<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES
UNDER THE TRUST INDENTURE ACT OF 1939
--------------------
MOVIE STAR, INC.
(Name of Applicant)
136 Madison Avenue, New York, New York 10016
(Address of Principal Executive Offices)
SECURITIES TO BE ISSUED UNDER INDENTURE
TO BE QUALIFIED
TITLE OF CLASS AMOUNT
8% Senior Notes due 2001 $10,558,000
and
8% Convertible Senior Notes due 2001 $ 718,400
Approximate Date of Proposed Public Offering:
As promptly as possible after the effective date of this Application
for Qualification
Name and Address of Agent for Service:
--------------------------------------
Copies to:
Michael A. Salberg, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016-2097
<PAGE> 2
GENERAL
1. General Information
(a) Form of organization: a corporation
(b) State or other sovereign power under the laws of which
organized: New York
2. Securities Act Exemption Applicable
Pursuant to the terms of a Tender and Exchange Agreement (the
"EXCHANGE AGREEMENT"), between the Applicant and certain holders
(collectively, the "EXCHANGING HOLDERS") of $10,187,000 in aggregate
principal amount of the Applicant's outstanding 12-7/8% Senior
Subordinated Debentures due 2001 (the "OLD DEBENTURES"), the Applicant
has agreed to exchange, for each $1,000 in principal amount of Old
Debentures surrendered for exchange by such Exchanging Holders,
$1,036.44 in principal amount of its 8% Senior Notes due 2001 (the
"NON-CONVERTIBLE DEBENTURES"), and $70.51 in principal amount of its 8%
Convertible Senior Notes due 2001 (the "CONVERTIBLE DEBENTURES", and
collectively with the Non-Convertible Debentures, the "INDENTURE
SECURITIES"). The Indenture Securities are the securities to be issued
under the indenture to be qualified hereunder. The exchange of the Old
Debentures for the Indenture Securities would be exempt from
registration under the Securities Act of 1993, as amended (the
"SECURITIES ACT") under Section 3(a)(9) of the Securities Act.
There have not been, nor are there to be, any sales of
securities of the same class as the Indenture Securities by the
Applicant or by or through an underwriter at or about the same time as
the exchange transaction for which the Section 3(a)(9) exemption is
claimed (the "EXCHANGE TRANSACTION"). No consideration has been given,
or is to be given, directly or indirectly, to any person in connection
with the Exchange Transaction (other than legal fees payable for legal
services rendered on behalf of the Applicant and Exchanging Holders).
No cash payment has been, or will be, made to any Exchanging Holder
other than in lieu of fractional denominations of Indenture Securities.
AFFILIATIONS
3. Affiliates
Furnish a list or diagram of all affiliates of the Applicant
and indicate the respective percentages of voting securities or other
bases of control:
<PAGE> 3
The following table sets forth as of June 30, 1996 certain
information with respect to ownership of the Common Stock of the Applicant by
its affiliates.
<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class(1)
- ------------------------ -------------------- -------------------
<S> <C> <C>
Mark M. David
41 Fieldstone Lane
Oyster Bay, NY 11771 3,015,773(2)(5) 21.0996%
Mrs. Abraham David
8710 Banyan Court
Tamarac, FL 33321 1,622,959(3)(6) 11.6261%
Saul Pomerantz 170,026(4) 1.2055%
Gary W. Krat 10,000 0.0716%
Joel M. Simon 47,500 0.3402%
Abraham David
8710 Banyan Court
Tamarac, FL 33321 66,000 0.4728%
Direct(8)
All directors and officers as
a group
(4 persons) 4,866,258(2)(4)(7)
34.8594%
</TABLE>
- -----------------------------------
(1) Based upon 13,959,650 shares (excluding 2,016,802 treasury shares)
outstanding and options, where applicable, to purchase shares of Common
Stock, exercisable within 60 days.
(2) Includes 58,674 shares owned as custodian for his children, 30,000
shares owned as custodian for his sisters' children and 26,560 shares
owned by his spouse. Also includes the options granted to him for
333,333 shares, under the Applicant's 1988 Non-Qualified Stock Option
Plan, exercisable within 60 days.
(3) Includes 506,695 shares owned by Annie David as a trustee for the
benefit of her daughters, Marcia Sussman and Elaine Greenberg.
(4) Includes options granted to Saul Pomerantz for 144,782 shares pursuant
to the Applicant's 1994 ISOP, exercisable within 60 days; and 244
shares owned by his spouse and 8,000 held jointly with his spouse.
(5) Does not include Mrs. Abraham David's shares for which he holds the
proxy.
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<PAGE> 4
(6) Mark M. David holds a proxy for these shares.
(7) Includes the shares held by Mrs. Abraham David.
(8) Abraham David is the husband of Annie David and the father of Mark M.
David.
MANAGEMENT AND CONTROL
4. Directors and Executive Officers
List the names and complete mailing addresses of all directors
and executive officers of the Applicant, and all persons chosen to
become directors and executive officers, and all offices with the
Applicant held or to be held by each of such person:
<TABLE>
<CAPTION>
Director Since Name Position
- -------------- ---- --------
<S> <C> <C>
1981 Mark M. David Chairman of the Board;
136 Madison Avenue Director
New York, NY 10016
1983 Saul Pomerantz Senior Vice President; Chief
136 Madison Avenue Financial Officer; Secretary;
New York, NY 10016 Director
1996 Gary W. Krat Director
733 Third Avenue
New York, NY 10017
1996 Joel M. Simon Director
237 Park Avenue
New York, NY 10017
</TABLE>
-3-
<PAGE> 5
5. Principal Owners of Voting Securities
The following table sets forth as of June 30, 1996 certain
information with respect to the principal owners of the Common Stock of the
Company.
<TABLE>
<CAPTION>
Percentage of
Name and Complete Title of Class Voting Securities
Mailing Address Owned Amount Owned Owned(1)
- ----------------- -------------- ------------ -----------------
<S> <C> <C>
Mark M. David Common 3,015,773 21.0996%
41 Fieldstone Lane (2)(4)(6)
Oyster Bay, NY
11771
Mrs. Abraham Common 1,622,959 11.6261%
David (3)(5)(6)
8710 Banyan Court
Tamarac, FL 33321
Republic National Bank Common 1,336,228 9.5720%
as Trustee for the
Movie Star, Inc.
Employee Stock Ownership
Plan
452 Fifth Avenue
New York, NY 10018
</TABLE>
- ------------------------------
(1) Based upon 13,959,650 shares outstanding and options, where applicable,
to purchase shares of Common Stock, exercisable within 60 days.
(2) Includes 58,674 shares owned as custodian for his children, 30,000
shares owned as custodian for his sister's children and 26,560 shares
owned by his spouse. Also includes the options granted to him for
333,333 shares, under the Applicant's 1988 Non-Qualified Stock Option
Plan, exercisable within 60 days.
(3) Includes 506,695 shares owned by Annie David as a trustee for the
benefit of her daughters, Marcia Sussman and Elaine Greenberg.
(4) Does not include Mrs. Abraham David's shares for which he holds the
proxy.
(5) Mark M. David holds a proxy for these shares.
(6) Does not include 66,000 shares owned by Abraham David, who is the
husband of Annie David and the father of Mark M. David.
UNDERWRITERS
6. Underwriters
Give the name and complete mailing address of (a) each person
who, within three years prior to the date of the filing of this
application, acted as an underwriter of any securities of the obligor
which were outstanding on the date of the filing of this application,
and (b) each proposed principal underwriter of the securities proposed
to be
-4-
<PAGE> 6
offered. As to each person specified in (a), give the title of each
class of securities underwritten:
(a) None
(b) None
CAPITAL SECURITIES
7. Capitalization
(a) Furnish the following information as to each
authorized class of securities of the Applicant:
As of September 12, 1996:
<TABLE>
<CAPTION>
COL. A COL. B COL. C
------ ------ ------
Title of Class Amount Authorized Amount Outstanding
<S> <C> <C>
Common Stock, $.01 par value 30,000,000 13,959,650
12-7/8% Debentures due 10/1/2001 $25,000,000 $25,000,000
</TABLE>
(b) Give a brief outline of the voting rights of each
class of voting securities referred to in paragraph (a) above:
Each share of Common Stock is entitled to one vote per share
for the election of directors and upon all other matters.
INDENTURE SECURITIES
8. Analysis of Indenture Provisions
The Indenture Securities will be issued under the indenture to
be qualified hereby (the "INDENTURE") which provides for American Stock
Transfer & Trust Company to serve as trustee thereunder (the
"TRUSTEE"). The following is a description of certain provisions of the
Indenture required by Section 305(a)(2) of the Trust Indenture Act of
1939, as amended, and is qualified in its entirety by reference to the
Indenture, filed as Exhibit T3C hereto. Capitalized terms used in this
Item 8 and not otherwise defined shall have the meanings, respectively,
specified in the Indenture.
(A) EVENTS OF DEFAULT: The occurrence of any of the following
events constitutes an Event of Default under the Debentures which
entitles the Trustee or the holders of not less than 25% in aggregate
principal amount of the Debentures then outstanding to declare, by
written notice to the Company (and to the Trustee, if such notice is
given by the holders of Debentures), the principal of, and accrued but
unpaid interest on, the Debentures to be immediately due and payable:
-5-
<PAGE> 7
(1) default in the payment of any installment of
interest when due and the continuance of such default for ten
days;
(2) default in the payment of the principal of the
Indenture Securities when due;
(3) failure of the Company to perform or observe any
other covenant or agreement in the Indenture, the Debentures
or the Exchange Agreement for thirty days after written notice
thereof to the Company from the Trustee or the holders of 25%
or more in aggregate principal amount of the Debentures which
notice requires the Company to remedy the same and states that
such notice is a "Notice of Default" under the Indenture;
(4) the occurrence of a default, as defined in any
mortgage, agreement or other instrument under which there may
be issued, or by which there may be secured or evidenced, any
Indebtedness of the Company or any Subsidiary, having
individually or in the aggregate a remaining principal amount
of in excess of $250,000 (whether such Indebtedness currently
exists or is created in the future), which default permits
acceleration of such Indebtedness and continues after notice
from the Trustee to the Company, or from any holder of a
Debenture to the Trustee and the Company, specifying such
default and stating that such notice is a "Notice of Default"
under the Indenture;
(5) the entry by a court of competent jurisdiction
against the Company of an order or decree for relief under
federal or state bankruptcy or similar laws (collectively,
"BANKRUPTCY LAWS"), or the appointment of a receiver or
trustee of the Company or any substantial part of its
property, or ordering the Company's winding-up or liquidation,
which order or decree remains unstayed and in effect for sixty
consecutive days; or
(6) the (i) filing by the Company of a petition,
answer or consent seeking relief under any Bankruptcy Laws or
its consent to any such filing, (ii) consent by the Company to
the institution of proceedings against the Company under any
Bankruptcy Laws or to the appointment of a receiver, custodian
or trustee of the Company or any substantial part of its
property, (iii) making by the Company of an assignment for the
benefit of its creditors, (iv) failure by the Company to pay
its debts generally as they become due, or (v) taking by the
Company of any corporate action in furtherance of any of the
foregoing.
The Trustee is obligated to mail to all holders of
Debentures notice of the occurrence of any of the events
specified above (regardless of whether or not any applicable
grace period has expired or notice has been given) within
ninety days of the Trustee's becoming aware of the occurrence
thereof (unless such default is cured before the giving of
such notice); provided that, other than in the case of a
default in payment of principal or interest, the Trustee may
withhold such notice if it determines in good faith that the
withholding of such notice is in the interests of the holders
of the Debentures.
-6-
<PAGE> 8
(B) AUTHENTICATION AND DELIVERY: The Debentures will be issued
in definitive registered form, without coupons. The Non-Convertible
Debentures will be issued in denominations of U.S. $1,000 and integral
multiples of U.S. $1,000 in excess thereof and the Convertible
Debentures will be issued in denominations of U.S. $500 and integral
multiples of U.S. $500 in excess thereof, in each case substantially in
the form specified in Section 2.2 of the Indenture.
The Indenture provides that at any time and from time to time
after the execution and delivery of the Indenture, the Company may
deliver Debentures executed by the Company to the Trustee for
authentication together with a written order of the Company (a "COMPANY
ORDER") for authentication and delivery of such Debentures, and the
Trustee (or an authenticating agent acceptable to the Company) in
accordance with such Company Order will authenticate and deliver such
Debentures. In connection with any Company Order for authentication, a
compliance certificate and Opinion of Counsel is not required. The
Company Order must specify the name or names to be registered, the
principal amount or amounts to be authenticated and the manner and
place of delivery and must otherwise be in a format agreed upon by the
Trustee.
Upon the execution of the Indenture, Non-Convertible
Debentures in the principal amount of up to $1,036.44 and Convertible
Debentures in the principal amount of up to $70.51 will be
authenticated by the Trustee and delivered in exchange for each $1,000
in principal amount of the Company's 12-7/8% Subordinated Debentures
due 2001 duly surrendered to the Company, together with a duly executed
Letter of Transmittal, by the Exchanging Holders.
(C) RELEASE AND SUBSTITUTION: Any Convertible Debenture (or
any portion of the principal amount thereof) may, at the option of the
Holder thereof, be converted at any time prior to the Maturity Date or,
if such Convertible Debenture is called for redemption, until the close
of business on the fifth day preceding the applicable Redemption Date
(unless the Company defaults in making the payment due upon redemption)
into fully paid and nonassessable shares of Common Stock at an initial
conversion price of $.375 per share of Common Stock (or at the current
adjusted conversion price if an adjustment has been made as provided in
the Indenture). The conversion price is subject to adjustment upon
certain events as provided in Section 14.5 of the Indenture.
In the event that a Redemption Notice in respect of any
Convertible Debentures is mailed by the Company on other than a Trigger
Date, the Company is obligated, as a precondition to the redemption, to
deliver, on or prior to the Redemption Date, to the Trustee, as agent
for each Holder whose Convertible Debenture is to be redeemed, duly
executed warrants ("WARRANTS"). Each Warrant (i) shall be exercisable,
in whole or in part, at any time prior to the Maturity Date, and (ii)
shall, effective as of the Redemption Date and the redemption by the
Company of the Convertible Debentures, entitle each Holder of a
redeemed Convertible Debenture to purchase the number of shares of
Common Stock into which his redeemed Convertible Debentures, or
redeemed portion thereof, might have been converted on the Redemption
Date in accordance with Article XIV of the Indenture. In addition, the
Company shall (i) have caused the registration of the Warrants and the
shares of Common Stock underlying the Warrants under the
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<PAGE> 9
Securities Act of 1933 and applicable state securities laws to become
effective on or prior to the Redemption Date, which registration shall
be confirmed by an Officer's Certificate delivered to the Trustee and
such other additional evidence as the Trustee may request, and (ii)
have caused the Common Stock underlying the Warrants to be listed on
such exchange or quoted on such quotation system as is the outstanding
Common Stock immediately prior to the conversion.
Certain distributions giving rise to an adjustment to the
Exercise Price become subject to the lien of the Indenture.
(D) SATISFACTION AND DISCHARGE: The Indenture shall cease to
be of further effect (except as to any surviving rights of exchange, or
registration of transfer or exchange, or replacement of Debentures and
the Company's obligations to the Trustee) and the Trustee, upon demand
and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of the Indenture, when: (1)
either (A) all Debentures theretofore authenticated (other than
Debentures which have been destroyed, lost or stolen and which have
been replaced) have been delivered to the Trustee for cancellation; or
(B) all such Debentures not theretofore delivered to the Trustee for
cancellation (other than Debentures which have been destroyed, lost or
stolen and replaced) (i) have become due and payable within six months,
or (ii) are to be called for redemption within six months under
arrangements satisfactory to the Trustee for the giving of notice of
redemption, and the Company, in the case of clause (i) or (ii) above,
has deposited or caused to be deposited with the Trustee as trust funds
in trust an amount sufficient to pay, at maturity or upon redemption,
the entire indebtedness on such Debentures not theretofore delivered to
the Trustee for cancellation for principal and interest to the date of
maturity or redemption, as the case may be; and (2) the Company has
paid or caused to be paid all other sums payable by the Company.
Notwithstanding the foregoing, the conversion rights of holders of
Convertible Debentures will survive until all the Debentures have been
paid in full.
Notwithstanding the satisfaction and discharge of the
Indenture, the obligations of the Company to pay the compensation and
expenses of the Trustee under Section 7.6 of the Indenture and, if
money shall have been deposited with the Trustee pursuant to clause
(1)(B) above, the obligations of the Trustee under the following
paragraphs shall survive. In addition, the Company's obligations under
the Indenture may be revived and reinstated under Section 12.5 of the
Indenture.
Subject to the provisions of the following paragraph, all
money and securities deposited with the Trustee for satisfaction and
discharge of the Indenture shall be held in trust and applied by it, in
accordance with the provisions of the Debentures and the Indenture, to
the payment, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent), to the Persons entitled
thereto, of the principal and interest for whose payment such money and
securities has been deposited with the Trustee. All moneys deposited
with the Trustee (and held by it or any Paying Agent) for the payment
of Convertible Debentures subsequently converted shall be returned to
the Company upon the Company's request.
-8-
<PAGE> 10
Any money deposited with the Trustee or any Paying Agent in
trust for the payment of the principal of or interest on any Debenture
and remaining unclaimed for two years after such principal or interest
has become due and payable shall be paid to the Company on demand and
the Holder of such Debenture shall thereafter look only to the Company
for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money shall thereupon cease, subject
to applicable abandoned property law.
(D) EVIDENCE OF COMPLIANCE: Upon qualification of the
Indenture under the Trust Indenture Act of 1939, the Company will be
required to certify at least annually to the Trustee as to compliance
with all conditions and covenants under the Indenture. Additionally,
upon any application or request by the Company to the Trustee or the
Paying Agent to take any action under any provision of the Indenture,
the Company must furnish to the Trustee or the Paying Agent, as the
case may be, a certificate signed by certain officers of the Company
(an "OFFICERS' CERTIFICATE") stating that all conditions precedent, if
any, provided for in the 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. The Officers' Certificate must include: (1) a
statement that each individual signing such certificate or opinion has
read such covenant or condition and the definitions herein relating
thereto; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; and (3) a statement
that, in the opinion of such individual, he has made such examination
or investigation as is necessary to enable him to express an informed
opinion as to whether or not such covenant or condition has been
complied with.
9. Other Obligors.
Give the name and complete mailing address of any person,
other than the Applicant, who is an obligor upon the indenture
securities:
Not Applicable
This application for qualification comprises
(a) Pages numbered 1 to 11, consecutively.
(b) The statement of eligibility and
qualification of the single trustee under the indenture to be
qualified.
(c) The following exhibits in addition to those
filed as a part of the statement of eligibility and
qualification of the trustee.
T3A.1 Certificate of Incorporation,
incorporated by reference to Exhibit
3.1 of Form 10-K for fiscal year
ended June 30, 1988 and filed on
October 13, 1988.
-9-
<PAGE> 11
T3A.2 Amended Certificate of
Incorporation, incorporated by
reference to Exhibit 3.1.1 of Form
10-K for fiscal year ended June 30,
1992 and filed on September 25,
1992.
T3A.3 Amended Certificate of
Incorporation, incorporated by
reference to Exhibit 3.1.2 of Form 8
Amendment to Form 10-K for fiscal
year ended June 30, 1992 and filed
on January 19, 1993.
T3B By-Laws of the Applicant,
incorporated by reference to
Exhibit 3.2 of Form 10-K for fiscal
year ended June 30, 1988 and filed
on October 13, 1988.
T3C Indenture to be Qualified (including
an itemized table of contents)
T3D Not Applicable
T3E.1 Offering Circular of the Applicant,
dated September 13, 1996.
T3E.2 Letter of Transmittal.
T3E.3 Tender and Exchange Agreement
between the Applicant and the
Exchanging Holders, effective as of
the effective date of this
application.
T3F. See Exhibit T3C for cross reference
sheet showing the location in the
Indenture to be qualified of the
provisions inserted therein
pursuant to Sections 310 through
318(a), inclusive, of the Trust
Indenture Act of 1939, as amended.
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<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Trust Indenture
Act of 1939, as amended, the applicant, Movie Star, Inc., a
corporation organized and existing under the laws of the State
of New York, has duly caused this application to be signed on
its behalf by the undersigned, thereunto duly authorized, and
its seal to be hereunto affixed and attested, all in the City
of New York, and the State of New York, on the 13th day of
September, 1996.
[SEAL] MOVIE STAR, INC.
By: /s/ Mark M. David
------------------------------
(Signature)
Mark M. David, Chairman
-----------------------------
(Printed Name and Title)
Attest: /s/ Michael A. Salberg By: /s/ Saul Pomerantz
------------------------ ------------------------------
(Signature)
Saul Pomerantz, Secretary
------------------------------
(Printed Name and Title)
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<PAGE> 13
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
AMERICAN STOCK TRANSFER & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-3439945
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
40 Wall Street 10005
New York, New York (Zip Code)
(Address of trustee's
principal executive offices)
MOVIE STAR, INC.
(Exact name of obligor as specified in its charter)
New York 13-5651322
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
136 Madison Avenue
New York, New York 10016
(Address of principal executive (Zip Code)
offices)
8% Senior Notes Due 2001
and
8% Convertible Senior Notes Due 2001
(Title of the Indenture Securities)
<PAGE> 14
-2-
GENERAL
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.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust
powers.
The Trustee is authorized to exercise corporate trust
powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of
the trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities
of the trustee:
As of August 31, 1996
COL. A COL. B
Title of Class Amount Outstanding
Common Shares - par value $600 per share. 1,000 shares
4. Trusteeships under Other Indentures.
None.
5. Interlocking Directorates and Similar Relationships with the
Obligor or Underwriters.
None.
<PAGE> 15
-3-
6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
None.
7. Voting Securities of the Trustee Owned by Underwriters or
their Officials.
None.
8. Securities of the Obligor Owned or Held by the Trustee.
None.
9. Securities of Underwriters Owned or Held by the Trustee.
None.
10. Ownership or Holdings by the Trustee of Voting Securities of
Certain Affiliates or Security Holders of the Obligor.
None.
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.
None.
12. Indebtedness of the Obligor to the Trustee.
None.
13. Defaults by the Obligor.
None.
14. Affiliations with the Underwriters.
None.
15. Foreign Trustee.
Not applicable.
<PAGE> 16
-4-
16. List of Exhibits.
T-1.1 - A copy of the Organization Certificate of American
Stock Transfer & Trust Company, as amended to date
including authority to commence business and
exercise trust powers was filed in connection with
the Registration Statement of Live Entertainment,
Inc., File No. 33-54654, and is incorporated herein
by reference.
T-1.4 - A copy of the By-Laws of American Stock Transfer
& Trust Company, as amended to date was filed in
connection with the Registration Statement of Live
Entertainment, Inc., File No. 33-54654, and is
incorporated herein by reference.
T-1.6 - The consent of the Trustee required by Section
312(b) of the Trust Indenture Act of 1939. -
Exhibit A.
T-1.7 - A copy of the latest report of condition of the
Trustee published pursuant to law or the
requirements of its supervising or examining
authority. - Exhibit B.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
American Stock Transfer and Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 10th day of September 1996 .
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
Trustee
By:___________________________
Vice President
<PAGE> 17
EXHIBIT A
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321 (b) of the Trust Indenture Act of
1939, and subject to the limitations therein contained, American Stock Transfer
& Trust Company hereby consents that reports of examinations of said corporation
by Federal, State, Territorial or District authorities may be furnished by such
authorities to you upon request therefor.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By____________________________
Vice President
<PAGE> 18
<TABLE>
<S> <C> <C>
Affix the address label in this space.
FFIEC 034
Exhibit B Page RC-1
American Stock Transfer & Trust Co.
- ------------------------------------------------------- 9
Legal Title of Bank
New York
- -------------------------------------------------------
City
New York 10005
- -------------------------------------------------------
State Zip Code
Transit Number:
</TABLE>
Consolidated Report of Condition for Insured
Commercial and State-Chartered Savings Banks for June 30, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - Balance Sheet
<TABLE>
<CAPTION>
C100 <-
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SETS
1. Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin(1,2)............................... 0081 216 1.a
b. Interest bearing balnaces(3).......................................................... 0071 0 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)............................ 1754 2.a
b. Available-for-sale securities (from Schedule RC-B, column D).......................... 1773 5,073 2.b
3. Federal funds sold and securiites purchased under agreements to resell:
a. Federal funds sold (4)................................................................ 0276 0 3.a
b. Securities purchased under agreements to resell (5)................................... 0277 0 3.b
RCON
-----
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)... 2122 0 4.a
b. LESS: Allowance for loan and lease losses....................... 3123 0 4.b
c. LESS: Allocated transfer risk reserve........................... 3128 0 4.c
d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b
and 4.c).............................................................................. 2125 0 4.d
5. Trading assets (from Schedule RC-D)........................................................ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)................................... 2145 2,950 6.
7. Other real estate owned (from Schedule RC-M)............................................... 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule
RC-M)...................................................................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding............................... 2155 0 9.
10. Intangible assets (from Schedule RC-M)..................................................... 2143 0 10.
11. Other assets (from Schedule RC-F).......................................................... 2160 5,711 11.
12. a. Total assets (sum of items 1 through 11)............................................... 2170 0 12.a
b. Losses deferred pursuant to 12 U.S.C. 1823(j).......................................... 0306 0 12.b
c. Total assets and losses deferred pursuant to 12 U.S.C. 1823(j) (sum of items 12.a
and 12.b).............................................................................. 0307 13,950 12.c
</TABLE>
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) The amount reported in this item must be greater than or equal to the sum
of Schedule RC-M, items 3.e and 3.b.
(3) Includes time certificates of deposit not held for trading.
(4) Report "term federal funds sold" in Schedule RC, item 4.a, "Loans and
leases, net of unearned income," and in Schedule RC-C, part 1.
(5) Report securities purchased under agreements to resell that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 3.a, "Federal
funds sold."
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
FFIEC 034
Page RC-2
10
</TABLE>
Schedule RC -- Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------
RCON
----
<S> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E).... 2200 13.a
(1) Noninterest-bearing(1).................................................... 6631 13.a.1
(2) Interest-bearing.......................................................... 6636 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs................
(1) Noninterest-bearing.......................................................
(2) Interest-bearing..........................................................
14. Federal funds purchased and securities sold under agreements to repurchase:
a. Federal funds purchased...................................................... 0278 0 14.a
b. Securities sold under agreements to repurchase............................... 0279 0 14.b
15. a. Demand notes issued to the U.S. Treasury..................................... 2840 0 15.a
b. Trading liabilities (from Schedule RC-D)..................................... 3548 0 15.b
16. Other borrowed money:
a. With original maturity of one year or less................................... 2332 0 16.a
b. With original maturity of more than one year................................. 2333 0 16.b
17. Mortgage indebtedness and obligations under capitalized leases................. 2910 0 17.
18. Bank's liability on acceptances executed and outstanding....................... 2920 0 18.
19. Subordinated notes and debentures.............................................. 3200 0 19.
20. Other liabilities (from Schedule RC-G)......................................... 2930 1,977 20.
21. Total liabilities (sum of items 13 through 20)................................. 2948 1,977 21.
22. Limited-life preferred stock and related surplus............................... 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus.................................. 3838 0 23.
24. Common stock................................................................... 3230 600 24.
25. Surplus (exclude all surplus related to preferred stock)....................... 3839 7,590 25.
26. a. Undivided profits and capital reserves...................................... 3632 3,617 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities...... 8434 166 26.b
27. Cumulative foreign currency translation adjustments............................
28. a. Total equity capital (sum of items 23 through 27)........................... 3210 11,973 28.a
b. Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j)
(sum of items 28.a and 28.b)................................................ 3558 11,973 28.6
29. Total liabilities, limited-life preferred stock, and equity capital (sum of
items 21, 22 and 28)........................................................... 2257 13,950 29.
MEMORANDUM
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the bank
by independent external auditors as of any date during 1994.................... 6724 N/A M.1
1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which submits a report on the consolidated holding company (but
not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a
certified public accounting firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering
authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
</TABLE>
- ---------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Report "term federal funds purchased" in Schedule RC, item 16, "Other
borrowed money."
(3) Report securities sold under agreements to repurchase that involve the
receipt of immediately available funds and mature in one business day or
roll over under a continuing contract in Schedule RC, item 14.a, "Federal
funds purchased."
<PAGE> 20
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
EX-99.T3A.1 Certificate of Incorporation, incorporated by reference to
Exhibit 3.1 of Form 10-K for fiscal year ended June 30, 1988
and filed on October 13, 1988.
EX-99.T3A.2 Amended Certificate of Incorporation, incorporated by
reference to Exhibit 3.1.1 of Form 10-K for fiscal year
ended June 30, 1992 and filed on September 25, 1992.
EX-99.T3A.3 Amended Certificate of Incorporation, incorporated by
reference to Exhibit 3.1.2 of Form 8 Amendment to
Form 10-K for fiscal year ended June 30, 1992 and filed on
January 19, 1993.
EX-99.T3B By-Laws of the Applicant, incorporated by reference to
Exhibit 3.2 of Form 10-K for fiscal year ended June 30, 1988
and filed on October 13, 1988.
EX-99.T3C Indenture to be Qualified (including an itemized table of
contents)
EX-99.T3D Not Applicable
EX-99.T3E.1 Offering Circular of the Applicant, dated September 13, 1996.
EX-99.T3E.2 Letter of Transmittal.
EX-99.T3E.3 Tender and Exchange Agreement between the Applicant and the
Exchanging Holders, effective as of the effective date of this
application.
EX-99.T3F. See Exhibit T3C for cross reference sheet showing the location
in the Indenture to be qualified of the provisions inserted
therein pursuant to Sections 310 through 318(a), inclusive, of
the Trust Indenture Act of 1939, as amended.
<PAGE> 1
MOVIE STAR, INC.,
Issuer
and
AMERICAN STOCK TRANSFER & TRUST COMPANY,
Trustee
INDENTURE
Dated as of September __, 1996
8% Senior Notes Due 2001
and
8% Convertible Senior Notes Due 2001
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
TIE-SHEET....................................................................................................... 2
ARTICLE I Definitions.......................................................................... 2
SECTION 1.1. Definitions................................................................. 2
ARTICLE II Issue, Description, Execution,
Registration and Exchange
of Debentures........................................................................ 11
SECTION 2.1. Designation, Amount and Issue
of Debentures............................................................... 11
SECTION 2.2. Form of Debentures.......................................................... 11
SECTION 2.3. Denomination; Date of Debentures;
Interest.................................................................... 12
SECTION 2.4. Execution of Debentures..................................................... 13
SECTION 2.5. Exchange and Registration of Transfer of
Debentures.................................................................. 13
SECTION 2.6. Mutilated, Destroyed, Lost or Stolen
Debentures.................................................................. 14
SECTION 2.7. Temporary Debentures........................................................ 15
SECTION 2.8. Cancellation of Debentures Paid, etc........................................ 16
ARTICLE III Redemption of Debentures............................................................. 16
SECTION 3.1. Redemption Price............................................................ 16
SECTION 3.2. Notice of Redemption; Selection of
Debentures.................................................................. 16
SECTION 3.3. Payment of Debentures Called for
Redemption.................................................................. 18
SECTION 3.4. Precondition to Redemption.................................................. 18
ARTICLE IV Particular Covenants of the Company.................................................. 19
SECTION 4.1. Payment of Principal, Premium and
Interest.................................................................... 19
SECTION 4.2. Offices for Notices and Payments, etc....................................... 19
SECTION 4.3. Limitations on Dividends and Stock
Purchases................................................................... 20
SECTION 4.4. Limitation on Restrictions on Payment by
Subsidiaries to Company..................................................... 20
SECTION 4.5. Compliance Certificate...................................................... 20
SECTION 4.6. Appointments To Fill Vacancies in
Trustee's Office............................................................ 21
SECTION 4.7. Provision as to Paying Agent................................................ 21
SECTION 4.8. Debenture CUSIP Numbers..................................................... 22
SECTION 4.9. Waiver of Covenants and Conditions.......................................... 22
ARTICLE V Debentureholders' Lists and Reports
by the Company and the Trustee .................................................... 22
SECTION 5.1. Debentureholders' Lists..................................................... 22
SECTION 5.2. Preservation and Disclosure of Lists........................................ 22
SECTION 5.3. Reports by the Company...................................................... 24
SECTION 5.4. Reports by the Trustee...................................................... 25
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI Remedies of the Trustee and
Debentureholders on Event of Default................................................. 26
SECTION 6.1. Events of Default........................................................... 26
SECTION 6.2. Suit for Payment of Debentures.............................................. 29
SECTION 6.3. Application of Money Collected by
Trustee..................................................................... 30
SECTION 6.4. Proceedings by Debentureholders............................................. 31
SECTION 6.5. Proceedings by Trustee...................................................... 31
SECTION 6.6. Remedies Cumulative and Continuing.......................................... 31
SECTION 6.7. Direction of Proceedings and Waiver of
Defaults by Majority of
Debentureholders............................................................ 32
SECTION 6.8. Notice of Defaults.......................................................... 33
SECTION 6.9. Undertaking To Pay Costs.................................................... 33
ARTICLE VII Concerning the Trustee............................................................... 33
SECTION 7.1. Duties and Responsibilities of Trustee...................................... 33
SECTION 7.2. Reliance on Documents, Opinions, etc........................................ 35
SECTION 7.3. No Responsibility for Recitals, etc......................................... 36
SECTION 7.4. Trustee, Paying Agent or Registrar May
Own Debentures.............................................................. 36
SECTION 7.5. Money To Be Held in Trust................................................... 36
SECTION 7.6. Compensation and Expenses of Trustee........................................ 36
SECTION 7.7. Officers' Certificate as Evidence........................................... 37
SECTION 7.8. Conflicting Interest of Trustee............................................. 37
SECTION 7.9. Eligibility of Trustee...................................................... 44
SECTION 7.10. Resignation or Removal of Trustee........................................... 44
SECTION 7.11. Acceptance by Successor Trustee............................................. 45
SECTION 7.12. Succession by Merger, etc................................................... 46
SECTION 7.13. Limitation on Rights of Trustee
as a Creditor............................................................... 46
ARTICLE VIII Concerning the Debentureholders...................................................... 51
SECTION 8.1. Action by Debentureholders.................................................. 51
SECTION 8.2. Proof of Execution by Debentureholders...................................... 51
SECTION 8.3. Who Deemed Absolute Owners.................................................. 51
SECTION 8.4. Company-Owned Debentures Disregarded........................................ 51
SECTION 8.5. Revocation of Consents; Future
Holders Bound............................................................... 52
ARTICLE IX Debentureholders' Meetings........................................................... 52
SECTION 9.1. Purposes of Meeting......................................................... 52
SECTION 9.2. Call of Meetings by Trustee................................................. 53
SECTION 9.3. Call of Meetings by Company or
Debentureholders............................................................ 53
SECTION 9.4. Qualifications for Voting................................................... 53
SECTION 9.5. Regulations................................................................. 53
SECTION 9.6. Voting...................................................................... 54
SECTION 9.7. No Delay of Rights by Meeting............................................... 55
SECTION 9.8. Appointment of Holder Designee.............................................. 55
ARTICLE X Supplemental Indentures.............................................................. 56
SECTION 10.1. Supplemental Indentures Without
Consent of Debentureholders................................................. 56
SECTION 10.2. Supplemental Indentures with Consent
of Debentureholders......................................................... 57
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 10.3. Compliance with Trust Indenture Act;
Effect of Supplemental Indentures........................................... 58
SECTION 10.4. Notation on Debentures...................................................... 58
SECTION 10.5. Evidence of Compliance of Supplemental
Indenture To Be Furnished Trustee........................................... 59
ARTICLE XI Consolidation, Merger and Sale....................................................... 59
SECTION 11.1. Company May Consolidate, etc.,
on Certain Terms............................................................ 59
SECTION 11.2. Successor Corporation To Be Substituted..................................... 59
ARTICLE XII Satisfaction and Discharge of Indenture.............................................. 60
SECTION 12.1. Discharge; Termination of Company's
Obligations................................................................. 60
SECTION 12.2. Certain Obligations Survive................................................. 61
SECTION 12.3. Application of Trust Money.................................................. 61
SECTION 12.4. Repayment to Company........................................................ 61
SECTION 12.5. Reinstatement............................................................... 61
SECTION 12.6. Return of Unclaimed Money................................................... 62
ARTICLE XIII Immunity of Incorporators,
Stockholders, Officers and Directors................................................. 62
SECTION 13.1. Indenture and Debentures Solely
Corporate Obligations....................................................... 62
ARTICLE XIV Conversion of Securities............................................................. 62
SECTION 14.1. Conversion Privilege and
Conversion Price............................................................ 62
SECTION 14.2. Exercise of Conversion Privilege............................................ 63
SECTION 14.3. Form of Election to Convert................................................. 64
SECTION 14.4. Fractions of Shares......................................................... 65
SECTION 14.5. Adjustment of Conversion Terms.............................................. 65
SECTION 14.6. Notice of Adjustments of
Conversion Price............................................................ 72
SECTION 14.7. Notice of Certain Corporate Action.......................................... 72
SECTION 14.8. Company to Reserve Common Stock. .......................................... 73
SECTION 14.9. Taxes on Conversions........................................................ 73
SECTION 14.10. Covenant as to Common Stock................................................. 74
SECTION 14.11. Cancellation of Converted Securities........................................ 74
SECTION 14.12. Liquidation or Dissolution.................................................. 74
SECTION 14.13. Company to Cause Registration
of Common Stock............................................................. 74
SECTION 14.14. Disclaimer by Trustee of
Responsibility for Certain Matters.......................................... 74
ARTICLE XV Subordination of Junior Debentures................................................... 75
SECTION 15.1. Reliance by Holders of Debentures
on Subordination of Junior Debentures....................................... 75
ARTICLE XVI Miscellaneous Provisions............................................................. 75
SECTION 16.1. Provisions Binding on Company's
Successors.................................................................. 75
SECTION 16.2. Official Acts by Successor Corporation...................................... 75
SECTION 16.3. Addresses for Notices, etc.................................................. 76
SECTION 16.4. New York Contract........................................................... 76
SECTION 16.5. Evidence of Compliance with
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C> <C>
Conditions Precedent........................................................ 76
SECTION 16.6. Legal Holidays.............................................................. 77
SECTION 16.7. Trust Indenture Act To Control.............................................. 78
SECTION 16.8. No Security Interest Created................................................ 78
SECTION 16.9. Table of Contents, Headings, etc............................................ 78
SECTION 16.10. Execution in Counterparts................................................... 78
SECTION 16.11. Severability................................................................ 78
SECTION 16.12. Benefits of Indenture....................................................... 78
</TABLE>
EXHIBITS:
EXHIBIT A: FORM OF NON-CONVERTIBLE DEBENTURE
EXHIBIT B: FORM OF CONVERTIBLE DEBENTURE
EXHIBIT C: FORM OF WARRANT
(iv)
<PAGE> 6
TIE-SHEET(1)
of provisions of Trust Indenture Act of 1939 with Indenture dated
as of April 1, 1996, between Movie Star, Inc. and American Stock
Transfer & Trust Company, Trustee.
<TABLE>
<CAPTION>
Section of Act Section of Indenture
- -------------- --------------------
<S> <C> <C> <C>
310 (a) (1) and (2)............................................... 7.9
310 (a) (3) and (4)............................................... Not applicable
310 (a) (5) ...................................................... 7.9
310 (b) .......................................................... 7.8 and 7.10(d)
310 (c) .......................................................... Not applicable
311 (a) and (b)................................................... 7.13
311 (c) .......................................................... Not applicable
312 (a) .......................................................... 5.1 and 5.2(a)
312 (b) and (c)................................................... 5.2(b) and (c)
313 (a) .......................................................... 5.4(a)
313 (b) (1)....................................................... Not applicable
313 (b) (2)....................................................... 5.4(b)
313 (c) .......................................................... 5.4(c)
313 (d) .......................................................... 5.4(d)
314 (a) .......................................................... 5.3
314 (b) .......................................................... Not applicable
314 (c) (1) and (2)............................................... 15.5
314 (c) (3)....................................................... Not applicable
314 (d) .......................................................... Not applicable
314 (e) .......................................................... 15.5
315 (a), (c) and (d)............................................... 7.1
315 (b) .......................................................... 6.8
315 (e) .......................................................... 6.9
316 (a) (1)....................................................... 6.7
316 (a) (2)....................................................... Not applicable
316 (a) last sentence ............................................ 8.4
316 (b) .......................................................... 6.7
316 (c) .......................................................... 6.7
317 (a) .......................................................... 6.2
317 (b) .......................................................... 4.7(a) and (b)
318 (a) .......................................................... 15.7
</TABLE>
________
1 This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
<PAGE> 7
THIS INDENTURE dated as of April 1, 1996, between MOVIE STAR,
INC., a New York corporation (the "Company"), having its principal executive
office at 136 Madison Avenue, New York, New York 10016, and AMERICAN STOCK
TRANSFER & TRUST COMPANY (the "Trustee").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of an Indenture, dated as of
October 1, 1986, the Company issued 12-7/8% Subordinated Debentures due 2001 in
the aggregate principal amount of $25,000,000 (the "Prior Debentures"); and
WHEREAS, pursuant to the terms of a Tender and Exchange
Agreement, dated ______________, 1996, between the Company and certain holders
of the Prior Debentures, the Company has agreed to exchange, for each $1,000 in
principal amount of Prior Debentures tendered by such holders, (i) $1,036.44 in
principal amount of the Company's 8% Senior Notes due 2001 ("Non-Convertible
Debentures"), and (ii) $70.51 in principal amount of the Company's 8%
Convertible Senior Notes due 2001 (the "Convertible Debentures" and,
collectively with the Non-Convertible Debentures, the "Debentures"); and
WHEREAS, the Company has duly authorized the issue of its
Non-Convertible Debentures and Convertible Debentures in the aggregate principal
amount of up to $10,558,000.00 and up to $718,000.00, respectively, 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 and delivery of this Indenture; and
WHEREAS, the Debentures and the Trustee's certificate of
authentication to be borne by the Debentures are to be substantially in the
forms, respectively, of Exhibit A and Exhibit B hereto, 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 thereof;
AND WHEREAS, all acts and things necessary to make the
Debentures, when executed by the Company and authenticated and delivered by the
Trustee, as in this Indenture provided, the legal, valid and binding obligations
of the Company, and to constitute these presents a valid agreement according to
its terms, have been done and performed, and the execution and delivery of this
Indenture and the issue hereunder of the Debentures have in all respect been
duly authorized.
<PAGE> 8
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which
the Debentures are, and are to be, authenticated and delivered, and in
consideration of the premises, of the purchase and acceptance of the Debentures
by the holders thereof and of the sum of ONE DOLLAR duly paid to it by the
Trustee at the execution of these presents, the receipt whereof is hereby
acknowledged, the Company covenants and agrees with the Trustee for the equal
and proportionate benefit of the respective holders from time to time of the
Debentures, as follows:
ARTICLE I
Definitions
SECTION 1.1. Definitions. The terms defined in this Section
1.1 (except as herein otherwise expressly provided or unless the context
otherwise requires) for all purposes of this Indenture and of any indenture
supplemental hereto shall have the respective meanings specified in this
Section 1.1. All other terms used in this Indenture which are defined in the
Trust Indenture Act of 1939 or which are by reference therein are defined in the
Securities Act of 1933, as amended (except as herein otherwise expressly
provided or unless the context otherwise requires), shall have the meanings
assigned to such terms in said Trust Indenture Act and said Securities Act as in
force at the date of the execution of this Indenture.
Agent:
The term "Agent" shall mean any Registrar, Paying Agent or
co-Registrar.
Board:
The term "Board" shall mean the Board of Directors of the
Company (exclusive of any committee thereof).
Board of Directors:
The term "Board of Directors" shall mean the Board of
Directors of the Company or the Executive Committee of such Board of Directors,
if any, or any other duly authorized committee of such Board of Directors.
Business Day:
The term "Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in The City of New York, State of New York, are
2
<PAGE> 9
authorized or obligated by law, regulation or executive order to be
closed.
Capital Reorganization:
The term "Capital Reorganization" shall have the meaning
assigned to it in Section 14.5(d) hereof.
Capitalized Lease Obligation:
The term "Capitalized Lease Obligations" of any Person shall
mean the obligations of such Person to pay rent or other amounts under a lease
of (or other arrangement conveying the right to use) property (real, personal or
mixed) which obligations are required to be classified and accounted for as a
capital lease on a balance sheet of such Person under generally accepted
accounting principles (including Statement No. 13 of Financial Accounting
Standards Board) and, for the purposes of this Indenture, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with such principles (including such Statement No. 13).
Closing Price:
The term "Closing Price" shall mean, on any Trading Day with
respect to the per share price of Common Stock, the last reported sales price
regular way or, in case no such reported sale takes place on such Business Day,
the average of the reported closing bid and asked prices regular way on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq Stock Market National Market System or the
Nasdaq SmallCap Market system, as the case may be (collectively, "NASDAQ"), or,
if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted on NASDAQ, the closing bid price in the
over-the-counter market as furnished by any New York Stock Exchange member firm
that is selected from time to time by the Company for that purpose and is
reasonably acceptable to the Trustee.
Commission:
The term "Commission" shall mean, the Securities and Exchange
Commission, as from time to time constituted, created under the Securities
Exchange Act of 1934, and any successor authority thereto.
Common Stock:
The term "Common Stock" shall mean shares of the class
designated as Common Stock of the Company at the date of this Indenture or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the
3
<PAGE> 10
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company and which are not subject to redemption by the Company; provided
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
Common Stock Distribution:
The term "Common Stock Distribution" shall have the meaning
assigned to it in Section 14.5(b)(i) hereof.
Common Stock Reorganization:
The term "Common Stock Reorganization" shall have the meaning
assigned to it in Section 14.5(a) hereof.
Company:
The term "Company" shall mean Movie Star, Inc., a New York
corporation, and subject to the provisions of ARTICLE XI, shall include its
successors and assigns.
Consolidated Net Income:
The term "Consolidated Net Income", for any period shall mean
the aggregate of the Net Income of the Company and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with generally
accepted accounting principles; provided that (i) the Net Income of any Person
(other than a Subsidiary) in which the Company or any Subsidiary has a joint
interest with a third party shall be included only to the extent of the amount
of dividends or distributions paid to the Company or a Subsidiary, and (ii) the
Net Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded.
Conversion Price:
The term "Conversion Price" shall mean the conversion price of
the Convertible Debentures, as in effect from time to time, as provided in
Section 14.1 and Section 14.5 hereof.
Convertible Debenture:
The term "Convertible Debenture" shall mean any 8% Convertible
Senior Note Due 2001 of the Company issued and authenticated pursuant to this
Indenture, substantially in the form of Exhibit B hereto, together with all
debentures issued in exchange or replacement for, or on registration or transfer
of, any of the foregoing debentures.
4
<PAGE> 11
Convertible Securities:
The term" Convertible Securities" shall have the meaning
assigned to it in Section 14.5(b)(ii) hereof.
Debentureholder:
The terms "Debentureholder", "holder of Debentures", or other
similar terms, shall mean any Person in whose name at the time a particular
Debenture is registered on the books of the Company kept for that purpose in
accordance with the terms hereof.
Debenture or Debentures Outstanding:
The terms "Debenture" or "Debentures" shall mean any
Convertible or Non-Convertible Debenture or Debentures, as the case may be,
authenticated and delivered under this Indenture.
The term "outstanding", when used with reference to
Debentures, shall, subject to the provisions of Section 8.4, mean, as of any
particular time, all Debentures authenticated and delivered by the Trustee under
this Indenture, except
(a) Debentures theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b) Debentures, or portions thereof, for the payment or
redemption of which money shall have been deposited in trust with the
Trustee or with any Paying Agent (other than the Company) or shall have
been set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent), provided that if such Debentures
are to be redeemed prior to the maturity thereof, notice of such
redemption shall have been mailed as provided in ARTICLE III or
provision satisfactory to the Trustee shall have been made for mailing
such notice; and
(c) Debentures in lieu of or in substitution for which other
Debentures shall have been authenticated and delivered pursuant to the
terms of Section 2.6, except to the extent that a bona fide holder in
due course of any such Debentures shall have presented proof
satisfactory to the Trustee that such holder is a bona fide holder in
due course of any such Debentures.
Debenture Indebtedness
The term "Debenture Indebtedness" shall mean all outstanding
principal of, and accrued but unpaid interest on, the Debentures.
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Debenture Registry
The term "Debenture Registry" shall have the meaning specified
in Section 2.5 hereof.
Event of Default:
The term "Event of Default" shall mean any event specified in
Section 6.1, continued for the period of time, if any, and after the giving of
the notice, if any, designated therein.
Exchange Agreement:
The term "Exchange Agreement" shall mean that certain Tender
and Exchange Agreement, dated ________________________, 1996, between the
Company and certain Debentureholders.
Existing Employee Plan:
The term "Existing Employee Plan" shall have the meaning
assigned to it in Section 14.5(b)(i) hereof.
Fair Market Value:
The term "Fair Market Value" shall mean the fair market value
of the business or property in question, as determined in good faith by the
Board of Directors, provided, however, that the Fair Market Value of any
security for which a Closing Price is available shall be the Market Price of
such security.
Holder Designee:
The term "Holder Designee" shall have the meaning assigned
thereto in Section 9.8 hereof.
Indebtedness:
The term "Indebtedness" shall mean (i) any liability of any
Person (a) for borrowed money, or (b) evidenced by a note, debenture, bond or
other instrument of indebtedness (including without limitation a purchase money
obligation), given in connection with the acquisition of other property or
assets, or (c) for the payment of rent or other amounts relating to Capitalized
Lease Obligations; (ii) any liability of others described in the preceding
clause (i) which such Person has guaranteed or which is otherwise its legal
liability; and (iii) any modification, renewal, extension, replacement or
refunding of any such liability.
Indenture:
The term "Indenture" shall mean this instrument as originally
executed or, if amended or supplemented as herein provided, as so amended or
supplemented.
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Interest Payment Date
The term "Interest Payment Date" shall have the meaning set
forth on the face side of each of the Debentures attached as Exhibits hereto.
Junior Debenture
The term "Junior Indenture" means any debenture authenticated
and delivered under the Junior Indenture, as supplemented, modified and/or
amended, and any substitution therefor or replacement thereof.
Junior Indebtedness:
The term "Junior Indebtedness" shall mean (i) all Indebtedness
evidenced by a Junior Debenture and any other indebtedness under the terms of
the Junior Indenture, and (ii) any modification, renewal, extension, replacement
or refunding of the indebtedness referred to in clause (i).
Junior Indenture:
The term "Junior Indenture" means that certain Indenture,
dated as of October 1, 1986 between the Company and Bank of Montreal Trust
Company, as trustee, as originally executed or, if amended, supplemented,
extended or modified, as so amended, supplemented, extended or modified.
Market Price:
The term "Market Price" shall mean,with respect to any
security on any day, the average of the daily Closing Prices of a share or unit
of such security for the 20 consecutive Business Days ending on the most recent
Business Day for which a Closing Price is available.
Maturity Date
The term "Maturity Date" means September 1, 2001.
Net Equity:
The term "Net Equity" of a Person shall mean the consolidated
stockholders' equity of such Person and its subsidiaries determined in
accordance with generally accepted accounting principles, except that there
shall be deducted therefrom all intangible assets, determined in accordance with
generally accepted accounting principles, as reflected in the consolidated
balance sheet of such Person and its subsidiaries.
