<PAGE> 1
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998 Commission File No. 333-27341
TELEX COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 38-1853300
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 ALDRICH AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55420
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (612) 884-4051
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES __X __ NO _____
AS OF JUNE 30, 1998 THERE WERE 110 SHARES OF TELEX COMMUNICATIONS, INC., $0.01
PAR VALUE, OUTSTANDING.
THIS DOCUMENT CONTAINS 19 PAGES.
_______________________________________________________________________________
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
-----------------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,489 $ 2,224
Accounts receivable, net 58,327 62,085
Inventories 78,120 78,711
Other current assets 10,750 16,088
-------------- -------------
Total current assets 149,686 159,108
Property, plant and equipment, net 49,331 50,777
Deferred financing costs, net 10,711 11,303
Intangible and other assets, net 78,815 79,064
-------------- -------------
$ 288,543 $ 300,252
============== =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Revolving lines of credit $ 15,036 $ 15,119
Current maturities of long-term debt 8,500 8,250
Accounts payable 18,004 20,165
Accrued wages and benefits 12,458 11,739
Accrued interest 6,000 8,133
Other accrued liabilities 16,865 20,786
Income taxes payable 5,167 5,048
-------------- -------------
Total current liabilities 82,030 89,240
Long-term debt 327,750 329,875
Other long-term liabilities 7,196 6,893
-------------- -------------
Total liabilities 416,976 426,008
-------------- -------------
Shareholder's deficit:
Common stock and capital in excess of par 3,535 3,156
Cumulative translation adjustment (2,194) (2,297)
Accumulated deficit (129,774) (126,615)
-------------- -------------
Total shareholder's deficit (128,433) (125,756)
-------------- -------------
$ 288,543 $ 300,252
============== =============
</TABLE>
See accompanying notes.
2
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TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1998 1997
-----------------------------------------------
<S> <C> <C>
Net sales $ 78,888 $ 73,423
Cost of Sales 49,232 46,029
-------------- -------------
Gross profit 29,656 27,394
-------------- -------------
Operating expenses:
Engineering 3,806 4,107
Selling, general and administrative 18,425 25,649
Corporate charges 429 448
Amortization of goodwill and other intangibles 677 772
-------------- -------------
23,337 30,976
-------------- -------------
Operating profit (loss) 6,319 (3,582)
Interest expense 9,299 9,133
Recapitalization expense - 6,952
Other (income) expense (163) (84)
-------------- -------------
Loss before income taxes and extraordinary loss (2,817) (19,583)
Provision (benefit) for income taxes 342 (5,933)
-------------- -------------
Loss before extraordinary loss (3,159) (13,650)
Extraordinary loss on early retirement of debt - 10,554
-------------- -------------
Net loss $ (3,159) $ (24,204)
============== =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1998 1997
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,159) $ (24,204)
Adjustments to reconcile net loss to cash flows from operations:
Depreciation 2,188 1,940
Amortization of intangibles and deferred financing costs 1,271 1,263
Provision for bad debts 170 75
Gain on sale of business (114) -
Write-off of deferred financing costs - 1,674
Recapitalization costs incurred - 6,952
Extraordinary loss on early retirement of debt - 10,554
Stock option compensation expense 379 8,670
Deferred income taxes - (11,257)
Change in operating assets and liabilities:
Income taxes payable 7,391 4,401
Receivables 3,530 4,747
Inventories 40 (2,909)
Other current assets (1,330) 1,613
Accounts payable and accrued expenses (5,176) 2,887
Accrued interest (2,133) 2,609
Change in long-term liabilities 139 (992)
-------------- ------------
Net cash provided by operating activities 3,196 8,023
-------------- ------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,369) (1,373)
Other (83) -
-------------- ------------
Net cash used in investing activities (1,452) (1,373)
-------------- ------------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 240,000
Borrowings (payments) under revolving lines of credit, net (245) 4,521
Repayment of long-term debt and payment of fees (1,875) (115,093)
Proceeds from equity contribution - 108,353
Cash balance of Old Telex at date of Merger - 34,753
Repurchase of common stock and outstanding options - (253,898)
Payments of deferred financing costs - (12,547)
Recapitalization costs incurred - (6,952)
Proceeds from sale of business 538 -
-------------- ------------
Net cash used in financing activities (1,582) (863)
-------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 103 260
-------------- ------------
CASH AND CASH EQUIVALENTS
Net increase 265 6,047
Beginning of period 2,224 10,266
-------------- ------------
End of period $ 2,489 $ 16,313
============== ============
SUPPLEMENTAL DISCLOSURES OF CASH PAID FOR:
Interest $ 10,904 $ 3,700
============== ============
Income taxes (refunds), net $ (7,177) $ 154
============== ===========
</TABLE>
See accompanying notes.
4
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TELEX COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Telex Communications, Inc., formerly known as EV International, Inc.
("Telex" or the "Company"), a Delaware corporation, is a wholly owned
subsidiary of Telex Communications Group, Inc. ("Holdings"). As used in
these consolidated financial statements, unless otherwise indicated or the
context otherwise requires, references to (i) "Holdings" shall mean Telex
Communications Group, Inc., a Delaware corporation and the corporate parent
of the Company; (ii) "Old Telex" shall refer to the Delaware corporation
formerly named Telex Communications, Inc., a wholly owned subsidiary of
Holdings, and its subsidiaries with respect to periods prior to the Mergers
(as defined in Item 2); (iii) the "Company" or "Telex" shall mean Telex
Communications, Inc., a Delaware corporation formerly named EV
International, Inc. ("EVI") and successor by merger to Old Telex, and its
subsidiaries and includes, as the context may require, predecessor and
successor companies; (iv) "Old EVI" shall mean EVI and its subsidiaries
with respect to periods prior to the Mergers and includes any predecessor
companies; and (v) "EV Holdings" shall refer to EVI Audio Holding, Inc.,
the direct parent company of EVI prior to the Mergers.
