
any acquisition, the day before the date of such acquisition.
"Responsible Officer" when used with respect to the Trustee means the
Chairman of the executive committee of the Board of Directors, the President,
any Vice President, the Secretary, any Assistant Secretary, the Treasurer, any
Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or
Assistant Trust Officer, the Controller, any Assistant Controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to the particular corporate trust matter, any other officer to whom such matter
is referred because of his or her knowledge of and familiarity with the
particular subject.
"Senior Indebtedness" means the following, whether outstanding on the
date of execution of this Indenture or thereafter created, incurred, assumed or
guaranteed:
<PAGE> 8
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(a) Principal of and premium, if any, and interest on Indebtedness of
the Company for money borrowed (including any Indebtedness secured by a mortgage
or other lien which is (i) given to secure all or part of the purchase price of
property subject thereof, whether given to the vendor of such property or to
another, or (ii) existing on property at the time of acquisition thereof)
evidenced by notes or other written obligations;
(b) Principal of and premium, if any, any interest on Indebtedness of
the Company evidenced by notes, debentures, bonds or other securities of the
Company;
(c) The amount of the Company's liability determined under generally
accepted accounting principles under any lease required to be classified as a
liability on the Company's balance sheet prepared in accordance with generally
accepted accounting principles;
(d) Principal of and premium, if any, and interest on Indebtedness of
others of the kinds described in either of the preceding clauses (a) or (b), or,
to the extent set forth in the preceding clause (c), leases of others of the
kind described in the preceding clause (c) assumed by or guaranteed in any
manner by the Company or in effect guaranteed by the Company through an
agreement to purchase, contingent or otherwise; and
(e) Principal of and premium, if any, and interest on renewals,
extensions, or refundings of Indebtedness of the kinds described in any of the
preceding clauses (a), (b) or (d) or, to the extent set forth in the preceding
clause (c), renewals or extensions of leases of the kinds described in either of
the preceding clauses (c) or (d);
unless, in the case of any particular Indebtedness, lease, renewal, extension,
or refunding, the instrument or lease creating or evidencing the same or the
assumption or guarantee of the same expressly provides that such Indebtedness,
lease, renewal, extension, or refunding is subordinate to any other Indebtedness
of the Company or that such Indebtedness, lease, renewal, extension, or
refunding is not superior in right of payment to the Debentures.
"Special Record Date" for the payment of any Defaulted Interest, as
defined in Section 3.7, means a date fixed by the Trustee pursuant to Section
3.7.
"Stated Maturity" when used with respect to any Debenture or any
installment of principal thereof or interest thereon means the date specified in
such Debenture as the fixed date on which the principal of such Debenture or
such installment of principal or interest is due and payable.
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having 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 by the Company, by one or more Subsidiaries of the
Company,
<PAGE> 9
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or by the Company and one or more Subsidiaries. The term "Wholly Owned
Subsidiary" means a Subsidiary of which all of the outstanding voting stock
(other than directors' qualifying shares) is at the time directly or indirectly
owned by the Company, or by one or more Wholly Owned Subsidiaries, or by the
Company and one or more Wholly Owned Subsidiaries.
"Trading Day" means, with respect to the Common Stock, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not traded on the exchange or market on which the Common Stock is traded.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force
at the date as of which this Indenture was executed, except as provided in
Section 8.7 hereof and except that any rules and regulations subsequently
prescribed by the Commission pursuant to Section 314(a) of the Act shall apply.
"Voting Stock" means stock of the class or classes having general
voting power under ordinary circumstances to elect the board of directors,
managers or trustees of a corporation (irrespective of whether or not at the
time stock of any other class or classes shall have or might have voting power
by reason of the happening of any contingency).
Section 1.2 Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision 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, if requested by the Trustee, an Opinion of Counsel stating
that in the opinion of such Counsel all such conditions precedent, if any, have
been complied with, except that in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture (other
than certificates provided pursuant to Section 314(a)(4) of the Trust Indenture
Act) shall include:
(a) a statement that each individual signing such Officers' Certificate
or Opinion of Counsel has read such covenant or condition and the definitions
herein relating thereto;
<PAGE> 10
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(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such Officers'
Certificate or Opinion of Counsel are based;
(c) a statement that, in the opinion of each such individual, he or she
has made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1.3 Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of any officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his or her certificate or opinion is
based are erroneous. Any certificate or Opinion of Counsel may be based, insofar
as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
In the event that any Person is required to make, give or execute two
or more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Section 1.4 Acts of Holders; Record Dates.
-----------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee, and, if it is hereby expressly required, to the Company. Such
instrument or
<PAGE> 11
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instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of such instrument or of a writing appointing
any such agent shall be sufficient for any purpose of this Indenture and,
subject to Section 6.1, conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgment of deeds, certifying that the individual signing
such instrument or writing acknowledged to him or her the execution thereof.
Where such execution is by a signer acting in a capacity other than his or her
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his or her authority. The fact and date of the execution of
any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner that the Trustee deems sufficient.
(c) The ownership of Debentures shall be proved by the Debenture
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Debenture shall bind every future
Holder of the same Debenture and the Holder of every Debenture issued upon the
transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Debenture.
Without limiting the foregoing, a Holder entitled hereunder to give or
take any action hereunder with regard to any particular Debenture may do so with
regard to all or any part of the principal amount of such Debenture or by one or
more duly appointed agents each of whom may do so pursuant to such appointment
with regard to all or any different part of such principal amount.
Section 1.5 Notices, etc., to Trustee and Company.
-------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or with the Trustee
at its principal Corporate Trust Office,
(b) the Trustee by the Company shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if in writing and mailed,
first class postage prepaid, to the Trustee addressed to it at the Corporate
Trust Office, or
<PAGE> 12
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(c) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first class postage prepaid, to the Company addressed to it
to the attention of its Treasurer at the address of its principal office
specified in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.6 Notices to Holders; Waiver.
--------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his or her address as it appears in the Debenture Register,
not later than the latest date, and not earlier than the earliest date, if any,
prescribed for the giving of such notice. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders. In any case 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, and such
wavier shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such wavier.
In case, by reason of the suspension of regular mail service, or by
reason of any other cause, it shall be impractical to give such notice by mail
as required by this Indenture, then such notification as shall be made with the
approval of the Trustee shall constitute a sufficient notification for every
purpose hereunder.
Section 1.7 Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with the duties
imposed by any of Sections 310 through Section 317, inclusive, of the Trust
Indenture Act through the operation of Section 318(c) thereof, such imposed
duties shall control.
Section 1.8 Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 1.9 Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether or not so expressed.
<PAGE> 13
- 13-
Section 1.10 Separability Clause.
-------------------
In case any provision in this Indenture or in the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof or thereof shall not in any way be affected or
impaired thereby.
Section 1.11 Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Debentures, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Indebtedness and the Holders, any benefit or
any legal or equitable right, remedy or claim under this Indenture.
Section 1.12 Governing Law.
-------------
This Indenture and the Debentures shall be governed by and construed in
accordance with the laws of the State of Ohio, but without regard to principles
of conflicts of laws.
Section 1.13 Limitation on Liability of Company Officers.
-------------------------------------------
No recourse shall be had for the payment of the principal, interest or
premium, if any, on the Debentures or for any claim based thereon or otherwise
in respect thereof or based on or in respect of this Indenture against any
shareholder, officer, director, agent or employee of the Company.
Section 1.14 Counterparts.
------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all of such
counterparts shall together constitute but one and the same instrument.
ARTICLE 2
Debenture Forms
Section 2.1 Forms Generally.
---------------
The Debentures and the certificates of authentication thereon shall be
in substantially the form set forth in Exhibit A, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange, or as may,
consistently herewith, be determined by the officers executing such Debentures,
as evidenced by their execution of the
<PAGE> 14
- 14-
Debentures. Any portion of the text of any Debenture may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Debenture.
The definitive Debentures shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or in
such other manner as the Company may deem appropriate, all as determined by the
officers executing such Debentures, as evidenced by their execution of such
Debentures.
ARTICLE 3
The Debentures
Section 3.1 Title and Terms.
---------------
The aggregate principal amount of Debentures which may be authenticated
and delivered under this Indenture is limited to $14,375,000, except for
Debentures authenticated and delivered upon transfer of, or in exchange for, or
in lieu of other Debentures pursuant to Sections 3.4, 3.5, 3.6, 8.5, 10.7 and
11.2.
The Debentures shall be known and designated as the __% Subordinated
Convertible Debentures Due September 1, 2006 of the Company. The Debentures
shall bear interest from the date and at the rate per annum and such interest
shall be payable on the dates, specified in the form of Debenture set forth in
Exhibit A, until the principal thereof is paid or made available for payment.
All interest payments to be made to registered Holders of Debentures
shall be paid directly by the Company to the Trustee, and, unless otherwise
arranged by the Company with the concurrence of the Trustee, the Trustee shall
mail those interest payments to the Holders that are listed in the Debenture
Register by the Interest Payment Date. The principal of and premium, if any, on
the Debentures shall be payable at the office or agency of the Company
maintained pursuant to Section 9.5 for such purposes in Cincinnati, Ohio, or at
such other office or agency as may be established by the Company.
The Debentures shall be redeemable as provided in Article 10.
The Debentures shall be convertible as provided in Article 11.
The Debentures shall be subordinated in right of payment to Senior
Indebtedness of the Company as provided in Article 12.
<PAGE> 15
- 15-
Section 3.2 Denominations.
-------------
The Debentures shall be issuable only in fully registered form, without
coupons and only in denominations of $1,000 and integral multiples thereof.
Section 3.3 Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Debentures shall be executed on behalf of the Company by its
President or Vice President and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Debentures
may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Debentures or did not
hold such offices at the date of such Debentures.
Upon the original issuance of the Debentures by the Company and
authentication by the Trustee, the Trustee shall deliver the Debentures to the
Holders.
All Debentures authenticated for original issuance by the Company to
the initial purchaser thereof shall be dated as of their respective Date of
Issue. All Debentures authenticated for any other purpose hereunder shall be
dated the date of their authentication.
No Debenture shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose, unless there appears on such Debenture a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Debenture shall be conclusive evidence, and the only evidence, that such
Debenture has been duly authenticated and delivered hereunder.
Section 3.4 Temporary Debentures.
--------------------
Pending the preparation of definitive Debentures, the Company may
execute and upon Company Order the Trustee shall authenticate and deliver,
temporary Debentures which are printed, lithographed, typewritten, mimeographed
or otherwise produced in any denomination, substantially of the tenor of the
definitive Debentures in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Debentures may determine, as evidenced by their execution of such
Debentures.
If temporary Debentures are issued, the Company will cause definitive
Debentures to be prepared without unreasonable delay. After the preparation of
definitive Debentures, the temporary Debentures shall be exchangeable for
definitive Debentures upon surrender of the temporary Debentures at the office
or agency of the Company designated for such purpose pursuant to Section 9.5,
without charge to the Holder. Upon surrender for cancellation of any
<PAGE> 16
- 16-
one or more temporary Debentures, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Debentures of authorized denominations. Until so exchanged the
temporary Debentures shall in all respects be entitled to the same benefits
under this Indenture as definitive Debentures.
Section 3.5 Registration, Transfer and Exchange.
-----------------------------------
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee (or at any other office or agency maintained by the Company pursuant to
Section 9.5) a register (herein sometimes referred to as the "Debenture
Register") in which, subject to such reasonable regulations as it may prescribe,
the Company shall provide for the registration of Debentures and of transfers of
Debentures. The Trustee is hereby initially appointed "Debenture Registrar" for
the purpose of registering Debentures and transfers of Debentures as herein
provided.
The Holder may surrender the Debenture for transfer at the Corporate
Trust Office or at such other office or agency of the Company designated for
such purpose pursuant to Section 9.5. The Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Debentures of any authorized denominations, of a
like aggregate principal amount.
At the option of the Holder, Debentures may be exchanged for other
Debentures of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Debentures to be exchanged at such office or
agency. Whenever any Debentures are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Debentures
which the Holder making the exchange is entitled to receive.
All Debentures issued upon any transfer or exchange of Debentures shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Debentures surrendered upon
such transfer or exchange.
Every Debenture presented or surrendered for transfer or exchange
shall, if so required by the Company or the Trustee, be duly endorsed or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Debenture Registrar, duly executed by the Holder thereof or by
his or her attorney duly authorized in writing.
No service charge shall be made for any transfer or exchange of
Debentures by any Holder, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer or exchange of Debentures, other than exchanges
pursuant to Sections 3.4, 8.5, 10.7 or 11.2 not involving any transfer.
The Company shall not be required (a) to issue, transfer or exchange
any Debenture during a period beginning at the opening of business 15 days
before the day of the mailing of
<PAGE> 17
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a notice of redemption of Debentures selected for redemption under Section 10.3
and ending at the close of business on the day of such mailing, or (b) to
transfer or exchange any Debenture so selected for redemption in whole or in
part, except for the unredeemed portion of any Debenture being redeemed in part.
Section 3.6 Mutilated, Destroyed, Lost and Stolen Debentures.
------------------------------------------------
If (a) any mutilated Debenture is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Debenture, and (b) there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Debenture has been acquired by a bona fide purchaser, the
Company shall execute and upon its request the Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Debenture, a new Debenture of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Debenture, pay such Debenture.
Upon the issuance of any new Debenture under this Section, 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, including the fees and expenses of the Trustee, connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Debentures shall constitute an original,
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Debenture shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude, to the
extent lawful, all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures.
Section 3.7 Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Debenture that is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Debenture (or one or more Predecessor Debentures) is registered
at the close of business on the Regular Record Date, which shall be the 15th day
of the month preceding any Interest Payment Date.
<PAGE> 18
- 18-
Any interest on any Debenture that is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall accrue at a rate
per annum that is equal to one percent (1%) per annum plus the interest rate
stated in the Debenture until all accrued interest is paid in full (herein
called "Defaulted Interest"). The Defaulted Interest shall forthwith cease to be
payable to the registered Holder on the relevant Regular Record Date by virtue
of having been such Holder; and, except as hereinafter provided, such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Section 3.7(a) or 3.7(b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Debenture (or their respective Predecessor
Debentures) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Debenture and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such Defaulted Interest as in this Clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest that
shall be not more than 15 nor less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first class postage prepaid,
to each Holder at his or her address as it appears in the Debenture Register,
not less than 10 days prior to such Special Record Date. The Trustee may, in its
discretion, in the name and at the expense of the Company, cause a similar
notice to be published at least once in an Authorized Newspaper, but such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of proposed payment of such Defaulted Interest and
of the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose name the Debentures (or
their respective Predecessor Debentures) are registered on such Special Record
Date and shall no longer be payable pursuant to the following Section 3.7(b).
(b) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Debentures may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such payment shall be deemed
practicable by the Trustee.
If any installment of interest which has a Stated Maturity on or prior
to the Redemption Date for any Debentures called for redemption at the election
of the Company or requested to be redeemed by a deceased Holder's authorized
representative pursuant to Article 10 is not paid
<PAGE> 19
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or duly provided for on or prior to the Redemption Date in accordance with the
foregoing provisions of this Section, such interest shall be payable as part of
the Redemption Price of such Debentures.
Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Debenture shall carry the rights to interest accrued and unpaid, and
to accrue, which were carried by such other Debenture.
All payments of interest on the Debentures to the Persons entitled
thereto, whether made by the Company, the Trustee or any Paying Agent, as
authorized pursuant to this Indenture, shall be made (subject to collection) by
check mailed to the address of the Person entitled thereto, as such address
shall appear on the Debenture Register, unless the Trustee determines such
method of payment to be inappropriate in the circumstances.
In the case of any Debenture that is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Debenture whose Maturity is prior to such Interest Payment Date), interest
shall be payable on such Interest Payment Date notwithstanding such conversion,
and such interest (whether or not punctually paid or duly provided for) shall be
paid to the Person in whose name that Debenture (or one or more Predecessor
Debentures) is registered at the close of business on such Regular Record Date.
Except as otherwise expressly provided in the immediately preceding sentence, in
the case of any debenture that is converted, interest after the date of
conversion of such Debenture shall not be payable.
Section 3.8 Persons Deemed Owners.
---------------------
The Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Debenture is registered as the owner of
such Debenture for the purpose of receiving payment of principal of, and
(subject to Section 3.7) interest on, such Debenture and for all other purposes
whatsoever, whether or not such Debenture is overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
Section 3.9 Cancellation.
------------
All Debentures surrendered for payment, redemption, transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and, if not already canceled, shall be promptly
canceled by it. The Company may at any time deliver to the Trustee for
cancellation any Debentures previously authenticated and delivered hereunder
that the Company may have acquired in any manner whatsoever, and may deliver to
the Trustee (or to any other Person for delivery to the Trustee) for
cancellation any Debentures previously authenticated hereunder that the Company
has not issued and sold, and all Debentures so
<PAGE> 20
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delivered shall be promptly canceled by the Trustee. No Debentures shall be
authenticated in lieu of or in exchange for any Debentures canceled as provided
in this Section, except as expressly permitted by this Indenture. All canceled
Debentures held by the Trustee shall be disposed of as directed by a Company
Order.
