<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 2, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CODE-ALARM, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2334698
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
950 E. WHITCOMB
MADISON HEIGHTS, MICHIGAN 48071
(810) 583-9620
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
ROBERT V. WAGNER
CODE-ALARM, INC.
950 E. WHITCOMB
MADISON HEIGHTS, MICHIGAN 48071
(810) 583-9620
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
D. KERRY CRENSHAW, ESQ. DAVID FOLTYN, ESQ.
CLARK, KLEIN & BEAUMONT, P.L.C. HONIGMAN MILLER SCHWARTZ AND COHN
1600 FIRST FEDERAL BUILDING 2290 FIRST NATIONAL BUILDING
DETROIT, MICHIGAN 48226-1962 DETROIT, MICHIGAN 48226
(313) 965-8266 (313) 256-7763
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box: / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
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 DEBENTURE OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
% Convertible Subordinated Debentures
due 2002.................................. $11,500,000(1) 100%(2) $11,500,000(1)(2) $3,965.52
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(1) Includes $1,500,000 principal amount of Debentures issuable upon exercise of
the Underwriters' overallotment option.
(2) Plus accrued interest, if any.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH THE PROVISIONS OF SECTION
8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-2
<TABLE>
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FORM S-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus... Front Cover Page of Prospectus; Cross
Reference Sheet; Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Not Applicable
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered............................... Description of Debentures; Description of
Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant............................... Prospectus Summary; Risk Factors;
Capitalization; Selected Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Changes in
Company's Certifying Accountant;
Business; Description of Capital Stock;
Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference................................ Incorporation of Certain Information by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE> 3
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 NOVEMBER 2, 1995
PROSPECTUS
$10,000,000
[CODE-ALARM, INC. LOGO]
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
------------------------
The Debentures offered hereby are convertible at any time prior to
maturity, unless previously redeemed or repurchased, into shares of Common Stock
of Code-Alarm, Inc. (the "Company") at a conversion price of $ per share,
subject to adjustment in certain events. On October 31, 1995, the last reported
sale price of the Company's Common Stock, as reported on the Nasdaq National
Market under the symbol CODL was $7.375 per share. See "Price Range of Common
Stock."
Interest on the Debentures is payable semi-annually on June 1 and December
1, commencing June 1, 1996, and the Debentures will mature on December 1, 2002,
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 December 1,
1998, 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
ten trading days prior to the date of the notice of redemption. In the event of
a Repurchase Event (as herein 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 and
future Senior Indebtedness (as herein defined). See "Description of Debentures."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 4.
------------------------
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.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
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Per Debenture............................ % % %
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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 other expenses of issuance and distribution estimated at
$405,000.
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional $1,500,000 in principal amount of the Debentures on the same
terms and conditions to cover over-allotments, if any. If the entire
additional principal amount of the Debentures is purchased, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $11,500,000, $ 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 therefor on or about ,
1995.
------------------------
RONEY&CO. THE OHIO COMPANY
, 1995.
<PAGE> 4
[ARTWORK]
CODE-ALARM SUPPLIES THE FOLLOWING VEHICLE SECURITY SYSTEMS TO AUTOMAKERS AT BOTH
THE DEALERSHIP AND FACTORY-FLOOR LEVEL. THE COMPANY MARKETS ITS PRODUCTS TO
GENERAL MOTORS, CHRYSLER, FORD, MITSUBISHI, SUBARU, AND VOLKSWAGEN IN THE
U.S., AS WELL AS INTERNATIONAL AUTOMAKERS PEUGEOT, RENAULT, VOLKSWAGEN-AUDI
GROUP FRANCE, TOYOTA, NISSAN, FORD OF VENEZUELA AND FORD-MEXICO.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY OR THE COMMON STOCK OF THE COMPANY, OR BOTH, AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, heretofore filed by the Company with the
Securities and Exchange Commission (the "Commission") (File No. 0-16441)
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"),
are hereby incorporated by reference, except as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1995, June 30, 1995 and September 30, 1995.
3. The Company's Current Report on Form 8-K filed with the Commission
on July 22, 1995.
4. The Company's First Amendment to its Current Report on Form 8-K/A#1
filed with the Commission on August 25, 1995.
5. The Company's Second Amendment to its Current Report on Form
8-K/A#2 filed with the Commission on September 1, 1995.
Each document filed subsequent to the date of this Prospectus pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act prior to the termination of
this Offering shall be deemed to be incorporated by reference in this
Prospectus. Any statement incorporated herein shall be deemed to have been
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which is
or is deemed to be incorporated herein by reference modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE INFORMATION
THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (NOT INCLUDING
EXHIBITS TO THE INFORMATION THAT IS INCORPORATED BY REFERENCE UNLESS SUCH
EXHIBITS ARE EXPRESSLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS
PROSPECTUS INCORPORATES). REQUESTS SHOULD BE DIRECTED TO ROBERT V. WAGNER, VICE
PRESIDENT OF FINANCE, CODE-ALARM, INC., 950 E. WHITCOMB, MADISON HEIGHTS,
MICHIGAN 48071, TELEPHONE (810) 583-9620.
------------------------
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's Consolidated Financial
Statements and Notes thereto, appearing elsewhere in or incorporated by
reference into this Prospectus. Except as otherwise noted, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is a leading U.S.-based manufacturer of vehicle security
systems and is recognized as a technology leader in remote control vehicle
security systems, keyless entry systems and security sensor products. The
Company categorizes sales of its vehicle security systems as pre-delivery and
post-delivery sales. Pre-delivery sales are products sold in the original
equipment manufacturer ("OEM") market, for installation before delivery of a new
vehicle to the purchaser (either through factory installation by the automaker
or as a dealer-installed option or through contract installers known as
"expediters"). Post-delivery sales are products sold for installation on a
vehicle already owned by the customer (generally through retail specialty stores
and mass merchandisers).
The Company's products are marketed and sold in U.S. and Canada primarily
to General Motors, Ford and Chrysler primarily through more than 9,000
automobile dealers pursuant to private label purchase agreements with these
manufacturers; more than 1,200 independent retail specialty stores; automotive
expediters; and mass merchandisers such as Sears and Best Buy. International
companies to whom the Company sells its vehicle security products are Peugeot,
Volkswagen-Audi Group France, Renault, Mitsubishi, Subaru, Toyota and Nissan as
well as to independent retail specialty stores, expediters and mass
merchandisers. In addition, the Company recently began supplying vehicle
security systems to Ford of Venezuela and Ford-Mexico.
The Company sells its vehicle security systems under several brand names
including Code-Alarm(R), Mirage(TM), Chapman(R) and Anes(R), and sells its
products as private label lines under automakers' brand names, including, for
example, Mr. Goodwrench(TM) in the case of General Motors. The Company offers
basic security systems and accessory products which a customer may use to tailor
a security system to the customer's specific requirements. Products are actively
promoted to dealers and retailers. The Company also provides support services to
dealers, including technical and installation service.
The Company's primary business objective is to expand as a leading
designer, manufacturer and marketer of vehicle security systems, through further
penetration of its existing customer base as well as the addition of new
customers and by expanding its presence in the European market. Key elements of
the Company's business strategy include: (i) focusing on its OEM customers
through distribution to dealers, direct sales to manufacturers for factory floor
installation and strategic alliances with other OEM suppliers; (ii) continuing
its sales to independent retail specialty stores and mass merchandisers; (iii)
expanding its European presence; (iv) enhancing its engineering capabilities;
and (v) shortening its product development and introduction cycles while
maintaining high quality standards.
The Company is a Michigan corporation, its executive offices are located at
950 E. Whitcomb, Madison Heights, Michigan 48071 and its telephone number is
(810) 583-9620.
THE OFFERING
Securities Offered......... $10,000,000 ($11,500,000 if the Underwriters'
over-allotment option is exercised in full)
principal amount of % Convertible Subordinated
Debentures due December 1, 2002 (the "Debentures").
Payments of Interest....... Semi-annually on each June 1 and December 1,
commencing June 1, 1996, with interest accruing
from the date of issuance.
1
<PAGE> 7
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 "Description of
Debentures -- Conversion of Debentures" and
"Capitalization."
Optional Redemption........ Redeemable at the Company's option, at any time in
whole or in part, at the redemption price set forth
herein, plus accrued interest; provided, however,
that prior to December 1, 1998, 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 ten trading days prior to the date of the
notice of redemption. See "Description of
Debentures -- Optional Redemption."
Repurchase at Option of
Holders upon Certain
Events................... Upon a Repurchase Event (as defined herein), the
Company is required to repurchase, at the option of
the 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 the Company voting stock such that
a person (other than a present holder of 5% or more
of the Company's capital stock) owns more than 50%
of the outstanding Company capital stock; (ii) a
change in the composition of the Board of Directors
such that there is a shift of a majority of its
members; (iii) certain consolidations, mergers or
sales of assets of the Company to a person (other
than a present holder of 5% or more of Company
capital stock) who, as a result, 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 to its capital stock in
excess of 30% of the values of such stock. See
"Description of Debentures -- Repurchase Event."
Subordination.............. The Debentures will be subordinated to all existing
and future Senior Indebtedness (as defined herein)
of the Company. There is no limitation on the
amount of Senior Indebtedness that may be incurred
by the Company. See "Description of
Debentures -- Subordination of Debentures."
Use of Proceeds............ The net proceeds from the sale of the securities
will be used to reduce bank indebtedness, and for
working capital and general corporate purposes. See
"Use of Proceeds."
Common Stock Outstanding... 2,320,361 shares.
NASDAQ National Market
Symbol................... CODL.
2
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE AND RATIO DATA)
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NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1992 1993 1994 1994 1995
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INCOME STATEMENT DATA:
Net sales.................................. $45,685 $50,110 $73,508 $56,435 $54,825
Gross profit............................... 13,389 19,920 27,622 21,083 19,541
Income (loss) from operations.............. (3,655) 2,366 3,043 2,713 2,072
Litigation expense......................... -- -- 4,386 -- 1,825
Net income (loss).......................... (2,902) 1,536 (1,376)(1) 1,426 (735)(1)
Net income (loss) per common share......... $ (1.16) $ 0.63 $ (0.58) $ 0.60 $ (0.32)
Weighted average common shares
outstanding.............................. 2,495 2,445 2,376 2,392 2,320
Ratio of earnings to fixed charges(2)...... -- 5.38x -- 4.57x 0.30x
Ratio of earnings to fixed charges(3)...... -- 5.38x 3.55x 4.57x 1.91x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------------
ACTUAL AS ADJUSTED(4)
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BALANCE SHEET DATA:
Working capital....................................................... $13,734 $ 14,284
Total assets.......................................................... 42,471 43,471
Current portion of long-term debt..................................... 2,431 1,881
Long-term debt, net of current portion................................ 10,085 11,635
Reserve for litigation(5)............................................. 5,440 5,440
Shareholders' equity.................................................. 10,482 10,482
</TABLE>
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(1) Includes patent infringement settlement costs in the amount of $4.4 million
for the year ended December 31, 1994 and $1.8 million for the nine months
ended September 30, 1995.
(2) The ratio of earnings to fixed charges was computed by dividing earnings by
fixed charges. For this purpose "earnings" consists of earnings before
income taxes and "fixed charges," and "fixed charges" consists of interest
on indebtedness and the portion of rental expense which is deemed to be
representative of the interest component. For the years ended December 31,
1992 and December 31, 1994, earnings were not sufficient to cover fixed
charges by $3.4 million and $1.2 million, respectively.
(3) Adjusted to reflect ratio of earnings to fixed charges excluding litigation
expense.
(4) Adjusted to give effect to the sale of $10,000,000 principal amount of %
Convertible Subordinated Debentures due 2002, and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(5) See Note 9 of Notes to Consolidated Financial Statements.
3
<PAGE> 9
RISK FACTORS
Prior to purchasing the Debentures offered hereby, prospective investors
should carefully consider, together with the other information contained herein,
each of the following risk factors which could, individually or in the
aggregate, have a material adverse effect on the Company's business and
financial condition, including working capital, and results of operations.
Litigation. The Company historically has been involved in a number of
legal disputes, many of which have resulted in litigation, both as plaintiff and
as defendant, including a number of proceedings currently pending. Damages
sought against the Company in these pending proceedings exceed in the aggregate
the entire shareholders' equity of the Company, and an unfavorable result in one
or more of these cases or in any proceeding which might arise in the future
could adversely affect the value of the Debentures and could cause the holders
of Debentures to lose their entire investment. The cost of legal proceedings and
settlements of lawsuits involving the Company was a principal cause of the
Company's lack of profitability in 1994 and has had a substantial negative
impact on the Company's results of operations in 1995 to date. As of October 26,
1995, reserved for but yet unpaid judgments against the Company amounted to an
aggregate of approximately $5.9 million; approximately $5.4 million of this
amount has been reserved for and the Company has posted a $5.9 million letter of
credit as security for this amount. See "Legal Proceedings" and Note 9 of Notes
to Consolidated Financial Statements.
International Operations. The Company began conducting European operations
in 1994 through its acquisition of Europe Auto Equipement, S.A. ("EAE"). Its
European operations expanded rapidly, with European net sales for 1994 reaching
23.8% of the Company's total 1994 net sales (28.6% of the Company's total 1994
net sales were attributable to international sales, excluding North American but
including European sales), and the Company intends to continue expanding its
international (primarily European) sales efforts and believes that such
international sales will continue to represent a significant and increasing
portion of its total sales. In addition to the other risks associated with its
business (which apply both to the Company's domestic and international efforts),
the Company's international operations, particularly its expansion into the
European market, present a number of risks to the Company's future, including
the following:
- Prior to 1994, when it began conducting its European operations, the
Company had virtually no experience manufacturing, assembling or marketing
its products in any market outside of North America. Accordingly, it is
subject to the normal risks associated with a new business endeavor,
including operating losses, financial reporting, financial controls and
financial forecasting.
- The Company currently supplies automobile alarm systems to Peugeot, with
sales in 1994 to Peugeot constituting 29.8% of the Company's European
sales (and 22.9% and 7.1% of its international sales and total sales,
respectively). Peugeot has recently advised the Company that it is in the
process of consolidating its supplier base, and there is no assurance that
Peugeot will continue to purchase automobile alarm systems from the
Company. The loss of Peugeot sales could have a material adverse effect on
the Company's business and financial condition, including working capital
and results of operations.
- The Company supplies its European customers with products manufactured in
its U.S. plants. Most of the Company's European customers operate with low
inventories or on a "just in time" basis; consequently, as product volumes
increase, it will become increasingly difficult and costly to supply these
customers from the Company's U.S. plants. See "Business."
- In order to market its products in Europe, the Company must meet
applicable government-imposed frequency requirements, as well as obtain
insurance industry certifications and approvals of its products. While the
Company has obtained such approvals in some countries, it has not obtained
them in others. In the event these requirements change, there can be no
assurance that the Company will be able to meet such requirements. There
are also various other risks associated with such regulation. See "Risk
Factors -- Regulation." The Company is also subject to certain risks
associated with intellectual property rights. See "Risk
Factors -- Intellectual Property."
Suppliers. The Company's products include a number of high-technology
components that are available from only a few suppliers and, in some cases, a
single supplier. The Company frequently requires large
4
<PAGE> 10
volumes of such components. If the Company's suppliers are unable to fulfill the
Company's needs for such components, the Company may be unable to fill customer
orders and its business and financial condition, including working capital and
results of operations, may be materially and adversely affected. Since part of
the Company's strategy is to shorten product development and introduction
cycles, occasions may arise in the future where the Company's ability to produce
products may outpace its suppliers' ability to supply components. There can be
no assurance that the Company can continue to obtain adequate supplies or obtain
such supplies at their historical cost levels. The Company has no guaranteed
supply arrangements with any of its sole or limited source suppliers, does not
maintain an extensive inventory of components, and customarily purchases sole or
limited source components pursuant to purchase orders placed in the ordinary
course of business. Moreover, the Company's suppliers may, from time to time,
experience production shortfalls or interruptions which could impair the supply
of components to the Company. There can be no assurance that such shortages will
not occur in the future and adversely affect the Company's business and
financial condition, including working capital and results of operations. See
"Business -- Suppliers."
Competition. All markets in which the Company participates are highly
competitive, and many current or prospective competitors, including several of
the Company's OEM customers, are substantially larger and possess significantly
greater financial, marketing and technical resources than the Company. An
increase in factory-installed security systems purchased by automotive
manufacturers or the introduction of other dealer-installed security systems and
remote keyless entry systems by OEMs or existing and potential competitors could
have a material adverse effect on the Company's business and financial
condition, including working capital and results of operations. See
"Business -- Competition."
Reliance on Major Customers; Cyclical Industries. The Company supplies its
products to a number of automobile companies for installation both during the
manufacturing process and by their respective dealers. Sales to General Motors
Corporation, Ford Motor Company and Peugeot, S.A., including their retail
dealers, accounted for 10.8%, 10.9% and 8.4%, respectively, of the Company's net
sales for the year ended December 31, 1994. The Company receives payment from
General Motors, Ford and Peugeot for goods and services purchased under blanket
purchase orders covering these sales. The loss of any of these contracts could
have a material adverse effect on the Company's business and financial
condition, including working capital and results of operations. Peugeot recently
advised the Company that it is in the process of consolidating its supplier
base, and there is no assurance that Peugeot will continue to purchase
automobile alarm systems from the Company. All of these contracts are terminable
by the OEM companies at their discretion on short notice. The Company believes
the majority of its products are installed in new automobiles within a few
months of purchase. As a result, the Company's sales are highly dependent upon
the level of new automobile sales. Reductions in the sales of new automobiles
due to economic conditions, labor disturbances or other reasons could have a
material adverse effect on the Company's business and financial condition,
including working capital and results of operations. See
"Business -- Customers."
Negative Interest Coverage; Leverage; Subordination. The Company's "fixed
charges" (which consist of interest on indebtedness and the portion of rental
expense which is deemed to be representative of the interest component) have
exceeded its earnings before income taxes and fixed charges by $156,000, $3.4
million and $1.2 million, respectively, in 1991, 1992 and 1994 (there was no
coverage deficiency in 1990 and 1993). As of September 30, 1995, as adjusted for
the issuance of the Debentures and the application of the estimated net proceeds
therefrom, the Company's total long-term debt and shareholders' equity would
have been approximately $11.6 million (not including the $5.9 million letter of
credit for a litigation appeal bond) and $10.5 million, respectively, and the
Company's earnings before fixed charges and litigation expense would have been
$2.2 million, which exceeded fixed charges by $1.0 million for the nine months
ended September 30, 1995. The Company expects to incur, from time to time,
additional borrowings or other obligations which would be Senior Indebtedness,
as defined. The debt service requirements of any such additional indebtedness
could make it more difficult for the Company to make principal and interest
payments on the Debentures. The Company's ability to satisfy its obligations
will be dependent upon its future performance, which is subject to prevailing
economic conditions and financial, business and other factors, including factors
beyond the Company's control. There can be no assurance that the Company's
operating cash flow will be sufficient to meet its debt service requirements or
to repay the Debentures at maturity or that the Company will be able to
refinance the Debentures or other indebtedness at maturity. The current Senior
Indebtedness is guaranteed by
5
<PAGE> 11
the Company's domestic subsidiaries and is secured by substantially all current
and future assets of the Company, including the capital stock of the Company's
subsidiaries. Any additional Senior Indebtedness is likely to require additional
security. The Debentures will be subordinated to all current and future Senior
Indebtedness of the Company. At October 26, 1995, Senior Indebtedness of the
Company was approximately $18.3 million (including a $5.9 million letter of
credit), and will be approximately $9.3 million after giving effect to the
application of the net proceeds of this Offering. 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. See "Description of Debentures."
Short Product Life Cycles. The market for the Company's products is
characterized by frequent new product introductions and rapid product
obsolescence. These factors typically result in short product life cycles. The
Company must continually monitor industry trends and develop new technologies
and features to incorporate into its products. Each new product cycle presents
opportunities for current or prospective competitors of the Company to gain
market share. Life cycles of individual products are typically characterized by
steep declines in unit sales, pricing and margins toward the end of a product's
life, the precise timing of which may be difficult to predict. As new products
are planned and introduced, the Company attempts to monitor closely the
inventory of older products and to phase out their manufacture in an orderly
manner. Nevertheless, the Company could experience unexpected reductions in
sales volume and prices of older generation products as customers anticipate new
products. These reductions could give rise to charges for obsolete or excess
inventory. To the extent that the Company is unsuccessful in managing product
transitions, its business and financial condition, including working capital and
results of operations, could be materially and adversely affected. See
"Business -- Business Strategy."
Intellectual Property. Although the Company has sought to protect and
believes it has protected its technologies and products by patent, copyright,
trademark and trade secret laws to the extent that it believes necessary, the
Company's intellectual property rights may be subject to infringement. There can
be no assurance that the Company's measures to protect its proprietary rights
will deter or prevent unauthorized use of the Company's technology. Furthermore,
the laws of certain countries may not protect the Company's proprietary rights
to the same extent as do the laws of the United States. The Company has applied
for patents on certain inventions in Europe; however, none of these patents has
yet been granted nor is there any assurance that patents will be granted in the
future. In addition, the Company may, from time to time, become subject to legal
claims asserting that the Company has violated intellectual property rights of
third parties. In the event a third party were to sustain a valid claim against
the Company and in the event any required license were not available on
commercially reasonable terms, the Company's business and financial condition,
including working capital and results of operations, could be materially and
adversely affected. Litigation, which could result in substantial costs to and
diversion of resources of the Company, may also be necessary to enforce
intellectual property rights of the Company or to defend the Company against
claimed infringement of the rights of others. The Company is currently engaged
as a defendant in a number of patent infringement suits. The Company is also
seeking damages and injunctive relief against a number of competitors for
allegedly infringing its U.S. patents. See "Legal Proceedings." The Company's
failure or inability to protect its existing intellectual property rights could
have a material adverse effect on the Company's business and financial
condition, including working capital and results of operations. See
"Business -- Trademarks and Patents."