As presented in this Form 10-Q, the statement of operations for the quarter
ended June 30, 1997 is based on Old EVI's results of operations for the
three months ended June 30, 1997 and on Old Telex's results of operations
from May 6, 1997 (the date on which Old EVI and Old Telex came under common
control) through June 30, 1997. Unless otherwise indicated, all references
in this Form 10-Q to Fiscal 1997 are for the fiscal year for the 12 months
ended February 28, 1997 and all references to Fiscal 1998 are for the
fiscal year for the 12 months ended March 31, 1998. Unless otherwise
indicated, all references to amounts reported for Fiscal 1997 include the
reclassified predecessor basis of accounting for the period March 1, 1996
through February 10, 1997 and the reclassified new basis of accounting for
the period February 11, 1997 through February 28, 1997. Such reclassified
amounts conform to the Fiscal 1999 presentation. These reclassifications
had no impact on the previously reported operating profit, net income,
EBITDA or shareholder's equity (deficit).
The condensed consolidated balance sheet as of June 30, 1998 and the
condensed consolidated statements of operations and cash flows for the
quarters ended June 30, 1998 and 1997 have been prepared by the Company
without being audited, pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC").
In the opinion of management, these financial statements reflect all
adjustments (which include only normal recurring accruals) necessary to
present fairly the financial position of Telex at June 30, 1998 and the
results of its operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Therefore, these statements
should be read in conjunction with the more detailed information, risk
factors and financial statements, including the related notes, included in
the Registration Statements on Form S-4 filed by Old Telex and Old EVI with
the SEC on September 5, 1997 and July 30, 1997, respectively, and the Form
10-K for the fiscal year ended March 31, 1998 filed by Telex with the SEC
on July 14, 1998 (the "Form 10-K"). Unless otherwise defined herein,
capitalized terms shall have the meaning set forth in the Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal year.
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2. Inventories consist of the following, in thousands:
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
-------------------- --------------------
(Unaudited)
<S> <C> <C>
Raw materials and parts $ 36,858 $ 35,740
Work in process 10,168 9,812
Finished products 31,094 33,159
---------------- ----------------
$ 78,120 $ 78,711
================ ================
</TABLE>
3. Telex's tax provision is calculated on a separate company basis, and
Telex's taxable income is included in the consolidated federal income tax
returns of Holdings. The Company has recorded a liability to Holdings for
the tax benefit Telex received from Holdings, which is included in other
long-term liabilities.
4. The Company recorded an income tax provision of $0.3 million on a pre-tax
loss of $2.8 million for the quarter ended June 30, 1998. The income tax
provision is comprised of an income tax benefit of $0.7 million which is
offset by a deferred tax valuation allowance of $0.7 million and an income
tax provision of $0.3 million attributed the income of certain foreign
subsidiaries.
The Company has a net deferred tax valuation allowance of $16.5 million at
June 30, 1998, due to the uncertainty of the realization of future tax
benefits. Included in this valuation allowance is $0.7 million charged to
income tax provision for the quarter ended June 30, 1998. The realization
of the future tax benefits related to the deferred tax assets is dependent
on many factors, including the Company's ability to generate taxable income
within the net operating loss carryforward period. Management has
considered these factors in reaching its conclusion as to the adequacy of
the valuation allowance for financial reporting purposes.
5. Many computer systems used today may be unable to interpret data correctly
after December 31, 1999 because they allow only two digits to indicate the
year in a date. The Company uses computer systems for various operations,
including for financial reporting, billing, order processing, purchasing,
inventory management and certain manufacturing operations. The Company has
replaced a substantial portion of its systems in recent years with Year
2000 compliant systems. The Company believes that the replacement, upgrade
and changes to the remaining non-compliant systems to address the Year 2000
issues will be completed by late 1999 at an estimated future expenditure of
$1.5 million. The Company does not expect any material impact on its
results of operations, liquidity or financial condition, due to incomplete
or untimely resolution of Year 2000 issues. Management believes that such
expenditures will not have a material impact on the level of the Company's
capital expenditures in Fiscal 1999 and 2000.
6. Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement established standards for reporting
and display of comprehensive income and its components. Comprehensive
income reflects the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. For the Company, comprehensive income represents net loss adjusted
for foreign currency translation adjustments. Comprehensive loss was
approximately $3.1 million and $24.0 million for the quarters ended June
30, 1998 and 1997, respectively.
6
<PAGE> 7
7. During June 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for fiscal years beginning after December
14, 1997. SFAS No. 131 requires disclosure of business and geographic
segments in the consolidated financial statements of the Company. The
Company will adopt SFAS No. 131 in Fiscal 1999 and is currently analyzing
the impact that such adoption will have on the disclosures in its financial
statements.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal
years beginning after December 31, 1997. SFAS No. 132 revised certain of
the disclosure requirements, but does not change the measurement or
recognition of those plans. SFAS No. 132 superseded SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
The adoption of SFAS No. 132 will result in revised and additional
disclosures, but will have no effect on the financial position, results of
operations, or liquidity of the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge criteria are met.
Special accounting for qualifying hedges allow a derivative's gains or
losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. The
Company has not quantified the impacts of adopting SFAS No. 133 and has not
yet determined the timing or method of adoption.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
FORWARD LOOKING STATEMENTS
The Company may have included certain forward-looking statements in the Form
10-Q and includes this provision pursuant to the "safe harbor" provisions of the
Private Securities Reform Act of 1995. Whenever, in the Form 10-Q, the Company
or its management express an expectation or belief as to future results or
future events, while made in good faith and with a reasonable basis based on
information currently available to the Company's management, there is no
assurance that the statement of expectation or belief will be achieved or
accomplished. Any such forward-looking statements involve known and unknown
risks and uncertainties and the Company's actual results may differ materially
from those forward-looking statements. The Company does not undertake to
update, revise or correct any of the forward-looking information contained in
this document. The following factors, in addition to those discussed elsewhere
in the Form 10-Q, could affect the future results of the Company, and could
cause results to differ materially from those expressed in such forward-looking
statements: (i) the timely development and market acceptance of new products;
(ii) the financial resources of competitors and the impact of competitive
products and pricing; (iii) changes in general and industry specific economic
conditions on a national, regional or international basis; (iv) changes in laws
and regulations, including changes in accounting standards; (v) the timing of
the implementation of changes in operations to effect cost savings; (vi)
opportunities that may be presented to and pursued by the Company following the
Mergers; (vii) the Company's ability to access external sources of capital; and
(viii) such risks and uncertainties as are detailed from time to time in the
Company's SEC reports and filings.