Section 3.10 Authentication and Delivery of Original Issue.
---------------------------------------------
Forthwith upon the execution and delivery of this Indenture, or from
time to time thereafter, Debentures up to the aggregate principal amount of
$14,375,000 may be executed by the Company and delivered to the Trustee for
authentication, and shall thereupon be authenticated and delivered by the
Trustee upon Company Order, without any further action by the Company.
Section 3.11 Computation of Interest.
-----------------------
Interest on the Debentures shall be computed on the basis of a 360 day
year of twelve 30-day months.
ARTICLE 4
Satisfaction and Discharge
Section 4.1 Satisfaction and Discharge of Indenture.
---------------------------------------
The Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, transfer or exchange of Debentures herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute the proper instrument acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(1) all Debentures theretofore authenticated and delivered,
other than Debentures which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 3.6, have been
canceled by the Trustee or delivered for cancellation to the Trustee;
or
(2) all such Debentures not theretofore canceled or delivered
to the Trustee for cancellation
(A) have become due and payable, or
<PAGE> 21
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(B) will become due and payable at their Stated
Maturity within one year, or
(C) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company
and the Company, in the case of Sections 4.1(a)(2)(A), 4.1(a)(2)(B) or
4.1(a)(2)(C) above, has deposited or caused to be deposited with the Trustee as
trust funds in trust for the purpose an amount sufficient to pay and discharge
the entire indebtedness on such Debentures not thereto fore canceled or
delivered to the Trustee for cancellation, for principal and any premium and
interest to the date of such deposit, in the case of Debentures which have
become due and payable, or to the Stated Maturity or Redemption Date, as the
case may be;
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfac tion and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7 and, if money shall
have been deposited with the Trustee pursuant to Section 4.1(a)(2), the
obligations under Section 4.2 and Section 9.6 shall survive.
Section 4.2 Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 9.6, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by it, in accordance with the provisions of the Debentures and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee; but such money
need not be segregated from other funds except to the extent required by law.
<PAGE> 22
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ARTICLE 5
Remedies
Section 5.1 Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment of the principal of (or premium, if any, on)
any Debenture at its Maturity whether or not such payment is prohibited by the
provisions of Article 12 hereof; or
(b) default in the payment of any interest upon any Debenture when it
becomes due and payable, and continuance of such default for a period of 15
days; or
(c) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture, other than a covenant or warranty a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with, and continuance of such default or breach for a period of 30 days
after there has been given, by registered or certified mail, to the Company and
the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Debentures, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(d) default under any obligations for money borrowed by the Company and
its Subsidiaries aggregating $1,000,000 or more in principal amounts
outstanding, whether such obligations now exist or shall hereafter be created,
which default(s) shall constitute failure to pay any portion of the principal of
such obligations when due and payable after the expiration of any applicable
grace period(s) with respect thereto or shall have resulted in such obligations
becoming or being declared due and payable prior to the date on which it or they
would otherwise have become due and payable, without such obligations having
been discharged, or such acceleration having been rescinded or annulled; or
(e) entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company insolvent, or approving as properly filed an
involuntary petition seeking reorganization, readjustment, arrangement,
composition or similar relief for the Company under the federal bankruptcy laws,
or any other similar applicable law of any governmental unit, domestic or
foreign, and such decree or order shall have continued undischarged or unstayed
for a period of 60 days; or a decree or order or other decision of a court or
agency of the appointment of a receiver or conservator or liquidator or trustee
or assignee in bankruptcy or insolvency of the Company or of a substantial part
of its property, or for the involuntary
<PAGE> 23
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winding down or liquidation of the Company's affairs, shall have been entered
and such decree or order shall have remained in force undischarged and unstayed
for a period of 60 days; or, under the provisions of any insolvency, bankruptcy
or other law for the relief or aid of creditors, any court shall assume custody
or control of the Company or of a substantial part of its property, and such
custody and control shall not be terminated or stayed within 60 days from the
date of assumption of such custody or control; or
(f) institution of proceedings by the Company to be adjudicated
insolvent, or the consent to the filing of an insolvency proceeding against the
Company, or the filing of a petition or answer or consent seeking
reorganization, readjustment, arrangement, composition, appointment of a
receiver or conservator or similar relief under the federal insolvency laws, or
any other similar applicable law of any governmental unit, domestic or foreign,
or the consent to the filing of any such petition or the consent to the
appointment of a receiver or conservator or liquidator or trustee or assignee in
insolvency of the Company or of a substantial part of the Company's property, or
the making of an assignment for the benefit of creditors, or the admission by
the Company in writing of its inability to pay its debts generally as they
become due, or the voluntarily suspending transaction of its business (other
than in connection with a labor dispute), or any corporate action taken by the
Company in furtherance of any of the aforesaid purposes.
Section 5.2 Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default occurs and is continuing, then and in every such
case the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Debentures Outstanding may declare the principal amount of all the
Debentures to be due and payable immediately, by a notice in writing to the
Company, and to the Trustee if given by Holders, and upon any such declaration
such principal amount shall become immediately due and payable.
At any time after such declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of 50% in
aggregate principal amount of the Debentures Outstanding, by written notice to
the Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(a) the Company has paid or deposited with the Trustee a sum sufficient
to pay
(1) all overdue installments of interest on all Debentures,
(2) the principal of (and premium, if any, on) any Debentures
which have become due (otherwise than by such declaration of acceleration) and
interest thereon at the rate borne by the Debentures,
<PAGE> 24
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(3) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate borne by the
Debentures, and
(4) 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
(b) all Events of Default, other than the non-payment of the principal
of and premium, if any, and interest on the Debentures that has become due
solely by such acceleration, have been cured or waived as provided in Section
5.12.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.3 Collection of Indebtedness and Suits for Enforcement
----------------------------------------------------
by Trustee.
----------
The Company covenants that if:
(a) default is made in the payment of the principal of (or premium, if
any, on) any Debenture at the Maturity thereof, or
(b) default is made in the payment of any installment of interest on
any Debenture when such interest becomes due and payable and such default
continues for a period of 15 days,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Debentures, the whole amount then due and payable on such
Debentures for principal, premium, if any, and interest, with interest upon the
overdue principal and, to the extent that payment of such interest shall be
legally enforceable, upon 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 the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amount forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Debentures and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Debentures, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other property remedy.
<PAGE> 25
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Section 5.4 Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, conservatorship,
insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Company or relative to
any other obligor upon the Debentures or the property of the Company or of such
other obligor or their creditors, 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
on the Company for the payment of overdue principal or interest, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Debentures
and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee, including any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and of the Holders
allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator, or other similar
official, in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder 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 Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
Section 5.5 Trustee May Enforce Claims Without Possession of
------------------------------------------------
Debentures.
----------
All rights of action and claims under this Indenture or the Debentures
may be prosecuted and enforced by the Trustee without the possession of any of
the Debentures or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements
<PAGE> 26
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and advances of the Trustee, its agents and counsel, be for the ratable benefit
of the Holders of the Debentures in respect of which such judgment has been
recovered.
Section 5.6 Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (and premium,
if any) or interest, upon presentation of the Debentures and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 6.7;
SECOND: In case the principal of the Debentures shall not have become
due, to the payment of interest on the Debentures, in the order of the maturity
of the installments of such interest, with interest, to the extent that such
interest has been collected by the Trustee, upon the overdue installments of
interest at the rate borne by the Debentures, such payments to be made ratably
to the Persons entitled thereto, without discrimination or preference;
THIRD: In case the principal of the Debentures shall have become due,
by declaration or otherwise, to the payment of the whole amount then owing and
unpaid upon the Debentures for principal (and premium, if any) and interest,
with interest on the overdue principal (and premium, if any) and, to the extent
that such interest has been collected by the Trustee, upon overdue installments
of interest at the rate borne by the Debentures; and in case such moneys shall
be insufficient to pay in full the whole amount so due and unpaid upon the
Debentures, then to the payment of such principal (and premium, if any) and
interest, without preference or priority of principal (and premium, if any) over
interest, or of interest over principal (and premium, if any), or of any
installment of interest over any other installment of interest, or of any
Debenture over any other Debenture, ratably to the aggregate of such principal
(and premium, if any) and accrued and unpaid interest; and
FOURTH: The remainder, if any, shall be paid to the Company, its
successors or assigns, or to whomsoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
Section 5.7 Limitation on Suits.
-------------------
No Holder of any Debenture shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
<PAGE> 27
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(b) the Holders of not less than 25% in aggregate principal
amount of the Outstanding Debentures shall have made a written request
to the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Debentures;
it being understood and intended 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 Holders of Debentures, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit of
all the Holders of Debentures.
Section 5.8 Unconditional Right of Holders to Receive
-----------------------------------------
Principal, Premium and Interest and to Convert.
----------------------------------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Debenture shall have the right, which is absolute and unconditional, to
receive payment of the principal of and any premium and, subject to Section 3.7,
interest on such Debenture on the respective Stated Maturities expressed in such
Debenture (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and the right to convert
such Debenture in accordance with Article 11 and to institute suit for its
enforcement, and such rights shall not be impaired without the consent of such
Holder.
Section 5.9 Rights and Remedies Cumulative.
------------------------------
Except as provided in Section 3.6, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
<PAGE> 28
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Section 5.10 Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Debenture
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 5.11 Control by Holders.
------------------
The Holders of a majority in aggregate principal amount of the
Outstanding Debentures 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 that:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction, and
(c) the Trustee shall not determine that the action so
directed would be unduly prejudicial to the Holders not taking part in
such direction or shall not have reasonable cause to believe adequate
indemnity against risk or liability is not reasonably assured to it.
The Company may set a record date for purposes of determining
the identity of Holders of Outstanding Debentures entitled to vote or consent to
any action as authorized or permitted by Section 316(a) of the Trust Indenture
Act. Such record date shall be the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders of
Debentures furnished to the Trustee pursuant to Section 7.1 of this Indenture
prior to such solicitation.
Section 5.12 Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in aggregate principal amount
of the Debentures Outstanding may, on behalf of the Holders of all the
Debentures, waive any past default hereunder and its consequences, except,
unless theretofore cured, a default:
<PAGE> 29
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(a) in the payment of the principal of, premium, if any, or
interest on any Debenture (other than any non-payment of the principal
of and premium, if any, and interest on the Debentures that has become
due solely by acceleration), or
(b) in respect of a covenant or provision hereof that under
Article 8 cannot be modified or amended without the consent of the
Holder of each Outstanding Debenture affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 5.13 Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Debenture
by his or her 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 the Trustee for any action
taken or omitted 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 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Debentures,
or to any suit instituted by a Holder for the enforcement of the payment of the
principal of, premium, if any, or interest on any Debenture on or after any
applicable Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date) or for the enforcement of the right to convert any
Debenture in accordance with the provisions of Article 11.
Section 5.14 Waiver of Usury, Stay or Extension Laws.
---------------------------------------
The Company covenants, to the extent that it may lawfully do so, that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company, to the extent that it may
lawfully do so, hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
<PAGE> 30
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ARTICLE 6
The Trustee
Section 6.1 Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of actual knowledge or bad faith on its
part, the Trustee may conclusively rely, as to the truth of the
statements, and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but, in the case of any such
certificates or opinions which are specifically required to be
furnished to the Trustee by any provision hereof, the Trustee shall be
under a duty to examine the same to determine whether or not they
conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent individual would exercise or use under the circumstances in the conduct
of his or her own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a majority in principal
amount of the Outstanding Debentures relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture; and
<PAGE> 31
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(4) whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
Section 6.2 Notice of Defaults.
------------------
Within 90 days after the occurrence of any default hereunder which is
known to the Trustee, the Trustee shall transmit by mail to all Holders, as
their names and addresses appear in the Debenture Register, notice of such
default, unless such default shall have been cured or waived; provided, however,
that, except in the case of a default in the payment of the principal of, or
premium, if any, or interest on any Debenture, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determine that the withholding of such notice is in the
interests of the Holders; and provided, further, that in the case of any default
of the character specified in Section 5.1(c) no such notice to Holders shall be
given until at least 30 days after the occurrence thereof. For the purpose of
this Section, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default.
Section 6.3 Certain Rights of Trustee.
-------------------------
Except as otherwise provided in Section 6.1:
(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, direction, consent, order, bond, security or other
paper or document believed by it to be genuine and to have been signed by the
proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of actual knowledge of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any 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 reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this
<PAGE> 32
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Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) 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, direction, consent, order, bond, security or
other paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney; and
(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.
Section 6.4 Not Responsible for Recitals or Issuance of
-------------------------------------------
Debentures.
----------
The recitals contained herein and in the Debentures, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
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 the Debentures or the proceeds thereof.
Section 6.5 May Hold Debentures.
-------------------
The Trustee, any Paying Agent, any Debenture Registrar or any other
agent of the Company, in its individual or any other capacity, may become the
owner or pledgee of Debentures and, subject to Sections 6.8 and 6.13 may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Paying Agent, Debenture Registrar or such other agent.
Section 6.6 Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder 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 except as
otherwise agreed with the Company.
Section 6.7 Compensation and Reimbursement.
------------------------------
The Company agrees:
(a) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree upon
in writing for all services rendered
<PAGE> 33
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to it hereunder (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence, willful misconduct or bad
faith; and
(c) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence, willful misconduct or
bad faith on its part, 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 or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
The obligations of the Company under this Section shall not be
subordinated to the payment of Senior Indebtedness pursuant to Article 12.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Debentures upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any) or interest on
Debentures.
Section 6.8 Disqualification; Conflicting Interests.
---------------------------------------
The Trustee shall be subject to and comply with the provisions of
Section 310(b) of the Trust Indenture Act regarding the disqualification of the
Trustee in the event that it acquires any conflicting interest as therein
defined. Nothing herein shall prevent the Trustee from filing with the
Commission the application referred to in the penultimate paragraph of Section
310(b) of the Trust Indenture Act.
Section 6.9 Corporate Trustee Required; Eligibility.
---------------------------------------
There shall at all times be a Trustee hereunder which satisfies the
requirements of Trust Indenture Act Sections 310(a)(1) and 310 (a)(5), has a
combined capital and surplus of at least $10,000,000, and is subject to
supervision or examination by Federal, State or District of Columbia authority.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
<PAGE> 34
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Section 6.10 Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Debentures, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of
the Trust Indenture Act pursuant to Section 6.8 hereof after written
request therefor by the Company or by any Holder who has been a bona
fide Holder of a Debenture for at least six months unless the Trustee's
duty to resign is stayed in accordance with Section 310(b) of the Trust
Indenture Act, or
(2) the Trustee shall cease to be eligible under Section 6.9
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver or conservator 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, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 5.14, any Holder who has been a bona fide
Holder of a Debenture for at least six months may, on behalf of himself or
herself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Debentures
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor
<PAGE> 35
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Trustee appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Debenture
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event within 30 days of the date thereof by first-class mail,
postage prepaid, to the Holders of Debentures as their names and addresses
appear in the Debenture Register. Each notice shall include the name of the
successor Trustee and the address of its principal corporate trust office.
Section 6.11 Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, upon request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 6.7. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
Section 6.12 Merger, Conversion, Consolidation or Succession
-----------------------------------------------
to Business.
-----------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided the Company has approved such successor in a Company Consent and such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Debentures shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Debentures so authenticated with the same effect
as if such successor Trustee had itself authenticated such Debentures.
<PAGE> 36
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Section 6.13 Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with Section 311(a) of the Trust Indenture
Act, excluding any creditor relationship listed in Section 311(b) of that Act.
If the present or any future Trustee shall resign or be removed, it shall be
subject to Section 311(a) of the Trust Indenture Act to the extent provided
therein.
ARTICLE 7
Holders' Lists and Reports by Company
Section 7.1 Preservation of Information; Company to Furnish
-----------------------------------------------
Trustee Names and Addresses of Holders.
--------------------------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders. Neither the Company nor the Trustee shall be under any
responsibility with regard to the accuracy of such list. The Company, in
furnishing information concerning Holders to the Trustee, and the Trustee will
satisfy the requirements imposed upon each of them by Section 312(a) of the
Trust Indenture Act.
Section 7.2 Communications Among Holders.
----------------------------
Holder may communicate with other Holders with respect to their rights
under this Indenture or under the Debentures pursuant to Section 312(b) of the
Trust Indenture Act. The Company and the Trustee and any and all other Persons
benefitted by this Indenture shall have the protection afforded by Section
312(c) of the Trust Indenture Act.
Section 7.3 Reports by Trustee.
