-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KbM5Tt+dGUECVaMf9IkiD6Lb+SIUpRFFmve3sReU9d1+BZ+XAnUGzAJ/YtyB69VI TvChDQlZAI8+ZC7IQI/Tsg== 0000950144-97-008464.txt : 19970805 0000950144-97-008464.hdr.sgml : 19970805 ACCESSION NUMBER: 0000950144-97-008464 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970804 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPTRON ELECTRONICS INC CENTRAL INDEX KEY: 0000918765 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 382081116 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-31605 FILM NUMBER: 97650743 BUSINESS ADDRESS: STREET 1: 14401 MCCORMICK DR CITY: TAMPA STATE: FL ZIP: 33626 BUSINESS PHONE: 8138542351 MAIL ADDRESS: STREET 1: 14401 MCCORMICK DR CITY: TAMPA STATE: FL ZIP: 33626 S-3/A 1 REPTRON ELECTRONICS, INC. FORM S-3/A (AMD. #1) 1 As filed with the Securities and Exchange Commission on August 4, 1997 Registration Statement No. 333-31605 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 REPTRON ELECTRONICS, INC. (Exact name of registrant as specified in its charter) --------------------- FLORIDA 5065 38-2081116 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification Number) incorporation or organization)
14401 MCCORMICK DRIVE TAMPA, FLORIDA 33626 (813) 854-2351 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) PAUL J. PLANTE, CHIEF OPERATING OFFICER REPTRON ELECTRONICS, INC. 14401 MCCORMICK DRIVE TAMPA, FLORIDA 33626 (813) 854-2351 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES OF COMMUNICATIONS TO: MICHAEL L. JAMIESON, ESQ. MARY A. BERNARD, ESQ. HOLLAND & KNIGHT LLP KING & SPALDING 400 NORTH ASHLEY DRIVE, SUITE 2300 120 WEST 45TH STREET TAMPA, FLORIDA 33602 NEW YORK, NEW YORK 10036 (813) 227-8500 (212) 556-2100
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED AUGUST 4, 1997 PROSPECTUS $100,000,000 [REPTRON ELECTRONICS, INC. LOGO] % CONVERTIBLE SUBORDINATED NOTES DUE 2004 ------------------------ Reptron Electronics, Inc. ("Reptron" or the "Company") is offering $100,000,000 aggregate principal amount of its % Convertible Subordinated Notes due August 1, 2004 (the "Notes"). The Notes are convertible at any time prior to maturity, unless previously redeemed or repurchased, into shares of common stock, par value $.01 per share ("Common Stock"), of the Company at a conversion rate of shares per each $1,000 principal amount of Notes (equivalent to a conversion price of approximately $ per share), subject to adjustment in certain circumstances. On July 17, 1997, the last reported bid price of the Common Stock, which is traded under the symbol "REPT" on The Nasdaq Stock Market's ("Nasdaq") National Market, was $25.50 per share. Interest on the Notes is payable on February 1 and August 1 of each year, commencing February 1, 1998. The Notes are redeemable in whole or in part at the Company's option at any time on or after August 1, 2000, at the redemption prices set forth herein, plus accrued interest to the date of redemption. See "Description of Notes -- Optional Redemption." The Notes are not entitled to any sinking fund. The Notes will mature on August 1, 2004. In the event of a Change of Control (as defined herein), each holder of Notes may require the Company to repurchase its Notes, in whole or in part, for cash at a repurchase price of 100% of the principal amount of Notes to be repurchased, plus accrued interest to the repurchase date. See "Description of Notes -- Repurchase at the Option of Holders Upon a Change of Control." The Notes are unsecured obligations subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company and effectively subordinated in right of payment to all indebtedness and other liabilities of the Company's subsidiaries. As of June 30, 1997, after giving effect to this offering and the application of the net proceeds therefrom, the Company would have had $18.5 million of Senior Indebtedness outstanding and the Company's subsidiaries would have had no indebtedness or other liabilities outstanding. The Indenture will not restrict the Company or its subsidiaries from incurring additional Senior Indebtedness or other indebtedness. See "Description of Notes -- Subordination." The Notes will not be listed on any securities exchange or the Nasdaq National Market and will only be traded in the over-the-counter market. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL PURCHASERS OF THE NOTES. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
==================================================================================================================== PRICE TO DISCOUNT TO PROCEEDS TO PUBLIC(1) UNDERWRITERS(2) COMPANY(3) - -------------------------------------------------------------------------------------------------------------------- Per Note................................. % $ $ - -------------------------------------------------------------------------------------------------------------------- Total(4)................................. $ $ $ ====================================================================================================================
(1) Plus accrued interest, if any, from date of issuance. (2) The Company has agreed to indemnify the Underwriters (as defined herein) against certain liabilities, including liabilities under the Securities Act. See "Underwriting." (3) Before deducting expenses payable by the Company, estimated to be $500,000. (4) The Company has granted the Underwriters an option for 30 days to purchase up to an additional $15,000,000 principal amount of Notes at the offering price shown above, less the Underwriters' discount, solely for the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full, the Price to Public, the Discount to Underwriters and Proceeds to the Company will be $ , $ and $ , respectively. ------------------------ The Notes are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to the Underwriters' right to reject orders in whole or part. It is expected that delivery of the Notes will be made on or about August , 1997, against payment in immediately available funds. RAYMOND JAMES & ASSOCIATES, INC. FORUM CAPITAL MARKETS L.P. STEPHENS INC. The date of this Prospectus is , 1997. 3 [PHOTOGRAPH OF TESTING EQUIPMENT LOCATED IN TAMPA MANUFACTURING FACILITY] K-Byte Manufacturing performs complex testing procedures on substantially all products assembled. [PHOTOGRAPH OF EXTERIOR OF TAMPA MANUFACTURING AND WAREHOUSE FACILITY] Newly constructed manufacturing and warehouse facility located in Tampa, Florida. [PHOTOGRAPH OF SURFACE MOUNT EQUIPMENT LOCATED IN TAMPA MANUFACTURING FACILITY] K-Byte Manufacturing has invested in advanced surface mount technology equipment in its Tampa manufacturing facility. [PHOTOGRAPH OF CONVEYOR BELT LOCATED IN TAMPA WAREHOUSE FACILITY] Reptron Distribution has recently developed and installed a warehousing system that combines bar code technology with sophisticated conveyor equipment. CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, the Financial Statements and Notes thereto, included or incorporated by reference in this Prospectus. Except as otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. This Prospectus contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the "1934 Act"). The words "expect," "estimate," "anticipate," "predict," "believe" and similar expressions and variations thereof are intended to identify forward-looking statements. Such statements appear in a number of places in this Prospectus and include statements regarding the intent, belief or current expectations of the Company, its directors, or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations; (ii) the Company's financing plans; (iii) the Company's business and growth strategies, including potential acquisitions; and (iv) the use of the net proceeds by the Company from this offering. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those predicted in the forward-looking statements, as a result of various factors. The accompanying information contained in this Prospectus, including the information set forth under the headings "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as information contained in the Company's other filings with the Securities and Exchange Commission, identify important factors that could cause such differences. THE COMPANY Reptron Electronics, Inc. (the "Company") is a leading integrated electronics company providing both value-added distribution of electronic components and targeted contract manufacturing services through its two divisions, Reptron Distribution and K-Byte Manufacturing. The two divisions are complementary, enabling the Company to provide customers with a wide range of products and value-added services, as well as a single source for their product, material, assembly and test requirements. Approximately 44% of the Company's 1996 net sales were generated by customers utilizing the services of both divisions. The Company believes that its integrated approach to manufacturing and distribution distinguishes it in the electronics industry, provides a high level of value to its customer base and enables it to obtain sole source relationships with an increasing number of its customers. As a result of the successful implementation of the Company's business strategy, it has increased net sales from approximately $83.4 million in 1992 to $268.9 million in 1996 and net earnings from $1.2 million in 1992 to $7.7 million in 1996. Reptron Distribution sells over 60 vendor lines of semiconductors, passive products and electromechanical components, including more than 35,000 different stock-keeping units ("SKUs"). Reptron Distribution sells to over 9,000 customers representing diverse industries including robotics, telecommunications, computers and computer peripherals, consumer electronics, healthcare, industrial controls and contract manufacturing. Services provided to these customers include component sales, inventory replenishment programs, in-plant stores, component programming and electronic data interchange ("EDI"). As a result of two acquisitions completed in 1995, Reptron Distribution expanded its geographic presence and currently has 20 sales offices located throughout the U.S., enabling the Company to market to approximately 83% of the total available U.S. electronic components market (based upon 1996 industry sales). Reptron Distribution's net sales have increased significantly from $48.9 million in 1992 to $168.3 million in 1996. K-Byte Manufacturing focuses on establishing primary or sole source relationships with OEMs in a wide variety of industries that require complex circuit board assembly and turnkey manufacturing services, with low-to-medium volume production runs. K-Byte Manufacturing leverages its relationship with Reptron Distribution by utilizing Reptron Distribution's 85-person sales force, large customer base, greater access to electronic components and advantages in component pricing. Services provided to K-Byte Manufacturing customers include concurrent engineering, surface mount technology ("SMT") and pin-through-hole ("PTH") manufacturing. The Company believes that K-Byte Manufacturing provides Reptron Distribution a 1 5 significant competitive advantage by broadening value-added services that can be offered to Reptron Distribution customers. K-Byte Manufacturing, which operates in two facilities in Michigan and one in Florida, has increased net sales from $34.5 million in 1992 to $100.7 million in 1996. The Company believes its growth has been fueled by several key trends: - Manufacturers of electronic components are reducing the number of distributors that are authorized to sell their products and selecting distributors that are able to serve a larger part of the total available U.S. market; - Electronic components are increasingly being sold through value-added services, such as in-plant stores, automated inventory replenishment systems and the outsourcing of product assembly; and - OEMs are increasingly outsourcing the assembly and testing of printed circuit boards, as well as the manufacture of complete electronic products, to contract manufacturing specialists. According to the National Electronic Distributors Association ("NEDA"), the total North American electronics distribution market grew from $10.2 billion in revenue in 1992 to $21.0 billion in 1996, a compound annual growth rate of 19.8%. NEDA projects the market to grow to $23.6 billion in 1997. According to the Institute for Interconnecting and Packaging Electronic Circuits ("IPC"), as a result of the outsourcing of manufacturing services, the contract manufacturing industry in the U.S. grew from $6.3 billion in 1992 to $14.5 billion in 1996, a compound annual rate of 23.2%. Based on IPC estimates, the U.S. contract manufacturing industry will expand at a 21.0% compound annual growth rate from 1995 through 2000. The Company's principal business objective is to expand its presence as a leading integrated electronics distributor and contract manufacturer. In order to implement its objective, the Company has formulated a strategy based upon the following key elements: (i) capitalize on the advantages of integration; (ii) increase sales from value-added services; (iii) target contract manufacturing customers in specific market segments; (iv) leverage investments made in the Company's manufacturing facilities; and (v) expand through acquisitions and internal growth. The Company was incorporated under the laws of Michigan in 1973 and reincorporated under the laws of Florida in 1993. The Company's principal executive offices are located at 14401 McCormick Drive, Tampa, Florida 33626, and its telephone number is (813) 854-2351. 2 6 THE OFFERING Securities Offered......... $100,000,000 aggregate principal amount of % Convertible Subordinated Notes due August 1, 2004 (the "Notes"). The Company has granted the Underwriters an option for 30 days to purchase up to an aggregate of $15,000,000 additional principal amount of Notes, solely to cover over-allotments. Interest Payment Dates..... Interest on the Notes is payable at the rate set forth on the cover page hereof, semi-annually on each February 1 and August 1, commencing February 1, 1998. Conversion Rights.......... The Notes are convertible at any time prior to maturity, unless previously redeemed or repurchased, into shares of Common Stock at a conversion rate of shares per $1,000 principal amount of Notes (equivalent to a conversion price of approximately $ per share), subject to adjustment in certain circumstances as described herein. See "Description of Notes -- Conversion Rights." Subordination.............. The Notes are subordinated in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company. The Notes are also effectively subordinated in right of payment to all indebtedness and liabilities of the Company's subsidiaries. As of June 30, 1997, after giving effect to the issuance and sale of the Notes and the application of the net proceeds therefrom, the Company would have had $18.5 million of Senior Indebtedness outstanding, and the Company's subsidiaries would have had no indebtedness or other liabilities outstanding. See "Description of Notes -- Subordination." Optional Redemption........ The Notes will be redeemable at the Company's option, in whole or in part, at any time on or after August 1, 2000, at the redemption prices set forth herein plus accrued interest to the date of redemption. See "Description of Notes -- Optional Redemption." Repurchase at Option of Holders Upon a Change of Control.................. In the event of a Change of Control (as defined herein), each holder of Notes may require the Company to repurchase its Notes, in whole or in part, for cash at a repurchase price of 100% of the principal amount of Notes to be repurchased, plus accrued interest to the repurchase date. See "Description of Notes -- Repurchase at Option of Holders Upon a Change of Control." Use of Proceeds............ The Company intends to use approximately $58.9 million of the net proceeds to repay outstanding indebtedness. The remainder of the net proceeds from this offering will be added to the Company's working capital to be available for general corporate purposes, including possible acquisitions. See "Use of Proceeds." Listing and Trading of Notes.................... The Notes will not be listed on any securities exchange or on the Nasdaq National Market and will only be traded in the over-the-counter market. Common Stock............... The Common Stock issuable upon conversion of the Notes is listed on the Nasdaq National Market under the symbol "REPT." 3 7 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, --------------------------------------------------- ----------------- 1992 1993 1994 1995 1996 1996 1997 ------- -------- -------- -------- -------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) STATEMENT OF EARNINGS DATA: Net Sales: Reptron Distribution................ $48,872 $ 71,346 $ 96,003 $140,146 $168,279 $42,349 $47,368 K-Byte Manufacturing................ 34,541 55,661 68,002 83,198 100,658 24,202 28,883 ------- -------- -------- -------- -------- ------- ------- Total net sales.............. 83,413 127,007 164,005 223,344 268,937 66,551 76,251 ======= ======== ======== ======== ======== ======= ======= Gross Profit: Reptron Distribution................ 9,968 15,245 18,780 27,500 34,364 8,111 8,732 K-Byte Manufacturing................ 4,613 9,023 11,431 12,663 17,485 3,871 5,340 ------- -------- -------- -------- -------- ------- ------- Total gross profit........... 14,581 24,268 30,211 40,163 51,849 11,982 14,072 Selling, general and administrative expenses.......................... 11,217 16,455 19,051 26,586 35,023 8,348 9,250 ------- -------- -------- -------- -------- ------- ------- Operating income.................... 3,364 7,813 11,160 13,577 16,826 3,634 4,822 Interest expense.................... 1,363 1,811 1,474 2,767 4,025 1,102 1,228 ------- -------- -------- -------- -------- ------- ------- Earnings before income taxes........ 2,001 6,002 9,686 10,810 12,801 2,532 3,594 Income tax provision................ 807 2,400 3,823 4,324 5,148 1,013 1,438 ------- -------- -------- -------- -------- ------- ------- Net earnings........................ $ 1,194 $ 3,602 $ 5,863 $ 6,486 $ 7,653 $ 1,519 $ 2,156 ======= ======== ======== ======== ======== ======= ======= Net earnings per share.............. $ .27 $ .81 $ 1.03 $ 1.05 $ 1.24 $ .25 $ .35 ======= ======== ======== ======== ======== ======= ======= Weighted average Common Stock and Common Stock equivalent shares outstanding....................... 4,442 4,442 5,714 6,170 6,179 6,168 6,207 ======= ======== ======== ======== ======== ======= ======= EBITDA(1)........................... $ 4,115 $ 8,927 $ 12,549 $ 16,039 $ 20,464 $ 4,319 $ 5,853 ======= ======== ======== ======== ======== ======= ======= Ratio of earnings to fixed charges(2)........................ 2.47 4.31 7.57 4.66 3.56 2.89 3.46 ======= ======== ======== ======== ======== ======= =======
MARCH 31, 1997 ---------------------- AS ACTUAL ADJUSTED(3) -------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital............................................. $ 88,194 $121,338 Total assets................................................ 157,470 194,614 Revolving Credit Facility................................... 62,856 -- Long-term obligations(4).................................... 17,769 17,769 % Convertible Subordinated Notes due 2004................ -- 100,000 Shareholders' equity........................................ 50,873 50,873
- --------------- (1) EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is not presented as an alternative measure of net income or cash flow from operations (both as determined in accordance with generally accepted accounting principles), but because it is an accepted financial indicator of a company's ability to service debt. (2) The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include pretax income from continuing operations plus fixed charges. "Fixed charges" include interest, whether expensed or capitalized, amortization of debt expense and the portion of rental expense that is representative of the interest factor in these rentals. (3) Adjusted to give effect to the issuance and sale of the Notes and the application of the estimated net proceeds therefrom. See "Use of Proceeds." (4) Includes $6.1 million of capitalized lease obligations. 4 8 RISK FACTORS An investment in the Notes hereby involves a high degree of risk. Prospective investors should consider carefully the following risk factors, in addition to the other information included and incorporated by reference in this Prospectus, in connection with an investment in the Notes offered hereby. CUSTOMER CONCENTRATION AND OTHER FACTORS AFFECTING OPERATING RESULTS The Company's divisions have certain customers that account for a significant part of their net sales. The largest customer of the Company is a customer of both Reptron Distribution and K-Byte Manufacturing. In 1996 and the first quarter of 1997, this customer accounted for approximately 15.7% and 15.4%, respectively, of Reptron Distribution's net sales, 6.9% and 3.3%, respectively, of K-Byte Manufacturing's net sales and 12.4% and 10.8%, respectively, of the Company's total net sales. K-Byte Manufacturing had 36 principal customers in 1996 with the largest three customers accounting for 15.9%, 9.9% and 8.9% of its net sales in 1996, respectively (6.0%, 3.7% and 3.3% of the Company's total net sales in 1996, respectively). During the first quarter of 1997, K-Byte Manufacturing's three largest customers accounted for 14.7%, 9.4% and 8.7% of its net sales, respectively (5.6%, 3.6% and 3.3% of the Company's total net sales during the first quarter of 1997). The loss of one or more of these major customers, or a reduction in their level of purchasing, could have a material adverse effect on the Company's business, results of operations and financial condition. K-Byte Manufacturing's operating results are affected by a number of factors, including fixed plant utilization, price competition, the Company's ability to keep pace with technological developments, the degree of automation that can be used in an assembly process, efficiencies that can be achieved by the Company in managing inventories and fixed assets, the timing of orders from major customers, the timing of capital expenditures in anticipation of increased sales, customer product delivery requirements and increased costs and shortages of components and labor. In addition, because of the limited number of K-Byte Manufacturing's customers and the corresponding concentration of its accounts receivable, the insolvency or other inability or unwillingness of its customers to pay for its services could have a material adverse effect on the Company. DEPENDENCE UPON KEY VENDORS Many kinds of components distributed by Reptron Distribution are currently manufactured by a relatively small number of independent vendors. Four vendors collectively accounted for approximately 37.5% and 41.5% of Reptron Distribution's net sales in 1996 and the first quarter of 1997, respectively (23.4% and 25.8% of the Company's total net sales in 1996 and the first quarter of 1997, respectively). The Company does not have long-term distribution contracts with its vendors. The Company's contracts are non-exclusive and typically are cancelable upon 30 days' written notice. The Company's future success will depend, in large part, on maintaining such relationships and developing new relationships in connection with its existing and future product lines. The Company believes that vendors are consolidating their distribution relationships. In the first quarter of 1997, the Company and one of its primary vendors discontinued their relationship. This vendor accounted for 9.3% of Reptron Distribution's 1996 net sales (5.8% of the Company's total net sales in 1996). Although the Company does not believe that the loss of this vendor will have a material adverse effect on the Company, the loss of, or significant disruptions in the relationship with, one or more of Reptron Distribution's other principal vendors could have a material adverse effect on the Company. ACQUISITION RISKS The Company's growth strategy includes expansion through acquisitions. A part of the net proceeds from this offering may be used for potential acquisitions. See "Use of Proceeds." There can be no assurance that the Company will be able to successfully negotiate with potential acquisition candidates (in which case the Company might pursue unsolicited acquisitions), secure acquisition financing on acceptable terms (which financing may involve incurring substantial indebtedness), complete acquisitions, integrate acquired operations into existing operations or expand into new markets. There can also be no assurance that future acquisitions will not have an adverse effect on the Company's operating results, particularly in the periods following the completion of such acquisitions while the operations of the acquired business are being 5 9 integrated into the Company's operations. Once integrated, acquired operations may not achieve levels of sales, profitability or productivity comparable with those achieved by the Company's existing operations, or otherwise perform as expected. In addition, the Company competes for acquisition and expansion opportunities with companies that have substantially greater resources than those of the Company. The Company currently has no agreements, arrangements or understandings with respect to any acquisition and there can be no assurance that any such acquisition will be consummated. ABSENCE OF LONG-TERM SALES CONTRACTS The level and timing of purchase orders placed by K-Byte Manufacturing's customers are affected by a number of factors, including variation in demand for customers' products, customer attempts to manage inventory and changes in the customers' manufacturing strategies. The Company typically does not obtain long-term purchase orders or commitments but instead works with its customers to develop nonbinding forecasts of the future volume of orders. Based on such nonbinding forecasts, the Company makes commitments regarding the level of business that it will seek and accept, the timing of production schedules and the levels and utilization of personnel and other resources. A variety of conditions, both specific to each individual customer and generally affecting each customer's industry, may cause customers to cancel, reduce or delay orders that were either previously made or anticipated. Generally, customers may cancel, reduce or delay purchase orders and commitments without penalty, except for payment for services rendered, materials purchased and, in certain circumstances, charges associated with such cancellation, reduction or delay. Significant or numerous cancellations, reductions or delays in orders by customers, or any inability by customers to pay for services provided by the Company or to pay for components and materials purchased by the Company on such customers' behalf, could have a material adverse effect on the Company. SUBSTANTIAL START-UP COSTS FOR MANUFACTURING CUSTOMERS K-Byte Manufacturing targets customers requiring the production of a wide variety of technologically complex printed circuit board assemblies. The integration of new customers or new products of existing customers into K-Byte Manufacturing's facilities and processes involves a substantial amount of start-up costs which are incurred prior to any sales being generated from these customers. These start-up costs could have a material adverse effect on K-Byte Manufacturing. COMPETITION; EFFECTS ON GROSS MARGIN Both Reptron Distribution and K-Byte Manufacturing face substantial competition. Many of the Company's competitors have significantly greater resources and broader name recognition than the Company. Reptron Distribution faces competition from hundreds of electronic component distributors of various sizes, locations and market focuses (e.g., military, commercial, consumer) and competes principally on the basis of product selection, reputation and value-added customer services. Vendor representation and product diversity create a segmentation among distributors. Reptron Distribution has several primary competitors that carry similar significant Japanese semiconductor vendors. K-Byte Manufacturing competes in a highly fragmented market composed of a diverse group of U.S. based contract manufacturers. The Company believes that the key competitive factors in its markets are manufacturing flexibility, price, manufacturing quality, advanced manufacturing technology and reliable delivery. Additionally, K-Byte Manufacturing also faces competition from current and prospective customers that evaluate the Company's capabilities against the merits of manufacturing products internally. There can be no assurance that the Company will be able to continue to compete effectively with existing or potential competitors. In addition, gross margins in the businesses in which the Company competes have declined in recent years due to competitive pressures. The Company believes this trend will continue. AVAILABILITY OF COMPONENTS The Company relies on third-party suppliers for components used in its manufacturing process. Component shortages experienced by the Company and its suppliers may have a material adverse effect on customer orders for the services of both Reptron Distribution and K-Byte Manufacturing. At various times, 6 10 there have been shortages of components in the electronics industry and currently the supply of certain electronic components is subject to limited allocations. If shortages of these or other components should intensify or occur in the future, the Company may be forced to delay manufacturing and shipment or to purchase components at higher prices (which it may not be able to pass on to its customers), which may have a material adverse effect on customer demand for the Company's services, on the Company's gross margins or both. Any of these events could have a material adverse effect on the Company. DEPENDENCE UPON KEY PERSONNEL The success of the Company to date has been largely dependent upon the efforts and abilities of the senior management. The loss of their services for any reason could have a material adverse effect on the Company. MANAGEMENT OF GROWTH The Company has grown rapidly in recent years, with net sales increasing from approximately $83.4 million in 1992 to approximately $268.9 million in 1996. The ability to continue this growth rate will depend upon several factors, including the Company's ability to recruit, train and retain a skilled workforce to support its expanding operations. There can be no assurance that the Company will be able to sustain its historic rate of net sales growth, continue its profitable operations, develop the required workforce or manage any future growth successfully. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." VOLATILITY OF COMPONENT PRICING The Company sells a significant amount of commodity-type components that have historically experienced volatile pricing. These components include dynamic random access memory and static random access memory products. If market pricing for these components decreases significantly, the Company may experience periods when its investment in component inventory exceeds the market price of such components. Such market conditions could have a negative impact on sales and gross profit margins unless and until the Company's vendors reduce the cost of such components (through price protection rights, if any, outlined in the vendor agreements). CONTROL BY PRINCIPAL SHAREHOLDER Michael L. Musto, the Company's President and Chief Executive Officer, beneficially owned approximately 38.6% of the Common Stock at June 30, 1997 ( % assuming conversion of the Notes and % assuming exercise of the Underwriters' over-allotment option in full and conversion of the Notes). As a result, Mr. Musto effectively will be able to continue to control the Company after the consummation of this offering. See "Principal Shareholders." ANTI-TAKEOVER PROVISIONS The Company's articles of incorporation and bylaws and Florida law contain certain provisions that may discourage or make more difficult any attempt by a person or group to obtain control of the Company. In addition, the board of directors of the Company is empowered to issue from time to time one or more series of Preferred Stock without shareholder approval, the terms of which could have the effect of delaying or preventing a change in control of the Company. See "Description of Capital Stock." DISCRETION IN USE OF PROCEEDS The Company intends to use approximately $58.9 million of the net proceeds from this offering to repay certain of its outstanding indebtedness. The remaining $37.1 million of the net proceeds from this offering will be added to the Company's working capital and will be available for general corporate purposes, including possible acquisitions. As of the date of this Prospectus, the Company cannot specify with certainty the particular uses for the net proceeds to be added to its working capital. Accordingly, management will have 7 11 broad discretion in the application of such net proceeds. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." SUBORDINATION OF THE NOTES The Notes will be unsecured and subordinated in right of payment in full to all existing and future Senior Indebtedness of the Company. As a result of such subordination, in the event of the Company's liquidation or insolvency, payment default with respect to Senior Indebtedness, a covenant default with respect to Senior Indebtedness, or upon acceleration of the Notes due to an Event of Default (as defined herein), the assets of the Company will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The Company may from time to time incur indebtedness constituting Senior Indebtedness. The Notes are also effectively subordinated in right of payment to all indebtedness and other liabilities, including trade payables, of the Company's subsidiaries. The Indenture does not prohibit or limit the incurrence of Senior Indebtedness or other indebtedness and other liabilities by the Company or its subsidiaries. The incurrence of additional indebtedness and other liabilities by the Company or its subsidiaries could adversely affect the Company's ability to pay its obligations on the Notes. In addition, the cash flow and ability of the Company to service debt, including the Notes, may in the future become dependent in part upon the earnings from the business conducted by the Company through subsidiaries and distribution of those earnings, or upon loans or other payments of funds by those subsidiaries to the Company. As of June 30, 1997, after giving effect to the issuance and sale of the Notes and the application of the net proceeds therefrom, the Company would have had $18.5 million of Senior Indebtedness outstanding, and the Company's subsidiaries would have had no indebtedness or other liabilities outstanding. See "Description of Notes -- Subordination." LIMITATIONS ON REPURCHASE OF NOTES Upon a Change of Control, each holder of Notes will have the right, at the holder's option, to require the Company to repurchase all or a portion of such holder's Notes. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the repurchase price for all Notes tendered by the holders thereof. In addition, the Company's repurchase of Notes as a result of the occurrence of a Change of Control may be prohibited or limited by, or create an Event of Default under, the terms of agreements related to borrowings which the Company may enter into from time to time, including agreements relating to Senior Indebtedness. The agreement relating to the Company's current Senior Indebtedness would limit the Company's ability to repurchase the Notes. See "Description of Notes -- Repurchase at Option of Holders Upon a Change of Control." ABSENCE OF PUBLIC MARKET FOR THE NOTES The Notes will be a new issue of securities with no established trading market. The Underwriters have advised the Company that they intend to make a market in the Notes. The Underwriters are not obligated, however, to make a market in the Notes, and any such market making may be discontinued at any time at the sole discretion of the Underwriters without notice. There can be no assurance that an active market for the Notes will develop and continue upon completion of this offering or that the market price of the Notes will not decline. Various factors such as changes in prevailing interest rates or changes in perceptions of the Company's creditworthiness could cause the market price of the Notes to fluctuate significantly. The trading price of the Notes could also be significantly affected by the market price of the Common Stock, which could be subject to wide fluctuations in response to a variety of factors, including quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, general conditions in the industry and general economic and market conditions. The Notes will not be listed on any securities exchange or the Nasdaq Stock Market and will only be traded in the over-the-counter market. 8 12 USE OF PROCEEDS The net proceeds to the Company from the sale of the Notes offered hereby, after deducting the underwriting discount and the estimated expenses of this offering, will be $96.0 million ($110.5 million if the Underwriters' over-allotment option is exercised in full). The Company intends to use a part of the net proceeds to repay all outstanding indebtedness under the Company's Amended and Restated Revolving Credit and Reimbursement Agreement, dated July 29, 1995, as amended (the "Revolving Credit Facility"). At June 30, 1997, approximately $58.9 million of borrowings were outstanding under the Revolving Credit Facility and such borrowings bore interest at a weighted average interest rate of 7.6% per year at that date. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." The remainder of the net proceeds will be added to the Company's working capital and will be available for general corporate purposes, including acquisitions. An important component of the Company's growth strategy is the ability to pursue acquisitions. The purpose of this offering is to provide the Company with increased financial flexibility to pursue acquisitions of other businesses that are consistent with the Company's growth strategy. The Company currently has no agreement, arrangement or understanding with respect to any acquisition. See "Risk Factors -- Acquisition Risks", "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Business -- Strategy." Pending use of the net proceeds from this offering as discussed above, the Company intends to make temporary investments in interest-bearing savings accounts, certificates of deposit, United States government obligations, money market accounts, interest bearing securities or other insured short-term, interest-bearing investments. 9 13 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1997 on an actual basis and as adjusted to give effect to the issuance and sale of the Notes and the application of the net proceeds therefrom. See "Use of Proceeds." This table should be read in conjunction with the Consolidated Financial Statements and Notes included elsewhere in this Prospectus.
MARCH 31, 1997 ------------------------- ACTUAL AS ADJUSTED(1) -------- -------------- (IN THOUSANDS) Revolving Credit Facility................................... $ 62,856 $ -- Long-term obligations(2).................................... 17,769 17,769 % Convertible Subordinated Notes due 2004.............. -- 100,000 Shareholders' equity: Preferred Stock, $.10 par value; 15,000,000 shares authorized, no shares issued........................... -- -- Common Stock, $.01 par value; 50,000,000 shares authorized(3), 6,071,019 shares issued and outstanding and issued and outstanding as adjusted(4).............. 61 61 Additional paid-in capital................................ 21,260 21,260 Retained earnings......................................... 29,552 29,552 -------- -------- Total shareholders' equity........................ 50,873 50,873 -------- -------- Total capitalization.............................. $131,498 $168,642 ======== ========
- --------------- (1) Adjusted to give effect to the issuance and sale of the Notes and the application of the estimated net proceeds therefrom. See "Use of Proceeds." (2) Includes $6.1 million of capitalized lease obligations. (3) Since March 31, 1997, the Company has increased the authorized Common Stock to 50,000,000 shares. (4) Excludes (i) 261,550 shares of Common Stock issuable upon the exercise of options outstanding, which had a weighted average exercise price of $9.82 per share and (ii) 198,200 shares of Common Stock reserved for future issuance under the Company's Incentive Stock Option Plan (the "Plan"). Since March 31, 1997, the number of shares available for the issuance of options under the Plan has been increased to 1,500,000 and the Company has granted options to purchase an additional 479,500 shares of its Common Stock under the Plan. See "Description of Capital Stock." 10 14 SELECTED CONSOLIDATED FINANCIAL DATA The balance sheet data as of December 31, 1995 and 1996 and the statement of earnings data for each of the three years in the period ending December 31, 1996 have been derived from the Company's Consolidated Financial Statements for such years, which have been audited by Grant Thornton LLP, independent certified public accountants, and are included elsewhere in this Prospectus. The balance sheet data as of December 31, 1992, 1993 and 1994 and the statement of earnings data for each of the two years in the period ended December 31, 1993 have been derived from the Company's Consolidated Financial Statements, which were audited by Grant Thornton LLP and which are not included herein. The selected consolidated financial information set forth below for the three months ended March 31, 1996 and 1997 have been derived from the unaudited financial statements of the Company and includes all adjustments the Company considers necessary for a fair presentation of results of operations for the periods presented. Operating results for the three months ending March 31, 1997 are not necessarily indicative of the results which may be expected for the full year ended December 31, 1997. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------- --------------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- ------- -------- -------- ------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS) STATEMENT OF EARNINGS DATA: Net Sales: Reptron Distribution............... $48,872 $71,346 $96,003 $140,146 $168,279 $42,349 $47,368 K-Byte Manufacturing............... 34,541 55,661 68,002 83,198 100,658 24,202 28,883 ------- ------- ------- -------- -------- ------- ------- Total net sales............. 83,413 127,007 164,005 223,344 268,937 66,551 76,251 ======= ======= ======= ======== ======== ======= ======= Gross Profit: Reptron Distribution............... 9,968 15,245 18,780 27,500 34,364 8,111 8,732 K-Byte Manufacturing............... 4,613 9,023 11,431 12,663 17,485 3,871 5,340 ------- ------- ------- -------- -------- ------- ------- Total gross profit.......... 14,581 24,268 30,211 40,163 51,849 11,982 14,072 Selling, general and administrative expenses........................... 11,217 16,455 19,051 26,586 35,023 8,348 9,250 ------- ------- ------- -------- -------- ------- ------- Operating income..................... 3,364 7,813 11,160 13,577 16,826 3,634 4,822 Interest expense..................... 1,363 1,811 1,474 2,767 4,025 1,102 1,228 ------- ------- ------- -------- -------- ------- ------- Earnings before income taxes......... 2,001 6,002 9,686 10,810 12,801 2,532 3,594 Income tax provision................. 807 2,400 3,823 4,324 5,148 1,013 1,438 ------- ------- ------- -------- -------- ------- ------- Net earnings......................... 1,194 3,602 5,863 6,486 7,653 1,519 2,156 ======= ======= ======= ======== ======== ======= ======= Net earnings per share............... .27 .81 1.03 1.05 1.24 .25 .35 ======= ======= ======= ======== ======== ======= ======= Weighted average Common Stock equivalent shares outstanding...... 4,442 4,442 5,714 6,170 6,179 6,168 6,207 ======= ======= ======= ======== ======== ======= ======= EBITDA(1)............................ $ 4,115 $ 8,927 $12,549 $ 16,039 $ 20,464 $ 4,319 $ 5,853 ======= ======= ======= ======== ======== ======= ======= Ratio of earnings to fixed charges(2)......................... 2.47 4.31 7.57 4.66 3.56 2.89 3.46 ======= ======= ======= ======== ======== ======= =======
DECEMBER 31, MARCH 31, 1997 ----------------------------------------------- --------------------- 1992 1993 1994 1995 1996 ACTUAL ADJUSTED(3) ------- ------- ------- ------- ------- ------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA: Working capital........................ $15,660 $28,328 $40,490 $75,629 $77,231 $88,194 $121,338 Total assets........................... 30,710 51,917 70,073 133,738 138,632 157,470 194,614 Revolving Credit Facility.............. 13,575 24,042 16,491 52,133 48,550 62,856 -- Long-term obligations.................. 2,188 4,755 4,307 12,977 18,795 17,769 17,769 % Convertible Subordinated Notes due 2004................................. -- -- -- -- -- -- 100,000 Shareholders' equity................... 3,834 7,436 34,415 40,948 48,690 50,873 50,873
11 15 - --------------- (1) EBITDA represents earnings before interest, income taxes, depreciation and amortization. EBITDA is not presented as an alternative measure of net income or cash flow from operations (both as determined in accordance with generally accepted accounting principles), but because it is an accepted financial indicator of a company's ability to service debt. (2) The ratio of earnings to fixed charges is computed by dividing earnings by fixed charges. For this purpose, "earnings" include pretax income from continuing operations plus fixed charges. "Fixed charges" include interest, whether expensed or capitalized, amortization of debt expense and the portion of rental expense that is representative of the interest factor in these rentals. (3) Adjusted to give effect to the issuance and sale of the Notes and the application of the estimated net proceeds therefrom. See "Use of Proceeds." 12 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included elsewhere in this Prospectus. GENERAL The Company has grown rapidly through the implementation of its strategy of integrating value-added distribution services with contract manufacturing. Since the acquisition of K-Byte Manufacturing in 1986, the Company's net sales have increased from approximately $25 million to approximately $269 million in 1996. The Company has also focused on improving its operating margin through such measures as: (i) shifting Reptron Distribution's business mix from standard component sales to higher margin value-added services, which now represent 35% of its net sales; (ii) continuing to increase the number of customers using both of the Company's distribution and contract manufacturing services, thereby lowering overall selling expenses; (iii) investing in facilities technology in order to improve efficiencies; and (iv) creating a telemarketing operation to more efficiently access smaller volume customers. K-Byte Manufacturing offers contract manufacturing services to its customers on a turnkey basis pursuant to customer designs. In turnkey contracts, K-Byte Manufacturing purchases the electronic components and other material used in assembly and charges for these items in addition to its labor and manufacturing costs. For strategic reasons, K-Byte Manufacturing does not pursue consignment business in which the customer supplies the product material and pays only for labor and manufacturing costs. The Company believes that by retaining total responsibility for material procurement it can achieve greater control of the manufacturing process and can leverage the strengths of Reptron Distribution. The marketing cycle for K-Byte Manufacturing engagements tends to span six to twelve months and the start-up phase typically spans another six months. During start-up, significant investments are made by K-Byte Manufacturing and its customers to prepare for the successful launch of the contract manufacturing engagement. K-Byte Manufacturing's contracts with customers address the customers' obligations relative to cancellation, component price increases, engineering change notices, inventory (stores, work-in-process and vendor stock) and payment terms. In 1995, in order to expand Reptron's geographic presence, the Company acquired substantially all of the assets and certain liabilities of Cronin Electronics, Inc. and the electronic components distribution business of Western Micro Technology, Inc. (collectively, the "1995 Acquisitions"). The 1995 Acquisitions, which were accounted for using the purchase method, involved a total consideration of $19.5 million, consisting of $12.6 million in cash and the balance in assumed liabilities. These acquisitions accounted for approximately $30.4 million of 1996 total net sales. The 1995 Acquisitions and the opening of an additional sales office enable Reptron Distribution to market to 83% of the total available U.S. market for electronic components (based upon 1996 industry sales) compared to approximately 30% prior to these acquisitions. In December 1995, the Company also created a division devoted solely to selling memory modules. This division sells memory modules primarily to computer integrators and value-added resellers, a customer base not historically served by Reptron Distribution. Sales in this market segment are generally characterized by lower gross margins and lower selling, general and administrative expenses than other sales generated by Reptron Distribution. Sales from this division have increased rapidly and accounted for 10.2% and 8.6% of Reptron Distribution's net sales in 1996 and the first quarter of 1997, respectively (6.4% and 5.3% of the Company's total net sales in 1996 and the first quarter of 1997, respectively). Sales for Reptron Distribution and K-Byte Manufacturing are recognized upon shipment, except for sales from in-plant stores. Sales from in-plant stores are recognized when a customer removes a product from the Company's in-plant inventory. Sales from in-plant stores represented 19.8% and 18.6% of Reptron Distribution's and 11.2% and 4.4% of K-Byte Manufacturing's 1996 and first quarter of 1997 net sales, respectively (16.6% and 13.2% of the Company's total net sales in 1996 and first quarter of 1997, respectively). In-plant inventories are tracked using bar-code labeling technology or frequent inventory counts. Cost of sales for 13 17 Reptron Distribution includes only the cost of materials (electronic components). Cost of sales for K-Byte Manufacturing includes the cost of materials, labor and manufacturing overhead. The Company has centralized many of its operations, including finance, accounting, credit and collections, MIS, human resources and senior management. These functions are performed by personnel in the corporate headquarters in Tampa, who serve both divisions of the Company. Certain economic and integration benefits are realized by centralizing these functions, allowing each division to concentrate on its core business and focus on serving customers without being distracted by administrative issues. The Company believes that through this centralization, it can better control overhead expenses and spread the costs of centralized functions over a larger sales base and thereby increase profitability. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of the Company's total net sales represented by each line item presented, except for Reptron Distribution and K-Byte Manufacturing gross profit, which is presented as a percentage of net sales of the respective segments.
