AS FILED WITH THE SECURITIES REGISTRATION NO. 333-
AND EXCHANGE COMMISSION ON APRIL 12, 2004
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM F-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
___________________
GLOBAL SOURCES LTD.
(Exact name of registrant as specified in its charter)
___________________
BERMUDA
(State or other jurisdiction of incorporation or organization)
[NOT APPLICABLE]
(I.R.S. Employer Identification Number)
CANON'S COURT
22 VICTORIA STREET
HAMILTON, HM 12 BERMUDA
(441) 295-2244
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
JAMES J. CLARK, ESQ.
CAHILL GORDON & REINDEL LLP
80 PINE STREET
NEW YORK, NEW YORK 10005
(212) 701-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
JAMES J. CLARK, ESQ. STEPHEN S. JAMES, ESQ.
CAHILL GORDON & REINDEL LLP APPLEBY SPURLING HUNTER
80 PINE STREET CANON'S COURT
NEW YORK, NEW YORK 10005 22 VICTORIA STREET
(212) 701-3000 HAMILTON, HM 12 BERMUDA
(441) 295-2244
Approximate date of commencement of proposed sale to the public: From time
to time after the 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, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
================================================== ============== ================ ===================== ===================
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY OFFERING PRICE REGISTRATION FEE
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Common shares, par value U.S. $0.01 per share (1) (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Preferred shares, par value U.S. $0.01 per
share (2) (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Unsecured debt securities (3) (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Warrants to purchase common shares (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Warrants to purchase preferred shares (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Warrants to purchase debt securities (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Share purchase contracts (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Share purchase units (7) (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Units consisting of two or more of the above (4)(5) (5)(6) (4)(5)(6) (6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
Total (4)(5) (5)(6) $300,000,000(6) 38,010.00(6)
-------------------------------------------------- -------------- ---------------- --------------------- -------------------
(1) Also includes such presently indeterminate number of Global Sources Ltd.
common shares into which certain series of Global Sources Ltd. debt
securities and Global Sources Ltd. preferred shares may be converted and
for which no separate consideration will be received and for which Global
Sources Ltd. warrants to purchase common stock may be exercised. A portion
of the Global Sources Ltd. common shares registered hereunder may be sold
by selling shareholders from time to time pursuant to this registration
statement. Estimated solely for the purpose of determining the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933 on the basis of
the average of the high and low sales prices of the Global Sources Ltd.
common shares on the Nasdaq National Market on April 5, 2004.
(2) Also includes such presently indeterminate number of Global Sources Ltd.
preferred shares into which certain series of Global Sources Ltd. debt
securities may be converted and for which no separate consideration will be
received and for which Global Sources Ltd. debt warrants may be exercised.
(3) Also includes presently indeterminate number of Global Sources Ltd. debt
securities for which certain Global Sources Ltd. preferred shares may be
exchanged and for which no separate consideration will be received.
(4) There are being registered under this registration statement such
indeterminate numbers of securities of Global Sources Ltd. as will have an
aggregate initial offering price not to exceed $300,000,000. The initial
public offering price of any securities denominated in any foreign
currencies or currency units will be the U.S. dollar equivalent thereof
based on the prevailing exchange rates at the respective times such
securities are first offered. If any Global Sources Ltd. debt securities
are issued at an original issue discount, then the securities registered
will include such additional Global Sources Ltd. unsecured debt securities
as may be necessary such that the aggregate initial public offering price
of all securities issued pursuant to this registration statement will not
exceed $300,000,000. In addition, pursuant to Rule 416 under the Securities
Act of 1933, this registration statement will cover such indeterminate
number of Global Sources Ltd. common shares that may be issued with respect
to share splits, share dividends and similar transactions. A portion of the
Global Sources Ltd. common shares registered hereunder may be sold by
selling shareholders from time to time pursuant to this registration
statement. Estimated solely for the purpose of determining the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933 on the basis of
the average of the high and low sales prices of the Global Sources Ltd.
common shares on the Nasdaq National Market on April 5, 2004.
(5) Pursuant to General Instruction II.C to Form F-3, the amounts to be
registered, proposed maximum aggregate offering price per security, and
proposed maximum aggregate offering price have been omitted for each class
of securities that is offered hereby by the registrant.
(6) The registration fee has been calculated in accordance with Rule 457(o)
under the Securities Act of 1933 and reflects the maximum offering price of
the securities that may be issued.
(7) Each Global Sources Ltd. share purchase unit consists of (a) a Global
Sources Ltd. common share purchase contract, under which the holder or
Global Sources Ltd., upon settlement, will purchase a fixed or varying
number of Global Sources Ltd. common shares, and (b) a beneficial interest
in either Global Sources Ltd. debt securities, Global Sources Ltd.
preferred shares or debt or equity obligations of third parties, including
U.S. Treasury securities, purchased with the proceeds from the sale of the
Global Sources Ltd. share purchase units. No separate consideration will be
received for the Global Sources Ltd. share purchase contracts or the
related beneficial interests.
================================================================================
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED APRIL 12, 2004
$300,000,000
GLOBAL SOURCES LTD.
COMMON SHARES, PREFERRED SHARES, DEBT SECURITIES, WARRANTS TO PURCHASE COMMON
SHARES, PREFERRED SHARES OR DEBT SECURITIES, SHARE PURCHASE CONTRACTS AND SHARE
PURCHASE UNITS AND COMMON SHARES OFFERED BY SELLING SHAREHOLDERS
The following are types of securities that may be offered and sold by us under
this prospectus from time to time up to an aggregate initial offering price of
$300,000,000:
o common shares;
o preferred shares;
o unsecured debt securities;
o warrants to purchase common shares, preferred shares or debt
securities; and
o share purchase contracts and share purchase units.
In addition, this prospectus also covers potential sales by one or more selling
shareholders named herein who may resell in one or more offerings a portion of
our common shares that they own or that will be issued upon conversion or
exchange of options or warrants.
A prospectus supplement, which must accompany this prospectus, will describe the
securities to be offered and sold, as well as the specific terms of the
securities. Those terms may include, among others, as applicable:
o aggregate principal amount;
o issue price;
o denomination;
o currency or composite currency;
o maturity;
o interest rate;
o dividend rate;
o sinking fund terms;
o ranking;
o redemption terms;
o conversion terms;
o warrant exercise price;
o warrant expiration date;
o listing on a securities exchange;
o amount payable at maturity; and
o liquidation preference.
The prospectus supplement may also supplement or update information contained in
this prospectus; provided that such information does not constitute material
changes to the information herein such that it alters the nature of the offering
or the securities offered. You should read both this prospectus and any
prospectus supplement together with the additional information described under
the heading "Incorporation of Documents by Reference" before investing in our
securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Our common shares are traded on the Nasdaq National Market under the symbol
"GSOL." The closing price of our common shares was $12.00 per share on April 8,
2004.
INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.
TABLE OF CONTENTS
PAGE
Cautionary Note Regarding Forward-Looking Statements.............................................................ii
Prospectus Summary................................................................................................1
Summary Historical Consolidated Financial and Operating Data......................................................4
Risk Factors......................................................................................................6
Use of Proceeds..................................................................................................14
Price Range of Common Shares.....................................................................................14
Dividend Policy..................................................................................................14
Selected Historical Consolidated Financial and Operating Data....................................................16
Ratio of Earnings to Fixed Charges and Preferred Share Dividends.................................................18
Management's Discussion and Analysis of Financial Condition and Results of Operation.............................19
Business.........................................................................................................29
Senior Management and Directors..................................................................................41
Security Ownership of Certain Beneficial Owners and Management...................................................47
General Description of the Offered Securities....................................................................50
Description of Share Capital.....................................................................................50
Description of Preferred Shares..................................................................................59
Description of Debt Securities...................................................................................61
Description of Warrants to Purchase Common Shares or Preferred Shares............................................74
Description of Warrants to Purchase Debt Securities..............................................................76
Description of Share Purchase Contracts and Share Purchase Units.................................................78
Selling Shareholders.............................................................................................80
Plan of Distribution.............................................................................................81
Where You Can Find More Information..............................................................................83
Incorporation of Documents by Reference..........................................................................83
About This Prospectus............................................................................................84
Legal Matters....................................................................................................85
Experts..........................................................................................................85
Index to Consolidated Financial Statements......................................................................F-1
_____________________
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for any historical information contained herein, the matters
discussed in this prospectus contain certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 with respect
to our financial condition, results of operations and business. These statements
relate to analyses and other information which are based on forecasts of future
results and estimates of amounts not yet determinable. These statements also
relate to our future prospects, developments and business strategies. These
forward-looking statements are identified by their use of terms and phrases such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"plan," "predict," "will" and similar terms and phrases, including references to
assumptions. These forward-looking statements, including current trend
information, projections for future business activities and other trend
projections, involve risks and uncertainties that may cause our actual future
activities and results of operations to be materially different from those
suggested or described in this prospectus.
These risks include:
o customer satisfaction and quality issues;
o competition;
o our ability to achieve and execute internal business plans;
o worldwide political instability and economic downturns and inflation,
including any weakness in the economic and political conditions of
countries in the Asia-Pacific region, including China; and
o other factors described herein under "Risk Factors."
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected. Given these uncertainties, users of
the information included in this prospectus, including investors and prospective
investors, are cautioned not to place undue reliance on such forward-looking
statements. We do not intend to update the forward-looking statements included
in this prospectus.
In this prospectus and in the accompanying prospectus supplement, except as
specified otherwise or unless the context requires otherwise, "we," "us," "our,"
the "Company" and "Global Sources" refer to Global Sources Ltd. and its
subsidiaries, and do not include or refer to the selling shareholders.
ii
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PROSPECTUS SUMMARY
This summary is not complete and does not contain all the information you should
consider. You should read this entire prospectus and any supplements to this
prospectus carefully, including without limitation, the documents incorporated
by, reference in this prospectus and the section entitled "Risk Factors."
OUR COMPANY
We are a leading business-to-business (B2B) media company that provides
information and integrated marketing services to facilitate global trade, with a
particular focus on the China market. For more than 33 years, we have been in
the business of helping buyers find products and suppliers in Asia.
Our online services account for the majority of our revenue, with
substantially all other revenue coming from trade publications and trade shows.
We derive most of our revenue from suppliers for marketing and advertising
services. At any point in time, several thousand suppliers are promoting their
products through our media. These suppliers range from large companies such as
Hitachi, Motorola, Philips, Texas Instruments and Toshiba, to hundreds of
smaller firms.
We have a significant presence across a number of industry sectors,
including electronics, fashion accessories, hardware and gifts. We have been
particularly effective in facilitating China's two-way trade of electronic
goods, its largest import and export sector.
Global Trade and the Role of Media
Asia has become the primary supply market for many of the consumer products
sold in the world. China's admission to the World Trade Organization in 2001 led
to a dramatic shift in global trade, with more orders flowing to China and away
from traditional supply markets such as Taiwan and Hong Kong. For example, from
1999 to 2003, China's exports to the US grew by a compound annual growth rate of
15%, while exports from Taiwan and Hong Kong each declined by 8%.
With a population that is more than 15 times as large as Hong Kong, Taiwan
and Korea combined, and with comparably more manufacturing facilities, the
potential scale of China as an exporter is very substantial. China's exporters
include state-owned enterprises, joint ventures and a rapidly growing number of
entrepreneurial companies. Many of these companies are relatively inexperienced
with exporting.
International trade is complex, making it difficult for many suppliers and
buyers to effectively participate. With thousands of manufacturers spread across
vast regions, and given the large distances between them and their customers, it
is difficult for buyers and suppliers to identify and communicate with each
other.
Media play a key role in helping buyers and suppliers find, connect and
transact with each other. Buyers use online marketplaces, trade publications and
trade shows to stay informed about supply market developments and purchasing
opportunities. Suppliers use these media to find new buyers and new markets for
their products. Most suppliers want to use a full range of media to make sure
they reach the majority of their target market, because of the benefits of
different exposures to buyers, and because each type of media plays a different
role in the sales cycle.
The Global Sources Solution
We provide online marketplaces, trade publications and trade shows that
connect Asian suppliers with buyers worldwide.
o Global Sources Online is comprised of marketplaces for nine industry
sectors.
o We publish seven monthly trade publications, plus various other
quarterly and seasonal publications.
o We have six China Sourcing Fairs scheduled in Shanghai during 2004.
On the buyer side, we serve an independently certified community of more
than 400,000 active members in more than 200 countries and territories, up from
209,000 at the end of 2000. Active members are buyers who have received a
magazine or a CD-ROM, or who have made an inquiry through Global Sources Online
within the past year. During 2003, buyers sent more than 3.8 million requests
for information (RFIs) to the 130,000 suppliers listed on Global Sources Online.
1
During 2003, more than 6,600 suppliers paid us for marketing and/or
advertising services. More than 5,900 of these suppliers were located in greater
China, which includes over 3,100 in mainland China, 1,900 in Taiwan, and 950 in
Hong Kong SAR.
With the combination of our online, print and trade show offerings,
supported by our creative and production services, we offer suppliers a virtual,
one-stop shop for most of their export marketing communications needs. We
believe that we are the largest company offering such an integrated solution to
companies engaged in international trade with China.
Strategy
Our objective is to be the preferred provider of essential information and
integrated marketing services in the markets we serve. Our primary strategy to
achieve this is by serving industry sectors with each of online, trade
publication and trade show media. This range of media enables suppliers to reach
their prospective markets in multiple ways. It may also give us a competitive
advantage over media companies who do not offer a full range of media.
Our growth strategy has five primary components:
(1) Continue to Expand in China. We are significantly expanding our sales
representation, marketing and infrastructure in China to enable us to
grow our revenue along with the anticipated growth of China trade in
the industry sectors we serve.
(2) Expand Trade Show Business. We plan to launch more trade shows,
including six China Sourcing Fairs in 2004.
(3) Add New Customers for Existing Services. We believe we can
significantly increase the number of suppliers who will purchase our
online marketplace, trade publication and trade show services for
three primary reasons: the overall strength and differentiation of our
services; the largest community of independently certified buyers we
have involved in global B2B trade; and the increasing number of buyers
making inquiries through Global Sources Online.
(4) Cross-Sell Services to Existing Customers. We see significant
potential to convince more of our online marketplace and trade
publication customers to also exhibit in our trade shows; and to
convince more of our trade show exhibitors to also become customers of
our online marketplaces and trade publications.
(5) Seek Acquisitions, Joint Ventures and Alliances. We intend to
selectively pursue acquisitions, joint ventures and alliances to help
us accelerate achievement of our strategic goals.
Competitive Strengths
(1) We are diversified in terms of products and services offered,
industries served and customer base.
(2) We are well positioned to grow along with China's exports and imports
in our chosen industry sectors.
(3) We have powerful and valuable assets including: the Global Sources
brand; leading products and market positions; a long history and
extensive presence in China; and substantial online leadership and
expertise.
Challenges Facing the Company
Our current business, competitive strengths and strategy are subject to
significant risks, including the following:
(1) Reliance on the China Market. Customers in China provided more than
36% of our total revenue in fiscal 2002 and approximately 43% in 2003.
Our dependence on China is significant, and adverse political and/or
economic changes may harm our business and cause our revenue to
decline.
2
(2) Limited Operating History in the Trade Show Business. To grow our
trade show business, we will need to hire additional personnel and
expend additional capital, including advance deposits to secure
venues. In addition, factors such as the spread of SARS and the threat
of terrorist attacks may have an adverse impact on our trade show
business.
(3) Managing Growth in China Sales Representation. We plan to
substantially increase the number of independent sales representatives
in China from the approximately 800 team members that we currently
have in over 40 locations. Our success will depend in part upon our
ability to implement and manage this growth effectively.
HISTORY AND PRINCIPAL EXECUTIVE OFFICE
We originally were incorporated under the laws of Hong Kong in 1970. In
April 2000, we completed a share exchange with a publicly traded company based
in Bermuda, and our shareholders became the majority shareholders of the Bermuda
corporation. As a result of the share exchange, we became incorporated under the
laws of Bermuda and changed our name to Global Sources Ltd.
Our primary operating offices are located in Shenzhen, China; Hong Kong
SAR; Singapore; and Makati, Philippines. Our registered office is located at
Canon's Court, 22 Victoria Street, Hamilton, HM 12, Bermuda, and our telephone
number at that address is (441) 295-2244. Our website address is
www.globalsources.com. Information contained on our website or available through
our website is not incorporated by reference into this prospectus and should not
be considered a part of this prospectus.
3
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary historical consolidated financial and operating data
for the three-year period ended December 31, 2002 and the nine months ended
September 30, 2002 and 2003, respectively, should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes which are
included elsewhere in this prospectus. We derived the financial data as of
December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and
2000 from our audited financial statements included elsewhere in this
prospectus. We derived the financial data as of December 31, 2000 from our
audited financial statements not included in this prospectus. We derived the
financial data as of September 30, 2003 and for the nine months ended September
30, 2003 and 2002 from our unaudited financial statements included elsewhere in
this prospectus. Results for interim periods are not necessarily indicative of
results to be expected during the remainder of the fiscal year or for any future
periods.
Prior to August 8, 2002, Arthur Andersen served as our independent auditors.
Since Arthur Andersen ceased practicing before the SEC on August 31, 2002, we
are unable to obtain their written consent to incorporate or include by
reference its reports on our financial statements. See "Risk Factors--Issues
related to Arthur Andersen may impede our ability to access the capital
markets." Our consolidated financial statements for the years ended December 31,
2000 and 2001 have been audited by Arthur Andersen.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
2000 2001 2002 2002 2003
(In Thousands, Except Per
INCOME STATEMENT DATA: Share Data)
Revenues:
======================================
Online services................... $ 55,121 $ 55,468 $ 51,268 $ 38,661 $ 38,300
Other media services.............. 44,113 36,391 33,132 24,254 25,859
Exhibitions....................... 2,635 2,619 2,455 1,890 1,362
Miscellaneous..................... 1,184 807 631 477 509
Total revenues...................... 103,053 95,285 87,486 65,282 66,030
Total operating expenses............ 158,695 91,900 82,640 61,778 60,733
Income (loss) from operations....... $ (55,642) $ 3,385 $ 4,846 $ 3,504 $ 5,297
Income expense...................... (649) (172) -- -- --
Interest income..................... 1,135 357 439 230 73
Foreign exchange gains (losses), net 50 (470) 50 57 102
Write down of investments........... (11,750) (1,150) -- -- --
Income (loss) before income taxes... (66,856) 1,950 5,335 3,791 5,472
Income tax provision................ (1,277) (1,143) (720) (597) (325)
Income (loss) before minority $ (68,133) $ 807 $ 4,615 3,194 5,147
interest .........................
Equity in income (loss) of affiliate (51) 51 -- -- --
Minority interest................... (37) (83) (308) (168) (469)
Net income (loss)................... $ (68,221) $ 775 $ 4,307 $ 3,026 $ 4,678
Basic and diluted net income (loss)
per share......................... $ (2.39) $ 0.03 $ 0.15 $ 0.10 $ 0.16
Shares used in basic net income per
share calculations(1)............. 28,543 28,934 28,939 28,939 28,944
Shares used in diluted net income per
share calculations(1)............. 28,543 28,934 28,940 28,940 28,969
================================================================================
4
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
2000 2001 2002 2002 2003
(In U.S.
Dollars
Thousands,
except Buyer
community)
OTHER DATA:
Net cash provided by operating
activities......................... $16,913 $15,464 $20,662 $15,335 $17,933
Buyer community(2)................. 209,739 309,943 378,031 369,885 398,026
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
2000 2001 2002 2003
(In U.S.
Dollars
Thousands)
BALANCE SHEET DATA:
Cash and securities................ $ 12,727 $ 20,236 $ 37,208 $ 54,156
Total assets ...................... 55,706 53,602 62,650 76,256
Long-term debt, less current portion 16,084 15,963 15,856 15,820
Total shareholders' equity ........ 8,161 11,601 18,522 24,915
_______________________________
(1) On April 14, 2000, in conjunction with our share exchange pursuant to which
we became a public company listed on the Nasdaq National Market, we
effectively consummated a 2,505 for 1 share split. All share and per share
amounts have been restated for all periods presented. Effective April 1,
2004, we issued to all of our shareholders a bonus share distribution of
one share for every ten shares held as of March 1, 2004. All common shares
and per share amounts have been retroactively adjusted to reflect eleven
for ten share split for all periods presented.
(2) Represents number of buyers who have received a magazine or a CD-ROM or who
have made an inquiry through the Global Sources website
(www.globalsources.com) within applicable period.
5
RISK FACTORS
In addition to other information in this prospectus, the following risk
factors should be carefully considered in evaluating an investment in our
company because such factors may have a significant impact on our business,
operating results and financial condition. As a result of the risk factors set
forth below and elsewhere in this prospectus, and the risks discussed in our
other Securities and Exchange Commission filings, actual results could differ
materially from those projected in any forward-looking statements.
General economic uncertainty may reduce spending for business-to-business
marketing and advertising.
The revenue growth and profitability of our business depends significantly
on the overall demand for business-to-business media and especially on line
marketplace services, trade publications and trade shows. We believe that the
markets for these services are subject to the potentially negative impact of a
number of factors, including reductions in marketing expenditures by suppliers
and the overall weakening of global economies. These factors may give rise to a
number of market trends that adversely affect our business and revenues.
The Chinese market is key to our current and future revenue growth, and
political instability in this market could reduce our revenue and seriously harm
our business.
Our customers in China provided more than 36% of our total revenues in
fiscal 2002 and we currently expect that revenues from China will be
approximately 43% of our total revenues in fiscal 2003, and we believe our
operations in China will continue to grow for the next several years. Our
dependence on the China market and its revenues is significant, and adverse
political changes in China may harm our business and cause our revenues to
decline.
The Chinese government has instituted a policy of economic reform which has
included encouraging foreign trade and investment, and greater economic
decentralization. However, the Chinese government may discontinue or change
these policies, or these policies may not be successful. Moreover, despite
progress in developing its legal system, China does not have a comprehensive and
highly developed system of laws, particularly as it relates to foreign
investment activities and foreign trade. Enforcement of existing and future
laws, regulations and contracts is uncertain, and implementation and
interpretation of these laws and regulations may be inconsistent. As the Chinese
legal system develops, new laws and regulations, changes to existing laws and
regulations and the interpretation or enforcement of laws and regulations may
adversely affect business operations in China. While Hong Kong SAR (Special
Administrative Region) has had a long history of promoting foreign investment,
its incorporation into China means that the uncertainty related to China and its
policies may now also affect Hong Kong SAR.
The international markets, and in particular the Asia-Pacific region, in which
we do business are subject to political and economic instability, which may
interfere with our ability to do business, increase our costs and decrease our
revenues.
The international markets in which we operate are subject to risks,
including:
o fluctuations in regional economic conditions;
o political instability;
o the threat of terrorist attacks;
o conflicting and changing legal and regulatory requirements;
o restrictions placed on our operations due to our foreign status;
o significant changes in tax rates and reporting requirements;
o the loss of revenues, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political
risks;
o adverse governmental actions, such as restrictions on transfers of
funds and trade protection measures, including tariffs and export
quotas; and
o fluctuations in currency exchange rates.
6
In 2002, we derived more than 90% of our revenues from customers in the
Asia-Pacific region. We expect that a majority of our future revenues will
continue to be generated from customers in this region. At the time of the Asian
economic crisis of 1997 and 1998, our revenues and operating results were
adversely affected. During the Asian economic crisis, both our sales and
revenues declined. If there is future political or economic instability in the
Asia-Pacific region, our business may be harmed and our revenues may decrease.
Because we operate internationally, foreign exchange rate fluctuations may
have a material impact on our results of operations. To the extent significant
currency fluctuations occur in Asian currencies, our revenues and profits would
be affected. At the time of the Asian economic crisis of 1997 and 1998, certain
of our contracts were dominated and priced in foreign currencies. The conversion
of these contract proceeds into U.S. dollars resulted in losses and is
indicative of the foreign exchange risk assumed by us. Currently, we do not
hedge our exposure to foreign currency fluctuations.
Our limited operating history in the trade show business as well as other
factors could adversely affect our ability to operate in this business
successfully.
Our trade show business to date has been limited. To increase our scale in
the trade show business, we will need to hire additional personnel and expend
additional capital. The trade show business also requires us to make substantial
non-refundable deposits to secure venue dates far in advance of our conducting
the trade show. We may not have sufficient access to capital to expand our trade
show business and we can give no assurances that our operation of this business
will be incremental to our growth.
In addition, while we expect that a significant portion of our future
revenues will be derived from our trade show business, several factors could
negatively affect our financial performance in this business, including:
o the spread of SARS, Avian influenza and other similar epidemics;
o political instability and the threat of terrorist attacks;
o decrease in demand for booth space;
o limited availability of venues and appropriate venue dates;
o competing trade shows; and
o our inability to effectively expand our staff and infrastructure.
If our current and potential customers are not willing to adopt and renew our
services, we may not attract and retain a critical mass of customers.
Our services will be attractive to suppliers only if buyers use our
services to identify suppliers and purchase their products. The content,
products and suppliers currently available on our websites and other media or
made available by suppliers may not be sufficient to attract and retain buyers.
If buyers and suppliers do not accept our online services and other media, or if
we are unable to attract and retain a critical mass of buyers and suppliers for
our online services and other media, our business will suffer and our revenues
may decrease.
None of the buyers or suppliers that currently pay to use our services are
under any long-term contractual obligation to continue using our services. A
significant percentage of our customers do not renew their contracts and we
experience high customer turnover from year to year. If we cannot replace
non-renewing customers with new customers, our business could be adversely
affected.
We may not be successful in identifying and consummating acquisitions, joint
ventures and alliances to expand our business.
We are regularly evaluating potential strategic acquisitions, joint
ventures and alliances and we believe that such transactions are an integral
part of our business strategy. However, we may not be able to negotiate terms
successfully, finance the acquisition or arrangement, or integrate any new
businesses, products or technologies into our existing business and operations.
Even if we are successful in integrating any new businesses, products or
technologies into our existing business, we may not achieve expected results, or
we may not realize
7
other expected benefits. If we are unable to make acquisitions and enter into
joint ventures and alliance arrangements successfully, our growth potential may
be harmed.
If we are unable to compete effectively, we will lose current customers and fail
to attract new customers.
Our industry is intensely competitive, evolving and subject to rapid
change. Barriers to entry are minimal, and competitors are able to launch new
websites and other media at a low cost. Competition is likely to result in price
reductions, reduced margins and loss of market share, any one of which may harm
our business. We compete for our share of customers' marketing and advertising
budgets with other online marketplaces, trade publications and trade shows.
Competitors vary in size, geographic scope, industries served and breadth of the
products and services offered. We may encounter competition from companies which
offer more comprehensive content, services, functionality and/or lower prices.
Many of our current and potential competitors may have greater financial,
technical, marketing and/or other resources and experience and greater name
recognition than we have. In addition, many of our competitors may have
established relationships with one another and with our current and potential
suppliers and buyers and may have extensive knowledge of our industry. Current
and potential competitors have established or may establish cooperative
relationships with third parties to increase the ability of their products to
address customer needs. Accordingly, our competitors may develop and rapidly
acquire significant market share.
Our quarterly operating results may have seasonal fluctuations, and we may fail
to meet analyst, investor and shareholder expectations, causing our share price
to decline.
We have experienced seasonal quarter-to-quarter fluctuations. Our buyer
activity is often relatively slower during the summer and year-end vacation and
holiday periods. Additionally, our online and trade publication advertising
revenue is seasonal and tends to be highest in the fourth quarter of each
calendar year as a result of increased advertising and media buying in that
quarter. Virtually all of our trade shows are expected to be held in April and
October of each year. As a result, second and fourth quarter revenues are likely
to be substantially higher than the first and third quarter revenues. However,
certain expenses associated with these revenues are likely to be incurred in
preceding quarters, which may cause results to be lower in those quarters. If
revenues in a quarter fails to meet or exceed the expectations of public market
analysts, investors and shareholders, the price of our shares may decline.
Current weakness of the telecommunications and Internet infrastructure in the
Asia-Pacific region could harm our business.
We are likely to continue to derive the majority of our Internet-based
online marketplace revenues from the Asia-Pacific region. The quality of some of
the telecommunications and Internet infrastructure and telephone line
availability in China and in some Asia-Pacific countries is poor. This may
contribute to lower than expected adoption of many of our services and may cause
usage growth and revenues to fall below expectations. In addition, access fees
are high in many Asia-Pacific countries, which also contributes to low usage and
may adversely affect our growth and revenues potential.
Customer concerns regarding security may deter use of our online products and
services.
Widely publicized security breaches involving the Internet or in online
services generally, or our failure to prevent security breaches, may cause our
current and potential customers not to use our products and services and
adversely affect our revenues. We may be required to incur additional costs to
protect against security breaches or to alleviate problems caused by these
breaches. Our potential for growth depends on our customers' confidence in the
security of our products and services.
The failure of outside parties to meet our service level and information
accuracy expectations may make our services less attractive to customers and
harm our business.
We rely on outside parties for some information, licenses, product delivery
and technology products and services. We rely on technology relationships with
software developers and providers, systems integrators and other technology
firms to support, enhance and develop our products and services. Although we
have contracts with technology providers to enhance, expand, manage and maintain
our computer and communications equipment and software, these service providers
may not provide acceptable services. Services provided by third parties include
managing our Global Sources Online network Web server, maintaining our
communica-
8
tions lines and managing our network data centers and software development.
These relationships may not continue or we may not be able to develop additional
third-party relationships on acceptable commercial terms, which could cause
customer dissatisfaction and/or a delay in the launch of new software or
services.
We license some components of our technology from third parties. These
licenses may not be available to us on commercially reasonable terms in the
future. The loss of these licenses could delay release or enhancement of our
services until equivalent technology could be licensed, developed or otherwise
obtained. Any such delay could have a material adverse effect on our business.
These factors may deter customers from using our services, damage our business
reputation, cause us to lose current customers, and harm our ability to attract
new customers.
We have no control over the accuracy, timeliness or effectiveness of the
information, products and services of these outside parties. As a result of
outside party actions, we may fail to provide accurate, complete and current
information about customers and their products in a timely manner and to deliver
information to buyers in a satisfactory manner.
We rely on independent sales representative firms and the loss of any
significant firm or members of a firm would harm our business and revenues.
We rely on the services of independent sales representative firms for the
sales and marketing of our products and services. We have service agreements
with various sales representative firms that employ sales representatives. Four
sales representative firms in China are responsible for supplier accounts which
in the aggregate accounted for approximately 43% of our total revenues for the
year ended December 31, 2003. Generally, either we or the sales representative
firm may terminate the service agreement between us upon short notice. It is
possible that we may not retain some of our sales representative firms, or they
may not retain some of their sales personnel or be able to replace them with
equally qualified personnel. Furthermore, if a sales representative firm
terminates its agreement with us, some of our customers with a direct
relationship with that sales representative firm or its personnel may terminate
their relationship with us. Although these firms and their employees are
independent from us, there can be no assurance that our reputation and our
business will not be harmed by their acts or omissions.
The loss of one or more of our executive officers or key employees, either to a
competitor or otherwise, could harm our business.
Our executive officers and key employees are critical to our business. Our
executive officers and key personnel may not remain with us and their loss may
negatively impact our operations, and may reduce our revenues and cash flows. In
particular, the services of our chief executive officer, chief financial
officer, chief operating officer and chief information officer are important to
our operations. If competitors hire our key personnel, it could allow them to
compete more effectively by diverting customers from us and facilitating more
rapid development of their competitive offerings. We do not maintain key man
insurance on any of our executive officers.
Our inability to maintain effective Internet domain names could create confusion
and direct traffic away from our online services.
If we are not able to prevent third parties from acquiring Internet domain
names that are similar to the various Internet domain names that we own, third
parties could create confusion that diverts traffic to other websites away from
our online services, thereby adversely affecting our business. The acquisition
and maintenance of Internet domain names generally are regulated by governmental
agencies. The regulation of Internet domain names in the United States and in
foreign countries is subject to change. As a result, we may not be able to
acquire or maintain relevant Internet domain names. Furthermore, the
relationship between regulations governing such addresses and laws protecting
proprietary rights is unclear.
If we release new services, catalog tools or software that contain defects, we
may need to suspend further sales and services until we fix the defects, and our
reputation could be harmed.
Our services depend on software that is complex and that may contain
unknown and undetected defects, errors or performance problems. We may not
discover defects, errors or performance problems that affect our new or current
services or enhancements until after they are deployed. These defects, errors or
performance
9
problems could force us to suspend sales and services or cause service
interruptions which could damage our reputation or increase our service costs,
cause us to lose revenues, delay market acceptance or divert our development
resources, any of which could severely harm our business.
Risk of failure of our computer and communications hardware systems increases
without redundant facilities.
Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware systems. Any system interruptions that
cause Global Sources Online or any of our online sites to be unavailable may
drive away buyers and reduce the attractiveness of these sites to advertisers
and could adversely affect our business, financial condition and operating
results. We maintain most of our computer systems in one web-hosting and
internal support facility in Singapore. We do not have redundant facilities or
disaster recovery systems for our computer systems. Interruptions could result
from natural disasters as well as catastrophic hardware failures, software
problems, extended power loss, telecommunications failure and similar events.
We may be subject to legal liability for publishing or distributing content over
the Internet or in our trade publications or trade shows.
We may be subject to legal claims relating to the content on Global Sources
Online or our other websites, or the downloading and distribution of such
content, as well as legal claims arising out of the products or companies
featured in our trade publications and tradeshows. Claims could involve matters
such as libel and defamation, patent, trademark, copyright and design
infringement, fraud, and invasion of privacy. Media companies have been sued in
the past, sometimes successfully, based on the content published or made
available by them. Like many companies in our industry, we have received notices
of claims based on content made available on our website. In addition, some of
the content provided on Global Sources Online is manually entered from data
compiled by other parties, including governmental and commercial sources, and
this data may have errors, or we may introduce errors when entering such data.
If our content is improperly used or if we supply incorrect information, third
parties may take legal action against us. In addition, we may violate usage
restrictions placed on text or data that is supplied to us by third parties. Our
insurance may not cover claims of this type, or may not provide sufficient
coverage, which could harm our reputation and operating results.
Evolving regulation of the Internet and commercial e-mail may affect us
adversely.
As Internet commerce continues to evolve, increasing regulation by federal,
state or foreign agencies becomes more likely. Strict legal prohibitions on the
transmission of unsolicited commercial email, coupled with aggressive
enforcement, could reduce our ability to promote our services and our ability to
facilitate communications between suppliers and buyers and, as a result,
adversely affect our business.
In addition, taxation of products and services provided over the Internet
or other charges imposed by government agencies or by private organizations for
accessing the Internet may also be imposed. Any regulation imposing greater fees
for Internet use or restricting information exchange over the Internet could
result in a decline in the use of the Internet and the viability of
Internet-based services, which could harm our business and operating results.
The laws governing Internet transactions and market access over the
Internet are evolving and remain largely unsettled. The adoption or modification
of laws or regulations relating to the Internet may harm our business by
increasing our costs and administrative burdens. It may take years to determine
whether and how existing laws apply to the Internet.