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Net Income:
The term "Net Income" of any Person shall mean the net income
(loss) of such Person, determined in accordance with generally accepted
accounting principles; excluding, however, from the determination of Net Income
any gain (but not loss) realized upon the sale or other disposition (including,
without limitation, dispositions pursuant to sale and leaseback transactions) of
any real property or equipment of such Person, which is not sold or otherwise
disposed of in the ordinary course of business, or of any capital stock of the
Company or a Subsidiary owned by such Person.
Non-Convertible Debenture:
The term "Non-Convertible Debenture" shall mean any 8% Senior
Note due 2001 of the Company issued and authenticated pursuant to this
Indenture, substantially in the form of Exhibit A hereto, together with all
debentures issued in exchange for or on registration of transfer of, any of the
foregoing debentures.
Officers' Certificate:
The term "Officers' Certificate", when used with respect to
the Company, shall mean a certificate signed by the President or a Vice
President and by the Treasurer, an Assistant Treasurer, the Secretary, an
Assistant Secretary, the Controller or an Assistant Controller of the Company.
Each such certificate shall include the statements provided for in Section 16.5
if and to the extent required by the provisions of Section 16.5.
Opinion of Counsel:
The term "Opinion of Counsel" shall mean an opinion in writing
signed by legal counsel, who may be an employee of or of counsel to the Company,
or other counsel and who shall be acceptable to the Trustee. Each such opinion
shall include the statements provided for in Section 16.5 if and to the extent
required by the provisions of Section 16.5.
Option:
The term "Option" shall have the meaning assigned to it in
Section 14.5(b)(ii) hereof.
Paying Agent:
The term "Paying Agent" shall have the meaning provided in
Section 4.2, except that for the purposes of ARTICLES III and XII the Paying
Agent shall not be the Company or any Subsidiary of the Company.
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Person:
The term "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
Principal Office:
The term "Principal Office" of the Trustee shall mean the
principal office of the Trustee at which at any particular time its corporate
trust business shall be administered and which on the date hereof is at Forty
Wall Street, New York, New York 10005; Attention: Vice President.
Redemption Date:
The term "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 Notice:
The term "Redemption Notice" shall have the meaning assigned
to it in Section 3.2 hereof.
Reference Price:
The term "Reference Price" shall have the meaning assigned to
it in Section 14.5(b)(i) hereof.
Regular Record Date:
The term "Regular Record Date", for the interest payable on
any Interest Payment Date, means the September 15 or March 15 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Registrar:
The term "Registrar" shall have the meaning provided in
Section 4.2.
Responsible Officer:
The term "Responsible Officer", when used with respect to the
Trustee, shall mean any officer within the Corporate Trust Division (or any
successor group) of the Trustee, including any Vice President, Assistant Vice
President, Assistant Secretary or any other officer of such division of the
Trustee customarily performing functions similar to those performed by the
persons who at the time shall be such officers and also means, with respect to a
particular corporate trust matter, any other officer of the
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Trustee to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
Special Dividend
The term "Special Dividend" shall have the meaning assigned to
it in Section 14.5(c) hereof.
Subsidiary:
The term "Subsidiary" shall mean any corporation at least a
majority of the outstanding voting securities of which is at the time owned or
controlled directly or indirectly by the Company or one or more Subsidiaries or
by the Company and one or more Subsidiaries.
Trading Day:
The term "Trading Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any day on which securities are not
traded on the applicable securities exchange or in the applicable securities
market.
Trigger Date:
The term "Trigger Date" shall mean any Trading Day upon which
the Closing Price per share of Common Stock equals or exceeds $2.50 and which
has been immediately preceded by at least twenty consecutive Trading Days during
which the average Closing Price for the Common Stock has equalled or exceeded
$2.50 (subject to adjustment in the case of the same events that would result in
an adjustment of the Conversion Price, as provided in Section 14.5 hereof).
Trustee:
The term "Trustee" shall mean American Stock Transfer & Trust
Company and, subject to the provisions of ARTICLE VII, shall also include its
successors and assigns as Trustee hereunder.
Trust Indenture Act of 1939:
The term "Trust Indenture Act of 1939" shall mean the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and
as is in force at the date of execution of this Indenture, except as provided in
Sections 10.1(e) and 10.3.
Warrant:
The term "Warrant" shall have the meaning assigned thereto in
Section 3.4 hereof.
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ARTICLE II
Issue, Description, Execution,
Registration and Exchange of Debentures
SECTION 2.1. Designation, Amount and Issue of Debentures. The
Debentures shall be designated as provided in the forms of Debenture attached
hereto as Exhibit A and Exhibit B hereto, respectively. Non-Convertible
Debentures in the aggregate principal amount of up to $10,558,000.00 and
Convertible Debentures in the aggregate principal amount of up to $718,000.00,
upon the execution of this Indenture, and from time to time thereafter, upon the
registration of transfer of, or in exchange for, or in lieu of, other Debentures
in accordance with the terms hereof, may be executed by the Company and
delivered to the Trustee for authentication, together with a written order of
the Company. Such written order of the Company shall be signed, in manual or
facsimile form, by its President or a Vice President and by its Treasurer or an
Assistant Treasurer, Controller or an Assistant Controller or Secretary or an
Assistant Secretary, and shall specify the name or names to be registered, the
principal amount or amounts to be authenticated and the manner and place of
delivery. The Trustee shall, without any further action by the Company,
thereupon authenticate and deliver said Debentures in accordance with the
written order of the Company.
The Trustee may itself authenticate the Debentures or may
appoint an authenticating agent acceptable to the Company to authenticate the
Debentures. An authenticating agent may authenticate Debentures whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by any such agent. An authenticating agent has
the same rights as an Agent to deal with the Company. The Trustee shall
initially act as authenticating agent.
SECTION 2.2. Form of Debentures. The Debentures and the
Trustee's certificate of authentication to be borne by the Debentures shall be
substantially in the respective forms attached as Exhibits to this Indenture.
The Non-Convertible Debentures and the Convertible Debentures shall each be
issued in a single series to be generally designated as the Company's "8%
NON-CONVERTIBLE SENIOR NOTES DUE 2001" and "8% CONVERTIBLE SENIOR NOTES DUE
2001", respectively. Any of the Debentures may have such legends or endorsements
thereon as the officers executing the same may approve (execution thereof to be
conclusive evidence of such approval) and as are not inconsistent with the
provisions of this Indenture, and as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Debentures may be listed or to conform to
usage.
The Debentures shall be redeemable, as provided in Article 3
hereof and the Convertible Debentures shall be convertible, as provided in
Article 14 hereof.
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SECTION 2.3. Denomination; Date of Debentures; Interest. The
Debentures shall be issuable as registered Debentures without coupons. The
Non-Convertible Debentures shall be issued in the denominations of $1,000 and
any integral multiple of $1,000, and the Convertible Debentures shall be issued
in the denominations of $500 and any integral multiple of $500. All Debentures
shall be numbered, lettered, or otherwise distinguished in such manner or in
accordance with such plan as the officers of the Company executing the same may
determine with the approval of the Trustee.
Every Debenture shall be dated the date of its issuance and
show the date of its authentication and, except as provided in this Section 2.3,
shall bear interest, payable semiannually on October 1 and April 1 of each year,
commencing April 1, 1997, from the most recent date to which interest on the
Debentures has been paid, or, if no interest has been paid on the Debentures,
from October 1, 1996, until payment of the principal sum thereon has been made
or duly provided for; provided, however, that if and to the extent that the
Company shall default in the payment of interest due on any Interest Payment
Date, then any such Debenture shall bear interest from the first preceding
Interest Payment Date to which interest on the Debentures has been paid, or, if
no interest has been paid on the Debentures, October 1, 1996. No interest shall
accrue on the Debentures for any period prior to October 1, 1996. Interest shall
be computed on the basis of a 360- day year of twelve 30-day months.
The Person in whose name any Debenture is registered at the
close of business on any Regular Record Date with respect to any Interest
Payment Date shall be entitled to receive the interest payable on such Interest
Payment Date notwithstanding the cancellation of such Debenture upon any
transfer or exchange subsequent to the Regular Record Date and prior to such
Interest Payment Date; provided, however, that if and to the extent the Company
shall default in the payment of the interest due on such Interest Payment Date,
such defaulted interest shall be paid to the Persons in whose names such
outstanding Debentures are registered at the close of business on a special
record date for the payment of such defaulted interest established by notice
mailed by or on behalf of the Company to the holders of such Debentures not less
than 15 days preceding such special record date, such special record date to be
not less than five days preceding the date of payment of such defaulted
interest.
Subject to the foregoing provisions of this Section , each
Debenture delivered under this Indenture upon registration of 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.
In the case of any Convertible Debenture which is converted
after any Regular Record Date and on or prior to the next succeeding Interest
Payment Date (unless the Maturity Date is prior to such Interest Payment Date),
the interest payable on such
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Interest Payment Date 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 is registered at the close of business on such Regular Record Date.
Except as otherwise expressly provided in the immediately preceding sentence, in
the case of any Convertible Debenture which is converted, no interest shall
accrue or be payable after the date of conversion of such Convertible Debenture.
SECTION 2.4. Execution of Debentures. The Debentures shall be
signed in the name and on behalf of the Company manually or by facsimile by its
President or a Vice President and by its Treasurer or an Assistant Treasurer,
Controller or an Assistant Controller, or its Secretary or an Assistant
Secretary, under its corporate seal (which may be printed, engraved or otherwise
reproduced thereon, by facsimile or otherwise). Only such Debentures as shall
bear thereon a certificate of authentication substantially in the form
hereinbefore recited, executed manually by the Trustee, shall be entitled to the
benefits of this Indenture or be valid or obligatory for any purpose. Such
certificate by the Trustee upon any Debenture executed by the Company shall be
conclusive evidence that the Debenture so authenticated has been duly
authenticated and delivered hereunder and that the holder is entitled to the
benefits of this Indenture.
In case any officer of the Company who shall have signed any
of the Debentures shall cease to be such officer before the Debentures so signed
shall have been authenticated and delivered by the Trustee or disposed of by the
Company, such Debentures nevertheless may be authenticated and delivered or
disposed of as though the Person who signed such Debentures had not ceased to be
such officer of the Company; and any Debenture may be signed on behalf of the
Company by such Persons as, at the actual date of the execution of such
Debenture, shall be the proper officer of the Company, although at the date of
the execution of this Indenture any such Person was not such an officer.
SECTION 2.5. Exchange and Registration of Transfer of
Debentures. Debentures may be exchanged for a like aggregate principal amount of
Debentures of other authorized denominations, except that no Convertible
Debenture may be exchanged for a NonConvertible Debenture, or vice versa.
Debentures to be exchanged shall be surrendered at the Principal Office of the
Trustee or at the paying agency to be maintained by the Company in the Borough
of Manhattan, The City of New York, as provided in Section 4.2, and the Company
shall execute and register, and the Trustee shall authenticate and deliver, in
exchange therefor the Debenture or Debentures which the Debentureholder making
the exchange shall be entitled to receive.
The Company shall keep, or cause to be kept by the Registrar,
a register (the "DEBENTURE REGISTRY") in which, subject to such reasonable
regulations as it may prescribe, the Company
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shall register Debentures and shall register the transfer of Debentures as
provided in this ARTICLE II. Such Debenture Registry shall be in written form or
in any other form capable of being converted into written form within a
reasonable time. So long as the Trustee shall not be the Registrar, such
Debenture Registry shall be open for reasonable inspection by the Trustee. Upon
due presentment for registration of transfer of any Debenture at the Principal
Office of the Trustee or at such paying agency, the Company shall execute and
register and the Trustee shall authenticate and deliver in the name of the
transferee or transferees a new Debenture or Debentures for an equal aggregate
principal amount.
All Debentures presented for registration of transfer or for
exchange, redemption or payment shall (if so required by the Company or the
Trustee) be duly endorsed by, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company and the Trustee duly
executed by, the holder or his attorney duly authorized in writing.
No service charge shall be made to Debentureholders for any
exchange or registration of transfer of Debentures, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto.
The Company shall not be required to exchange or register a
transfer of (i) any Debentures for a period of 15 days prior to the mailing of a
notice of redemption of Debentures selected for redemption pursuant to Section
3.2 hereof, or (ii) any Debentures selected, called or being called for
redemption in whole or in part except, in the case of any Debenture to be
redeemed in part, the portion thereof not to be redeemed.
SECTION 2.6. Mutilated, Destroyed, Lost or Stolen Debentures.
In case any temporary or definitive Debenture shall become mutilated or be
destroyed, lost or stolen, the Company in its discretion may execute, and upon
its request the Trustee shall authenticate and deliver, a new Debenture, bearing
a number not contemporaneously outstanding, in exchange and substitution for the
mutilated Debenture, or in lieu of and in substitution for the Debenture so
destroyed, lost or stolen; provided, however, that in all cases a
Non-Convertible Debenture shall be delivered in exchange and substitution for a
Non-Convertible Debenture and a Convertible Debenture shall be delivered in
exchange and substitution for a Convertible Debenture. In every case the
applicant for a substituted Debenture shall furnish to the Company and the
Trustee such security or indemnity as may be required by them to save each of
them harmless, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Company and to the Trustee evidence to their
satisfaction of the destruction, loss or theft of such Debenture and of the
ownership thereof.
The Trustee shall authenticate any substituted Debenture and
deliver the same upon the written request or authorization of
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any officer of the Company. Upon the issuance of any substituted Debenture, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. In case any Debenture which has matured or is
about to mature shall become mutilated or be destroyed, lost or stolen, the
Company may, instead of issuing a substitute Debenture, pay or authorize the
payment of the same (without surrender thereof except in the case of a mutilated
Debenture) if the applicant for such payment shall furnish the Company and the
Trustee with such security or indemnity as may be required by them to save each
of them harmless and, in case of destruction, loss or theft, evidence
satisfactory to the Company and the Trustee of the destruction, loss or theft of
such Debenture and of the ownership thereof.
Every substituted Debenture issued pursuant to the provisions
of this Section 2.6 by virtue of the fact that any Debenture is destroyed, lost
or stolen shall constitute an additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Debenture shall be found at any
time, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Debentures duly issued hereunder. All
Debentures shall be held and owned upon the express condition that, to the
extent permitted by law, the foregoing provisions are exclusive with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Debentures
and shall preclude any and all other rights or remedies notwithstanding any law
or statute existing or hereafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
SECTION 2.7. Temporary Debentures. Pending the preparation of
definitive Debentures, the Company may execute and the Trustee shall
authenticate and deliver temporary Debentures (printed or lithographed).
Temporary Debentures shall be issuable in any authorized denomination, and
substantially in the form of the definitive Debentures but with such omissions,
insertions and variations as may be appropriate for temporary Debentures, all as
may be determined by the Company. Every such temporary Debenture shall be
authenticated by the Trustee upon the same conditions and in substantially the
same manner, and with the same effect, as the definitive Debentures. Without
unreasonable delay, the Company will execute and deliver to the Trustee
definitive Debentures and thereupon any or all temporary Debentures may be
surrendered in exchange therefor at the Principal Office of the Trustee, and the
Trustee shall authenticate and deliver in exchange for such temporary Debentures
an equal aggregate principal amount of definitive Debentures. Such exchange
shall be made by the Company at its own expense and without any charge therefor
except that the Company may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto. Until so
exchanged, the temporary Debentures shall in all respects be entitled to the
same benefits under this Indenture as definitive Debentures authenticated and
delivered hereunder.
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SECTION 2.8. Cancellation of Debentures Paid, etc. All
Debentures surrendered for the purpose of payment, conversion, redemption,
exchange or registration of transfer, shall, if surrendered to the Company or
any Paying Agent, be surrendered to the Trustee for cancellation, or, if
surrendered to the Trustee, shall be cancelled by it, and no Debentures shall be
issued in lieu thereof except as expressly permitted by any of the provisions of
this Indenture. Upon the written request of the Company, the Trustee shall
destroy cancelled Debentures and deliver a certificate of such destruction to
the Company. If the Company shall acquire any of the Debentures, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Debentures unless and until the same are
surrendered to the Trustee for cancellation.
ARTICLE III
Redemption of Debentures
SECTION 3.1. Redemption Price. The Company may, at its option,
redeem all or from time to time any part of the Debentures on any date prior to
maturity, upon notice as set forth in Section 3.2, at a redemption price equal
to 100% of their principal amount, together with accrued interest to the date
fixed for redemption.
SECTION 3.2. Notice of Redemption; Selection of Debentures. In
case the Company shall desire to exercise the right to redeem all, or, as the
case may be, any part of the Debentures pursuant to Section 3.1, it shall fix a
Redemption Date and shall mail a notice of such redemption (a "REDEMPTION
NOTICE") at least thirty (30) and not more than forty-five (45) days prior to
the Redemption Date to the holders of Debentures so to be redeemed as a whole or
in part at their last addresses as the same appear on the Debenture Registry.
Such mailing shall be by first class mail, postage prepaid. A Redemption Notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given, whether or not the holder receives such Redemption Notice. In any
case, failure to give such Redemption Notice by mail or any defect in the
Redemption Notice to the holder of any Debenture designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Debenture.
Each such Redemption Notice shall specify (i) the Redemption
Date, (ii) the redemption price at which Debentures are to be redeemed, (iii)
the place or places of payment, (iv) that payment will be made upon presentation
and surrender of such Debentures, (v) that accrued interest to the Redemption
Date will be paid as specified in said notice, (vi) that on and after the
Redemption Date interest thereon or on the portions thereof to be redeemed will
cease to accrue, and, in the case of a redemption of Convertible Debentures,
(vii) the prevailing conversion price for the Convertible Debentures to be
redeemed, (viii) the date on which the right to convert the principal of the
Convertible Debentures to
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be redeemed will terminate, and (x) the place or places where such Convertible
Debentures may be surrendered for conversion. If less than all the Debentures
are to be redeemed, the Redemption Notice shall specify (i) the aggregate
principal amount of the Debentures to be redeemed, (ii) the aggregate principal
amount of the Debentures that will remain outstanding after such partial
redemption, and (iii) the numbers of the Debentures held by the recipient of the
Redemption Notice that are to be redeemed. In case any Debenture is to be
redeemed in part only, the Redemption Notice shall state the portion of the
principal amount thereof to be redeemed and shall state that on and after the
Redemption Date, upon surrender of such Debenture, a new Debenture or Debentures
in aggregate principal amount equal to the unredeemed portion thereof will be
issued. In addition, if a Redemption Notice relating to the redemption of any
Convertible Debentures is mailed to holders of Convertible Debentures on other
than a Trigger Date, the Redemption Notice shall include a notice to each such
holder of his right to receive a Warrant pursuant to Section 3.4 hereof and
shall describe, in reasonable detail, the terms of such Warrant.
At least one Business Day before the Redemption Date specified
in the Redemption Notice given as provided in this Section 3.2, the Company
shall deposit with the Trustee or with one or more paying agents an amount of
money sufficient to redeem on the Redemption Date all the Debentures so called
for redemption at the applicable redemption price, together with accrued
interest to the Redemption Date.
If less than all the Debentures are to be redeemed, the
Company shall give the Trustee notice not less than 45 days prior to the
Redemption Date as to the aggregate principal amount of Debentures to be
redeemed, and the Trustee shall select the Debentures or portions thereof to be
redeemed on a pro rata basis or by lot; provided, however, that no redemption
may be made of any Convertible Debenture unless and until there are no longer
any NonConvertible Debentures outstanding or unless all of the outstanding
Non-Convertible Debentures are being redeemed concurrently with the Convertible
Debentures being redeemed. Non-Convertible Debentures may be redeemed in part
only in multiples of $1,000 and Convertible Debentures may be redeemed in part
only in multiples of $500.
If any Convertible Debenture selected for partial redemption
is converted in part before termination of the conversion right with respect to
the portion of the Convertible Debenture so selected, the converted portion of
such Convertible Debenture shall be deemed (so far as may be practical) to be
the portion selected for redemption. Convertible Debentures which have been
converted during a selection of Debentures to be redeemed shall be treated by
the Trustee as outstanding for the purpose of such selection.
The Trustee shall promptly notify the Company and the
Registrar in writing of the Debentures selected for redemption and,
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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 Debentures redeemed or to be redeemed only in
part, to the portion of the principal amount of such Debentures which has been
or is to be redeemed.
Any Redemption Notice to be mailed by the Company pursuant to
this Section 3.2 may be mailed, at the Company's direction, by the Trustee in
the name and at the expense of the Company.
SECTION 3.3. Payment of Debentures Called for Redemption. If
Redemption Notices have been mailed as provided in Section 3.2, the Debentures
or portions of Debentures with respect to which such notice has been mailed
shall become due and payable on the date and at the place or places stated in
such notice at the applicable redemption price, plus accrued interest to the
Redemption Date, and on and after said date (unless the Company shall default in
the redemption of such Debentures at the applicable redemption price, plus
accrued interest to said date) interest on the Debentures or portions of
Debentures so called for redemption shall cease to accrue, and such Debentures
and portions of Debentures shall be deemed not to be outstanding hereunder and
shall not be entitled to any benefit under this Indenture except to receive
payment of the redemption price, plus accrued interest to the Redemption Date;
provided that, interest installments whose maturity is on or prior to such
Redemption Date will be payable to the Debentureholders of record at the close
of business on the relevant record date according to the provisions of Section
2.3 herein. On presentation and surrender of such Debentures at a place of
payment specified in the Redemption Notice, said Debentures or the specified
portions thereof shall be paid and redeemed by the Company at the applicable
redemption price, plus accrued interest to the Redemption Date.
Upon presentation of any Debenture redeemed in part only, 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 unredeemed
portion of the Debenture so presented (provided, that any such Debenture so
authenticated and delivered shall be a Non-Convertible Debenture, if the
Debenture presented was a Non-Convertible Debenture and shall be a Convertible
Debenture if the Debenture presented was a Convertible Debenture).
SECTION 3.4. Precondition to Redemption. Anything to the
contrary herein notwithstanding, in the event that the Company desires to redeem
all or any portion of the outstanding Convertible Debentures and the Redemption
Notice relating thereto is mailed to the holders of Convertible Debentures
pursuant to Section 3.2 on
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other than a Trigger Date, the Company shall, on or prior to the Redemption Date
and as a precondition to redemption, (i) have delivered to the Trustee, as agent
for the Holders, duly executed warrants, substantially in the form of Exhibit C
hereto, in the name of each Holder whose Convertible Debentures are to be
redeemed (a "WARRANT"), which Warrant (i) shall be exercisable, in whole or in
part, at any time prior to the Maturity Date, and (ii) shall, effective as of
the Redemption Date and the redemption by the Company of the Convertible
Debentures, entitle each Holder of a redeemed Convertible Debenture to purchase
the number of shares of Common Stock into which his redeemed Convertible
Debentures, or redeemed portion thereof, might have been converted on the
Redemption Date in accordance with Article XIV hereof, and (iii) have caused the
registration of the Warrants and the shares of Common Stock underlying the
Warrants under the Securities Act of 1933 and applicable state securities laws
to become effective on or prior to the Redemption Date, which registration shall
be confirmed by an Officer's Certificate delivered to the Trustee and such other
additional evidence as the Trustee may request, and (iv) have caused the Common
Stock underlying the Warrants to be listed on such exchange or quoted on such
quotation system as is the outstanding Common Stock immediately prior to the
conversion.
ARTICLE IV
Particular Covenants of the Company
SECTION 4.1. Payment of Principal, Premium and Interest. The
Company covenants and agrees that it will duly and punctually pay or cause to be
paid the principal of, premium, if any, and interest on each of the Debentures
at the place, at the respective times and in the manner provided in the
Debentures.
SECTION 4.2. Offices for Notices and Payments, etc. So long as
any of the Debentures remain outstanding, the Company will maintain in the
Borough of Manhattan, The City and State of New York, an office or agency where
the Debentures may be presented for payment (the "PAYING AGENT"), an office or
agency where the Debentures may be presented for registration of transfer and
for exchange as provided in this Indenture, an office or agency where
Convertible Debentures may be surrendered for conversion and an office or agency
where notices and demands to or upon the Company in respect of the Debentures or
of this Indenture may be served (the "REGISTRAR"). The Company will give written
notice to the Trustee of the location of any such office or agency and of any
change of location thereof. In case the Company shall fail to maintain any such
office or agency or shall fail to give such notice of the location or of any
change in the location thereof, presentations and demands may be made and
notices may be served at the Principal Office of the Trustee. The Trustee shall
initially act as Paying Agent and as Registrar.
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SECTION 4.3. Limitations on Dividends and Stock Purchases. The
Company will not declare or pay any dividend or make any distribution on any
class of its capital stock or to the holders of any class of its capital stock
(except dividends or distributions payable in capital stock of the Company), or
purchase, redeem or otherwise acquire or retire for value any capital stock of
the Company (i) if at the time of such action an Event of Default or an event
which with notice or lapse of time or both would constitute an Event of Default,
shall have occurred and be continuing, or (ii) if, upon giving effect to such
dividend, distribution, purchase, redemption, or other acquisition or
retirement, the aggregate amount expended for all such purposes (the amount
expended for such purposes, if other than in cash, to be determined by the Board
of Directors, whose determination shall be made in good faith and evidenced by a
resolution of the Board of Directors filed with the Trustee) shall exceed the
sum of (a) 75% of the aggregate Consolidated Net Income (or, in case such
aggregate Consolidated Net Income shall be a deficit, minus such deficit) of the
Company accrued on a cumulative basis for the period commenced on June 30, 1986
to the date of the payment or making of such dividend, distribution, purchase,
redemption or other acquisition or retirement, (b) the aggregate net proceeds,
including the fair market value of property other than cash (as determined by
the Board of Directors, whose determination shall be made in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee),
received by the Company from the issue or sale from time to time after September
30, 1986, of capital stock of the Company, including capital stock issued upon
the conversion of, or in exchange for, indebtedness for borrowed money, and (c)
$4,000,000; provided, however, that the provisions of this Section 4.3 shall not
prevent (A) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment complied with
the provisions hereof, or (B) the retirement of any shares of the Company's
capital stock by exchange for, or out of proceeds of the substantially
concurrent sale of, other shares of its capital stock, and neither such
retirement nor the proceeds of any such sale or exchange shall be included in
any computation made under this Section 4.3.
SECTION 4.4. Limitation on Restrictions on Payment by
Subsidiaries to Company. The Company shall not permit any Subsidiary to enter
into any agreement or any supplement or amendment of any existing agreement if
such agreement, supplement or amendment would prohibit, limit or otherwise
impair the payment of dividends or the making of other distributions on such
Subsidiary's capital stock.
SECTION 4.5. Compliance Certificate. The Company will deliver
to the Trustee within 120 days after the end of each fiscal year of the Company
an Officers' Certificate, which shall include the statements set forth in the
second paragraph of Section 16.5, stating whether or not the signers know of any
Event of Default
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that occurred during such period. If they do, the Officers' Certificate will
describe the Event of Default and its status.
SECTION 4.6. Appointments To Fill Vacancies in Trustee's
Office. The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, will appoint, in the manner provided in Section 7.10, a Trustee, so
that there shall at all times be a Trustee hereunder.
SECTION 4.7. Provision as to Paying Agent.
(a) If the Company shall appoint a Paying Agent other than the
Trustee, it will cause such Paying Agent to execute and deliver to the Trustee
an instrument in which such agent shall agree with the Trustee, subject to the
provisions of this Section 4.7:
(1) that it will hold all sums held by it as such
agent for the payment of the principal of or interest on the Debentures
(whether such sums have been paid to it by the Company or by any other
obligor on the Debentures) in trust for the benefit of the holders of
the Debentures and will notify the Trustee of the receipt of the sums
so held;
(2) that it will give the Trustee notice of any
failure by the Company (or by any other obligor on the Debentures) to
make payment of the principal of or interest on the Debentures when the
same shall be due and payable; and
(3) that it will at any time during the continuance
of any such failure by the Company, upon the written request of the
Trustee signed by one of its Vice Presidents or Trust Officers,
forthwith pay to the Trustee all sums so held in trust by it.
(b) If the Company shall act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on the Debentures,
set aside, segregate and hold in trust for the benefit of the holders of the
Debentures a sum sufficient to pay such principal or interest so becoming due
and will notify the Trustee of any failure to take such action and of any
failure by the Company (or by any other obligor under the Debentures) to make
any payment of the principal of, premium, if any, or interest on the Debentures
when the same shall become due and payable.
(c) Whenever the Company shall have one or more paying agents,
it will on or before each due date of the principal of, premium, if any, or
interest on, any Debentures, deposit with a Paying Agent a sum sufficient to pay
the principal, premium or interest so becoming due, such sum to be held in trust
for the benefit of the Persons entitled to such principal or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
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(d) Anything in this Section 4.7 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by it, or any Paying
Agent hereunder, as required by this Section 4.7, such sums to be held by the
Trustee upon the trusts herein contained. Upon payment over to the Trustee, the
Paying Agent shall have no further liability for the money.
SECTION 4.8. Debenture CUSIP Numbers. The Company shall, as
soon as reasonably practicable hereafter, take all steps necessary to obtain
separate CUSIP numbers for the Debentures.
SECTION 4.9. Waiver of Covenants and Conditions. The Company
may omit in any particular instance to comply with any covenant or condition set
forth in Sections 4.3 and 4.4, if before or after the time for such compliance
the holders of a majority in principal amount of the Debentures at the time
outstanding shall, by act of such Debentureholders, either waive such compliance
in such instance or generally waive compliance with such covenant or condition,
but no such waiver shall extend to or affect 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 V
Debentureholders' Lists and Reports
by the Company and the Trustee
SECTION 5.1. Debentureholders' Lists. So long as the Trustee
shall not be the Registrar, the Company covenants and agrees that it will
furnish or cause to be furnished to the Trustee, semiannually, not less than 15
days before each April 1 and October 1 in each year beginning with October 1,
1996, and at such other times as the Trustee may request in writing, within 30
days after receipt by the Company of any such request, all information in the
possession or control of the Company (or any paying agent hereunder if other
than the Company) as to the names and addresses of the holders of Debentures as
of a date not more than 15 days prior to the time such information is furnished.
SECTION 5.2. Preservation and Disclosure of Lists. (a) The
Trustee shall preserve, in as current a form as is reasonably practicable, all
information as to the names and addresses of the holders of Debentures contained
in the most recent list furnished to it as provided in Section 5.1 or received
by the Trustee in its capacity as Registrar. The Trustee may destroy any list
furnished to it as provided in Section 5.1 upon receipt of a new list so
furnished.
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(b) In case three or more holders of Debentures (hereinafter
referred to as "APPLICANTS") apply in writing to the Trustee and furnish to the
Trustee reasonable proof that each such applicant has owned a Debenture for a
period of at least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other holders
of Debentures with respect to their rights under this Indenture or under the
Debentures and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall,
within five business days after the receipt of such application, at its
election, either
(1) afford such applicants access to the information
preserved at the time by the Trustee in accordance with the provisions
of subsection (a) of this Section 5.2, or
(2) inform such applicants as to the approximate
number of holders of Debentures whose names and addresses appear in the
information preserved at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 5.2, and as to the
approximate cost of mailing to such Debentureholders the form of proxy
or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants
access to such information, the Trustee shall, upon the written request of such
applicants, mail to each Debentureholder whose name and address appears in the
information preserved at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 5.2 a copy of the form of proxy or
other communication which is specified in such request, with reasonable
promptness after a tender to the Trustee of the material to be mailed and of
payment, or provision for the payment, of the reasonable expenses of mailing,
unless, within five days after such tender, the Trustee shall mail to such
applicants and file with the Commission, together with a copy of the material to
be mailed, a written statement to the effect that, in the opinion of the
Trustee, such mailing would be contrary to the best interests of the holders of
Debentures or would be in violation of applicable law. Such written statement
shall specify the basis of such opinion. If the Commission, after opportunity
for a hearing upon the objections specified in the written statement so filed,
shall enter an order refusing to sustain any of such objections or if, after the
entry of an order sustaining one or more of such objections, the Commission
shall find, after notice and opportunity for hearing, that all the objections so
sustained have been met and shall enter an order so declaring, the Trustee shall
mail copies of such material to all such Debentureholders with reasonable
promptness after the entry of such order and the renewal of such tender;
otherwise the Trustee shall be relieved of any obligation or duty to such
applicants respecting their application.
(c) Each and every holder of the Debentures, by
receiving and holding the same, agrees with the Company and the
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Trustee that neither the Company nor the Trustee nor any Paying Agent shall be
held accountable by reason of the disclosure of any such information as to the
names and addresses of the holders of the Debentures in accordance with the
provisions of subsection (b) of this Section 5.2, regardless of the sources from
which such information was derived, and that the Trustee shall not be held
accountable by reason of mailing any material pursuant to a request made under
said subsection (b).
SECTION 5.3. Reports by the Company. (a) The Company covenants
and agrees to file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended; or, if the Company is not required to file information,
documents or reports pursuant to either of such Sections , then to file with the
Trustee and the Commission, in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Securities Exchange Act of 1934, as amended, in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.
(b) The Company covenants and agrees to file with the Trustee
and the Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission, such additional information, documents and
reports with respect to compliance by the Company with the conditions and
covenants provided for in this Indenture as may be required from time to time by
such rules and regulations.
(c) The Company covenants and agrees to transmit by mail to
all holders of Debentures, as the names and addresses of such holders appear
upon the Debenture Registry, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required to be
filed by the Company pursuant to subsections (a) and (b) of this Section 5.3 as
may be required by rules and regulations prescribed by the Commission.
(d) The Company covenants and agrees to furnish to the
Trustee, not less often than annually, a brief certificate from the principal
executive officer, principal financial officer or principal accounting officer
of the Company as to his or her knowledge of the Company's compliance with all
conditions and covenants under this Indenture, such compliance to be determined,
for purposes of this subparagraph (d), without regard to any period of grace or
requirement of notice provided hereunder.
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SECTION 5.4. Reports by the Trustee. (a) On or before March
31, 1997, and on or before March 31 in every year thereafter, so long as any
Debentures are outstanding hereunder, the Trustee shall transmit to the
Debentureholders, as hereinafter in this Section 5.4 provided, a brief report
with respect to any of the following events which may have occurred within the
previous 12 months (but if no such event has occurred within such period, no
report need be transmitted):
(1) any change to its eligibility under Section
7.9, and its qualification under Section 7.8;
(2) the creation of any material change to a
relationship specified in paragraphs (1) through (10) of
Section 7.8(b);
(3) the character and amount of any advances (and if
the Trustee elects so to state, the circumstances surrounding the
making thereof) made by the Trustee (as such) which remain unpaid on
the date of such report, and for the reimbursement of which it claims
or may claim a lien or charge, prior to that of the Debentures, on any
property or funds held or collected by it as Trustee, except that the
Trustee shall not be required (but may elect) to state such advances if
such advances so remaining unpaid aggregate not more than 1/2 of 1% of
the principal amount of the Debentures outstanding on the date of such
report;
(4) the amount, interest rate, and maturity date of
all other indebtedness owing by the Company (or by any other obligor on
the Debentures) to the Trustee in its individual capacity, on the date
of such report, with a brief description of any property held as
collateral security therefor, except an indebtedness based upon a
creditor relationship arising in any manner described in paragraph (2),
(3), (4) or (6) of subsection (b) of Section 7.13;
(5) any change to the property and funds, if any,
physically in the possession of the Trustee, as such, on the
date of such report;
(6) any change to any release, or release and
substitution, of property, if any, subject to the lien of the
Indenture;
(7) any additional issue of Debentures which the
Trustee has not previously reported; and
(8) any action taken by the Trustee in the
performance of its duties under this Indenture which it has not
previously reported and which in its opinion materially affects the
Debentures, except action in respect of a default, notice of which has
been or is to be withheld by it in accordance with the provisions of
Section 6.8.
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(b) The Trustee shall transmit to the Debentureholders, as
hereinafter provided, a brief report with respect to the character and amount of
any advances (and if the Trustee elects so to state, the circumstances
surrounding the making thereof) made by the Trustee (as such), since the date of
the last report transmitted pursuant to the provisions of subsection (a) of this
Section 5.4 (or, if no such report has yet been so transmitted, since the date
of execution of this Indenture), for the reimbursement of which it claims or may
claim a lien or charge prior to that of the Debentures on property or funds held
or collected by it as Trustee, and which it has not previously reported pursuant
to this subsection, except that the Trustee shall not be required (but may
elect) to report such advances if such advances remaining unpaid at any time
aggregate 10% or less of the principal amount of Debentures outstanding at such
time, such report to be transmitted with 90 days after such time.
(c) Reports pursuant to this Section 5.4 shall be transmitted
by mail to all (i) holders of Debentures as the names of such holders appear
upon the Debenture Registry, (ii) to all Debentureholders as have, within the 2
years preceding such transmission, filed their names and addresses with the
Trustee for such purpose, and (iii) except in the case of reports transmitted
pursuant to Section 5.4(b), to all Debentureholders whose names and addresses
have been furnished to or received by the Trustee pursuant to Section 5.1.
(d) A copy of each such report shall, at the time of such
transmission to Debentureholders, be filed by the Trustee with each stock
exchange upon which the Debentures are listed and also with the Commission. The
Company will notify the Trustee when and as the Debentures become listed on any
stock exchange.
ARTICLE VI
Remedies of the Trustee and
Debentureholders on Event of Default
SECTION 6.1. Events of Default. (a) In case one or
more of the following Events of Default shall have occurred and be
continuing:
(i) 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 10 days; or
(ii) default in the payment of the principal of or premium on,
if any, any of the Debentures, as and when the same shall become due and payable
either at maturity, upon redemption, by declaration or otherwise; or
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(iii) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the Company
contained in the Debentures or in this Indenture or in the Exchange Agreement
for a period of 30 days after the date on which written notice of such failure,
requiring the Company to remedy the same, shall have been given by registered or
certified mail to the Company by the Trustee or to the Company and the Trustee
by the holders of at least 25% in aggregate principal amount of the Debentures
at the time outstanding and stating that such notice is a "Notice of Default"
hereunder; or
(iv) a default as defined in any mortgage, agreement or other
instrument, under which there may be issued, or by which there may be secured or
evidenced, any Indebtedness of the Company or any Subsidiary, having
individually or in the aggregate a remaining principal amount in excess of
$250,000, whether such Indebtedness now exists or shall hereafter be created,
shall happen and such default permits the acceleration of the maturity of such
Indebtedness prior to the date on which it would otherwise be due and payable;
provided, however, that no Event of Default under this clause (iv) shall exist
unless there shall have been given by registered or certified mail to the
Company by the Trustee or to the Company and the Trustee by any holder of a
Debenture at the time outstanding written notice specifying such default and
stating that such notice is a "Notice of Default" hereunder; or
(v) failure by the Board and/or the shareholders of the
Company to appoint or elect and maintain the Holder Designee in office as a
director of the Company, and as a member of the Compensation Committee of the
Board (or of any committee of the Board performing functions similar to those
normally performed by a compensation committee of a board of directors), if any,
in accordance with the terms of Section 9.8 hereof; or
(vi) entry of a decree or order by a court having jurisdiction
in the premises for relief in respect of the Company under Title 11 of the
United States Code, as now constituted or as hereafter amended, or any other
applicable Federal or state bankruptcy law or other similar law, or appointing a
receiver, trustee or other similar official of the Company or of any substantial
part of its property, or ordering the winding-up or liquidation of its affairs
and the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(vii) filing by the Company of a petition or an answer or
consent seeking relief under Title 11 of the United States Code, as now
constituted or as hereinafter amended, or any other applicable Federal or state
bankruptcy law or other similar law, or its consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment or taking possession of a receiver, trustee, custodian or other
similar official of the Company or of any substantial part of its property, or
the failure by the Company generally to pay its debts as such
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debts become due or the making by the Company of an assignment for the benefit
of its creditors, or the taking of any corporate action in furtherance of any
such action;
then, unless the principal of all the Debentures shall have already become due
and payable, in each and every case of the occurrence of an Event of Default
described in clause (i), (ii), (iii), (iv) or (v) of this Section 6.1, either
the Trustee or the holders of not less than 25% in aggregate principal amount of
the Debentures then outstanding hereunder may declare the principal of and
accrued but unpaid interest on the Debentures to be immediately due and payable,
by a notice in writing to the Company (and to the Trustee if given by the
Debentureholders), and upon any such declaration the same shall become and shall
be immediately due and payable and, in each and every case of the occurrence of
an Event of Default described in clause (vi) or (vii) of this Section 6.1, the
principal of and accrued but unpaid interest on the Debentures shall
automatically, without any declaration or other act by the Trustee or any
Debentureholder, become and shall be immediately due and payable. Upon the
principal of and accrued but unpaid interest on the Debentures so becoming
immediately due and payable, the Company shall, upon demand, pay to the Trustee,
for the benefit of the holders of the Debentures, the whole amount that then
shall have become due and payable on all such Debentures for principal or
interest, or both, as the case may be, with interest upon the overdue principal
and (to the extent that payment of such interest is enforceable under applicable
law) upon the overdue installments of interest at the rate borne by the
Debentures; and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including a reasonable
compensation to the Trustee, its agents, attorneys and counsel, and any
reasonable expenses or liabilities incurred by the Trustee hereunder other than
through its gross negligence or bad faith.
(b) Anything in Section 6.1(a) to the contrary
notwithstanding, any declaration pursuant to this Section 6.1 shall be subject
to the condition that if, at any time after the principal of the Debentures
shall have been so declared due and payable and before any judgment or decree
for the payment of the money due shall have been obtained or entered as
hereinafter provided, the Company shall pay or shall deposit with the Trustee a
sum sufficient to pay all matured installments of interest upon all of the
Debentures and the principal of the Debentures which shall have become due
otherwise than by acceleration, with interest on overdue installments of
interest (to the extent that payment of such interest is enforceable under
applicable law) and on such principal at the rate borne by the Debentures to the
date of such payment or deposit, and all sums paid on advances made by the
Trustee hereunder and the reasonable compensation, expenses, costs, liabilities
and advances of the Trustee, its agents and counsel, and any and all defaults
under this Indenture, other than the nonpayment of principal of and accrued
interest on the Debentures which shall have become due by acceleration, shall
have been remedied, then and in every such case the holders of not less than
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the majority in aggregate principal amount of the Debentures then outstanding,
by written notice to the Company and to the Trustee, may waive all defaults and
rescind and annul such declaration and its consequences (subject to Section
6.7); but no waiver or rescission and annulment shall extend to or shall affect
any subsequent default, or shall impair any right consequent thereon. In case
the Trustee shall have proceeded to enforce any right under this Indenture and
such proceedings shall have been discontinued or abandoned because of such
rescission or annulment or for any other reason or shall have been determined
adversely to the Trustee, then and in every such case the Company and the
Trustee shall be restored respectively to their several positions and rights
hereunder, and all rights, remedies and powers of the Company and the Trustee
shall continue as though no such proceeding had been taken.
SECTION 6.2. Suit for Payment of Debentures. In case the
Company shall fail forthwith to pay the amounts required under Section 6.1(a)
upon the Trustee's demand, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any actions or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree, against the Company
or any other obligor on the Debentures and collect in the manner provided by law
out of the property of the Company or any other obligor on the Debentures
wherever situated the money adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy
or for the reorganization of the Company or any other obligor on the Debentures
under the Federal bankruptcy laws or any other applicable law, or in case a
receiver or trustee shall have been appointed for the property of the Company or
such other obligor, or in case of any other similar judicial proceedings
relating to the Company or other obligor upon the Debentures, or to the
creditors or property of the Company or such other obligor, the Trustee,
irrespective of whether the principal of the Debentures shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand pursuant to the provisions of
Section 6.1, shall be entitled and empowered by intervention in such proceedings
or otherwise, to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Debentures, and, in
case of any judicial proceedings, to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee and of the Debentureholders allowed in such judicial proceedings
relating to the Company or any other obligor on the Debentures, its or their
creditors, or its or their property, and to collect and receive any money or
other property payable or deliverable on any such claims, and to distribute the
same after the deduction of its charges and expenses; and any receiver, assignee
or trustee in bankruptcy or reorganization is
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hereby authorized by each of the Debentureholders to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Debentureholders, to pay to the Trustee any amount due
it for compensation and expenses, including counsel fees incurred by it up to
the date of such distribution and any other amounts due the Trustee under
Section 7.6.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Debentureholder any plan or reorganization, arrangement, adjustment or
composition affecting the Debentures or the rights of any holder thereof or to
authorize the Trustee to vote in respect of the claim of any Debentureholder in
any such proceeding.
All rights of action and of asserting claims under this
Indenture, or under any of the Debentures, may be enforced by the Trustee
without the possession of any of the Debentures, or the production thereof in
any trial or other proceeding relating thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall be for the ratable benefit of
the holders of the Debentures.
SECTION 6.3. Application of Money Collected by Trustee. Any
money collected by the Trustee shall be applied in the following order, at the
date or dates fixed by the Trustee for the distribution of such money, upon
presentation of the several Debentures, and stamping thereon the payment, if
only partially paid, and upon surrender thereof, if fully paid:
FIRST: To the payment of all amounts due to the Trustee
pursuant to Section 7.6;
SECOND: In case the principal of the outstanding Debentures
shall not have become due and be unpaid, 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; and
THIRD: In case the principal of the outstanding 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 interest, with interest on the overdue principal 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 money shall be insufficient to pay in full the whole
amounts so due and unpaid upon the Debentures, then to the payment of
such principal and interest without preference or priority of principal
over interest, or of interest over
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principal or of any installment of interest over any other installment
of interest, or of any Debentures over any other Debentures, ratably to
the aggregate of such principal and accrued and unpaid interest.
SECTION 6.4. Proceedings by Debentureholders. Subject to
Section 6.7 hereof, no holder of any Debenture shall have any right by virtue of
or by availing of any provision of this Indenture to institute any suit, action
or proceeding in equity or at law upon or under or with respect to this
Indenture or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless such holder previously shall have given to the Trustee
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the holders of not less than 50% in aggregate
principal amount of the Debentures then outstanding shall have made written
request upon the Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to the Trustee such reasonable
security or indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for 60 days after
its receipt of such notice, request and offer of indemnity, shall have neglected
or refused to institute any such action, suit or proceeding, and 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 aggregate principal amount of the
Debentures; it being understood and intended, and being expressly covenanted by
the taker and holder of every Debenture with every other taker and holder and
the Trustee, that no one or more holders of Debentures shall have any right in
any manner whatever by virtue of or by availing of any provision of this
Indenture to affect, disturb or prejudice the rights of any other holder of such
Debentures, or to obtain or seek to obtain priority over or preference to any
such holder, or to enforce any right under this Indenture, except in the manner
herein provided and for the equal, ratable and common benefit of all holders of
Debentures.
SECTION 6.5. Proceedings by Trustee. Upon the occurrence of an
Event of Default, the Trustee may in its discretion proceed to protect and
enforce the rights vested in it by this Indenture by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
of such rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
SECTION 6.6. Remedies Cumulative and Continuing. All powers
and remedies given by this ARTICLE VI to the Trustee or to the Debentureholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive of
any thereof or of any other powers and remedies available to the Trustee or the
holders of the
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Debentures, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture, and no
delay or omission of the Trustee or of any holder of any of the Debentures to
exercise any right or power accruing upon any default occurring and continuing
as aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or an acquiescence therein; and, subject to the
provisions of Section 6.4, every power and remedy given by this ARTICLE VI or by
law to the Trustee or to the Debentureholders may be exercised from time to
time, and as often as shall be deemed expedient, by the Trustee or by the
Debentureholders.
SECTION 6.7. Direction of Proceedings and Waiver of Defaults
by Majority of Debentureholders. The holders of a majority in aggregate
principal amount of the Debentures at the time outstanding shall have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee; provided, however, that (subject to the provisions of Section 7.1) the
Trustee shall have the right to decline to follow any such direction if the
Trustee, being advised by counsel, shall determine that the action or proceeding
so directed may not lawfully be taken or if the Trustee in good faith by its
board of directors or trustees, executive committee, or a trust committee of
directors or trustees and/or Responsible Officers shall determine that the
action or proceeding so directed would result in personal liability to the
Trustee or would be unduly prejudicial to the Debentureholders not joining in
such direction. The holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may, at any time, on behalf of the holders of
all the Debentures waive any past default or Event of Default hereunder and its
consequences; provided, however, that notwithstanding anything to the contrary
in this Section or in any other provision of this Indenture, the right of any
Debentureholder to receive any payment of principal of, and interest on, a
Debenture, on or after the respective due dates set forth in the Debenture (or,
in the case of redemption, on the Redemption Date), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
affected or impaired without the consent of such Debentureholder. Upon any such
waiver the Company, the Trustee and the holders of the Debentures shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other default or Event of Default
or impair any right consequent thereon. Whenever any default or Event of Default
shall have been waived as permitted by this Section 6.7, said default or Event
of Default shall for all purposes of the Debentures and this Indenture be deemed
to have been cured and to be not continuing. The Company may set a record date
for purposes of determining the identity of Debentureholders entitled to vote or
consent to any action by vote or consent authorized or permitted by this Section
6.7. 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
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furnished to the Trustee pursuant to Section 5.1 prior to such solicitation.
SECTION 6.8. Notice of Defaults. The Trustee shall, within 90
days after the occurrence of a default known to a Responsible Officer of the
Trustee (the calculation of such 90-day period to exclude any period, the
continuance of which is required for such default to become an Event of Default
and to be made without regard to any notice, the giving of which is required for
such default to become an Event of Default), mail to all Debentureholders, in
the manner and to the extent provided in subsection (c) of Section 5.4, notice
of such default, unless such default shall have been cured or waived before the
giving of such notice; provided that, except in the case of default in the
payment of the principal of or premium or interest on any of the Debentures, 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 determines that the
withholding of such notice is in the interests of the Debentureholders.
SECTION 6.9. Undertaking To Pay Costs. All parties to this
Indenture agree, and each holder of any Debenture by his acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture, or in
any suit against 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 6.9 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any
Debentureholder, or group of Debentureholders, holding in the aggregate more
than 10% in principal amount of the Debentures outstanding, or to any suit
instituted by any Debentureholder for the enforcement of the payment of the
principal of or interest on any Debenture on or after the due date expressed in
such Debenture (or, in the case of redemption, on the Redemption Date) or for
the enforcement of the right to convert any Convertible Debenture in accordance
with Article XIV hereof.
ARTICLE VII
Concerning the Trustee
SECTION 7.1. Duties and Responsibilities of Trustee. The
Trustee, prior to the occurrence of an Event of Default and after the curing or
waiving of all Events of Default which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Indenture. In case an Event of
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Default has occurred (which has not been cured or waived), 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 man would
exercise or use under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have occurred,
(1) the Trustee shall not be liable except for the
performance of such duties and obligations 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 bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any 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 by
any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall examine the same to
determine whether or not they conform to the requirements of
this Indenture;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) 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 Debentures at the time outstanding (determined as
provided in Section 8.1 and Section 8.4 hereof) relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds
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or adequate indemnity against such risk or liability is not reasonably assured
to it.
SECTION 7.2. Reliance on Documents, Opinions, etc. Except as
otherwise provided in Section 7.1:
(i) the Trustee may rely and shall be protected in acting upon
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(ii) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;
(iii) the Trustee may consult with counsel and any advice or
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or omitted by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
(iv) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Debentureholders, pursuant to the
provisions of this Indenture, unless such Debentureholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby;
(v) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and reasonably believed by it
to be authorized or within the discretion or rights or powers conferred
upon it by this Indenture;
(vi) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default, the Trustee shall not
be bound to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond, debenture, coupon or
other paper or document, unless requested in writing to do so by the
holders of not less than a majority in principal amount of the
Debentures then outstanding; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security
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afforded to it by the terms of this Indenture, the Trustee may
require reasonable indemnity against such expense or liability
as a condition to so proceeding; and
(vii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys.