Regulation. The Federal Communications Commission ("FCC") regulates the
assignment of frequencies for manufacture and sale of vehicle security remote
systems and remote keyless entry systems in the U.S. The Company has received
FCC authorization to manufacture and sell the devices it currently sells in the
U.S. In Europe, similar government agencies regulate the assignment of
frequencies; and the Company has generally been able to meet the applicable
frequency requirements. However, because insurance industry accreditation of
vehicle security systems is, in certain European countries, a prerequisite to an
automobile owner's ability to obtain vehicle theft coverage, the Company's
ability to market its products in such countries is dependent upon obtaining
such insurance industry approvals and certificates. The Company has received
French and Belgian insurance industry accreditation to manufacture and sell
electronic security systems. To
6
<PAGE> 12
date, the Company has been unable to secure German insurance industry
accreditation required to sell its products in Germany. The Company is currently
selling its products in Spain where no insurance industry certifications are
required. European insurance industry accreditation standards are subject to
change without notice; and in 1994, significant changes in industry standards
required the development and introduction of new products for 1995. The loss of
such regulatory approvals and insurance industry accreditation or failure to
obtain these in the future could have a material adverse effect on the Company's
business and financial condition, including working capital and results of
operations. See "Business -- Regulation."
Concentration on One Product Line. The Company's concentration on the
single product line of vehicle security systems increases its vulnerability to
changes in automobile design, procurement practices of OEMs, product
substitution, consumer preferences, insurance underwriting practices and the
historical cyclicality of the motor vehicle market. As a result, a significant
change in any of the foregoing factors could have a material adverse effect on
the Company's business and financial condition, including working capital and
results of operations.
Dependence on Existing Management. Rand W. Mueller has been primarily
responsible for the development of many of the Company's products and markets.
The loss or interruption of the continued full-time services of Mr. Mueller
could have a material adverse effect on the Company. The Company has entered
into an employment agreement with Mr. Mueller which is effective through May 29,
1998, which shall be extended for additional consecutive twelve-month periods
unless terminated by the Company upon 24 months prior written notice.
Shares Eligible for Sale; Demand Registration Rights. As of October 30,
1995, the Company had 2,320,361 shares of Common Stock outstanding of which
795,612 shares were beneficially owned by executive officers and directors of
the Company. Subsequent to the Company's acquisition of EAE and Code-Alarm
Europe, Ltd. ("Code-Alarm Europe") the Company offered certain selling
shareholders of EAE and Code-Alarm Europe one-time demand registration rights,
at the Company's expense, exercisable upon 90 days' written notice to the
Company at any time before December 31, 1996, for up to 90,000 shares of the
Company's Common Stock held by them. The offers were made orally, and the
Company believes that it is unclear whether or not they constitute enforceable
obligations. If the offers are enforceable, up to 90,000 shares of Common Stock
would be subject to such registration rights on the terms described above or as
may otherwise be determined. To date, the Company has received no notice
requesting such registration. Sales of substantial amounts of such shares held
by directors or the EAE shareholders 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 "Shares Eligible for
Future Sale."
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. See
"Description of Debentures."
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 Underwriters have advised the Company that they intend to make a
market for the Debentures although they are under no obligation to continue to
do so and if such market making were to be discontinued, investors would
encounter difficulty effecting purchase or sale transactions in the absence of
alternative market makers.
COMPANY HISTORY
The Company was founded as a Michigan corporation in 1979 under the name
Fluidics Manufacturing Company and began operations in early 1980. In 1986, the
Company changed its name to Code-Alarm, Inc. In October, 1987, the Company
successfully completed its initial public offering of Common Stock. The Company
has experienced growth through a combination of internal growth and
acquisitions. The Company's subsidiaries include Tessco Group, Inc., Chapman
Security Systems, Inc., Anes Security, Inc. and Intercept Systems, Inc.
7
<PAGE> 13
The Company's acquisitions have also resulted in its growing presence in
Europe. On January 1, 1994, the Company acquired the interest of its joint
venture partner in Code-Alarm Europe, which distributes vehicle security systems
in the United Kingdom. On February 10, 1994, the Company acquired substantially
all of the outstanding capital stock of EAE, a French company having its
principal place of business near Paris, France. EAE markets and distributes
vehicle security products in Europe, primarily in France.
In addition to its vehicle security systems, the Company has a contract
manufacturing operation which concentrates on cables, wire harnesses and printed
circuit board operations and also manufactures and sells, on a limited basis,
certain home security products. Neither contract manufacturing nor home security
has historically been, or is expected to be, material to the Company.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
Debentures offered hereby are estimated to be $9.0 million after deducting
underwriting discounts and commissions and estimated offering expenses.
The Company intends to use $9.0 million of the net proceeds to partially
repay the outstanding indebtedness under its bank credit facility (which was
approximately $18.3 million, including security for a $5.9 million letter of
credit for a litigation appeal bond, at October 26, 1995). This indebtedness
bears interest at the prime rate (8.75% at October 26, 1995), or at the
Company's option, at the London Inter-Bank Offered Rate ("LIBOR") plus 2.5% for
maturities ranging from one to six months (8.125% and 8.375%, respectively, on
October 26, 1995), and was incurred for working capital purposes. The amounts
due under the bank credit facility mature on May 23, 1997.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
CODL. The following table sets forth for the period indicated the high and low
sales prices for the Common Stock as last reported on the Nasdaq National
Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1993
First Quarter.......................................................... $ 6 $ 4 1/2
Second Quarter......................................................... 9 1/4 5
Third Quarter.......................................................... 13 3/4 7
Fourth Quarter......................................................... 13 1/4 10 1/2
1994
First Quarter.......................................................... $12 $ 8 5/8
Second Quarter......................................................... 11 7/8 8 3/8
Third Quarter.......................................................... 12 3/8 8 3/4
Fourth Quarter......................................................... 11 5/8 8 1/2
1995
First Quarter.......................................................... $10 1/4 $ 7
Second Quarter......................................................... 9 3/8 6 3/8
Third Quarter.......................................................... 7 6 1/2
Fourth Quarter (through October 31, 1995).............................. 7 3/8 6 1/4
</TABLE>
On October 31, 1995, the last reported sale price of the Common Stock as
reported on the Nasdaq National Market was $7.375 per share. As of October 27,
1995, there were approximately 309 shareholders of record of the Company's
Common Stock.
DIVIDEND POLICY
Historically, the Company has not paid any cash or other dividend. The
Company does not expect to pay dividends in the foreseeable future but currently
intends to retain any earnings to finance operations and future growth.
Furthermore, the Company's bank credit facility agreement prohibits the payment
of dividends.
8
<PAGE> 14
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
at September 30, 1995 and as adjusted to give effect to the receipt by the
Company of $9.0 million of net proceeds from the issuance and sale of the
Debentures offered by the Company hereby and the proposed application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the Company's Consolidated Financial Statements and
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt(1)(3):
Current portion of long-term debt(1)................................... $ 2,431 $ 1,881
======= ========
Reserve for litigation................................................... $ 5,440 $ 5,440
======= ========
Long-term debt, less current maturities:
Bank notes(1)(2)(3).................................................... $10,085 $ 1,635
% Convertible Subordinated Debentures due 2002....................... -- 10,000
------- --------
Total long-term debt........................................... $10,085 $ 11,635
Shareholders' equity:
Preferred stock, no par value; 1,000,000 shares authorized, none issued
or outstanding...................................................... -- --
Common stock, no par value; 5,000,000 shares authorized, 2,320,361
shares issued and outstanding(4).................................... 12,210 12,210
Accumulated deficit.................................................... (1,777) (1,777)
Foreign currency translation adjustment................................ 49 49
------- --------
Total shareholders' equity..................................... 10,482 10,482
------- --------
Total capitalization......................................... $20,567 $ 22,117
======= ========
</TABLE>
- ---------------
(1) On May 23, 1995, the Company secured credit of $16.5 million from NBD Bank.
The outstanding balance of this loan at October 26, 1995 was approximately
$12.4 million (exclusive of the $5.9 million letter of credit for a
litigation appeal bond) and is to be partially repaid with the net proceeds
of this Offering. See "Use of Proceeds."
(2) The bank line of credit and the bank notes are secured by all of the
Company's assets.
(3) See Note 4 of Notes to Consolidated Financial Statements.
(4) Excludes 265,775 shares issuable upon the exercise of options granted under
the Company's stock option plans and shares, subject to
adjustment, issuable upon conversion of the Debentures.
9
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data for the fiscal years
1990 through 1994 are derived from the Company's audited consolidated financial
statements. The selected consolidated income and balance sheet data as of
September 30, 1995 and 1994 and for the nine months then ended, are derived from
unaudited financial statements but, in the opinion of management, reflect all
adjustments, consisting of normal recurring adjustments, except for an
additional adjustment for the patent infringement settlement of $1,825,000 in
1995, necessary for a fair statement of the financial position and results of
operations for such periods and as of such dates. The results of operations for
the nine months ended September 30, 1995 are not necessarily indicative of the
results to be expected for the full year. The Company did not pay any cash or
other dividends in the periods presented below. 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
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994(1) 1994 1995(1)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $44,521 $43,571 $45,685 $50,110 $73,508 $56,435 $54,825
Cost of sales................... 29,805 29,247 32,296 30,190 45,886 35,352 35,284
------- ------- ------- ------- ------- ------- -------
Gross profit.................. 14,716 14,324 13,389 19,920 27,622 21,083 19,541
Engineering..................... 1,149 1,069 1,617 1,688 2,696 1,892 2,317
Sales and marketing............. 7,379 8,187 9,791 9,346 13,955 9,984 8,845
General and administrative...... 5,694 5,632 5,636 6,520 7,928 6,494 6,307
------- ------- ------- ------- ------- ------- -------
Total operating expenses........ 14,222 14,888 17,044 17,554 24,579 18,370 17,469
Income (loss) from operations... 494 (564) (3,655) 2,366 3,043 2,713 2,072
Litigation expense.............. -- -- -- -- 4,386 -- 1,825
Other income (expense).......... (128) (308) (421) (222) (743) (513) (1,042)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes......................... 366 (872) (4,076) 2,144 (2,086) 2,200 (795)
Income taxes (benefits)......... 155 (250) (1,174) 608 (710) 774 (60)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............... $ 211 $ (622) $(2,902) $ 1,536 $(1,376) $ 1,426 $ (735)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per common
share......................... $ 0.08 $ (0.24) $ (1.16) $ 0.63 $ (0.58) $ 0.60 $ (0.32)
======= ======= ======= ======= ======= ======= =======
Weighted average number of
common shares outstanding..... 2,586 2,553 2,495 2,445 2,376 2,392 2,320
Ratio of earnings to fixed
charges(2).................... 1.75x -- -- 5.38x -- 4.57x 0.30x
BALANCE SHEET DATA:
Working capital................. $ 8,034 $11,626 $ 9,983 $ 8,164 $12,716 $11,023 $13,734
Total assets.................... 25,265 25,439 25,136 24,135 38,221 34,954 42,471
Long-term obligations........... 151 4,483 5,417 3,867 13,640 6,960 15,525
Shareholders' equity............ 16,670 15,439 12,512 13,280 11,215 14,583 10,482
</TABLE>
- ---------------
(1) The results of operations includes patent infringement settlement costs in
the amount of $4.4 million for the year ended December 31, 1994 and $1.82
million for the nine months ended September 30, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Legal Proceedings."
(2) The ratio of earnings to fixed charges was 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. For the years ended December 31,
1991, 1992 and 1994 earnings were not sufficient to cover fixed charges by
$156,000, $3.4 million and $1.2 million, respectively.
10
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since its founding in 1979, the Company has evolved into a leading
U.S.-based manufacturer of vehicle security systems. Since 1990, the Company has
realized substantial growth in net sales primarily as a result of internal
growth and acquisitions. The Company's acquisition of Code-Alarm Europe and EAE
in early 1994 has resulted in a significant and growing presence in Europe.
The Company is involved in a patent infringement suit involving a shock
sensing device. The damage portion of the trial was completed in January 1995
and at December 31, 1994, the Company recorded an accrual for damages of
approximately $4.2 million. In June 1995, the Company received information from
the United States District Court that the damages would total $6.0 million.
Accordingly, the Company recorded an additional accrual for damages of $1.8
million in 1995.
The following table sets forth, for the periods indicated, earnings data as
a percentage of net sales of the Company:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -------------
1990 1991 1992 1993 1994 1994 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of sales....................... 66.9% 67.1% 70.7% 60.2% 62.4% 62.6% 64.4%
---- ---- ---- ---- ---- ---- ----
Gross profit......................... 33.1% 32.9% 29.3% 39.8% 37.6% 37.4% 35.6%
Engineering.......................... 2.6 2.5 3.5 3.4 3.7 3.4 4.2
Sales and marketing.................. 16.6 18.8 21.4 18.7 19.0 17.7 16.1
General and administration........... 12.8 12.9 12.3 13.0 10.8 11.5 11.5
Total operating expenses............. 31.9 34.2 37.3 35.0 33.4 32.6 31.9
Income (loss) from operations........ 1.1 (1.3) (8.0) 4.7 4.1 4.8 3.8
Litigation expense................... -- -- -- -- 6.0 -- 3.3
Other income (expense)............... (0.3) (0.7) (0.9) (0.4) (1.0) (0.9) (1.9)
Income (loss) before income taxes.... 0.8 (2.0) (8.9) 4.3 (2.8) 3.9 (1.5)
Income taxes (benefits).............. 0.3 (0.6) (2.6) 1.2 (1.0) 1.4 (0.1)
Net income (loss).................... 0.5 (1.4) (6.4) 3.1 (1.9) 2.5 (1.3)
</TABLE>
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September
30, 1994
The Company's consolidated net sales increased $93,000, or less than 1.0%,
for the quarter ended September 30, 1995 as compared to the quarter ended
September 30, 1994. For the nine months ended September 30, 1995, consolidated
net sales decreased $1.6 million, or 2.8%, to $54.8 million as compared to $56.4
million for the nine months ended September 30, 1994. The decrease is
attributable to a decline of $1.6 million, or 7.9%, in the quarter ended June
30, 1995. The nine month results were primarily due to a decrease in sales to
mass merchandisers and independent dealers in the quarter ended June 30, 1995
and were partially offset by increases in OEM and expediter sales in the quarter
ended September 30, 1995. The Company expects sales in the quarter ended
December 31, 1995 to be slightly below sales for the comparable period in 1994,
with higher OEM sales in Europe being offset by a decrease in domestic OEM and
independent dealer sales.
The Company's consolidated gross profit increased $102,000, or 1.5%, for
the quarter ended September 30, 1995, as compared to the quarter ended September
30, 1994. For the nine months ended September 30, 1995, consolidated gross
profit decreased $1.5 million, or 7.3%, to $19.5 million as compared to $21.0
million for the nine months ended September 30, 1994. As a percentage of
consolidated sales, gross profit decreased to 35.6% in the nine months ended
September 30, 1995 from 37.4% in the comparable period
11
<PAGE> 17
of 1994. The decrease was due to the Company's emphasis on OEM sales in both
Europe and the United States primarily due to start up manufacturing problems
with the Company's European products production in the United States in the
first two quarters of 1995. The OEM sales have lower profit margins, but are
generally characterized by lower selling costs, than retail sales. The Company
expects continued lower gross profit margin in the remainder of 1995 due to
continued emphasis on OEM sales.
Consolidated operating expenses increased $145,000, or 2.5%, for the
quarter ended September 30, 1995 as compared to the quarter ended September 30,
1994. For the nine months ended September 30, 1995, consolidated operating
expenses decreased $901,000, or 4.9%, to $17.5 million as compared to $18.4
million for the nine months ended September 30, 1994. The decrease in
consolidated operating expense was attributable to decreased sales and marketing
expenses, partially offset by increases in engineering and product development
costs. The Company expects to sustain decreases in marketing and administration
expenses as a result of continued emphasis on OEM sales, but expects engineering
and product development costs to level off for the remainder of the year.
As a result of the foregoing, the Company earned consolidated income from
operations of $996,000 in the quarter ended September 30, 1995 compared to $1.0
million in the quarter ended September 30, 1994. Consolidated income from
operations declined $641,000, or 23.6%, for the nine months ended September 30,
1995, to $2.1 million as compared to $2.7 million for the nine months ended
September 30, 1994.
Interest expense increased $531,000 in the nine months ended September 30,
1995, or 124.9%, to $956,000 as compared to $425,000 for the nine months ended
September 30, 1994. Increases are attributable to higher interest rates and
increased indebtedness associated with European Operations.
Other expenses for the nine months ended September 30, 1995 increased by
$1.8 million, to $1.9 million as compared to $88,000 for the nine months ended
September 30, 1994. The increase was attributable to the accrual in the first
half of the year of an additional $1.8 million for damages, including interest
and costs, related to a patent infringement judgment on the ETC litigation.
The Company had an effective domestic income tax rate of 34% on current
operating income. Income taxes on foreign operations were approximately 33%. In
the third quarter of 1995, the Company charged off state and foreign tax refunds
determined to be uncollectable in the amount of $210,000.
As a result of the foregoing, the Company earned consolidated net income of
$430,000 in the quarter ended September 30, 1995 compared to $467,000 in the
quarter ended September 30, 1994. The Company recorded a net loss of $735,000,
or $0.32 per share, for the nine months ended September 30, 1995, compared to
net earnings of $1.4 million, or $.60 per share, for the nine months ended
September 30, 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
The Company's consolidated net sales for 1994 increased $23.4 million, or
46.7%, to $73.5 million as compared to $50.1 million in 1993. Excluding the
effect of acquisitions ("EAE" and the remaining interest in Code-Europe, Ltd.),
consolidated net sales increased $5.9 million, or 11.8%, in 1994. The
non-acquisition related sales increases resulted primarily from increases in
expediters, retail and General Motors/Ford sales volumes.
The Company's consolidated gross profit for 1994 increased $7.7 million, or
38.7%, to $27.6 million as compared to $19.9 in 1993. Excluding the effect of
acquisitions, consolidated gross profit for 1994 increased $1.4 million, or
7.0%. As a percentage of consolidated sales, gross profit decreased to 37.6% in
1994 from 39.8% in 1993. Such decreases were primarily due to launch costs
associated with the introduction of the Euro Alarm in the fourth quarter of
1994.
Consolidated operating expenses for 1994 increased $7.0 million, or 39.8%,
to $24.6 million as compared to $17.6 million in 1993. Excluding the effect of
acquisitions, consolidated operating expenses for 1994 increased $1.1 million,
or 6.3%. Increases in consolidated operating expenses are attributable to
acquisitions as well as other sales, marketing and product development efforts.
12
<PAGE> 18
As a result of the foregoing, consolidated income from operations for 1994
increased $677,000, or 28.6%, to $3.1 million as compared to $2.4 million for
1993. The increase was due to the acquisition of EAE and increased volume
through General Motors and Ford.
Interest expense for 1994 increased $367,000, or 131.6%, to $646,000 as
compared to $279,000 for 1993. The increase was due to increased interest rates,
the acquisition of EAE and debt incurred in connection with the following items:
(i) financing sales increases, (ii) the acquisition of an important patent and
(iii) the Company's decision to repurchase stock held by two former directors at
below market prices as of the date of repurchase.
Other expenses/(income) for 1994 increased $156,000, or 274.5%, to $99,000
as compared to income of $57,000 for 1993. Other expenses consisted of estimated
costs associated with a judgment to be entered against the Company in the patent
infringement lawsuit, Code-Alarm v. Electromotive Technologies Corporation,
United States District Court, Eastern Division, 87-CV-74022-DT. The amount
recorded included the Company's estimate at that time of damages, interest and
legal fees to be awarded the Plaintiff, as well as expenses that the Company had
already incurred, and estimated expenses that might be incurred in an appeal of
the judgment.
The Company's effective income tax rate for the year ended 1994 was 34.0%.
As a result of the foregoing, the Company incurred a consolidated net loss
of $1.4 million, or $0.58 per share, for the year ended December 31, 1994,
compared to a net profit of $1.5 million, or $0.63 per share, for the year ended
December 31, 1993. Excluding non-recurring expenses related to litigation, the
Company earned a profit of $1.5 million or $0.64 per share for the year ended
December 31, 1994.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
The Company's consolidated net sales for 1993 increased $4.4 million, or
9.7% to $50.1 million as compared to $45.7 million in 1992. This increase was
primarily due to increases in sales of private label vehicle security products
to General Motors, Ford and Chrysler dealerships. Sales figures were also
affected by a price increase on vehicle security products in the first quarter
of 1993.
The Company's consolidated gross profit for 1993 increased $6.5 million, or
48.8%, to $19.9 million as compared to $13.4 million in 1992. Such increases
were primarily due to cost efficiencies related to increases in volume in the
vehicle security product sales area.
Consolidated operating expenses for 1993 increased $510,000, or 3.0%, to
$17.5 million as compared to $17.0 million in 1992. The relatively small amount
of operating expense increase resulted from the Company completing its efforts
to consolidate its operations by eliminating separate business units and closing
operations of the facility located at 32380 Edward, Madison Heights, Michigan.
Such measures helped to reduce operating expenses during the year by eliminating
duplicate administrative functions. Also in 1993, the Company implemented
several measures to reduce overall operating costs, including cost savings
policies on travel and entertainment costs and sales and marketing projects.
These savings were partially offset by increased costs associated with
litigation expenses. Higher than normal litigation expenses are expected to
continue until cases currently in litigation are completed.
As a result of the foregoing, consolidated income from operations for 1993
increased $6.0 million, or 154.5%, to $2.4 million as compared to a loss from
operations of $3.6 million for 1992.
Interest expense for 1993 decreased $146,000, or 34.5%, to $279,000 as
compared to $425,000 for 1992. Increased cash flow from operations, primarily
due to profits, contributed to a reduction of borrowing during 1993.
The Company's effective income tax rate for the year ended 1993 was
approximately $28.0%. That effective income tax rate differed from the statutory
rate of 34.0% principally as a result of the utilization of an operating loss
carry-forward of approximately $479,000.