Our intellectual property protection is limited, and others may infringe upon
it, which may reduce our ability to compete and may divert our resources.
Our success depends upon proprietary technology, content and other
intellectual property rights. We have relied on a combination of copyright,
trade secret and trademark laws and nondisclosure and other contractual
restrictions to protect ourselves. Our efforts to protect our intellectual
property rights may not be adequate. Our competitors may independently develop
similar technology or duplicate our software and services. If others are able to
develop or use technology and/or content we have developed, our competitive
position may be negatively affected.
10
We have in the past co-developed, and may in the future co-develop, some of
our intellectual property with independent third parties. In these instances, we
take all action that we believe is necessary and advisable to protect and to
gain ownership of all co-developed intellectual property. However, if such third
parties were to introduce similar or competing online products and services that
achieve market acceptance, the success of our online services and our business,
financial condition, prospects and operating results may be harmed.
We cannot determine whether future patent, service mark or trademark
applications, if any, will be granted. No certainty exists as to whether our
current intellectual property or any future intellectual property that we may
develop will be challenged, invalidated or circumvented or will provide us with
any competitive advantages.
Litigation may be necessary to enforce our intellectual property rights,
protect trade secrets, determine the validity and scope of the proprietary
rights of others, or defend against claims of infringement or invalidity.
Intellectual property laws provide limited protection. Moreover, the laws of
some foreign countries do not offer the same level of protection for
intellectual property as the laws of the United States. In addition, we may be
unable to detect unauthorized use of our intellectual property. Litigation may
result in substantial costs and diversion of resources, regardless of its
outcome, which may limit our ability to develop new services and compete for
customers.
If third parties claim that we infringe upon their intellectual property rights,
our ability to use technologies and products may be limited, and we may incur
substantial costs to resolve these claims.
Litigation regarding intellectual property rights is common in the Internet
and software industries. Defending against these claims could be expensive and
divert our attention from operating our business. We expect third-party
infringement claims involving Internet technologies and software products and
services to increase. If we become liable to third parties for infringing their
intellectual property rights, we could be required to pay substantial damage
awards and be forced to develop non-infringing technology, obtain a license or
cease using the products and services that contain the infringing technology or
content. We may be unable to develop non-infringing technology or content or to
obtain a license on commercially reasonable terms, or at all.
In the past, we have received notices alleging intellectual property
infringements. Although, to date, there has been no successful litigation
directed against us with respect to the infringement and/or improper use of the
intellectual property rights of third parties, there can be no assurances that
there will not be any successful litigation in the future.
We may also be named as a defendant in litigation alleging infringement of
intellectual property rights by our customers. We may be required to defend
ourselves and our customers against infringement claims. In the event of a claim
of infringement, we and our customers may be required to pay significant damages
or obtain one or more licenses from third parties, and we may be unable to
obtain necessary licenses at a reasonable cost or at all. Inability to obtain
licenses may prevent us from offering products and services, which may limit our
revenues.
Our lengthy sales and implementation cycle could cause delays in revenues
growth.
The period between our initial contact with a potential customer and the
purchase by it of our products and services is often long and unpredictable and
may have delays associated with the lengthy budgeting and approval processes of
our customers. This lengthy sales and implementation cycle may affect our
ability to estimate our revenues in future quarters.
Our growth could strain our resources, and if we are unable to implement
appropriate controls and procedures to manage our growth, we may not be able to
successfully implement our business plan.
We plan to increase substantially the number of independent sales
representatives in China in order to pursue our business objectives. Our success
will depend in part upon the ability of our senior management to implement and
manage this growth effectively. To do this, additional new representatives must
be recruited and trained. If our new representatives perform poorly, or if their
training and management is unsuccessful, or if our relationships with our
existing representatives fail, our business may be harmed. To manage the
expected growth of our operations, we will need to continue to improve our
operational, financial and management con-
11
trols and our reporting systems and procedures. If we fail to manage our growth
successfully, we will be unable to execute our business plan.
Merle A. Hinrichs, our Chairman and Chief Executive Officer, is also our
controlling shareholder and he may take actions that conflict with your
interest.
Merle A. Hinrichs beneficially owns 67% of our common shares. Accordingly,
Mr. Hinrichs controls the power to elect our directors, to appoint new
management and to oppose actions requiring shareholder approval, such as
adopting amendments to our articles of incorporation and approving mergers or
sales of all or substantially all of our assets. Such concentration of ownership
may have the effect of delaying or preventing a change of control even if a
change of control is in the best interest of all shareholders. In addition, Mr.
Hinrichs may still effectively control our company even if his share holdings
would be significantly reduced. There may be instances in which the interest of
our controlling shareholder may conflict with the interest of a holder of
securities sold pursuant to this prospectus.
There is a limited public market for our shares and the trading volume for our
shares is low which may limit your ability to sell your shares or purchase more
shares.
Our common shares have been traded in the public market for a limited time
and this market may not be sustained. As a result of the April 2000 share
exchange, 1,189,949 of our common shares were listed on the Nasdaq National
Market. As of April 1, 2004 we had approximately 1,009 shareholders, and
approximately 7,080,216 shares that were tradable on the Nasdaq National Market.
However, because of the small number of shareholders and the small number
of publicly tradable shares, we cannot be sure that an active trading market
will develop or be sustained or that you will be able to sell or buy common
shares when you want to. As a result, it may be difficult to make purchases or
sales of our common shares in the market at any particular time or in any
significant quantity. If our shareholders sell our common shares in the public
market, the market price of our common shares may fall. In addition, such sales
may create the perception by the public of difficulties or problems with our
products and services or management. As a result, these sales may make it more
difficult for us to sell equity or equity related securities in the future at a
time or price that is appropriate.
Future sales of our common shares could depress the price of the common shares.
Future sales of common shares by us or our existing shareholders could
adversely affect the prevailing market price of the common shares. As of April
1, 2004, we had 28,952,194 common shares outstanding. At least 19,920,392 common
shares outstanding are beneficially owned by people who may be deemed
"affiliates," as defined by Rule 405 of the Act, and are "restricted securities"
which can be resold in the public market only if registered with the Securities
and Exchange Commission or pursuant to an exemption from registration.
We cannot predict what effect, if any, that future sales of such restricted
shares or the avilability of shares for future sale, will have on the market
price of the common shares from time to time. Sales of substantial amounts of
common shares in the public market, or the perception that such sales could
occur, could adversely affect prevailing market prices for the common shares and
could impair our ability to raise additional capital through an offering of our
equity securities.
Because we are governed by Bermuda law rather than the laws of the United States
and our assets are outside the U.S., our shareholders may have more difficulty
protecting their rights because of differences in the laws of the jurisdictions.
We are organized under the laws of Bermuda. In addition, certain of our
directors and officers reside outside the United States and a substantial
portion of our assets are located outside the United States. As a result, it may
be difficult for investors to effect service of process within the United States
upon such persons or to realize against them judgments of courts of the United
States predicated upon civil liabilities under the United States federal
securities laws. We have been advised by our legal counsel in Bermuda, Appleby
Spurling Hunter, that there is doubt as to the enforcement in Bermuda, in
original actions or in actions for enforcement of judgments of United States
courts, of liabilities predicated upon U.S. federal securities laws, although
Bermuda courts will enforce foreign judgments for liquidated amounts in civil
matters subject to certain conditions and exceptions.
12
It may be difficult for a third party to acquire us, and this may depress our
share price.
Our bye-laws contain provisions that may have the effect of delaying,
deferring or preventing a change in control or the displacement of our
management. These provisions may discourage proxy contests and make it more
difficult for the shareholders to elect directors and take other corporate
actions. These provisions may also limit the price that investors might be
willing to pay in the future for our common shares. These provisions include:
o providing for a staggered board of directors, so that it would take
three successive annual general meetings to replace all directors;
o requiring the approval of 100% of shareholders for shareholder action
by written consent;
o establishing advance notice requirements for submitting nominations
for election to the board of directors and for proposing matters that
may be acted upon by shareholders at a general meeting; and
o restricting business combinations with interested shareholders that
have not been approved by at least two-thirds of the holders of our
voting shares (other than the interested shareholder) or by a majority
of the continuing directors or if certain prescribed conditions are
met assuming that we will receive fair market value in exchange for
such business combination. In this context, a "business combination"
includes mergers, asset sales and other material transactions
resulting in a benefit to the interested shareholder or the adoption
of a plan for our liquidation or dissolution; a "continuing director"
is a member of our board of directors that is not an affiliate or
associate of an interested shareholder and was a member of our board
prior to such person becoming an interested shareholder; and an
"interested shareholder" is any person (other than us or any of our
subsidiaries, any employee benefit or other similar plan or any of our
shareholders who owned shares prior to the listing of our shares on
the Nasdaq National Market) that owns or has announced its intention
to own, or with respect to any of our affiliates or associates, within
the prior two years did own, at least 15% of our voting shares.
Issues related to Arthur Andersen may impede our ability to access the capital
markets.
SEC rules and regulations require us to present historical audited
financial statements in various SEC filings, including registration statements,
along with our accountants' consent to our inclusion of its audit report in
those filings. Prior to August 8, 2002, Arthur Andersen served as our
independent auditors. Effective August 8, 2002, Arthur Andersen resigned as our
independent public accountants and we subsequently retained Ernst & Young as our
independent auditors for the fiscal year ended December 31, 2002. On August 31,
2002, Arthur Andersen ceased practicing before the SEC and, as a result, we are
unable to obtain their written consent to incorporate by reference or include
Arthur Andersen's reports on our financial statements. If the SEC ceased
accepting financial statements previously audited by Arthur Andersen without
Arthur Andersen's written consent, we would be unable to access the public
capital markets unless Ernst & Young, our current independent accountant, or
another independent accountant, is able to re-audit the financial statements
originally audited by Arthur Andersen. In addition, investors in the securities
offered hereby and in any future offerings we make for which we use Arthur
Andersen audit reports will not be entitled to recovery against Arthur Andersen
under the Securities Act for any material misstatements or omissions in those
financial statements. Furthermore, Arthur Andersen will be unable to participate
in the "due diligence" process that would customarily be performed by potential
investors in our securities, which process includes having Arthur Andersen
perform procedures to assure the continued accuracy of its report on our audited
financial statements and to confirm its review of unaudited interim periods
presented for comparative purposes. As a result, we may not be able to bring to
the market successfully an offering of our securities. Consequently, our
financing costs may increase or we may miss attractive market opportunities.
13
USE OF PROCEEDS
Except as may otherwise be described in the prospectus supplement relating
to an offering of securities, the net proceeds from the sale of the securities
included in this prospectus will be used for general corporate purposes. Any
specific allocation of the net proceeds of an offering of securities to a
specific purpose will be determined at the time of such offering and will be
described in the related prospectus supplement.
We will not receive any of the proceeds from the sale of our common shares
by the selling shareholders.
PRICE RANGE OF COMMON SHARES
Our common shares are traded on the Nasdaq National Market under the
symbol "GSOL." For the periods presented below, the high and low sales prices
for our common shares as reported on the Nasdaq National Market were as follows:
PERIOD HIGH LOW
2002
First Quarter.............................. $5.06 $3.32
Second Quarter............................. $4.64 $3.68
Third Quarter.............................. $3.82 $2.59
Fourth Quarter............................. $4.72 $3.05
2003
First Quarter.............................. $4.82 $3.77
Second Quarter............................. $5.50 $3.69
Third Quarter.............................. $10.09 $4.37
Fourth Quarter............................. $9.09 $6.36
2004
First
Quarter.................................... $16.82 $6.74
Second Quarter (through April 8, 2004)..... $12.82 $11.01
On April 8, 2004, the closing sales price for our common shares as reported
on the Nasdaq National Market was $12.00. As of April 1, 2004, and based on
information provided to us by our transfer agent, there were approximately 1,009
holders of record of our common shares.
DIVIDEND POLICY
Under Bermuda law, a company may declare and pay dividends unless there are
reasonable grounds for believing that the company is, or would, after the
payment, be unable to pay its liabilities as they become due or that the
realizable value of the company's assets would thereby be less than the
aggregate of its liabilities and issued share capital and share premium
accounts.
Under our bye-laws, each share is entitled to a dividend if, as and when
dividends are declared by the board of directors. The board of directors may
determine that any dividend may be paid in cash or will be satisfied by paying
up in full common shares in Global Sources to be issued to the shareholders
credited as fully paid or partly paid. The board of directors may also pay any
fixed cash dividend which is payable on any of our common shares half-yearly or
on other dates, whenever our position, in the opinion of the board of directors,
justifies such payment.
Dividends, if any, on our common shares will be paid at the discretion of
our board of directors and will depend on our future operations and earnings,
capital requirements, surplus and general financial conditions, as our board of
directors may deem relevant.
We have not paid any cash dividends on our common shares since October
1999. Previously, we paid dividends as a private company as a means to
distribute earnings to shareholders. Beginning in October 1999, we have focused
on the implementation of our growth plans, and we have retained earnings in
furtherance of such plans. We are not permitted to pay a dividend under Bermuda
law until such time as we have positive
14
retained earnings. In any event, we do not intend to pay dividends for the
foreseeable future in order to focus on our growth plans.
15
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical consolidated financial
and operating data for the five-year period ended December 31, 2002 and the nine
months ended September 30, 2002 and 2003, respectively. Such data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and the related notes
which are included elsewhere in this prospectus. We derived the financial data
as of December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001
and 2000 from our audited financial statements included elsewhere in this
prospectus. We derived the financial data as of December 31, 2000, 1999 and 1998
and for the years ended December 31, 1999 and 1998 from our audited financial
statements not included in this prospectus. We derived the financial data as of
September 30, 2003 and for the nine months ended September 30, 2003 and 2002
from our unaudited financial statements included elsewhere in this prospectus.
Results for interim periods are not necessarily indicative of results to be
expected during the remainder of the fiscal year or for any future periods.
Our consolidated financial statements for the year ended December 31, 1998
have been audited by PricewaterhouseCoopers and our consolidated financial
statements for the years ended December 31, 1999, 2000 and 2001 have been
audited by Arthur Andersen. Since Arthur Andersen ceased practicing before the
SEC on August 31, 2002, we are unable to obtain their written consent to
incorporate or include by reference its reports on our financial statements. See
"Risk Factors--Issues related to Arthur Andersen may impede our ability to
access the capital markets."
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1998 1999 2000 2001 2002 2002 2003
(In Thousands, Except Per Share Data)
INCOME STATEMENT DATA:
Revenues:
Online services............... $ 14,450 $ 25,463 $ 55,121 $ 55,468 $ 51,268 $ 38,661 $ 38,300
Other media services.......... 76,900 61,778 44,113 36,391 33,132 24,254 25,859
Exhibitions................... 1,312 1,906 2,635 2,619 2,455 1,890 1,362
Miscellaneous................. 1,681 1,125 1,184 807 631 477 509
Total revenues.................. 94,343 90,272 103,053 95,285 87,486 65,282 66,030
Operating Expenses:
Sales......................... 27,498 29,481 33,847 31,236 28,659 21,649 21,827
Event production.............. 507 562 795 811 933 584 328
Community .................... 15,413 13,120 13,710 12,735 12,481 9,364 8,903
General and administrative.... 34,787 31,521 35,618 32,748 28,885 21,382 21,041
Online services development... 3,182 3,461 6,665 8,393 5,378 4,085 3,888
Non-cash compensation expense(1) -- -- 65,689 2,501 2,564 1,999 1,213
Other(2) ..................... 379 371 2,371 3,476 3,740 2,715 3,533
Total operating expenses ....... 81,766 78,516 158,695 91,900 82,640 61,778 60,733
Income (loss) from operations .. $ 12,577 $11,756 $ (55,642) $ 3,385 $ 4,846 3,504 $ 5,297
Income expense ................. (336) (337) (649) (172) -- -- --
Interest income ................ 732 558 1,135 357 439 230 73
Foreign exchange gains (losses),
net........................... 160 427 50 (470) 50 57 102
Write down of investments....... -- -- (11,750) (1,150) -- -- --
Income (loss) before income taxes 13,133 12,404 (66,856) 1,950 5,335 3,791 5,472
Income tax provision............ (1,552) (1,435) (1,277) (1,143) (720) (597) (325)
Income (loss) before minority
interest ..................... $ 11,581 $ 10,969 $ (68,133) $ 807 $ 4,615 $ 3,194 5,147
Equity in income (loss) of
affiliate..................... -- -- (51) 51 -- -- --
Minority interest............... -- -- (37) (83) (308) (168) (469)
Net income (loss)............... $ 11,581 $ 10,969 $ (68,221) $ 775 $ 4,307 $ 3,026 $ 4,678
Basic and diluted net income 0
(loss) per share.............. $ 0.42 $ 0.40 $ (2.39) $ 0.03 $ 0.15 $ 0.1 $ 0.16
Cash dividends declared per share 0.73 0.54 -- -- -- -- --
Shares used in basic net income
per share calculations(3)..... 27,557 27,557 28,543 28,934 28,939 28,939 28,944
Shares used in diluted net income
per share calculations(3)..... 27,557 27,557 28,543 28,934 28,940 28,940 28,969
16
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1998 1999 2000 2001 2002 2002 2003
(In U.S. Dollars Thousands, except Buyer community)
OTHER DATA:
Net cash provided by operating
activities....................... $14,635 $ 15,139 $ 16,913 $ 15,464 $ 20,662 $ 15,335 $ 17,933
Buyer community(4)............... -- 195,367 209,739 306,943 378,031 369,885 398,026
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
1998 1999 2000 2001 2002 2003
(In U.S. Dollars Thousands)
BALANCE SHEET DATA:
Cash and securities................... $ 15,713 $ 15,433 $ 12,727 $ 20,236 $ 37,208 $ 54,156
Total assets ......................... 46,960 46,645 55,706 53,602 62,650 76,256
Net assets ........................... 9,686 5,710 8,161 11,601 18,522 24,915
Long-term debt, less current portion... 5,366 3,540 16,084 15,963 15,856 15,820
Total shareholders' equity ......... 9,686 5,710 8,161 11,601 18,522 24,915
_______________________________
(1) Reflects the non-cash compensation expenses associated with the grants
under the employee equity compensation plans and for year 2000, also
includes the non-cash compensation expenses associated with the transfer of
shares from Hung Lay Si Co. Ltd., our former parent company, to our
chairman and chief executive officer. Non-cash compensation expense was
allocated according to the category under which a staff employee and team
member functioned as follows: approximately $623 (2001: $381; 2000: $291;
nine months ended September 30, 2003: $284; nine months ended September 30,
2002: $394) represents sales expenses, $238 (2001: $87; 2000: $168; nine
months ended September 30, 2003: $78; nine months ended September 30, 2002:
$217) represents community expenses, $1,179 (2001: $1,546; 2000: $65,044;
nine months ended September 30, 2003: $608; nine months ended September 30,
2002: $961) represents general and administrative expenses and $524 (2001:
$487; 2000: $186; nine months ended September 30, 2003: $243; nine months
ended September 30, 2002: $427) represents online services development
expenses.
(2) Includes amortization of intangibles/software development cost and for the
year ended December 31, 2000 also includes non-cash listing expenses of
approximately $1.4 million.
(3) On April 14, 2000, in conjunction with our share exchange pursuant to which
we became a public company listed on the Nasdaq National Market, we
effectively consummated a 2,505 for 1 share split. All share and per share
amounts have been restated for all periods presented. Effective April 1,
2004, we issued to all of our shareholders a bonus share distribution of
one share for every ten shares held as of March 1, 2004. All common shares
and per share amounts have been retroactively adjusted to reflect the
eleven for ten share split for all periods presented.
(4) Represents number of buyers who have received a magazine or a CD-ROM or who
have made an inquiry through the Global Sources website
(www.globalsources.com) within the applicable periods. Our independent
certification of the buyer community began in 1999. We did not track buyer
community data for 1998.
17
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
Because we did not have any preferred shares outstanding during the period
presented, the ratio of earnings to combined fixed charges and preference
dividends was the same as the ratio of earnings to fixed charges. The ratio of
earnings to fixed charges, and any deficiency, where applicable, for each of the
periods set forth below is as follows:
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1998 1999 2000 2001 2002 2003
Ratio of earnings to fixed charges.... 40 38 -- 12 N/A N/A
Deficiency of earnings to cover fixed
charges............................... -- -- (66,856) -- -- --
"Fixed Charges" consists of:
o interest expensed and capitalized, and
o an estimate of the interest within rental expense.
"Earnings" consists of income from continuing operations before income
taxes and fixed charges (excluding capitalized interest).
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the "Selected Financial Data" and
the accompanying financial statements and the notes to those statements
appearing elsewhere in this prospectus. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this prospectus, particularly under the caption "Risk Factors."
OVERVIEW
OUR HISTORY AND DEVELOPMENT
We are a leading facilitator of global merchandise trade. Our business
began in 1971 in Hong Kong when we launched Asian Sources, a trade magazine to
serve global buyers importing products in volume from Asia. Today we are one of
Asia's leading providers of trade information in print, online, on CD ROM and
face to face, meeting the marketing and sourcing needs of our supplier and buyer
communities.
While our core business facilitates exports from Asia to the world, we also
facilitate trade from the world to Asia. In 1985, we launched Electronics News
for China for this purpose. Today we have several publications, their associated
websites plus leading events and conferences that provide information to high
tech design engineers and manufacturers in China and throughout Asia.
Realizing the importance of the Internet, we became one of the first
providers of business to business online services by launching Asian Sources
Online in 1995. In 1999, we changed the name of Asian Sources Online to Global
Sources Online.
We were originally incorporated under the laws of Hong Kong in 1970. In
April 2000, we completed a share exchange with a publicly traded company based
in Bermuda, and our shareholders became the majority shareholders of the Bermuda
corporation. As a result of the share exchange, we became incorporated under the
laws of Bermuda and changed our name to Global Sources Ltd.
We derive revenue from three principal activities.
Online services -- Our primary service is creating and hosting marketing
websites that present suppliers' products and company information in a
consistent and easily searchable manner on Global Sources Online. We also derive
revenue from banner advertising fees. We ratably recognize the fees we receive
to display a supplier's advertisement or company data over the contractual term,
which generally is six to twelve months.
Other media services -- We publish trade magazines, which consist primarily
of product advertisements from suppliers and our independent editorial reports
and product surveys. We publish our core trade magazines monthly, and a host of
specialized magazines seasonally. Suppliers pay for advertising in our trade
magazines to promote their products and companies. We also derive revenue from
buyers that subscribe to our trade publications. We also offer CD-ROM versions
of the content on Global Sources Online. We recognize revenue ratably over the
period during which the advertisement is displayed, generally not exceeding one
year.
Events and trade shows -- We also host trade shows and recognize revenue
for these trade shows at the conclusion of these events.
Our sales costs consist of the commissions and marketing fees we pay to our
independent sales representatives, as well as support fees for processing sales
contracts and incentive payments. These representatives sell online services,
advertisements in our trade magazines and exhibitor services and earn a
commission as a percentage of the revenue generated.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in note 2 to the
consolidated financial statements included elsewhere in this document. The
following is a discussion of our critical accounting policies:
19
Revenue Recognition
We derive our revenue primarily from receipt of advertising fees in our
published trade magazines and websites, sale of trade magazines, receipt of fees
from licensing our trade and service marks, receipt of service fees from the
provision of software maintenance services, and from organizing trade shows and
business seminars.
Revenues from advertising in trade magazines and websites are recognized
ratably over the period in which the advertisement is displayed. Advertising
contracts do not exceed one year. When advertising fees from published trade
magazines and websites are contracted under a single arrangement, we allocate
the total advertising fees to the multiple deliverables based on their relative
fair values. The fair value of the revenues from published trade magazines and
websites is based on our average historical selling prices. We recognize revenue
from sales of trade magazines upon delivery of the magazine. Magazine
subscriptions received in advance are deferred and recognized as revenue upon
delivery of the magazine. Revenue from the provision of maintenance service is
deferred and recognized ratably over the maintenance service period. We
recognize revenue from organizing trade shows and business seminars at the
conclusion of the event and the related direct event production costs and direct
event promotion costs are deferred and recognized as expenses upon conclusion of
the event.
We receive license fees and royalties from licensing our trade and service
marks. Revenue from license fees is recognized ratably over the term of the
license, currently four to five years. Royalties from license arrangements are
earned ratably in the period in which the advertisement is displayed by the
licensee.
The correct measurement of timing and the duration of the contracts with
our clients are essential to the recognition of our revenue. Any delays in
recognizing the revenue could cause our operating results to vary significantly
from period to period. In addition our revenue recognition determines the timing
of certain expenses such as commissions and circulation expenses. We believe
that we have adequate controls and processes in place to ensure the accuracy of
the revenue recording.
Capitalization of development costs of software for internal use
We adopted Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Costs incurred in the
preliminary project stage with respect to the development of software for
internal use are expensed as incurred; costs incurred during the application
development stage are capitalized and are amortized over the estimated useful
life of three years upon the commissioning of service of the software. Training
and maintenance costs are expensed as incurred.
To account for the development costs related to the products to be sold,
leased or otherwise marketed, we adopted SFAS No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed." Development
costs incurred subsequent to the establishment of the technological feasibility
of the product are capitalized. The capitalization will end when the product is
available for general release to customers.
Our policies on capitalized software development costs determine the timing
and our recognition of certain development costs. In addition, these policies
determine whether the costs are capitalized or recorded as expenses.
Estimation of allowance for doubtful debts
The preparation of financial statements requires that our management make
estimates and assumptions that affect the reported amounts of assets and
liabilities in the financial statements.
We estimate the collectibility of our accounts receivable based on the
analysis of the accounts receivable, historical bad debts, customer
credit-worthiness and current economic trends. We continuously monitor
collections from our customers and maintain adequate allowance for doubtful
accounts. While credit losses have historically been within our expectations and
the allowances we established, if the bad debts significantly exceed our
provisions, our operating results and liquidity would be adversely affected.
20
Impairment of long-lived assets
Property and equipment are amortized over their estimated useful lives.
Useful lives are based on our estimates of the period that the assets will
generate revenue and can be productively employed.
We periodically review the carrying values of our long-lived assets based
on the anticipated gross cash flows and will provide for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. The impairment loss is measured based on
the difference between the carrying amount of the asset and its fair value.
While we believe our estimation of the useful lives and future cash flows
are reasonable, different assumptions regarding such useful lives and cash flows
could materially affect our valuations.
RESULTS OF OPERATIONS
The following table sets forth the consolidated results of our operations
as a percentage of total revenues:
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
2000 2001 2002 2002 2003
INCOME STATEMENT DATA:
Revenue:
Online services........................ 53% 58% 59% 59% 58%
Other media services................... 43 38 38 37 39
Exhibitions............................ 3 3 2 3 2
Miscellaneous.......................... 1 1 1 1 1
Total revenue........................ 100 100 100 100 100
OPERATING EXPENSES:
Sales.................................. 33 33 33 33 33
Event Production....................... 1 1 1 1 1
Community.............................. 13 13 14 14 13
General and administrative............. 35 34 33 33 32
Online services development............ 6 9 6 7 6
Non-cash compensation.................. 64 3 3 3 2
Other.................................. 2 3 4 4 5
Total operating expenses............... 154 96 94 95 92
Income (loss) from operations.......... (54)% 4% 6% 5% 8%
Net income (loss).................... (66)% 1% 5% 5% 7%
NINE MONTHS
ENDED
SEPTEMBER 30,
2002 2003
(IN U.S. DOLLAR THOUSANDS)
REVENUES:
Online services......................... $ 38,661 $ 38,300
Other media services.................... 24,254 25,859
Exhibitions............................. 1,890 1,362
Miscellaneous........................... 477 509
65,282 66,030
OPERATING EXPENSES:
Sales................................... 21,649 21,827
Event production........................ 584 328
Community............................... 9,364 8,903
General and administrative.............. 21,382 21,041
21
NINE MONTHS
ENDED
SEPTEMBER 30,
2002 2003
(IN U.S. DOLLAR THOUSANDS)
Online services development............. 4,085 3,888
Non-cash compensation expense........... 1,999 1,213
Amortization of intangibles/Software
development cost...................... 2,715 3,533
TOTAL OPERATING EXPENSES.................. 61,778 60,733
INCOME FROM OPERATIONS.................... 3,504 5,297
NET INCOME................................ $ 3,026 $ 4,678
INCOME FROM OPERATIONS:
Online services......................... 4,890 3,954
Other media services.................... (1,622) 1,792
Exhibitions............................. 5 (907)
Miscellaneous........................... 231 458
CONSOLIDATED.............................. $ 3,504 $ 5,297
NINE MONTHS
ENDED
SEPTEMBER 30,
2002 2003
Asia...................................... $ 61,073 $ 61,179
United States............................. 3,464 4,194
Europe.................................... 354 343
Other..................................... 391 314
Total revenue............................. $ 65,282 $ 66,030
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002
REVENUES
Total revenues grew to $66.0 million during the nine months ended September
30, 2003 from $65.3 million during nine months ended September 30, 2002, a
growth of 1%. Our online services revenue declined marginally by $0.4 million or
1% to $38.3 million during the nine months ended September 30, 2003, as compared
to $38.7 million during the nine months ended September 30, 2002. Revenue from
our other media services grew by $1.6 million or 7% to $25.9 million during the
nine months ended September 30, 2003 as compared to $24.3 million during the
nine months ended September 30, 2002.
We have made substantial progress in developing our customer base in China
as manufacturing and investment moves into China, which has offset much of the
decline in other markets. Revenues from China grew by 20% during the nine months
ended September 30, 2003 compared to the nine months ended September 30, 2002,
making China the Company's largest market. China accounts for 42% of total
revenues for the nine months ended September 30, 2003.
22
Our goal is to be the leading creator and facilitator of global merchandise
trade. Our strategies to achieve and maintain this goal are as follows:
Our primary strategy is to expand in China by facilitating two-way trade.
As manufacturers in the rest of Asia adapt to the seismic shifts being caused by
China's growth, we have anticipated the needs of buyers and suppliers, and have
developed the expertise to address them. For example, our online sourcing
capabilities provide buyers with unrivalled access to the Chinese export
manufacturing powerhouse. We also serve the importing needs of China's high-tech
manufacturers with several publications and associated websites, such as our
popular Electronic Engineering Times.
In 2003 we launched a new line of business called the China Sourcing Fairs.
This will offer international buyers direct access to China and other Asian
manufacturers. The first fair was held during the fourth quarter of 2003. Future
fairs will be held mainly in the second quarter and fourth quarter of each
financial year. We will recognize exhibitor services revenue when the related
event occurs.
Our other key strategy is to improve the penetration of our services in all
of our markets. This includes increasing the adoption and functionality of our
electronic catalog solutions, and expanding our business serving Asia's
high-tech manufacturers located outside China.
Our objective is to steadily increase the usage of our print and online
solutions by bringing together a critical mass of buyers and suppliers. By doing
this, we believe our services will inherently create value for those users.
Then, each new buyer increases the value to suppliers, and likewise, each new
supplier gives buyers more choices. Thus, as our community grows, so does our
leadership position.
OPERATING EXPENSES
Sales. We utilize sales representatives in various territories to promote
our products and services. Under these arrangements, the sales representatives
are entitled to commissions as well as marketing fees. Commission expense is
recorded when the associated revenue is recognized or when the associated
accounts receivable are paid, whichever is earlier, and is included in sales
expenses.
The sales representatives, which are mainly corporate entities, handle
collections from clients on our behalf. We include these collections as well as
cash advances made to the sales representatives in receivables from sales
representatives. As of June 30, 2002, our board of directors of two of these
sales representative companies included a director we nominated to monitor the
receivables collected from our clients by these related party sales
representatives, and to monitor any changes to the authorized signatories of the
depository bank accounts. The nominated directors were our employees. We and the
nominated directors did not have any interest in the share capital of the sales
representatives companies. However as of September 30, 2003 and September 30,
2002, we did not have any nominated directors on the board of directors of any
of our sales representative companies.
Sales costs consists of the commissions and marketing fees paid and
incentives provided to our independent sales representatives and sales support
costs.
Sales costs increased from $21.6 million for the nine months ended
September 30, 2002 to $21.8 million for the nine months ended September 30,
2003, an increase of 1% resulting mainly from the increase in sales.
Event Production. Event production costs consist of costs incurred for
hosting the exhibition events. The event production costs include venue rental
charges, booth construction costs, travel costs incurred for the event hosting
and other event organizing costs.
Event production costs declined from $0.6 million during the nine months
ended September 30, 2002 to $0.3 million during the nine months ended September
30, 2003, a decline of 50% due to decline in event production costs of our
technical seminars and trade shows during the first nine months of 2003.
Community. During the third quarter of 2003, we restructured our
circulation function to enhance its scope and renamed it as community
development. Certain items of costs for the first half of 2003 and prior periods
have been regrouped from general and administrative costs to community costs to
conform to current presentation.
23
Community costs consist of the costs incurred for servicing our buyer
community and for marketing our solutions to the global buyer community. The
community costs also include costs relating to our trade magazine publishing
business, specifically printing, paper, bulk circulation, subscription
promotions and customer services costs.
Community costs declined from $9.4 million during the nine months ended
September 30, 2002 to $8.9 million during the nine months ended September 30,
2003. The decline of 5% was primarily due to a decline in printing charges,
payroll costs and rental costs of premises.
General and Administrative. General and administrative costs consist mainly
of corporate staff compensation, information technology support services,
content management services, marketing costs, office rental, depreciation,
communication and travel costs.
General and administrative costs declined marginally from $21.4 million
during the nine months ended September 30, 2002 to $21.0 million during the nine
months ended September 30, 2003, due mainly to a decline in information
technology support services costs.
Online Services Development. Online services development costs consist
mainly of payroll, office rental and depreciation costs relating to the
enhancements of Global Sources Online.
Online services development costs to fund the expansion of our online
services declined from $4.1 million during the nine months ended September 30,
2002 to $3.9 million during the nine months ended September 30, 2003, a decline
of 5%. This decline resulted mainly from a decline in depreciation costs and
rental cost of premises.
Non-Cash Compensation Expenses. We have issued share awards under several
equity compensation plans (ECP) to both employees and team members. The total
non-cash compensation expense, resulting from the ECP, recorded by us during the
nine months ended September 30, 2003 was $1.2 million compared to $2.0 million
recorded during the nine months ended September 30, 2002. This decline was a
result of the earlier shares awards that were fully vested in April 2003. The
corresponding amounts for the non-cash compensation expenses are credited to
shareholders' equity.
Other Non-Cash Expenses. Other non-cash expenses mainly consist of
amortization of software development costs.
Other non-cash expenses during the nine months ended September 30, 2003
were $3.5 million, compared to $2.7 million for the nine months ended September
30, 2002.