------------------
Within 60 days after each August 15, commencing August 15, 1997, the
Trustee shall mail to Holders a brief report dated as of such August 15 that
complies with Section 313(a) of the Trust Indenture Act, but only if such report
is required in any year under such Section 313(a) of the Trust Indenture Act.
The Trustee shall also comply with Sections 313(b) and 313(c) of the Trust
Indenture Act. At the time of its mailing to Holders, a copy of each report
shall be filed with the Commission and with any stock exchange on which the
Debentures are listed. The Company shall notify the Trustee if and when the
Debentures are listed on any stock exchange.
<PAGE> 37
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Section 7.4 Reports by Company.
------------------
(a) The Company shall file such annual and/or periodic reports and
certificates with the Trustee and/or with the Commission and/or with the Holders
as are required by the provisions of Section 314(a) of the Trust Indenture Act.
(b) If the Company is not required to file such reports and other
information referred to in Section 7.4(a) with the Commission, the Company shall
nevertheless file with the Trustee (i) within 135 days after the end of each
fiscal year, annual reports containing the information required to be contained
in Form 10-K promulgated under the Exchange Act, or the information required to
be contained in any successor form thereto, (ii) within 60 days after the end of
each of the first three fiscal quarters of each fiscal year, quarterly reports
containing the information required to be contained in Form 10-Q promulgated
under the Exchange Act, or the information required to be contained in any
successor form thereto, and (iii) promptly from the time after the occurrence of
an event required to be therein reported, such other reports containing
information required to be contained in Form 8-K promulgated under the Exchange
Act, or the information required to be contained in any successor form thereto.
(c) So long as any Debentures remain Outstanding, the Company shall
cause its annual reports to shareholders and any quarterly or other financial
reports furnished by it to shareholders generally to be mailed to the Holders
(no later than the date such materials are mailed to the Company's shareholders)
at their addresses appearing in the Debenture Register. In the event that the
Company is no longer required to furnish annual reports to its shareholders
pursuant to the Exchange Act, it shall cause copies of all reports and
information filed with the Trustee pursuant to Section 7.4(b) to be so mailed to
the Holders within 15 days after the filing thereof with the Trustee.
ARTICLE 8
Supplemental Indentures
Section 8.1 Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of the Holders of any Debentures, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another entity to the Company, and
the assumption by any such successor of the covenants of the Company herein and
in the Debentures; or
<PAGE> 38
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(b) to add to the covenants of the Company, for the benefit of the
Holders of the Debentures, or to surrender any right or power herein conferred
upon the Company; or
(c) to add any additional Events of Default; or
(d) to cure any ambiguity, to correct or supplement any provision
herein that may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Indenture, provided such action shall not adversely affect the interest of the
Holders of the Debentures; or
(e) to add to or change or eliminate any provisions of this Indenture
as shall be necessary or desirable in accordance with any amendments to the
Trust Indenture Act.
Section 8.2 Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Debentures, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may 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
modifying in any manner the rights of the Holders of the Debentures under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent of the Holder of each Outstanding Debenture affected thereby,
(a) extend the Stated Maturity of the principal of, or any installment
of interest on, any Debenture, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption thereof or
change the coin or currency in which any Debenture or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof, or, in the case of redemption
pursuant to Article 10, on or after the Redemption Date, or
(b) reduce the percentage in principal amount of the Outstanding
Debentures, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver of
compliance with provisions of this Indenture or defaults hereunder and their
consequences provided for in this Indenture, or
(c) modify any of the provisions of this Section, Section 5.12 or
Section 9.10, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Debenture affected thereby, or
(d) subordinate the Indebtedness evidenced by the Debentures to any
Indebtedness of the Company other than Senior Indebtedness, as provided in
Article 12, or
<PAGE> 39
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(e) impair or restrict the rights of the Holders of the Debentures to
redemption of Debentures prior to the Stated Maturity thereof under the
circumstances set forth in, and in accordance with the provisions of, Article
10, or
(f) impair or restrict the conversion rights provided in Article 11.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 8.3 Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and, subject to Section 6.1, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture of otherwise.
Section 8.4 Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Debentures theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 8.5 Reference in Debentures to Supplemental Indentures.
--------------------------------------------------
Debentures authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Debentures so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Debentures.
Section 8.6 Effect on Senior Indebtedness.
-----------------------------
No supplemental indenture shall adversely affect the rights of any
holder of Senior Indebtedness under Article 12 without the consent of such
holder.
<PAGE> 40
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Section 8.7 Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
ARTICLE 9
Covenants
Section 9.1 Payment of Principal and Interest.
---------------------------------
The Company covenants and agrees that it will duly and punctually pay
the principal of and any premium and interest on the Debentures in accordance
with the terms of the Debentures and this Indenture.
Section 9.2 Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
Section 9.3 Company Existence.
-----------------
Subject to Section 9.4, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
its rights (charter and statutory) and its franchises; provided, however, that
the Company shall not be required to preserve any right or franchise, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the net effect
of the loss thereof is not disadvantageous in any material respect to the
Holders.
Section 9.4 Company May Consolidate, etc. Only on Certain Terms.
---------------------------------------------------
The Company shall not consolidate with or merge into any other Person
or convey, transfer or lease all or substantially all its properties and assets
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company or convey, transfer or lease all or substantially all
its properties and assets to the Company, unless:
<PAGE> 41
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(a) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease all or substantially all its properties and
assets to any Person, the Person formed by such consolidation or into which the
Company is merged or the Person that acquires by conveyance or transfer or lease
all or substantially all the properties and assets of the Company shall be a
corporation, partnership or trust organized and validly existing under the laws
of the United States of America, any state thereof or the District of Columbia
and shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee, the
due and punctual payment of the principal of and any premium and interest on all
the Debentures, the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed and every other
obligation of the Company under this Indenture and shall have provided for
conversion rights in accordance with Article 11;
(b) immediately after giving effect to such transaction and treating
any Indebtedness that becomes an obligation of the Company or Subsidiary as a
result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
that, after such notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing;
(c) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets to the Company would become
subject to a mortgage, pledge, lien, security interest or other encumbrance that
would not be permitted by this Indenture, the Company or such successor Person,
as the case may be, shall take such steps as shall be necessary effectively to
secure the Debentures equally and ratably with (or prior to) all Indebtedness
secured thereby; and
(d) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental indenture comply
with this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer or lease of all or
substantially all the properties and assets of the Company in accordance with
this Section, the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, transfer or lease is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Debentures.
<PAGE> 42
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Section 9.5 Maintenance of Office or Agency.
-------------------------------
The Company will maintain an office or agency where Debentures may be
presented or surrendered for payment, where Debentures may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Debentures and this Indenture may be served. The
office of the Trustee at its Corporate Trust Office shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Company hereby appoints the Trustee its agent to
receive all such presentations, surrenders, notices and demands.
Section 9.6 Money for Debenture Payments to Be Held in Trust.
------------------------------------------------
If the Company shall at any time act as its own Paying Agent with
respect to the Debentures, it will, on or before each due date of the principal
of or any premium or interest on the Debentures, segregate and hold in trust for
the benefit of the Persons entitled thereto a sum sufficient to pay the
principal and any premium and interest so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall utilize a Paying Agent for the Debentures,
it will, prior to each due date of the principal of or any premium or interest
on the Debentures, deposit with the Paying Agent a sum sufficient to pay such
amount, such sum to be segregated and held in trust for the benefit of the
Persons entitled thereto, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action of failure so to act.
The Company will cause the Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (a) comply with the provisions of this Indenture
applicable to it as a Paying Agent and (b) during the continuance of any default
by the Company in the making of any payment in respect of the Debentures, and
upon the written request of the Trustee, forthwith pay to the Trustee all sums
held in trust by such Paying Agent for payment in respect of the Debentures.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent
<PAGE> 43
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to the Trustee, such Paying Agent shall be released from all further liability
with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or any premium or
interest on any Debenture and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Debenture shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in an Authorized Newspaper, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
Section 9.7 Statement by Officers as to Default.
-----------------------------------
The Company will deliver to the Trustee, within 120 days after the end
of each fiscal year of the Company ending after the date hereof, an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
Section 9.8 Maintenance of Properties.
-------------------------
The Company will:
(a) cause its properties and the properties of its Subsidiaries used or
useful in the conduct of the business of the Company and its Subsidiaries to be
maintained and kept in good condition, repair and working order and supplied
with all necessary facilities and equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Subsection shall prevent
the Company or a Subsidiary from discontinuing the operation and maintenance of
any of its properties if such discontinuation is, in the judgment of the
Company, desirable in the conduct of its business and not disadvantageous in any
material respect to the Holders, and
(b) take all appropriate steps to preserve, protect and maintain the
trademarks, trade names, copyrights, licenses and permits used in the conduct of
the business of the Company and
<PAGE> 44
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its Subsidiaries; provided, however, that nothing in this Subsection shall
prevent the Company or a Subsidiary from selling, abandoning or otherwise
disposing of any such trademark, trade name, copyright, license or permit if
such sale, abandonment or disposition is, in the judgment of the Company,
desirable in the conduct of its business and not disadvantageous in any material
respect to the Holders.
Section 9.9 Purchase of Debentures upon a Repurchase Event.
----------------------------------------------
(a) If there shall have occurred a Repurchase Event, the Company shall
make an offer to purchase all the Outstanding Debentures. Such offer shall
expire on a date that is not earlier than 45 days nor later than 60 days from
the date the Repurchase Event Notice referred to below is mailed to Holders or
such later date as may be necessary for the Company to comply with requirements
under the Exchange Act (such date, or such later date, being the "Repurchase
Date"), at a purchase price in cash (the "Repurchase Price") equal to 101% of
the principal amount of such Debentures, plus accrued and unpaid interest
(including any Defaulted Interest), if any, to the Repurchase Date, subject to
satisfaction by or on behalf of the Holder of the requirements set forth in this
Section 9.9.
(b) Within 30 days after the occurrence of a Repurchase Event, the
Company shall give written notice of such Repurchase Event (a "Repurchase Event
Notice") and of its offer (the "Repurchase Offer") to purchase Debentures as
specified herein to the Trustee, and to each Holder of the Debentures at his
address appearing on the Debenture Register, by first-class mail, postage
prepaid. The Trustee shall be under no obligation to ascertain the occurrence of
a Repurchase Event. The Repurchase Event Notice shall contain all instructions
and materials necessary to enable such Holders to tender Debentures, shall
include a form of Repurchase Notice (as defined in Section 9.9(c)) to be
completed by the Holder and shall state:
(1) the events causing the Repurchase Event and the date such
Repurchase Event is deemed to have occurred for purposes of this
Section 9.9, accompanied by a description of any material developments
in the Company's business since the latest annual or quarterly report
filed with the Trustee and, if material, any appropriate pro forma
financial information;
(2) the date by which a Holder must give a Repurchase Notice;
(3) the Repurchase Price;
(4) the Repurchase Date;
(5) that any Debenture not purchased will continue to accrue
interest;
(6) that Debentures accepted for payment shall, on the
Repurchase Date, become due and payable at the Repurchase Price and
from and after such date (unless
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the Company shall default in the payment of the Repurchase Price) such
Debentures shall cease to accrue interest; and
(7) the procedures a Holder must follow to exercise rights
under this Section 9.9 and a brief description of those rights and the
procedures for withdrawing a Repurchase Notice.
(c) A Holder may exercise its rights specified in Section 9.9(a) upon
(1) delivery to any Paying Agent of a written notice (a "Repurchase Notice") at
any time prior to the close of business on the Repurchase Date, stating (A) the
certificate number of the Debenture that the Holder will deliver to be purchased
and (B) 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 (2) delivery, within the time limits specified in the
Repurchase Event Notice, of such Debenture to such Paying Agent at such office
(together with all necessary endorsements), such delivery being a condition to
receipt by the Holder of the Repurchase Price therefor. If a Holder has elected
to deliver to the Company for purchase a portion of a Debenture, and if the
principal amount of such portion is $1,000 or an integral multiple of $1,000,
the Company shall purchase such portion from the Holder thereof pursuant to this
Section 9.9. Provisions of this Indenture that apply to the purchase of all of a
Debenture also apply to the purchase of a portion of such Debenture. Each Paying
Agent shall promptly notify the Company of the receipt by the former of any and
all Repurchase Notices and any and all written notices of withdrawal thereof.
(d) Upon receipt by any Paying Agent of a Repurchase Notice, the Holder
of the Debenture in respect of which such Repurchase Notice was given shall
(unless such Repurchase Notice is validly withdrawn pursuant to Section 9.9(i))
thereafter be entitled to receive solely the Repurchase Price with respect to
such Debenture. Such Repurchase Price shall be paid to such Holder promptly
following the later of the Business Day following the Repurchase Date (provided
the conditions in Section 9.9(c) have been satisfied) and the time of delivery
of such Debenture to the relevant Paying Agent at the office of such Paying
Agent by the Holder thereof in the manner required by Section 9.9(c).
(e) On or prior to the Repurchase Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust) an amount of money in same day funds
(or New York Clearing House funds if such deposit is made prior to the
Repurchase Date) sufficient to pay the Repurchase Price of all the Debentures or
portions thereof which are to be purchased on that date.
(f) Upon a Repurchase Notice having been given as aforesaid, Debentures
validly tendered, not withdrawn and accepted for payment shall, on the
Repurchase Date, become due and payable at the Repurchase Price and from and
after such date (unless the Company shall default in the payment of the
Repurchase Price) such Debentures shall cease to bear interest. Upon surrender
of any such Debenture for purchase in accordance with the foregoing provisions,
<PAGE> 46
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such Debenture shall be paid by the Company at the Repurchase Price; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Repurchase Date shall be payable to the Holders of such Debentures, or one
or more Predecessor Debentures, registered as such on the relevant Regular
Record Dates. If any Debenture tendered for purchase shall not be paid in
accordance with the provisions of this Section 9.9 upon surrender thereof, the
principal thereof (and premium, if any, thereon) shall, until paid, bear
interest from the Repurchase Date at the rate borne by such Debenture.
(g) Any Debenture that is to be purchased only in part shall be
surrendered to a Paying Agent at the office of such Paying Agent (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, one or more new Debentures
of any authorized denomination as requested by such Holder in an aggregate
principal amount equal to, and in exchange for, the portion of the principal
amount of the Debenture so surrendered that is not purchased.
(h) The Company shall comply with applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, in connection with a Repurchase
Offer and may modify a Repurchase Offer to so comply.
(i) A Repurchase Notice may be withdrawn before or after delivery by
the Holder to the Paying Agent by means of a written notice of withdrawal (by
facsimile transmission or letter) received by such Paying Agent at the office of
the Paying Agent not later than three Business Days prior to the Repurchase
Date, specifying, as applicable:
(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 the Debenture that
remains subject to the original Repurchase Notice and that has been or
will be delivered for purchase by the Company.
Each Paying Agent will promptly return to the prospective Holders
thereof any Debentures with respect to which a Repurchase Notice has been
withdrawn in compliance with this Indenture.
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Section 9.10 Waiver of Certain Covenants.
---------------------------
Without limiting the rights of the Holders and the Company with respect
to waivers and amendments set forth in Section 5.12 and 8.2 the Company may omit
in any particular instance to comply with any covenant or condition set forth in
Sections 9.2 through 9.4, if before or after the time for such compliance the
Holders of at least a majority in aggregate principal amount of the Debentures
at the time Outstanding shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such covenant or condition shall remain in full force and
effect.
ARTICLE 10
Redemption of Debentures
Section 10.1 Right of Redemption by Company.
------------------------------
The Company may, at its option, redeem all or any part of the
Debentures at any time prior to September 1, 1999 if the Closing Price per share
of the Company's Common Stock has equaled or exceeded 140% of the then effective
Conversion Price per share of Common Stock for at least 20 Trading Days within
30 consecutive Trading Days ending not more than five Trading Days prior to the
date of a notice of redemption. Such redemption will be in cash and will be at
the Redemption Prices set forth in the Debentures together with accrued interest
(including any Defaulted Interest) to the Redemption Date. The Debentures are
subject to redemption by the Company, at its option, at any time on or after
September 1, 1999 at the Redemption Prices set forth in the Debentures, together
with accrued interest (including any Defaulted Interest) to the Redemption Date.
Section 10.2 Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Debentures shall be evidenced
by a Board Resolution. In case of any redemption at the election of the Company
of less than all of the Debentures, the Company shall, at least 60 days prior to
the Redemption Date (unless a shorter notice shall be satisfactory to the
Trustee) notify the Trustee of such Redemption Date and of the principal amount
of Debentures to be redeemed.
Section 10.3 Selection by Trustee of Debentures to be
----------------------------------------
Redeemed at the Election of the Company.