13
<PAGE> 19
As a result of the foregoing factors, the Company reported consolidated net
income for the year ended December 31, 1993 of $1.5 million, or $0.63 per share,
as compared to a net loss of $2.9 million, or $1.16 per share, for 1992.
EFFECT OF INFLATION
The Company does not believe that inflation has had a material impact on
its operations over the past three years.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information for the past eight quarters (in thousands except for per share data
and as a percentage of net sales):
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1993 1994 1994 1994 1994 1995 1995 1995
------------ --------- -------- ------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 12,581 $17,238 $ 20,534 $18,663 $ 17,073 $17,159 $ 18,910 $18,756
Gross profit........... 5,258 6,639 7,627 6,816 6,539 5,941 6,682 6,918
Operating income....... 702 715 958 1,039 331 92 985 996
Net income (loss)...... 439 439 520 467 (2,803) (1,070) (95) 430
Net income (loss) per
share................ 0.15 0.18 0.22 0.20 (1.18) (0.46) (0.04) 0.19
Net sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........... 41.8 38.5 37.1 36.5 38.3 34.6 35.3 36.9
Operating income....... 5.6 4.2 4.7 5.6 1.9 0.5 5.2 5.3
Net income (loss)...... 3.5 2.6 2.5 2.5 (16.4) (6.2) (0.5) 2.3
</TABLE>
Quarterly earnings per share calculations for the periods indicated are
based on the weighted average number of shares outstanding for the quarter then
ended. Annual earnings per share calculations are based on weighted average
number of shares outstanding for the twelve month period then ended. Due to
fluctuations in the weighted average number of shares outstanding, the sum of
the earnings per share calculations for each quarter will not necessarily equal
the calculated earnings per share for the twelve month period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital was $13.7 million at September
30, 1995 compared to $12.7 million at December 31, 1994. The current ratio
(current assets divided by current liabilities) as of September 30, 1995 is 1.83
to 1, compared to 1.95 to 1 at December 31, 1994.
Net cash used in operating activities for the first nine months of 1995 was
$406,000, including $1.3 million of depreciation and amortization charged during
the nine months ended September 30, 1995. Cash consumed during the first nine
months reflect an increase in inventories and accounts receivable of
approximately $3.5 million. The Company experienced a $3.7 million increase in
finished goods inventory in Europe, most of which was attributable to the
Company's efforts to meet expected customer requirements. Lower than anticipated
European sales volumes also contributed to this higher than normal inventory
level. This increase was partially offset by an increase of accounts payable in
the amount of $2.5 million.
As of October 26, 1995, $1.4 million of the $13.8 million revolving credit
facility was unused and available. Additionally, $7.0 million and $1.0 million
of amounts outstanding under the revolving line of credit were borrowed under
the LIBOR option available to the Company at interest rates of 8.375% and
8.125%, respectively.
During the first nine months of 1995, the Company concluded a loan
agreement with NBD Bank. Under the terms of the agreement, the Company has
secured a $13.8 million revolving credit facility, $1.3 million in secured notes
and $2.2 million in unsecured notes. The Company has used these facilities for
operating capital and to provide financing for an appeal bond in the amount of
$5.9 million for the patent infringement litigation.
14
<PAGE> 20
The Company historically has been involved in a number of legal disputes,
many of which have resulted in litigation, both as plaintiff and as defendant,
including a number of proceedings currently pending. The cost of legal
proceedings and settlements of lawsuits involving the Company has been a
principal cause of the Company's lack of profitability in 1994 and has had a
substantial negative impact on the Company's results of operations in 1995 to
date. See "Risk Factors -- Litigation" and "Legal Proceedings."
CHANGES IN COMPANY'S CERTIFYING ACCOUNTANT
Effective July 24, 1995 the Board of Directors of the Company, based on the
recommendation of the Audit Committee, appointed Deloitte & Touche LLP as the
independent accountants of the Company. Deloitte & Touche LLP replaced Coopers &
Lybrand L.L.P. (dismissed July 19, 1995) the Company's previous independent
accountants. The reports of Coopers & Lybrand L.L.P. on the financial statements
of the Company during the past two years was unqualified. During the Company's
two most recent fiscal years and the subsequent interim period from the date of
the last audited financial statement through July 19, 1995, there were no
disagreements with Coopers & Lybrand L.L.P. on any matter of accounting
principles or practices, financial statement disclosure, audit scope or
procedures.
15
<PAGE> 21
BUSINESS
The Company is a leading designer, manufacturer and marketer of vehicle
security systems including alarm and remote keyless entry systems. The Company's
products are marketed and sold through automobile dealerships, independent
retail specialty stores, automotive expediters and mass merchandisers. The
Company believes that it has growth opportunities as a niche supplier to U.S.
and international OEM markets and to its existing customer base.
MARKET DESCRIPTION AND INDUSTRY OVERVIEW
Theft of vehicles and vehicle contents is a widespread problem in the U.S.
and most European countries. According to industry sources, in the United
States, the theft of vehicles and vehicle contents, including repair and
replacement costs, recovery costs, loss of productivity, etc., resulted in
losses of approximately $7.5 billion in 1994 and the car theft rate in Germany,
France and other affluent Western European countries was 13 per 1,000 vehicles,
compared to 8 per 1,000 in the United States.
Traditionally, vehicle security systems have been sold mainly in the
aftermarket. However, automakers are beginning to offer vehicle security systems
as installed options, either at the factory or at the dealership. Although most
anti-theft devices are not offered as standard equipment on vehicles, the
Company believes that the general trend is toward vehicle security systems that
are either OEM-approved or installed on the assembly line.
The Company also believes that demand by European consumers for anti-theft
devices is stimulated by rising insurance premiums and incentives offered by
some European insurance companies for using vehicle security systems. These
incentives are typically in the form of lower premiums for suitably equipped
cars and lower claim payouts for those that are not. In certain European
countries, automobiles above a specific monetary value cannot be insured against
theft without an approved anti-theft system installed.
The Company believes that the foregoing factors will continue to increase
both domestic and European demand for vehicle security systems and that it is in
the process of effectively positioning itself to take advantage of these growing
global markets for vehicle security systems.
BUSINESS STRATEGY
Key elements of the Company's business strategy include the following:
- Focus Sales Efforts to OEM customers.
The Company intends to focus its sales and marketing efforts toward the OEM
market primarily through the following:
Auto Brand Distribution to Dealers -- The Company presently markets
its products to more than 9,000 automobile dealers in North America
pursuant to private label purchase agreements with General Motors, Ford and
Chrysler under the automakers' brand names including Mr. Goodwrench(TM),
Ford Remote Systems(TM) and Mopar(TM), respectively, and it believes that
additional growth opportunities are available through such dealers. The
Company expects to pursue these opportunities by continuing to promote its
sales to dealers through personal calls on dealers by the Company's sales
staff, dealer education programs, seminars, product literature and manuals
and on-site promotional items such as signs. To support such sales efforts,
the Company intends to continue to offer technical support service and
toll-free telephone lines to answer questions and help with problems.
Direct Sales to Manufacturers for Factory Floor Installation -- The
Company believes that there is potential for expanding its sales to OEMs
for such items as remote keyless entry systems, basic alarm systems and
sensors. In light of increased consumer demand for systems offered in
top-of-the-line models, OEMs are increasingly offering such systems. It is
the Company's intent to capture a larger share of this market, which is
currently supplied by more traditional OEM electronic suppliers such as
TRW, Motorola and United Technologies. The Company's efforts in this regard
currently consist of direct sales calls to automobile manufacturers by the
Company's sales personnel and independent manufacturers representatives,
and are focused on obtaining long-term supply contracts.
16
<PAGE> 22
Strategic Alliances -- The Company is exploring opportunities to enter
into strategic relationships with other suppliers to deliver to the OEMs a
product which incorporates the Company's systems or technologies. For
example, the Company has recently entered into development projects with
both Lear Seating Corp. and Gentex Corp. to supply parts to these two
manufacturers for use in their end products sold to OEMs. The Company
believes that the multiplexing systems (which consist of a sophisticated
computer processor located in the vehicle, connected to various electrical
systems of the vehicle by a single wire, which allows simultaneous
communication between multiple vehicle systems) now being employed by
automakers offer a particular opportunity for such strategic alliances. See
"Business Strategy-Enhanced Engineering Capability" and "Engineering,
Research and Development."
- Continue Sales to Post-Delivery Market
Historically, the Company has successfully marketed to independent
retailers and mass merchandisers. Currently, the Company sells to more than
1,200 independent retail specialty stores; automotive expediters; and mass
merchandisers. The Company intends to continue its focus on this market.
- Expand European Presence
The Company believes that it has significant growth opportunities both in
the OEM and retail markets in Europe. Recognizing this, the Company acquired EAE
as of January 1, 1994. The Company is currently concentrating its European sales
efforts in France. Further expansion into other European markets is complicated
by certain factors such as government approvals and insurance industry
accreditation required to sell its products. In certain European countries,
insurance industry certification of a vehicle security system is a prerequisite
to obtaining theft insurance for most motor vehicles. The Company has received
French and Belgian insurance industry accreditation for its electronic security
systems, but to date has been unable to secure German insurance industry
accreditation required to sell its products in Germany. European insurance
industry standards are subject to change without notice; and, in 1994,
significant changes in industry standards required the development and
introduction of new products for 1995. The Company is currently seeking
accreditation in several major European countries in an effort to take advantage
of the growing market for vehicle security systems.
- Enhance Engineering Capability
In order to stay competitive and deliver high quality, consumer-friendly
vehicle security systems, the Company plans to continue to enhance its
engineering and product testing capabilities. The Company believes that
multiplexing systems planned for some top-of-the-line automobiles will allow
more efficient access to a larger number of vehicle operations than present
conventional wire harness electrical systems, and that the presence of these
multiplexing systems will present potential growth opportunities for the Company
over the next decade. The Company believes that it is favorably positioned to
increase its business opportunities for interfacing with multiplexing systems
because of the Company's reputation for technical innovation, quality,
reliability and competitive pricing. See "Engineering, Research and
Development."
- Shorten Product Development and Introduction Cycles
The Company believes that short product development cycles are essential to
its success. Such cycles enable the Company to capitalize upon the higher
margins that are associated with the introduction of new products and positions
the Company to establish itself as a leader in its existing as well as its new
markets. The Company's efforts in this area include simultaneous engineering
which utilizes product teams from the engineering and manufacturing divisions of
the Company whose function is to streamline product development and introduction
cycles.
PRODUCTS
The Company's vehicle security systems utilize low power radio frequency
technology and are operated by remote micro-transmitters. Frequencies and the
manufacture of transmitters and receivers used in the Company's remote systems
are different in European countries than in the U.S. and are regulated
separately in each country in which the Company does business.
17
<PAGE> 23
The Company's vehicle security systems fall into two broad categories:
alarm systems and remote keyless entry systems.
Alarm Systems -- In general, the Company's alarm systems contain two major
components: an immobilizer circuit and a siren. The immobilizer circuit prevents
the automobile from being started unless the alarm system has been turned off.
Each system automatically resets itself after the siren has been sounded for a
predetermined period. Many of these systems allow the operator to choose between
manually setting the alarm upon leaving the vehicle and having the alarm
automatically set one minute after the keys are removed from the ignition
switch. Various other components, such as hood locks and intrusion sensors, can
generally be added to the alarm system.
Historically, most of the Company's sales have consisted of remote alarm
systems, with a basic unit consisting of a remote micro-transmitter, which can
be attached to the operator's keychain, and a control unit, which is located
inside the automobile. The remote micro-transmitter is used to turn the alarm
system on and off. This basic unit is typically sold as part of a system which
is configured in various ways based upon the customer preferences and
distribution channels.
In addition to remote alarm systems, the Company also produces digital and
passive alarm systems which offer a lower level of protection. Digital systems,
unlike remote systems, do not offer a way to turn the alarm system on and off
from outside the vehicle. Instead, upon entering the vehicle, the operator has a
fixed period of time to turn off the alarm system by entering the proper
numerical sequence on a keypad. Passive alarm systems are much like digital
systems, except that the operator only needs to insert the key in the ignition
switch of the automobile to turn off the alarm.
Remote Keyless Entry Systems -- The Company's remote keyless entry system
enables the operator to use the remote micro-transmitter to lock and unlock the
doors or open the trunk from outside the vehicle without having to use keys, to
turn on the interior light to see if anyone is waiting inside the vehicle and to
set off the siren in the event of a personal emergency.
The Company's vehicle security systems, most of which are now remote
systems, include Code-Alarm(R), Scorpion(R), Chapman(R) and Anes(R) brands in
the U.S. and Dragon, Jack-Code, Codalarme(R) and Euro-Alarm in Europe.
The Company's products are sold into two categories: pre-delivery and
post-delivery. Pre-delivery includes those products sold in the OEM market for
vehicle installation before delivery of a new vehicle to the purchaser (either
through installation by the automaker or as a dealer-installed option or by an
automotive expediter). Post-delivery includes those products which are installed
on a vehicle already owned by the customer (generally through retail specialty
stores and mass merchandisers).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, -------------------------------
-------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1992 1993 1994 1994 1995
------------- ------------- ------------- ------------- -------------
NET NET NET NET NET
SALES PCT. SALES PCT. SALES PCT. SALES PCT. SALES PCT.
------- --- ------- --- ------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
Pre-delivery(1)........... $19,049 42% $23,391 47% $27,367 37% $20,735 37% $22,926 42%
Post-delivery(2).......... 16,190 35 20,210 40 23,832 32 18,138 32 13,063 24
Europe(3)
Pre-delivery.............. -- -- -- -- 8,031 11 6,877 12 5,909 11
Post-delivery............. -- -- -- -- 9,430 13 6,872 12 9,767 18
Other(4).................... 10,446 23 6,509 13 4,848 7 3,813 7 3,160 5
------- --- ------- --- ------- --- ------- --- ------- ---
Total.............. $45,685 100% $50,110 100% $73,508 100% $56,435 100% $54,825 100%
======== ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- ---------------
(1) Pre-delivery includes sales to OEMs and expediters.
(2) Post-delivery includes all other vehicle security system sales.
(3) The Company acquired EAE and Code-Alarm Europe on January 1, 1994.
(4) Includes contract manufacturing, home security systems and discontinued
operations, including mechanical security devices.
18
<PAGE> 24
CUSTOMERS
The Company's primary OEM customers consist of Ford, General Motors,
Peugeot, Volkswagen-Audi Group France, Chrysler, Subaru and Renault. Historical
sales by the Company to these customer groups and to other OEMs and expediters
are set forth below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------------------
---------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1992 1993 1994 1994 1995
----------------- ----------------- ----------------- ----------------- -----------------
AS A AS A AS A AS A AS A
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
NET TOTAL NET TOTAL NET TOTAL NET TOTAL NET TOTAL
OEM NET OEM OEM NET OEM OEM NET OEM OEM NET OEM OEM NET OEM
SALES SALES SALES SALES SALES SALES SALES SALES SALES SALES
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(AMOUNT IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ford.................... $ 7,121 37% $ 7,853 34% $ 8,010 23% $ 5,800 21% $ 6,471 22%
General Motors.......... 6,705 35 7,809 33 7,964 22 6,127 22 6,761 23
Peugeot................. -- -- -- -- 5,207 15 4,438 16 5,045 18
Volkswagen.............. -- -- -- -- 3,277 9 2,851 10 896 3
Chrysler................ 1,315 7 2,029 9 2,057 6 1,514 6 2,359 8
Subaru.................. -- -- -- -- -- -- -- -- 443 2
Renault................. -- -- -- -- -- -- -- -- 279 1
Other OEMs.............. 3,908 21 5,700 24 8,883 25 6,882 25 6,581 23
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total OEM
Sales......... $19,049 100% $23,391 100% $35,398 100% $27,612 100% $28,835 100%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
With the exception of sales to dealers of General Motors and Ford, no
single customer accounted for more than 10% of the Company's total net sales
during the year ended December 31, 1994. Sales to Ford, General Motors and
Peugeot accounted for 10.9%, 10.8% and 7.1%, respectively, of the Company's
total net sales for the year ended December 31, 1994. Pursuant to its agreements
with General Motors and Ford, the Company's direct sales personnel and
independent manufacturer's representatives engaged by the Company call on, and
solicit orders directly from, General Motors and Ford dealers. The Company views
individual dealers as its customers.
The Company historically has placed and expects to continue to place a
strong emphasis on its retail customers. The Company believes that accelerated
growth in the OEM market for vehicle security systems offers the Company an
opportunity to increase future sales and, therefore, its expansion into the OEM
market, as well as its continued presence in the retail market, is important to
the Company's future success. The increase in pre-delivery installation could
have a detrimental effect on the retail market.
The following table shows the percentage of the Company's total net sales
attributable to the OEM and retail market in both Europe and North America for
the periods set forth below. This table does not include all other sales for the
periods set forth below, which include contract manufacturing, home security
systems and discontinued operations and sales to countries outside of North
America and Europe:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, -------------------------------
------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1992 1993 1994 1994 1995
-------------- -------------- -------------- -------------- --------------
OEM RETAIL OEM RETAIL OEM RETAIL OEM RETAIL OEM RETAIL
---- ------ ---- ------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America............ 50% 50% 52% 48% 39% 37% 38% 36% 44% 27%
Europe................... --% --% --% --% 11% 13% 13% 13% 11% 18%
</TABLE>
MARKETING
Sales of the Company's products to OEMs are made directly by the Company's
sales and marketing personnel located at the Company's Madison Heights, Michigan
headquarters and its European offices located in Paris, Brussels, Madrid and
Birmingham, England. Through these sales and marketing offices, the Company
services its OEM customers. These sales efforts are supported by a field force
of 62 salespersons
19
<PAGE> 25
who call directly on dealers to explain and promote the ordering of the
Company's products through the OEMs.
In promoting sales of vehicle security systems that require professional
installation, the Company emphasizes dealer education programs, sales and
installation seminars, product literature and technical manuals. Educational and
marketing efforts are supplemented by direct mail campaigns, technical
bulletins, advertising support, sales literature, newsletters, product displays
and dealer signs.
To promote quality, customer satisfaction and relationships with dealers
and installers, the Company maintains technical support and consumer support
services and toll-free telephone lines to answer questions and to help solve
problems with installation or operation of the Company's products.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company employs 20 full-time engineers and 31 full-time technicians in
its engineering and research and development programs. This staff is divided
into three main groups responsible for: (a) providing technical and support
services to its customers, (b) improving manufacturing processes, and (c)
developing new products. The Company's expenditures for engineering, research
and development were approximately 3.5%, 3.4% and 3.7% of revenues in 1992, 1993
and 1994, respectively.
The Company conducts a variety of research and product development projects
designed to achieve improvements in vehicle security systems through the
development of new technologies. The Company's products include a number of
innovative circuits and features developed by the Company. Past research and
development efforts have produced consumer installable vehicle security systems
that incorporate many of the features typically found on more expensive
professionally-installed systems, as well as the circuitry designed to prevent
use of devices designed to search signals to deactivate its alarms.
The technological innovations of the Company's customers presents both
challenges and opportunities for the Company. The Company's products must be
advanced enough to efficiently interface with its customer's vehicles. One new
innovation which has recently been introduced on certain high-end vehicles is
the multiplexing system. The multiplexing system consists of a sophisticated
computer processor located in the vehicle, connected to various electrical
systems of the vehicle by a single wire, which allows simultaneous communication
between multiple vehicle systems. As a result, the vehicle can accommodate more
sophisticated operations and technologically complex accessories such as
security systems. Multiplexing systems allow security systems more efficient
access to a larger number of vehicle operations than do conventional wire
harness electrical systems. The Company believes that the presence of
multiplexing systems present potential growth opportunities for the Company over
the next decade. The Company believes that it is positioned to increase its
business opportunities for connecting its products to the multiplexing systems
because of the Company's reputation for technical innovation, quality,
reliability and competitive pricing.
MANUFACTURING
The Company produces electronic products at facilities located in Madison
Heights, Michigan and Georgetown, Texas. Automated and manual assembly methods
are used to produce circuit boards, which are key components of many of the
Company's products. The Company is expanding the use of automation in its
manufacturing operations. The Company's electronic security systems are designed
around the Company's manufacturing processes, which particularly emphasize
surface mount technology ("SMT"). SMT is the automated manufacturing process
used to place micro electronic components on printed circuit boards with a high
level of accuracy and at high speed. The use of SMT enables the Company to
design and manufacture products that are compact, portable and reliable and to
achieve manufacturing efficiencies that result in lower costs.
The Company believes that it will have a competitive advantage as a result
of its recent development and on-going construction of an on-premises test and
validation laboratory and its lower labor costs for U.S. operations. In
addition, the Company is in the process of seeking approval for QS 9000
accreditation and
20
<PAGE> 26
hopes to obtain such accreditation during 1996, which, if granted, could result
in an additional competitive advantage.
While the Company currently does not manufacture its products in Europe,
the Company does assemble some of its final products in Europe. At this time the
Company is considering various alternatives for manufacturing its products
overseas.
The Company attempts to fill its U.S. orders for vehicle security systems
within 48 hours. Current U.S. product backlog, therefore, is not an important
indicator of long-term sales trends. However, since European operations are
currently supplied from U.S. manufacturing plants, additional inventory
requirements necessary to achieve the 48-hour shipment goal have significantly
increased working capital requirements and management attention to order and
production planning.
SUPPLIERS
The Company's products include a number of high-technology components that
are available from only a few suppliers and, in some cases, a single supplier.