Income from Operations. The total income from operations during the nine
months ended September 30, 2003 was $5.3 million compared to $3.5 million during
the nine months ended September 30, 2002. The improvement primarily was due to
growth in revenue, declines in event production costs, community costs, general
and administrative costs, online services development costs and non-cash
compensation expenses, and was offset partially by an increase in sales costs
and amortization of software development costs. Income from operations for
online services declined from $4.9 million during the nine months ended
September 30, 2002 to $4.0 million during the nine months ended September 30,
2003, a decline of 18%. The decline primarily resulted from an increase in
amortization of software development costs and a decline in online services
revenue.
Income Taxes. We and certain of our subsidiaries operate in the Cayman
Islands and other jurisdictions where there are no taxes imposed on companies.
Certain of our subsidiaries operate in Shenzhen, China, Hong Kong SAR and
Singapore and are subject to income taxes in their respective jurisdictions.
Also, we are subject to withholding taxes for revenues earned in certain other
countries.
We reported a tax provision of $0.3 million during the nine months ended
September 30, 2003 and $0.6 million during the nine months ended September 30,
2002.
Net Income. Net income was $4.7 million during the nine months ended
September 30, 2003, compared to a net income of $3.0 million during the nine
months ended September 30, 2002. The improvement was mainly due to growth in
revenue, declines in event production costs, community costs, general and
administrative costs, online services development costs, non-cash compensation
expenses, income taxes and increases in foreign exchange gain, offset partially
by decline in interest income, increases in sales costs, in amortization of
24
software development costs and the share of profits attributable to a minority
shareholder during nine months ended September 30, 2003 due to profitable
performance of a subsidiary.
FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
REVENUE
During the year ended December 31, 2002, our online services revenue
declined by $4.2 million or 8% to $51.3 million as compared with $55.5 million
during the year ended December 31, 2001. Revenues from our other media services
declined by $3.3 million or 9% to $33.1 million during the year ended December
31, 2002 as compared with $36.4 million during the year ended December 31, 2001.
Total revenues for the year ended December 31, 2002 were $87.5 million compared
with $95.3 million for the year ended December 31, 2001, a decline of $7.8
million or 8%.
Revenues have been affected by the poor global economy, and especially the
severe recession in some of our traditional markets, Hong Kong SAR and Taiwan,
which accounted for 60% of our revenues for fiscal year 2000. However, we have
made substantial progress in developing our customer base in China as
manufacturing and investment moves into China, which has offset much of the
decline we have experienced in other markets. Revenues from China grew by 10%
during fiscal year 2002, making China our largest market and China accounted for
38% of total revenues in fourth quarter of fiscal year 2002.
OPERATING EXPENSES
Sales. Sales costs consist of the commissions and marketing fees paid and
incentives provided to our independent sales representatives and sales support
costs. Sales costs declined from $31.2 million during the year ended December
31, 2001 to $28.7 million during the year ended December 31, 2002, a decline of
8% due mainly to a decline in revenue.
Event Production. Event production costs consist of costs incurred for
hosting the exhibition events. The event production costs include venue rental
charges, booth construction costs, travel costs incurred for the event hosting
and other event organizing costs.
Event production costs increased from $0.8 million during the year ended
December 31, 2001 to $0.9 million during the year ended December 31, 2002, an
increase of 13% due to an increase in event organizing costs.
Community. Community costs consist of the costs incurred for servicing our
buyer community and for marketing our solutions to the global buyer community.
The community costs also include costs relating to our trade magazine publishing
business, specifically printing, paper, bulk circulation, subscription
promotions and customer service costs.
Community costs declined slightly from $12.7 million during the year ended
December 31, 2001 to $12.5 million during the year ended December 31, 2002, a
decline of 2% due to a decline in printing costs and paper consumption.
General and Administrative. General and administrative costs consist mainly
of corporate staff compensation, information and technology support services,
content management services, marketing costs, office rental, depreciation,
communication and travel costs.
General and administrative costs declined from $32.7 million during the
year ended December 31, 2001 to $28.9 million during the year ended December 31,
2002, a decline of 12% due to our cost reduction measures that resulted in a
decline in marketing expenses, information technology support costs,
telecommunications costs and payroll costs, and a decline in content management
services costs in the first half of 2002.
Online Services Development. Online services development costs consist
mainly of payroll, office rental and depreciation costs relating to the
enhancements of Global Sources Online.
Online services development costs to fund the expansion of our online
services declined from $8.4 million during the year ended December 31, 2001 to
$5.4 million during the year ended December 31, 2002, a decline of 36%. This
decline resulted from reductions in fees paid to consultants and capitalization
of expenses related to the internal development of new software and software
tools.
25
Non-Cash Compensation Expenses. We have issued share awards under several
equity compensation plans ("ECP") to both employees and team members. The total
non-cash compensation expense, resulting from the ECP, recorded by us during the
years ended December 31, 2002 and 2001 was $2.6 million and $2.5 million,
respectively. The corresponding amounts for the non-cash compensation expenses
are credited to Shareholders' equity.
Other Non-Cash Expenses. Other non-cash expenses consist of amortization of
software development costs and amortization of intangibles.
Other non-cash expenses during the year ended December 31, 2002 were $3.7
million, consisting primarily of amortization of software development costs,
compared to $3.5 million for the year ended December 31, 2001, consisting of
$3.1 million for amortization of software development costs and $0.4 million for
amortization of intangibles.
Income from Operations. Income from operations for online services grew to
$6.3 million during the year ended December 31, 2002 from $6.0 million during
the year ended December 31, 2001, an increase of 5%. The improvement primarily
resulted from declines in sales costs, general and administration costs and
online development costs compared to last year, offset partially by the decline
in online services revenue. The total income from operations during the year
ended December 31, 2002 was $4.8 million compared to $3.4 million during the
year 2001. The improvement primarily was due to declines in sales costs, general
and administration costs and online development costs compared to last year,
offset partially by the decline in total revenues.
Income Taxes. We and certain of our subsidiaries operate in the Cayman
Islands and other jurisdictions where there are no taxes imposed on companies.
Certain of our subsidiaries operate in Hong Kong SAR and Singapore and are
subject to income taxes in their respective jurisdictions. Also, we are subject
to withholding taxes for revenues earned in certain other countries.
We reported a tax provision of $0.7 million during the year ended December
31, 2002 and $1.1 million during the year ended December 31, 2001.
Net Income
Our net income was $4.3 million during the year ended December 31, 2002,
compared to a net income of $0.8 million during the year ended December 31,
2001. The improvement primarily was due to declines in sales costs, general and
administration costs, online development costs and exchange loss compared to the
year ended December 31, 2001, and the $1.2 million write-down of investments
recorded in year 2001 and offset partially by a decline in revenue.
LIQUIDITY AND CAPITAL RESOURCES
We financed our activities for nine months ended September 30, 2003
using cash generated from our operations.
Net cash generated from operating activities was $17.9 million during the
nine months ended September 30, 2003, compared to $15.3 million cash generated
from operating activities during the nine months ended September 30, 2002. The
primary source of cash from operating activities was collections from our
customers received through our independent sales representatives.
Net cash used for investing activities was $8.8 million during the nine
months ended September 30, 2003, which was used principally for capital
expenditures for computers, software, software development, leasehold
improvements, a motor vehicle and purchase of available-for-sale securities. Net
cash used for investing activities during the nine months ended September 30,
2002 was $23 million, which was used principally for capital expenditures for
computers, software, software development, leasehold improvements and purchase
of available-for-sale securities.
Net cash generated from financing activities was $0.03 million during the
nine months ended September 30, 2003, which represents the amount received from
directors for the shares subscribed by them in the directors' stock purchase
plan. Net cash used for financing activities was $0.05 million during nine
months ended September 30, 2002, which represents the amount received from
directors for the shares subscribed by them in the directors' stock purchase
plan.
26
We have an existing credit facility with Bank of Bermuda (Isle of Man)
Limited, which may be drawn in tranches of a minimum of U.S. $1.0 million. The
lender may request that we secure our borrowings under the credit facility. The
credit facility bears interest, payable quarterly in arrears, at the London
Inter-Bank Market Rate plus 0.5%. The credit facility can be used for
investments, working capital and general corporate purposes. Our shareholder,
Hung Lay Si Co. Ltd., has guaranteed all of the obligations under the credit
facility. On March 7, 2003, the credit facility was renewed for $10.0 million
for one year, subject to the same terms and conditions as applicable to the
original facility. We did not draw on that credit facility during the nine
months ended September 30, 2003, and we have no bank debt as at September 30,
2003. Our credit facility expired on March 20, 2004 and we did not renew it.
We continuously monitor collections from our customers and maintain an
adequate allowance for doubtful accounts. While credit losses have historically
been within our expectations and the allowances established, if bad debts
significantly exceed our provisions, additional allowances may be required.
Advance payments received from customers were $25.9 million as of September
30, 2003, compared to $18.3 million as at December 31, 2002, improving our
liquidity. We anticipate that cash on hand and cash generated from operations
will be adequate to satisfy our working capital, capital expenditure
requirements and cash commitments based on the current levels of our operations.
Our capital expenditures during the year ended December 31, 2003 amounted
to $2.3 million and were incurred mainly for computers, software, software
development, leasehold improvements and a motor vehicle. Our capital
expenditures were financed using cash generated from our operations. The net
book value of capital assets disposed during the year ended December 31, 2003
amounted to $0.04 million.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The purpose of this statement is to develop
consistent accounting for asset retirement obligations and related costs in the
financial statements and provides more information about future cash outflows,
leverage and liquidity regarding retirement obligations and the gross investment
in long-lived assets. We adopted SFAS No. 143 effective January 1, 2003 and
believe that the adoption of this standard did not have a material impact on the
Company's financial statements of position, results of operations, or cash
flows.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," which requires additional disclosures
in interim and annual financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The disclosure provisions of SFAS No. 148 are effective for fiscal
years ending after December 15, 2002.
In January 2003, FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN 46 requires a beneficiary to consolidate a variable
interest entity ("VIE") if it is the primary beneficiary of that entity. The
primary beneficiary is defined as having a variable interest in a VIE that will
absorb a majority of the entity's expected losses if they occur, receives a
majority of the entity's expected residual returns if they occur, or both. In
December 2003, FASB completed deliberations of proposed modifications to FIN 46
("Revised Interpretations") resulting in multiple effective dates based on the
nature as well as the creation date of the VIE. VIEs created after January 31,
2003, but prior to January 1, 2004, may be accounted for either based on the
original interpretation or the Revised Interpretations. However, the Revised
Interpretations must be applied no later than the Company's first quarter of
fiscal 2004. VIEs created after December 31, 2003 must be accounted for under
the Revised Interpretations. Special Purpose Entities ("SPEs") created prior to
February 1, 2003, may be accounted for under the original or revised
interpretation's provisions no later than the first period ending after December
15, 2003. Non-SPEs created prior to February 1, 2003, should be accounted for
under the revised interpretation's provisions no later than the Company's first
quarter of fiscal 2004. We believe that the adoption of FIN 46 will not have a
material impact on the Company's financial statements of position, results of
operations, or cash flows.
27
In November 2002, the EITF reached consensus on EITF Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables," which
addresses how to account for arrangements that may involve the delivery or
performance of multiple products, services, and/or rights to use assets. The
final consensus of EITF 00-21 is applicable to agreements entered into in fiscal
periods beginning after June 15, 2003. We believe that the adoption of EITF
00-21 does not have a material impact on the Company's financial statements of
position, results of operations or cash flows.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We operate internationally and foreign exchange rate fluctuations may have
a material impact on our results of operations. Historically, currency
fluctuations have been minimal on a year to year basis in the currencies of the
countries where we have operations. As a result, foreign exchange gains or
losses in revenues and accounts receivable have been offset by corresponding
foreign exchange losses or gains arising from expenses. However, during the
Asian economic crisis of 1997 to 1998, both advertising sales and the value of
Asian currencies declined, which caused a significant decline in revenues that
was not fully offset by lower expense levels in Asian operations.
This decline in revenues occurred due to contracts being denominated and
priced in foreign currencies prior to devaluations in Asian currencies. The
conversion of these contract proceeds to U.S. dollars resulted in losses and
reflects the foreign exchange risk assumed by us between contract signing and
the conversion of cash into U.S. dollars. We believe this risk is mitigated
because historically a majority (ranging between 55% to 60%) of our revenues are
denominated in U.S. dollars or are received in the Hong Kong currency which is
currently pegged to the U.S. dollar. Correspondingly, a majority (approximately
85%) of our expenses are denominated in Asian currencies. To the extent
significant currency fluctuations occur in the New Taiwan dollar, the Chinese
renminbi or other Asian currencies, or if the Hong Kong dollar is no longer
pegged to the U.S. dollar, our revenues and expenses fluctuate in tandem thus
reducing the net impact on our profits.
During the nine months ended September 30, 2003 and the nine months ended
September 30, 2002, we have not engaged in foreign currency hedging activities.
In the first nine months of 2003 and the first nine months of 2002, we
derived more than 90% of its revenue from customers in the Asia-Pacific region.
We expect that a majority of our future revenue will continue to be generated
from customers in this region. Future political or economic instability in the
Asia-Pacific region could negatively impact our business.
28
BUSINESS
SUMMARY
We are a leading business-to-business (B2B) media company that provides
information and integrated marketing services, with a particular focus on the
China market. Our mission is to facilitate global trade between buyers and
suppliers by providing the right information, at the right time, in the right
format. Although our range of media has grown, for more than 33 years we have
been in the same basic business of helping buyers worldwide find products and
suppliers in Asia.
Buyers rely on our media to stay current with available purchasing
opportunities. Suppliers use our media to find new buyers and markets for their
products. With our broad range of online, trade magazine and trade show
offerings, we provide comprehensive export marketing media and services.
We have a significant presence across a number of industry sectors
including electronics, fashion accessories, hardware and gifts. We are
particularly strong in facilitating China's two-way trade of electronics,
China's largest import and export sector. Our revenue from China has grown 59%
since 2000.
We serve an independently certified community of more than 400,000 active
members in more than 200 countries and territories. This buyer community has
almost doubled in size from 209,000 at the end of 2000. During 2003, buyers sent
more than 3.8 million requests for information (RFIs) to the 130,000 suppliers
listed on Global Sources Online, up from 2.4 million for the year 2000.
We are diversified in terms of products and services offered, industries
served and our customer base. We have powerful and valuable assets including:
the Global Sources brand; leading products and market positions; a long history
and extensive presence in China; and substantial online leadership and
expertise. We believe that all of these provide a strong platform for success
and that we are well positioned to grow along with China's exports and imports
in the industry segments within which we operate.
INDUSTRY BACKGROUND
Global Trade and the Role of China
Over the past few decades, as communications and logistics technologies
have improved and as more free trade agreements have been signed, international
trade has grown at a pace far exceeding the growth of overall global production.
For example, from 1990 to 2002, world exports increased at an average annual
rate of 6.0% while world GDP grew at an average annual rate of 2.2%. Asia, and
China in particular, have been significant contributors to the growth of global
trade.
According to the World Trade Organization (WTO), China is the world's
fourth largest economy, after the European Union, the United States and Japan.
China is rapidly expanding as both an exporter and an importer of goods and
services. According to the US-China Business Council (UCBC), from 1999 to 2003
China's exports have grown from $195 billion to $438 billion, a compound annual
growth rate (CAGR) of 22%, and its imports have grown from $166 billion to $413
billion, a CAGR of 26%.
China has become a major manufacturer and exporter of a wide range of
products, due to its significant labor cost advantages, large population,
improving quality controls and increasing amounts of foreign investment. Being
admitted to the WTO in 2001 was a very important turning point for China.
Membership led to a dramatic shift in global trade, with more orders flowing to
China and away from traditional supply markets.
As an indicator of China's export strength, exports to the United States
grew by a CAGR of 15% between 1999 and 2003, from $81.8 billion to $152.4
billion. This is in sharp contrast to other traditional trading powers, such as
Taiwan and Hong Kong SAR, which have each experienced an 8% decrease in their
exports to the United States over the same period.
The graph below illustrates the recent growth of China's exports to the
United States across a range of selected product categories.
29
CHINA EXPORTS TO THE US IN SELECTED PRODUCT CATEGORIES (US DOLLARS IN MILLIONS)
INDUSTRY SEGMENT 2001 2002 2003 CAGR*
Household goods $19,296 $24,473 $28,864 22%
Computers and accessories,
peripherals and parts 10,406 14,774 21,988 45%
Sporting goods, footwear, and
toys 15,411 18,166 20,007 14%
Television receivers, VCR's &
other video equip. 2,416 4,276 5,749 54%
Telecommunications equipment 2,069 2,812 3,747 35%
Electric apparatus and parts 2,846 3,115 3,484 11%
Automotive parts and accessories 1,350 1,697 2,144 26%
Source: Foreign Trade Division, U.S. Census Bureau
* Compound annual growth rate
The largest segment of China's overall global trade, for both imports and
exports, is electrical machinery and equipment. According to the UCBC, this
segment includes consumer electronics, semiconductors, computers and
communications equipment. The UCBC estimates that China:
o Exported $89 billion worth of electrical machinery and equipment in
2003. This is up 36% from 2002 and represents 20% of China's total
exports.
o Imported $104 billion worth of electrical machinery and equipment in
2003. This is up 42% from 2002 and represents 18% of China's total
imports.
With a population that is more than 15 times as large as Hong Kong SAR,
Taiwan and Korea combined, and with comparably more manufacturing facilities,
the potential scale of China as an exporter is very substantial. China's
exporters include state-owned enterprises, joint ventures and a rapidly growing
number of entrepreneurial companies. Many of these companies are relatively
inexperienced with exporting.
With thousands of manufacturers spread across vast regions, and given the
large distances between them and their customers, it is difficult for buyers and
suppliers to identify and communicate with each other. Accordingly, buyers'
search and evaluation costs, and suppliers' advertising and marketing expenses
can be substantial.
The Role of Media in Global Trade
In global trade, media play a key role in helping suppliers and buyers
find, connect and transact with each other. To facilitate this, media companies
provide three major offerings - online marketplaces, trade publications and
trade shows. Many media companies, however, offer just one or two of these types
of media.
For media companies doing business in Asia, the fragmentation existing in
many markets presents significant challenges. They need to find, qualify and
visit tens of thousands of suppliers and then assist them to promote their
products to the global marketplace. Building a sales force to contact these
suppliers is a significant undertaking and typically requires substantial
financial and manpower commitments and resources. In particular, there is a huge
challenge to effectively and efficiently hire, train and manage a network of
sales representatives across such an immense area, where multiple jurisdictions
have varying legal requirements, languages, currencies and customs.
Buyers rely on media to stay current with all available purchasing
opportunities. They use the media to identify and pursue new suppliers with
which they can compare both pricing and product quality with their existing
suppliers. They also seek to purchase new product lines appropriate to their
distribution channels. Buyers choose media based on the quality and quantity of
information relevant to their interests, and on the range and flexibility of the
formats and delivery methods.
30
Most suppliers frequently introduce new products and actively seek new
buyers and markets through the use of media. Their objective is to make sure
their products are seen by as many potential buyers as possible, and sold to
buyers that will provide them the best price and the right order size. Suppliers
select media based on the number and quality of buyers reached, and on the
reputation of the medium and its cost. Also, particularly in China, creative
services for ad design and English language copywriting play a significant role
in media selection. Suppliers measure the return on their promotional
investments by the quantity and quality of sales leads, or RFIs, that they
receive, and where possible, by the actual orders generated.
Operators of online marketplaces generate most of their business from
selling marketing services to suppliers, such as hosting and publishing a
suppliers' website or catalog, and from advertising. Online marketplaces have
the advantages of content depth and timeliness and provide a venue where
suppliers can make detailed product and company information accessible to
buyers. In the past several years, the use of the Internet for sourcing and
purchasing activities has increased significantly. In the United States for
example, Forrester Research and the Institute for Supply Chain Management stated
that 69% of companies surveyed ecently indicated that they were using the
Internet as part of the request for proposal (RFP) process.
Trade magazine publishers garner the vast majority of their revenue from
the sale of advertising. Magazines offer buyers the convenience of portability
while offering suppliers a proven medium that delivers a targeted audience.
Magazine advertising formats are effective since they enable suppliers to do
high-impact, display advertising that can strongly position their company and
their products. Advertising in trade magazines contributes greatly to making
buyers aware that a company is a potential supplier, and if the buyer is in an
active sourcing mode, these advertisements often stimulate the buyer to make an
inquiry or to visit the supplier's website.
Trade show organizers generate most of their business from selling booth
space to suppliers. Trade shows play a unique role in the sales process since
they allow sellers to make face-to-face presentations to buyers and to negotiate
and take orders at the booth. In international trade, this is something that
cannot be accomplished by online or print media.
Many suppliers want to reach their customers and prospects in multiple
ways: online, in print and in person at trade shows. Suppliers need this full
range of media to make sure they reach their entire target market, because of
the benefits of different exposures to buyers, and because each of the media
plays a different role in the sales cycle.
OUR OFFERINGS
Our primary business relates to connecting buyers worldwide with suppliers
in Asia and other emerging markets. However, we also enable trade in the other
direction with a range of media that facilitate selling to Asia and China.
We provide a broad set of business-to-business (B2B) media products and
services to stimulate and streamline the marketing and sourcing processes of
global trade. In particular, we believe that we are the largest company offering
such an integrated solution to suppliers and buyers engaged in international
trade with China.
Buyers request information and purchase goods from suppliers who market
themselves through our online services, trade magazines, CD-ROMs and trade
shows. We provide information to help buyers evaluate numerous sourcing options
so they can place orders with suppliers that offer them the best terms. We help
suppliers market their products and their capabilities to our community of
buyers worldwide. By receiving inquiries from a wide selection of buyers,
suppliers have more opportunities to achieve the best possible terms, and to
learn about the demand and specific requirements in different markets.
With the combination of our print, online and trade show offerings,
supported by our creative and production services, we offer suppliers a virtual
one-stop shop for most of their export marketing communications needs.
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Media for Buyers Worldwide
Online Services
Through Global Sources Online, our online marketplace, buyers are able to
identify and make inquiries to suppliers. Our primary source of revenue is from
suppliers who pay for marketing websites. Each marketing website is comprised of
a home page, a company profile and a virtual showroom containing product profile
pages on the supplier's products. Each product profile page contains detailed
product information, specifications and full color images. Many suppliers choose
to supplement their marketing websites with additional online marketing
services. For example, suppliers can sponsor a particular product or other
search category and when a buyer searches that category, the supplier's banner
advertisement is displayed promoting its products or services, with a link to
that supplier's marketing website.
Buyers may search Global Sources Online by product, keyword, supplier or
country. Buyers can reach a large potential supply base by searching among,
and/or making inquiries to the 130,000 suppliers who are categorized according
to the products they can supply. In listing suppliers for a specific product, we
give prominence to those who maintain marketing websites with us.
A key feature of Global Sources Online for buyers is the standard format
for suppliers' information, making it unnecessary for buyers to leave our
website to visit numerous individual supplier websites, each with a different
data structure and design. Another important feature is our "Product Alert."
Buyers register their profiles and are then notified by e-mail whenever there is
new advertising or editorial content in the product categories they specified.
Trade Publications
We publish seven monthly publications, plus other quarterly and seasonal
publications, that are circulated to buyers worldwide. Our trade publications
contain paid advertisements from suppliers, as well as our independent editorial
features, which include market reports and product surveys. In addition to our
paid subscription base, we distribute samples of our trade magazines and CD-ROMs
free of charge to prospective buyers worldwide at a variety of trade shows and
events. Our CD-ROMs provide buyers with an offline, electronic means of
accessing content found within the industry sectors on Global Sources Online. We
do not charge suppliers separately for including their information on CD-ROMs.
Trade Shows
We have six China Sourcing Fairs scheduled for 2004 in Shanghai. The shows
bring buyers from around the world to meet face-to-face with Chinese suppliers.
The first China Sourcing Fair was held in Shanghai in October 2003. It featured
nearly 600 booths and was attended by 15,000 buyers from more than 100 countries
and territories.
Our online Trade Show Center provides extensive event, exhibitor and
product information and enables buyers to search for products, send inquiries or
make appointments with suppliers at the listed events. We also publish show
guides with CD-ROMs for China Sourcing Fairs.
Advertising Creative Services
We offer our customers advertising and marketing creative services, which
assist them in communicating their unique selling propositions and in executing
integrated marketing campaigns across our online services, trade magazines and
trade shows. Account managers and copywriters in our customer service centers
assist suppliers with various creative services - including digital photography
of products, translation, copywriting, ad layout and quality control. Basic
media and creative services are included in our media charges.
Private Catalogs
My Catalog is an online service for buyers to make their sourcing and
purchasing activities more efficient. My Catalog has all the functionality of
Global Sources Online plus additional content, functionality and support. My
Catalog enables buyers to maintain personalized product and supplier information
for current
32
and/or potential suppliers. As of March 2004, a variety of companies were using
this service including large buying organizations such as AEON, Best Buy and
Kingfisher.
Our Private Supplier Catalogs enable suppliers to enter, manage, update and
distribute their product and company data for a variety of online marketing and
cataloging applications. We provide tools within the catalog to assist suppliers
with creating, updating and posting content.
Our online catalog offerings are maintained in a private,
password-protected environment where the catalog user has the sole right of
access and data entry. We currently derive little revenue from these services.
Media for Asian Engineers and Executives
In addition to our primary media, which connect export suppliers in Asia
with buyers worldwide, we are a leading provider of information to electronics
engineers and executives within Asia. For this segment of our business, we have
six websites, seven magazines and host several conferences and events each year.
STRATEGY
Our objective is to be the preferred provider of essential information and
integrated marketing solutions in the markets we serve, with a particular
emphasis on the large and rapidly growing China market. Our primary strategy to
achieve this objective is to serve our industry sectors with each of online,
trade publication and trade show media. This full range of media enables
suppliers to reach their target market in multiple ways. This strategy can also
enable us to achieve a competitive advantage versus other media companies who do
not provide this full range of media.
Our focus for growth is to invest in the organic development of our core
businesses and competencies, where we believe significant opportunities exist,
and to seek acquisitions and alliances. More specifically, there are five
principal components of our growth strategy:
o Continue to Expand in China. We are significantly expanding our sales
representation, marketing and infrastructure in China to enable us to
grow our revenue along with the anticipated growth of China trade in
the industry sectors we serve. Our revenue from China has grown
approximately 59% since 2000 and we expect revenue from China to
continue to grow.
o Expand Trade Show Business. Our primary initiative is to launch more
trade shows. Building on the success of our first China Sourcing Fair,
which was held in October 2003, we currently have six China Sourcing
Fairs scheduled in 2004. We are looking to expand the number of
exhibitors, industry sectors served, frequency, and locations where
our trade shows are held.
o Add New Customers for Existing Services. To date, we have sold our
solutions to a relatively small number of the 130,000 suppliers
currently listed on Global Sources Online. We believe we can
significantly increase the number of suppliers who will purchase our
online marketplace, trade publication and trade show services for
three primary reasons: the overall strength and differentiation of our
services; the largest community of independently certified buyers we
ave involved in global B2B trade; and the increasing number of buyers
making inquiries through Global Sources Online. We also intend to
further penetrate the high-tech sector in Asia, which we serve in
several languages, and where we see significant potential to continue
to increase our revenue.
o Cross-Sell Services to Existing Customers. We believe that we can
increase our revenues by cross-selling our existing products and
services to suppliers who are already customers. We see significant
potential to convince more of our online marketplace and trade
publication customers to also exhibit in our trade shows; and to
convince more of our trade show exhibitors to also become customers of
our online marketplaces and trade publications.
o Seek Acquisitions, Joint Ventures and Alliances. We intend to
selectively pursue acquisitions, joint ventures and alliances to help
us accelerate achievement of our strategic goals and maintain and
achieve market-leading positions. Specific objectives currently
include: gaining greater penetration into existing or adjacent
additional industry sectors, expanding into new industry sectors, and
gaining access to a larger number of potential users.
33
At the core of our strategy is one basic goal: to steadily increase the
usage of our media. As we do this, we expect to increase the size and loyalty of
the communities we serve. Our belief is that as our community of active buyers
increases, our products and services become increasingly attractive to
suppliers. As the number of buyers and sellers using our products and services
grows, our offerings become incrementally more attractive to additional buyers
and sellers, which we believe will drive revenue growth through further adoption
of our online, publication and trade show products and services.
PRODUCTS & SERVICES
Media for Buyers Worldwide
Online Services
Global Sources Onlines, our primary online service, is comprised of the
following industry sector marketplaces:
Computer Products Hardwares
Electronic Components Security Products
Electronics Telecom Products
Fashion Accessories & Supplies Timepieces
Gifts & Home Products
Trade Publications
We publish the following industry-specific trade magazines monthly:
Asian Sources Computer Products Asian Sources Gifts & Home Products
Asian Sources Electronic Components Asian Sources Hardwares
Asian Sources Electronics Asian Sources Telecom Products
Asian Sources Fashion Accessories & Supplies
We also publish the following specialized magazines and CD-ROMs seasonally
and/or for special trade events:
Global Sources Electronic Components Global Sources Security Products
Global Sources Lighting Products Global Sources Timepieces
Trade Shows
TRADE SHOW DESCRIPTION
China Sourcing Fair: DIY & Home Improvement o Primary product categories include: DIY & home
center; furniture & furnishings; garden & outdoor
products; and lighting & electrical.
o Spring and fall 2004 events in Shanghai
China Sourcing Fair: Gifts & Home Products o Primary product categories include: gifts, premiums
& toys; sporting goods; Christmas & holiday products;
stationery; health & beauty products; and kitchen &
household appliances.
o Spring and fall 2004 events in Shanghai
China Sourcing Fair: Electronics & Components o Primary product categories include: personal &
mobile electronics; computers & networking products;
electronic components; security & safety products;
telecom products & accessories; and home & office
electronics.
o Spring and fall 2004 events in Shanghai
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Media for Asian Engineers and Executives
Magazines
MAGAZINE DESCRIPTION
Electronic Engineering Times - Asia o Editions published bi-weekly in simplified and
traditional Chinese, Korean and English; covers the
latest technology and design techniques for
electronics engineers.
Electronic Buyers' News - China o Published monthly in simplified Chinese; delivers
technology and business intelligence required by
procurement, production and corporate management who
oversee electronics manufacturing in China, select
technology solutions and approve vendor selection.
Chief Executive China o Published monthly in simplified Chinese; serves
mainland China senior management with case studies
and information on management techniques
and strategies.
Websites
WEBSITE DESCRIPTION
Electronic Engineering Times - Asia Online o Provides industry news, new product information and
feature stories covering electronic technology and its
application; websites in traditional and simplified
Chinese, English and Korean.
Electronic Buyers' News - China Online o Provides global and local industry news,
technology trends and product updates in
simplified Chinese.
Chief Executive China Online o A resource focusing on excellent management
practices for China's business leaders in
simplified Chinese.
Trade Shows and Exhibitions:
TRADE SHOW DESCRIPTION
The 9th Annual International IC-China o Mainland China's premiere showcase of integrated
Conference & Exhibition circuits (IC) application technologies and high-end
components.
o March 2004 events in mainland China
The 4th Annual Embedded Systems o Embedded systems design, skills training
and Conferences-Asia & China technologies in mainland China and Taiwan.
o March 2004 events in mainland China and July 2004 in
35
Taiwan
The 3rd EDA & Test-China Conference & o Asia-Pacific's largest, longest-running showcase of
Exhibition & 12th EDA & Test-Taiwan electronic design automation and test technologies.
Conference & Exhibition o March 2004 in mainland China and July 2004 in Taiwan
Franchising China 2004 Conference & o China's foremost showcase of international
Exhibition franchising concepts.
o November 2004 events in mainland China
CUSTOMERS
We provide services to a broad range of international buyers and suppliers
in various industry sectors.
Suppliers
During 2003, more than 6,600 suppliers paid us for marketing or advertising
services. More than 5,900 of these suppliers were located in greater China,
including approximately 3,100 located in mainland China, 1,900 in Taiwan and 950
in Hong Kong. Customers during 2003 included: Analog Devices, Hitachi,
Honeywell, Matsushita, Motorola Semiconductor, NEC, Philips, Seiko, TDK, Texas
Instruments and Toshiba. However, most customers do not have brands or company
names that are well-known by those not involved in our industry sectors. None of
our supplier customers represented more than 2% of our revenue during 2003.
Buyers
For our primary group of media, which connect export suppliers in Asia with
buyers worldwide, we serve an independently certified community of more than
400,000 active members in more than 200 countries and territories. This figure
is based on procedures to ensure that only buyers who have received a magazine
or a CD-ROM, or who have made an inquiry through the Global Sources website
(www.globalsources.com) within the 12 month period ended December 31, 2003 are
extracted from the databases. This community is up from approximately 209,000 at
the end of 2000, representing a compound annual growth rate of 24%.
We have developed our services primarily for retailers, distributors and
manufacturers who import in volume for resale. We serve a specialized group of
senior executives with large import buying power. We believe a significant
portion of these executives are owners, partners, presidents, vice presidents,
general managers or directors of their respective companies.
We derive a relatively small proportion of our total revenue from these
buyers for subscriptions to our magazines, reports, and to My Catalog.
SALES AND MARKETING
Our sales organization consists of approximately 870 independent
representatives in approximately 60 cities worldwide, with 45 of these locations
in Greater China. We have a staff of nine full-time employees that oversee and
monitor the independent sales representative organizations that employ these
representatives. These organizations operate pursuant to service agreements with
us that generally are terminable by either party on short notice. These
representatives focus on developing and maintaining relationships with suppliers
that are current customers and they seek to increase the number of new suppliers
using our services. Substantially all of our contracts with suppliers are
entered into directly between the supplier and us. Online services and print
advertising revenue is seasonal and tends to be highest in the fourth quarter of
each calendar year. Revenue for trade shows is highly seasonal as it is
recognized in the month in which each show is held. Our sales representatives
collectively make an average of 40,000 supplier visits per month. The largest
representative sales offices are located in Beijing, Guangzhou, Shanghai,
Shenzhen, Hong Kong SAR and Taipei. Our four largest sales representatives in
China accounted for approximately 43% of our total revenue in 2003.
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Our marketing strategy leverages our database of approximately 130,000
suppliers currently listed on Global Sources Online. Sophisticated analyses of
buyer and supplier profile data enable us to target our sales and marketing
programs to new geographic areas, and to specific product categories within
industry sectors.
Our sales representative organization is generally structured to offer an
integrated marketing solution of our media to customers. With this approach, the
focus is on the customers' needs as opposed to separate sales representatives
selling individual media. Our community development group is responsible for
marketing our services to the global buyer community through online
advertisements and promotions, trade shows and direct mail campaigns.
CONTENT DEVELOPMENT
Our content development group, comprised of 289 team members, is
responsible for compiling, editing, integrating and processing the content that
appears in our online services, print media and CD-ROMs. Within content
development, the advertisement operations and editorial groups compile materials
from suppliers and freelance writers, respectively, and transform these
materials into the advertising and editorial content. Research teams analyze
customer content usage to direct content development and they work with sales
representatives and marketing staff to develop appropriate content for new
industry sectors. Our site team is responsible for evaluating and integrating
content into our online services, as well as maintaining the overall integrity
of such services. In addition, members of the content development group manage
the pre-press production work and print production processes associated with the
creation of our trade magazines. They also maintain the back-end supplier
database, which is the foundation for our online supplier and product
information.