GENERAL
The following discussion and analysis of the financial condition and results of
operations covers periods both before and after completion of the Transactions
(as defined herein). As a result of the Transactions, the Company has entered
into new financing arrangements and has a different capital structure than its
predecessors, Old EVI and Old Telex. The results of operations for the periods
after February 10, 1997 were prepared under the new basis of accounting, which
includes adjustments giving effect to the Acquisition under the purchase method
of accounting. Accordingly, the results of operations for the quarter ended
June 30, 1998, which are affected by such changes, are not comparable to the
results of operations for prior fiscal years which do not fully reflect the
impact of the Transactions. Additionally, in Fiscal 1998 the Company changed
its fiscal year end to March 31 from the last day of February. This change in
fiscal year end, which coincides with that of the Old Telex, did not have a
material impact on the comparability of the results of operations of the quarter
ended June 30, 1998 with the quarter ended June 30, 1997. As presented in this
Form 10-Q, the results of operations for the quarter ended June 30, 1997 are
based on Old EVI's statement of operations for the three months ended June 30,
1997 and on Old Telex's statement of operations from May 6, 1997 through June
30, 1997. Pursuant to the Recapitalization of Old Telex on May 6, 1997, the
historical basis of all assets and liabilities was retained for financial
reporting purposes, and the repurchases of existing Holdings Common Stock and
issuance of new Holding Common Stock have been accounted for as equity
transactions. The Mergers have been accounted for essentially as a pooling of
interests from May 6, 1997, the date on which Old EVI and Old Telex came under
common control, and the financial statements of the Company for Fiscal 1998
accordingly include the results of Old Telex from May 6, 1997.
8
<PAGE> 9
THE TRANSACTIONS
The Acquisition. On February 10, 1997 (the "Acquisition Closing Date"), pursuant
to a purchase agreement dated December 12, 1996, (as amended, the "Purchase
Agreement") an acquisition subsidiary wholly owned by Greenwich Street Capital
Partners, L.P. ("GSCP") and certain affiliated investors acquired from Mark IV
and one of its subsidiaries all of the issued and outstanding capital stock of
Gulton, the former parent of Old EVI, and each of its subsidiaries for an
initial cash purchase price of $151.5 million, plus $4.9 million in estimated
adjustments paid on the closing date, which aggregate amount is subject to
further post-closing adjustments as described below. The acquisition subsidiary
subsequently merged with and into the parent of Old EVI, and the parent then
merged with and into Old EVI, with Old EVI ultimately surviving (the
"Acquisition"). Prior to the Acquisition Closing Date, (i) EVI Audio LLC, a
subsidiary wholly owned by GSCP and certain affiliated investors, purchased all
the issued and outstanding shares of common stock and Pay-in-Kind Preferred
Stock of EV Holdings for an aggregate amount of $57.6 million and (ii) EV
Holdings, a Delaware corporation organized by GSCP to hold all the issued and
outstanding stock of Old EVI, contributed $57.6 million to Old EVI.
Financing for the Acquisition, and the related fees and expenses, consisted of
(i) $57.6 million of equity capital provided by GSCP and certain affiliated
investors, (ii) a $60.0 million senior credit facility (consisting of a term
loan and a revolving credit facility), and (iii) a $75.0 million senior
subordinated credit facility issued as interim financing by Chase Securities
Inc. and Smith Barney Inc., the initial purchasers of the EVI Existing Notes (as
defined herein), and certain other lenders. Of these amounts, $156.4 million
was used for the purchase price for the Acquisition and $10.4 million was used
for financing and transaction fees and expenses. Under the Purchase Agreement,
the purchase price was subject to adjustment on the basis of (i) the audited
working capital and audited cash flow of Old EVI as of and for the 10-month
period ended December 31, 1996 and (ii) the net intercompany transfers of cash
between Mark IV and its affiliates (other than Old EVI and its subsidiaries), on
the one hand, and Old EVI and its subsidiaries, on the other hand, during the
period between December 31, 1996 and the Acquisition Closing Date. Based on
these provisions Mark IV has requested a purchase price increase of
approximately $0.4 million, which amount the Company is currently disputing
pursuant to the applicable provisions of the Purchase Agreement.
On March 24, 1997, Old EVI issued 11% Senior Subordinated Notes due 2007 in an
aggregate principal amount of $100.0 million (the "EVI Existing Notes"), all of
which were subsequently exchanged in September, 1997 for a like principal amount
of new 11% Senior Subordinated Notes due 2007, Series A (together with the EVI
Existing Notes, the "EVI Notes"), in an offering registered under the Securities
Act of 1933, as amended (the "Securities Act"). The proceeds from the EVI Notes
were used to repay the $75.0 million of indebtedness under the interim financing
in its entirety and a portion of Old EVI's term loan. The forgoing
transactions, including the issuance of the EVI Notes, are referred to herein as
the "Acquisition Transactions." The Acquisition was accounted for using the
purchase method of accounting pursuant to which the purchase price was allocated
among the acquired assets and liabilities in accordance with estimates of fair
market value on February 10, 1997 (i.e., the Acquisition Closing Date).
The Recapitalization. On May 6, 1997 (the "Recapitalization Closing Date"), Old
Telex completed a recapitalization (the "Recapitalization") pursuant to an
Agreement (the "Recapitalization Agreement") among Old Telex, Greenwich II, LLC
("G-II"), a Delaware limited liability company formed by GSCP and certain other
investors, and GST Acquisition Corp. ("GST"), a Delaware corporation and a
wholly owned subsidiary of G-II. In connection with the Recapitalization, all
of the shares of common stock of Holdings ("Holdings Common Stock") and all
options and warrants to acquire Holdings Common Stock (other than certain shares
of Holdings Common Stock and certain options to acquire Holdings Common Stock
owned by certain members of management of Old Telex) were converted into the
right to receive
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<PAGE> 10
an aggregate amount of cash (the "Recapitalization Consideration") equal to
approximately $253.9 million. In addition, in connection with the
Recapitalization Agreement, certain shares of Holdings Common Stock held by
management of Old Telex (such shares, the "Rollover Shares") and certain options
to acquire additional shares of Holdings Common Stock (the "Rollover Options"),
with an aggregate value of approximately $21.2 million (which represented
approximately 14% of the equity of Holdings on a non-diluted basis and
approximately 20% on a fully diluted basis) were retained by such managers. In
connection with the Recapitalization, Old Telex completed (i) a tender offer
(the "Tender Offer") to repurchase all of Old Telex's then outstanding 12%
Senior Notes due 2004, in aggregate principal amount of $100.0 million, for
$118.3 million (including premium and consent fees along with accrued interest),
and (ii) a solicitation of consents with respect to certain amendments to the
indenture pursuant to which such notes were issued. The Recapitalization, the
financing thereof (including the issuance by Old Telex of 10 1/2 % Senior
Subordinated Notes due 2007 (the "Existing Telex Notes") to Chase Securities,
Inc., Morgan Stanley & Co. Incorporated and Smith Barney, Inc.), the Tender
Offer and the payment of the related fees and expenses are herein referred to as
the "Recapitalization Transaction."