The Company frequently requires large volumes of such components. If the
Company's suppliers are unable to fulfill the Company's needs for such
components, the Company may be unable to fill customer orders and its business
and financial condition, including working capital and results of operations,
may be materially and adversely affected. Since part of the Company's strategy
is to shorten product development and introduction cycles, occasions may arise
in the future where the Company's ability to produce products outpaces its
suppliers' ability to supply components. There can be no assurance that the
Company can continue to obtain adequate supplies or obtain such supplies at
their historical cost levels. The Company has no guaranteed supply arrangements
with any of its sole or limited source suppliers, does not maintain an extensive
inventory of components, and customarily purchases sole or limited source
components pursuant to purchase orders placed in the ordinary course of
business. Moreover, the Company's suppliers may, from time to time, experience
production shortfalls or interruptions which impair the supply of components to
the Company. There can be no assurance that such shortages will not occur in the
future and adversely affect the Company's business and financial condition,
including working capital, and results of operations. See "Risk Factors --
Suppliers."
PRODUCT WARRANTY
The Company provides original purchasers of most vehicle security systems
with a limited warranty. Scorpion(R) brand products have a one-year limited
warranty and Anes(R) brand carries a limited two-year warranty. Dragon,
Jack-Code and Codalarme(R) products sold in Europe have a limited one-year
repair and replacement warranty. Warranties are customarily limited to
replacement of defective parts to the original purchaser. The Company has
several disputes pending with customers who claim that its home security and
Intercept(TM) systems manufactured by the Company were faulty or inoperable.
The Company also offers a "Theft Protection Guarantee" for certain
Code-Alarm(R) and Anes(R) brand products, where the Company will pay the
consumer a specified amount (depending on the product purchased) if the
consumer's vehicle is stolen within one year of purchasing the Company's
product. Claims experienced as to this warranty have been $37,000, $33,000,
$51,000 in 1992, 1993 and 1994, respectively, and $19,000 for the first nine
months of 1995.
The Company generally warrants contract manufactured products for 60 days.
The warranty is limited to replacement of defective material or a price
allowance at the Company's option.
COMPETITION
All markets in which the Company participates are highly competitive, and
many current or prospective competitors, including several of the Company's
significant OEM customers, are substantially larger and possess significantly
greater financial, marketing and technical resources than the Company. An
increase in factory-installed vehicle security systems or the introduction of
other dealer-installed security systems and
21
<PAGE> 27
remote keyless entry systems by OEM customers or existing and potential
competitors could have a material adverse effect on the Company. See "Risk
Factors -- Competition."
There are a number of other well-known companies manufacturing and
distributing electronic components for the automotive after-market which could
become effective competitors should they choose to enter the vehicle security
market. Many of these companies are much larger and better capitalized than the
Company and have established distribution channels. While offshore producers of
competing systems have not captured significant market share, these companies
could also become significant competitors.
Competing manufacturers have developed vehicle recovery systems designed to
locate stolen automobiles. Sales of other companies' automobile recovery systems
could have a material adverse effect on sales of the Company's products. The
Company also faces competition from certain mechanical devices such as The
Club(TM).
TRADEMARKS AND PATENTS
The Company markets its vehicle security systems under several registered
trademarks. The Company also has patents and patent applications pending for
certain of its products and components. The Company considers its trademarks,
patents and patent applications to be valuable, and has defended, and intends to
continue vigorously defending, its patented and proprietary technology from
infringement or misappropriation. There can be no assurance that the Company's
measures to protect its proprietary rights will deter or prevent unauthorized
use of the Company's technology. Furthermore, the laws of certain countries may
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. The Company has applied for patents on certain inventions
in Europe; however, none of these patents has yet been granted nor is there any
assurance that patents will be granted in the future. In addition, the Company
may, from time to time, become subject to legal claims asserting that the
Company has violated intellectual property rights of third parties. In the event
a third party were to sustain a valid claim against the Company and in the event
any required license were not available on commercially reasonable terms, the
Company's business and financial condition, including working capital and
results of operations, could be materially and adversely affected. See "Risk
Factors -- Intellectual Property." Also, see "Legal Proceedings" for a more
complete description of the legal proceedings involving the Company and its
proprietary technology.
REGULATION
The FCC regulates the assignment of frequencies for manufacture and sale of
remote vehicle security systems and remote keyless entry systems in the U.S. The
Company has received FCC authorization to manufacture and sell the devices it
currently sells in the U.S. In Europe, similar government agencies in each
country regulate the assignment of frequencies and the Company has generally
been able to meet the applicable frequency requirements. However, because
insurance industry accreditation of vehicle security systems is, in most
European countries, a prerequisite to an automobile owner's ability to obtain
vehicle theft coverage, the Company's ability to market its products in such
countries is dependent upon obtaining such insurance industry approvals and
certifications. The Company has received French and Belgian insurance industry
accreditation to manufacture and sell electronic security systems. To date, the
Company has been unable to secure German insurance industry accreditation
required to sell its products in Germany. The Company is selling its products in
Spain where no insurance industry certifications are required. European
insurance industry accreditation standards are subject to change without notice;
and, in 1994, significant changes in industry standards required the development
and introduction of new products for 1995.
The Company's U.S. vehicle security systems are also affected by state
insurance laws. The Company is aware of some states that mandate insurance
discounts on comprehensive coverage for policyholders who have installed certain
types of vehicle security systems. The Company is also aware of at least one
state which provides additional discounts for policyholders who have installed
vehicle recovery systems.
The loss of regulatory and insurance industry approvals or failure to
obtain necessary authorizations in the future could have a material adverse
effect on the Company. See "Risk Factors -- Regulation."
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<PAGE> 28
EMPLOYEES
As of October 30, 1995, the Company employed approximately 550 full-time
persons. None of the Company's employees are represented by a labor union or
other collective bargaining representative. The Company believes that relations
with its employees are good.
PROPERTIES
The following table sets forth certain information concerning the principal
properties leased by the Company:
<TABLE>
<CAPTION>
APPROX. APPROX. LEASE TERM
LOCATION USE SIZE (SQ. FT.) MONTHLY RENT EXPIRES
------------------------ ------------------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
950 E. Whitcomb Office and manufacturing 42,000 $ 18,800 1997
Madison Heights, MI
1000 E. Whitcomb Office and warehouse 20,000 8,300 1997
Madison Heights, MI
16742 Burke Lane Office and warehouse 10,000 4,200 2000
Huntington Beach, CA
300 Industrial Ave. Office and manufacturing 60,000 7,200 2004
Georgetown, TX
32, Rue Delizy Office and manufacturing 18,000 29,218* 1997
93694 Pantin Cedex
Paris, France
</TABLE>
- ---------------
* Amounts payable under the lease are payable in French francs. This table
assumes an exchange rate of 4.89 francs to 1.00 US dollar.
Management believes that the facilities presently occupied are adequate to
meet the Company's requirements for the foreseeable future. All buildings and
equipment are in good working condition.
LEGAL PROCEEDINGS
PATENT INFRINGEMENT LITIGATION
In November 1987, the Company filed a declaratory judgment action against
Electromotive Technology Corporation ("ETC") in the United States District Court
for the Eastern District of Michigan seeking a declaration that ETC's U.S.
Patent No. 4,585,569 (the " '569 Patent") was invalid or not infringed by the
Company. Subsequently, Directed Electronics ("Directed") acquired an interest in
the '569 Patent and was made a party to the lawsuit. A judgment as to liability
was entered against the Company in 1992 and, after that judgment was sustained
on appeal, a bench trial was held as to damages in 1993, but no final ruling was
made until May 23, 1995, when a judgment was awarded against the Company in the
amount of $5.5 million for infringement. The Company is now appealing (1) the
inclusion of unpatented components of the Company's security system in the
damage calculation and (2) the doubling of "actual damages" after November, 1990
based upon a holding of "willful patent infringement." In the course of
preparing the appeal brief, it was discovered that ETC had failed to timely pay
the first maintenance fee in April, 1990 to maintain the patent-in-suit with the
U.S. Patent and Trademark Office (the "Patent Office"). The Company subsequently
filed a motion with the United States District Court for the Eastern District of
Michigan, Southern Division requesting certification for remand of the case for
consideration of (1) the Company's intervening rights for the ten month lapse in
the patent-in-suit, (2) reconsideration of the award of enhanced damages and
attorney fees in view of ETC's failure to notify the Company and the court of
the lapse, and (3) an appeal of the Patent Office's decision to reinstate the
patent-in-suit. This motion was denied without prejudice by the United States
District Court and the Company is preparing to file motions with the Court of
Appeals for the Federal Circuit for remand or dismissal of the appeal based upon
lack of jurisdiction for consideration by the District Court of the motion. Both
ETC and Directed are asserting patent infringement
23
<PAGE> 29
claims against two other shock sensor embodiments, one of which is the Company's
principal shock sensor unit.
The Company has posted a letter of credit in lieu of an appeal bond in the
amount of $5.9 million, representing the amount of the judgment, including
interest.
LITIGATION INVOLVING ACQUISITIONS
On January 19, 1990, Chapman Security Systems, Inc. ("Chapman Security"), a
wholly-owned subsidiary of the Company, purchased certain of the assets of
Chapman Products, Inc. ("Chapman Products") from LaSalle National Bank in a
private sale in accordance with Section 9-504 of the Illinois Uniform Commercial
Code. On August 17, 1990, Aureo Rivera Davila and Aureo E. Rivera ("Plaintiffs")
filed a complaint against Asset Conservation, Inc. (a distributor of the now
defunct Chapman Industries Corporation ("Chapman Industries")), Gabriel Guijarro
Brunet and Iris Nieves De Guijarro and their marital conjugalship, in the United
States District Court for the District of Puerto Rico (Case No. 90-2118 (SEC))
alleging infringement of United States Patent No. 3,548,373 (the " '373
Patent"). Asset Conservation filed a third-party complaint in the same court on
June 16, 1992 against Chapman Industries, Chapman Products, the Company and
Chapman Security alleging that they have a duty to indemnify Asset Conservation
for all damages sustained by it in the litigation based upon Asset
Conservation's previous distributor and indemnification agreement with Chapman
Industries, which Asset Conservation claims was assumed by Chapman Products and
Chapman Security. Plaintiffs have a default judgment in the amount of about
$19.3 million, in addition to interest, entered by the United States District
Court for the Northern District of Illinois in 1990 against Chapman Industries
Corporation for infringement of the '373 Patent. Subsequently, the Plaintiffs
added Chapman Products, the Company and its subsidiary, Chapman Security, as
principal defendants in the case and are attempting to assert their default
judgment against the Company and Chapman Security on a theory that the Company
is the sole owner of Chapman Security and operates Chapman Security as its alter
ego and, therefore, that the Company is a successor in interest to Chapman
Industries. Plaintiffs also allege that the asset purchases by Chapman Products
and then by Chapman Security were fraudulent conveyances. The Company believes
that the allegations asserted by Asset Conservation and the plaintiffs are
unlikely to succeed. The Company has tendered defense of the complaint to
LaSalle National Bank, which is defending the fraudulent conveyance claims as
well as certain of the successor liability claims brought by Plaintiffs under a
reservation of rights against the Company and Chapman Security. This proceeding
is in the early stages of discovery, and is not likely to be resolved in the
near future. The size of this judgment (which, with interest, is currently
estimated to be approximately $28.6 million, is so large that if it is enforced
against the Company and Chapman Security, the likely award would exceed the
Company's shareholders' equity, in which case the purchasers of the Debentures
could lose their entire investment.
M. and Mme. Sydney Drahy, from whom the Company purchased shares of its
French subsidiary EAE, filed suit against the Company in the Commercial Court in
Paris, France on August 1, 1995, seeking FF3,160,000 (approximately $645,000)
based on disputed price adjustment provisions in the purchase agreement. The
Company believes that there are offsets to the disputed adjustments under the
purchase agreement, some of which have been acknowledged by the Drahys, and that
no additional amounts are owed the Drahys in respect of the purchase price. A
decision on this case is not expected to be rendered before mid-1996. Mme. Drahy
brought a separate action in the Industrial Court of Paris against EAE, filed
June 20, 1995, seeking damages of FF1,268,800 (approximately $260,000) for
alleged wrongful termination of her employment and breach of an employment
contract. The case is in the early stages of document production and the Company
is unable at this time to assess its exposure, if any, to Mme. Drahy.
PRODUCT WARRANTY LITIGATION
On July 19, 1995, Intercept Security Corporation, a Canadian distributor of
the Company's home security systems ("Intercept"), filed suit in the United
States District Court, Eastern District of Michigan, Southern Division, alleging
that certain home security products manufactured and sold by the Company failed
to perform in a manner consistent with the alleged representations of the
Company. The complaint alleges that the Company committed fraud,
misrepresentation, and breached an implied warranty emanating from the sale
24
<PAGE> 30
of these goods to Intercept. The Company denies these allegations and intends to
defend against these charges. The Company has not, as yet, answered the
complaint and the case remains in the early stages of discovery. The exposure,
if any, to the Company cannot be ascertained at this time; however, an adverse
judgment could materially adversely affect the Company's business and financial
condition, including working capital and results of operations.
LITIGATION COMMENCED BY THE COMPANY AGAINST ALLEGED PATENT INFRINGERS
During 1995, the Company brought the following actions seeking to enforce
its patents against alleged infringers. All of these lawsuits are in various
stages of discovery and are subject to various affirmative defenses and
counterclaims. While the Company believes that these actions are meritorious,
the outcomes cannot be predicted at this early stage. It is the Company's policy
to pursue infringers of its patents vigorously in an effort to preclude the
manufacture and sale of infringing inventions or, alternatively, to seek payment
of royalties on the Company's patented inventions manufactured, sold or used by
others.
- Code-Alarm, Inc. v. Magnadyne Corporations, et al, filed March 21,
1995 in the United States District Court for the District of Columbia and
Transferred on April 6, 1995 to the United States District Court for the
Central District of California sitting in Los Angeles, California.
- Code-Alarm, Inc. v. Sherwood, Inc. et al, filed on July 20, 1995 in
the United States District Court for the Central District of California
sitting in Los Angeles, California.
- Code-Alarm, Inc. v. Clifford Electronics, Inc., filed October 12,
1995 in the United States District Court for the Central District of
California sitting in Los Angeles, California.
- In the matter of Certain Starter Kill Security Systems, filed
October 18, 1995 with the International Trade Commission against Directed
Electronics, Inc. of Vista, California and Nutek Company of Taipei, Taiwan.
In addition to claims of patent infringement, the Company seeks in this
action to halt the importation and sale of the alleged infringing goods
into the United States.
25
<PAGE> 31
MANAGEMENT
The directors and executive officers of the Company and its wholly-owned
subsidiaries are listed below:
<TABLE>
<CAPTION>
NAME AGE POSITION(1)
------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Rand W. Mueller(2)....... 45 Director, President and Chairman of the Board
Alan H. Foster........... 69 Director
Kenneth M. Mueller(2).... 73 Director
William S. Pickett....... 75 Director
Marshall J. Mueller(2)... 46 Director
Jack D. Rutherford....... 61 Director
Robert V. Wagner......... 60 Vice President of Finance, Chief Financial Officer, Secretary
and Treasurer
David L. Etienne......... 35 Principal Accounting Officer
John G. Chupa............ 37 Vice President, General Counsel
Peter J. Stouffer........ 34 Vice President, Engineering
Alain Lombard............ 40 Vice President European Operations
Richard Wierzbicki....... 39 Executive Vice President and General Manager -- Tessco
Group, Inc.
John C. Moffat........... 35 Vice President, OEM Development and Marketing
Michael Schroeder........ 33 Vice President, Sales, North America
</TABLE>
- ---------------
(1) Positions within the Company, except as otherwise indicated.
(2) Rand W. Mueller and Marshall J. Mueller are brothers, and Kenneth M. Mueller
is their father.
Rand W. Mueller has been a full-time employee of the Company since January
1985 and has been the President since May 1986.
Alan H. Foster has been a consultant to various government agencies,
corporations and financial institutions for the last five years. He is also an
adjunct professor at the School of Business Administration of the University of
Michigan. From 1967 to 1978, Mr. Foster served as Vice President and Treasurer
of American Motors Corporation.
Kenneth M. Mueller is retired. He has served as a consultant to the Company
since August 1987. Mr. Mueller was a consultant to the Ministry of Agriculture
and Food, Government of Ontario, Canada from August 1985 to June 1987. Prior to
1985, he was President of Agribusiness Council, Inc., a not-for-profit
corporation assisting lesser-developed countries in developing profitable
agricultural ventures.
William S. Pickett is retired. He was the President and General Manager of
American Motors (Canada) Inc. prior to his retirement in 1982.
Marshall J. Mueller is a former executive officer of the Company. From May
1980 to January 1990, Mr. Mueller held senior management positions, including
President and Executive Vice President of the Company. Mr. Mueller resigned the
Company in 1990, was reelected to the Company's Board of Directors in May 1991,
and has served continuously since then.
Jack D. Rutherford is Chairman and Chief Executive Officer of ICM
Industries, Inc., a holding company for basic manufacturing companies serving
the automotive, construction equipment and capital goods industries. Prior to
co-founding ICM Industries, Inc. in 1985, Mr. Rutherford was employed by
International Harvester Corporation in senior management capacities, including
Vice Chairman and President and Chief Operating Officer. Prior to that time, Mr.
Rutherford held operations management and manufacturing positions with Ford
Motor Company.
Robert V. Wagner joined the company as a Division Controller in January
1993, and was elected Vice President of Finance and Chief Financial Officer,
Secretary and Treasurer in August 1993. Prior to joining the Company, he held a
senior finance position with MLX Corp., was Chief Financial Officer of General
Automotive Corporation, Operations Controller for Volkswagen of America, Chief
Financial Officer of
26
<PAGE> 32
American Sunroof Corp. (ASC), held several senior finance and treasury positions
with American Motors Corporation, and was on the Finance Staff at several Ford
Motor Co. divisions.
Richard Wierzbicki joined the Company as Vice President of Finance in July
1990, and was later appointed Secretary and Treasurer. In August 1993 he became
Executive Vice President and General Manager of the Company's Tessco Group,
Inc., subsidiary. Prior to July 1990, he was a Senior Manager in the National
Office, Corporate Finance Group, of Deloitte & Touche. Mr. Wierzbicki earned the
designation Certified Public Accountant in 1982 while employed by Touche Ross &
Co.
David L. Etienne has been the Company's Principal Accounting Officer since
March 1990. He was Assistant Controller of the Company from June 1989 to March
1990. From August 1986 to June 1989, Mr. Etienne was employed as a Certified
Public Accountant with Laventhol & Horwath. Prior to 1986, he was a Staff
Accountant with Roslund, Prestage & Company.
Peter J. Stouffer was appointed Vice President of Engineering in January
1993. From August 1990 through December 1992, Mr. Stouffer served as Executive
Vice President and General Manager of the Company's Intercept Systems, Inc.
subsidiary from May 1989 through September 1990, served as the Company's Vice
President of Engineering. From December 1986 to May 1989, he was the Company's
Manager of Engineering. Prior to December 1986, he was an engineer at the
Pontiac Motor Division of General Motors Corporation.
John G. Chupa joined the Company as General Counsel in November 1993, and
was appointed Vice President in December of 1994. Prior to joining the Company,
he was associated with the law firms of Dykema Gossett and Harness Dickey and
Pierce, specializing in the practice of intellectual property law. From 1985
through 1988, he was a Senior Engineer with the Allen Bradley division of
Rockwell International Corporation. Mr. Chupa is currently completing his
doctorate in electrical engineering.
Alain Lombard joined the Company in January 1994 as Vice President European
Operations and Director General of the EAE subsidiary. Prior to joining the
Company, he was President of Code-Alarm Europe Ltd., and Lombard Imports
Corporation. From 1985 through 1989, Mr. Lombard was a Senior Financial Analyst
with IBM's European Headquarters.
John C. Moffat joined the Company in November 1987 as District Manager of
the OEM Division. Mr. Moffat has since been promoted steadily through the
Company; most recently as Vice President of OEM Development and Marketing in May
1994. Mr. Moffat was the Company's National Sales Manager from December 1990
until May 1994.
Michael Schroeder joined the Company in March 1984 as Engineering
Technician. Mr. Schroeder was promoted to Vice President of North American sales
in March of 1995. From December 1992 to March 1995, Mr. Schroeder was the
Company's National Sales Manager. Prior to December 1992, Mr. Schroeder was the
Company's Director of Sales in the U.K.
DESCRIPTION OF DEBENTURES
The Debentures will be issued under an Indenture (the "Indenture") to be
dated as of December , 1995, between the Company and State Street Bank and
Trust Company, 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 $10,000,000 aggregate principal
amount ($11,500,000 if the Underwriters' over-allotment option is exercised in
full), will be issued in fully registered form only in denominations of $1,000
or any integral multiple thereof and will mature on December 1, 2002.
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 (as defined)
and is also available for inspection at the office of the Trustee. Whenever
particular provisions of the
27
<PAGE> 33
Indenture are referred to, such provisions are incorporated by reference as a
part of the statements made herein, 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 June 1 and December 1, commencing on June 1, 1996, to holders
of record at the close of business on the preceding November 15 and May 15,
respectively. Interest on the Debentures offered hereby will accrue from the
date of initial issuance.
Principal and premium, if any, and interest 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 Boston,
Massachusetts. 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 December 1, 2002, 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. Persons who may be
deemed to be affiliates of the Company for purposes of the Securities Act of
1933 may be subject, as to any resales of shares of Common Stock acquired on
conversion, to the restrictions of Rule 144 promulgated under the Act.
The conversion price is subject to adjustment under formulas 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 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
28
<PAGE> 34
such Debentures been converted into 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 45 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 December 1:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------- ----------
<S> <C>
1996...................... %
1997......................
1998......................
1999......................
<CAPTION>
YEAR PERCENTAGE
-------------------------- ----------
<S> <C>
2000...................... %
2001......................
2002......................
</TABLE>
and 100% if redeemed on or after December 1, 2002; provided, however, that the
Debentures may not be redeemed prior to December 1, 1998, 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 ten 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 lease payments 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" is 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
the acquisition thereof) evidenced by notes or other written obligations;
(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;
29
<PAGE> 35
(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 not superior in right of payment to
the Debentures.