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, --------------------- ------------- 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- Net Sales: Reptron Distribution..................................... 58.5% 62.7% 62.6% 63.6% 62.1% K-Byte Manufacturing..................................... 41.5 37.3 37.4 36.4 37.9 ----- ----- ----- ----- ----- Total net sales.................................. 100.0 100.0 100.0 100.0 100.0 ===== ===== ===== ===== ===== Gross Profit: Reptron Distribution..................................... 19.6 19.6 20.4 19.2 18.4 ===== ===== ===== ===== ===== K-Byte Manufacturing..................................... 16.8 15.2 17.4 16.0 18.5 ===== ===== ===== ===== ===== Total gross profit............................... 18.4 18.0 19.3 18.0 18.5 Selling, general and administrative expenses............... 11.6 11.9 13.0 12.5 12.1 ----- ----- ----- ----- ----- Operating income........................................... 6.8 6.1 6.3 5.5 6.4 Interest expense........................................... 0.9 1.2 1.5 1.7 1.6 ----- ----- ----- ----- ----- Earnings before income taxes............................... 5.9 4.9 4.8 3.8 4.8 Income tax provision....................................... 2.3 2.0 2.0 1.5 1.9 ----- ----- ----- ----- ----- Net earnings..................................... 3.6% 2.9% 2.8% 2.3% 2.9% ===== ===== ===== ===== =====
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996 Net Sales. Total first quarter net sales increased $9.7 million, or 14.6%, from $66.6 million in the first quarter of 1996 to $76.3 million in the first quarter of 1997. Reptron Distribution first quarter net sales increased $5.0 million, or 11.9%, from $42.4 million in the first quarter of 1996 to $47.4 million in the first quarter of 1997. Sales to the largest customer of the Company, Tellabs, Inc., accounted for approximately $2.7 million of the increase in first quarter 1997 net sales. Tellabs, Inc. is a customer of both Reptron Distribution and K-Byte Manufacturing and represented approximately 15.4% of Reptron Distribution first quarter 1997 net sales (10.8% of total Company net sales). Sales from the memory module division accounted for approximately $760,000 of the increase in first quarter 1997 net sales. The balance of the increase in first quarter 1997 net sales was generated by the remainder of the Reptron Distribution sales offices. The highest volume sales office accounted for approximately 21.5% of Reptron Distribution net sales. Sales of semiconductors accounted for 75.1% of first quarter Reptron Distribution net sales, with the remaining sales generated from passive components (19.4%) and electromechanical products (5.5%). 14 18 K-Byte Manufacturing net sales increased $4.7 million, or 19.3%, from $24.2 million in the first quarter of 1996 to $28.9 million in the first quarter of 1997. Sales to new customers accounted for a $6.6 million increase in net sales over the first quarter of 1996. This increase was partially offset by an intentional $1.4 million decrease in sales volume to a financially troubled customer. Net sales from the remaining active K-Byte Manufacturing customers varied based on differing customer requirements during these time periods. The largest K-Byte Manufacturing customer accounted for approximately 14.7% of division net sales (5.6% of total net sales). No other customer represented more than 9.5% of division net sales. Sales from the Tampa, Florida manufacturing facility accounted for approximately 58.0% of K-Byte Manufacturing net sales. The Gaylord, Michigan manufacturing facility generated approximately 38.2% of K-Byte Manufacturing net sales with the remaining net sales originating from the Saline, Michigan location. Gross Profit. Total first quarter gross profit increased $2.1 million, or 17.4%, from $12.0 million in the first quarter of 1996 to $14.1 million in the first quarter of 1997. The gross margin of the Company increased from 18.0% in the first quarter of 1996 to 18.5% in the first quarter of 1997. Reptron Distribution first quarter gross profit increased $621,000, or 7.7%, from $8.1 million in the first quarter of 1996 to $8.7 million in the first quarter of 1997. The gross margin decreased from 19.2% in the first quarter of 1996 to 18.4% in the first quarter of 1997. Sales of a specific ASIC component to the Company's largest customer, Tellabs, Inc., resulted in lowering the first quarter 1997 gross margin. Additionally, the increase in lower margin sales from the memory module division as a percentage of total Reptron Distribution net sales, from 7.8% in the first quarter of 1996 to 8.6% in the first quarter of 1997, contributed to the decrease in first quarter 1997 gross margin. K-Byte Manufacturing gross profit increased $1.4 million, or 38.0%, from $3.9 million in the first quarter of 1996 to $5.3 million in the first quarter of 1997 and its gross margin increased from 16.0% in the first quarter of 1996 to 18.5% in the first quarter of 1997. This increase is primarily attributable to the efficiencies of fixed overhead costs being spread over a larger revenue base and a favorable mix of business in the first quarter of 1997. Selling, General and Administrative Expense. Selling, general and administrative expenses increased $900,000, or 10.8%, from $8.3 million in the first quarter of 1996 to $9.2 million in the first quarter of 1997. These expenses, as a percentage of net sales, decreased from 12.5% in the first quarter of 1996 to 12.1% in the first quarter of 1997. Interest Expense. Interest expense increased $126,000, or 11.4%, from $1.1 million in the first quarter of 1996 to $1.2 million in the first quarter of 1997 as a result of higher levels of average outstanding debt. The Company's current assets have increased to support the 14.6% increase in net sales. The increases in current assets were financed through the bank credit line. 1996 COMPARED TO 1995 Net Sales. Total net sales increased $45.6 million, or 20.4%, from $223.3 million in 1995 to $268.9 million in 1996. Reptron Distribution net sales increased $28.2 million, or 20.1%, from $140.1 million in 1995 to $168.3 million in 1996. The memory module division, established in December 1995, accounted for approximately $17.2 million of the increase in net sales in 1996. Approximately $7.0 million of the increase in net sales in 1996 was attributable to the 1995 Acquisitions. In addition, approximately $3.2 million of the increase in 1996 net sales was attributable to net sales from sales offices with greater than twelve months of sales history. The remainder of the net sales increase, approximately $800,000, was generated by a new sales office. Sales of semiconductors, passive components and electromechanical components accounted for 74.8%, 20.2% and 5.0%, respectively, of Reptron Distribution's 1996 net sales. The percentage of net sales derived from semiconductor sales increased from 73.8% in 1995, primarily as a result of sales generated by the memory module division, established in December 1995. Sales generated from the top four vendors accounted for approximately $63.0 million, or 37.5% of Reptron Distribution's 1996 net sales. 15 19 K-Byte Manufacturing net sales increased $17.5 million, or 21.0%, from $83.2 million in 1995 to $100.7 million in 1996. Approximately $13.0 million of the increase in net sales was generated by the previously existing K-Byte Manufacturing customer base. The remainder of the increase in net sales, approximately $4.5 million, was generated by sales to new customers. Gross Profit. Total gross profit increased $11.6 million, or 29.1%, from $40.2 million in 1995 to $51.8 million in 1996. Gross margin increased from 18.0% in 1995 to 19.3% in 1996. Reptron Distribution's gross profit increased $6.9 million, or 25.0%, from $27.5 million in 1995 to $34.4 million in 1996 and the gross margin increased from 19.6% in 1995 to 20.4% in 1996. The increase in gross margin in 1996 was primarily the result of an increase in the percentage of sales that were generated from Reptron Distribution's value-added services. Value-added sales generally have higher gross margins than traditional electronic component sales. The increase in gross margin was generated despite the negative impact of lower margin sales generated by the memory module division. K-Byte Manufacturing's gross profit increased $4.8 million, or 38.1%, from $12.7 million in 1995 to $17.5 million in 1996. Gross margin increased from 15.2% in 1995 to 17.4% in 1996. Price reductions for many types of electronic components used by K-Byte Manufacturing helped improve the gross margin. In addition, the increase in net sales has resulted in spreading overhead cost over a larger sales base, allowing for higher gross margins. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $8.4 million, or 31.7%, from $26.6 million in 1995 to $35.0 million in 1996. These expenses, as a percentage of net sales, increased from 11.9% in 1995 to 13.0% in 1996. Increases in K-Byte Manufacturing support staff required to manage the increased sales activity accounted for approximately $3.1 million of the increase in selling, general and administrative expenses in 1996. The 1995 Acquisitions accounted for approximately $2.6 million of the increase and the remainder of the increase resulted from higher variable costs associated with the increase in Reptron Distribution's net sales. Interest Expense. Interest expense increased $1.2 million, or 45.5%, from $2.8 million in 1995 to $4.0 million in 1996. This increase resulted from a 46.7% increase in the average borrowings outstanding under the Revolving Credit Facility, from $34.3 million in 1995 to $50.3 million in 1996. The increased borrowings were used to fund higher working capital needs. 1995 COMPARED TO 1994 Net Sales. Total net sales increased $59.3 million, or 36.2%, from $164.0 million in 1994 to $223.3 million in 1995. Reptron Distribution's net sales increased $44.1 million, or 46.0%, from $96.0 million in 1994 to $140.1 million in 1995. Net sales generated from the 1995 Acquisitions, which were consummated in March and July 1995, accounted for approximately $20.1 million of the increase in net sales. The remainder of the net sales increase (approximately $24.0 million, or 25.0%, over 1994 net sales) was generated by the previously established offices of Reptron Distribution. Sales of semiconductors, passive components and electromechnical components accounted for 73.8%, 21.0% and 5.2%, respectively, of Reptron Distribution's 1995 net sales. The percentage of 1995 net sales generated by semiconductor sales increased in the second half of 1995 primarily as a result of the acquisition of the electronic component distribution division of Western Micro Technology, Inc., which generated all of its net sales from semiconductor sales prior to its acquisition by the Company. Sales generated from the top five vendors increased $39.3 million in 1995. Sales from new vendor lines accounted for $9.0 million of Reptron Distribution's 1995 net sales. K-Byte Manufacturing's net sales increased $15.2 million, or 22.3%, from $68.0 million in 1994 to $83.2 million in 1995. Sales to four major new customers accounted for approximately $21.1 million of increased sales in 1995. These increases were partially offset by the intentional reduction in sales of approximately $3.0 16 20 million to a financially troubled customer. The remainder of the change in net sales resulted from differing customer requirements in 1995. Gross Profit. Total gross profit increased $10.0 million, or 32.9%, from $30.2 million in 1994 to $40.2 million in 1995. Gross margin decreased from 18.4% in 1994 to 18.0% in 1995. Reptron Distribution's gross profit increased $8.7 million, or 46.4%, from $18.8 million in 1994 to $27.5 million in 1995 and gross margin remained unchanged at 19.6% in both 1994 and 1995. K-Byte Manufacturing's gross profit increased $1.2 million, or 10.8%, from $11.4 million in 1994 to $12.7 million in 1995. Gross margin decreased from 16.8% in 1994 to 15.2% in 1995. The decrease in K-Byte Manufacturing's gross margin resulted primarily from a change in the mix of business and reflected competitive market conditions. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $7.5 million, or 39.6%, from $19.1 million in 1994 to $26.6 million in 1995. These expenses, as a percentage of net sales, increased from 11.6% in 1994 to 11.9% in 1995. The 1995 Acquisitions accounted for approximately $3.5 million of the increase in selling, general and administrative expenses. The remainder of the increase resulted from higher variable costs associated with the increase in net sales. Interest Expense. Interest expense increased $1.3 million, or 87.7%, from $1.5 million in 1994 to $2.8 million in 1995. This increase primarily resulted from a 69.3% increase in the average borrowings outstanding under the Revolving Credit Facility from $20.3 million in 1994 to $34.3 million in 1995. The increased borrowings were used primarily to finance the 1995 Acquisitions. QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY The following table presents unaudited quarterly operating results for the Company for each of the four quarters in both 1995 and 1996 and the first quarter of 1997. In the opinion of management, this information has been prepared on the same basis as the audited Consolidated Financial Statements included in this Prospectus and includes all adjustments (consisting of only normal recurring accruals) that management considers necessary for a fair presentation of the results for such periods. Such quarterly results are not necessarily indicative of the results of operations for any future period. In 1996, the industry experienced significant reductions in the pricing of many types of semiconductors, including most memory products (DRAM and SRAM). Although the Company's unit volume sales of such memory products increased throughout 1996, the effect of such price reductions caused reduced revenue growth in the first three quarters of 1996.
QUARTERS ENDED --------------------------------------------------------------------------------------------- 1995 1996 1997 ---------------------------------------- ---------------------------------------- ------- MARCH JUNE SEPTEMBER DECEMBER MARCH JUNE SEPTEMBER DECEMBER MARCH 31, 30, 30, 31, 31, 30, 30, 31, 31, ------- ------- --------- -------- ------- ------- --------- -------- ------- (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Net sales........................ $43,076 $52,873 $59,492 $67,903 $66,551 $66,092 $65,953 $70,341 $76,251 Gross profit..................... 8,171 9,515 10,729 11,748 11,982 13,199 12,594 14,074 14,072 Operating income................. 2,949 3,523 3,692 3,413 3,936 4,183 4,200 4,507 4,822 Net earnings..................... 1,511 1,778 1,713 1,484 1,519 1,905 2,017 2,212 2,156 Net earnings per share........... 0.25 0.29 0.28 0.24 0.25 0.31 0.33 0.36 0.35
LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has primarily financed its operations through bank credit lines, capital equipment leases and short-term financing through supplier credit lines. Additionally, on April 5, 1994, the Company received net proceeds totaling $21.1 million from its initial public offering, which were used to repay borrowings outstanding under the Revolving Credit Facility. Pursuant to the Company's Revolving Credit Facility, four lenders have made available to the Company a $63.8 million revolving credit facility through June 30, 1999. The lenders may advance funds to the Company pursuant to two types of loans, each of which bears a separate rate of interest. As long as the Company is not in default under the Revolving Credit Facility, and upon notice to the lender, the Company may convert 17 21 advances from one type of loan to the other. Interest rates on borrowings outstanding under the Revolving Credit Facility ranged from 7.56% to 8.50% as of June 30, 1997. Borrowings under the Revolving Credit Facility are collateralized by all of the Company's inventory and accounts receivable. The Revolving Credit Facility contains certain financial covenants, including requiring the Company to maintain a minimum tangible net worth, maintain various financial ratios and limit the amount of capital expenditures. In addition, the Revolving Credit Facility requires the financial institutions' approval of annual dividends in excess of the lesser of $1,000,000 or 25% of net earnings, thereby restricting the distribution of the retained earnings of the Company. The Company was in compliance with all financial covenants as of June 30, 1997. The Company has entered into various capital lease transactions with several leasing companies to finance capital expenditures, primarily for K-Byte Manufacturing. These leases had an aggregate balance outstanding of $6.5 million as of December 31, 1996. The leases bear interest at rates ranging from 7.4% to 11.1% and expire on various dates through December 2001. The Company's operating activities used cash of approximately $10.6 million in the first quarter of 1997. This decrease in liquidity resulted primarily from an increase in accounts receivable of $7.6 million and an increase in inventories of $6.8 million. These items were offset by a $4.0 million increase in accounts payable. The Company's accounts receivable collections averaged 52.5 days as of March 31, 1997. Reptron Distribution averaged 5.2 inventory turns in the first quarter of 1997 while K-Byte Manufacturing averaged 3.9 inventory turns during this period. K-Byte Manufacturing's inventory turns have been negatively impacted by the complex process associated with integrating ten new customers, representing over 290 different circuit board assemblies into the Tampa manufacturing plant. The Company's capital expenditures, including capital leases, were approximately $8.0 million in 1994, $10.2 million in 1995, $12.8 million in 1996 and $3.2 million in the first quarter of 1997. In 1994, the Company purchased its corporate headquarters building in Tampa, Florida and a 336-acre parcel adjacent to its headquarters for construction of its manufacturing and warehouse facility. These items accounted for approximately $4.0 million of the 1994 capital expenditures total. In 1995, the Company added 22,000 square feet to its K-Byte Manufacturing facility in Gaylord, Michigan and initiated construction on a 150,000 square-foot building adjacent to the corporate headquarters in Tampa, Florida. This building is used as the main warehouse for Reptron Distribution and the Tampa K-Byte Manufacturing facility. These items accounted for approximately $3.0 million of the 1995 capital expenditures total. The continuing construction of the 150,000 square-foot building accounted for approximately $5.9 million of the 1996 capital expenditures. Reptron Distribution warehouse equipment represented approximately $750,000 of the 1996 total capital expenditures. The remainder of the capital expenditures in years 1994 through 1996 were primarily for the acquisition of manufacturing equipment for use in K-Byte Manufacturing. Capital expenditures during the years 1994 through 1996 were funded through cash flow from operations, capital leases and borrowings under the Revolving Credit Facility. In the first quarter of 1997, the Company's capital expenditures were primarily for the acquisition of manufacturing equipment and were funded with borrowings under the Revolving Credit Facility. The Company expects that capital expenditures for the balance of 1997 will approximate $6.0 million primarily for machinery and equipment for K-Byte Manufacturing and renovation of corporate headquarters. The 1995 Acquisitions were financed through a combination of cash and the assumption of specified liabilities. Of the approximately $19.5 million total consideration, approximately $12.6 million was paid in cash with the remainder in the form of assumption of specified liabilities. The cash payments were funded with borrowings under the Revolving Credit Facility. The Company pays for its purchases from foreign sources, including Japanese manufacturers, in U.S. dollars, which reduces the adverse effects of currency fluctuations. The Company has not experienced a substantial adverse effect from currency fluctuations. 18 22 After the application of the net proceeds of this offering as described in "Use of Proceeds," the Company believes that cash generated from operations and amounts available under the Revolving Credit Facility will be sufficient for the Company to meet its capital expenditures and working capital needs for its operations as presently conducted for the foreseeable future. The Company's growth strategy includes growth through acquisitions. The net proceeds of this offering, together with cash generated from operations, may not be adequate to finance such acquisitions and the Company may be required to seek additional financing. See "Acquisition Risks." Although the Company intends to seek an increase in its Revolving Credit Facility, there can be no assurance that it will be able to obtain such an increase. See "Use of Proceeds." Further, there can be no assurance that other financing would be available in amounts and on terms acceptable to the Company. 19 23 BUSINESS GENERAL The Company is a leading integrated electronics company providing both value-added distribution of electronic components and targeted contract manufacturing services through its two divisions, Reptron Distribution and K-Byte Manufacturing. The two divisions are complementary, enabling the Company to provide customers with a wide range of products and value-added services, as well as a single source for their product, material, assembly and test requirements. Approximately 44% of the Company's 1996 net sales were generated by customers utilizing the services of both divisions. The Company believes that its integrated approach to manufacturing and distribution distinguishes it in the electronics industry, provides a high level of value to its customer base and enables it to obtain sole source relationships with an increasing number of its customers. As a result of the successful implementation of the Company's business strategy, it has increased net sales from approximately $83.4 million in 1992 to $268.9 million in 1996 and net earnings from $1.2 million in 1992 to $7.7 million in 1996. INDUSTRY OVERVIEW Distribution. Most manufacturers of electronics components rely on independent distributors, such as the Company, to extend their marketing operations. As a stocking, marketing and financial intermediary, a distributor relieves the manufacturer of part of the costs associated with the stocking and selling of their products, including otherwise potentially sizeable investments in inventories, accounts receivable and personnel. At the same time, the distributor offers to a broad range of customers the convenience of diverse inventory, flexible deliveries and a wide range of value-added services to help manage material requirements. The growth of the electronics component distribution industry has been fueled by the growing number of electronic component manufacturers that view their distributors as essential extensions of their marketing organizations and by customers who recognize the value that distributors add to the total material procurement process. According to NEDA, the total North American electronics distribution market grew from $10.2 billion in revenue in 1992 to $21.0 billion in 1996 and is projected to grow to $23.6 billion in 1997. Two important trends have developed recently in the U.S. electronic components distribution industry. First, manufacturers of electronic components are reducing the number of distributors who are authorized to sell their products. This trend is the result of the need for electronic component manufacturers to reduce their operating costs. Engaging a smaller number of distributors allows the manufacturer to reduce support staff. Accordingly, the reduced number of authorized distributors must be able to service the majority of the total available U.S. market in order to allow the manufacturer to reduce its distributor base without losing significant market share. A second trend in the industry is for an increasing percentage of distribution sales being associated with value-added services. This trend is the result of the need for OEMs to reduce their operating costs. By interacting with distributors through the use of in-plant stores, automated inventory replenishment systems utilizing EDI and outsourcing of product assembly, among other actions, OEMs may reduce their total materials acquisition cost. The distributor assumes a larger role in the management of the supply chain in these types of engagements. Contract Manufacturing. The basis for the development of the contract manufacturing industry in recent years has been the increasing reliance of OEMs on contract manufacturing specialists such as the Company for the manufacture of printed circuit board assemblies. As a result of outsourcing manufacturing services, the contract manufacturing industry in the U.S. grew from $6.3 billion in 1992 to $14.5 billion in 1996, a compound annual rate of 23.2%. Based on IPC estimates, the U.S. contract manufacturing industry has expanded and will expand at a 21% compound annual growth rate from 1995 through 2000. Some of the advantages OEMs receive as a result of outsourcing are: - Reduced Time to Market. Because of the intense competitive pressures and rapidly progressing technology in the electronics industry, OEMs are faced with increasingly short product life-cycles and therefore have a growing need to reduce the time required to bring a product to market. 20 24 OEMs can reduce their time to market by using a contract manufacturer's established manufacturing expertise and infrastructure. - Minimized Capital Investment. As electronic products have become more technologically advanced, the manufacturing process has become increasingly automated and highly intricate, and manufacturers have had to invest in new capital equipment at an accelerated rate. Contract manufacturing specialists enable OEMs to gain access to advanced manufacturing facilities and equipment, thereby reducing their overall capital equipment requirements. - Focused Resources. Because the electronics industry is experiencing greater levels of competition and more rapid technological change, many OEMs increasingly seek to focus their resources on activities and technologies that add greater value. By offering turnkey manufacturing services and comprehensive electronic assembly, contract manufacturing specialists permit OEMs to focus on their core business activities, such as product development, marketing and distribution. - Access to Leading Edge Manufacturing Technology. Electronic products and electronics manufacturing technology have become increasingly sophisticated and complex. OEMs desire to work with contract manufacturing specialists in order to gain access to their technological expertise in process development and control. - Improved Inventory Management and Purchasing Power. Electronics industry OEMs are faced with increasing difficulties in planning, procuring and managing their inventories efficiently due to frequent design changes, short product life-cycles, large investments in electronic components, component price fluctuations and the need to achieve economies of scale in materials procurement. OEMs can reduce production costs by using a contract manufacturing specialist's volume procurement capabilities and expertise in inventory management. By utilizing a contract manufacturing specialist, OEMs frequently can better manage inventory costs and increase their return on assets. The increasing cost of automated equipment used in the industry, the working capital requirements relating to inventory and the additional services that contract manufacturers are providing make it more difficult for smaller contract manufacturers and start-up companies to compete with the services provided by larger, well-capitalized companies. Additionally, the purchasing power generated by the volumes of material purchased by larger contract manufacturers makes it difficult for smaller manufacturers to be price competitive. The Company believes that these factors are driving consolidation in the industry and may provide opportunities for growth through acquisitions. STRATEGY The Company's principal business objective is to expand its presence as a leading integrated electronics distributor and contract manufacturer. In order to implement its objective, the Company has formulated a strategy based upon the following key elements: - Continue to Capitalize on the Benefits of Integration. The Company operates as an integrated electronics company that provides value-added distribution of electronic components and targeted contract manufacturing services. Reptron Distribution emphasizes its value-added services as a method to lower the customer's total material acquisition costs. The Company believes that K-Byte Manufacturing provides Reptron Distribution with a significant advantage over its major competitors that lack in-house contract manufacturing operations by broadening the selection of products and services that can be offered to Reptron Distribution's customers. Similarly, Reptron Distribution provides K-Byte Manufacturing with advantages over other contract manufacturers because of its access to Reptron Distribution's field sales force, large customer base and expertise in component purchasing. Of K-Byte Manufacturing's 36 customers in 1996, 32 are also Reptron Distribution customers. - Increase Sales from Value-Added Services. The Company seeks to enhance sales by providing value-added services. Reptron Distribution has developed a comprehensive value-added service 21 25 offering which includes inventory control programs (e.g., bonded, consigned, just-in-time), in-plant stores, automated inventory replenishment systems utilizing EDI technology, component programming, custom display integration and contract manufacturing (through K-Byte Manufacturing). These value-added programs allow the OEMs to reduce their total acquisition costs for materials. An increasing percentage of industry sales are being generated from value-added engagements and management believes the Company is well positioned to capitalize on this trend. In 1996, and in the first quarter of 1997, approximately 35% of Reptron Distribution sales were generated through value-added services. - Target Manufacturing Customers in Specific Market Segments. The Company follows a well-defined strategy in its contract manufacturing business. K-Byte Manufacturing focuses on complex assemblies in low-to-medium volumes for commercial and industrial customers. Additionally, the Company seeks customers that will utilize K-Byte Manufacturing's ability to assemble customers' products by integrating printed circuit board assemblies into other elements of the customers' products (sometimes referred to as total "box build"). The Company also seeks customer relationships in which K-Byte Manufacturing is the primary source and avoids engagements requiring an overflow supplier. K-Byte Manufacturing targets customers in a variety of industries to establish a diversity among customers and industries served. - Leverage Investments Made in its Manufacturing Facilities. The Company has invested in facilities that will allow it to expand its business. The Company believes its combined manufacturing facilities can accommodate the equipment and infrastructure capable of generating approximately $225 million in annual contract manufacturing net sales based on the types of business currently transacted by K-Byte Manufacturing. K-Byte Manufacturing's sales totaled approximately $101 million in 1996 and, consequently, there is substantial capacity to support K-Byte Manufacturing's future sales growth. Management believes that significant opportunities exist for additional business from present and new customers which will utilize the fixed investment already made in these facilities. - Expand Through Acquisitions and Internal Growth. The Company seeks to expand its operations into geographic areas that it currently does not serve and to increase its presence in existing markets. Reptron Distribution currently serves approximately 83% of the total available U.S. market (based upon 1996 industry sales). However, the Company believes that significant opportunities exist to expand its business in existing regions and into new regions either by acquiring distributors in these markets or by opening new sales offices. The Company is actively pursuing acquisition opportunities for Reptron Distribution for the purpose of increasing its geographic coverage and increasing its penetration in existing markets served. Additionally, the Company intends to expand K-Byte Manufacturing within the Company's western region to better capture contract manufacturing opportunities in that area. REPTRON DISTRIBUTION The Company was founded in 1973 in Detroit as a distributor of electronic components. From 1973 through 1989, the Company expanded by opening nine sales offices in the midwestern and southeastern U.S. Additional expansion has been generated through a series of acquisitions: - In 1993, the Company acquired a distributor with offices in Philadelphia, Pennsylvania and Baltimore, Maryland. - In 1995, the Company acquired a distributor (Cronin Electronics) with offices in Boston, Massachusetts and Hartford, Connecticut. - In 1995, the Company acquired the electronic component distribution business of Western Micro Technology, Inc. with offices in Boston, Massachusetts; Irvine, Los Angeles, San Diego and San Jose, California; Portland, Oregon; and Seattle, Washington. 22 26 Reptron Distribution now operates from 20 sales offices that allow the Company to market to approximately 83% of the total available electronic components market in the U.S. Products. Reptron Distribution represents over 60 vendor lines and distributes more than 35,000 separate items. The products that the Company distributes can be broadly divided into three main groups: semiconductors, passive products and electromechanical components. Semiconductors accounted for approximately 75% of Reptron Distribution's net sales in both 1996 and the first quarter of 1997, respectively. Reptron Distribution's product offering includes application specific integrated circuits ("ASICs"), a variety of memory devices (e.g., dynamic, static, programmable) and microprocessors and controllers produced by 25 vendors. The Company represents a number of leading semiconductor manufacturers, including Chips & Technologies, Hitachi, NEC, OKI, Orbit Semiconductor and Sharp. Passive products and electromechanical components accounted for the remaining 25% of net sales of Reptron Distribution in 1996 and in the first quarter of 1997. Among these components are capacitors, resistors, relays, power supplies and connectors manufactured by over 35 vendors, such as Astec, Dale, Potter & Brumfield and Sprague. Reptron Distribution's largest four vendor lines represented 37.5% and 41.5% of Reptron Distribution's net sales in 1996 and in the first quarter of 1997, respectively (23.4% and 25.8% of the Company's total net sales in 1996 and in the first quarter of 1997, respectively). See "Risk Factors -- Customer Concentration and Other Factors Affecting Operating Results." In December 1995, Reptron Distribution created its K-Byte Memory Module division, which is devoted solely to selling memory modules. This memory modules division employs a separate sales and support staff that focuses on a different market niche and customer base than was previously serviced by Reptron Distribution. This division sells primarily to computer integrators and value-added resellers. Sales in this niche are generally characterized by higher volumes, lower gross profit margins and lower selling, general and administrative expenses than other electronic component sales generated by Reptron Distribution. Sales from the memory module division have increased rapidly and accounted for 10.2% and 8.6% of Reptron Distribution's net sales in 1996 and the first quarter of 1997, respectively (6.4% and 5.3% of the Company's total net sales in 1996 and in the first quarter of 1997, respectively). Services. Reptron Distribution sells to over 9,000 customers representing diverse industries including robotics, telecommunications, computers and computer peripherals, consumer electronics, healthcare, industrial controls and contract manufacturing. Services provided to these customers include component sales, inventory replenishment programs, in-plant stores, component programming and EDI. During 1996 and the first quarter of 1997, approximately 35% of Reptron Distribution net sales were generated through value-added services. The Company believes that an increasing percentage of Reptron Distribution's net sales will be generated through its value-added services as customers continue to search for ways to reduce costs. The Company has invested significantly in capital equipment and support staff to help increase net sales from value-added services. For its vendors, Reptron Distribution has developed product promotion and customer identification programs that help vendors build recognition of individual products and target and market to specific types of customers. Vendors. In selecting vendors to represent, Reptron Distribution considers numerous factors, including product demand, availability and compatibility with existing product lines. Reptron Distribution has non-exclusive, geographically limited agreements with its vendors for the sale of their products, which is customary in the industry. Reptron Distribution's agreements with vendors do not restrict the Company from selling similar products manufactured by competitors of its vendors, and typically allow termination by either party upon 30 to 90 days' notice. Reptron Distribution's vendors protect the Company against potential write-downs of inventories based upon vendors' price reductions or technological change. Under the terms of most of Reptron Distribution's distributor agreements, if the Company complies with certain conditions, the vendor is required, pursuant to price protection privileges, to credit the Company for decreases in inventory value resulting from reductions in the vendor's list prices of the items. In addition, under the stock rotation terms of Reptron Distribution's distributor agreements, the Company has the right to return to the vendor for credit against current obligations or future orders a specified portion of those inventory items purchased within a designated period. A vendor 23 27 that elects to terminate a distributor agreement is generally required to purchase from the Company the total amount of its products carried in inventory. The Company believes that its distributor agreements are on terms and conditions consistent with industry standards. Most of the components sold through the memory module division formed in December 1995 are not supplied under distribution agreements with the Company's vendors, and consequently, this inventory is not subject to the price protection and stock rotation privileges. However, the majority of these components are not purchased until the Company has received a customer purchase order for their sale. Sales and Marketing. Reptron Distribution has developed a focused sales strategy. Large key accounts are identified in each market and field sales personnel are assigned to serve these accounts directly. All other customers in each market are served by telemarketers from the local market or from the corporate headquarters. The telemarketers also service customers in regions of the country where the Company does not have a sales office. Reptron Distribution's marketing plan also includes catalog sales, direct mail, print advertising, field sales events, customer identification programs, seminars and public relations efforts. The Company periodically publishes product catalogs. These catalogs complement the efforts of the sales force by extending the reach of the sales force beyond the immediate areas of the established offices and by building customer awareness of Reptron Distribution's name and product line. Customers. Reptron Distribution has over 9,000 customers located throughout the United States. The largest customer of the Company, Tellabs, Inc., is a customer of both Reptron Distribution and K-Byte Manufacturing. In the first quarter of 1997, this customer accounted for approximately 15.4% of Reptron Distribution's net sales, 3.3% of K-Byte Manufacturing's net sales and 10.8% of the Company's total net sales. In 1996, Tellabs, Inc. accounted for approximately 15.7% of Reptron Distribution net sales, 6.9% of K-Byte Manufacturing net sales and 12.4% of the Company's total net sales. In 1995, Tellabs, Inc. accounted for approximately 6.4% of Reptron Distribution net sales, 9.4% of K-Byte Manufacturing net sales and 7.5% of the Company's total net sales. Reptron Distribution's customers are in diverse industries, including robotics, telecommunications, computers and computer peripherals, consumer electronics, healthcare, industrial controls and contract manufacturing. Training. A key element of the Company's operating philosophy is the training of its employees in order to establish technical competency and to assist in uniform application of the Company's procedures throughout its office network. Reptron Distribution maintains a formal "Reptron University" training program and all of Reptron Distribution's employees are required to participate in these training classes. Additionally, field training takes place on a weekly basis in the sales offices. The Company has also created a 16-18 month program for developing product marketing managers. Property and Offices. The Company owns a 77,500-square foot facility in Tampa, Florida, which houses centralized corporate support personnel, management staff and executive offices for Reptron Distribution and K-Byte Manufacturing. Reptron Distribution's main warehouse is located in a portion of a newly-constructed 150,000-square foot facility located adjacent to the Company's Tampa headquarters. Substantially all Reptron Distribution shipments originate from this warehouse. 24 28 The Company also leases 20 sales offices for Reptron Distribution. Lease terms on these facilities range from three to five years and expire at various dates through June 2001. The table below shows the location of each office and the date it was established.
OFFICE DATE ESTABLISHED - ------ ----------------- Detroit, Michigan........................................... 1973 Chicago, Illinois........................................... 1979 Tampa, Florida.............................................. 1982 Atlanta, Georgia............................................ 1985 Ft. Lauderdale, Florida..................................... 1985 Minneapolis, Minnesota...................................... 1986 Cleveland, Ohio............................................. 1988 Huntsville, Alabama......................................... 1988 Raleigh, North Carolina..................................... 1989 Philadelphia, Pennsylvania.................................. 1993 Baltimore, Maryland......................................... 1993 San Jose, California........................................ 1994 Boston, Massachusetts....................................... 1995 Hartford, Connecticut....................................... 1995 Hauppauge (Long Island), New York........................... 1995 Irvine, California.......................................... 1995 Portland, Oregon............................................ 1995 San Diego, California....................................... 1995 Seattle, Washington......................................... 1995 Salem, New Hampshire........................................ 1996
As part of its expansion strategy, Reptron Distribution has leased office space and plans to open a sales office in Dallas, Texas in September 1997. K-BYTE MANUFACTURING The Company entered into the contract manufacturing business through its acquisition of K-Byte Manufacturing in 1986. K-Byte Manufacturing's net sales have grown from approximately $2 million in 1986 to approximately $101 million in 1996. Manufacturing Operations. K-Byte Manufacturing provides turnkey manufacturing services, including the purchase of customer-specified components from its extensive network of component suppliers (including Reptron Distribution), assembly of components onto printed circuit boards and performance of post-production testing. In addition, approximately 21% of K-Byte Manufacturing's 1995 and 1996 net sales was generated by total box build assembly. K-Byte Manufacturing attempts to perform as much of a given manufacturing process as is feasible and generally does not perform labor-only, consignment assembly functions unless they may provide a direct route to turnkey contracts. K-Byte Manufacturing provides design-for-manufacturability engineering services as well as SMT conversion and printed circuit board layout services for existing products. The Company also provides test process design capabilities that include the design and development of test fixtures and procedures and software for both in-circuit tests and functional tests of circuit boards, components and products. In its manufacturing services, the Company offers both SMT and PTH interconnection technologies. SMT is a computer-automated process that allows the placement of a higher density of components directly on both sides of a printed circuit board. The SMT process is a more recent advancement over the mature PTH technology which normally permits electronic components to be attached to only one side of a printed circuit board by inserting components into holes drilled through the board. The SMT process allows OEMs to use advanced circuitry, while at the same time permitting the placement of a greater number of components on a printed circuit board without having to increase the size of the board. By allowing increasingly complex 25 29 circuits to be packaged with the components placed in closer proximity to each other, SMT greatly enhances circuit processing speed and thus board and system performance. The SMT process allows a reduction in the number of printed circuit boards required per system and allows the use of more fully automated production processes. K-Byte Manufacturing performs PTH assembly both manually and with computer-automated component insertion and soldering equipment. Although SMT is the leading interconnection technology, the Company intends to continue providing PTH assembly services for its customers. PTH is of continuing viability because most printed circuit boards assembled using SMT require some PTH assembly. In addition, certain current and prospective customers have not shifted or do not wish to change their manufacturing process to utilize SMT. K-Byte Manufacturing is able to manage its materials procurement and inventory management functions efficiently through its relationship with Reptron Distribution. The inherent scheduling and procurement challenges in low-to-medium volume production of a large number of different circuit board assemblies requires a high level of expertise in material procurement. K-Byte Manufacturing currently manages a supply chain that provides approximately 56,000 different part types that are required to produce approximately 2,000 different kinds of circuit board assemblies. K-Byte Manufacturing obtains its electronic components from a wide variety of manufacturers, some of which are procured through Reptron Distribution. The Company developed this materials procurement competency through its experience as a component distributor. Marketing and Customers. K-Byte Manufacturing follows a well-defined marketing strategy, which includes the following key elements: Target Customers Requiring Low-to-Medium Volume Production of Multiple Products. K-Byte Manufacturing focuses on complex assemblies in low-to-medium volumes for commercial and industrial customers. The Company has not been a manufacturer of high volume printed circuit board assemblies for personal computers, consumer products or the automotive industries, which typically have relatively low gross profit margins. K-Byte Manufacturing targets customers requiring a high number of different circuit board assemblies, thereby minimizing the exposure to any one product made for a specific customer. This market niche typically generates higher gross margins than the high volume sector. K-Byte Manufacturing focuses on the low-to-medium volume batch business because of its reduced volatility. K-Byte Manufacturing has access to a significant number of these kinds of customers through its relationship with Reptron Distribution. Target Customer Relationships where K-Byte Manufacturing is the Primary Source. K-Byte Manufacturing seeks engagements with customers that have decided to strategically outsource substantially all circuit board assembly. Consequently, K-Byte Manufacturing markets its services as a "partnership" with the customer and encourages the customer to view K-Byte Manufacturing as an extension of its own manufacturing capabilities. The Company attempts to avoid relationships where K-Byte Manufacturing is used as an overflow supplier to level peak volume periods for its customers. Maintain a Diverse Customer and Industry Base. The Company targets customers in the telecommunications, healthcare devices, banking and industrial controls industries and seeks to maintain a diversity of customers among these industries and within each industry. In addition, the Company believes that the industries that it targets make products that generally have longer life cycles, more stable demand and less price pressure compared to consumer oriented products. The marketing cycle for customers meeting these criteria tends to span six-to-twelve months. Additionally, the start-up phase for these kinds of engagements spans another six months. During this phase, significant investments are made by K-Byte Manufacturing and the customer to successfully launch a high number of different, complex circuit board assemblies. K-Byte Manufacturing works closely with its customers in all phases of design, start-up and production and develops a close working relationship with the customer. These relationships and the investments made both in time and financial resources by the customer and K-Byte Manufacturing promote long-term customer loyalty. Reptron Distribution provides a comprehensive marketing effort for K-Byte Manufacturing. Reptron Distribution has approximately 85 field sales personnel who transact business with over 9,000 customers and 26 30 are trained to identify potential customers for K-Byte Manufacturing. The Reptron Distribution sales personnel are motivated through sales commissions to promote K-Byte Manufacturing. Using the Reptron Distribution sales force to market K-Byte Manufacturing has proven to be successful as 32 of 36 customers serviced by K-Byte Manufacturing in 1996 have come from the Reptron Distribution channel. Additionally, the use of the Reptron Distribution sales force reduces the overall selling costs for K-Byte Manufacturing. Other contract manufacturers often use commissioned manufacturers' sales representatives, which is generally a more costly method of selling. K-Byte Manufacturing seeks to maintain diversity within its customer base and industries served. During the first quarter of 1997, K-Byte Manufacturing had 36 principal customers, with the largest three customers representing 14.7%, 9.4% and 8.7% of K-Byte Manufacturing's first quarter 1997 net sales (5.6%, 3.6% and 3.3% of total Company net sales). During 1996, K-Byte Manufacturing had approximately 36 customers, with the largest three customers representing 15.9%, 9.9% and 8.9% of K-Byte Manufacturing's 1996 net sales (6.0%, 3.7% and 3.3% of total Company net sales in 1996). The following table sets forth the number of principal customers and percentage of K-Byte Manufacturing sales derived from various industries for 1995 and 1996.