SECTION 7.3. No Responsibility for Recitals, etc. The recitals
contained herein and in the Debentures (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Debentures. The Trustee shall not be accountable for the use or application by
the Company of any Debentures or the proceeds of any Debentures authenticated
and delivered by the Trustee in conformity with the provisions of this
Indenture.
SECTION 7.4. Trustee, Paying Agent or Registrar May Own
Debentures. The Trustee or any Paying Agent or Registrar, in its individual or
any other capacity, may become the owner or pledgee of Debentures with the same
rights it would have if it were not Trustee, Paying Agent or Registrar.
SECTION 7.5. Money To Be Held in Trust. Subject to the
provisions of Section 12.6, all money received by the Trustee shall, until used
or applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except such as it may agree with the Company to
pay thereon.
SECTION 7.6. Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express trust)
and the Company will pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursements
or advance as may arise from its gross negligence or bad faith. The Company also
covenants to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Trustee and arising out of or in connection with the acceptance of
administration of this trust, including the costs and expenses of defending
itself against any claim of liability in the premises. The obligations of the
Company under this Section 7.6 to compensate the Trustee and to pay
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or reimburse the Trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder. To secure the Company's payment
obligations in this Section , the Trustee shall have a lien prior to the
Debentures on all money or property held or collected by the Trustee, except
money or property held in trust to pay principal of or interest on particular
Debentures. When the Trustee incurs expenses or renders services after an Event
of Default specified in Sections 6.1(vi) or (vii) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.7. Officers' Certificate as Evidence. Except as
otherwise provided in Section 7.1, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of gross negligence or bad faith on
the part of the Trustee, be deemed to be conclusively proved and established by
an Officers' Certificate delivered to the Trustee, and such Officers'
Certificate, in the absence of gross negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken or omitted by
it under the provisions of this Indenture in reliance thereon.
SECTION 7.8. Conflicting Interest of Trustee. (a) If
the Trustee has or shall acquire any conflicting interest, as
defined in this Section 7.8:
(i) the Trustee shall, within 90 days after
ascertaining that it has such conflicting interest, and if the
default (as defined in subsection 7.8(c) below) to which such
conflicting interest relates has not been cured or duly waived
or otherwise eliminated before the end of such 90-day period,
either eliminate such conflicting interest or, except as
otherwise provided hereinbelow, resign in the manner and with
the effect specified in Section 7.10;
(ii) in the event that the Trustee shall
fail to comply with the provisions of subparagraph (i) of this
subsection (a) of this Section 7.8, the Trustee shall, within
10 days after the expiration of such 90-day period, transmit
notice of such failure to all holders of Debentures, as the
names and addresses of such holders appear upon the registry
books of the Company; and
(iii) subject to the provisions of Section
7.1, unless the Trustee's duty to resign is stayed as provided
below in subsection 7.8(e), any Debentureholder who has been a
bona fide holder of Debentures for at least six months may, on
behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the removal of the
Trustee, and the appointment of a
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successor, if the Trustee fails, after written request thereof
by such holder to comply with the provisions of this
subsection 7.8(a).
(b) For the purposes of this Section 7.8, the Trustee shall be
deemed to have a conflicting interest if the Debentures are in default (as such
term is defined in the Indenture, but exclusive of any period of grace or
requirement of notice) and:
(1) the Trustee is trustee under another indenture
under which any other securities, or certificates of interest or
participation in any other securities, of the Company are outstanding
or is trustee for more than one outstanding series of securities, as
hereinafter defined, under a single indenture of the Company unless
such other indenture is a collateral trust indenture under which the
only collateral consists of Debentures issued under this Indenture;
provided that there shall be excluded from the operation of this
paragraph any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the
Company are outstanding if (i) this Indenture and such other indenture
or indentures (and all series of securities issued hereunder) are
wholly unsecured and rank equally, and such other indenture or
indentures (and such series) are hereafter qualified under the Trust
Indenture Act of 1939, unless the Commission shall have found and
declared by order pursuant to subsection (b) of Section 305 or
subsection (c) of Section 307 of the Trust Indenture Act of 1939 that
differences exist between the provisions of this Indenture and the
provisions of such other indenture or indentures which are so likely to
involve a material conflict of interest as to make it necessary in the
public interest or for the protection of investors to disqualify the
Trustee from acting as such under this Indenture and such other
indenture or indentures, or (ii) the Company shall have sustained the
burden of proving, on application to the Commission and after
opportunity for hearing thereon, that the trusteeship under this
Indenture and such other indenture or indentures, or under more than
one outstanding series under a single indenture, is not so likely to
involve a material conflict of interest as to make it necessary in the
public interest or for the protection of investors to disqualify the
Trustee from acting as such under one of such indentures, or with
respect to such series;
(2) the Trustee or any of its directors or execu-
tive officers is an obligor upon the Debentures issued under
this Indenture;
(3) the Trustee directly or indirectly controls or is
directly or indirectly controlled by or is under direct or indirect
common control with an underwriter for the Company;
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(4) the Trustee or any of its directors or executive
officers is a director, officer, partner, employee, appointee, or
representative of the Company, or of an underwriter (other than the
Trustee itself) for the Company who is currently engaged in the
business of underwriting, except that (A) one individual may be a
director and/or an executive officer of the Trustee and a director
and/or an executive officer of the Company, but may not be at the same
time an executive officer of both the Trustee and the Company; (B) if
and so long as the number of directors of the Trustee in office is more
than nine, one additional individual may be a director and/or an
executive officer of the Trustee and a director of the Company; and (C)
the Trustee may be designated by the Company or by an underwriter for
the Company to act in the capacity of transfer agent, registrar,
custodian, Paying Agent, fiscal agent, escrow agent, or depositary, or
in any other similar capacity, or, subject to the provisions of
paragraph (1) of this subsection (c), to act as trustee whether under
an indenture or otherwise;
(5) 10% or more of the voting securities of the
Trustee is beneficially owned either by the Company or by a director,
partner or executive officer thereof, or 20% or more of such voting
securities is beneficially owned, collectively, by any two or more of
such persons; or 10% or more of the voting securities of the Trustee is
beneficially owned either by an underwriter for the Company or by any
director, partner or executive officer thereof, or is beneficially
owned, collectively, by any two or more such persons;
(6) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default, (A) 5% or
more of the voting securities, or 10% or more of any other class of
security, of the Company, not including the Debentures issued under
this Indenture and securities issued under any other indenture under
which the Trustee is also trustee, or (B) 10% or more of any class of
security of an underwriter for the Company;
(7) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default, 5% or
more of the voting securities of any person who, to the knowledge of
the Trustee, owns 10% or more of the voting securities of, or controls
directly or indirectly or is under direct or indirect common control
with, the Company;
(8) the Trustee is the beneficial owner of, or holds
as collateral security for an obligation which is in default, 10% or
more of any class of security of any person who, to the knowledge of
the Trustee, owns 50% or more of the voting securities of the Company;
(9) the Trustee owns on the date of default upon
the Debentures (exclusive of any period of grace or
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requirement of notice) or any anniversary of such default while such
default remains outstanding, in the capacity of executor,
administrator, testamentary or inter vivos trustee, guardian, committee
or conservator, or in any other similar capacity, an aggregate of 25%
or more of the voting securities, or of any class of security, of any
person, the beneficial ownership of a specified percentage of which
would have constituted a conflicting interest under paragraph (6), (7)
or (8) of this subsection (b). As to any such securities of which the
Trustee acquired ownership through becoming executor, administrator or
testamentary trustee of an estate which include them, the provisions of
the preceding sentence shall not apply for a period of two years from
the date of such acquisition to the extent that such securities
included in such estate do not exceed 25% of such voting securities or
25% of any such class of security. Promptly after the dates of any
default upon the Debentures and annually in each succeeding year that
the Debentures remain in default, the Trustee shall make a check of its
holdings of such securities in any of the above-mentioned capacities as
of such dates. If the Company fails to make payment in full of
principal of, or interest on any of the Debentures when and as the same
become due and payable, and such failure continues for 30 days
thereafter, the Trustee shall make a prompt check of its holdings of
such securities in any of the above-mentioned capacities as of the date
of the expiration of such 30-day period and, after such date,
notwithstanding the foregoing provisions of this paragraph (9), all
such securities so held by the Trustee, with sole or joint control over
such securities vested in it, shall be considered as though
beneficially owned by the Trustee for the purposes of paragraphs (6),
(7) and (8) of this subsection (b); or
(10) except under the circumstances described in
paragraphs (1), (3), (4), (5) or (6) of Section 7.13 hereof, the
Trustee shall become an obligor of the Company.
The specifications of percentages in paragraphs (5) to (9),
inclusive, of this subsection (b) shall not be construed as indicating that the
ownership of such percentages of the securities of a Person is or is not
necessary or sufficient to constitute direct or indirect control for the
purposes of paragraph (3) or (7) of this subsection (b).
(c) (i) For purposes of paragraph (1) of subsection 7.8 (b),
and for purposes of Section 6.7, and for the term "series of securities" or
"series" means a series, class or group of securities issuable under an
indenture pursuant to whose terms holders of one such series may vote to direct
the indenture trustee, or otherwise take action pursuant to a vote of such
holders, separately from holders of another such series; provided, that "series
of securities" or "series" shall not include any series of securities issuable
under an indenture if all such series rank equally and are wholly unsecured.
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(ii) For the purposes of paragraphs (6),
(7), (8) and (9) of subsection (b) only, (A) the terms
"security" and "securities" shall include only such securities
as are generally known as corporate securities, but shall not
include any debenture or other evidence of indebtedness issued
to evidence an obligation to repay money lent to a Person by
one or more banks, trust companies or banking firms, or any
certificate of interest or participation in any such debenture
or evidence of indebtedness; (B) an obligation shall be deemed
to be in default when a default in payment of principal shall
have continued for 30 days or more and shall not have been
cured; and (C) the Trustee shall not be deemed to be the owner
or holder of (i) any security which it holds as collateral
security (as trustee or otherwise) for an obligation which is
not in default as defined in clause (B) above, or (ii) any
security which it holds as collateral security under this
Indenture, irrespective of any default hereunder, or (iii) any
security which it holds as agent for collection, or as
custodian, escrow agent or depositary, or in any similar
representative capacity.
(iii) Except as provided in the immediately
preceding paragraph hereof, the word "security" or securities"
as used in this Indenture shall mean any debenture, stock,
treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, pre-organization
certificate or subscription, transferable share, investment
contract, voting trust certificate, certificate of deposit for
a security, fractional undivided interest in oil, gas or other
mineral rights, or, in general, any interest or instrument
commonly known as a security or any certificate of interest or
participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to
or purchase, any of the foregoing.
(d) For the purposes of this Section 7.8:
(1) The term "underwriter" when used with reference
to the Company shall mean every Person who, within one year prior to
the time as of which the determination is made, was an underwriter of
any security of the Company outstanding at the time of determination.
(2) The term "director" shall mean any director of a
corporation or any individual performing similar functions with respect
to any organization whether incorporated or unincorporated.
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(3) The term "Person" shall mean an individual, a
corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization, or a government or political
subdivision thereof. As used in this paragraph, the term "trust" shall
include only a trust where the interest or interests of the beneficiary
or beneficiaries are evidenced by a security.
(4) The term "voting security" shall mean any
security presently entitling the owner or holder thereof to vote in the
direction or management of the affairs of a Person, or any security
issued under or pursuant to any trust, agreement or arrangement whereby
a trustee or trustees or agent or agents for the owner or holder of
such security are presently entitled to vote in the direction or
management of the affairs of a Person.
(5) The term "Company" shall mean any obligor under
the Debentures.
(6) The term "executive officer" shall mean the
president, every vice president, every trust officer, the cashier, the
secretary, and the treasurer of a corporation, and any individual
customarily performing similar functions with respect to any
organization whether incorporated or unincorporated, but shall not
include the chairman of the board of directors.
The percentages of voting securities and other securities
specified in this Section 7.8 shall be calculated in accordance with the
following provisions:
(A) A specified percentage of the voting securities
of the Trustee, the Company or any other Person referred to in this
Section 7.8 (each of whom is referred to as a "Person" in this
paragraph) means such amount of the outstanding voting securities of
such Person as entitles the holder or holders thereof to cast such
specified percentage of the aggregate votes which the holders of all
the outstanding voting securities of such Person are entitled to cast
in the direction or management of the affairs of such Person.
(B) A specified percentage of a class of securities
of a Person means such percentage of the aggregate amount of securities
of the class outstanding.
(C) The term "amount", when used with respect to
securities, means the principal amount if relating to evidences of
indebtedness, the number of shares if relating to capital shares, and
the number of units if relating to any other kind of security.
(D) The term "outstanding" means issued and not
held by or for the account of the issuer. The following
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securities shall not be deemed outstanding within the meaning
of this definition:
(i) securities of an issuer held in a
sinking fund relating to securities of the issuer of the same
class;
(ii) securities of an issuer held in a
sinking fund relating to another class of securities of the
issuer, if the obligation evidenced by such other class of
securities is not in default as to principal or interest or
otherwise;
(iii) securities pledged by the issuer
thereof as security for an obligation of the issuer not in
default as to principal or interest or otherwise; and
(iv) securities held in escrow if placed in
escrow by the issuer thereof;
provided, however, that any voting securities of an issuer shall be
deemed outstanding if any Person other than the issuer is entitled to
exercise the voting rights thereof.
(E) A security shall be deemed to be of the same
class as another security if both securities confer upon the holder or
holders thereof substantially the same rights and privileges; provided,
however, that, in the case of secured evidences of indebtedness, all of
which are issued under a single indenture, differences in the interest
rates or maturity dates of various series thereof shall not be deemed
sufficient to constitute such series different classes, and provided,
further, that, in the case of unsecured evidences of indebtedness,
differences in the interest rates or maturity dates thereof shall not
be deemed sufficient to constitute them securities of different
classes, whether or not they are issued under a single indenture.
(e) Anything in this Section 7.8 to the contrary
notwithstanding, except in the case of a default in the payment of the principal
of or interest on any Debenture, the Trustee shall not be required to resign as
provided by this Section if the Trustee shall have sustained the burden of
proving, on application to the Commission and after opportunity for hearing
thereon, that:
(i) the default under the Indenture may be
cured or waived during a reasonable period and under the
procedures describe in such application; and
(ii) a stay of the Trustee's duty to resign
will not be inconsistent with the interests of holders of the
Debentures. The filing of such an application shall
automatically stay the performance of the duty to resign until
the Commission orders otherwise.
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SECTION 7.9. Eligibility of Trustee. The Trustee hereunder
shall at all times be a corporation organized and doing business under the laws
of the United States or any State or Territory thereof or of the District of
Columbia or a corporation or other Person permitted to act as Trustee by the
Commission authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least $5,000,000, subject to supervision or
examination by Federal, State, Territorial, or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section 7.9, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. Neither the Company
nor any Person directly or indirectly controlling, controlled by or under common
control with the Company shall serve as Trustee. In case at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
7.9, the Trustee shall resign immediately in the manner and with the effect
specified in Section 7.10.
SECTION 7.10. Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving notice of
such resignation to the Company and by mailing notice thereof to the holders of
Debentures at their addresses as they shall appear on the Debenture Registry.
Upon receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no successor trustee
shall have been so appointed and have accepted appointment within 30 days after
the mailing of such notice of resignation to the Debentureholders, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six months may on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall
occur:
(1) the Trustee shall fail to comply with the
provisions of subsection (a) of Section 7.8 after written request
therefor by the Company or by any Debentureholder who has been a bona
fide holder of a Debenture or Debentures for at least six-months, or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 7.9 and shall fail
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to resign after written request therefor by the Company or by
any such Debentureholder, or
(3) the Trustee shall become incapable of acting, or
shall be adjudged bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or any Debentureholder
who has been a bona fide holder of a Debenture or Debentures for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, remove the Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Debentures at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee unless within 10 days after such nomination the Company objects thereto,
in which case the Trustee so removed or any Debentureholder, may petition any
court of competent jurisdiction for an appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and any
appointment of a successor trustee pursuant to any of the provisions of this
Section 7.10 shall become effective upon acceptance of appointment by the
successor trustee as provided in Section 7.11.
SECTION 7.11. Acceptance by Successor Trustee. Any successor
trustee appointed as provided in Section 7.10 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
power, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amounts then due it pursuant to the provisions of Section
7.6, execute and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon request of any
successor trustee, the Company shall execute any and all instruments in writing
in order more fully and certainly to vest in and confirm to
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such successor trustee all such rights and powers. Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 7.6.
No successor trustee shall accept appointment as provided in
this Section 7.11 unless at the time of such acceptance such successor trustee
shall be qualified under the provisions of Section 7.8 and eligible under the
provisions of Section 7.9.
Upon acceptance of appointment by a successor trustee as
provided in this Section 7.11, the Company shall mail notice of the succession
of such trustee hereunder to all holders of Debentures as the names and
addresses of such holders shall appear on the Debenture Registry. If the Company
fails to mail such notice in the prescribed manner within 10 days after the
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of the Company.
SECTION 7.12. Succession by Merger, etc. 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 the business of the Trustee, shall be the successor of the Trustee
hereunder without the execution of filing of any paper or any further act on the
part of any of the parties hereto.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Debentures shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor trustee, and deliver
such Debentures so authenticated; and in case at that time any of the Debentures
shall not have been authenticated, any successor to the Trustee may authenticate
such Debentures either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificates shall have the
full force provided for certificates of the Trustee by any provision of the
Debentures or this Indenture; provided, however, that the right to adopt the
certificate of authentication of any predecessor trustee or authenticate
Debentures in the name of any predecessor trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
SECTION 7.13. Limitation on Rights of Trustee as a Creditor.
(a) Subject to the provision of subsection (b) of this Section 7.13, if the
Trustee shall be, or shall become, a creditor, directly or indirectly, secured
or unsecured, of the Company or of any other obligor on the Debentures within
three months prior to a default, as defined in subsection (c) of this Section
7.13, or subsequent to such a default, then, unless and until such default shall
be cured, the Trustee shall set apart and hold in a special
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account for the benefit of the Trustee individually and the holders of the
Debentures:
(1) an amount equal to any and all reductions in the amount
due and owing upon any claim as such creditor in respect of principal
or interest, effected after the beginning of such three-month period
and valid as against the Company and its other creditors, except any
such reduction resulting from the receipt or disposition of any
property described in paragraph(2) of this subsection, or from the
exercise of any right of setoff which the Trustee could have exercised
if a petition in bankruptcy had been filed by or against the Company
upon the date of such default; and
(2) all property received by the Trustee in respect of any
claim as such creditor, either as security therefor, or in satisfaction
or composition thereof, or otherwise, after the beginning of such
three-month period, or an amount equal to the proceeds of any such
property, if disposed of, subject however, to the rights, if any, of
the Company and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of
the Trustee:
(A) to retain for its own account (i) payments made on account
of any such claim by any Person (other than the Company) who is liable
thereon, and (ii) the proceeds of the bona fide sale of any such claim
by the Trustee to a third Person, and (iii) distributions made in cash,
securities, or other property in respect of claims filed against the
Company in bankruptcy or receivership or in proceedings for
reorganization pursuant to Federal bankruptcy law or applicable state
law;
(B) to realize, for its own account, upon any property held by
it as security for any such claim, if such property was so held prior
to the beginning of such three-month period;
(C) to realize, for its own account, but only to the extent of
the claim hereinafter mentioned, upon any property held by it as
security for any such claim, if such claim was created after the
beginning of such three-month period and such property was received as
security therefor simultaneously with the creation thereof, and if the
Trustee shall sustain the burden of proving that at the time such
property was so received the Trustee had no reasonable cause to believe
that a default, as defined in subsection (c) of this Section 7.13,
would occur within three months; or
(D) to receive payment on any claim referred to in paragraph
(B) or (C), against the release of any property held as security for
such claim as provided in such paragraph (B)
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or (C), as the case may be, to the extent of the fair value of
such property.
For the purposes of paragraphs (B), (C) and (D), property
substituted after the beginning of such three-month period for property held as
security at the time of such substitution shall, to the extent of the fair value
of the property released, have the same status as the property released, and, to
the extent that any claim referred to in any of such paragraphs is created in
renewal of, or in substitution for, or for the purpose of repaying or refunding,
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and
property held in such special account and the proceeds thereof shall be
apportioned among the Trustee, the Debentureholders and the holders of other
indenture securities in such manner that the Trustee, the Debentureholders and
the holders of other indenture securities realize, as a result of payments from
such special account and payments of dividends on claims filed against the
Company in bankruptcy or receivership or in proceedings for reorganization
pursuant to Federal bankruptcy law or applicable state law, the same percentage
of their respective claims, figured before crediting to the claim of the Trustee
anything on account of the receipt by it from the Company of the funds and
property in such account and before crediting to the respective claims of the
Trustee, the Debentureholders, and the holders of other indenture securities
dividends on claims filed against the Company in bankruptcy or receivership or
in proceedings for reorganization pursuant to Federal bankruptcy law or
applicable state law, but after crediting thereon receipts on account of the
indebtedness represented by their respective claims from all sources other than
from such dividends and from the funds and property so held in such special
account. As used in this paragraph, with respect to any claim, the term
"dividends" shall include any distribution with respect to such claims in
bankruptcy or receivership or in proceedings for reorganization pursuant to
Federal bankruptcy law or applicable state law, whether such distribution is
made in cash, securities, or other property, but shall not include any such
distribution with respect to the secured portion, if any, of such claim. The
court in which such bankruptcy, receivership, or proceeding for reorganization
is pending shall have jurisdiction (i) to apportion among the Trustee, the
Debentureholders and the holders of other indenture securities, in accordance
with the provisions of this paragraph, the funds and property held in such
special account and the proceeds thereof, or (ii) in lieu of such apportionment,
in whole or in part, to give to the provisions of this paragraph due
consideration in determining the fairness of the distributions to be made to the
Trustee, the Debentureholders and the holders of other indenture securities with
respect to their respective claims, in which event it shall not be necessary to
liquidate or to appraise the value of any securities or other property held in
such special account or as security for any such claim, or to make a specific
allocation of such distributions as
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between the secured and unsecured portions of such claims, or otherwise to apply
the provisions of this paragraph as a mathematical formula.
Any Trustee who has resigned or been removed after the
beginning of such three-month period shall be subject to the provisions of this
subsection (a) as though such resignation or removal had not occurred. If any
Trustee has resigned or been removed prior to the beginning of such three-month
period, it shall be subject to the provisions of this subsection (a) if and only
if the following conditions exist:
(i) the receipt of property or reduction of claim which would
have given rise to the obligation to account, if such Trustee had
continued as trustee, occurred after the beginning of such three-month
period; and
(ii) such receipt of property or reduction of claim occurred
within three months after such resignation or removal.
(b) There shall be excluded from the operation of subsection
(a) of this Section 7.13 a creditor relationship arising from:
(1) the ownership or acquisition of securities issued
under any indenture, or any security or securities having a
maturity of one year or more at the time of acquisition by the
Trustee;
(2) advances authorized by a receivership or Bankruptcy court
of competent jurisdiction, or by this Indenture, for the purpose of
preserving any property which shall at any time be subject to the lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advance and of the
circumstances surrounding the making thereof is given to the
Debentureholders at the time and in the manner provided in Section 5.4
with respect to reports pursuant to subsections (a) and (b) thereof,
respectively;
(3) disbursements made in the ordinary course of business in
the capacity of trustee under an indenture, transfer agent, registrar,
custodian, Paying Agent, fiscal agent or depositary, or other similar
capacity;
(4) an indebtedness created as a result of services rendered
or premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in subsection (c) of
this Section 7.13;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of
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the Federal Reserve Act, as amended, which is directly or indirectly
a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of
any drafts, bills of exchange, acceptances or obligations which fall
within the classification of self-liquidating paper as defined in
subsection (c) of this Section 7.13.
(c) As used in this Section 7.13:
(1) The term "default" shall mean any failure to make payment
in full of the principal of, premium, if any, or interest upon any of
the Debentures or upon the other indenture securities when and as such
principal, premium or interest becomes due and payable.
(2) The term "other indenture securities" shall mean
securities upon which the Company is an obligor (as defined in the
Trust Indenture Act of 1939) outstanding under any other indenture (A)
under which the Trustee is also trustee, (B) which contains provisions
substantially similar to the provisions of subsection (a) of this
Section 7.13, and (C) under which a default exists at the time of the
appointment of the funds and property held in said special account.
(3) The term "cash transaction" shall mean any transaction in
which full payment for goods or securities sold is made within seven
days after delivery of the goods or securities in currency or in checks
or other orders drawn upon banks or bankers and payable upon demand.
(4) The term "self-liquidating paper" shall mean any draft,
bill of exchange, acceptance or obligation which is made, drawn,
negotiated or incurred by the Company for the purpose of financing the
purchase, processing, manufacture, shipment, storage or sale of goods,
wares or merchandise and which is secured by document evidencing title
to, possession of, or a lien upon, the goods, wares or merchandise or
the receivables or proceeds arising from the sale of the goods, wares
or merchandise previously constituting the security; provided that the
security is received by the Trustee simultaneously with the creation of
the creditor relationship with the Company arising from the making,
drawing, negotiating or incurring of the draft, bill of exchange,
acceptance or obligation.
(5) The term "Company" shall mean any obligor under the
Debentures.
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ARTICLE VIII
Concerning the Debentureholders
SECTION 8.1. Action by Debentureholders. Whenever in this
Indenture it is provided that the holders of a specified percentage in aggregate
principal amount of the Debentures may take any action (including the making of
any demand or request, the giving of any notice, consent or waiver or the taking
of any other action) the fact that at the time of taking any such action the
holders of such specified percentage have joined therein may be evidenced by (a)
any instrument or any number of instruments of similar tenor executed by
Debentureholders in person or by agent or proxy appointed in writing, or (b) the
record of the holders of Debentures voting in favor thereof at any meeting of
Debentureholders duly called and held in accordance with the provisions of
ARTICLE IX, or (c) a combination of such instrument or instruments and any such
record of such a meeting of Debentureholders.
SECTION 8.2. Proof of Execution by Debentureholders. Subject
to the provisions of Sections 7.1, 7.2 and 9.5, proof of the execution of any
instrument by a Debentureholder or his agent or proxy shall be sufficient if
made in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee. The ownership of Debentures shall be proved by the registry books of
the Company or by a certificate of any Registrar.
The record of any Debentureholders' meeting shall be proved in
the manner provided in Section 9.6.
SECTION 8.3. Who Deemed Absolute Owners. The Company, the
Trustee, any Paying Agent and any Registrar may deem the Person in whose name
any Debentures shall be registered upon the Debenture Registry to be, and may
treat him as, the absolute owner of such Debenture (whether or not such
Debenture shall be overdue) for the purpose of receiving payment of or on
account of the principal of and (subject to the provisions of Section 2.3)
interest on such Debenture and for all other purposes; neither the Company nor
the Trustee nor any Paying Agent nor any Registrar shall be affected by any
notice to the contrary. All such payments so made to any holder for the time
being, or upon his order, shall be valid and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for money payable upon
any such Debenture.
SECTION 8.4. Company-Owned Debentures Disregarded. In
determining whether the holders of the requisite aggregate principal amount of
Debentures have concurred in any direction, consent or waiver under this
Indenture, Debentures which are owned by the Company or any other obligor on the
Debentures or by any Person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other obligor
on the Debentures shall be disregarded and deemed not to be
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outstanding for the purpose of any such determination; provided that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction or consent only Debentures which the Trustee knows are so owned
shall be so disregarded. Debentures so owned which have been pledged in good
faith may be regarded as outstanding for the purposes of this Section 8.4 if the
pledgee shall establish to the satisfaction of the Trustee the pledgee's right
to vote such Debentures and that the pledgee is not a Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor. In the case of a dispute as
to such right, any decision by the Trustee taken upon the advice of counsel
shall be full protection to the Trustee.
SECTION 8.5. Revocation of Consents; Future Holders Bound. At
any time prior to (but not after) the evidencing to the Trustee, as provided in
Section 8.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Debentures specified in this Indenture in
connection with such action, any holder of a Debenture the serial number of
which is shown by the evidence to be included in the Debentures the holders of
which have consented to such action may, by filing written notice with the
Trustee at its Principal Office and upon proof of holding as provided in Section
8.2, revoke such action so far as concerns such Debenture. Except as aforesaid
any such action taken by the holder of any Debenture shall be conclusive and
binding upon such holder and upon all future holders and owners of such
Debenture and any Debentures which may be issued in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto is made
upon such Debenture or any Debenture issued in exchange or substitution
therefor.
ARTICLE IX
Debentureholders' Meetings
SECTION 9.1. Purposes of Meeting. A meeting of
Debentureholders may be called at any time and from time to time pursuant to the
provisions of this ARTICLE IX for any of the following purposes:
(1) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Debentureholders pursuant to any of the
provisions of ARTICLE VI;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of ARTICLE VII;
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(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 10.2;
(4) to appoint a Holder Designee to serve on the Board, as
contemplated by Section 9.8; or
(5) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Debentures under any other provisions of this Indenture or under
applicable law.
SECTION 9.2. Call of Meetings by Trustee. The Trustee may at
any time call a meeting of Debentureholders to take any action specified in
Section 9.1, to be held at such time and at such place in the Borough of
Manhattan, The City of New York, as the Trustee shall determine. Notice of every
meeting of the Debentureholders, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting,
shall be mailed to holders of Debentures at their addresses as they shall appear
on the Debenture Registry. Such notice shall be mailed not less than twenty (20)
nor more than ninety (90) days prior to the date fixed for the meeting.
SECTION 9.3. Call of Meetings by Company or Debentureholders.
In case at any time the Company, pursuant to a resolution of its Board of
Directors, or the holders of at least 10% in aggregate principal amount of the
Debentures then outstanding, shall have requested the Trustee to call a meeting
of Debentureholders, by written request setting forth in a reasonable detail the
action proposed to be taken at the meeting, and the Trustee shall not have
mailed the notice of such meeting within twenty (20) days after receipt of such
request, then the Company or such Debentureholders may determine the time and
the place in said Borough of Manhattan for such meeting and may call such
meeting to take any action authorized in Section 9.1, by mailing notice thereof
as provided in Section 9.2.
SECTION 9.4. Qualifications for Voting. To be entitled to vote
at any meeting of Debentureholders, a Person shall (a) be a holder of one or
more Debentures or (b) be a Person appointed by an instrument in writing as
proxy by a holder of one or more Debentures. The only Persons who shall be
entitled to be present or to speak at any meeting of Debentureholders shall be
the Persons entitled to vote at such meeting and their counsel and any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 9.5. Regulations. Notwithstanding any other provisions
of this Indenture, the Trustee may make such reasonable regulations as it may
deem advisable for any meeting of Debentureholders, in regard to proof of the
holder of Debentures and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination
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of proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Debentureholders as provided in Section 9.3, in which case the
Company or the Debentureholders calling the meeting, as the case may be, shall
in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by majority vote of the
meeting.
Subject to the provisions of Section 8.4, at any meeting such
Debentureholder or proxy shall be entitled to one vote for each $500 principal
amount of Debentures held or represented by him; provided, however, that no vote
shall be cast or counted at any meeting in respect of any Debenture challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of Debentures held by him or instruments in writing as aforesaid duly
designating him as the Person to vote on behalf of other Debentureholders. Any
meeting of Debenture- holders duly called pursuant to the provisions of Section
9.2 or 9.3 may be adjourned from time to time by the vote of the holders of a
majority in aggregate principal amount of the Debentures represented at the
meeting and entitled to vote, and the meeting may be held as so adjourned
without further notice. The holders of a majority in aggregate principal amount
of the Debentures outstanding from time to time shall constitute a quorum of
Debentureholders.
SECTION 9.6. Voting. The vote upon any resolution submitted to
any meeting of Debentureholders shall be by written ballots on which shall be
inscribed the signatures of the holders of Debentures or of their
representatives by proxy and the serial number or numbers of the Debentures held
or represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record in duplicate of the proceedings of each meeting of Debentureholders shall
be prepared by the secretary of the meeting and there shall be attached to said
record the original reports of the inspectors of votes on any vote by ballot
taken thereat and affidavits by one or more Persons having knowledge of the
facts setting forth a copy of the notice of the meeting and showing that said
notice was mailed as provided in Section 9.2. The record shall show the serial
numbers of the Debentures voting in favor of or against any resolution. The
record shall be signed and verified by the affidavits of the permanent chairman
and secretary of the meeting, and one of the duplicates shall be delivered to
the Company and the other to the Trustee to be preserved by the Trustee.
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Any record so signed and verified shall be conclusive evidence
of the matters stated therein.
SECTION 9.7. No Delay of Rights by Meeting. Nothing contained
in this ARTICLE IX shall be deemed or construed to authorize or permit, by
reason of any call of a meeting of Debentureholders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any right or rights conferred upon or reserved to the Trustee or to
the Debentureholders under any of the provisions of this Indenture or of the
Debentures.
SECTION 9.8. Appointment of Holder Designee. Until such time
as all of the Debentures are satisfied and discharged, an individual to be
designated by the Holders, as hereinafter provided (a "HOLDER DESIGNEE"), shall
be entitled to attend and observe all meetings of the Board (or any Executive
Committee exercising the authority of the Board) and its Compensation Committee,
if any, and to receive, review, inspect and make copies of all records,
memoranda, books and other information (collectively, "COMPANY INFORMATION")
from time to time delivered or presented to the Board of Directors or which a
member of the Board is entitled, upon request, to receive, review or copy under
applicable law. Upon the occurrence of any Event of Default, the Board of
Directors shall, within ten (10) days of the Company's receipt of the Holder
Designee's written demand therefor (an "ELECTION DEMAND"), use its best efforts
to cause the Holder Designee to be appointed to the Board, either by increasing
the number of the members thereof (and amending the By-laws of the Company, if
necessary, to permit such increase) or by filling a vacancy thereon, and the
Company shall thereafter, until all of the Debentures are satisfied and
discharged, include the Holder Designee among the individuals nominated by the
Company for election as directors by the Company's shareholders. Any Holder
Designee appointed or elected as a member of the Board shall, at the first
meeting of the Board following such appointment or election, be appointed as a
member of the Compensation Committee of the Board. The failure of the Board, for
any reason, to cause the appointment or election of the Holder Designee as a
member of the Board of Directors within ten (10) days of its receipt of an
Election Demand (notwithstanding any use of its best efforts to do so), or the
failure of the shareholders of the Corporation to subsequently elect a Holder
Designee as a director of the Company at any subsequent shareholder election of
directors shall constitute an Event of Default hereunder. Until such time as
Riverside Capital Advisers, Inc. ("RIVERSIDE") shall cease to be the beneficial
owner, as such term is defined in Rule 13(d) promulgated under the Securities
Exchange Act of 1934, of Debentures of an aggregate minimum amount of $500,000,
Riverside shall, on behalf of the Holders, designate the individual to serve as
Holder Designee. At such time as Riverside ceases to be the beneficial owner of
at least $500,000 in principal amount of Debentures, and thereafter until all of
the Debentures are satisfied and discharged. the Debentureholders shall be
entitled to appoint a substitute Holder Designee (i) by the affirmative vote
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of the holders of a majority in aggregate principal amount of the Debentures
present in person or by proxy at a meeting duly held in accordance with the
terms of this Article IX (the "MEETING"), or (ii) by written consent of the
holders of a majority of the aggregate outstanding principal amount of
Debentures (a "WRITTEN CONSENT") delivered to the Trustee. A true copy of such
Written Consent shall promptly be delivered by the Trustee to the Company.
ARTICLE X
Supplemental Indentures
SECTION 10.1. Supplemental Indentures Without Consent of
Debentureholders. The Company, when authorized by a resolution of the Board of
Directors, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(i) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to ARTICLE XI;
(ii) to add to the covenants of the Company such further
covenants, restrictions or conditions for the protection of the holders
of the Non-Convertible and/or Convertible Debentures as the Board of
Directors and the Trustee shall consider to be for the protection of
and in the interests of the holders of the Non-Convertible and/or
Convertible Debentures (but which in no event shall adversely affect
the subordination of the Junior Debentures to the Debentures), to
surrender any right or power herein conferred upon the Company, and to
make the occurrence, or the occurrence and continuance, of a default in
any of such additional covenants, restrictions or conditions a default
or an Event of Default permitting the enforcement of all or any of the
several remedies provided in this Indenture as herein set forth;
provided, however, that in respect of any such additional covenant,
restriction or condition such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter
or longer than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such default or may limit the
remedies available to the Trustee upon such default;
(iii) to secure the Debentures;
(iv) to make provision with respect to the conversion rights
of the holders of Convertible Debentures pursuant to the requirements
of Section 14.12 hereof;
(v) to cure any ambiguity or omission or to correct or
supplement any provision contained herein or in any
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supplemental indenture which may be defective or inconsistent with any
other provision contained herein or in any supplemental indenture, or
to make such other provisions in regard to matters or questions arising
under this Indenture which shall not materially adversely affect the
interests of the holders of any of the Debentures; and
(vi) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the Trust Indenture Act of 1939
as then in effect, or under any similar Federal statute hereafter
enacted, and to add to this Indenture such other provisions as may be
expressly permitted by the Trust Indenture Act of 1939, excluding,
however, the provisions referred to in Section 316(a)(2) of the Trust
Indenture Act of 1939 as in effect at the date as of which this
instrument was executed or any corresponding provision in any similar
Federal statute hereafter enacted.
The Trustee is hereby authorized to join with the Company in
the execution of any such supplemental indenture, to make any further
appropriate agreements and stipulations which may be therein contained and to
accept the conveyance, transfer and assignment of any property thereunder, but
the Trustee shall not be obligated to, but may in its discretion, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
The Trustee may waive compliance by the Company with any
provision of this Indenture without notice to or consent of any Debentureholder
if the waiver does not materially adversely affect the rights of any
Debentureholder.
Any supplemental indenture authorized by the provisions of
this Section 10.1 may be executed by the Company and the Trustee without the
consent of the holders of any of the Debentures at the time outstanding,
notwithstanding any of the provisions of Section 10.2.
SECTION 10.2. Supplemental Indentures with Consent of
Debentureholders. With the consent (evidenced as provided in Section 8.1) of the
holders of not less than a majority in aggregate principal amount of the
Debentures at the time outstanding, the Company, when authorized by a resolution
of the Board of Directors, and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying in
any manner the rights of the holders of the Debentures; provided, however, that
no such supplemental indenture shall (i) extend the fixed maturity of any
Debenture, or reduce the rate or extend the time of payment of interest thereon,
or reduce the principal amount thereof or make the principal thereof or interest
thereon payable in any coin or
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currency other than that provided in the Debentures or change the redemption
price payable upon redemption without the consent of the holder of each
outstanding Debenture so affected, or (ii) reduce the aforesaid percentage of
Debentures, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Debentures
then outstanding. No supplemental indenture shall adversely affect the right to
convert any Convertible Debentures under Article XIV without the consent of the
holders of a majority of the outstanding principal amount of the Convertible
Debentures.
Upon the request of the Company, accompanied by a copy of a
resolution of the Board of Directors certified by its Secretary or Assistant
Secretary authorizing the execution of any such supplemental indenture, and upon
the filing with the Trustee of evidence of the consent of Debentureholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such supplemental indenture.
It shall not be necessary for the consent of the
Debentureholders under this Section 10.2 to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
SECTION 10.3. Compliance with Trust Indenture Act; Effect of
Supplemental Indentures. Any supplemental indenture executed pursuant to the
provisions of this ARTICLE X shall comply with the Trust Indenture Act of 1939,
as then in effect. Upon the execution of any supplemental indenture pursuant to
the provisions of this ARTICLE X, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitation of rights, obligations, duties and immunities under this Indenture of
the Trustee, the Company and the holders of Debentures shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 10.4. Notation on Debentures. Debentures authenticated
and delivered after the execution of any supplemental indenture pursuant to the
provisions of this ARTICLE X may bear a notation in form approved by the Trustee
as to any matter provided for in such supplemental indenture. If the Company or
the Trustee shall so determine, new Debentures so modified as to conform, in the
opinion of the Trustee and the Board of Directors, to any modification of this
Indenture contained in any such supplemental indenture may be prepared and
executed by the Company, authenticated by the Trustee and delivered in exchange
for the Debentures then outstanding.
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SECTION 10.5. Evidence of Compliance of Supplemental Indenture
To Be Furnished Trustee. The Trustee, subject to the provisions of Sections 7.1
and 7.2, may receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant hereto
complies with the requirements of this ARTICLE X.
ARTICLE XI
Consolidation, Merger and Sale
SECTION 11.1. Company May Consolidate, etc., on Certain Terms.
The Company shall not consolidate with or merge into, or transfer all or
substantially all of its assets to, another Person unless (i) either the Company
shall be the continuing corporation, or the corporation formed by such
consolidation or into which the Company is merged or the Person which acquires
by transfer the properties and assets of the Company substantially as an
entirety shall be a Person organized and existing under the laws of the United
States, any State thereof, the District of Columbia or any political subdivision
of any of the foregoing, and such entity shall assume by supplemental indenture
the due and punctual payment of the principal of and interest on all the
Debentures and the performance or observance of every covenant of this Indenture
on the part of the Company to be performed or observed, (ii) immediately after
giving effect to such transaction, no Event of Default shall have happened and
be continuing, (iii) the Net Equity of the successor corporation is at least
equal to or greater than the Net Equity of the Company immediately prior to such
merger or transfer of assets, and (iv) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture comply
with this Indenture, and thereafter all such obligations of the Company shall
terminate.
SECTION 11.2. Successor Corporation To Be Substituted. In case
of any such consolidation, merger or transfer and upon any such assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named herein
as the Company, and the Company shall thereupon be released from all obligations
hereunder and under the Debentures and the Company as the predecessor
corporation may thereupon or at any time thereafter be dissolved, wound up or
liquidated. Such successor corporation thereupon may cause to be signed, and may
issue either in its own name or in the name of the Company, all or any of the
Debentures issuable hereunder which theretofore shall not have been signed by
the Company and delivered to the Trustee; and, upon the order of such successor
corporation instead of the Company and subject to all the terms, conditions and
limitations prescribed in this Indenture, the Trustee shall authenticate and
shall deliver any Debentures which previously shall have been signed and
delivered by the officers of the Company to the Trustee for authentication, and
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any Debentures which such successor corporation thereafter shall cause to be
signed and delivered to the Trustee for that purpose. All the Debentures so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Debentures theretofore or thereafter issued in accordance with
the terms of this Indenture as though all such Debentures had been issued at the
date of the execution hereof. (Nothing in this Article XI, however, shall be
understood to in any way limit, or relieve the Company from, any applicable
adjustment obligation under Section 14.5 hereof.)
In case of any such consolidation, merger, sale or transfer,
such changes in phraseology and form (but not in substance) may be made in the
Debentures thereafter to be issued as may be appropriate.
ARTICLE XII
Satisfaction and Discharge of Indenture
SECTION 12.1. Discharge; Termination of Company's Obligations.
(a) When (i) the Company shall deliver to the Trustee for cancellation all
Debentures theretofore authenticated (other than any Debentures which shall have
been mutilated, destroyed, lost or stolen and which shall have been replaced as
provided in Section 2.6) and not theretofore canceled, or (ii) all the
Debentures not theretofore canceled or delivered to the Trustee for cancellation
shall become due and payable within six months or all of them are to be called
for redemption within six months under arrangements satisfactory to the Trustee
for giving the notice of redemption and the Company shall deposit with the
Trustee, in trust, funds sufficient to pay at maturity or upon redemption all of
the Debentures (other than any Debentures which shall have been mutilated,
destroyed, lost or stolen and which shall have been replaced as provided in
Section 2.6) not theretofore canceled or delivered to the Trustee for
cancellation, including principal and interest due to such date of maturity or
redemption, but excluding, however, the amount of any money for the payment of
the principal of and interest on the Debentures (1) theretofore deposited with
the Trustee and repaid by the Trustee to the Company in accordance with the
provisions of Section 12.4, or (2) paid to any State or to the District of
Columbia pursuant to its unclaimed property or similar laws, and if in either
case the Company shall also pay or cause to be paid all other sums payable
hereunder by the Company, then this Indenture shall, subject to Section 12.6,
cease to be of further effect (except as to any surviving rights of exchange or
registration of transfer of Debentures herein expressly provided for) and the
Trustee, on demand of the Company accompanied by an Officers' Certificate of the
Company and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture.
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(b) Upon termination of the Company's obligations
with respect to all the Debentures in accordance with this Section 12.1 and
notice by the Company to the Trustee, (1) the Trustee and each holder of the
Debentures shall cease to be entitled to any benefit under this Indenture and
all the Trustee's rights and interest therein shall cease, terminate and become
null and void, and (2) the Trustee shall acknowledge in writing the termination
of the Company's obligations with respect to the Debentures, except for those
surviving obligations specified in Section 12.2.
SECTION 12.2. Certain Obligations Survive. Notwithstanding any
termination of any obligations of the Company in accordance with Section 12.1,
the Company's obligations in Sections 2.5, 2.6, 4.2, 7.5, 7.6, 7.10 and 12.5,
and conversion rights of holders of Convertible Debentures under Article XIV,
shall survive until all the Debentures have been paid in full. Thereafter, the
Company's obligations in Sections 7.6 and 12.5 shall survive.
SECTION 12.3. Application of Trust Money. The Trustee shall
hold in trust money deposited with it pursuant to Section 12.1 and apply the
deposited money either directly or through the Paying Agent (including the
Company if it is acting as its own Paying Agent) and in accordance with this
Indenture to the payment of principal of and interest on the Debentures in the
case of a deposit pursuant to Section 12.1. All moneys deposited with the
Trustee pursuant to Section 12.1 (and held by it or any Paying Agent) for the
payment of Convertible Debentures subsequently converted shall be returned to
the Company upon the Company's written request.
SECTION 12.4. Repayment to Company. The Trustee and any
Paying Agent shall promptly pay to the Company upon request any
excess money held by them at any time.
SECTION 12.5. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money deposited in trust in accordance with Section 12.1 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority located within the United States or any
political subdivision, territory or possession thereof and having jurisdiction
in the premises, enjoining, restraining or otherwise prohibiting such
application (including any such order or judgment requiring the payment of money
to the Company), the Company's obligations under this Indenture and the
Debentures shall be revived and reinstated as though no deposit had occurred
pursuant to Section 12.1, until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 12.1; provided,
however, that if the Company has made any payment of interest on or principal of
any Debentures because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Debentureholders to receive such
payment from the money held by the Trustee pursuant to Section 12.1.
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SECTION 12.6. Return of Unclaimed Money. Any money deposited
with or paid to the Trustee or Paying Agent for payment of the principal of, or
interest on, the Debentures and not applied but remaining unclaimed by the
holders of Debentures by October 1, 2003, or two years after the redemption by
the Company of all outstanding Debentures, shall be repaid to the Company by the
Trustee or Paying Agent on demand; and the holder of any of the Debentures shall
thereafter look only to the Company for any payment which such holder may be
entitled to collect and all liability of the Trustee or Paying Agent with
respect to such trust money shall thereupon cease, subject to applicable
abandoned property law.
ARTICLE XIII
Immunity of Incorporators, Stockholders, Officers and Directors
SECTION 13.1. Indenture and Debentures Solely Corporate
Obligations. No recourse for the payment of the principal of or interest on any
Debenture, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Indenture or in any supplemental indenture, or in any Debenture, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, officer or director, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by virtue
of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the
Debentures.
ARTICLE XIV
Conversion of Securities
SECTION 14.1. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this
Article, at the option of the Holder thereof, any Convertible Debenture or any
portion of the principal amount thereof may be converted at the principal amount
thereof, or of such portion thereof, into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock, at the conversion price, determined as hereinafter provided, in effect at
the time of conversion. Subject to Section 14.12 hereof, such conversion right
shall expire at the close of business on the Maturity Date; provided, however,
that in case a Convertible Debenture or portion thereof is called for
redemption, such conversion right in respect of the Convertible Debenture or
portion so called shall expire, subject to Section 3.4 hereof, at the close
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of business on the fifth day preceding the applicable Redemption Date, unless
the Company defaults in making the payment due upon redemption.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "CONVERSION PRICE") shall be initially $0.375 per
share of Common Stock. The Conversion Price shall be adjusted in certain
instances as provided hereinafter.
SECTION 14.2. Exercise of Conversion Privilege. In order to
exercise the conversion privilege, the Holder of any Convertible Debenture to be
converted shall surrender such Convertible Debenture, duly endorsed or assigned
to the Company in blank, at any office or agency maintained by the Company
pursuant to Section 4.2, accompanied by written notice to the Company, in the
form provided for in Section 14.3 below, that the Holder elects to convert such
Convertible Debenture or, if less than the entire principal amount thereof is to
be converted, the portion thereof to be converted. Convertible 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 for Convertible Debentures
called for redemption on a Redemption Date within such period) be accompanied by
payment in New York Clearing House funds or other funds acceptable to the
Company of an amount equal to the interest payable on such Interest Payment Date
on the principal amount of Convertible Debentures being surrendered for
conversion. Except as provided in the preceding sentence, and subject to the
last paragraph of Section 2.4, no payment or adjustment shall be made upon any
conversion on account of any interest accrued on the Convertible Debentures
surrendered for conversion or on account of any dividends on the Common Stock
issued upon conversion.
Convertible Debentures shall be deemed to have been converted
immediately prior to the close of business on the last day prior to day of
surrender of such Convertible Debentures for conversion in accordance with the
foregoing provisions, and at such time the rights of the Holders of such
Convertible Debentures as Holders shall, subject to Section 3.4 and Sections
14.9, 14.10 and 14.13, 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 to the Principal Office of the Trustee 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 14.4.
In the case of any Convertible Debentures which are 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 Convertible
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Debenture or Convertible Debentures of authorized denominations in aggregate
principal amount equal to the unconverted portion of the principal amount of
such Convertible Debenture.
SECTION 14.3. Form of Election to Convert. The written notice
of election to convert to be delivered to the Company in connection with the
conversion of a Convertible Debenture shall be in substantially the following
form:
To Movie Star, Inc.:
The undersigned owner of this Convertible Debenture hereby
irrevocably exercises the option to convert this Debenture, or the portion below
designated, into shares of Common Stock of Movie Star, Inc. in accordance with
the terms of the Indenture referred to in this Convertible Debenture, and
directs that the certificate or certificates for the shares issuable and
deliverable upon conversion, together with any check in payment for fractional
shares and any securities representing any unconverted principal amount hereof,
be issued in the name of and delivered to the undersigned registered Holder
hereof, unless a different name has been indicated in the assignment below. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto. Any amount
required to be paid by the undersigned on account of interest accompanies this
Convertible Debenture.
Dated:
Principal amount of Convertible Debenture to be converted ($1,000 or an integral
multiple thereof):
$
_____________________________________________
Signature (for conversion only) (must conform in all respects to name of Holder
appearing on face hereof)
If shares of Common Stock are to be issued and registered otherwise than to the
registered Holder named above, please print or typewrite name and address,
including zip code, and social security or other taxpayer identification number.
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_____________________________________________
_____________________________________________
_____________________________________________
SECTION 14.4. Fractions of Shares. No fractional shares of
Common Stock shall be issued upon conversion of Convertible Debentures. If more
than one Convertible Debenture shall be surrendered for conversion at one time
by the same Holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate principal
amount of the Convertible Debentures (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Convertible Debenture or
Convertible 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 per share of the Common Stock at the close of
business on the last day prior to the day of conversion (or, if such day is not
a Trading Day, on the Trading Day immediately preceding such day).