The Recapitalization was financed by (i) $108.4 million of new equity provided
by GSCP and certain other co-investors, (ii) the Rollover Shares and Rollover
Options valued at $21.2 million, (iii) a $140.0 million senior secured credit
facility (the "Senior Secured Credit Facility") with The Chase Manhattan Bank,
Morgan Stanley Senior Funding, Inc. and certain other lenders, consisting of (a)
a $115.0 million term loan facility (the "Term Loan Facility"), and (b) a $25.0
million revolving credit facility (the "Revolving Credit Facility"), (iv) $125.0
million of Existing Telex Notes and (v) $36.5 of available cash of Old Telex.
Of the $108.4 million of new equity contributed by GSCP and certain other
co-investors, $25.2 million consisted of proceeds from the issuance by GST (a
predecessor of Holdings) of Deferred Pay Subordinated Debentures due 2009 (the
"GST Subordinated Debentures").
Pursuant to the Recapitalization of Old Telex on May 6, 1997, the historical
basis of all assets and liabilities was retained for financial reporting
purposes, and the repurchases of existing Holdings Common Stock and issuance of
new Holdings Common Stock have been accounted for as equity transactions.
In October 1997, Old Telex completed an exchange offer of $125.0 million
aggregate principal amount of new 10 1/2 % Senior Subordinated Notes Due 2007,
Series A (the "New Telex Notes"), which were registered under the Securities
Act, for a like principal amount of the Existing Telex Notes (together with the
New Telex Notes, the "Telex Notes"). All of the Existing Telex Notes were
tendered and accepted for exchange.
The Mergers. On February 2, 1998 Old EVI merged with Old Telex, with Old EVI
surviving and changing its corporate name to "Telex Communications, Inc." The
Merger was effected pursuant to an agreement and plan of merger, dated January
29, 1998 under which Greenwich I LLC ("G-I"), a subsidiary wholly owned by GSCP
and certain affiliated investors, exchanged all of the issued and outstanding
common and preferred stock of EVI Holdings, the former parent of Old EVI, for
1,397,400 shares of Holdings Common Stock, and 13,000 shares of Holdings' Series
A Pay-in-Kind Preferred Stock, respectively, and EVI Holdings was merged with
and into Holdings, with Holdings continuing as the surviving corporation. The
Mergers have been accounted for essentially as a pooling of interests from May
6, 1997, the date on which Old EVI and Old Telex came under common control, and
the financial statements of the Company for Fiscal 1998 accordingly include the
results of Old Telex from May 6, 1997. Immediately prior to the Mergers,
approximately $12.7 million of indebtedness outstanding under Old EVI's senior
credit facility was paid in full and Old EVI's senior credit facility was
terminated. Such indebtedness, together with $0.4 million of certain fees and
expenses associated with the Mergers, was repaid by utilizing free cash at
closing from Old EVI of $3.8 million and by
10
<PAGE> 11
borrowings under Old Telex's Revolving Credit Facility of approximately $9.3
million. Total fees and expenses incurred as a result of the Mergers were $1.7
million, including the $0.4 million paid at closing. The EVI Notes remain
outstanding following the Mergers.
The Acquisition Transactions, the Recapitalization Transaction, and the Mergers
are referred to herein collectively as the "Transactions."
OVERVIEW
The Company, formed as a result of the February 2, 1998 merger of Old Telex and
Old EVI (see "The Mergers"), is a leader in the design, manufacture and
marketing of sophisticated audio, wireless and multimedia communications
equipment to commercial, professional and industrial customers. The Company
provides high value-added communications products designed to meet the specific
needs of customers in commercial, professional and industrial markets, and does
not participate in the competitive retail consumer electronics market. The
Company offers a comprehensive range of products worldwide for professional
audio systems as well as for multimedia and other communications product
markets, including wired and wireless microphones, wired and wireless intercom
systems, mixing consoles, signal processors, amplifiers, loudspeaker systems,
headphones and headsets, tape duplication products, talking book players, LCD
projectors, wireless LAN and PCS antennas, hearing aids and wireless assistive
listening devices.
Subsequent to the Mergers, the Company has reorganized its business into two
business segments: Professional Sound and Entertainment and Multimedia/
Communications. Prior to the Mergers, essentially all of the Company's business
consisted of Old EVI's three principal lines of business within the overall
professional audio market: Fixed Installation, Professional Music Retail and
Concert/Recording/Broadcast. These businesses now comprise a part of the
Company's Professional Sound and Entertainment business segment. In addition, as
a result of the Mergers, the Multimedia/Communications business segment
(consisting mostly of businesses of Old Telex) accounts for a significant
proportion of the Company's business.
The Company maintains assets and/or operations in a number of foreign
jurisdictions, the most significant of which are Germany, the United Kingdom,
Japan, Singapore, and Hong Kong. In addition, the Company conducts business in
local currency in many countries, the most significant of which are Germany, the
United Kingdom, Japan, Singapore, Hong Kong, Canada, Australia, Switzerland and
France. Exposure to U.S. dollar/German mark and U.S. dollar/British pound
exchange rate volatility is mitigated to some extent by the Company's ability to
source its production needs with existing manufacturing capacity in Germany and
Great Britain, and the exposure to the U.S. dollar/Japanese yen exchange rate
volatility is to some extent mitigated by sourcing products denominated in yen
from Japan or through contractual provisions in sales agreements with certain
customers. Nevertheless, the Company has a direct and continuing exposure to
both positive and negative foreign currency movements.