1995 1996 ---------------------- ---------------------- INDUSTRY CUSTOMERS % OF SALES CUSTOMERS % OF SALES - -------- --------- ---------- --------- ---------- Industrial/Instrumentation 7 21.9% 11 24.6% Telecommunications 4 22.8 6 22.3 Banking 2 19.9 2 20.2 Healthcare 4 10.5 5 15.1 Mass Storage 2 8.9 2 8.5 Office Products 2 7.7 2 7.3 Other 4 8.3 8 2.0
Training. The Company believes that its highly trained and productive work force is an essential element in its ability to compete effectively, and the Company is committed to investing in training its employees. K-Byte Manufacturing has developed a formal training program taught by Company employees at an in-house "K-Byte Academy," which includes classes in technical training and employee personal skills in areas such as communication, team building and leadership. Additionally, K-Byte Manufacturing cross-trains its employees to perform multiple job functions. Manufacturing Facilities. K-Byte Manufacturing operates three plants. The Gaylord, Michigan facility is owned by the Company and was constructed in 1988. The Company completed a 22,000 square foot addition to this plant in 1995 and this facility now totals approximately 72,000 square feet. The Tampa, Florida 150,000 square foot manufacturing and warehouse facility was completed in the first quarter of 1997. These manufacturing facilities are equipped with advanced SMT assembly equipment and PTH insertion equipment. The Company has a variety of automated and manual test equipment capable performing in-circuit and functional testing, as well as a skilled staff of technicians who perform customer-specific or product-specific testing requirements. The Saline, Michigan plant is located in a 15,000 square foot, rented building. This facility is equipped for prototype assembly and shorter production runs, services that cannot be efficiently provided at the larger plants. The Company believes the three facilities, depending on product mix, can accommodate the equipment and infrastructure capable of generating approximately $225 million in annual contract manufacturing net sales based on the kinds of business currently transacted by K-Byte Manufacturing. The Tampa, Florida manufacturing plant accounted for 60.4% and 58.0% of K-Byte Manufacturing's 1996 and first quarter 1997, net sales, respectively, with the Gaylord, Michigan plant totaling 36.0% and 38.2% of 1996 and first quarter 1997 net sales, respectively, and the Saline, Michigan, short production run plant accounting for the remaining 3.6% and 3.8% of 1996 and first quarter 1997 net sales, respectively. 27 31 COMPETITION Both Reptron Distribution and K-Byte Manufacturing face substantial competition. Many of the Company's competitors in each division have significantly greater financial resources and broader name recognition than the Company. Reptron Distribution faces competition from hundreds of electronic component distributors of various sizes, locations and market focuses (e.g., military, commercial, consumer) and competes principally on the basis of product selection and value-added customer service. Vendor representation and product diversity create a segmentation among distributors. Reptron Distribution has several primary competitors that carry similar significant Japanese semiconductor vendors. Reptron Distribution attempts to differentiate itself from these competitors through its wide offering of value-added services, including contract manufacturing (through K-Byte Manufacturing). To the Company's knowledge, no significant competitor offers customers the combination and versatility of a leading national distributor with substantial in-house contract manufacturing capability. K-Byte Manufacturing competes in a highly fragmented market composed of a diverse group of U.S. based contract manufacturers. The Company believes that the key competitive factors in its markets are manufacturing flexibility, price, manufacturing quality, advanced manufacturing technology and reliable delivery. Many contract manufacturers operate high-volume facilities and focus on target markets, such as the computer industry, that K-Byte Manufacturing does not seek to serve. K-Byte Manufacturing considers its key competitive advantages to include its expertise in low-to-medium volume, flexible batch processing, its provision of value-added services and its material management techniques (as a result of its integration with Reptron Distribution). The Company believes that K-Byte Manufacturing's expertise in flexible, batch processing differentiates it from its high-volume competitors because of the relative complexity of economically fulfilling a large number of batch contracts. The Company believes that by focusing on low- to medium-volume production runs, by manufacturing products using Reptron Distribution's product line and by leveraging Reptron Distribution's sales force and customer base, K-Byte Manufacturing competes effectively. See "Risk Factors -- Competition; Effects on Gross Margin." MANAGEMENT INFORMATION SYSTEMS The Company has made significant investments in computer hardware, software and MIS personnel. The MIS department totals 20 individuals who are responsible for hardware upgrades, maintenance of current software and related data bases and augmenting software packages with custom programming. The Company operates MIS for both Reptron Distribution and K-Byte Manufacturing with UNIX-based software packages. Reptron Distribution operates an integrated distribution software package that has been greatly enhanced with custom programming. This system allows management to direct the entire Reptron Distribution operation by connecting all 20 sales offices to the corporate headquarters. In 1996, Reptron Distribution significantly upgraded the software that operates its main warehouse in Tampa, Florida. This upgrade combines bar code technology with sophisticated conveyor systems and storage of electronic components. The entire warehouse system is controlled and organized by software written and implemented by the Company's MIS staff. The Reptron Distribution software package accommodated the integration of the 1995 Acquisitions and is expected to be sufficient for the Company's growth for the foreseeable future. K-Byte Manufacturing operates an integrated MRP II package that has also been greatly enhanced by the Company's MIS staff through custom programming. This system is used to operate and integrate all three manufacturing plants with central administrative functions. The K-Byte Manufacturing software system is also expected to accommodate the Company's growth for the foreseeable future. The UNIX-based software used by the Company may be operated on a variety of hardware platforms. Therefore, the Company is not restricted to the use of computer hardware from any one supplier and does not have the constraints associated with proprietary hardware or software. The Company is currently upgrading and expanding to a client-server based system. This Windows-based system is expected to improve productivity and facilitate the integration of internet and intranet software applications. The Company currently maintains a web home page that provides a wide variety of information as well as links to vendors and customers. 28 32 BACKLOG Backlog of Reptron Distribution as of March 31, 1997 was approximately $42.3 million, as compared to approximately $45.5 million at March 31, 1996. Reptron Distribution includes in backlog only those product shipment orders for which a confirmed customer order has been received as of the date on which the backlog is computed. A growing percentage of Reptron Distribution's sales are generated through its in-plant store value-added program. These orders are not included in backlog as the booking and billing are both recorded when the customer removes a product from the Company's in-plant inventory. In 1996, 19.8% of Reptron Distribution's sales were generated by in-plant stores as compared to 8.9% in 1995. Backlog for K-Byte Manufacturing totaled $42.0 million as of March 31, 1997 and $31.4 million as of March 31, 1996. K-Byte Manufacturing includes in backlog only specific purchase orders or product releases that it has received under manufacturing agreements it has established with customers. Typically, customers release orders to K-Byte Manufacturing in 120-day increments. Because of the possibility of customer changes in delivery schedules, cancellations of orders and potential delays in product shipment and performance, the Company's backlog on any particular date may not be indicative of revenues for any succeeding period. EMPLOYEES As of June 30, 1997, the Company employed 1,467 persons, of whom 351 were dedicated to Reptron Distribution, 1,091 were dedicated to K-Byte Manufacturing and 25 were corporate employees. The Company has no collective bargaining agreements with any of its employees, has never experienced any material labor disruption and is not aware of any current efforts or plans to organize its employees. LEGAL PROCEEDINGS The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary course of business. The Company believes that these matters, individually or in the aggregate, are not likely to have a material adverse effect on the Company's business, results of operations and financial condition. 29 33 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The Company's executive officers and directors are as follows:
NAME AGE POSITION(S) - ---- --- ----------- Michael L. Musto(1).................................. 56 President, Chief Executive Officer, and Director Paul J. Plante....................................... 39 Chief Operating Officer, Treasurer and Director Michael Branca....................................... 37 Chief Financial Officer Patrick J. Flynn..................................... 56 President -- K-Byte Manufacturing Gary G. Bolohan...................................... 42 President -- Reptron Distribution Robert M. Moore...................................... 62 Vice President -- Corporate Operations Michael R. Nichols................................... 40 Vice President -- Sales Leigh A. Adams(1)(2)................................. 32 Corporate Credit Manager, Secretary, and Director William L. Elson(3).................................. 49 Director Barry M. Alpert(3)................................... 56 Director
- --------------- (1) Mr. Musto and Ms. Adams serve on the Company's Stock Option Committee. (2) Ms. Adams is the daughter of Mr. Musto. (3) Messrs. Alpert and Elson serve on the Company's Audit and Compensation Committees. Michael L. Musto. Mr. Musto has been the President, Chief Executive Officer and a director of the Company since its inception in 1973. Prior to 1973, Mr. Musto worked for nine years in electronic components distribution for Northland Electronics and Diplomat Electronics. Paul J. Plante. Mr. Plante was appointed Chief Operating Officer of the Company in January 1997 and has been a director since 1994. Mr. Plante has served as Treasurer since 1986. Mr. Plante has been employed by the Company since 1986, and previously served as its Vice President of Finance and Chief Financial Officer (1986-1997). He was Controller of K-Byte Manufacturing, which is now a division of the Company, during the period 1983-1986. Prior to 1983, Mr. Plante worked for a regional accounting firm (1980-83). Mr. Plante is a Certified Public Accountant and is a graduate of Michigan State University, with a Bachelor of Arts degree in accounting. He also has an MBA degree from the University of South Florida. Michael Branca. Mr. Branca was appointed Chief Financial Officer in July 1997. Prior to joining the Company, Mr. Branca served as Vice President of Business Development and Financial Operations at Utility Partners, LC from 1996 to 1997 and Chief Financial Officer of IVANS, Inc.'s wholly owned subsidiary, Pivotal, Inc., from 1995 to 1996. From 1982 to 1995, Mr. Branca held various positions with IBM Corporation ("IBM"), including Division Controller for IBM's Multimedia Systems Division and Controller for IBM's Enterprise Systems Division. Mr. Branca has a Bachelor of Science degree in Business Management from Cornell University and a MBA in Finance from the University of Scranton. Patrick J. Flynn. Mr. Flynn has been employed by the Company since 1986 as President of K-Byte Manufacturing. He has over 30 years of experience in the electronics business. He was employed by the KTB Group (an engineering firm) in Detroit from 1966 to 1983. During his employment with the KTB Group, Mr. Flynn served in a number of capacities, including as Executive Vice President and Chief Operating Officer. He purchased K-Byte Manufacturing from the KTB Group in 1983 and was the sole owner of K-Byte Manufacturing prior to its acquisition by the Company in 1986. Mr. Flynn is a graduate of the University of Detroit with a Bachelor of Science degree in electrical engineering. Gary G. Bolohan. Mr. Bolohan has served as President of Reptron Distribution since May 1997. In this role, Mr. Bolohan is responsible for all aspects of the operations of Reptron Distribution. Prior to his current position, Mr. Bolohan held several positions, including Executive Vice President of Reptron Distribution 30 34 (1990-1997), Vice President of Product Marketing (1989-1990), midwest regional sales manager (1985-1989), general manager of the Detroit sales office (1983-1985), and field salesperson. Mr. Bolohan has been employed by the Company since 1978. Robert M. Moore. Mr. Moore joined the Company in 1990 as Corporate Director of Operations and became Vice President of Corporate Operations in 1992. His previous experience includes: President of Moore Investment Corp., a consulting firm (1988-1990); President of Bufkor, Inc., a manufacturer of jewelry packaging and displays (1986-1988); Senior Vice President and Chief Financial Officer of Duro Bag Manufacturing Company (1982-1986); and Vice President of Finance of Tresler Oil Company Division, Ashland Oil, Inc. (1977-1982). Mr. Moore is a graduate of the University of Cincinnati with a Bachelor of Science degree in management. Michael R. Nichols. Mr. Nichols was promoted to Vice President of Sales in 1990. He is responsible for all sales activity for Reptron Distribution and is instrumental in generating sales opportunities for K-Byte Manufacturing. Prior to his current role, Mr. Nichols held several positions with the Company, including southeast regional sales manager (1985-1990), sales manager for the Tampa sales office (1982-1985), and field salesperson. Mr. Nichols has been employed by the Company since 1978. He is a graduate of the University of Florida with a Bachelor of Arts degree in management and marketing. Leigh A. Adams. Ms. Adams serves as the Company's Secretary and has been a director since 1994. Ms. Adams joined the Company in 1982 and has served in a number of administrative posts, including Operations Manager (1989-1991) and Corporate Credit Manager (1991-present). William L. Elson. Mr. Elson has served as the Company's outside general counsel since 1979 and has been a director since 1994. He has practiced as a sole practitioner since 1975 and worked for Coopers & Lybrand from 1973 to 1975. Mr. Elson is a Certified Public Accountant and is a graduate of Wayne State University, with a J.D. degree and a Bachelor of Science degree in accounting. Barry M. Alpert. Mr. Alpert currently is a Managing Director at Raymond James & Associates, Inc. Mr. Alpert has served as Vice President and then as Senior Vice President of Investment Banking for Robert W. Baird & Co. Incorporated from 1991-1997. Since 1989, Mr. Alpert has served as President and Chief Executive Officer of Alpert Financial Group, Inc. (a family investment holding company). From 1989-1993, Mr. Alpert served as Vice Chairman of Colony Bank. Mr. Alpert holds a graduate degree in banking from the University of Wisconsin and a BS/BA degree from Roosevelt University. He has been a director since 1995. 31 35 PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of July 1, 1997 by (i) each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) the Chief Executive Officer and the other four most highly compensated executive officers, (iii) each of the directors of the Company, and (iv) all directors and executive officers of the Company as a group. Except as set forth below, the shareholders named below have sole voting and investment power with respect to all shares of Common Stock shown as being beneficially owned by them.
SHARES BENEFICIALLY OWNED -------------------------- NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT - --------------------------------------- ----------- --------- Michael L. Musto............................................ 2,344,790(2) 38.6% MLM Investment Company Limited Partnership.................. 1,996,154 32.8 Paul J. Plante(3)........................................... 701,456 11.5 Patrick J. Flynn(4)......................................... 41,250 * Gary G. Bolohan(5).......................................... 22,651 * Michael R. Nichols(6)....................................... 20,518 * Leigh A. Adams(7)........................................... -- * William L. Elson(8)......................................... 12,500 * 3000 Town Center, Suite 2690 Southfield, Michigan 48075 Barry M. Alpert(9).......................................... 5,000 * 880 Carillon Parkway St. Petersburg, Florida 33716 All directors and executive officers as a group (10 persons).................................................. 2,811,529 46.2%
- --------------- * Less than 1% of the outstanding Common Stock. (1) The business address for Ms. Adams and Messrs. Musto, Plante, Flynn, Bolohan and Nichols is 14401 McCormick Drive, Tampa, Florida 33626. (2) Includes 1,996,154 shares held by: (i) MLM Investment Company Limited Partnership ("MLM") of which certain trusts for the benefit of Mr. Musto and Mr. Musto's children are the limited partners and a corporation, in which Mr. Musto is the sole shareholder and director, and Mr. Musto's revocable trust are the general partners (Mr. Musto has sole voting and dispositive power over the shares held by MLM); and (ii) 348,636 shares held by Paul J. Plante as Trustee of the Reptron Electronics, Inc. Employee Profit Sharing Trust (the "Profit Sharing Trust"), which are attributable to Mr. Musto in accordance with Rule 13d-3 under the Exchange Act. Excludes: (i) up to 116,212 shares which are expected to be allocated to Mr. Musto by the Profit Sharing Trust, (ii) 1,000 shares owned by Mr. Musto's mother and (iii) 3,000 shares subject to options that are currently exercisable by Mr. Musto's mother. Mr. Musto disclaims beneficial ownership of his mother's shares. (3) Includes: (i) 37,500 shares subject to options that are currently exercisable and (ii) 661,956 shares held by Mr. Plante as trustee of the Profit Sharing Trust. The Profit Sharing Trust has been terminated and it is expected that all such shares will be distributed among Profit Sharing Trust participants. Except for Mr. Musto, no director or executive officer of the Company will beneficially own more than 5% of the outstanding shares of common stock immediately after, and as a result of, the Profit Sharing Trust distribution. (4) Represents shares subject to options that are currently exercisable. (5) Excludes up to 22,650 shares expected to be distributed to Mr. Bolohan from the Profit Sharing Trust. (6) Excludes up to 20,517 shares that are expected to be distributed to Mr. Nichols from the Profit Sharing Trust. (7) Excludes up to 1,299 shares expected to be distributed to Ms. Adams from the Profit Sharing Trust. (8) Includes 5,000 shares subject to options that are currently exercisable. (9) Represents shares subject to options that are currently exercisable. 32 36 DESCRIPTION OF NOTES The Notes are to be issued under an Indenture, to be dated as of August , 1997 (the "Indenture"), between the Company and Reliance Trust Company, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the Registration Statement (as defined). Wherever particular defined terms of the Indenture (including the Notes) are referred to, such defined terms are incorporated herein by reference (the Notes and various terms relating to the Notes being referred to in the Indenture as "Securities"). References in this section to the "Company" are solely to Reptron Electronics, Inc. and not to its subsidiaries. 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, the detailed provisions of the Notes and the Indenture, including the definitions therein of certain terms. Section references below are references to Sections of the Indenture. GENERAL The Notes will be unsecured subordinated obligations of the Company, will be limited to $115,000,000 aggregate principal amount and will mature on August 1, 2004. The Notes will bear interest at the rate per annum shown on the front cover of this Prospectus from August , 1997, payable semiannually on February 1 and August 1 of each year, commencing on February 1, 1998. Interest payable per $1,000 principal amount of Notes for the period from August , 1997 to February 1, 1998 will be $ . (sec.sec. 301 and 307) The Notes will be convertible into Common Stock initially at the conversion rate stated on the cover page of the Prospectus, subject to adjustment upon the occurrence of certain events described under "-- Conversion Rights," at any time prior to the close of business on the maturity date, unless previously redeemed or repurchased. (sec. 1301) The Notes are redeemable under the circumstances and at the redemption prices set forth below under "-- Optional Redemption," plus accrued interest to the redemption date. (sec. 203) The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple thereof. (sec. 302). No service charge will be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. (sec. 305) CONVERSION RIGHTS The Holder of any Note will have the right to convert any portion of the principal amount of a Note that is an integral multiple of $1,000 into shares of Common Stock at any time prior to the close of business on the maturity date, unless previously redeemed or repurchased, at a conversion rate of shares of Common Stock per $1,000 principal amount of Notes (the "Conversion Rate") (equivalent to a conversion price of approximately $ per share of Common Stock) (subject to adjustment as described below). The right to convert a Note called for redemption will terminate at the close of business on the Business Day prior to the Redemption Date for such Note, and the right to convert a Note tendered for repurchase will terminate at the close of business on the Repurchase Date for such Note. (sec. 1301) The right of conversion attaching to any Note may be exercised by the Holder by delivering the Note at the specified office of the Conversion Agent, accompanied by a duly signed and completed notice of conversion, a copy of which may be obtained from the Trustee. The conversion date will be the date on which the Note and the duly signed and completed notice of conversion are so delivered. As promptly as practicable on or after the conversion date, the Company will issue and deliver to 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; such certificate will be sent by the Trustee to the Conversion Agent (if other than the Trustee) for delivery to the Holder. Such shares of Common Stock issuable upon conversion of the Notes, in accordance with the provisions of the Indenture, will be fully paid and nonassessable and will rank pari passu with the other shares of Common Stock of the Company outstanding from time to time. As described below, except in certain limited circumstances with respect to any conversion of Notes prior to August 1, 2000 as described below, Holders that surrender Notes for conversion on a date that is not an 33 37 Interest Payment Date will not receive any interest for the period from the Interest Payment Date next preceding the date of conversion to the date of conversion or for any later period, even if the Notes are surrendered after a notice of redemption (except for the payment of interest on Notes called for redemption on a Redemption Date or to be repurchased on a Repurchase Date between a Regular Record Date and the Interest Payment Date to which it relates (including any Notes (or portion thereof) called for redemption on a Redemption Date that is a Record Date or Interest Payment Date, as the case may be), as provided above). Accordingly, except as provided below, any Note 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 (except Notes (or portions thereof) called for redemption on a Redemption Date or which are repurchaseable on a Repurchase Date occurring, in either case, within such period (including any Notes (or portions thereof) called for redemption on a Redemption Date that is a Record Date or Interest Payment Date, as the case may be)) must be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date on the principal amount of Notes being surrendered for conversion. The interest so payable on such Interest Payment Date with respect to any Note (or portion thereof, if applicable) which has been called for redemption on a Redemption Date, or which may be repurchased on a Repurchase Date, occurring, in either case, during the period from the close of business on any Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (including any Notes (or portions thereof) called for redemption on a Redemption Date that is a Record Date or Interest Payment Date, as the case may be), which Note (or portion thereof, if applicable) is surrendered for conversion during such period (or on the last Business Day prior to the Record Date or Interest Payment Date in the case of a Note (or portions thereof) called for redemption on a Record Date or Interest Payment Date, as the case may be), shall be paid to the Holder of such Note being converted in an amount equal to the interest that would have been payable on such Note if such Note had been converted as of the close of business on such Interest Payment Date. The interest so payable on such Interest Payment Date in respect of any Note (or portion thereof, as the case may be) which has not been called for redemption on a Redemption Date, or is not eligible for repurchase on a Repurchase Date, occurring, in either case, during the period from the close of business on any Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date, which Note (or portion thereof, as the case may be) is surrendered for conversion during such period, shall be paid to the Holder of such Note as of such Regular Record Date. Interest payable in respect of any Note surrendered for conversion or repurchase on or after an Interest Payment Date shall be paid to the Holder of such Note as of the next preceding Regular Record Date, notwithstanding the exercise of the right of conversion or repurchase. Notwithstanding the foregoing, any Notes surrendered for conversion prior to August 1, 2000 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 (other than Notes which are repurchaseable on a Purchase Date occurring within such period) shall not be accompanied by an amount equal to the interest payable on such Interest Payment Date on the principal amount of Notes being surrendered for conversion, and the Company shall pay to the Holder of such Notes as of such Regular Record Date in cash or in shares of Common Stock having a fair market value equal to the amount of such interest (such fair market value being determined based on the Closing Price Per Share of the Common Stock on the Business Day immediately preceding such Interest Payment Date). No other payment or adjustment for interest, or for any dividends in respect of Common Stock, will be made upon conversion. Holders of Common Stock issued upon conversion will not be entitled to receive any dividends payable to holders of Common Stock as of any record time or date before the close of business on the conversion date. No fractional shares will be issued upon conversion but, in lieu thereof, the Company will pay an appropriate amount in cash based on the market price of Common Stock at the close of business on the date of conversion. (sec.sec. 101, 203, 307, 1302 and 1303) A Holder delivering a Note for conversion will not be required to pay any taxes or duties in respect of the issue or delivery of Common Stock on conversion but will be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue or delivery of the Common Stock in a name other than 34 38 that of the Holder of the Note. Certificates representing shares of Common Stock will not be issued or delivered unless all taxes and duties, if any, payable by the Holder have been paid. (sec.sec. 1302 and 1308) The Conversion Rate is subject to adjustment in certain events, including, without duplication: (a) dividends (and other distributions) payable in Common Stock on shares of capital stock (other than on shares of preferred stock issued by the Company for cash to the extent that the right to pay dividends on such preferred stock in shares of Common Stock was included in the terms of such preferred stock as of the date of original issuance), (b) the issuance to all holders of Common Stock of Rights, options or warrants entitling them to subscribe for or purchase Common Stock at less than the then current market price of such Common Stock (determined as provided in the Indenture) as of the record date for shareholders entitled to receive such rights, options or warrants, (c) subdivisions, combinations and reclassifications of Common Stock, (d) distributions to all holders of Common Stock of evidences of indebtedness of the Company, shares of capital stock, cash or assets (including securities, but excluding those dividends, rights, options, warrants and distributions referred to above, dividends and distributions paid exclusively in cash and in mergers and consolidations to which the next succeeding paragraph applies), (e) distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in (d) above) to all holders of Common Stock in an aggregate amount that, combined together with (i) other such all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made and (ii) any cash and the fair market value of other consideration payable in respect of any tender offer by the Company or any of its subsidiaries for Common Stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 10% of the Company's market capitalization (being the product of the then current market price per share of the Common Stock (determined as provided in the Indenture) and the number of shares of Common Stock then outstanding) on the record date for such distribution, and (f) the successful completion of a tender offer made by the Company or any of its subsidiaries for Common Stock which involves an aggregate consideration that, together with (i) any cash and other consideration payable in a tender offer by the Company or any of its subsidiaries for Common Stock expiring within the 12 months preceding the expiration of such tender offer in respect of which no adjustment has been made and (ii) the aggregate amount of any such all-cash distributions referred to in (e) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 10% of the Company's market capitalization on the expiration of such tender offer. The Company reserves the right to make such increases in the Conversion Rate in addition to those required in the foregoing provisions as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock will not be taxable to the recipients. No adjustment of the Conversion Rate will be required to be made until the cumulative adjustments amount to 1.0% or more of the Conversion Rate. (sec. 1304) The Company shall compute any adjustments to the Conversion Rate pursuant to this paragraph and will give notice to the Holders of the Notes of any adjustments. (sec. 1305) In case of any consolidation or merger of the Company with or into another Person or any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of the Common Stock), or in case of any sale or transfer of all or substantially all of the assets of the Company, each Note then outstanding will, without the consent of the Holder of any Note, become convertible only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock into which such Note was convertible immediately prior thereto (assuming such holder of Common Stock failed to exercise any rights of election and that such Note was then convertible). (sec. 1311) The Company from time to time may increase the Conversion Rate by any amount for any period of at least 20 days, in which case the Company shall give at least 15 days' notice of such increase, if the Board of Directors has made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive. No such increase shall be taken into account for purposes of determining whether the closing price of the Common Stock exceeds the Conversion Price by 105% in connection with an event which otherwise would be a Change of Control. (sec. 1304) 35 39 If at any time the Company makes a distribution of property to its shareholders which would be taxable to such shareholders as a dividend for United States federal income tax purposes (e.g., distributions of evidence of indebtedness or assets of the Company, but generally not stock dividends on Common Stock or rights to subscribe for Common Stock) and, pursuant to the anti-dilution provisions of the Indenture, the number of shares into which Notes are convertible is increased, such increase may be deemed for federal income tax purposes to be the payment of a taxable dividend to Holders of Notes. See "Certain Federal Income Tax Considerations." SUBORDINATION The payment of the principal of, premium, if any, and interest on (including any amounts payable upon the redemption or repurchase of the Notes permitted by the Indenture), the Notes will be subordinated in right of payment, to the extent set forth in the Indenture, to the prior payment in full of the principal of, premium, if any, interest and other amounts in respect of all Senior Indebtedness of the Company. The Notes also are effectively subordinated in right of payment to all indebtedness and other liabilities of the Company's subsidiaries. As of June 30, 1997, after giving effect to the issuance and sale of the Notes and the application of the net proceeds therefrom, the Company would have had $18.5 million of Senior Indebtedness outstanding, and the Company's subsidiaries would have had no indebtedness or other liabilities outstanding. Senior Indebtedness is defined in the Indenture to mean the principal of (and premium, if any) and interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) on, and all fees and other amounts payable in connection with, the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of the Indenture or thereafter created, incurred or assumed: (a) indebtedness of the Company to banks, insurance companies and other financial institutions evidenced by credit or loan agreements, notes or other written obligations, (b) all other indebtedness of the Company (including obligations of the Company arising from its guarantee of the indebtedness of others) other than the Notes, whether outstanding on the date of the Indenture or thereafter created, incurred or assumed, which is (i) for money borrowed or (ii) evidenced by a note, security, debenture, bond or similar instrument or guarantee thereof, (c) obligations of the Company as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles, and (d) renewals, extensions, modifications, restatements and refundings of and any amendments, modifications or supplements to, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in clauses (a) through (c) of this paragraph; provided, however, that Senior Indebtedness shall not include any such indebtedness or obligation if the terms of such indebtedness or obligation (or the terms of the instrument under which, or pursuant to which, it is issued) expressly provide that such indebtedness or obligation shall not be senior in right of payment to the Notes, or expressly provide that such indebtedness or obligation is pari passu with or junior to the Notes. Notwithstanding the foregoing, unsecured indebtedness of the Company shall only be included in Senior Indebtedness if the incurrence of such unsecured indebtedness should not, in the opinion of counsel or a nationally recognized accounting firm experienced in tax matters, cause the Notes to be considered "corporate acquisition indebtedness" within the meaning of sec. 279 of the Internal Revenue Code of 1986, as amended. "Designated Senior Indebtedness" means any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the Rights of Designated Senior Indebtedness). (sec.sec. 101, 1201 and 1202) Upon any acceleration of the principal due on the Notes or payment or distribution of assets of the Company to creditors upon any dissolution, winding up, liquidation or reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other similar proceedings of the Company, all principal, premium, if any, and interest or other amounts due on all Senior Indebtedness must be paid in full before the Holders of the Notes are entitled to receive any payment. (sec. 1202) The Indenture will further 36 40 require that the Company promptly notify holders of Senior Indebtedness if payment of the Notes is accelerated because of an Event of Default. The Company also may not make any payment upon or in respect of the Notes if (i) a default in the payment of the principal of, premium, if any, interest or other amounts due on any Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (ii) any other default occurs and is continuing with respect to Designated Senior Indebtedness that permits holders of the Designated Senior Indebtedness as to which such default relates to accelerate the maturity thereof and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company, any lender of Designated Senior Indebtedness (or agent bank on behalf of such lender) or other person permitted to give such notice under the Indenture. Payments on the Notes may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived in accordance with the agreements evidencing such Senior Indebtedness and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived in accordance with the agreements evidencing such Senior Indebtedness or 179 days after the date on which the applicable Payment Blockage Notice is received. No new period of payment blockage may be commenced unless and until (i) 365 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shalt be, or be made, the basis for a subsequent Payment Blockage Notice. By reason of the foregoing subordination, in the event of insolvency, creditors of the Company who are holders of Senior Indebtedness are likely to recover more, ratably, than the Holders of the Notes, and such subordination may result in a reduction or elimination of payments to the Holders of the Notes. The Indenture does not limit the Company's ability to incur Senior Indebtedness or any other indebtedness or the ability of any subsidiary of the Company to incur any indebtedness or other liabilities. OPTIONAL REDEMPTION The Notes may not be redeemed prior to August 1, 2000. Thereafter, the Notes may be redeemed, in whole or in part, at the option of the Company, upon not less than 30 nor more than 60 days' prior notice as provided under "-- Notices" below, at the redemption prices set forth below. The redemption prices (expressed as a percentage of principal amount) are as follows for the 12-month period beginning on August 1, of the following years:
YEAR REDEMPTION PRICE - ---- ---------------- 2000...................................................... % 2001...................................................... 2002......................................................