SECTION 14.5. Adjustment of Conversion Terms. The number of
Shares of Common Stock issuable upon conversion of the Convertible Debentures
and the Conversion Price shall be subject to adjustment from time to time as
follows:
(a) Common Stock Reorganization. If the Company shall
subdivide its outstanding shares of Common Stock into a greater number of
shares, declare or pay and dividend on the Company's outstanding Common Stock
payable in shares of the Company's Common Stock or consolidate its outstanding
shares of Common Stock into a smaller number of shares (any such event being
called a "COMMON STOCK REORGANIZATION"), then (i) the Conversion Price shall be
adjusted, effective immediately after the record date at which the holders of
shares of Common Stock are determined for purposes of such Common Stock
Reorganization, to a price determined by multiplying the Conversion Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on such record
date before giving effect to such Common Stock Reorganization and the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such Common Stock Reorganization, and (ii) the number of
shares of Common Stock issuable upon conversion of a Convertible Debenture shall
be adjusted, effective at such time, to a number determined by multiplying the
number of shares of Common Stock issuable upon conversion immediately before
such Common Stock Reorganization by a fraction, the numerator of which shall be
the number of shares of
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Common Stock outstanding after giving effect to such Common Stock Reorganization
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately before such Common Stock Reorganization.
(b) Common Stock Distribution. (i) Subject to the last
sentence of this paragraph, if the Company shall issue or otherwise sell or
distribute any shares of Common Stock otherwise than (A) upon exercise or
conversion of any options, warrants, convertible securities, or other rights to
subscribe for or to purchase shares of Common Stock which were granted or issued
prior to April 1, 1996 or are hereafter issued under the terms of any employee
benefit plan as in effect on April 1, 1996 (an "EXISTING EMPLOYEE PLAN"); (B)
upon the conversion of other Convertible Debentures; or (C) pursuant to a Common
Stock Reorganization (any such nonexcluded event, including any event described
in paragraphs (b)(ii) and (b) (iii) below, being herein called a "COMMON STOCK
DISTRIBUTION"), if such Common Stock Distribution shall be for a consideration
per share less than the Market Price of the Company's Common Stock on the date
of such issuance, sale or distribution (the "REFERENCE PRICE"), then, effective
upon such Common Stock Distribution, the number of shares of Common Stock
issuable upon conversion of the Convertible Debentures shall be adjusted by
multiplying the number of shares of Common Stock issuable upon conversion of the
Convertible Debentures by a fraction, the numerator of which shall be the total
number of shares of Common Stock outstanding (and issuable upon exercise or
conversion of outstanding options, warrants and convertible securities)
immediately after such Common Stock Distribution and the denominator of which
shall be an amount equal to the sum of (A) the number of shares of Common Stock
outstanding (and issuable upon exercise or conversion of outstanding options,
warrants and convertible securities) immediately prior to such Common Stock
Distribution, plus (B) the number of shares of Common Stock which the aggregate
consideration, if any, received by the Company (determined as provided below)
for such Common Stock Distribution would buy at the Reference Price. In the
event of any such adjustment, the Conversion Price for each Convertible
Debenture shall be adjusted to a number determined by dividing the Conversion
Price immediately prior to such Common Stock Distribution by the fraction used
for purposes of the aforementioned adjustment.
The provisions of this paragraph (b), including by operation
of paragraph (b)(ii) or (b)(iii) below, shall not operate to increase the
Conversion Price or to reduce the number of shares of Common Stock issuable upon
conversion of the Convertible Debentures.
(ii) If the Company shall issue, sell, distribute or
otherwise grant in any manner (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any warrants or
options for the purchase of, Common Stock or any stock or securities convertible
into or exchangeable for Common Stock otherwise than under an Existing Employee
Plan (such rights,
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warrants or options being herein called "OPTIONS" and such convertible or
exchangeable stock or securities being herein called "CONVERTIBLE SECURITIES"),
whether or not such Options or the rights to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities (determined by dividing
(i) the aggregate amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus, in the case of Options to acquire Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Reference Price, then, for purposes of
paragraph (b)(i) above, the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or such conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to have been issued as of the date of granting
of such Options and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration such price per Share,
determined as provided above, therefor. Except as otherwise provided in
paragraph (b)(iv) below, no additional adjustment of the number of shares of
Common Stock issuable upon the conversion of a Convertible Debenture or of the
Conversion Price shall be made upon the actual exercise of such Options or upon
conversion or exchange of such Convertible Securities.
(iii) If the Company shall issue, sell or otherwise
distribute (whether directly or by assumption in a merger or otherwise) any
Convertible Securities otherwise than under an Existing Employee Plan, whether
or not the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the aggregate amount received or
receivable by the Company as consideration for the issue, sale or distribution
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Reference Price, then, for purposes of paragraph (b)(i) above, the
total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
as of the date of the issue, sale or distribution of such Convertible Securities
and thereafter shall be deemed to be outstanding and the Company shall be deemed
to have received as consideration such price per share,
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determined as provided above, therefor. Except as otherwise provided in
paragraph (b)(iv) below, no additional adjustment of the number of shares of
Common Stock issuable upon the conversion of a Convertible Debenture or of the
Conversion Price shall be made upon the actual conversion or exchange of such
Convertible Securities.
(iv) If the purchase price provided for in any
Option referred to in paragraph (b) (ii) above, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities
referred to in paragraph (b)(ii) or (b)(iii) above, or the number of shares of
Common Stock into or for which any Convertible Securities referred to in
paragraphs (b)(ii) or (b)(iii) above are convertible or exchangeable shall
change at any time (other than under or by reason of provisions designed to
protect against, and having the effect of protecting against, dilution upon an
event which results in a related adjustment pursuant to this Section 14.5), the
number of shares of Common Stock issuable upon the conversion of the Convertible
Debentures and the Conversion Price then in effect shall forthwith be readjusted
(effective only with respect to any exercise of a Convertible Debenture after
such readjustment) to the number of shares of Common Stock issuable upon
conversion of the Convertible Debentures and the Conversion Price which would
then be in effect had the adjustment made upon the issue, sale, distribution or
grant of such Options or Convertible Securities been made based upon such
changed purchase price, additional consideration or conversion rate, as the case
may be; provided, however, that such readjustment shall give effect to such
change only with respect to such Options and Convertible Securities as then
remain outstanding. If, at any time after any adjustment of the number of shares
of Common Stock issuable upon conversion of the Convertible Debentures or the
Conversion Price shall have been made pursuant to this Section 14.5 on the basis
of the issuance of any Option or Convertible Securities or after any new
adjustments of the number of shares of Common Stock into which the Convertible
Debentures may be converted or the Conversion Price shall have been made
pursuant to this Section 14.5, the right of conversion, exercise or exchange in
such Option or Convertible Securities shall expire or terminate, and the right
of conversion, exercise or exchange in respect of a portion of such Option or
Convertible Securities shall not have been exercised, such previous adjustment
shall be rescinded and annulled. Thereupon, a recomputation shall be made of the
effect of such Option or Convertible Securities on the basis of treating the
number of shares of Common Stock, if any, theretofore actually issued or
issuable pursuant to the previous exercise of such right of conversion, exercise
or exchange as having been issued on the date or dates of such conversion,
exercise or exchange and for the consideration actually received and receivable
therefor, and treating any such Option or Convertible Securities which then
remains outstanding as having been granted or issued immediately after the time
of any such increase for the consideration per share for which shares of Common
Stock are issuable under such Option or Convertible Securities; and, if and to
the extent called for by the
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foregoing provisions of this Section 14.5 on the basis aforesaid, a new
adjustment of the number of shares of Common Stock issuable upon conversion of
the Convertible Debenture and the Conversion Price shall be made, which new
adjustment shall supersede (effective only with respect to any conversion of a
Convertible Debenture after such readjustment) the previous adjustment so
rescinded and annulled.
(v) If the Company shall pay a dividend or make any
other distribution upon any capital stock of the Company payable in Options or
Convertible Securities, then, for purposes of paragraph (b)(i) above, such
Options or Convertible Securities, as the case may be, shall be deemed to have
been issued or sold without consideration.
(vi) If any shares of Common Stock, Options or
Convertible Securities shall be issued, sold or distributed for cash, the
consideration received therefor shall be deemed to be the amount received by the
Company therefor, before deduction therefrom of any expenses incurred and any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. If any shares of Common Stock, Options or Convertible
Securities shall be issued, sold or distributed for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the Fair Market Value of such consideration, before
deduction of any expenses incurred and any underwriting commissions or
concessions paid or allowed by the Company in connection therewith. If any
shares of Common Stock, Options or Convertible Securities shall be issued in
connection with any merger in which the Company is the surviving corporation,
the amount of consideration therefor shall be deemed to be the Fair Market Value
of such portion of the assets and business of the nonsurviving corporation as
shall be attributable to such Common Stock, Options or Convertible Securities,
as the case may be. If any Options shall be issued in connection with the issue
and sale of other securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued for
consideration to be determined in good faith by the Board.
(vii) If the Company shall take a record of the
holders of the Common Stock for the purpose of entitling them to receive a
distribution payable in Common Stock, Options or Convertible Securities or to
subscribe for or purchase Common Stock, Options or Convertible Securities, then
such record date shall be deemed to be the date of the issue, sale, distribution
or grant of the shares of Common Stock deemed have been issued or sold upon the
making of such distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(viii) The reclassification of Common Stock into
securities consisting of both Common Stock and securities other than Common
Stock (other than any reclassification upon a Capital
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Reorganization to which paragraph (d) hereof applies), shall be deemed to
involve (i) a distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such reclassification shall
be deemed to be the date of the taking of the "record of the holders of Common
Stock for the purpose of entitling them to receive a distribution" and "such
record date" within the meaning of paragraph (b)(vii)), and (ii) a subdivision
or combination, as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into the number of shares
of Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be the "record date" within the meaning
of paragraph (a) of this Section 14.5).
(ix) For purposes of determining whether any
adjustment is required pursuant to this Section 14.5, any security of the
Company having rights substantially equivalent to the Common Stock as to voting,
dividends or upon liquidation, dissolution or winding up of the Company shall be
treated as if such security were Common Stock.
(c) Special Dividends. If the Company shall issue or
distribute to all or substantially all holders of shares of Common Stock
evidences of indebtedness, any other securities of the Company or any property
or other assets (other than cash), and if such issuance or distribution does not
constitute a Common Stock Reorganization or a Common Stock Distribution (any
such nonexcluded event being herein called a "SPECIAL DIVIDEND"), then,
effective upon the record date of the Special Dividend, each Holder of a
Convertible Debenture shall be entitled to receive, upon the conversion thereof,
the Special Dividend which such Holder would have been entitled to receive if
such Holder had converted his Convertible Debenture immediately prior to the
record date of the Special Dividend.
(d) Capital Reorganization. If there shall be any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change (other than a Common
Stock Reorganization or a change in par value) in, outstanding shares of Common
Stock, or any sale or conveyance of the property of the Company as an entirety
or substantially as an entirety (any such event being called a "CAPITAL
REORGANIZATION"), then, effective upon the effective date of such Capital
Reorganization, each Holder of a Convertible Debenture shall have the right to
purchase, upon the conversion thereof, the kind and amount of shares of stock
and other securities and property (including cash) which such Holder would have
owned or have been entitled to receive after such Capital Reorganization if such
Holder had converted his Convertible Debenture immediately prior to such Capital
Reorganization, assuming such Holder failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash or other property
receivable upon such Capital Reorganization. As a condition to
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effecting any Capital Reorganization, the Company or the successor or surviving
corporation, as the case may be, shall execute and deliver to each Holder of a
Convertible Debenture and to the Company an agreement as to each such Holders'
rights in accordance with this Section 14.5, providing for subsequent
adjustments as nearly equivalent as may be practicable to the adjustments
provided for in this Section 14.5. The provisions of this paragraph (d) shall
similarly apply to successive Capital Reorganizations.
(e) Certain Other Events. If any event occurs as to which the
foregoing provisions of this Section 14.5 are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board, fairly
protect the conversion rights of the Convertible Debentures in accordance with
the essential intent and principles of such provisions, then the Board shall
make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the
good faith opinion of the Board, to protect such purchase rights as aforesaid,
but in no event shall any such adjustment have the effect of increasing the
Conversion Price or decreasing the number of shares of Common Stock into which
the Convertible Debentures may be converted, or otherwise adversely affect the
Holders of Convertible Debentures.
(f) Adjustment Rules.
(i) Any adjustments pursuant to this Section 14.5
shall be made successively whenever an event referred to herein
shall occur.
(ii) If the Company shall set a record date to
determine the holders of shares of Common Stock for purposes of a Common Stock
Reorganization, Common Stock Distribution, Special Dividend or Capital
Reorganization, and shall legally abandon such action prior to effecting such
action, then no adjustment shall be made pursuant to this Section 14.5 in
respect of such action.
(iii) Notwithstanding any other provision of this
Section 14.5, no adjustment to the Conversion Price shall reduce the Conversion
Price below the then par value per share of the Common Stock, and any such
purported adjustment shall instead reduce the Conversion Price to such par
value. The Company hereby covenants not to take any action (i) to increase the
par value per share of the Common Stock other than in connection with one or
more reverse stock splits or (ii) that would or does result in any adjustment in
the Conversion Price that, if made without giving effect to the previous
sentence, would cause the Conversion Price to be less than the then par value
per share of the Common Stock.
(iv) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least one cent ($.01) in such price; provided, however, that any adjustments
which by reason of this subparagraph (iv) are not required to be made shall be
carried forward and taken
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into account in any subsequent adjustment. All calculations under this Section
shall be made to the nearest cent or to the nearest one-hundredth of a Share, as
the case may be.
SECTION 14.6. Notice of Adjustments of Conversion Price.
Whenever the Conversion Price, and/or number of shares of Common Stock issuable
upon conversion of the Convertible Debentures ("CONVERSION SHARES"), is adjusted
as herein provided:
(i) the Company shall compute the adjusted Conversion Price in
accordance with Section 14.5 and shall prepare a certificate signed by
the Treasurer of the Company (an "ADJUSTMENT CERTIFICATE") setting
forth the adjusted Conversion Price and/or adjusted number of
Conversion Shares and showing in reasonable detail the facts upon which
such adjustment is based, and such Adjustment Certificate shall
forthwith be filed (with a copy to the Trustee) at each office or
agency maintained for the purpose of conversion of Convertible
Debentures pursuant to Section 4.2; and
(ii) a notice stating that the Conversion Price and/or number
of Conversion Shares has been adjusted and setting forth the adjusted
Conversion Price and/or adjusted number of Conversion Shares shall
forthwith be required, and as soon as practicable after it is required,
such notice, together with a copy of the relevant Adjustment
Certificate, shall be mailed by the Company to all Holders of
Convertible Debentures at their last addresses as they shall appear in
the Debenture Registry.
SECTION 14.7. Notice of Certain Corporate Action.
In case:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock (including, without
limitation, any Special Dividend); or
(ii) the Company shall authorize the granting to the holders
of its Common Stock of rights, options or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other
rights (excluding rights, warrants or options issuable under the terms
of any Existing Employee Plan); or
(iii) the Board of Directors shall authorize any consolidation
or merger to which the Company is a party and for which approval of any
stockholders of the Company is required, or of the sale or transfer of
all or substantially all of the assets of the Company; or
(iv) the Board of Directors shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the Company; or
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(v) the Board of Directors shall authorize the
reclassification of Common Stock into any other security (other than a
Capital Reorganization), or
(vi) the Board of Directors shall authorize any tender offer
by the Company or any Subsidiary for Common Stock or for capital stock
of any Subsidiary ( a "TENDER OFFER"),
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Convertible Debentures pursuant to Section 4.2, and
shall cause to be mailed to all Holders of Convertible Debentures at their last
addresses as they shall appear in the Debenture Registry, at least 20 days prior
to the applicable record, effective or expiration date hereinafter specified, a
notice describing the relevant action or event in reasonable detail and stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, options 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, options or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities, 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 will expire, unless extended, the record date for determining the
holders of Common Stock entitled to accept the Tender Offer, the consideration
offered and the material terms thereof (or the material terms of any amendment
thereto).
SECTION 14.8. 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 Convertible Debentures or the exercise of Warrants, the full
number of shares of Common Stock then issuable upon the conversion of all
outstanding Convertible Debentures or upon the exercise of all outstanding
Warrants.
SECTION 14.9. Taxes on Conversions. The Company will pay any
and all taxes that may be payable in respect of the issue or delivery of shares
of Common Stock on conversion of Convertible Debentures pursuant hereto. The
Company shall not, however, be required to pay any tax which may be payable in
respect of (i) income of the Holder or (ii) any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that of the Holder
of the Convertible Debenture or Convertible 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
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amount of any such tax, or has established to the satisfaction of the Company
that such tax has been paid.
SECTION 14.10. Covenant as to Common Stock. The Company
covenants that all shares of Common Stock which may be issued upon the
conversion of Convertible Debentures or the exercise of Warrants will upon issue
be fully paid and nonassessable and, except as provided in Section 14.9, the
Company will pay all taxes, liens and charges with respect to the issue thereof.
SECTION 14.11. Cancellation of Converted Securities. All
Convertible Debentures delivered for conversion shall be delivered to the
Trustee to be cancelled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 2.8.
SECTION 14.12. Liquidation or Dissolution. In case the Company
dissolves or liquidates, the Company shall make appropriate provision so that
the securities or property, as the case may be, which would be received by each
Holder of a Convertible Debenture upon the conversion thereof at the time
immediately prior to the effective date of such dissolution or liquidation, will
be available to such Holder from the liquidating trust; provided that such
Holder shall make the determination as to whether to convert his Convertible
Debenture within six months following the effective date of dissolution or
liquidation, at which time the conversion rights with respect to the Convertible
Debentures shall be terminated and of no further force or effect and the
Holder's conversion rights under the Convertible Debenture shall be
automatically terminated.
SECTION 14.13. Company to Cause Registration of Common Stock.
The Company covenants that if any shares of Common Stock required to be reserved
for purposes of conversion of Convertible Debentures hereunder, require
registration with or approval of any governmental authority under any Federal or
State law, or listing upon any national securities exchange or quotation in any
NASDAQ quotation system, before such shares may be issued upon conversion, the
Company will in good faith and as expeditiously as possible endeavor to cause
such shares to be duly registered, approved or listed, as the case may be.
SECTION 14.14. Disclaimer by Trustee of Responsibility for
Certain Matters. Subject to Section 7.1, the Trustee shall not at any time be
under any duty or responsibility to any Holder of Convertible Debentures to
determine whether any facts exist which may require any adjustment of the
conversion price, or with respect to the nature or extent of any such adjustment
when made, or with respect to the method employed, or herein or in any
supplemental indenture provided to be employed, in the same. The Trustee shall
not be accountable with respect to the validity, value, kind or amount of any
shares of Common Stock, or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Convertible Debenture, and it
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makes no representation with respect thereto. The Trustee shall not be
responsible for any failure of the Company to issue, transfer or deliver any
shares of Common Stock or stock certificates or other securities or property
upon the surrender of any Convertible Debenture for the purpose of conversion
or, subject to Section 7.1, to comply with any of the covenants of the Company
contained in this Article. Each conversion agent other than the Company shall
have the same protection under this Section as the Trustee.
ARTICLE XV
Subordination of Junior Debentures
SECTION 15.1. Reliance by Holders of Debentures on
Subordination of Junior Debentures. The Company represents and warrants to each
Debentureholder that the indebtedness evidenced by the Debentures constitutes
Senior Debt, as such term is defined in the Junior Indenture, and that the
Junior Debentures are, and shall remain, subordinate in right of payment to the
Debentures, as Senior Debt, to the full extent provided in Article XV of the
Junior Indenture for the subordination of the Junior Debentures to Senior Debt.
Without the prior written consent of Holders of a majority of the aggregate
outstanding principal amount of Debentures, the Company shall not consent or
agree to any amendment or modification of ARTICLE XV of the Junior Indenture
that would in any way diminish or impair the subordination of the Junior
Debentures to the Debentures. The Company acknowledges and agrees that the
subordination of the Junior Debentures to the Debentures is an inducement and a
consideration to each holder of Debentures, whether such Debentures are acquired
before or after the issuance thereof, to acquire and continue to hold such
Debentures and each holder of Debentures shall be deemed conclusively to have
relied on such subordination, and on the Company's representation in connection
therewith in this Section 15.1, in acquiring and continuing to hold Debentures.
ARTICLE XVI
Miscellaneous Provisions
SECTION 16.1. Provisions Binding on Company's Successors. All
the covenants, stipulations, promises and agreements by the Company contained in
this Indenture shall bind its successors and assigns whether so expressed or
not.
SECTION 16.2. Official Acts by Successor Corporation. Any act
or proceeding by any provision of this Indenture authorized or required to be
done or performed by any board, committee or officer of the Company shall and
may be done and performed with like force and effect by the like board,
committee or officer of
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any corporation that shall at the time be the lawful sole successor of the
Company.
SECTION 16.3. Addresses for Notices, etc. Any notice or demand
which by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Debentures on the Company shall be
deemed to have been sufficiently given or served, for all purposes, if given or
served in writing at the office of the Secretary of the Company at the principal
office of the Company at 136 Madison Avenue, New York, New York 10016 (until
another address is filed by the Company with the Trustee). Any notice,
direction, request or demand by any Debentureholder to or upon the Trustee shall
be deemed to have been sufficiently given or made, for all purposes, if given or
made in writing at the Principal Office of the Trustee at Forty Wall Street, New
York, New York 10005, addressed to the attention of its Vice President.
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 address as it appears in the
Debenture Registry, not later than the latest date, and not earlier than the
earliest date, 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. 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.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder.
SECTION 16.4. New York Contract. This Indenture and each
Debenture shall be deemed to be a contract made under the laws of the State of
New York, and for all purposes shall be construed in accordance with the
substantive laws of said State.
SECTION 16.5. Evidence of Compliance with Conditions
Precedent. Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent have been
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complied with (and, in the case of conditions precedent, if any, compliance with
which is subject to verification by accountants, a certificate of opinion of an
accountant in the form, and to the extent required, by subparagraph (3) of
subsection 314 (c) of the Trust Indenture Act of 1939).
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture (other than certificates provided pursuant to
subparagraph (d) of Section 5.3 hereof) shall include (1) a statement that the
Person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statement or opinion contained in such certificate
or opinion is based; (3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not in the opinion of such
Person, such condition or covenant has been complied with.
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 an 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 certificate or opinion is based are
erroneous. Any such 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.
Where 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 16.6. Legal Holidays. In any case where any Interest
Payment Date, Redemption Date or Maturity Date of any
77
<PAGE> 84
Debenture or the last date on which a Holder has the right to convert his
Convertible Debentures shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or of the Debentures) payment of interest or
principal, price of redemption or conversion of the Convertible Debentures need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date or the
Redemption Date or the Maturity Date, or on such last day for conversion,
provided that no interest shall accrue on the amount due or to be redeemed or
converted for the period from and after such Interest Payment Date, Redemption
Date, Maturity Date or conversion date, as the case may be.
SECTION 16.7. Trust Indenture Act To Control. If and to the
extent that any provision of this Indenture limits, qualifies or conflicts with
any of the duties imposed by Sections 310 to and including Section 317 of the
Trust Indenture Act of 1939, the imposed duties shall control.
SECTION 16.8. No Security Interest Created. Nothing in this
Indenture or in the Debentures, expressed or implied, shall be construed to
constitute a security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect, in any jurisdiction
where property of the Company or any of its Subsidiaries is located.
SECTION 16.9. Table of Contents, Headings, etc. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
SECTION 16.10. Execution in Counterparts. This Indenture may
be executed in any number of counterparts, each of which shall be an original,
but such counterparts shall together constitute but one and the same instrument.
SECTION 16.11. Severability. In case any provision (or portion
thereof) in this Indenture or in the Debentures shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions (and the remaining portion of such provision) shall not in any way be
affected or impaired thereby.
SECTION 16.12. 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 and the
Debentureholders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
IN WITNESS WHEREOF, MOVIE STAR, INC. has caused this
Indenture to be signed and acknowledged by its President or a Vice
President, and its corporate seal to be affixed hereunto, and the
same to be attested by its Secretary or an Assistant Secretary, and
78
<PAGE> 85
AMERICAN STOCK TRANSFER & TRUST COMPANY has caused this Indenture to be signed
and acknowledged by one of its Vice Presidents, has caused its corporate seal to
be affixed thereunto, and the same to be attested by its Secretary, as of the
day first written above.
MOVIE STAR, INC.
By: _______________________________________
[Seal]
Attest: ___________________________________
Secretary
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: _______________________________________
Vice President
[Seal]
Attest: ___________________________________
Secretary
79
<PAGE> 86
STATE OF )
) ss.:
COUNTY OF )
On the ____ day of in the year 1996, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that he resides at _________________________________________________________
_______________________________________________________________________________,
that he is a ______________________________ of MOVIE STAR, INC., a corporation
described in and which executed the above instrument; that he knows the
corporate seal of said corporation; that the seal affixed to the said instrument
is such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation; and that he signed his name thereto by like
authority.
___________________________
Notary Public
[Notarial Seal]
STATE OF )
) ss.:
COUNTY OF )
On the ____ day of in the year 1996, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that he resides at _________________________________________________________
_______________________________________________________________________________,
that he is a ______________________________ of AMERICAN STOCK TRANSFER & TRUST
COMPANY, a corporation described in and which executed the above instrument;
that he knows the corporate seal of said corporation; that the seal affixed to
the said instrument is such corporate seal; that it was so affixed by authority
of the Board of Directors of said corporation; and that he signed his name
thereto by like authority.
___________________________
Notary Public
[Notarial Seal]
80
<PAGE> 87
EXHIBIT A
[Form of Face of Debenture]
No. $
MOVIE STAR, INC.
8% Senior Note Due 2001
MOVIE STAR, INC., a corporation organized and existing under
the laws of the State of New York (hereinafter called the "COMPANY," which term,
subject to the terms of the Indenture referred to on the reverse side hereof,
shall include any successor Person), for value received, hereby promises to pay
to
or registered assigns, the principal sum of
DOLLARS at the office or agency of the Company in the Borough of Manhattan, The
City of New York, on September 1, 2001, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts ("US CURRENCY"), and to pay interest,
semiannually in arrears on April 1 and October 1 of each year, commencing on
April 1, 1997 (each said April 1 and October 1, or any other date fixed,
pursuant to the Indenture, for the payment of any installment of interest in
this Debenture, an "INTEREST PAYMENT DATE"), on said principal sum at said
office or agency, at the rate of eight percent (8%) per annum, from the most
recent Interest Payment Date to which interest on this Debenture has been paid
or, if no interest has been paid on this Debenture, from October 1, 1996, until
payment of said principal sum has been made or duly provided for; provided,
however, that if and to the extent that the Company shall default in the payment
of interest due on an Interest Payment Date, then this Debenture shall bear
interest from the first preceding Interest Payment Date to which interest on
this Debenture has been paid, or, if no interest has been paid on this
Debenture, from October 1, 1996. All interest payable hereon shall be in the
form of US Currency. The interest payable on this Debenture on any Interest
Payment Date will, except as provided in the Indenture, be paid to the person in
whose name this Debenture is registered at the close of business on the
September 15 or March 15 next preceding such October 1 or April 1 (the "REGULAR
RECORD DATE"), as the case may be, whether or not such day is a Business Day,
unless the Company shall default in the payment of interest due on such Interest
Payment Date, in which case such defaulted interest due on such Interest Payment
Date shall be paid to the Person in whose name this Debenture is registered at
the close of business on a special record date for the payment of such defaulted
interest established by notice to the registered holders of Debentures not less
than 15 days preceding such special record
A-1
<PAGE> 88
date. Interest payments may, at the option of the Company, be paid by check. All
interest payments may be mailed to the registered address of such Person
entitled thereto. Interest shall be calculated on the basis of a 360-day year of
twelve 30-day months.
All capitalized terms used in this Debenture which are defined
in the Indenture referred to on the reverse side hereof shall, unless otherwise
indicated, have the meanings assigned to them in the Indenture.
Reference is made to the further provisions of this Debenture
set forth on the reverse hereof. Such further provisions shall for all purposes
have the same effect as though fully set forth at this place.
This Debenture shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed by
or on behalf of the Trustee under the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to
be signed in its name by the facsimile signatures of its President and Secretary
and a facsimile of its corporate seal to be imprinted hereon and attested by the
facsimile signature of its Assistant Secretary.
Dated:
MOVIE STAR, INC.
[Seal]
Attest By: __________________________
______________________________ ______________________________
Assistant Secretary President
Attest By: __________________________
______________________________ ______________________________
Assistant Secretary Secretary
[Form of Trustee's Certificate of Authentication]
This is one of the Debentures described in the
within-mentioned Indenture.
AMERICAN STOCK TRANSFER & AND TRUST
COMPANY, as authenticating agent,
By: __________________________
Authorized Officer
A-2
<PAGE> 89
[Form of Reverse of Debenture]
MOVIE STAR, INC.
8% Senior Note Due 2001
This Debenture is one of a duly authorized issue of debentures
of the Company, designated as its 8% Senior Notes Due 2001 (the "Debentures"),
limited (except as may otherwise be provided in the Indenture hereinafter
referred to) to the aggregate principal amount of $_________________, all issued
or to be issued under and pursuant to an Indenture dated as of April 1, 1996
(the "INDENTURE"), duly executed and delivered by the Company and American Stock
Transfer & Trust Company, Trustee (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 description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders of the Debentures.
In case an Event of Default shall have occurred and be
continuing, the Trustee or the holders of not less than a majority in aggregate
principal amount of the Debentures then outstanding may declare the principal of
and accrued but unpaid interest on all the Debentures to be immediately due and
payable (provided, however, that the Debentures shall become immediately due and
payable regardless of any such declaration if certain bankruptcy- related Events
of Default, as specified in the Indenture, occur). Such declaration may in
certain instances be rescinded in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time outstanding, evidenced
as provided in the Indenture, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof, or make the principal thereof or interest thereon
payable in any coin or currency other than that hereinbefore provided or change
the redemption price payable upon the redemption thereof, without the consent of
the holder of each outstanding Debenture so affected, or (ii) reduce the
aforesaid percentage of Debentures, the holders of which are required to consent
to any such supplemental indenture, without the consent of the holders of all
the Debentures then outstanding. It is also provided in the Indenture that,
prior to any declaration accelerating the maturity of the Debentures, the
holders of a majority in aggregate principal amount
A-3
<PAGE> 90
of the Debentures at the time outstanding may on behalf of the holders of all
the Debentures waive any past default under the Indenture and its consequences,
except a default in the payment of interest on, or the principal of, any of the
Debentures. Any such consent or waiver by the holder of this Debenture (unless
revoked as provided in the Indenture) shall be conclusive and binding upon such
holder and upon all future holders and owners of this Debenture and any
Debentures which may be issued in exchange or substitution herefor, irrespective
of whether or not any notation thereof is made upon this Debenture or such other
Debentures.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Debenture at the place, at the respective times, at the rate
and in the form herein prescribed.
The Debentures are issuable in registered form without coupons
in denominations of $1,000 and any integral multiple of $1,000. At the office or
agency of the Company in the Borough of Manhattan, The City of New York, and in
the manner and subject to the limitations provided in the Indenture, Debentures
may be exchanged for a like-aggregate principal amount of Debentures of other
authorized denominations, without charge except for any tax or other
governmental charge imposed in relation thereto.
The Debentures may be redeemed, at the option of the Company,
as a whole, or from time to time in part, on any date prior to maturity, upon
mailing a notice of such redemption not less than 30 nor more than 45 days prior
to the date fixed for redemption to the holders of Debentures to be redeemed at
their last registered addresses, all as provided in the Indenture, at a
redemption price equal to 100% of the principal amount thereof, together with
accrued interest to the date fixed for redemption.
In the event of redemption of this Debenture in part only, a
new Debenture or Debentures for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
Upon due presentment for registration of transfer of this
Debenture, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Registrar duly executed by, the Holder hereof (or
his attorney duly authorized in writing), at the office or agency of the Company
in the Borough of Manhattan, The City of New York, a new Debenture or Debentures
of authorized denominations for an equal aggregate principal amount will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Indenture, without charge except for any tax or other
governmental charge imposed in relation thereto.
A-4
<PAGE> 91
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any Paying Agent and any Registrar may deem
and treat the registered holder hereof as the absolute owner of this Debenture
(whether or not this Debenture shall be overdue and notwithstanding any notation
of ownership or other writing hereon by anyone other than the Company, any
Registrar or the Trustee), for the purpose of receiving payment hereof or on
account hereof, and for all other purposes (subject to the provisions of the
first paragraph appearing on the face hereof), and neither the Company nor the
Trustee nor any Paying Agent nor any Registrar shall be affected by any notice
to the contrary.
No recourse for the payment of the principal of, premium, if
any, or interest on this Debenture, or for any claim based hereon or otherwise
in respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Debenture, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issue hereof, expressly waived and released.
A-5
<PAGE> 92
EXHIBIT B
[Form of Face of Debenture]
No. $
MOVIE STAR, INC.
8% Convertible Senior Note Due 2001
MOVIE STAR, INC., a corporation organized and existing under
the laws of the State of New York (hereinafter called the "COMPANY," which term,
subject to the terms of the Indenture referred to on the reverse side hereof,
shall include any successor Person), for value received, hereby promises to pay
to
or registered assigns, the principal sum of
DOLLARS at the office or agency of the Company in the Borough of Manhattan, The
City of New York, on September 1, 2001, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts ("US CURRENCY"), and to pay interest,
semiannually in arrears on April 1 and October 1 of each year, commencing on
April 1, 1997 (each said April 1 and October 1, or any other date fixed,
pursuant to the Indenture, for the payment of any installment of interest in
this Debenture, an "INTEREST PAYMENT DATE"), on said principal sum at said
office or agency, at the rate of eight percent (8%) per annum, from the most
recent Interest Payment Date to which interest on this Debenture has been paid
or, if no interest has been paid on this Debenture, from October 1, 1996, until
payment of said principal sum has been made or duly provided for; provided,
however, that if and to the extent that the Company shall default in the payment
of interest due on an Interest Payment Date, then this Debenture shall bear
interest from the first preceding Interest Payment Date to which interest on
this Debenture has been paid, or, if no interest has been paid on this
Debenture, from October 1, 1996. All interest payable hereon shall be in the
form of US Currency. The interest payable on this Debenture on any Interest
Payment Date will, except as provided in the Indenture, be paid to the person in
whose name this Debenture is registered at the close of business on the
September 15 or March 15 next preceding such October 1 or April 1 (the "REGULAR
RECORD DATE"), as the case may be, whether or not such day is a Business Day,
unless the Company shall default in the payment of interest due on such Interest
Payment Date, in which case such defaulted interest due on such Interest Payment
Date shall be paid to the Person in whose name this Debenture is registered at
the close of business on a special record date for the payment of such defaulted
interest established by notice to the registered holders of Debentures not less
than 15 days preceding such special record
B-1
<PAGE> 93
date. Interest payments may, at the option of the Company, be paid by check. All
interest payments may be mailed to the registered address of such Person
entitled thereto. Interest shall be calculated on the basis of a 360-day year of
twelve 30-day months.
All capitalized terms used in this Debenture which are defined
in the Indenture referred to on the reverse side hereof shall, unless otherwise
indicated, have the meanings assigned to them in the Indenture.
Reference is made to the further provisions of this Debenture
set forth on the reverse hereof. Such further provisions shall for all purposes
have the same effect as though fully set forth at this place.
This Debenture shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed by
or on behalf of the Trustee under the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to
be signed in its name by the facsimile signatures of its President and Secretary
and a facsimile of its corporate seal to be imprinted hereon and attested by the
facsimile signature of its Assistant Secretary.
Dated:
MOVIE STAR, INC.
[Seal]
Attest By: __________________________
___________________________________ ______________________________
Assistant Secretary President
Attest By: __________________________
___________________________________ ______________________________
Assistant Secretary Secretary
[Form of Trustee's Certificate of Authentication]
This is one of the Debentures described in the
within-mentioned Indenture.
AMERICAN STOCK TRANSFER & AND TRUST
COMPANY, as authenticating agent,
By: ________________________
Authorized Officer
B-2
<PAGE> 94
[Form of Reverse of Debenture]
MOVIE STAR, INC.
8% Convertible Senior Note Due 2001
This Debenture is one of a duly authorized issue of debentures
of the Company, designated as its 8% Convertible Senior Notes Due 2001 (the
"Debentures"), limited (except as may otherwise be provided in the Indenture
hereinafter referred to) to the aggregate principal amount of
$_________________, all issued or to be issued under and pursuant to an
Indenture dated as of April 1, 1996 (the "INDENTURE"), duly executed and
delivered by the Company and American Stock Transfer & Trust Company, Trustee
(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 description of the rights, limitation of rights, obligations, duties
and immunities thereunder of the Trustee, the Company and the holders of the
Debentures.
Subject to and upon compliance with the provisions of the
Indenture, the Holder of this Debenture is entitled, at his irrevocable option,
at any time and from time to time, on or before the close of business on
September 1, 2001, or in case this Debenture or a portion hereof is called for
redemption 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 defaults in the delivery of Warrants and the registration thereof
and the underlying Common Stock if and to the extent required by the terms of
the Indenture) not after, the close of business on the fifth (5th) Business Day
preceding the Redemption Date, to convert this Debenture, or any portion hereof,
at the principal amount hereof, or of such portion, into fully paid and
nonassessable 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 $0.375
principal amount of Debentures for each share of Common Stock (or at the 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 in blank, to the Company at its office or agency in the Borough of
Manhattan, City of New York or at any other office or agency maintained by the
Company for such purpose, accompanied by written notice to the Company, in the
form provided for in the Indenture, that the Holder hereof elects to convert
this Debenture, or if less than the entire amount hereof is to be converted, the
portion hereof to be converted and 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, also accompanied by payment by certified, bank or teller's check or in
immediately available funds (or such other form of payment as may be acceptable
to the Company) of an amount equal to the interest payable on such Interest
Payment Date on the principal amount of this Debenture then being converted;
provided, however, that 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,
B-3
<PAGE> 95
the Holder of this Debenture of record at such Regular Record Date shall have
the right to receive an installment of interest. 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 addition, the Indenture provides that in case of certain
consolidations or mergers to which the Company is a party or the transfer of
substantially all of the assets of the Company, the Indenture shall be amended,
without the consent of any Holders of Debentures, so that this Debenture, if
then outstanding, will be convertible thereafter, during the period this
Debenture shall be convertible as specified above, only into the kind and amount
of securities, cash and other property receivable upon the consolidation, merger
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately prior to such consolidation,
merger or transfer (assuming such holder of Common Stock failed to exercise any
rights of election and received per share the kind and amount received per share
by a plurality of non-electing shares).
In case an Event of Default shall have occurred and be
continuing, the Trustee or the holders of not less than a majority in aggregate
principal amount of the Debentures then outstanding may declare the principal of
and accrued but unpaid interest on all the Debentures to be immediately due and
payable (provided, however, that the Debentures shall become immediately due and
payable regardless of any such declaration if certain bankruptcy- related Events
of Default, as specified in the Indenture, occur). Such declaration may in
certain instances be rescinded in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Debentures at the time outstanding, evidenced
as provided in the Indenture, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof, or make the principal thereof or interest thereon
payable in any coin or currency other than that hereinbefore provided or change
the redemption price payable upon the redemption thereof, without the consent of
the holder of each outstanding Debenture so affected, or (ii) reduce the
aforesaid percentage of Debentures, the holders of which are required to consent
to any such supplemental indenture, without the consent of the holders of all
the Debentures then outstanding. It is also provided in the Indenture that,
prior to any declaration accelerating the maturity of the Debentures, the
holders of a majority in aggregate principal amount of the Debentures at the
time outstanding may on behalf of the holders of all the Debentures waive any
past default under the Indenture and its consequences, except a default in the
payment of
B-4
<PAGE> 96
interest on, or the principal of, any of the Debentures. Any such consent or
waiver by the holder of this Debenture (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Debenture and any Debentures which may be issued in
exchange or substitution herefor, irrespective of whether or not any notation
thereof is made upon this Debenture or such other Debentures.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Debenture at the place, at the respective times, at the rate
and in the form herein prescribed.
The Debentures are issuable in registered form without coupons
in denominations of $500 and any integral multiple of $500. At the office or
agency of the Company in the Borough of Manhattan, The City of New York, and in
the manner and subject to the limitations provided in the Indenture, Debentures
may be exchanged for a like-aggregate principal amount of Debentures of other
authorized denominations, without charge except for any tax or other
governmental charge imposed in relation thereto.
The Debentures may be redeemed, at the option of the Company,
as a whole, or from time to time in part, on any date prior to maturity, upon
mailing a notice of such redemption not less than 30 nor more than 45 days prior
to the date fixed for redemption to the holders of Debentures to be redeemed at
their last registered addresses, all as provided in the Indenture, at a
redemption price equal to 100% of the principal amount thereof, together with
accrued interest to the date fixed for redemption; provided, however, that no
Convertible Debenture may be redeemed until there are no longer any
Non-Convertible Debentures outstanding (or unless all outstanding
Non-Convertible Debentures are redeemed concurrently) and, if a Redemption
Notice is mailed on other than a Trigger Date, the Company must, as a
precondition to redemption, deliver Warrants to the Trustee and register, under
the Securities Act of 1933, both the Warrants and the Shares underlying same,
all as provided in the Indenture.
In the event of redemption or conversion of this Debenture in
part only, a new Debenture or Debentures for the unredeemed or unconverted
portion hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
Upon due presentment for registration of transfer of this
Debenture, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Registrar duly executed by, the Holder hereof (or
his attorney duly authorized in writing), at the office or agency of the Company
in the Borough of Manhattan, The City of New York, a new Debenture or Debentures
of authorized denominations for an equal aggregate principal amount will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Indenture, without charge except for any tax or other
governmental charge imposed in relation thereto.
B-5
<PAGE> 97
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any Paying Agent and any Registrar may deem
and treat the registered holder hereof as the absolute owner of this Debenture
(whether or not this Debenture shall be overdue and notwithstanding any notation
of ownership or other writing hereon by anyone other than the Company, any
Registrar or the Trustee), for the purpose of receiving payment hereof or on
account hereof, and for all other purposes (subject to the provisions of the
first paragraph appearing on the face hereof), and neither the Company nor the
Trustee nor any Paying Agent nor any Registrar shall be affected by any notice
to the contrary.
No recourse for the payment of the principal of, premium, if
any, or interest on this Debenture, or for any claim based hereon or otherwise
in respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Debenture, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of the consideration for the issue hereof, expressly waived and released.
B-6
<PAGE> 98
EXHIBIT C
MOVIE STAR, INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK, $.01 PAR VALUE
Dated: _____________
<PAGE> 99
WARRANT TO PURCHASE SHARES
OF
COMMON STOCK
OF
MOVIE STAR, INC.
Void After: September 1, 2001
WARRANT TO PURCHASE __________
SHARES OF COMMON STOCK
($.01 PAR VALUE)
MOVIE STAR, INC.
MOVIE STAR, INC., a New York corporation (the "COMPANY"), hereby certifies that
for good and valuable consideration, receipt of which is hereby acknowledged,
__________________ (the "PURCHASER"), who was the holder of 8% Convertible
Senior Notes due 2001 in the aggregate principal amount of $______
(collectively, the "NOTES") which were subject to a notice of redemption from
the Company pursuant to the terms of that certain Indenture, dated as of April
1, 1996, between the Company and certain holders of the Company's 12-7/8%
Subordinated Debentures due 2001 (the "INDENTURE"), is entitled, subject to the
terms and conditions set forth below, to purchase from the Company at any time
or from time to time before 5:00 P.M., New York City local time, September 1,
2001 (the "EXPIRATION DATE"), an aggregate of ____________ shares (the "SHARES")
of Common Stock of the Company, $.01 par value (the "COMMON STOCK"),
representing _________ shares of Common Stock for each $500 in aggregate
principal amount of Notes held by the Purchaser. The Shares may be purchased
upon exercise of this Warrant at an exercise price of thirty-seven and one-half
($.375) cents per share of Common Stock, subject to adjustment as hereinafter
provided (as such exercise price may be adjusted from time to time, the
"EXERCISE PRICE").
1. THE WARRANT; REPRESENTATIONS AND WARRANTIES
This Warrant is issued to the Purchaser pursuant to the terms of
Section 3.4 of the Indenture.
This Warrant may be exercised, partially or in full, as provided in
Section 2 hereof; may be sold, assigned and transferred, subject to the terms
hereof; and may be exchanged for a new warrant or warrants calling in the
aggregate for the same number of Shares. As used herein, "THIS WARRANT" shall
mean this
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Warrant and any Warrants then outstanding resulting from such partial
exercises, transfers and/or exchanges.
(A) REGISTRATION
This Warrant shall be numbered and shall be registered on the
books of the Company when issued.
This Warrant shall be executed on behalf of the Company by its
President or one of its Vice Presidents, under its corporate seal reproduced
thereon attested by its Secretary or an Assistant Secretary. Warrants bearing
the manual or facsimile signatures of individuals who were at any time the duly
elected officers of the Company shall bind the Company.
This Warrant shall be dated as of the date of countersignature
thereof by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
This Warrant shall be dated as of the date of countersignature
thereof by the Company either upon initial issuance or upon division, exchange,
substitution or transfer.
(B) TRANSFER
Without limiting the obligations of the Company under Section
5 hereof, no assignment or transfer of this Warrant or any Shares or other
securities issued upon the exercise hereof may be made unless (i) in the opinion
of counsel reasonably satisfactory to the Company, the proposed assignment or
transfer may be effected without registration or qualification under the
Securities Act of 1933, as amended, and any applicable state securities laws, or
(ii) such registration or qualification has been completed. Upon any permitted
transfer, the Company shall execute and deliver a new Warrant or Warrants to the
person entitled thereto.
This Warrant may be divided or combined, upon request to the
Company by a Holder thereof, into a certificate or certificates evidencing the
same aggregate number of Shares of Common Stock issuable thereunder.
(C) DEFINITION OF HOLDER
Unless the context indicates otherwise, the term "Holder"
shall mean and include the Purchaser and any transferee or transferees of this
Warrant.
(D) ELECTION TO EXERCISE
The form of election to purchase Shares shall be
substantially as set forth in Exhibit A attached hereto. The Exercise Price and
the number of Shares issuable upon exercise of this Warrant are subject to
adjustment upon the occurrence of certain events, all as hereinafter provided.
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2. EXERCISE OF WARRANT; PARTIAL EXERCISE
This Warrant may be exercised for the full number of Shares called for
on the face of this Warrant within the time called for hereby by the surrender
of this Warrant by the Holder, properly endorsed, to the Company at its
principal office, accompanied by payment, in cash or by certified or official
bank check, payable to the order of the Company, of the sum obtained by
multiplying (a) the number of Shares called for on the face of this Warrant (or
such applicable number of Shares as may result from an adjustment pursuant to
Section 6 hereof) by (b) the Exercise Price per Share.
Upon such surrender of the Warrants and payment of the Exercise Price
as aforesaid, the Company shall issue and cause to be delivered with all
reasonable dispatch to or upon the written order of the Holder and in such name
or names as the Holder may designate, a certificate or certificates for the
number of full shares of Common Stock comprising the applicable number of Shares
purchased upon the exercise of the Warrant, together with cash, as provided in
subparagraph f(iv) of Section 6 hereof, in respect of any fractional Shares
otherwise issuable upon such surrender. Such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such Shares, as of the date
of surrender of the Warrants and payment of the Exercise Price, as aforesaid,
notwithstanding that the certificates representing such Shares of Common Stock
shall not actually have been delivered or that the transfer shall not have been
reflected on the stock transfer books of the Company.
This Warrant may be exercised for less than the full number of Shares
within the time called for hereby by such a surrender accompanied by payment of
the Exercise Price for the number of Shares in respect of which it is being
exercised. Upon any such partial exercise, the Company at its expense will
forthwith issue to the Holder hereof a new Warrant of like tenor calling in the
aggregate on its face for the number of Shares for which this Warrant shall not
have been exercised, issued in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct.
3. EXCHANGES OF WARRANT
Upon surrender for exchange of this Warrant, the Company shall, at its
expense, issue and deliver a new Warrant or Warrants of like tenor, calling in
the aggregate on their face for the same number of Shares, in the denomination
or denominations requested, to or on the order of such Holder and in the name of
such Holder or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct.
4. REPLACEMENT OF WARRANT
Upon receipt of evidence reasonably satisfactory to the
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Company of the loss, theft, destruction or mutilation of any Warrant and (in the
case of loss, theft or destruction) upon delivery of an indemnity agreement in
such reasonable amount as the Company may determine, or (in the case of
mutilation) upon surrender and cancellation thereof, the Company at its expense
will issue, in lieu thereof, a new Warrant of like tenor.
5. COVENANTS OF THE COMPANY
The Company covenants and agrees that all Shares which shall become
issuable upon the exercise of the rights represented by this Warrant will, when
this Warrant is exercised and such Shares are paid for in accordance with the
terms hereof, upon issuance, be duly authorized and validly issued, fully paid,
and nonassessable and free from all preemptive rights of any stockholder, and
from all taxes, liens and charges with respect to the issue thereof (other than
transfer taxes). The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant. The Company further covenants and agrees that for as long as this
Warrant remains outstanding, it shall use its best efforts, at the Company's
expense, (i) to cause the Registration Statement heretofore filed under the
Federal securities laws by the Company in respect of this Warrant, and all
Shares issuable upon the exercise of the rights represented by this Warrant, to
remain current (as well as such other documents, including a prospectus, as may
be necessary to comply with the requirements of the Securities Act of 1933, as
amended), and (ii) to cause this Warrant and such Shares issuable upon the
exercise hereof to be qualified or registered for offering and sale under
applicable state securities or blue sky laws of such States as the Holder may
reasonably request, and (iii) to deliver to the Holder, should the Holder desire
to sell such Warrants or Shares, such number of prospectuses that comply with
applicable requirements under the Securities Act of 1933, as amended, as shall
reasonably be requested by the Holder. The Company shall indemnify the Holder
against any loss, damage, claim or expense to which the Holder may become
subject in connection with the sale by the Holder of this Warrant or any Shares
issuable upon its exercise which arises from such Registration Statement of the
Company (unless such loss, damage, claim or expense results from information
furnished to the Company by or on behalf of the Holder). If the Common Stock is
then listed on any national securities exchanges (as defined in the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")) or quoted on NASDAQ, the
Shares issuable upon the exercise hereof shall be duly listed or quoted thereon,
as the case may be. If the Company shall fail to comply with its obligations
under this Section 5, it shall, in addition to any other equitable or other
relief available to the Holder, be liable for any damages due to loss of profit
sustained by such Holder.
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6. ANTI-DILUTION ADJUSTMENTS.
The number of Shares purchasable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time as follows:
(A) Common Stock Reorganization. If the Company shall subdivide its
outstanding shares of Common Stock into a greater number of shares, declare or
pay any dividend on the Company's outstanding Common Stock payable in shares of
the Company's Common Stock or consolidate its outstanding shares of Common Stock
into a smaller number of shares (any such event being called a "COMMON STOCK
REORGANIZATION"), then (i) the Exercise Price shall be adjusted, effective
immediately after the record date at which the holders of shares of Common Stock
are determined for purposes of such Common Stock Reorganization, to a price
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding on such record date before giving effect to such
Common Stock Reorganization and the denominator of which shall be the number of
shares of Common Stock outstanding after giving effect to such Common Stock
Reorganization, and (ii) the number of shares of Common Stock subject to
purchase upon exercise of this Warrant shall be adjusted, effective at such
time, to a number determined by multiplying the number of shares of Common Stock
subject to purchase immediately before such Common Stock Reorganization by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding after giving effect to such Common Stock Reorganization and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately before such Common Stock Reorganization.