As of October 26, 1995, the Company had approximately $18.3 million of
Senior Indebtedness, including security for a $5.9 million letter of credit for
a litigation appeal bond, (approximately $9.3 million after giving effect to the
application of the net proceeds of this Offering).
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: (a) 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");
(b) that any Debenture not tendered will continue to accrue interest; (c) 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 (d) 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 1934
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 (a) 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); (b) 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; (c) 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; (d) the acquisition by the
Company of over 30% of the outstanding shares of its capital stock during any
12-month period; and (e) certain (1) distributions in respect of the Company's
capital stock or (2) acquisitions by the Company of its capital stock, if, in
either case, the sum of the (A) 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 (B) 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 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
30
<PAGE> 36
not have divided 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 pay 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 obligations 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 is 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, or
interest, 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 premiums, 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.
31
<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 provisions 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
furnished to its shareholders.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, 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.
32
<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
GENERAL
The capital stock provisions of the Company's Restated Articles of
Incorporation are summarized below.
COMMON STOCK
The Company's Restated Articles of Incorporation authorize 5,000,000 shares
of Common Stock, without par value, of which 2,320,361 shares are expected to be
outstanding upon consummation of the Offering. The existence of authorized but
unissued shares of the Common Stock could discourage unsolicited takeover bids
by third parties.
Except as otherwise required by law or by any amendment to the Restated
Articles of Incorporation, each holder of Common Stock shall have one vote for
each share of stock held of record on the books of the Company on all matters
voted upon by the shareholders.
Subject to the preferential dividend rights, if any, applicable to shares
of Preferred Stock and subject to applicable requirements, if any, with respect
to the setting aside of sums for purchase, retirement or sinking funds for
Preferred Stock, the holders of Common Stock shall be entitled to receive, to
the extent permitted by law, such dividends as may be declared from time to time
by the Board of Directors.
In the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding up of the Company, after distribution in full
of the preferential amounts, if any, to be distributed to the holders of shares
of Preferred Stock, holders of Common Stock shall be entitled to receive all of
the remaining assets of the Company of whatever kind available for distribution
to shareholders ratably in proportion to the number of shares of Common Stock
held by them respectively. The Board of Directors may distribute in kind to the
holders of Common Stock such remaining assets of the Company or may sell,
transfer or otherwise dispose of all or any part of such remaining assets to any
other corporation, trust or entity, or any combination thereof, and may sell all
or any part of the consideration so received and distribute any balance thereof
in kind to holders of Common Stock. The merger or consolidation of the Company
into or with any other corporation, or the merger of any other corporation into
it, or any purchase or redemption of shares of stock of the Company of any
class, shall not be deemed to be a dissolution, liquidation or winding up of the
Company for the purposes of this paragraph.
Such numbers of shares of Common Stock as may from time to time be required
for such purposes shall be reserved for issuance (i) upon conversion of any
shares of Preferred Stock or any obligation of the Company convertible into
shares of Common Stock which is at the time outstanding or issuable upon
exercise of any options or warrants at the time outstanding and (ii) upon
exercise of any options, warrants or rights at the time outstanding to purchase
shares of Common Stock.
At October 27, 1995, there were 309 shareholders of the Common Stock of
record.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
Company's shareholders, to issue up to 500,000 shares of the Company's Preferred
Stock in one or more series and to fix the voting powers, rights, preferences,
privileges and restrictions thereof.
The existence of authorized but unissued shares of the Preferred Stock and
the issuance of shares of the Preferred Stock could have the effect of delaying,
deferring or preventing a change in control of the Company. The Board of
Directors, without shareholder approval, could issue shares of the Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of shares of the Common Stock and could adversely affect
the value of the Debentures. In addition, such shares of the Preferred Stock
could have other rights, including economic rights, senior to shares of the
Common Stock, and, as a result, the issuance thereof could have a material
adverse effect on the market value of shares of the Common Stock and
33
<PAGE> 39
the Debentures. Currently there are no shares of the Preferred Stock
outstanding, and the Company has no present plan to issue any shares of the
Preferred Stock.
SHAREHOLDER AGREEMENT
Certain shareholders of the Company, which include Rand W. Mueller, Kenneth
M. Mueller and Larry Vingelman (the "Principal Shareholders"), entered into a
Shareholder Agreement dated May 29, 1987, as amended (the "Shareholder
Agreement"), pursuant to which such shareholders vote their shares as a unit in
accordance with the desires of a plurality of the shares held by the Principal
Shareholders. The Principal Shareholders have voting control of 30.2% of the
outstanding shares of Common Stock ( percent upon conversion of all of the
Debentures offered herein). Any additional Common Stock acquired by the
Principal Shareholders is subject to the voting provisions of the Shareholder
Agreement. The shares held by the Principal Shareholders are subject to certain
rights of first refusal among the Principal Shareholders prior to a third party
sale and certain options to purchase shares upon the death of any Principal
Shareholder. These rights and options may be waived by shareholders holding more
than two-thirds of the shares subject to the Shareholder Agreement. The
Shareholder Agreement terminates on the earlier of May 28, 1997 or a date
selected by shareholders owning greater than two-thirds of the shares subject to
the Shareholder Agreement.
PROVISIONS AFFECTING BUSINESS COMBINATIONS
Chapters 7A and 7B of the Michigan Business Corporation Act ("MBCA") may
affect attempts to acquire control of the Company. In general, under Chapter 7A,
"business combinations" (defined to include, among other transactions, certain
mergers, dispositions of assets or shares and recapitalizations) between covered
Michigan business corporations or their subsidiaries and an "interested
shareholder" (defined as the direct or indirect beneficial owner of at least 10%
of the voting power of a covered corporation's outstanding shares) can be
consummated only if approved by at least 90% of the votes of each class of the
corporation's shares entitled to vote and by at least two-thirds of such voting
shares not held by the interested shareholder or such shareholder's affiliates,
unless five years have elapsed after the person involved became an "interested
shareholder" and unless certain price and other conditions are satisfied. The
Board of Directors may exempt "business combinations" with a particular
"interested shareholder" by resolution adopted prior to the time the "interested
shareholder" attained that status.
In general, under Chapter 7B of the MBCA, an entity that acquires "Control
Shares" of the Company may vote the Control Shares on any matter only if a
majority of all shares, and of all non-"Interested Shares," of each class of
shares entitled to vote as a class, approve such voting rights. Interested
Shares are shares owned by officers of the Company, employee-directors of the
Company and the entity making the Control Share Acquisition. Control Shares are
shares that, when added to shares already owned by an entity, would give the
entity voting power in the election of directors over any of three thresholds:
one-fifth, one-third and a majority. The effect of the statute is to condition
the acquisition of voting control of a corporation on the approval of a majority
of the pre-existing disinterested shareholders. The Board of Directors has the
option of choosing to amend the Company's Bylaws before a Control Share
Acquisition occurs to provide that Chapter 7B does not apply to the Company.
The Company currently is subject to Chapters 7A and 7B of the MBCA.
TRANSFER AGENT AND REGISTRAR
Boston Financial Data Services is the transfer agent and registrar for
shares of the Common Stock.
34
<PAGE> 40
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 2,320,361 shares of Common Stock outstanding of which its
executive officers and directors and principal shareholders beneficially own
approximately 795,612 shares. These shares are eligible for sale subject to the
restrictions and volume limitations of Rule 144 under the Securities Act of
1933. Sales of substantial amounts of such shares in the 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 "Risk Factors --
Shares Eligible for Sale; Demand Registration Rights."
UNDERWRITING
Roney & Co. and The Ohio Company (the "Underwriters") have individually
agreed, subject to the terms and conditions contained in the Underwriting
Agreement, to purchase from the Company the principal amounts of Debentures
indicated 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>
NAME PRINCIPAL AMOUNT
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Roney & Co................................................................... $
The Ohio Company.............................................................
------------
Total.............................................................. $ 10,000,000
============
</TABLE>
The Underwriters propose to offer the Debentures to the public initially at
the offering price set forth on the coverage page of this prospectus and the
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 reallow 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 public offering.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days from the date of this Prospectus, to purchase up to an additional
$1,500,000 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 $10,000,000 principal amount of Debentures
offered hereby. If purchased, the Underwriters will sell such additional
Debentures on the same terms on which the $10,000,000 principal amount of
Debentures are being offered.
The Company and all executive officers and directors have agreed that they
will not, without the prior written consent of the Underwriters, sell, transfer,
assign or otherwise dispose of any shares of Common Stock owned by them prior to
the expiration of 120 days from the date of the Underwriting Agreement.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933.
The Underwriting Agreement provides that the Underwriters will be obligated
to purchase all of the Debentures offered hereby if any are purchased.
The offering of Debentures is made for delivery when, as and if excepted by
the Underwriters, subject to prior sale and withdrawal, cancellation of
modification of the offer without notice. The Underwriters reserve the right to
reject any offer for the purchase of Debentures in whole or in part.
35
<PAGE> 41
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the 1934 Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy and information statements
and other information filed by the Company 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 following regional offices of the
Commission: New York Regional Office, 7 World Trade Center, New York, NY 10048;
and Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy
and information statements and other information concerning the Company can also
be inspected at the offices of the National Association of Securities Dealers at
1735 K Street, N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION
The Company has filed with the Commission, Washington, D.C., a registration
statement on Form S-2 (the "Registration Statement") under the Securities Act of
1933 with respect to the Debentures offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Debentures offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance
reference is made to the copy of such document filed as an exhibit or schedule
to the Registration Statement, each such statement being qualified in all
respects by reference to such exhibit or schedule.
The Registration Statement, together with its exhibits and schedules, may
be inspected, without charge, at the Commission's principal office at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and also at the following
regional offices of the Commission: 7 World Trade Center, New York, NY 10048;
and Suite 1400 Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511. Copies of such material may also be obtained from the
Commission upon the payment of prescribed fees.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Common Stock
offered hereby will be passed upon for the Company by Clark, Klein & Beaumont,
P.L.C., Detroit, Michigan, and for the Underwriters by Honigman Miller Schwartz
and Cohn, Detroit, Michigan.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1993 and 1994 and for each of the three fiscal years in the period ended
December 31, 1994 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
36
<PAGE> 42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Consolidated Financial Statements of Code-Alarm, Inc. and Subsidiaries:
Report of Independent Public Accountants....................................... F-2
Consolidated Balance Sheet as of December 31, 1993 and 1994 and September 30,
1995 (unaudited)............................................................ F-3
Consolidated Statement of Operations for the Years Ended December 31, 1992,
1993 and 1994 and the Nine Months Ended September 30, 1994 and 1995
(unaudited)................................................................. F-4
Consolidated Statements of Shareholders' Equity for the Years Ended December
31, 1992, 1993 and 1994 and the Nine Months Ended September 30, 1995
(unaudited)................................................................. F-5
Consolidated Statement of Cash Flows for the Years Ended December 31, 1992,
1993 and 1994 and the Nine Months Ended September 30, 1994 and 1995
(unaudited)................................................................. F-6
Notes to Consolidated Financial Statements..................................... F-7 - F-14
Financial Statement Schedule:
II. Valuation and Qualifying Accounts and Reserves............................. F-15
</TABLE>
F-1
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Code-Alarm, Inc.
We have audited the accompanying consolidated balance sheets of Code-Alarm,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Code-Alarm, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Detroit, Michigan
November 1, 1995
F-2
<PAGE> 44
CODE-ALARM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1993 1994 1995
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 227 $ 107 $ 261
Accounts receivable, less allowance for doubtful accounts
(December 31, 1993 and 1994, $554,000 and $383,000,
September 30, 1995, $462,000) (Note 4)...................... 6,468 11,530 13,104
Inventories (Notes 2 and 4)................................... 7,413 12,892 14,812
Refundable income taxes....................................... -- 323 634
Deferred income taxes......................................... 655 494 494
Other......................................................... 388 735 893
------- ------- -------
Total current assets........................................ 15,151 26,081 30,198
Property and equipment, net of accumulated depreciation and
amortization (Notes 3 and 4)................................ 3,355 4,130 4,484
OTHER ASSETS:
Excess of cost over net assets acquired, net.................. 3,164 4,293 4,217
Other intangibles, net........................................ 810 1,272 992
Deferred income taxes......................................... -- 1,029 1,029
Other......................................................... 1,654 1,016 1,551
------- ------- -------
Total other assets.......................................... 5,628 7,610 7,789
------- ------- -------
Total assets................................................ $24,134 $37,821 $42,471
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4).................... $ 105 $ 1,443 $ 2,431
Accounts payable.............................................. 5,251 8,791 11,258
Income tax payable............................................ 39 -- --
Accrued expenses.............................................. 1,592 3,131 2,775
------- ------- -------
Total current liabilities................................... 6,987 13,365 16,464
Long-term debt (Note 4)....................................... 3,568 9,511 10,085
Reserve for litigation (Note 9)............................... -- 3,729 5,440
Deferred income taxes......................................... 299 -- --
------- ------- -------
Total liabilities........................................... 10,854 26,605 31,989
------- ------- -------
Commitments and contingencies (Notes 5, 8 and 9)
SHAREHOLDERS' EQUITY (NOTE 6):
Preferred stock, noncumulative; no par value; authorized
500,000 shares; none issued................................. -- -- --
Common stock, no par value; authorized 5,000,000 shares;
issued and outstanding December 31, 1993, 2,395,845 shares,
December 31, 1994, 2,319,961 shares, September 30, 1995,
2,320,361................................................... 12,946 12,209 12,210
Foreign currency translation adjustment....................... -- 49 49
Retained earnings (accumulated deficit)....................... 334 (1,042) (1,777)
------- ------- -------
13,280 11,216 10,482
------- ------- -------
$24,134 $37,821 $42,471
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 45
CODE-ALARM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
FOR THE YEARS ENDED DECEMBER ENDED SEPTEMBER
31, 30,
----------------------------- ------------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (Note 10)............................ $45,685 $50,110 $73,508 $56,435 $54,825
Cost of sales.................................. 32,296 30,190 45,886 35,352 35,284
------- ------- ------- ------- -------
Gross profit................................... 13,389 19,920 27,622 21,083 19,541
------- ------- ------- ------- -------
OPERATING EXPENSES:
Sales and marketing............................ 9,791 9,346 13,955 9,984 8,845
Engineering.................................... 1,617 1,688 2,696 1,892 2,317
General and administrative..................... 5,636 6,520 7,928 6,494 6,307
------- ------- ------- ------- -------
17,044 17,554 24,579 18,370 17,469
------- ------- ------- ------- -------
Income (loss) from operations.................. (3,655) 2,366 3,043 2,713 2,072
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense............................... (426) (279) (645) (425) (956)
Litigation expense............................. -- -- (4,386) -- (1,825)
Other, net..................................... 5 57 (98) (88) (86)
------- ------- ------- ------- -------
(421) (222) (5,129) (513) (2,867)
------- ------- ------- ------- -------
Income (loss) before income taxes.............. (4,076) 2,144 (2,086) 2,200 (795)
------- ------- ------- ------- -------
INCOME TAXES (BENEFITS) (NOTE 8):
Current........................................ (925) 791 457 774 (60)
Deferred....................................... (249) (183) (1,167)
------- ------- ------- ------- -------
(1,174) 608 (710) 774 (60)
------- ------- ------- ------- -------
Net income (loss).............................. $(2,902) $ 1,536 $(1,376) $ 1,426 $ (735)
======= ======= ======= ======= =======
Net income (loss) per common share............. $ (1.16) $ 0.63 $ (0.58) $ 0.60 $ (0.32)
======= ======= ======= ======= =======
Weighted average number of common shares
outstanding.................................. 2,495 2,445 2,376 2,392 2,320
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 46
CODE-ALARM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE RETAINED
COMMON STOCK FOREIGN EARNINGS TOTAL
----------------- TRANSLATION (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT ADJUSTMENT DEFICIT) EQUITY
------ ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1992.................. 2,500 $13,739 $ $ 1,700 $ 15,439
Purchase and retirement of common stock
from a director......................... (5) (25) (25)
Net loss for the year..................... (2,902) (2,902)
----- ------- ---- -------- --------
Balance, December 31, 1992................ 2,495 13,714 (1,202) 12,512
----- ------- ---- -------- --------
Purchase and retirement of common stock,
including 47,904 shares from a
former director......................... (100) (776) (776)
Stock issued under stock option plan...... 1 8 8
Net income for the year................... 1,536 1,536
----- ------- ---- -------- --------
Balance, December 31, 1993................ 2,396 12,946 334 13,280
----- ------- ---- -------- --------
Purchase and retirement of common stock
from former directors................... (167) (1,561) (1,561)
Stock issued under stock option plan...... 1 6 6
Stock issued for acquisitions............. 90 818 818
Cumulative foreign currency translation
adjustment.............................. 49 49
Net loss for the year..................... (1,376) (1,376)
----- ------- ---- -------- --------
Balance, December 31, 1994................ 2,320 12,209 49 (1,042) 11,216
Net loss for nine months.................. (735) (735)
Stock issued under stock option plan...... 1 1
----- ------- ---- -------- --------
Balance, September 30, 1995 (unaudited)... 2,320 $12,210 $ 49 $ (1,777) $ 10,482
===== ======= ==== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 47
CODE-ALARM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- ---------------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $(2,902) $ 1,536 $(1,376) $ 1,426 $ (735)
------- ------- ------- ------- -------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 1,580 1,381 1,615 1,152 1,272
Gain on sale of equipment (70) (6) -- -- --
Provision for losses on accounts receivable.............. 1,085 726 83 436
Changes in assets and liabilities:
Accounts receivable.................................... (146) (882) (131) (863) (1,561)
Inventories............................................ (223) 743 (3,734) (1,837) (2,244)
Refundable income taxes................................ (408) 1,191 (243) (244) (306)
Deferred income taxes.................................. (341) 195 (1,167) -- --
Other assets........................................... (164) (841) 160 (644) (54)
Accounts payable....................................... 2,466 (518) 488 508 1,617
Accrued expenses....................................... 181 295 (291) 285 (542)
Reserve for litigation................................. -- -- 3,729 -- 1,711
------- ------- ------- ------- -------
Total adjustments........................................ 3,960 2,284 509 (1,643) 329
------- ------- ------- ------- -------
Net cash provided by (used in) operating activities...... 1,058 3,820 (867) (217) (406)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment............................ 10 130 -- -- --
Purchases of property and equipment........................ (1,065) (981) (1,177) (1,246) (806)
Purchase of Europe Auto Equipement, net of cash received... -- -- (931) 605 --
Payment for intangible assets.............................. -- (477) (905) (514) (37)
------- ------- ------- ------- -------
Net cash used in investing activities.................... (1,055) (1,328) (3,013) (1,155) (843)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................... 398 -- 4,056 1,077 --
Reduction of long-term debt................................ (111) (141) (592) -- (3,359)
Net borrowing (payment) under lines of credit.............. (212) (1,744) 1,851 257 4,761
Purchase and retirement of common stock.................... (25) (776) (1,561) (117) --
Issuance of stock options.................................. -- 8 6 -- 1
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities...... 50 (2,653) 3,760 1,217 1,403
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents....... 53 (161) (120) (155) 154
Cash and cash equivalents, beginning of year............... 335 388 227 227 107
------- ------- ------- ------- -------
Cash and cash equivalents, end of year..................... $ 388 $ 227 $ 107 $ 72 $ 261
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................. $ 355 $ 288 $ 581 $ 204 $ 814
======= ======= ======= ======= =======
Income taxes, net........................................ $ (466) $ 887 $ 881 $ 200 $ 150
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
CODE-EUROPE,
-----------------------------------
TOTAL LTD. EAE
------- ------- -------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES FOR 1994:
Fair value of assets acquired...................................................... $ 8,766 $ 660 $ 8,106
Amounts paid for net assets acquired............................................... 2,377 380 1,997
------- ------- -------
Liabilities assumed................................................................ $ 6,389 $ 280 $ 6,109
======= ======= =======
</TABLE>
During 1992, the Company acquired approximately $1,082,500 in leasehold
improvements and other property in exchange for land, building and improvements
with a net value of approximately $518,500, a mortgage obligation of $450,000
and approximately $114,000 cash.
The Company received a $116,000 equity investment in a corporation during
1992 as proceeds due from the sale of certain equipment and accounts receivable.
During 1994, the Company entered into a $500,501 capital lease obligation
for machinery and equipment.
During 1995, the Company entered into a $565,000 capital lease obligation
for computer equipment, of which $80,000 has been paid. Also, during 1995, the
Company exchanged inventory for a $616,000 note which may be used to reduce the
cost of various goods and services received during the next five years.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 48
CODE-ALARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS
The Company designs, manufactures, imports and markets automobile and home
security systems, keyless entry systems and related products. The Company is
also a contract manufacturer of electronic cable, wire harness and printed
circuit board assemblies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of
substantially all inventories is determined on the first-in, first-out ("FIFO")
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is being provided
using the straight-line and accelerated methods over the estimated useful lives
of the related assets. Upon retirement or disposal of property or equipment, the
cost and accumulated depreciation are removed from the accounts, and any gain or
loss is included in income.
INTANGIBLE ASSETS
The excess of acquisition cost over net assets acquired is amortized on a
straight-line basis over 40 years. The costs of all other intangible assets,
comprised primarily of covenants-not-to-compete and patents and trademarks, are
amortized on a straight-line basis over their respective estimated useful lives,
generally five years. Accumulated amortization of intangible assets amounted to
approximately $1,100,000, $1,643,000 and $1,499,000 at December 31, 1993 and
1994 and September 30, 1995, respectively.
REVENUE RECOGNITION
Revenues are recognized from sales when a product is shipped. The Company
provides an accrual for future product return and warranty costs based upon the
relationship of prior years' sales to costs incurred. Accrued warranty costs
amounted to approximately $400,000, $300,000 and $355,000 at December 31, 1993
and 1994 and September 30, 1995, respectively.
RESEARCH AND DEVELOPMENT COSTS
Expenditures for the research and development of new and improved products
are charged to operations as incurred and aggregated approximately $342,000,
$358,000 and $572,000 for the years ended December 31, 1992, 1993 and 1994 and
$429,000 and $454,000 for the nine months ended September 30, 1994 and 1995.