and thereafter at a redemption price equal to 100% of the principal amount, in each case together with accrued interest to the date of redemption. (sec. 203, Article Eleven) No sinking fund is provided for the Notes. REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL If a Change of Control (as defined) occurs, each Holder of Notes shall have the right, at the Holder's option, to require the Company to repurchase all of such Holder's Notes, or any portion of the principal amount thereof specified by the Holder that is equal to $1,000 or an integral multiple of $1,000 in excess thereof, on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined), at a price equal to 100% of the principal amount of the Notes to be repurchased, together with interest accrued to the Repurchase Date (the "Repurchase Price"). (sec. 1401) Within 30 days after the occurrence of a Change of Control, the Company is obligated to give to all Holders of the Notes notice, as provided in the Indenture (the "Company Notice"), of the occurrence of such Change of Control and of the repurchase right arising as a result thereof, or, at the request of the Company on or before the 15th day after such occurrence, the Trustee shall give the Company Notice. The Company must 37 41 also deliver a copy of the Company Notice to the Trustee and to the office of each Paying Agent. To exercise the repurchase right, a Holder of Notes must deliver on or before the 30th day after the date of the Company Notice irrevocable written notice to the Trustee or Paying Agent of the Holder's exercise of such right, together with the Notes with respect to which the right is being exercised. (sec. 1403) A Change of Control shall be deemed to have occurred at such time after the original issuance of the Notes as there shall occur: (i) the acquisition by any Person (including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of (a) beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in elections of directors, other than any such acquisition by the Company, any subsidiary of the Company, any employee benefit plan of the Company or by Michael L. Musto, the President and Chief Executive Officer of the Company, or (b) the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the entire Board of Directors; or (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any conveyance, sale, transfer or lease, in one transaction or a series of related transactions, of all or substantially all of the assets (other than to a wholly owned Subsidiary of the Company) of the Company to any other Person (other than (a) any such transaction pursuant to which the holders of 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in elections of directors immediately prior to such transaction have, directly or indirectly, at least 50% or more of the total voting power of all shares of capital stock of the continuing or surviving corporation entitled to vote generally in elections of directors of the continuing or surviving corporation immediately after such transaction and (b) a merger (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of capital stock of the Company or (y) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock); or (iii) at any time Continuing Directors (as defined) cease to constitute a majority of the Board of Directors of the Company then in office. "Continuing Director" means at any date a member of the Company's Board of Directors (i) who was a member of such Board on the date of the Indenture or (ii) who was nominated or elected by at least two-thirds of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least two-thirds of the directors who were Continuing Directors at the time of such election. Under this definition, if the present Board of Directors of the Company were to approve a new director or directors and then resign, no Change of Control would occur even though the present Board of Directors would thereafter cease to be in office. The Company's ability to repurchase Notes upon the occurrence of a Change of Control is subject to limitations. There can be no assurance that the Company would have the financial resources or be able to arrange financing on acceptable terms to pay the Repurchase Price for all the Notes as to which the purchase right is exercised. Further, any repurchase in connection with a Change in Control could, depending on the circumstances and absent a waiver from the holders of Senior Indebtedness, be blocked by the subordination provisions of the Notes. See "-- Subordination." The agreement relating to the Company's current Senior Indebtedness would limit the Company's ability to repurchase the Notes. See "Use of Proceeds." Failure by the Company to repurchase the Notes when required may result in an Event of Default with respect to the Notes (and with respect to Senior Indebtedness) whether or not such repurchase is permitted by the subordination provisions. See "-- Events of Default" and "Risk Factors -- Limitations on Repurchase of Notes." 38 42 Rule 13e-4 under the Exchange Act requires the dissemination of certain information to security holders in the event of an issuer tender offer and may apply in the event that the repurchase option becomes available to Holders of the Notes. The Company will comply with this rule to the extent applicable at that time. The foregoing provisions would not necessarily afford Holders of the Notes protection in the event of highly leveraged or other transactions involving the Company that may adversely affect Holders. MERGERS AND SALES OF ASSETS BY THE COMPANY The Company may not consolidate with or merge into any other Person or, directly or indirectly, convey, transfer, sell, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person (other than a conveyance, sale, transfer or lease to a wholly owned subsidiary), and the Company may not permit any Person (other than a wholly owned subsidiary) to merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless (a) the Person formed by such consolidation or into which the Company is merged or the Person to which the properties and assets of the Company are so transferred or leased is a corporation, limited liability company, partnership or trust organized and existing under the laws of the United States, any State thereof or the District of Columbia and has expressly assumed the due and punctual payment of the principal of, premium, if any, and interest on the Notes and the performance of the other covenants of the Company under the Indenture, (b) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing, and (c) the Company has provided to the Trustee an Officer's Certificate and Opinion of Counsel if required by the Indenture. (sec. 801) EVENTS OF DEFAULT The following will be Events of Default under the Indenture: (a) failure to pay principal or Redemption Price of any Note when due, whether or not such payment is prohibited by the subordination provisions of the Indenture; (b) failure to pay any interest on any Note when due, continuing for 30 days, whether or not such payment is prohibited by the subordination provisions of the Indenture; (c) default in the Company's obligation to provide a Company Notice of Change in Control; (d) failure to perform any other covenant of the Company in the Indenture, continuing for 60 days after written notice as provided in the Indenture; (e) any indebtedness for money borrowed by the Company in an aggregate principal amount in excess of $5,000,000 is not paid at final maturity or upon acceleration thereof and such default in payment or acceleration is not cured or rescinded within 30 days after written notice as provided in the Indenture; and (f) certain events of bankruptcy, insolvency or reorganization. (sec. 501) Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (sec. 603) Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Notes will 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. (sec. 512) If an Event of Default (other than an Event of Default specified in subsection (f) above) occurs and is continuing, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Notes, by notice in writing to the Company, may declare the principal of all the Notes to be due and payable immediately, and upon any such declaration such principal and any accrued interest thereon will become immediately due and payable. If an Event of Default specified in subsection (f) occurs and is continuing, the principal and any accrued interest on all of the then Outstanding Notes shall ipso facto become due and payable immediately without any declaration or other Act on the part of the Trustee or any Holder. (sec. 502) At any time after a declaration of acceleration has been made but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of Outstanding Notes may, under certain 39 43 circumstances, rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal and interest have cured or waived as provided in the Indenture. (sec. 502) No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless also the Holders of at least 25% in aggregate principal amount of the Outstanding Notes shall have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as trustee, and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the Outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. (sec. 507) However, such limitations do not apply to a suit instituted by a Holder of a Note for the enforcement of payment of the principal of, premium, if any, or interest on such Note on or after the respective due dates expressed in such Note or of the right to convert such Note in accordance with the Indenture. (sec. 508) The Company will be required to furnish to the Trustee annually a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance. (sec. 1004) MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made, and certain past defaults by the Company may be waived, with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding. However, no such modification or amendment may, without the consent of the Holder of each outstanding Note affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note, (b) reduce the principal amount of, or the premium, if any, or rate of interest on, any Note, (c) reduce the amount payable upon redemption or repurchase, (d) modify the provisions with respect to the repurchase right of the Holders in a manner adverse to the Holders, (e) change the place or currency of payment of principal of, premium, if any, or interest on, any Note, (f) impair the right to institute suit for the enforcement of any payment on or with respect to any Note (including any payment of the Repurchase Price in respect of such Note), (g) modify the obligation of the Company to maintain an office or agency in New York City, (h) except as otherwise permitted by the Indenture or contemplated by provisions concerning consolidation, merger, conveyance, transfer, sale or lease of all or substantially all of the property and assets of the Company, adversely affect the right of Holders to convert any of the Notes or to require the Company to repurchase any Note other than as provided in the Indenture, (i) modify the subordination provisions in a manner adverse to the Holders of the Notes, (j) reduce the above-stated percentage of Outstanding Notes necessary to modify or amend the Indenture, or (k) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults. (sec.sec. 902 and 513) The Holders of a majority in aggregate principal amount of the Outstanding Notes may waive compliance by the Company with certain restrictive provisions of the Indenture. (sec. 1009) The Holders of a majority in aggregate principal amount of the Outstanding Notes also may waive any past default under the Indenture, except a default in the payment of principal, premium, if any, or interest. (sec. 513) TRANSFER AND EXCHANGE The Company has initially appointed the Trustee as security registrar and transfer agent, acting through its Corporate Trust Office. The Company reserves the right to vary or terminate the appointment of the security registrar or of any transfer agent or to appoint additional or other transfer agents or to approve any change in the office through which any security registrar or any transfer agent acts. (sec.sec. 305 and 1002) PURCHASE AND CANCELLATION The Company or any subsidiary may at any time and from time to time purchase Notes at any price in the open market or otherwise. 40 44 All Notes surrendered for payment, redemption, repurchase, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Notes so delivered to the Trustee shall be canceled promptly by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes canceled as provided in the Indenture. TITLE The Company and the Trustee may treat the registered owner (as reflected in the Security Register) of any Note as the absolute owner thereof (whether or not such Note shall be overdue) for the purpose of making payment and for all other purposes. (sec. 308) NOTICES Notice to Holders of the Notes will be given by first class mail to the addresses of such Holders as they appear in the Security Register. Such notices will be deemed to have been given on the date of the first such publication or on the date of such mailing, as the case may be. (sec. 106) Notice of a redemption of Notes will be given at least once not less than 30 nor more than 60 days prior to the redemption date (which notice shall be irrevocable) and will specify the redemption date. (sec. 1105) REPLACEMENT OF NOTES Notes that become mutilated, destroyed, stolen or lost will be replaced by the Company at the expense of the Holder upon delivery to the Trustee of the mutilated Notes or evidence of the loss, theft or destruction thereof satisfactory to the Company and the Trustee. In the case of a lost, stolen or destroyed Note indemnity satisfactory to the Trustee and the Company may be required at the expense of the Holder of such Note before a replacement Note will be issued. (sec. 306) SATISFACTION AND DISCHARGE The Company may discharge its payment obligations under the Indenture while Notes remain outstanding if (a) all outstanding Notes have become due and payable or will become due and payable at their scheduled maturity within one year, (b) all outstanding Notes are scheduled for redemption within one year or (c) all outstanding Notes are delivered to the Trustee for conversion in accordance with the Indenture and in the case of (a) or (b) above, the Company has deposited with the Trustee an amount sufficient to pay and discharge the entire indebtedness on all outstanding Notes on the date of their scheduled maturity or the scheduled date of redemption. (sec. 401) GOVERNING LAW The Indenture and the Notes will be governed by and construed in accordance with the laws of the State of New York. (sec. 112) THE TRUSTEE In case an Event of Default shall occur (and shall not be cured), the Trustee will be required to use the degree of care of a prudent person in the conduct of his own affairs in the exercise of its powers. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the Holders of Notes, unless they shall have offered to the Trustee reasonable security or indemnity. (sec.sec. 601 and 603) 41 45 BOOK-ENTRY The Notes will be issued in the form of a global note (the "Global Note") deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co. as DTC's nominee. Owners of beneficial interests in the Notes represented by the Global Note will hold such interests pursuant to the procedures and practices of DTC and must exercise any rights in respect of their interests (including any right to convert or require repurchase of their interests) in accordance with those procedures and practices. Such beneficial owners will not be Holders, and will not be entitled to any rights under the Global Note or the Indenture, with respect to the Global Note, and the Company and the Trustee, and any of their respective agents, may treat DTC as the sole Holder and owner of the Global Note. DTC has advised the Company as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds securities that its participants deposit with DTC. DTC also facilitates the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporation, and certain other organizations. DTC is owned by a number of its direct participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to DTC and its participants are on file with the Securities and Exchange Commission. Unless and until they are exchanged in whole or in part for certificated Notes in definitive form as set forth below, the Global Note may not be transferred except as a whole by DTC to a nominee of DTC, or by a nominee of DTC to DTC or another nominee of DTC. The Notes represented by the Global Note will not be exchangeable for certificated Notes, provided that if (a) DTC is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by the Company within 90 days or (b) there shall have occurred and be continuing an Event of Default with respect to the Notes, the Company will issue individual Notes in definitive form in exchange for the Global Note. In addition, the Company may at any time and in its sole discretion determine not to have a Global Note, and, in such event, will issue individual Notes in definitive form in exchange for the Global Note previously representing all such Notes. In either instance, an owner of a beneficial interest in a Global Note will be entitled to physical delivery of Notes in definitive form equal in principal amount to such beneficial interest and to have such Notes registered in its name. Individual Notes so issued in definitive form will be issued in denominations of $1,000 and any larger amount that is an integral multiple of $1,000 and will be issued in registered form only, without coupons. Payments of principal of and interest on the Notes will be made by the Company through the Trustee to DTC or its nominee, as the case may be, as the registered owner of the Global Note. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that DTC, upon receipt of any payment of principal or interest in respect of the Global Note, will credit the accounts of the related participants with payment in amounts proportionate to their respective holdings in principal amount of beneficial interest in the Global Note as shown on the records of DTC. The Company also expects that payments by participants to owners of beneficial interests in the Global Note will be governed by standing customer instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participants. 42 46 So long as the Notes are represented by a Global Note, DTC or its nominee will be the only entity that can exercise a right to repayment pursuant to the Holder's option to elect repayment of its Notes or the right of conversion of the Notes. Notice by participants or by owners of beneficial interests in a Global Note held through such participants of the exercise of the option to elect repayment, or the right of conversion, of beneficial interests in Notes represented by the Global Note must be transmitted to DTC in accordance with its procedures on a form required by DTC and provided to participants. In order to ensure that DTC's nominee will timely exercise a right to repayment, or the right of conversion, with respect to a particular Note, the beneficial owner of such Notes must instruct the broker or other participant through which it holds an interest in such Notes to notify DTC of its desire to exercise a right to repayment, or the right of conversion. Different firms have different cut-off times for accepting instructions from their customers and, accordingly, each beneficial owner should consult the broker or other participant through which it holds an interest in a Note in order to ascertain the cut-off time by which such an instruction must be given in order for timely notice to be delivered to DTC. The Company will not be liable for any delay in delivery of such notice to DTC. 43 47 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of certain United States federal income tax considerations relating to the purchase, ownership and disposition of the Notes and of Common Stock into which Notes may be converted, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), and existing, temporary and proposed Treasury Regulations, laws, rulings and decisions now in effect, all of which are subject to change. This summary deals only with Holders that will hold Notes and Common Stock into which Notes may be converted as "capital assets" (within the meaning of Section 1221 of the Code) and that are (i) citizens or residents of the United States, (ii) domestic corporations, or (iii) otherwise subject to United States federal income taxation on a net income basis in respect of a Note or Common Stock. This summary does not address tax considerations applicable to investors that may be subject to special tax rules, such as banks, tax-exempt organizations, insurance companies, dealers in securities or currencies, or persons that will hold Notes as a position in a hedging transaction, "straddle" or "conversion transaction" for tax purposes. This summary discusses the tax considerations applicable to the initial purchasers of the Notes who purchase the Notes at their "issue price" as defined in Section 1273 of the Code and does not discuss the tax considerations applicable to subsequent purchasers of the Notes. The Company has not sought any ruling from the Internal Revenue Service with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the Internal Revenue Service will agree with such statements and conclusions. INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. PAYMENT OF INTEREST Interest on a Note generally will be includable in the income of a Holder as ordinary income at the time such interest is received or accrued, in accordance with such Holder's method of accounting for United States federal income tax purposes. SALE, EXCHANGE OR REDEMPTION OF THE NOTES Upon the sale, exchange or redemption of a Note, a Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash proceeds and the fair market value of any property received on the sale, exchange or redemption (except to the extent such amount is attributable to accrued interest income not previously included in income which is taxable as ordinary income) and (ii) such Holder's adjusted tax basis in the Note. A Holder's adjusted tax basis in a Note generally will equal the cost of the Note to such Holder. Such capital gain or loss will be long-term capital gain or loss if the Holder's holding period in the Note is more than one year at the time of sale, exchange or redemption. CONSTRUCTIVE DISTRIBUTION If at any time (i) the Company makes a distribution of cash or property to its shareholders or purchases Common Stock and such distribution or purchase would be a taxable distribution to such shareholders for United States federal income tax purposes (e.g., distributions of evidences of indebtedness or assets of the Company, but generally not stock dividends or rights to subscribe for Common Stock) and, pursuant to the anti-dilution provision of the Indenture, the conversion rate of the Notes is increased, or (ii) the conversion rate of the Notes is increased at the discretion of the Company, such increase in conversion rate may be deemed to be a taxable distribution to Holders of Notes (pursuant to Section 305 of the Code). Such a deemed distribution will be taxable as a dividend, return of capital or capital gain in accordance with the earnings and profits rules discussed under "-- Dividends." Holders of Notes could therefore have taxable income as a result of an event pursuant to which they receive no cash or property. 44 48 CONVERSION OF THE NOTES A Holder of a Note generally will not recognize any income, gain or loss upon conversion of a Note into shares of Common Stock except with respect to cash received either in lieu of a fractional share of Common Stock or attributable to accrued interest on the converted Notes. A Holder's tax basis in the Common Stock received on conversion of a Note will be the same as such Holder's adjusted tax basis in the Note at the time of conversion (reduced by any basis allocable to a fractional share interest). The holding period for the shares of Common Stock received on conversion will generally include the holding period of the Note converted. Cash received in lieu of a fractional share of Common Stock upon conversion will be treated as a payment in exchange for the fractional share of Common Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common Stock generally will result in capital gain or loss (measured by the difference between the cash received for the fractional share and the Holder's adjusted tax basis in the fractional share). DIVIDENDS Distributions paid on shares of Common Stock will constitute dividends for United States federal income tax purposes to the extent of the Company's current or accumulated earnings and profits and will be includable in the income of a Holder as ordinary income. Dividends paid to Holders that are United States corporations may qualify for a dividends-received deduction. To the extent that a distribution to a Holder on shares of Common Stock that would otherwise constitute a dividend for United States federal income tax purposes exceeds current and accumulated earnings and profits of the Company, such distribution will be treated first as a non-taxable return of capital, reducing the Holder's basis in the shares of Common Stock. Any such distribution in excess of the Holder's basis in the shares of Common Stock will be treated as capital gain. SALE OF COMMON STOCK Upon the sale or exchange of Common Stock, a Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received upon the sale or exchange and (ii) such Holder's adjusted tax basis in the Common Stock. Such capital gain or loss will be long-term if the Holder's holding period in such Common Stock is more than one year at the time of the sale or exchange. A Holder's basis and holding period in Common Stock received upon conversion of a Note are determined as discussed above under "Conversion of the Notes." CONSTRUCTIVE SALE OF THE NOTES OR COMMON STOCK Under section 1001 of the H.R. 2014 (the "Bill"), which is currently pending before Congress, a taxpayer generally would be required to recognize gain with respect to an "appreciated financial position" upon entering into certain transactions, including, but not limited to, a short sale, certain offsetting notional principal contracts, or certain future or forward contracts, with respect to the "appreciated financial position." Both the Notes and the underlying Common Stock will constitute "appreciated financial positions" if gain would be recognized were such instruments sold for their fair market value. Accordingly, if the Bill is enacted into law, then upon entering into one of the enumerated transactions with respect to any Note or underlying Common Stock, the holder of such Note or Common Stock must recognize gain, if any, on such Note or Common Stock as if it sold either instrument for the instrument's fair market value. Proper adjustment will be made to the amount of gain or loss subsequently realized with respect to any Note or underlying Common Stock for any gain taken into account by virtue of the constructive sale, and the holding period of such Note or Common Stock will be determined as if such instrument were acquired on the date of the constructive sale. If enacted, section 1001 of the Bill generally will apply to any constructive sale occurring after June 8, 1997. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX In general, information reporting requirements will apply to payments of principal, premium, if any, and interest on a Note, payments of dividends on Common Stock, payments of the proceeds of the sale of a Note 45 49 and payments of the proceeds of the sale of Common Stock to certain noncorporate Holders, and a 31% backup withholding tax may apply to such payments if the Holder (i) fails to furnish or certify his correct taxpayer identification number to the payor in the manner required, (ii) is notified by the Internal Revenue Service (the "IRS") that he has failed to report payments of interest and dividends properly, or (iii) under certain circumstances, fails to certify that he has not been notified by the IRS that he is subject to backup withholding for failure to report interest and dividend payments. Any amounts withheld under the backup withholding rules from a payment to a Holder will be allowed as a credit against such Holder's United States federal income tax and may entitle the Holder to a refund, provided that the required minimum information is furnished to the IRS. 46 50 DESCRIPTION OF CAPITAL STOCK GENERAL The Company is authorized to issue 50,000,000 shares of Common Stock, par value $.01 per share, and 15,000,000 shares of preferred stock, par value $.10 per share (the "Preferred Stock"). As of July 1, 1997, 6,079,519 shares of Common Stock were outstanding and such shares were held by approximately 119 holders of record. None of the Preferred Stock is outstanding. The following descriptions of the Common Stock and the Preferred Stock are based on the Company's Articles of Incorporation (the "Articles") and Bylaws and applicable Florida law. COMMON STOCK Each holder of Common Stock is entitled to one vote for each share owned of record on all matters presented to the shareholders. In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share equally and ratably in the assets of the Company, if any, remaining after the payment of all debts and liabilities of the Company and the liquidation preference of any outstanding Preferred Stock. The Common Stock has no preemptive rights, no cumulative voting rights and no redemption, sinking fund or conversion provisions. Currently, 1,500,000 shares of Common Stock are reserved for issuance under the Company's Incentive Stock Option Plan (the "ISO Plan"). Holders of Common Stock are entitled to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefor, subject to the dividend and liquidation rights of any Preferred Stock that may be issued and outstanding and subject to any dividend restrictions in the Revolving Credit Facility. No dividends or other distributions (including redemptions or repurchases of shares of capital stock) may be made if after giving effect to any such dividends or distributions, the Company would not be able to pay its debts as they become due in the usual course of business or the Company's total assets would be less than the sum of its total liabilities plus the amount that would be needed at the time of a liquidation to satisfy the preferential rights of any holders of Preferred Stock. See "Dividend Policy." All of the shares of Common Stock offered hereby, when issued and sold, will be validly issued, fully paid and nonassessable. The transfer agent and registrar for the Common Stock is First Union National Bank of North Carolina, Charlotte, North Carolina. PREFERRED STOCK The Board of Directors of the Company is authorized, without further shareholder action, to designate and issue from time to time one or more series of Preferred Stock. The Board of Directors may fix and determine the designations, preferences and relative rights and qualifications, limitations or restrictions of any series of Preferred Stock so established, including voting powers, dividend rights, liquidation preferences, redemption rights and conversion privileges. Because the Board of Directors has the power to establish the preferences and rights of each series of Preferred Stock, it may afford the holders of any series of Preferred Stock preferences and rights, voting or otherwise, senior to the rights of holders of Common Stock. As of the date of this Prospectus, the Board of Directors has not authorized any series of Preferred Stock and has no plans to issue any shares of Preferred Stock. CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION The Articles provide that special meetings of shareholders may be called only by: (i) holders of not less than 25% of all votes entitled to be cast at the meeting; (ii) the President; (iii) the Board of Directors; or 47 51 (iv) the Chairman of the Board of Directors. Shareholders may take action only at a duly called and held meeting and may not take action by written consent. The Articles provide for a classified Board of Directors and permit removal of directors only for cause by the shareholders of the Company at a meeting by the affirmative vote of at least 66 2/3% of the outstanding shares of Common Stock. See "Management -- Executive Officers and Directors." The Articles establish an advance notice procedure for the nomination of candidates for election as directors, as well as for other shareholder proposals to be considered at shareholders' meetings. Nominations may be made at shareholders' meetings by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board or by any shareholder entitled to vote for the election of directors. Notice of shareholder proposals and nominations of directors by shareholders must be given timely in writing to the Secretary of the Company before the meeting at which such matters are to be acted upon or directors are to be elected. Such notice, to be timely, must be received at the principal executive offices of the Company with respect to shareholder proposals and elections to be held at the annual meeting, not less than 60 days before the date of the meeting at which the director(s) are to be elected; however, if less than 70 days' notice or prior public disclosure of the date of the scheduled meeting is given or made, notice by the shareholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which notice of the date of such meeting is mailed to shareholders or public disclosure of the date of such meeting is made. Notice to the Company from a shareholder who intends to present a proposal or to nominate a person for election as a director at a meeting must contain certain information about the shareholder giving such notice and, in the case of director nominations, all information that would be required to be included in a proxy statement soliciting proxies for the election of the proposed nominee (including such person's written consent to serve as a director if so elected). If the presiding officer of the meeting determines that a shareholder's proposal or nomination is not made in accordance with the procedures set forth in the Articles, such proposal or nomination, at the direction of such presiding officer, may be disregarded. The notice requirement for shareholder proposals contained in the Articles does not restrict a shareholder's right to include proposals in the Company's annual proxy materials pursuant to rules promulgated under the Exchange Act. The preceding provisions of the Articles may be changed only upon the affirmative vote of holders of 66 2/3% of the outstanding Common Stock. The provisions of the Articles summarized in the preceding four paragraphs and the provisions of Florida's Business Corporation Act described under "Certain Provisions of Florida Law" may have certain anti-takeover effects. Such provisions, individually or in combination, may discourage other persons, or make it more difficult, without the approval of the Board of Directors, for other persons to make a tender offer or acquisitions of substantial amounts of the Common Stock or from launching other takeover attempts that a shareholder might consider in such shareholder's best interest, including attempts that might result in the payment of a premium over the market price for the Common Stock held by such shareholder. CERTAIN PROVISIONS OF FLORIDA LAW The Company is subject to several anti-takeover provisions under Florida law that apply to a public corporation organized under Florida law, unless the corporation has elected to opt out of those provisions in its articles of incorporation or bylaws. The Company has not elected to opt out of those provisions. The Florida Business Corporation Act, as amended (the "FBCA"), prohibits the voting of shares in a publicly-held Florida corporation that are acquired in a "control share acquisition" unless the holders of a majority of the corporation's voting shares (exclusive of shares held by officers of the corporation, inside directors or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition. A "control share acquisition" is defined as an acquisition that immediately thereafter entitles the acquiring party to vote in the election of directors within each of the following ranges of voting power: (i) one-fifth or more but less than one-third of such voting power; (ii) one-third or more but less than a majority of such voting power; and (iii) more than a majority of such voting power. 48 52 The FBCA also contains an "affiliated transaction" provision that prohibits a publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an "interested shareholder" unless: (i) the transaction is approved by a majority of disinterested directors before the person becomes an interested shareholder; (ii) the interested shareholder has owned at least 80% of the corporation's outstanding voting shares for at least five years; or (iii) the transaction is approved by the holders of two-thirds of the corporation's voting shares other than those owned by the interested shareholder. An interested shareholder is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation's outstanding voting shares. 49 53 UNDERWRITING Subject to the terms and conditions of an underwriting agreement (the "Underwriting Agreement") among the Company and the Underwriters named below (the "Underwriters"), the Company has agreed to sell to each of the Underwriters named below, and each of such Underwriters have severally agreed to purchase from the Company, the principal amount of Notes set forth opposite its name below.
UNDERWRITER AMOUNT OF NOTES - ----------- ---------------- Raymond James & Associates, Inc. ......................... $ Forum Capital Markets L.P. ............................... Stephens Inc. ............................................ ------------ Total........................................... $100,000,000 ============