(B) Common Stock Distribution. (i) Subject to the last sentence of
this paragraph, if the Company shall issue or otherwise sell or distribute any
shares of Common Stock otherwise than (A) upon exercise or conversion of any
options, warrants, convertible securities, or other rights to subscribe for or
to purchase shares of Common Stock which were granted or issued prior to April
1, 1996 or are hereafter issued under the terms of any employee benefit plan as
in effect on April 1, 1996 (an "EXISTING EMPLOYEE PLAN"); (B) upon the
conversion of Notes; or (C) pursuant to a Common Stock Reorganization (any such
nonexcluded event, including any event described in paragraphs (b)(ii) and (b)
(iii) below, being herein called a "COMMON STOCK DISTRIBUTION"), if such Common
Stock Distribution shall be for a consideration per share less than the Market
Price, as defined in Section 21 below, of the Company's Common Stock on the date
of such issuance, sale or distribution (the "REFERENCE PRICE"), then, effective
upon such Common Stock Distribution, the number of shares of Common Stock
purchasable upon exercise of this Warrant shall be adjusted by multiplying the
number of shares of Common Stock subject to purchase upon exercise of this
Warrant by a fraction, the numerator of which shall be the total number of
shares of Common Stock
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outstanding (and issuable upon exercise or conversion of outstanding options,
warrants and convertible securities) immediately after such Common Stock
Distribution and the denominator of which shall be an amount equal to the sum of
(A) the number of shares of Common Stock outstanding (and issuable upon exercise
or conversion of outstanding options, warrants and convertible securities)
immediately prior to such Common Stock Distribution, plus (B) the number of
shares of Common Stock which the aggregate consideration, if any, received by
the Company (determined as provided below) for such Common Stock Distribution
would buy at the Reference Price. In the event of any such adjustment, the
Exercise Price for each Warrant shall be adjusted to a number determined by
dividing the Exercise Price immediately prior to such Common Stock Distribution
by the fraction used for purposes of the aforementioned adjustment.
The provisions of this paragraph (b), including by operation of
paragraph (b)(ii) or (b)(iii) below, shall not operate to increase the Exercise
Price or to reduce the number of shares of Common Stock subject to purchase upon
exercise of this Warrant.
(ii) If the Company shall issue, sell, distribute or
otherwise grant in any manner (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any warrants or
options for the purchase of, Common Stock or any stock or securities convertible
into or exchangeable for Common Stock otherwise than under an Existing Employee
Plan (such rights, warrants or options being herein called "OPTIONS" and such
convertible or exchangeable stock or securities being herein called "CONVERTIBLE
SECURITIES"), whether or not such Options or the rights to convert or exchange
any such Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such Options or
upon conversion or exchange of such Convertible Securities (determined by
dividing (i) the aggregate amount, if any, received or receivable by the Company
as consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Company upon the exercise of
all such Options, plus, in the case of Options to acquire Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Reference Price, then, for purposes of
paragraph (b)(i) above, the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or such conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to have been issued as of the date of granting
of such Options and thereafter shall be deemed to be outstanding and the Company
shall be deemed to have received as consideration such price per Share,
determined as provided above,
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therefor. Except as otherwise provided in paragraph (b)(iv) below, no additional
adjustment of the number of shares of Common Stock purchasable upon the exercise
of this Warrant or of the Exercise Price shall be made upon the actual exercise
of such Options or upon conversion or exchange of such Convertible Securities.
(iii) If the Company shall issue, sell or otherwise
distribute (whether directly or by assumption in a merger or otherwise) any
Convertible Securities otherwise than under an Existing Employee Plan, whether
or not the rights to exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (i) the aggregate amount received or
receivable by the Company as consideration for the issue, sale or distribution
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Reference Price, then, for purposes of paragraph (b)(i) above, the
total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
as of the date of the issue, sale or distribution of such Convertible Securities
and thereafter shall be deemed to be outstanding and the Company shall be deemed
to have received as consideration such price per share, determined as provided
above, therefor. Except as otherwise provided in paragraph (b)(iv) below, no
additional adjustment of the number of shares of Common Stock purchasable upon
exercise of this Warrant or of the Exercise Price shall be made upon the actual
conversion or exchange of such Convertible Securities.
(iv) If the purchase price provided for in any Option
referred to in paragraph (b) (ii) above, the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in paragraph (b)(ii) or (b)(iii) above, or the number of shares of Common
Stock into or for which any Convertible Securities referred to in paragraphs
(b)(ii) or (b)(iii) above are convertible or exchangeable, shall change at any
time (other than under or by reason of provisions designed to protect against,
and having the effect of protecting against, dilution upon an event which
results in a related adjustment pursuant to this Section 6), the number of
shares of Common Stock purchasable upon exercise of this Warrant and the
Exercise Price then in effect shall forthwith be readjusted (effective only with
respect to any exercise of this Warrant after such readjustment) to the number
of shares of Common Stock purchasable upon exercise of this Warrant and the
Exercise Price which would then be in effect had the adjustment made upon the
issue, sale, distribution or grant of such Options or Convertible Securities
been made based upon such changed purchase price, additional consideration or
conversion rate, as the case may be; provided, however, that such readjustment
shall give effect to such change only with respect to such Options and
Convertible Securities as then remain outstanding. If, at any
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time after any adjustment of the number of shares of Common Stock purchasable
upon exercise of each Warrant or the Exercise Price shall have been made
pursuant to this Section 6 on the basis of the issuance of any Option or
Convertible Securities or after any new adjustments of the number of shares of
Common Stock purchasable upon exercise of each Warrant or the Exercise Price
shall have been made pursuant to this Section 6, the right of conversion,
exercise or exchange in such Option or Convertible Securities shall expire or
terminate, and the right of conversion, exercise or exchange in respect of a
portion of such Option or Convertible Securities shall not have been exercised,
such previous adjustment shall be rescinded and annulled. Thereupon, a
recomputation shall be made of the effect of such Option or Convertible
Securities on the basis of treating the number of shares of Common Stock, if
any, theretofore actually issued or issuable pursuant to the previous exercise
of such right of conversion, exercise or exchange as having been issued on the
date or dates of such conversion, exercise or exchange and for the consideration
actually received and receivable therefor, and treating any such Option or
Convertible Securities which then remains outstanding as having been granted or
issued immediately after the time of any such increase for the consideration per
share for which shares of Common Stock are issuable under such Option or
Convertible Securities; and, if and to the extent called for by the foregoing
provisions of this Section 6 on the basis aforesaid, a new adjustment of the
number of shares of Common Stock purchasable upon exercise of each Warrant and
the Exercise Price shall be made, which new adjustment shall supersede
(effective only with respect to any exercise of this Warrant after such
readjustment) the previous adjustment so rescinded and annulled.
(v) If the Company shall pay a dividend or make any other
distribution upon any capital stock of the Company payable in Options or
Convertible Securities, then, for purposes of paragraph (b)(i) above, such
Options or Convertible Securities, as the case may be, shall be deemed to have
been issued or sold without consideration.
(vi) If any shares of Common Stock, Options or Convertible
Securities shall be issued, sold or distributed for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, before deduction therefrom of any expenses incurred and any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. If any shares of Common Stock, Options or Convertible
Securities shall be issued, sold or distributed for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be deemed to be the Fair Market Value, as defined in Section 21 below, of
such consideration, before deduction of any expenses incurred and any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. If any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in which the Company is
the surviving corporation, the amount of consideration therefor shall
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be deemed to be the Fair Market Value of such portion of the assets and business
of the nonsurviving corporation as shall be attributable to such Common Stock,
Options or Convertible Securities, as the case may be. If any Options shall be
issued in connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for consideration to be determined in good faith by
the Board of Directors of the Company.
(vii) If the Company shall take a record of the holders of
the Common Stock for the purpose of entitling them to receive a distribution
payable in Common Stock, Options or Convertible Securities or to subscribe for
or purchase Common Stock, Options or Convertible Securities, then such record
date shall be deemed to be the date of the issue, sale, distribution or grant of
the shares of Common Stock deemed have been issued or sold upon the making of
such distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(viii) The reclassification of Common Stock into (i)
securities including both Common Stock and securities other than Common Stock,
or (ii) securities consisting exclusively of other than Common Stock (other than
any reclassification upon a Capital Reorganization to which paragraph (d) hereof
applies), shall be deemed to involve (i) a distribution of such securities other
than Common Stock to all holders of Common Stock (and the effective date of such
reclassification shall be deemed to be the date of the taking of the "record of
the holders of Common Stock for the purpose of entitling them to receive a
distribution" and "such record date" within the meaning of paragraph (b)(vii)),
and (ii) a subdivision or combination, as the case may be, of the number of
shares of Common Stock outstanding immediately prior to such reclassification
into the number of shares of Common Stock outstanding immediately thereafter
(and the effective date of such reclassification shall be deemed to be the
"record date" within the meaning of paragraph (a) of this Section 6).
(ix) For purposes of determining whether any adjustment is
required pursuant to this Section 6, any security of the Company having rights
substantially equivalent to the Common Stock as to dividends or upon
liquidation, dissolution or winding up of the Company shall be treated as if
such security were Common Stock.
(C) Special Dividends. If the Company shall issue or distribute to all
or substantially all holders of shares of Common Stock evidences of
indebtedness, any other securities of the Company or any property or other
assets (other than cash), and if such issuance or distribution does not
constitute a Common Stock Reorganization or a Common Stock Distribution (any
such nonexcluded event being herein called a "SPECIAL DIVIDEND"), then,
effective upon the record date of the Special Dividend, the Holder shall be
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entitled to receive, upon exercise of this Warrant, the Special Dividend which
the Holder would have been entitled to receive if this Warrant had been
exercised immediately prior to the record date of the Special Dividend.
(D) Capital Reorganization. If there shall be any consolidation or
merger to which the Company is a party, other than a consolidation or a merger
in which the Company is a continuing corporation and which does not result in
any reclassification of, or change (other than a Common Stock Reorganization or
a change in par value) in, outstanding shares of Common Stock, or any sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety (any such event being called a "CAPITAL REORGANIZATION"), then,
effective upon the effective date of such Capital Reorganization, the Holder
shall have the right to purchase, upon exercise of this Warrant, the kind and
amount of shares of stock and other securities and property (including cash)
which the Holder would have owned or have been entitled to receive after such
Capital Reorganization if this Warrant had been exercised immediately prior to
such Capital Reorganization, assuming such Holder failed to exercise his rights
of election, if any, as to the kind or amount of securities, cash or other
property receivable upon such Capital Reorganization. As a condition to
effecting any Capital Reorganization, the Company or the successor or surviving
corporation, as the case may be, shall execute and deliver to each Holder and to
the Company an agreement as to the Holders' rights in accordance with this
Section 6, providing for subsequent adjustments as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6. The provisions of
this paragraph (d) shall similarly apply to successive Capital Reorganizations.
(E) Certain Other Events. If any event occurs as to which the
foregoing provisions of this Section 6 are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board of
Directors of the Company, fairly protect the purchase rights of the Warrants in
accordance with the essential intent and principles of such provisions, then
such Board shall make such adjustments in the application of such provisions, in
accordance with such essential intent and principles, as shall be reasonably
necessary, in the good faith opinion of such Board, to protect such purchase
rights as aforesaid, but in no event shall any such adjustment have the effect
of increasing the Exercise Price or decreasing the number of shares of Common
Stock subject to purchase upon exercise of this Warrant, or otherwise adversely
affect the Holders.
(F) Adjustment Rules.
(i) Any adjustments pursuant to this Section 6 shall be made
successively whenever an event referred to herein shall occur.
(ii) If the Company shall set a record date to determine
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the holders of shares of Common Stock for purposes of a Common Stock
Reorganization, Common Stock Distribution, Special Dividend or Capital
Reorganization, and shall legally abandon such action prior to
effecting such action, then no adjustment shall be made pursuant to
this Section 6 in respect of such action.
(iii) No adjustment in the Exercise Price shall be made
hereunder if such adjustment would reduce the Exercise Price to an
amount below par value of the Common Stock.
(iv) The Company shall not be required to issue fractional
shares on the exercise of the Warrants. If any fraction of a share of
Common Stock would, except for the provisions of this subparagraph
(iv), be issuable on the exercise of the Warrants (or specified
portion thereof), the Company shall pay an amount in cash equal to the
then Market Price per Share multiplied by such fraction.
(v) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least one cent ($.01) in such price; provided, however, that any
adjustments which by reason of this subparagraph (v) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section shall be
made to the nearest cent or to the nearest one-hundredth of a Share,
as the case may be.
(G) In the event the stockholders of the Company shall be entitled to
receive payment of any dividend or allotment of any right or any distribution
upon any of the Company's stock, a notice thereof shall be mailed by the Company
to the Holder of this Warrant at least 15 days before the date (which date shall
be specified in such notice) for determining stockholders entitled to receive
any such dividend or right or distribution upon the Company's stock. Such notice
shall describe such issuance or distribution in reasonable detail and shall
specify the relevant record date or effective date, as the case may be.
7. NOTICE OF ADJUSTMENT.
Upon the occurrence of any action which requires an adjustment or
readjustment pursuant to this Section 6, the Company shall promptly provide to
each registered Holder of this Warrant a certificate executed by a financial
officer of the Company stating the Exercise Price resulting from such adjustment
and the increase or decrease, if any, in the number of Shares purchasable at
such price upon the exercise of this Warrant, and setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based. Such certificate shall be conclusive as to the correctness of the
adjustment of the Exercise Price unless objected to by the Holder hereof within
30 days following the receipt of such certificate by such Holder. If the Holder
hereof objects to the adjustment as set forth in such
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certificate, the chief financial officer of the Company shall meet with such
Holder at such mutually convenient time or times as may be determined in order
to agree as to the correct adjustment. If the Company and the Holder are unable
to agree as to the correctness of the adjustment, the matter shall be submitted
to a mutually acceptable firm of independent certified public accountants, whose
determination as to the correct adjustment shall be conclusive and binding upon
the Company and such Holder.
8. LIQUIDATION OR DISSOLUTION
In case the Company dissolves or liquidates, the Company shall make
appropriate provision so that the securities or property, as the case may be,
which would be received by the Holder upon the exercise of the Warrant at the
time immediately prior to the effective date of such dissolution or liquidation,
will be available to the Holder from the liquidating trust; provided that the
Holder shall make the determination as to whether to exercise the Warrant within
six months of the effective date of dissolution or liquidation, at which time
this Warrant shall be terminated and of no further force or effect and the
Holder's rights under the Warrant shall be automatically terminated.
9. CLOSING OF BOOKS
The Company will at no time close its transfer books against the
transfer of this Warrant or of any shares of Common Stock issued or issuable
upon the exercise of this Warrant.
10. NO VOTING RIGHTS
This Warrant shall not entitle the Holder hereof to any voting rights
or other rights as a stockholder of the Company. All rights of the Holder are
limited to those expressed herein.
11. NO IMPAIRMENT
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at any times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
Holder against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such
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authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
12. GOVERNING LAW
This Warrant shall be deemed to be a contract made under the laws of
the State of New York and for all purposes shall be governed by and constituted
in accordance with the laws of such state applicable to contracts made and to be
performed entirely within such state.
13. REMEDIES
The Company stipulates that the remedies at law of the Holder of this
Warrant in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate and that, without limiting any other remedy available at
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof. The rights and remedies of the Holder are
cumulative and not exclusive of any rights or remedies which the Holder might
otherwise have.
14. NOTICES
Notices and all other communications provided for herein shall be in
writing and shall be delivered personally to an office of the Company, or sent
by certified mail return receipt requested, or by overnight delivery service
such as Federal Express. Any such notice shall be deemed given when so delivered
personally or, if mailed, five days after the date of deposit in the United
States mail. In the case of the Company, such notices and communications shall
be addressed to the Company at 136 Madison Avenue, New York, New York 10016,
Attention: President. All notices and other communications of the Company to the
Holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the last address of record of the Holder furnished to
the Company.
15. CHANGE; WAIVER
Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought. No failure or delay of the Holder in exercising any power
or right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. No notice
or demand on the Company in any case shall entitle the Company to any other or
further notice or demand
C - 13
<PAGE> 112
in similar or other circumstances.
16. COVENANTS TO BIND SUCCESSOR AND ASSIGNS
The terms of this Warrant shall bind the successors and permitted
assigns of the Holder and the Company.
17. SEVERABILITY
In case any one or more of the provisions contained in this Warrant
shall be invalid, illegal or unenforceable in any respect, the validity,
legality or enforceability of the remaining provisions contained herein shall
not in any way be affected or impair thereby. The parties shall endeavor in good
faith negotiations to replace the invalid, illegal or unenforceable provisions
with valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
18. HEADINGS
The headings of this Warrant are for purposes of convenience of
reference only, and shall not be deemed to constitute a part hereof.
19. EXPIRATION
This Warrant will be wholly void and of no effect after 5:00 P.M., New
York City local time, on September 1, 2001, provided that, if the last day on
which this Warrant may be exercised shall be a Sunday or a legal holiday or a
day on which banking institutions doing business in the State of New York are
authorized by law to close, this Warrant may be exercised prior to 5:00 P.M.,
New York City local time, on the next succeeding full Business Day in the State
of New York, with the same force and effect, and at the same purchase price, as
if exercised on such last day specified herein.
20. AGENT FOR SERVICE
The Company hereby irrevocably appoints Graubard Mollen & Miller, 600
Third Avenue, New York, NY 10016, as its agent for service of process to receive
process on its behalf from any Holder of this Warrant or from any Holder of the
Common Stock purchased on exercise of this Warrant.
21. CERTAIN DEFINITIONS
Certain capitalized terms used herein shall have the following
meanings:
"Business Day" means (a) if any class of Common Stock
is listed or admitted to trading on a national securities
exchange, a day on which the principal
C - 14
<PAGE> 113
national securities exchange on which such class of Common
Stock is listed or admitted to trading is open for business,
or (b) if no class of Common Stock is so listed or admitted to
trading, a day on which any New York Stock Exchange member
firm is open for business.
"Closing Price" means, on any Business Day with
respect to the per share price of Common Stock, the last
reported sales price regular way or, in case no such reported
sale takes place on such Business Day, the average of the
reported closing bid and asked prices regular way on the
principal national securities exchange on which the Common
Stock is listed or admitted to trading on any national
securities exchange, on the Nasdaq Stock Market National
Market System or the Nasdaq SmallCap Market system, as the
case may be (collectively, "NASDAQ"), or, if the Common Stock
is not listed or admitted to trading on any national
securities exchange or quoted on NASDAQ, the closing bid price
in the over-the-counter market as furnished by any New York
Stock Exchange member firm that is selected from time to time
by the Company for that purpose.
"Fair Market Value" means the fair market value of
the business or property in question, as determined in good
faith by the Board of Directors of the Company, provided,
however, that the Fair Market Value of any security for which
a Closing Price is available shall be the Market Price of such
security.
"Market Price" with respect to any security on any
day means the average of the daily Closing Prices of a share
or unit of such security for the 20 consecutive Business Days
ending on the most recent Business Day for which a Closing
Price is available.
22. HEADINGS
The headings of this Warrant are for purposes of convenience of
reference only, and shall not be deemed to constitute a part hereof.
Dated:
MOVIE STAR, INC.
By:____________________________________
President
By:____________________________________
(Assistant) Secretary
C - 15
<PAGE> 114
ATTEST:
______________________________
C - 16
<PAGE> 1
OFFERING CIRCULAR
MOVIE STAR, INC.
EXCHANGE OFFER
TO CERTAIN HOLDERS OF ITS
12.875% SUBORDINATED DEBENTURES DUE OCTOBER 1, 2001
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON FRIDAY,
OCTOBER 25, 1996, UNLESS EXTENDED.
THE SECURITIES OFFERED BY THIS OFFERING CIRCULAR INVOLVE A
HIGH DEGREE OF RISK. SEE "CERTAIN RISK FACTORS AND OTHER
CONSIDERATIONS."
THIS EXCHANGE OFFER IS LIMITED TO THOSE HOLDERS OF 12.875% SUBORDINATED
DEBENTURES DUE OCTOBER 1, 2001 (THE "OLD DEBENTURES") WHO HERETOFORE EXECUTED
AND DELIVERED TO MOVIE STAR, INC. WRITTEN COMMITMENTS TO EXCHANGE AND IS
EXPRESSLY NOT MADE TO ANY OTHER HOLDERS OF THE OLD DEBENTURES.
- ------------------------------------------------------------
Movie Star, Inc.. ("Movie Star" or the "Company") hereby offers upon the
terms and subject to the conditions set forth in this Offering Circular and the
accompanying Letter of Transmittal (together, the "Exchange Offer"), to exchange
for $10,187,000 aggregate principal amount of its Old Debentures the following
securities of the Company:
FOR EACH $1,000 THE EXCHANGING HOLDER OF
PRINCIPAL AMOUNT OF OLD DEBENTURES WILL RECEIVE
12.875% Subordinated
Debentures due
October 1 2001....... $1,036.44 principal amount 8%
Senior Notes due September 1 , 2001
("8% Senior Notes"); and
$70.51 principal amount 8%
Convertible Senior Notes (the
"Convertible Notes"). The 8% Senior
Notes and the Convertible Notes are
hereinafter referred to
collectively as the "New Notes."
- --------------------------------------------------------------------------------
THE DATE OF THIS OFFERING CIRCULAR IS SEPTEMBER 13, 1996
<PAGE> 2
RECENT DEVELOPMENTS; PURPOSE OF THE EXCHANGE OFFER
Since fiscal 1993, the Company has incurred losses from its operations.
During the nine months ended March 31, 1996, the Company incurred losses from
operations of $4,258,000. The Company has incurred further losses from
operations in the quarter ended June 30, 1996, although the amount of such
losses has not yet been determined.
Based on Management's projections, the Company will not generate
sufficient earnings from operations to make the October 1, 1996 interest and
sinking fund payment due under the Indenture for the Old Debentures. THE
EXCHANGE OFFER IS BEING MADE WITH THE VIEW THAT, IF SUCCESSFUL, THE CASH
INTEREST OBLIGATIONS OF THE COMPANY ON THE OLD DEBENTURES WOULD BE REDUCED AND
THE SINKING FUND PAYMENTS UNDER THE OLD DEBENTURES WOULD BE ELIMINATED UNTIL
OCTOBER 1999, THEREBY SUBSTANTIALLY DECREASING THE RISK THAT THE COMPANY WILL
DEFAULT ON ITS OUTSTANDING INDEBTEDNESS. If the Exchange Offer is not
successful, the Company will attempt to use its short-term credit facility to
make the payment of interest that was deferred in April 1996 and the interest
and sinking fund payments due in October 1996 on the Old Debentures, although no
assurance can be given that such credit facility will be available for that
purpose.
CONDITIONS TO CONSUMMATION
Consummation of the Exchange Offer is subject to a number of
conditions, most of which may be waived or modified by the Company. Among these
is the condition that all of the holders of Old Debentures who delivered written
commitments to the Company to exchange their Old Debentures representing an
aggregate in principal amount of not less than $10,187,000 (the "Commitments to
Exchange") of Old Debentures are tendered, which level, based on Management's
projections of cash flow, is the estimated acceptable amount necessary to be
exchanged to assist the Company to meet its obligations. Subject to such
conditions, the Company will accept all Old Debentures duly tendered for
exchange pursuant to the Commitments to Exchange. See "The Exchange Offer
- --Conditions of the Exchange Offer."
Consummation of the exchange offer will have material adverse
consequences for nonexchanging holders of Old Debentures. See "Consequences to
Non-Tendering Old Debenture Holders."
IRREVOCABILITY OF TENDERS
All tenders of Old Debentures will be irrevocable.
(ii)
<PAGE> 3
INTEREST ON NEW NOTES
Interest on the New Notes will begin to accrue as of October 1, 1996
and will be payable semi-annually commencing on April 1, 1997. INTEREST ON THE
NEW NOTES FOR THE PERIOD APRIL 1, 1996 THROUGH SEPTEMBER 30, 1996 HAS BEEN TAKEN
INTO ACCOUNT AND ADDED TO THE AGGREGATE PRINCIPAL OF THE NEW NOTES.
See "Certain Risk Factors and Other Considerations."
REDEMPTION OF NEW NOTES
The New Notes will be redeemable at the option of the Company at any
time, in whole or in part, at a price equal to 100% of their principal amount
plus accrued interest. The New Notes will not be subject to mandatory redemption
prior to maturity and the Company will not be required to make any sinking fund
payments with respect thereto.
CONVERSION OF NEW NOTES
Up to $718,406 in principal amount of the New Notes will, at any time
from the Closing Date to September 1, 2001, be convertible into shares of Common
Stock at the option of the holder at a Conversion Price of $0.375 per share of
Common Stock, subject to adjustment in certain circumstances.
RANKING OF NEW NOTES AND OLD DEBENTURES
By their terms, the New Notes are intended to rank senior in right of
payment to the $12,263,000 in principal amount of Old Debentures which will
remain outstanding. The New Notes are unsecured. Unless there are other
unencumbered assets which could be liquidated, secured indebtedness of the
Company would be repaid from the proceeds of the liquidation of those assets of
the Company securing such indebtedness before the New Notes are repaid. As of
June 30, 1996, approximately $11,500,000, including approximately $4,000,000 in
open Letters of Credit, of the Company's liabilities ranked senior to the Old
Debentures and approximately $4,000,000 in open Letters of Credit would have
ranked senior to the New Notes had the New Notes been issued at that date and
approximately $7,500,000 would have ranked pari passu with the New Notes.
ACCRUED INTEREST ON OLD DEBENTURES
The Company will not pay interest accrued on Old Debentures that are
tendered and accepted in the Exchange Offer. The amount of such accrued interest
has been taken into
(iii)
<PAGE> 4
account and added to the aggregate principal amount of the New Notes.
Accordingly, holders of Old Debentures exchanging them in the Exchange Offer
will be deemed to have waived all rights with respect to the cash payment of any
accrued interest. On April 10, 1996, the Company made the interest payment on
the Old Debentures that was due on April 1, 1996 to holders who did not execute
and deliver to the Company Commitments to Exchange.
MARKET AND TRADING INFORMATION
The Company's Common Stock and the Old Debentures are each listed and
traded on the American Stock Exchange ("AMEX") but the New Notes will not be so
listed or traded. The Company does not currently meet the requirements for
continued listing on the AMEX. There can be no assurance that the Common Stock
or the Old Debentures will continue to be listed, as listing is subject to the
discretion of the AMEX.
If the New Notes trade publicly after issuance, they are likely to do
so at a substantial discount from their face value. As a result of the
substantial number of shares that may be issued upon conversion of the New
Notes, there can be no assurance as to the prices at which shares of Common
Stock may be traded.
(iv)
<PAGE> 5
-------------------------
NEITHER THIS TRANSACTION NOR THE SECURITIES
OFFERED HEREBY HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS
THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF THIS TRANSACTION, OR UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-------------------------
The Exchange Offer is being made by the Company in reliance on the
exemption from the registration requirements of the Securities Act of 1933, as
amended, afforded by Section 3(a)(9) thereof. The Company will not pay any
commission or other remuneration to any broker, dealer, salesman or other person
for soliciting tenders of Old Debentures.
The Company has made no arrangements for and has no understanding with
any dealer, salesman or other person regarding the solicitation of tenders
hereunder, and no person has been authorized to give any information or to make
any representation not contained in this Offering Circular in connection with
the Exchange Offer, and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company or any other
person. The delivery of this Offering Circular shall not, under any
circumstances, imply that the information herein is correct at any time
subsequent to the date hereof.
This Offering Circular does not constitute an offer to any person in
any jurisdiction in which that offer would be unlawful, and the Company will not
accept tenders from holders of Old Debentures in any jurisdiction in which such
acceptance would not be in compliance with the securities or blue sky laws of
such jurisdiction.
EXCHANGE AGENT AND ASSISTANCE
American Stock Transfer & Trust Company is the Exchange Agent in
connection with the Exchange Offer. For further information regarding the
Exchange Offer, holders of Old Debentures may contact the Exchange Agent at 40
Wall Street, New York, New York 10005, Attention: Bond Department, telephone:
(718) 921-8200. Holders of Old Debentures requiring additional information or
assistance may contact Saul Pomerantz, Senior Vice President and Chief Financial
Officer of the Company, at 136 Madison Avenue, New York, New York 10016,
telephone: (212) 684-3400.
(v)
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Information as of particular dates concerning the Company's
directors and officers, their remuneration, options granted to officers,
principal holders of securities and any material interest of such persons in
transactions with the Company is disclosed in such reports filed with the
Commission. These reports and other information are available for inspection and
copying at prescribed rates at the public reference facilities of the Commission
maintained at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, New York, New York 10048. The
Common Stock and the Old Debentures are listed on the AMEX. Such reports, proxy
statements and other information concerning the Company may also be inspected
and copied at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006. Such material may also be obtained from the Company upon
request at 136 Madison Avenue, New York, New York 10016, Attention: Saul
Pomerantz, Senior Vice-President and Chief Financial Officer.
The Company has also filed with the Commission an application on Form
T-3 under the Trust Indenture Act of 1939 which contains additional information
concerning the Indenture pursuant to which the New Notes are to be issued (the
"New Indenture"). Such document and any amendments thereto may be examined and
copies may be obtained from the Commission in the manner set forth above. Copies
of the New Indenture and of the Indenture pursuant to which the Old Debentures
were issued (the "Old Debenture Indenture") are available upon request from the
Company, Attention: Saul Pomerantz, Senior Vice-President and Chief Financial
Officer, at 136 Madison Avenue, New York, New York 10016, telephone: (212)
684-3400.
(vi)
<PAGE> 7
TABLE OF CONTENTS
Page
----
SUMMARY.................................................................. 1
The Company..................................................... 1
Recent Developments............................................. 1
Purpose and Effects of the Exchange Offer....................... 2
The Exchange Offer.............................................. 3
SUMMARY OF TERMS OF NEW NOTES AND OLD DEBENTURES.........................
8
BACKGROUND OF THE EXCHANGE OFFER . . . . . . . . . . . . .
CERTAIN RISK FACTORS AND OTHER CONSIDERATIONS............................ 15
Financial Condition............................................. 19
Certain Consequences to Exchanging 19
Debenture Holders.............................................. 20
Dividend Restrictions........................................... 21
Market for Common Stock, Old Debentures
and New Notes.................................................. 21
Certain Bankruptcy Considerations............................... 22
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER................................ 23
CONSEQUENCES TO NON-TENDERING OLD DEBENTURE HOLDERS...................... 24
THE EXCHANGE OFFER....................................................... 25
General......................................................... 25
Expiration Date; Extensions..................................... 26
Procedures for Tendering........................................ 26
Irrevocability of Tenders....................................... 29
Acceptance of Old Debentures for Exchange;
Delivery of New Notes.......................................... 29
Accrued Interest................................................ 30
Conditions of the Exchange Offer................................ 30
Transfer Taxes.................................................. 31
Exchange Agent.................................................. 31
Payment of Expenses............................................. 32
Board Approval.................................................. 32
CAPITALIZATION (Unaudited)............................................... 33
SELECTED HISTORICAL AND PROFORMA FINANCIAL DATA.......................... 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 35
Overview........................................................ 35
Results of Operations........................................... 36
Quarter Ended March 31, 1996 Compared
To Quarter Ended March 31, 1995 ............................... 36
(vii)
<PAGE> 8
Nine Months Ended March 31, 1996 Compared to Nine
Months Ended March 31, 1995.................................... 36
Liquidity and Capital Resources.......................................... 37
BUSINESS OF THE COMPANY.................................................. 40
Business........................................................ 40
MANAGEMENT AND DIRECTORS................................................. 43
Remuneration and Other Transactions
with Management ............................................... 45
VOTING SECURITIES........................................................ 47
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................ 48
FEDERAL INCOME TAX CONSEQUENCES OF ACCEPTANCE
OF THE EXCHANGE OFFER .................................................. 50
Taxable Exchange................................................ 50
FEDERAL INCOME TAX CONSEQUENCES OF HOLDING THE
NEW NOTES .............................................................. 51
Original Issue Discount On The New Notes........................ 51
Stated Interest................................................. 52
Sale, Exchange, Redemption or Disposition
of the New Notes............................................. 52
Adjusted Tax Basis.............................................. 52
Holding Period.................................................. 52
Redemption of the New Notes..................................... 52
Warrants Issued Upon Redemption of the
Convertible Notes............................................ 53
Election........................................................ 53
Exercise of Conversion Rights................................... 53
Dividends....................................................... 54
Sale of Common Stock............................................ 54
Adjustments in Conversion Ratio ................................ 54
Information Reporting and Backup Withholding.................... 55
FEDERAL INCOME TAX CONSEQUENCES TO NON-TENDERING
HOLDERS OF OLD DEBENTURES .............................................. 55
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY........................... 55
Applicable High Yield Discount Obligation
Rules and Deduction of Interest and OID.......................... 55
Cancellation of Indebtedness Income ............................. 56
DESCRIPTION OF NEW NOTES................................................. 57
General......................................................... 57
Payment and Transfer............................................ 58
Interest........................................................ 58
Conversion of the Convertible Notes............................. 58
Redemption...................................................... 60
Optional Redemption............................................ 60
Mandatory Redemption........................................... 60
(viii)
<PAGE> 9
Notice of Redemption and Selection of
New Notes Called for Redemption............................... 60
Certain Covenants............................................... 61
Limitation on Dividends and Purchases of
Capital Stock or Indebtedness................................. 61
Limitation on Restriction of Payment of Dividends
by Subsidiaries of the Company................................ 62
Subordination................................................... 62
Events of Default............................................... 62
Discharge of New Indenture...................................... 63
Amendments and Waivers.......................................... 63
The New Trustee................................................. 64
DESCRIPTION OF COMMON STOCK.............................................. 65
DESCRIPTION OF OLD DEBENTURES............................................ 65
General ........................................................ 66
Optional Redemption ............................................ 66
Mandatory Sinking Fund.......................................... 67
Subordination .................................................. 67
Certain Covenants .............................................. 69
Successor Company .............................................. 70
Defaults and Certain Rights on Default.......................... 71
Amendment, Supplement and Waiver................................ 72
Satisfaction and Discharge of Indenture......................... 73
Concerning the Trustee.......................................... 73
MARKET PRICES OF COMMON STOCK AND OLD DEBENTURES......................... 73
Common Stock Prices (Per Share)................................. 73
Old Debenture Prices (Per $1,000 Old Debenture)................. 74
(ix)
<PAGE> 10
SUMMARY
The following is a summary of certain features of the Exchange Offer
and other matters. All statements contained herein are qualified in their
entirety by reference to the more detailed information and financial statements,
including the notes thereto, set forth elsewhere in this Offering Circular.
THE COMPANY
Movie Star is principally engaged in the design, manufacture, import
and sale of ladies' sleepwear, robes, leisurewear, loungewear and daywear and
also operates retail outlet stores under the name Movie Star Factory Stores. The
Company's products consist of ladies' pajamas, nightgowns, baby dolls,
nightshirts, dusters, shifts, sundresses, rompers, short sets, beachwear,
peignoir ensembles, robes, leisurewear, panties, and daywear consisting of
bodysuits, soft bras, slips, half-slips, teddies and camisoles. These products
are manufactured in various fabrics, designs, colors and styles depending upon
seasonal requirements, changes in fashion and customer demand.
RECENT DEVELOPMENTS
As a result of consolidations in the retail industry, the high cost of
domestic manufacturing and difficulties the Company has encountered in sourcing
raw materials, engaging reliable offshore contractors and obtaining finished
products from overseas, the Company has experienced a loss of sales to certain
of its customers.
In its efforts to stem its losses and return to profitability, the
Company has undertaken a number of cost-saving measures, including the
integration of various operating functions. Management is continuing its efforts
to reduce its costs, particularly those associated with overhead and
administration. The Company is also concentrating its merchandising in those
lines and styles that are potentially more profitable. As a result of the
consolidation of various operational functions during fiscal year 1996, the
Company significantly reduced its New York management and staff workforce and
consolidated its New York headquarters operations from three floors into one,
with a consequent annualized reduction in expenses in excess $2,000,000.
The Company has recently concluded arrangements with a New York City
financial institution for a secured line of credit through April, 1998 in a
maximum amount of $13,500,000 to provide financing for its working capital needs
and import operations.
1
<PAGE> 11
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER
The principal purpose of the exchange offer is to reduce the Company's
cash interest payment requirements on the Old Debentures and eliminate until
October 1999 the sinking fund payments under the Old Debentures. Upon completion
of the Exchange Offer, cash debt service requirements on the outstanding
principal amount of the Old Debentures and New Notes will be reduced by
approximately $656,000 for fiscal year 1996, by approximately $1,983,000 for
fiscal year 1997, by approximately $3,764,000 for fiscal year 1998, by
approximately $3,281,000 for fiscal year 1999 and by approximately $681,000 for
fiscal year 2000. These reductions will result from a combination of the lower
interest rate on the New Notes and the deferral of sinking fund principal
payments under the Old Debentures until fiscal year 2000. The Company believes
this will enable it to take advantage of its restructured business operations
and pursue those areas which offer the greatest potential for profitability.
The Company has projected that, if the Exchange Offer is not
successfully completed, available cash flow will not be sufficient to meet the
Company's interest and sinking fund obligations on the Old Debentures and would
thus result in the Company's being in default thereunder. In such event, the
Company will examine the options available to it.
Because of the substantial number of shares of Common Stock that may be
issued upon conversion of a portion of the New Notes, there can be no assurance
as to the prices at which the Common Stock may be traded.
See "Selected Historical and Pro Forma Financial Data."
2
<PAGE> 12
THE EXCHANGE OFFER
Exchange Ratio .............. For each $1,000 principal
amount of 12.875% Subordinated
Debentures due October 1, 2001,
("Old Debentures"), the
exchanging Old Debenture holder
will receive:
8% Senior Note due September 1,
2001 in the principal amount
of $1,036.44 and 8% Convertible
Senior Note in the
principal amount of $70.51.
Expiration Date ............. 5:00 P.M., New York City time,
on Friday, October 25, 1996,
subject to the Company's right
to extend the Exchange Offer
(such date, as the same be
extended, the "Expiration
Date").
Accrued Interest ............ Interest accrued in respect of
the Old Debentures tendered in
the Exchange Offer has been
taken into account and added to
the aggregate principal of the
New Notes. Holders of the Old
Debentures who did not deliver
to the Company written
Commitments to Exchange
received interest in accordance
with the terms of the Old
Debentures.
Terms of New Notes .......... See "Summary of Terms of New
Notes and Old Debentures."
Conditions of the Exchange
Offer ....................... The consummation of the
Exchange Offer is subject to
certain conditions, most of
which may be waived or modified
by the Company.
Consequences to Non-
Tendering Holders ........... The reduced amount of
outstanding Old Debentures as a
3
<PAGE> 13
result of the Exchange Offer
may limit the trading market
for such securities and may
adversely affect their
liquidity and market price.
Furthermore, application of
tendered Old Debentures to
fulfill sinking fund
payment obligations will
significantly extend the
average life of a portion
of the untendered Old
Debentures. Upon
consummation of the
Exchange Offer, the Company
will not be obligated to
make any cash sinking fund
payments on these Old
Debentures prior to October
1, 1999. In addition, the
New Notes will rank senior
in right of payment to, and
have earlier maturities
than, the Old Debentures
which will remain
outstanding. See
"Consequences to
Non-Tendering Old Debenture
Holders."
Risk Factors ................ The Exchange Offer involves a
high degree of risk both with
respect to the Company and the
terms of the New Notes. The
Company has not been profitable
for over the past 3 years.
There can be no assurance that,
even if the Exchange Offer is
successful, the Company will be
able to generate enough funds
to meet its obligations.
Holders of the New Notes will
waive their right to receive a
cash payment of interest on the
Old Debentures from October 1,
1995 to March 31, 1996. Such
interest on the Old Debentures
together with interest on the
New Notes for the period April
1, 1996 through September 30,
1996, has been taken into
account and added to the
aggregate principal of the New
Notes. There can also be no
assurance that the Old
Debentures and Common Stock
will continue to be listed on
the AMEX. See "Certain Risk
4
<PAGE> 14
Factors and Other
Considerations." The Exchange
Offer also involves certain
risks to the Company with
respect to its net operating
loss carryovers. See "Certain
Federal Income Tax
Considerations."
How to Tender ............... A holder of Old Debentures who
executed and delivered a
Commitment to Exchange
("Committed Debentureholders")
and who is tendering pursuant
to the Exchange Offer should
either (a) complete the
accompanying Letter of
Transmittal and forward it with
certificate(s) representing Old
Debentures and any other
required documents to the
Exchange Agent, or (b) request
a broker or bank to effect the
transaction for him. The
holder of Old Debentures
registered in the name of a
broker, dealer, bank, trust
company or other nominee should
instruct such institution to
tender certificate(s)
representing Old Debentures on
his behalf. Certain financial
institutions may also effect
tenders by book-entry delivery.
See "The Exchange Offer;
Procedures for Tendering" and
the Letter of Transmittal.
Letters of transmittal for old
debentures should be sent to
the exchange agent and should
not be sent to the company or
the trustee.
Irrevocability of Tenders ... Tenders of the Old Debentures
will be irrevocable and may not
be withdrawn by the holders
thereof.
Acceptance of Old
Debentures and Delivery
of New Notes ............... Subject to the conditions of
the Exchange Offer, and to the
5
<PAGE> 15
Company's right to withdraw the
Exchange Offer, the Company
will accept any and all Old
Debentures duly tendered by
Committed Debentureholders
prior to 5:00 P.M., New York
City time, on the Expiration
Date. New Notes will be
delivered in exchange for Old
Debentures accepted in the
Exchange Offer as soon as
practicable after acceptance
thereof, but in any event not
before receipt by the Exchange
Agent of the certificates
representing the tendered Old
Debentures.
Federal Income Tax
Consequences ............... For a discussion of certain
federal income tax
consequences, including the
possible effect of the Exchange
Offer on the Company's net
operating loss carryovers, see
"Certain Federal Income Tax
Considerations."
Exchange Agent .............. American Stock Transfer & Trust
Company, Attn: Bond Department,
40 Wall Street, New York, New
York 10005, (718) 921-8200.
Common Stock ................ There are 30,000,000 shares of
Common Stock authorized for
issuance, of which 13,959,000
were issued and outstanding on
June 30, 1996.
Market and Trading
Information ................. The Common Stock (symbol: MSI)
and the Old Debentures (symbol:
MSIA) are each listed on the
American Stock Exchange
("AMEX").
The Company will not apply to
the AMEX or any other national
or regional exchange for
listing of the New Notes.
There can be no assurance that
an established market for the
New Notes will develop or as to
the price at which they might
6
<PAGE> 16
be traded. If the New Notes
trade publicly after issuance,
they are likely to do so at a
substantial discount from their
face value. Even though the
Old Debentures are listed on
the AMEX, they do not trade
frequently and quotations may
be difficult to solicit. The
Company presently does not meet
the criteria for continued
listing of its securities on
the AMEX and there can be no
assurance that its securities
will continue to be listed.
7
<PAGE> 17
SUMMARY OF TERMS OF NEW NOTES AND OLD DEBENTURES
The following tables compare the principal features of the O1d
Debentures with those of the New Notes to be offered in exchange therefor in the
Exchange Offer. Such comparisons are summaries which do not purport to be
complete and are qualified in their entirety by reference to the New Notes and
Old Debentures and to the indentures setting forth the terms of the New Notes
and the Old Debentures. For further details, see "Description of New Notes" and
"Description of Old Debentures." Certain defined terms (e.g., "Senior
Indebtedness") may have definitions with respect to the Old Debentures that are
different from their definitions with respect to the New Notes.
<TABLE>
<CAPTION>
Old Debentures New Notes
-------------- ---------
<S> <C> <C>
Aggregate $10,558,094 (non-convertible)
Principal
Amount....... 718,406 (convertible)
-----------
$22,450,000. $11,276,500
Interest
Rate......... 12.875% per annum. 8% per annum.
Interest
Payment
Dates........ Semi-annually on Semi-annually on April 1
April 1 and October and October 1 of each year,
1 of each year. commencing April 1, 1997.
Maturity..... October 1, 2001. September 1, 2001.
Form of
Interest..... Cash. Cash.
</TABLE>
8
<PAGE> 18
<TABLE>
<CAPTION>
Old Debentures New Notes
-------------- ---------
<S> <C> <C>
Modifications With certain Same (except substitute
and exceptions, the "New Notes" for "Old
Waivers...... rights of the Debentures").
Company and the
rights of holders
may be modified by
the Company and the
Old Debenture Trustee
only with the consent
of the holders of not
less than a majority
of the aggregate
principal amount then
outstanding; but no
modification in the
terms of payment of
the principal of, or
premium, if any, or
interest on the Old
Debentures or
reduction of the
percentage required
for modification will
be effective against
any holder without
his consent.
</TABLE>
9
<PAGE> 19
<TABLE>
<CAPTION>
Old Debentures New Notes
-------------- ---------
<S> <C> <C>
Mandatory Annual sinking fund No sinking fund payments
Payments..... payments payable on are payable in connection
October 1 of each with New Notes and the New
year commencing Notes are not subject to
October 1, 1996 mandatory redemption.
sufficient to
retire $3,750,000
of the principal
amount of the Old
Debentures if
outstanding and not
otherwise redeemed
or acquired by the
Company, at a
redemption price
equal to the
principal amount of
the Old Debentures
redeemed, together
with accrued
interest thereon(1).
</TABLE>
- -------------------------
(1) Upon consummation of the Exchange Offer, the Company will have acquired
a sufficient amount of Old Debentures so that no sinking fund payments
will be required until October 1, 1999.
10
<PAGE> 20
Old Debentures New Notes
-------------- ---------
Optional Currently The 8% Senior Notes are
Redemption... redeemable, at the redeemable, at the option
option of the of the Company, in whole or
Company, in whole in part, at any time, at
or in part, at any 100% of principal amount
time, at 103.56% of plus accrued interest. The
principal amount, Convertible Notes are
plus accrued redeemable, at the option
interest if of the Company, in whole or
redeemed prior to in part, at any time, at
October 1, 1996; at 100% of principal amount,
102.67% of plus accrued interest, upon
principal amount, not less than thirty and
plus accrued not more than forty-five
interest if days' prior written notice
redeemed prior to to the New Indenture
October 1, 1997; at Trustee (the "Redemption
101.78% of Notice Period"); provided
principal amount, that, under certain
plus accrued circumstances specified in
interest if the New Indenture, the
redeemed prior to Company may not exercise
October 1, 1998; at such right to redeem
100.89% of Convertible Notes while any
principal amount, of the 8% Senior Notes
plus accrued remain outstanding and
interest if unless (1) the shares of
redeemed prior to Common Stock into which the
October 1, 1999; Convertible Notes may be
and at 100% of converted have been
principal amount, registered, (2) there is a
plus accrued currently effective
interest if Registration Statement
redeemed after covering those shares of
October 1, 1999. Common Stock, and (3) if
the market price of such
shares of Common Stock
is below a specified price,
the Company has issued
warrants to purchase such
shares to the holders of
the redeemed Convertible
Notes.
Ranking...... Subordinate to Senior to Old Debentures.
Senior Indebtedness
(as defined) (which
includes the New
Notes).
11
<PAGE> 21
Old Debentures New Notes
-------------- ---------
Limitation on The Company shall Same (except substitute
Dividends and not declare or pay "New Notes" for "Old
Purchases of any dividend or Debentures").
Capital Stock....... make any
distribution on its
capital stock or to
its shareholders
(other than dividends
or distributions
payable in capital
stock of the Company)
or make a redemption
of shares of stock in
exchange for or out of
the proceeds of the
sale of other shares
of the Company's
capital stock (i) if
at the time of such
action the Company is
in default on the
payment of interest on
the Old Debentures or
while any other
default under the Old
Debenture Indenture
shall have occurred
and be continuing, or
(ii) if the aggregate
amount that would be
expended therefor
would exceed certain
specified amounts.
Limitation on None. None.
Future In-
debtedness...
12
<PAGE> 22
Old Debentures New Notes
-------------- ---------
Consolidation, The Company will Same (except substitute
Merger or Sale not consolidate or "New Notes" for "Old
of Assets Re- merge with another Debentures").
striction.... company or sell or
lease all or
substantially all of
its property unless
(a) immediately after
such consolidation,
merger, sale,
conveyance or lease
the surviving company
is not in default
under the Old
Debenture Indenture,
(b) the surviving
company is a United
States corporation,
and (c) payment of
principal and interest
on the Old Debentures
and the performance of
the Company's
obligations under the
Old Debenture
Indenture shall have
been assumed by the
surviving corporation
by executing a
supplemental indenture
to the Old Debenture
Indenture in
compliance with the
procedures and
requirements thereof.
Limitation on None. None.
the Issuance of
Certain
Indebtedness..
13
<PAGE> 23
Old Debentures New Notes
-------------- ---------
Events of Failure to pay Same (except substitute
Default...... interest when due "New Notes" for "Old
and such failure Debentures").
continues for a
period of 10 days;
failure to pay
principal when due;
failure to make any
sinking fund
installment payment
when due; breach of
any covenant where
such breach
continues for a
period of 30 days
after written
notice is given to
the Company; a
default on and
acceleration of
payment of any
Indebtedness in
excess of $250,000
of the Company; or
certain events of
bankruptcy or
insolvency.
General None. At the option of the
Conversion... holder, the Convertible
Notes are
convertible at
any time into
shares of Common
Stock at a
conversion price
of $0.375 per
share (subject
to adjustment
under certain
circumstances).
Mandatory
Conversion... None. None.
14
<PAGE> 24
BACKGROUND OF THE EXCHANGE OFFER
Commencing in January 1995, the Company began the process of
investigating various alternatives to restructure its subordinated debt. The
Company consulted with two different investment banking firms with expertise in
debt restructurings. However, in November 1995, the Company decided to proceed
to accomplish the necessary restructuring without the assistance of a financial
advisor. The decision to proceed without an independent financial advisor was
based, in part, on the fact that a substantial portion of the Company's
subordinated debt was concentrated in the hands of one holder, Riverside Capital
Advisers, Inc. ("Riverside"), who had already approached the Company to explore
restructuring the Old Debentures held by it and had expressed a strong
preference for dealing directly with the Company rather than through an
investment banker or financial advisor representative.
Among the restructuring possibilities considered by the Company's
management were a cash tender offer or exchange offer for all or a portion of
the outstanding subordinated debt, a consent solicitation seeking substantial
amendments to the Indenture governing the Old Debentures and protection under
the Federal Bankruptcy Code. In view of the substantial portion of the Old
Debentures held by Riverside, the Company concluded there was very little
likelihood for the successful completion of a tender offer, exchange offer or
consent solicitation without the participation or acquiescence of Riverside.
Accordingly, the Company determined that a meaningful restructuring could only
be accomplished through negotiation with Riverside and decided to take advantage
of the overtures from Riverside in an effort to avoid seeking protection under
the Bankruptcy Code.
In October 1995, representatives of the Company met with Glenn
Koach and Tom Ryan of Riverside. The meeting was called at the request of
Riverside for the purposes of informing the Company of Riverside's concerns
about the financial condition of the Company and advising the Company of
Riverside's interest in assisting the Company in its efforts to achieve fiscal
stability.