STRATEGIC RELATIONSHIPS
We own 60.1% of a joint venture with CMP Media Inc., through UBM Asia B.V.,
a subsidiary of United News & Media plc. We entered into the joint venture in
September 2000, to provide new technology content, media and online services for
the Asian electronics market, focusing on new opportunities in the greater China
market. During 2001, we increased the frequency of the joint ventures'
publications.
In November 2001, we formed a strategic alliance with the WorldWide Retail
Exchange (WWRE), to offer a supplier sourcing program for WWRE members and Asian
suppliers.
We have formed license-based partnerships with third parties to operate
regional online marketing services such as South African Sources, and Turkish
Sources. These enable suppliers within the relevant geographic regions to
promote their products and services to buyers located primarily outside of such
regions.
TECHNOLOGY AND SYSTEMS
We use a combination of commercial software and internally developed
systems to operate our websites and services. We have invested more than $34.1
million from 1995 to September 30, 2003 in online services development. As of
December 31, 2003, we had 138 team members engaged in technology development,
maintenance, software customization and data center operations.
Our online marketplace services are run on the Oracle DBMS release 8. The
catalog application that supports Global Sources Online's core functions uses a
Java Application Platform.
Our servers are hosted by Singapore Telecommunications ("SingTel"). We have
a dedicated 10Mbps link to SingTel's IX backbone, while SingTel maintains a 777
Mbps link to the United States and direct links to most countries in Asia. We
use Storage Tech Enterprise tape back-up systems as well as servers located at
our Singapore facility for back-up. For the year ended December 31, 2003 our
external network had approximately 99.99% uptime availability.
Our platform applications use standard industry database protocols. We can,
therefore, integrate our systems with products from other vendors written in
traditional program languages or more innovative systems. Our Internet offerings
are based on industry standard Web technologies. We may deploy our Web offerings
on any modern Internet browser platform, which means that our Web clients do not
need to download the software onto their personal computers.
All of our systems use secure socket layer, known as SSL, to encrypt
sensitive communications between browsers and Web servers. SSL enables secure
communication by encoding information transmitted
37
over the Internet. We use Extensible Markup Language, referred to in the
industry as XML, as an open communication protocol for information delivery.
COMPETITION
For our online marketplaces, trade magazines and trade show services, the
market is highly fragmented and potential competition and competitors vary by
the range of services provided, geographic focus and the industry sector served.
Some competitors only offer trade shows and other competitors only offer online
services. However, across the range of our services, geographic focus and
industry sectors served, we do not believe that there is a dominant direct
competitor.
We may compete to some extent with a variety of organizations that have
announced their intention to launch, or have already launched, products and
services that compete to a certain degree with ours. These businesses include
business media companies, trade show organizers, consortium exchanges,
government trade promotion bodies, domestic retail marketplaces, international
trade marketplaces, global standards organizations, transaction software and
services providers, electronic sourcing application and/or service providers,
and distributor, sell-side marketplaces. We may be at a competitive disadvantage
to companies that have greater financial resources, that have more advanced
technology, that have greater experience or that offer lower cost solutions than
ours. In addition, some buyers and suppliers may have developed in-house
solutions for the online sourcing and marketing of goods and may be unwilling to
use ours.
INTELLECTUAL PROPERTY
Our primary product and supplier content, in addition to our in-house
produced editorial content, is held under common law copyright. We actively
protect this intellectual property by several means, including the use of
digital watermark technology on the images on our website, which enables us to
identify unauthorized use on other websites.
We have also developed several proprietary technology applications. In the
future, we may apply for patents for these technology applications, where
appropriate. However, we may not be successful in obtaining the patents for
which we applied. Even if we are issued a patent, it is possible that others may
be able to challenge such a patent or that no competitive advantage will be
gained from such patent.
Our intellectual property is very important to our business. We rely on a
combination of contractual provisions, employee and third-party nondisclosure
agreements, and copyright, trademark, service mark, trade secret and patent laws
to establish and protect the proprietary rights of our software and services.
We have registered trademarks for "Asian Sources" and/or "Global Sources"
in Australia, the European Community, Germany, Hong Kong SAR, Indonesia, Israel,
Malaysia, Mexico, Japan, the Philippines, the People's Republic of China,
Singapore, South Africa, South Korea, Switzerland, Taiwan, Thailand, Turkey and
the USA, and we have trademarks pending registration in various countries,
including Australia, the European Community, Hong Kong SAR, India, Indonesia,
Japan, Malaysia, Mexico, the People's Republic of China, the Philippines, South
Africa, Thailand, Turkey and the USA.
We have in the past, and may in the future, co-develop some of our
intellectual property with independent third parties. In these instances, we
take all action that we believe is necessary or advisable to protect and to gain
ownership of all co-developed intellectual property. However, if such third
parties were to introduce similar or competing online services that achieve
market acceptance, the success of our online services and our business,
financial condition, prospects and operating results may be harmed.
GOVERNMENT REGULATION
Our services are subject to government regulation.
Internet Regulation
There are an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state and local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to the liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and the quality of
products and services. Moreover, it may take years to determine whether and how
existing
38
laws, such as those governing issues relating to intellectual property ownership
and infringement, privacy, libel, copyright, trademark, trade secret, design
rights, taxation, and the regulation of, or any unanticipated application or
interpretation of existing laws, may decrease the use of the Internet, which
could in turn decrease the demand for our services, increase our cost of doing
business or otherwise have a material adverse effect on our business, financial
condition, prospects and operating results.
Regulation of Communications Facilities
To some extent, the rapid growth of the Internet in the United States has
been due to the relative lack of government intervention in the marketplace for
Internet access. For example, several telecommunications carriers are seeking to
have telecommunications over the Internet regulated in the same manner as are
certain other telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet service providers in a manner similar to long distance telephone
carriers and to impose access fees on such providers. Some Internet service
providers are seeking to have broadband Internet access over cable systems
regulated in much the same manner as telephone services, which could slow the
deployment of broadband Internet access services. Because of these proceedings
or others, new laws or regulations could be enacted, which could burden the
companies that provide the infrastructure on which the Internet is based,
thereby slowing the rapid expansion of the medium and its availability to new
users.
EMPLOYEES
As of December 31, 2003, we had 464 employees worldwide, the majority of
whom work in management, technical or administrative positions. We consider our
employee relationships generally to be satisfactory. Our employees are not
represented by labor unions and we are not aware of any attempts to organize our
employees. Our team members include full-time employees, independent sales
representatives, consultants and others paid on a contract basis.
The following summarizes the approximate number of employees and
independent contractors by function:
INDEPENDENT
FUNCTION EMPLOYEES CONTRACTORS TOTAL
Content Development......................................... 103 186 289
Corporate Human Resources & Administration.................. 34 38 72
Corporate Marketing......................................... 8 37 45
Community Development....................................... 91 25 116
Sales....................................................... 9 870 879
Publishing.................................................. 17 49 66
Electronic Commerce Services................................ 6 16 22
Information System Department............................... 109 29 138
Corporate Accounts.......................................... 62 57 119
Office of the CEO, COO, CTO................................. 9 -- 9
Legal and Group Secretarial................................. 4 6 10
Conference & Trade Show Services............................ 12 4 16
TOTAL................................................... 464 1,317 1,781
PROPERTIES
We do not own any of our offices. Generally, we lease our office space
under cancelable and non-cancelable arrangements with terms of two to five
years. We also service our customers through independent sales representative
offices located in Australia, Hong Kong SAR, India, Israel, Japan, Malaysia, the
Netherlands, the Philippines, Singapore, Taiwan, Thailand, the United Kingdom,
the United States and over 40 locations in mainland China. We lease in the
aggregate approximately 117,915 square feet of executive and administrative
offices in China, Hong Kong SAR, the Philippines, Singapore and Taiwan. Our
aggregate base rental and building management fee payments for the nine months
ended September 30, 2003 were approximately $1.2 million.
39
LEGAL PROCEEDINGS
We are a party to litigation from time to time in the ordinary course of
our business. We do not expect the outcome of any pending litigation to have a
material adverse effect on our business.
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SENIOR MANAGEMENT AND DIRECTORS
SENIOR MANAGEMENT AND DIRECTORS
The following table sets forth information regarding the persons who are
our senior management and directors.
NAME AGE POSITION
Merle A. Hinrichs................... 62 Director, Chairman and Chief Executive Officer
Eddie Heng Teng Hua................. 53 Director and Chief Financial Officer
J. Craig Pepples.................... 43 Chief Operating Officer
Bill Georgiou....................... 59 Chief Information Officer
James W. W. Strachan................ 52 Executive Vice President, Corporate Development
Sarah Benecke....................... 47 Director
Roderick Chalmers................... 56 Director
Dr. H. Lynn Hazlett................. 67 Director
David F. Jones...................... 39 Director
Jeffrey J. Steiner.................. 67 Director
Mr. Hinrichs has been a director since April 2000 and is currently our
Chairman and Chief Executive Officer. Mr. Hinrichs is our co-founder and was the
principal executive officer of our predecessor company, Trade Media Holdings
Limited, a Cayman Islands corporation which is now wholly owned by us ("Trade
Media"), from 1971 through 1993 and resumed that position in September 1999.
From 1994 to August 1999, Mr. Hinrichs was chairman of the ASM Group, which
included Trade Media. Mr. Hinrichs is a director of Trade Media and has also
been the Chairman of the Board of Trade Media. Mr. Hinrichs graduated from the
University of Nebraska and Thunderbird, the American Graduate School of
International Management ("Thunderbird"). Mr. Hinrichs is a co-founder and
former chairman of the Society of Hong Kong Publishers. He is a member of the
board of trustees of Thunderbird and is a board member of the Economic Strategy
Institute. His term as director expires in 2006.
Mr. Heng has been the Chief Financial Officer (previously entitled vice
president of finance) since 1994 and has been a director since April 2000. He
joined us in August 1993 as deputy to the vice president of finance. He received
an MBA from Shiller International University in London in 1993, is a Singapore
Certified Public Accountant, a member of the Institute of Certified Public
Accountants, Singapore, and a Fellow Member of The Association of Chartered
Certified Accountants in the United Kingdom. Prior to joining us, he was the
regional financial controller of Hitachi Data Systems, a joint venture between
Hitachi and General Motors. His term as director expires in 2004.
Mr. Pepples has been our Chief Operating Officer since June 1999 and is
responsible for our worldwide operations, including interactive media, corporate
marketing, community development, information services, human resources and
finance. Mr. Pepples joined Trade Media in October 1986 in an editorial
capacity, managed Trade Media's sales in China from 1989 to 1992, and served as
country manager for China from 1992 to June 1999. Mr. Pepples graduated with a
B.A. in Linguistics from Yale University.
Mr. Georgiou was appointed our Chief Information Officer (previously Chief
Technology Officer) in January 2001. Mr. Georgiou has had over 20 years'
experience in information technology, most recently as a consultant with 3Com
Technologies during 2000 and as IT Director with Park N'Shop (HK) Ltd., a
subsidiary company of A.S. Watson, from 1999 to 2000. He received his B.Ec.
(Honours degree) and M.B.A. from the University of Adelaide.
Mr. Strachan has been our Executive Vice President, Corporate Development
since May 2000, and is responsible for business development, partner and
investor relations, and strategic planning in North America. Mr. Strachan joined
us in 1979 and became vice president, sales and marketing in 1984. Mr. Strachan
served as a group publisher beginning in 1988 before being appointed executive
vice-president of sales and marketing in 1994. Mr. Strachan received his M.B.A.
from the University of Hawaii.
41
Ms. Benecke has been a director since April 2000, and, since 1993, has been
a director of Trade Media Holdings Ltd. Ms. Benecke was our principal executive
officer from January 1994 through August 1999. She joined us in May 1980 and
served in numerous positions, including publisher from 1988 to December 1992 and
chief operating officer in 1993. Since September 1999, Ms. Benecke has been a
consultant to Publishers Representatives, Ltd. (Hong Kong), a subsidiary of our
company. She is also a director of Hintak Ltd. (Hong Kong). She graduated with a
B.A. from the University of New South Wales, Australia. Her term as director
expires in 2004.
Mr. Chalmers has been a director since October 2000. He was chairman,
Asia-Pacific, of PricewaterhouseCoopers LLP ("PwC") and a member of PwC's Global
Management Board from 1998 until his retirement in July 2000. He was a 30-year
veteran with PwC's merger partner Coopers & Lybrand with specialist experience
in the securities industry. He has at various times been a non-executive
director of the Hong Kong SAR Securities and Futures Commission, a member of the
Takeovers and Mergers Panel, and chairman of the Working Group on Financial
Disclosure. He is a director of Gasan Group Limited (Malta) and Gasan Mamo
Insurance Co. Limited (Malta). His term as director expires in 2006.
Dr. H. Lynn Hazlett has been a director since October 2000. He was a former
chief executive officer and president of QRS Corporation, a leading US-based
provider of supply chain management solutions to the retail industry, until his
retirement in 2000. He previously managed Supply Chain Associates, an
international consulting firm until 1997. Prior to that he was corporate vice
president at VF Corporation, the US apparel company, from 1989 to 1994.
Currently he is the owner and managing partner of RxD Citrus Ltd., a grower of
citrus fruit. He is also managing partner of AMI Bayshore Developer LLC and GFB
LLC, both coastal land development companies. Dr. Hazlett has a doctorate in
Economics and Automated Systems from George Washington University. His term as
director expires in 2005.
Mr. Jones has been a director since April 2000. Mr. Jones was an executive
at MacQuarie Direct Investment, a venture capital firm in Sydney, Australia from
1994 to August 1999. He founded and ran UBS Capital in Australia from July 1999
to September 2002. Since September 2002, Mr. Jones has been a director of Castle
Harlan Australian Mezzanine Partners Pty. Limited, an Australian buyout firm. He
is currently a director of the following companies: Otowa Pty Ltd.; Sheridan
Australia Pty Ltd.; Austar United Ltd.; New Price Retail; and Penrice Soda
Products Pty Ltd. Mr. Jones has an MBA from Harvard Business School and is a
mechanical engineering graduate from the University of Melbourne. His term as
director expires in 2005.
Mr. Steiner has been a director since November 1999. Mr. Steiner also has
been a director of The Fairchild Corporation ("Fairchild") since 1985. He has
been the chairman of the board and chief executive officer of Fairchild from
December 1985 to the present. Mr. Steiner was president of Fairchild from July
1991 to September 1998. His term as director expires in 2006.
In 2003, Mr. Jeffrey Steiner was convicted in France on a charge of
unjustified use (in 1990) of the corporate funds of Elf Acquitaine, which is a
criminal offense in France. Mr. Steiner was given a suspended sentence of one
year and ordered to pay a fine of (euro)500,000 by the French court.
COMPENSATION
For the nine months ended September 30, 2003, we and our subsidiaries
provided our nine directors and executive officers as a group aggregate
remuneration, pension contributions, allowances and other benefits of
approximately $1,821,063 including the non-cash compensation of $301,013
associated with the share award and ECP plans. Of that amount, $90,000 was paid
under a performance based, long-term discretionary bonus plan which we
implemented in 1989 for members of our senior management. Under the plan,
members of senior management may, at our discretion, receive a long-term
discretionary bonus payment. The awards, which are payable in either five or ten
years time, are paid to a member of senior management if his or her performance
is satisfactory to us. There are five current members of senior management and
four former members of senior management who may receive payments on maturity.
Through September 30, 2003, we and our subsidiaries incurred $22,733 in
costs to provide pension, retirement or similar benefits to our respective
officers and directors pursuant to our retirement plan and pension plan.
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EMPLOYMENT AGREEMENTS
We have employment agreements with Merle A. Hinrichs under which he serves
as our chairman and chief executive officer and as president of Global Sources
USA, Inc., one of our subsidiaries. The agreements contain covenants restricting
Mr. Hinrichs' ability to compete with us during his term of employment and
preventing him from disclosing any confidential information during the term of
his employment agreement and for a period of three years after the termination
of his employment agreement. In addition, we retain the rights to all trademarks
and copyrights acquired and any inventions or discoveries made or discovered by
Mr. Hinrichs in the course of his employment. Upon a change of control, if Mr.
Hinrichs is placed in a position of lesser stature than that of a senior
executive officer, a significant change in the nature or scope of his duties is
effected, Mr. Hinrichs ceases to be a member of the board or there is a breach
of those sections of his employment agreements relating to compensation,
reimbursement, title and duties or termination, each of us and such subsidiary
shall pay Mr. Hinrichs a lump sum cash payment equal to five times the sum of
his base salary prior to the change of control and the bonus paid to him in the
year preceding the change of control. The agreements may be terminated by either
party by giving six months notice.
We have employment agreements with each of our executive officers. Each
employment agreement contains a non-competition provision, preventing the
employee from undertaking or becoming involved in any business activity or
venture during the term of employment without notice to us and our approval. The
employee must keep all of our proprietary and private information confidential
during the term of employment and for a period of three years after the
termination of the agreement. We can assign the employee to work for another
company if the employee's duties remain similar. In addition, we retain the
rights to all trademarks and copyrights acquired and any inventions or
discoveries made or discovered by the employee during the employee's term of
employment. Each employment agreement contains a six month's notice provision
for termination, and does not have a set term of employment. Bonus provisions
are determined on an individual basis.
BOARD PRACTICES
Our board of directors consists of seven members divided into three
classes, the terms of which expire at the general meeting of shareholders to be
held in each year indicated above. Each director holds office until his or her
term expires and his or her successor has been elected and qualified. At each
general meeting of shareholders, directors nominated to a class with a term that
expires in that year will be elected for a three-year term. Executive officers
serve at the discretion of the board of directors. Officers are elected at the
annual meeting of the directors held immediately after the annual general
meeting of shareholders. Our executive officers have, on average, 16 years of
service with us. Directors receive a cash fee of $10,000 per year, plus an
additional $2,500 for each board meeting attended.
COMMITTEES OF THE BOARD OF DIRECTORS
We have established an audit committee and an executive committee of our
board of directors. The audit committee recommends the appointment of auditors,
oversees accounting and audit functions and other key financial matters of our
company. David Jones, Roderick Chalmers and Lynn Hazlett are the members of the
audit committee and the board of directors determined that Mr. Chalmers is an
audit committee financial expert as defined under appropriate SEC guidelines.
The executive committee acts for the entire board of directors between board
meetings. Merle Hinrichs and Eddie Heng are the members of the executive
committee.
CODE OF ETHICS
We have adopted a Code of Ethics & Business Responsibilities ("Code of
Ethics") that applies to our chief executive officer, chief financial officer,
chief accounting officer or controller and persons performing similar functions.
Any amendments or waivers to our Code of Ethics that apply to the chief
executive officer or senior financial officers will be promptly disclosed on our
website as required by law or by the Securities and Exchange Commission or by
the Nasdaq National Market.
SHARE OWNERSHIP
Information on the ownership of our Common Shares is given under "Major
Shareholders and Related Party Transactions."
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EQUITY COMPENSATION PLANS
We established The Global Sources Employee Equity Compensation Trust (the
"Trust") on December 30, 1999. The Trust is administered by Harrington Trust
Limited, as trustee. The purpose of the Trust is to administer monies and other
assets contributed to the trustee for the establishment of equity compensation
and other benefit plans, including the equity compensation plans described
below. The number of shares that may be sold pursuant to these plans is limited
to the number of our shares held by the Trust. Following our takeover of Trade
Media on April 14, 2000, the Trade Media shares were exchanged for our common
shares. These Trade Media shares currently represent our common shares. As of
September 30, 2003, the Trust held 2,172,987 of our common shares after
adjustment to reflect the share split resulting from our bonus share
distribution of one share for every ten shares held, as of March 1, 2004. The
Trust has informed us that it does not intend to acquire any additional shares.
In exercising its powers, including the voting of securities held in the Trust,
the trustee may be directed by a plan committee, selected by the board of
directors of one of our wholly owned subsidiaries.
Global Sources Equity Compensation Plans Numbers I, II and III
In March 2000, we adopted the Global Sources Equity Compensation Plans
(ECP) Numbers I, II and III. Employees, directors, consultants, advisors and
independent contractors of ours, our subsidiaries or affiliates are eligible to
receive option grants under ECP I. Employees, directors and consultants of ours,
our subsidiaries or affiliates are eligible to receive grants under ECP II and
III. Options granted under ECP I and II will be exercisable, and coupons granted
under ECP III will be redeemable, for our shares held by the trust.
ECPs I, II and III are administered by the trustee subject to the
directions of the plan committee of one of our wholly-owned subsidiaries. The
plan committee determines who will receive, and the terms of, the options under
ECP I and II. The exercise price of these options may be below the fair market
value of our shares. Under ECP I, payment for shares being purchased upon
exercise of an option may be made in the manner determined by us at the time of
grant. Under ECP II optionees may pay for common share purchased upon exercise
of options by check to the trust. Under ECP II, the number of common shares that
optionees may purchase is based on the number of years they have been employed
by, or have been working with us, our subsidiaries or affiliates.
Under ECP III, outstanding coupons are redeemable for a defined amount of
compensation payable in our common shares, which will be transferred from the
trust to the coupon holders. The number of shares will be determined by dividing
the amount of compensation awarded by an amount determined by the plan
committee. Under each of ECPs I and III, the maximum number of shares that may
be issued to any individual in any calendar year may not exceed 25% of the total
shares available under such plan.
On each of the first three annual anniversaries of the listing of our
common shares on a securities exchange, the trustee will release one-third of
the common shares purchased by an optionee, under ECP II, and one-third of the
shares granted to each coupon holder, under ECP III, if such optionee or holder,
as the case may be, is still employed with us on these dates. Under ECP II, the
consideration paid for any common share purchased by an optionee fired for cause
or who becomes an employee of one of our competitors, but not yet released by
the trustee, will be returned to the optionee by the trust and the right to
receive these shares will be forfeited and revert back to the trustee. Under ECP
III, common shares allotted by, but not yet released by the trustee, to an
employee who is subsequently fired for cause or who becomes an employee of one
of our competitors, are forfeited and revert back to the trustee for future use.
Options are not transferable under ECPs I and II and coupons are not
transferable under ECP III.
Under ECPs I and II, all options held by an optionee terminate on the date
of that optionee's termination for cause or resignation. Death, disability or
retirement does not affect an optionee's right to exercise an option.
All outstanding options are adjusted to preserve the optionee's benefits
under ECPs I and II and all outstanding common shares are adjusted to preserve
the interests of the holders of these common shares under ECP III if there is a
change in the number of our outstanding common shares or an exchange for
securities of a successor entity as a result of our: (i) reorganization; (ii)
recapitalization; (iii) stock dividend; or (iv) stock split.
44
If a person or group of persons acting together becomes the beneficial
owner of at least 50% of our issued and outstanding common shares, by tender
offer or otherwise, all unexercised options under ECPs I and II become
immediately exercisable and all optionees will be entitled to sell to the
trustee all unexercised options at a price equal to the greater of fair market
value or the tender offer price.
If ECPs I, II and III terminate, all optionees will be entitled to sell to
the trustee all unexercised options at a price equal to the difference between
the fair market value of the common shares and the aggregate exercise price of
the options under ECPs I and II and securities and any cash held by the trustee
shall be distributed in equal shares to people who received coupons under ECP
III, upon our: (i) dissolution or liquidation; (ii) reorganization, merger or
consolidation; or (iii) sale of our business. If none of these events occurs,
ECPs I, II and III terminate in February 2010.
The non-cash compensation expense associated with the awards under ECP II
and ECP III of approximately $2,904,000 and $2,357,000, respectively, were
recognized ratably over the three year vesting term from the respective award
dates.
Global Sources Equity Compensation Plans Numbers IV and V
Eligible employees, directors, consultants, advisors and independent
contractors under ECP IV are awarded a defined amount of compensation payable in
Global Sources Ltd. common shares the number of which are determined by the plan
committee periodically.
Entitlement of the employees, directors, consultants, advisors and
independent contractors to these common shares is subject to employment and
vesting terms.
Eligible employees, directors, consultants, advisors and independent
contractors under ECP V were awarded a one-time grant of shares the number of
which were determined by the plan committee.
Entitlement of the employees, directors, consultants, advisors and
independent contractors to these common shares is subject to employment and
vesting terms.
The Equity Compensation Plan committee approved the awards of common shares
under ECP IV and ECP V on January 23, 2001. The Equity Compensation Plan
Committee approved additional awards of common shares under ECP IV on April 1,
2001 and July 1, 2001 and under ECP V in January 2002.
The non-cash compensation expenses associated with the above awards under
ECP IV and ECP V of approximately $3,095,000 and $1,823,000, respectively, are
recognized over the five year vesting term from the respective award dates.
Global Sources Equity Compensation Plan VI
Eligible employees, directors, consultants, advisors and independent
contractors under ECP VI are awarded a one-time grant of our common shares the
number of which are determined by the plan committee.
Entitlement of the employees, directors, consultants, advisors and
independent contractors to these common shares is subject to non-compete and
vesting terms.
The Equity Compensation Plan committee approved the ECP VI on March 13,
2001 and made awards of common shares under the plan on various dates during the
year 2001 and 2002.
The non-cash compensation expenses associated with the awards in accordance
with ECP VI totaling approximately $589,000 are recognized over the five year
vesting term from the respective award dates.
Global Sources Equity Compensation Plan VII
Eligible employees, directors, consultants, advisors and independent
contractors under ECP VII are awarded a grant of a defined number of our common
shares, the number of which are determined by the plan committee periodically.
Entitlement of the employees, directors, consultants, advisors and
independent contractors to these common shares is subject to employment and
vesting terms.
45
The Equity Compensation Plan committee approved the awards of common shares
under ECP VII in January 2002 and made further awards on March 31, 2003 and on
June 19, 2003. The non-cash compensation expenses associated with the above
awards under ECP VII of approximately $1,967,000 are recognized over the six
year vesting term from the respective award dates.
DIRECTORS PURCHASE PLAN
A 2000 Non-Employee Directors Share Option Plan was approved on October 26,
2000 by our shareholders. Each eligible director on the date of the first board
meeting of each calendar year, commencing in 2001, receives the grant of an
option to purchase 22,000 common shares on that date. The options granted are
subject to such terms and conditions as determined by the board of directors at
the time of the grant.
The option price per share, payable before the end of each February, is
determined by the board of directors for each such grant of options. The
non-employee directors may decline all or part of the award, which is
non-transferable.
The board of directors granted the first awards under the above plan in
2001. The option price was fifteen percent less than the average closing price
of the shares for the last five trading days of the previous calendar year. Full
payment must be made upon exercising the option. The award vests over four years
with one quarter of the shares vesting each year. Upon resignation of an
eligible director, all unvested shares are forfeited and the option price
received for the forfeited unvested shares is refunded. Only one director
accepted the offer for the 22,000 shares granted under the option on February
10, 2001. On February 28, 2002, 2003 and 2004, we issued to the director 5,500,
5,500 and 5,500 of our common shares, respectively, that vested on those dates,
adjusted to reflect the share split resulting from our bonus share distribution
of one share for every ten shares held, as of March 1, 2004 . As of September
30, 2003, $164,300 from the proceeds of this plan was included in additional
paid in capital.
As per the terms of the plan, the board of directors granted options to all
eligible directors in February 2002. These awards will vest after four years.
Optionees must pay 15% of the option price, which is the average closing price
of the shares for the last five trading days of year 2001, at the time of
exercising the option. The balance of 85% must be paid on or before the vesting
date. The resignation of a director following his or her exercise of the grant
of options and payment of the option price shall not cause a forfeiture of the
unvested shares. All the eligible non-employee directors accepted the offer
before February 28, 2002. We received $49,896 towards the 15% of the option
price which was included in additional paid in capital.
The board of directors granted options to all eligible directors again in
February 2003. These awards will vest after four years. Optionees must pay 10%
of the option price, which is the average closing price of the shares for the
last five trading days of year 2002, at the time of exercising the option. The
remaining 90% must be paid on or before the vesting date. The resignation of a
director following his or her exercise of the grant of options and payment of
the option price shall not cause a forfeiture of the unvested shares. Three
eligible directors accepted the offer before February 28, 2003. The $29,700
received towards the 10% of the option price was included in the additional paid
in capital.
On May 8, 2003, shareholders approved the amendments to the 2000
Non-Employee Directors Share Option Plan to allow both employee and non-employee
directors to participate in the plan. The plan was renamed as Directors Purchase
Plan by the board of directors on August 14, 2003.
Directors purchasing the shares under the plan pay 10% of the purchase
price which is the average closing price of the shares for the last five trading
days of year 2003, on or before February 28, 2004. The balance of 90% is paid by
February 28, 2008 and the shares will be issued thereafter. The resignation of a
director following his or her purchase of the shares and payment of the 10%
initial installment shall not cause a forfeiture of the purchased shares. Six
directors opted to purchase 22,000 shares each and a director opted to purchase
part of the 22,000 shares. The amount of $92,069 received towards the 10% of the
purchase price will be included in the additional paid in capital.
46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
MAJOR SHAREHOLDERS
The following table sets forth information about those persons who hold
more than 5% of our common shares and the share ownership of our directors and
officers as a group. The information is based upon our knowledge of the share
ownership of such persons on March 29, 2004, after adjustment to reflect the
share split resulting from our bonus share distribution of one share for every
ten shares held as of March 1, 2004.
Prior to November 27, 2003, the Quan Gung 1986 Trust (through Hung Lay Si
Co. Ltd., its wholly owned subsidiary) beneficially owned approximately 61% of
our common shares. Hung Lay Si Co. Ltd. is a company organized under the laws of
the Cayman Islands. The Quan Gung 1986 Trust was formed under the laws of the
Island of Jersey. Counsel to the trustee has informed us that, by virtue of the
terms of the Trust and the laws of the Island of Jersey, the trustee cannot make
disclosure of the names of the beneficiaries and settlor of the Trust in breach
of the obligations placed on it and in accordance with its duties of
confidentiality.
On November 27, 2003, Merle A. Hinrichs acquired 15,033,846 of our common
shares, after adjustment to reflect the share split resulting from our bonus
share distribution of one share for every ten shares held as of March 1, 2004,
representing 51.9% of the outstanding common shares, from Hung Lay Si Co. Ltd.
As a result, Mr. Hinrichs owns approximately 67% of our outstanding common
shares. As consideration for the purchase of the common shares, Mr. Hinrichs
agreed to pay Hung Lay Si Co. Ltd. the purchase price of $109,337,056 payable on
November 27, 2013. Mr. Hinrichs has granted to Hung Lay Si Co. Ltd. a security
interest in all 15,033,846 common shares he purchased pending payment of the
consideration. A copy of the purchase agreement and security agreement was filed
by Mr. Hinrichs with the SEC on Schedule 13D on December 8, 2003, and jointly by
the Trust and Hung Lay Si Co. Ltd. on Schedule 13D/A on the same day, and
reference is made to those filings for the complete terms of the transaction.
The agreements provide that in the event of cash dividends declared and paid by
us, Mr. Hinrichs will pay to Hung Lay Si Co. Ltd. 50% of the dividends for any
of the common shares purchased by Mr. Hinrichs that remain subject to Hung Lay
Si Co. Ltd.'s security interest in the shares. If Mr. Hinrichs wishes to
transfer or sell any shares subject to those agreements to someone other than
Hung Lay Si Co. Ltd., Hung Lay Si Co. Ltd. has a right of first refusal to offer
to purchase those shares. If Hung Lay Si Co. Ltd. waives its right to purchase
the shares, upon consummation of a sale to the other person, at least 80% of the
proceeds of the sale will be applied to the payment of the purchase price. Hung
Lay Si Co. Ltd. may also be deemed, under Securities and Exchange Commission
rules, to be a beneficial owner of the shares in which it has a right of first
refusal and a security interest.
COMMON SHARES BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE
Merle A. Hinrichs.................................... 19,456,863 67.2%
Hung Lay Si Co. Ltd.................................. 2,605,082 9.0%
Harrington Trust Limited............................. 2,394,619 8.3%
Jeffrey J. Steiner (1)............................... 366,808 1.3%
Eddie Heng Teng Hua.................................. * *
J. Craig Pepples..................................... * *
Bill Georgiou........................................ * *
Sarah Benecke........................................ * *
David F. Jones....................................... * *
Roderick Chalmers.................................... * *
Dr. H. Lynn Hazlett.................................. * *
All officers and directors as a group (9 persons).... 19,920,392 68.8%
________________________
* Indicates beneficial ownership of less than 1%.
(1) Mr. Jeffrey J. Steiner may be deemed to beneficially own the same common
shares owned directly or beneficially by The Steiner Group LLC. Mr. Steiner
disclaims beneficial ownership of shares owned by The Steiner Group LLC,
the Jeffrey Steiner Family Trust and shares owned by him as custodian for
his children. The Steiner Group LLC is a Delaware limited liability
company.
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At March 29, 2004, we believe that 3,143,610 of our shares, after
adjustment to reflect the share split resulting from our bonus share
distribution of one share for every ten shares held as of March 1, 2004, or
10.86%, were beneficially owned by U.S. holders and there were 823 shareholders
of record in the U.S.
Mr. Merle A. Hinrichs, our Chairman and Chief Executive Officer,
beneficially owns approximately 67% of our common shares and is deemed our
controlling shareholder.
Our major shareholders do not have different voting rights. We do not know
of any arrangement which may at a subsequent date result in a change in control
of our company.
RELATED PARTY TRANSACTIONS
On December 31, 2002, we had $11,404,000 in net intercompany obligations
due to our former controlling shareholder.
These obligations arose from:
o the transfer of intangibles, including copyrights for magazines, from
Hung Lay Si Co. Ltd. to us in 1983; and
o allocations of operating expenses from Hung Lay Si Co. Ltd. and its
affiliates to us prior to year 2000, when we became a public company
pursuant to a share exchange.
Effective January 1, 2000, we executed an unsecured promissory note in the
principal amount of $11,404,000 to establish the repayment terms of these
intercompany obligations owed to Hung Lay Si Co. Ltd. On January 1, 2005, we
will begin repayment of this promissory note by making quarterly payments of
principal and interest over the following ten years. Interest will accrue
beginning on January 1, 2005 at the U.S. Federal Funds rate on the following
business day and will be adjusted quarterly. For each subsequent interest
period, the interest rate will be the U.S. Federal Funds rate on the first
business day of the applicable calendar quarter. If we fail to make a timely
payment, the interest rate on that payment will be adjusted quarterly to equal
2% over the U.S. Federal Funds rate on the first business day of each calendar
quarter that payment and the accrued but unpaid interest are outstanding until
that payment is made. The interest that accrues on the unpaid amount will be
payable quarterly unless Hung Lay Si Co. Ltd. demands immediate payment. If we
fail to make a payment, Hung Lay Si Co. Ltd. may also accelerate the promissory
note and demand full payment.