The Underwriting Agreement provides that the obligations of the Underwriters to purchase the Notes are subject to certain conditions. The Underwriters are committed to purchase all the Notes if any of the Notes are purchased. The Company has been advised by the Underwriters that the Underwriters propose to offer the Notes to the public initially at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of % of the principal amount of the Notes. The Underwriters may allow, and such dealers may reallow, a concession not in excess of % of the principal amount of the Notes to other dealers. After the commencement of this offering, the public offering price, the concessions to selected dealers and the reallowance to other dealers may be changed by the Underwriters. The Company has granted to the Underwriters an option, expiring 30 days after the date of this Prospectus, to purchase from the Company up to an aggregate of $15,000,000 additional principal amount of Notes at the public offering price less the underwriting discount set forth on the cover page of this Prospectus solely to cover over-allotments, if any. If the Underwriters exercise such option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the principal amount of the Notes to be purchased by each of them shown in the above table bears to the aggregate principal amount of the Notes offered hereby. The Notes will not be listed on any securities exchange or the Nasdaq National Market. The Underwriters have advised the Company that they intend to make a market in the Notes. The Underwriters are not obligated, however, to make a market in the Notes, and any such market making may be discontinued at any time at the sole discretion of the Underwriters without notice. Forum Capital Markets L.P., on behalf of the Underwriters, may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase shares of Common Stock so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of Common Stock in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit Forum Capital Markets L.P., on behalf of the Underwriters, to reclaim a selling concession from a syndicate member when the Notes originally sold by such syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions. Such over-allotment, stabilizing transactions, syndicate covering transaction and penalty bids may cause the price of the Notes to be higher than it would otherwise be in the absence of such transaction. These transactions may be effected in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time. The Company has agreed to indemnify the Underwriters against certain liabilities under the Securities Act, or to contribute to certain payments that the Underwriters may be required to make in respect thereof. Barry M. Alpert, a director of the Company, is a Managing Director of Raymond James & Associates, Inc., one of the Underwriters. 50 54 LEGAL MATTERS Certain legal matters in connection with the offering and sale of the Notes will be passed upon for the Company by Holland & Knight LLP, Tampa, Florida. The validity of the Notes will be passed upon for the Underwriters by King & Spalding, New York, New York. EXPERTS The Consolidated Financial Statements and schedule of the Company at December 31, 1995, 1996 and for each of the three years in the period ended December 31, 1996, included and incorporated by reference in this Prospectus have been audited by Grant Thornton LLP, independent certified public accountants, as set forth in their reports with respect thereto, and are included and incorporated herein in reliance upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files periodic reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy and information statements and other information filed by the Company may be inspected and copies may be obtained (at prescribed rates) at the Commission's Public Reference Section, 450 5th Street, N.W., Washington, D.C. 20549, as well as the following Regional Offices of the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained by mail from the Public Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549, upon payment of prescribed rates. In addition, electronically filed documents, including reports, proxy and information statements and other information regarding the Company, can be obtained from the Commission's Web site at: http://www.sec.gov. The Company's Common Stock is traded on the Nasdaq National Market, and reports, proxy statements and other information concerning the Company can also be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, Washington, D.C. 20006. The Company has filed a Registration Statement on Form S-3 under the Securities Act with respect to the Notes offered hereby (the "Registration Statement"). This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and such Common Stock offered hereby, reference is made to the Registration Statement and the exhibits, schedules and reports filed as part thereof. Statements contained in the Prospectus with respect to the contents of any contract or other document filed as an exhibit to the Registration Statement are not necessarily complete, and in each such instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement. Each such statement is qualified in all respects by such reference to such exhibit. Copies of all or any part of the Registration Statement, including the documents incorporated by reference therein or exhibits thereto, may be obtained upon payment of the prescribed rates at the offices of the Commission set forth above. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission pursuant to the Exchange Act are hereby incorporated by reference in this Prospectus: (1) The Company's Annual Report on Form 10-K for the year ended December 31, 1996; and (2) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. All documents filed by the Company pursuant to sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Notes shall be deemed to be incorporated by reference in this Prospectus. Any statement contained herein or in a document 51 55 incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained in any subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a Prospectus is delivered, upon written or oral request of such person, a copy of any and all of the information that has been incorporated by reference in this Prospectus (excluding exhibits unless such exhibits are specifically incorporated by reference into such documents). Please direct such requests to the Secretary, Reptron Electronics, Inc., 14401 McCormick Drive, Tampa, Florida, 33626, telephone number (813) 854-2351. 52 56 REPTRON ELECTRONICS, INC. INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
PAGE ---- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.......... F-2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited).................... F-3 Consolidated Statements of Earnings for the years ended December 31, 1994, 1995 and 1996, and the three months ended March 31, 1996 and 1997 (unaudited).............. F-4 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1994, 1995 and 1996, and the three months ended March 31, 1997 (unaudited).......... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and the three months ended March 31, 1996 and 1997 (unaudited).............. F-6 Notes to Consolidated Financial Statements................ F-7 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE.................................................. F-18 Schedule II -- Valuation and Qualifying Accounts for the years ended December 31, 1994, 1995 and 1996........... F-19
F-1 57 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Reptron Electronics, Inc. We have audited the accompanying consolidated balance sheets of Reptron Electronics, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Reptron Electronics, Inc. as of December 31, 1996 and 1995, and the consolidated results of operations and cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Tampa, Florida February 5, 1997 F-2 58 REPTRON ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------- MARCH 31, 1995 1996 1997 --------- --------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 224 $ 479 $ 50 Accounts receivable -- trade, less allowances for doubtful accounts of $180, $350 and $350, respectively.......... 41,234 39,807 47,360 Inventories............................................... 63,461 58,694 65,498 Prepaid expenses and other................................ 1,842 2,764 4,714 Deferred tax benefit...................................... 124 138 167 -------- -------- -------- Total current assets.............................. 106,885 101,882 117,789 PROPERTY, PLANT AND EQUIPMENT -- AT COST, NET............... 20,953 30,869 33,189 EXCESS OF COST OVER NET ASSETS ACQUIRED, NET................ 4,385 4,504 4,444 OTHER ASSETS................................................ 1,515 1,377 2,048 -------- -------- -------- $133,738 $138,632 $157,470 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable -- trade................................. $ 24,948 $ 18,339 $ 22,359 Notes payable to banks.................................... 1,933 -- 2,856 Current portion of long-term obligations.................. 2,547 3,560 2,352 Accrued expenses.......................................... 1,828 2,506 2,028 Income taxes payable...................................... -- 246 -- -------- -------- -------- Total current liabilities......................... 31,256 24,651 29,595 NOTES PAYABLE TO BANKS...................................... 50,200 48,550 60,000 LONG-TERM OBLIGATIONS, less current portion................. 10,430 15,235 15,417 DEFERRED INCOME TAXES....................................... 904 1,506 1,585 COMMITMENTS AND CONTINGENCIES............................... -- -- -- SHAREHOLDERS' EQUITY Preferred Stock -- authorized 15,000,000 shares of $.10 par value; no shares issued............................ -- -- -- Common Stock -- authorized, 15,000,000 shares of $.01 par value; issued and outstanding, 6,048,519, 6,065,519 and 6,071,019 shares, respectively......................... 60 61 61 Additional paid-in capital................................ 21,145 21,233 21,260 Retained earnings......................................... 19,743 27,396 29,552 -------- -------- -------- 40,948 48,690 50,873 -------- -------- -------- $133,738 $138,632 $157,470 ======== ======== ========
The accompanying notes are an integral part of these statements. F-3 59 REPTRON ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------ ----------------------- 1994 1995 1996 1996 1997 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) Net sales............................ $ 164,005 $ 223,344 $ 268,937 $ 66,551 $ 76,251 Cost of goods sold................... 133,794 183,181 217,088 54,569 62,179 ---------- ---------- ---------- ---------- ---------- Gross profit......................... 30,211 40,163 51,849 11,982 14,072 Selling, general and administrative expenses........................... 19,051 26,586 35,023 8,348 9,250 ---------- ---------- ---------- ---------- ---------- Operating income..................... 11,160 13,577 16,826 3,634 4,822 Interest expense..................... 1,474 2,767 4,025 1,102 1,228 ---------- ---------- ---------- ---------- ---------- Earnings before income taxes......... 9,686 10,810 12,801 2,532 3,594 Income tax provision................. 3,823 4,324 5,148 1,013 1,438 ---------- ---------- ---------- ---------- ---------- NET EARNINGS............... 5,863 6,486 7,653 1,519 2,156 ========== ========== ========== ========== ========== Net earnings per common share.................... $ 1.03 $ 1.05 $ 1.24 $ 0.25 $ 0.35 ========== ========== ========== ========== ========== Weighted average Common Stock and Common Stock equivalent shares outstanding........................ 5,713,808 6,170,265 6,179,231 6,168,288 6,206,952 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. F-4 60 REPTRON ELECTRONICS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
TOTAL ADDITIONAL SHARES PAR PAID-IN RETAINED SHAREHOLDERS' OUTSTANDING VALUE CAPITAL EARNINGS EQUITY ----------- ----- ---------- -------- ------------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance at January 1, 1994.................... 4,230,769 $42 $ -- $ 7,394 $ 7,436 Initial public offering, net of offering costs of $708..................................... 1,800,000 18 21,036 -- 21,054 Exercise of stock options..................... 12,500 -- 62 -- 62 Net Earnings.................................. -- -- -- 5,863 5,863 --------- --- ------- ------- ------- Balance at December 31, 1994.................. 6,043,269 60 21,098 13,257 34,415 Exercise of stock options..................... 5,250 -- 47 -- 47 Net Earnings.................................. -- -- -- 6,486 6,486 --------- --- ------- ------- ------- Balance at December 31, 1995.................. 6,048,519 60 21,145 19,743 40,948 Exercise of stock options..................... 17,000 1 88 -- 89 Net Earnings.................................. -- -- -- 7,653 7,653 --------- --- ------- ------- ------- Balance at December 31, 1996.................. 6,065,519 61 21,233 27,396 48,690 Exercise of stock options (Unaudited)......... 5,500 -- 27 -- 27 Net Earnings (Unaudited)...................... -- -- -- 2,156 2,156 --------- --- ------- ------- ------- Balance at March 31, 1997 (Unaudited)......... 6,071,019 $61 $21,260 $29,552 $50,873 ========= === ======= ======= =======
The accompanying notes are an integral part of this statement. F-5 61 REPTRON ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS YEAR ENDED DECEMBER 31, ENDED MARCH 31, ---------------------------- ----------------- 1994 1995 1996 1996 1997 ------- -------- ------- ------- ------- (IN THOUSANDS) (UNAUDITED) Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net earnings.................................. $ 5,863 $ 6,486 $ 7,653 $ 1,519 $ 2,156 ------- -------- ------- ------- ------- Adjustments to reconcile net earnings to net cash provided by (used in) operating activities................................. Depreciation and amortization.............. 1,389 2,462 3,638 685 1,031 Gain on sale of assets..................... (24) -- (47) -- (2) Deferred income taxes...................... 369 350 588 -- 50 Change in assets and liabilities: Accounts receivable -- trade............. (2,531) (11,425) 1,427 2,932 (7,553) Inventories.............................. (7,990) (23,329) 4,344 6,022 (6,804) Prepaid expenses and other............... (744) (669) (920) (34) (1,951) Other assets............................. (507) (963) (396) 397 (788) Related party receivable................. 479 -- -- -- -- Accounts payable -- trade................ (678) 5,842 (6,607) (9,985) 4,020 Accrued expenses......................... (454) 457 678 (449) (478) Income taxes payable..................... (156) (72) 246 617 (246) ------- -------- ------- ------- ------- Net cash provided by (used in) operating activities................ (4,984) (20,861) 10,604 1,704 (10,565) ------- -------- ------- ------- ------- Cash flows from investing activities: Net cash paid for acquisitions................ -- (12,629) -- (91) -- Purchases of property, plant and equipment.... (5,900) (7,642) (7,586) (3,062) (3,173) Proceeds from sale of property, plant and equipment.................................. -- -- 72 -- 2 ------- -------- ------- ------- ------- Net cash used in investing activities.......................... (5,900) (20,271) (7,514) (3,153) (3,171) ------- -------- ------- ------- ------- Cash flows from financing activities: Net proceeds from (payments on) note payable to bank.................................... (7,551) 35,642 (3,582) (33) 14,306 Proceeds from long-term obligation............ 77 7,389 3,409 2,100 -- Payments on long-term obligations............. (2,586) (1,988) (2,751) (684) (1,026) Net proceeds from initial public offering..... 21,054 -- -- -- -- Proceeds from exercise of stock options....... 62 47 89 26 27 ------- -------- ------- ------- ------- Net cash provided by (used in) financing activities................ 11,056 41,090 (2,835) 1,409 13,307 ------- -------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents.................... 172 (42) 255 (40) (429) Cash and cash equivalents at beginning of period........................................ 94 266 224 224 479 ------- -------- ------- ------- ------- Cash and cash equivalents at end of period...... $ 266 $ 224 $ 479 $ 184 $ 50 ======= ======== ======= ======= =======
The accompanying notes are an integral part of these statements. F-6 62 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reptron Electronics, Inc. (the "Company") is a leading integrated electronics company providing through two divisions both value-added distribution of electronic components ("Reptron Distribution") and targeted contract manufacturing services ("K-Byte Manufacturing"). Reptron Distribution sells to over 60 vendor lines of semiconductors, passive products and electromechanical components, including more than 35,000 different items. K-Byte Manufacturing focuses on establishing primary or sole source relationships with OEMs in a wide variety of industries that require complex circuit board assembly with low-to-medium volume production requirements. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows: 1. Principles of Consolidation. The financial statements include the accounts of Reptron Electronics, Inc. and its wholly-owned subsidiary. All significant inter-company balances and transactions have been eliminated. 2. Cash Equivalents. For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. 3. Inventories. Inventories are stated at the lower of cost or market. For K-Byte Manufacturing, cost is determined using the first-in, first-out method (FIFO). To better reflect the movement of Reptron Distribution inventory, the Company changed its inventory method from FIFO to the average cost method. Since the average cost method and FIFO generally yield similar results, the change had and will have an immaterial effect on the financial statements of the Company. 4. Property, Plant and Equipment. Depreciation is provided for, using the straight-line method, in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives (building 39 1/2 years, all other asset categories 5 years). Leasehold improvements are amortized using the straight-line method over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Leased equipment under capital leases is amortized using the straight-line method over the lives of the respective leases or over the service lives of the assets for those leases which substantially transfer ownership. 5. Production Set-up Costs. Under certain contractual arrangements with customers, the Company incurs set-up costs. These costs are capitalized, included in prepaid expenses and other assets, and amortized over the contract period, or two years, whichever is less, using the straight-line method. Amortization begins after the development stage of the contract is complete and the production stage begins. 6. Excess of Cost Over Net Assets Acquired. The excess of cost over net assets acquired is amortized over twenty years using the straight-line method. Accumulated amortization totaled approximately $134,000, $362,000 and $422,000 at December 31, 1995, 1996, and March 31, 1997, respectively. 7. Accounting for Impairment of Long-Lived Assets. The Company's evaluates long-lived assets and intangibles held and used for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. Impairment is recognized when the carrying amounts of such assets cannot be recovered by the net cash flows they will generate. 8. Income Taxes. The Company accounts for income taxes on the liability method, as provided by Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting For Income Taxes." Under the liability method specified by SFAS 109, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured F-7 63 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. 9. Earnings Per Common Share. Earnings per share are computed using the weighted average number of Common Shares plus Common Stock equivalents, consisting of the incentive stock options, using the treasury stock method. Primary and fully diluted calculations result in the same earnings per share. If the sale by the Company of 1,800,000 shares of Common Stock had occurred on January 1, 1994 and the net proceeds of the sale had been applied to the reduction of the Company's Revolving Credit Facility, earnings per share would have been $0.99 in 1994. 10. Use of Estimates. In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 11. New Accounting Pronouncement. In October, 1995 the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock Based Compensation". For employee stock awards, as allowed by SFAS No. 123, the Company has elected to continue using the accounting method promulgated by Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees". The pro-forma disclosures required by SFAS No. 123, as a result of this election, would have resulted in a decrease in net earnings in 1995 and 1996 of approximately $45,000 and $90,000 respectively are not included as the pro-forma effect on these financial statements is insignificant. These pro-forma amounts may not be representative of future disclosures because they reflect options granted for only three years, while the effect of issuing the options is recognized over a five year period. 12. Reclassifications. Certain reclassifications have been made to conform the 1994 and 1995 presentations to the 1996 presentation. 13. Unaudited Financial Statements. The unaudited financial statements and the related notes thereto for March 31, 1996 and 1997 include all normal and recurring adjustments which in the opinion of management are necessary for a fair presentation and are prepared on the same basis as audited annual statements. The interim results are not necessarily indicative of the results that may be expected for the full year. NOTE B -- STATEMENTS OF CASH FLOWS Supplemental disclosures of cash flow information (in thousands):
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------- ------------------ 1994 1995 1996 1996 1997 ------ ------ ------ ------- ------- (UNAUDITED) Cash paid during the period indicated for: Interest............................ $1,436 $2,781 $4,879 $1,102 $1,125 Income taxes........................ $3,437 $4,085 $4,269 $ 396 $2,425
The Company incurred approximately $2,061,000, $2,645,000, $5,209,000 and $372,000 of obligations under capital leases for the acquisition of equipment during 1994, 1995, 1996 and the three months ended March 31, 1996, respectively. No capital leases were entered into during the period ended March 31, 1997. F-8 64 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company purchased substantially all the assets of Cronin Electronics, Inc. and the electronic component division of Western Micro Technology, Inc. during 1995. In conjunction with the acquisitions, specified liabilities were assumed as follows (in thousands): Fair value of assets acquired............................... $ 19,467 Cash paid................................................... (12,629) -------- Liabilities assumed......................................... $ 6,838 ========
NOTE C -- INVENTORIES Inventories consist of the following (in thousands):
DECEMBER 31, MARCH 31, ------------------ --------- 1995 1996 1997 ------- ------- --------- (UNAUDITED) Reptron Distribution: Inventories......................................... $43,647 $31,085 $36,362 K-Byte Manufacturing: Work in process..................................... 7,421 8,833 11,089 Raw materials....................................... 12,393 18,776 18,047 ------- ------- ------- $63,461 $58,694 $65,498 ======= ======= =======
NOTE D -- PROPERTY, PLANT, AND EQUIPMENT Property, plant and equipment consist of the following (in thousands):
DECEMBER 31, MARCH 31, ------------------ --------- 1995 1996 1997 ------- ------- --------- (UNAUDITED) Land and buildings.................................... $ 6,765 $ 6,837 $15,375 Furniture, fixtures and equipment..................... 18,375 24,908 27,427 Leasehold improvements................................ 1,182 1,275 1,240 Construction in progress.............................. 2,564 8,380 476 ------- ------- ------- 28,886 41,400 44,518 Less accumulated depreciation and amortization........ 7,933 10,531 11,329 ------- ------- ------- $20,953 $30,869 $33,189 ======= ======= =======
The Company completed construction of a 150,000 square foot manufacturing and warehouse facility in 1997. The total cost of the construction project was approximately $8,000,000, exclusive of land costs. During the years ended December 31, 1995 and 1996 and the three months ended March 31, 1996 and 1997, capitalized interest totaled approximately $170,000, $820,000, $200,000 and $197,000, respectively. NOTE E -- NOTES PAYABLE TO BANKS The Company is a party to an Amended and Restated Revolving Credit and Reimbursement Agreement dated June 29, 1995, as amended (the "Revolving Credit Facility"). Pursuant to the Revolving Credit Facility, four lenders have made available to the Company a $55 million revolving credit facility ($60 million at March 31, 1997). The lenders may advance funds to the Company pursuant to two types of loans, each of which bears a separate rate of interest. As long as the Company is not in default under the Revolving Credit Facility, and upon notice to the lender, the Company may convert advances from one type of loan to the other. Interest rates on advances made under the Revolving Credit Facility ranged from 7.25% to 8.25% as of F-9 65 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) December 31, 1996 (7.06% to 8.50% as of March 31, 1997). Borrowings under the Revolving Credit Facility are collateralized by all of the Company's inventory and accounts receivable. The Revolving Credit Facility contains certain financial covenants, including the requirement that the Company maintain a minimum tangible net worth, maintain various financial ratios and limit the amount of capital expenditures. In addition, the Revolving Credit Facility requires the financial institutions' approval of dividends in excess of the lesser of $1,000,000 or 25% of net earnings, thereby restricting the distribution of the retained earnings of the Company. The Company was in compliance with all financial covenants as of December 31, 1996. The Revolving Credit Facility is scheduled to terminate on June 30, 1999 but may be extended by agreement. The weighted average interest rate on short-term borrowings on December 31, 1995 was 8.01% and there were no short term borrowings on December 31, 1996. NOTE F -- LONG-TERM OBLIGATIONS Long-term obligations consist of the following (in thousands):
DECEMBER 31 MARCH 31, ----------------- ----------- 1995 1996 1997 ------- ------- ----------- (UNAUDITED) Variable rate demand notes issued in conjunction with the notes payable to banks, collateralized by certain land and buildings due in semi-annual payments of $500 beginning July 1, 1996 through 2003, interest rates range from 5.4% to 6.2% at December 31, 1996.......... $ 6,300 $ 9,300 $ 8,800 Capitalized lease obligations (net of interest of approximately $1,894) for equipment, due in monthly principal and interest payments of approximately $189, through 2001.......................................... 4,575 6,467 6,057 Notes payable collateralized by real property, due in monthly principal and interest installments of $13, two requiring a final balloon payment due March 1998, interest rates of prime plus .5% (8.75% at December 31, 1996) and 10%..................................... 568 983 969 Notes payable collateralized by certain equipment, due in monthly principal and interest installments of $47, through November 2001 at an interest rates of 7.5% and 7.9%.................................................. 998 2,045 1,943 Other................................................... 536 -- -- ------- ------- ------- 12,977 18,795 17,769 Less current maturities................................. 2,547 3,560 2,352 ------- ------- ------- $10,430 $15,235 $15,417 ======= ======= =======
At December 31, 1996, aggregate maturities of long-term obligations are as follows (in thousands):
YEAR ENDING DECEMBER 31, ------------ 1997...................................................... $ 3,560 1998...................................................... 3,755 1999...................................................... 2,871 2000...................................................... 2,622 2001...................................................... 2,018 Thereafter................................................ 3,969 ------- $18,795 =======
F-10 66 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has entered into various capital leases for equipment, totaling approximately $2,061,000 in 1994, $2,645,000 in 1995, $5,209,000 in 1996 and $372,000 for the three months ended March 31, 1996. No capital leases were entered into during the period ended March 31, 1997. At December 31, 1995 and 1996 and March 31, 1997, the net book value of equipment under capital leases is approximately $6,034,000, $7,215,000 and $6,988,000, respectively. The related capital lease obligations are included with long-term obligations. NOTE G -- INCOME TAXES The provision for income taxes for the years ended December 31, 1994, 1995, 1996 and the three months ended March 31, 1996 and 1997, respectively, is as follows (in thousands):
DECEMBER 31, MARCH 31, -------------------------- ---------------- 1994 1995 1996 1996 1997 ------ ------ ------ ------ ------ (UNAUDITED) Current............................. $3,454 $3,974 $4,560 $1,013 $1,388 Deferred............................ 369 350 588 -- 50 ------ ------ ------ ------ ------ $3,823 $4,324 $5,148 $1,013 $1,438 ====== ====== ====== ====== ======
The Company's effective tax rate differs from the statutory U. S. federal income tax rate as a result of the following:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------- ------------ 1994 1995 1996 1996 1997 ----- ----- ----- ---- ---- (UNAUDITED) Statutory federal tax rate...................... 34.0% 34.0% 35.0% 34.0% 35.0% Effect of marginal federal tax rate............. -- -- (0.8) -- (0.8) State income taxes of approximately 6.6%, 6.4%, 6.9%, 6.4% and 6.9%, respectively, net of Federal tax benefit........................... 4.3 4.3 4.6 4.3 4.6 Other........................................... 1.2 1.7 1.4 1.7 1.2 ---- ---- ---- ---- ---- Effective tax rate.............................. 39.5% 40.0% 40.2% 40.0% 40.0% ==== ==== ==== ==== ====
The Company's income in excess of $10.0 million is subject to federal income tax at a marginal rate of 35%. As a result of the Company's current and expected earnings, management has chosen 35% as the Company's statutory federal tax rate. F-11 67 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income tax assets and liabilities resulting from differences between accounting for financial statement purposes and tax purposes pursuant to SFAS No. 109, are summarized as follows (in thousands):
DECEMBER 31, MARCH 31, ----------------- ----------- 1995 1996 1997 ------- ------- ----------- (UNAUDITED) Deferred tax assets Accrued vacation...................................... $ 51 $ 51 $ 50 Allowance for bad debts............................... 71 138 138 Other................................................. 2 23 22 ------- ------- ------- 124 212 210 Deferred tax liabilities Depreciation.......................................... 846 1,399 1,478 Other................................................. 58 181 150 ------- ------- ------- 904 1,580 1,628 Net deferred tax liability.................... $ (780) $(1,368) $(1,418) ======= ======= =======
A valuation allowance has not been recorded against the deferred tax assets for 1995, 1996 and 1997. NOTE H -- COMMITMENTS AND CONTINGENCIES Operating Leases The Company has operating leases for facilities and certain machinery and equipment which expire at various dates through 2001. Certain leases provide for payment by the Company of any increases in property taxes and insurance over a base amount and others provide for payment of all property taxes and insurance by the Company. One of the leases, which expires in November 1998, is for a building owned by the Chief Executive Officer of the Company and provides for annual rentals of $68,000. Rent paid on this facility totaled $69,000 in 1994, and $68,000 in both 1995 and 1996 and $17,000 for the three months ended March 31, 1997. The Company pays for property taxes and insurance in accordance with the provisions of the lease. The Company also leases an aircraft from a corporation controlled by the Chief Executive Officer of the Company. The Company is responsible for all costs associated with the operation of the aircraft, including fuel, maintenance, storage and crew salary and expenses. Rent expense for the use of aircraft totaled approximately $156,000 in 1994, $74,000 in 1995 and $240,000 in 1996 and $60,000 for the three months ended March 31, 1997. Future minimum payments, by year and in the aggregate, under noncancellable operating leases consist of the following at December 31, 1996 (in thousands):
YEAR ENDING DECEMBER 31, - ------------ 1997...................................................... $1,167 1998...................................................... 870 1999...................................................... 544 2000...................................................... 221 2001...................................................... 73
Total rent expense for the years ended December 31, 1994, 1995, 1996 and the three months ended March 31, 1996 and 1997 was approximately $1,519,000, $1,725,000, $1,555,000, $347,000 and $301,000, respectively, which includes $225,000, $142,000, $308,000, $77,000 and $77,000 to the Chief Executive Officer of the Company. F-12 68 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Litigation The Company is, from time to time, involved in litigation relating to claims arising out of its operations in the ordinary course of business. The Company believes that none of these claims which should have a material adverse impact on its financial condition or results of operations. NOTE I -- SHAREHOLDERS' EQUITY The Board of Directors is authorized, without further shareholder action, to divide any or all shares of the authorized Preferred Stock into series and to fix and determine the designations, preferences, relative rights, qualifications, limitations or restrictions thereon, of any series so established, including voting powers, dividend rights, liquidation preferences, redemption rights and conversion privileges. The Board of Directors has not authorized any issuance of Preferred Stock and there are no plans, agreements, or understandings for the authorization or issuance of any shares of Preferred Stock. In April 1997, the Company increased the number of authorized Common Stock shares to 50,000,000. NOTE J -- EMPLOYEE BENEFITS Incentive Stock Option Plan The Company's Incentive Stock Option Plan (the "ISO Plan") was adopted in November, 1993 to provide for the grant to employees of incentive stock options within the meaning of Section 422 of the Internal Revenue Code. The ISO Plan is intended to provide incentives to directors, officers, and other key employees and to enhance the Company's ability to attract and retain qualified employees. A total of 500,000 shares of Common Stock has been reserved for issuance under the ISO Plan. Stock options are granted for the purchase of Common Stock at a price not less than the fair market on the date of grant. The following table summarizes the activity in Common Stock subject to options:
WEIGHTED WEIGHTED RANGE OF AVERAGE AVERAGE EXERCISE EXERCISE REMAINING SHARES PRICE PRICE CONTRACTUAL LIFE ------- -------------- -------- ---------------- (IN YEARS) Outstanding at January 1, 1994................ 211,300 $5.00 $ 5.00 9.9 Granted..................................... 16,000 9.13 9.13 Exercised................................... (12,500) 5.00 5.00 Forfeited................................... (3,500) 5.00 5.00 ------- Outstanding at December 31, 1994.............. 211,300 $ 5.00 -- 9.13 $ 5.31 9.0 Granted..................................... 10,000 14.25 -- 15.07 14.66 Exercised................................... (5,250) $ 5.00 -- 9.13 8.93 Forfeited................................... (24,250) 5.00 5.00 ------- Outstanding at December 31, 1995.............. 191,800 5.00 -- 15.07 $ 5.74 8.0 Granted..................................... 22,000 12.75 -- 14.75 14.30 Exercised................................... (17,000) 5.00 -- 9.13 5.18 Forfeited................................... (2,750) 5.00 -- 9.13 8.38 ------- Outstanding at December 31, 1996.............. 194,050 $5.00 -- 15.07 $ 6.72 7.3 Granted (unaudited)......................... 73,500 14.75 -- 18.00 17.61 Exercised (unaudited)....................... (5,500) 5.00 5.00 Forfeited (unaudited)....................... (500) 5.00 5.00 ------- Outstanding at March 31, 1997 (unaudited)..... 261,500 $5.00 -- 18.00 9.82 7.8 =======
F-13 69 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information about Common Stock options outstanding at December 31, 1996:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING WEIGHTED ----------------------------------------- ---------------------- WEIGHTED WEIGHTED NUMBER WEIGHTED NUMBER AVERAGE AVERAGE EXERCISABLE AVERAGE RANGE OF OUTSTANDING REMAINING EXERCISE AT EXERCISE EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE PRICE 12/31/96 PRICE - --------------- ----------- ---------------- -------- ----------- -------- (IN YEARS) $5.00 154,050 6.9 $ 5.00 115,538 $ 5.00 $ 9.13 -- 12.75 13,000 8.3 10.52 4,000 9.13 $14.25 -- 15.07 27,000 9.1 14.72 2,500 14.66 ------- ------- $ 5.00 -- 15.07 194,050 7.3 $ 6.72 122,038 $ 5.33 ======= =======
The duration of options granted under the ISO Plan is ten years from the date of grant, or such other date as determined by the Board of Directors. In general, the options must be exercised while a person is employed by the Company or 90 days thereafter. The options may be exercised in four equal annual increments, cumulatively, beginning one year after the date of grant, and all such options may be exercised in full four years after the date of grant. The options are non-transferable other than by will or by the laws of descent and distribution. Profit Sharing Plan The Company previously maintained a discretionary Profit Sharing Plan (the "Profit Sharing Plan"), for the benefit of its employees. The amount of the Company's previous contribution to the Profit Sharing Plan for any year was determined by the Board of Directors in its sole discretion, subject to certain limitations imposed by the Internal Revenue Code. In 1992, the Administrator of the Profit Sharing Plan approved termination of the Profit Sharing Plan and a favorable determination has been issued by the Internal Revenue Service. The Profit Sharing Plan began distributions to its participants during 1996 and is expected to distribute the participants' remaining shares by December 31, 1997. The Profit Sharing Plan currently holds 661,955 shares of the Company's Common Stock. 401(k) Plan In 1993, the Company established a deferred compensation plan (the "Plan") under section 401(a) of the Code. Substantially all of the officers and employees of the Company are eligible to participate in the Plan. Employees are eligible to participate in the Plan after six months of service and after attaining age 21. At its discretion, the Company may make matching contributions to the Plan. Employees are always vested in their contributions and are fully vested in the employer contributions after five years of service. The Company contributed approximately $54,000, $82,000, $18,000 and $26,000 to the Plan for the years ended December 31, 1995 and 1996 and the three months ended March 31, 1996 and 1997, respectively. NOTE K -- ACQUISITIONS On March 22, 1995, the Company purchased substantially all of the assets and assumed certain liabilities of Cronin Electronics, Inc. Cronin Electronics was a distributor of electronic components serving the New England market with locations in suburban Boston, Massachusetts and Hartford, Connecticut. The acquisition was accounted for using the purchase method and, accordingly, the acquired business operations have been included herein since the date of the acquisition. Of the approximately $6.2 million total costs involved in the acquisition, approximately $2.9 million was in cash, with the remainder in assumption of specified liabilities. F-14 70 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company allocated approximately $3.3 million of the purchase price to tangible assets. Pro forma information is not presented as the effect of the acquisition was not significant to the financial statements. On July 26, 1995, the Company purchased substantially all of the assets and assumed certain liabilities of the electronic component distribution business of Western Micro Technology, Inc. The electronic component distribution business of Western Micro Technology, Inc. had offices in Seattle, Washington; Portland, Oregon; Saratoga, California; Irvine, California; Los Angeles, California; San Diego, California; Philadelphia, Pennsylvania; and Boston Massachusetts. The acquisition was accounted for using the purchase method and, accordingly, the acquired business operations have been included herein since the date of the acquisition. Of the approximately $13.3 million in total costs involved in the acquisition, approximately $9.7 million was in cash, with the remainder in assumption of specified liabilities. The Company allocated approximately $11.6 million of the purchase price to tangible assets. The following unaudited pro forma summary combines the results of operations of the Company with the operations of the electronic component distribution business of Western Micro Technology, Inc., as if the acquisition had occurred at the beginning of the respective periods. This pro forma summary does not necessarily reflect the results of operations as they would have been if the Company and the operations of the electronic component distribution business of Western Micro Technology, Inc., operated as a single entity during such periods.