Following that meeting, numerous additional discussions were conducted
between representatives of the Company and Riverside. Throughout the period
between mid-November 1995 and the end of January 1996, Riverside and the Company
exchanged and considered several ideas to restructure the Company's subordinated
indebtedness. The Riverside proposals were limited to the Old Debentures held by
it. The
15
<PAGE> 25
Company was primarily interested in finding ways to restructure all of the Old
Debentures.
On February 5, 1996, the Company retained special counsel, to advise
the Company with respect to the various legal alternatives for restructuring its
Old Debentures.
Between February 5, 1996, and March 5, 1996,the Company's Chairman of
the Board, Mark M. David, and the Company's attorneys conducted several
face-to-face meetings and participated in telephone conference calls with Glenn
Koach and an attorney representing Riverside. In the course of these meetings
and conference calls the Company's representatives maintained that a
restructuring involving only the Old Debentures held by Riverside was not
acceptable to the Company and Mr. David continued to express the Company's
preference for a consensual restructuring involving all of the Company's Old
Debentures. Mr. Koach reiterated that Riverside was not interested in
participating in such a transaction. However, in order to accomplish a
negotiated transaction which would provide the Company with sufficient relief
from the burden of its subordinated debt, both parties modified their positions.
The Company proposed a restructuring of approximately 53% of the Old Debentures
and Riverside agreed to undertake efforts to gain the participation of
additional holders of Old Debentures to meet the Company's proposal.
Throughout the period commencing with the Riverside meeting in October
1995 through the present, the Company did not initiate any contact with the
holders of Old Debentures. When contacted by holders of Old Debentures, Company
personnel referred them to the Company's publicly announced statements.
On March 5, 1996, the results of the discussions with Riverside were
presented by the Company's management at a meeting of the Company's Board of
Directors. Management presented to the Board several alternative financial
models for a restructuring of the Old Debentures, reflecting scenarios based on
differing principal amounts of Old Debentures being restructured at several
alternative rates of interest. Special restructuring counsel to the Company
discussed the possible outcomes obtainable in the context of a reorganization
under the Bankruptcy Code.
At the March 5, 1996 meeting, the Directors reviewed the financial
models and asked questions of the Company's management with respect to the
sales, expenses and profits projected in the models for fiscal years 1997
through 2002.
The discussion then turned to an assessment of the Company's ability to
operate during the pendency of a
16
<PAGE> 26
Chapter 11 proceeding. All of the officers present at the meeting expressed the
view that it was unlikely the Company's customers and suppliers would support
the Company in a Chapter 11 reorganization, making it virtually impossible for
the Company to successfully reorganize and emerge as an operating entity. The
consensus of the officers of the Company was that shareholders' equity would
likely be eliminated in the event of the Company's liquidation and the holders
of the Company's subordinated debt were likely to only recover a small fraction
of their principal.
Based on an analysis of the financial models and the opinions expressed
by Management, the Board concluded there was an acceptable range within which
the Company could restructure only a portion of its Old Debentures and
determined that management should continue to negotiate with Riverside to
achieve the best terms possible for a partial restructuring of the Old
Debentures.
Based on the conclusions reached at the March 5, 1996 meeting, the
Company proposed a transaction in which $12,000,000 in principal amount of Old
Debentures would be exchanged for a new debt security to be senior to the Old
Debentures and bear interest at a rate of not more than eight per cent per
annum. The Company's attorneys informed Riverside's counsel that firm
commitments from the holders of Old Debentures to participate in the proposed
exchange had to be received by the Company prior to the next regularly scheduled
interest payment due under the Old Debentures on April 1, 1996. After consulting
with Riverside, Riverside's counsel responded that Riverside was prepared to
negotiate the terms of a partial restructuring within the parameters suggested
by the Company. The Company was also informed that Riverside would undertake to
obtain the participation of holders of at least $12,000,000 in principal amount
of Old Debentures.
Throughout the month of March 1996, Mr. David and the Company's
attorneys negotiated with Riverside concerning the detailed terms of a proposed
exchange of $12,000,000 of Old Debentures for a new senior unsecured debt
security in like principal amount. The new debt securities were to include the
right of the holders to convert up to $750,000 of the principal amount of the
debt into shares of the Company's common stock at a conversion price
approximately the then current market value of $0.375 per share, which would
result in the issuance of up to 2,000,000 shares upon conversion. In addition,
the Company agreed to Riverside's request that a designee of the holders
participating in the proposed exchange be appointed to the Company's Board of
Directors. The Company also agreed to pay the legal fees and disbursements of
counsel to the participating holders, related to the proposed exchange
transaction.
17
<PAGE> 27
At the end of March 1996, Riverside was encountering difficulty in its
attempts to acquire, or obtain the participation of the holders of, a sufficient
number of Old Debentures to constitute the $12,000,000 in aggregate principal
that had been proposed by the Company. The Company's attorney informed Mr. Koach
that firm commitments for participation in the proposed exchange had to be
received by the Company before April 10, 1996, which was the expiration of the
grace period for the next regularly scheduled interest payment on the Old
Debentures. Mr. Koach stated he would continue his efforts to obtain the minimum
participation required by the Company.
On April 1, 1996, the Company publicly announced it would not make the
interest payment due that day on the Old Debentures and that it would take
advantage of the ten day grace period for payment of the interest while it
continued to explore restructuring possibilities. Between March 28, 1996 and
April 5, 1996, Riverside informed the Company that it was able to obtain the
participation of the holders of $10,635,000 in principal amount of Old
Debentures, inclusive of the Old Debentures held by Riverside. On April 9, 1996,
Riverside's counsel informed the Company's attorneys that Riverside still had
not reached the $12,000,000 level of participation and requested that the
Company accept the lower amount. The Company responded by offering to accept the
lower amount in consideration for the right to make certain payments when they
become due in accordance with the Old Debenture even though such payments would
occur prior to payment in full of the indebtedness under the proposed new senior
debt security. Riverside agreed to the Company's condition and, at a meeting
held later that day, the Company's Board of Directors approved the terms of the
proposed transaction for the exchange of $10,635,000 of Old Debentures.
On April 9, 1996, Riverside delivered to the Company's counsel written
commitments from holders of Old Debentures aggregating the principal amount of
$10,635,000 in which the holders agreed to defer the receipt of interest due on
April 1, 1996 under their Old Debentures and to exchange their Old Debentures
for a new senior note on the terms agreed to between Riverside and the Company.
Following receipt of the written commitments, on April 10, 1996, the Company
publicly announced the proposed transaction and paid the interest due April 1,
1996 on the remaining Old Debentures not being exchanged in the proposed
transaction.
Subsequent to the Company's announcement of the proposed transaction,
the Company and Riverside were informed that one of the Old Debenture holders
who had executed and delivered a written commitment to exchange Old Debentures
in the principal amount of $488,000 no longer
18
<PAGE> 28
owned Old Debentures aggregating that principal amount and that only $40,000 in
principal amount of Old Debentures were owned by that holder. Upon being
informed of the discrepancy, Riverside undertook to find a replacement
participant for the $448,000 shortfall, but was not able to do so.
The Company and Riverside then entered into discussions for a further
modification of the terms of the proposed transaction to compensate for the
reduced principal amount participating in the proposed exchange.
Riverside and the Company ultimately agreed that the number of shares
into which a portion of the new notes could be converted would be reduced in
proportion to the reduced principal amount of participating Old Debentures and
the holders of the new debt security would be entitled to have a representative
attend all meetings of the Company's Board of Directors and Compensation
Committee, but that a designee would be appointed as a director only in the
event of a default by the Company under the new debt security.
CERTAIN RISK FACTORS AND OTHER CONSIDERATIONS
FINANCIAL CONDITION
The Company has incurred losses for the two years ended June 30, 1995
and the nine months ended March 31, 1996 and, as previously disclosed, and has
continued to suffer losses in fiscal 1996, although the amount of such losses
has not yet been determined. These losses are primarily due to the Company's
difficulties in sourcing its goods offshore, a more competitive market, the weak
retail climate for the Company's products and the fact that the Company has not
sufficiently reduced its overhead.
During the fiscal year ended June 30, 1996, the Company consolidated
and realigned its operations to reduce costs and create an organizational
structure that is more productive, effective and efficient. The Company has also
sought to implement better controls over its import operations and offshore
manufacturing and is attempting to improve gross profit margins and better
respond to the changing needs of the Company's customers on a short and
long-term basis. Additionally, the Company has closed and consolidated
domestic manufacturing facilities.
There can be no assurance that the cost reductions, operational
efficiencies and closer scrutiny of import operations will result in the
Company's return to profitability. As a result of this uncertainty, the Company
may in the future be required to seek additional sources of capital to meet its
obligations; and there can be no
19
<PAGE> 29
assurance that sources of additional capital will be available to the Company in
such event.
If the Exchange Offer is not completed, the Company intends to reduce
the required sinking fund payment of $3,750,000 due in 1996 on its outstanding
Old Debentures by delivering to the Trustee the $2,550,000 of Old Debentures
previously purchased by the Company. Based upon the Company's recent financial
results and the loss incurred by the Company in fiscal 1996, the Company does
not presently believe that its earnings will be sufficient to pay the interest
and principal due in October 1996. In addition, Management believes that without
significant improvements in sales and operating results, it is unlikely that
future sinking fund obligations in years after 1996 can be met.
In such event, the Company will have to rely on its short-term
financing to make the payment of interest that was deferred in April 1996 as
well as the sinking fund and interest payments due in October 1996. If the
Company does not have sufficient availability under its short-term financing for
the purpose of making these payments, the Company believes it will be able to
negotiate with its lender for additional availability by providing the lender
with certain additional collateral. There can be no assurance that the Company
will have sufficient availability under its short-term line of credit to make
sinking fund and interest payments in calendar year 1997 or, if available, that
the Company's lender will allow it to utilize the short-term line of credit for
such purposes or, if not available, that the Company will be able to negotiate
for any additional availability for that purpose. If the Company is unable to
utilize its short-term line to meet its sinking fund and interest payment
obligations in calendar year 1997, the Company will have to seek alternative
sources for the payment of such obligations, although no assurance can be given
that such an alternative source will exist. See "Management's Discussion and
Analysis of Financial Condition and Results of Oeprations."
CERTAIN CONSEQUENCES TO EXCHANGING DEBENTURE HOLDERS
Holders of Old Debentures whose Old Debentures are accepted for
exchange (the "Exchanging Debenture Holders") will receive a lower interest rate
on the New Notes than they otherwise would have received on their Old
Debentures.
Exchanging Debenture Holders will not receive a cash payment of
interest on the Old Debentures for the period from October 1, 1995 through March
31, 1996. Interest accrued for this period will be paid in kind through the
issuance of an increased principal amount of the New Notes. Interest on the New
Notes for the period from April 1, 1996
20
<PAGE> 30
through September 30, 1996 will also be paid through the issuance of an
increased principal amount of the New Notes.
As part of the New Notes, Exchanging Debenture Holders will receive
$70.51 in principal amount of Convertible Notes for each $1,000 in principal
amount of tendered Old Debentures. Each Convertible Note is convertible into
Shares of Common Stock at a conversion price of $0.375 per Share (subject to
adjustment in certain circumstances). If a holder of Convertible Notes converts
the Convertible Notes into shares of Common Stock, such holder will have
exchanged debt securities, which provide for repayment of principal, for an
equity interest in the Company. See "Description of New Notes - Conversion of
the Convertible Notes."
The Company is precluded from paying cash dividends on its common stock
in the foreseeable future by restrictions in both the New Indenture and Old
Debenture Indenture. See "Description of New Notes - Certain Covenants."
DIVIDEND RESTRICTIONS
The Company has never paid cash dividends on its Common Stock and its
present intention is not to do so in the foreseeable future. Certain financial
covenants contained in the New Indenture and Old Debenture Indenture restrict
the Company from paying cash dividends or redeeming Common Stock.
MARKET FOR COMMON STOCK, OLD DEBENTURES AND NEW NOTES
The Common Stock (symbol: MSI) and the Old Debentures (symbol: MSIA)
are currently listed for trading on the AMEX. However, the Company does not
currently meet the requirements of the AMEX for the continued listing of its
securities and there can be no assurance that the Common Stock and the Old
Debentures will continue to be listed for trading on the AMEX. The Company does
not intend to apply to the AMEX or any other national or regional exchange to
list the New Notes.
The Convertible Notes may be converted at the option of the holder, at
any time, into shares of Common Stock. As a result of the substantial number of
shares that may be issued upon conversion of the Convertible Notes, there can be
no assurance as to the prices at which the Common Stock may be traded.
There is a limited trading market in the Old Debentures and the Company
does not anticipate that a more active trading market for the Old Debentures
will develop in the foreseeable future. If the Exchange Offer is successful,
approximately 52.5% of the Old Debentures will remain
21
<PAGE> 31
outstanding. If the New Notes trade publicly after issuance, they are likely to
do so at a substantial discount from their face value.
CERTAIN BANKRUPTCY CONSIDERATIONS
Following the consummation of the Exchange Offer, there will be
$12,263,000 in aggregate principal amount of the Old Debentures outstanding. In
addition, the Company has other obligations and indebtedness. Even if the
Exchange Offer is successful, there can be no assurance that the Company will be
able to generate sufficient cash flow and earnings to be able to meet its
obligations on a timely basis. If it fails to do so, it may find it necessary to
seek the protection afforded by commencement of a proceeding under the federal
Bankruptcy Code or similar law or creditors of the Company may seek to commence
such a proceeding against the Company on an involuntary basis.
Consummation of the Exchange Offer may have significant consequences
for holders of New Notes should the Company be involved in a bankruptcy
proceeding. Unmatured interest is not allowable as part of a claim under the
United States Bankruptcy Code. For bankruptcy purposes, it is possible, if the
Exchange Offer were not deemed a "face value" exchange, that some portion of
the face amount of the New Notes would be treated as interest and the
unamortized portion thereof would be treated as unmatured interest. Although it
is impossible to predict, one possible result in bankruptcy case is that the
amount of unmatured interest will initially be the difference between (a) the
face amount of the New Notes and (b) the market value of the Old Debentures
received therefor at the time of the completion of the Exchange Offer, less all
or a portion of the market value of the conversion rights or warrants received
in exchange for such Old Debentures, in which case the holder of New Notes
would initially have a significantly smaller allowable claim on the New Notes
than on the Old Debentures exchanged therefor or than on the face amount of the
New Notes held by the holder. See "Certain Federal Income Tax Considerations."
The New Notes are intended to rank senior in right of payment to the
Old Debentures. However, there can be no assurance that a bankruptcy court would
uphold the seniority of the New Notes over the Old Debentures. All of the
Company's significant assets are pledged to secure the payment of other
obligations of the Company. If such secured obligations were foreclosed upon, or
if the Company were liquidated under Chapter 7 of the federal Bankruptcy Code,
Management does not believe that a forced sale of the pledged assets would
result in sufficient proceeds to repay the Company's other indebtedness,
including the indebtedness represented by the Old Debentures (if the Exchange
Offer is
22
<PAGE> 32
not successful) or the New Notes and any unexchanged Old Debentures (if the
Exchange Offer is successful). Therefore, there can be no assurance that the
holders of the New Notes would receive any payments of their claims in the event
of the bankruptcy of the Company. (However, if the seniority of the New Notes is
upheld, the New Notes would likely be entitled to be paid on liquidation before
any payment is made on the Old Debentures.)
It is possible that a creditor or representative of creditors, such as
a trustee in bankruptcy or the Company as debtor in possession, could claim that
certain characteristics of the Convertible Notes would justify characterization
of the Convertible Notes as equity rather than debt. Should a court find that
such characterization was justified, holders of the Convertible Notes would have
their claims under the Convertible Notes subordinated to those of all other
creditors.
The Common Stock that would be received by holders of Convertible Notes
upon conversion pursuant to the terms of the New Indenture would constitute
equity securities of the Company and would rank below all debt claims.
Finally, under certain circumstances, payments of interest on the New
Notes, as well as payment of interest on the Old Debentures, could be recovered
by a trustee in bankruptcy if made within three (3) months prior to the filing
of a voluntary or involuntary petition under the United States Bankruptcy Code
unless the holder could prove the Company was not insolvent when the payments
were made. Moreover, any holders of New Notes whose designee sits on the
Company's Board of Directors may be held to be an insider who therefore could be
liable to repay interest payments received by them within twelve (12) months of
the filing of a bankruptcy petition if the Company was insolvent when the
payments were made.
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER
The purposes of the Exchange Offer are to reduce the Company's cash
interest and sinking fund obligations on its unsecured indebtedness, thereby
substantially decreasing the risk that the Company will default on its
outstanding indebtedness, including the Old Debentures. Assuming acceptance of
the Exchange Offer, and that the Company will pay the interest due April 1, 1996
on the Old Debentures exchanged pursuant to the Exchange Offer and on the New
Notes for the period from April 1 to September 30, 1996 through the issuance of
an increased principal amount of New Notes, its cash interest expense would be
reduced in each of fiscal years 1996, 1997 and 1998 and sinking fund payments
would be eliminated until October 1, 1999. The Company believes this will enable
it to capitalize on its
23
<PAGE> 33
restructuring and cost reduction programs and to pursue those areas which offer
the greatest potential for profitability. See "Selected Historical and Pro Forma
Financial Data."
CONSEQUENCES TO NON-TENDERING OLD DEBENTURE HOLDERS
The consummation of the Exchange Offer will have significant adverse
consequences for non-participating holders of Old Debentures. The New Notes will
have a final maturity date earlier than the final maturity date of, and are
intended to rank senior in right of payment to the Old Debentures and,
therefore, are intended to have a claim in bankruptcy or in liquidation of the
Company, with respect to the payment of interest and principal, which is prior
in right to the Old Debentures. (See "Certain Risk Factors and Other
Considerations - Certain Bankruptcy Law Considerations".) This could have an
adverse impact on the market price of the Old Debentures and could significantly
reduce the amounts realizable by holders of the Old Debentures in the event of
the bankruptcy or liquidation of the Company. The Company intends to credit Old
Debentures received pursuant to the Exchange Offer against the obligations of
the Company to make sinking fund payments with regard to the Old Debentures
thereby extending the average life of the Old Debentures which are not tendered.
Upon consummation of the Exchange Offer, no further sinking fund payments on the
Old Debentures will be required prior to October 1, 1999.
To the extent that Old Debentures are tendered and accepted, the
trading market for untendered Old Debentures will become more limited, which
could result in their being delisted from the AMEX. If the AMEX were to delist
the Old Debentures, it is possible that the Old Debentures would trade on other
securities exchanges or in the over-the-counter market and that price quotations
for the Old Debentures would be reported by such exchange or by other sources,
but the market in Old Debentures would be severely curtailed. The extent of the
public market for the Old Debentures and availability of such quotations would,
however, depend upon the number of holders of Old Debentures remaining at such
time, the interest in maintaining a market in the Old Debentures on the part of
securities firms, the possible termination of registration of the Old Debentures
under the Exchange Act (or voluntarily by the Company) and other factors. Even
if a public market for the remaining Old Debentures were to develop, there is
little likelihood that it would be active.
A debt security with a smaller outstanding amount available for trading
(a smaller "float") may command a
24
<PAGE> 34
lower price than would a comparable debt security with a greater float.
Therefore, the market price for untendered Old Debentures may be affected
adversely to the extent that the number of Old Debentures tendered pursuant to
the Exchange Offer reduces the float. The reduced float may also tend to make
the trading price more volatile.
No appraisal rights are available to holders of the Old Debentures in
connection with the Exchange Offer.
THE EXCHANGE OFFER
GENERAL
The Company hereby offers to each Committed Debentureholder, upon the
terms and subject to the conditions set forth herein and in the accompanying
Letter of Transmittal, to exchange $1,106.95 principal amount of its New Notes,
for each $1,000 principal amount of its Old Debentures. No offer is made by the
Company to any holder of Old Debentures other than the Committed
Debentureholders.
The Company will not pay the interest due April 1, 1996 in cash in
respect of the Old Debentures that are accepted pursuant to the Exchange Offer,
and exchanging Old Debenture holders will be deemed to have waived all rights
with respect to the payment in cash of interest on the Old Debentures. Such
accrued interest through March 31, 1996 and interest on the New Notes from April
1, 1996 through September 30, 1996 has been added to the aggregate principal
amount of the New Notes. See "Certain Federal Income Tax Considerations."
The Company will accept all Old Debentures duly tendered pursuant to
the Commitments to Exchange on or prior to the Expiration Date, subject to
certain conditions set forth herein and in the Letter of Transmittal (see
"Conditions of the Exchange Offer" below). The Company expressly reserves the
right, at its discretion, to (a) waive any conditions to the Exchange Offer
except compliance with the Trust Indenture Act of 1939, (b) extend the Exchange
Offer, or (c) amend the terms of the Exchange Offer.
Exchanging Old Debenture holders will not be required to pay brokerage
commissions or fees or, except as otherwise stated in the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of the Old
Debentures pursuant to the Exchange Offer. The Company will pay all charges and
expenses in connection with the Exchange Offer. See "Payment of Expenses."
As of the date of this Offering Circular, there were outstanding
$22,450,000 principal amount of Old Debentures.
25
<PAGE> 35
EXPIRATION DATE; EXTENSIONS
The Exchange Offer will expire at 5:00 P.M., New York City time, on
Friday, October 25, 1996 unless extended. The Company reserves the right to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the time and date on which the Exchange Offer as so extended
shall expire.
The Company will notify the Exchange Agent of any extension by oral or
written notice prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
Any extension or expiration of the Exchange Offer will be followed as
soon as practicable on the next business day after the previously scheduled
Expiration Date by prompt public announcement thereof, and any amendment of the
Exchange Offer will be followed as soon as practicable by public announcement.
Without limiting the manner by which the Company may choose to make such public
announcement, the Company shall not, unless otherwise required by law, have any
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News Service.
PROCEDURES FOR TENDERING
The acceptance of the Exchange Offer by an exchanging Old Debenture
holder pursuant to one of the procedures set forth below will constitute an
agreement between such holder and the Company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
Except as set forth below, a holder of Old Debentures who wishes to tender Old
Debentures pursuant to the Exchange Offer must transmit such Old Debentures,
together with a Letter of Transmittal (or facsimile thereof) properly completed
and duly executed, and any other documents required by the Letter of
Transmittal, to the Exchange Agent at the address set forth on the back cover of
this Offering Circular on or prior to the Expiration Date. THE LETTER OF
TRANSMITTAL MUST BE RECEIVED BY THE EXCHANGE AGENT BY THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD DEBENTURES SHOULD BE SENT TO THE COMPANY OR TO THE
TRUSTEE.
Signatures on a Letter of Transmittal need not be guaranteed, provided
the Old Debentures tendered pursuant thereto are tendered (a) by a registered
holder of the Old Debentures who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (b) for the account of an
26
<PAGE> 36
Eligible Institution (as defined). In the event that signatures on a Letter of
Transmittal are required to be guaranteed, such guarantees must be by a firm
which is a member of a registered national securities exchange or by a
commercial bank or trust company having an office in the United States.
The Exchange Agent will establish an account with respect to the Old
Debentures at The Depository Trust Company ("DTC") for purposes of the Exchange
Offer, and any financial institution that is a participant in the DTC system may
make book-entry delivery of Old Debentures by causing DTC to transfer such Old
Debentures into such account in accordance with DTC's procedure for such
transfer. However, although delivery of Old Debentures may be effected through
book-entry at DTC, a Letter of Transmittal (or facsimile thereof), together with
any required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent on or prior to the
Expiration Date, or the exchanging Old Debenture holder must comply with the
guaranteed delivery procedure described below.
If Old Debentures are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Debentures tendered must be
endorsed by such registered holder or be accompanied by a written instrument or
instruments of transfer or exchange in form satisfactory to the Company duly
executed by the registered holder with the signature thereon guaranteed by a
firm which is a member of a registered national securities exchange or by a
commercial bank or trust company having an office in the United States.
The method of delivery of Old Debentures, Letter of Transmittal and all
other required documents is at the election and risk of the exchanging Old
Debenture holders. If such delivery is by mail, it is suggested that registered
mail with return receipt requested, properly insured, be used.
If an exchanging Old Debenture holder elects to tender Old Debentures
and such holder's Old Debentures are not immediately available or time will not
permit such holder to deliver Old Debentures or other required documents to the
Exchange Agent before the Expiration Date, such exchanging Old Debenture
holder's tender may be effected if:
(a) such tender is made through an Eligible
Institution; and
(b) on or prior to the Expiration Date, the Exchange Agent has received
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by telegram, telex, facsimile
27
<PAGE> 37
transmission, mail or hand delivery) setting forth the name and address
of the exchanging Old Debenture holder and the principal amount of Old
Debentures tendered thereby and guaranteeing that, within eight
American Stock Exchange trading days after the Expiration Date, duly
executed copies of the Letter of Transmittal, together with the Old
Debentures and any other documents required by the Letter of
Transmittal, will be deposited by such Eligible Institution with the
Exchange Agent; and
(c) such Letter of Transmittal and Old Debentures, or confirmation of a
book-entry transfer of such Old Debentures into the Exchange Agent's
account at DTC as described above in proper form for transfer, and
other required documents are received by the Exchange Agent within
eight American Stock Exchange trading days after the Expiration Date.
Federal income tax law requires that an exchanging Old Debenture holder
whose tendered Old Debentures are accepted for exchange must provide the Company
(as payor) with his correct taxpayer identification number, which, in the case
of an exchanging Old Debenture holder who is an individual, is his social
security number. If the Company is not provided with the correct taxpayer
identification number, the exchanging Old Debenture holder may be subject to a
$50 penalty imposed by the Internal Revenue Service (the "Service"). In
addition, delivery to the exchanging Old Debenture holder of the New Notes
acquired pursuant to the Exchange Offer may be subject to backup withholding in
an amount equal to 31% of any interest payment made to a holder of the New
Notes. If withholding results in an overpayment of taxes, a refund may be
obtained. Certain exchanging Old Debenture holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements.
To prevent backup withholding, each exchanging Old Debenture holder
must provide his correct taxpayer identification number by completing the form
provided in the Letter of Transmittal, certifying that the taxpayer
identification number provided is correct (or that such exchanging Old Debenture
holder is awaiting a taxpayer identification number) and that (a) the exchanging
Old Debenture holder has not been notified by the Service that he is subject to
backup withholding as a result of failure to report all interest or dividends or
(b) the Service has notified the exchanging Old Debenture holder that he is no
longer subject to backup withholding.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of all tendered Old Debentures will be determined by the
Company in its sole
28
<PAGE> 38
discretion, which determination shall be final and binding. The Company reserves
the absolute right to reject any and all tenders not in proper form or the
acceptance of which would, in the opinion of the Company's counsel, be unlawful.
The Company also reserves the absolute right to waive any of the conditions of
the Exchange Offer or any defect or irregularity in the tender of any of the Old
Debentures, including late delivery. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final. No tender of Old Debentures will be
deemed to have been properly made until all defects and irregularities have been
cured or waived. Neither the Company nor the Exchange Agent, or any other
person, shall have the responsibility to give notification of any defects or
irregularities in tenders nor shall any of them incur any liability for failure
to give such notification. Any Old Debentures received by the Exchange Agent
that are not properly tendered and as to which the irregularities have not been
cured or waived will be returned by the Exchange Agent to the exchanging Old
Debenture holders, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
IRREVOCABILITY OF TENDERS
Tenders of Old Debentures pursuant to the Exchange Offer are
irrevocable.
ACCEPTANCE OF OLD DEBENTURES FOR EXCHANGE; DELIVERY OF NEW
NOTES
Tenders will be accepted only in principal amounts equal to $1,000 and
integral multiples thereof. The New Notes will be available only in registered
form, without coupons. The 8% Senior Notes will be issued in denominations of
$1,000 and integral multiplies thereof and the Convertible Notes will be issued
in denominations of $500 and integral multiples thereof. Cash payments will be
made by the Company in lieu of issuance of New Notes for denominations of less
than $1,000 for the 8% Senior Notes and less than $500 for the Convertible
Notes.
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Debentures validly tendered will be announced
promptly after the Expiration Date. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted for exchange validly tendered Old
Debentures when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the exchanging
Old Debenture holders for the purposes of
29
<PAGE> 39
receiving New Notes from the Company and transmitting the New Notes to the
exchanging Old Debenture holders.
Delivery of certificates for New Notes in exchange for Old Debentures
tendered pursuant to the Exchange Offer will be made by the Company to the
Exchange Agent as soon as practicable after acceptance of such Old Debentures,
but only after receipt by the Exchange Agent of such Old Debentures, a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and any
other required documents.
ACCRUED INTEREST
The Company will not pay interest accrued on the Old Debentures that
are tendered and accepted in the Exchange Offer. The amount of such accrued
interest has been taken into account and added to the aggregate principal amount
of the New Notes. Accordingly, exchanging Old Debenture holders will be deemed
to have waived all rights with respect to the payment in cash of interest
accrued on the Old Debentures, including interest past due. Holders of the New
Notes will be entitled to interest thereon, accruing from October 1, 1996, at
the annual rate of interest of 8% and otherwise as set forth under the caption
"Description of New Notes."
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not have the right to consummate the Exchange Offer if the Securities and
Exchange Commission shall not have issued an order declaring the Indenture for
the New Notes qualified under the Trust Indenture Act of 1939 by the Expiration
Date. Consummation of the Exchange Offer is subject to the condition, unless
otherwise waived, that all holders of Old Debentures who delivered to the
Company written Commitments to Exchange tender their Old Debentures in
accordance with the Exchange Offer. In addition, the Company may, at its option,
decline to accept any Old Debentures tendered pursuant to the Exchange Offer and
terminate the Exchange Offer if:
(a) any governmental agency or other person shall have instituted or
threatened any action or proceeding in connection with the Exchange
Offer, or which otherwise materially adversely affects the Company, or
there shall have occurred any material adverse development with respect
to any action or proceeding concerning the Company;
(b) any statute, rule or regulation shall have been proposed or
enacted, or any action shall have been taken by any governmental
authority, which would, or
30
<PAGE> 40
might, prohibit, restrict or delay consummation of the Exchange Offer
or materially impair the contemplated benefits of the Exchange Offer to
the Company;
(c) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities quoted on the American
Stock Exchange; (ii) commencement of a war, armed hostilities or other
international or national emergency; or (iii) a declaration of a
banking moratorium by United States or New York authorities; or
(d) there shall have occurred or be likely to occur an event affecting
the business or financial affairs of the Company which, in the sole
judgment of the Board of Directors of the Company, would, or might,
prohibit, restrict or delay consummation of the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to
the Company or otherwise result in consummation of the Exchange Offer
not being in the best interests of the Company.
If any of the foregoing events shall have occurred, the Company may (a)
terminate the Exchange Offer and return all tendered Old Debentures to
exchanging Old Debenture holders, (b) extend the Exchange Offer and retain all
tendered Old Debentures until the Expiration Date, or (c) waive the unsatisfied
conditions (other than the receipt of the order of the Securities and Exchange
Commission pursuant to the Trust Indenture Act of 1939, which cannot be waived)
with respect to the Exchange Offer and accept all tendered Old Debentures, as
the case may be.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Debentures for New Notes pursuant to the Exchange Offer, except
in the case of deliveries of New Notes or certificates for untendered portions
of Old Debentures that are to be made to persons other than a record holder of
Old Debentures, as described in the instructions to the Letter of Transmittal.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as
Exchange Agent for the Exchange Offer. All deliveries and correspondence sent to
the Exchange Agent relating to the Exchange Offer should be directed to the
Exchange Agent at 40 Wall Street, New York, New York 10005, Attention: Bond
Department, telephone (718) 921-8200. Requests for additional copies of this
Offering Circular or the Letter of Transmittal should be directed to the
Exchange Agent or the Company.
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<PAGE> 41
PAYMENT OF EXPENSES
The Company has not retained any dealer-manager, information agent or
similar agent in connection with the Exchange Offer and will not make any
payments to brokers, dealers or others for soliciting acceptances of the
Exchange Offer.
The cash expenses to be incurred in connection with the Exchange Offer,
including the fees and expenses of the Exchange Agent and Trustee, printing,
accounting and legal fees and all transfer taxes (except as otherwise provided
in the Letter of Transmittal), will be paid by the Company and are estimated to
be $580,000.
BOARD APPROVAL
The Board of Directors of the Company has approved the terms of the
Exchange Offer. However, the Company has not retained any representative to act
on behalf of the holders of the Old Debentures in connection with the
preparation of the terms of the Exchange Offer or to prepare any report as to
the fairness of the Exchange Offer. Committed Debentureholders are urged to
consult their financial advisers in deciding whether to participate in the
Exchange Offer.
[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]
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<PAGE> 42
CAPITALIZATION
(unaudited)
The following table sets forth the capitalization of the Company as of March 31,
1996 (i) on a historical basis and (ii) on a pro forma basis as adjusted to give
effect to the consummation of the Exchange Offer.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
----------------------------------
Actual Proforma
As
Adjusted
----------- ----------------
(IN THOUSANDS)
<S> <C> <C>
SHORT-TERM DEBT:
Notes payable $ 1,318 $ 1,318
Current maturities of long-term debt 1,222 22
----------- ----------------
Total short-term debt $ 2,540 $ 1,340
=========== ================
LONG-TERM DEBT:
12.875% Subordinated Debentures due 10/1/2001 $ 21,250 $ 12,263
8% New Senior Notes due 9/1/2001 - 10,848
Other Long-term debt 42 42
----------- ----------------
Total long-term debt 21,292 23,148
----------- ----------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value - authorized, 160 160
30,000,000 shares; issued, 15,977,000 shares
Additional paid-in capital 3,731 3,731
Retained earnings 4,169 4,055
----------- ----------------
8,060 7,946
Less treasury stock, at cost - 2,017,000 shares 3,618 3,618
----------- ----------------
Total stockholders' equity 4,442 4,328
----------- ----------------
Total capitalization $ 25,734 $ 27,476
=========== ================
</TABLE>
33
<PAGE> 43
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(unaudited)
The following table sets forth certain financial data of the Company as of and
for the periods indicated below (i) on a historical basis and (ii) on a pro
forma basis as adjusted to give effect to the consummation of the Exchange
Offer had it occurred on July 1, 1994.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS Year Ended NINE MONTHS ENDED
DATA: June 30, MARCH 31,
-------------------------------------------------- ---------------------------------
1993 1994 1995 Proforma 1995 1996 Proforma
1995 (a) 1996 (a)
------------------------- ------------------------ ---------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $120,251 $103,105 $101,946 $101,946 $85,764 $70,056 $70,056
------------------------- ------------------------ ---------- --------- ------------
Cost of Sales 92,106 82,358 79,011 79,011 66,349 56,296 56,296
Selling, General and
Administrative Expenses 22,596 20,874 20,541 20,541 15,521 13,679 13,679
Special Charge - 3,800 3,000 3,000 - - -
Estimated loss on
abandonment of leased
premises - - - - - 1,170 1,170
Interest Expense - net 3,955 4,014 4,669 4,338 3,504 3,169 2,934
------------------------- ------------------------ ---------- --------- ------------
118,657 111,046 107,221 106,890 85,374 74,314 74,079
------------------------- ------------------------ ---------- --------- ------------
Income (Loss) from
Operations 1,594 (7,941) (5,275) (4,944) 390 (4,258) (4,023)
Gain on Sale or Disposal of
Property, Plant and - - - - -
Equipment (908) (984)
------------------------- ------------------------ ---------- --------- ------------
Income (Loss) Before
Provision for Income
Taxes and Cumulative
Effect of Accounting Change 2,502 (6,957) (5,275) (4,944) 390 (4,258) (4,023)
Provision for Income Taxes 217 (2,772) (246) (246) 156 - -
Cumulative Effect of
Accounting Change for
Income Taxes - 861 - - - - -
------------------------- ------------------------ ---------- --------- ------------
Net Income (Loss) $ 2,285 $ (3,324) $ (5,029) $ (4,698) $ 234 $(4,258) $(4,023)
========================= ======================== ========== ========= ============
Income (Loss) per Share (c) $ 0.16 $ (0.24) $ (0.36) $ (0.34) $ 0.02 $ (0.31) $ (0.29)
========================= ======================== ========== ========= ============
Weighted Average Number of
Shares Outstanding (c) 14,185 14,031 13,960 13,960 13,959 13,959 13,959
========================= ======================== ========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: At June 30, AT MARCH 31,
-------------------------------------------------- ---------------------------------
1993 1994 1995 1995 1996 Proforma
1996 (b)
------------------------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Working Capital $30,984 $25,518 $22,648 $26,416 $18,502 $19,830
(Table continued on following page.)
</TABLE>
34
<PAGE> 44
<TABLE>
At June 30, AT MARCH 31,
-------------------------------------------------- ---------------------------------
1993 1994 1995 1995 1996 Proforma
1996 (b)
------------------------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total Assets 72,731 69,806 57,204 60,447 37,416 37,830
Short-term Debt - Including
current maturities of long-
term debt 16,783 19,627 15,832 10,517 2,540 1,340
Long-term Debt 22,733 22,529 22,496 22,501 21,292 22,213
Stockholders' Equity 17,412 13,729 8,700 13,963 4,442 5,263
</TABLE>
(a) The pro forma statements of operations data for the year ended June 30,
1995 and the nine months ended March 31, 1996 are presented as if the
consummation of the Exchange Offer had occurred on July 1, 1994.
(b) The pro forma balance sheet data at March 31, 1996 is presented as if
the consummation of the Exchange Offer had occurred on March 31, 1996.
(c) Income (loss) per share is based on net income (loss) for the period
divided by the weighted average number of shares of common stock
outstanding, excluding common share equivalents, as their effect would have
been antidilutive. On a pro forma basis, loss per share and shares
outstanding do not give effect to the Convertible Notes to be issued in the
Exchange Offer, as such Convertible Notes are antidilutive.
(d) For each of the periods, no cash dividends were declared.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION HAS BEEN REPRINTED FROM THE COMPANY'S QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996. THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1995, FILED WITH THE COMMISSION,
CONTAINS SIMILAR INFORMATION WITH RESPECT TO THAT FISCAL YEAR AND THE FISCAL
YEARS ENDED JUNE 30, 1993 AND JUNE 30, 1994.
OVERVIEW
The Company has incurred substantial losses for the two years ended June
30, 1995 and the nine months ended March 31, 1996 and, as previously disclosed,
expects to incur further losses in fiscal 1996. These losses arise primarily
from the Company's inability to maintain its gross profit margins due to a more
competitive market, the weak retail climate for the Company's products,
difficulties in sourcing its goods offshore and the fact that the Company has
not sufficiently reduced its overhead.
35
<PAGE> 45
In September 1995, the Company announced its plans to divest itself of its men's
work and leisure shirt division to focus on its core intimate apparel business.
The liquidation of the assets of this division was substantially completed as of
December 31, 1995.
In April 1996, Barbara T. Khouri, the Company's Chief Executive Officer,
resigned, reflecting a mutual decision by Ms. Khouri and the Company. Ms.
Khouri, who was hired in August 1995, worked with senior management to
consolidate and realign the Company's operations to reduce costs and create an
organizational structure that is more productive, effective and efficient. The
Company's Chairman of the Board, Mark M. David, has resumed the duties of Chief
Executive Officer.
The Company has been advised by the American Stock Exchange that, in view of the
Company's recent financial performance, the Exchange considers the Company to
have fallen below certain of its continued listing guidelines and, as a result,
the Exchange is reviewing the Company's eligibility for continued listing on the
Exchange.
RESULTS OF OPERATIONS
Net sales decreased by $4,919,000 (28%) to $12,408,000 and by $15,708,000 (18%)
to $70,056,000 for the three and nine months ended March 31, 1996, respectively,
compared to the similar periods in 1995. These decreases in sales resulted
primarily from lower sales in the popular-priced intimate apparel product line.
The lower sales resulted from the elimination of trade business from that
product line, the weak retail climate for the Company's products and the
inability of the Company to source effectively.
The gross profit percentage decreased from 23.1% to 22.4% and from 22.6% to
19.6% for the three and nine months ended March 31, 1996, respectively, compared
to the similar periods in 1995. The decrease was due primarily to lower margins
in the Company's popular-priced intimate apparel product line. The lower margins
resulted from a more competitive market, the weak retail climate for the
Company's products, the inability of the Company to source effectively and the
Company's effort to sell off discontinued inventory and reduce inventory levels.
The Company's inability to source effectively resulted in the receipt and
acceptance of lesser quality goods, unscheduled and costly air shipments and the
inability, in certain instances, to make timely delivery of quality finished
product to our customers. As a result, certain customers either canceled orders,
returned goods or took deductions.
Selling, general and administrative expenses decreased by $1,318,000 to
$3,919,000 for the three months ended March 31, 1996 as compared to 1995. This
decrease was due to management focusing its efforts on reducing overhead
expenses and lower sales volume. Specifically, this decrease resulted from
reductions in salary expense of $361,000, rent of $135,000, sales related
expenses of $573,000, which included reductions in shipping costs of $241,000
and sample making of $222,000 and a net decrease in other general overhead
expenses.
Selling, general and administrative expenses decreased by $1,842,000 to
$13,679,000 for the nine months ended March 31, 1996 as compared to 1995. This
decrease was due to management focusing its efforts on reducing overhead
expenses and lower sales volume. Specifically, this decrease resulted from
reductions in salary expense of $508,000, sales related expenses of $1,204,000,
which included reductions in shipping costs of $476,000, commissions of $133,000
and sample making of $405,000 and a net decrease in other general overhead
expenses.
36
<PAGE> 46
In order to reduce overhead expenses and improve operating efficiencies, the
Company vacated two floors, separately leased to the Company, and combined its
operation into an existing floor leased by the Company in the same building. The
Company provided a reserve in the second quarter of fiscal 1996 for estimated
costs in connection with vacating those leased premises of $900,000 and
wrote-off the remaining net book value of related leasehold improvements of
$270,000.
It is anticipated that the realignment of the Company's operations during the
second quarter of 1996 will reduce selling, general and administrative costs in
excess of $2,000,000 annually, effective January 1, 1996.
Interest expense for the three and nine-month periods ended March 31, 1996
decreased by $161,000 and $335,000 respectively from the comparable periods in
1995 due to lower borrowing levels during those periods.
The Company had a loss from operations of $1,938,000 for the three months ended
March 31, 1996 compared to a loss from operations of $2,194,000 for the same
period in 1995. The Company had a loss from operations of $4,258,000 for the
nine months ended March 31,1996 compared to income from operations of $390,000
for the same period in 1995. These decreases were due principally to lower sales
and margins and the estimated loss on the abandonment of leased premises, offset
partially by lower selling, general and administrative expenses and lower
interest expense.
No income tax benefit was provided by the Company for the three and nine months
ended March 31, 1996 compared to a benefit from income taxes of $878,000 and a
provision for income taxes of $156,000 for the three and nine months ended March
31, 1995, respectively.
As a result of the above factors, the financial results reflect net losses from
operations of $1,938,000 and $4,258,000 for the three and nine months ended
March 31,1996 compared to a net loss of $1,316,000 and net income of $234,000
for the comparable periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 1996, the Company's working capital
decreased by $4,146,000 to $18,502,000, principally from operating losses,
offset partially by proceeds from the sale of property, plant and equipment.
During the nine months ended March 31, 1996, cash and cash equivalents increased
by $975,000. The Company used cash for the purchase of fixed assets of $263,000
and the payment of notes payable of $14,485,000. These activities were
principally funded by cash generated by operating activities of $15,070,000 and
proceeds from the sale of property, plant and equipment of $664,000.
Inventory at March 31, 1996, decreased by $19,264,000 to $15,114,000 from
$34,378,000 at March 31, 1995 from the liquidation of the men's work and leisure
shirt division, which accounted for $10,553,000 (55%) of the decrease, as well
as reductions in the inventory of other divisions from the prior year's levels.
37
<PAGE> 47
In April 1996, the Company reached an agreement with holders of approximately
$10,635,000(1) of the Company's outstanding 12.875% unsecured subordinated
debentures ( "Restructured Bonds"). The holders of the Restructured Bonds agreed
to exchange such bonds for the issuance of an equivalent principal amount of a
new series of notes bearing interest at a rate of 8% per annum, payable
semi-annually (April 1 and October 1) which will be senior to the 12.875%
debentures ("New Senior Notes"). Additionally, the holders of the Restructured
Bonds agreed to defer the receipt of interest due April 1, 1996 (approximately
$684,000). The Company paid the interest due on the remaining 12.875%
debentures. The holders of the Restructured Bonds have also agreed to accept New
Senior Notes in exchange for the April 1, 1996 deferred interest related to the
Restructured Bonds and for the October 1996 interest payment under the New
Senior Notes. The aggregate principal amount of the New Senior Notes will then
approximate $11,772,000(2), will not provide for any amortization of principal
and will mature in September 2001. Upon the completion of the proposed exchange,
the aggregate principal indebtedness of the New Senior Notes and the 12.875%
subordinated debentures will be approximately $23,587,000.
The New Senior Notes will carry the right to convert up to $750,000(3) of the
notes into 2,000,000(4) shares of the Company's common stock at a price of
$0.375 per share. In addition, the holders of the new series of notes will have
the right to designate one member of the Company's Board of Directors.
When the proposed exchange is completed (expected to occur by June 30, 1996),
the Company will be in a position to deliver to the Indenture Trustee the
debentures acquired and receive credit for the entire principal amount of
$10,635,000(5) in lieu of making mandatory annual sinking fund payments through
October 1998. The Company's obligation to make mandatory sinking fund payments
on the 12.875% debentures will resume in October 1999.
If the proposed exchange is not completed, the Company intends to reduce the
required sinking fund payment of $3,750,000 due in 1996 on its outstanding
subordinated debentures by delivering to the Trustee the $2,550,000 of
debentures previously purchased by the Company. Based upon the Company's recent
financial results and the anticipated loss in fiscal 1996, the Company does not
presently anticipate that its earnings will be sufficient to pay the interest
and principal due in October 1996. In addition, management believes that without
significant improvements in sales and operating results, it is unlikely that
future sinking fund obligations in years after 1996 can be met.
In such event, the Company will have to rely on its short-term financing (see
below) to make the payment of interest that was deferred in April 1996 as well
as the sinking fund and interest payments due in October 1996. If the Company
does not have sufficient availability under the new line of credit for the
purpose of making these payments, the Company believes it will be able to
negotiate with its lender for additional availability by providing the lender
with certain
- --------
(1) Subsequently reduced to $10,187,000.
(2) Subsequently reduced to $11,276,500.
(3) Subsequently reduced to $718,406.
(4) Subsequently reduced to 1,915,750 shares.
(5) See fn.(1)
38
<PAGE> 48
additional collateral. There can be no assurance that the Company will have
sufficient availability under its short-term line of credit to make sinking fund
and interest payments in calendar year 1997 or, if available, that the Company's
lender will allow it to utilize the short-term line of credit for such purposes
or, if not available, that the Company will be able to negotiate for any
additional availability for that purpose. If the Company is unable to utilize
its short-term line to meet its sinking fund and interest payment obligations in
calendar year 1997, the Company will have to seek alternative sources for the
payment of such obligations.
The Company does not anticipate any future significant purchases of its stock or
debentures and anticipates that capital expenditures for fiscal 1996 will be
less than $400,000.
In April 1996, the Company consummated an agreement with an asset based lending
financial institution, Rosenthal & Rosenthal, Inc., providing for a secured
revolving line of credit of up to $13,500,000 for a period of two years to cover
the Company's projected needs for operating capital and letters of credit to
fund the purchase of imported goods. Direct borrowings under the Rosenthal &
Rosenthal line bear interest at the annual rate of 2.5% above the prime rate of
Chase Manhattan Bank. Availability under the line of credit is subject to
certain agreed upon formulas. At the closing of the new financing, the unused
portion of this line of credit totaled approximately $5,000,000 after
outstanding letters of credit of $5,400,000. Under the terms of this financing,
the Company has agreed to pledge substantially all of its assets, except the
Company's domestic inventory and real property. This credit facility replaces
the financing agreement which the Company had with two banks.
In April 1996, the Company entered into an agreement to buy out the remaining
term of its sublease for one of the floors formerly occupied by the Company. The
Company remains obligated under a separate direct lease for the same premises
which requires the Company to pay rent from May 1997 through April 1999.
In addition, the Company remains obligated under a lease for an additional floor
formerly occupied by the Company in the same building through January 2002.
The Company is seeking to reach agreements to settle its rent obligation for the
remaining term of the aforementioned leases with respect to the vacated space.
If the Company cannot reach an agreement on terms acceptable to the Company, The
Company may be required to pay its rent obligations to the landlord on a monthly
basis until the end of the respective terms of the leases. Such rental payments
aggregate approximately $3,100,000, including estimated rent escalations, for
the balance of the terms of these leases. If the Company is unable to settle its
rent obligation, the Company may be required to record an additional special
charge for costs associated with vacating these premises that may have a
material adverse effect on the Company's financial results.
Separately, the Company has also reached an agreement with the sublessor of the
premises it continues to occupy, settling the sublessor's claim for certain
rental arrears and reducing the Company's future rent obligation during the
remaining term of the lease.
Management believes its available borrowing under its new secured revolving line
of credit, along with anticipated internally generated funds, will be sufficient
to cover its working capital requirements through December 31, 1996.
39
<PAGE> 49
BUSINESS OF THE COMPANY
BUSINESS
The Company, a New York corporation organized in 1935, designs, manufactures,
markets and sells an extensive line of ladies' sleepwear, robes, leisurewear,
loungewear, panties and daywear; and also operates retail outlet stores under
the name Movie Star Factory Stores ("Factory Stores"). In September, 1995, the
Company announced that it intended to divest itself of its men's work and
leisure shirt division and as of December 31, 1995, the liquidation of the
assets of that division was substantially completed.
The Company's products consist of ladies' pajamas, nightgowns, baby dolls,
nightshirts, dusters, shifts, sundresses, rompers, short sets, beachwear,
peignoir ensembles, robes, leisurewear, panties, and daywear consisting of
bodysuits, soft bras, slips, half-slips, teddies and camisoles. Men's work and
leisure shirts were produced by the Company through the end of calendar year
1995. The Company's products are manufactured in various fabrics, designs,
colors and styles depending upon seasonal requirements, changes in fashion and
customer demand. In the past, the Company has benefited from its long-standing
relationships with its customers based on providing them with competitively
priced products and efficient service. As a result of recent consolidations in
the retail industry, the high cost of domestic manufacturing and difficulties
the Company has encountered in sourcing raw materials, engaging reliable
offshore contractors and obtaining finished products from overseas, the Company
has experienced a loss of sales to certain of its customers. The Company
maintains an in-house design staff which affords it the flexibility to work with
merchandise buyers on fashion design and price points and its domestic
manufacturing facilities allow shorter "lead times" in producing certain of its
products.
The Company's products are sold to discount, specialty, national and regional
chain, mass merchandise and department stores and direct mail catalog marketers
throughout the United States. The price to consumers for the Company's products
ranges from $2.00 for certain of its panty products to approximately $70.00 for
certain other products. The Company's products are sold by in-house sales
personnel and outside manufacturer's representatives. Mark M. David, the
Company's Chairman of the Board, is also involved in marketing and in
maintaining good relations between the Company and its major customers.
Approximately 45% of the Company's sales are made to national chains and mass
merchandisers; the balance of the Company's sales are unevenly distributed among
discount, specialty, department and regional chain stores, direct mail catalog
marketers and to consumers through the Company's Factory Stores. The Company's
gross profit on its sales for the fiscal year
40
<PAGE> 50
ended June 30, 1995 was approximately 22%. The gross profit for the fiscal year
ended June 30, 1994 was approximately 20%; and, for the same period in 1993 and
1992, the Company achieved an average gross profit on its sales of approximately
23%.