We have extended loans to some of our employees for the sole purpose of
financing the purchase or lease of a residence. The loans for the purchase of a
residence are secured by that residence, bear interest at a rate of LIBOR plus 2
to 3%, generally have a term of ten years and become due and payable immediately
upon the termination of the employee's employment. The loans for the lease of a
residence are unsecured, interest free and are repayable in equal monthly
installments over the period of the lease, which is typically less than or equal
to 12 months. The maximum loan amounts are limited to the lower of the aggregate
of two years' gross compensation of the borrower or $500,000. The loans were
made upon terms and subject to conditions that are more favorable to the
borrowers than those that would customarily be applied by commercial lending
institutions in the borrower's country of employment. Since the beginning of
2000, the largest aggregate amount of indebtedness of Mr. Pepples to us,
outstanding at any time during such period, was approximately $32,233. Mr.
Pepples has repaid his loan in full in November 2002. Mr. Pepples' loan was
interest free and unsecured. Except for the aforementioned loan, there were no
other loans due from our directors and executive officers as at December 31,
2002 and September 30, 2003. We do not expect to extend loans to our directors
or executive officers to the extent such loans would be prohibited by the
Sarbanes-Oxley Act of 2002.
We lease approximately 90,157 square feet of our office facilities from
companies controlled by a wholly-owned subsidiary of Hung Lay Si Co. Ltd. under
cancelable and non-cancelable operating leases and incur building maintenance
services fees to our former affiliated companies. We incurred rental and
building services expenses of $577,272 during the nine months ended September
30, 2003. We also receive legal, secretarial and treasury management consultancy
services from wholly-owned subsidiaries of Hung Lay Si Co. Ltd. The expenses
incurred for these services during the nine months ended September 30, 2003 was
$200,177.
On March 17, 2000 we entered into a revolving credit facility with Bank of
Bermuda (Isle of Man) Limited. The credit facility has a term of one year and
provides for borrowings of up to $25.0 million, with
48
minimum borrowings of $1.0 million. The lender may request security from time to
time to secure borrowings under the credit facility. The credit facility bears
interest, payable quarterly in arrears, at the London Inter-Bank Market Rate
plus 0.5%. The credit facility may be used for investments, working capital and
general corporate purposes. If any payment is not made when due, the interest
rate will increase by 2% on the aggregate amount outstanding and will be payable
in arrears and, if not paid when due, will be compounded. The loan may not be
prepaid prior to the end of any quarter, but if the bank notifies us of its
intention to charge a maintenance fee to cover its costs for the facility, we
may prepay without penalty the amount outstanding within seven days of the
bank's notice. When we entered into the credit facility, we paid the bank an
arrangement fee of approximately $16,000. Hung Lay Si Co. Ltd. guaranteed all of
our obligations under the credit facility. Hung Lay Si Co. Ltd. did not receive
a fee for issuing this guarantee. We repaid the loan in full by December 31,
2001.
On March 20, 2002, we renewed the credit facility for $10.0 million for one
year subject to the same terms and conditions as applicable to the original
facility. We did not draw on the credit facility during our fiscal year 2002. On
March 7, 2003, we renewed the credit facility for $10.0 million for a further
one year period subject to the same terms and conditions as applicable to the
original facility. We did not draw on the credit facility during our fiscal year
2003. We did not renew the credit facility for 2004.
We also have a documentary credit facility with the Hongkong and Shanghai
Banking Corporation Limited, for providing documentary credits to our suppliers.
As at December 31, 2002, this facility had a maximum limit of $0.8 million. One
of our former fellow subsidiaries has guaranteed our obligation under this
facility. This facility has been renewed during the year 2003 for a maximum
limit of $0.577 million and at the time of renewal, the guarantee given by our
former fellow subsidiary was released. The largest amount outstanding under this
facility during the nine months ended September 30, 2003, prior to the renewal
date, was $0.475 million.
For further information on these transactions, see the notes to our audited
consolidated financial statements included elsewhere in this prospectus.
We believe these transactions are commercially reasonable in the
jurisdictions where we operate and for our employees where they reside or work.
49
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
We may offer from time to time under this prospectus, separately or
together:
o common shares,
o preferred shares,
o unsecured senior or subordinated debt securities,
o warrants to purchase common shares, preferred shares or debt
securities,
o share purchase contracts to purchase common shares, and
o share purchase units, each consisting of (a) a common share purchase
contract, under which the holder or Global Sources Ltd., upon
settlement, will purchase a fixed or varying number of common shares,
and (b) a beneficial interest in either debt securities, preferred
shares or debt or equity obligations of third parties, including U.S.
Treasury securities, purchased with the proceeds from the sale of the
share purchase units.
The prior consent of the Bermuda Monetary Authority may be required for the
issue of any such securities. Material U.S. federal income tax considerations
pertaining to an investment in the securities offered will be described in the
applicable prospectus supplement.
References to "we," "our" or "us" in "Description of Share Capital,"
"Description of Preferred Shares," "Description of Debt Securities,"
"Description of Warrants to Purchase Common Shares or Preferred Shares,"
"Description of Warrants to Purchase Debt Securities" and "Description of Shares
Purchase Contracts and the Shares Purchase Units" refer solely to Global Sources
Ltd. and not its subsidiaries.
DESCRIPTION OF SHARE CAPITAL
MEMORANDUM AND ARTICLES OF ASSOCIATION
DESCRIPTION OF SHAREHOLDER RIGHTS ATTACHING TO OUR COMMON SHARES
The following discussion of our common shares, and the laws governing the
rights of our shareholders, is based upon the advice of Appleby Spurling Hunter,
our Bermuda counsel.
Our authorized share capital consists of 50,000,000 common shares, par
value $0.01 per share. Effective April 1, 2004, we issued to all of our
shareholders a bonus share distribution of one share for every ten shares held
as of March 1, 2004. As of April 1, 2004, we had 28,952,194 common shares issued
and outstanding.
o Holders of common shares have no preemptive, redemption, conversion or
sinking fund rights.
o Holders of common shares are entitled to one vote per share on all
matters submitted to a vote of holders of common shares and do not
have any cumulative voting rights.
o In the event of our liquidation, dissolution or winding-up, the
holders of common shares are entitled to share ratably in our assets,
if any, remaining after the payment of all our debts and liabilities.
o Our outstanding common shares are fully paid and non-assessable.
Non-assessable as that term is understood under Bermuda Law means in
relation to fully-paid shares of a company and subject to any contrary
provision in any agreement in writing between such company and the
holder of shares, that no shareholder shall be obliged to contribute
further amounts to the capital of the company, either in order to
complete payment for their shares, to satisfy claims of creditors of
the company, or otherwise; and no shareholder shall be bound by an
alteration of the memorandum of association or bye-laws of the company
after the date on which he became a shareholder, if and so far as the
alteration requires him to take, or subscribe for additional shares,
or in any way increases his liability to contribute to the share
capital of, or otherwise to pay money to, the company.
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o Additional authorized but unissued common shares may be issued by the
board of directors without the approval of the shareholders.
The holders of common shares will receive dividends, if any, as may be
declared by the board of directors out of funds legally available for purposes.
We may not declare or pay a dividend, or make a distribution out of contributed
surplus, if there are reasonable grounds for believing that:
o we are, or after the payment would be, unable to pay our liabilities
as they become due; or
o the realizable value of our assets after such payment or distribution
would be less than the aggregate amount of our liabilities and our
issued share capital and share premium accounts.
The following is a summary of provisions of Bermuda law and our
organizational documents, including the bye-laws. We refer you to our memorandum
of association and bye-laws, copies of which have been filed with the SEC. You
are urged to read these documents for a complete understanding of the terms of
the memorandum of association and bye-laws.
SHARE CAPITAL
Our authorized capital consists of one class of common shares. Under our
bye-laws, our board of directors has the power to issue any authorized and
unissued shares on such terms and conditions as it may determine. Any shares or
class of shares may be issued with such preferred, deferred, qualified or other
special rights or such restrictions, whether in regard to dividend, voting,
return of capital or otherwise, as we may from time to time by resolution of the
shareholders prescribe.
VOTING RIGHTS
Generally, under Bermuda law and our bye-laws, questions brought before a
general meeting are decided by a simple majority vote of shareholders present or
represented by proxy. Each shareholder is entitled to one vote for each share
held. Matters will be decided, by way of votes cast on a show of hands, unless a
poll is demanded.
If a poll is demanded, each shareholder who is entitled to vote and who is
present in person or by proxy has one vote for each common share entitled to
vote on such question. A poll may only be demanded under the bye-laws by:
o the chairman of the meeting;
o at least three shareholders present in person or by proxy;
o any shareholder or shareholders present in person or by proxy and
holding between them not less than one-tenth of the total voting
rights of all shareholders having the right to vote at such meeting;
or
o a shareholder or shareholders present in person or represented by
proxy holding shares conferring the right to vote at such meeting,
being common shares on which an aggregate sum has been paid up equal
to not less than one-tenth of the total sum paid up on all such common
shares conferring such right.
No shareholder shall, unless the board of directors otherwise determines,
be entitled to vote at any general meeting unless all calls or other sums
presently payable by that shareholder in respect of all shares held by such
shareholder have been paid.
DIVIDEND RIGHTS
Under Bermuda law, a company may declare and pay dividends unless there are
reasonable grounds for believing that the company is, or would, after the
payment, be unable to pay its liabilities as they become due or that the
realizable value of the company's assets would thereby be less than the
aggregate of its liabilities and issued share capital and share premium
accounts.
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Under our bye-laws, each share is entitled to a dividend if, as and when
dividends are declared by the board of directors. The board of directors may
determine that any dividend may be paid in cash or will be satisfied in paying
up in full in our common shares to be issued to the shareholders credited as
fully paid or partly paid. The board of directors may also pay any fixed cash
dividend which is payable on any of our common shares half-yearly or on other
dates, whenever our position, in the opinion of the board of directors,
justifies such payment.
Dividends, if any, on our common shares will be paid at the discretion of
our board of directors and will depend on our future operations and earnings,
capital requirements, surplus and general financial conditions, as our board of
directors may deem relevant.
We have not paid any cash dividends on our common shares since October
1999. Previously, we paid dividends as a private company as a means to
distribute earnings to shareholders. Beginning in October 1999, we have focused
on the implementation of our growth plans, and we have retained earnings in
furtherance of such plans. Currently, we do not intend to pay dividends for the
foreseeable future in order to focus on our growth plans. We are not permitted
to pay a dividend under Bermuda law until such time as we have positive retained
earnings. In any event, we do not intend to pay dividends for the foreseeable
future in order to focus on our growth plans.
PURCHASE BY A COMPANY OF ITS OWN COMMON SHARES
We may purchase our own common shares out of the capital paid up on the
common shares in question or out of funds that would otherwise be available for
dividend or distribution or out of the proceeds of a fresh issue of common
shares made for the purposes of the purchase. We may not purchase our shares if,
as a result, our issued share capital would be reduced below the minimum capital
specified in our memorandum of association.
However, to the extent that any premium is payable on the purchase, the
premium must be provided out of the funds of the company that would otherwise be
available for dividend or distribution or out of a company's share premium
account. Any common share purchased by a company are treated as cancelled and
the amount of the company's issued capital is diminished by the nominal value of
the shares accordingly but shall not be taken as reducing the amount of the
company's authorized share capital.
VARIATION OF RIGHTS
We may issue more than one class of shares and more than one series of
shares in each class. If we have more than one class of shares, the rights
attached to any class of shares may be altered or abrogated either:
o with the consent in writing of the holders of not less than
seventy-five percent of the issued common shares of that class; or
o with the sanction of a resolution passed at a separate general meeting
of the holders of such common shares, voting in proxy or present, at
which a quorum is present.
The bye-laws provide that a quorum for such a meeting shall be two persons
present in person or by proxy representing a majority of the shares of the
relevant class. The bye-laws specify that the creation or issue of shares
ranking on parity with existing shares will not, subject to any statement to the
contrary in the terms of issue of those shares or rights attached to those
shares, vary the special rights attached to existing shares.
TRANSFER OF COMMON SHARES
Subject to the "Transfer Restrictions" section below, a shareholder may
transfer title to all or any of his shares by completing an instrument of
transfer in the usual common form or in such other form as the board of
directors may approve.
TRANSFER RESTRICTIONS
The board of directors may in its absolute discretion and without assigning
any reason refuse to register the transfer of any share that is not fully paid.
The board of directors may refuse to register an instrument of transfer of
a share unless it:
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o is duly stamped, if required by law, and lodged with us;
o is accompanied by the relevant share certificate and such other
evidence of the transferor's right to make the transfer as the board
of directors shall reasonably require;
o has obtained, where applicable, permission of the Bermuda Monetary
Authority; and
o is in respect of one class of shares.
A "blanket" authorization has been obtained from the Bermuda Monetary
Authority for all transfers of our common shares between persons who are not
resident in Bermuda for exchange control purposes, provided our common shares
remain listed on an "appointed stock exchange" (which includes listing on the
Nasdaq National Market).
TRANSMISSION OF SHARES
In the event of the death of a shareholder, the survivor or survivors,
where the deceased shareholder was a joint holder, or the legal personal
representative of such shareholder, including executors and administrators,
shall be the only persons recognized by us as having any title to the
shareholder shares.
RIGHTS IN LIQUIDATION
Under Bermuda law, in the event of liquidation, dissolution or winding-up
of a company, after satisfaction in full of all claims of creditors and subject
to the preferential rights accorded to any series of preferred stock, the
proceeds of such liquidation, dissolution or winding-up are distributed among
the holders of shares in accordance with a company's bye-laws.
Under our bye-laws, if we are wound up, the liquidator may, with the
sanction of a resolution from us and any sanction required by the Companies Act,
divide amongst the shareholders in specie or kind the whole or part of our
assets, whether they shall consist of property of the same kind or not and may
for such purposes set such values as he deems fair upon any property to be
divided as set out above and may determine how such division shall be carried
out as between the shareholders.
MEETINGS OF SHAREHOLDERS
Under Bermuda law, a company is required to convene at least one general
meeting per calendar year. The directors of a company, notwithstanding anything
in its bye-laws, shall, on the requisition of the shareholders holding at the
date of the deposit of the requisition not less than one-tenth of the paid-up
capital of the company carrying the right of vote, duly convene a special
general meeting.
The bye-laws provide that the board of directors may convene a special
general meeting whenever in their judgment such a meeting is necessary. Unless
the bye-laws of a company specify otherwise, Bermuda law requires that
shareholders be given at least five days' notice of a meeting of the company.
Our bye-laws extend this period to provide that at least 21 days' written notice
of a general meeting must be given to those shareholders entitled to receive
such notice. The accidental omission to give notice to or non-receipt of a
notice of a meeting by any person does not invalidate the proceedings of a
meeting.
Under Bermuda law the number of shareholders constituting a quorum at any
general meeting of shareholders may not be less than two individuals. Our
bye-laws add to this quorum requirement to provide that no business can be
transacted at a general meeting unless a quorum of at least two shareholders
representing a majority of the issued shares of the company are present in
person or by proxy and entitled to vote. A shareholder present at a general
meeting or a meeting of a class of shareholders in person or by proxy shall be
deemed to have received appropriate notice of the meeting.
Under our bye-laws, notice to any shareholders may be delivered either
personally, by electronic means or by sending it through the post, by airmail
where applicable, in a pre-paid letter addressed to the shareholder at his
address as appearing in the share register or by delivering it to, or leaving it
at such registered address or, in the case of delivery by electronic means, by
delivering it to the shareholder at such address as may be provided to the
company by the shareholder for such purpose. A notice of a general meeting is
deemed to be duly given to the shareholder if it is sent to him by cable, telex,
telecopier or electronic means.
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ACCESS TO BOOKS AND RECORDS AND DISSEMINATION OF INFORMATION
Under Bermuda law, members of the general public have the right to inspect
the public documents of a company available at the office of the Bermuda
Registrar of Companies. These documents include the memorandum of association
and any alteration to the memorandum of association.
Our shareholders and directors have the additional right to inspect our
minute books and our audited financial statements, which must be presented at an
annual general meeting.
Our bye-laws provide that our register of shareholders is required to be
open for inspection during normal business hours by shareholders without charge
and to members of the general public on the payment of a fee. A company is
required to maintain its share register in Bermuda but may, subject to the
provisions of the Companies Act, establish a branch register outside of Bermuda.
We have established a branch register with our transfer agent, Mellon Investor
Services, LLC, at 85 Challenger Road, Ridgefield Park, NJ 07660, USA.
Under Bermuda law, a company is required to keep at its registered office a
register of its directors and officers that is open for inspection for not less
than two hours in each day by members of the public without charge. Our bye-laws
extend this obligation to provide that the register of directors and officers be
available for inspection by the public during normal business hours. Bermuda law
does not, however, provide a general right for shareholders to inspect or obtain
copies of any other corporate records.
ELECTION OR REMOVAL OF DIRECTORS
The bye-laws provide that the number of directors will be such number not
less than two, as our shareholders by resolution may from time to time
determine. A director will serve until his successor is appointed or his prior
removal in the manner provided by the Companies Act or the bye-laws. Our
bye-laws provide that at each annual general meeting one-third of the directors
will retire from office on a rotational basis based on length of time served. A
director is not required to hold shares in a company to qualify to join the
board, and once appointed may sit on the board regardless of age, unless the
bye-laws provide otherwise. Our bye-laws do not require qualifying shares to
join the board and do not set age limits for directors who serve on the board.
All directors must provide written acceptance of their appointment within thirty
days of their appointment.
The board has the power at any time and from time to time to appoint any
individual to be a director so as to fill a casual vacancy. The board may
approve the appointment of alternate directors.
We may, in a special general meeting called for this purpose, remove a
director, provided notice of such meeting is served upon the director concerned
not less than fourteen days before the meeting and he shall be entitled to be
heard at that meeting.
The office of a director will be vacated in the event of any of the
following:
o if he resigns his office by notice in writing to be delivered to our
registered office or tendered at a meeting of the board of directors;
o if he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health;
o if he becomes bankrupt under the law of any country or compounds with
his creditors;
o if he is prohibited by law from being a director; or
o if he ceases to be a director by virtue of the Companies Act or is
removed from office pursuant to the bye-laws.
AMENDMENT OF MEMORANDUM OF ASSOCIATION AND BYE-LAWS
Bermuda law provides that the memorandum of association of a company may be
amended by resolution of the board subject to approval by a resolution passed at
a general meeting of which due notice has been given. An amendment to a
memorandum of association does not require the consent of the Minister of
Finance save for specific circumstances, for example, the adopting of any
objects which constitute restricted business activities under the Companies Act.
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Under Bermuda law, the holders of:
o an aggregate of not less than twenty percent in par value of a
company's issued share capital or any class thereof, or
o not less in the aggregate than twenty percent of the company's
debentures entitled to object to alterations to its memorandum of
association,
have the right to apply to the Supreme Court of Bermuda for an annulment of any
amendment of the memorandum of association. Where such an application is made,
the amendment becomes effective only to the extent that it is confirmed by the
Bermuda Supreme Court. An application for an annulment of an amendment of the
memorandum of association must be made within twenty-one days after the date on
which the resolution altering the memorandum of association is passed and may be
made on behalf of the persons entitled to make the application by one or more of
their number as they may appoint in writing for the purpose. No such application
may be made by persons voting in favor of the amendment or any persons who have
given to the company a statement in writing duly signed that he, having had
notice, consents to the alteration.
Our bye-laws provide that they may be amended in the manner provided for in
the Companies Act. The Companies Act provides that the directors may amend the
bye-laws, provided that any such amendment shall be operative only to the extent
approved by the shareholders.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS
Our bye-laws prohibit us from engaging in a business combination with any
interested shareholder unless the business combination is approved by two-thirds
of the holders of our voting shares (other than shares held by that interested
shareholder), or by a simple majority if the business combination is approved by
a majority of continuing directors or if certain prescribed conditions are met
assuring that we will receive fair market value in exchange for such business
combination. In this context, a "business combination" includes mergers, asset
sales and other material transactions resulting in a benefit to the interested
shareholder or the adoption of a plan for our liquidation or dissolution; a
"continuing director" is a member of our board of directors that is not an
affiliate or associate of an interested shareholder and was a member of our
board prior to such person becoming an interested shareholder; and an
"interested shareholder" is any person (other than us or any of our
subsidiaries, any employee benefit or other similar plan or any of our
shareholders that received our shares in connection with our share exchange in
2000 prior to the listing of our shares on the Nasdaq National Market) that owns
or has announced its intention to own, or with respect to any of our affiliates
or associates, within the prior two years did own, at least 15% of our voting
shares.
APPRAISAL RIGHTS AND SHAREHOLDER SUITS
Amalgamation
The Companies Act provides that, subject to the terms of a company's
bye-laws, the amalgamation of a Bermuda company with another company requires
the amalgamation agreement to be approved by the board of directors and at a
meeting of the shareholders by seventy-five percent of the members present and
entitled to vote at that meeting in respect of which the quorum shall be two
persons holding or representing at least one-third of the issued shares of the
company or class, as the case may be.
Our bye-laws alter the majority vote required and provide that any
resolution submitted for the consideration of shareholders at any general
meeting to approve a proposed amalgamation with another company requires the
approval of two-thirds of the votes of disinterested shareholders cast at such
meeting.
Under Bermuda law, in the event of an amalgamation of a Bermuda company, a
shareholder who did not vote in favor of the amalgamation and who is not
satisfied that fair value has been offered for such shareholder's shares, may
apply to a Bermuda court within one month of notice of the meeting of
shareholders to appraise the fair value of those shares.
Class Actions and Derivative Actions
Class actions and derivative actions are generally not available to
shareholders under Bermuda law. Under Bermuda law, a shareholder may commence an
action in the name of a company to remedy a wrong done
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to the company where the
act complained of is alleged to be beyond the corporate power of the company, or
is illegal or would result in the violation of the company's memorandum of
association or bye-laws. Furthermore, consideration would be given by a Bermuda
court to acts that are alleged to constitute a fraud against the minority
shareholders or, for instance, where an act requires the approval of a greater
percentage of the company's shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner which is
oppressive or prejudicial to the interests of some part of the shareholders, one
or more shareholders may apply to a Bermuda court, which may make such order as
it sees fit, including an order regulating the conduct of the company's affairs
in the future or ordering the purchase of the shares of any shareholders, by
other shareholders or by the company.
CAPITALIZATION OF PROFITS AND RESERVES
Under our bye-laws, the board of directors may resolve to capitalize all or
any part of any amount for the time being standing to the credit of any reserve
or fund which is available for distribution or to the credit of our share
premium account; and accordingly make that amount available for distribution
among the shareholders who would be entitled to it if distributed by way of a
dividend in the same proportions and on the footing that the same may be paid
not in cash but be applied either in or towards:
o paying up amounts unpaid on any of our shares held by the
shareholders; or
o payment up in full of our unissued shares, debentures, or other
obligations to be allotted and credited as fully paid amongst such
shareholders.
As a proviso to the foregoing, the share premium account may be applied
only in paying up unissued shares to be issued to shareholders credited as fully
paid, and provided, further, that any sum standing to the credit of a share
premium account may only be applied in crediting as fully paid shares of the
same class as that from which the relevant share premium was derived.
REGISTRAR OR TRANSFER AGENT
Our transfer agent and registrar is Mellon Investor Services, LLC. In
addition to a register held by Mellon Investor Services, a register of holders
of the shares is maintained by Appleby Spurling Hunter in Bermuda located at
Canon's Court, 22 Victoria Street, Hamilton HM12 Bermuda.
UNTRACED SHAREHOLDERS
We are entitled to sell the common shares of a person entitled to such
common shares provided such person goes untraced for a period of 12 years. We
shall be held to account to the rightful holder of such common shares for an
amount equal to the proceeds of sale. Any dividend or distribution out of
contributed surplus unclaimed for a period of six years from the date of
declaration of that dividend or distribution shall be forfeited and shall revert
to us and the payment by the board of directors of any unclaimed dividend,
distribution, interest or other sum payable on or in respect of the common share
into a separate account shall not constitute us a trustee in respect thereof.
PERSONAL LIABILITY OF DIRECTORS AND INDEMNITY
The Companies Act requires every officer, including directors, of a company
in exercising powers and discharging duties, to act honestly in good faith with
a view to the best interests of the company, and to exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances. The Companies Act further provides that any provision whether in
the bye-laws of a company or in any contract between the company and any officer
or any person employed by the company as auditor exempting such officer or
person from, or indemnifying him against, any liability which by virtue of any
rule of law would otherwise attach to him, in respect of any fraud or dishonesty
of which he may be guilty in relation to the company, shall be void.
Every director, officer, resident representative and committee member shall
be indemnified out of our funds against all liabilities, loss, damage or
expense, including liabilities under contract, tort and statute or any
applicable foreign law or regulation and all reasonable legal and other costs
and expenses properly payable, incurred or suffered by him as director, officer,
resident representative or committee member; provided that the
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indemnity contained in the bye-laws will not extend to any matter which would
render it void under the Companies Act as discussed above.
EXCHANGE CONTROLS
BERMUDA LAW
We have been designated as a non-resident under the Exchange Control Act of
1972 by the Bermuda Monetary Authority. This designation will allow us to engage
in transactions in currencies other than the Bermuda dollar.
The Registrar of Companies (Bermuda) has neither approved nor disapproved
of the securities to which this document relates, nor passed on the accuracy or
adequacy of this document and accepts no responsibility for the financial
soundness of any proposals or the correctness of any statements made or opinions
expressed with regard to such securities. Approvals or permissions received from
the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda
Monetary Authority as to our performance or our creditworthiness. Accordingly,
in giving such approvals or permissions, the Bermuda Monetary Authority will not
be liable for our performance or default or for the correctness of any opinions
or statements expressed in this document.
The transfer of common shares between persons regarded as resident outside
Bermuda for exchange control purposes and the issue of common shares to such
persons may be effected without specific consent under the Control Act and
regulations thereunder. Issues and transfers of common shares to any person
regarded as resident in Bermuda for exchange control purposes require specific
prior approval from the Bermuda Monetary Authority under the Control Act.
There are no limitations on the rights of persons regarded as non-resident
of Bermuda for foreign exchange control purposes owning our shares. Because we
have been designated as a non-resident for Bermuda exchange control purposes,
there are no restrictions on our ability to transfer funds, other than funds
denominated in Bermuda dollars, in and out of Bermuda or to pay dividends to
non-Bermuda residents who are holders of our shares, other than in respect of
local Bermuda currency.
Under Bermuda law, share certificates are only issued in the names of
corporations, partnerships or individuals. In the case of an applicant acting in
a special capacity, for example an executor or a trustee, certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting.
Notwithstanding the recording of any such special capacity, we are not
bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust.
We will take no notice of any trust applicable to any of our common shares
whether or not we had notice of such trust.
As an "exempted company," we are exempt from Bermuda laws which restrict
the percentage of share capital that may be held by non-Bermudians. However, as
an exempted company we may not participate in designated business transactions,
including:
o the acquisition or holding of land in Bermuda (except that required
for our business and held by way of lease or tenancy agreement for a
term not exceeding 50 years or, with the consent of the Minister
granted in his discretion, land held by way of lease or tenancy for a
term of not more than 21 years in order to provide accommodation or
recreational facilities for our officers and employees);
o the taking of mortgages on land in Bermuda to secure an amount in
excess of $50,000 without the consent of the Minister of Finance of
Bermuda;
o the acquisition of bonds or debentures secured on land in Bermuda,
unless they are issued by the Bermuda Government or a public
authority; or
o the carrying on of business of any kind in Bermuda, except in
furtherance of our business carried on outside Bermuda or under a
license granted by the Minister of Finance of Bermuda.
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TAXATION
BERMUDA TAXATION
We have received from the Minister of Finance a written undertaking under
the Exempted Undertakings Tax Protection Act, 1996 (as amended) of Bermuda, to
the effect that in the event of there being enacted in Bermuda any legislation
imposing tax computed on profits or income, or computed on any capital asset,
gain or appreciation, or any tax in the nature of estate duty or inheritance
tax, then the imposition of any such tax shall not be applicable to us or to any
of our operations or to our shares, debentures or other obligations until March
28, 2016. These assurances are subject to the proviso that they are not
construed so as to prevent the application of any tax or duty to such persons as
are ordinarily resident in Bermuda or to prevent the imposition of property
taxes on any company owning real property or leasehold interests in Bermuda.
Currently there is no Bermuda withholding tax on dividends that may be
payable by us in respect to the holders of our common shares. No income,
withholding or other taxes or stamp duty or other duties are imposed upon the
issue, transfer or sale of the shares or on any payment thereunder. There is no
income tax treaty between Bermuda and the United States.
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DESCRIPTION OF PREFERRED SHARES
General
The following summary of terms of our preferred shares is not complete. You
should refer to the provisions of our memorandum of association and bye-laws and
the terms of each class or series of the preferred shares which will be filed
with the SEC at or prior to the time of issuance of such class or series of
preferred shares and described in the applicable prospectus supplement. The
applicable prospectus supplement may also state that any of the terms set forth
herein are inapplicable to that series of preferred shares, provided that the
information set forth in the prospectus supplement does not constitute material
changes to the information herein such that it alters the nature of the offering
or the securities offered.
Our bye-laws allow the board, subject to the prior consent of our
shareholders, to authorize the creation and issuance of preferred shares in one
or more series, and may fix the rights and preferences of those shares,
including as to dividends, voting, redemption, conversion rights and otherwise.
Issuances of preferred shares are subject to the applicable rules of the
Nasdaq National Market or other organizations on whose systems our preferred
shares may then be quoted or listed. Depending upon the terms of the preferred
shares established by our board of directors, any or all series of preferred
shares could have preferences over the common shares with respect to dividends
and other distributions and upon liquidation of the company. Issuance of any
such shares with voting powers, or issuance of additional common shares, would
dilute the voting power of the outstanding common shares.
Terms
The terms of each series of preferred shares will be described in any
prospectus supplement related to that series of preferred shares.
The board of directors in approving the issuance of a series of preferred
shares has authority to determine, and the applicable prospectus supplement may
set forth with respect to that series, the following terms, among others:
o the number of shares constituting that series and the distinctive
designation of that series;
o the dividend rate on the shares of that series, if any, whether
dividends will be cumulative and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on
shares of that series;
o the voting rights for shares of the series, if any, in addition to the
voting rights provided by law, and the terms of those voting rights;
o the conversion or exchange privileges for shares of the series, if any
(including, without limitation, conversion into shares of common
share), and the terms and conditions of such conversion or exchange,
including provisions for adjustment of the conversion or exchange rate
in those events as the board will determine;
o whether or not the shares of that series will be redeemable and, if
so, the terms and conditions of the redemption, including the manner
of selecting shares for redemption if less than all shares are to be
redeemed, the date or dates upon or after which they will be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
o any sinking fund for the redemption or purchase of shares of that
series and the terms and amount of the sinking fund;
o the right of the shares of that series to the benefit of conditions
and restrictions upon the creation of indebtedness by us or any of our
subsidiaries, upon the issue of any additional
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shares (including additional shares of such series or any other
series) and upon the payment of dividends or the making of other
distributions on, and the purchase, redemption or other acquisition by
us or any of our subsidiaries of, any of our outstanding shares;
o the rights of the shares of that series in the event of our voluntary
or involuntary liquidation, dissolution or winding up, and the
relative rights of priority, if any, of payment of shares of that
series; and
o any other relevant participating, optional or other special rights,
qualifications, limitations or restrictions of that series.
Non-U.S. Currency
If the purchase price of any preferred share is payable in a currency other
than U.S. dollars, the specific terms with respect to such preferred share and
such foreign currency will be specified in the applicable prospectus supplement.
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DESCRIPTION OF DEBT SECURITIES
We may issue debt securities from time to time in one or more series, under
one or more indentures, each dated as of a date on or prior to the issuance of
the debt securities to which it relates. Senior debt securities and subordinated
debt securities may be issued pursuant to separate indentures, a senior
indenture and a subordinated indenture, respectively, in each case between us
and a trustee qualified under the Trust Indenture Act of 1939, as amended. The
form of such indentures have been filed as exhibits to the registration
statement of which this prospectus is a part, subject to such amendments or
supplements as may be adopted from time to time. The senior indenture and the
subordinated indenture, as amended or supplemented from time to time, are
sometimes referred to individually as an "indenture" and collectively as the
"indentures." Each indenture will be subject to and governed by the Trust
Indenture Act. The aggregate principal amount of debt securities which may be
issued under each indenture will be unlimited and each indenture will set forth
the specific terms of any series of debt securities or provide that such terms
will be set forth in, or determined pursuant to, an authorizing resolution, as
defined in the applicable prospectus supplement, and/or a supplemental
indenture, if any, relating to such series.
The statements made below relating to the debt securities and the
indentures are summaries of the anticipated provisions thereof, do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the applicable indenture and any
applicable U.S. federal income tax considerations as well as any applicable
modifications of or additions to the general terms described below in the
applicable prospectus supplement. The applicable prospectus supplement also may
state that any of the terms set forth herein are inapplicable to a particular
series of debt securities; provided, that the information set forth in that
prospectus supplement does not constitute a material change to the information
herein such that it alters the nature of the offering or the securities offered.
TERMS
The debt securities will be our unsecured obligations.
The senior debt securities will rank equal in right of payment with all our
other unsecured and unsubordinated indebtedness.
The subordinated debt securities will be subordinated in right of payment
to the prior payment in full of all our senior indebtedness, which is defined in
the section called "--Ranking of Debt Securities" below.