The Company reports the foreign exchange gains or losses on transactions as
part of other (income) expense. Gains and losses on translation of foreign
currency denominated balance sheets are classified as currency translation
adjustments and are included as part of shareholder's deficit. The Company's
predecessor financial statements (i.e., Old EVI's financial statements)
excluded realized foreign currency transaction gains and losses since these
were viewed as an integral part of Mark IV's consolidated risk management.
11
<PAGE> 12
RESULTS OF OPERATIONS
General. The Mergers contributed $37.0 million to the Company's reported sales
for the quarter ended June 30, 1998, approximately 30.6% of which is
attributable to the Professional Sound and Entertainment business segment and
approximately 69.4% of which is attributable to the Multimedia/Communications
business segment. As a result of the Mergers, the Professional Sound and
Entertainment business segment accounted for approximately 63.8% of the
Company's reported sales for the quarter ended June 30, 1998, down from
approximately 68.0% in the quarter ended June 30, 1997. The corresponding
proportions for Multimedia/Communications business segment were 36.2% and 32.0%.
The following tables set forth, for the periods indicated, the Company's
net sales, in thousands:
<TABLE>
<CAPTION>
Three months ended June 30,
1998 1997
---- ----
<S> <C> <C>
Net Sales:
Professional Sound and
Entertainment $ 50,314 $ 49,894
Multimedia/Communications 28,574 23,529
--------- ---------
Total net sales $ 78,888 $ 73,423
========= =========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net Sales. The Company's net sales increased $5.5 million, or 7.4%, from $73.4
million in the quarter ended June 30, 1997 to $78.9 million in the quarter ended
June 30, 1998. Excluding the impact of Old Telex, net sales decreased $4.8
million, or 10.2%, from $46.7 million in the quarter ended June 30, 1997 to
$41.9 million in the quarter ended June 30, 1998, primarily due to a decrease in
the Company's net sales to customers outside of the U.S. as well as to the
phase-out of certain product lines starting in the fourth quarter of Fiscal 1998
and to the sale in April 1998 of the Gauss high-speed, bin-loop, tape
duplication business and operations. The decrease in net sales to customers
outside of the U.S. was due in part to the stronger U.S. dollar, principally
against the German mark, Australian dollar and Japanese yen, which reduced the
foreign currency denominated translated sales, and to the weak economies in Hong
Kong and in certain other Asian countries. Excluding the impact of Old Telex,
the stronger U.S. dollar decreased foreign currency denominated translated sales
by approximately $1.3 million in the quarter ended June 30, 1998.
Net sales in the Company's Professional Sound and Entertainment segment
increased $0.4 million, or 0.8%, from $49.9 million in the quarter ended June
30, 1997 to $50.3 million in the quarter ended June 30, 1998. Excluding the
impact of Old Telex, this segment's net sales decreased $3.9 million, or 9.1%,
from net sales of $42.9 million in the quarter ended June 30, 1997 to $39.0
million in the quarter ended June 30, 1998. This decrease is attributed
primarily to the decrease in net sales to customers outside of the U.S., as
described above.
Net sales in the Company's Multimedia/Communications segment increased $5.1
million, or 21.4%, from $23.5 million in the quarter ended June 30, 1997 to
$28.6 million in the quarter ended June 30, 1998. Excluding the impact of Old
Telex, this segment's net sales decreased $0.9 million, or 23.5%, from $3.8
million in the quarter ended June 30, 1997 to $2.9 million in the quarter ended
June 30, 1998.
Gross Profit. The Company's gross profit increased $2.3 million, or 8.3%, from
$27.4 million in the quarter ended June 30, 1997 to $29.7 million in the quarter
ended June 30, 1998. As a percentage of net sales, the gross margin rate
improved from 37.3% in the quarter ended June 30, 1997 to 37.6% in the quarter
ended June 30, 1998. Excluding the impact of Old Telex, the Company's gross
profit decreased $2.2 million, or 13.3%, from $16.5 million in the quarter
12
<PAGE> 13
ended June 30, 1997 to $14.3 million in the quarter ended June 30, 1998, and its
gross margin rate declined from 35.4% in the quarter ended June 30, 1997 to
34.2% in the quarter ended June 30, 1998. The decline in the gross margin rate
is attributed mainly to the unfavorable movement in exchange rates and the
Company's aggressive pricing strategy employed to maintain its foreign market
positions. The unfavorable movement in exchange rates primarily affected the
gross margin rates on sales made in Germany, Japan, and Australia due to the
higher costs of goods produced in the U.S. and sold in these countries.
Engineering. The Company's engineering expenses decreased $0.3 million, or
7.3%, from $4.1 million, or 5.6% of net sales in the quarter ended June 30,
1997 to $3.8 million, or 4.8% of net sales, in the quarter ended June 30, 1998.
Excluding the impact of Old Telex, engineering expenses decreased $0.7
million, or 27.9%, from $2.5 million in the quarter ended June 30, 1997 to $1.8
million in the quarter ended June 30, 1998. The decrease in expenses is
attributable primarily to merger-related restructuring begun the fourth quarter
of Fiscal 1998.
Selling, General and Administrative. Selling, general and administrative
expenses decreased $7.2 million, or 28.2%, from $25.6 million, or 34.9% of net
sales, in the quarter ended June 30, 1997 to $18.4 million, or 23.4% of net
sales, in the quarter ended June 30, 1998. Excluding the impact of Old Telex,
selling, general and administrative expenses decreased $1.2 million, or 10.5%,
from $11.1 million in the quarter ended June 30, 1997 to $9.9 million in the
quarter ended June 30, 1998. The decrease was primarily due to spending
restraints and to merger-related reductions in employee levels begun in the
fourth quarter of Fiscal 1998.
Selling, general and administrative expenses in the quarters ended June 30, 1998
and 1997 attributed to Old Telex were $8.5 million and $14.6 million,
respectively, including $1.3 million and $9.5 million, respectively, of costs
related to the Recapitalization, consisting of charges for changes in the
Rollover Options, new option grants and special management bonus compensation.
Compensation expense of $7.4 million related to the extension of terms on the
Rollover Options was recognized in the quarter ended June 30, 1997. In
addition, as part of the Recapitalization Transaction, the Company granted
options to purchase shares of Holdings Common Stock at a discount from fair
value to certain management employees. The total discount of $9.2 million will
be recognized as compensation expense over the vesting or performance period of
the options, generally three to five years. In the quarters ended June 30, 1998
and 1997, the Company recognized $0.4 million and $8.7 million, respectively, of
compensation expense related to these Rollover Options and option grants.