The Movie Star Factory Stores sell apparel products manufactured by the Company
and other manufacturers at discounted retail prices. Approximately 30% of the
sales from products sold by these stores are supplied by the Company. These
stores account for less than 10% of total sales of the Company and operate at a
gross profit above 30%.
In the past, the Company promoted its products through advertisements in trade
publications circulated to major retailers. In fiscal 1995, the Company limited
the promotion of its products to cooperative advertising in conjunction with its
retail customers directed to the ultimate retail consumer of its products.
The Company utilizes a large variety of fabrics made from natural and man-made
fibers including, among others, polyester, cotton, broadcloth, stretch terry,
flannel, brush, nylon, Quintura, velour, satins, tricot, jersey, fleece,
jacquards, lace, charmeuse, poplin, chambray, chamois and various knit fabrics.
These materials are available from a variety of both domestic and foreign
sources. The sources are highly compet itive in a world market. The Company
expects these conditions to continue in the foreseeable future. Generally, the
Company has long-standing relationships with its domestic suppliers and
purchases its raw materials in anticipation of orders or as a result of need
based on orders received. Purchase of raw materials in high volume provides the
Company with the opportunity to buy at relatively low prices. In turn, the
Company is able to take advantage of these lower prices in the pricing of its
finished goods. In fiscal 1995, approximately 4% of the Company's raw materials
and approximately 14% of its finished goods were imported. Approximately 7% of
its finished goods were assembled in the Caribbean and Central America during
fiscal 1995.
The quality and progress of manufacturing of finished products purchased in the
Far East is monitored by independent agents located in each of the countries in
which goods are being manufactured for the Company. Raw materials are sourced
and purchased through independent agents located in those countries where the
Company seeks to purchase raw materials. The Company's overseas activities are
administered from its headquarters in New York and its
41
<PAGE> 51
management personnel travels to the Far East extensively throughout the year.
The General Agreement on Tariffs and Trade has no impact on the operations of
the Company.
The Company manufactures a wide variety of intimate apparel in many different
styles and sizes and for use in all seasons and climates in the United States.
Because of its product mix, it is subject to certain seasonal variations in
sales and in the utilization of its manufacturing facilities. More than 50% of
the Company's sales are made in the first six months of its fiscal year.
All sales are outright sales. Terms are generally net 10 days E.O.M. or net 30
days from receipt of goods which, depending on date of shipment, can be due from
as short a period as twenty-one days or as long as fifty days. It has become
industry practice to extend payment terms up to an additional thirty days for
certain customers. Although sales are made without the right of return, in
certain instances the Company may accept returns or agree to allowances. The
Company maintains sufficient inventories of raw materials and finished goods to
meet its production requirements and the delivery demands of its customers. As a
result, the Company relies on its short-term line of credit from its banks to
supplement internally generated funds to fulfill its working capital needs.
Sears Roebuck and Company accounted for 22% of fiscal year 1994 and 1995 sales.
Approximately 12% of the Company's sales for fiscal 1995 were comprised of men's
work and leisure shirts sold to Sears Roebuck and Company. No other customer
accounted for more than 10% of sales in fiscal years 1994 and 1995.
Purchasing decisions by the Company's customers with respect to each group of
the Company's products and, in some instances, products within a group,
generally are made by different buyers and purchasing departments. The Company
believes that the loss of orders from any one buyer or purchasing department
would not necessarily result in the loss of sales to other buyers or purchasing
departments of those customers.
The intimate apparel business is fragmented and highly competitive. The industry
is characterized by a large number of small companies. Many of these companies
subcontract all or a significant portion of the manufacture of their garments.
While the Company believes that owning manufacturing facilities can be
advantageous, owning plants has required the investment of substantial capital
and subjected the Company to the costs of maintaining excess capacity.
Competitive conditions in the industry have required the Company to place
greater reliance on obtaining
42
<PAGE> 52
raw materials and finished products from sources outside the United States.
As a result, the Company has consolidated production in its domestic plants by
closing underutilized and inefficient facilities.
The intimate apparel industry is characterized by competition on the basis of
price, quality, efficient service and prompt delivery. It has become
increasingly difficult for the Company to rely principally on domestic
manufacturing. Further shifts in competitive conditions have required the
Company to increase its reliance on imports. Accordingly, changes in import
quotas, currency valuations and political conditions in the countries from which
the Company imports products could adversely affect the Company's business. Such
shifts could result in the further underutilization of the Company's domestic
plants and increase losses. In fiscal 1995, the Company sought to take advantage
of emerging opportunities in the Caribbean Basin and Central America to contract
for the cutting and assembly of its products which enables the Company to
benefit from lower offshore labor costs coupled with transportation times that
are faster than deliveries from the Far East. The Company has been unable to
exploit the benefits of these emerging opportunities due to a reduction in the
volume of orders it received for goods that were suitable for assembly offshore;
shorter than anticipated lead times between placement of orders and customers'
required delivery dates; and, its inability to establish or maintain
relationships with reliable contractors.
For further information regarding the Company's business and properties, please
refer to the Form 10-K Annual Report of the Company for the fiscal year ended
June 30, 1995, and the Form 10-Q Quarterly Report for the Quarter Ended March
31, 1996 filed with the Commission.
MANAGEMENT AND DIRECTORS
The Company's executive officers are Mark M. David, Chairman and Chief
Executive Officer, and Saul Pomerantz, Senior Vice-President, Chief Financial
Officer and Secretary. The Board of Directors of the Company is fixed at 7
members, of whom 5 were elected at the Company's last annual meeting to serve
for one year and until their respective successors have been elected and
qualified. In February 1995, Mr. Harold B. Pomeranz resigned as a director; in
June 1995 Mr. John J. Ross resigned as a director, and, in April and May 1996
Helen Samuels and Clayton E. Medley, respectively, resigned as executive
officers and directors. In February 1996, Joel Simon and Gary Krat were
appointed by the Board of Directors to fill
43
<PAGE> 53
two vacancies on the Board. There are currently three vacancies on the Board.
The following information respecting the current directors has been furnished by
them.
<TABLE>
<CAPTION>
Principal Director
Name Age Occupation Since
---- --- ---------- -----
<S> <C> <C> <C>
Gary Krat 49 Senior Vice 1996
President of Sunamerica
Inc.; Chairman and Chief
Executive Officer of
Royal Alliance
Associates, Inc.;
Chairman and Chief
Executive Officer of
Sunamerica Securities,
Inc.
Joel Simon 51 Executive Vice- 1996
President and
Chief Operating
Officer of
Olympia & York
Companies
(U.S.A.)
Mark M. David 49 Chairman and 1981
Chief Executive
Officer of the
Company
Saul Pomerantz 46 Senior Vice- 1983
President, Chief
Financial Officer
and Secretary of
the Company
</TABLE>
Directors who are not officers of the Company or its subsidiaries are
paid an annual fee of $15,000 and a fee of $1,500 for each Board meeting
attended.
The Board of Directors has an Audit Committee consisting of Messrs.
Krat, Simon and Pomerantz. The Audit Committee recommends annually to the Board
of Directors the independent auditors for the Company and its subsidiaries;
meets with the independent auditors concerning their audit, evaluation of the
Company's financial statements, accounting developments that may affect the
Company, and non-audit services; meets with management concerning similar
matters;
44
<PAGE> 54
and makes recommendations to all of the aforesaid groups that it deems
appropriate. Messrs. Krat and Simon also serve as the Compensation Committee of
the Board.
Mark M. David owns $100,000 in principal amount of the Old Debentures.
MR. DAVID IS NOT PARTICIPATING IN THE EXCHANGE OFFER.
REMUNERATION AND OTHER TRANSACTIONS WITH MANAGEMENT
The compensation of the executive officers of the Company, during the
fiscal year ended June 30, 1996 is set forth in the following tables:
45
<PAGE> 55
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
--------------------------------------------- ALL
NAME AND RESTRICTED OPTIONS OTHER
PRINCIPAL FISCAL STOCK (# COMPEN
POSITION YEAR SALARY ($) AWARDS($) SHARES) SATION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mark M. David 1996 275,000 - 333,333(1) 8,145(2)
Chairman of the 1995 522,857 - 333,333(1) 8,145(2)
Board and 1994 550,000 - 333,333(1) 8,145(2)
Chief Executive
Officer of the
Company
Clayton E. 1996 277,000(3) - -0-(4) _
Medley 1995 270,846 - -0- _
Former 1994 275,000 - -0- _
President and
Chief Operating
Officer of the
Company;
Director
Saul Pomerantz 1996 145,000 - 144,782(5) _
Senior Vice 1995 161,663 - -0- (6) _
President and 1994 165,000 - -0- (6) _
Chief Financial
Officer of the
Company;
Director
Helen Samuels 1996 201,000(7) - -0-(4) _
Former Vice 1995 127,476 - -0- _
President and 1994 130,000 - -0- _
Treasurer of
the Company;
Director
Barbara Khouri 1996 291,000(8) - -0- _
Former Chief _
Executive _
Officer
</TABLE>
(1) Represents options to purchase 333,333 shares of Common Stock
granted under the Company's Non-Qualified Stock Option Plan
("1988 Plan").
(2) Represents annual premiums paid by the Company for a split
dollar form of life insurance policy on the life of Mark M.
David.
(3) Includes termination payment of $90,000.
(4) All outstanding options previously granted expired ninety days
after termination of employment.
(5) Represents options to purchase 144,782 shares of Common Stock
under the 1994 Incentive Stock Option Plan (the "1994 Plan").
46
<PAGE> 56
(6) As a condition to the grant of options under the 1994 Plan,
each recipient was required to surrender all of outstanding
options previously granted to him or her. The exercise prices
of the surrendered options granted were higher than the
exercise price of options granted under the 1994 Plan.
(7) Includes termination payment of $100,000.
(8) Includes termination payment of $95,000.
VOTING SECURITIES
The Company's only outstanding voting securities are shares of its
Common Stock, par value of $.01 per share. On June 30, 1996, there were
13,959,650 shares of Common Stock outstanding and entitled to vote.
The following table sets forth certain information with respect to the
stock ownership of (i) those persons or groups (as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who beneficially own more than
5% of the Company's Common Stock, (ii) each director of the Company and (iii)
all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT AND NATURE OF PERCENT OF
OWNER BENEFICIAL OWNERSHIP CLASS(1)
- ------------------ -------------------- ----------
<S> <C> <C>
Mark M. David 3,015,773(2)(5) 21.0996%
41 Fieldstone Lane
Oyster Bay, NY 11771
Republic National 1,336,228; Direct 9.5720%
Bank as Trustee for
the Movie Star, Inc.
Employee Stock
Ownership Plan
452 Fifth Avenue
New York, NY 10018
Mrs. Abraham David 1,622,959(3)(6) 11.6261%
8710 Banyan Court
Tamarac, FL 33321
Saul Pomerantz 170,026(4) 1.2055%
Joel M. Simon 47,500 0.3402%
237 Park Avenue
New York, NY 10017
Gary W. Krat 10,000 0.0716%
733 Third Avenue
New York, NY 10017
Abraham David 66,000;Direct(8) 0.4728%
8710 Banyan Court
Tamarac, FL 33321
</TABLE>
47
<PAGE> 57
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT AND NATURE OF PERCENT OF
OWNER BENEFICIAL OWNERSHIP CLASS(1)
- ------------------ -------------------- ----------
<S> <C> <C>
All directors and 4,866,258(2)(4)(7) 34.8594%
officers as a group
(4 persons)
</TABLE>
- --------------------------------
(1) Based upon 13,959,650 shares (excluding 2,016,802 treasury shares)
outstanding and options, where applicable, to purchase shares of Common
Stock, exercisable within 60 days.
(2) Includes 58,674 shares owned as custodian for his children, 30,000
shares owned as custodian for his sisters' children and 26,560 shares
owned by his spouse. Also includes the options granted to him for
333,333 shares, under the 1988 Non-Qualified Stock Option Plan,
exercisable within 60 days.
(3) Includes 506,695 shares owned by Annie David as a trustee for the
benefit of her daughters, Marcia Sussman and Elaine Greenberg.
(4) Includes options granted to Saul Pomerantz for 144,782 shares
pursuant to the 1994 Plan, exercisable within 60 days; and 244 shares
owned by his spouse and 8,000 shares held jointly with his spouse.
(5) Does not include Mrs. Abraham David's shares for which he holds the
proxy.
(6) Mark M. David holds a proxy for these shares.
(7) Includes the shares held by Mrs. Abraham David.
(8) Abraham David is the husband of Annie David and the father of Mark
M. David.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the principal United States federal
income tax consequences applicable to holders whose Old Debentures are tendered
and accepted in the Exchange Offer. This discussion is based on currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable final, temporary and proposed Treasury regulations
promulgated thereunder ("Treas. Reg."), judicial authorities, and current
administrative rulings and pronouncements of the Internal Revenue Service
("Service"), all of which are subject to change, possibly with retroactive
effect. Substantial uncertainties exist with respect to various tax consequences
of the Exchange
48
<PAGE> 58
Offer. There can be no assurance that the Service will not take a contrary view,
and no ruling from the Service has been or will be sought by the Company.
Accordingly, no absolute assurances can be given with respect to certain federal
income tax consequences of the Exchange Offer. This discussion assumes that all
of the Old Debentures are, and New Notes will be, held as capital assets (i.e.,
generally assets that are held for investment), within the meaning of Section
1221 of the Code, and will not be part of a straddle, a hedge or a conversion
transaction, within the meaning of Section 1258 of the Code. The discussion is
for general information only, and does not address all of the tax consequences
that may be relevant to particular holders in light of their personal
circumstances, or to certain types of holders subject to special treatment under
the United States federal income tax laws (such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities or
foreign persons).
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF EXCHANGING THE OLD DEBENTURES AND THE HOLDING,
CONVERSION AND DISPOSITION OF THE NEW NOTES, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
49
<PAGE> 59
FEDERAL INCOME TAX CONSEQUENCES
OF ACCEPTANCE OF THE EXCHANGE OFFER
TAXABLE EXCHANGE. The exchange of Old Debentures for New Notes is to be treated
as a taxable exchange under Code Section 1001(a). An Old Debenture holder will
recognize gain or loss upon the exchange of Old Debentures measured by the
difference between (i) the "issue price" of New Notes received and (ii) the Old
Debenture holder's adjusted tax basis in the Old Debentures surrendered in
exchange. Treas. Reg. Section 1.1001-1(g).
The "issue price" of the New Notes to be issued in exchange for an Old
Debenture within the meaning of the Treasury Regulations will be equal to the
fair market value (i.e., the public trading price) of each Old Debenture on the
issue date of the New Notes. Treas. Reg. Section 1.1273-2(C). No portion of the
issue price is allocated to the option to convert the Convertible Note into
stock. On August 27, 1996, the last reported sale price of an Old Debenture on
the American Stock Exchange was $520.00 per $1,000 principal amount.
A holder's adjusted tax basis in an Old Debenture acquired by purchase
will equal the cost of such Old Debenture to the holder, increased by the amount
of any accrued market discount included in taxable income by the holder with
respect to such Old Debenture and reduced by any amortized bond premium deducted
under Code Section 171 over the term of the Old Debenture.
Any such gain or loss will generally be long-term capital gain or loss,
provided the Old Debentures have been held for more than one year and were
capital assets in the hands of the Old Debenture holder. Any gain attributable
to accrued market discount is to be treated as ordinary income under the rules
of Section 1276 of the Code.
As the New Notes will have a maturity date of five years from their
issue date, they should not constitute "securities" and the exchange would not
qualify as a tax-free recapitalization.
50
<PAGE> 60
FEDERAL INCOME TAX CONSEQUENCES
OF HOLDING THE NEW NOTES
ORIGINAL ISSUE DISCOUNT ON THE NEW NOTES. The New Notes will be issued with
original issue discount ("OID") since the "issue price" of the New Notes will be
less than their "stated redemption price at maturity," as such terms are defined
under the Code and Treasury Regulations. The "issue price" of the New Notes will
equal, as noted above, the fair market value of each Old Debenture on the issue
date of the New Notes. The "stated redemption price at maturity" of New Notes
will equal the sum of all payments required under the New Note other than
payments of "qualified stated interest" within the meaning of the Treasury
Regulations (defined generally as stated interest that is unconditionally
payable in cash or in property (other than the debt instruments of the issuer)
at least annually at a single fixed rate that appropriately takes into account
the length of intervals between payments). As the New Notes will pay in cash
interest accruing from their issue date to their maturity date, the stated
interest on the New Notes will be treated as qualified stated interest. As a
result, the "stated redemption price at maturity" of each New Note set will be
the $1,106.95 principal amount of the New Notes. The original issue discount of
the New Notes will be equal to the excess of their $1,106.95 principal amount
over the public trading price of each Old Debenture on the issue date of the New
Notes.
Each holder of New Notes will be required to include original issue
discount in such holder's gross income periodically over the term of such New
Note even though actual payment of cash or other property with respect to such
income is not received until a later date. In general, the amount of original
issue discount that a holder of a debt instrument with original issue discount
must include in gross income for United States federal income tax purposes will
be the sum of the daily portions of original issue discount with respect to such
debt instrument for each day during the taxable year or portion of a taxable
year on which such holder holds the debt instrument. The daily portion is
determined under a constant yield method by allocating to each day of an accrual
period (generally, a six month period or a shorter or longer period) a pro rata
portion of an amount equal to the "adjusted issue price" of the debt instrument
at the beginning of the accrual period multiplied by the yield to maturity of
the debt instrument. The yield to maturity of a debt instrument is the discount
rate that, when applied to all payments due under the debt instrument produces a
present value equal to the issue price of the debt instrument. The "adjusted
issue price" is the issue price of the debt instrument increased by the accrued
original issue discount for all prior accrual periods (and
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decreased by the amount of cash payments made in all prior accrual periods other
than qualified stated interest payments).
A holder of New Notes should be aware that, because of the above
original issue discount rules, the OID includible in the income of a holder of
New Notes for each six-month accrual period will be higher than the amount of
cash interest that is payable under the New Notes each April 1 and October 1.
STATED INTEREST. Each holder of New Notes must include in gross income as
ordinary interest income the interest pay able semi-annually on the New Notes at
the time it accrues or is received, in accordance with the holder's accounting
method.
SALE, EXCHANGE, REDEMPTION OR DISPOSITION OF THE NEW NOTES. In general, a holder
of New Notes will recognize gain or loss upon the sale, exchange, redemption or
other taxable disposition of New Notes, measured by the difference between (i)
the amount of cash and the fair market value of property received (except to the
extent attributable to accrued interest on the New Notes previously taken into
account) and (ii) such holder's adjusted tax basis in the New Notes. Any
recognized gain or loss will generally be capital gain or loss, except to the
extent of any accrued market discount, and such capital gain or loss will be
long-term if the holding period for the New Notes is more than one year.
ADJUSTED TAX BASIS. A holder's adjusted tax basis in New Notes acquired pursuant
to the Exchange Offer will initially equal the "issue price" of such New Notes
and will be increased by the amount of any accrued OID includible in taxable
income by the holder with respect to such New Notes and decreased by the amount
of any cash repayments of principal on the New Notes received by the holder.
HOLDING PERIOD. The holder's holding period in the New Notes will begin on the
day the Old Debenture is exchanged.
REDEMPTION OF THE NEW NOTES. The New Notes may be redeemed prior to maturity.
Under the Treasury Regulations, an issuer of a debt instrument having an option
to call the debt will be presumed to exercise such option if doing so would
lower the yield to maturity of the debt instrument. If, contrary to the
presumption made under the Treasury Regulations, such option is in fact not
exercised, the debt instrument is treated as reissued on the date of the
non-exercise for an amount equal to its adjusted issue price on such date.
Holders should consult with their tax advisors with respect to the consequences
of the possible early redemption of certain of the New Notes.
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WARRANTS ISSUED UPON REDEMPTION OF THE CONVERTIBLE NOTES. The Convertible Notes
are redeemable, at the option of the Company, in whole or in part, at any time,
at 100% of principal amount, plus accrued interest; provided that the Company
may not exercise such right to redeem while any of the 8% Senior Notes remain
outstanding. The Convertible Notes further provide that if a Convertible Note is
redeemed, the Company shall issue a warrant to the holder of the Convertible
Note granting the holder the same privilege to purchase Common Stock as the
holder had under the conversion right. Under Treasury Regulations an option is
ignored if it is an option to convert a debt instrument into the stock of the
issuer, into the stock or debt of a related party, or into cash or other
property in an amount equal to the approximate value of such stock or debt.
Treas. Reg. Section 1.1272-1(e). The same rule applies in the contingent payment
debt instrument regulations. The Company believes the possibility of having to
substitute a warrant for the conversion right is remote as a precondition for
such issuance is the redemption of all of the 8% Senior Notes before their
maturity. As the purpose of issuing the warrant is in essence only to preserve
the conversion feature until its regular expiration date despite the redemption
of a Convertible Note prior to its stated maturity date, the remotely possible
issuance of a warrant right should similarly be ignored. A holder of a
Convertible Note who receives a warrant upon redemption of a Convertible Note
may, however, be deemed to be in receipt of additional income measured by the
fair market value of the warrant on the date of the redemption.
ELECTION. A holder of New Notes, subject to certain limitations, may elect to
include all interest and discount on the New Notes in gross income under the
constant yield method. For this purpose, interest includes stated and unstated,
acquisition discount, original issue discount, de minimis market discount and
market discount, as adjusted by any amortizable bond premium or acquisition
premium. Any such election, if made in respect of a market discount bond, will
constitute an election to include market discount in income currently on all
market discount bonds acquired by such holder on or after the first day o the
first taxable year to which the election applies.
EXERCISE OF CONVERSION RIGHTS. No gain or loss will be recognized by a holder of
a Convertible Note upon the conversion thereof in exchange for shares of Common
Stock (except to the extent of cash, if any, received in lieu of the issuance of
fractional shares). A holder's tax basis in the shares of Common Stock received
upon conversion will equal the sum of the adjusted tax basis in the Convertible
Note reduced by the portion of adjusted tax basis allocated to any fractional
share exchanged for cash. The holding period of the shares of Common Stock
received on the
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conversion of a Convertible Note will include the period during which the
Convertible Note was held by such holder, except that the holding period of
shares of Common Stock allocable to accrued original issue discount may commence
on a later date. If any cash is received in lieu of fractional shares, the
holder will recognize gain or loss, and the character and the amount of such
gain or loss will be determined as if the holder had received such fractional
shares and then immediately sold them for cash.
DIVIDENDS. The Company does not presently intend to pay dividends on its Common
Stock in the foreseeable future. If the Company should pay a dividend on the
Common Stock, the dividend will be taxable as ordinary income to the extent of
the Company's current and accumulated earnings and profit. If there are no such
earnings and profits, such dividend would be treated first as a return of
capital to the extent of the holder's tax basis in the shares of Common Stock,
and then, if the amount of the dividend exceeds such tax basis, as capital gain
to the extent of such excess. As a result, until such time as the Company has
current or accumulated earnings and profits, distributions on Common Stock will
be a nontaxable return of capital and will be applied against and reduce the tax
basis of any share of Common Stock (but not below zero) in the hands of its
holder. The Company believes that it does not presently have accumulated earn-
ings and profits for tax purposes. However, the Company cannot predict whether
it will have earnings and profits for future taxable years.
SALE OF COMMON STOCK. Gain or loss will generally be recognized upon a sale of
the shares of Common Stock received upon conversion of a Convertible Note in an
amount equal to the difference between the amount realized on the transfer and
the holder's tax basis in the shares of Common Stock. Such gain or loss will be
capital gain or loss, provided the shares of Common Stock are held as a capital
asset, and will be long-term capital gain or loss with respect to shares of
Common Stock held for more than one year.
ADJUSTMENTS IN CONVERSION RATIO. The conversion ratio applicable to the
Convertible Notes is subject to adjustments under certain circumstances. Under
Section 305 of the Code and the Treasury Regulations promulgated thereunder, a
holder of a Convertible Note will be treated as having received a constructive
distribution, resulting in ordinary income to the extent of the Company's
current and accumulated earnings and profits, if, and to the extent that,
adjustments in the conversion ratio are coupled with or occur by reason of
certain taxable distributions on stock and increase the proportionate interest
of a holder of a Convertible Note in the earnings and profits of the Company. As
such, under certain circumstances that may or may not occur, such an adjustment
may be treated as a taxable dis-
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tribution to a holder of a Convertible Note, without regard to whether such
holder receives any cash or other property.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company will provide
information statements on a Form 1099 to a holder of New Notes (other than a
holder who is a corporation or is any other entity included within exempt
categories) and to the Internal Revenue Service stating the amount of any
"reportable payments" (including any interest paid and any OID accrued on the
New Notes). The "backup" with holding requirements may apply to certain payments
of principal and interest (including OID) on the New Notes and to certain
payments of proceeds of the sale or retirement of the New Notes. The Company,
its agent, a broker, or any paying agent, as the case may be, will be required
to withhold tax from any payment that is subject to backup withholding at a rate
of 31% if the holder, among other things, (i) fails to furnish the holder's
social security number or other taxpayer identification number ("TIN") to the
payor responsible for backup withholding (for example, the Company or the
holder's securities broker), (ii) furnishes to such payor an incorrect TIN,
(iii) fails to provide such payor with a certified statement, signed under the
penalties of perjury, that the TIN provided to the payor is correct and that the
holder is not subject to backup withholding, or (iv) fails to report properly
interest and dividends on the holder's tax return. A holder who does not provide
the Company or the applicable reporting entity with the holder's correct TIN may
be subject to penalties under the Code. Backup withholding is not an additional
tax. The amount of any backup withholding from a payment to a holder will be
allowed as a credit against such holder's United States federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the Service.
FEDERAL INCOME TAX CONSEQUENCES TO
NON-TENDERING HOLDERS OF OLD DEBENTURES
Old Debenture Holders who do not participate in the Exchange Offer
should not recognize gain or loss as a result of the successful completion of
the Exchange Offer.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
APPLICABLE HIGH YIELD DISCOUNT OBLIGATION RULES AND DEDUCTION OF INTEREST AND
OID. Generally, under Section 163(e)(5) of the Code, original issue discount is
not deductible until paid with respect to any debt instrument issued by a
corporation which (i) has a maturity date which
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is more than five years from the date of issue, (ii) has a yield to maturity
which equals or exceeds five percentage points over the applicable federal rate
for the calendar month in which the obligation is issued and (iii) has
"significant original issue discount." A debt instrument is treated as having
"significant original issue discount" if the aggregate amount that would be
includible in gross in come with respect to such debt instrument for periods
before the close of any accrual period ending after the date five years after
the date of issue exceeds the sum of (i) the aggregate amount of interest to be
paid in cash under the debt instrument before the close of such accrual period
and (ii) the product of the initial issue price of such debt instrument and its
yield to maturity. Moreover, if the debt instrument's yield to maturity exceeds
the applicable federal rate plus six percentage points, a ratable portion of the
issuing corporation's deduction for original issue discount (the "Disqualified
OID") will be denied. For purposes of the dividends received deduction under
Section 243 of the Code, the Disqualified OID will be treated as a dividend to
the extent it would have been so treated if it had been distributed by the
issuing corporation with respect to its stock.
By the testing date of September 30, 2001, the semi-annual stated
amounts of interest and OID included in the stated face amount of the New Notes
will be paid in cash. Accordingly, the aggregate of these cash payments plus the
product of the initial issue price of the New Notes and their yield to maturity,
will be greater than the OID includible in gross income by September 30, 2001.
Therefore, the New Notes will not have "significant original issue discount."
As a result, the Company will not be subject to the applicable high yield
discount obligation rules described above and the Company will be entitled to
deduct interest payable on the New Notes as such interest accrues and OID on the
New Notes as OID is included in the income of the holders of New Notes.
CANCELLATION OF INDEBTEDNESS INCOME. Consummation of the exchange of an Old
Debenture which was issued for $1,000 for New Notes having an issue price equal
to the much lower fair market value of the Old Debenture on the issue date of
the New Notes will result in the Company realizing cancellation of indebtedness
income. Code Section 108(e)(10). The cancellation of debt income resulting from
the exchange may therefore be approximately $4,400,000. The Company had
available as of June 30, 1995 approximately $7,200,000 of net operating loss
carryover for Federal income tax purposes. This net operating loss carryover,
plus any carryover of net operating losses determined for the fiscal year ending
June 30, 1996, can be utilized to offset the cancellation of debt income to be
recognized. If for the fiscal year ending June 30, 1997 the Company has
operating
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losses, which together with the net operating loss carryover will exceed the
approximately $4,400,000 cancellation of debt income, the Company will not be
required to pay any regular federal income tax. Even in such a case, however,
the Company may be liable for the Alternative Minimum Tax ("AMT") because the
AMT net operating loss carry forward is in the smaller sum of approximately
$5,600,000 as of June 30, 1995 and only 90 percent of AMT income is allowed to
be offset by the AMT net operating loss carry forward.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF OLD DEBENTURES,
NEW NOTES OR COMMON STOCK IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND INCOME
TAX SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM FROM THE EXCHANGE OF OLD DEBENTURES AND OWNERSHIP AND
DISPOSITION OF THE NEW NOTES OR COMMON STOCK, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL OR OTHER TAX LAWS.
DESCRIPTION OF NEW NOTES
GENERAL
The following is a brief description of the New Notes:
The New Notes will be issued under a separate Indenture (the "New
Indenture") between the Company and American Stock Transfer & Trust Company, as
Trustee (the "New Trustee"). The terms of the New Notes include those stated in
the New Indenture and those made part of the New Indenture by reference to the
Trust Indenture Act of 1939 (the "Trust Indenture Act") as in effect on the date
of the New Indenture. The New Notes are subject to all such terms and holders of
Old Debentures are referred to the New Indentures and the Trust Indenture Act
for a statement thereof. The following description relating to the New Notes and
the New Indenture is a summary, does not purport to be complete and is qualified
in its entirety by express reference to the New Notes and the New Indenture.
Copies of the New Indenture are available upon request to the Company,
Attention: Secretary, 136 Madison Avenue, New York, New York 10016. Capitalized
terms used herein and not otherwise defined shall have the respective meanings
assigned to them in the New Indenture.
The New Notes will represent general unsecured obligations of the
Company limited by the New Indenture to an aggregate principal amount of
$11,276,500 comprised of 8% Senior Notes in the aggregate principal amount of
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$10,558,000 and Convertible Notes in the aggregate principal amount of $718,000.
The New Notes will mature on September 1, 2001.
The 8% Senior Notes will be issued only in registered form, without
coupons, in denominations of $1,000 and integral multiples of $1,000; the
Convertible Notes will be issued only in registered form, without coupons, in
denomination of $500 and integral multiplies of $500.
PAYMENT AND TRANSFER
The principal of and interest on the New Notes will be payable at the
office or agency of the Paying Agent. The Company may pay principal and interest
by check and may mail an interest payment to a Holder's registered address.
Holders must surrender the New Notes to the Paying Agent to collect principal
payments.
The New Notes will be transferable and exchangeable upon their
surrender to the Registrar if the Registrar's requirements for such transactions
are met. No service charge will be made for any such transfer or exchange, but
the Company may require a payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The New Trustee initially will act as Paying Agent and Registrar under
the applicable New Indenture. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar under the New Indenture and the Company may upon
notice to the New Trustee change any Paying Agent and Registrar without notice
to the Holders of the New Notes. The Company may also appoint one or more
additional paying agents and registrars.
INTEREST
Interest on the New Notes will accrue from October 1, 1996 and will be
payable semi-annually on April 1 and October 1 of each year (each an "Interest
Payment Date"), commencing April 1, 1997, at the rate of 8% per annum. Interest
will be payable to the persons who are registered Holders of the New Notes at
the close of business on the March 15 and September 15 next preceding the
applicable Interest Payment Date.
CONVERSION OF THE CONVERTIBLE NOTES
The Holders of the Convertible Notes will have the right to convert the
principal amount thereof at 100% of principal amount into shares of Common Stock
at any time prior to the close of business on September 1, 2001 (the "Conversion
Right") at a conversion price of $0.375 per share (the
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"Conversion Price"), subject to adjustment in certain circumstances.
The Company will not be required to issue fractional shares of Common
Stock and will pay a cash adjustment in lieu thereof.
The Conversion Price is subject to adjustment in certain events,
including the issuance of shares of Common Stock as a dividend or distribution
on the Common Stock; subdivisions and combinations of the Common Stock; sales of
common Stock or securities convertible or exchangeable for Common Stock at a
purchase price below market (except Common Stock issued (a) in connection with
certain stock option plans, or (b) in connection with certain business
combinations); distributions on the Common Stock of shares of stock other than
Common Stock, of evidences of indebtedness of assets (excluding certain cash
dividends or cash distributions) or of rights or warrants to subscribe to or
purchase securities of the Company at an exercise price less than the market
price on the date of such issuance, sale or distribution. No adjustment of the
Conversion Price will be required to be made unless such adjustment would
require an increase or decrease of at least one cent ($.01) in such price. The
Company will reserve the right to make downward adjustments in the Conversion
Price in addition to those required in the foregoing provisions as it shall
determine to be advisable.
In case of (a) any consolidation or merger of the Company with or into
another person (other than a merger or consolidation in which the Company is a
continuing party and which does not result in a reclassification or material
change in the Common Stock), (b) any sale, lease or conveyance to another person
of the property of the Company as an entirety or substantially as an entirety,
or (c) reclassifications or changes of the Common Stock, then the surviving or
purchasing person will be required by the terms of the New Indenture to execute
and deliver a supplemental indenture providing that the Holder of each
Convertible Note would have the right thereafter to convert such Convertible
Note into the kind and amount of shares of stock, other securities, property or
cash or any combination thereof receivable upon the consolidation, merger, sale,
conveyance, reclassification or change by a holder of the number of shares of
Common Stock into which such Convertible Note could have been converted pursuant
to the Conversion Right immediately prior thereto.
The New Trustee in its capacity as Registrar will initially act as the
Agent under the New Indenture with respect to and conversion of the Convertible
Notes (the "Conversion Agent"). The Company or any of its Subsidiaries may act
as Conversion Agent under the New Indenture and the Company may, upon notice to
the New
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Trustee, change any Conversion Agent without notice to the Holders of the
Convertible Notes. The Company may also appoint one or more additional
conversion agents.
REDEMPTION
OPTIONAL REDEMPTION. The New Notes will be redeemable at any time, in
whole or in part, at the option of the Company, at 100% of the principal amount
thereof plus accrued interest, if any, to the redemption date; provided however,
if less than all the New Notes are to be redeemed, the Company shall give the
New Trustee notice not less than 45 days prior to the redemption date as to the
aggregate principal amount of New Notes to be redeemed, and the New Trustee
shall select the New Notes or portions thereof to be redeemed on a pro rata
basis or by lot; provided, further, that no redemption may be made of any
Convertible Note unless and until there are no longer any 8% Senior Notes
outstanding or unless all of the outstanding 8% Senior Notes are being redeemed
concurrently with the Convertible Notes being redeemed. The 8% Senior Notes may
be redeemed in part only in multiples of $1,000 and the Convertible Notes may be
redeemed in part only in multiples of $500. In addition, if notice of a
redemption of any Convertible Notes is given on a date other than a date on
which (i) the average closing market price per share of the Company's common
stock during the twenty consecutive trading days immediately preceding the date
of such notice is at least $2.50; and (ii) the closing market price per share on
the date of such notice is at least $2.50, any such redemption notice shall
include notice to the holder of the right to receive a warrant to purchase such
number of shares of the Company's common stock as were issuable upon conversion
immediately prior to redemption and to have such warrant registered under
applicable federal and state securities laws.
MANDATORY REDEMPTION. The New Notes will not be subject to mandatory
redemption.
NOTICE OF REDEMPTION AND SELECTION OF NEW NOTES CALLED FOR REDEMPTION.
Notice of optional redemption will be given to the Holders of the applicable New
Notes to be redeemed at their registered addresses not more than 45 days nor
less than 30 days prior to the redemption date. Notice of redemption will
specify, among other things, the redemption date, the redemption price, the
Paying Agent, and, in the case of a partial redemption, the aggregate principal
amount of the applicable New Notes to be redeemed, the aggregate principal
amount of the applicable New Notes that will be outstanding after such partial
redemption and that an applicable New Note or New Notes in principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original New Note. In the case of a partial
redemption, the notice will
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specify the particular securities and the portions thereof called for
redemption. If less than all of the New Notes issued under the applicable New
Indenture are to be redeemed, the New Trustee will select subject to the
limitations on the Company's right to redeem Convertible Notes, such New Notes
to be redeemed by lot or by any other method which the New Trustee may deem fair
and appropriate so long as such method is not proscribed by any securities
exchange on which such New Notes are then listed. The New Trustee will make the
selection of such New Notes to be redeemed from the New Notes outstanding and
not previously called for redemption. The 8% Senior Notes and portions of them
selected by the New Trustee for redemption will be in amounts of $1,000 or
integral multiples of $1,000 and the Convertible Notes and portions of them
selected by the New Trustee for redemption will be in amounts of $500 or
integral multiples of $500.
CERTAIN COVENANTS
LIMITATION ON DIVIDENDS AND PURCHASES OF CAPITAL STOCK OR INDEBTEDNESS.
The Company will not declare or pay any dividend or make any distribution on any
class of its capital stock or to the holder of any class of its capital stock
(except dividends or distributions payable in capital stock of the Company), or
purchase, redeem or otherwise acquire or retire for value any capital stock of
the Company (i) if at the time of such action an Event of Default or an event
which with notice or lapse of time or both would constitute an Event of Default,
shall have occurred and be continuing, or (ii) if, upon giving effect to such
dividend distribution, purchase redemption, or other acquisition or retirement,
the aggregate amount expended for all such purposes (the amount expended for
such purposes, if other than in cash, to be determined by the Board of
Directors, whose determination shall be made in good faith and evidenced by a
resolution of the Board of Directors filed with the New Trustee) shall exceed
the sum of (a) 75% of the aggregate Consolidated Net Income (or, in case such
aggregate Consolidated Net Income shall be a deficit, minus such deficit) of the
Company accrued on a cumulative basis for the period commenced on June 30, 1986
to the date of the payment or making of such dividend, distribution, purchase,
redemption or other acquisition or retirement, (b) the aggregate net proceeds,
including the fair market value of property other than cash (as determined by
the Board of Directors, whose determination shall be made in good faith and
evidenced by a resolution of the Board of Directors filed with the New Trustee),
received by the Company from the issue or sale form time to time after September
30, 1986, of capital stock of the Company, including capital stock issued upon
the conversion of, or in exchange for, indebtedness for borrowed money, and (c)
$4,000,000; provided, however, that the Company shall not be prevented
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from (A) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment complied with
the provisions hereof, or (B) the retirement of any shares of the Company's
capital stock by exchange for, or out of proceeds of the substantially
concurrent sale of, other shares of its capital stock, and neither such
retirement nor the proceeds of any such sale or exchange shall be included in
computing the foregoing limitation.
LIMITATION ON RESTRICTION OF PAYMENT OF DIVIDENDS BY SUBSIDIARIES OF
THE COMPANY. The New Indenture will provide that, the Company will not permit
any of its Subsidiaries to enter into any agreement which by its terms limits
the ability of such Subsidiary to pay dividends or make any other distributions
on such Subsidiary's Capital Stock.
SUBORDINATION
The New Indenture will provide that the New Notes will rank senior to
the Old Debentures.
EVENTS OF DEFAULT
Unless otherwise indicated, the following events will be defined in the
New Indenture as "Events of Default": (i) failure to make any interest payment
on the New Notes when due and the continuance of such default for a period of 10
days; (ii) failure to pay principal of the New Notes issued under the applicable
New Indenture, when due, whether at maturity, upon redemption or otherwise;
(iii) failure on the part of the Company to comply with any of its other
agreements contained in the New Notes or the New Indenture, if such failure
continues unremedied for 30 days after written notice given by the New Trustee
or the Holders of at least 25% in aggregate principal amount of the New Notes
then outstanding; (iv) a default under any other Indebtedness of the Company or
any of its Subsidiaries if such default permits the acceleration thereof prior
to its expressed maturity and the aggregate principal amount of such
Indebtedness equals $250,000 or more; (v) certain events involving the
bankruptcy, insolvency, receivership or reorganization of the Company or certain
Subsidiaries of the Company.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization) shall occur, the New
Trustee or the Holders of not less than 25% in principal amount of the
applicable New Notes may declare immediately due and payable all unpaid
principal of and accrued interest on all the applicable New Notes. In case an
Event of Default resulting from certain
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events of bankruptcy, insolvency, receivership or reorganization shall occur,
such amount shall be due and payable immediately, without any declaration or
other act on the part of the New Trustee, or the Holders. Subject to certain
conditions, the Holders of a majority in principal amount of the applicable New
Notes may rescind such acceleration if all Events of Default under the
applicable New Indenture are remedied, except nonpayment of principal or
interest, if any, that has become due solely because of the acceleration. In
certain cases the Holders of a majority in principal amount of the New Notes may
waive any past Default and its consequences, except a Default in the payment of
principal of or interest, if any, on such New Notes.
The New Indenture will provide that the New Trustee must, within 90
days after the occurrence of each Default known to it, give to the Holders of
the New Notes notices of such Default; provided, however, that, except in the
case of Default in the payment of the principal of or interest, if any, on the
New Notes issued thereunder, the New Trustee shall be protected in withholding
such notice if a committee of its Trust Officers in good faith determines that
the withholding of such notice is in the interests of the Holders of the New
Notes.
The Company will be required to furnish, within 120 days after the end
of each fiscal year of the Company, to the New Trustee an Officers' Certificate
and a certificate of the Company's independent public accountants, each stating
whether the signers have any knowledge of any Default under the applicable New
Indenture fiscal year and, if so, specifying the status thereof.
DISCHARGE OF NEW INDENTURE
The New Indenture will provide that the Company may terminate its
obligations, with certain exceptions, under the New Notes and the New Indenture
if (i) all New Notes issued thereunder previously authenticated and delivered
(other than destroyed, lost or stolen New Notes which have been replaced or
paid) have been delivered to the New Trustee for cancellation and the Company
has paid all sums payable by it under the New Indenture or (ii) the Company
irrevocably deposits in trust with the New Trustee money sufficient to pay the
principal of and interest, if any, on such New Notes to maturity or redemption,
as the case may be, and to pay all other sums payable under the New Indenture.
AMENDMENTS AND WAIVERS
Any provision of the New Indenture or the New Notes may be amended by
the Company, the New Trustee and the Holders
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of not less than a majority in principal amount of the applicable New Notes then
outstanding without notice to any Holder.
Notwithstanding the foregoing, no such amendment or waiver may, without
the consent of each Holder affected thereby, (i) reduce the principal amount of
New Notes whose Holders must consent to an amendment, supplement or waiver, (ii)
reduce the rate of or change the time for payment of interest on any New Note,
(iii) reduce the principal amount of or change the fixed maturity of any New
Note or alter the redemption or conversion provisions with respect thereto, (iv)
make any New Note payable in money other than that stated in the New Note, (v)
waive a Default in the payment of the principal of or interest on any New Note
or (vi) modify the foregoing requirements or the provision permitting waiver of
certain past Defaults. Without the consent of any Holder, the Company and the
New Trustee may amend the New Indenture or the New Notes to comply with the
provisions of such New Indenture in the case of a consolidation, merger or sale
of all or substantially all of the assets of the Company, to provide for
uncertificated New Notes in addition to certificated New Notes, to cure any
ambiguity, defect or inconsistency, to comply with the Trust Indenture Act or to
make any other change that does not adversely affect the rights of any Holder.
THE NEW TRUSTEE
The New Indenture will provide that the Holders of a majority in
principal amount of the New Notes issued thereunder may at any time remove the
New Trustee and appoint a successor trustee by delivery of written evidence of
the action in that regard taken by such Holders to the New Trustee to be so
removed and the Company. In addition, the Holders of a majority in principal
amount of the New Notes will have the right, subject to certain limitations, to
direct the time, method and place of conducting any proceeding for any remedy
available to the New Trustee or of exercising any trust or power conferred on
the New Trustee.
The New Indenture will provide that, in case an Event of Default shall
occur and be continuing, the New Trustee shall exercise such of the rights and
powers vested in it by such New Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs. Subject to such provisions, the
New Trustee may refuse to perform any duty or exercise any right or power unless
it receives indemnity satisfactory to it against any loss, liability or expense.
If the Company fails to pay such amounts of principal of or interest on the New
Notes as shall have become due and payable upon demand as specified in the New
Indenture, the New Trustee, at the request of the
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<PAGE> 74
Holders of a majority in principal amount of the applicable class of New Notes
then outstanding, and upon being offered such reasonable indemnity as it may be
required against the costs, expenses and liabilities incurred by it, except as a
result of its negligence or bad faith, shall institute any actions or
proceedings at law or in equity for the collection of the sums so due and unpaid
and collect in the manner provided by law the monies adjudged or decreed to be
payable.
The New Indenture and the provisions of the Trust Indenture Act
incorporated by reference therein contain limitations on the rights of the New
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to realize on certain property received in respect of any
such claims as a Holder or otherwise. The New Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest,
it must eliminate such conflict or resign.
DESCRIPTION OF COMMON STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock,
par value $.01 per share, of which 13,959,650 were issued and outstanding as of
August 31, 1996. Holders of Common Stock have no preemptive rights and are not
liable to further calls or assessment by the Company. Each share of Common Stock
is entitled to one vote for all purposes, and no shares have cumulative voting
rights. Cash dividends have never been paid on the Common Stock.
Holders of shares of Common Stock receive annual reports containing
audited financial statements and quarterly reports containing unaudited selected
financial information.
The shares of Common Stock are listed on the American Stock Exchange.
American Stock Transfer & Trust Company is the transfer agent and registrar of
the Common Stock.
DESCRIPTION OF OLD DEBENTURES
The statements under this caption relating to the Old Debentures and
the Old Debenture Indenture pursuant to which they were issued constitute a
summary and do not purport to be complete. Such summary makes use of terms
defined in the Old Debenture Indenture and is qualified in its entirety by
express reference to the Old Debenture Indenture, a copy of which has been filed
with the Securities and Exchange Commission. Copies of the Old Debenture
Indenture are available for inspection at the offices of the Company.
The Old Debentures were issued under an Indenture dated as of October
1, 1986 (the "Indenture"), between the Company and Bank of Montreal Trust
Company, as trustee (the
65
<PAGE> 75
"Trustee"). The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture, including the
definitions therein of certain terms. Whenever a particular article, section or
defined term of the Indenture is referred to, it is intended that such article,
section or defined term be incorporated herein by reference.
GENERAL
The Old Debentures were limited to $25,000,000 aggregate principal
amount, mature on October 1, 2001 and bear interest at the rate of 12.875% per
annum from the date of original issue, or from the most recent interest payment
date to which interest has been paid, payable semiannually on October 1 and
April 1 of each year, commencing April 1, 1987, to the persons in whose name the
Old Debentures are registered at the close of business on September 15 or March
15, preceding such interest payment date. Principal and interest are payable at
the office or agency of the Company in the Borough of Manhattan, The City of New
York, but, at the option of the Company, interest may be paid by check mailed to
the registered holders of the Debentures at their registered addresses. The Old
Debentures are transferable and exchangeable at the office or agency of the
Company in the Borough of Manhattan, The City of New York and were issued as
registered debentures, without coupons, in denominations of $1,000 and any
integral multiple thereof. The Old Debentures are not be secured. (Section 2.01,
2.03, 2.04, 2.05 and 2.06 of the Indenture)
OPTIONAL REDEMPTION
The Old Debentures were not redeemable prior to October 1, 1991. The
Old Debentures may be redeemed, at the option of the Company, at any time, prior
to maturity, on or after September 1, 1991, as a whole, or from time to time in
part, on not less than 30 nor more than 60 days' notice at a redemption price
equal to the percentage of the principal amount set forth below, in each case,
together with accrued interest to the date fixed for redemption:
If redeemed during the 12-month period beginning October 1:
<TABLE>
<CAPTION>
Year Percentage Year Percentage
--------------- ---------------
<S> <C>
1991...........108.00% 1996...........103.56%
1992...........107.11% 1997...........102.67%
1993...........106.22% 1998...........101.78%
1994...........105.33% 1999...........100.89%
1995...........104.44%
</TABLE>
66
<PAGE> 76
and thereafter at a redemption price equal to 100% of the principal amount
together with accrued interest to the date fixed for redemption.
If less than all the Old Debentures are to be redeemed, the particular
Old Debentures to be redeemed shall be selected by the Trustee by such method as
the Trustee shall deem fair and appropriate. (Section 3.01, 3.02 and 3.03 of the
Indenture)
MANDATORY SINKING FUND
The Indenture requires the Company to provide for the retirement,
through the operation of a sinking fund, of amounts sufficient to redeem the
principal amounts of Old Debentures set forth opposite the dates below at 100%
of the principal amount thereof together with accrued interest to the date fixed
for redemption:
<TABLE>
<S> <C>
October 1, 1996..........................$3,750,000
October 1, 1997..........................$3,750,000
October 1, 1998..........................$3,750,000
October 1, 1999..........................$3,750,000
October 1, 2000..........................$3,750,000
</TABLE>
The Company may, at its option, receive credit against sinking fund
payments for the principal amount of (a) Old Debentures acquired by the Company
and surrendered for cancellations, and (b) Old Debentures redeemed or called for
redemption otherwise than through the operation of the sinking fund. (Article
III of the Indenture)(1)
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the
Old Debentures (other than by credit for acquired or redeemed Old Debentures) is
subordinated in right of payment, as set forth in the Indenture, to the payment
of all existing and future Senior Debt of the Company. "Senior Debt" means the
principal of, premium, if any, and accrued and unpaid interest on Indebtedness
of the Company, whether outstanding on the date of execution of the Indenture or
thereafter created, incurred or assumed, unless, in the agreement or instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such Indebtedness is not superior in right of payment to the
Old Debentures; provided, however, that Senior Debt will not be deemed to
- --------------
(1) Consummation of the Exchange Offer will eliminate the sinking fund
payments due in 1996, 1997 and 1998 and will reduce the payment due in 1999 to
$2,263,000.