The specific terms of each series of debt securities will be set forth in
the applicable prospectus supplement relating thereto, including the following,
as applicable:
(1) the title of such debt securities and whether the debt securities are
senior debt securities or subordinated debt securities and, if
subordinated debt securities, the specific subordination provisions
applicable thereto;
(2) the aggregate principal amount of the debt securities and any limit on
the aggregate principal amount;
(3) the price (expressed as a percentage of the principal amount thereof)
at which such debt securities will be issued and, if other than the
principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or
if applicable, the portion of the principal amount of the debt
securities that is convertible into shares of common shares or shares
of preferred shares or the method by which any such portion, if any,
will be determined;
(4) if convertible into shares of common shares or preferred shares, the
terms on which the debt securities are convertible, including the
initial conversion price, the conversion period, any events requiring
an adjustment of the applicable conversion price and any requirements
relating to the reservation of such common shares or preferred shares
for purposes of conversion;
(5) the date(s), or the method for determining the date or dates, on which
the principal of the debt securities will be payable and, if
applicable, the terms on which the maturity may be extended;
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(6) the rate(s) (which may be fixed or floating), or the method by which
the rate or rates will be determined, at which the debt securities
will bear interest, if any, including if applicable, that the debt
securities will bear interest at an increased rate (up to a specified
maximum) upon the occurrence of an event of default and/or under
certain circumstances described in the applicable prospectus
supplement (which may include, among other things, a reduction in the
trading price of our common shares below certain levels for a minimum
period of time);
(7) the date(s), or the method for determining the date or dates, from
which any such interest will accrue, the dates on which the interest
will be payable, the record dates for the interest payment dates, or
the method by which the dates will be determined, the persons to whom
the interest will be payable, and the basis upon which interest will
be calculated if other than that of a 360-day year of twelve 30-day
months;
(8) the place(s) where the principal of and interest, if any, on the debt
securities will be payable, where the securities may be surrendered
for registration of transfer or exchange and where notices or demands
to or upon us in respect of the debt securities and the applicable
indenture may be served;
(9) the period(s), if any, within which, the price or prices at which and
the other terms and conditions upon which the debt securities may,
pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at our option;
(10) our obligation, if any, to redeem, repay or repurchase the debt
securities pursuant to any sinking fund (as defined in the applicable
supplemental indenture) or analogous provision or at the option of a
holder thereof, and the period or periods within which, the price or
prices at which and the other terms and conditions upon which the debt
securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to those obligations;
(11) if other than U.S. dollars, the currency or currencies in which the
principal of and interest, if any, on such debt securities are
denominated and payable, which may be a foreign currency or units of
two or more foreign currencies or a composite currency or currencies,
and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of or interest, if any, on
the debt securities may be determined with reference to an index,
formula or other method (which index, formula or method may, but need
not be, based on the yield on or trading price of other securities,
including United States Treasury securities, or on a currency,
currencies, currency unit or units, or composite currency or
currencies) and the manner in which those amounts will be determined;
(13) whether the principal of or interest, if any, on the debt securities
of the series is to be payable, at our election or a holder thereof,
in a currency or currencies, currency unit or units or composite
currency or currencies other than that in which the debt securities
are denominated or stated to be payable and the period or periods
within which, and the terms and conditions upon which, an election may
be made;
(14) provisions, if any, granting special rights to the holders of debt
securities of the series upon the occurrence of particular events as
may be specified;
(15) any deletions from, modifications of or additions to the events of
default or our covenants with respect to debt securities of the
series, whether or not such events of default or covenants are
consistent with the events of default or covenants described herein;
(16) whether debt securities of the series are to be issuable initially in
temporary global form and whether any debt securities of the series
are to be issuable in permanent global form and, if so, whether
beneficial owners of interests in any such security in permanent
global form may exchange their interests for debt securities of the
same series and of like tenor of any authorized form and denomination
and the circumstances under which any exchanges may occur, if other
than in the manner provided in the applicable indenture, and, if debt
securities of the series are to be issuable as a global security, the
identity of the depository for that series;
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(17) the applicability, if any, of the defeasance and covenant defeasance
provisions of the applicable indenture to the debt securities of the
series;
(18) if exchangeable into another series of our debt securities, the terms
on which those debt securities are exchangeable; and
(19) any other terms of the series of debt securities and any additions,
deletions or modifications to the applicable indenture.
The debt securities, if convertible or exchangeable, will not be
convertible into or exchangeable for securities of a third party.
If the applicable prospectus supplement provides, the debt securities may
be issued at a discount below their principal amount and provide for less than
the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof.
Except as may be set forth in the applicable prospectus supplement, the
debt securities will not contain any provisions that would limit our ability to
incur indebtedness or that would afford holders of debt securities protections
against transactions involving us, including a highly leveraged transaction
involving us or a change of control. The applicable prospectus supplement will
contain information with respect to any deletions from, modifications of or
additions to the events of default or covenants described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
We will issue the debt securities of each series only in registered form,
without coupons, in denominations of $1,000, or in such other currencies or
denominations as may be set forth in the applicable supplemental indenture or
specified in, or pursuant to, an authorizing resolution and/or supplemental
indenture, if any, relating to that series of debt securities.
The principal of and interest, if any, on any series of debt securities
will be payable at the corporate trust office of the trustee, the address of
which will be stated in the applicable prospectus supplement. However, at our
option, interest payments may be made by check mailed to the address of the
person entitled thereto as it appears in the applicable register for such debt
securities.
Subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series:
o will be exchangeable for any authorized denomination of other debt
securities of the same series and of a like aggregate principal amount
and tenor upon surrender of the debt securities at the trustee's
corporate trust office or at the office of any registrar designated by
us for that purpose; and
o may be surrendered for registration of transfer or exchange thereof at
the corporate trust office of the trustee or at the office of any
registrar designated by us for that purpose.
No service charge will be made for any registration of transfer or
exchange, but we may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection with certain transfers and
exchanges. We may act as registrar and may change any registrar without notice.
CERTAIN COVENANTS
The applicable prospectus supplement will describe any material covenants
in respect of a series of debt securities that are not described in this
prospectus.
Unless otherwise indicated in the applicable prospectus supplement, senior
debt securities and the subordinated debt securities will include the provision
described below.
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Merger, Consolidation or Sale of Assets
We may not (1) consolidate with or merge into any other person (other than
a subsidiary) or convey, transfer, sell or lease all of substantially all of our
properties and assets as an entirety to any other person or (2) permit any
person (other than a subsidiary) to consolidate with or merge into us unless:
o in the case of (1) and (2) above, if we are not the surviving person,
the surviving person assumes the payment of the principal of, premium,
if any, and interest on the debt securities and the performance of our
other covenants under the applicable indenture, and
o in all cases, immediately after giving effect to the transaction, no
event of default, and no event that, after notice or lapse of time or
both, would become an event of default, will have occurred and be
continuing.
Payment of Principal, Premium and Interest
We will duly and punctually pay the principal of (and premium, if any) and
interest on the debt securities in accordance with the terms of such debt
securities.
Maintenance of Office or Agency
We will maintain an office or agency where the debt securities may be
presented or surrendered for registration of transfer or exchange and where
notices and demands to or upon us in respect of the debt securities may be made.
Money for Securities; Payments to Be Held in Trust
If we will at any time act as our own paying agent with respect to any debt
securities, we will, on or before each due date of the principal of (and
premium, if any) or interest on any of the debt securities, segregate and hold
in trust for the benefit of the persons entitled thereto a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due until such sums
will be paid to such persons or otherwise disposed of as provided in the
indentures and will promptly notify the trustee of our action or failure so to
act.
Corporate Existence
Except as permitted under "--Merger, Consolidation or Sale of Assets"
above, we will do or cause to be done all things necessary to preserve and keep
in full force and effect our corporate existence, rights (charter and statutory)
and franchises; provided, however, that we will not be required to preserve any
such right or franchise if the board determines that the preservation thereof is
no longer desirable in our conduct of business and that the loss thereof is not
disadvantageous in any material respect to the holders.
Maintenance of Properties
We will use our reasonable efforts to cause all material properties used or
useful in the conduct of our business to be maintained and kept in good
condition, repair and working order (subject to wear and tear) and supplied with
all necessary material equipment and will use our reasonable efforts to cause to
be made all necessary material repairs, renewals, replacements, betterments and
improvements thereof, all as in our judgment may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing will prevent us from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in our judgment, desirable in the conduct of our business and
not disadvantageous in any material respect to the holders.
Statement by Officers as to Default
We will deliver to the trustee, within 120 days after the end of each of
our fiscal years, a certificate of our principal executive officer, principal
financial officer or principal accounting officer stating whether or not to the
best knowledge of the signers thereof we are in default in the performance and
observance of any of the terms, provisions and conditions of the indenture, and
if we are in default, specifying all such defaults and the nature and status
thereof of which they may have knowledge.
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Waiver of Certain Covenants
We may omit in any particular instance to comply with any term, provision
or condition of the foregoing covenants if before or after the time for such
compliance the holders of at least a majority in principal amount of the
outstanding debt securities (taken together as one class) will, by act of such
holders, either waive such compliance in such instance or generally waive
compliance with such term, provision or condition except to the extent so
expressly waived, and, until such waiver will become effective, our obligations
and the duties of the trustee in respect of any such term, provision or
condition will remain in full force and effect.
RANKING OF DEBT SECURITIES
General
We currently conduct some of our operations through our subsidiaries and
our subsidiaries generate substantially all of our operating income and cash
flow. As a result, distributions and advances from our subsidiaries will be a
principal source of funds necessary to meet our debt service obligations.
Contractual provisions or laws, as well as our subsidiaries' financial condition
and operating and regulatory requirements, may limit our ability to obtain cash
from our subsidiaries that we require to pay our debt service obligations.
Holders of the debt securities will have a junior position to the claims of
creditors of our subsidiaries on their assets and earnings.
Senior Debt Securities
The senior debt securities will be our unsecured unsubordinated obligations
and will:
o rank equal in right of payment with all our other unsecured and
unsubordinated indebtedness;
o be effectively subordinated in right of payment to all our secured
indebtedness to the extent of the value of the assets securing such
indebtedness; and
o be effectively subordinated to all of our subsidiaries' indebtedness.
As of September 30, 2003, the aggregate amount of our outstanding
consolidated indebtedness for money borrowed was approximately $11.4 million,
none of which was secured. The senior debt that may be issued under the senior
debt securities indenture would be effectively subordinated in right of payment
to any secured indebtedness and would rank equal in right of payment with all of
our other senior unsecured obligations. All obligations (including insurance
obligations of our subsidiaries) would be effectively senior to any senior or
subordinated debt issued by us.
Except as otherwise set forth in the applicable senior indenture or
specified in an authorizing resolution and/or supplemental indenture, if any,
relating to a series of senior debt securities to be issued, there will be no
limitations in any senior indenture on the amount of additional indebtedness
which may rank equal with the senior debt securities or on the amount of
indebtedness, secured or otherwise, which may be incurred by any of our
subsidiaries.
Subordinated Debt Securities
The subordinated debt securities will be our unsecured subordinated
obligations. Unless otherwise provided in the applicable prospectus supplement,
the payment of principal of, interest on and all other amounts owing in respect
of the subordinated debt securities will be subordinated in right of payment to
the prior payment in full in cash of principal of, interest on and all other
amounts owing in respect of all of our senior indebtedness. Upon any payment or
distribution of our assets of any kind or character, whether in cash, property
or securities, to creditors upon any total or partial liquidation, dissolution,
winding up, reorganization, assignment for the benefit of creditors or
marshaling of our assets or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to us or our property, whether
voluntary or involuntary, all principal of, interest on and all other amounts
due or to become due will be paid, first, to all senior indebtedness in full in
cash, or such payment duly provided for to the satisfaction of the holders of
senior indebtedness, before any payment or distribution of any kind or character
is made on account of any principal of, interest on or other amounts owing in
respect of the subordinated debt securities, or for the acquisition of any of
the subordinated debt securities for cash, property or otherwise.
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If any default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by declaration or otherwise, of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any senior indebtedness, no payment of
any kind or character will be made by or on behalf of us or any other person on
our or their behalf with respect to any principal of, interest on or other
amounts owing in respect of the subordinated debt securities or to acquire any
of the subordinated debt securities for cash, property or otherwise.
As of September 30, 2003, the aggregate amount of our consolidated
indebtedness for money borrowed was approximately $11.4 million, of which all
would rank senior in right of payment to the subordinated debt issuable under
the subordinated debt securities indenture. All obligations (including insurance
obligations of our subsidiaries) would be effectively senior to any senior or
subordinated debt issued by us.
If any other event of default occurs and is continuing with respect to any
designated senior indebtedness, as such event of default is defined in the
instrument creating or evidencing such designated senior indebtedness,
permitting the holders of such designated senior indebtedness then outstanding
to accelerate the maturity thereof and if the representative (as defined in the
applicable indenture) for the respective issue of designated senior indebtedness
gives written notice of the event of default to the trustee (a "default
notice"), then, unless and until all events of default have been cured or waived
or have ceased to exist or the trustee receives notice from the representative
for the respective issue of designated senior indebtedness terminating the
blockage period (as defined below), during the 179 days after the delivery of
such default notice (the "blockage period"), neither we nor any other person on
our behalf will:
(1) make any payment of any kind or character with respect to any
principal of, interest on or other amounts owing in respect of the
subordinated debt securities; or
(2) acquire any of the subordinated debt securities for cash, property or
otherwise.
Notwithstanding anything herein to the contrary, in no event will a
blockage period extend beyond 179 days from the date the payment on the
subordinated debt securities was due and only one such blockage period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any blockage period with
respect to the designated senior indebtedness will be, or be made, the basis for
commencement of a second blockage period by the representative of such
designated senior indebtedness whether or not within a period of 360 consecutive
days unless such event of default will have been cured or waived for a period of
not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such blockage period that, in either case, would
give rise to an event of default pursuant to any provisions under which an event
of default previously existed or was continuing will constitute a new event of
default for this purpose).
As a result of the foregoing provisions, in the event of our insolvency,
holders of the subordinated debt securities may recover ratably less than our
general creditors.
"Senior indebtedness," unless otherwise specified in one or more applicable
supplemental indentures or approved pursuant to a board resolution in accordance
with the applicable indenture, means, with respect to us,
(1) the principal (including redemption payments), premium, if any,
interest and other payment obligations in respect of (a) our
indebtedness for money borrowed and (b) our indebtedness evidenced by
securities, debentures, bonds, notes or other similar instruments
issued by us, including any such securities issued under any deed,
indenture or other instrument to which we are a party (including, for
the avoidance of doubt, indentures pursuant to which senior debt
securities have been or may be issued);
(2) all of our obligations issued or assumed as the deferred purchase
price of property, all of our conditional sale obligations, all of our
hedging agreements and agreements of a similar nature thereto and all
agreements relating to any such agreements, and all of our obligations
under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business);
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(3) all of our obligations for reimbursement on any letter of credit,
banker's acceptance, security purchase facility or similar credit
transaction;
(4) all obligations of the type referred to in clauses (1) through (3)
above of other persons for the payment of which we are responsible or
liable as obligor, guarantor or otherwise;
(5) all obligations of the type referred to in clauses (1) through (4)
above of other persons secured by any lien on any of our property or
asset (whether or not such obligation is assumed by us) and
(6) any deferrals, amendments, renewals, extensions, modifications and
refundings of all obligations of the type referred to in clauses (1)
through (5) above, in each case whether or not contingent and whether
outstanding at the date of effectiveness of the applicable indenture
or thereafter incurred,
except, in each case, for the subordinated debt securities and any such other
indebtedness or deferral, amendment, renewal, extension, modification or
refunding that contains express terms, or is issued under a deed, indenture or
other instrument, which contains express terms, providing that it is subordinate
to or ranks equal with the subordinated debt securities.
Such senior indebtedness will continue to be senior indebtedness and be
entitled to the benefits of the subordination provisions of the applicable
indenture irrespective of any amendment, modification or waiver of any term of
such senior indebtedness and notwithstanding that no express written
subordination agreement may have been entered into between the holders of such
senior indebtedness and the trustee or any of the holders.
DISCHARGE AND DEFEASANCE
Under the terms of the indenture, we will be discharged from any and all
obligations in respect of the debt securities of any series and the applicable
indenture (except in each case for certain obligations to register the transfer
or exchange of debt securities, replace stolen, lost or mutilated debt
securities, maintain paying agencies and hold moneys for payment in trust) if we
deposit with the applicable trustee, in trust, moneys or U.S. government
obligations in an amount sufficient to pay all the principal of, and interest
on, the debt securities of such series on the dates such payments are due in
accordance with the terms of such debt securities.
In addition, unless the applicable prospectus supplement and supplemental
indenture provide otherwise, we may elect either (1) to defease and be
discharged from any and all obligations with respect to such debt securities
("defeasance") or (2) to be released from our obligations with respect to such
debt securities under certain covenants in the applicable indenture, and any
omission to comply with such obligations will not constitute a default or an
event of default with respect to such debt securities ("covenant defeasance"):
(1) by delivering all outstanding debt securities of such series to the
trustee for cancellation and paying all sums payable by it under such
debt securities and the indenture with respect to such series; or
(2) after giving notice to the trustee of our intention to defease all of
the debt securities of such series, by irrevocably depositing with the
trustee or a paying agent
(a) in the case of any debt securities of any series denominated in
U.S. dollars, cash or U.S. government obligations sufficient to
pay all principal of and interest on such debt securities; and
(b) in the case of any debt securities of any series denominated in
any currency other than U.S. dollars, an amount of the applicable
currency in which the debt securities are denominated sufficient
to pay all principal of and interest on such debt securities.
Such a trust may only be established if, among other things:
(1) the applicable defeasance or covenant defeasance does not result
in a breach or violation of, or constitute a default under or any
material agreement or instrument to which we are a party or by
which we are bound;
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(2) no event of default or event which with notice or lapse of time
or both would become an event of default with respect to the debt
securities to be defeased will have occurred and be continuing on
the date of establishment of such a trust after giving effect to
such establishment; and
(3) we have delivered to the trustee an opinion of counsel (as
specified in the applicable supplemental indenture) to the effect
that the holders will not recognize income, gain or loss for
United States federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such
opinion of counsel, in the case of defeasance, must refer to and
be based upon a letter ruling of the Internal Revenue Service
received by us, a Revenue Ruling published by the Internal
Revenue Service or a change in applicable United States federal
income tax law occurring after the date of the applicable
supplemental indenture.
In the event we effect covenant defeasance with respect to any debt
securities and such debt securities are declared due and payable because of the
occurrence of any event of default, other than an event of default with respect
to any covenant as to which there has been covenant defeasance, the government
obligations on deposit with the trustee will be sufficient to pay amounts due on
such debt securities at the time of the stated maturity but may not be
sufficient to pay amounts due on such debt securities at the time of the
acceleration resulting from such event of default.
MODIFICATION AND WAIVER
We, when authorized by a board resolution, and the trustee may modify,
amend and/or supplement the applicable indenture and the applicable debt
securities with the consent of the holders of not less than a majority in
principal amount of the outstanding debt securities of all series affected
thereby (voting as a single class); provided, however, that such modification,
amendment or supplement may not, without the consent of each holder of the debt
securities affected thereby:
(1) change the stated maturity of the principal of or any installment
of interest with respect to the debt securities;
(2) reduce the principal amount of, or the rate of interest on, the
debt securities;
(3) change the currency of payment of principal of or interest on the
debt securities;
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to the debt securities;
(5) reduce the above-stated percentage of holders of the debt
securities of any series necessary to modify or amend the
indenture relating to such series;
(6) modify the foregoing requirements or reduce the percentage of
outstanding debt securities necessary to waive any covenant or
past default;
(7) in the case of any subordinated indenture, modify the
subordination provisions thereof in a manner adverse to the
holders of subordinated debt securities of any series then
outstanding; or
(8) in the case of any convertible debt securities, adversely affect
the right to convert the debt securities into shares of common
shares or preferred shares in accordance with the provisions of
the applicable indenture.
Holders of not less than a majority in principal amount of the outstanding
debt securities of all series affected thereby (voting as a single class) may
waive certain past defaults and may waive compliance by us with any provision of
the indenture relating to such debt securities (subject to the immediately
preceding sentence); provided, however, that:
(1) without the consent of each holder of debt securities affected
thereby, no waiver may be made of a default in the payment of the
principal of or interest on any debt security or in respect of a
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covenant or provision of the indenture that expressly states that
it cannot be modified or amended without the consent of each
holder affected; and
(2) only the holders of a majority in principal amount of debt
securities of a particular series may waive compliance with a
provision of the indenture relating to such series or the debt
securities of such series having applicability solely to such
series.
We, when authorized by a board resolution, and the trustee may amend or
supplement the indentures or waive any provision of such indentures and the debt
securities without the consent of any holders of debt securities in some
circumstances including:
o to cure any ambiguity, omission, defect or inconsistency;
o to make any other change that does not, in the good faith opinion
of our board of directors and the trustee, adversely affect the
interests of holders of such debt securities in any material
respect;
o to provide for the assumption of our obligations under the
applicable indenture by a successor upon any merger,
consolidation or asset transfer permitted under the applicable
indenture;
o to provide any security for or guarantees of such debt
securities;
o to add events of default with respect to such debt securities;
o to add covenants that would benefit the holders of such debt
securities or to surrender any rights or powers we have under the
applicable indenture;
o to make any change necessary for the registration of the debt
securities under the Securities Act or to comply with the Trust
Indenture Act of 1939, or any amendment thereto, or to comply
with any requirement of the SEC in connection with the
qualification of the applicable indenture under the Trust
Indenture Act of 1939; provided, however, that such modification
or amendment does not, in the good faith opinion of our board of
directors and the trustee, adversely affect the interests of the
holders of such debt securities in any material respect;
o to provide for uncertificated debt securities in addition to or
in place of certificated debt securities or to provide for bearer
debt securities;
o to add to or change any of the provisions of the applicable
indenture to such extent as will be necessary to permit or
facilitate the issuance of the debt securities in bearer form,
registrable or not registrable as to principal, and with or
without interest coupons;
o to change or eliminate any of the provisions of the applicable
indenture; provided, however, that any such change or elimination
will become effective only when there is no debt security
outstanding of any series created prior to the execution of such
supplemental indenture which is entitled to the benefit of such
provision;
o to establish the form or terms of debt securities of any series
as permitted by the applicable indenture; or
o to evidence and provide for the acceptance of appointment by a
successor trustee with respect to the debt securities of one or
more series and to add to or change any of the provisions of the
applicable indenture as will be necessary to provide for or
facilitate the administration of the trusts under the applicable
indenture by more than one trustee, pursuant to the requirements
of the applicable indenture.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following are events that we anticipate will constitute "events of
default" with respect to any series of debt securities issued thereunder:
(1) default in the payment of any interest upon any debt securities
of that series when it becomes due and payable, and continuance
of such default for a period of 60 days; or
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(2) default in the payment of the principal of (or premium, if any,
on) any debt securities of that series when due; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of any debt securities of that series; or
(4) default in the performance, or breach, of any material covenant
or warranty of ours in the indenture (other than a covenant or
warranty added to the indenture solely for the benefit of another
series of debt securities) for a period of 60 days after there
has been given, and continuance of such by registered or
certified mail, to us by the trustee or to us and the trustee by
the holders of at least 25% in principal amount of the
outstanding debt 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) certain events of bankruptcy, insolvency or reorganization.
Additional or different events of default, if any, applicable to the series
of debt securities in respect of which this prospectus is being delivered will
be specified in the applicable prospectus supplement.
The trustee under such indenture will, within 90 days after the occurrence
of any default (the term "default" to include the events specified above without
grace or notice) with respect to any series of debt securities actually known to
it, give to the holders of such debt securities notice of such default;
provided, however, that, except in the case of a default in the payment of
principal of or interest on any of the debt securities of such series or in the
payment of a sinking fund installment, the trustee for such series will be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the holders of such debt
securities; and provided, further, that in the case of any default of the
character specified in clause (2) above with respect to debt securities of such
series, no such notice to holders of such debt securities will be given until at
least 30 days after the occurrence thereof. We will certify to the trustee
quarterly as to whether any default exists.
If an event of default, other than an event of default resulting from
bankruptcy, insolvency or reorganization, with respect to any series of debt
securities will occur and be continuing, the trustee for such series or the
holders of at least 25% in aggregate principal amount of the debt securities of
such series then outstanding, by notice in writing to us (and to the trustee for
such series if given by the holders of the debt securities of such series), will
be entitled to declare all unpaid principal of and accrued interest on such debt
securities then outstanding to be due and payable immediately.
In the case of an event of default resulting from certain events of
bankruptcy, insolvency or reorganization, all unpaid principal of and accrued
interest on all debt securities of such series then outstanding will be due and
payable immediately without any declaration or other act on the part of the
trustee for such series or the holders of any debt securities of such series.
Such acceleration may be annulled and past defaults (except, unless
theretofore cured, a default in payment of principal of or interest on the debt
securities of such series) may be waived by the holders of a majority in
principal amount of the debt securities of such series then outstanding upon the
conditions provided in the applicable indenture. No holder of the debt
securities of any series issued thereunder may pursue any remedy under such
indenture unless the trustee for such series will have failed to act after,
among other things, notice of an event of default and request by holders of at
least 25% in principal amount of the debt securities of such series of which the
event of default has occurred and the offer to the trustee for such series of
indemnity satisfactory to it; provided, however, that such provision does not
affect the right to sue for enforcement of any overdue payment on such debt
securities.
CONVERSION AND EXCHANGE RIGHTS
The terms and conditions, if any, upon which the debt securities of any
series will be convertible into common shares or preferred shares or upon which
the senior debt securities of any series will be exchangeable into another
series of debt securities will be set forth in the prospectus supplement
relating thereto. Such terms will include the conversion or exchange
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price (or manner of calculation thereof), the conversion or exchange period,
provisions as to whether conversion or exchange will be at the option of the
holders of such series of debt securities or at our option or automatic, the
events requiring an adjustment of the conversion or exchange price and
provisions affecting conversion or exchange in the event of the redemption of
such series of debt securities. The debt securities, if convertible or
exchangeable, will not be convertible into or exchangeable for securities of a
third party.
THE TRUSTEE
Subject to the terms of the applicable indenture, the trustee for each
series of debt securities will be named in the prospectus supplement relating to
each issuance of debt securities. Each indenture will contain certain
limitations on a right of the trustee, as our creditor, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The trustee will be permitted to
engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
Subject to the terms of the applicable indenture, the holders of a majority
in principal amount of all outstanding debt securities of a series (or if more
than one series is affected thereby, of all series so affected, voting as a
single class) will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy or power available to the
trustee for such series or all such series so affected.
In case an event of default will occur (and will not be cured) under any
indenture relating to a series of debt securities and is actually known to a
responsible officer of the trustee for such series, such trustee will exercise
such of the rights and powers vested in it by such indenture and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of his own affairs. Subject to such
provisions, the trustee will not be under any obligation to exercise any of its
rights or powers under the applicable indenture at the request of any of the
holders of debt securities unless they will have offered to the trustee security
and indemnity satisfactory to it.
GOVERNING LAW
The indentures and the debt securities will be governed by the laws of the
State of New York.
GLOBAL SECURITIES; BOOK-ENTRY SYSTEM
We may issue the debt securities of any series in whole or in part in the
form of one or more global securities to be deposited with, or on behalf of, a
depository (the "depository") identified in the prospectus supplement relating
to such series. "Global securities" represent in the aggregate the total
principal or face amount of the securities and once on deposit with a
depository, allow trading of the securities through the depository's book-entry
system as further described below. Global securities, if any, issued in the
United States are expected to be deposited with The Depository Trust Company
("DTC"), as depository. Global securities will be issued in fully registered
form and may be issued in either temporary or permanent form. Unless and until
it is exchanged in whole or in part for the individual debt securities
represented thereby, a global security may not be transferred except as a whole
by the depository for such global security to a nominee of such depository or by
a nominee of such depository to such depository or another nominee of such
depository or by such depository or any nominee of such depository to a
successor depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to any series
of debt securities will be described in the prospectus supplement relating to
such series. We expect that unless otherwise indicated in the applicable
prospectus supplement, the following provisions will apply to depository
arrangements.
Upon the issuance of a global security, the depository for such global
security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual debt securities
represented by such global security to the accounts of persons that have
accounts with such depository ("participants"). Such accounts will be designated
by the underwriters, dealers or agents with respect to such debt securities or
by us if such debt securities are offered directly by us. Ownership of
beneficial interests in such global security will be limited to participants or
persons that may hold interests through participants.
We expect that, pursuant to procedures established by DTC, ownership of
beneficial interests in any global security with respect to which DTC is the
depository will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
beneficial interests of
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participants) and records of participants (with respect to beneficial interests
of persons who hold through participants). Neither we nor the trustee will have
any responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC or any of its
participants relating to beneficial ownership interests in the debt securities.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to own, pledge or transfer beneficial interest in a
global security.
So long as the depository for a global security or its nominee is the
registered owner of such global security, such depository or such nominee, as
the case may be, will be considered the sole owner or holder of the debt
securities represented by such global security for all purposes under the
applicable indenture. Except as described below or in the applicable prospectus
supplement, owners of beneficial interest in a global security will not be
entitled to have any of the individual debt securities represented by such
global security registered in their names, will not receive or be entitled to
receive physical delivery of any such debt securities in definitive form and
will not be considered the owners or holders thereof under the applicable
indenture. Beneficial owners of debt securities evidenced by a global security
will not be considered the owners or holders thereof under the applicable
indenture for any purpose, including with respect to the giving of any
direction, instructions or approvals to the trustee thereunder. Accordingly,
each person owning a beneficial interest in a global security with respect to
which DTC is the depository must rely on the procedures of DTC and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interests, to exercise any rights of a holder under the
applicable indenture. We understand that, under existing industry practice, if
it requests any action of holders or if an owner of a beneficial interest in a
global security desires to give or take any action which a holder is entitled to
give or take under the applicable indenture, DTC would authorize the
participants holding the relevant beneficial interest to give or take such
action, and such participants would authorize beneficial owners through such
participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal of, and any interest on, individual debt securities
represented by a global security registered in the name of a depository or its
nominee will be made to or at the direction of the depository or its nominee, as
the case may be, as the registered owner of the global security under the
applicable indenture. Under the terms of the applicable indenture, we and the
trustee may treat the persons in whose name debt securities, including a global
security, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither we nor the trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of debt securities (including principal and interest). We believe, however, that
it is currently the policy of DTC to immediately credit the accounts of relevant
participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant global security as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in such global security held through such
participants will be governed by standing instructions and customary practices,
as is the case with securities held for the account of customers in bearer form
or registered in street name, and will be the responsibility of such
participants. Redemption notices with respect to any debt securities represented
by a global security will be sent to the depository or its nominee. If less than
all of the debt securities of any series are to be redeemed, we expect the
depository to determine the amount of the interest of each participant in such
debt securities to be redeemed to be determined by lot. None of us, the trustee,
any paying agent or the registrar for such debt securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global
security for such debt securities or for maintaining any records with respect
thereto.
Neither we nor the trustee will be liable for any delay by the holders of a
global security or the depository in identifying the beneficial owners of debt
securities and we and the trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of a global security or
the depository for all purposes. The rules applicable to DTC and its
participants are on file with the SEC.
If a depository for any debt securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by us within 90 days, we will issue individual debt securities in exchange for
the global security representing such debt securities. In addition, we may at
any time and in our sole discretion, subject to any limitations described in the
prospectus supplement relating to such debt securities, determine not to have
any of such debt securities represented by one or more global securities and in
such
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event we will issue individual debt securities in exchange for the global
security or securities representing such debt securities. Individual debt
securities so issued will be issued in denominations of $1,000 and integral
multiples thereof.
All moneys paid by us to a paying agent or a trustee for the payment of the
principal of or interest on any debt security which remain unclaimed at the end
of two years after such payment has become due and payable will be repaid to us,
and the holder of such debt security thereafter may look only to us for payment
thereof.
NON-U.S. CURRENCY
If the purchase price of any debt securities is payable in a currency other
than U.S. dollars, the specific terms with respect to such debt securities and
such foreign currency will be specified in the applicable prospectus supplement.
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DESCRIPTION OF WARRANTS TO PURCHASE
COMMON SHARES OR PREFERRED SHARES
GENERAL
We may issue warrants to purchase common shares or preferred shares
independently or together with any securities offered by any prospectus
supplement and such common share warrants or preferred share warrants may be
attached to or separate from such securities. Each series of share warrants will
be issued under a separate warrant agreement to be entered into between us and a
bank or trust company, as warrant agent, all as set forth in the applicable
prospectus supplement. The warrant agent will act solely as our agent in
connection with the certificates representing the share warrants and will not
assume any obligation or relationship of agency or trust for or with any holders
of share warrant certificates or beneficial owners of share warrants.
The following summaries of certain provisions of the warrant agreement and
share warrant certificate are not complete. You should look at the warrant
agreement relating to, and the applicable share warrant certificate
representing, the applicable series of common shares warrants or preferred share
warrants.
The applicable prospectus supplement may also state that any of the terms
set forth herein are inapplicable to such series; provided that the information
set forth in such prospectus supplement does not constitute material changes to
the information herein such that it alters the nature of the offering or the
securities offered. Warrants for the purchase of common shares or preferred
share will be offered and exercisable for U.S. dollars only and will be in
registered form only.
TERMS
An applicable prospectus supplement will set forth and describe other
specific terms regarding each series of common share warrants or preferred share
warrants offered hereby, including:
(1) the offering price;
(2) the number of common shares or preferred shares purchasable upon
exercise of each such common share warrant or preferred share warrant
and the price at which such number of common shares or preferred
shares may be purchased upon such exercise;
(3) the date on which the right to exercise such share warrants will
commence and the date on which such right will expire; and
(4) any other terms of such share warrants.
EXERCISE OF SHARE WARRANTS
Each share warrant will entitle the holder thereof to purchase common
shares or preferred shares, as the case may be, at such exercise price as will
in each case be set forth in, or calculable from, the prospectus supplement
relating to the offered share warrants. After the close of business on the
expiration date of each shares warrant or such later date to which such
expiration date may be extended by us, unexercised share warrants will become
void.
Share warrants may be exercised by delivering to the warrant agent payment
as provided in the applicable prospectus supplement of the amount required to
purchase common shares or preferred shares purchasable upon such exercise,
together with certain information set forth on the reverse side of the share
warrant certificate. Upon receipt of such payment and the shares warrant
certificate properly completed and duly executed at the corporate trust office
of the warrant agent or any other office indicated in the applicable prospectus
supplement, we will, as soon as practicable, issue and deliver the common shares
or preferred shares purchasable upon such exercise. If fewer than all of the
share warrants represented by such certificate are exercised, a new share
warrant certificate will be issued for the remaining amount of share warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The warrant agreement for a series of shares warrants may be amended or
supplemented without the consent of the holders of the share warrants issued
thereunder to effect changes that are not inconsistent with the
74
provisions of the share warrants and that do not adversely affect the interests
of the holders of the share warrants.
ANTI-DILUTION AND OTHER PROVISIONS
Unless otherwise indicated in the applicable prospectus supplement, the
exercise price of, and the number of common shares or preferred shares covered
by, each share warrant is subject to adjustment in certain events, including:
(1) the issuance of common shares or preferred shares as a dividend or
distribution on the common shares or preferred shares;
(2) certain subdivisions and combinations of the common shares or
preferred shares;
(3) the issuance to all holders of common shares or preferred shares of
certain rights or warrants entitling them to subscribe for or purchase
common shares or preferred shares, at less than the current market
value, as defined in the applicable share warrant agreement for such
series of share warrants; and
(4) the distribution to all holders of common shares or preferred shares
of certain evidences of our indebtedness or assets, other than certain
cash dividends and distributions described below.
No adjustment in the exercise price of, and the number of shares covered
by, the share warrant will be made for regular quarterly or other periodic or
recurring cash dividends or distributions or for cash dividends or distributions
to the extent paid from retained earnings. No adjustment will be required unless
such adjustment would require a change of at least one percent in the exercise
price and exercise rate then in effect; provided, however, that any such
adjustment not so made will be carried forward and taken into account in any
subsequent adjustment; provided, further, that any such adjustment not so made
will be made no later than three years after the occurrence of the event
requiring such adjustment to be made or carried forward. Except as stated above,
the exercise price of, and the number of common shares or preferred shares
covered by, a share warrant will not be adjusted for the issuance of common
shares or preferred shares or any securities convertible into or exchangeable
for common shares or preferred shares, or securities carrying the right to
purchase any of the foregoing.