F-7
<PAGE> 49
CODE-ALARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
109, deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities.
EARNINGS PER COMMON SHARE
Shares issuable under employee stock options were excluded from the
computation of the weighted average number of common shares since they were
either antidilutive or their dilutive effect was not material.
FOREIGN CURRENCY TRANSLATION
The functional currency for the majority of the Company's foreign
operations is the French franc. The translation from the franc to U. S. dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. The gains or losses, net of applicable
deferred income taxes, resulting from translation are included in shareholders'
equity, gains or losses resulting from foreign currency transactions are
included in the statement of operations.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1993 1994 1995
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials............................................... $5,138 $ 7,217 $ 6,793
Work in process............................................. 1,083 1,552 173
Finished goods.............................................. 1,192 4,123 7,846
------ ------- -------
$7,413 $12,892 $14,812
====== ======= =======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized by the following major
classifications:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Machinery and equipment...................................... $5,715 $7,704 $ 8,325
Leasehold improvements....................................... 1,303 1,312 1,312
Furniture and fixtures....................................... 500 663 1,267
------ ------ -------
7,518 9,679 10,904
Less accumulated depreciation.............................. 4,163 5,549 6,420
------ ------ -------
$3,355 $4,130 $ 4,484
====== ====== =======
</TABLE>
Depreciation expense was approximately $1,313,000, $1,064,000 and
$1,093,000 for the years ended December 31, 1992, 1993 and 1994, respectively,
and $798,000 and $879,000 for the nine months ended September 30, 1994 and 1995,
respectively.
F-8
<PAGE> 50
CODE-ALARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER
1993 1994 1995
------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit agreement.................................... $3,000 $ 4,851 $ 6,024
Term loans.................................................... -- 3,606 3,225
Working capital facilities.................................... -- 1,445 2,505
Notes payable................................................. 265 185
Mortgage note................................................. 408 383 363
Capital lease obligations..................................... -- 484 399
------ ------- -------
3,673 10,954 12,516
Less current portion..................................... 105 1,443 2,431
------ ------- -------
$3,568 $ 9,511 $10,085
====== ======= =======
</TABLE>
In 1994 the Company had a loan agreement with Comerica Bank. The $7,500,000
revolving credit provision of the loan agreement was due June 30, 1997 and was
collateralized by accounts receivable, inventory and property and equipment. At
the Company's option, the interest rate was at Comerica Bank's prime rate or at
fixed interest rates equal to the London Interbank Offered Rate ("LIBOR"). The
Company also agreed to pay a commitment fee equal to three-eighths of one
percent per annum on the difference between $6,000,000 and the outstanding
balance.
This loan agreement was subject to covenants for maintenance of certain
debt and cash flow ratios and minimum levels of current assets and tangible net
worth. At December 31, 1994, the Company was not in compliance with certain
covenants; however, Comerica Bank, at the Company's request, waived the covenant
violations.
Term loans were payable in equal quarterly installments of $209,000 through
1999. At the Company's option, the interest rate was at the Comerica Bank's
prime rate (8.5% at December 31, 1994) or at fixed interest rates ranging from
one to one and three-quarter percent above LIBOR on a designated portion of the
outstanding loan.
In May 1995 the above described loan agreement was replaced with a new
credit arrangement with NBD Bank. The new credit arrangement provides for a
$13.75 million revolving credit facility for working capital requirements, $1.3
million secured non-amortizing notes and $2.2 million unsecured in 4 year term
notes. The revolving credit facility expires in May 1997 and bears interest at
NBD Bank's prime rate (8.75% at October 31, 1995) or at the Company's option at
the London InterBank Offered Rate (LIBOR) plus 2.5% for maturities ranging from
one to six months (8.332% and 8.375%, respectively, at October 31, 1995). At
September 30, 1995 a standby letter of credit in the amount of $5.9 million has
been issued under the revolving credit facility in conjunction with the appeal
of the patent infringement settlement as discussed in Note 9.
The credit facility is subject to covenants which require certain debt and
cash flow ratios, minimum levels of current assets and tangible net worth,
restrict the payment of dividends and is collateralized by substantially all the
assets of the Company and its domestic subsidiaries. Total credit available
under the arrangement is subject to a formula of accounts receivable,
inventories and appraised value of property and equipment assets. As of
September 30, 1995, the Company was in default with certain of the covenants.
NBD Bank has agreed to amend the credit agreement as of September 30, 1995. Such
amendment, when effective, will place the Company in compliance.
F-9
<PAGE> 51
CODE-ALARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A foreign subsidiary of the Company has a credit arrangement with its
commercial bank which includes term loans totaling approximately $2.1 million,
with interest rates ranging from 8% to 11%. Payments are due monthly, with final
payments due in 1996.
The Company has working capital facilities with three French lenders. These
loans bear interest at rates of 8.8 percent to 11.5 percent and require
quarterly principal payments of approximately $125,000 through 1997.
The mortgage note is payable to the City of Georgetown, Texas, in monthly
installments of $4,401, including interest at seven percent per annum, through
January of 2005, and is collateralized by the leasehold improvements.
The following table sets forth aggregate maturities of long-term debt
(excluding capital lease obligations) at September 30, 1995:
<TABLE>
<S> <C>
1995................................................................. $2,699
1996................................................................. 1,350
1997................................................................. 7,999
1998................................................................. 126
1999................................................................. 102
Thereafter........................................................... 240
</TABLE>
Minimum lease payments on capital lease obligations at December 31, 1994
are:
<TABLE>
<S> <C>
1995................................................................... $124
1996................................................................... 124
1997................................................................... 124
1998................................................................... 124
1999................................................................... 97
----
Total minimum lease payments......................................... 593
Less amount representing interest.................................... 109
----
Present value of net minimum lease payments.......................... $484
====
</TABLE>
5. COMMITMENTS
LEASES
The Company leases certain property and equipment under various operating
leases through 2000.
Future minimum rental payments required for all noncancelable operating
leases are as follows for the years ending December 31:
<TABLE>
<S> <C>
1995................................................................... $732
1996................................................................... 719
1997................................................................... 444
1998................................................................... 122
1999................................................................... 122
</TABLE>
Rent expense under all operating leases was approximately $682,200,
$637,000 and $769,000 for the years ended December 31, 1992, 1993 and 1994 and
$576,000 and $602,000 for the nine months ended September 30, 1994 and 1995,
respectively.
F-10
<PAGE> 52
CODE-ALARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL STOCK
STOCK OPTION PLAN
The Company has adopted a Stock Option Plan ("Plan") for its key employees
and reserved 280,000 shares of common stock for issuance under the Plan. The
Plan authorizes the Company to issue Incentive Stock Options and Non-Qualified
Stock Options. The Company may grant such options concurrently with Stock
Appreciation Rights, which entitle the Company to accept surrender of an option
by paying the employee an amount equal to the increase in the price of the
Company's common stock from the option date.
Incentive Stock Options may be issued at a price not less than fair market
value as of the grant date. For any employee holding more than 10 percent of the
voting stock of the Company, the option price is 110 percent of fair market
value at the grant date.
Non-Qualified Stock Options may be issued at a price not less than 85
percent of fair market value at the grant date. Options are generally
exercisable for a ten-year period; however, options granted to any employee
holding more than 10 percent of the voting stock of the Company are exercisable
over five years. No Non-Qualified Stock Options have been granted.
The following is a summary of Incentive Stock Options, with Stock
Appreciation Rights, granted under the Plan:
<TABLE>
<CAPTION>
NUMBER OF SHARES
DECEMBER 31,
-----------------------------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Balance, beginning.............................................. 141,200 104,550 125,875
Granted......................................................... 10,500 46,000 102,000
Exercised....................................................... (1,000) (6,815) (1,200)
Canceled or terminated.......................................... (46,150) (17,860) (10,300)
------- ------- -------
Balance, ending................................................. 104,550 125,875 216,375
======= ======= =======
</TABLE>
These options and rights were issued at various prices ranging from $4.25
per share to $22.28 per share. At December 31, 1994, 61,175 options were
exercisable at prices ranging from $4.25 to $20.25 per share. In 1994, 1,200
Stock Options and Stock Appreciation Rights were exercised at $4.25 to $5.00 per
share.
7. ACQUISITIONS
Effective January 1, 1994, the Company purchased Europe Auto Equipement
Company ("EAE"), a French based distributor of vehicle security products.
Consideration included $1.6 million and 50,000 shares of the Company's common
stock. Also, effective January 1, 1994, the Company purchased Code-Europe, Ltd.,
a distributor of vehicle security products in the United Kingdom, for 40,000
shares of the Company's common stock.
These acquisitions were accounted for as purchases, with the results of
their operations included from January 1, 1994. The fair value of assets
acquired, including goodwill, was $8,766,000, and liabilities assumed totaled
$6,389,000. Goodwill of $1,230,000 is being amortized over 40 years on a
straight-line basis.
As part of the consideration given in the acquisition of EAE, the Company
may pay the sellers up to 2,000,000 French francs ($1 U. S. equals 5.355 French
franc at December 31, 1994) based upon EAE's 1994 sales and satisfaction of
certain other conditions. Any additional payments will be treated as additional
purchase considerations in 1995, increasing intangible assets.
F-11
<PAGE> 53
CODE-ALARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma results listed below are unaudited and reflect adjustments
assuming the acquisition occurred January 1, 1993:
<TABLE>
<CAPTION>
1993
--------------
(IN THOUSANDS)
<S> <C>
Net sales..................................................... $ 60,768
Operating earnings............................................ 2,540
Net earnings.................................................. 1,526
Earnings per share............................................ 0.62
</TABLE>
8. INCOME TAXES
The effective income tax rates differed from the statutory income tax rate
due to the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1992 1993 1994 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statutory rate....................... 34% 34% 34% 34% 34%
Differences resulting from:
Goodwill amortization.............. (1) 1 1 1 (1)
Effect of lower foreign tax
rates........................... -- -- (1) -- --
Effect of net operating loss
carryforwards................... (4) (7) -- -- --
Charge off of state and foreign tax
refunds receivable.............. -- -- -- -- (25)
---- ---- ---- ---- ----
Effective income tax rates........... 29% 28% 34% 35% 8%
==== ==== ==== ==== ====
</TABLE>
Current income tax expense for 1994 includes $73,000 of foreign income
taxes. There were no foreign income taxes for 1993 or 1992.
Deferred tax assets and liabilities as of December 31 consisted of the
following:
<TABLE>
<CAPTION>
1993 1994
---- ------
(IN THOUSANDS)
<S> <C> <C>
Expenses deductible earlier for financial statement
purposes than for tax purposes.......................... $515 $ 324
Litigation loss not deductible for tax purposes........... -- 1,462
Expense included in inventory for tax purposes............ 168 181
---- ------
Total deferred tax assets............................... 683 1,967
---- ------
Net value of fixed assets................................. 188 272
Capitalization of assets expensed for tax purposes........ 139 172
---- ------
Total deferred tax liabilities.......................... 327 444
---- ------
Net deferred tax assets................................. $356 $1,523
==== ======
</TABLE>
The Company does not provide U. S. income taxes on the undistributed
earnings of foreign subsidiaries, as such earnings are intended to be reinvested
in these operations. Accumulated undistributed earnings, net, of the foreign
subsidiaries are approximately $121,000, which would have resulted in federal
income taxes of approximately $41,000 at December 31, 1994.
F-12
<PAGE> 54
CODE-ALARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax benefits for 1992, using the deferred method under
Accounting Principles Board Opinion No. 11, resulted from:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Expenses deductible earlier for financial statement purposes
than for tax purposes....................................... $ (49)
Consulting fees............................................... (48)
Deficit of tax over book depreciation......................... (138)
Expenses included in inventory for tax purposes............... (6)
Sale of property, plant and equipment......................... (95)
Deferred tax charges not recognized due to loss
carryforwards............................................... 163
Other, net.................................................... (76)
------
$ (249)
======
</TABLE>
9. LITIGATION
The Company is involved in a patent infringement suit involving a shock
sensing device. During 1993, an appeals court found the Company to be in
violation of the patent. The damage portion of the trial was completed in
January 1995 and at December 31, 1994, the Company recorded an accrual for
damages, including interest and costs, of approximately $4.2 million. In June
1995 the Company received from the United States District Court information that
the damages would total $6.0 million. Accordingly the Company has recorded an
additional accrual for damages of $1.8 million in 1995. The Company believes
that any amount paid will be paid after 1995, or it will be financed with
long-term debt. The Company's reserve for litigation and litigation expense
include this estimate of damages and incidental professional fees and costs.
During 1993, the Company became involved in several legal proceedings
following the Company's decision to aggressively defend its patent rights. The
Company is asserting its patent rights against the defendants in these cases,
and such defendants have made claims against the Company. The outcome of these
cases cannot be reasonably estimated.
Various legal actions and other claims are pending or could be asserted
against the Company. Litigation is subjected to many uncertainties; the outcome
of individual litigated matters is not predictable with assurance, and it is
reasonably possible that some of these matters may be decided unfavorably to the
Company. It is the opinion of management that the ultimate liability, if any,
with respect to these matters will not materially affect the financial position
of the Company.
10. SIGNIFICANT CUSTOMERS
The Company operates primarily in one business segment -- vehicle security
systems. This segment represents more than 90 percent of consolidated revenue,
operating profit and identifiable assets. With the exception of sales to dealers
of General Motors Corporation ("GM") and Ford Motor Company ("Ford"), no single
customer accounted for more than 10 percent of revenue.
<TABLE>
<CAPTION>
PERCENT OF TOTAL SALES
----------------------
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Ford.................................................... 15% 16% 11%
GM...................................................... 16% 16% 11%
</TABLE>
With the acquisition of EAE, the Company expanded its European
distribution. During the year ended December 31, 1994, the Company's European
operations accounted for $17.5 million of revenues and $420,000 of Operating
Income. During the nine months ended September 30, 1995 the Company's European
F-13
<PAGE> 55
CODE-ALARM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations accounted for $15.7 million of revenues and operating losses of
$725,000. The Company has approximately $7.3 million in European Assets,
principally Inventories and Accounts Receivable.
11. SIGNIFICANT FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
During the fourth quarter of 1992, charges of approximately $1.4 Million
(pretax) were recorded relating to the valuation and disposal of obsolete
inventory.
F-14
<PAGE> 56
CODE-ALARM, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
---------- ------------------------ ----------- ----------
ADDITIONS
------------------------
(1)
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COST AND ACCOUNTS, DEDUCTIONS, END
OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994......... $ 554,000 -- -- $ 171,000 $ 383,000
Year ended December 31, 1993......... 416,000 $ 726,000 -- 588,000 554,000
Year ended December 31, 1992......... 673,000 1,085,000 -- 1,342,000 416,000
</TABLE>
- -------------------------
Note: (1) Write-off uncollectible accounts, net of recoveries
F-15
<PAGE> 57
-------------------------------------------------------
-------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY 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 ANY 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 ANY 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 INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference............................ ii
Prospectus Summary..................... 1
Risk Factors........................... 4
Company History........................ 7
Use of Proceeds........................ 8
Price Range of Common Stock............ 8
Dividend Policy........................ 8
Capitalization......................... 9
Selected Consolidated Financial Data... 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 11
Changes in Company's Certifying
Accountant........................... 15
Business............................... 16
Legal Proceedings...................... 23
Management............................. 26
Description of Debentures.............. 27
Description of Capital Stock........... 33
Shares Eligible for Future Sale........ 35
Underwriting........................... 35
Available Information.................. 36
Additional Information................. 36
Legal Matters.......................... 36
Experts................................ 36
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
$10,000,000
[CODE-ALARM LOGO]
% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2002
------------------------------
P R O S P E C T U S
-----------------------------
RONEY & CO.
THE OHIO COMPANY
, 1995
-------------------------------------------------------
-------------------------------------------------------
_
<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses incurred in connection with the offering of the
Common Stock are as follows:
<TABLE>
<S> <C>
SEC registration fees................................................... $ 3,965.52
National Association of Securities Dealers, Inc. filing fee............. 1,650.00
Printing and engraving.................................................. 75,000.00
Legal fees and expenses................................................. 150,000.00
Blue Sky fees and expenses.............................................. 10,000.00
Accounting fees and expenses............................................ 150,000.00
Trustee fees and expenses............................................... 10,000.00
Miscellaneous........................................................... 4,384.48
-----------
Total......................................................... $405,000.00
===========
</TABLE>
Each amount set forth above, except for the SEC registration fee and the
NASD filing fee, is estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Michigan Business Corporation Act. The Registrant is organized under the
MBCA which, in general, empowers Michigan corporations to indemnify a person who
was or is a party or threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative and whether formal or informal other than actions by or in the
right of the corporation, by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, whether for profit or not, against expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if the person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholder, and with respect to any criminal action or
proceeding, if the person had no reasonable cause to believe his or her conduct
was unlawful.
The MBCA also empowers Michigan corporations to provide similar indemnity
to such a person for expenses and amounts paid in settlement, actually and
reasonably incurred, in actions or suits by or in the right of the corporation
except in respect of any claim, issue or matter as to which such person has been
found liable to the corporation, unless and only to the extent that a court
determines that, despite the adjudication of the liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity.
The MBCA also empowers Michigan corporations to pay or reimburse the
reasonable expenses incurred by such persons in advance of a final disposition
of the proceeding; provided, among other things, that the person undertake to
repay the amount advanced if it is ultimately determined that he or she did not
meet the necessary standard of conduct.
Articles of Incorporation and Bylaws. The Registrant's Restated Articles
of Incorporation and Restated Bylaws generally provide that directors and
officers will be indemnified to the fullest extent permissible under Michigan
law against all expenses (including amounts paid in settlement) incurred in any
proceeding (whether or not such proceeding was by or in the right of the
Registrant) in which they were a party because of their position as a director
or officer of the Registrant or because they served at the request of the
Registrant as a director, officer, employee or agent of another corporation or
entity. The provisions also provide for the advancement of litigation expenses.
The Registrant has the burden of proof to show such indemnification to be
improper.
II-1
<PAGE> 59
Indemnification Agreements. The Registrant has entered into
indemnification agreements in the form incorporated by reference as Exhibit 10.4
to this Registration Statement, with each of its officers and members of its
Board of Directors. The indemnification agreements contain the same general
provisions as the indemnification provision in the Restated Articles of
Incorporation and Bylaws but establishes a separate contractual basis for such
indemnification and contains an undertaking to repay by the indemnitee any
amounts advanced if it is determined that such advance was improper.
Reference is also made to the Undertaking contained in Item 17 of this
Registration Statement.
ITEM 16. (A) EXHIBITS
<TABLE>
<C> <C> <S>
1 -- Form of Underwriting Agreement between the Company, Roney & Co. and The Ohio Company
4 -- Form of Indenture
5 -- Legal Opinion of Clark, Klein & Beaumont, P.L.C.(2)
9 -- Shareholder Agreement, as amended, incorporated by reference to Exhibit 9 to the
Company's Form 10-K for the year ended December 31, 1989 ("1989 Form 10-K")(1)
10.2 -- Employment Agreement with Rand W. Mueller, as amended, incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on Form S-1, as amended,
Registration No. 33-31356 ("Form S-1"), as further amended by Amendment No. 2 to
Employment Agreement incorporated by reference to Exhibit 10.2 to the Company's Form
10-Q for the quarter ended September 30, 1992 ("September 1992 10-Q")(1)
10.3 -- 1987 Stock Option Plan, incorporated by reference to Exhibit 10.3 to Form S-18, and
amendment thereto, incorporated by reference to Exhibit 10.3 to the Company's Form 10-K
for the year ending December 31, 1990 ("1990 Form 10-K")(1)
10.4 -- Indemnification Agreement with Rand W. Mueller, incorporated by reference to Exhibit
10.4 to the Company's Form S-18, Registration No. ("Form S-18")(1)
The Company has entered into the same form of agreement with the following directors and
executive officers as of the dates indicated:
Marshall J. Mueller
Kenneth M. Mueller
Jack C. Chilingirian
William S. Pickett
Alan H. Foster
David L. Etienne
Richard Wierzbicki
Peter J. Stouffer
Jack D. Rutherford
Robert V. Wagner
John G. Chupa
Michael P. Schroeder
John C. Moffat
10.6 -- Consulting and Non-Compete Agreement with David L. Skinner, incorporated by reference to
Exhibit 10.6 to 1990 Form 10-K(1)
10.7 -- Non-Compete Agreement with David L. Skinner and Shirley A. Skinner, incorporated by
reference to Exhibit 10.9 to Form S-1(1)
10.8 -- Mortgage Agreement with Rand W. Mueller, incorporated by reference to Exhibit 10.8 to
the Company's Form 10-K for the year ending December 31, 1992 ("1992 Form 10-K")(1)
10.9 -- Consulting Agreement with Kenneth M. Mueller, incorporated by reference to Exhibit 10.9
to Form S-18(1)
10.10 -- Lease of real property at 950 E. Whitcomb, Madison Heights, Michigan, incorporated by
reference to Exhibit 10.10 to 1992 Form 10-K(1)
10.11 -- Lease of real property at 300 Industrial Avenue, Georgetown, Texas, incorporated by
reference to Exhibit 10.11 to 9 to the Company's Form 10-K for the year ended December
31, 1991 ("1991 Form 10-K")(1)
</TABLE>
II-2
<PAGE> 60
<TABLE>
<C> <C> <S>
10.13 -- Lease of real property at 32, Rue Delizy, Pantin Cedex, France, incorporated by
reference to Exhibit 10.13 to the Company's Form 10-K for the year ended December 31,
1994 ("1994 Form 10-K")(1)
10.14 -- Lease of real property at 16742 Burke Lane, Huntington Beach, California, incorporated
by reference to Exhibit 14 to 1994 Form 10-K(1)
10.19 -- General Motors Corporation contract, incorporated by reference to Exhibit 10.19 to Form
S-1 as amended by amendments incorporated by reference to Exhibit 10.19 to 1994 Form
10-K(1)
10.20 -- Ford Motor Corporation contract, incorporated by reference to Exhibit 10.20 to Form S-1
as amended by amendments incorporated by reference to Exhibit 10.20 to 1994 Form 10-K(1)
10.21 -- Chrysler Corporation contract, incorporated by reference to Exhibit 10.21 to Form S-1 as
amended by amendments to Exhibit 10.21 to 1994 Form 10-K(1)
10.22 -- Purchase Agreement with Mitsubishi Motor Sales of America, Inc., incorporated by
reference to Exhibit 10.22 to 1992 Form 10-K(1)
10.23 -- Development Agreement by and between the City of Georgetown, Texas and Tessco Group,
Inc. concerning redevelopment of real property at 300 Industrial Avenue, Georgetown,
Texas, incorporated by reference to Exhibit 10.23 to 1991 Form 10-K(1)
10.27 -- Amended and Restated Loan Agreement with Comerica Bank as of March 31, 1991,
incorporated by reference to Exhibit 10.27 to the Company's March 1991 Form 10-Q, as
further amended by First and Second Amendments to Amended and Restated Loan Agreement
with Comerica Bank as of March 31, 1991, incorporated by reference to Exhibit 10.27 to
1991 Form 10-K, as further amended by Third Amendment to Amended and Restated Loan
Agreement with Comerica Bank as of March 31, 1991, incorporated by reference to Exhibit
10.27 to the Company's September 1992 10-Q, and as further amended by the Fourth
Amendment to Amended and Restated Loan Agreement with Comerica Bank as of March 31,
1991, incorporated by reference to Exhibit 10.27 to 1992 Form 10-K(1)
10.27.3 -- Ninth Amendment to Amended and Restated Loan Agreement with Comerica Bank as of March
31, 1991, incorporated by reference to Exhibit 10.27.3 to 1994 Form 10-K(1)
10.28 -- Commitment Letter from NBD Bank, April 7, 1995, incorporated by reference to Exhibit
10.28 to 1994 Form 10-K, incorporated by reference to Exhibit 10.28 to 1994 Form 10-K,
Loan Agreement with NBD Bank as of May 23, 1995; incorporated by reference to Exhibit
10.28 to the Company's Form 10-Q for the quarter ended June 30, 1995; and First
Amendment dated June 30, 1995, Waiver Letter dated October 3, 1995, Second Amendment
dated October 17, 1995 and Letter Agreeing to Amend dated November 1, 1995 to Loan
Agreement with NBD Bank as of May 23, 1995, incorporated by reference to Exhibit 10.28
to the Company's Form 10-Q for the quarter ended September 30, 1995(1)
10.29 -- Purchase Agreement with Subaru of America, Inc., incorporated by reference to Exhibit
10.29 to the Company's Form 10-Q for the quarter ended September 30, 1995(1)
11 -- Statement regarding computation of per share earnings
12 -- Statement re computation of ratios
16 -- Letter re change in certifying accountant, incorporated by reference to Exhibit 16.1 to
Current Report on Form 8-K dated as of July 22, 1995(1)
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Clark, Klein & Beaumont, P.L.C.(3)
24 -- Powers of Attorney(4)
25 -- Statement of Eligibility of Trustee of Form T-1
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Contained in Exhibit 5.