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<PAGE> 77
include (i) any Indebtedness of the Company to any of its Subsidiaries, and (ii)
any other Indebtedness of the Company which is subordinate or junior in any
respect to any other Indebtedness of the Company. (Section 1.01 and 15.01 of the
Indenture)
"Indebtedness" means (i) any liability of any Person (a) for borrowed
money, or (b) evidenced by a note, debenture, bond or other instrument of
indebtedness (including without limitation a purchase money obligation), given
in connection with the acquisition of other property or assets, or (c) for the
payment of rent or other amounts relating to Capitalized Lease Obligations; (ii)
any liability of others described in the preceding clause (i) which such person
has guaranteed or which is otherwise its legal liability; and (iii) any
modification, renewal, extension, replacement or refunding of any such liability
described in the preceding clauses (i) and (ii). (Section 1.01 of the Indenture)
The Old Debentures rank pari passu with all future subordinated debt of
the Company. The only debt of the Company which may rank senior to the Old
Debentures is debt which is Senior Debt of the Company. (Section 5.01 of the
Indenture)
Upon any default by the Company in the payment of principal of, premium
if any, or interest on Senior Debt, whether at maturity or otherwise, no payment
may be made with respect to the principal of, premium, if any, or interest on
the Old Debentures (other than by credit for acquired or redeemed Old
Debentures) or in respect of any redemption, retirement, purchase or other
acquisition of any of the Old Debentures, unless and until such default has been
cured or waived. Upon any other default with respect to any Senior Debt
permitting the holders thereof to accelerate the maturity thereof and upon
written notice thereof given to the Company and the Trustee, no payment may be
made with respect to the principal of, premium, if any, or interest on the Old
Debentures (other than by credit for acquired or redeemed Old Debentures) or in
respect of any redemption, retirement, purchase or other acquisition of any of
the Old Debentures for a period terminating on the earlier to occur of (a) the
cure, waiver or cessation of such default, and (b)90 days from the date of
receipt by the Company and the Trustee of such notice. (Section 15.02 of the
Indenture)
Upon any payment or distribution of the assets of the Company to
creditors upon any dissolution, total or partial liquidation or reorganization
of or similar proceeding relating to the Company, the holders of Senior Debt
will be entitled to receive payment in full before the holders of the Debentures
are entitled to receive any payment (other than shares of stock or subordinated
indebtedness provided by a plan of reorganization or adjustment which does not
68
<PAGE> 78
alter the rights of holders of Senior Debt). Upon any acceleration of the
maturity of the Old Debentures by reason of default, the Company must give
notice of the acceleration to holders of the Senior Debt. (Section 15.02 of the
Indenture)
By reason of such subordination, in the event of insolvency of the
Company, the holders of Senior Debt are likely to recover more, ratably, than
the holders of the Old Debentures, and creditors of the Company who are not
holders of either Senior Debt or the Old Debentures are likely to recover less,
ratably, than holders of Senior Debt and are likely to recover more, ratably,
than holders of the Debentures. (Section 15.02 of the Indenture)
The Indenture does not limit the amounts of additional indebtedness
(including additional Senior Debt) or other securities which may be incurred or
issued by the Company.
CERTAIN COVENANTS
Limitation on Dividends and Stock Purchases. The Company may not
declare or pay any dividend or make any distribution on any class of its capital
stock or to the holders of any class of its capital stock (except dividends or
distributions payable in capital stock of the Company), or purchase, redeem or
otherwise acquire or retire for value any capital stock of the Company if (i) at
the time of such action an Event of Default, or an event which with notice or
lapse of time or both would constitute an Event of Default, under the Indenture
shall have occurred and be continuing, or (ii) if, upon after giving effect to
such dividend, distribution, purchase, redemption, other acquisition or
retirement, the aggregate amount expended for all such purposes (the amount
expended for such purposes, if other than in cash, to be determined by the Board
of Directors, whose determination shall be made in good faith and evidenced by a
resolution of the Board filed with the Trustee) subsequent to June 30, 1986,
shall exceed the sum of (a) 75% of the aggregate Consolidated Net Income of the
Company earned subsequent to June 30, 1986, (b) the aggregate net proceeds,
including the fair market value of property other than cash (as determined by
the Board of Directors, whose determination shall be made in good faith and
evidenced by a resolution of the Board of Directors filed with the Trustee),
received by the Company from the issue or sale after September 30, 1986 of
capital stock of the Company, including capital stock issued upon the conversion
of, or in exchange, for indebtedness for borrowed money (other than the
aggregate net proceeds received by the Company from the sale of the Common Stock
being concurrently offered herewith), and (c) $4,000,000; provided, however,
that the provisions of this limitation shall not prevent (A) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such
69
<PAGE> 79
payment complied with the provisions of this limitation, or (B) the retirement
of any shares of the Company's capital stock by exchange for, or out of proceeds
of the substantially concurrent sale of, other shares of its capital stock, and
neither such retirement nor the proceeds of any such sale or exchange shall be
included in any computation made under this limitation. (Section 1.01 and 4.03
of the Indenture)
"Consolidated Net Income", for any period means the aggregate of the
Net Income of the Company and its Subsidiaries for such period, on a
consolidated basis, determined in accordance with generally accepted accounting
principles; provided that (i) the Net Income of any Person (other than a
Subsidiary) in which the Company or any Subsidiary has a joint interest with a
third party shall be included only to the extent of the amount of dividends or
distributions paid to the Company or a Subsidiary, and (iii) the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded. (Section 1.01 of the
Indenture)
"Net Income" of any Person means the net income (loss) of such Person,
determined in accordance with generally accepted accounting principles;
excluding, however, from the determination of Net Income any gain (but not loss)
realized upon the sale or other disposition (including, without limitation,
dispositions pursuant to sale and leaseback transactions) of any real property
or equipment of such Person, which is not sold or otherwise disposed of in the
ordinary course of business or of any capital stock of the Company or a
Subsidiary owned by such Person. (Section 1.01 of the Indenture)
Limitation on Restrictions on Payment of Dividends by Subsidiary to
Company. The Indenture provides that the Company will not permit any Subsidiary
to enter into any agreement or any supplement to or amendment of any existing
agreement if such agreement, supplement or amendment prohibits the payment of
dividends or the making of other distributions to the Company on such
Subsidiary's capital stock. (Section 1.01 and 4.04 of the Indenture)
Compliance Certificate. The Company will deliver to the Trustee within
120 days after the end of each fiscal year of the Company an Officers'
Certificate stating whether or not the signers know of any Event of Default that
occurred during such period. If they do, the Officers' Certificate will describe
the Event of Default and its status. (Section 4.05 of the Indenture)
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<PAGE> 80
SUCCESSOR COMPANY
The Company shall not consolidate with or merge into any other
corporation or sell its assets substantially as an entirety, unless (a) either
the Company will be the continuing corporation, or the corporation formed by
such consolidation or into which the Company is merged or the corporation which
acquires its assets is organized in the United States of America, any State
thereof, the District of Columbia or any political subdivision of any of the
foregoing and expressly assumes the due and punctual payment of the principal
of, premium, if any, and interest on the Old Debentures and the performance of
every covenant of the Indenture on the part of the Company, (b) immediately
after giving effect to such transaction, no Event of Default shall have happened
and be continuing, (c) the Net equity of the successor corporation immediately
prior to such transaction is at least equal to or greater than the Net Equity of
the Company immediately prior to such transaction, and (d) the Company shall
have delivered to the trustee an officers' Certificate and Opinion of Counsel as
specified in the Indenture. (Section 1.01 and 11.01 of the Indenture)
Upon such consolidation, merger or sale, the successor corporation
formed by such consolidation or into which the Company is merged or to which
such sale is made, shall succeed to, and be substituted for, the Company under
the Indenture. (Section 11.01 and 11.02 of the Indenture)
When a successor corporation assumes all the obligations of its
predecessor under the Old Debentures and the Indenture, the predecessor will be
released from those obligations. (Section 11.02 of the Indenture)
DEFAULTS AND CERTAIN RIGHTS ON DEFAULT
An Event of Default is defined in the Indenture as (a) default for 10
days in payment (whether or not such payment is prohibited by the subordination
provisions of the Indenture) of any interest installment on the Old Debentures,
(b) default in payment (whether or not such payment is prohibited by the
subordination provisions of the Indenture) of principal of or premium on, if
any, the Old Debentures, (c) default for 10 days in payment (whether or not such
payment is prohibited by the subordination provisions of the Indenture) of any
sinking fund payment, (d) default in performance of any other covenant in the
Indenture for 30 days after notice to the Company by the Trustee or the Company
and the Trustees by the holders of at least 25% in principal amount of the Old
Debentures at the time outstanding, (e) the occurrence of a default under any
instrument under which there may be issued, or by which there may be secured or
evidenced, any Indebtedness of the Company or any Subsidiary, having
individually or in the aggregate a remaining principal amount in excess of
$250,000 and such default permits the acceleration of such
71
<PAGE> 81
Indebtedness, and (f) certain events of bankruptcy, insolvency, receivership or
reorganization. In case an Event of Default should occur and be continuing, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Old Debentures may declare the principal of and accrued but unpaid
interest on all the Old Debentures to be due and payable. Such declaration may,
however, under certain circumstances be rescinded by the holders of not less
than the majority in principal amount of the Old Debentures then outstanding.
(Section 1.01 and 6.01 of the Indenture)
Subject to the provisions of the Indenture relating to the duties of
the Trustee to act with the required standard of care, the Trustee will be under
no obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the holders of the Old Debentures, unless such
holders of the Old Debentures have offered to the Trustee security or indemnity.
Subject to such provisions for security or indemnification and certain
limitations contained in the Indenture, the holders of a majority in principal
amount of the Old Debentures at the time outstanding 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. The
Trustee may withhold from holders of the Old Debentures notice of any continuing
default (except a default in payment of principal, premium or interest) if it
determines that withholding notice is in their interest. Holders of the Old
Debentures may not enforce the Indenture or the Old Debentures except as
provided in the Indenture. (Section 6.04, 6.07, 6.08 and 7.01 of the Indenture)
AMENDMENT, SUPPLEMENT, WAIVER
Subject to certain exceptions, the Indenture may be amended or
supplemented with the consent of the holders of at least a majority in principal
amount of the Old Debentures at the time outstanding, and any past default or
compliance with any provision may be waived with the consent of the holders of a
majority in principal amount of the Old Debentures then outstanding, provided
that no amendment, supplement or waiver may, among other things, (a) extend the
time for payment of principal of, premium, if any, or interest on any Old
Debenture or reduce the principal amount thereof or the interest thereon or
change the currency of payment of the Old Debentures or the redemption price
payable upon the redemption thereof without the consent of the holder of each
outstanding Old Debenture so affected, or (b) reduce the aforesaid percentage of
holders of the Old debentures whose consent shall be required for any such
amendment, supplement or waiver, without the consent of the holders of all then
outstanding Old Debentures. Without the
72
<PAGE> 82
consent of any holder of the Old Debentures, the Company many amend or
supplement the Indenture to cure any ambiguity, omission, defect or
inconsistency or to make any change that does not materially adversely affect
the rights of the holders of the Old Debentures. Without the consent of any
holder of the Old Debentures, the Trustee may waive compliance with any
provision of the Indenture if the waiver does not materially adversely affect
the rights of any holders of the Old Debentures. (Section 6.01, 6.07, 10.01 and
10.02 of the Indenture)
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged and cancelled if all the Old
Debentures have been delivered to the Trustee for cancellation or upon deposit
with the Trustee, within not more than six months prior to the maturity or
redemption of all Old Debentures, of funds sufficient for such payment or
redemption. (Article XII of the Indenture)
CONCERNING THE TRUSTEE
Bank of Montreal Trust Company, a New York corporation with its
principal corporate trust offices in the Borough of Manhattan, City of New York,
is the Trustee under the Indenture and American Stock Transfer and Trust
Company, a New York corporation with its principal corporate trust offices in
the Borough of Manhattan, City of New York, has been appointed by the Company as
registrar and paying agent with regard to the Old Debentures.
MARKET PRICES OF COMMON STOCK AND OLD DEBENTURES
COMMON STOCK PRICES (PER SHARE)
<TABLE>
<CAPTION>
Fiscal Period Price
High Sale Low Sale
--------- ---------
<S> <C> <C> <C>
1996 Fourth Quarter 1 7/16
Third Quarter 9/16 1/4
Second Quarter 5/8 3/16
First Quarter 7/8 1/2
1995 Fourth Quarter 1-1/8 7/16
Third Quarter 1-1/4 15/16
Second Quarter 1-3/8 1-1/16
First Quarter 1-1/2 1
</TABLE>
On August 30, 1996, the closing sale price for the Common Stock on the
American Stock Exchange was $0.6875.
73
<PAGE> 83
OLD DEBENTURE PRICES (PER $1,000 OLD DEBENTURE)
Fiscal Period Price
High Bid Low Bid
-------- -------
1996 Fourth Quarter 500.00 270.00
Third Quarter 550.00 285.00
Second Quarter 740.00 430.00
First Quarter 750.00 650.00
1995 Fourth Quarter 928.75 745.00
Third Quarter 910.00 840.00
Second Quarter 900.00 800.00
First Quarter 977.75 840.00
The last reported trade price (August 27,1996) for the Old Debentures
was $520.00
74
<PAGE> 84
MOVIE STAR, INC.
IMPORTANT
Facsimile copies of the Letter of Transmittal will be accepted. A
Letter of Transmittal, certificates for Old Debentures, and any other required
documents should be sent by each Holder of Old Debentures who wishes to accept
the Exchange Offer, or his broker, dealer, commercial bank, trust company or
other nominee, to the Exchange Agent.
Any questions or requests for assistance or additional copies of the
Offering Circular or the Letter of Transmittal may be directed to the Exchange
Agent at its telephone number and location listed below. You may also contact
your broker, dealer, commercial bank or trust company for assistance concerning
the Exchange Offer.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Mail: By Facsimile: By Hand:
American Stock (718) 234-5001 American Stock
Transfer & Trust Transfer & Trust
Company Company
40 Wall Street 40 Wall Street
New York, NY 10005 New York, NY 10005
For information with
respect to the Exchange Offer, call
(718) 921-8200
75
<PAGE> 1
THE EXCHANGE OFFER IS BEING MADE PURSUANT TO THE EXEMPTION FROM REGISTRATION
AFFORDED BY SECTION 3(A)(9) OF THE SECURITIES ACT OF 1933. ACCORDINGLY, NO
COMMISSION OR OTHER REMUNERATION WILL BE PAID OR GIVEN DIRECTLY OR INDIRECTLY
FOR SOLICITING THE EXCHANGE OF DEBENTURES PURSUANT TO THE EXCHANGE OFFER.
MOVIE STAR, INC.
LETTER OF TRANSMITTAL
To Tender
12.875% SUBORDINATED DEBENTURES DUE OCTOBER 1, 2001
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
OCTOBER 25 , 1996 UNLESS EXTENDED. TENDERS OF DEBENTURES ARE IRREVOCABLE.
Name and Address of Registered
Holder(s)
________________________
Name(s) ____________ ________________________
(Please Print) x
________________________
______________ SOCIAL SECURITY NUMBER/
(Please Print) TAXPAYER IDENTIFICATION NUMBER
It is important to furnish your Social
Address:_________________ Security or Taxpayer Identification Number.
Failure to do so may subject you to 31%
_________________ Federal withholding tax. Certain penalties
may also apply. You must also complete and
_________________ sign the Substitute Form W-9 set forth
(Zip Code) below. If your Social Security Number does
not appear in the box or is incorrect,
please provide it on the Substitute Form
W-9.
To: AMERICAN STOCK TRANSFER & TRUST COMPANY, EXCHANGE AGENT.
By Mail: Facsimile Transmission By Hand:
AMERICAN STOCK And Confirmation: AMERICAN STOCK
TRANSFER & TRUST (718) 234-5001 TRANSFER & TRUST
COMPANY COMPANY
40 Wall Street 40 Wall Street
New York, New York 10005 Telephone Number: New York, New York 10005
(718) 921-8200
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING THIS FORM. YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS
FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
OFFERING CIRCULAR AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT. REQUESTS FOR ADDITIONAL COPIES OF THE OFFERING CIRCULAR OR THIS LETTER OF
TRANSMITTAL MAY ALSO BE DIRECTED TO THE COMPANY.
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of a Notice of Guaranteed Delivery via a facsimile
number other than the one listed in Instruction 1 will not constitute a valid
delivery.
The undersigned acknowledges that he has received the Offering Circular
dated September 13, 1996 ("Offering Circular") of Movie Star, Inc., a New York
corporation ("Company"), a Tender and Exchange Agreement, dated as of April 1,
1996 (the "Exchange Agreement") and this Letter of Transmittal ("Letter of
Transmittal"), which together constitute the Company's offer ("Exchange Offer")
to exchange for each $1,000 principal amount of its outstanding 12.875%
Subordinated Debentures due October 1, 2001 ("Old Debentures"), $1,033.25 in
principal amount of 8% Senior Notes due September 1, 2001 (the "8% Senior
Notes"); and $73.70 in principal amount of 8% Senior Convertible Notes due
September 1, 2001 (the "Convertible Notes") . (The 8% Senior Notes and the
Convertible Notes are hereinafter referred to collectively as, the "New Notes.")
The undersigned will also receive a cash payment from the Company in lieu of
issuance of 8% Senior Notes for denominations of less than $1,000.00, and a cash
payment from the Company in lieu of issuance of Convertible
<PAGE> 2
Notes for denominations of less than $500.00.
The undersigned has signed this Letter of Transmittal to indicate the
action the undersigned desires to take with respect to the Exchange Offer.
List below the Old Debentures to which this Letter of Transmittal
relates. If the space provided below is inadequate, the Certificate Numbers and
Principal Amounts should be listed on a separate signed schedule affixed hereto.
The minimum permitted tender is $1,000 principal amount of Old Debentures; all
other tenders must be in integral multiples of $1,000.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD DEBENTURES
Aggregate Principal Amount
Principal Amount Tendered (must be an
Name (s) and Address(es) of Registered Certificate represented by integral multiple of
Holder(s) (Please fill in , if blank) Number(s)* Certificate (s)** $1,000)**
<S> <C> <C> <C>
Name(s)________________________________
(Please Print)
_____________________________
Address:_______________________________
____________________________
____________________________
(Zip Code)
_______________________________________
Total:
________________ _____________________
</TABLE>
_____________
* Need not be completed by Book-Entry Old Debentureholders (see below).
** Unless otherwise indicated, the Old Debentureholder will be deemed to
have tendered the entire principal amount of Old Debentures represented
by tendered certificates. See Instruction 2.
DELIVERY OF THIS LETTER OF TRANSMITTAL, OR A FACSIMILE HEREOF, AND
TENDERS OF OLD DEBENTURES FOR EXCHANGE AND ALL OTHER DOCUMENTS REQUIRED BY THIS
LETTER OF TRANSMITTAL, WILL BE INVALID UNLESS MADE ACCORDING TO THE TERMS HEREOF
AND OF THE OFFERING CIRCULAR BY CERTAIN REGISTERED HOLDERS OF RECORD OF OLD
DEBENTURES AS OF APRIL 1, 1996 (WHICH DATE SHALL NOT BE EXTENDED BY REASON OF AN
EXTENSION OF THE EXPIRATION DATE, AS DEFINED BELOW).
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK TIME, ON OCTOBER
25, 1996. HOWEVER, THE COMPANY RESERVES THE RIGHT TO EXTEND THE EXCHANGE OFFER
AT ANY TIME AND FROM TIME TO TIME, BY GIVING ORAL OR WRITTEN NOTICE OF SUCH
EXTENSION TO HOLDERS OF OLD DEBENTURES PRIOR TO 9:00 A.M., NEW YORK CITY TIME,
ON THE NEXT BUSINESS DAY AFTER THE PREVIOUSLY SCHEDULED EXPIRATION DATE (AS SO
EXTENDED, THE "EXPIRATION DATE").
AUTHORIZATIONS
BY EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY (I)
AUTHORIZES AND INSTRUCTS THE TRUSTEE TO EXECUTE AND DELIVER THE EXCHANGE
AGREEMENT ON THE UNDERSIGNED'S BEHALF AND ACKNOWLEDGES AND ACCEPTS THE TERMS AND
CONDITIONS SET FORTH IN THE EXCHANGE AGREEMENT, AND (II) AUTHORIZES AND
INSTRUCTS THE TRUSTEE TO EXECUTE AND DELIVER ON THE UNDERSIGNED'S BEHALF THE NEW
NOTE INDENTURE.
This Letter of Transmittal may be used either if certificates for Old
Debentures are to be forwarded herewith or if tenders are to be made by
book-entry transfer to the account maintained by the Exchange Agent at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in the
Offering Circular under the caption "The Exchange Offer-- Procedures for
Tendering." Holders of Old Debentures ("Old Debentureholders") who tender then
by book-entry transfer are sometimes referred to herein as "Book-Entry Old
<PAGE> 3
Debentureholders."
Old Debentureholders who desire to exchange their Old Debentures and
who cannot deliver their Old Debentures and all other documents required hereby
(other than this Letter of Transmittal) to the Exchange Agent before the
Expiration Date (as defined in the Offering Circular) may tender Old Debentures
according to the guaranteed delivery procedure set forth in the Offering
Circular under the caption "The Exchange Offer--Procedures for Tendering". See
Instruction 1.
/ / CHECK HERE IS TENDERED OLD DEBENTURES ARE BEING DELIVERED
BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MADE TO THE
ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:________________________________________
DTC Account Number____________________________________________________
Transaction Code Number:______________________________________________
/ / CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE
THE FOLLOWING:
Name of Registered Owner(s):___________________________________________________
Name of Institution which Guaranteed Delivery:_________________________________
DTC Account Number (if delivered by book-entry transfer):______________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Old Debentures
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Old Debentures tendered herewith, the undersigned hereby exchanges, assigns
and transfers to, or upon the order of, the Company all rights, title and
interest in and to all of the Old Deb Debentures that are being tendered hereby
and that are being accepted for exchange pursuant to the Exchange offer. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent the
true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent also acts as the agent of the Company) with
respect to such Old Debentures with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver such Old Debentures to the Company or transfer ownership of such Old
Debentures to the Company on the Company's books or on the account books
maintained by DTC, together in either such case with all accompanying evidences
of transfer and authenticity, to or upon the order of the Company upon receipt
by the Exchange Agent, as the undersigned's agent, of the New Notes to which the
undersigned is entitled upon the acceptance by the Company of such Old
Debentures under the Exchange Offer; and (b) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Old Debentures, all in
accordance with the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power
<PAGE> 4
and authority to tender, exchange, assign and transfer the Old Debentures
tendered hereby and that when the same are accepted for exchange by the Company,
the Company will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances, and the same will not be
subject to any adverse claim when acquired by the Company. The undersigned, upon
request, will execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
exchange, assignment and transfer of the Old Debentures tendered hereby.
The undersigned hereby further represents to the Company that (i) the
New Notes to be acquired pursuant to the Exchange Offer by the undersigned
and/or by any beneficial owner(s) of the Old Debentures tendered (the
"Beneficial Owner(s)") in connection with the Exchange Offer will be acquired by
the undersigned and such Beneficial Owner(s) in the ordinary course of business
of the undersigned and such Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating and do not intend to participate in the
distribution of the New Notes, and (iii) the undersigned and each Beneficial
Owner have no arrangement or understanding with any person to participate in the
distribution of the New Notes. The undersigned and each Beneficial owner
acknowledges and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933 and the
regulations promulgated thereunder.
THE UNDERSIGNED UNDERSTANDS THAT UPON ACCEPTANCE BY THE COMPANY OF THE
OLD DEBENTURES TENDERED HEREBY, THE UNDERSIGNED SHALL BE DEEMED TO ACCEPT THE
NEW NOTES UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE EXCHANGE OFFER.
THE UNDERSIGNED FURTHER UNDERSIGNED THAT UPON ACCEPTANCE BY THE COMPANY OF THE
OLD DEBENTURES TENDERED HEREBY; THE UNDERSIGNED WILL BE DEEMED TO HAVE WAIVED
ALL RIGHTS WITH RESPECT TO ANY INTEREST ACCRUED ON THE OLD DEBENTURES SINCE
OCTOBER 1, 1995 BUT THAT AMOUNTS SO ACCRUED HAVE BEEN TAKEN INTO CONSIDERATION
BY THE COMPANY IN DETERMINING THE AGGREGATE PRINCIPAL AMOUNT OF NEW NOTES TO BE
DELIVERED IN EXCHANGE FOR OLD DEBENTURES. THE UNDERSIGNED FURTHER ACKNOWLEDGES
THAT INTEREST ON THE NEW NOTES WILL NOT BEGIN TO ACCRUE UNTIL OCTOBER 1, 1996,
ALTHOUGH INTEREST ON THE NEW NOTES FOR THE PERIOD APRIL 1, 1996 THROUGH
SEPTEMBER 30, 1996 HAS ALSO BEEN TAKEN INTO ACCOUNT AND ADDED TO THE AGGREGATE
PRINCIPAL AMOUNT OF THE NEW NOTES.
The Exchange Offer is subject to a number of conditions, including the
condition, unless otherwise waived or modified, that $10,176,000 in aggregate
principal amount of the Old Debentures outstanding be tendered in the Exchange
Offer. The undersigned recognizes that as a result of such conditions, the
Company may not be required to exchange any of the Old Debentures tendered
hereby and, in such event, the Old Debentures not exchanged will be returned to
the undersigned at the address shown above unless otherwise indicated herein
under "Special Issuance Instructions" below.
All authority herein conferred or agreed to ve conferred shall survive
the death or incapacity of the undesigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, legal and
personal representatives, successors and assigns of the undesigned. TENDERS OF
OLD DEBENTURES ARE IRREVOCABLE.
Unless otherwise indicated herein under "Special Issuance
Instructions," please issue certificates for New Notes (and, if applicable, a
certificate for any principal amount of Old Debentures not tendered or accepted
for exchange) in the name of the undersigned. Similarly, unless otherwise
indicated under "Special Delivery Instructions" below, please mail the New Notes
( and, if applicable, a certificate for any principal amount of Old Debentures
not tendered or accepted for exchange) to the undersigned at the address shown
below the signature of the undersigned. The undersigned understands that
Book-Entry Old Debentureholders may request that any Old Debentures not
exchanged be returned by crediting such amount maintained at DTC as such
Book-Entry Old Debentureholders may designate by making an appropriate entry
under "Special Issuance Instructions". The undersigned recognizes that the
Company has no obligation pursuant to the "Special Issuance Instructions" to
transfer any Old Debentures from the name of the registered holder hereof if the
Company does not accept for exchange any of the principal amount of the Old
Debentures so tendered.
Any beneficial Holder whose Old Debentures are registered in the name
of such
<PAGE> 5
beneficial Holder's broker, dealer, commercial bank, trust company or other
nominee and who wishes his nominee to tender such beneficial Holder's Old
Debentures on his behalf, should contact such nominee promptly and instruct such
nominee Registered Holder to tender such beneficial Holder's Old Debentures to
the Exchange Agent.
<TABLE>
<CAPTION>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTION 4)
<S> <C>
To be completed ONLY if certificates To be completed ONLY if certificates
for Old Debentures for principal amounts for Old Debentures for principal amounts
not exchanged and/or New Notes are to be not exchanged and/or New Notes are to
issued in the name of someone other than be sent to someone other than the person
the person whose signature appears below whose signature appears below on this
on this Letter of Transmittal or if Old Letter of Transmittal or to such person at
Debentures tendered by book-entry transfer an address other than that shown in the
which are not exchanged are to be returned box entitled "Description of Old
by credit to any account maintained by Debentures" set forth above on this
DTC. Letter of Transmittal.
Issue and mail: Mail and deliver:
/ / Old Debentures to: / / Old Debentures to:
/ / New Notes to: / / New Notes to:
Name(s): ___________________________ Name(s): ________________________
(PLEASE PRINT) (PLEASE PRINT)
___________________________ _______________________
(PLEASE PRINT) (PLEASE PRINT)
Address: ___________________________ Address: ________________________
___________________________ ________________________
___________________________ ________________________
___________________________ _______________________
(ZIP CODE) (ZIP CODE)
Social Security Number or
Employer Identification Number:
____________________________________
____________________________________
/ / Credit unexchanged Old Debentures tendered by book_entry transfer to the DTC
account set forth here:
____________________________________
(INSTITUTION AND ACCOUNT NO.)
</TABLE>
<PAGE> 6
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL EXCHANGING OLD DEBENTUREHOLDERS
REGARDLESS OF WHETHER OLD DEBENTURES ARE
BEING PHYSICALLY TENDERED HEREBY.)
(SEE INSTRUCTION 1 AND THE FOLLOWING PARAGRAPH)
X__________________________________________________
(SIGNATURE(S) OF OWNER(S)
__________________________________________, 1996
(DATE)
X__________________________________________________
(SIGNATURE(S) OF OWNER(S)
__________________________________________, 1996
(DATE)
Area Code and Tel. No. __________________________________________
The above line(s) must be signed by the registered holder(s) exactly as
the name(s) appear on the certificate(s) for Old Debentures or on a security
position listing or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, please
set forth full title. (See Instruction 3.)
Name(s): ______________________________________
______________________________________________
(PLEASE PRINT)
Capacity: _____________________________________
Address: _____________________________________
____________________________________________
(INCLUDE ZIP CODE)
GUARANTEE OF SIGNATURE(S)
( IF REQUIRED BY INSTRUCTIONS)
___________________________________________
(AUTHORIZED SIGNATURE)
___________________________________________
(TITLE)
___________________________________________
(NAME OF FIRM)
Dated:______________________________, 1996
<PAGE> 7
PAYER'S NAME: AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
PART 1-PLEASE PUT YOUR TIN IN THE BOX AT SOCIAL SECURITY NUMBER
RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW OR_________________
SUBSTITUTE EMPLOYER ID. NO.
FORM W-9 -----------------------------------------------------------------------------
Department of the Treasury,
Internal Revenue Service PART 2-CHECK THE BOX IF YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING UNDER
PAYER'S REQUEST FOR TAXPAYER THE PROVISIONS OF SECTION
IDENTIFICATION NUMBER (TIN) 3406(A)(1)(C) OF THE INTERNAL
REVENUE CODE BECAUSE (1) YOU HAVE
NOT BEEN NOTIFIED THAT YOU ARE
SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF FAILURE TO REPORT ALL
INTEREST OR DIVIDENDS OR (2) THE
INTERNAL REVENUE SERVICE HAS
NOTIFIED YOU THAT YOU ARE NO LONGER
SUBJECT TO BACKUP WITHHOLDING / /
------------------------------------------------------------------------------
CERTIFICATION-UNDER PENALTY OF PART 3
PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM
IS TRUE, CORRECT AND COMPLETE AWAITING TIN / /
SIGNATURE__________________ DATE________
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 ABOVE MAY RESULT
IN BACKUP WITHHOLDING OF THIRTY-ONE (31%) PERCENT OF ANY PAYMENTS MADE
TO YOU AS A RESULT OF THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
Certificates for all physically tendered Old Debentures, or any book-entry
transfer into the Exchange Agent's account at DTC of Old Debentures tendered
electronically, as well as properly completed and duly executed copies of this
Letter of Transmittal and Substitute Form W-9 and any other documents required
by this Letter of Transmittal, must be received by he Exchange Agent at its
address set forth herein, or (in the case of tenders by book-entry transfer)
confirmed to the Exchange Agent, on or prior to the Expiration date (as defined
in the Offering Circular). By executing and delivering this Letter of
Transmittal, you have authorized the Trustee to sign, on your behalf, the
enclosed Tender and Exchange Agreement. YOU SHOULD NOT INCLUDE AN EXECUTED COPY
OF THE TENDER AND EXCHANGE AGREEMENT WHEN YOU DELIVER THIS LETTER OF TRANSMITTAL
AND THE OTHER REQUIRED DOCUMENTS.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD
DEBENTURES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING OLD DEBENTUREHOLDERS, BUT, EXCEPT AS OTHERWISE PROVIDED BELOW, THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE
EXCHANGE AGENT/. IF OLD DEBENTURES ARE DELIVERED BY MAIL, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. NEITHER THIS LETTER
OF TRANSMITTAL NOR ANY OLD DEBENTURES SHOULD BE SENT TO THE COMPANY.
Old Debentureholders whose Old Debentures are not immediately available
or who cannot deliver their Old debentures and all other required documents to
the Exchange Agent on or prior to the expiration Date may
<PAGE> 8
tender their Old Debentures pursuant to the guaranteed delivery procedure set
forth in the Offering Circular. Pursuant to such procedure (a) such tender must
be made by or through a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or by a commercial bank or trust company having an office in the
United States (each of such firms is referred to herein as an "Eligible
Institution"); (b) on or prior to the Expiration Date, the Exchange Agent must
have received from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by telegram, facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder of such
Old Debentures and the principal amount of Old Debentures tendered, stating that
the tender is being made thereby and guaranteeing that, within eight American
Stock Exchange trading days after the Expiration Date, this Letter of
Transmittal, together with the certificates representing the Old Debentures and
any other documents required by this Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and (c) this Letter of
Transmittal and the certificates for all tendered Old Debentures, in proper form
for transfer, or a confirmation of a book-entry transfer of such Old Debentures
into the Exchange Agent's account at DTC as described above, and all other
documents required by this Letter of Transmittal shall be received by the
exchange Agent within eight American Stock Exchange trading days after the
Expiration Date, all as provided in the Offering Circular under the caption "The
Exchange Offer--Procedures for Tendering." Facsimile transmission and
confirmation of the Notice of Guaranteed Delivery may be made to the Exchange
Agent at
Any questions as to validity, form and eligibility of any tender
hereunder will be determined by the Company and such determination shall be
final and binding. All tendering Old Debentureholders by execution of this
Letter of Transmittal shall waive any right to receive notice of the acceptance
of their Old Debentures for exchange.
2. IRREVOCABILITY OF TENDERS; PARTIAL TENDERS. Any Old Debentureholder
will has tendered Old Debentures may not withdraw such tender. The tender is
irrevocable.
No alternative, conditional or contingent tenders will be accepted and
only $1,000 principal amount and integral multiples thereof of Old Debentures
will be accepted for exchange. If less than the entire principal amount of Old
Debentures evidenced by any certificates submitted is to be tendered, the
tendering holder of Old Debentures should fill in the principal amount of Old
Debentures which is to e tendered in the box entitled "Principal Amount
Tendered". In such case, new certificate(s) for the remaining principal amount
of Old Debentures that was evidenced by old certificate(s) will be sent to the
registered holder, unless otherwise provided in the "Special Issuance
Instructions" or "Special Delivery Instructions" boxes on this Letter of
Transmittal as soon as practicable after the expiration Date. The entire
principal amount of all Old Debentures delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL, POWERS OF ATTORNEYS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
(a) If this Letter of Transmittal is signed by the registered holder(s)
of the Old Debentures tendered hereby, the signature(s) must correspond with the
name(s) as written on the face of the certificate(s) without alteration,
enlargement or any change whatsoever.
(b) If any of the Old Debentures tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
(c) If any of the Old Debentures are register in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal any necessary accompanying
documents as there are different registrations of certificates.
(d) When this Letter of Transmittal is signed by the registered
holder(s) of the Old Debentures listed and tendered hereby, no endorsements of
certificates or separate powers of attorney are required. If, however,
certificates for the New Notes are to be issued, or certificates for old
Debentures for principal amounts not exchanged are to be reissued, in the name
of a person other than the registered holder(s), then the certificates
transmitted hereby must be endorsed or accompanied by appropriate powers of
attorney in a form satisfactory to the Company, in either case signed exactly as
the name(s) of the registered holder(s) appears(s) on the certificate(s).
(e) If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any certificate(s) listed, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the
certificate(s).
(f) If this Letter of Transmittal or any certificates or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority so to act must be submitted.
ENDORSEMENTS ON CERTIFICATES FOR OLD DEBENTURES OR SIGNATURES ON
POWERS OF ATTORNEY REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY AN
ELIGIBLE INSTITUTION. (For signature guarantee purposes only, the definition of
"eligible Institution" shall exclude a firm which is an Eligible Institution
solely by virtue of being a member of the National Association of Securities
Dealers, Inc.)
<PAGE> 9
SIGNATURES ON THIS LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED BY AN
ELIGIBLE INSTITUTION, PROVIDED THE OLD DEBENTURES ARE TENDERED: (I) BY A
REGISTERED HOLDER OF SUCH OLD DEBENTURES (WHICH TERM, FOR PURPOSES OF THIS
LETTER, SHALL INCLUDE ANY PARTICIPANT IN DTC WHOSE NAME ON A SECURITY POSITION
LISTING AS THE OWNER OF SUCH OLD DEBENTURES) WHO HAS NOT COMPLETED THE BOX
ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" ON
THIS LETTER OF TRANSMITTAL; OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If certificates for
unexchanged Old debentures are to be issued or returned to, and/or if
certificates for the New Notes are to be issued or sent to, someone other than
the signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
In the case of issuance in a different name, the appropriate documentation, as
identified in Instruction 5, must be submitted for both persons.
5. TAXPAYER IDENTIFICATION NUMBER. Under current Federal income tax
law, an Old Debentureholder who submits Old Debentures for exchange is required
to provide the Exchange Agent with his correct taxpayer identification number
(i.e., his Social Security number or employer identification number) on
Substitute Form W-9. If the Exchange Agent is not provided with the correct
taxpayer identification number, such Old Debentureholder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, interest payments
to such person may be subject to backup withholding in an amount equal to 31% of
any interest payment made. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
Certain Old Debentureholders, including, among others, all corporations
and certain foreign individuals, are not subject to these backup withholding and
reporting requirements. Foreign individuals must submit a statement, signed
under penalties of perjury, to the Exchange Agent (which the exchange Agent will
provide upon request) attesting to the individual's exempt status.
If backup withholding applies, the Company is requited to withhold 31%
of any interest payable to a tendering holder pursuant to the New Notes. Backup
withholding is not an additional tax. Rather, any amount of tax withheld from a
tendering holder will be a credit against such person's tax liability. If
withholding results in an overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding, the tendering Old Debentureholder is
required to notify the Company of his correct taxpayer identification number by
completing the form set forth above certifying that the taxpayer identification
number provided on Substitute Form W-9 is correct (or that such tendering Old
Debentureholder is awaiting a taxpayer identification number) and that (1) the
tendering Old Debentureholder has not been notified by the Internal Revenue
Service that he is subject to backup withholding as a result of failure to
report all interest or dividends, or (2) the Internal Revenue Service has
notified the tendering Old Debentureholder that he is no longer subject to
backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The tendering holder is required to give the Exchange Agent the Social
Security number of employer identification number of the record owner of the Old
Debentures and/or New Notes. If the Old Debentures and/or New Notes are in more
than one name or are not in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance on which number to report.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer and exchange of Old Debentures to its or its order
pursuant to the exchange Offer. If, however, New Notes, or Old Debentures for
principal amounts not exchanged, are to be delivered to, or are to be registered
or issued in the name of, any person other than the registered holder of the Old
Debentures tendered hereby, or if tendered certificates are registered in the
name of any person other than the person signing this Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the transfer and sale of
Old Debentures to the Company or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the registered holder or
any other person) will be payable by the tendering Old Debentureholder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering Old Debentureholder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS HIS LETTER
OF TRANSMITTAL.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive any of the specified conditions in the Exchange Offer in the case of any
old Debentures tendered.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD DEBENTURES. Any tendering
Old Debentureholder whose Old Debentures have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address above for further
instructions.
<PAGE> 10
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the Exchange Offer or the procedure for tendering, as well as requests for
assistance or for additional copies of the Offering Circular, the Exchange
Agreement and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number set forth above or to your broker, dealer,
commercial bank or trust company. In addition, requests for additional copies of
the Offering Circular, the Exchange Agreement and this Letter of Transmittal may
be directed to the Company at: Movie Star, Inc., 136 Madison Avenue, New York,
New York, 10016, telephone: (212) 684-3400, Attention: Saul Pomerantz, Senior
Vice-President.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR FACSIMILE HEREOF (TOGETHER
WITH OLD DEBENTURES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER
REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR A NOTICE OF
GUARANTEED DELIVERY (OR FACSIMILE THEREOF) MUST BE RECEIVED BY THE EXCHANGE
AGENT, ON OR PRIOR TO THE EXPIRATION DATE.
The Company reserves the absolute right to reject the exchange of any
particular Old Debenture not properly tendered or the exchange of any particular
Old Debenture which would, in the opinion of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of tendering as to any particular Old Debenture
either before or after the expiration Date. The interpretations of the terms and
conditions of the Exchange (including the terms of the Offering Circular, the
Exchange Agreement and this Letter of Transmittal) by the Company shall be final
and binding.
Unless waived, any defects or irregularities in connection with tenders
of Old Debentures for exchange must be cured within such time as the Company
shall determine. Any Old Debentures received by the Exchange Agent that are not
properly tendered and as to which the irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders, as soon
as practicable following the Expiration Date.
<PAGE> 1
TENDER AND
EXCHANGE AGREEMENT
BETWEEN
MOVIE STAR, INC.
AND
CERTAIN HOLDERS OF ITS 12.875% SENIOR
SUBORDINATED DEBENTURES DUE 2001
AS OF APRIL 1, 1996
<PAGE> 2
TENDER AND EXCHANGE AGREEMENT
THIS TENDER AND EXCHANGE AGREEMENT is made and entered into as of
April 1, 1996, by and between Movie Star, Inc., a New York corporation (the
"COMPANY"), and each of the Holders of Old Debentures (as defined below) named
on Schedule A hereto (each, a "HOLDER" and collectively, the "HOLDERS").
WHEREAS, the Company currently has outstanding $22,450,000 in
aggregate principal amount of 12-7/8% Subordinated Debentures due 2001 (the "OLD
DEBENTURES") issued pursuant to an Indenture (the "OLD INDENTURE"), dated as of
October 1, 1986, between the Company and Bank of Montreal Trust Company, as
Trustee (the "OLD TRUSTEE");
WHEREAS, each of the Holders has executed, and delivered to the
Company, letters of commitment pursuant to which the Holders have committed to
exchange the Old Debentures owned by them, respectively, as identified in
Schedule A hereto, and their respective rights to receive their ratable portion
of accrued but unpaid interest on the Old Debentures through the Closing Date,
as hereinafter defined (the "UNPAID INTEREST"), for (i) $10,558,094.00 in
aggregate principal amount (less Cash Payments, as hereinafter
<PAGE> 3
defined) of the Company's 8% Non-Convertible Senior Notes due 2001 (the
"NON-CONVERTIBLE NEW NOTES"), and (ii) $718,746 in aggregate principal amount
(less Cash Payments) of the Company's 8% Convertible Senior Notes due 2001 (the
"CONVERTIBLE NEW NOTES", and collectively with the Non-Convertible New Notes,
the "NEW NOTES"), the aforesaid New Notes to be issued under the terms of an
Indenture (the "SENIOR NOTE INDENTURE"), dated as of September __, 1996,
between the Company and American Stock Transfer & Trust Company, as Trustee
(the "TRUSTEE") and pursuant to the terms of a Letter of Transmittal from the
Company (the "LETTER OF TRANSMITTAL" and, collectively with the Senior Note
Indenture, the New Notes and this Agreement, the "SENIOR NOTE DOCUMENTS");
WHEREAS, the Convertible New Notes shall be convertible at any time
prior to September 1, 2001 (or until the fifth day preceding their redemption,
as provided in the Senior Note Indenture) into an aggregate of 1,915,749 shares
of the common stock of the Company, par value $0.01 per share ("COMMON SHARES"),
at a conversion rate of $0.375 per Common Share (subject to adjustment, as
provided in the Senior Note Indenture);
WHEREAS, the Non-Convertible New Notes are in denominations of $1,000
or integral multiples thereof, and the Convertible New Notes are in
denominations of $500 or integral multiples thereof, and the Company has agreed
to pay to the Holders on the Closing Date, in immediately available funds, any
portion of
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the principal amount of a Non-Convertible New Note and Convertible New Note not
payable in denominations of $1,000 and $500, respectively, or integral multiples
thereof (the "CASH PAYMENTS"); and
WHEREAS, prior to the redemption by the Company of the Convertible New
Notes under certain circumstances specified in the Senior Note Indenture, the
Company shall be obligated, pursuant to the terms of the Senior Note Indenture,
to issue warrants to all holders of outstanding Convertible New Notes
("WARRANTS") which shall entitle such holders to purchase, at an exercise price
of $0.375 (subject to adjustment, as provided in the Senior Note Indenture and
the Warrants), a number of Common Shares equal to the number of Common Shares
that were issuable upon conversion of the Convertible New Notes immediately
prior to their redemption; and
WHEREAS, the Company has prepared and distributed to the Holders an
Offering Circular, dated September 13, 1996, (the "OFFERING CIRCULAR")
describing the proposed exchange of the New Notes for the Old Debentures and the
Unpaid Interest (the "EXCHANGE") and the Letter of Transmittal, copies of which
have been delivered to the Holders.
NOW THEREFORE, in consideration of the premises and promises contained
herein, the parties agree as follows:
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ARTICLE I
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Trustee for the benefit of
each of the Holders (which representations nd warranties shall survive the
consummation of the Exchange) as follows:
Section 1.1 Organization and Authority.
(a) The Company (i) is a corporation duly organized and in good
standing under the laws of New York State, (ii) has not filed articles of
dissolution with the Secretary of State of New York State, and (iii) is
qualified to do business and is in good standing in each jurisdiction where the
nature of its business makes such qualification necessary, except where the
failure to so qualify or be in good standing would not reasonably be expected to
have a material adverse effect upon the business or operations of the Company;
(b) The Company has all requisite power and authority to own and
operate its properties and to conduct its business as currently conducted;
(c) The Company has all requisite power and authority necessary to
execute and deliver this Agreement and the other
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<PAGE> 6
Senior Note Documents and to perform its obligations under, and as contemplated
by, this Agreement and the other Senior Note Documents including, without
limitation, to offer, issue and deliver the New Notes; and
(d) The copies of the Company's Certificate of Incorporation and
By-laws delivered to the Trustee pursuant to subparagraph 2.4(b) below are true
and complete copies of the Company's Certificate of Incorporation and By-laws,
as currently in effect.
Section 1.2 No Conflict. The execution, delivery and performance by
the Company of this Agreement and the other Senior Note Documents does not and
will not (a) contravene or conflict with any provision of any applicable law,
statute, rule or regulation, (b) contravene or conflict with, result in any
breach of, or constitute a default under, any material agreement or instrument
binding upon the Company, (c) result in the creation or imposition of or the
obligation to create or impose any lien, encumbrance or charge of any kind upon
any of the property or assets of the Company (other than any lien in favor of
the Trustee as may be created by the terms of the Senior Note Indenture), or (d)
contravene or conflict with any provision of the Certificate of Incorporation or
By-laws of the Company or any material agreement to which the Company is a party
or by which any of its assets are bound.
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<PAGE> 7
Section 1.3 Governmental Consents. No order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with, any governmental or public body or authority, or any subdivision thereof,
is required in connection with the execution, delivery and performance by the
Company of this Agreement or any other Senior Note Document other than the
qualification of the Senior Note Indenture and the New Notes with the Securities
Exchange Commission (the "SEC") in accordance with the terms of the Trust
Indenture Act of 1939, as amended, and, if required under the terms of the
Senior Note Indenture, the registration of the Warrants and the shares of Common
Stock underlying the Warrants with the SEC in accordance with the terms of the
Securities Act of 1933, as amended.
Section 1.4 Validity. The Company has duly executed and delivered this
Agreement and the other Senior Note Documents and, assuming the due execution of
such documents by the other parties thereto, each of such documents constitutes
the legal, valid and binding obligation of the Company as applicable,
enforceable in accordance with its terms, except as enforceability thereof may
be limited by applicable bankruptcy, reorganization, insolvency or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles. The Company has taken all actions necessary to authorize
the execution and delivery of this Agreement and the other Senior Note Documents
and the
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<PAGE> 8
performance of all obligations to be performed by it hereunder and
thereunder.
Section 1.5 Accuracy of Information. The Offering Circular and all
factual information relating to the Company contained in this Agreement and each
other Senior Note Document are accurate in all material respects on the date as
of which such information is dated or certified, and such documents or
information do not make any untrue statement of a material fact relating to the
Company or omit to state any material fact relating to the Company necessary in
order to make such information, in light of the circumstances under which they
were made, not misleading.
ARTICLE II
CONDITIONS PRECEDENT
The obligations of the Holders to transfer, exchange, assign and
convey their Old Debentures, as contemplated hereunder, are subject to the
following conditions precedent.
Section 2.1 Representations and Warranties. On the date upon which the
Exchange is consummated, (the "CLOSING DATE"), after giving effect to the
transactions contemplated by this Agreement and the other Senior Note Documents,
(a) there shall exist no default or event of default, as defined under any of
the Senior
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<PAGE> 9
Note Documents, and (b) all representations and warranties herein made by the
Company shall be true and correct in all material respects with the same effect
as though such representations and warranties had been made on and as of such
date.
Section 2.2 New Notes. The Company and the Trustee shall have duly
authorized, executed and delivered the Senior Note Indenture and this Agreement,
there shall have been issued to each Holder (or its nominee) New Notes, (i) each
executed by the Company and authenticated by the Trustee, (ii) each dated the
date of their authentication by the Trustee, and (iii) in the aggregate
principal amount (which shall be a multiple of $1,000, with respect to the
Non-Convertible New Notes, and $500, with respect to the Convertible New Notes)
set forth in such Holder's Letter of Transmittal.
Section 2.3 Cash Payments. The Company shall have delivered to each
Holder (or to the Trustee, on each of Holder's behalf), in immediately available
funds (or funds in such other form as shall be acceptable to the Trustee) an
amount equal to the Cash Payments payable to such Holders.
Section 2.4 Other Transaction Documents. The Trustee, for the benefit
and on behalf of the Holders, shall have received all of the following, each
duly executed and delivered and dated the Closing Date or such earlier date as
shall be satisfactory to
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<PAGE> 10
the Trustee and each in form and substance satisfactory to the
Trustee:
(a) Certified copies of resolutions of the Company's Board of
Directors, authorizing the execution, delivery and performance of this
Agreement and the other Senior Note Documents, and the transactions
contemplated thereby, and authorizing the distribution of the Offering
Circular;
(b) A copy of the Certificate of Incorporation of the Company,
certified (as of a date no earlier than 10 days prior to the Closing Date)
by the New York Secretary of State, and of the By-laws of the Company,
certified by the Secretary of the Company;
(c) Copies of all documents evidencing all necessary governmental
consents and approvals, if any, with respect to this Agreement and the
other Senior Note Documents and the consummation of the transactions
provided for herein or therein;
(d) Legal opinions, addressed to the Trustee for the benefit of the
Holders and dated the Closing Date, from counsel to the Company, and in
form and substance reasonably satisfactory to the Trustee, including the
opinions set forth
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<PAGE> 11
in Exhibit A hereto (which opinion shall state that the Holders and the
Trustee may rely upon said opinion as if it were addressed to them,
respectively); and
(e) The Company shall have taken all actions and executed all further
documents and instruments as shall be reasonably necessary or appropriate
to effectuate the transactions contemplated by this Agreement and the other
Senior Note Documents.
ARTICLE III
MISCELLANEOUS
Section 3.1 Amendments and Waivers. Neither this Agreement nor any
provision hereof may be waived, amended or modified in any manner that will
adversely affect the rights or interests of the Holders hereunder except with
the written consent of Holders owning, in the aggregate, New Notes representing
at least a majority of the aggregate outstanding principal amount of the New
Notes. Neither this Agreement nor any provision hereof may be waived, modified
or amended in any manner that will adversely affect the rights or interests of
the Company hereunder without the written consent of the Company.
Section 3.2 Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so
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<PAGE> 12
OLDexecuted and delivered shall be an original, but all of which shall
constitute one and the same instrument.
Section 3.3 GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED AT NEW
YORK, NEW YORK AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
COMPANY: HOLDERS OF OLD DEBENTURES TO BE
EXCHANGED FOR NEW NOTES AS
MOVIE STAR, INC. LISTED ON SCHEDULE A HERETO:
By: AMERICAN STOCK TRANSFER &
By:________________________ TRUST COMPANY, as Trustee
President on behalf of those
holders of the Company's
12-7/8% Subordinated
Notes due 2001 listed on
Schedule A hereto,
pursuant to the Letter of
Transmittal, dated ____________
__, 1996, executed and delivered
by such holders.
By:____________________________
Authorized Officer
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<PAGE> 13
SCHEDULE A
TO
TENDER AND EXCHANGE AGREEMENT
Certificate No. Principal Amount
Name of Holder of Old Debenture of Old Debenture
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<PAGE> 14
SCHEDULE B
TO
TENDER AND EXCHANGE AGREEMENT
Certificate No. and Certificate No. and
Principal Amount of Principal Amount of
Name of Holder Non-Convertible Note(s) Convertible Note(s) Cash Payment
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