In the case of:
(1) a reclassification or change of the common shares or preferred shares;
(2) certain consolidation or merger events involving us; or
(3) a sale or conveyance to another corporation of our property and assets
as an entirety or substantially as an entirety,
in each case as a result of which holders of our common shares or preferred
shares will be entitled to receive shares, securities, other property or assets
(including cash) with respect to or in exchange for such shares, the holders of
the share warrants then outstanding will be entitled thereafter to convert such
share warrants into the kind and amount of common shares, preferred shares and
other securities or property which they would have received upon such
reclassification, change, consolidation, merger, sale or conveyance had such
shares warrants been exercised immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance.
NON-U.S. CURRENCY
If the purchase price of any warrants to purchase common shares or
preferred shares is payable in a currency other than U.S. dollars, the specific
terms with respect to such warrants to purchase common shares or preferred
shares and such foreign currency will be specified in the applicable prospectus
supplement.
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DESCRIPTION OF WARRANTS TO PURCHASE DEBT SECURITIES
GENERAL
We may issue debt warrants independently or together with any securities
offered by any prospectus supplement and such debt warrants may be attached to
or separate from such securities. Each series of debt warrants will be issued
under a separate debt warrant agreement to be entered into between us and a debt
warrant agent, all as set forth in the applicable prospectus supplement. The
debt warrant agent will act solely as our agent in connection with the
certificates representing the debt warrants and will not assume any obligation
or relationship of agency or trust for or with any holders of debt warrant
certificates or beneficial owners of debt warrants.
The following summaries of certain provisions of the debt warrant agreement
and debt warrant certificate are not complete. You should look at the debt
warrant agreement relating to, and the debt warrant certificate representing, a
series of debt warrants.
The applicable prospectus supplement may also state that any of the terms
set forth herein are inapplicable to such series; provided that the information
set forth in such prospectus supplement does not constitute material changes to
the information herein such that it alters the nature of the offering or the
securities offered. Debt warrants for the purchase of shares of common shares or
shares of preferred shares will be offered and exercisable for U.S. dollars only
and will be in registered form only.
TERMS
An applicable prospectus supplement will set forth and describe other
specific terms regarding each series of debt warrants offered hereby, including:
(1) the offering price;
(2) the designation, aggregate principal amount and the terms of the debt
securities purchasable upon exercise of the debt warrants;
(3) the date on which the right to exercise such debt warrants will
commence and the date on which such right will expire; and
(4) any other terms of such debt warrants.
Warrant holders will not have any of the rights of holders of debt
securities, including the right to receive the payment of principal of, any
premium or interest on, or any additional amounts with respect to, the debt
securities or to enforce any of the covenants of the debt securities or the
applicable indenture except as otherwise provided in the applicable indenture.
EXERCISE OF DEBT WARRANTS
Debt warrants may be exercised by delivering to the debt warrant agent
payment as provided in the applicable prospectus supplement, together with
certain information set forth on the reverse side of the debt warrant
certificate. Upon receipt of such payment and the debt warrant certificate
properly completed and duly executed at the corporate trust office of the debt
warrant agent or any other office indicated in the applicable prospectus
supplement, we will, as soon as practicable, issue and deliver the debt
securities purchasable upon such exercise. If fewer than all of the debt
warrants represented by such debt warrant certificate are exercised, a new debt
warrant certificate will be issued for the remaining amount of debt warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The debt warrant agreement for a series of debt warrants may be amended or
supplemented without the consent of the holders of the debt warrants issued
thereunder to effect changes that are not inconsistent with the provisions of
the debt warrants and that do not adversely affect the interests of the holders
of the debt warrants.
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NON-U.S. CURRENCY
If the purchase price of any warrants to purchase debt securities is
payable in a currency other than U.S. dollars, the specific terms with respect
to such warrants to purchase debt securities and such foreign currency will be
specified in the applicable prospectus supplement.
77
DESCRIPTION OF SHARE PURCHASE CONTRACTS AND SHARE PURCHASE UNITS
We may issue share purchase contracts, representing contracts obligating
holders to purchase from us, and obligating us to sell to the holders, or
holders to sell to us and us to purchase from the holders, a fixed or varying
number of common shares at a future date or dates. The price per share of common
shares may be fixed at the time the share purchase contracts are entered into or
may be determined by reference to a specific formula set forth in the share
purchase contracts. Any share purchase contract may include anti-dilution
provisions to adjust the number of shares to be delivered pursuant to such share
purchase contract upon the occurrence of certain events. The share purchase
contracts may be entered into separately or as a part of share purchase units
consisting of one or more share purchase contracts and any one or more of:
(1) our debt securities;
(2) our preferred shares; or
(3) debt or equity obligations of third parties, including U.S. Treasury
securities.
The share purchase contracts may require us to make periodic payments to
the holders of the share purchase units or vice versa, and such payments may be
unsecured or pre-funded and may be paid on a current or on a deferred basis. The
share purchase contracts may require holders to secure their obligations in a
specified manner and in certain circumstances we may deliver newly issued
prepaid share purchase contracts upon release to a holder of any collateral
securing such holder's obligations under the original share purchase contract.
Any one or more of the above securities, common shares, share purchase contracts
or other collateral may be pledged as security for the holders' obligations to
purchase or sell, as the case may be, the common shares under the share purchase
contracts. The share purchase contracts may also allow the holders, under
certain circumstances, to obtain the release of the security for their
obligations under such contracts by depositing with the collateral agent, as
substitute collateral, treasury securities with a principal amount at maturity
equal to the collateral so released or the maximum number of common shares
deliverable by such holders under common share purchase contracts requiring the
holders to sell such common shares to us.
The applicable prospectus supplement may contain, where applicable, the
following information about the share purchase contracts and share purchase
units, as the case may be:
o whether the share purchase contracts obligate the holder to purchase
or sell, or both purchase and sell, our common shares and the nature
and amount of the common shares, or the method of determining those
amounts;
o whether the share purchase contracts are to be prepaid or not;
o whether the share purchase contracts are to be settled by delivery, or
by reference or linkage to the value, performance or level of our
common shares;
o any acceleration, cancellation, termination or other provisions
relating to the settlement of the share purchase contracts;
o the designation and terms of the units and of the securities composing
the units, including whether and under what circumstances those
securities may be held or transferred separately;
o any provisions for the issuance, payment, settlement, transfer or
exchange of the units or of the securities comprising the units; and
o whether the share purchase contracts and/or share purchase units will
be issued fully registered or global form.
The applicable prospectus supplement will describe the terms of any share
purchase contracts or share purchase units and, if applicable, prepaid share
purchase contracts. The description in the prospectus supplement will be
qualified in its entirety by reference to (1) the share purchase contracts, (2)
the collateral arrangements and depositary arrangements, if applicable, relating
to such share purchase contracts or share purchase units and (3) if applicable,
the prepaid share purchase contracts and the document pursuant to which such
prepaid share purchase contracts will be issued.
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NON-U.S. CURRENCY
If the purchase price of any share purchase contract is payable in a
currency other than U.S. dollars, the specific terms with respect to such share
purchase contract and such foreign currency will be specified in the applicable
prospectus supplement.
79
SELLING SHAREHOLDERS
We have filed a registration statement, of which this prospectus forms a
part, in order to permit the selling shareholders to resell to the public a
portion of the common shares that they own.
The following table sets forth certain information as of December 31, 2003
regarding beneficial ownership of our common shares by each selling shareholder.
Beneficial ownership is determined in accordance with Securities and Exchange
Commission rules and generally includes voting or investment power with respect
to securities. Common Shares are issuable upon the exercise of outstanding
options, warrants, conversion of preferred stock or exercise of other purchase
rights are treated as outstanding for purposes of computing such selling
shareholder's ownership, to the extent exercisable or convertible within sixty
days of the date of this prospectus, but are not deemed outstanding for purposes
of computing the ownership of any other selling shareholder.
Number of
Shares
Shares Beneficially Owned Which May be Shares Beneficially Owned
Prior to the Offering Offered After Offering
Name Number Percent Number Percent
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PLAN OF DISTRIBUTION
We may sell our common shares, preferred shares, debt securities, warrants
to purchase common shares, preferred shares or debt securities, share purchase
contracts and share purchase units and each selling shareholder may sell any or
all of our common shares owned by such selling shareholder, through
underwriters, agents, dealers, or directly without the use of any underwriter,
agent or dealer to one or more purchasers. We and each selling shareholder may
distribute these securities from time to time in one or more transactions,
including, but not limited to, block transactions, privately negotiated
transactions, transactions on the Nasdaq National Market or any other organized
market where the securities may be traded, through the writing of options on
securities, short sales or any combination of these methods. The securities may
be sold at a fixed price or prices, at market prices prevailing at the times of
sale, at prices related to these prevailing market prices or at negotiated
prices. Any such price may be changed from time to time. Each selling
shareholder will act independently of us in making decisions with respect to the
timing, manner of sale, amount of securities to be sold in and the pricing of
any transaction. The registration of the selling shareholders' common shares
does not necessarily mean that the selling shareholders will offer or sell any
of their shares.
We may determine the public offering price of the securities offered under
this prospectus by use of an electronic auction. We will describe how any
auction will determine the price or any other terms, how potential investors may
participate in the auction and the nature of the underwriters' obligations in
the related supplement to this prospectus.
In addition, we and the selling shareholders may enter into derivative
transactions with third parties (including the writing of options), or sell
securities not covered by this prospectus to third parties in privately
negotiated transactions. If the applicable prospectus supplement indicates, in
connection with such a transaction the third parties may, pursuant to this
prospectus and the applicable prospectus supplement, sell securities covered by
this prospectus and the applicable prospectus supplement. If so, the third party
may use securities borrowed from us, the selling shareholders or others to
settle such sales and may use securities received from us to close out any
related short positions. We and the selling shareholders may also loan or pledge
securities covered by this prospectus and the applicable prospectus supplement
to third parties, who may sell the loaned securities or, in an event of default
in the case of a pledge, sell the pledged securities pursuant to this prospectus
and the applicable prospectus supplement.
The terms of the offering of the securities with respect to which this
prospectus is being delivered will be set forth in the applicable prospectus
supplement and will include:
o the identity of any underwriters, dealers or agents who purchase
securities, as required;
o the amount of securities sold, the public offering price and
consideration paid, and the proceeds we and/or the selling
shareholders will receive from that sale;
o whether or not the securities will trade on any securities exchanges
or the Nasdaq National Market;
o the amount of any indemnification provisions, including
indemnification from liabilities under the federal securities laws;
and
o any other material terms of the distribution of securities.
Upon receipt of notice from the selling shareholders, we will file any
amendment or prospectus supplement that may be required in connection with any
sale by a selling shareholder.
We and/or the selling shareholders may offer the securities to the public
through one or more underwriting syndicates represented by one or more managing
underwriters, or through one or more underwriters without a syndicate. If
underwriters are used in the sale, we and/or the selling shareholders will
execute an underwriting agreement with those underwriters relating to the
securities that we and/or the selling shareholders will offer and will name the
underwriters and describe the terms of the transaction in the prospectus
supplement. The securities subject to the underwriting agreement will be
acquired by the underwriters for their own account and may be resold by them, or
their donees, pledgees, or transferees, from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the
81
time of sale. Subject to the conditions specified in the underwriting agreement,
underwriters will be obligated to purchase all of these securities if they are
purchased or will act on a best efforts basis to solicit purchases for the
period of their appointment, unless stated otherwise in the prospectus
supplement.
We and/or the selling shareholders may authorize underwriters to solicit
offers by institutions to purchase the securities subject to the underwriting
agreement from us and/or the selling shareholders at the public offering price
stated in the prospectus supplement under delayed delivery contracts providing
for payment and delivery on a specified date in the future. If we and/or the
selling shareholders sell securities under delayed delivery contracts, the
prospectus supplement will state that as well as the conditions to which these
delayed delivery contracts will be subject and the commissions payable for that
solicitation.
Underwriters may sell these securities to or through dealers.
Alternatively, we and/or the selling shareholders may sell the securities in
this offering to one or more dealers, who would act as a principal or
principals. Dealers may resell such securities to the public at varying prices
to be determined by the dealers at the time of the resale.
We and/or the selling shareholders may also sell the securities offered
with this prospectus through other agents designated by them from time to time.
We will identify any agent involved in the offer and sale of these securities
who may be deemed to be an underwriter under the federal securities laws, and
describe any commissions or discounts payable by us and/or the selling
shareholders to these agents, in the prospectus supplement. Any such agents will
be obligated to purchase all of these securities if any are purchased or will
act on a best efforts basis to solicit purchases for the period of their
appointment, unless stated otherwise in the prospectus supplement.
In connection with the sale of securities offered by this prospectus or
otherwise, the selling shareholders may enter into hedging transactions with
brokers, dealers or other financial institutions relating to our securities. In
connection with such hedging transactions, such brokers, dealers or other
financial institutions may engage in short sales of our securities in the course
of hedging the positions that they assume from such selling shareholders. These
hedging transactions may require or permit the selling shareholders to deliver
the shares to such brokers, dealers or other financial institutions to settle
such hedging transactions. The selling shareholder may also sell our securities
short and deliver securities covered by this prospectus to close out such short
position, subject to Section 16(c) of the Exchange Act, if applicable.
In connection with the sale of securities offered with this prospectus,
underwriters, dealers or agents may receive compensation from us, the selling
shareholders or from purchasers of the securities for whom they may act as
agents, in the form of discounts, concessions or commissions. These discounts,
concessions or commissions may be changed from time to time. Underwriters,
dealers and/or agents may engage in transactions with us, or perform services
for us, in the ordinary course of business, and may receive compensation in
connection with those arrangements. In the event any underwriter, dealer or
agent who is a member of the NASD participates in a public offering of these
securities, the maximum commission or discount to be received by any such NASD
member or independent broker-dealer will not be greater than 8% of the offering
proceeds from securities offered with this prospectus.
Selling shareholders, underwriters, dealers, agents or purchasers that
participate in the distribution of the securities may be deemed to be
underwriters under the Securities Act. Broker-dealers or other persons acting on
behalf of parties that participate in the distribution of securities may also be
deemed underwriters. Any discounts or commissions received by them and any
profit on the resale of the securities received by them may be deemed to be
underwriting discounts and commissions under the Securities Act.
Underwriters and purchasers that are deemed underwriters under the
Securities Act may engage in transactions that stabilize, maintain or otherwise
affect the price of the securities, including the entry of stabilizing bids or
syndicate covering transactions or the imposition of penalty bids. Such
purchasers will be subject to the applicable provisions of the Securities Act
and Exchange Act and the rules and regulations thereunder, including Rule 10b-5
and Regulation M. Regulation M may restrict the ability of any person engaged in
the distribution of the securities to engage in market-making activities with
respect to those securities. In addition, the anti-manipulation rules under the
Exchange Act may apply to sales of the securities in the market. All of the
foregoing may affect the marketability of the securities and the ability of any
person to engage in market-making activities with respect to the securities.
82
We and/or the selling shareholders may provide underwriters, agents,
dealers or purchasers with indemnification against civil liabilities, including
liabilities under the Securities Act, or contribution with respect to payments
that the underwriters, agents, dealers or purchasers may make with respect to
such liabilities.
Because selling shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, they may be subject to the
prospectus delivery requirements of the Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
We are required to comply with the reporting requirements of the Securities
Exchange Act of 1934, as amended, applicable to a foreign private issuer. We
will file annually a Form 20-F no later than six months after the close of our
fiscal year, which is December 31. As a foreign private issuer, we are exempt
from the rules under the Exchange Act prescribing the furnishing and content of
proxy statements, and our officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the Exchange Act. We will furnish our shareholders with annual
reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP. We
intend, although we are not obligated to do so, to furnish our shareholders with
quarterly reports by mail with the assistance of a corporate services provider,
which will include unaudited interim financial information prepared in
conformity with U.S. GAAP for each of the three quarters of each fiscal year
following the end of each such quarter. We may discontinue providing quarterly
reports at any time without prior notice to our shareholders.
Our reports and other information, when so filed, may be inspected and
copied at the public reference facilities maintained by the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Copies of such material may be obtained from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
These reports and other information may also be inspected at the offices of
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that it can disclose important information by referring
you to another document filed separately with the SEC. This prospectus
incorporates by reference the documents listed below which have been filed by us
with the SEC (000-50041) and any future filings with the SEC under Section
13(a), 13(c), 14 or 15(d) of the Exchange Act.
o Annual report on Form 20-F for the year ended December 31, 2002.
o Reports on Form 6-K dated May 5, 2003, May 13, 2003, August 18, 2003,
October 10, 2003, November 12, 2003 and December 12, 2003 (excluding
in each case any information furnished in such report and excluding
exhibits filed or furnished, which are not incorporated by reference
into this prospectus).
o The description of Global Sources Ltd. common shares contained in our
registration statement on Form F-1 filed on April 3, 2000.
We are also incorporating by reference the information contained in all
other documents that we file with the SEC between the date of the initial filing
of the registration statement of which this prospectus is a part and the
effectiveness of the registration statement, as well as between the date of this
prospectus and the time that all of the securities registered under the
registration statement are sold. The information contained in any of these
documents will be considered part of this prospectus from the date these
documents are filed.
Any statement contained in this prospectus or in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded will not be deemed, except as
so modified or superseded, to constitute a part of this prospectus.
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If you would like to receive a copy of any document incorporated by
reference into this prospectus (which will not include any of the exhibits to
the document other than those exhibits that are themselves specifically
incorporated by reference into this prospectus) or our constitutional documents,
you should call or write to us at Canon's Court, 22 Victoria Street, Hamilton,
HM 12 Bermuda (telephone number: (441) 295-2244). We will provide these
documents, without charge, by first class mail.
We have not authorized anyone to give any information or make any
representation about us that is different from, or in addition to, that
contained in this prospectus or in any of the materials that have incorporated
by reference into this prospectus. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
prospectus does not extend to you. The information contained in this prospectus
speaks only as of the date of this document, unless the information specifically
indicates that another date applies.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission utilizing a "shelf" registration process.
Under this shelf process, we may sell the securities described in this
prospectus in one or more offerings for up to an aggregate initial offering
price of $300,000,000, and the selling shareholders may resell a portion of
common shares that they own in one or more offerings. This prospectus provides
you with a general description of the securities that we and the selling
shareholders may offer. This prospectus does not contain all of the information
set forth in the registration statement as permitted by the rules and
regulations of the SEC. For additional information regarding us, or the selling
shareholders and the offered securities, please refer to the registration
statement. Each time we or the selling shareholders sell securities, we will
file a prospectus supplement with the SEC that will contain specific information
about the terms of that offering. You should read both this prospectus and any
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information."
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LEGAL MATTERS
Certain legal matters with respect to United States and New York law will
be passed upon for us by Cahill Gordon & Reindel LLP, New York, New York.
Certain legal matters with respect to Bermuda law will be passed upon by Appleby
Spurling Hunter, Hamilton, Bermuda. If counsel for any underwriter, dealer or
agent passes on legal matters in connection with an offering made by this
prospectus, we will name that counsel in the prospectus supplement relating to
the offering.
EXPERTS
The consolidated financial statements of Global Sources Ltd. for the year
ended December 31, 2002 have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Global Sources Ltd. as of December
31, 2001 and for each of the two years in the periods then ended have been
audited by Arthur Andersen, independent auditors, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
Effective August 8, 2002, Arthur Andersen resigned as our independent
auditors and we subsequently retained Ernst & Young as our independent auditors
for the fiscal year ended December 31, 2002. On August 31, 2002, Arthur Andersen
ceased practicing before the SEC. We are unable to obtain Arthur Andersen's
written consent to include in this offering memorandum its reports on our
financial statements for the years ended December 31, 2000 and December 31,
2001, respectively. The Securities Act permits the filing of this Registration
Statement without a written consent from Arthur Andersen. The cessation of
Arthur Andersen's practice and the absence of such written consent from Arthur
Andersen each may limit your ability to assert claims for any untrue statement
of a material fact contained in the financial statements audited by Arthur
Andersen or any omission to state a material fact required to be stated therein.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of September 30, 2003
(unaudited) and December 31, 2002................................... F-2
Consolidated Statements of Income for the nine months ended
September 30, 2003 and 2002 (unaudited)............................. F-3
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2003 and 2003 (unaudited)....................... F-5
AUDITED FINANCIAL STATEMENTS
Reports of Independent Public Accountants............................. F-6
Consolidated Balance Sheets........................................... F-8
Consolidated Statements of Income..................................... F-9
Consolidated Statements of Cash Flows................................. F-10
Consolidated Statement of Shareholders' Equity........................ F-12
Notes to Consolidated Financial Statements............................ F-13
F-1
GLOBAL SOURCES LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
AT AT
SEPTEMBER 30 DECEMBER 31
2003 2002
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 20,195 $ 11,009
Available-for-sale securities............................................ 33,961 26,199
Accounts receivable, net................................................. 4,525 4,169
Receivables from sales representatives................................... 4,065 2,932
Inventory of paper....................................................... 524 545
Prepaid expenses and other current assets................................ 1,708 1,147
TOTAL CURRENT ASSETS................................................. 64,978 46,001
Property and equipment, net................................................. 8,916 14,110
Long term investments....................................................... 100 100
Bonds held to maturity, at amortized cost................................... 1,230 1,358
Other assets................................................................ 1,032 1,081
TOTAL ASSETS......................................................... $ 76,256 $ 62,650
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................................... $ 3,248 $ 4,284
Deferred income and customer prepayments................................. 25,881 18,259
Accrued liabilities...................................................... 5,696 5,361
Income taxes payable..................................................... 696 368
TOTAL CURRENT LIABILITIES............................................ 35,521 28,272
Liabilities for incentive and bonus plans................................... 912 1,025
Amount due to parent company................................................ 11,404 11,404
Minority interest........................................................... 3,291 2,823
Deferred tax liability...................................................... 213 604
TOTAL LIABILITIES.................................................... 51,341 44,128
SHAREHOLDERS' EQUITY:
Ordinary shares, US$0.01 par value; 50,000,000 shares authorized;
28,945,344 (2002: 28,939,844) shares issued and outstanding.......... --------------- 289
289
Additional paid-in capital............................................... 82,137 80,460
Retained deficit......................................................... (53,002) (57,680)
Less: Unearned compensation............................................. (4,980) (4,547)
Accumulated other comprehensive income...................................... 471 --
TOTAL SHAREHOLDERS' EQUITY........................................... 24,915 18,522
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $ 76,256 $ 62,650
F-2
GLOBAL SOURCES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES:
Online services................................ $ 13,277 $ 13,010 $ 38,300 $ 38,661
Other media services........................... 9,332 8,404 25,859 24,254
Exhibitions.................................... 233 715 1,362 1,890
Miscellaneous.................................. 152 157 509 477
22,994 22,286 66,030 65,282
OPERATING EXPENSES:
Sales.......................................... 7,677 7,344 21,827 21,649
Event production............................... 50 228 328 584
Community...................................... 3,111 3,072 8,903 9,364
General and administrative..................... 6,828 7,270 21,041 21,382
Online services development.................... 1,256 1,400 3,888 4,085
Non-cash compensation expense (Note 1)......... 421 651 1,213 1,999
Amortization of intangibles/Software
development cost........................... 1,484 983 3,533 2,715
TOTAL OPERATING EXPENSES.......................... 20,827 20,948 60,733 61,778
INCOME FROM OPERATIONS............................ 2,167 1,338 5,297 3,504
Interest income................................ 28 134 73 230
Foreign exchange gains (losses), net........... 111 (229) 102 57
INCOME BEFORE INCOME TAXES........................ 2,306 1,243 5,472 3,791
INCOME TAX PROVISION.............................. (114) (120) (325) (597)
NET INCOME BEFORE MINORITY INTEREST............... $ 2,192 $ 1,123 $ 5,147 $ 3,194
Minority interest................................. $ (187) $ (81) $ (469) $ (168)
NET INCOME........................................ $ 2,005 $ 1,042 $ 4,678 $ 3,026
RETAINED DEFICIT BROUGHT FORWARD.................. -- -- (57,680) (61, 987)
RETAINED DEFICIT CARRIED FORWARD.................. -- -- $ (53,002) $ (58,961)
BASIC NET INCOME PER SHARE........................ $ 0.07 $ 0.04 $ 0.16 $ 0.10
SHARES USED IN BASIC NET INCOME PER SHARE
CALCULATIONS................................... 28,945,344 28,939,844 28,944,176 28,938,676
DILUTED NET INCOME PER SHARE...................... $ 0.07 $ 0.04 $ 0.16 $ 0.10
SHARES USED IN DILUTED NET INCOME
PER SHARE CALCULATIONS......................... 28,998,626 28,939,844 28,968,749 28,940,461
Note: 1. Reflects the non-cash compensation expenses associated with the
employee equity compensation plans. Non-cash compensation represents the
following categories of expenses:
F-3
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Sales.......................................... $ 135 $ 115 $ 284 $ 394
Community...................................... 52 61 78 217
General and administrative..................... 159 358 608 961
Online services development.................... 75 117 243 427
$ 421 $ 651 $ 1,213 $ 1,999
F-4
GLOBAL SOURCES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30
2003 2002
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 4,678 $ 3,026
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 6,695
6,852
Profit on sale of property and equipment............................. (6) --
Accretion of U.S. Treasury strips zero % coupons..................... (57) (77)
Bad debt expense..................................................... 184 587
Non-cash compensation expense........................................ 1,213 1,999
Income attributable to minority shareholder.......................... 469 168
Property and equipment written off................................... 10 152
13,343 12,550
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivables................................................. (540) 1,214
Receivables from sales representatives............................... (1,133) (2,532)
Receivables from related party sales representatives................. -- 2,900
Inventory of paper................................................... 21 331
Prepaid expenses and other current assets............................ (552) (141)
Long term assets..................................................... 49 48
Accounts payable..................................................... (1,036) (715)
Accrued liabilities and liabilities for incentive and bonus plans.... 222 (210)
Deferred income and customer prepayments............................. 7,622 1,614
Tax liability........................................................ (63) 276
NET CASH PROVIDED BY OPERATING ACTIVITIES....................... 17,933 15,335
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................................... (1,670) (3,123)
Proceeds from sales of property and equipment........................ 8 --
Proceeds from matured bonds.......................................... 185 160
Purchase of available-for-sale securities............................ (10,800) (20,005)
Sale of available-for-sale securities................................ 3,500 --
NET CASH USED FOR INVESTING ACTIVITIES.......................... (8,777) (22,968)
CASH FLOWS FROM FINANCING ACTIVITIES:
Amount received towards directors stock option plan.................. 30 50
NET CASH GENERATED FROM FINANCING ACTIVITIES.................... 30 50
Net increase in cash and cash equivalents.............................. 9,186 (7,583)
Cash and cash equivalents, beginning of the period..................... 11,009 20,236
CASH AND CASH EQUIVALENTS, END OF THE PERIOD........................... 20,195 12,653
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income tax paid...................................................... $ 388 $ 321
Interest paid........................................................ -- --
F-5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Global Sources Ltd.
We have audited the accompanying consolidated balance sheet of Global
Sources Ltd. (a company incorporated under the laws of Bermuda) and its
subsidiaries as of December 31, 2002, and the related consolidated statement of
income, shareholders' equity and cash flows for the year ended December 31,
2002. 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. The financial statements of the Company as of
December 31, 2000 and 2001, were audited by other auditors who have ceased
operations and whose report dated February 28, 2002 expressed an unqualified
opinion.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Global Sources Ltd. and its subsidiaries as of December 31, 2002, and the
results of their operations and cash flows for the year ended December 31, 2002,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ ERNST & YOUNG
Singapore
March 28, 2003
F-6
THE FOLLOWING REPORT IS A COPY OF THE INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
PREVIOUSLY ISSUED BY ARTHUR ANDERSEN. THE REPORT HAS NOT BEEN REISSUED BY ARTHUR
ANDERSEN.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Global Sources Ltd.
We have audited the accompanying consolidated balance sheets of Global
Sources Ltd. (a company incorporated under the laws of Bermuda) and its
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2001. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Global Sources Ltd. and its subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ ARTHUR ANDERSEN
Singapore
February 28, 2002
F-7
'
GLOBAL SOURCES LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
AT AT
DECEMBER 31 DECEMBER 31
2001 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 20,236 $ 37,208
Accounts receivable, net................................................. 5,710 4,169
Receivables from sales representatives................................... 709 2,932
Receivables from related party sales representatives..................... 2,900 -
Inventory of paper....................................................... 856 545
Prepaid expenses and other current assets................................ 1,122 1,147
TOTAL CURRENT ASSETS................................................. 31,533 46,001
Property and equipment, net................................................. 19,058 14,110
Intangible assets, net...................................................... 3 -
Long term investments....................................................... 100 100
Bonds held to maturity, at amortized cost................................... 1,709 1,358
Other assets................................................................ 1,199 1,081
TOTAL ASSETS......................................................... $ 53,602 $ 62,650
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................................... $ 3,625 $ 4,284
Deferred income and customer prepayments................................. 17,122 18,259
Accrued liabilities...................................................... 5,127 5,361
Income taxes payable..................................................... 164 368
TOTAL CURRENT LIABILITIES............................................ 26,038 28,272
Liabilities for incentive and bonus plans................................... 1,434 1,025
Amount due to parent company................................................ 11,404 11,404
Minority interest........................................................... 2,515 2,823
Deferred tax
liability................................................................... 610 604
TOTAL LIABILITIES.................................................... 42,001 44,128
SHAREHOLDER'S EQUITY:
Ordinary shares, US$0.01 par value; 50,000,000 shares authorized;
26,308,949 (2001: 26,303,949) shares issued and outstanding.......... 263 263
Additional paid in capital............................................... 80,196 80,486
Retained earnings/(deficit).............................................. (61,987) (57,680)
Less : Unearned compensation............................................. (6,871) (4,547)
TOTAL SHAREHOLDERS' EQUITY........................................... 11,601 18,522
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $ 53,602 $ 62,650
The accompanying notes are an integral part of these financial statements.
F-8
GLOBAL SOURCES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
YEAR ENDED DECEMBER 31,
2000 2001 2002
REVENUES:
Online services........................................ $ 55,121 $ 55,468 $ 51,268
Other media services................................... 46,748 39,010 35,587
Miscellaneous.......................................... 1,184 807 631
103,053 95,285 87,486
OPERATING EXPENSES:
Sales.................................................. 34,436 32,047 29,592
Circulation............................................ 13,337 11,757 11,581
General and administrative............................. 36,197 33,726 29,785
Online services development............................ 6,665 8,393 5,378
Non-cash compensation expense (Note a)................. 65,689 2,501 2,564
Non-cash listing
expenses.................................................. 1,353 - -
Amortization of intangibles/Software development cost.. 1,018 3,476 3,740
TOTAL OPERATING EXPENSES.................................. 158,695 91,900 82,640
INCOME/(LOSS) FROM OPERATIONS............................. (55,642) 3,385 4,846
Interest expense....................................... (649) (172) -
Interest income........................................ 1,135 357 439
Foreign exchange gains (losses), net................... 50 (470) 50
Write-down of investments.............................. (11,750) (1,150) -
INCOME/(LOSS) BEFORE INCOME TAXES......................... (66,856) 1,950 5,335
INCOME TAX PROVISION...................................... (1,277) (1,143) (720)
INCOME/(LOSS) BEFORE MINORITY INTEREST.................... $ (68,133) $ 807 $ 4,615
Equity in (loss)/income of affiliate...................... (51) 51 -
Minority interest......................................... (37) (83) (308)
NET INCOME/(LOSS)......................................... $ (68,221) $ 775 $ 4,307
BASIC AND DILUTED NET INCOME/(LOSS) PER SHARE............. $ (2.63) $ 0.03 $ 0.16
SHARES USED IN BASIC AND DILUTED NET INCOME /(LOSS)
PER SHARE CALCULATIONS (NOTE 14)....................... 25,948,028 26,303,949 26,308,154
Note: a. Reflects the non-cash compensation expenses associated with the
transfer of shares from the parent company to the chairman and chief
executive officer of the Company and the employee equity compensation
plans. Approximately $623 (2001: $381, 2000: $291) represents sales
expenses, $238 (2001: $87, 2000: $168) represents circulation, $1,179
(2001: $1,546, 2000: $65,044) represents general and administrative and
$524 (2001: $487, 2000: $186) represents online services development
expenses.
The accompanying notes are an integral part of these financial statements.
F-9
GLOBAL SOURCES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS THOUSANDS)
YEAR ENDED DECEMBER 31,
2000 2001 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(Loss)................................................ $ (68,221) $ 775 $ 4,307
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization.................................... 4,069 8,934 8,989
(Profit)/Loss on sale of property and equipment.................. (23) 34 (1)
Accretion of U.S. Treasury strips zero % coupon.................. (139) (122) (99)
Bad debt expense................................................. 1,188 765 670
Non-cash compensation expense.................................... 65,689 2,501 2,564
Non-cash listing expenses........................................ 1,353 - -
Income attributable to minority shareholder...................... 37 83 308
Write-down of investments........................................ 11,750 1,150 -
Equity in loss/(income) of affiliate............................. 51 (51) -
Property and equipment written off............................... 12 108 153
15,766 14,177 16,891
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivables............................................. (1,865) 1,328 871
Receivables from sales representatives........................... 1,527 (153) (2,223)
Receivables from related party sales representatives............. 651 538 2,900
Inventory of paper............................................... (630) 357 311
Prepaid expenses and other current assets........................ 1,459 646 (25)
Loan to chief executive officer.................................. (5,350) - -
Repayment of loan from chief executive officer................... 5,350 - -
Long term assets................................................. (123) 147 118
Accounts payable................................................. 2,067 (1,911) 659
Accrued liabilities and liabilities for incentive and bonus plans (2,987) (1,061) (175)
Deferred income and customer prepayments......................... 750 1,234 1,137
Tax liability.................................................... 298 162 198
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 16,913 15,464 20,662
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of long term investments................................ (13,000) - -
Purchase of property and equipment............................... (17,128) (4,874) (4,193)
Proceeds from sales of property and equipment.................... 25 315 3
Proceeds from matured bonds...................................... 460 440 450
Capital contributed by minority shareholder in a joint venture... 6,000 - -
NET CASH USED FOR INVESTING ACTIVITIES...................... (23,643) (4,119) (3,740)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings........................................... 13,260 - -
Repayment of short-term borrowings............................... (9,260) (4,000) -
Amount received towards directors stock option plan.............. - 164 50
Additional capital contributed................................... 24 - -
NET CASH GENERATED FROM (USED FOR) FINANCING ACTIVITIES..... 4,024 (3,836) 50
F-10
Net (decrease)/increase in cash and cash equivalents............... (2,706) 7,509 16,972
Cash and cash equivalents, beginning of the year................... 15,433 12,727 20,236
CASH AND CASH EQUIVALENTS, END OF THE YEAR......................... $ 12,727 $20,236 $ 37,208
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income tax paid.................................................. $ 979 $ 981 $ 522
Interest paid.................................................... 639 172 -
The accompanying notes are an integral part of these financial statements.