---------------------------------------
If less than all the Debentures are to be redeemed at the election of
the Company, the particular Debentures to be redeemed shall be selected not more
than 45 days prior to the Redemption Date by the Trustee, from the Outstanding
Debentures not previously called for
<PAGE> 48
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redemption, by such method as the Trustee shall deem fair and appropriate and
that may provide for the selection for redemption of portions (equal to $1,000
or any integral multiple thereof) of the principal of Debentures of a
denomination larger than $1,000. If any Debenture selected for partial
redemption is converted in part before the termination of the conversion right
resulting from such selection, the converted portion of such Debenture shall be
deemed (so far as may be possible) to be the portion selected for redemption.
Debentures that have been converted during a selection of Debentures to be
redeemed shall be treated by the Trustee as Outstanding for the purposes of such
selection.
The Trustee shall promptly notify the Company in writing of the
Debentures selected for redemption and in the case of any Debentures selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Debentures shall relate,
in the case of any Debenture redeemed or to be redeemed only in part, to the
portion of the principal of such Debenture which has been or is to be redeemed.
Section 10.4 Notice of Redemption at the Election of the Company.
---------------------------------------------------
Notice of redemption at the election of the Company shall be given by
the Company, or at the Company's request, by the Trustee in the name and at the
expense of the Company by first-class mail, postage prepaid, mailed not less
than 15 nor more than 60 days prior to the Redemption Date, to each Holder of
Debentures to be redeemed, at his or her address appearing in the Debenture
Register.
Each notice of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all Outstanding Debentures are to be redeemed, the
identification (and, in the case of partial redemption, the respective principal
amounts) of the Debentures to be redeemed,
(d) that on the Redemption Date the Redemption Price will become due
and payable upon each such Debenture, and that interest thereon shall cease to
accrue from and after said date,
(e) the Conversion Price, the date on which the right to convert the
principal of the Debentures to be redeemed will terminate and the place or
places where such Debentures may be surrendered for conversion,
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(f) the place or places where such Debentures are to be surrendered for
payment of the Redemption Price, and
(g) the CUSIP numbers of the Debentures to be redeemed.
Section 10.5 Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 9.6) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) accrued interest on, all the Debentures
that are to be redeemed on that date. If any Debenture called for redemption is
converted pursuant to Article 11, any money deposited with the Trustee or so
segregated and held in trust for the redemption of such Debenture shall (subject
to the right of the Holder of such Debenture or any Predecessor Debenture to
receive interest as provided in the last paragraph of Section 3.7) be paid to
the Company on Company Request, or if then held by the Company, shall be
discharged from such trust.
Section 10.6 Debentures Payable on Redemption Date.
-------------------------------------
Notice of redemption at the election of the Company having been given
as aforesaid, the Debentures so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein specified and from and
after such date, unless the Company shall default in the payment of the
Redemption Price, such Debentures shall cease to bear interest. Upon surrender
of such Debentures for redemption in accordance with said notice, such
Debentures shall be paid by the Company at the Redemption Price, together with
accrued interest to the Redemption Date. Installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Debentures, or one or more Predecessor Debentures, registered as such on
the relevant Record Dates according to their terms and the provisions of Section
3.7.
If any Debenture called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Debenture.
Section 10.7 Debentures Redeemed in Part.
---------------------------
Any Debenture which is to be redeemed only in part shall be surrendered
at a location specified in the notice of redemption 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 his or her 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
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denominations as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Debenture so
surrendered.
ARTICLE 11
Conversion of Debentures
Section 11.1 Conversion Privilege and Conversion Price.
-----------------------------------------
Subject to and upon compliance with the provisions of this
Article, at the option of the Holder thereof, any Debenture or any portion of
the principal amount thereof that is $1,000 or an integral multiple of $1,000
may be converted at the principal amount thereof, or of such portion thereof,
into fully paid and non-assessable shares (calculated as to each conversion to
the nearest 1/100 of a share) of Common Stock of the Company, at the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion.
Such conversion right shall expire at the close of business on September 1,
2001. In case a Debenture or portion thereof is called for redemption or is
repurchased upon the occurrence of a Repurchase Event, such conversion right in
respect of the Debenture or portion so called shall expire at the close of
business on the Redemption Date or the repurchase date, unless the Company
defaults in making the payment due upon redemption or repurchase.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially $____ per
share of Common Stock. Effective September __, 1996, the Conversion Price shall
be adjusted from time to time as provided in this Article 11.
Section 11.2 Exercise of Conversion Privilege.
--------------------------------
In order to exercise the conversion privilege, the Holder of any
Debenture to be converted shall surrender such Debenture, duly endorsed or
assigned to the Company or in blank at any office or agency of the Company
maintained for that purpose pursuant to Section 9.5, accompanied by written
notice to the Company at such office or agency that the Holder elects to convert
such Debenture or, if less than the entire principal amount thereof is to be
converted, the portion thereof to be converted. Debentures surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Interest Payment Date to the opening of business on such
Interest Payment Date shall (except in the case of Debentures or portions
thereof that have been called for redemption, or are to be repurchased, on such
Interest Payment Date or on a Redemption Date or a Repurchase Date within the
period beginning on such Regular Record Date and ending on such Interest Payment
Date) be accompanied by payment by wire transfer or certified check 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 Debentures being
surrendered for conversion. Subject to the provisions of
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Section 3.7 relating to the payment of Defaulted Interest by the Company, the
interest payment with respect to a Debenture called for redemption on a
Redemption Date during the period from the close of business on any Regular
Record Date next preceding any Interest Payment Date to the opening of business
on such Interest Payment Date shall be payable on such Interest Payment Date to
the Holder of such Debenture at the close of business on such Regular Record
Date notwithstanding the conversion of such Debenture after such Regular Record
Date and prior to such Interest Payment Date, and the Holder converting such
Debenture need not include a payment of such interest payment amount upon
surrender of such Debenture for conversion. Except as provided in the preceding
sentence and subject to the final paragraph of Section 3.7, no payment or
adjustment shall be made upon any conversion on account of any interest accrued
on the Debentures surrendered for conversion or on account of any dividends on
the Common Stock issued upon conversion.
Debentures shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Debentures for conversion
in accordance with the foregoing provisions, and at such time the rights of the
Holders of such Debentures as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and shall deliver at such office or agency a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share, as
provided in Section 11.3.
In the case of any Debenture that is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Debenture or
Debentures of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Debenture.
Section 11.3 Fractional Shares.
-----------------
No fractional shares of Common Stock shall be issued upon conversion of
Debentures. If more than one Debenture shall be surrendered for conversion at
one time by the same Holder, the number of full shares that shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Debentures (or, specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock that would
otherwise be issuable upon conversion of any Debenture or Debentures (or,
specified portions thereof), the Company shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the Closing Price on
the last Trading Day prior to the date of conversion.
Section 11.4 Adjustment of Conversion Price.
------------------------------
The Conversion Price shall be adjusted from time to time as follows:
<PAGE> 52
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(a) In case the Company shall (i) pay a dividend or make a distribution
in shares of its Common Stock; (ii) subdivide its outstanding Common Stock into
a greater number of shares, or (iii) combine its outstanding Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior
thereto 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 of the Company which he would have owned or have been entitled to
receive after the happening of any of the events described above had such
Debenture been converted immediately prior to the happening of such event. 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
subdivision or combination.
(b) In case the Company shall issue rights or warrants to all holders
of its Common Stock 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 of Common Stock (as
defined in subsection (d) below) at the record date for the determination of
shareholders entitled to receive such rights or warrants, the Conversion Price
in effect immediately prior thereto 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 be
made successively whenever any such rights or warrants are issued, and shall
become effective immediately after such record date. In determining whether any
rights or warrants entitle the holder to subscribe for or purchase shares of
Common Stock at less than such current market price, and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received by the Company for such rights or
warrants, the value of such consideration, if other than cash, to be determined
by the Board of Directors.
(c) In case the Company shall distribute to all holders of its Common
Stock any securities of the Company (other than Common Stock) or evidences of
its indebtedness or assets (excluding cash dividends or distributions paid from
retained earnings of the Company) or any rights or warrants to subscribe for or
purchase any of its securities (excluding those referred to in subsection (b)
above), then in each such case the Conversion Price 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 such distribution by a fraction of which
the numerator shall be the current market price per share (as defined in
subsection (d) below) of the Common Stock on the record date mentioned below
less the then fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive, and described in a
<PAGE> 53
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certificate filed with the Trustee) of the capital stock or assets or evidences
of indebtedness so distributed or of such rights or warrants applicable to one
share of Common Stock and the denominator shall be the current market price per
share (as defined in subsection (d) below) of the 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 purpose of any computation under subsections (b) and (c)
above, the current market price per share of the Common Stock at any date shall
be deemed to be the average of the closing prices for the twenty consecutive
Trading Days next preceding the day in question. The closing price for each day
shall be (i) the last reported sale price of the Common Stock on the National
Market of the National Association of Securities Dealers, Inc., Automated
Quotation System, or any similar system of automated dissemination of quotations
of securities prices then in common use, if so quoted, or (ii) if not quoted as
described in clause (i), the mean between the high bid and low asked quotations
for the Common Stock as reported by the National Quotation Bureau Incorporated
if at least two securities dealers have inserted both bid and asked quotations
for the Common Stock on at least 5 of the 10 preceding days, or (iii) if the
Common Stock is listed or admitted for trading on any national securities
exchange, the last sale price, or the closing bid price if no sale occurred, of
the Common Stock on the principal securities exchange on which the Common Stock
is listed. If the Common Stock is quoted on a national securities or central
market system, in lieu of a market or quotation system described above, the
closing price shall be determined in the manner set forth in clause (ii) of the
preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (iii) of the
preceding sentence if actual transactions are reported. If none of the
conditions set forth above is met, the closing price of the Common Stock on any
day or the average of such closing prices for any period shall be the fair
market value of the Common Stock as determined by a member firm of the New York
Stock Exchange, Inc. selected by the Company.
(e) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this subsection (e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article 11 shall be made
to the nearest cent or to the nearest one hundredth of a share, as the case may
be. Anything in this Section 11.4 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 11.4, as it in its discretion shall determine
to be advisable in order that any stock dividends, subdivision of shares,
distribution of rights to purchase stock or securities, or a distribution of
securities convertible into or exchangeable for stock hereafter made by the
Company to its shareholders shall not be taxable.
(f) In any case in which this Section 11.4 provides that an adjustment
shall become effective immediately after a record date for an event, the Company
may defer until the occurrence of such event (i) issuing to the Holder of any
Debenture converted after such record
<PAGE> 54
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date and before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment required by such
event over and above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such Holder any amount in
cash in lieu of any fractional share pursuant to Section 11.3.
Section 11.5 Notice of Adjustments of Conversion Price.
-----------------------------------------
Whenever the Conversion Price is adjusted as herein provided:
(a) the Company shall compute the adjusted Conversion Price in
accordance with Section 11.4 and shall prepare a certificate signed by the
Treasurer of the Company setting forth the adjusted Conversion Price and showing
in reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be delivered to the Trustee and filed at each office
or agency maintained for the purpose of conversion of Debentures pursuant to
Section 9.5; and
(b) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall forthwith be prepared by the
Company and mailed to all Holders of Debentures at their last addresses as they
shall appear in the Debenture Register.
Section 11.6 Notice of Certain Corporation Action.
------------------------------------
In case:
(a) the Company shall declare a dividend (or any other distribution) on
its Common Stock payable otherwise than in cash out of its retained earnings; or
(b) the Company shall authorize the granting to the holders of its
Common Stock generally of rights or warrants to subscribe for or purchase any
shares of Capital Stock of any class or of any other rights; or
(c) of any reclassification of the Common Stock of the Company (other
than a subdivision or combination of its outstanding shares of Common Stock), or
of any consolidation or merger to which the Company is a party and for which
approval of any shareholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
<PAGE> 55
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(e) the Company or any subsidiary shall commence a tender offer for all
or a portion of the Company's outstanding shares of Common Stock (or shall amend
any such tender offer);
then the Company shall notify the Trustee and cause to be filed at each office
or agency maintained for the purpose of conversion of Debentures pursuant to
Section 9.5, and shall cause to be mailed to all Holders of Debentures at their
last addresses as they shall appear in the Debenture Register, at least 20 days
(or 10 days in any case specified in Section 11.6(a) or 11.6(b) above) prior to
the applicable record date hereinafter specified, a notice stating (x) the date
on which a record is to be taken for the purpose of such dividend, distribution,
rights or warrants, 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 dividend, distribution,
rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date on which
it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which such tender
offer commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material terms thereof
(or the material terms of any amendment thereto).
Section 11.7 Company to Reserve Common Stock.
-------------------------------
The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of Debentures, the full number of shares of
Common Stock then issuable upon the conversion of all Outstanding Debentures.
Section 11.8 Taxes on Conversion.
-------------------
The Company will pay any and all taxes, other than any franchise or
income taxes, that may be payable in respect of the issue or delivery of stock
certificates representing shares of Common Stock on conversion of Debentures
pursuant hereto. The Company shall not, however, be required to pay any tax that
may be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that of the Holder of the Debenture
or Debentures to be converted, and no such issue or delivery shall be made
unless and until the Person requesting such issue 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.
<PAGE> 56
- 56-
Section 11.9 Covenant as to Common Stock.
---------------------------
The Company covenants that all shares of Common Stock that may be
issued upon conversion of Debentures will upon issue be fully paid and
non-assessable and, except as provided in Section 11.8, the Company will pay all
taxes, liens and charges with respect to the issue thereof.
Section 11.10 Cancellation of Converted Debentures.
------------------------------------
All Debentures delivered for conversion shall be delivered to the
Trustee to be canceled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 3.9.
Section 11.11 Effect of Reclassification, Consolidation,
------------------------------------------
Merger, Share Exchange or Sale.
------------------------------
If any of the following events occur, namely (i) any reclassification
or change of outstanding shares of Common Stock issuable upon conversion of the
Debentures (other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination), (ii) any consolidation or merger of the Company with another
corporation shall be effected as a result of which holders of Common Stock
issuable upon conversion of the Debentures shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock or (iii) any sale or conveyance of all or
substantially all of the properties and assets of the Company to any other
corporation, then the Company or such successor or purchasing corporation, as
the case may be, shall execute with the Trustee a supplemental indenture
providing that each Debenture shall be convertible into the kind and amount of
shares of stock and other securities or property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of a number of shares of Common Stock issuable upon
conversion of such Debentures immediately prior to such reclassification,
change, consolidation, merger, statutory share exchange, sale or conveyance.
Such supplemental indenture shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article. The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder of Debentures, at his address appearing on
the Debenture Register.
The above provisions of this Section shall similarly apply to
successive reclassifications, consolidations, mergers and sales.
<PAGE> 57
- 57-
ARTICLE 12
Subordination of Debentures
Section 12.1 Agreement to Subordinate.
------------------------
The Company covenants and agrees, and each Holder of Debentures, by his
or her acceptance thereof, likewise covenants and agrees, that the Indebtedness
represented by the Debentures and the payment of the principal of and premium,
if any, and interest on each and all of the Debentures are hereby expressly
subordinated, to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all Senior Indebtedness as provided in
this Article 12.
Section 12.2 No Payment on Securities in Certain Circumstances.
-------------------------------------------------
Unless Section 12.3 shall be applicable, after the occurrence of a
default in the payment of the principal of, premium, if any, or interest on any
Senior Indebtedness, no payment or distribution of any assets of the Company or
of any Subsidiary of any kind or character shall be made by the Company or the
Trustee on account of or with respect to the Debentures, whether of principal,
premium, if any, or interest thereon, or on account of the purchase, redemption,
defeasance or other acquisition of Debentures, unless and until such payment
default shall have been cured or waived or shall have ceased to exist, or such
Senior Indebtedness shall have been discharged or paid in full in cash, after
which the Company shall resume making any and all required payments in respect
of the Debentures, including any missed payments.
Section 12.3 Debentures Subordinated to Prior Payment of All
-----------------------------------------------
Senior Indebtedness on Dissolution, Liquidation or
--------------------------------------------------
Reorganization.
--------------
Upon any distribution of assets of the Company upon any dissolution,
winding-up, liquidation or reorganization of the Company (pursuant to or
following bankruptcy, insolvency, reorganization or receivership proceedings),
or upon an assignment for the benefit of creditors or any other marshaling of
the assets and liabilities of the Company,
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full of the principal thereof and premium, if any, and
interest due thereon, or adequate provision shall be made for such payment,
before the Holders of the Debentures are entitled to receive any payment on
account of the principal of, premium, if any, or interest on indebtedness
evidenced by the Debentures; and
(b) any payment by, 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 would be entitled except for the provision of
this Article 12 shall be paid or delivered by the Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver
<PAGE> 58
- 58-
or liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the trustee or
trustees under any indenture under which any instruments evidencing any of such
Senior Indebtedness may have been issued, ratably according to the aggregate
amounts remaining unpaid on account of the Senior Indebtedness held or
represented by each, to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness or provision
therefor.