YEAR ENDED DECEMBER 31, ------------------- 1994 1995 -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) Net Sales................................................... $223,356 $254,398 Gross Profit................................................ 41,281 44,525 Operating Income............................................ 12,264 12,896 Net Earnings................................................ 6,107 5,790 Net Earnings per Common Share............................... 1.07 .94
NOTE L -- RELATED PARTY TRANSACTIONS The Company has a non-interest bearing loan receivable from the profit sharing plan totaling approximately $99,000, $194,000, $279,000 and $194,000 as of December 31, 1994, 1995 and 1996 and March 31, 1997, respectively. A director of the Company serves as its general counsel and received approximately $178,000, $235,000, $185,000 and $39,000 for services rendered during 1994, 1995, 1996 and the three months ended March 31, 1997, respectively. See Note H for related party leases. NOTE M -- FAIR VALUE OF FINANCIAL INSTRUMENTS At December 31, 1996, the carrying amount of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term maturities of these items. The carrying amounts of current and long-term portions of notes payable, and long-term obligations approximate fair market value since the interest rates on most of these instruments change with market interest rates. F-15 71 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE N -- FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company has two industry segments: Distribution and Contract Manufacturing. Distribution purchases a wide variety of electronic components, including semiconductors, passive products and electromechanical components, for distribution to manufacturers and wholesalers throughout the United States. Contract Manufacturing manufactures electronic products according to customer design for customers in various industries, including telecommunications, banking and medical services. The following table shows net sales, operating income, identifiable assets, depreciation and amortization expense and capital expenditures as of and for the years 1994, 1995 and 1996.
YEAR ENDED DECEMBER 31, ------------------------------ 1994 1995 1996 -------- -------- -------- Net Sales Unaffiliated customers Distribution........................................... $ 96,003 $140,146 $168,279 Contract Manufacturing................................. 68,002 83,198 100,658 -------- -------- -------- 164,005 223,344 268,937 Intersegment sales..................................... 5,437 14,494 10,235 -------- -------- -------- 169,442 237,838 279,172 ======== ======== ======== Operating Income Distribution........................................... 5,174 8,804 7,036 Contract Manufacturing................................. 5,986 4,773 9,790 -------- -------- -------- 11,160 13,577 16,826 ======== ======== ======== Identifiable Assets Distribution........................................... 32,257 71,839 64,993 Contract Manufacturing................................. 32,158 49,600 59,948 -------- -------- -------- 64,415 121,439 124,941 Corporate................................................. 5,658 12,299 13,691 -------- -------- -------- 70,073 133,738 138,632 ======== ======== ======== Depreciation and Amortization Distribution........................................... 81 580 674 Contract Manufacturing................................. 1,064 1,736 2,444 -------- -------- -------- 1,145 2,316 3,118 Corporate.............................................. 244 146 520 -------- -------- -------- 1,389 2,462 3,638 ======== ======== ======== Capital Expenditures (includes equipment under capitalized leases) Distribution........................................... 727 1,142 1,516 Contract Manufacturing................................. 2,761 6,957 5,033 -------- -------- -------- 3,488 8,099 6,549 Corporate.............................................. 4,473 2,188 6,149 -------- -------- -------- $ 7,961 $ 10,287 $ 12,698 ======== ======== ========
F-16 72 REPTRON ELECTRONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE O -- SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for the quarterly periods of 1995 and 1996 (in thousands except per share data):
THREE MONTHS ENDED ----------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- ------- ------------ ----------- 1995 - -------------------------------------------- Net sales................................... $43,076 $52,873 $59,492 $67,903 Gross profit................................ 8,171 9,515 10,729 11,748 Operating income............................ 2,949 3,523 3,692 3,413 Net earnings................................ 1,511 1,778 1,713 1,484 Net earnings per common share............... .25 .29 .28 .24 1996 - -------------------------------------------- Net sales................................... 66,551 66,092 65,953 70,341 Gross profit................................ 11,982 13,199 12,594 14,074 Operating income............................ 3,936 4,183 4,200 4,507 Net earnings................................ 1,519 1,905 2,017 2,212 Net earnings per common share............... $ .25 $ .31 $ .33 $ .36 1997 - -------------------------------------------- Net sales................................... $76,251 Gross profit................................ 14,072 Operating income............................ 4,822 Net earnings................................ 2,156 Net earnings per common share............... $ .35
NOTE P -- CONCENTRATION OF CREDIT RISK One customer represented 12.4% of total Company net sales in 1996 (10.8% for the three months ended March 31, 1997). The loss of this customer or a reduction in its level of purchasing could have a material impact on the Company's business and results of operations. F-17 73 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE Board of Directors Reptron Electronics, Inc. In connection with our audit of the consolidated financial statements of Reptron Electronics, Inc., referred to in our report dated February 5, 1997, which is included in this Registration Statement we have also audited Schedule II for each of the three years in the period then ended. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Tampa, Florida February 5, 1997 F-18 74 SCHEDULE II REPTRON ELECTRONICS, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 31, 1995 AND DECEMBER 31, 1996
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ---------- ---------- ------------ -------- BALANCE AT CHARGED TO ACCOUNTS BALANCE BEGINNING COSTS AND WRITTEN OFF, AT END DESCRIPTION OF YEAR EXPENSES NET OF YEAR - ----------- ---------- ---------- ------------ -------- ALLOWANCE FOR DOUBTFUL ACCOUNTS Year Ended December 31, 1994......................... $179,500 $218,600 $(217,700) $180,400 Year Ended December 31, 1995......................... 180,400 149,775 (150,466) $179,709 Year Ended December 31, 1996......................... 179,709 193,000 (23,000) $349,709
F-19 75 (This Page Intentionally Left Blank) 76 ====================================================== NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 1 Risk Factors.......................... 5 Use of Proceeds....................... 9 Capitalization........................ 10 Selected Consolidated Financial Data................................ 11 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 13 Business.............................. 20 Management............................ 30 Principal Shareholders................ 32 Description of Notes.................. 33 Certain Federal Income Tax Considerations...................... 44 Description of Capital Stock.......... 46 Underwriting.......................... 49 Legal Matters......................... 50 Experts............................... 50 Available Information................. 50 Incorporation of Certain Documents by Reference........................... 50 Index to Financial Statements and Schedule............................ F-1
====================================================== ====================================================== $100,000,000 [REPTRON ELECTRONICS, INC. LOGO] % CONVERTIBLE SUBORDINATED NOTES DUE 2004 ------------------------ PROSPECTUS ------------------------ RAYMOND JAMES & ASSOCIATES, INC. FORUM CAPITAL MARKETS L.P. STEPHENS INC. , 1997 ====================================================== 77 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the fees and expenses in connection with the issuance and distribution of the securities being registered hereunder. Securities and Exchange Commission registration fee......... $ 34,849 NASD filing fee............................................. 12,000 Printing and engraving expenses............................. 150,000* Accounting fees and expenses................................ 100,000* Legal fees and expenses..................................... 100,000* Blue Sky fees and expenses.................................. 10,000* Miscellaneous............................................... 92,151* -------- Total............................................. 500,000* ========
- --------------- * Estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company is a Florida corporation. The FBCA provides that, in general, a business corporation may indemnify any person who is or was a party to any proceeding (other than an action by, or in the right of, the corporation) by reason of the fact that he is or was a director or officer of the corporation, against liability incurred in connection with such proceeding, including any appeal thereof, provided certain standards are met, including that such officer or director acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, and provided further that, with respect to any criminal action or proceeding, the officer or director had no reasonable cause to believe his conduct was unlawful. In the case of proceedings by or in the right of the corporation, the FBCA provides that, in general, a corporation may indemnify any person who was or is a party to any such proceeding by reason of the fact that he is or was a director or officer of the corporation against expenses and amounts paid in settlement actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof, provided that such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim as to which such person is adjudged liable unless a court of competent jurisdiction determines upon application that such person is fairly and reasonably entitled to indemnity. To the extent that any officers or directors are successful on the merits or otherwise in the defense of any of the proceedings described above, the FBCA provides that the corporation is required to indemnify such officers or directors against expenses actually and reasonably incurred in connection therewith. However, the FBCA further provides that, in general, indemnification or advancement of expenses shall not be made to or on behalf of any officer or director if a judgment or other final adjudication establishes that his actions, or omissions to act, were material to the cause of action so adjudicated and constitute: (i) a violation of the criminal law, unless the director or officer had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe it was unlawful; (ii) a transaction from which the director or officer derived an improper personal benefit; (iii) in the case of a director, a circumstance under which the director has voted for or assented to a distribution made in violation of the FBCA or the corporation's articles of incorporation; or (iv) willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. Article V of the Company's Bylaws provides that the Company shall indemnify any director, officer, employee or agent or any former director, officer, employee or agent to the full extent permitted by Florida law. The underwriters also will agree to indemnify the directors and officers of the Company against certain liabilities as set forth in Section of the Underwriting Agreement (see Exhibit 1). II-1 78 The Company has purchased insurance with respect to, among other things, any liabilities that may arise under the statutory provisions referred to above. ITEM 16. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 -- Form of Underwriting Agreement 4.1 -- Form of Indenture 4.2 -- Form of Convertible Subordinated Note (included in Exhibit 4.1) 4.3 -- Articles of Amendment to Articles of Incorporation 5.1 -- Opinion of Holland & Knight LLP 12.1 -- Statement re Computation of Ratio of Earnings to Fixed Charges+ 21.1 -- Subsidiaries of the Company 23.1 -- Consent of Holland & Knight LLP (contained in Exhibit 5.1) 23.2 -- Consent of Grant Thornton, LLP 24 -- Powers of Attorney+ 25.1 -- Statement on Form T-1 as to Eligibility of Trustee
- --------------- + Previously filed. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the indemnification provisions described herein, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The Company hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Company's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-2 79 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of Tampa, State of Florida, on August 1, 1997. REPTRON ELECTRONICS, INC. By: /s/ MICHAEL L. MUSTO* ----------------------------------- Michael L. Musto President, Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL L. MUSTO* President, Chief Executive August 1, 1997 - --------------------------------------------------- Officer, and Director Michael L. Musto (Principal Executive Officer) /s/ PAUL J. PLANTE* Chief Operating Officer and August 1, 1997 - --------------------------------------------------- Director Paul J. Plante /s/ LEIGH A. ADAMS* Secretary and Director August 1, 1997 - --------------------------------------------------- Leigh A. Adams /s/ MICHAEL BRANCA* Chief Financial Officer August 1, 1997 - --------------------------------------------------- (Principal Financial and Michael Branca Accounting Officer) /s/ WILLIAM L. ELSON* Director August 1, 1997 - --------------------------------------------------- William L. Elson /s/ BARRY M. ALPERT* Director August 1, 1997 - --------------------------------------------------- Barry M. Alpert *By: /s/ PAUL J. PLANTE --------------------------------------------- Paul J. Plante Attorney-in-fact
II-3 80 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 -- Form of Underwriting Agreement 4.1 -- Form of Indenture 4.2 -- Form of Convertible Subordinated Note (included in Exhibit 4.1) 4.3 -- Articles of Amendment to Articles of Incorporation 5.1 -- Opinion of Holland & Knight LLP 12.1 -- Statement re Computation of Ratio of Earnings to Fixed Charges+ 21.1 -- Subsidiaries of the Company 23.1 -- Consent of Holland & Knight LLP (contained in Exhibit 5.1) 23.2 -- Consent of Grant Thornton, LLP 24 -- Powers of Attorney+ 25.1 -- Statement on Form T-1 as to Eligibility of Trustee
- --------------- + Previously filed. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 REPTRON ELECTRONICS, INC. __% CONVERTIBLE SUBORDINATED NOTES DUE 2004 UNDERWRITING AGREEMENT August __, 1997 Raymond James & Associates, Inc. Forum Capital Markets L.P. Stephens Inc. As representatives of the several Underwriters named in Schedule I hereto, c/o Raymond James & Associates, Inc. 880 Carillon Parkway St. Petersburg, Florida 33716 Ladies and Gentlemen: Reptron Electronics, Inc., a Florida corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of $100,000,000 principal amount of the __% Convertible Subordinated Notes, convertible into Common Stock, par value $.01 per share ("Stock"), of the Company (the "Firm Securities") and, at the election of the Underwriters, up to an aggregate of $15,000,000 additional aggregate principal amount (the "Optional Securities"). The Firm Securities and the Optional Securities which the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Securities". 1. The Company represents and warrants to, and agrees with, each of the Underwriters that: (a) A registration statement on Form S-3 (File No. 333-31605) in respect of the Securities has been filed with the Securities and Exchange Commission (the "Commission"); such registration statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, to you for each of the other Underwriters, have been declared effective by the Commission in such form; no other document with respect to such registration statement or document incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of such registration statement has been issued and no proceeding for that purpose has been initiated or, to the best knowledge of the 2 Company, threatened by the Commission (any preliminary prospectus included in such registration statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Securities Act of 1933, as amended (the "Act"), is hereinafter called a "Preliminary Prospectus"; the various parts of such registration statement, including all exhibits thereto but excluding Form T-1 and including (i) the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the registration statement at the time it was declared effective and (ii) the documents incorporated by reference in the prospectus contained in the registration statement at the time such part of the registration statement became effective, each as amended at the time such part of the registration statement became effective, are hereinafter collectively called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"; any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Registration Statement that is incorporated by reference in the Registration Statement; (b) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Raymond James & Associates, Inc. expressly for use therein; (c) The documents incorporated by reference in the Prospectus, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a -2- 3 material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents are filed with the Commission, will conform in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Raymond James & Associates, Inc. expressly for use therein; (d) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by an Underwriter through Raymond James & Associates, Inc. expressly for use therein; (e) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, that is material to the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries, considered on a consolidated basis, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus; (f) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all material personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of -3- 4 such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries; (g) The Company has been duly incorporated and is validly existing as a corporation with active status under the laws of the State of Florida, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; (h) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable; the shares of Stock initially issuable upon conversion of the Securities have been duly and validly authorized and reserved for issuance and, when issued and delivered in accordance with the provisions of the Securities and the Indenture referred to below, will be validly issued, fully paid and non-assessable and will conform to the description of the Stock contained in the Prospectus; and with respect to each subsidiary of the Company, all of the issued shares of capital stock of each such subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (i) The Securities have been duly authorized and, when issued and delivered pursuant to the provisions of the Indenture and this Agreement, will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company entitled to the benefits provided by the Indenture to be dated as of August __, 1997 (the "Indenture") between the Company and Reliance Trust Company, as Trustee (the "Trustee"), under which they are to be issued, which will be substantially in the form filed as an exhibit to the Registration Statement; the Indenture has been duly authorized by the Company and duly qualified under the Trust Indenture Act and, when executed and delivered by the Company and the Trustee, will constitute a -4- 5 valid and legally binding instrument, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the Securities and the Indenture will conform to the descriptions thereof in the Prospectus; (j) The issue and sale of the Securities and the compliance by the Company with all of the provisions of the Securities, the Indenture and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Articles of Incorporation or Bylaws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Securities or the consummation by the Company of the transactions contemplated by this Agreement or the Indenture, except the registration under the Act of the Securities and the shares of Stock issuable upon conversion thereof and such consents, approvals, authorizations, registrations or qualifications as have been obtained under the Trust Indenture Act, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters; (k) Neither the Company nor any of its subsidiaries is in violation of its Articles of Incorporation or Bylaws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, material lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound; (l) The execution and delivery of this Agreement, and the performance by the Company of its obligations under this Agreement, have been duly and validly authorized by the Company, and this Agreement has been duly executed and delivered by the Company and constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms subject, as to enforcement to bankruptcy, insolvency, reorganization and other laws of generally applicability relating to or affecting creditors' rights and to general equity principles; (m) The statements set forth in the Prospectus under the captions "Description of Notes" and "Description of Capital Stock", insofar as they purport to constitute a -5- 6 summary of the terms of the Securities and the Stock, and under the captions "Certain Federal Income Tax Considerations" and "Underwriting", insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; (n) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole; and, to the knowledge of the Company, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (o) The Company is not and, after giving effect to the offering and sale of the Securities, will not be an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (p) Neither the Company nor any of its affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (q) Grant Thornton LLP, who have audited certain financial statements of the Company and its subsidiaries and delivered their report with respect to the audited consolidated financial statements and schedules included in the Registration Statement, are, to the best knowledge of the Company, independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; (r) The Company and its subsidiaries have all permits, licenses, franchises, approvals, consents and authorizations of governmental or regulatory authorities or private persons or entities (hereinafter "permit" or "permits") as are necessary to own their respective properties and to conduct their respective businesses in the manner described in the Prospectus, subject to such qualifications as may be set forth therein, except where the failure to have obtained any such permit has not had and would not have a material adverse effect on the current or future consolidated financial position, shareholders' equity or results of operations of the Company and its subsidiaries taken as a whole; the Company and its subsidiaries have fulfilled and performed all of their material obligations with respect to each such permit and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination of any such permit or result in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Prospectus; -6- 7 and, except as described in the Prospectus, such permits contain no restrictions that are materially burdensome to the Company and its subsidiaries taken as a whole; (s) The Company and its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; and the Company has no reason to believe that the Company and its subsidiaries will not be able to renew their existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue their respective businesses as a comparable cost; (t) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences; (u) Neither the Company nor any of its subsidiaries has, directly or indirectly, at any time during the past five years (i) made any unlawful contribution to any candidate for political office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal, state or foreign governmental official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof or applicable foreign jurisdictions; (v) The Company and its subsidiaries have filed all foreign, federal, state and local tax returns that are required to be filed or have requested extensions thereof (except in any case in which the failure so to file would not have a material adverse effect on the Company and its subsidiaries) and have paid all taxes required to be paid by them and any other assessment, fine or penalty levied against them, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is currently being contested in good faith or as described in or contemplated by the Prospectus. (w) Neither the Company nor any of its subsidiaries is in violation of any federal or state law or regulation relating to (i) the environment or hazardous or toxic substances or wastes, pollutants or contaminants or to the storage, handling or transportation of hazardous or toxic material ("Environmental Laws") or (ii) occupational safety and health and the Company and its subsidiaries have received all -7- 8 permits, licenses or other approvals required of them under applicable federal and state occupational safety and health and Environmental Laws and regulations to conduct their respective businesses, and the Company and its subsidiaries are in compliance with all terms and conditions of any such permit, license or approval, except any such violation of law or regulation, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals which would not, individually or in the aggregate, result in a material adverse effect on the current or future consolidated financial position, stockholders' equity or results operations of the Company and its subsidiaries taken as a whole, except as described in or contemplated by the Prospectus. Neither the Company nor any of its subsidiaries have any pending or threatened Environmental Law or occupational safety and health claims against them nor are there circumstances with respect to any property or operations of the Company or its subsidiaries that could reasonably be anticipated to form the basis of an Environmental Law or occupational safety and health claim against the Company or its subsidiaries which, individually or in the aggregate, would result in a result in a material adverse effect on the current or future consolidated financial position, shareholders' equity or results operations of the Company and its subsidiaries taken as a whole, except as described in or contemplated by the Prospectus. (x) The Company and its subsidiaries own or have the right to use all patents, patent applications, trademarks, trademark applications, tradenames, service marks, copyrights, franchises, trade secrets, software, proprietary or other confidential information and intangible properties and assets (collectively, "Intangibles") necessary to their respective businesses as presently conducted or as the Prospectus indicate the Company and its subsidiaries propose to conduct, except where the failure to own or have the right to use would not have a material adverse effect on the current or future consolidated financial position, shareholders' equity or results of operations of the Company and its subsidiaries; to the best knowledge of the Company, none of the Company or its subsidiaries has infringed or is infringing, and none of the Company or its subsidiaries has received notice of infringement with respect to, asserted Intangibles of others; and, to the best knowledge of the Company, there is no infringement by others of Intangibles of the Company and its subsidiaries; and 2. Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price of 100% of the principal amount thereof, plus accrued interest from August __, 1997, if any, to the Time of Delivery hereunder, the principal amount of Securities set forth opposite the name of such Underwriter in Schedule I hereto, and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Securities as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the purchase price set forth in clause (a) of this Section 2, that portion of the aggregate principal amount of Optional Securities as to which such election shall have been -8- 9 exercised (to be adjusted by you so as to eliminate fractions of $1,000) determined by multiplying such aggregate principal amount of Optional Securities by a fraction, the numerator of which is the maximum aggregate principal amount of Optional Securities which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum aggregate principal amount of Optional Securities which all of the Underwriters are entitled to purchase hereunder. The Company hereby grants to the Underwriters the right to purchase at their election up to $15,000,000 aggregate principal amount of Optional Securities, at the purchase price set forth in clause (a) of the first paragraph of this Section 2, for the sole purpose of covering overallotments in the sale of the Firm Securities. Any such election to purchase Optional Securities may be exercised by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement, setting forth the aggregate principal amount of Optional Securities to be purchased and the date on which such Optional Securities are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than five business days after the date of such notice. 3. Upon the authorization by you of the release of the Firm Securities, the several Underwriters propose to offer the Firm Securities for sale upon the terms and conditions set forth in the Prospectus. 4. (a) The Securities to be purchased by each Underwriter hereunder will be represented by one or more global Securities in book-entry form which will be deposited by or on behalf of the Company with The Depository Trust Company ("DTC") or its designated custodian. The Company will deliver the Securities to Raymond James & Associates, Inc., for the account of each Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer, payable to the order of the Company in Federal (same day) funds, by causing DTC to credit the Securities to the account of Raymond James & Associates, Inc. at DTC. The Company will cause the certificate or certificates representing the Securities to be made available to Raymond James & Associates, Inc. for checking at least twenty-four hours prior to the Time of Delivery (as defined below) at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be, with respect to the Firm Securities, 9:30 a.m., New York time, on August __, 1997 or such other time and date as Raymond James & Associates, Inc. and the Company may agree upon in writing, and, with respect to the Optional Securities, 9:30 a.m., New York time, on the date specified by Raymond James & Associates, Inc. in the written notice given by Raymond James & Associates, Inc. of the Underwriters' election to purchase such Optional Securities, or such other time and date as Raymond James & Associates, Inc. and the Company may agree upon in writing. Such time and date for delivery of the Firm Securities is herein called the "First Time of Delivery", such time and date for delivery of the Optional Securities, if not the First Time of Delivery, is herein called the "Second Time of Delivery", and each such time and date for delivery is herein called a "Time of Delivery". -9- 10 (b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross receipt for the Securities and any additional documents requested by the Underwriters pursuant to Section 7(j) hereof, will be delivered at the offices of King & Spalding, 120 West 45th Street, New York, New York 10036 (the "Closing Location"), and the Securities will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at 1:00 p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Securities; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Securities or the shares of Stock issuable upon conversion of the Securities for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, promptly to use its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Securities and the shares of Stock issuable upon conversion of the Securities for offering and sale (with the assistance of counsel for the Underwriters) under -10- 11 the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Securities, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) To furnish the Underwriters with copies of the Prospectus in such quantities as you may from time to time reasonably request, and, if the delivery of a prospectus is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Securities and the shares of Stock issuable upon conversion of the Securities, and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus or to file under the Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Act, the Exchange Act or the Trust Indenture Act, to notify you and upon your request to file such document and to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance, and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Securities and the shares of Stock issuable upon conversion of the Securities at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the date 90 days after the date of the Prospectus, not to offer, sell, contract to sell, pledge or otherwise dispose of, or file a Registration Statement under the Act with respect to, except as provided hereunder, any securities of the Company that are substantially similar to the Securities or the Stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities (other than (i) pursuant to stock -11- 12 options, restricted stock, retirement and stock purchase plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement or (ii) in payment in whole or in part of the purchase price in connection with the acquisition of all or a portion of the outstanding capital stock or assets of another person or entity provided the Company shall have obtained and delivered to the Underwriters an executed written agreement of such transferee of any such securities in form and substance satisfactory to you to be bound by the transfer restrictions set forth in this Section 5(e)), without the prior written consent of Raymond James & Associates, Inc. (f) To furnish to the holders of the Securities as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; (g) During a period of two years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which the Securities or any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request, provided that to the extent any such information is non-public, you agree to keep such information confidential until such time as such information is in the public domain (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); (h) To use the net proceeds received by it from the sale of the Securities pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; (i) To reserve and keep available at all times, free of preemptive rights, shares of Stock for the purpose of enabling the Company to satisfy any obligations to issue shares of its Stock upon conversion of the Securities; and (j) To use its best efforts to list, subject to notice of issuance, the shares of Stock issuable upon the conversion of the Securities on the Nasdaq National Market. -12- 13 6. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid the following: (a) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Securities and the shares of Stock issuable upon conversion of the Securities under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (b) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Indenture, the Blue Sky and Legal Investment Memoranda, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Securities; (c) all expenses in connection with the qualification of the Securities and the shares of Stock issuable upon the conversion of the Securities for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky and Legal Investment surveys; (d) all fees and expenses in connection with listing the Securities and the shares of Stock issuable upon conversion of the Securities on the Nasdaq National Market; (e) any fees charged by securities rating services for rating the Securities; (f) the filing fees incident to, and the fees and disbursements of counsel to the Underwriters in connection with, securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Securities; (g) the cost of preparing the Securities; (h) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Securities; and (i) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that except as provided in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company herein are, at and as of such Time of Delivery, true and correct, the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and to the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or, to the best knowledge of the Company, threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; -13- 14 (b) King & Spalding, counsel for the Underwriters, shall have furnished to you such opinion or opinions, dated such Time of Delivery, with respect to certain matters covered in paragraphs (i), (ii), (vii), (viii), (ix) and (xvi) of subsection (c) below as well as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; in rendering such opinion, such counsel may rely as to all matters of Florida law upon the opinion of Holland & Knight LLP; (c) Holland & Knight LLP, counsel for the Company, shall have furnished to you their written opinion, dated such Time of Delivery, in form and substance satisfactory to you, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation with active status under the laws of the State of Florida, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; (ii) The Company has an authorized capitalization as set forth in the Prospectus and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; and the shares of Stock initially issuable upon conversion of the Securities have been duly and validly authorized and reserved for issuance and, when issued and delivered in accordance with the provisions of the Securities and the Indenture, will be duly and validly issued and fully paid and non-assessable; and will conform in all material respects to the description of the Stock contained in the Prospectus; (iii) Each of the Company and its subsidiaries has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); (iv) Each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; and all of the issued shares of capital stock of each such subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and, to the knowledge of such counsel after investigation, are -14- 15 owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims other than those arising pursuant to loan agreements disclosed in the Prospectus; and, except for the shares of stock of any of the Company's subsidiaries owned by the Company, to the knowledge of such counsel after investigation, neither the Company nor any of its subsidiaries own any shares of stock or any other equity securities of any corporation or has any equity interest in any firm, partnership, association or other entity, except as described by the Prospectus (such counsel being entitled to rely in respect of the opinion in this clause upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company or its subsidiaries, provided that such counsel shall state that they believe that both you and they are justified in relying upon such opinions and certificates); (v) Neither the Company nor any of its subsidiaries is in violation of its Articles of Incorporation or Bylaws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, or lease or agreement or other instrument to which it is a party or by which it or any of its properties may be bound except for any such violation or default that would not have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries; (vi) To such counsel's knowledge after investigation and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the current or future consolidated financial position, stockholders' equity or results of operations of the Company and its subsidiaries; and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (vii) This Agreement has been duly authorized, executed and delivered by the Company; (viii) The Securities have been duly authorized, executed, authenticated, issued and delivered and constitute valid and legally binding obligations of the Company entitled to the benefits provided by the Indenture; and the Securities and the Indenture conform to the descriptions thereof in the Prospectus; (ix) The Indenture has been duly authorized, executed and delivered by the parties thereto and constitutes a valid and legally binding instrument, -15- 16 enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the Indenture has been duly qualified under the Trust Indenture Act (it being understood that Holland & Knight LLP may rely as to all matters of New York law on the opinion of King & Spalding); (x) The issue and sale of the Securities being issued at such Time of Delivery and the compliance by the Company with all of the provisions of the Securities, the Indenture and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument filed as an exhibit to the Registration Statement or any document incorporated by reference therein or any other material agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the Articles of Incorporation or Bylaws of the Company or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties; (xi) No consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Securities being issued at such Time of Delivery or the consummation by the Company of the transactions contemplated by this Agreement or the Indenture, except such as have been obtained under the Act and the Trust Indenture Act, such as may be required under the Act in connection with the shares of Stock issuable upon conversion of the Securities, and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters; (xii) The statements set forth in the Prospectus under the captions "Description of Notes" and "Description of Capital Stock", insofar as they purport to constitute a summary of the terms of the Securities, and under the captions "Certain Federal Income Tax Considerations" and "Underwriting," insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair; -16- 17 (xiii) The Company is not an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act; (xiv) The Registration Statement has become effective under the Act and, to such counsel's knowledge after investigation, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or threatened by the Commission; (xv) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules included or incorporated therein, as to which such counsel need express no opinion), when they were filed with the Commission complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; and they have no reason to believe that any of such documents, when such documents were so filed, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; and (xvi) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules included or incorporated therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the Trust Indenture Act and the rules and regulations thereunder; although they do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, except for those referred to in the opinion in subsection (ix) of this Section 7(c), they have no reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules included or incorporated therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules included or incorporated therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of such Time of Delivery, either the Registration Statement or the Prospectus or any -17- 18 further amendment or supplement thereto made by the Company prior to such Time of Delivery (other than the financial statements and related schedules included or incorporated therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and they do not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference into the Prospectus or required to be described in the Registration Statement or the Prospectus which are not filed or incorporated by reference or described as required. In rendering such opinions, such counsel may rely, as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials. The phrases "to such counsel's knowledge after investigation" and "known to such counsel after investigation" are limited to the actual current knowledge of the Holland & Knight LLP lawyers, currently with the firm, who have given substantive attention to matters relating to the Company's affairs. The phrases also indicate that such counsel has made reasonable inquiry of the representatives of the Company who, in the judgment of such counsel, are likely to know the facts upon which the opinion will be based. The opinion shall also state that as to matters of Florida law, King & Spalding, counsel to the Underwriters, shall be entitled to rely upon such opinion. (d) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, Grant Thornton LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto; (e) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, and (ii) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in Clause (i) or (ii), is in the judgment of the Representatives so -18- 19 material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities being issued at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (f) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities; (g) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the Nasdaq National Market; (ii) a suspension or material limitation in trading in the Company's securities on the Nasdaq National Market; (iii) a general moratorium on commercial banking activities declared by either Federal or New York or Florida State authorities; or (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this Clause (iv) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities being issued at such Time of Delivery on the terms and in the manner contemplated in the Prospectus; (h) The shares of Stock issuable upon conversion of the Securities shall have been duly listed, subject to notice of issuance, on the Nasdaq National Market; (i) The Company shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company satisfactory to you as to the accuracy of the representations and warranties of the Company herein at and as of such Time of Delivery, as to the performance by the Company of all of its obligations hereunder to be performed at or prior to such Time of Delivery, and as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (e) of this Section. 8. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or any audio or visual materials supplied or reviewed and approved by the Company and used in connection with marketing the Securities (including, without limitation, slides, videos, films and tape recordings) or arise out of -19- 20 or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Underwriter through Raymond James & Associates, Inc. expressly for use therein; provided, further that the Company will not be liable to any Underwriter with respect to any such untrue statement or omission made in any Preliminary Prospectus that is corrected in the Prospectus (or any amendment or supplement thereto) if the person asserting any such loss, claim, damage or liability purchased Securities from such Underwriter but was not sent or given a copy of the Prospectus (as amended or supplemented) at or prior to the written confirmation of the sale of such Securities to such person in any case where such delivery of the Prospectus (as amended or supplemented) is required by the Act, unless such failure to deliver the Prospectus (as amended or supplemented) was a result of a noncompliance by the Company with Sections 5(a) or (c) of this Agreement. (b) Each Underwriter will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or any audio or visual materials supplied or reviewed and approved by the Company and used in connection with marketing the Securities (including, without limitation, slides, videos, films and tape recordings) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Underwriter through Raymond James & Associates, Inc. expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified -20- 21 party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro -21- 22 rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. 9. (a) If any Underwriter shall default in its obligation to purchase the Securities which it has agreed to purchase hereunder, you may in your discretion arrange for you or another party or other parties to purchase such Securities on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Securities, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Securities on such terms. In the event that, within the respective prescribed periods, you notify the Company that you have so arranged for the purchase of such Securities, or the Company notifies you that it has so arranged for the purchase of such Securities, you or the Company shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Securities. (b) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Underwriter or Underwriters by you and the Company as provided in -22- 23 subsection (a) above, the aggregate principal amount of such Securities which remains unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Securities to be purchased at such Time of Delivery, then the Company shall have the right to require each non-defaulting Underwriter to purchase the principal amount of Securities which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the principal amount of Securities which such Underwriter agreed to purchase hereunder) of the Securities of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Underwriter or Underwriters by you and the Company as provided in subsection (a) above, the aggregate principal amount of Securities which remains unpurchased exceeds one-eleventh of the aggregate principal amount of all the Securities to be purchased at such Time of Delivery, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Securities of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to the Second Time of Delivery, the obligation of the Underwriters to purchase and of the Company to sell the Optional Securities) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter or the Company, except for the expenses to be borne by the Company and the Underwriters as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Securities. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, the Company shall not then be under any liability to any Underwriter except as provided in Sections 6 and 8 hereof; but, if for any other reason any Securities are not delivered by or on behalf of the Company as provided herein, the Company will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Securities not so delivered, but the Company shall then be under no further liability to any Underwriter in respect of the Securities not so delivered except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or -23- 24 agreement on behalf of any Underwriter made or given by you jointly or by Raymond James & Associates, Inc. on behalf of you as the representatives. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the Representatives in care of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716, [ATTENTION: REGISTRATION DEPARTMENT]; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Chief Operating Officer; provided, however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters' Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company by you on request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters and the Company and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of the Company and each person who controls the Company or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Securities from any Underwriter shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. -24- 25 If the foregoing is in accordance with your understanding, please sign and return to us one for the Company and each of the Representatives plus one for each counsel counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters and the Company. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company for examination, upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, Reptron Electronics, Inc. By: ------------------------------------- Name: Paul J. Plante Title: Chief Operating Officer Accepted as of the date hereof: Raymond James & Associates, Inc. Forum Capital Markets L.P. Stephens Inc. By: ---------------------------------- (Raymond James & Associates, Inc.) On behalf of each of the Underwriters -25- 26 SCHEDULE I
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OPTIONAL SECURITIES TO BE OF FIRM SECURITIES PURCHASED IF MAXIMUM UNDERWRITER TO BE PURCHASED OPTION EXERCISED ----------- ------------------ -------------------------- Raymond James & Associates, Inc. . . . . . . . . . . $ Forum Capital Markets L.P. . . . . . . $ Stephens Inc. . . . . . . . . . . . . . ------------ ----------- Total . . . . . . . . . . . . . . . . . $100,000,000 $15,000,000 ============ ===========
27 ANNEX I Pursuant to Section 7(e) of the Underwriting Agreement, Grant Thornton LLP shall furnish letters to the Underwriters with respect to the Company and its subsidiaries to the effect that: (i) They are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the consolidated financial statements and any supplementary financial information and schedules examined by them and included or incorporated by reference in the Registration Statement or the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and the related published rules and regulations thereunder; (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 incorporated by reference into the Prospectus and, on the basis of specified procedures including inquiries of officials of the Company who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations, nothing came to their attention that caused them to believe that the unaudited condensed consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations; (iv) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus and included or incorporated by reference in Item 6 of the Company's Annual Report on Form 10-K for the most recent fiscal year agrees with the corresponding amounts (after restatement where applicable) in the audited consolidated financial statements for such five fiscal years which were included or incorporated by reference in the Company's Annual Reports on Form 10-K for such fiscal years; (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform 28 in all material respects with the disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Company and its subsidiaries since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Company's Quarterly Report on Form 10- Q for the quarter ended March 31, 1997 incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act as it applies to Form 10-Q and the related published rules and regulations, or (ii) any material modifications should be made to the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 incorporated by reference in the Prospectus, for them to be conformity with generally accepted accounting principles; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived the unaudited condensed financial statements referred to in Clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; -2- 29 (D) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest balance sheet included or incorporated by reference in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or stockholders equity or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included or incorporated by reference in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (E) for the period from the date of the latest financial statements included or incorporated by reference in the Prospectus to the specified date referred to in Clause (D) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Representatives, except in each case for increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report incorporated by reference in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives which are derived from the general accounting records of the Company and its subsidiaries, which appear in the Prospectus (excluding documents incorporated by reference) or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives or in documents incorporated by reference in the Prospectus specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. -3- EX-4.1 3 FORM OF INDENTURE 1 EXHIBIT 4.1 =============================================================================== REPTRON ELECTRONICS, INC. AND RELIANCE TRUST COMPANY, as TRUSTEE ------------ INDENTURE Dated as of August __, 1997 ------------ $100,000,000 ___% CONVERTIBLE SUBORDINATED NOTES DUE AUGUST 1, 2004 =============================================================================== 2 Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939:
Trust Indenture Indenture Act Section Section - ---------------- --------- Section 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608 610 Section 311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 Section 312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701 702(a) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702(b) (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702(c) Section 313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a) (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(a) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703(b) Section 314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 704 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Section 315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603(a) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514 Section 316 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 508 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Section 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1003 Section 318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
- ----------- Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the indenture. 3 TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Agent Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Applicable Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Closing Price Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Company Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Company Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Company Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Constituent Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Continuing Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversion Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
- ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the indenture. -i- 4
Page ---- Designated Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Expiration Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Non-electing Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Payment Blockage Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Predecessor Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Record Date Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Reference Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Repurchase Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Repurchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Security Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Security Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
- ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the indenture. -ii- 5
Page ---- Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Trading Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 102. Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 104. Acts of Holders; Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 105. Notices, Etc., to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 107. Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 113. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE TWO SECURITY FORMS SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 202. Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 204. Form of Trustee's Certificate of Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 205. Form of Conversion Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 206. Form of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE THREE THE SECURITIES SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
- ---------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the indenture. -iii- 6
Page ---- SECTION 304. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 305. Registration, Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 307. Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 402. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE FIVE REMEDIES SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 502. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . . . . 39 SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 505. Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . . . . 41 SECTION 506. Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 507. Limitation or Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
- ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the indenture. -iv- 7
Page ---- ARTICLE SIX THE TRUSTEE SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 604. Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 608. Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 610. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 612. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . . 50 SECTION 613. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 614. Appointment of Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . . . . . . . . . . . . . 52 SECTION 702. Preservation of Information; Communications to Holders . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc., Only on Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
- ------------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the indenture. -v- 8
Page ---- ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 902. Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 906. Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 907. Notice of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 1003. Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 1004. Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 SECTION 1005. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 SECTION 1006. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 1007. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 1008. Book-Entry System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 1009. Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 1010. Further Instruments and Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 1102. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 1103. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 1104. Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 1106. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 1107. Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
- ------------ Note: This table of contents shall not, for any purpose, be deemed to be a part of the indenture. -vi- 9
Page ---- SECTION 1108. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 1109. Conversion Arrangement on Call for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE TWELVE SUBORDINATION OF SECURITIES SECTION 1201. Securities Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 1202. No Payments in Certain Circumstances; Payment Over of Proceeds Upon Dissolution, Etc . . . . . . . . 66 SECTION 1203. Prior Payment to Senior Indebtedness Upon Acceleration of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 1204. Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 1205. Payment Permitted if No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 1206. Subrogation to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 1207. Provisions Solely to Define Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 1208. Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 1209. No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 1210. Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 1211. Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . . . . . . . 72 SECTION 1212. Trustee Not Fiduciary for Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 1213. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights . . . . . . . . 71 SECTION 1214. Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 1215. Certain Conversions Deemed Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 ARTICLE THIRTEEN CONVERSION OF SECURITIES SECTION 1301. Conversion Privilege and Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 1302. Exercise of Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 1303. Fractions of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 1304. Adjustment of Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 1305. Notice of Adjustments of Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 1306. Notice of Certain Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 1307. Company to Reserve Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
- ------------ Note: This table of contents shall not, for any purpose, be deemed to be a part of the indenture. -vii- 10
Page ---- SECTION 1308. Taxes on Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 1309. Covenant as to Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 1310. Cancellation of Converted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 1311. Provision in Case of Consolidation, Merger or Sale of Assets . . . . . . . . . . . . . . . . . . . . 83 SECTION 1312. Responsibility of Trustee for Conversion Provisions . . . . . . . . . . . . . . . . . . . . . . . . 84 ARTICLE FOURTEEN REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL SECTION 1401. Right to Require Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 1402. [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 1403. Notices, Method of Exercising Repurchase Right, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 1404. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 SECTION 1405. Consolidation, Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 ARTICLE FIFTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 1501. Indenture and Securities Solely Corporate Obligations . . . . . . . . . . . . . . . . . . . . . . . 90
- ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the indenture. -viii- 11 INDENTURE, dated as of August __, 1997, between Reptron Electronics, Inc., a corporation duly organized and existing under the laws of the State of Florida (herein called the "Company"), having its principal office at 14401 McCormick Drive, Tampa, Florida 33626, and Reliance Trust Company, a state banking corporation duly organized and existing under the laws of the State of Georgia, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its ___% Convertible Subordinated Notes Due August 1, 2004 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. Further, all things necessary to duly authorize the issuance of the Common Stock of the Company issuable upon the conversion of the Securities, and to duly reserve for issuance the number of shares of Common Stock issuable upon such conversion, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article One have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; 12 (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act" when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Global Security to the extent applicable to such transaction and as in effect from time to time. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, shall have been delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York, Atlanta, Georgia or Tampa, Florida, are authorized or obligated by law or executive order to close. -2- 13 "Change of Control" has the meaning specified in Section 1404(b). "Closing Price Per Share" means, with respect to the Common Stock of the Company, on any day, the reported last sales price regular way per share or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case (i) on the Nasdaq National Market, or if the Common Stock is not quoted thereon, the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (ii) if not or quoted on the Nasdaq National Market listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "Code" has the meaning specified in Section 201. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means the Common Stock, par value $.01 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 1311, shares issuable on conversion or repurchase of Securities shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; provided, however, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of Securities shall include shares of all such classes, and 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" includes any stock of any class of capital stock which has no preference in respect of dividends or of amount payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the issuer thereof and which is not subject to redemption by the issuer thereof. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Notice" has the meaning specified in Section 1403. "Company Order" or "Company Request" means a written order or request signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its -3- 14 President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Constituent Person" has the meaning specified in Section 1311. "Continuing Director" means at any date a member of the Company's Board of Directors (i) who was a member of such Board on the date of the Indenture or (ii) who was nominated or elected by at least two-thirds of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least two-thirds of the directors who were Continuing Directors at the time of such election. "Conversion Agent" means any Person authorized by the Company to convert Securities in accordance with Article Thirteen. The Company has initially appointed the Trustee as its Conversion Agent. "Conversion Price" has the meaning specified in Section 1404. "Conversion Rate" has the meaning specified in Section 1301. "Corporate Trust Office" means the principal corporate trust office of the Trustee at which, at any particular time, its corporate trust business shall be administered, which office at the date hereof is located at 3384 Peachtree Road, Suite 900, Atlanta, Georgia 30326-1106, except that for purposes of Section 1002, such term shall mean the office or agency of the Trustee in the Borough of Manhattan, the City of New York, which office at the date hereof is located at c/o Chase Melon, Shareholder Services, 15th Floor, 450 West 33rd Street, New York, New York 10001. "corporation" means a corporation, association, company, joint-stock company or business trust. "Custodian" means Reliance Trust Company, as custodian with respect to any Global Security, or any successor entity thereto. "Defaulted Interest" has the meaning specified in Section 307. "Depositary" means, with respect to any Global Securities, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as Depositary for such Global Securities (or any successor securities clearing agency so registered). "Designated Senior Indebtedness" means any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or -4- 15 related agreements or documents to which the Company is a party) expressly provides that such indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). "DTC" means The Depositary Trust Company, a New York corporation. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the United States Securities Exchange Act of 1934 (or any successor statute), as amended from time to time. "Expiration Date" has the meaning specified in Section 104. "Expiration Time" has the meaning specified in Section 1304. "Global Security" means a Security that is registered in the Security Registrar in the name of a Depositary or a nominee thereof. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or on the Redemption Date or Repurchase Date or by declaration of acceleration, or otherwise. "Non-electing Share" has the meaning specified in Section 1311. "Notice of Default" means a written notice of the kind specified in Section 501(4) or 501(5). -5- 16 "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be reasonably acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for payment or redemption of which money in the necessary amount has been deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision for notice of redemption satisfactory to the Trustee has been made; (iii) Securities which have been paid pursuant to Section 306 or in exchange for in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities converted into Common Stock pursuant to Article Thirteen; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities are present at a meeting of Holders for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the -6- 17 Trustee the pledgee's right to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Payment Blockage Notice" has the meaning specified in Section 1202. "Person" means any individual, corporation, limited liability company, partnership, joint venture, a joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Record Date Period" means 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. "Record Date" means any Regular Record Date or Special Record Date. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Reference Date" has the meaning specified in Section 1304. "Regular Record Date" for the interest payable on any Interest Payment Date means the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Repurchase Date" has the meaning specified in Section 1401. "Repurchase Price" has the meaning specified in Section 1401. "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee (including without limitation any vice president, -7- 18 assistant treasurer, assistant secretary, corporate trust officer, assistant corporate trust officer or other employee of the Trustee customarily performing functions similar to those performed by any of the above designated officers) and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge and familiarity with the particular subject. "Securities" has the meaning specified in the first paragraph under the caption "Recitals of the Company". "Securities Act" means the United States Securities Act of 1933 (or any successor statute), as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Senior Indebtedness" means the principal of (and premium, if any) and interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post- petition interest is allowable as a claim in any such proceeding) on, and all fees and other amounts payable in connection with, the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of the Indenture or thereafter created, incurred or assumed: (a) indebtedness of the Company to banks, insurance companies and other financial institutions evidenced by credit or loan agreements, notes or other written obligations, (b) all other indebtedness of the Company (including obligations of the Company arising from its guarantee of the indebtedness of others) other than the Securities, whether outstanding on the date of this Indenture or thereafter created, incurred or assumed, which is (i) for money borrowed or (ii) evidenced by a note, security, debenture, bond or similar instrument or guarantee thereof, (c) obligations of the Company as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles, and (d) renewals, extensions, modifications, restatements and refundings of, and any amendments, modifications or supplements to, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in clauses (a) through (c) of this paragraph; provided that Senior Indebtedness shall not include (i) indebtedness to a Subsidiary or other Affiliate of the Company, (ii) any such indebtedness or obligation if the terms of such indebtedness or obligation (or the terms of the instrument under which, or pursuant to which, it is issued) expressly provided that such indebtedness or obligation shall not be senior in right of payment to the Securities, or expressly provide that such indebtedness or obligation is pari passu with or junior to the Securities and (iii) accounts payable of the Company to trade creditors. Notwithstanding the foregoing, unsecured indebtedness of the Company shall only be included in Senior Indebtedness if the incurrence of such unsecured indebtedness should not, in the opinion of counsel or a nationally recognized accounting firm experienced in tax matters, cause the Securities to be considered "corporate acquisition indebtedness" within the meaning of Section 279 of the Internal Revenue Code of 1986, as amended. -8- 19 "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" means a corporation or limited liability company more than 50% of the outstanding voting stock, membership interests or units of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock, membership interests or units which ordinarily has voting power for the election of directors or managers (in the case of a limited liability company), whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trading Days" means (i) if the Common Stock is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, days on which trades may be effected through such system; (ii) if the Common Stock is listed or admitted for trading on any national securities exchange, days on which such national securities exchange is open for business; or (iii) if the Common Stock is not listed or admitted for trading on any national securities exchange or quoted on the Nasdaq National Market or any other system of automated dissemination of quotation of securities prices, days on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating -9- 20 to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate (other than certificates provided pursuant to Section 1004) or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include, without limitation: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions in this Indenture relating to such covenant or condition; (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; (3) a statement that, in the opinion of each such individual, each such individual has made such examination or investigation as is necessary to enable each such individual 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, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of 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 such 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 officer or counsel, as applicable, knows, or in the -10- 21 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 104. Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as otherwise expressly provided in this Indenture, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is expressly required in this Indenture, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution of any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of Securities shall be proved by the Security Register. (d) The Company may set any day as a record date for the purpose of determining the Holders entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders; provided that the Company may not set a record date for, and the provisions of this Section 104(d) shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in Section 104(e). If any record date is set pursuant to this Section 104(d), the Holders on such record date, and only such Persons, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Securities on -11- 22 such record date. Nothing in this Section 104(d) shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this Section 104(d) shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Securities on the date such action is taken. Promptly after any record date is set pursuant to this Section 104(d), the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder in the manner set forth in Section 106. (e) The Trustee may set any day as a record date for the purpose of determining the Holders entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2), or (iv) any direction referred to in Section 512. If any record date is set pursuant to this Section 104(e), the Holders on such record date, and only such Persons, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Securities on such record date. Nothing in this Section 104(e) shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this Section 104(e) (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this Section 104(e) shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Securities on the date such action is taken. Promptly after any record date is set pursuant to this Section 104(e), the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities in the manner set forth in Section 106. (f) With respect to any record date set pursuant to Sections 104(d) or 104(e), the party which sets such record date may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party in writing, and to each Holder in the manner set forth in Section 106, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to Sections 104(d) or 104(e), the party which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. (g) Without limiting the foregoing, a Holder entitled to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal -12- 23 amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. (h) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 105. Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with: (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department (Reptron Electronics, Inc. ___% Convertible Subordinated Notes Due 2004), or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at its address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. 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. -13- 24 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 107. Conflict with Trust Indenture Act. If any provision of this Indenture limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required thereunder to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 108. Effect of Headings and Table of Contents. The Article and Section headings and the Table of Contents contained in this Indenture are for convenience only and shall not affect the construction hereof. SECTION 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 110. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired. SECTION 111. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties and their successors hereunder, the holders of Senior Indebtedness and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES AS APPLIED IN SUCH STATE. -14- 25 SECTION 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity of any Security or the last date on which a Holder has the right to convert such Holder's Securities shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) or conversion of the Securities 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, Redemption Date or Repurchase Date, or at the Stated Maturity, or on such last day for conversion; provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Stated Maturity or last day for conversion, as the case may be. ARTICLE TWO SECURITY FORMS SECTION 201. Forms Generally. The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, 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, the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the "Code"), or as may, consistent herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of securities exchange or any automated quotation system on which the Securities may be listed or quoted, as the case may be, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. SECTION 202. Form of Face of Security. [The following legend shall also appear on the face of each Global Security: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE REFERRED TO BELOW AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH SHALL BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.] -15- 26 [The following legend shall also appear on the face of each Global Security for which The Depository Trust Company is to be the Depositary: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERENCED IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.] REPTRON ELECTRONICS, INC. ___% CONVERTIBLE SUBORDINATED NOTE DUE AUGUST 1, 2004 $______ No. ______ Reptron Electronics, Inc., a corporation duly organized and existing under the laws of Florida herein called the "Company", which term includes any successor Person under the Indenture referred to below), for value received, hereby promises to pay to _______________, or registered assigns, the principal sum of _________ Dollars ($_____) on August 1, 2004, and to pay interest thereof from August __, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on February 1 and August 1 in each year (each, an "Interest Payment Date"), commencing February __ 1998 at the rate of ___% per annum, until the principal hereof is due, and at the rate of ____% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the January 15 or July 15 (whether or not a Business Day), as the case -16- 27 may be, next preceding such Interest Payment Date. Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for will cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Company, notice of which shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities may be listed or quoted, and upon such notice as may be required by such exchange or quotation system, as the case may be, all as more fully provided in the Indenture. Payments of principal shall be made upon the surrender of this Security at the option of the Holder at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, 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; provided, however, that at the option of the Company payment of interest may be made by check, mailed to the address of the Person entitled thereto as such address shall appear in the Security Register, or, upon written application by the Holder to the Security Registrar. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -17- 28 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: REPTRON ELECTRONICS, INC. [Corporate Seal] By --------------------------- Name: Title: Attest: - --------------------------- Title: -18- 29 SECTION 203. Form of Reverse of Security. This Security is one of a duly authorized issue of Securities of the Company designated as its ___% Convertible Subordinated Notes Due August 1, 2004 (herein called the "Securities"), limited in aggregate principal amount to $100,000,000 (subject to increase as provided in the Indenture up to $15,000,000 aggregate principal amount), issued and to be issued under an Indenture, dated as of August __, 1997 (the "Indenture"), between the Company and Reliance Trust Company, as Trustee (the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is made for a statement of the respective rights, limitations of rights, duties and immunities of the Company, the Trustee, the holders of Senior Indebtedness and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are issuable in registered form only without coupons in denominations of $1,000 and any integral multiple thereof. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at his option, at any time before the close of business on August 1, 2004 (except that (a) if this Security or a portion hereof is called for redemption, the right of conversion in respect of this Security shall terminate at the close of business on the Business Day immediately preceding the Redemption Date and (b) if the Holder hereof has exercised his right to require the Company to repurchase this Security or a portion hereof, the right of conversion in respect of this Security shall terminate at the close of business on the Repurchase Date, unless in each case the Company defaults in making the payment due upon redemption or repurchase, as the case may be) to convert this Security (or any portion of the principal amount hereof that is an integral multiple of $1,000 provided that the unconverted portion of such principal amount is $1,000 or an integral multiple of $1,000 in excess thereof) into fully paid and nonassessable shares of Common Stock of the Company at an initial Conversion Rate of _______ for each share of Common Stock (or at the then current adjusted Conversion Rate if an adjustment has been made as provided in the Indenture) by surrender of this Security, duly endorsed or assigned to the Company or in blank 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 (except if this Security has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, during such period and is surrendered for such conversion during such period (including any Securities or portions thereof called for redemption on a Redemption Date that is a Regular Record Date or an Interest Payment Date, as the case may be)), subject to the second succeeding sentence, also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted, and also the conversion notice hereon duly executed, to the Company at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company, subject to any laws or regulations applicable thereto and subject to the right of the Company to -19- 30 terminate the appointment of any Conversion Agent (as defined below) as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, or at such other offices or agencies as the Company may designate (each a "Conversion Agent"), provided, further, that if this Security or portion hereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, 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 succeeding Interest Payment Date and is surrendered for conversion during such period, then the Holder of this Security who converts this Security or a portion hereof during such period (or on the last Business Day prior to the Regular Record Date or Interest Payment Date in case of any Security (or portion thereof) called for redemption on a Regular Record Date or Interest Payment Date, as the case may be) will be entitled to receive the interest accruing hereon from the Interest Payment Date next preceding the date of such conversion to such succeeding Interest Payment Date and shall not be required to pay such interest upon surrender of this Security for conversion. Subject to the provisions of the preceding sentence and, in the case of a conversion after the close of business on the Regular Record Date next preceding any Interest Payment Date and or before the close of business on such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security of record as of such Regular Record Date) to receive the related installment of interest to the extent and under the circumstances provided in the Indenture, no cash payment or adjustment is to be made or conversion for interest accrued herein from the Interest Payment Date next preceding the day of conversion, or for dividends on the Common Stock issued on conversion hereof. Notwithstanding the foregoing, if this Security (or any portion of the principal amount hereof that is an integral multiple of $1,000 provided that the unconverted portion of such principal amount is $1,000 or an integral multiple of $1,000 in excess thereof) is surrendered for conversion prior to August 1, 2000 during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such interest Payment Date (unless this Security is repurchasable on a Repurchase Date occurring within such period) shall not be accompanied by an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted, and the Company shall pay to the Holder of this Security as of such Regular Record Date in cash or in shares of Common Stock having a fair market value equal to the amount of such interest (such fair market value being determined based on the Closing Price Per Share of the Common Stock on the Business Day immediately preceding such Interest Payment Date). The Company shall thereafter deliver to the Holder the fixed number of shares of Common Stock (together with any cash adjustment, as provided in the Indenture) into which this Security is convertible and such delivery will be deemed to satisfy the Company's obligation to pay the principal amount of this Security. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest (calculated to the nearest 1/100th of a share) the Company shall pay a cash adjustment as provided in the Indenture. -20- 31 The Conversion Rate 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 conveyance, transfer, sale or lease of all or substantially all of the property and assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then Outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of the number of shares of Common Stock of the Company into which this Security could have been converted immediately prior to such consolidation, merger, conveyance, transfer, sale or lease (assuming such holder of Common Stock is not a Constituent Person, 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). No adjustment in the Conversion Rate will be made until such adjustment would require an increase or decrease of at least one percent of such Conversion Rate, provided that any adjustment that would otherwise be made will be carried forward and taken into account in the computation of any subsequent adjustment. The Securities are subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after August 1, 2000, as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed during the 12-month period beginning August 1 of the years indicated,
Redemption Year Price ---- ---------- 2000................................. % 2001................................. 2002.................................