Corporate Charges. Corporate charges of $0.4 million in the quarter ended June
30, 1998 and 1997 represent fees for consulting and management services provided
by GCSP under a management and services agreement.
Other (income) expense. The Company's royalty income, together with a gain on
the sale of the Gauss business, exceeded the foreign exchange loss and other
expenses in the quarter ended June 30, 1998. The foreign exchange loss was
primarily due to the unfavorable exchange rate movement in the German mark,
Australian dollar and Japanese yen against the U.S. dollar.
In the quarter ended June 30, 1998, the Company recorded a gain of $0.1 million
on $0.5 million of proceeds on the sale of the Gauss business.
Recapitalization expense. The Company recorded a $7.0 million recapitalization
expense in the quarter ended June 30, 1997, attributed to Old Telex. The charge
consists of fees for investment advisory, legal, audit and other professional
services attributed to the Recapitalization Transaction. No such
recapitalization expense was incurred by the Company during the quarter ended
June 30, 1998.
13
<PAGE> 14
Interest (income) expense. Interest expense increased from $9.1 million in the
quarter ended June 30, 1997 to $9.3 million in the quarter ended June 30, 1998.
Excluding the impact of Old Telex, interest expense decreased $0.3 million, from
$3.1 million in the quarter ended June 30, 1997 to $2.8 million in the quarter
ended June 30, 1998. The decrease was primarily due to the reduction in
outstanding indebtedness.
Extraordinary Loss. In connection with the Transactions, the Company recorded a
pre-tax extraordinary loss of $10.6 million on the early retirement of debt for
the quarter ended June 30, 1997, consisting of bond premium, consent and tender
fees, along with the write-off of deferred financing costs associated with the
repurchase and early retirement of Old Telex's $100.0 million 12% Senior Notes
due 2004. No such extraordinary loss was incurred by the Company during the
quarter ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 the Company had cash and cash equivalents of $2.5 million
compared to $2.2 million at March 31, 1998. The Company's principal source of
funds in the quarter ended June 30, 1997 consisted of cash generated from
operating activities. Net cash provided by operations in the quarter ended
June 30, 1998 was $3.2 million.
The Company's investing activities consist mainly of capital expenditures to
maintain facilities, to acquire machines or tooling, to update certain
manufacturing processes and to improve efficiency. Capital expenditures totaled
$1.4 million in the quarter ended June 30, 1998 compared with $1.4 million in
the quarter ended June 30, 1997. Excluding the impact of Old Telex, capital
expenditures in the quarter ended June 30, 1998 were $0.2 million. The
Company's ability to make capital expenditures is subject to certain
restrictions under its Senior Secured Credit Facility.
The Company's consolidated indebtedness decreased $1.9 million from $353.2
million at March 31, 1998 to $351.3 million at June 30, 1998. The decrease in
indebtedness was due primarily to scheduled principal reductions on the
Company's Term Loan Facility.
The Company's liquidity needs arise primarily from debt service on indebtedness
incurred in connection with the Transactions, working capital needs and capital
expenditure requirements. The Company incurred substantial indebtedness in
connection with the Acquisition Transactions and the Recapitalization
Transaction. As a result, debt service represents significant liquidity
requirements for the Company.
The Company relies mainly on internally generated funds, and, to the extent
necessary, borrowings under the Revolving Credit Facility and foreign working
capital lines to meet its liquidity needs. Prior to the consummation of the
Acquisition Transactions, Old EVI operated as a division of Mark IV and
substantially all of its cash needs were historically funded through
interest-free cash requisitions from Mark IV.
The Company's current credit facilities include the Senior Secured Credit
Facility consisting of the Term Loan Facility of $111.3 million and the
Revolving Credit Facility, subject to certain borrowing base limitations, of
$25.0 million, and foreign working capital lines, subject to certain
limitations, of $4.8 million. In certain instances the foreign working capital
lines are secured by a lien on foreign real property, leaseholds, accounts
receivable and inventory or are guaranteed by another subsidiary.
As of June 30, 1998, $8.5 million of the Company's $111.3 million Term Loan
Facility is payable in the next 12 months. In addition, the Company had $11.3
million outstanding under the Revolving Credit Facility, and $3.7 million
outstanding under the foreign working capital
14
<PAGE> 15
lines. Net availability at June 30, 1998 under the Revolving Credit Facility,
computed by deducting approximately $6.9 million of open letters of credit and
applying applicable borrowing limitations, totaled $6.8 million. Net
availability at June 30, 1998 under such foreign working lines totaled $1.1
million. Outstanding balances under substantially all of these credit
facilities bear interest at floating rates based upon the interest rate option
selected by the Company; therefore, the Company's financial condition is and
will continue to be affected by changes in the prevailing interest rates. The
effective interest rate under these credit facilities in the quarter ended June
30, 1998 was 8.4%.
Pursuant to the Term Loan Facility, the Company is required to make permanent
principal payments under (i) the $50.0 million Tranche A Term Loan Facility
($46.5 million outstanding at June 30, 1998), $6.0 million in the remainder of
Fiscal 1999 and $8.0 million, $8.7 million, $12.0 million, and $11.8 million of
which is payable in each of Fiscal 2000, 2001, 2002 and 2003 (which has a final
maturity date of November 6, 2002), respectively, and (ii) the $65.0 million
Tranche B Term Loan Facility ( $64.8 million outstanding at June 30, 1998), $0.4
million in the remainder of Fiscal 1999 and $0.5 million, $0.5 million, $0.5
million, $6.6 million, $28.1 million and $28.2 million of which is payable in
each of Fiscal 2000, 2001, 2002, 2003, 2004 and 2005 (which has a final maturity
date of November 6, 2004), respectively. In addition, under the terms of the
Senior Secured Credit Facility, the Company is required to make mandatory
prepayments with (i) non-ordinary asset sale proceeds, (ii)any additional
indebtedness and equity proceeds (with certain exceptions) and (iii) with 75%
of the excess cash flow of the Company and its subsidiaries for each fiscal
year.
The Company expects to generate additional cash flows from operations as a
result of Merger-related restructurings. In addition, in June 1998, the
Company received a $7.2 million tax refund associated with its net operating
loss tax benefit and has arranged a $4.0 million intercompany line of credit
with Holdings. In addition, the Company is actively implementing plans to
reduce inventory and improve the accounts receivable collection experience.