Section 12.4 Payments by Trustee or Holders to Holders of
--------------------------------------------
Senior Indebtedness.
-------------------
In the event that any payment by, or distribution of assets of, the
Company of any kind or character, whether in cash, property or securities, shall
be received by the Trustee or the Holders of the Debentures before all Senior
Indebtedness is paid in full, contrary to the provisions of Sections 12.2 or
12.3, such payment or distribution shall be paid over to the holders of such
Senior Indebtedness or their representative or representatives or to the trustee
or trustees under any indenture under which any instruments evidencing any of
such Senior Indebtedness may have been issued, ratably as aforesaid, for
application to 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 or provision therefor.
Section 12.5 Subrogation.
-----------
Subject to the payment in full of all Senior Indebtedness, the Holders
of the Debentures shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until all
amounts owing on the Debentures shall be paid in full, and, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Debentures, no such payment or distribution made to the holders
of Senior Indebtedness by virtue of this Article 12 which otherwise would have
been made to the Holders of the Debentures shall be deemed to be a payment by
the Company on account of the Senior Indebtedness, it being understood that the
provisions of this Article 12 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.
Section 12.6 Obligation of Company Unconditional.
-----------------------------------
Nothing contained in this Article 12 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 absolute and unconditional,
to pay to the Holders of the Debentures the principal of and any premium and
interest on the Debentures as and when the same shall become due and payable in
accordance with their terms, or affect the relative rights of the Holders of the
Debentures and
<PAGE> 59
- 59-
creditors of the Company other than the holders of Senior Indebtedness, nor
shall anything herein or therein 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 12 of the holders of Senior Indebtedness in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in this Article 12, the Trustee and the Holders of the Debentures shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which any such dissolution, winding-up, liquidation or
reorganization proceeding affecting the affairs of the Company is pending or
upon a certificate of the liquidating trustee or agent or other Person making
any payment or distribution to the Trustee or to the Holders of the Debentures
for the purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of the Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
paid or distributed therein and all other facts pertinent thereto or to this
Article 12.
Section 12.7 Payments on Debentures Permitted.
--------------------------------
Nothing contained in this Article 12 or elsewhere in this Indenture, or
in any of the Debentures, shall affect the obligation of the Company to make, or
prevent the Company from making, at any time except during the pendency of any
dissolution, winding-up, liquidation or reorganization proceeding, payments at
any time of principal of and any premium and interest on the Debentures.
Section 12.8 Effectuation of Subordination by Trustee.
----------------------------------------
Each Holder of Debentures, by his or her acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 12 and appoints the Trustee such Holder's attorney-in-fact for any and
all such purposes.
Section 12.9 Knowledge of Trustee.
--------------------
Notwithstanding the provisions of this Article 12 or any other
provisions of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts which would prohibit the making of any payment of
moneys to or by the Trustee, or the taking of any other action by the Trustee,
unless and until the Trustee shall have received written notice thereof from the
Company, any Holder, any Paying Agent or the holder or representative of any
class of Senior Indebtedness.
<PAGE> 60
- 60-
Section 12.10 Trustee May Hold Senior Indebtedness.
------------------------------------
The Trustee shall be entitled to all the rights set forth in this
Article 12 with respect to any Senior Indebtedness at the time held by it, to
the same extent as any other holder of Senior Indebtedness, and nothing in
Section 6.13 or elsewhere in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Section 12.11 Rights of Holders of Senior Indebtedness Not
--------------------------------------------
Impaired.
--------
No right of any present or future holder of any Senior Indebtedness to
enforce the subordination herein shall at any time or in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Section 12.12 Rights and Obligations Subject to Power of Court.
------------------------------------------------
The right of the holders of Senior Indebtedness and the obligations of
the Trustee and the Holders set forth in this Article 12 are subject to the
power of a court of competent jurisdiction to make other equitable provision
reflecting the rights conferred in this Indenture upon the Senior Indebtedness
and the holders thereof with respect to the Debentures and the Holders thereof
by a plan of reorganization under applicable bankruptcy law.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective seals to be hereunto affixed and attested,
all as of the day and year first above written.
ATTEST: MERIDIAN DIAGNOSTICS, INC.
_____________________________ By:______________________________
STAR BANK, NATIONAL ASSOCIATION
As Trustee
_____________________________ By:______________________________
<PAGE> 61
MERIDIAN DIAGNOSTICS, INC.
AND
STAR BANK, NATIONAL ASSOCIATION,
AS TRUSTEE
-----------------------
INDENTURE
DATED AS OF SEPTEMBER 1, 1996
-----------------------
__% CONVERTIBLE SUBORDINATED DEBENTURES DUE SEPTEMBER 1, 2006
<PAGE> 62
EXHIBIT A
---------
FORM OF DEBENTURE
-----------------
__% CONVERTIBLE SUBORDINATED DEBENTURE DUE SEPTEMBER 1, 2006
No. ______-___________ $___________
CUSIP ____________
Meridian Diagnostics, Inc., a corporation duly organized and
existing under the laws of Ohio (the "Company", which term includes any
successor to the Company under the Indenture hereinafter referred to), for value
received, promises to pay to _________________________, or registered assigns,
in lawful money of the United States of America, the principal sum of
_____________ Dollars ($_____________) on September 1, 2006, and to pay interest
thereon from September __, 1996 or the most recent Interest Payment Date to
which interest has been paid or duly provided for semi-annually on March 1 and
September 1 of each year, commencing March 1, 1997, at the rate of ___% per
annum, until the principal hereof is paid or made available for payment.
Interest on this Debenture shall be computed on the basis of a 360 day year of
twelve 30-day months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Debenture (or one or more
Predecessor Debentures) is registered at the close of business on the Regular
Record Date for such interest, which shall be February 15 or August 15 (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for shall
forthwith cease to be payable to the registered Holder on such Regular Record
Date, and may be paid to the Person in whose name this Debenture (or one or more
Predecessor Debentures) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holders not less than 10 days
prior to such Special Record Date, or may be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Debentures may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture. Payment of
interest on this Debenture will be made by check mailed to the address of the
Person entitled thereto as such address shall appear on the Debenture Register.
Payment of the principal of this Debenture will be made at the office or agency
of the Trustee maintained for that purpose in Cincinnati, Ohio, or at such other
office or agency as may be established by the Company pursuant to said Indenture
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this
Debenture set forth on the reverse side hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
<PAGE> 63
(ii)
This Debenture shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by the Trustee under the Indenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be signed in its name by the manual or facsimile signature of its President or
one of its Vice Presidents, attested by the manual or facsimile signature of its
Secretary or one of its Assistant Secretaries.
DATED:_____________ MERIDIAN DIAGNOSTICS, INC.
By:_____________________________
President
ATTEST:
By:_____________________________
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred
to in the within mentioned Indenture.
STAR BANK, NATIONAL ASSOCIATION,
____________________________ as Trustee
Authorized Signer
<PAGE> 64
(iii)
FORM OF REVERSE SIDE OF DEBENTURE
---------------------------------
MERIDIAN DIAGNOSTICS, INC.
__% CONVERTIBLE SUBORDINATED DEBENTURE DUE SEPTEMBER 1, 2006
This Debenture is one of a duly authorized issue of Debentures
of the Company designated as its 7% Convertible Subordinated Debentures due
September 1, 2006 (herein called the "Debentures"), limited in aggregate
principal amount to _____________ issued and to be issued under an Indenture
dated as of September 1, 1996 (herein called the "Indenture"), between the
Company and Star Bank, National Association, as Trustee (herein called the
"Trustee," which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights thereunder of the Company, the Trustee
and the Holders of the Debentures, and the terms upon which the Debentures are,
and are to be, authenticated and delivered.
The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
a Debenture, by acceptance hereof, (a) agrees to and shall be bound by such
provisions of the Indenture and all other provisions of the Indenture; (b)
authorizes and directs the Trustee to take such action on his or her behalf as
may be necessary or appropriate to acknowledge or effectuate, as between the
Holders and the holders of the Senior Indebtedness, the subordination of this
Debenture as provided in the Indenture; and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each Holder of this Debenture,
by accepting the same, agrees that each holder of Senior Indebtedness, whether
created or acquired before or after the issuance of the Debentures, shall be
deemed conclusively to have relied on such provisions in acquiring and
continuing to hold such Senior Indebtedness.
The Debentures are subject to redemption prior to September 1,
1999 at any time upon not less than 15 nor not more than 60 days' notice by
first class mail, as a whole or in part, only if the Closing Price per share of
the Company's Common Stock has equaled or exceeded 140% of the then effective
Conversion Price per share of Common Stock for at least 20 Trading Days within
30 consecutive Trading Days ending not more than five Trading Days prior to the
date of a notice of redemption. On or after September 1, 1999 the Debentures are
subject to redemption at any time upon not less than 15 nor more than 60 days'
notice by first class mail, as a whole or in part, at the election of the
Company. Any redemption payment will be made in cash and will be at the
Redemption Prices (expressed as percentages of the principal amount) set forth
in the table below:
If redeemed during the 12-month period beginning September 1
of the years indicated,
<PAGE> 65
(iv)
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1997 %
1998 %
1999 %
2000 %
2001 %
2002 %
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued interest to the
Redemption Date.
If less than all Debentures are redeemed, the Trustee will
select the Debentures to be redeemed by such method as the Trustee may deem
appropriate and fair.
If this Debenture (or a portion thereof) is duly called for
redemption and funds for payment duly provided, this Debenture (or such portion
thereof) shall cease to bear interest from and after such Redemption Date.
Interest installments with a Stated Maturity on the Redemption
Date will be payable to the Holders of such Debentures, or one or more
Predecessor Debentures, of record at the close of business on the relevant
Record Date referred to on the face hereof, all as provided in the Indenture. In
the event of redemption or repayment of this Debenture in part only, a new
Debenture or Debentures for the unredeemed or unrepaid portion hereof shall be
issued in the name of the Holder hereof upon the cancellation hereof.
Subject to and upon compliance with the provisions of the
Indenture, the Holder of this Debenture is entitled, (a) at his or her option,
at any time on or before the close of business on September 1, 2006, or (b) in
case this Debenture or a portion hereof is called for redemption or is
repurchased upon the occurrence of a Repurchase Event, then in respect of this
Debenture or such portion hereof until and including, but (unless the Company
defaults in making the payment due upon redemption or repurchase, as the case
may be) not after, the close of business on the Redemption Date or the
Repurchase Date, to convert this Debenture (or any portion of the principal
amount hereof which is $1,000 or an integral multiple thereof), at the principal
amount hereof, or such portion, into fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock of the Company at a Conversion Price equal to $_____ aggregate principal
amount of Debentures for each share of Common Stock (or at the then-current
adjusted Conversion Price if an adjustment has been made as provided in the
Indenture) by surrender of this Debenture, duly endorsed or assigned to the
Company or in blank, to the Company at its office or agency in Cincinnati, Ohio
accompanied by written notice to the Company that (i) the Holder hereof elects
to convert this Debenture, or if less than the entire principal amount hereof is
to be converted, the portion hereof to be
<PAGE> 66
(v)
converted, and (ii) the name or names (with addresses) in which the certificate
shall be issued. In case such surrender shall be made during the period from the
close of business on any Regular Record Date next preceding any Interest Payment
Date to the opening of businesses on such Interest Payment Date (unless this
Debenture or the portion thereof being converted has been called for redemption,
or is to be repurchased, on such Interest Payment Date or on a Redemption Date
or a Repurchase Date within such period), this Debenture shall also be
accompanied by payment in the form of a certified check 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 this Debenture then being
converted. Subject to the aforesaid requirement for payment and, in the case of
a conversion after the Regular Record Date next preceding any Interest Payment
Date and on or before such Interest Payment Date, to the right of the Holder of
this Debenture (or any Predecessor Debenture) of record at such Regular Record
Date to receive an installment of interest (with certain exceptions provided in
the Indenture), no payment or adjustment is to be made on conversion for
interest accrued hereon or for dividends on the Common Stock issued on
conversion. No fractions of shares or scrip representing fractions of shares
will be issued on conversion, but instead of any fractional interest the Company
shall pay a cash adjustment as provided in the Indenture. The Conversion Price
is subject to adjustment as provided in the Indenture. In the case of a
consolidation, merger or statutory share exchange involving the Company as a
result of which holders of Common Stock will be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for shares of Common Stock or in the case of a sale or conveyance to
another corporation of all or substantially all the property and assets of the
Company, the Holders of the Debentures then Outstanding will be entitled
thereafter to convert such Debentures into the kind and amount of shares of
stock, other securities or other property or assets which they would have owned
or been entitled to receive upon such consolidation, merger, statutory share
exchange, sale or conveyance had such Debentures been converted to shares of
Common Stock immediately prior to such consolidation, merger, statutory share
exchange, sale or conveyance.
If an Event of Default as defined in the Indenture shall occur
and be continuing, the principal of all the Debentures may be declared due and
payable in the manner and with the effect provided in the Indenture. The
Indenture provides that such declaration and its consequences may, in certain
events, be annulled by Holders of a majority in aggregate principal amount of
the outstanding Debentures at the time of such Event of Default.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Debentures under
the Indenture at any time by the Company with the consent of the Holders of a
majority in aggregate principal amount of the Debentures at the time
Outstanding, as defined in the Indenture. The Indenture also contains provisions
permitting the Holders of a majority in aggregate principal amount of the
Debentures at the time Outstanding to waive, on behalf of the Holders of all the
Debentures, compliance by the Company with certain provisions of the Indenture
and certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Debenture shall be conclusive and
binding upon such Holder and upon all future Holders of this Debenture and of
any
<PAGE> 67
(vi)
Debenture issued upon the registration of transfer hereof or in exchange
therefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Debenture.
No reference herein to the Indenture and to provisions 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 any
premium and interest on this Debenture at the times, places and rate, and in the
coin or currency, herein prescribed or to convert this Debenture as provided in
the Indenture.
As provided in the Indenture and subject to certain
limitations therein set forth, this Debenture is transferable on the Debenture
Register of the Trustee, upon surrender of this Debenture for registration of
transfer at the office or agency of the Trustee to be maintained for that
purpose in Cincinnati, Ohio, or at such other office or agency as may be
established by the Company for such purpose pursuant to the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Debenture Registrar duly executed by, the
Holder hereof or his or her attorney duly authorized in writing, and thereupon
one or more new Debentures, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Debentures are issuable only in registered form, without
coupons, in denominations of $1,000 and integral multiples thereof. As provided
in the Indenture and subject to certain limitations therein set forth,
Debentures are exchangeable for a like aggregate principal amount of Debentures
of a different authorized denomination, as requested by the Holder surrendering
the same. No service charge shall be made for any such transfer or exchange, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Certain capitalized terms used in this Debenture which are
defined in the Indenture have the meanings set forth therein.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Debenture is registered as the
owner hereof for all purposes, whether or not this Debenture be overdue, and
neither the Company, the Trustee, nor any such agent shall be affected by notice
to the contrary.
The Debenture is unsecured by any collateral, including the
assets of the Company, or any of its Affiliates or Subsidiaries, and is not
eligible as collateral for any loan by the Company.
<PAGE> 68
(vii)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
________________________________________________________________________________
(Name and Address of Assignee
Including Zip Code Must be Printed or Typewritten)
________________________________________________________________________________
the within instrument, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
ATTORNEY TO TRANSFER SAID instrument on the books of the Company, with full
power of substitution in the premises.
Dated: _____________________ Signature
NOTICE: The signature to this assignment
must correspond with the name as it
appears upon the face of the within
instrument in every particular without
alteration, enlargement, or any change
whatever.
Signature Guaranteed:
_________________________________________
Signature must be guaranteed by a member
firm of the New York Stock Exchange or a
commercial bank or trust company bank or
trust company
The transfer agent will not effect transfer of this Debenture unless the
information concerning the transferee requested above is provided.
ANY TRANSFER OR ASSIGNMENT IS SUBJECT TO THE
PRESENTATION OF SUCH PROOF OF VALID AND LEGAL
TRANSFER OR ASSIGNMENT AS THE COMPANY MAY
REQUIRE.
<PAGE> 69
(viii)
The undersigned Holder of this Debentures hereby irrevocably
exercises the option to convert this Debenture, or the portion hereof (which is
$1,000 or an integral multiple thereof) below designated, into shares of Common
Stock in accordance with the terms of the Indenture, and directs that the shares
issuable and deliverable upon such conversion, together with any check in
payment for fractional shares and any Debentures representing any unconverted
principal amount hereof, be issued and delivered to the undersigned unless a
different name has been indicated below. If shares or Debentures 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 this Debenture.