(4) Included on the signature page of this Form S-2.
II-3
<PAGE> 61
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 62
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Madison Heights, State of Michigan, on November 2,
1995.
CODE-ALARM, INC.
By: /s/ RAND W. MUELLER
--------------------------------
Rand W. Mueller
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rand W. Mueller, Robert V. Wagner and David L.
Etienne, and each of them individually, as his true and lawful attorneys-in-fact
and agents, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments or
post-effective amendments to this registration statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------- ------------------
<C> <S> <C>
/s/ RAND W. MUELLER President (Principal October 31, 1995
- ---------------------------------------- Executive Officer) and
Rand W. Mueller Director
/s/ ROBERT V. WAGNER Secretary, Treasurer, Vice November 2, 1995
- ---------------------------------------- President of Finance
Robert V. Wagner (Principal Financial Officer)
/s/ MARSHALL J. MUELLER Director November 2, 1995
- ----------------------------------------
Marshall J. Mueller
/s/ KENNETH M. MUELLER Director November 2, 1995
- ----------------------------------------
Kenneth M. Mueller
/s/ JACK D. RUTHERFORD Director November 2, 1995
- ----------------------------------------
Jack D. Rutherford
/s/ WILLIAM S. PICKETT Director November 2, 1995
- ----------------------------------------
William S. Pickett
/s/ ALAN H. FOSTER Director October 30, 1995
- ----------------------------------------
Alan H. Foster
</TABLE>
<PAGE> 63
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
DESCRIPTION
-------------------------------------------------------------------------------
EXHIBIT
NUMBER PAGE
- ------ -----
<C> <C> <S> <C> <C>
1 -- Form of Underwriting Agreement between the Company, Roney & Co. and The Ohio
Company
4 -- Form of Indenture
5 -- Legal Opinion of Clark, Klein & Beaumont, P.L.C.(2)
9 -- Shareholder Agreement, as amended, incorporated by reference to Exhibit 9 to
the Company's Form 10-K for the year ended December 31, 1989 ("1989 Form
10-K")(1)
10.2 -- Employment Agreement with Rand W. Mueller, as amended, incorporated by
reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1,
as amended, Registration No. 33-31356 ("Form S-1"), as further amended by
Amendment No. 2 to Employment Agreement incorporated by reference to Exhibit
10.2 to the Company's Form 10-Q for the quarter ended September 30, 1992
("September 1992 10-Q")(1)
10.3 -- 1987 Stock Option Plan, incorporated by reference to Exhibit 10.3 to Form S-18,
and amendment thereto, incorporated by reference to Exhibit 10.3 to the
Company's Form 10-K for the year ending December 31, 1990 ("1990 Form 10-K")(1)
10.4 -- Indemnification Agreement with Rand W. Mueller, incorporated by reference to
Exhibit 10.4 to the Company's Form S-18, Registration No. ("Form
S-18")(1)
The Company has entered into the same form of agreement with the following
directors and executive officers as of the dates indicated:
Marshall J. Mueller May 29, 1987
Kenneth M. Mueller May 29, 1987
Jack C. Chilingirian May 29, 1987
William S. Pickett May 29, 1987
Alan H. Foster May 17, 1988
David L. Etienne March 16, 1990
Richard Wierzbicki July 16, 1990
Peter J. Stouffer March 22, 1991
Jack D. Rutherford May 21, 1991
Robert V. Wagner August 3, 1993
John G. Chupa December 9, 1994
Michael P. Schroeder March 24, 1995
John C. Moffat March 24, 1995
10.6 -- Consulting and Non-Compete Agreement with David L. Skinner, incorporated by
reference to Exhibit 10.6 to 1990 Form 10-K(1)
10.7 -- Non-Compete Agreement with David L. Skinner and Shirley A. Skinner,
incorporated by reference to Exhibit 10.9 to Form S-1(1)
10.8 -- Mortgage Agreement with Rand W. Mueller, incorporated by reference to Exhibit
10.8 to the Company's Form 10-K for the year ending December 31, 1992 ("1992
Form 10-K")(1)
10.9 -- Consulting Agreement with Kenneth M. Mueller, incorporated by reference to
Exhibit 10.9 to Form S-18(1)
10.10 -- Lease of real property at 950 E. Whitcomb, Madison Heights, Michigan,
incorporated by reference to Exhibit 10.10 to 1992 Form 10-K(1)
10.11 -- Lease of real property at 300 Industrial Avenue, Georgetown, Texas,
incorporated by reference to Exhibit 10.11 to 9 to the Company's Form 10-K for
the year ended December 31, 1991 ("1991 Form 10-K")(1)
10.13 -- Lease of real property at 32, Rue Delizy, Pantin Cedex, France, incorporated by
reference to Exhibit 10.13 to the Company's Form 10-K for the year ended
December 31, 1994 ("1994 Form 10-K")(1)
10.14 -- Lease of real property at 16742 Burke Lane, Huntington Beach, California,
incorporated by reference to Exhibit 14 to 1994 Form 10-K(1)
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
DESCRIPTION
-------------------------------------------------------------------------------
EXHIBIT
NUMBER PAGE
- ------ -----
<C> <C> <S> <C> <C>
10.19 -- General Motors Corporation contract, incorporated by reference to Exhibit 10.19
to Form S-1 as amended by amendments incorporated by reference to Exhibit 10.19
to 1994 Form 10-K(1)
10.20 -- Ford Motor Corporation contract, incorporated by reference to Exhibit 10.20 to
Form S-1 as amended by amendments incorporated by reference to Exhibit 10.20 to
1994 Form 10-K(1)
10.21 -- Chrysler Corporation contract, incorporated by reference to Exhibit 10.21 to
Form S-1 as amended by amendments to Exhibit 10.21 to 1994 Form 10-K(1)
10.22 -- Purchase Agreement with Mitsubishi Motor Sales of America, Inc., incorporated
by reference to Exhibit 10.22 to 1992 Form 10-K(1)
10.23 -- Development Agreement by and between the City of Georgetown, Texas and Tessco
Group, Inc. concerning redevelopment of real property at 300 Industrial Avenue,
Georgetown, Texas, incorporated by reference to Exhibit 10.23 to 1991 Form
10-K(1)
10.27 -- Amended and Restated Loan Agreement with Comerica Bank as of March 31, 1991,
incorporated by reference to Exhibit 10.27 to the Company's March 1991 Form
10-Q, as further amended by First and Second Amendments to Amended and Restated
Loan Agreement with Comerica Bank as of March 31, 1991, incorporated by
reference to Exhibit 10.27 to 1991 Form 10-K, as further amended by Third
Amendment to Amended and Restated Loan Agreement with Comerica Bank as of March
31, 1991, incorporated by reference to Exhibit 10.27 to the Company's September
1992 10-Q, and as further amended by the Fourth Amendment to Amended and
Restated Loan Agreement with Comerica Bank as of March 31, 1991, incorporated
by reference to Exhibit 10.27 to 1992 Form 10-K(1)
10.27.3 -- Ninth Amendment to Amended and Restated Loan Agreement with Comerica Bank as of
March 31, 1991, incorporated by reference to Exhibit 10.27.3 to 1994 Form
10-K(1)
10.28 -- Commitment Letter from NBD Bank, April 7, 1995, incorporated by reference to
Exhibit 10.28 to 1994 Form 10-K, incorporated by reference to Exhibit 10.28 to
1994 Form 10-K, Loan Agreement with NBD Bank as of May 23, 1995; incorporated
by reference to Exhibit 10.28 to the Company's Form 10-Q for the quarter ended
June 30, 1995; and First Amendment dated June 30, 1995, Waiver Letter dated
October 3, 1995, Second Amendment dated October 17, 1995 and Letter Agreeing to
Amend dated November 1, 1995 to Loan Agreement with NBD Bank as of May 23,
1995, incorporated by reference to Exhibit 10.28 to the Company's Form 10-Q for
the quarter ended September 30, 1995(1)
10.29 -- Purchase Agreement with Subaru of America, Inc., incorporated by reference to
Exhibit 10.29 to the Company's Form 10-Q for the quarter ended September 30,
1995(1)
11 -- Statement regarding computation of per share earnings
12 -- Statement re computation of ratios
16 -- Letter re change in certifying accountant, incorporated by reference to Exhibit
16.1 to Current Report on Form 8-K dated as of July 22, 1995(1)
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Clark, Klein & Beaumont, P.L.C.(3)
24 -- Powers of Attorney(4)
25 -- Statement of Eligibility of Trustee of Form T-1
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Contained in Exhibit 5.
(4) Included on the signature page of this Form S-2.
<PAGE> 1
EXHIBIT 1
CODE-ALARM, INC.
$10,000,000 Principal Amount of ___%
Convertible Subordinated Debentures
Due December 1, 2002
UNDERWRITING AGREEMENT
DRAFT
RONEY & CO.
THE OHIO COMPANY
c/o Roney & Co.
One Griswold
Detroit, Michigan 48226
Ladies and Gentlemen:
Code-Alarm, Inc., a Michigan corporation (the "Company"), hereby confirms its
agreement with Roney & Co. and The Ohio Company (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
$10,000,000 principal amount of ____% Convertible Subordinated Debentures due
December 1, 2002. Such $10,000,000 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
$1,500,000 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 ___________, 1995 (the "Indenture") between the
Company and State Street Bank and Trust Company (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-2 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. 33-________) with
respect to the Debentures, which may be converted into Common Shares, without
par value, of the Company (the "Common Shares") 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
<PAGE> 2
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 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
2
<PAGE> 3
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 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
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<PAGE> 4
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 other than the
Company's stock option plan and except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). 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 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
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<PAGE> 5
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) Deloitte & Touche LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
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.
(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 bylaws 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.
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<PAGE> 6
(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 other than
as herein provided.
(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
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, 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
the pledge of the capital stock of the Company's subsidiaries to NBD Bank to
secure the Company's current senior indebtedness and 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
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<PAGE> 7
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 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) and except to the extent that the Company has pledged
the capital stock of the Company's subsidiaries to NBD Bank to secure the
Company's current senior indebtedness.
(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
7
<PAGE> 8
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
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).
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<PAGE> 9
(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 or except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(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, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
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 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
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<PAGE> 10
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 Clark, Klein & Beaumont P.L.C., 1600 First Federal Building,
Detroit, Michigan 48226, at 9:30 A.M., Detroit time, on ______________, 1995,
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
Madison Heights, Michigan 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
______________, 1995 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 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,
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<PAGE> 11
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.
4. Offering by the Underwriters. Upon our 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 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
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<PAGE> 12
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
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.
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<PAGE> 13
(h) The Company will not, directly or indirectly, without your prior
written consent, offer, sell, offer to sell, contract to sell, grant any option
to purchase or otherwise sell or dispose of (or announce any offer, sale, offer
of sale, contract of sale, grant of any option to purchase or other sale or
other disposition of) any Common Shares or any securities convertible into, or
exchangeable or exercisable for, Common Shares for a period of 120 days after
the date of this Agreement except for (1) issuances pursuant to the exercise of
warrants outstanding on the date of this Agreement or pursuant to the exercise
of employee stock options outstanding on the date of this Agreement, or (2) the
grant of employee stock options pursuant to the Company's stock option plans in
effect on the date of this Agreement, provided that any employee stock options
so granted after the date of this Agreement are not exercisable prior to 120
days after the date of this Agreement, or (3) issuances of Common Shares
pursuant to the Company's Employee Stock Purchase Plan, as such plan exists on
the date of this Agreement, or (4) issuances and sales of the Debentures to the
Underwriters pursuant to this Agreement, or (5) issuances of Common Shares upon
conversion of the Debentures.
(i) 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.
(j) 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 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.
(k) At all times prior to the conversion of the Debentures, the Underlying
Common Shares shall remain duly authorized and duly reserved for issuance.
(l) 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).
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<PAGE> 14
6. Expenses.
(a) 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 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 and disbursements of
counsel for the Underwriters relating thereto or to the "Blue Sky" survey,
which filing fees and counsel fee shall not exceed $15,000, (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 market
conditions) or inability to perform), the Company will reimburse the
Underwriters individually upon demand for all out-of- pocket expenses
(including reasonable 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.
(b) The provisions of paragraph 10 of the letter of intent dated August
16, 1995 among the Company and the Underwriters, a copy of which is attached as
Exhibit 6(b) to this Agreement (the "Letter of Intent"), which provisions
provide for payments of fees and reimbursement of expenses incurred in
connection with the Underwriters' engagement by the Company, are incorporated
into, and are a part of, this Agreement in their entirety; such provisions will
continue to apply as if they were set forth in this Agreement.
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<PAGE> 15
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 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 Clark, Klein & Beaumont, P.L.C., 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
15
<PAGE> 16
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 except to the extent that the Company has
pledged such securities to NBD Bank to secure the Company's current senior
indebtedness;
(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,
moratorium, 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,
moratorium, reorganization or other similar laws affecting enforcement of
creditors' rights generally and (b) enforcement thereof is subject to general
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
16
<PAGE> 17
registered under the Registration Statement, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus);
(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 Proceedings"
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) 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
17
<PAGE> 18
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) 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 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 Michigan or the
United States, to the extent 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.
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<PAGE> 19
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 Honigman Miller Schwartz
and Cohn, 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 Michigan or
the United States upon the opinion of Clark, Klein & Beaumont, P.L.C. 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 Deloitte & Touche
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-2 and the Exchange Act documents and
filings incorporated by reference therein;
(3) on the basis of a reading of the September 30, 1995 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 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:
19
<PAGE> 20
(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-2 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
September 30, 1995 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 September 30, 1995
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 September 30, 1995 to the date of the latest
consolidated income statement read by them, and for the period from
September 30, 1995 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
20
<PAGE> 21
and its consolidated subsidiaries, except for decreases which the 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 Exhibits 11 and 12 to the
Registration Statement or in the Company's Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, 1995, June 30, 1995 and September 30,
1995 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
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<PAGE> 22
have been instituted or threatened or, to the best of the Company's
knowledge, are contemplated by the Commission; and
(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
22
<PAGE> 23
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 (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 prepared by the Company and used
in connection with the marketing of the Securities, including, without
limitation, slides, videos, films, and tape recordings,
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
23
<PAGE> 24
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 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, defending against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have. The Underwriters will not, without the
prior written consent of the Company, 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
Underwriters.
(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
24
<PAGE> 25
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 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
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable 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 and by
us in the case of indemnification under paragraph (b) of this Section 8,
representing the indemnified parties under such paragraphs (a) or (b), as the
case may be, 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
25
<PAGE> 26
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 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 one of the Underwriters shall fail or refuse
to purchase Firm Debentures or Option Debentures under this Agreement and if
arrangements satisfactory to the non-defaulting Underwriter are not made within
36 hours after such default for the purchase by other persons (who may include
the non-defaulting Underwriter) of the Debentures with respect to which such
default occurs, this Agreement will terminate without liability on the part of
any non-defaulting Underwriter 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, the non-defaulting Underwriter 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
26
<PAGE> 27
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 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;
27
<PAGE> 28
(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
(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 (including the provisions of the Letter of Intent which are incorporated in
this Agreement) 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 delivered or sent by mail, telex or facsimile transmission and confirmed in
writing as follows:
(a) to the Underwriters: to Roney & Co., One Griswold, Detroit, Michigan
48226, Attention: Dan B. French, Jr.; and to The Ohio Company, 155 East Broad
Street, 20th Floor, Columbus, Ohio 43215, Attention: Curtis D. Milner.
(b) To the Company, 950 E. Witcomb Avenue, Madison Heights, Michigan
48071, Attention: President.
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
28
<PAGE> 29
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.
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,
CODE-ALARM, INC.
By:
___________________________________________
Rand W. Mueller, President
29
<PAGE> 30
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written:
RONEY & CO.
By: ___________________
Name: _________________
Title: ________________
THE OHIO COMPANY
By: ___________________
Name: _________________
Title: ________________
30
<PAGE> 31
SCHEDULE 1
SUBSIDIARIES
Name Jurisdiction of
- ---- Incorporation
---------------
31
<PAGE> 32
SCHEDULE 2
SUBSIDIARY OWNERSHIP
32
<PAGE> 33
SCHEDULE 3
Principal Amount of
Firm Debentures
Underwriter to be Purchased
- ----------- -------------------
RONEY & CO.
THE OHIO COMPANY
$10,000,000
===========
33
<PAGE> 1
EXHIBIT 4
CODE-ALARM, INC.