and thereafter at a Redemption Price equal to 100% of the principal amount, in each case together with accrued interest to the Redemption Date; provided that interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. In the event of redemption, repurchase or conversion of this Security in part only, a new Security or Securities for the unredeemed, unrepurchased or unconverted portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In any case where the due date for the payment of the principal of, premium, if any, or interest on any Security or the last day on which a Holder of a Security has a right to convert such Holder's Security shall be a day on which banking institutions are authorized or obligated -21- 32 by law or executive order to close, then payment of principal, premium, if any, or interest, or delivery for conversion of such Security need not be made on or by such date at such place but may be made on or by the next succeeding day at such place which is not a day on which banking institutions are authorized or obligated by law or executive order to close, with the same force and effect as made on the date for such payment or the date fixed for redemption or repurchase, or by such last day for conversion, and no interest shall accrue on the amount so payable for the period after such date so long as payment is made on the next succeeding day at such place which is not a day on which banking institutions are authorized or obligated by law or executive order to close. If a Change of Control occurs, the Holder of this Security, at the Holder's option, shall have the right, in accordance with the provisions of the Indenture, to require the Company to repurchase this Security or any portion of the principal amount hereof that is equal to $1,000 or any integral multiple of $1,000 in excess thereof plus interest accrued to the Repurchase Date. The Repurchase Price will be paid in cash. Whenever in this Security there is a reference, in any context, to the principal of any Security as of the time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Security shall not be construed as excluding the Repurchase Price so payable in those provisions of this Security when such express mention is not made. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default shall occur and be continuing, the principal of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of -22- 33 any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security on the respective Stated Maturities expressed herein (or in the case of redemption or repurchase, on the Redemption Date or Repurchase Date, as the case may be,) or to convert this Security as provided in the Indenture. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default, the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of the Securities Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof, premium, if any, or interest hereon on or after the respective due dates expressed herein or for the enforcement of the right to convert this Security as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained for that purpose pursuant to Section 1002, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transfer or transferees. No service charge shall be made to a Holder for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the trustee, any Authenticating Agent, any Conversion Agent, any Paying Agent or any other agent of the Company or the Trustee shall treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and -23- 34 neither the Company, the Trustee nor any Authenticating Agent, Conversion Agent, Paying Agent or other agent of the Company or the Trustee shall be affected by notice to the contrary. No recourse for the payment of the principal of (premium, if any) or interest on this Security, 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 Security, 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 Person, 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 issue hereof, expressly waived and released. The Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws principles as applied in such state. All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture. -24- 35 ABBREVIATIONS The following abbreviations, when used in the description of the face of this Security, shall be construed as through they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT TRANSFER ACT-______Custodian_______ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right under Uniform Gifts to Transfer Act of survivorship and not as ______________________________ tenants in common (State) UNIF TRF MIN ACT ______ (Custodian until age __) (Cust) ______________ under Uniform Transfers (Minor) to minors Act _______________ (State)
Additional abbreviations may also be used though not in the above list -25- 36 ELECTION OF HOLDER TO REQUIRE REPURCHASE 1. Pursuant to Section 1401 of the Indenture, the undersigned hereby elects to have this security repurchased by the Company. 2. The undersigned hereby directs the Trustee or the Company to pay it or ___________ an amount in cash or, at the Company's election, Common Stock valued as set forth in the Indenture, equal to 100% of the principal amount to be repurchased (as set forth below), plus interest accrued to the Repurchase Date, as provided in the Indenture. Dated: ---------------------------------------- ---------------------------------------- Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. ---------------------------------------- Signature Guaranteed Principal amount to be repurchased (equal to an integral multiple of $1,000): --------------------------------- Remaining principal amount following such repurchase: ------------------------ NOTICE: The signature to the foregoing election must correspond to the Name as written upon the fact of this Security in every particular, without alteration or any change whatsoever. -26 37 SECTION 204. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within-mentioned Indenture. ----------------------------, as Trustee By ----------------------------- Authorized Signatory SECTION 205. Form of Conversion Notice. The undersigned Holder of this Security hereby irrevocably exercises the option to convert this Security, or any portion of the principal amount hereof (which is an integral multiple of $1,000, provided that the unconverted portion of such principal amount is $1,000 or an integral multiple of $1,000 in excess thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that such shares, together with a check in payment for any fractional share and any Securities representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If shares of Common Stock or Securities are to be registered 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 Security. Dated: ------------------------- ----------------------------------- Fill in for registration of shares of Common Stock if to be issued, and Securities if to be delivered, other than to and in the name of the registered holder. - -------------------------------- ---------------------------------- (Name) Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. ----------------------------------- Signature Guaranteed -27- 38 SECTION 206. Form of Assignment. For value received ________________________ hereby sells(s), assign(s) and transfer(s) unto ______________________ (Please insert social security or other identifying number of assignee) the within Security, and hereby irrevocably constitutes and appoints __________________________ as attorney to transfer the said Security on the books of the Company, with full power of substitution in the premises. Dated: --------------------------------------- Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. --------------------------------------- Signature Guaranteed -28- 39 ARTICLE THREE THE SECURITIES SECTION 301. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to (a) $100,000,000 plus (b) such aggregate principal amount (which may not exceed $15,000,000 principal amount) of Securities as shall be purchased by the Underwriters pursuant to the Underwriting Agreement, dated August __, 1997, among the Company, Raymond James & Associates, Inc. and Forum Capital Markets, L.P., as underwriters, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306, 906, 1108, 1302 or 1403(e). The Securities shall be known and designated as the "___% Convertible Subordinated Notes Due August 1, 2004" of the Company. Their Stated Maturity shall be August 1, 2004, and they shall bear interest at the rate of ___% per annum from August __, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually in arrears on February 1 and August 1 in each year, commencing February 1, 1998, until the principal thereof is paid or made available for payment, and, to the fullest extent permitted by law, at the rate of ___% per annum on any overdue principal and on any overdue installment of interest. The principal of (premium, if any) and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose pursuant to Section 1002; provided that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. The Securities shall be redeemable as provided in Article Eleven. The Securities are not entitled to the benefit of any sinking fund. The Securities shall be subordinated in right of payment to Senior Indebtedness as provided in Article Twelve. The Securities shall be convertible as provided in Article Thirteen. The Securities shall be subject to repurchase at the option of the Holders upon a Change of Control as provided in Article Fourteen. -29- 40 SECTION 302. Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President, its Executive or Senior Vice President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Chief Financial Officer, Treasurer, Controller, secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. SECTION 304. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities, which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. -30- 41 If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive securities. For purposes of this Section 304, each Global Security shall be considered a definitive Security. SECTION 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form -31- 42 satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906, 1108, 1302, 1402 or 1403(e) not involving any transfer. The Company shall not be required (i) to issue, register the transfer of, or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 1104 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. The provisions of Clauses (1), (2), (3), (4) and (5) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or Custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, or (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security. (3) Subject to Clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article Three or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name -32- 43 of a Person other than the Depositary for such Global Security or a nominee thereof under the conditions set forth in clause 2 above. (5) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under the Indenture and the Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained by the Depositary or its nominee or its Agent Members and such owners of beneficial interests in a Global Security will not be considered the owners or holders thereof. Neither the Company nor the Trustee will have any responsibility or obligation to the Depositary or any of its Agent Members with respect to (i) the accuracy of any records maintained by the Depositary or Agent Members, (ii) the payment by the Depositary or any Agent Members of any amount due to any owner of beneficial interests in a Global Security in respect of any Securities, (iii) the delivery of any notice by the Depositary or any Agent Member, or (v) any other action taken by the Depositary or any Agent Members. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. -33- 44 Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as this clause provides. Thereupon, the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor -34- 45 having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities may be listed or quoted, and upon such notice, as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Interest on any Security which is converted in accordance with Section 1302 during a Record Date Period shall be payable in accordance with the provisions of Section 1302. SECTION 308. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee shall treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. Cancellation. All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of pursuant to the Trustee's standard procedures or as otherwise directed by a Company Order and a certificate of destruction delivered to the Company. -35- 46 SECTION 310. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities previously authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not thereto delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee funds in trust for the purpose and in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of -36- 47 Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; (3) the Trustee has not received any notice pursuant to the terms of Section 1210; and (4) the Company has delivered to the trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company in Sections 305, 306, 1001, 1002 and 1003, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and held by it or any Paying Agent) for the payment of securities subsequently converted shall be returned to the Company upon Company Request. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Twelve or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): -37- 48 (1) default in the payment of the principal, Redemption Price or Repurchase Price of any Security at its Maturity, whether or not such payment is prohibited by the subordination provisions contained in Article Twelve; or (2) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days, whether or not such payment is prohibited by the subordination provisions contained in Article Twelve; or (3) failure by the Company to give the Company Notice in accordance with Section 1403; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has 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 lease 25% in aggregate principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) any indebtedness of the Company for money borrowed in an aggregate outstanding principal amount in excess of $5,000,000, whether such indebtedness now exists or shall hereafter be created, is not paid at final maturity (either upon its stated maturity or acceleration thereof) and such default in payment or acceleration has not been cured or rescinded, within a period of 30 days after there 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 Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such default to be cured or waived or such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or (6) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator 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 -38- 49 decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 501(6) or 501(7)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable. If an Event of Default specified in Section 501(6) or 501(7) occurs and is continuing, the principal and any accrued interest thereon, all Outstanding Securities shall become immediately due and payable without any declaration or other Act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as provided in this Article Five, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay: (A) all overdue interest on all Securities, (B) the principal of (and premium, if any, on) any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities. -39- 50 (C) to the extent that payment of such interest is lawful, interest upon the overdue interest at a rate of ______% per annum, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expense, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the nonpayment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission or annulment referred to above shall affect any subsequent default or Event of Default or impair any right consequent thereon. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at a rate of ______% per annum, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts upon such demand, the Trustee, in its own name and as Trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate -40- 51 judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or the creditors of either, the Trustee (irrespective of whether the principal of, and any interest on, the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise: (1) to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Securities and take such other actions, including participating as a member, voting or otherwise, of any official committee of creditors appointed in such matter, and to file such other papers or documents, in each of the foregoing cases, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Securities allowed in such judicial proceeding, and (2) to collect and receive any moneys or other property payable or deliverable on any such claim and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding; provided, however, that the Trustee may, on behalf of such Holders, vote for the election of a trustee in bankruptcy or similar official and may serve on a creditors' committee. -41- 52 SECTION 505. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as Trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Subject to Article Twelve, any money collected by the Trustee pursuant to this Article Five shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and THIRD: Any remaining amounts shall be repaid to the Company. SECTION 507. Limitation or Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; -42- 53 (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or Repurchase Date, as the case may be) and to convert such Security in accordance with Article Thirteen and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any -43- 54 other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Five or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that: (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default: (1) in the payment of the principal of (or premium, if any) or interest on any Security, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but -44- 55 no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. Undertaking for Costs. 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, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided that the provisions of this Section 514 (to the extent permitted by law) shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than ten (10) percent in principal amount of Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal of, premium, if any, or interest on any Security or to any suit or the enforcement of the right to convert any Security in accordance with the provisions of Article Thirteen or to require the Company to repurchase any Security in accordance with the provisions of Article Fourteen. SECTION 515. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, usury or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE SECTION 601. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and -45- 56 (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture, but not to verify the contents thereof. (b) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. -46- 57 SECTION 602. Notice of Defaults. Within 90 days after the occurrence of any default hereunder, the Trustee shall give to all Holders of Securities, in the manner provided in Section 106, notice of such default, unless such default shall have been cured or waived; provided that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Security, 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 or any Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders; and provided, further, that in the case of any default of the type specified in Section 501(4), no such notice to Holders of Securities shall be given until at least 30 days after the occurrence of such default. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence is specifically required by this Indenture) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee -47- 58 reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (g) the Trustee may execute any of the trusts or powers or perform any duties either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it. SECTION 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have it if were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 606. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. -48- 59 SECTION 607. Compensation and Reimbursement. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in clauses (6) and (7) of Section 501, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. SECTION 608. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 609. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such, having a combined capital and surplus of at least $50,000,000 subject to supervision by Federal or State Authority and in good standing. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 609, it shall -49- 60 resign immediately in the manner and with the effect hereinafter specified in this Article and a successor shall be appointed pursuant to Section 610. SECTION 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustees shall cease to be eligible under Section 609 and shall fail to resign after written request by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security 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. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding -50- 61 Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and replace the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 611. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee (including the trust created by this Indenture), shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of nay of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and -51- 62 deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 613. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 614. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer, partial conversion or partial redemption or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. -52- 63 An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities described in the within-mentioned Indenture. -------------------------------------, As Trustee By ---------------------------------- As Authenticating Agent By: ---------------------------------- Authorized Signatory -53- 64 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (1) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided that such list need not be furnished by the Company so long as the Trustee is acecurity Registrar. SECTION 702. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder, by receiving and holding the Securities, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 703. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. -54- 65 (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 704. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. The Company (a) shall not consolidate with or merge into any other Person or convey, sell, transfer or lease its properties and assets substantially as an entirety to any Person in one transaction or a series of related transactions (other than a conveyance, sale, transfer or lease to a wholly owned Subsidiary), and (b) shall not permit any Person (other than a wholly owned Subsidiary) to merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company in one transaction or a series of related transactions, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, sell, transfer or lease its properties and assets substantially as an entirety to any Person in one transaction or a series of related transactions, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, sale or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, limited liability company, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Article Thirteen; -55- 66 (2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer, sale or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and the Trust Indenture Act and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 802. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer, sale or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence, pursuant to Article Eight, the succession of another Person to the Company and the assumption by any such successor of the covenants and obligations of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities; or -56- 67 (4) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Section 1311 or the repurchase obligations of the Company pursuant to the requirements of Section 1405; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided that such action pursuant to this Clause (5) shall not materially adversely affect the interests of the Holders. SECTION 902. Supplemental Indentures with Consent of Holders. With the written consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by the Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided that no such supplemental indenture shall, without the consent or affirmative vote of the Holder of each Outstanding Security affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or the amounts payable upon the redemption or repurchase thereof, or change the place of payment where, or the place or currency in which, any Security or any premium or interest thereon or any other amount in respect thereof is payable, or impair the right to institute suit for the enforcement of any payment in respect of any Security on or after the Stated Maturity thereof (or, in the case of redemption or any repurchase, on or after the Redemption Date or Repurchase Date, as the case may be), or, except as provided by Section 1311, adversely affect the right to convert any Security as provided in Article Thirteen, or modify the provisions of this Indenture with respect to the subordination of the Securities in a manner adverse to the Holders, or (2) reduce the percentage in principal amount of the Outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify the obligation of the Company to maintain an office or agency in the Borough of Manhattan, The City of New York pursuant to Section 1002, or -57- 68 (4) modify any of the provisions of this Section, Section 513 or Section 1009, except to increase any percentage contained herein or therein or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder or each Outstanding Security affected thereby, or (5) modify the provisions of Article Twelve, Article Thirteen or Article Fourteen in a manner adverse to the Holders. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article Nine or the modifications of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article Nine, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities previously or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the Trust Indenture Act, as then in effect. SECTION 906. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article Nine may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. -58- 69 SECTION 907. Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 902, the Company shall give notice to all Holders of Securities of such fact, setting forth in general terms the substance of such supplemental indenture, in the manner provided in Section 106. Any failure of the Company to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. SECTION 1002. Maintenance of Office or Agency. The Company hereby appoints the Corporate Trust Office of the Trustee, as its agent in The City of New York where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where conversion notices, certificates and other items required to be delivered to effect conversion may be delivered and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company hereby also appoints the Corporate Trust Office of the Trustee as Paying Agent for the payment of principal of and interest on the Securities and as Conversion Agent for the Conversion of any of the Securities in accordance with Article Thirteen, and appoints the Corporate Trust Office of the Trustee as transfer agent where Securities may be surrendered for registration of transfer or exchange. The Company may at any time and from time to time vary or terminate the appointment of any such agent or appoint any additional agents with or without cause for any or all of such purposes; provided, however, that until all of the Securities have been delivered to the Trustee for cancellation, or moneys sufficient to pay the principal of and interest on the Securities have been made available for payment and either paid or returned to the Company pursuant to the provisions of Section 1003, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion and where notices and demand to or upon the Company, in respect of the Securities and this Indenture may be served. The -59- 70 Company will give prompt written notice to the Trustee, and will give notice to Holders of Securities in the manner specified in Section 105, of the appointment or termination of any such agents and of the location and any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency, or shall fail to furnish the Trustee with the address thereof, presentations and surrenders may be made and notices and demands may be served on and Securities may be surrendered for conversion to the Corporate Trust Office of the Trustee, and the Company hereby appoints the same as its agent to receive such respective presentations, surrenders, notices and demands. SECTION 1003. Money for Security Payments to Be Held in Trust. If the Company shall act as its own Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and the Company will promptly notify the Trustee of its action or failure so to act. 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 Securities, deposit with such Paying Agent(s) a sum sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held for the benefit of the Persons entitled to such principal, premium, if any, or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure so to act; provided that if such deposit is made on such due date, such deposit shall be received by the Paying Agent(s) by 10:00 a.m. New York City time on such date. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held by such Paying Agent. -60- 71 The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided that in the event that the Securities are no longer Global Securities, the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. Statement by Officers as to Default. The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, an Officer's Certificate stating whether or not to the knowledge of the signers thereof the Company is in compliance with all conditions and covenants under the Indenture (without regard to any period of grace or requirement of notice provided hereunder). The Company will deliver to the Trustee, within three Business Days after becoming aware of any default or Event of Default under this Indenture, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. Any notice required to be given under this Section 1004 shall be delivered to the Trustee at its Corporate Trust Office. -61- 72 SECTION 1005. Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect it existence, rights (charter and statutory) and franchises; provided that the Company shall not be required to preserve any such right or franchise if the Company shall determine that its preservation is no longer desirable in the conduct of the business of the Company and that its loss is not disadvantageous in any material respect to the Holders. SECTION 1006. Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business. SECTION 1007. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary upon the income, profits or property of the Company or any Subsidiary, (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which disputed amounts adequate reserves in accordance with generally accepted accounting principles have been made. SECTION 1008. Book-Entry System. If the Securities cease to trade in DTC's book-entry settlement system, the Company covenants and agrees that it shall use reasonable efforts to make such other book-entry arrangements that it determines are reasonable for the Securities. SECTION 1009. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 1006 and 1007, inclusive, if before the time for such -62- 73 compliance the Holders of not less than a majority in principal amount of the Outstanding Securities shall, by Act of such Holders, 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. SECTION 1010. Further Instruments and Acts. Upon reasonable request of the Trustee, the Company will execute and deliver such further instruments and perform such further acts as may be reasonably necessary, or proper to carry out more effectively the purposes of this Indenture. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Right of Redemption. The Securities may be redeemed at the election of the Company, as a whole or from time to time in part, at any time on or after August 1, 2000, at the Redemption Prices specified in the form of Security set forth herein, together with accrued interest to the Redemption Date. SECTION 1102. Applicability of Article. Redemption of Securities at the election of the Company, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article Eleven. SECTION 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities, the Company shall, at least 30 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed. -63- 74 SECTION 1104. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 30 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or an integral multiple thereof) of the principal amount of Securities of a denomination larger than $1,000. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities 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 each Security Registrar in writing of the Securities selected for redemption and, in the case of the Securities 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 Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1105. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at such Holder's address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price and accrued interest, if any, (3) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular Securities to be redeemed, -64- 75 (4) that on the Redemption Date the Redemption Price and accrued interest, if any, will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, (5) the Conversion Rate, the date on which the right to convert the Securities to be redeemed will terminate and the place or places where such Securities may be surrendered for conversion, and (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company, and such notice, when given to the Holders, shall be irrevocable. SECTION 1106. Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money (which shall be in immediately available funds on such Redemption Date) sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit; provided that if such deposit is made on the Redemption Date, such deposit shall be received by the Trustee or Paying Agent, as the case may be, by 10:00 a.m. New York City time on such date. If any Security called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the last paragraph of Section 307) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust. SECTION 1107. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price, including accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided that installments of interest whose Stated Maturity is on -65- 76 or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (premium, if any) shall, until paid, bear interest from the Redemption Date at a rate of _____% per annum. SECTION 1108. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. SECTION 1109. Conversion Arrangement on Call for Redemption. In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Trustee in trust for the Holders, on or before the Redemption Date, an amount not less than the applicable Redemption Price, together with interest accrued to the Redemption Date, of such Securities. Notwithstanding anything to the contrary contained in this Article Eleven, the obligation of the Company to pay the Redemption Price, together with interest accrued to the Redemption Date, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into (a copy of which shall be filed with the Trustee prior to the Redemption Date), any Securities not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, and consistent with any agreement or agreements with such purchasers, acquired by such purchasers from such Holders and (notwithstanding anything to the contrary contained in Article Thirteen) surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the Redemption Date (and the right to convert any such Securities shall be extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or -66- 77 obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such purchasers to which the Trustee has not consented in writing, including the costs and expenses, including reasonable legal fees and expenses, incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. ARTICLE TWELVE SUBORDINATION OF SECURITIES SECTION 1201. Securities Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article Twelve (subject to the provisions of Article Four), the indebtedness represented by the Securities and the payment of the principal of (premium, if any) and interest on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness. Whenever in this Article Twelve there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price or Redemption Price payable in cash in respect of such Security to the extent that such Repurchase Price or Redemption Price payable in cash is, was or would be so payable at such time, and express mention of the Repurchase Price and the Redemption Price in any provision of this Article Twelve shall not be construed as excluding the Repurchase Price or Redemption Price payable in cash in those provisions of this Article Twelve when such express mention is not made. SECTION 1202. No Payments in Certain Circumstances; Payment Over of Proceeds Upon Dissolution, Etc. No payment on account of principal of, premium, if any, or interest on, or redemption or repurchase of, the Securities shall be made if, at the time of such payment or immediately after giving effect thereto: (i) a default in the payment of principal, premium, if any, or interest or other amounts due on any Senior Indebtedness occurs and is continuing (or, in the case of Senior Indebtedness for which there is a period of grace, in the event of such a default that continues beyond the period of grace specified in the instrument or lease evidencing such Senior Indebtedness), unless and until such default shall have been cured or waived in accordance with the agreements evidencing such Senior Indebtedness or shall have ceased to exist; or (ii) a default, other than a payment default, on any Designated Senior Indebtedness occurs and is continuing that then permits holders of such Designated Senior Indebtedness to -67- 78 accelerate the maturity thereof and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Person who may give it pursuant to Section 1210 hereof. Notwithstanding the foregoing, the Company may make, and the Trustee may receive and shall apply, any payment in respect of the Securities (for principal, premium, if any, or interest or repurchase) if such payment was made prior to the occurrence of any of the contingencies specified in clauses (i) and (ii) above. If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (A) at least 365 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice, and (B) all scheduled payments of principal, premium, if any, and interest on the Securities that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Securities upon the earlier of: (i) in the case of a payment default, the date upon which the default is cured or waived in accordance with the agreements evidencing the Senior Indebtedness with respect to which such payment default occurred, or (ii) in the case of a nonpayment default, the earlier of the date on which such default is cured or waived in accordance with the agreements evidencing the Senior Indebtedness with respect to which such default occurred or 179 days after the applicable Payment Blockage Notice is received. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company, then and in any such event the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness in cash or other immediately available funds, or provision shall be made for such payment in cash or other immediately available funds or otherwise in a manner satisfactory to each holder of Senior Indebtedness with respect to its indebtedness, before the Holders of the Securities are entitled to receive any payment on account of principal of (or premium, if any) or interest on the Securities, and to that end the holders of Senior Indebtedness shall be entitled to receive, for any application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, which may be payable or deliverable in respect of the Securities in any such case, proceeding, dissolution, liquidation or other winding up or similar event. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the -68- 79 Company of any kind or character, whether in cash, securities or other property, before all Senior Indebtedness is paid in full or payment thereof provided for, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. For purposes of this Article only, the words, "cash, securities or other property" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which shares of stock are subordinated in right of payment to all then outstanding Senior Indebtedness to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article Twelve. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article Eight shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article Eight. SECTION 1203. Prior Payment to Senior Indebtedness Upon Acceleration of Securities. In the event that any Securities are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior Indebtedness outstanding at the time such Securities so become due and payable shall be entitled to receive payment in full of all amounts due or to become due on or in respect of such Senior Indebtedness, or provisions shall be made for such payment in money or money's worth, before the Holders of the Securities are entitled to receive any payment by the Company on account of the principal of (or premium, if any) or interest on the Securities or on account of the purchase or other acquisition of Securities. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder then and in such event such payment shall be paid over and delivered forthwith to the holders of Senior Indebtedness, or as a court of competent jurisdiction shall direct, for application to the payment of any due and unpaid -69- 80 Senior Indebtedness, to the extent necessary to pay all such due and unpaid Senior Indebtedness in cash or other immediately available funds, after giving effect to any concurrent payment to or for the holders of Senior Indebtedness. The provisions of this Section shall not apply to any payment with respect to which Section 1202 would be applicable. SECTION 1204. Reserved. [Reserved] SECTION 1205. Payment Permitted if No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 1202 or under the conditions described in Section 1203, from making payments at any time of principal of (premium, if any) or interest on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article. SECTION 1206. Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. -70- 81 SECTION 1207. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of (premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 1208. Trustee to Effectuate Subordination. Each holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 1209. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder of any Senior Indebtedness, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment, or the amount of interest, fees or other amounts payable in respect of, or extend the time of payment of, or renew, increase, or otherwise alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise -71- 82 securing Senior Indebtedness; (iii) release any Person liable in any manner for the payment or collection of Senior Indebtedness; (iv) exercise or refrain from exercising any rights or remedies against the Company or any other Person; (v) give or fail to give any notice, or take or fail to take any other action, required by law, by agreement or otherwise to preserve the rights of any holder of Senior Indebtedness against the Company or any other Person liable in respect of Senior Indebtedness or with respect to any property pledged, mortgaged, or otherwise subject to a security interest or lien securing Senior Indebtedness; (vi) perform or fail to perform any obligation of such holders of Senior Indebtedness under any instrument or agreement evidencing, guaranteeing, securing or otherwise affecting or relating to Senior Indebtedness; or (vii) take or fail to take any action that might otherwise constitute a defense available to, or a discharge of, the Company or any other Person liable in respect of Senior Indebtedness. SECTION 1210. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness (or a trustee therefor or an agent bank) or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 801, shall be entitled in all respects to assume that no such facts exist; provided that if the Trustee shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (premium, if any) or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Notwithstanding anything in this Article Twelve to the contrary, nothing shall prevent any payment by the Trustee to the Holders of monies deposited with it pursuant to Section 401, and any such payment shall not be subject to the provisions of Section 1202 or 1203. Subject to the provisions of Section 601, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor or an agent bank) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor or an agent bank). In the event that the Trustee determines in good faith that further evidence is required with respect to the -72- 83 right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 1211. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 601, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 1212. Trustee Not Fiduciary for Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 1213. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607. -73- 84 SECTION 1214. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided that Section 1213 shall not apply to the Company or any Affiliate of this Company if it or such Affiliate acts as Paying Agent. SECTION 1215. Certain Conversions Deemed Payment. For the purposes of this Article only: (1) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article Thirteen or upon the repurchase of Securities in accordance with Article Fourteen shall not be deemed to constitute a payment or distribution on account of the principal of or premium or interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company and any cash, securities or other property into which the Securities are convertible pursuant to Article Thirteen and (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article Thirteen or to exchange such Security for Common Stock in accordance with Article Fourteen if the Company elects to satisfy its obligation under Article Fourteen by the delivery of Common Stock. ARTICLE THIRTEEN CONVERSION OF SECURITIES SECTION 1301. Conversion Privilege and Conversion Rate. Subject to and upon compliance with the provisions of this Article Thirteen, at the option of the Holder thereof, any Security may be converted at any time into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock of the Company at the Conversion Rate, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the close of business on -74- 85 August 1, 2004, subject, in the case of conversion of any Global Security, to any Applicable Procedures. In case a Security or portion thereof is called for redemption at the election of the Company or the Holder thereof exercises his right to require the Company to repurchase a Security or portion thereof, such conversion right in respect of such Security, shall expire (a) at the close of business on the Business Day immediately preceding the Redemption Date, in the case of a Security called for redemption, and (b) at the close of business on the Repurchase Date, in the case of a Security tendered for repurchase, in each case unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be, and in each case subject as aforesaid to any Applicable Procedures with respect to any Global Security. The rate at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Rate") shall be initially ____ shares of Common Stock for each $1,000 principal amount of Securities (equivalent to a conversion price of approximately $____ per share of Common Stock). The Conversion Rate shall be adjusted in certain instances as provided in this Article Thirteen. SECTION 1302. Exercise of Conversion Privilege. In order to exercise the conversion privilege, the Holder of any Security to be converted shall surrender such Security, duly endorsed or assigned to the Company or in blank, at any office or agency of the Company maintained for that purpose pursuant to Section 1002, accompanied by a duly signed conversion notice substantially in the form set forth in Section 205 stating that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted the portion thereof to be converted. Except as set forth below, each Security surrendered for conversion (in whole or in part) during the Record Date Period shall (except in the case of any Security or portion thereof which has been called for redemption on a Redemption Date, or which is repurchasable on a Repurchase Date, occurring, in either case, within such Record Date Period (including any Securities or portions thereof called for redemption on a Redemption Date that is a Regular Record Date or an Interest Payment Date, as the case may be)) 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 such Security (or part thereof, as the case may be) being surrendered for conversion. The interest so payable on such Interest Payment Date with respect to any Security (or portion thereof, if applicable) which has been called for redemption on a Redemption Date, or is repurchasable on a Repurchase Date, occurring, in either case, during the Record Date Period, which Security (or portion thereof, if applicable) is surrendered for conversion during such Record Date Period (or on the last Business Day prior to the Regular Record Date or Interest Payment Date in the case of any Security (or portion thereof, as the case may be) called for redemption on such Regular Record Date or Interest Payment Date, as the case may be), shall be paid to the Holder of such Security being converted in an amount equal to the interest that would have been payable on such Security if such Security had been converted as of the close of business -75- 86 on such Interest Payment Date. The interest so payable on such Interest Payment Date in respect of any Security (or portion thereof, as the case may be) which has not been called for redemption on a Redemption Date, or is not eligible for repurchase on a Repurchase Date, occurring, in either case, during the Record Date Period, which Security (or portion thereof, as the case may be) is surrendered for conversion during such Record Date Period, shall be paid to the Holder of such Security as of such Regular Record Date. Interest payable in respect of any Security surrendered for conversion on or after a Regular Record Date and prior to an Interest Payment Date shall be paid to the Holder of such Security as of such Regular Record Date. Interest payable in respect of any Security surrendered for conversion on or after a Regular Record Date and prior to an Interest Payment Date shall be paid to the Holder of such Security as of the next preceding Regular Record Date, notwithstanding the exercise of the right of conversion. Notwithstanding the foregoing, any Security surrendered for conversion (in whole or in part) prior to August 1, 2000 during the Record Date Period (except in the case of any Security or portion thereof which is repurchaseable on a Purchase Date occurring within such period) shall not be accompanied by an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security (or part thereof, as the case may be) being surrendered for conversion, and the Company shall pay to the Holder of such Security (or part thereof, as the case may be) as of such Regular Record Date in cash or in shares of Common Stock having a fair market value equal to the amount of such interest (such fair market value being determined based on the Closing Price Per Share of the Common Stock on the Business Day immediately preceding such Interest Payment Date). Except as provided in the preceding paragraph and subject to the last paragraph of Section 307, no cash payment or adjustment shall be made upon any conversion. Except as provided in the preceding paragraph and subject to the last paragraph of Section 307, no cash payment of adjustment shall be made upon any conversion on account of any interest accrued from the Interest Payment Date next preceding the conversion date, in respect of any Security (or part thereof, as the case may be) surrendered for conversion, or on account of any dividends on the Common Stock issued upon conversion. The Company's delivery to the Holder of the number of shares of Common Stock (and cash in lieu of fractions thereof, as provided in this Indenture) into which a Security is convertible will be deemed to satisfy the Company's obligation to pay the principal amount of the Security. Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall issue and deliver to the Trustee, for delivery to the Holder, 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 1303. -76- 87 In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in the aggregate principal amount equal to the unconverted portion of the principal amount of such Security. A Security may be converted in part, but only if the principal amount of such Security to be converted is any integral multiple of $1,000 and the principal amount of such security to remain Outstanding after such conversion is equal to $1,000 or any integral multiple of $1,00 in excess thereof. SECTION 1303. Fractions of Shares. No fractional shares of Common Stock shall be issued upon conversion of any Security or Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares that shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Security or Securities (or specified portions thereof), the Company shall calculate and pay a cash adjustment in respect of such fraction (calculated to the nearest 1/100th of a share) in an amount equal to the same fraction of the Closing Price Per Share at the close of business on the day of conversion. SECTION 1304. Adjustment of Conversion Rate. The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company payable in shares of Common Stock (other than on shares of preferred stock issued by the Company for cash to the extent that the right to pay dividends on such preferred stock in shares of Common Stock was included in the terms of such preferred stock as of the date of original issuance), the Conversion Rate in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. -77- 88 (2) In case the Company shall issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 1304) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants, the Conversion Rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or business on the day following the date fixed for such determination. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options or warrants in respect of shares of Common Stock held in the treasury of the Company. (3) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options or warrants referred to in paragraph (2) of this Section, (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section and (iv) any merger or consolidation to which Section 1311 applies), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 1304) -78- 89 of the Common Stock on the date fixed for such determination (the "Reference Date") less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution filed with the Trustee) on the Reference Date of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be the current market price per share of the Common Stock on the Reference Date, such adjustment to become effective immediately prior to the opening of business on the day following the Reference Date. In any case in which this paragraph (4) is applicable, paragraph (2) of this Section shall not be applicable. (5) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed as a part of a distribution referred to in paragraph (4) of this Section) in an aggregate amount that, combined together with (I) the aggregate amount of any other cash distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) has been made and (II) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (6) of this Section 1304 has been made (the "combined cash and tender amount") exceeds 10% of the product of the current market price per share (determined as provided in paragraph (8) of this Section 1304) of the Common Stock on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date (the "aggregate current market price"), then, and in each such case, immediately after the close of business on such date for determination, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined cash and tender amount over such aggregate current market price divided by (y) the number of shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 1304) of the Common Stock on such date for determination. (6) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer or exchange (as -79- 90 amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (I) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender or exchange offer, of consideration payable in respect of any other tender or exchange offer by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to this paragraph (6) has been made and (II) the aggregate amount of any cash distributions to all holders of the Company's Common Stock within 12 months preceding the expiration of such tender or exchange offer and in respect of which no adjustment pursuant to paragraph (5) of this Section has been made (the "combined tender and cash amount") exceeds 10% of the product of the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 1304) as of the last time (the "Expiration Time") tenders or exchanges could have been made pursuant to such tender or exchange offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered or exchanged shares) as of the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (I) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 1304) on the date of the Expiration Time multiplied by (II) the number of shares of Common Stock outstanding (including any tendered or exchanged shares) on the Expiration Time less (B) the combined tender and cash amount, and (ii) the denominator of which shall be equal to the product of (A) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 1304) as of the Expiration Time multiplied by (B) the number of shares of Common Stock outstanding (including any tendered or exchanged shares) as of the Expiration Time less the number of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 1311 applies) shall be deemed to involve (a) 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 fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such -80- 91 determination" within the meaning of paragraph (4) of this Section), and (b) 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 day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 1304). (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 1304, the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices Per Share for the five consecutive Trading Days selected by the Company commencing not more than 10 Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "'ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; provided, however, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 1304, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. The Company shall have the power to resolve any ambiguity or correct any error in this paragraph (10) and its actions in so doing shall, absent manifest error, be final and conclusive. (11) To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least 20 days, the increase is irrevocable during such period, and the Board of Directors shall have made a determination that such reduction would be in the best -81- 92 interests of the Company, which determination shall be conclusive. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Company shall give notice of the increase to the Holders in the manner provided in Section 106 at least fifteen (15) days prior to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which it will be in effect. SECTION 1305. Notice of Adjustments of Conversion Rate. Whenever the Conversion Rate is adjusted as herein provided: (1) the Company shall compute the adjusted Conversion Rate in accordance with Section 1304 and shall prepare a certificate signed by the principal accounting or financial officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall promptly be filed with the Trustee and with each Conversion Agent; and (2) a notice stating that the Conversion Rate has been adjusted and setting forth the adjusted Conversion Rate shall forthwith be prepared, and as soon as practicable after it is prepared, such notice shall be provided by the Company to all Holders in accordance with Section 106. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate or the information and calculations contained therein, except to exhibit the same to any Holder of Securities desiring inspection thereof at its office during normal business hours. SECTION 1306. Notice of Certain Corporate Action. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 1304; or (b) 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; or (c) of any reclassification of the Common Stock of the Company, or of any consolidation, merger, or share exchange to which the Company is a party and for -82- 93 which approval of any stockholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (e) the Company or any Subsidiary shall commence a tender offer for all or a portion of the Company's outstanding shares of Common Stock (or shall amend any such tender offer); then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002, and shall cause to be provided to all Holders in accordance with Section 106, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, 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, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, conveyance, transfer, sale, lease, 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, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice or the notice referred to in the following paragraph nor any defect in such notice shall affect the legality or validity of the proceedings clauses (a) through (e) of this Section 1306. If at the time the Trustee shall not be a Conversion Agent, a copy of such notice shall also be filed by the Company with the Trustee. The preceding paragraph to the contrary notwithstanding, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002, and shall cause to be provided to all Holders in accordance with Section 106 notice of any tender offer by the Company or any Subsidiary for all or any portion of the Common Stock at or about the time that such notice of tender offer is provided to the public generally. SECTION 1307. 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 Securities, the full number of shares of Common Stock then issuable upon the conversion of all Outstanding Securities. -83- 94 SECTION 1308. Taxes on Conversions. Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid or that no such tax or duty need be paid. SECTION 1309. Covenant as to Common Stock. The Company agrees that all shares of Common Stock which may be delivered upon conversion of Securities, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable and, except as provided in Section 1308, the Company will pay all taxes, liens and charges with respect to the issue thereof. SECTION 1310. Cancellation of Converted Securities. All Securities 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 309. SECTION 1311. Provision in Case of Consolidation, Merger or Sale of Assets. In case of any consolidation or merger of the Company with or into any other Person, any merger of another Person with or into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the assets of the Company in one transaction or a series of related transactions, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then Outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 1301, to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (i) is not a Person with which the Company consolidated or merged with or into or which merged into or with the Company or to which such conveyance, sale, transfer or lease was -84- 95 made, as the case may be ("Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Persons or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 1311 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non- electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-electing Shares). Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section 1311 shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security as provided in Section 106 promptly upon such execution. Neither the Trustee, any Paying Agent, nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company shall cause to be furnished to the Trustee upon request. For purposes of preventing duplicative adjustments, if and to the extent Section 1311 applies to any event or occurrence, Section 1304 shall not apply. SECTION 1312. Responsibility of Trustee for Conversion Provisions. The Trustee, subject to the provisions of Section 601, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same, or whether a supplemental indenture need to be entered into. Neither the Trustee, subject to the provisions of Section 601, nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind or amount) of any Common -85- 96 Stock, or of any other securities or property or cash, which may at any time be issued or delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 601, nor any Conversion Agent shall be responsible for any failure of the Company to make or calculate any cash payment or to issue, transfer, or deliver any shares of Common Stock or share certificates or other securities or property or cash upon the surrender of any Security for the purpose of conversion; and the Trustee, subject to the provisions of Section 601, and any Conversion Agent shall not be responsible for any failure of the Company to comply with any of the covenants of the Company contained in this Article. ARTICLE FOURTEEN REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL SECTION 1401. Right to Require Repurchase. In the event that a Change of Control (as hereinafter defined) shall occur, then each Holder shall have the right, at the Holder's option to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Securities, or any portion of the principal amount thereof that is equal to $1,000 or an integral multiple of $1,000 in excess thereof, on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined in Section 1403) at a price equal to 100% of the principal amount of the Securities to be repurchased plus interest accrued to the Repurchase Date (the "Repurchase Price"); provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Repurchase Date shall be payable in cash to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Record Date according to their terms and the provisions of Section 307. Such right to require the repurchase of the Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article Four, unless a Change of Control shall have occurred prior to such discharge. The Repurchase Price shall be paid in cash. Whenever in this Indenture (including Sections 202, 301, 501(2) and 508) there is a reference, in an context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Indenture when such express mention is not made; provided that for the purposes of Article Twelve such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. -86- 97 SECTION 1402. [Reserved]. SECTION 1403. Notices, Method of Exercising Repurchase Right, Etc. (a) Unless the Company shall have previously called for redemption all of the Outstanding Securities or unless all of the Outstanding Securities shall have theretofore been converted in accordance with Article Thirteen, on or before the 30th day after the occurrence of a Change of Control, the Company or, at the request and expense of the Company on or before the 15th day after such occurrence, the Trustee, shall give to all Holders, in the manner provided in Section 106, notice (the "Company Notice") of the occurrence of the Change of Control and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such notice of a repurchase right to the Trustee. Each notice of a repurchase right shall state: (1) the Repurchase Date, (2) the date by which the repurchase right must be exercised, (3) the Repurchase Price, (4) a description of the procedure which a Holder must follow to exercise a repurchase right, and the place or places where such Securities are to be surrendered for payment of the Repurchase Price and accrued interest, if any, (5) that on the Repurchase Date the Repurchase Price, and accrued interest, if any, will become due and payable upon each such Security designated by the Holder to be repurchased, and that interest thereon shall cease to accrue on and after said date, and (6) the Conversion Rate then in effect, the date on which the right to convert the principal amount of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Securities. If any of the foregoing provisions or other provisions of this Article Fourteen are inconsistent with applicable law, such law shall govern. (b) To exercise a repurchase right, a Holder shall deliver to the Trustee or any Paying Agent on or before the 30th day after the date of the Company Notice (i) written notice -87- 98 of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Securities to be repurchased (and, if any Security is to repurchased in part, the portion of the principal amount thereof to be repurchased and the name of the Person in which the portion thereof to remain Outstanding after such repurchase is to be registered), and a statement that an election to exercise the repurchase right is being made thereby, and (ii) the Securities with respect to which the repurchase right is being exercised. Such written notice shall be irrevocable, except that the right of the Holder to convert the Securities with respect to which the repurchase right is being exercised shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Trustee or the Paying Agent the Repurchase Price in cash for paying to the Holder on the Repurchase Date, together with accrued and unpaid interest to the Repurchase Date payable with respect to the Securities as to which the purchase right has been exercised; provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Repurchase Date shall be payable in cash to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Date according to the terms and provisions of Section 307. (d) If any Security (or portion thereof) surrendered for repurchase shall not be so paid on the Repurchase Date, the principal amount of such Security (or portion thereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate of ____% per annum, and each Security shall remain convertible into Common Stock until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) Any Security which is to be repurchased only in part shall be surrendered to the Trustee (with due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) No payment or adjustment shall be made for dividends or distributions on any Common Stock issued upon repurchase of any Security declared prior to the Repurchase Date. (g) All Securities delivered for repurchase shall be delivered to the Trustee, the Paying Agent or any other agents (as shall be set forth in the Company Notice) to be cancelled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 309. -88- 99 SECTION 1404. Certain Definitions. For purposes of this Article Fourteen, (a) the term "beneficial owner" shall be determined in accordance with Rule 13d-3, as in effect on the date of the original execution of this Indenture, promulgated by the Commission pursuant to the Exchange Act; (b) a "Change of Control" shall be deemed to have occurred at the time, after the original issuance of the Securities, of: (i) the acquisition by any Person of (a) beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in elections of directors (any shares of voting stock of which such person or group is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage), other than any such acquisition by the Company, any Subsidiary of the Company, any employee benefit plan of the Company existing on the date of this Indenture or by Michael L. Musto or (b) the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the entire Board of Directors; or (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any conveyance, sale, transfer or lease, in one transaction or a series of related transactions, of all or substantially all of the assets (other than to a wholly owned Subsidiary of the Company) of the Company to any other Person (other than (a) any such transaction pursuant to which the holders of 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in elections of directors immediately prior to such transaction have, directly or indirectly, at least 50% or more of the total voting power of all shares of capital stock of the continuing or surviving corporation entitled to vote generally in elections of directors of the continuing or surviving corporation immediately after such transaction and (b) a merger (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of capital stock of the Company or (y) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock); or -89- 100 (iii) at any time Continuing Directors cease to constitute a majority of the Board of Directors of the Company then in office. (c) the term "Conversion Price" shall equal $1,000 divided by the Conversion Rate; and (d) for the purposes of Section 1404(b)(i), the term "Person" shall include any syndicate or group which would be deemed to be a "person" under Section 12(d)(3) of the Exchange Act, as in effect on the date of the original execution of this Indenture. SECTION 1405. Consolidation, Merger, Etc. In the case of any reclassification, change, consolidation, merger, combination, sale or conveyance to which Section 1311 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive shares of stock and other securities or property or assets (including cash) which includes shares of Common Stock of the Company or common stock of another person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such shares of stock and other securities, property and assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the person formed by such consolidation or resulting from such merger or combination or which acquires the properties or assets (including cash) of the Company, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of Holders to cause the Company to repurchase the Securities following a Change of Control, including without limitation the applicable provisions of this Article Fourteen and the definitions of the Common Stock and Change of Control, as appropriate, and such other related definitions set forth herein as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply to the common stock and the issue thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). -90- 101 ARTICLE FIFTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 1501. Indenture and Securities Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Security, 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 Security, or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, or director or subsidiary, 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 waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. -------------------------- This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -91- 102 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. REPTRON ELECTRONICS, INC. By: --------------------------- Attest: - ---------------------- RELIANCE TRUST COMPANY as Trustee By: --------------------------- Name: Title: Attest: - ---------------------- -92- 103 STATE OF ) ss.: COUNTY OF ) On the ____ day of __________, 1997, before me personally came ________________________, to me known, who, being by me duly sworn, did depose and say that he/she is ____________________________ of REPTRON ELECTRONICS, INC. one of the corporations described in and which said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he/she signed his/her name thereto by like authority. ------------------------------ STATE OF GEORGIA ) ss.: COUNTY OF FULTON ) On the ____ day of __________, 1997, before me personally came ________________________, to me known, who, being by me duly sworn, did depose and say that he/she is ____________________________ of RELIANCE TRUST COMPANY, one of the corporations described in and which executed the foregoing instrument; that he/she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he/she signed his/her name thereto by like authority. ------------------------------ -93- 104 Certain Sections of this Indenture relating to Sections 310 through 318 of the Trust Indenture Act of 1939:
Trust Indenture Indenture Act Section Section - --------------- --------- Section 310(a)(1) ............................................................. 609 (a)(2) ............................................................. 609 (a)(3) ............................................................. Not Applicable (a)(4) ............................................................. Not Applicable (b) ............................................................. 608 610 Section 311(a) ............................................................. 613 (b) ............................................................. 613 Section 312(a) ............................................................. 701 702(a) (b) ............................................................. 702(b) (c) ............................................................. 702(c) Section 313(a) ............................................................. 703(a) (b) ............................................................. 703(a) (c) ............................................................. 703(a) (d) ............................................................. 703(b) Section 314(a) ............................................................. 704 (b) ............................................................. Not Applicable (c)(1) ............................................................. 102 (c)(2) ............................................................. 102 (c)(3) ............................................................. Not Applicable (d) ............................................................. Not Applicable (e) ............................................................. 102 Section 315(a) ............................................................. 601 ............................................................. 603(a) (b) ............................................................. 602 (c) ............................................................. 601 (d) ............................................................. 601 (e) ............................................................. 514 Section 316(a)(1)(A) ............................................................. 512 (a)(1)(B) ............................................................. 513 (a)(2) ............................................................. Not Applicable (b) ............................................................. 508 (c) ............................................................. 104 Section 317(a)(1) ............................................................. 503 (a)(2) ............................................................. 504 (b) ............................................................. 1003 Section 318(a) ............................................................. 107
- ---------- Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the indenture. 105 INDENTURE, dated as of August __, 1997, between Reptron Electronics, Inc., a corporation duly organized and existing under the laws of the State of Florida (herein called the "Company"), having its principal office at 14401 McCormick Drive, Tampa, Florida 33626, and Reliance Trust Company, a state banking corporation duly organized and existing under the laws of the State of Georgia, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its ___% Convertible Subordinated Notes Due August 1, 2004 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. Further, all things necessary to duly authorize the issuance of the Common Stock of the Company issuable upon the conversion of the Securities, and to duly reserve for issuance the number of shares of Common Stock issuable upon such conversion, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article One have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; 106 (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act" when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Global Security to the extent applicable to such transaction and as in effect from time to time. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, shall have been delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York, Atlanta, Georgia or Tampa, Florida, are authorized or obligated by law or executive order to close. -2- 107 "Change of Control" has the meaning specified in Section 1404(b). "Closing Price Per Share" means, with respect to the Common Stock of the Company, on any day, the reported last sales price regular way per share or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case (i) on the Nasdaq National Market, or if the Common Stock is not quoted thereon, the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (ii) if not or quoted on the Nasdaq National Market listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "Code" has the meaning specified in Section 201. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means the Common Stock, par value $.01 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 1311, shares issuable on conversion or repurchase of Securities shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; provided, however, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of Securities shall include shares of all such classes, and 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" includes any stock of any class of capital stock which has no preference in respect of dividends or of amount payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the issuer thereof and which is not subject to redemption by the issuer thereof. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Notice" has the meaning specified in Section 1403. "Company Order" or "Company Request" means a written order or request signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its -3- 108 President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Constituent Person" has the meaning specified in Section 1311. "Continuing Director" means at any date a member of the Company's Board of Directors (i) who was a member of such Board on the date of the Indenture or (ii) who was nominated or elected by at least two-thirds of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least two-thirds of the directors who were Continuing Directors at the time of such election. "Conversion Agent" means any Person authorized by the Company to convert Securities in accordance with Article Thirteen. The Company has initially appointed the Trustee as its Conversion Agent. "Conversion Price" has the meaning specified in Section 1404. "Conversion Rate" has the meaning specified in Section 1301. "Corporate Trust Office" means the principal corporate trust office of the Trustee at which, at any particular time, its corporate trust business shall be administered, which office at the date hereof is located at 3384 Peachtree Road, Suite 900, Atlanta, Georgia 30326-1106, except that for purposes of Section 1002, such term shall mean the office or agency of the Trustee in the Borough of Manhattan, the City of New York, which office at the date hereof is located at c/o Chase Melon, Shareholder Services, 15th Floor, 450 West 33rd Street, New York, New York 10001. "corporation" means a corporation, association, company, joint-stock company or business trust. "Custodian" means Reliance Trust Company, as custodian with respect to any Global Security, or any successor entity thereto. "Defaulted Interest" has the meaning specified in Section 307. "Depositary" means, with respect to any Global Securities, a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as Depositary for such Global Securities (or any successor securities clearing agency so registered). "Designated Senior Indebtedness" means any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or -4- 109 related agreements or documents to which the Company is a party) expressly provides that such indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). "DTC" means The Depositary Trust Company, a New York corporation. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the United States Securities Exchange Act of 1934 (or any successor statute), as amended from time to time. "Expiration Date" has the meaning specified in Section 104. "Expiration Time" has the meaning specified in Section 1304. "Global Security" means a Security that is registered in the Security Registrar in the name of a Depositary or a nominee thereof. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or on the Redemption Date or Repurchase Date or by declaration of acceleration, or otherwise. "Non-electing Share" has the meaning specified in Section 1311. "Notice of Default" means a written notice of the kind specified in Section 501(4) or 501(5). -5- 110 "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be reasonably acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for payment or redemption of which money in the necessary amount has been deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision for notice of redemption satisfactory to the Trustee has been made; (iii) Securities which have been paid pursuant to Section 306 or in exchange for in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities converted into Common Stock pursuant to Article Thirteen; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities are present at a meeting of Holders for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the -6- 111 Trustee the pledgee's right to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Payment Blockage Notice" has the meaning specified in Section 1202. "Person" means any individual, corporation, limited liability company, partnership, joint venture, a joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Record Date Period" means 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. "Record Date" means any Regular Record Date or Special Record Date. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Reference Date" has the meaning specified in Section 1304. "Regular Record Date" for the interest payable on any Interest Payment Date means the January 15 or July 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Repurchase Date" has the meaning specified in Section 1401. "Repurchase Price" has the meaning specified in Section 1401. "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee (including without limitation any vice president, -7- 112 assistant treasurer, assistant secretary, corporate trust officer, assistant corporate trust officer or other employee of the Trustee customarily performing functions similar to those performed by any of the above designated officers) and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge and familiarity with the particular subject. "Securities" has the meaning specified in the first paragraph under the caption "Recitals of the Company". "Securities Act" means the United States Securities Act of 1933 (or any successor statute), as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Senior Indebtedness" means the principal of (and premium, if any) and interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) on, and all fees and other amounts payable in connection with, the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of the Indenture or thereafter created, incurred or assumed: (a) indebtedness of the Company to banks, insurance companies and other financial institutions evidenced by credit or loan agreements, notes or other written obligations, (b) all other indebtedness of the Company (including obligations of the Company arising from its guarantee of the indebtedness of others) other than the Securities, whether outstanding on the date of this Indenture or thereafter created, incurred or assumed, which is (i) for money borrowed or (ii) evidenced by a note, security, debenture, bond or similar instrument or guarantee thereof, (c) obligations of the Company as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles, and (d) renewals, extensions, modifications, restatements and refundings of, and any amendments, modifications or supplements to, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in clauses (a) through (c) of this paragraph; provided that Senior Indebtedness shall not include (i) indebtedness to a Subsidiary or other Affiliate of the Company, (ii) any such indebtedness or obligation if the terms of such indebtedness or obligation (or the terms of the instrument under which, or pursuant to which, it is issued) expressly provided that such indebtedness or obligation shall not be senior in right of payment to the Securities, or expressly provide that such indebtedness or obligation is pari passu with or junior to the Securities and (iii) accounts payable of the Company to trade creditors. Notwithstanding the foregoing, unsecured indebtedness of the Company shall only be included in Senior Indebtedness if the incurrence of such unsecured indebtedness should not, in the opinion of counsel or a nationally recognized accounting firm experienced in tax matters, cause the Securities to be considered "corporate acquisition indebtedness" within the meaning of ss. 279 of the Internal Revenue Code of 1986, as amended. -8- 113 "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" means a corporation or limited liability company more than 50% of the outstanding voting stock, membership interests or units of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock, membership interests or units which ordinarily has voting power for the election of directors or managers (in the case of a limited liability company), whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trading Days" means (i) if the Common Stock is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, days on which trades may be effected through such system; (ii) if the Common Stock is listed or admitted for trading on any national securities exchange, days on which such national securities exchange is open for business; or (iii) if the Common Stock is not listed or admitted for trading on any national securities exchange or quoted on the Nasdaq National Market or any other system of automated dissemination of quotation of securities prices, days on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating -9- EX-4.3 4 AMENDMENT TO ARTICLES OF INCORPORATION 1 Exhibit 4.3 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF REPTRON ELECTRONICS, INC. Pursuant to Section 607.1003 and 607.1006 of the Florida Business Corporation Act, the Articles of Incorporation of REPTRON ELECTRONICS, INC. (the "Corporation"), are hereby amended according to these Articles of Amendment: FIRST: The name of the Corporation is REPTRON ELECTRONICS, INC. SECOND: The first paragraph of Article V, entitled Capital Stock, is hereby amended in its entirety to read as follows: "The stock of the Corporation shall be divided into two classes: 50,000,000 shares of common stock having a par value of $.01 per share and 15,000,000 shares of preferred stock having a par value of $.10 per share." THIRD: The foregoing amendment was duly adopted by the directors of the Corporation on March 14, 1997 and by the shareholders of the Corporation on April 15, 1997. FOURTH: The number of votes cast for the amendment by the shareholders of the Corporation constitutes a sufficient number of votes to approve the amendment. IN WITNESS WHEREOF, the undersigned Vice President of the Corporation has executed this instrument this 6th day of June, 1997. /s/ Paul Plante ------------------------------ Paul J. Plante, Vice President EX-5.1 5 OPINION OF HOLLAND & KNIGHT LLP 1 Exhibit 5.1 August 4, 1997 Reptron Electronics, Inc. 14401 McCormick Drive Tampa, Florida 33626 Re: ___% Convertible Subordinated Notes due 2004 Gentlemen: We refer to the Registration Statement (the "Registration Statement") on Form S-3 filed by Reptron Electronics, Inc. (the "Company") for the purpose of registering under the Securities Act of 1933 (the "Securities Act") up to $115,000,000 in aggregate principal amount of the Company's ___% Convertible Subordinated Notes due 2004 (the "Notes") and the shares of the Company's Common Stock, par value $.01 per share (the "Common Stock"), issuable upon conversion of the Notes, pursuant to an underwriting agreement (the "Underwriting Agreement") between the Company and Raymond James & Associates, Inc., Forum Capital Markets L.P. and Stephens Inc., as representatives of the Underwriters. In connection with the foregoing registration, we have acted as counsel for the Company and have examined originals, or copies certified to our satisfaction, of such corporate records of the Company, certificates of public officials and representatives of the Company and other documents as we deemed it necessary to require as a basis for the opinions expressed below. On the basis of the foregoing, and having regard for legal consideration we deem relevant, it is our opinion that: 1. The Notes proposed to be sold by the Company pursuant to the Underwriting Agreement have been duly authorized for issuance and, when: (a) the Registration Statement relating to the Notes shall have become effective under the Act and the Indenture between the Company and Reliance Trust Company, as indenture trustee (the "Indenture") shall have been qualified under the Trust Indenture Act of 1939, as amended; (b) the Indenture shall have been duly executed and delivered; (c) the Notes shall have been duly executed, authenticated and 2 Reptron Electronics, Inc. August 4, 1997 Page 2 delivered in accordance with the terms of the Indenture; and (d) the Company shall have received the purchase price for the Notes in accordance with the terms set forth in the Underwriting Agreement, the Notes will constitute valid and legally binding obligations of the Company; and 2. The Common Stock issuable upon conversion of the Notes has been duly authorized and reserved for issuance by the Company and, if and when issued upon conversion of the Notes in accordance with the terms of the Indenture, will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement, and to the reference to this firm under the caption "Legal Matters" contained in the prospectus filed as part thereof. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act. Very truly yours, HOLLAND & KNIGHT LLP By: /s/ ROBERT J. GRAMMIG -------------------------- Robert J. Grammig EX-21.1 6 SUBSIDIARIES OF THE COMPANY 1 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT Reptron Electronics of PA, Inc. Lake Huron Investment Corporation Lake Michigan Investment, Inc. EX-23.2 7 CONSENT OF GRANT THORNTON, LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated February 5, 1997, accompanying the consolidated financial statements and schedule of Reptron Electronics, Inc., contained in and incorporated by reference in the Registration Statement and Prospectus. We consent to the use of the aforementioned reports in the Registration Statement and Prospectus, and to the use of our name as is appears under the caption "Experts" and "Selected Consolidated Financial Data". /s/ Grant Thornton LLP GRANT THORNTON LLP Tampa, Florida August 1, 1997 EX-25.1 8 STATEMENT ON FORM T-1 AS TO ELIGIBILITY OF TRUSTEE 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ----------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)_________ ----------------------- RELIANCE TRUST COMPANY (Exact name of trustee as specified in its charter) GEORGIA 58-1428624 (Jurisdiction of incorporation (I.R.S. Employer if not a U.S. national bank Identification No.) 3384 Peachtree Road Suite 900 30326 Atlanta, GA 30326 (Zip Code) (Address of principal executive offices) ----------------------- REPTRON ELECTRONICS, INC. (Exact name of obligor as specified in its charter) FLORIDA 38-2081116 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14401 McCormick Drive 33626 Tampa, Florida (Zip Code) (Address of principal executive offices) __% CONVERTIBLE SUBORDINATED NOTES DUE 2004 (Title of the indenture securities) 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. Georgia Department of Banking and Finance 2990 Brandywine Road Suite 200 Atlanta, GA 30341-5565 (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. Affiliations with the Obligor If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15. Reptron Electronics, Inc. is currently not in default under any of its outstanding securities for which Reliance Trust Company is Trustee. Accordingly, responses to Items, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, and 15 of Form T-1 are not required under Section B of the General Instructions. 3 16. List of Exhibits T-1.1 Articles of Incorporation of Reliance Trust Company, as amended. T-1.2 Included in Exhibit T-1.1. T-1.3 Certification by State of Georgia Department of Banking and Finance that Reliance Trust Company is approved to exercise trust powers. T-1.4 Bylaws of Reliance Trust Company. T-1.6 The consent of Reliance Trust Company required by Section 321(b) of the Trust Indenture Act of 1939. T-1.7 A copy of the latest report of condition of Reliance Trust Company pursuant to law or the requirements of its supervising or examining authority. Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, Reliance Trust Company, a corporation organized and existing under the laws of the State of Georgia, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Atlanta, and State of Georgia, on the ___ day of August, 1997. RELIANCE TRUST COMPANY, Trustee BY: ------------------------------- Susan Adams Senior Vice President 4 Exhibit T-1.1 STATE OF GEORGIA COUNTY OF DeKALB ARTICLES OF AMENDMENT OF RELIANCE TRUST COMPANY AS OF JULY 25, 1985 I. The name of the bank and trust company is RELIANCE TRUST COMPANY. II. The county in which RELIANCE TRUST COMPANY'S registered office is located is DeKalb County, Georgia. The office is in an unincorporated area of DeKalb County, but Atlanta is used as the city in its post office address. III. RELIANCE TRUST COMPANY was incorporated with banking and trust powers. IV. On July 26, 1985, at 12:00 noon at 3295 Northcrest Road, N.E., Atlanta, DeKalb County, Georgia 30340, a meeting of the shareholders of RELIANCE TRUST COMPANY was held at which the Amendment set forth below approving the Amended and Restated Articles of Incorporation of RELIANCE TRUST COMPANY was adopted. The meeting was held pursuant to written notice by first class mail mailed to the shareholders at the last known address of each person or corporation on July 12, 1985, which notice set forth the place, day and hour of the meeting and contained a summary of the directors' resolution approving the Amendment. V. 194,000 shares of the $3.75 par value common stock were entitled to vote on the Amendment. RELIANCE TRUST COMPANY has only one class of stock, accordingly no shares of any other class were entitled to vote as a class. 5 VI. The said Amendment was adopted by the vote of 137,927 shares, being all shares present or represented at the meeting, and constituting more than a majority of all the shares entitled to vote thereon. VII. The Amendment adopted by the bank and trust company is as follows: RESOLVED, that the Articles of Incorporation be amended so that they shall conform in all respects to the Amended and Restated Articles of Incorporation of RELIANCE TRUST COMPANY, a copy of which is attached hereto and incorporated herein by this reference. A copy of the Amended and Restated Articles of Incorporation of RELIANCE TRUST COMPANY, referred to in the Amendment, is attached to these Articles of Amendment and incorporated herein by this reference. IN WITNESS WHEREOF, RELIANCE TRUST COMPANY has caused these Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested, all by its duly authorized officers, on this 26th day of July, 1985. RELIANCE TRUST COMPANY By: /s/ A. J. Braswell ------------------------------ A. J. Braswell, President (Corporate Seal) Attest: /s/ W. Ray Walker - --------------------------- W. Ray Walker, Secretary 6 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF RELIANCE TRUST COMPANY AS OF JULY 26, 1985 I. The name of the bank and trust company is: RELIANCE TRUST COMPANY II. The county in which Reliance Trust Company is to be located is DeKalb County, Georgia. III. The initial registered office of Reliance Trust Company shall be at 3295 Northcrest Road, N.E., Atlanta, DeKalb County, Georgia 30340. IV. Reliance Trust Company is incorporated under the provisions of the Financial Institutions Code of Georgia (Acts 1974, pp. 705, et. seq.), as a bank and trust company for the following purposes: To receive money or commercial paper for deposit, and provide by its rules or by agreement for the terms of withdrawal and interest thereon; to act as an agent to collect checks, drafts and other items of commercial paper and in exercising this power to become a member of a clearinghouse and grant security interests in its assets for its qualification therein; to lend money and discount or purchase evidence of indebtedness and agreements for the payment of money, and to take security title to security interests in real or personal property to secure obligations owing thereunder; to service loans made by it or by others whether or not held by the bank and trust company; to issue, advise and confirm letters of credit authorizing the beneficiaries thereof to draw upon the bank and trust company or its correspondents; to receive money for transmission; to buy and sell exchange, coin and 7 bullion; and to provide third party payments services; and to provide a full line of trust services to the general public, including without limitation, services as fiduciary, investment advisor, custodian of property, agent or attorney-in-fact, registrar or transfer agent of securities, fiscal agent of the United States, state or a public body thereof, a corporation or a person, treasurer of a public body or of a non-profit corporation. IN FURTHERANCE OF AND NOT IN LIMITATION of the general powers conferred by the laws of the State of Georgia and the objects and purposes herein set forth, it is expressly provided that to such extent as a bank and trust company organized under the Financial Institutions Code of Georgia may now or hereafter lawfully do, the bank and trust company shall have power to do, either as principal or agent and either alone or in connection with other corporations, firms or individuals, all and everything necessary, suitable, convenient or proper for, or in connection with other corporations, firms or individuals, all and everything necessary, suitable, convenient or proper for, or in connection with, or incident to, the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated, or designed directly or indirectly to promote the interests of the bank and trust company or to enhance the value of its properties; and in general to do any and all things and exercise any or all powers, rights, and privileges which a bank and trust company may now or hereafter be authorized to do or to exercise under the Financial Institutions Code of Georgia or under any act amendatory thereof, supplemental thereto or substituted therefor. The foregoing provisions of this Article IV shall be construed both as purposes and powers and each as an independent purpose and power. The foregoing enumeration or specific purposes and powers herein specified shall, except when otherwise provided in this Article IV, be in no wise limited or restricted by reference to, or inference from the terms of any provision of this or 8 any other Article of these Articles of Incorporation. Notwithstanding the foregoing, the purposes and powers shall be exercisable by the bank and trust company only to the extent authorized by the Georgia Department of Banking and Finance. V. The bank and trust company shall have perpetual duration. VI. The bank and trust company shall have authority to issue one million shares of common stock of Three and Seventy-Five/Hundredths Dollars ($3.75) par value. VII. The shareholders of the common stock of RELIANCE TRUST COMPANY shall have no preemptive rights to acquire or have offered to them shares, option rights, or securities having conversion or option rights, of the bank and trust company in proportion to their holdings or shares of such class. VIII. The name and address of the incorporator is as follows: A.J. Braswell 3490 Bowling Green Way Doraville, DeKalb County, Georgia 30340 IX. The initial Board of Directors shall consist of five (5) members whose name, residence, occupation and citizenship are as follows: A.J. Braswell 3490 Bowling Green Way Financial Officer U.S.A. Citizen Doraville, Georgia 30340 Robert J. Wilson 361 Regal Drive Financial Officer U.S.A. Citizen Lawrenceville, Georgia 30245 Robert F. Cook 730 Arden Close, N.W. Attorney U.S.A. Citizen Atlanta, Georgia 30327 Roy J. Alewine 3371 Casa Linda Drive Insurance Broker U.S.A. Citizen Decatur, Georgia 30032 Dr. Donald V. Davis 4060 Highway 20, N.W. Minister/Professor U.S.A. Citizen Conyers, Georgia 30207 9 IN WITNESS WHEREOF, the undersigned executes these Amended and Restated Articles of Incorporation this 26th day of July, 1985. RELIANCE TRUST COMPANY /s/ A. J. BRASWELL by: --------------------------------- A. J. Braswell, President /s/ W. RAY WALKER Attest: ----------------------------- W. Ray Walker, Secretary (Corporate Seal) Parker, Johnson, Cook & Dunlevie 1275 Peachtree Street, N.B. Suite 700 Atlanta, Georgia 30340 404-872-7000 6-B-218 10 Exhibit T-1.3 STATE OF GEORGIA [DEPARTMENT OF BANKING AND FINANCE - 1972 - STATE OF GEORGIA SEAL] This is to certify that RELIANCE TRUST COMPANY ATLANTA, DEKALB COUNTY, GEORGIA is a state trust company, approved to exercise trust powers, operating under Articles of Incorporation (Charter) granted by this State on February 11, 1981, and since amended numerous times by the Secretary of State of Georgia. It is validly existing at the present time. This the 14th day of July, 1995. /s/ Georgia G. High ----------------------------- Georgia G. High, CFE Assistant Deputy Commissioner 11 Exhibit T-1.4 BYLAWS RELIANCE TRUST COMPANY ARTICLE I Meetings of Shareholders Section 1.1 Annual Meeting. The regular annual meeting of the shareholders to elect directors and transact whatever other business may properly come before the meeting, shall be held at such place within or without the State of Georgia as shall be fixed by the Board of Directors, at 10:00 a.m. on the third Thursday in April of each year. Notice of the meeting shall be mailed, postage prepaid, at least 10 days prior and not more than 50 days before the meeting, addressed to each shareholder of record at his address appearing on the books of the Trust Company. If, for any cause, an election of directors is not made on that day, the Board of Directors shall order the election to be held on some subsequent day, as soon thereafter as practical, according to the provisions of law; and notice shall be given in the manner herein provided for the annual meeting. Section 1.2 Special Meetings. Except as otherwise specifically provided by statute, special meetings of the shareholders may be called for any purpose at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or by any one or more shareholders owning, in aggregate, not less than twenty-five percent (25%) of the outstanding stock of the Trust Company. Every such special meeting, unless otherwise provided by law, shall be called by mailing, postage prepaid, not less than 10 days nor more than 50 days prior to the date of the meeting, to each shareholder at the address appearing on the books of the Trust Company and a notice stating the purpose of the meeting. Section 1.3 Shareholders of Record. For the purpose of determining shareholders entitled to notice and vote at any meeting of shareholders or entitled to receive payment of dividend, the Board of Directors may provide that the stock transfer books may be closed for a period not to exceed 50 days and for notice or vote at a meeting no less than ten days before such meeting. Section 1.4 Nominations of Director. Nominations for election to the Board of Directors may be made by the Board of Directors or by any stockholder of any outstanding class of capital stock of the Trust Company entitled to vote for the election of directors. Nominations, other than those made by or on behalf of the existing management of the Trust Company, shall be made in writing and shall be delivered 1 12 or mailed to the Chief Executive Officer of the Trust Company not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors, provided, however, that if less than 21 days' notice of the meeting is given to shareholders, such nomination shall be mailed or delivered to the Chief Executive Officer of the Trust Company not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: - The name and address of each proposed nominee. - The principal occupation of each proposed nominee. - The total number of shares of capital stock of the Trust Company that will be voted for each proposed nominee. - The name and residence address of the notifying shareholder. - The number of shares of capital stock of the Trust Company owned by the notifying shareholder. Section 1.5 Judges of Election. Every election of directors shall be managed by three judges, who shall be appointed from among the shareholders by the Board of Directors. The judges of election shall hold and conduct the election at which they are appointed to serve. After the election, they shall file with the Secretary, a certificate signed by them, certifying the result thereof and the names of the directors elected. The judges of election shall act as tellers of any other vote by ballot taken at such meeting, and shall certify the result thereof. Section 1.6 Proxies. Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing, but no officer or employee of this Trust Company shall act as proxy. Proxies shall be valid only for one meeting, to be specified therein, and any adjournments of such meeting. Proxies shall be dated and filed with the records of the meeting. Section 1.7 Quorum. A majority of the outstanding capital stock, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders, unless otherwise provided by law; but less than a quorum may adjourn any meeting, from time to time, and the meeting may be held, as adjourned, without further notice. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting, unless otherwise provided by law. 2 13 ARTICLE II Directors Section 2.1 Board of Directors. The Board of Directors (Board) shall have the power to manage and administer the business and affairs of the Trust Company. Except as expressly limited by law, all corporate powers of the Trust Company shall be vested in and may be exercised by the Board. Section 2.2 Number. The Board shall consist of not less than five nor more than twenty-five directors, the exact number within such minimum and maximum limits to be filed and determined from time to time by resolution of a majority of the full Board or by resolution of a majority of the full Board or by resolution of the shareholders at any meeting thereof; provided, however, that a majority of the full Board of Directors may not increase the number of directors to a number which: (1) exceeds by more than two the number of directors last elected by shareholders where the number was 15 or less; and (2) exceeds by more than four the number of directors last elected by shareholders where the number was 16 or more, but in no event shall the number of directors exceed 25. Section 2.3 Organization Meeting. The Secretary, upon receiving the certificate of the judges, of the result of any election, shall notify the directors-elect of their election and of the time at which they are required to meet at the main office of the Trust Company to organize the new Board and elect and appoint officers of the Trust Company for the succeeding year. Such meeting shall be held on the day of the election or as soon thereafter as practical, and, in any event, within 30 days thereof. If, at the time fixed for such meeting, there shall not be a quorum, the directors present may adjourn the meeting, from time to time, until a quorum is obtained. Section 2.4 Regular Meetings. The regular meetings of the Board of Directors shall be held, without notice, on the third Thursday of every month at the main office. When any regular meeting of the Board falls upon a holiday, the meeting shall be held on the next business day unless the Board shall designate some other day. 1/97 3 14 Section 2.5 Special Meetings. Special meetings of the Board of Directors may be called by the Chief Executive Officer of the Trust Company, or at the request of three or more directors. Each member of the Board of Directors shall be given notice stating the time and place by telegram, letter, or in person, of each special meeting. Section 2.6 Quorum. A majority of the directors shall constitute a quorum at any meeting, except when otherwise provided by law, but a less number may adjourn any meeting, from time to time, and the meeting may be held, as adjourned, without further notice. Section 2.7 Vacancies. When any vacancy occurs among the directors, the remaining members of the Board, according to the laws of the State of Georgia, may appoint a director to fill such vacancy at any regular meeting of the Board, or at a special meeting called for that purpose. ARTICLE III Committees of the Board Section 3.1 Audit Committee. There shall be a standing committee of this Trust Company known as the Audit Committee, appointed annually by the Board of Directors. The Committee shall consist of two or more members of the Board, none of whom shall be active officers of the Trust Company. The duties of this Committee shall be to make suitable examinations of the affairs of the Trust Company or to cause suitable examinations to be made by auditors responsible only to the Board of Directors; such examinations to be made at lease once each calendar year and within fifteen months of the last audit. The results of such audits shall be reported to the Board at the regular meeting thereafter, stating: 1. Whether adequate internal audit controls and procedures are being maintained. 2. Whether the Trust Company is being operated in accordance with law, regulations and sound fiduciary principles. 3. The adequacy of policies, practices and controls employed to effect compliance and enforce correction of any violations, deficiencies or weakness. 1/97 4 15 4. Whether exceptions, weaknesses or deficiencies noted in the last Department of Banking and Finance report have been corrected and reported. 5. Whether all exceptions, weaknesses or deficiencies noted by internal or external auditors have been corrected. The Committee at its option may elect to accept in lieu of its own examination an Auditor's Report by the audit staff of Reliance Trust Company of a continuous audit made under a schedule approved by the Committee with quarterly reports of said continuous audit submitted to the Board by the Committee at each regularly scheduled meeting. In following the provisions of this paragraph, the Committee shall be deemed in full compliance with the requirements of this section. Section 3.2 Other Committees The Board of Directors may appoint, from time to time, from its own members, other committees of one or more persons, for such purposes and such powers as the Board may determine. ARTICLE IV Officers and Employees Section 4.1 Chairman of the Board The Board of Directors shall appoint one of its members to be the Chairman of the Board to serve at its pleasure. Such person shall preside at all meetings of the Board of Directors. The Chairman of the Board shall supervise the carrying out of the policies adopted or approved by the Board; shall have general executive powers, as well as the specific powers conferred by these bylaws; shall also have and may exercise such further powers and duties as from time to time may be conferred upon, or assigned by the Board of Directors. Section 4.2 Chief Executive Officer The Board of Directors shall appoint one of its members to be the Chief Executive Officer of the Trust Company. In the absence of the Chairman, the Chief Executive Officer shall preside at any meeting of the Board. The Chief Executive Officer shall have general executive powers, and shall have and may exercise any and all other powers and duties pertaining by law, regulation, or practice, to the office of Chief Executive Officer, or imposed by these bylaws. The Chief Executive Officer shall also have and may exercise such further powers and duties as from time to time may be conferred, or assigned by the Board of Directors. 5 16 Section 4.3 President. The Board of Directors shall appoint one of its members to be President of the Trust Company. In the absence of the Chief Executive Officer, the President shall preside at any meeting of the Board. The President shall also have and may exercise such further powers and duties as from time to time may be conferred, or assigned by the Board of Directors. Section 4.4 Executive Vice President. The Board of Directors may appoint one or more executive vice presidents. Each executive vice president shall have such powers and duties as may be assigned by the Board of Directors. One executive vice president shall be designated by the Board of Directors, in the absence of the President, to perform all the duties of the president. Section 4.5 Secretary. The Board of Directors shall appoint a secretary or other designated officer who shall be Secretary of the Board and of the Trust Company, and shall keep accurate minutes of all meetings. The Secretary shall attend to the giving of all notices required by these bylaws; shall be custodian of the corporate seal, records, documents and papers of the Trust Company; shall provide for the keeping of proper records of all transactions of the Trust Company; shall have and may exercise any and all other powers and duties pertaining by law, regulation or practice, to the office of secretary, or imposed by these bylaws; and shall also perform such other duties as may be assigned from time to time, by the Board of Directors. Section 4.6 Other Officers. The Board of Directors may appoint one or more senior vice presidents, vice presidents, and assistant vice presidents, one or more trust officers, one or more assistant secretaries, and such other offices and attorneys-in-fact as from time to time may appear to the Board of Directors to be required or desirable to transact the business of the Trust Company. Such officers shall respectively exercise such powers and perform such duties as pertain to their several offices, or as may be conferred upon, or assigned to them by the Board of Directors, the Chairman of the Board, or the Chief Executive Officer. Section 4.7 Tenure of Office. All officers shall hold office for the current year for which the Board was elected, unless they shall resign, become disqualified, or be removed; and any vacancy occurring in the office of the Chief Executive Officer and President shall be filled promptly by the Board of Directors. 6 17 ARTICLE V Fiduciary Activities Section 5.1 Fiduciary Direction. The Board of Directors shall designate officers of the Trust Company to manage, supervise and direct all fiduciary activities of the Trust Company. Such persons shall do or cause to be done all things necessary or proper in carrying on the fiduciary business of the Trust Company in accordance with provisions of law and applicable regulations; and shall act pursuant to opinion of counsel where such opinion is deemed necessary. Opinions of counsel shall be retained on file in connection with all important matters pertaining to fiduciary activities. The designated officers shall be responsible for all assets and documents held by the Trust Company in connection with fiduciary matters. Section 5.2 Records. There shall be maintained files of all fiduciary records necessary to assure that its fiduciary responsibilities have been properly undertaken and discharged. Section 5.3 Trust Investments. Funds held in a fiduciary capacity shall be invested according to the instrument establishing the fiduciary relationship and local law. Where such instrument does not specify the character and class of investments to be made and does not vest in the Trust Company a discretion in the matter, funds held pursuant to such instrument shall be invested in investments in which corporate facsimile may invest under local law. ARTICLE VI Stock and Stock Certificates Section 6.1 Transfers. Shares of stock shall be transferable on the books of the Trust Company, and a transfer book shall be kept in which all transfers of stock shall be recorded. Every person becoming a shareholder by such transfer shall in proportion to his shares, succeed to all rights of the prior holder in such shares. Section 6.2 Stock Certificates. Certificates of stock shall bear the signature of the Chief Executive Officer (which may be engraved, printed or impressed), and shall be signed manually or by facsimile process by the 7 18 Secretary, Assistant Secretary, or any other officer appointed by the Board of Directors for that purpose, to be known as an authorized officer, and the seal of the Trust Company shall be engraved thereon. Each certificate shall recite on its face that the stock represented thereby is transferable only upon the books of the Trust Company properly endorsed. ARTICLE VII Corporate Seal Section 7.1 Form of Seal. The seal of the Trust Company shall be circular with the name of Reliance Trust Company entered around the margin and with the city of the Trust Company's home office entered in the center thereof. Any recognizable form of such seal whether in the form of an impression, a wafer, facsimile or otherwise is authorized wherever the seal of the Trust Company may or is required to be used. Section 7.2 Use of Seal. Any officer of the Trust Company shall have the power to attest and affix the seal of the Trust Company to any such notes, deeds, leases, contracts, agreements, conveyances, trust indentures, or other instruments or documents. ARTICLE VIII Miscellaneous Provisions Section 8.1 Fiscal Year. The fiscal year of the Trust Company shall be the calendar year. Section 8.2 Execution of Instruments. Any officer of the Trust Company is empowered to execute in the name of and on behalf of the Trust Company notes, deeds, leases, contracts, agreements, conveyances, trust indenture, or any other instrument or document that may be deemed necessary and proper for the conduct of the business of the Trust Company in any capacity in which the Trust Company may be acting, whether for itself or as executor, administrator, guardian, trustee or in any other fiduciary, agency or representative capacity and including, without limitation on the foregoing, the execution of documents to: 8 19 (a) cancel or satisfy contracts, security agreements, and deeds of trust; (b) surrender notes, bonds or other evidences of indebtedness and accept payments thereof; (c) sell, assign, transfer and convey stocks, bonds, real estate, evidences of indebtedness or any interest therein, participations and all other securities corporate or otherwise, including rights and options to acquire or sell the same, and request payment or reissue of any and all United States securities of any description registered on the books of the Treasury Department or registered securities with respect to which the Treasury Department acts as transfer agent, all as may be now or hereafter held by the Trust Company in any capacity; (d) make or give any declaration, affidavit, certification, oath or other statement required or requested by any other party to any business transaction by the Trust Company, or required, permitted or made necessary by any statute, rule, regulations or order. Section 8.3 Records The Articles of Association, the bylaws and the proceedings of all meetings of the shareholders, the Board of Directors, and standing committees of the Board, shall be recorded in appropriate minute books provided for that purpose. The minutes of each meeting shall be signed by the Secretary, or other officer appointed to act as secretary of the meeting. ARTICLE IX Bylaws Section 9.1 Inspection. A copy of the bylaws, with all amendments, shall at all times be kept in an convenient place at the main office of the Trust Company, and shall be open for inspection to all shareholders during business hours. Section 9.2 Amendments. Bylaws may be amended, altered or repealed, at any regular meeting of the Board of Directors, by a vote of a majority of the total number of the directors. 9 20 EXHIBIT T-1.6 The consent of the trustee required by Section 321(b) of the Act. Reliance Trust Company 3384 Peachtree Road, Suite 900 Atlanta, GA 30326 August 1, 1997 Securities and Exchange Commission 450 5th Street, N.W. Washington, D.C. 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, and subject to the limitations set forth therein, Reliance Trust Company ("Reliance") hereby consents that reports of examinations of Reliance by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, RELIANCE TRUST COMPANY By: /s/ SUSAN ADAMS -------------------------- Susan Adams Senior Vice President 21 EXHIBIT T-1-7 RELIANCE TRUST COMPANY STATEMENTS OF FINANCIAL CONDITION Years ended December 31, 1996 and 1995 I, Deborah D. George, Vice President & Comptroller of the Reliance Trust Company do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Deborah D. George, Vice President & Comptroller August 1, 1997 22 F I N A N C I A L S - ------------------------------------------------------------------------------ RELIANCE TRUST COMPANY STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31 1996 1995 ---------------------------- ASSETS Cash and cash equivalents $ 122,220 $ 546,805 Investment securities held to maturity (fair value $393,252 and $402,876 at December 31, 1996 and 1995, respectively) (Note 3) 408,560 411,002 Investment securities available for sale 690,830 703,098 Accrued income receivable 1,011,747 769,836 Prepaid expenses 177,051 189,446 Notes receivable 60,836 37,246 Premises and equipment, net (Note 4) 1,031,705 984,158 Intangible assets (Note 5) 654,720 - Deferred income taxes 13,803 5,373 Other assets 16,881 16,564 ---------------------------- Total assets $4,188,353 $3,663,528 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 944,822 $ 265,883 Reserve for contingencies (Note 9) 157,000 348,632 Obligation under capital lease 184,969 256,451 ---------------------------- Total liabilities 1,286,791 870,966 Commitments and contingent liabilities (Note 9) Stockholders' equity (Note 8): Common stock, $3.75 par value per share; authorized 1,000,000 shares; issued and outstanding 406,058 and 398,808 shares at December 31, 1996 and 1995, respectively 1,522,718 1,495,530 Additional paid-in capital 1,241,644 1,185,332 Retained earnings 147,835 114,239 Unrealized losses on securities available for sale, net of tax of ($5,478) and ($1,308) at December 31, 1996 and 1995, respectively (10,635) (2,539) ---------------------------- Total stockholders' equity 2,901,562 2,792,562 ---------------------------- Total liabilities and stockholders' equity $4,188,353 $3,663,528 ============================
See accompanying notes. 16 23 FINANCIALS - ----------------------------------------------------------------------------- 3. INVESTMENT SECURITIES INVESTMENT SECURITIES The amortized cost and approximate fair values of securities as shown in the statements of financial condition of the Company at December 31, 1996 and 1995 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- ----- SECURITIES HELD TO MATURITY December 31, 1996: U.S. Government securities $408,560 $ - $(15,308) $393,252 ======== ======== ======== ======== December 31, 1995: U.S. Government securities $411,002 $ - $( 8,126) $402,876 ======== ======== ======== ======== SECURITIES AVAILABLE FOR SALE December 31, 1996: Equity securities $706,943 $ - $(16,113) $690,830 ======== ======== ======== ======== December 31, 1995: Equity securities $706,943 $ - $( 3,845) $703,098 ======== ======== ======== ========
Gross losses of $1 were realized on sales of investment securities during the year ended December 31, 1996. Gross gains of $78,050 were realized on sales of investment securities during the year ended December 31, 1995. The amortized cost and fair value of investment securities as of December 31, 1996 by contractual maturity are shown below.
INVESTMENT SECURITIES INVESTMENT SECURITIES AVAILABLE FOR SALE HELD TO MATURITY ---------------------------- --------------------------- AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE -------------- ---------- -------------- ---------- Due in one year or less $706,943 $690,830 $ - $ - Due from five to ten years - - 408,560 393,252 ---------- -------- --------- -------- $706,943 $690,830 $408,560 $393,252 ========== ======== ========= ========
22 24 F I N A N C I A L S - -------------------------------------------------------------------------------- 4. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows:
DECEMBER 31 1996 1995 ------------------------- Land $ 25,000 $ 25,000 Building and improvements 640,768 582,804 Furniture, fixtures and equipment, including assets acquired under capital lease of $502,326, for December 31, 1996 and 1995 1,601,007 1,413,228 Leasehold improvements 136,108 131,717 ------------------------- 2,402,883 2,152,749 Less accumulated depreciation, including accumulated amortization applicable to assets acquired under capital lease of $371,015 and $309,599 for December 31, 1996 and 1995, respectively 1,371,178 1,168,591 ------------------------- $1,031,705 $ 984,158 =========================
Depreciation expense was $274,407 and $268,915 for the years ended December 31, 1996 and 1995, respectively. 5. INTANGIBLE ASSETS During 1996, the Company purchased corporate trust accounts from two separate financial institutions. These investments represent customer relationships and the related trust accounts. The amount paid for these customer lists was recorded as an intangible asset and is being amortized on a straight-line basis over a period of seven years, the anticipated benefit period of the accounts. Amortization in 1996 totaled $47,670. Management periodically evaluates the amortization period to determine whether later events warrant revised estimates of the useful life and value of the unamortized cost. 6. LEASES The Company leases computer and other office equipment under capital leases. The Company also has several operating lease arrangements for office space. Aggregate future minimum lease payments under the capital lease and noncancelable operating leases with remaining terms of one year or more consisted of the following at December 31, 1996:
CAPITAL OPERATING LEASE LEASES -------------------------- 1997 $ 93,948 $ 97,309 1998 93,948 39,360 1999 12,960 39,360 2000 7,642 39,360 Thereafter -- 65,600 -------- -------- 208,498 $280,989 Less amounts representing interest (23,529) ======== -------- Present value of net minimum lease payments $184,969 ========
The Company recorded rental expense under operating leases of $184,800 and $120,700 for the years ended December 31, 1996 and 1995, respectively. 23 25 F I N A N C I A L S - -------------------------------------------------------------------------------- 7. LINE OF CREDIT During 1996, the Company entered into an agreement with a lending institution to establish a line of credit in the amount of $800,000. This line of credit matures on May 31, 1997 and bears interest at prime. There were no borrowings under this agreement during the year ended December 31, 1996. 8. INCOME TAXES The income tax provision consisted of the following:
YEAR ENDED DECEMBER 31 1996 1995 ---------------------- Current $24,768 $ 1,266 Deferred (8,430) 28,480 ---------------------- $16,338 $29,746 ======================
Federal income tax approximates income tax expense expected utilizing the statutory federal income tax rate. Significant components of deferred income taxes are as follows:
DECEMBER 31 1996 1995 ---------------------- Deferred tax assets: Loss reserves $18,871 $34,227 Depreciation and amortization 13,310 14,388 Market value adjustment on investments available for sale 5,478 1,308 ---------------------- 37,659 49,923 Deferred tax liabilities: Deferred fee income 10,625 13,696 Other 13,231 30,854 ---------------------- 23,856 44,550 ---------------------- Net deferred tax assets $13,803 $ 5,373 ======================
9. STOCK OPTIONS EMPLOYEE STOCK OPTIONS Options to purchase 28,500 shares of common stock on or before December 31, 1999 at a price of 120% of par value per share were granted to a majority shareholder of the Company by the Board of Directors in 1984. The exercise of these options is limited to 15% in any one year or 50% in any five year period, except 1999. At December 31, 1996, options granted but not exercised totaled 18,230. 24 26 F I N A N C I A L S - ----------------------------------------------------------------------------- 9. STOCK OPTIONS (CONTINUED) EMPLOYEE STOCK OPTIONS (CONTINUED) On May 25, 1993, the stockholders approved an Employee Stock Option Plan authorizing the issuance of up to 150,000 shares of common stock for purchase by key employees. This plan gave the Board of Directors the authority to issue options from time-to-time to key employees, subject to approval by the Georgia Department of Banking and Finance. The Board has granted options under this plan to purchase 125,500 shares of common stock, exercisable within a period of 10 years at a price of $8.50 per share. During the year ended December 31, 1996, 50,500 options were granted under this plan. At December 31, 1996, 24,500 options were authorized but not yet granted. No options have been exercised under the plan, however, all outstanding options are fully vested as of December 31, 1996. Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123 "Accounting for Stock-Based Compensation", and has been determined as if the Company had accounted for its stock options under the fair value method of that Statement. The fair value in these options was estimated at the date of grant using the "minimum value" method allowed by the Statement. Pro forma net loss and loss per share was $117,904 and $.29 for the year ended December 31, 1996. The weighted average fair value of options granted during the year ended December 31, 1996 was $151,500. There were no options issued during the year ended December 31, 1995. 10. RESERVE FOR CONTINGENCIES The Company is responsible for the maintenance and collection of cash, investments and loans in its fiduciary capacity. The reserve for contingencies of $157,000 and $348,632 as of December 31, 1996 and 1995, respectively, represents the amount that management considers adequate to provide for possible contingent losses resulting from its fiduciary responsibilities. While management uses available information to adequately reserve for potential contingent losses, future additions to the reserve may be necessary. Management conducts regular reviews of its responsibilities for the services it provides and considers the results in evaluating the reserve for contingencies and in preparing the financial statements. In the opinion of management, there are no contingent liabilities at December 31, 1996 that would have a material adverse effect on the Company's financial position or results of operations. 11. DIVIDEND RESTRICTION No dividends may be paid without prior approval of the Company's regulatory agency. 12. RELATED PARTY TRANSACTIONS Included in notes receivable at December 31, 1996 is an obligation comprised of professional fees incurred by the Company on behalf of a shareholder. The shareholder assumed the obligation and agreed to repay the Company the amount of $33,422 at a rate of 8.25%. This note was repaid on January 8, 1997. During 1996, legal fees of $73,956 were paid to the Company's legal counsel, who serves on the Company's Board of Directors. The Company entered into an operating lease arrangement for office space in a building owned by a shareholder of the Company. Payments under the noncancelable operating lease were $39,360 for the year ended December 31, 1996. 25 -----END PRIVACY-ENHANCED MESSAGE-----