<TABLE>
<S> <C>
Dated: ______________________________ ________________________________________
Signature
If shares or Debentures are to be registered ----------------------------------------
registered in the name of a Person other Social Security or other than the
Holder, please print such Person's Taxpayer Identification Number name and
address:
Principal amount to be converted
(if less than all):
$__________,000
______________________________________
Name
______________________________________
Street Address
______________________________________
City, State and Zip Code
</TABLE>
<PAGE> 70
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 Definitions and Other Provisions of General Application.........................................1
Section 1.1 Definitions...................................................................1
Section 1.2 Compliance Certificates and Opinions..........................................9
Section 1.3 Form of Documents Delivered to Trustee.......................................10
Section 1.4 Acts of Holders; Record Dates................................................10
Section 1.5 Notices, etc., to Trustee and Company........................................11
Section 1.6 Notices to Holders; Waiver...................................................12
Section 1.7 Conflict with Trust Indenture Act............................................12
Section 1.8 Effect of Headings and Table of Contents.....................................12
Section 1.9 Successors and Assigns.......................................................12
Section 1.10 Separability Clause..........................................................13
Section 1.11 Benefits of Indenture........................................................13
Section 1.12 Governing Law................................................................13
Section 1.13 Limitation on Liability of Company Officers..................................13
Section 1.14 Counterparts.................................................................13
ARTICLE 2 Debenture Forms................................................................................13
Section 2.1 Forms Generally..............................................................13
ARTICLE 3 The Debentures.................................................................................14
Section 3.1 Title and Terms..............................................................14
Section 3.2 Denominations................................................................15
Section 3.3 Execution, Authentication, Delivery and Dating...............................15
Section 3.4 Temporary Debentures.........................................................15
Section 3.5 Registration, Transfer and Exchange..........................................16
Section 3.6 Mutilated, Destroyed, Lost and Stolen Debentures.............................17
Section 3.7 Payment of Interest; Interest Rights Preserved...............................17
Section 3.8 Persons Deemed Owners........................................................19
Section 3.9 Cancellation.................................................................19
Section 3.10 Authentication and Delivery of Original Issue................................20
Section 3.11 Computation of Interest......................................................20
ARTICLE 4 Satisfaction and Discharge.....................................................................20
Section 4.1 Satisfaction and Discharge of Indenture......................................20
Section 4.2 Application of Trust Money...................................................21
</TABLE>
<PAGE> 71
(ii)
<TABLE>
<S> <C> <C>
ARTICLE 5 Remedies.......................................................................................22
Section 5.1 Events of Default............................................................22
Section 5.2 Acceleration of Maturity; Rescission and Annulment...........................23
Section 5.3 Collection of Indebtedness and Suits
for Enforcement by Trustee.................................................24
Section 5.4 Trustee May File Proofs of Claim.............................................25
Section 5.5 Trustee May Enforce Claims Without
Possession of Debentures...................................................25
Section 5.6 Application of Money Collected...............................................26
Section 5.7 Limitation on Suits..........................................................26
Section 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest and to Convert........................................27
Section 5.9 Rights and Remedies Cumulative...............................................27
Section 5.10 Delay or Omission Not Waiver.................................................28
Section 5.11 Control by Holders...........................................................28
Section 5.12 Waiver of Past Defaults......................................................28
Section 5.13 Undertaking for Costs........................................................29
Section 5.14 Waiver of Usury, Stay or Extension Laws......................................29
ARTICLE 6 The Trustee....................................................................................30
Section 6.1 Certain Duties and Responsibilities..........................................30
Section 6.2 Notice of Defaults...........................................................31
Section 6.3 Certain Rights of Trustee....................................................31
Section 6.4 Not Responsible for Recitals or Issuance of Debentures.......................32
Section 6.5 May Hold Debentures..........................................................32
Section 6.6 Money Held in Trust..........................................................32
Section 6.7 Compensation and Reimbursement...............................................32
Section 6.8 Disqualification; Conflicting Interests......................................33
Section 6.9 Corporate Trustee Required; Eligibility......................................33
Section 6.10 Resignation and Removal; Appointment of Successor............................34
Section 6.11 Acceptance of Appointment by Successor.......................................35
Section 6.12 Merger, Conversion, Consolidation or
Succession to Business.....................................................35
Section 6.13 Preferential Collection of Claims Against Company............................36
ARTICLE 7 Holders' Lists and Reports by Company..........................................................36
Section 7.1 Preservation of Information; Company to Furnish Trustee
Names and Addresses of Holders.............................................36
Section 7.2 Communications Among Holders.................................................36
Section 7.3 Reports by Trustee...........................................................36
Section 7.4 Reports by Company...........................................................37
</TABLE>
<PAGE> 72
(iii)
<TABLE>
<S> <C> <C>
ARTICLE 8 Supplemental Indentures........................................................................37
Section 8.1 Supplemental Indentures Without Consent of Holders...........................37
Section 8.2 Supplemental Indentures with Consent of Holders..............................38
Section 8.3 Execution of Supplemental Indentures.........................................39
Section 8.4 Effect of Supplemental Indentures............................................39
Section 8.5 Reference in Debentures to Supplemental Indentures...........................39
Section 8.6 Effect on Senior Indebtedness................................................39
Section 8.7 Conformity with Trust Indenture Act..........................................40
ARTICLE 9 Covenants......................................................................................40
Section 9.1 Payment of Principal and Interest............................................40
Section 9.2 Payment of Taxes and Other Claims............................................40
Section 9.3 Company Existence............................................................40
Section 9.4 Company May Consolidate, etc. Only on Certain Terms.........................40
Section 9.5 Maintenance of Office or Agency..............................................42
Section 9.6 Money for Debenture Payments to Be Held in Trust.............................42
Section 9.7 Statement by Officers as to Default..........................................43
Section 9.8 Maintenance of Properties....................................................43
Section 9.9 Purchase of Debentures upon a Repurchase Event...............................44
Section 9.10 Waiver of Certain Covenants..................................................47
ARTICLE 10 Redemption of Debentures.......................................................................47
Section 10.1 Right of Redemption by Company...............................................47
Section 10.2 Election to Redeem; Notice to Trustee........................................47
Section 10.3 Selection by Trustee of Debentures to be
Redeemed at the Election of the Company....................................47
Section 10.4 Notice of Redemption at the Election of the Company..........................48
Section 10.5 Deposit of Redemption Price..................................................49
Section 10.6 Debentures Payable on Redemption Date........................................49
Section 10.7 Debentures Redeemed in Part..................................................49
ARTICLE 11 Conversion of Debentures.......................................................................50
Section 11.1 Conversion Privilege and Conversion Price....................................50
Section 11.2 Exercise of Conversion Privilege.............................................50
Section 11.3 Fractional Shares............................................................51
Section 11.4 Adjustment of Conversion Price...............................................51
Section 11.5 Notice of Adjustments of Conversion Price....................................54
Section 11.6 Notice of Certain Corporation Action.........................................54
Section 11.7 Company to Reserve Common Stock..............................................55
</TABLE>
<PAGE> 73
(iv)
<TABLE>
<S> <C> <C>
Section 11.8 Taxes on Conversion..........................................................55
Section 11.9 Covenant as to Common Stock..................................................56
Section 11.10 Cancellation of Converted Debentures.........................................56
Section 11.11 Effect of Reclassification, Consolidation, Merger,
Share Exchange or Sale.....................................................56
ARTICLE 12 Subordination of Debentures....................................................................57
Section 12.1 Agreement to Subordinate.....................................................57
Section 12.2 No Payment on Securities in Certain Circumstances............................57
Section 12.3 Debentures Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization.............................................................57
Section 12.4 Payments by Trustee or Holders to Holders of Senior
Indebtedness...............................................................58
Section 12.5 Subrogation..................................................................58
Section 12.6 Obligation of Company Unconditional..........................................58
Section 12.7 Payments on Debentures Permitted.............................................59
Section 12.8 Effectuation of Subordination by Trustee.....................................59
Section 12.9 Knowledge of Trustee.........................................................59
Section 12.10 Trustee May Hold Senior Indebtedness.........................................60
Section 12.11 Rights of Holders of Senior Indebtedness Not Impaired........................60
Section 12.12 Rights and Obligations Subject to Power of Court.............................60
</TABLE>
<PAGE> 74
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of September 1, 1993*
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C> <C>
section 310 (a)(1)...............................................................................................6.9
(a)(2)...............................................................................................6.9
(a(5)................................................................................................6.9
(b)............................................................................................6.8, 6.10
section 311 (a)................................................................................................ 6.13
(b).................................................................................................6.13
section 312 (a)..................................................................................................7.1
(b)..................................................................................................7.2
(c)..................................................................................................7.2
section 313 (a)..................................................................................................7.3
(b)..................................................................................................7.3
(c)..................................................................................................7.3
(d)..................................................................................................7.3
section 314 (a)..................................................................................................7.4
(a)(4)...............................................................................................9.7
(c)(1)...............................................................................................1.2
(c)(2)...............................................................................................1.2
(e)..................................................................................................1.2
section 315 (a)...............................................................................................6.1(a)
(b)..................................................................................................6.2
(c)...............................................................................................6.1(b)
(d)...............................................................................................6.1(c)
(e).................................................................................................5.13
section 316 (a)(last sentence)...................................................................................1.1
("Outstanding")
section 316 (a)(1)(A)......................................................................................5.2, 5.11
(a)(1)(B)...........................................................................................5.12
(b)..................................................................................................5.8
(c).................................................................................................5.11
section 317 (a)(1)...............................................................................................5.3
(a)(2)...............................................................................................5.4
(b)..................................................................................................9.6
section 318 (a)..................................................................................................1.7
- --------
<FN>
* This reconciliation and tie shall not, for any purpose,
be deemed to be part of the Indenture.
</TABLE>
<PAGE> 1
KEATING, MUETHING & KLEKAMP, P.L.L.
ATTORNEYS AT LAW
August 29, 1996
Direct Dial: (513) 579-6560
Meridian Diagnostics, Inc.
3471 River Hills Drive
Cincinnati, Ohio 45244
Gentlemen:
We have examined the corporate records and proceedings of Meridian
Diagnostics, Inc. (the "Corporation") with respect to:
1. The organization of the Corporation;
2. The legal sufficiency of all corporate proceedings of the Corporation
in connection with the creation and issuance of all of the present outstanding
and issued Common Stock of the Corporation; and
3. The legal sufficiency of all corporate proceedings of the Company taken
in connection with the authorization of the issuance of $12,500,000 principal
amount of Convertible Subordinated Debentures (plus up to an additional
$1,875,000 principal amount to cover an over-allotment option) (the
"Convertible Debentures") all to be issued in a public offering pursuant to a
Registration Statement filed with the Securities and Exchange Commission on the
date hereof.
Based upon such examination, we are of the opinion:
1. That the Corporation is a duly organized and validly existing
Corporation under the laws of the State of Ohio and has the power to borrow
money, to issue the Convertible Debentures and to execute the Indenture
pursuant to which the Convertible Debentures will be issued (the "Indenture");
2. That the Corporation has taken all necessary and required corporate
actions in connection with the proposed issuance of the Convertible Debentures
and that when, and if, issued and delivered, the Convertible Debentures will be
validly authorized, legally issued and binding
<PAGE> 2
Meridian Diagnostics, Inc.
Page 2
August 29, 1996
obligations of the Corporation enforceable according to the terms of the
Convertible Debentures and the Indenture; and
3. That all shares of Common Stock of the Corporation issuable upon
conversion (pursuant to the terms of the Indenture) have been duly reserved for
issuance upon such conversion and that when, and if, issued upon conversion of
the Convertible Debentures, will be validly authorized, duly issued and
non-assessable shares of Common Stock free of any pre-emptive rights.
We hereby consent to be named in the Registration Statement and the
Prospectus part thereof as the attorneys who will pass upon legal matters in
connection with the issuance of the Convertible Debentures and Common Stock of
the Corporation registered in connection therewith and to the filing of this
opinion as an exhibit to the Registration Statement, and furthermore consent to
the references made to this firm in the Registration Statement.
Yours truly,
KEATING, MUETHING & KLEKAMP, P.L.L.
BY: /s/ ROBERT E. COLETTI
-----------------------------------
Robert E. Coletti
<PAGE> 1
EXHIBIT 12
MERIDIAN DIAGNOSTICS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended
For the Years Ended September 30, June 30,
------------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before income taxes $1,517,893 $2,604,832 $3,101,358 $3,983,403 $5,959,926 $4,036,640 $5,861,566
Interest on debt and
capitalized leases 10,019 88,631 178,950 1,092,345 1,134,844 857,268 307,792
Interest element of rentals 25,881 16,612 16,667 17,083 6,194 5,194 3,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings $1,553,793 $2,710,075 $3,296,975 $5,092,831 $7,100,964 $4,899,102 $6,172,358
========== ========== ========== ========== ========== ========== ==========
Interest on debt and
capitalized leases $ 10,019 $ 88,631 $ 178,950 $1,092,345 $1,134,844 $ 857,268 $ 307,792
Interest element of rentals 25,881 16,612 16,667 17,083 6,194 5,194 8,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Fixed Charges $ 35,900 $ 105,243 $ 195,617 $1,109,428 $1,141,038 $ 862,462 $ 310,792
========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges 43.3 25.8 16.8 4.6 6.2 5.7 19.9
==== ==== ==== ==== ==== ==== ====
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
August 29, 1996
<PAGE> 1
Securities Act of 1933 File No.___________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------------------------------------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
PURSUANT TO SECTION 305(b) (2) / X /
--------------------------------------------------
STAR BANK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A National Banking Association 31-0841368
--------------------------------
(IRS Employer Identification No.)
425 Walnut Street
Cincinnati, Ohio 45202
---------------------------------------- -------
(Address of Principal Executive Offices (Zip Code)
-------------------------------------------------
Keith A. Maurmeier
Senior Trust Officer
Star Bank, National Association
425 Walnut Street
Cincinnati, Ohio 45202
(513) 632-2047
(Name, address, and telephone number of agent for services)
-----------------------------------------------------------
MERIDIAN DIAGNOSTICS, INC.
-----------------------------------------------------------
(Exact name of obligor as specified in its charter)
Ohio 31-0888197
---------------------- -------------------------------
(State of Incorporation) (IRS Employer Identification No.)
3471 River Hills Drive Cincinnati, OH 45244
------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
% Subordinated Debentures Due 2006
-----------------------------------
(Title of the Indenture securities)
<PAGE> 2
1. GENERAL INFORMATION. Furnish the following information as
Trustee --
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency, Washington, D.C. Federal Reserve
Bank of Cleveland, Ohio Federal Deposit Insurance Corporation,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of
the trustee, describe each such affiliation. The obligor is not
an affiliate of the Trustee (including its parent and any
affiliates).
3. VOTING SECURITIES OF THE TRUSTEE. Furnish the following
information as to each class of voting securities of the trustee
(and its parent). As of _____________ (insert date within 31
days)
Col A. Col B
---------------- --------------------
(Title of Class) (Amount Outstanding)
4. TRUSTEESHIPS UNDER OTHER INDENTURES. If the trustee is a
trustee under another Indenture under which any other
securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, furnish the
following information:
(a) Title of the securities outstanding under each such
other indenture.
(b) A brief statement of the facts relied upon as a basis
for the claim that no conflicting interest within the
meaning of Section 310(b) (1) of the Act arises as a
result of the trusteeship under any such other
indenture, including a statement as to how the indenture
securities will rank as compared with the securities
issued under such other indenture.
<PAGE> 3
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR
OR UNDERWRITERS. If the trustee (including its parent and any
other affiliates) or any of the directors or executive officers
of the trustee is a director, officer, partner, employee,
appointee, or representative of the obligor or of any
underwriter for the obligor, identify each such person having
any such connection and state the nature of each such
connection.