The Company believes that these additional sources of funds, together with the
Company's Revolving Credit Facility and cash from operations will be adequate to
meet its debt service and principle payment requirements, capital expenditure
needs, working capital requirements, and the funding needed for the
restructuring and other related expenditures attributed to the Mergers. However,
no assurance can be given in this regard, because working capital requirements
and other circumstances may change. The Company's future performance and its
ability to service its obligations will also be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond the Company's control.
MANAGEMENT OF FOREIGN CURRENCY RISK
From time to time the Company enters into forward exchange contracts to hedge
inventory purchases denominated in Japanese yen for periods consistent with its
inventory purchase commitments. These foreign exchange contracts typically have
maturity dates which do not exceed one year and require the Company to exchange
U.S. dollars for Japanese yen at maturity, at rates agreed to at the inception
of the contracts. As of June 30, 1998, the Company had no foreign currency
forward exchange contracts outstanding.
ENVIRONMENTAL MATTERS
The Company is a party in a number of environmental enforcement matters and
related claims which have arisen in the ordinary course of business. The
Company believes that such matters and claims, if finally determined in a manner
adverse to the Company, whether considered separately or in the aggregate, would
not have a material adverse effect on the operating results or financial
condition of the Company. The Company believes that compliance with current
federal, state and
15
<PAGE> 16
local environmental protection laws and provisions should not have a material
adverse effect on the operating income or financial condition of the Company.
The assessment of materiality of such environmental matters and claims is based
on a gross determination of such charges that could occur and does not give
effect to possible third party recoveries.
YEAR 2000
Many computer systems used today may be unable to interpret data correctly after
December 31, 1999 because they allow only two digits to indicate the year in a
date. The Company uses computer systems for various operations, including for
financial reporting, billing, order processing, purchasing, inventory management
and certain manufacturing operations. The Company has replaced a substantial
portion of its systems in recent years with Year 2000 compliant systems. The
Company believes that the replacement, upgrade and changes to the remaining
non-compliant systems to address the Year 2000 issues will be completed by late
1999 at an estimated future expenditure of $1.5 million. The Company does not
expect any material impact on its results of operations, liquidity or financial
condition, due to incomplete or untimely resolution of Year 2000 issues.
Management believes that such expenditures will not have a material impact on
the level of the Company's capital expenditures in Fiscal 1999 and 2000.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for fiscal years beginning
after December 14, 1997. SFAS No. 131 requires disclosure of business and
geographic segments in the consolidated financial statements of the Company.
The Company will adopt SFAS No. 131 in Fiscal 1999 and is currently analyzing
the impact that such adoption will have on the disclosures in its financial
statements.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 31, 1997. SFAS No. 132 revised certain of the
disclosure requirements, but does not change the measurement or recognition of
those plans. SFAS No. 132 superseded SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The adoption of SFAS No. 132 will
result in revised and additional disclosures, but will have no effect on the
financial position, results of operations, or liquidity of the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge criteria are met. Special accounting for qualifying
hedges allow a derivative's gains or losses to offset related results on the
hedged item in the income statement and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. The Company has not quantified the impacts of adopting SFAS
No. 133 and has not yet determined the timing or method of adoption.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION
The Company has used the Telex(R) trademark pursuant to a perpetual,
royalty-free license granted to the Company in 1989 by Memorex Telex Corporation
("MTC"). As of August 4, 1998, the Company acquired for $0.1 million, all of
MTC's rights, title and interest throughout the world in the Telex(R) trademark
and related trade names, registrations and applications ("the Telex Marks")
together with the goodwill associated with the Telex Marks.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Purchase Agreement, dated August 4, 1998 between Telex and MTC.
27 Financial data schedule
(b) Reports on Form 8-K
Company filed a report on Form 8-K/A on April 21, 1998 which Form
8-K/A: Unaudited Pro Forma Condensed Statement of Operations for the
fiscal year ended February 28, 1997 for Old EVI and March 31, 1997 for
Old Telex, respectively; Unaudited Pro Forma Condensed Statement of
Operations for the nine months ended November 30, 1997 for Old EVI and
December 31, 1997 for Old Telex, respectively; Unaudited Pro Forma
Condensed Balance Sheet as of November 30, 1997 for Old EVI and December
31, 1997 for Old Telex, respectively, and Notes to the Unaudited Pro Forma
Condensed Financial Statements.
17
<PAGE> 18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
TELEX COMMUNICATIONS, INC.
Dated: August 14, 1998 By: /s/ John L. Hale
----------------- -----------------
John L. Hale
President and Chief Executive Officer
TELEX COMMUNICATIONS, INC.
Dated: August 14, 1998 By: /s/ John T. Hislop
----------------- -----------------
John T. Hislop
Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
18
<PAGE> 19
TELEX COMMUNICATIONS, INC.
FORM 10-Q
EXHIBIT INDEX
10 Purchase Agreement, dated August 4, 1998 between Telex Communications,
Inc. and Memorex Telex Corporation.
27 Financial Data Schedule
19
<PAGE> 1
EXHIBIT 10
BILL OF SALE
------------
This Bill of Sale is made as of the 4th day of August, 1998 in connection
with the sale of certain assets of Memorex Telex Corporation ("Seller"), a
Delaware corporation, as debtor and debter in possession to Telex
Communications, Inc., a Delaware corporation ("Purchaser").
For $100,000 cash and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Purchaser agree as
follows:
1. Seller hereby sells, assigns, transfer, conveys and delivers to
Purchaser all its rights, title and interest throughout the world in and to the
trademarks, registrations, and applications for registration thereof, on the
attached Schedule A (the "Trademarks") and the goodwill of the business
throughout the world associated with the Trademarks, to have and to hold same
forever AS IS and WITHOUT REPRESENTATIONS and WARRANTIES, except as set forth
in that certain Assignment of Trademarks, Applications and Registrations of even
date herewith.
2. This Bill of Sale is subject to the order of the Bankruptcy Court
authorizing the Debtor's sale of certain Trademarks dated July 29, 1998 (the
"Order"), and whenever the terms of this Bill of Sale and the Order conflict,
the terms of the Order shall be controlling.