AND
STATE STREET BANK AND TRUST COMPANY
as Trustee
-----------------------------------------------------
INDENTURE
Dated as of October __, 1995
------------------------------------------------------
____% Convertible Subordinated Debentures Due December 1, 2002
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 Definitions and Other Provisions of General Application . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . 10
Section 1.3 Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . 11
Section 1.4 Acts of Holders; Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.5 Notices, etc., to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.6 Notices to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.7 Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.8 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . 14
Section 1.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.10 Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.11 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.13 Limitation on Liability of Company Officers . . . . . . . . . . . . . . . . . . . 15
Section 1.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 2 Debenture Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.1 Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 3 The Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.1 Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.2 Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.3 Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . 17
Section 3.4 Temporary Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.5 Registration, Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.6 Mutilated, Destroyed, Lost and Stolen Debentures . . . . . . . . . . . . . . . . 19
Section 3.7 Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . 20
Section 3.8 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.9 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.10 Authentication and Delivery of Original Issue . . . . . . . . . . . . . . . . . . 22
Section 3.11 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 4 Satisfaction and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.1 Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . 23
Section 4.2 Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 5 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.2 Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . 26
Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . 27
Section 5.4 Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.5 Trustee May Enforce Claims Without Possession of Debentures . . . . . . . . . . . 28
Section 5.6 Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.7 Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.8 Unconditional Right of Holders to Receive Principal, Premium and
Interest and to Convert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.9 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.10 Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.11 Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.12 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.13 Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.14 Waiver of Usury, Stay and Extension Laws . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 6 The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.1 Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.2 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.3 Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.4 Not Responsible for Recitals or Issuance of Debentures . . . . . . . . . . . . . 36
Section 6.5 May Hold Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.6 Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.7 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 6.8 Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . . . . . . 37
Section 6.9 Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . 37
Section 6.10 Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . 37
Section 6.11 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . 39
Section 6.12 Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . 39
Section 6.13 Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . 40
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 7 Holders' Lists and Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.1 Preservation of Information; Company to Furnish Trustee Names
and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.2 Communications Among Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.3 Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.4 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 8 Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.1 Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . 42
Section 8.2 Supplemental Indentures With Consent of Holders . . . . . . . . . . . . . . . . . 42
Section 8.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.4 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.5 Reference in Debentures to Supplemental Indentures . . . . . . . . . . . . . . . 44
Section 8.6 Effect on Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.7 Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 9 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.1 Payment of Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.2 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.3 Company Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 9.4 Company May Consolidate, etc. Only on Certain Terms . . . . . . . . . . . . . . . 45
Section 9.5 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.6 Money for Debentures Payments to Be Held in Trust . . . . . . . . . . . . . . . . 47
Section 9.7 Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.8 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.9 Purchase of Debentures upon a Repurchase Event . . . . . . . . . . . . . . . . . 49
Section 9.10 Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE 10 Redemption of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.1 Right of Redemption by Company . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.2 Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.3 Selection by Trustee of Debentures to be Redeemed
at the Election of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.4 Notice of Redemption at the Election of the Company . . . . . . . . . . . . . . . 53
Section 10.5 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.6 Debentures Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . 55
Section 10.7 Debentures Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE 11 Conversion of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 11.1 Conversion Privileges and Conversion Price . . . . . . . . . . . . . . . . . . . 55
Section 11.2 Exercise of Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 11.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 11.4 Adjustment of Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 11.5 Notice of Adjustments of Conversion Price . . . . . . . . . . . . . . . . . . . . 60
Section 11.6 Notice of Certain Corporation Action . . . . . . . . . . . . . . . . . . . . . . 60
Section 11.7 Company to Reserve Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.8 Taxes on Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.9 Covenant as to Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.10 Cancellation of Converted Debentures . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.11 Effect of Reclassification, Consolidation, Merger, Share
Exchange or Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 12 Subordination of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.1 Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 12.2 No Payment on Securities in Certain Circumstances . . . . . . . . . . . . . . . . 63
Section 12.3 Debentures Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization . . . . . . . . . . . 64
Section 12.4 Payments by Trustee or Holder to Holders of Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.5 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.6 Obligation of Company Unconditional . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.7 Payments on Debentures Permitted . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.8 Effectuation of Subordination by Trustee . . . . . . . . . . . . . . . . . . . . 66
Section 12.9 Knowledge of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.10 Trustees May Hold Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.11 Rights of Holders of Senior Indebtedness Not Impaired . . . . . . . . . . . . . . 66
Section 12.12 Rights and Obligations Subject to Power of Court . . . . . . . . . . . . . . . . 67
</TABLE>
iv
<PAGE> 6
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of September __, 1995*
<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
</TABLE>
* This reconciliation and tie shall not, for any purpose, be deemed to
be part of the Indenture.
v
<PAGE> 7
THIS INDENTURE, dated as of October __, 1995, between CODE-ALARM,
INC., a Michigan corporation, having its principal office at 950 E. Whitcomb,
Madison Heights, Michigan 48071 (the "Company"), and STATE STREET BANK AND
TRUST COMPANY, having its principal Corporate Trust Office at Two International
Place, Corporate Trust Department, 4th Floor, Boston, Massachusetts 02110 (the
"Trustee").
RECITALS OF THE COMPANY:
The Company has duly authorized the creation, execution and delivery
of its Debentures, to be known as its ___% Convertible Subordinated Debentures
Due November 1, 2002 (hereinafter referred to as 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 the 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:
<PAGE> 8
(a) all references in this instrument to designated "Articles,"
"Sections" and other subdivisions are to designated articles, sections or 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;
(c) all other terms herein which are defined in the Trust
Indenture Act of 1939, as amended, 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 of 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. The Trustee may obtain and rely upon the certificate of any person
to determine whether such person is an affiliate of another.
"Authorized Newspaper" means a newspaper of general circulation in
Detroit, Michigan, 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 and 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.
2
<PAGE> 9
"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
Boston, Massachusetts or Detroit, Michigan, 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 asserts upon
liquidation, to any other shares of capital stock of the Company.
"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 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 in 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 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.
3
<PAGE> 10
"Company" means Code-Alarm, Inc., a Michigan corporation, until a
successor shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Company" shall means 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 Two International Place, Corporate Trust Department, 4th Floor,
Boston, Massachusetts 02110.
"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.
"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 Exchange Act of 1934, as amended
from time to time, 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,
4
<PAGE> 11
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
in 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.
"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 cancelled 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
5
<PAGE> 12
(3) Debentures in exchange for or in lieu of which other
Debentures have been authenticated and delivered pursuant to this Indenture
unless proof satisfactory to the Company and the Trustee is presented that any
such Debentures are held by a bona fide purchaser; 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 Affiliates 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 Affiliates
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 Debenture on behalf of
the Company. The initial Paying Agent shall be the Trustee.
"Person" means any individual, corporation, partnership, 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.
"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.
6
<PAGE> 13
"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 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 more than fifty percent (50%) of the total
voting power of the Voting Stock of the surviving corporation immediately after
such transaction); or
7
<PAGE> 14
(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 to 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 of 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 any
officer in its Corporate Trust Department or similar group 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:
(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 the property
8
<PAGE> 15
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, and interest on Indebtedness
of the Company evidenced by notes, debentures, bonds or other securities of the
Company other than the Debentures;
(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 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
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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, 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 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.
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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;
(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.
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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 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 acknowledgement of deeds, certifying that the
individual signing such instrument or writing acknowledgement 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
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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
(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 waiver 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
waiver.
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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 thereof.
Section 1.9 Successors and Assigns.
All covenants and agreement in this Indenture by the Company shall
bind its successors and assigns, whether or not so expressed.
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 Michigan, but without regard to
principles of conflicts of laws.
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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 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.
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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 $11,500,000,
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 ___% Convertible
Subordinated Debentures Due December 1, 2002 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 Boston, Massachusetts,
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.
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.
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Section 3.3 Execution, Authentication, Delivery and Dating.
The Debentures shall be executed on behalf of the Company by its
Chairman, President or a Vice President and attested by its Secretary,
Treasurer, or one of its Assistant Secretaries or Assistant Treasurers. 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 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 or the
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Company designated for such purpose pursuant to Section 9.5, without charge to
the Holder. Upon surrender for cancellation of any 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 Debenture 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 Debentures 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 principle
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.
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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 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 mailings, 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 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.
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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 whether or not such day is
a Business Day.
Any interest on any Debenture that is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall accrue from such
Interest Payment Date at a rate per annum that is equal to one percent (1%) per
annum plus the interest rate stated in the Debenture until all unpaid and
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 name 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 (which shall be not less than 30 days from such
notice), 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
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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 not 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 is 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 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
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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, conversion, redemption,
transfer or exchange shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and, if not already cancelled, shall be
promptly cancelled 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 delivered shall be promptly
cancelled by the Trustee. No Debentures shall be authenticated in lieu of or
in exchange for any Debentures cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled 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
$11,500,000 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.
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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 cancelled by the Trustee or delivered for cancellation
to the Trustee; or
(2) all such Debentures not theretofore cancelled or
delivered to the Trustee for cancellation
(A) have become due and payable, or
(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 theretofore cancelled 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;
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(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 satisfaction 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.
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
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(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 or any Subsidiary 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 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 or any Subsidiary 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,
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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 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,
(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
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(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.
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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, to file such other
papers or documents and to take such other actions as the Trustee may deem
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
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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 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 monies 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), 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.
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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;
(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
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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.
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, in its sole discretion, 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.
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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:
(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
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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.
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.
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(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 it 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 the Indenture; and
(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.
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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 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;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys; and
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(h) the Trustee shall not be deemed to know of any default or of
any fact upon the occurrence of which it may be required to take action unless
one or more of its Responsible Officers has actual knowledge of such default or
fact.
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 Section 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 in writing 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 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),
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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 Disqualifications; 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.
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.
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(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 as 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
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appointment, become the successor Trustee and supersede the successor 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
certainty 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
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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.
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.
A 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 October 15, commencing October 15, 1996, the
Trustee shall mail to Holders a brief report dated as of such October 15 that
complies
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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.
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.
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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
(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,
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(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
(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
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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.
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.
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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 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, and shall not allow any Subsidiary to,
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, and shall not allow any Subsidiary to, permit any Person to
consolidate with or merge into the Company (or any Subsidiary) or convey,
transfer or lease all or substantially all its properties and assets to the
Company (or any Subsidiary), unless:
(a) in case the Company (or, if applicable, Subsidiary) 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 (or Subsidiary) is merged or
the Person that acquires by conveyance or transfer or lease all or
substantially all the properties and assets of the Company (or Subsidiary)
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
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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 (or
Subsidiary) 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 of 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.
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
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Boston Financial Data Services in Boston, Massachusetts 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 as 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
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 or 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 the 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; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
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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
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(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 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;
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(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 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 the Trustee 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) and a copy of the Repurchase
Notice, 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. The Trustee 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).
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(e) On or prior to the Repurchase Date, the Company shall deposit
with the Trustee an amount of money in same day funds sufficient to pay the
Repurchase Price of all the Debentures or portion 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,
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 Trustee by means of a written notice of withdrawal (by
facsimile transmission or letter) received by the Trustee at the office of the
Trustee not later than three Business Days prior to the Repurchase Date,
specifying, as applicable:
(1) the certificate number of the Debenture with respect
of which such notice of withdrawal is being submitted;
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(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.
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 December 1, 1998 if the Closing Price per share
of the Company's Common Stock has equalled 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 ten 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 December 1, 1998 at the Redemption Prices set forth
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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 all or 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 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
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of the Company by first-class mail, postage prepaid, mailed not less than 30
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,
(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.
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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 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 Privileges 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 $1,000 may be
converted at the principal amount thereof, or of such portion thereof, into
fully paid and non-assessable shares (calculated
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as to each conversion to the nearest 1/100 of a share) of Common Stock of the
Company, at the Conversion Price, determined as hereinafter provided, in effect
at the time of conversion. Such conversion right shall expire at the close of
business on November 1, 2002. In case a Debenture or portion thereof is called
for redemption or is repurchased upon the occurrence of a Repurchase Event,
such conversion right in respect of the Debenture or portion so called shall
expire at the close of business on the Redemption Date or the Repurchase Date,
unless the Company defaults in making the payment due upon redemption or
repurchase.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially [$_______]
per share of Common Stock. Effective [____________, 199_,] this 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 to the Company
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 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
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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
Holder 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:
(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
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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 and 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 and warrants
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding on the date of the 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 and 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
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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 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 higher 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 price 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
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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 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.
(g) The Trustee shall not be responsible for any calculation made
under this section.
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 setting forth 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
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(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
(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 purposes of such dividends,
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,
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 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.
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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.
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 event 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,
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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 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.
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 Trustees 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.
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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 marshalling of
the asserts 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 or
liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or to the trustee of 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 thereof.
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.
64
<PAGE> 71
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 Obligations 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
creditor 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 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 Trustees 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.
65
<PAGE> 72
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 action by the Trustee, unless
and until the Trustee shall have received at its principal Corporate Trust
Office written notice thereof referencing this Indenture from the Company, any
Holder, any Paying Agent or the holder or representative of any class of Senior
Indebtedness.
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.
66
<PAGE> 73
Section 12.12 Rights and Obligations Subject to Power of Court.
The rights 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.
<TABLE>
<S> <C>
ATTEST: CODE-ALARM, INC.
___________________________ By:___________________________
Its:__________________________
STATE STREET BANK AND TRUST
COMPANY
___________________________ By:____________________________
Its:___________________________
</TABLE>
67
<PAGE> 74
EXHIBIT A
FORM OF DEBENTURE
__% CONVERTIBLE SUBORDINATED DEBENTURE DUE DECEMBER 1, 2002
No. ________-___________ $______________
CUSIP #________
Code-Alarm, Inc., a corporation duly organized and existing under the
laws of Michigan (the "Company," which term includes any successor to the
Company under the Indenture hereinafter referred to), for value received,
promises to pay to _________________________________, or registered assigns, in
lawful money of the United States of America, the principal sum of
________________ Dollars ($_____________) on December 1, 2002, and to pay
interest thereon from December 1, 1995 or the most recent Interest Payment Date
to which interest has been paid or duly provided for semi-annually on June 1
and December 1 of each year, commencing June 1, 1996, 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. Certain capitalized terms used in this Debenture which
are defined in the Indenture have the meanings set forth herein.
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 May 15 or November 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 Boston,
<PAGE> 75
Massachusetts, 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.
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:_______________ CODE-ALARM, INC.
By:____________________________
Its: President
ATTEST:
________________________________
Its: Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred to in
the within mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY, as Trustee
______________________
Authorized Signer
2
<PAGE> 76
FORM OF REVERSE SIDE OF DEBENTURE
CODE-ALARM, INC.
__% CONVERTIBLE SUBORDINATED DEBENTURE DUE DECEMBER 1, 2002
This Debenture is one of a duly authorized issue of Debentures of the
Company designated as its ___% Convertible Subordinated Debentures due December
1, 2002 (herein called the "Debentures"), limited in aggregate principal amount
to $11,500,000 issued and to be issued under an Indenture dated as of October
_, 1995 (herein called the "Indenture"), between the Company and State Street
Bank and Trust Company, 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 December 1, 1998 at
the option of the Company at any time upon not less than 30 nor 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 equalled 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 ten
Trading Days prior to the date of a notice of redemption. On or after December
1, 1998 the Debentures are subject to redemption at any time upon not less than
30 nor more than 60 days' notice by first class mail, as a whole or in part, at
the election of the Company. Any redemption
3
<PAGE> 77
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 December 1 of the
years indicated,
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1995 %
1996 %
1997 %
1998 %
1999 %
2000 %
2001 %
</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 unpaid 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 December 1, 2002, 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
4
<PAGE> 78
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 Boston,
Massachusetts 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 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 business 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
Trustee 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.
5
<PAGE> 79
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 Debenture
issued upon the registration of transfer hereof or in exchange therefor or in
lieu hereof, whether 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
Boston, Massachusetts, 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
6
<PAGE> 80
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.
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 Affiliate or Subsidiaries, and is not eligible as
collateral for any loan by the Company.
CONVERSION NOTICE
The undersigned Holder of this Debenture 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.
Dated:__________________ ____________________________
Signature
If shares or Debentures are ____________________________
to be registered in the name Social Security or
other of a Person other than the Taxpayer Identification
Number
7
<PAGE> 81
Holder, please print such
Person's name and address: Principal amount to
be converted
(if less than all):
$______________,000
_____________________________
Name
_____________________________
Street Address
_____________________________
City, State and Zip Code
ASSIGNMENT
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.
8
<PAGE> 82
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.
9
<PAGE> 1
EXHIBIT 11
Statement regarding computation of per share earnings:
Warrants issued to purchase common stock and shares issuable under employee
stock options were excluded from the computation of weighted average number of
shares outstanding since such shares were either anti-dilutive or their
dilutive effect was not material.
<PAGE> 1
EXHIBIT 12
CODE-ALARM, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ----------------
1990 1991 1992 1993 1994 1994 1995
---- ----- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) Before Taxes.... $366 $(872) $(4,075) $2,144 $(2,086) $2,200 $ (795)
Interest........................ 212 399 425 278 646 425 956
Portion of rent expense
representing interest......... 279 317 227 212 256 192 181
---- ----- ------- ------ ------- ------ ------
857 (156) (3,423) 2,634 (1,184) 2,817 342
Add Litigation Expense.......... 4,386 1,825
------- ------
3,202 2,167
Fixed Charges................... 491 716 652 490 902 617 1,137
Ratio/(Deficiency).............. 1.75 $(156)(1) $(3,423)(1) 5.38 $(1,184)(1) 4.57 0.30
Ratio after add back of
litigation
expense....................... 3.55 1.91
</TABLE>
- -------------------------
(1) Represents amount by which interest is not sufficient to cover fixed
charges.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement for $10,000,000
Convertible Subordinated Debentures due 2002 of Code-Alarm, Inc. on Form S-2 of
our report dated November 1, 1995, appearing in the Prospectus, which is part of
this Registration Statement and to the reference to us under the heading
"Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule, Schedule
II -- Valuation and Qualifying Accounts and Reserves, of Code-Alarm, Inc. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
November 1, 1995
<PAGE> 1
EXHIBIT 25
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
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)__
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip code)
John R. Towers, Senior Vice President
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
----------
CODE-ALARM, INC.
(Exact name of obligor as specified in its charter)
Michigan 38-2334698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 E. Whitcomb
Madison Heights, Michigan 48071
(Address of principal executive offices) (Zip code)
----------
____% Convertible Subordinated Debentures
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT
IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., 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.
ITEM 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 or of its parent,
State Street Boston Corporation.
(See Note on page 6.)
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF VOTING SECURITIES
OF THE TRUSTEE:
As of: September 18, 1995
<TABLE>
<S> <C>
Col. A Col. B
Title of Class Amount outstanding
</TABLE>
Not applicable.
ITEM 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.
Not applicable.
(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.
Not applicable.
1
<PAGE> 3
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE
OBLIGOR OR UNDERWRITERS.
IF THE TRUSTEE 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.
Not applicable.
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS
OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY THE OBLIGOR AND EACH DIRECTOR, PARTNER AND
EXECUTIVE OFFICER OF THE OBLIGOR:
As of: September 18, 1995
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Name of Title of Amount owned Percentage of voting
owner class beneficially securities represented by
amount given in
Col. C
</TABLE>
Not applicable.
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY EACH UNDERWRITER FOR THE OBLIGOR AND EACH
DIRECTOR, PARTNER AND EXECUTIVE OFFICER OF EACH SUCH UNDERWRITER:
As of: September 18, 1995
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Name of Title of Amount owned Percentage of voting
owner class beneficially securities represented by
amount given in
Col. C
</TABLE>
Not applicable.
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO SECURITIES OF THE OBLIGOR OWNED
BENEFICIALLY OR HELD AS COLLATERAL SECURITY FOR OBLIGATIONS IN DEFAULT BY THE
TRUSTEE:
2
<PAGE> 4
As of: September 18, 1995
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Title of Whether Amount owned Percent of
class the securities beneficially class repre-
are voting or or held as sented by
non-voting collateral security amount given
securities for obligations in Col. C
in default
</TABLE>
Not applicable.
ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
IF THE TRUSTEE 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:
As of: September 18, 1995
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Title of Amount Amount owned Percent of
issuer outstanding beneficially class represented
and title or held as by amount
of class collateral security given in Col. C
for obligations in
default by trustee
</TABLE>
Not applicable.
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF
CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
IF THE TRUSTEE 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 PERCENT OR MORE OF THE VOTING SECURITIES 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: September 18, 1995
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Title of Amount Amount owned Percent of
issuer outstanding beneficially class represented
and title or held as by amount
of class collateral security given in Col. C
for obligations in
default by trustee
</TABLE>
Not applicable.
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A
PERSON OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE
OBLIGOR.
IF THE TRUSTEE 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:
3
<PAGE> 5
As of: September 18, 1995
<TABLE>
<S> <C> <C> <C>
Col. A Col. B Col. C Col. D
Title of Amount Amount owned Percent of
issuer outstanding beneficially class represented
and title or held as by amount
of class collateral security given in Col. C
for obligations in
default by trustee
</TABLE>
Not applicable.
ITEM 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: September 18, 1995
<TABLE>
<S> <C> <C>
Col. A Col. B Col. C
Nature of Amount Date due
indebtedness outstanding
</TABLE>
Not applicable.
ITEM 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.
Not applicable.
(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 A TRUSTEE FOR MORE THAN
ONE OUTSTANDING SERIES OF 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.
To the best of the knowledge of the Trustee, there has not been
a default under any such indenture or series.
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
IF AN UNDERWRITER IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
Not applicable.
ITEM 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.
Not applicable.
4
<PAGE> 6
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED
IN PARAGRAPH (1) OR (2) ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the By-Laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with Registration Statement of Eastern Edison
Company (File No. 33-37823) and is incorporated herein by
reference thereto.
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4, IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF THE UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED
BY SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
5
<PAGE> 7
8. A COPY OF ANY ORDER PURSUANT TO WHICH THE FOREIGN TRUSTEE IS
AUTHORIZED TO ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO BE QUALIFIED
UNDER THE ACT.
Not applicable.
9. FOREIGN TRUSTEES ARE REQUIRED TO FURNISH A CONSENT TO SERVICE OF PROCESS.
Not applicable.
NOTE
The answers to this statement insofar as such answers relate to persons
who are affiliates of the obligors are based upon information furnished to the
trustee by the obligors. While the trustee has no reason to doubt the accuracy
of any such information, it cannot accept any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, State Street Bank and Trust Company, a banking corporation organized
and existing under the laws of The Commonwealth of Massachusetts, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 19th day of September, 1995.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Brian J. Curtis
-------------------------------
Brian J. Curtis,
Assistant Vice President
6
<PAGE> 8
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939 in connection with the proposed issuance by CODE-ALARM, INC. of its
Convertible Subordinated Debentures, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Brian J. Curtis
-------------------------------
Brian J. Curtis,
Assistant Vice President
Dated: September 19, 1995
7
<PAGE> 9
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company of
Boston, Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business December
31, 1995, published in accordance with a call made by the Federal Reserve Bank
of this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
THOUSANDS OF
DOLLARS
-------
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . 942,661
Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,843,628
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,410,339
Federal funds sold and securities purchased under agreements
to resell in domestic offices of the bank and of its Edge
subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,240,374
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . 3,257,795
Allowance for loan and lease losses . . . . . . . . . . . 38,184
Loans and leases, net of unearned income and
allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,199,611
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825,549
Premises and fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,086
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,359
Investments in unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 25,051
Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . 55,358
Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,862
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653,750
----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,610,628
==========
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,946,262
Noninterest-bearing . . . . . . . . . . . . 4,175,167
Interest-bearing . . . . . . . . . . . . . 1,771,095
In foreign offices and Edge subsidiary . . . . . . . . . . . . . . . . . . . . 8,147,182
Noninterest-bearing . . . . . . . . . . . . . 44,817
Interest-bearing . . . . . . . . . . . . . 8,102,365
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the
bank and of its Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,912,704
Demand notes issued to the U.S. Treasury and Trading Liabilities. . . . . . . . . . . . . . 423,324
Other borrowed money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386,049
Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . 55,621
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,536
----------
Total liabilities: 20,401,678
==========
EQUITY CAPITAL
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,043
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177,736
Undivided profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003,171
----------
Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,208,950
----------
Total liabilities and equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,610,628
==========
</TABLE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
8