6. VOTING SECURITIES OF THE TRUSTEE (INCLUDING ITS PARENT AND ANY
AFFILIATE) OWNED BY THE OBLIGOR OR ITS OFFICIALS. Furnish the following
information as to the voting securities of the trustee (including its
parent and any affiliates) owned beneficially by the obligor and each
director, partner and executive officer of the obligor:
As of _______________________ (insert date within 31 days)
<TABLE>
<S> <C> <C> <C>
Col. A. Col. B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
------------- -------------- ------------ -----------------
</TABLE>
7. VOTING SECURITIES OF THE TRUSTEE (INCLUDING ITS PARENT AND ANY
AFFILIATES) OWNED BY UNDERWRITERS OR THEIR OFFICIALS. Furnish the
following information as to the voting securities of the trustee
(including its parent and any affiliates) owned beneficially by
each underwriter for the obligor and each director, partner, and
executive officer of each such underwriter:
As of ___________________(insert date within 31 days)
<TABLE>
<S> <C> <C> <C>
Col. A. Col. B. Col. C Col. D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Col. C
------------- -------------- ------------ -----------------
</TABLE>
<PAGE> 4
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE (INCLUDING ITS
PARENT AND ANY AFFILIATES). Furnish the following information as to
securities of the obligor owned beneficially or held as collateral
security for obligations default by the trustee (including its parent
and any affiliates):
As of ___________________(insert date within 31 days)
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Amount Owned
Whether the Beneficially or
Securities Are Held as Collateral Percent of
Voting or Security for Class Represented
Nonvoting obligations in by Amount Given
Title of Class Securities Default in Col. C
-------------- ---------- ------- -----------------
</TABLE>
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE (INCLUDING ITS
PARENT AND ANY AFFILIATES). If the trustee (including its parent and any
affiliates) owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the obligor,
furnish the following information as to each class of securities of such
underwriter any of which are so owned or held by the trustee:
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
----- ----------- ------- -----------------
</TABLE>
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE (INCLUDING ITS PARENT AND ANY
AFFILIATES) OF VOTING SECURITIES OF CERTAIN AFFILIATES OR SECURITY
HOLDERS OF THE OBLIGOR. If the trustee (including its parent and any
affiliates) owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the
knowledge of the trustee (1) owns 10% or more of the voting securities
<PAGE> 5
of the obligor or (2) is an affiliate, other than a subsidiary, of the
obligor, furnish the following information as to the voting securities
of such person:
As of _______________________(insert date within 31 days)
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
----- ----------- ------- -----------------
</TABLE>
11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE (INCLUDING ITS PARENT AND ANY
AFFILIATES) OF ANY SECURITIES OF A PERSON OWNING 50 PERCENT OR MORE OF
THE VOTING SECURITIES OF THE OBLIGOR. If the trustee (including its
parent and any affiliates) owns beneficially or holds as collateral
security for obligations in default any securities of a person who, to
the knowledge of the trustee, owns 50 percent or more of the voting
securities of the obligor, furnish the following information as to each
class of securities of such person any of which are so owned or held by
the trustee (including its parent and affiliates):
As of ______________________(insert date within 31 days)
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or
Held as Collateral Percent of
Security for Class Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
----- ----------- ------- -----------------
</TABLE>
<PAGE> 6
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE. Except as noted in the
instructions, if the obligor is indebted to the trustee, furnish the
following information:
As of ____________________(insert date with 31 days)
<TABLE>
<S> <C> <C>
Col. A Col. B Col. C
Amount
Nature of Indebtedness Outstanding Due Date
---------------------- ----------- --------
</TABLE>
13. DEFAULTS BY THE OBLIGOR.
a) State whether there is or has been a default with
respect to the securities under this indenture.
Explain the nature of any such default.
-NONE-
b) If the Trustee is a trustee under another indenture
under which any other securities, or certificates of
interest or participation in any other securities, of
the obligor are outstanding, or is trustee for more than
one outstanding series or securities under the
indenture, state whether there has been a default under
any such indenture or series, identify the indenture or
series affected, and explain the nature of any such
default.
As of__________________(insert date within 31 days)
-NONE-
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Amount Owned
Beneficially or Percent of
Held as Collateral Class
Security for Represented
Title of Issuer Obligations in by Amount
and Title of Amount Default by Given in
Class Outstanding Trustee Col. C
----- ----------- ------- ------
</TABLE>
<PAGE> 7
14. AFFILIATIONS WITH THE UNDERWRITERS. If any underwriter is an affiliate
of the trustee (including its parent and any affiliates), described each
such affiliation.
15. FOREIGN TRUSTEE. Identify the order or rule pursuant to which the
foreign trustee is authorized to act as sole trustee under indentures
qualified or to be qualified under the Act.
16. LIST OF EXHIBITS. List below all exhibits filed as part of this
statement of eligibility.
1. (a) A copy of the Articles of Association of Star Bank,
National Association, Cincinnati (now Star Bank,
National Association) as now in effect.
(b) A copy of the Amended Articles of Association dated
June 14, 1991, changing the name of the association to
Star Bank, National Association.
2. (a) A copy of the certificate of authority of The First
National Bank of Cincinnati (now Star Bank, National
Association) to commence business dated September 1,
1922.
(b) A copy of a Certificate of the Comptroller of the
Currency dated December 21, 1973, authorizing F N
National Bank to commence the business of banking.
(c) A copy of a Certificate of the Comptroller of the
Currency dated December 28, 1973, approving the merger
of The First National Bank of Cincinnati (now Star Bank,
National Association) into F N National Bank under the
title "The First National Bank of Cincinnati" effective
January 2, 1974.
(d) A copy of a letter dated June 8, 1988, from the
Comptroller of the Currency indicating the change in the
name of the association to Star Bank, National
Association, Cincinnati, effective July 1, 1988.
<PAGE> 8
(e) A copy of a letter dated July 15, 1991, from the
Comptroller of the Currency indicating the change in the
name of the association to Star Bank, National
Association, effective June 14, 1991.
3. A copy of the authorization of The First National Bank of
Cincinnati (now Star Bank, National Association) to exercise
corporate trust powers.
4. A copy of existing By-Laws to Star Bank, National Association,
Cincinnati (now Star Bank, National Association)
5. The consent of the Trustee required by section 321 (b) of the
Trust Indenture Act of 1939.
6. A copy of the latest report of condition of Star Bank, National
Association, published pursuant to law or the requirements of
its supervising or examining authority.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Star Bank, National Association, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Cincinnati and State
of Ohio on the __________ day of _______________________, 19__________.
STAR BANK, NATIONAL ASSOCIATION
By:___________________________________
Keith A. Maurmeier
Senior Trust Officer
<PAGE> 9
EXHIBIT 1 (a)
-------------
STAR BANK, NATIONAL ASSOCIATION, CINCINNATI
CHARTER NO. 24
ARTICLES OF ASSOCIATION
FIRST: The title of this Association shall be "Star Bank, National Association,
Cincinnati."*
SECOND: The main office of the Association shall be in the City of Cincinnati,
County of Hamilton, State of Ohio. The general business of the Association shall
be conducted at its main office and its branches.
THIRD: The Board of Directors of this Association shall consist of not less than
five (5) nor more than twenty-five (25) shareholders, the exact number of
Directors within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting thereof. Unless
otherwise provided by the laws of the United States, any vacancy in the Board of
Directors for any reason, including an increase in the number thereof, may be
filled by action of the Board of Directors.
FOURTH: The annual meeting of the shareholders for the election of Directors and
the transaction of whatever other business may be brought before said meeting
shall be held at the main office or such other place as the Board of Directors
may designate, on the day of each year specified therefor by the Bylaws, but if
no election is held on that day, it may be held on any subsequent day according
to the provisions of law; and all elections shall be held according to such
lawful regulations as may be prescribed by the Board of Directors.
FIFTH: The authorized amount of capital stock of this Association shall be
3,640,000 shares of common stock of the par value of five dollars ($5.00) each,
but said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association issued or sold, nor
any right of subscription to any thereof other than such, if any, as the Board
of Directors, in its discretion, may from time to time determine and at such
price as the Board of Directors may from time to time fix.
The Association, at any time and from time to time, may authorized and issue
debt obligations, whether or not subordinated, without the approval of the
shareholders.
*Amended June 14, 1991, see attached.
<PAGE> 10
SIXTH: The Board of Directors shall appoint one of its members President of this
Association, who shall be Chairman of the Board, unless the Board appoints
another Director to be the Chairman. The Board of Directors shall have the power
to appoint one or more Vice Presidents; and to appoint a Cashier and such other
officers and employees as may be required to transact the business of this
Association. The Board of Directors shall have the power to define the duties of
the officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all Bylaws that it may be lawful for them to make and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
The Board of Directors, without need for approval of shareholders, shall have
the power to change the location of the main office of this Association, subject
to such limitations as from time to time may be provided by law; and shall have
the power to establish or change the location of any branch or branches of the
Association to any other location, without the approval of the shareholders, but
subject to the approval of the Comptroller of the Currency.
SEVENTH: The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
EIGHTH: The Board of Directors of this Association, the Chairman of the Board,
the President, or any three or more shareholders owning, in the aggregate, not
less twenty-five percent of the stock of this Association, may call a special
meeting of shareholders at any time. Unless otherwise provided by the laws of
the United States, a notice of the time, place, and purpose of every annual and
special meeting of the shareholders shall be given by first-class mail, postage
prepaid, mailed at least ten days prior to the date of such meeting to each
shareholder of record at his address as shown upon the books of this
Association.
NINTH: Any person, his heirs, executors, or administrators, may be indemnified
or reimbursed by the Association for reasonable expenses actually incurred in
connection with any action, suit, or proceeding, civil or criminal, to which he
or they shall be made a party by reason of his being or having been a director,
officer, or employee of the Association or of any firm, corporation, or
organization which he served in any such capacity at the request of the
Association. Provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding as to
which he shall finally be adjudged to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to the Association; and, provided further, that no person shall be so
indemnified or reimbursed in relation to any matter in such action, suit, or
proceeding which has been made the subject of a compromise settlement except
with the approval of a court of competent jurisdiction, or the holders of record
of a majority of the outstanding shares of the Association, or the Board of
Directors, acting by vote of Directors not parties to the same or substantially
the same action, suit, or proceeding, constituting a majority of the whole
number of Directors. The foregoing right of indemnification shall not be
exclusive of other rights to which such person, his heirs, executors, or
administrators, may be entitled as a matter of law. The
<PAGE> 11
Association may, upon the affirmative vote of a majority of its Board of
Directors, purchase insurance for the purpose of indemnifying its directors,
officers and other employees to the extent that such indemnification is allowed
in the preceding paragraph. Such insurance may, but need not, be for the benefit
of all directors, officers, or employees.
TENTH: These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this Association, unless the vote of the holders of a greater
amount of stock is required by law and in that case by the vote of the holders
of such greater amount.
August 18, 1988
<PAGE> 12
EXHIBIT 1(B)
------------
STAR BANC
CORPORATION
June 14, 1991
Deputy Comptroller
Central District
Office of the Comptroller of the Currency
One Financial Place
440 S. LaSalle, Suite 2700
Chicago, Illinois 60605
Dear Deputy Comptroller:
Re: Letter of Notification
Star Bank, National Association, Cincinnati, Charter #24 intends to
change its corporate title to Star Bank, National Association. The effective
date of the change is June 14, 1991.
A certified copy of the amendment to the articles of association is
enclosed. The amendment conforms to the requirements of 12 USC 21 a.
Sincerely,
/s/
F. Kristen Koepcke
FKK:bjt
Enclosure
<PAGE> 13
EXHIBIT 1 (b)
-------------
MINUTES OF SPECIAL MEETING OF THE SHAREHOLDER
STAR BANK, NATIONAL ASSOCIATION, CINCINNATI
A Special Meeting of the shareholder of Star Bank, National Association,
Cincinnati (the "Bank") was held on June 14, 1991.
Mr. Oliver W. Waddell called the meeting to order and selected Mr. F. Kristen
Koepke to act as Secretary.
The Secretary reported that all the outstanding shares of the Bank were
represented at this meeting and that the shareholder had waived notice of this
special meeting. Therefore, a quorum was present.
Mr. Waddell stated that the purpose of the meeting was to consider a proposed
name change for the Bank as recommended by the Board of Directors. On motion
duly made and carried, the following resolution was adopted:
RESOLVED, That Article First of the Articles of Association of
the Bank be amended in its entirely to read as follows:
FIRST: The title of this Association shall be "Star Bank,
National Association."
There being no further business to come before the meeting, on motion duly made
and carried, the meeting was adjourned.
/s/
---------------------------
F. Kristen Koepke, Secretary
Approved:
/s/
- ---------------------------------
Oliver W. Waddell
Chairman, Star Banc Corporation,
Shareholder Certified Copy
/s/
--------------------------
Secretary
<PAGE> 14
EXHIBIT 2 (a)
-------------
COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS:
NO. 24
E Pluribus Unum
TREASURY DEPARTMENT
Office of Comptroller of the Currency
Washington, D.C., September 1, 1992
WHEREAS, the Act of Congress of the United States, entitled, "An Act to
amend section 5136, Revised Statutes of the United States, relating to corporate
powers of associations, so as to provide succession thereof for a period of
ninety-nine years or until dissolved, and to apply said section as so amended to
all national banking association", approved by the President on July 1, 1922,
provided that all national banking associations organized and operating under
any law of the United States on July 1, 1992 should have succession until
ninety-nine years from that date, unless such association should be sooner
dissolved by the act of its shareholders owning two-thirds of its stock, or
unless its franchise should become forfeited by reason of violation of law, or
unless it should be terminated by an Act of Congress hereinafter enacted;
NOW THEREFORE, I, D. R. Crissinger Comptroller of the Currency, do
hereby certify that The First National Bank of Cincinnati and State of Ohio ,
was organized and operating under the laws of the United States on July 1, 1922,
and that its corporate existence was extended for the period of ninety-nine
years from that date in accordance with and subject to the condition in the Act
of Congress hereinbefore recited.
(SEAL) IN TESTIMONY WHEREOF, witness my hand
and seal of office this first day of
September, 1922
(Signed) D. R. Crissinger
-------------------------------
Comptroller of the Currency
<PAGE> 15
EXHIBIT 2 (b)
-------------
Comptroller of the Currency
TREASURY DEPARTMENT OF THE UNITED STATES
Washington, D.C.
Whereas, satisfactory evidence has been presented to the Comptroller of
the Currency that "FN NATIONAL BANK". located in CINCINNATI, State of OHIO, has
complied with all provisions of the Statutes of the United States required to be
complied with before being authorized to commence the business of banking as
National Banking Association;
Now, therefore, I hereby certify that the above-named association is
authorized to commence the business of banking as a National Banking
Association.
In testimony whereof, witness my signature
and seal of office this 21st day of
December, 1913.
SEAL
/s/
__________________________________________
<PAGE> 16
EXHIBIT 2 (c)
-------------
Comptroller of the Currency
TREASURY DEPARTMENT OF THE UNITED STATES
Washington, D.C.
WHEREAS, satisfactory evidence has been presented to the Comptroller of
the Currency that all requisite legal and corporate action has been taken, in
accordance with the statutes of the United States, to merge The First National
Bank of Cincinnati, Cincinnati, Ohio, into FN National Bank, Cincinnati, Ohio,
under the charter of FN National Bank and under the title "The First National
Bank of Cincinnati," with capital stock of $18,200,000;
NOW, THEREFORE, it is hereby certified that such merger was approved
November 29, 1973, and is effective as of the opening of business January 2,
1974.
IN TESTIMONY WHEREOF witness my signature and seal
of office this 28th day of December, 1973
SEAL /S/
------------------------------------
James E. Smith
Comptroller of the Currency
<PAGE> 17
EXHIBIT 2(d)
------------
- --------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- --------------------------------------------------------------------------------
Central District
One Financial Plaza, Suite 2700
440 South LaSalle Street
Chicago, Illinois 60605
June 8, 1988
Mr. Raymond D. Beck
Secretary & Counsel
First National Cincinnati Corporation
First National Bank Center
425 Walnut Street
Cincinnati, Ohio 45201-1038
Dear Mr. Beck:
The office of the Comptroller of the Currency acknowledges receipt of your
letters concerning First National Cincinnati Corporation's banking subsidiarys'
title changes and the appropriate amendments to each bank's articles of
association. The Office has recorded the following banks' title changes
effective July 1, 1988.
<TABLE>
<CAPTION>
Old Title New Title
- --------- ---------
<S> <C>
The First National Bank of Ironton Star Bank, National Association,
Ironton, Ohio Tri-State
Charter No. 16607
Farmers and Traders National Bank Star Bank, National Association
Hillsboro, Ohio Hillsboro
Charter No. 17646
The First National Bank of Cincinnati Star Bank, National Association
Cincinnati, Ohio Cincinnati
Charter No. 24
The First National Bank & Trust Company Star Bank, National Association
Troy, Ohio Troy
Charter No. 9336
</TABLE>
<PAGE> 18
Page 2
Mr. Raymond D. Beck (cont'd)
<TABLE>
<S> <C>
The Second National Bank of Hamilton Star Bank, National Association
Hamilton, Ohio Butler County
Charter No. 17200
The Second National Bank of Richmond Star Bank, National Association
Richmond, Indiana Eastern Indiana
Charter No. 1988
The First National Bank of Aurora Star Bank, National Association
Aurora, Indiana Aurora
Charter No. 699
The Peoples National Bank of Lawrenceburg Star Bank, National Association
Lawrenceburg, Indiana Southeastern Indiana
Charter No. 2612
Newport National Bank Star Bank, National Association
Newport, Kentucky Campbell County
Charter No. 4765
The First National Bank Star Bank, National Association
Sidney, Ohio Sidney
Charter No. 5214
</TABLE>
Very truly yours,
David J. Rogers
National Bank Examiner
Analysis Division
<PAGE> 19
EXHIBIT 2(e)
------------
- --------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- --------------------------------------------------------------------------------
Central District
One Financial Place
440 S. LaSalle, Suite 2700
Chicago, Illinois 60605
July 15, 1991
Mr. F. Kristen Koepcke
Vice President, General Counsel and Secretary
Star Banc Corporation
425 Walnut Street
P.O. Box 1038
Cincinnati, Ohio 45201-1038
Dear Mr. Koepcke:
The Office of the Comptroller of the Currency has received your letter
concerning the title change and the appropriate amendment to the bank's articles
of association. The Office has recorded that as of June 14, 1991, the title of
Star Bank, National Association, Cincinnati, Charter No. 24, was changed to Star
Bank, National Association.