3. This Bill of Sale shall be binding upon and inure to the benefit of
Seller and Purchaser and their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed as of date first above written.
MEMOREX TELEX CORPORATION
AS DEBTOR IN POSSESSION
By: /s/ Anthony J. Barbieri
------------------------
<PAGE> 2
ASSIGNMENT OF TRADEMARKS,
APPLICATIONS AND REGISTRATIONS
WHEREAS, Memorex Telex Corporation, a corporation organized and existing
under the laws of the state of Delaware ("Assignor"), having its principal
office at 811 South Central Expressway, Suite 345, Richardson, Texas 75080, is
the registrant or applicant for those certain United States and foreign
trademarks (the "Trademarks"), applications and registrations identified on
Exhibit A hereto; and
WHEREAS, Telex Communications, Inc., a corporation organized and existing
under the laws of the State of Delaware ("Assignee"), having its principal
office at 9600 Aldrich Avenue South, Minneapolis, Minnesota 55420, is desirous
of acquiring the Trademarks and the applications and registration thereof,
together with related goodwill;
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) Dollar
($1.00) and other good and valuable consideration, receipt of which is hereby
acknowledged, Assignor has sold, assigned and transferred, and by these presents
does hereby sell, assign and transfer unto Assignee, its successors, assigns or
other legal representatives, its entire right, title and interest, including
common law rights, in and to the Trademarks and the registrations and
applications thereof, together with the goodwill of the business in connection
with which the Trademarks are used and the
1
<PAGE> 3
right to sue for and collect damages for past infringement of the Trademarks.
In connection with the foregoing assignment, Assignor represents and
warrants to Assignee that it is the owner of all right, title and interest in
the Trademarks, that to the best of its knowledge all trademark rights are in
full force and effect, and that, except as otherwise disclosed on Exhibit B
hereto, it has granted no other existing license to use the Trademarks and that
the Trademarks are not currently pledged, assigned or other otherwise
encumbered, in part or in whole. Assignor further represents and warrants that
it has no knowledge of any third party asserting or contending orally or in
writing, that: (i) such third party has superior or concurrent rights, title or
interest in or to the Trademarks, (ii) the use of the Trademarks by Assignor
constitutes an infringement of such third party's asserted rights in the
Trademarks, or (iii) the Trademarks are unenforceable, invalid or unprotectable
by Assignor. Assignor further represents and warrants to the best of its
knowledge that all statements made in applications for registration of the
Trademarks and related documentation are true, complete and accurate, and that
all Trademarks described as registered in Exhibit A have been validly
registered and are in full compliance with all applicable regulations and laws
of each and every country where registered, and that all renewals and, where
appropriate, affidavits of continued use have been timely filed,
2
<PAGE> 4
Assigner has the full power to enter into this Assignment and to make the
grants herein contained.
If at any time following the date hereof Assignee shall consider that any
further assignments, conveyances of documents or any other things are necessary
to vest in Assignee title to the Trademarks, Assignor shall upon Assignee's
reasonable request, promptly execute and deliver all such transfer documents and
do all things necessary to vest title in Assignee and to otherwise carry out the
purpose of this Assignment.
Assignor appoints Assignee as Assignor's Attorney-in-Fact for execution of
such documents in the event assignor fails to execute and deliver such
documents. Assignor recognizes that this power of attorney is irrevocable since
the power is coupled with Assignee's interest in the Trademarks.
3
<PAGE> 5
IN WITNESS WHEREOF, Memorex Telex Corporation has caused this instrument to
be signed by a duly authorized officer.
MEMOREX TELEX CORPORATION
By:
------------------------------------- ----------------------
Name: Date
Its:
ASSIGNEE
TELEX COMMUNICATIONS, INC.
By: /s/ John A. Palleschi 8-4-98
-------------------------------------- ----------------------
Name: John A. Palleschi Date
Its: Vice President & General Counsel
4
<PAGE> 6
IN WITNESS WHEREOF, Memorex Telex Corporation has caused this
instrument to be signed by a duly authorized officer:
MEMOREX TELEX CORPORATION
By: /s/ Anthony J. Barbieri August 7, 1998
------------------------------ --------------------
Name: ANTHONY J. BARBIERI Date
Its: GENERAL COUNSEL
ASSIGNEE
TELEX COMMUNICATIONS, INC.
By:
------------------------------ --------------------
Name: Date
Its:
4
<PAGE> 7
STATE OF TEXAS )
--------------) SS.
COUNTY OF DALLAS )
--------------
On this 4th day of August, 1998, before me personally came Anthony J.
Barbieri to me known, who being by me duly sworn, did depose and say that (s)he
resides at 1012 Meadow Crk. Dr. 3156 Irving TX 75038, that (s)he is the General
Counsel of MEMOREX TELEX CORPORATION, the corporation described in and which
executed the foregoing instrument, as Assignor, and that he was authorized to
execute the foregoing instrument by order of the bankruptcy court dated July
29, 1998.
No.
--------------
Name: Shelia A. Miller
[ STAMP ] -------------------------------
Notary Public
for the State of TEXAS
--------------
My Commission Expires: 12/2/99
---------
5
<PAGE> 8
EXHIBIT A to
Assignment of Trademarks, Applications and Registrations
SCHEDULE 1:
Registrations and applications as set forth on Annex 1 and the registrations
and applications for the TELEX Trademark registered in the following countries:
JP
AU
AT
BX
CA
DK
FI
FR
OR
IN
IT
MX
NO
ES
SR
CH
GB
CN
BR
NZ
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,489
<SECURITIES> 0
<RECEIVABLES> 58,327
<ALLOWANCES> 0
<INVENTORY> 78,120
<CURRENT-ASSETS> 149,686
<PP&E> 49,331
<DEPRECIATION> 0
<TOTAL-ASSETS> 288,543
<CURRENT-LIABILITIES> 82,030
<BONDS> 327,750
0
0
<COMMON> 0
<OTHER-SE> (128,433)
<TOTAL-LIABILITY-AND-EQUITY> 288,543
<SALES> 78,888
<TOTAL-REVENUES> 78,888
<CGS> 49,232
<TOTAL-COSTS> 23,337
<OTHER-EXPENSES> (163)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,299
<INCOME-PRETAX> (2,817)
<INCOME-TAX> 342
<INCOME-CONTINUING> (3,159)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,159)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