As a result of the Garn-St Germain Depository Institutions Act of 1982, this
Office is no longer responsible for the approval of national bank name changes
nor does it maintain official records on the use of alternate titles. The use of
other titles or the retention of the rights to any previously used title is the
responsibility of the bank's board of directors. Legal counsel should be
consulted to determine whether or not the new title, or any previously used
title, could be challenged by competing institutions under the provisions of
federal or state law.
Very truly yours,
David J. Rogers
National Bank Examiner
Analysis Division
<PAGE> 20
EXHIBIT 3
---------
THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS:
FEDERAL RESERVE BOARD
Washington, D.C.
October 9, 1919
Pursuant to authority vested in the Federal Reserve Board by the Act of
Congress approved December 23, 1913, known as the Federal Reserve Act, as
amended by the Act of September 26, 1918, the
FIRST NATIONAL BANK OF CINCINNATI
has been granted the right to act, when not in contravention of State or local
law, as TRUSTEE, EXECUTOR, ADMINISTRATOR, REGISTRAR OF STOCKS AND BONDS,
GUARDIAN OF ESTATES, ASSIGNEE, RECEIVER OR IN ANY OTHER FIDUCIARY CAPACITY IN
WHICH STATE BANKS, TRUST COMPANIES OR OTHER CORPORATIONS WHICH COME INTO
COMPETITION WITH NATIONAL BANKS ARE PERMITTED TO ACT UNDER THE LAWS OF THE STATE
OF OHIO. The exercise of such rights shall be subject to regulations prescribed
by the Federal Reserve Board.
Federal Reserve Board,
By W. P. G. Harding
Governor.
ATTEST:
W. T. Chapman
Secretary.
STATE OF OHIO
DEPARTMENT OF BANKS AND BANKING
Certificate of Authority No. 17
NATIONAL BANKS
I, Philip C. Berg, Superintendent of Banks, do hereby certify that the
First National Bank of Cincinnati, Hamilton County, Ohio has complied with all
the requirements provided by law and is authorized to transact the business of a
trust company and to perform all the functions granted to such companies by the
laws of this state.
Given under my hand and official Seal at Columbus,
Ohio, this twenty-fifth day of November, A.D. 1919
Philip C. Berg,
Superintendent of Banks.
(SEAL)
<PAGE> 21
EXHIBIT 4
---------
BY-LAWS
-------
STAR BANK, N.A., CINCINNATI
---------------------------
ARTICLE I
---------
MEETINGS OF SHAREHOLDERS
------------------------
SECTION 1. ANNUAL MEETING
- ---------- --------------
The annual meeting of shareholders shall be held in the main banking house of
the Association at 11:00 a.m. on the second Tuesday in February of each year.
Notice of such meeting shall be mailed to shareholders not less than ten (10)
nor more than sixty (60) days prior to the meeting date.
SECTION 2. SPECIAL MEETINGS
- ---------- ----------------
Special meetings of shareholders may be called and held at such times and upon
such notice as is specified in the Articles of Association.
SECTION 3. QUORUM
- ---------- ------
A majority of the outstanding capital stock represented in person or by proxy
shall constitute a quorum of any meeting of the shareholders, unless otherwise
provided by law, but less than a quorum may adjourn any meeting, from time to
time, and the meeting amy be held as adjourned without further notice.
SECTION 4. INSPECTORS
- ---------- ----------
The Board of Directors may, and in the event of its failure so to do, the
Chairman of the Board shall appoint Inspectors of Election who shall determine
the presence of a quorum, the validity of proxies, and the results of all
elections and all other matters voted upon by shareholders at all annual and
special meetings of shareholders.
SECTION 5. VOTING
- ---------- ------
In deciding on questions at meetings of shareholders, except in the election of
directors, each shareholder shall be entitled to one vote for each share of
stock held. A majority of votes cast shall decide each matter submitted to the
shareholders, except where by law a larger vote is required. In all elections of
directors, each shareholder shall have the right to vote the number of shares
owned by him for as many persons as there are directors to be elected, or to
cumulate such shares and give one candidate as many votes as the number of
directors multiplied by the number
<PAGE> 22
of his shares equal, or to distribute them on the same principle among as many
candidates as he shall think fit.
ARTICLE II
----------
SECTION 1. TERM OF OFFICE
- ---------- --------------
The directors of this Association shall hold office for one year and until their
successors are duly elected and qualified.
SECTION 2. REGULAR MEETINGS
- ---------- ----------------
The organization meeting of the Board of Directors shall be held as soon as
practical following the annual meeting of shareholders at the main banking
house. Other regular meetings of the Board of Directors shall be held without
notice at 11:00 a.m. on the second Tuesday of each month except February, at the
main banking house, or, provided notice is given by telegram, letter, telephone
or in person to every Director, at such time and place as may be designated in
the notice of the meeting. When any regular meeting of the Board falls on a
holiday, the meeting shall be held on the next banking business day, unless the
Board shall designate some other day.
SECTION 3. SPECIAL MEETINGS
- ---------- ----------------
Special meetings of the Board of Directors may be called by the Chairman of the
Board of the Association, or at the request of three or more Directors. Notice
of the time, place and purposes of such meetings shall be given by telegram,
letter, telephone or in person to every Director.
SECTION 4. QUORUM
- ---------- ------
A majority of the entire membership of the Board shall constitute a quorum at
any meeting of the Board.
SECTION 5. NECESSARY VOTE
- ---------- --------------
A majority of those Directors present and voting at any meeting of the Board of
Directors shall decide each matter considered, except where otherwise required
by law or the Articles or By-Laws of this Association.
SECTION 6. COMPENSATION
- ---------- ------------
Directors, excluding full-time employees of the Bank, shall receive such
reasonable compensation as may be fixed from time to time by the Board of
Directors.
SECTION 7. ELECTION-AGE LIMITATION
- ---------- -----------------------
No person shall be elected or reelected a Director after reaching his seventieth
(70th) birthday, provided that any person who is a Director on December 10,
1985, may continue to be reelected a Director until he reaches his seventy-fifth
(75th) birthday.
<PAGE> 23
SECTION 8 RETIREMENT-AGE LIMITATION
- --------- -------------------------
Every Director of the Bank shall retire no later than the first month next
following his seventieth (70th) birthday, except for any person who was a
Director on December 10, 1985, who shall retire not later that the first of the
next month following his seventy-fifth (75th) birthday.
SECTION 9 DIRECTORS EMERITUS
- --------- ------------------
The Board shall have the right from time to time to choose as Directors Emeritus
persons who have had prior service as members of the Board and who may receive
such compensation as shall be fixed from time to time by the Board of Directors.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1 WHO SHALL CONSTITUTE
- --------- --------------------
The Officers of the Association shall be a Chairman of the Board, a President, a
Secretary, and other officers such as Chairman of the Executive Committee, Vice
Chairman of the Board, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Assistant Secretaries, Trust Officers, Trust Investment Officers,
Trust Real Estate Officers, Assistant Trust Officers, a Controller, Assistant
Controller, an Auditor and Assistant Auditors, as the Board may appoint from
time to time. Any person may hold two offices. The Chairman of the Board, all
Vice Chairmen of the Board and the President shall at all times be members of
the Board of Directors.
SECTION 2 TERM OF OFFICE
- --------- --------------
All officers shall be elected for and shall hold office for one year and until
their successors are elected and qualified, subject to the right in the Board of
Directors by a majority vote of the entire membership to discharge any officer
at any time.
SECTION 3 CHAIRMAN OF THE BOARD (Amended 12/13/88-see attachment)
- --------- ---------------------
The Chairman of the Board shall be the Chief Executive Officer of the
Association and shall have all duties, responsibilities and powers of the Chief
Executive Officer. He shall, when present, preside at all meetings of
shareholders and directors and shall be ex officio a member of all committees of
the Board. He shall name all members of the committees of the Board, subject to
the confirmation thereof by the Board.
In the event that there is a vacancy in the position of President or in the
event of the absence or incapacity of the President, the Chairman may appoint,
or in the event of his failure to do so, the Board of Directors or the Executive
Committee thereof may designate any Vice Chairman of the
<PAGE> 24
Board, any Executive Vice President or any Senior Vice President of the
Association temporarily to exercise the powers and perform the duties of the
Chairman as Chief Executive Officer when the Chairman is absent or
incapacitated.
The Board of Directors shall have the power to elect a Chairman of the Executive
Committee. Any such Chairman of the Executive Committee shall participate in the
formation of the policies of the Association and shall have such other duties as
may be assigned to him from time to time by the President or by the Board of
Directors.
SECTION 4 PRESIDENT (amended 12/13/88-see attachment)
- --------- ---------
The President shall participate in the formation and supervision of the policies
and operations of the Association and shall perform such other duties as may be
assigned to him from time to time by the Board of Directors or by the Chairman
of the Board. In the event that there is a vacancy in the position of the
Chairman of the Board, the President shall be the Chief Executive Officer of the
Association and shall have all the powers and perform all the duties of the
Chairman of the Board, including the same power to name temporarily a Chief
Executive Officer to serve in the absence of the President.
SECTION 5 CHAIRMAN OF THE EXECUTIVE COMMITTEE
- --------- -----------------------------------
The Board of Directors shall have the power to elect a Chairman of the Executive
Committee. Any such Chairman of the Executive Committee shall participate in the
formation of the policies of the Association and shall have such other duties as
may be assigned to him from time to time by the President or by the Board of
Directors.
SECTION 6 VICE CHAIRMEN OF THE BOARD
- --------- --------------------------
The Board of Directors shall have the power to elect one or more Vice Chairmen
of the Board of Directors. Any such Vice Chairmen of the Board shall participate
in the formation of the policies of the Association and shall have such other
duties as may be assigned to him from time to time by the Chairman of the Board
or by the Board of Directors.
SECTION 7 OTHER OFFICERS
- --------- --------------
The Secretary and all other officers appointed by the Board of Directors shall
have such duties as defined by law and as may from time to time be assigned to
them by the Chief Executive Officer or the Board of Directors.
SECTION 8 RETIREMENT
- --------- ----------
Every officer of the Association shall retire not later than the first of the
month next following his sixty-fifth (65th) birthday. The Board of Directors
may, in its discretion, set the retirement date and terms of retirement of an
officer at a date later than provided above.
<PAGE> 25
ARTICLE IV
----------
COMMITTEES
----------
SECTION 1 EXECUTIVE COMMITTEE
- --------- -------------------
There shall be a standing committee of Directors in this Association to be known
as the Executive Committee. This Committee shall meet at 11:00 a.m. on the first
and fourth Tuesday of each month. It shall have all of the powers of the Board
of Directors between meetings of the Board, except as the Board only by law is
authorized to perform or exercise. All actions of the Executive Committee shall
be reported to the Board of Directors. In the event that any member of the
Executive Committee is unable to attend a meeting of that committee, the
Chairman of the Board or the President may, at his discretion, appoint another
Director to attend said meeting of the Executive Committee and for that meeting
to serve as a member of the Executive Committee with full power to act in place
of the absent regular member of the committee.
SECTION 2 COMPENSATION COMMITTEE
- --------- ----------------------
There shall be a standing committee of directors of this Association to be known
as the Compensation Committee who shall review the compensation of all Executive
Officers and those officers who participate in the Profit Sharing Pool as well
as fees for directors of the Association. They will recommend specific
compensation arrangements to the Board of Directors for their confirmation.
SECTION 3 COMMITTEE ON AUDIT
- --------- ------------------
There shall be a standing committee of Directors of this Association to be known
as the Committee on Audit, none of whose members shall be active officers of the
Association. This Committee shall make or cause to be made a suitable
examination of the affairs of the Association and the Trust Department at least
once during each period of twelve months. The results of such examination shall
be reported in writing to the Board at the next regular meeting thereafter
stating whether the Association and/or Trust Department is in a sound solvent
condition, whether adequate internal audit controls and procedures are being
maintained and make such recommendations as it deems advisable.
SECTION 4 TRUST COMMITTEE
- --------- ---------------
There shall be a standing committee of Directors of this Association to be known
as the Trust Committee. The Trust Committee shall determine policies of the
Department and review actions of the Trust Investment Committee. All actions of
the Trust Committee shall be reported to the Board of Directors.
SECTION 5 TRUST INVESTMENT COMMITTEE
- --------- --------------------------
There shall be a standing committee of this Association to be known as the Trust
Investment Committee composed of officers of the Association. The Trust
Investment Committee OR SUCH
<PAGE> 26
OFFICERS AS MAY BE DULY DESIGNATED BY THE TRUST INVESTMENT COMMITTEE, shall pass
upon the acceptance of all trusts, the closing out or relinquishment of all
trusts and the making, retention, or disposition of all investments of trust
funds in conformity with policies established by the Trust Committee. Actions of
the Trust Investment Committee shall be reported to the Trust Committee.
SECTION 6 PENSION COMMITTEE
- --------- -----------------
There shall be a standing committee of directors or officers of this Association
to be known as the Pension Committee, who shall have the powers and duties as
set forth in the Association's Employees' Pension Plan. A report of the
condition of the pension fund shall be submitted annually to the Board of
Directors.
SECTION 7 OTHER COMMITTEES
- --------- ----------------
The Chairman may appoint, from time to time, other committees for such purposes
and with such powers as he or the Board may direct.
ARTICLE V
---------
SEAL
----
SECTION 1 IMPRESSION
- --------- ----------
The following is an impression of the seal of this Association.
August 25, 1988
<PAGE> 27
RESOLVED, That Section 3 of Article III of the By-Laws of the Bank shall be
amended to read:
SECTION 3 CHAIRMAN OF THE BOARD
- --------- ---------------------
The Chairman of the Board shall have general executive powers and duties and
shall perform such other duties as may be assigned from time to time by the
Board of Directors. In addition, unless the Board of Directors shall have
designated the President to be the Chief Executive Officer, the Chairman of the
Board shall be the Chief Executive Officer and shall have all the powers and
duties of the Chief Executive Officer. He shall, when present, preside at all
meetings of shareholders and directors and shall be ex officio a member of all
committees of the Board. He shall name all members of the committees of the
Board, subject to the confirmation thereof by the Board.
If he is Chief Executive Officer, in the event that there is a vacancy in the
position of President or in the event of the absence or incapacity of the
President, the Chairman may appoint, or in the event of his failure to do so,
the Board of Directors or the Executive Committee thereof may designate, any
Vice Chairman of the Board, any Executive Vice President or any Senior Vice
President of the Association temporarily to exercise the powers and perform the
duties of the Chairman as Chief Executive Officer when the Chairman is absent or
incapacitated.
If the President has been designated Chief Executive Officer by the Board of
Directors, in the event that there is a vacancy in the position of the President
or in the event of the absence or incapacity of the President, the Chairman
shall be the Chief Executive Officer of the Association and shall have all the
powers and perform all the duties of the President, including the powers to name
temporarily a Chief Executive Officer to serve in the absence of the Chairman.
FURTHER RESOLVED, That Section 4 of Article III of the By-Laws of the bank shall
be amended to read:
SECTION 4 PRESIDENT
- --------- ---------
The President shall have general executive powers and duties and shall perform
such other duties as may be assigned from time to time by the Board of
Directors. In addition, if designated by the Board of Directors, the President
shall be the Chief Executive Officer and shall have all the powers and duties of
the Chief Executive Officer, including the same power to name temporarily a
Chief Executive Officer to serve in the absence of the President if there is a
vacancy in the position of the Chairman or in the event of the absence or
incapacity of the Chairman.
If the Chairman has been designated Chief Executive Officer by the Board of
Directors, in the event that there is a vacancy in the position of the Chairman
of the Board or in the event of the absence or incapacity of the Chairman of the
Board, the President shall be the Chief Executive Officer of the Association and
shall have all the powers and perform all the duties of the Chairman of the
Board, including the same power to name temporarily a Chief Executive Officer to
serve in the absence of the President.
<PAGE> 28
EXHIBIT 5
---------
THE CONSENT OF THE TRUSTEE
REQUIRED BY 321(b) OF THE ACT
Star Bank, National Association, the Trustee executing the statement of
eligibility and qualification to which this Exhibit is attached does hereby
consent that reports of examinations of the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor in accordance with the
provisions of 321(b) of the Trust Indenture Act of 1939.
STAR BANK, NATIONAL ASSOCIATION
____________________________ BY:________________________________
Date Stephen J. Blackstone
Trust Officer