F-11
GLOBAL SOURCES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES)
ORDINARY SHARES
ADDITIONAL TOTAL
NUMBER OF PAID IN RETAINED UNEARNED SHAREHOLDERS'
SHARES AMOUNTS CAPITAL EARNINGS COMPENSATION EQUITY
BALANCE AT DECEMBER 31, 1999..... 25,051,380 $ 251 $ 5,459 - $ 5,710
-
Net income....................... - (68,221) - $(68,221)
- -
Issuance of shares upon share 1,252,569 12 $ 12 - - $ 24
exchange.........................
Non-cash compensation expense.... - - 70,755 - - $ 70,755
Unearned compensation............ - - - - (5,066) $ (5,066)
Non-cash listing expenses........ - - 1,353 - - $ 1,353
Interest in Joint Venture........ - - $ 3,606 - - $ 3,606
BALANCE AT DECEMBER 31, 2000..... 26,303,949 $ 263 $ 75,726 $(62,762) $ (5,066) $ 8,161
Net income....................... - - - 775 - $ 775
Non-cash compensation expense.... - - 4,306 - - $ 4,306
Unearned compensation............ - - - - (1,805) $ (1,805)
Amount received towards directors -
stock option plan................ - - 164 - - $ 164
BALANCE AT DECEMBER 31, 2001..... 26,303,949 $ 263 $ 80,196 $(61,987) $ (6,871) $ 11,601
Net income....................... - - - 4,307 - $ 4,307
Non-cash compensation expense.... - - 240 - - $ 240
Unearned compensation............ - - - - 2,324 $ 2,324
Amount received towards directors -
stock option plan................ - - 50 - - $ 50
Issuance of Shares under directors
- stock option plan.............. 5,000 - - - - -
BALANCE AT DECEMBER 31, 2002..... 26,308,949 $ 263 $ 80,486 $(57,680) $ (4,547) $ 18,522
The accompanying notes are an integral part of these
consolidated financial statements.
F-12
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
1. THE COMPANY
Global Sources Ltd. (the "Company") was incorporated in November 1999 under
the laws of Bermuda. The Company is majority owned by Hung Lay Si Co. Ltd.
(the "Parent Company"). The Parent Company is a company organized under the
laws of the Cayman Islands. It is wholly owned by the Quan Gung 1986 Trust,
a trust formed under the laws of the Island of Jersey. Hill Street Trustees
Ltd. is the trustee of the trust (the "Trustee") and the Trustee has sole
and exclusive voting investment and dispositive power over the shares of
capital stock of the Parent Company owned by the Trust.
The Company's principal business is to provide services that allow global
buyers to identify suppliers and products, and enable suppliers to market
their products to a large number of buyers. The Company's primary online
service is creating and hosting marketing websites that present suppliers'
product and company information in a consistent, easily searchable manner
on Global Sources Online. The Company also offers electronic cataloguing
services for buyers and suppliers. My Catalogs enable buyers to maintain
customized information on suppliers. Private Supplier Catalogs are
password-protected online environments where suppliers can develop and
maintain their own product and company data. Complementing these services
are various trade magazines and CD-ROMs. The Company's businesses are
conducted primarily through Trade Media Ltd., its wholly owned subsidiary,
which was incorporated in October 1984 under the laws of Cayman Islands.
Through certain other wholly owned subsidiaries, the Company also organizes
conferences and exhibitions on technology related issues and licenses Asian
Sources / Global Sources Online and catalog services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF CONSOLIDATION AND PRESENTATION
(i) The accompanying consolidated financial statements are prepared
in accordance with accounting principles generally accepted in
the United States of America and comprise the accounts of the
Company, its majority owned subsidiaries and those owned through
nominee shareholders. All significant intercompany transactions
and balances have been eliminated on consolidation.
(ii) The results of subsidiaries acquired or disposed of during the
year are included in the consolidated statement of income from
the effective dates of acquisition or up to the effective dates
of disposal.
(iii) The functional currency of the Company and certain subsidiaries
is the United States dollar. The functional currencies of other
subsidiaries are their respective local currencies. United States
dollars are used as the reporting currency as the Company's
operations are global.
(B) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("U.S. GAAP")
requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
F-13
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
(C) CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
(D) INVENTORY OF PAPER
Inventory of paper is stated at the lower of cost or net realizable
value. Cost is determined on the first-in, first-out basis.
(E) PROPERTY AND EQUIPMENT
(i) Property and equipment are stated at cost less accumulated
depreciation. Cost represents the purchase price of the asset and
other costs incurred to bring the asset into its existing use.
(ii) Depreciation on property and equipment is calculated to amortize
their cost on a straight line basis over their estimated useful
lives as follows:
Fixtures, fittings and office equipment 5 years
Leasehold improvements 5 years
Motor vehicles 5 years
Computer equipment and software 3 years
(iii)Effective January 1, 1999, the Company adopted Statement of
Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," to account for the costs
incurred to develop computer software for internal use. Costs
incurred in the preliminary project stage with respect to the
development of software for internal use are expensed as
incurred; costs incurred during the application development stage
are capitalized and are amortized over the estimated useful life
of three years upon the commissioning of service of the software.
Training and maintenance costs will be expensed as incurred.
To account for the development costs related to the products to
be sold, leased or otherwise marketed, the Company adopted SFAS
No. 86, "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed." Development costs incurred
subsequent to the establishment of the technological feasibility
of the product are capitalized. The capitalization will end when
the product is available for general release to customers.
The Company expensed $NIL, $1,117 and $64 during the years ended
December 31, 2000, 2001 and 2002, respectively, for the costs
incurred prior to the establishment of the technological
feasibility with respect to the development of products to be
sold, leased or otherwise marketed.
(F) INTANGIBLE ASSETS
Prior to the adoption of SFAS No. 142 effective on January 1, 2002,
copyrights were amortized on a straight line basis over a period of
ten years and Goodwill, was amortized on a straight-line basis over
twenty years.
F-14
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
In June 2001, FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method and broadened the criteria for
recording intangible assets separated from goodwill. Under SFAS No.
142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if
impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to
be amortized over their useful lives (but with no maximum life). The
amortization provisions of SFAS No. 142 apply immediately to goodwill
and intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, we
adopted SFAS No. 142 effective January 1, 2002. As goodwill was fully
amortized and no acquisitions occurred during 2001, the Company
believes that the adoption of these standards did not have a material
impact on the Company's financial statements of position, results of
operations, or cash flows.
(G) INVESTMENTS
Long term investments for business and strategic purposes in
privately-held companies where such investments are less than 20% of
the equity capital of the investees, with no significant influence
over the investees, are stated at cost.
Long term investments in companies where such investments are in the
range of 20% to 50% of the equity capital of the investees and over
whom the Company exercises significant influence, are accounted under
equity method.
Interest in subsidiaries with more than 50% ownership are consolidated
and the ownership interests of minority investors are recorded as
minority interest.
Long term investments in U.S. Treasury strips zero % coupon, held to
maturity are stated at amortized cost.
(H) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the carrying value of its long-lived assets based
upon a gross cash flow basis and will reserve for impairment whenever
events or changes in circumstances indicate the carrying amount of the
assets may not be fully recoverable. The impairment loss is measured
based on the difference between the carrying amount of the asset and
its fair value. There was no impairment of the Company's property and
equipment or intangibles as of December 31, 2002.
(I) REVENUE RECOGNITION
The Company derives its revenues from advertising fees in its
published trade magazines and Websites, sales of trade magazines, fees
from licensing its trade and service marks, service fees from the
provision of software maintenance service, and organizing business
seminars.
Revenues from advertising in trade magazines and Websites are
recognized ratably in the period in which the advertisement is
displayed. Advertising contracts do not exceed one year. Revenue from
sales of trade magazines is recognized upon delivery of the magazine.
Magazine subscriptions received in advance are deferred and recognized
as revenue upon delivery of the magazine. Revenue
F-15
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
from the provision of maintenance service is deferred and recognized
ratably over the maintenance service period. Revenue from organizing
business seminars is recognized at the conclusion of the seminar.
The Company receives license fees and royalties from licensing its
trade and service marks. Revenue from license fees is recognized
ratably over the term of the license, currently four to five years.
Royalties from license arrangements are earned ratably in the period
in which the advertisement is displayed by the licensee.
The interest income from investments in U.S. Treasury strips zero %
coupon is recognized as it accrues, taking into account the effective
yield on the asset.
(J) TRANSACTIONS WITH SALES REPRESENTATIVES AND RELATED PARTY
SALES REPRESENTATIVES
The Company utilizes sales representatives and in the past utilized
related party sales representatives in various territories to promote
the Company's products and services. Under these arrangements, these
sales representatives are entitled to commissions as well as marketing
fees. Commissions expense is recorded when owed to these sales
representatives and is included in sales expenses.
These sales representatives which are mainly corporate entities,
handle collections from clients on behalf of the Company. Included in
receivables from these sales representatives are amounts collected on
behalf of the Company as well as cash advances made to these sales
representatives.
As of December 31, 2001, the boards of directors of eight of these
sales representative companies each included a director nominated by
the Company to monitor the receivables collected from the Company's
clients by these related party sales representatives, and to monitor
any changes to the authorized signatories of the depository bank
accounts. The nominated directors were employees of the Company. The
Company and the nominated directors did not have any interest in the
share capital of these related party sales representatives companies.
However as of December 31, 2002, the Company does not have any
nominated directors on the board of directors of any of the Company's
sales representative companies. Approximately $20,315, $20,172 and
$9,986 of the commissions and marketing fees expense was associated
with these related party sales representative companies for 2000, 2001
and 2002, respectively.
(K) ADVERTISING EXPENSES
Advertising expenses are expensed as incurred. The Company incurred
advertising expenses of $658, $277 and $161 during the years ended
December 31, 2000, 2001 and 2002, respectively.
(L) OPERATING LEASES
The Company leases certain office facilities under cancelable and
non-cancelable operating leases that expire in two to five years.
Rentals under operating leases are expensed on a straight line basis
over the life of the leases.
F-16
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
(M) LIABILITIES FOR BONUS PLAN
Before the commencement of the Equity Compensation Plans as described
in note 23, the Company rewarded its senior management staff based on
their performance through long term discretionary bonus awards. These
awards were payable in cash generally at the end of five or ten years
from the date of the award, even in the event of termination of
employment unless certain non-compete provisions had been violated.
These awards were expensed in the period to which the performance
bonus relates.
(N) RETIREMENT BENEFITS
The Company operates a number of defined contribution retirement
benefit plans. Contributions are based on a percentage of each
eligible employees' salary and are expensed as the related salaries
are incurred.
(O) INCOME TAXES
The Company accounts for deferred income taxes using the liability
method, under which the expected future tax consequences of temporary
differences between the financial reporting and tax basis of its
assets and liabilities are recognized as deferred tax assets and
liabilities. A valuation allowance is established for any deferred tax
asset when it is more likely than not that the deferred tax asset will
not be recovered.
(P) MINORITY INTEREST
In 2000 the Company entered into an agreement with CMP Media Inc.,
through United Business Media B.V., a subsidiary of United News and
Media plc. (CMP) to set-up a corporation (eMedia Asia Ltd.) to provide
new technology content, media and e-commerce services to the
electronics technology market in Asia. The Company holds a 60.1%
controlling equity interest in eMedia Asia Ltd. and consolidates the
results of operations. As part of obtaining its 39.9% interest, CMP
has committed to pay $6,000 and interest thereon to the Company upon
the payment of specified future dividends of eMedia Asia Ltd. Due to
the contingent nature of the payment, the Company did not record in
its balance sheet the promissory note receivable of $6,000 due from
CMP and no interest income was accrued as at December 31, 2002 and
2001. The minority interest liability of $2,823 and $2,515 at December
31, 2002 and 2001, respectively, reflects CMP's proportionate interest
of the net book value of eMedia Asia Ltd.
(Q) FOREIGN CURRENCIES
Transactions in currencies other than the functional currency are
measured and recorded in the functional currency using the exchange
rate in effect on the date of the transaction. As of the balance sheet
date, monetary assets and liabilities that are denominated in
currencies other than the functional currency are remeasured using the
exchange rate at the balance sheet date. All gains and losses arising
from foreign currency transactions and remeasurement of foreign
currency denominated accounts are included in the determination of net
income in the year in which they occur.
The financial statements of the subsidiaries reporting in their
respective local currencies are translated into U.S. dollars for
consolidation as follows: assets and liabilities at the exchange rate
as of the bal-
F-17
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
ance sheet date, shareholders' equity at the historical rates of
exchange, and income and expense amounts at the average monthly
exchange rates. The cumulative translation differences were not
material as of December 31, 2001 and 2002.
(R) SEGMENT REPORTING
Statement of Financial Accounting Standard ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") requires that companies report separately, in the
financial statements, certain financial and descriptive information
about operating segment profit or loss, certain specific revenue and
expense items, and segment assets. Additionally, companies are
required to report information about the revenues derived from their
products and services groups, about geographic areas in which the
Company earns revenues and holds assets, and about major customers.
The Company identifies its operating segments based on business
activities, management responsibility and geographic location. The
Company has two reportable segments: online services and other media
services.
(S) COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting comprehensive income and its components in financial
statements. Comprehensive income is defined as the change in equity of
a company during a period from transactions and other events and
circumstances excluding transactions resulting from investment by
owners and distribution to owners. For each of the years ended
December 31, 2000, 2001 and 2002, the Company had no material
comprehensive income items.
(T) BASIC AND DILUTED NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the
weighted average number of shares of ordinary shares outstanding
during the period. Diluted net income per share is calculated using
the weighted average number of outstanding ordinary shares, plus other
dilutive potential ordinary shares. For all periods presented, the
Company did not have any dilutive securities; therefore, both the
basic and diluted net income per share computations resulted in the
same amounts.
(U) STOCK BASED COMPENSATION
The Company has adopted the disclosure only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company accounts
for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, compensation cost of stock options is
measured as the excess, if any, of the fair value of the Company's
stock at the date of the grant over the option exercise price and is
charged to operations over the vesting period.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No.123 and Emerging Issues Task
Force (EITF) Issue No. 96-18, "Accounting for Equity Instruments that
are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling Goods and Services." All transactions in which services
are received for the issuance of equity in-
F-18
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
struments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable. The measurement date of
the fair value of the equity instrument issued is the earlier of the
date on which the counterparty's performance is complete or the date
on which it is probable that performance will occur.
A majority of the Company's employee stock compensation plans are
share grants without any exercise price or exercise period. Therefore
the fair value of the share grants at the date of grant approximates
the intrinsic value. As a result, the impact of fair value based
accounting under SFAS No. 123 is not significantly different from the
intrinsic value method under APB 25.
(V) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statements of Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS No.
137 and SFAS No. 138. This statement, as amended, was effective
January 1, 2001, and established accounting and reporting standards
for derivative instruments, including certain derivative instruments
imbedded in other contracts, and for hedging activities. The adoption
of SFAS No. 133, as amended, did not impact the Company's financial
position or results of operations.
In June, 2001, FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS No. 142, goodwill
and intangible assets with indefinite lives are no longer amortized
but are reviewed annually (or more frequently if impairment indicators
arise) for impairment. Separable intangible assets that are not deemed
to have indefinite lives will continue to be amortized over their
useful lives (but with no maximum life). The amortization provisions
of SFAS No. 142 apply immediately to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, we adopted SFAS No. 142
effective January 1, 2002. As goodwill was fully amortized and no
acquisitions occurred during 2001, management believes that the
adoption of these standards did not have a material impact on the
Company's financial statements of position, results of operations, or
cash flows.
In June 2001, FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
The purpose of this statement is to develop consistent accounting for
asset retirement obligations and related costs in the financial
statements and provides more information about future cash outflows,
leverage and liquidity regarding retirement obligations and the gross
investment in long-lived assets. We adopted SFAS No. 143 on January 1,
2003 and believe that the adoption of this standard did not have a
material impact on the Company's financial statements of position,
results of operations, or cash flows.
In August 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets, superseding SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The statement also supersedes the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occur-
F-19
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
ring Events and Transactions, for segments of a business to be
disposed. The Company adopted this statement on January 1, 2002 and
believes that the adoption of this standard did not have a material
impact on the Company's financial statement of position, results of
operations, or cash flows.
In April 2002, FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." The provisions of this Statement relating to
the rescission of Statement 4 will be effective for fiscal years
beginning after May 15, 2002. The provisions in paragraphs 8 and 9(c)
of this Statement relating to Statement 13 are effective for
transactions occurring after May 15, 2002. All other provisions of
this Statement are effective for financial statements issued on or
after May 15, 2002. We believe that the adoption of this standard does
not have a material impact on the Company's financial statements of
position, results of operations, or cash flows.
In December 2002, FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which requires
additional disclosures in interim and annual financial statements
about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The disclosure
provisions of SFAS No. 148 are effective for fiscal years ending after
December 15, 2002.
3. CURRENT ASSETS:
AT DECEMBER 31,
2001 2002
ACCOUNTS RECEIVABLE:
Gross trade receivables........................................... $ 7,842 $ 6,135
Less: Allowance for doubtful debts............................... (2,132) (1,966)
$ 5,710 $ 4,169
MOVEMENTS IN ALLOWANCE FOR DOUBTFUL ACCOUNTS:
YEAR ENDED DECEMBER 31,
2000 2001 2002
BALANCE AT BEGINNING OF YEAR..................... $ 1,854 $ 2,400 $ 2,132
Charged to bad debt expenses..................... 1,188 765 670
Write-off of bad debts........................... (642) (1,033) (836)
BALANCE AT END OF YEAR........................... $ 2,400 $ 2,132 $ 1,966
AT DECEMBER 31,
2001 2002
PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Unsecured employee loans and other debtors....................... $ 117 $ 108
Prepaid expenses................................................. 399 284
Other current assets............................................. 606 755
F-20
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
AT DECEMBER 31,
2001 2002
$ 1,122 $ 1,147
4. PROPERTY AND EQUIPMENT, NET:
AT DECEMBER 31,
2001 2002
Capital work-in progress.......................................... $ 33 $ 192
Leasehold improvements............................................ 6,635 6,806
Motor vehicles.................................................... 72 98
Computers, fixtures, fittings and office equipment................ 21,781 22,463
Software development costs........................................ 11,821 14,723
Property and equipment, at cost................................... 40,342 44,282
Less: Accumulated depreciation.................................... (21,284) (30,172)
$ 19,058 $ 14,110
Depreciation expense for the years ended December 31, 2000, 2001 and
2002 was $3,051, $5,458 and $5,249, respectively and the amortization
of Software development cost for the years ended December 31, 2000,
2001 and 2002 was $647, $3,106, and $3,737 respectively.
5. INTANGIBLE ASSETS, NET:
AT DECEMBER 31,
2001 2002
Goodwill........................................................... $ 654 $ 654
Copyrights......................................................... 3,706 3,706
4,360 4,360
Less: Accumulated amortization.................................... (4,357) (4,360)
$ 3 $ --
6. LONG-TERM INVESTMENTS AND BONDS HELD TO MATURITY:
(i) As at December 31, 2002, the Company holds equity instruments carried
at $100 in a privately held unaffiliated electronic commerce company for
business and strategic purposes. The investment is accounted for under the
cost method since the ownership is less than 20% and the Company does not
have the ability to exercise significant influence over the investee. The
investment is shown under long term investments in the consolidated balance
sheets.
The Company's policy is to regularly review the carrying values of the
non-quoted investments and to identify and provide for impairment when
circumstances indicate impairment other than a temporary decline in the
carrying values of such assets.
During the fourth quarter of year 2000, the Company recorded $11,750
impairment loss for other than a temporary decline in the carrying value of
the investments based on the financial position of the investees and other
information, which became available in the fourth quarter of year 2000 and
developments in the technology and internet sectors in fourth quarter of
F-21
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
year 2000. During the year 2001, the Company recorded a further $1,150
impairment loss for other than temporary decline in the carrying value of
the investment based on economic events and other factors. The net carrying
value of the long term investment as at December 31, 2001 and 2002 was
$100. The Company will continue to evaluate this investment for impairment.
(ii) U.S. Treasury strips zero % coupon
AT DECEMBER 31,
2001 2002
The amortized cost classified by date of contractual maturity is as
follows:
Due within one year........................................ $ 430 $ 426
Due after one year through five years...................... 1,059 854
Due after five years through ten years..................... 220 78
$ 1,709 $ 1,358
AT DECEMBER 31,
2001 2002
The fair value based on the market price, classified by date of
contractual maturity is as follows:
Due within one year........................................ $ 444 $ 437
Due after one year through five years...................... 1,137 964
Due after five years through ten years..................... 230 86
$ 1,811 $ 1,487
AT DECEMBER 31,
2001 2002
Gross unrealized holding gains............................. $ 102 $ 129
7. OTHER ASSETS:
AT DECEMBER 31,
2001 2002
Employee housing loans..................................... $ 378 $ 270
Club memberships........................................... 498 514
Rental and utility deposits................................ 323 297
$ 1,199 $ 1,081
8. CURRENT LIABILITIES:
AT DECEMBER 31,
F-22
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
2001 2002
DEFERRED INCOME AND CUSTOMER PREPAYMENTS:
Advertising................................................ $ 13,963 $ 15,582
Subscription and others.................................... 3,159 2,677
$ 17,122 $ 18,259
AT DECEMBER 31,
2001 2002
ACCRUED LIABILITIES:
Salaries, wages and commissions............................ $ 1,442 $ 1,261
Retirement benefit plans................................... 435 491
Current portion of liabilities for incentive and bonus plans 1,168 1,174
Others..................................................... 2,082 2,435
$ 5,127 $ 5,361
9. LIABILITIES FOR INCENTIVE AND BONUS PLANS
AT DECEMBER 31,
2001 2002
Liability for long term discretionary bonus program........ $ 1,434 $ 1,025
10. RELATED PARTY TRANSACTIONS
The Company has extended loans to some of its employees to finance their
purchase or lease of residences. The loans for the purchase of a residence
are secured by the subject residence, bear interest at a rate of LIBOR plus
2 to 3%, generally have a term of ten years and become due and payable
immediately under certain circumstances, including their termination of
employment with the Company. The loans for the lease of a residence are
unsecured, interest free and are repayable in equal monthly installments
over the period of the lease, typically less than or equal to twelve
months. Loans due from employees for purchase of residences were $378 and
$270 as of December 31, 2001 and 2002 respectively. Loans due from
employees for lease of residences were $114 and $81 as of December 31, 2001
and 2002, respectively. There were no other loans due from the Company's
directors and executive officers as at December 31, 2001 and 2002 except
for a loan due from the Chief Operating Officer of the Company of $14 and
$NIL as of December 31, 2001 and 2002, respectively, which was included in
loans due from employees for the lease of residences. Other temporary
advances to staff, which are generally repayable within twelve months, were
$3 and $26 as of December 31, 2001 and 2002, respectively.
The Company leases certain office facilities from subsidiaries of the
Parent Company under cancelable and non-cancelable operating leases that
include both rental and building maintenance services. During the years
ended December 31, 2000, 2001 and 2002, the Company incurred rental and
building management services expenses of $950, $1,044, and $1,048
respectively, with respect to these office facilities.
F-23
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
The Company also receives legal, secretarial and treasury management
consultancy services from subsidiaries of the Parent Company. During the
year ended December 31, 2000, 2001 and 2002, the Company incurred such
legal, secretarial and treasury management consultancy services expenses of
$455, $464, and $275 respectively.
The Company had $11,404 and $11,404 due to the Parent Company as of
December 31, 2001 and 2002, respectively. The amount due to the Parent
Company is unsecured.
Effective January 1, 2000, the Company executed an unsecured promissory
note in the principal amount of $11,404 to establish the repayment terms of
amounts owed to the Parent Company. On January 1, 2005, the Company will
begin repayment of this promissory note. The Company will make quarterly
payments of principal and interest over the following ten years. Interest
will accrue beginning January 1, 2005 at the applicable U.S. Federal Funds
rate.
Effective May 1, 2000, the Company engaged The Fairchild Corporation, a
related party, to provide financial, legal and certain other services to
the Company for a fee of $42 per month. The Company terminated this
arrangement effective December 31, 2000. The Company incurred $333 expenses
for these services during the year ended December 31, 2000.
In addition to the transactions with related party sales representatives
discussed in Note 2(j), the Company provided technical services to these
sales representatives and during the year 2000, to a subsidiary of the
Parent Company, for a fee. During the year ended December 31, 2000, 2001
and 2002, the Company derived such service fees of $167, $259, and $156,
respectively. During the year ended December 31, 2000, 2001 and 2002, the
Company has incurred costs of $79, $76 and $47, respectively with respect
to the incentive awards discussed in Note 11, relating to the related party
sales representatives.
11. LIABILITIES FOR INCENTIVE AND BONUS PLANS
Before the commencement of the Equity Compensation Plans the Company
rewarded its senior management staff based on their current performance
through long term discretionary bonus awards. These awards are payable
approximately at the end of five or ten years from the date of the award,
even in the event of termination of employment unless certain non-compete
provisions have been violated. The Company did not incur any expenses
related to these awards during the years ended December 31, 2000, 2001 and
2002. The required funds were set aside for payment of the discretionary
bonuses by purchasing U.S. Treasury strips zero % coupons maturing in
either five or ten years. These investments are held until maturity and the
proceeds are used for payment of the discretionary bonuses.
Certain sales representatives of the Company are eligible for incentive
awards under plans administered by the Company. Costs incurred related to
incentive awards under plans administered by the Company for the years
ended December 31, 2000, 2001 and 2002 were $116, $78 and $128,
respectively. Amounts under liabilities for incentive plans include amounts
owed under plans previously administered by the Company.
F-24
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
12. RETIREMENT BENEFIT PLANS
The Company operates a number of defined contribution retirement benefit
plans. Employees working in a jurisdiction where there is no statutory
provision for retirement benefits are covered by the Company's plans.
The two principal defined contribution plans are plans where employees are
not required to make contributions. One of these two plans is separately
administered by an independent trustee and the plan assets are held
independent of the Company. The other one is not independently administered
and is currently unfunded. The Company's liabilities under this unfunded
plan as of December 31, 2001 and 2002 were $376 and $447, respectively.
The Company incurred costs of $1,039, $1,085 and $1,101 with respect to the
retirement plans in the years ended December 31, 2000, 2001 and 2002,
respectively.
13. INCOME TAXES
The Company and certain of its subsidiaries operate in the Cayman Islands
and other jurisdictions where there are no taxes imposed on companies.
Certain of the Company's subsidiaries operate in Hong Kong and Singapore
and are subject to income taxes in their respective jurisdictions. Also,
the Company is subject to withholding taxes for revenues earned in certain
other countries.
Income / (loss) before income taxes consists of:
YEAR ENDED DECEMBER 31,
2000 2001 2002
Cayman Islands............................ $ (3,593) $ 401 $ 3,587
Foreign................................... (63,263) 1,549 1,748
$ (66,856) $ 1,950 $ 5,335
The provision for income taxes consists of:
YEAR ENDED DECEMBER 31,
2000 2001 2002
Current tax expense:
Cayman Islands............................ $ -- $ -- $ --
Foreign................................... 1,277 1,143 720
Total provision........................... $ 1,277 $ 1,143 $ 720
The provision for income taxes for the years ended December 31, 2000, 2001
and 2002 differed from the amount computed by applying the statutory income
tax rate of 0% as follows:
YEAR ENDED DECEMBER 31,
F-25
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
2000 2001 2002
Income taxes at statutory rate............ $ -- $ -- $ --
Foreign income and revenues taxed at higher
rates..................................... 1,277 1,143 720
Total..................................... $1,277 $ 1,143 $ 720
Effective tax rate........................ (1.91)% 58.62% 13.50%
Deferred tax assets consist of the following:
AT DECEMBER 31,
2001 2002
Net operating loss carry forwards............................ $ 7,434 $ 7,460
Less: valuation allowance................................... (7,434) (7,460)
Deferred tax assets.......................................... $ -- $ --
The Company recorded a full valuation allowance for the deferred tax assets
due to the uncertainty as to their ultimate realization.
As of December 31, 2002 and 2001, a United States subsidiary has net
operating loss carry forwards of approximately $17.3 million. These losses
which expire in year 2020, can be utilized to reduce future taxable income
of the subsidiary subject to compliance with the taxation legislation and
regulations in the relevant jurisdiction.
The Company recognized a deferred tax liability of US$610 and US$604 as at
December 31, 2001 and 2002, respectively, which primarily arose from the
temporary differences between the financial reporting and the tax bases of
fixed assets in one of the subsidiaries of the Company.
14. SHARE CAPITAL
On April 14, 2000, in conjunction with the Share Exchange Agreement
discussed in Note 21, Fairchild (Bermuda), Ltd. issued 25,051,380
ordinary shares to the shareholders of Trade Media Holdings Ltd.,
predecessor to Global Sources Ltd., in exchange for all of its 10,000
ordinary shares outstanding at that date. All share and per share
amounts in these consolidated financial statements have been restated
for the year ended December 31, 1999 in a manner similar to a 2,505 to
1 stock split. In addition, Fairchild (Bermuda), Ltd. issued 62,628
ordinary shares and 1,189,941 ordinary shares to The Fairchild
Corporation and the shareholders of The Fairchild Corporation
respectively. After the share exchange Fairchild (Bermuda), Ltd. was
renamed Global Sources Ltd. On February 28, 2002, the Company issued
5,000 ordinary shares purchased by a director of the Company under the
Directors Stock Option Plan. The authorized share capital of the
Company as at December 31, 2001 and 2002 is 50,000,000 ordinary shares
of $0.01 per value. As at December 31, 2001 and at December 31, 2002,
the Company has 26,303,949 and 26,308,949 ordinary shares issued and
outstanding, respectively.
F-26
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash equivalents, accounts
receivable, related party receivables, accounts payable and accrued
liabilities approximate fair value due to their short maturities. The fair
value of related party payables cannot be determined due to the related
party nature. The information with respect to long term related party
payables is disclosed in Note 10. The carrying amount and market value of
long term investments are discussed in Note 6.
16. CONCENTRATION OF CREDIT RISK AND OTHER RISKS
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist primarily of investment in checking
and money market accounts, investment in U.S. Treasury strips zero %
coupon, trade accounts receivable and receivables from sales
representatives. The Company maintains checking and money market accounts
with high quality institutions. The Company has a large number of
customers, operates in different geographic areas and generally does not
require collateral on accounts receivable or receivables from sales
representatives. In addition, the Company is continuously monitoring the
credit transactions and maintains reserves for credit losses where
necessary. No customer accounted for more than 10% of the Company's
revenues for each of the years ended December 31, 2000, 2001 and 2002. No
customer accounted for more than 10% of the accounts receivable as of
December 31, 2001 and 2002.
In 2002, the Company derived approximately 93% of its revenue from
customers in Asia. The Company expects that a majority of its future
revenue will continue to be generated from customers in this region. Future
political or economic instability in Asia could negatively impact the
business.
17. OPERATING LEASES
The Company leases office facilities under cancelable and non-cancelable
operating leases that expire in two to five years. During the years ended
December 31, 2000, 2001 and 2002, the Company's operating lease rental and
building management services expenses were $1,502, $1,897 and $1,872,
respectively. The estimated future minimum lease rental payments under
non-cancelable operating leases as of December 31, 2002 are as follows:
YEAR ENDING DECEMBER 31, OPERATING LEASES
2003................................... $ 394
2004................................... 337
2005 onwards........................... --
$ 731
18. SEGMENT AND GEOGRAPHIC INFORMATION
During the first Quarter of 2002, the Company realigned its products and
services into two groups. Thus the Company has two reportable segments:
online services and other media services. Certain prior year items have
been reclassified to conform to the year 2002 presentation. Revenues by
geographic location are based on the location of the customer.
F-27
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
(A) SEGMENT INFORMATION
YEAR ENDED DECEMBER 31,
2000 2001 2002
Revenues:
Online services............................. $ 55,121 $ 55,468 $ 51,268
Other media services........................ 46,748 39,010 35,587
Miscellaneous............................... 1,184 807 631
Consolidated................................ $ 103,053 $ 95,285 $ 87,486
YEAR ENDED DECEMBER 31,
2000 2001 2002
Income/(Loss) from Operations:
Online services............................. $ (24,625) $ 5,958 $ 6,311
Other media services........................ (29,515) (1,070) (1,767)
Miscellaneous............................... (1,502) (1,503) 302
Consolidated................................ $ (55,642)$ 3,385 $ 4,846
AT DECEMBER 31,
2001 2002
Identifiable Assets:
Online services............................................... $ 34,395 $ 39,497
Other media services.......................................... 18,523 22,421
Miscellaneous................................................. 684 732
Consolidated.................................................. $ 53,602 $ 62,650
(B) FOREIGN OPERATIONS
YEAR ENDED DECEMBER 31,
2000 2001 2002
Revenues:
Asia....................................... $ 95,388 $ 88,427 $ 81,456
United States.............................. 5,235 5,255 4,986
Europe..................................... 1,083 908 525
Other...................................... 1,347 695 519
Consolidated............................... $ 103,053 $ 95,285 $ 87,486
AT DECEMBER 31,
2001 2002
Long-Lived Assets:
F-28
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
Asia......................................................... $ 20,247 $ 15,285
United States................................................ 113 6
Consolidated................................................. $ 20,360 $ 15,291
19. CONTINGENCIES
From time to time the Company is involved in litigation in the normal
course of business. While the results of such litigation and claims cannot
be predicted with certainty, the Company believes that the probability is
remote that the outcome of the outstanding litigation and claims as of the
current date will have a material adverse effect on the Company's
consolidated financial position and results of operations.
20. CAPITAL COMMITMENTS
There were no material capital commitments as at December 31, 2002. The
commitments as at December 31, 2001 for the renovation work to be carried
out on the leasehold office facilities amounted to $91.
21. SHARE EXCHANGE AGREEMENT
On December 6, 1999, a Share Exchange Agreement was executed by The
Fairchild Corporation, Fairchild (Bermuda), Ltd., Trade Media Holdings Ltd.
and the shareholders of Trade Media Holdings Ltd. (the "Share Exchange").
Under the Share Exchange, Fairchild (Bermuda), Ltd. issued additional
common shares in exchange for all of the issued and outstanding shares of
the Company.
On April 3, 2000, the Form F-1 was declared effective, and on April 14,
2000, the above Share Exchange Agreement was consummated. After the Share
Exchange, Fairchild (Bermuda), Ltd. was renamed Global Sources Ltd. As of
April 14, 2000, the Company was publicly listed on NASDAQ.
The transaction costs associated with the Share Exchange Agreement,
amounting to $609, $NIL and $NIL have been expensed during the year ended
December 31, 2000, 2001 and 2002, respectively. This expense is included
under general and administrative cost for the year ended December 31, 2000
in the Consolidated Statements of Income.
22. RESTRICTED SHARE AWARD PLAN
On February 4, 2000, the Company established a restricted share award plan
for the benefit of its chairman and chief executive officer in recognition
of services to the Company. In conjunction with the restricted share award
plan, the Parent Company assigned 4,008,221 ordinary shares of the Company,
representing a 16% equity interest in the Company to the Company. The
Company then awarded these shares to its chairman and chief executive
officer. The chairman and chief executive officer's entitlement to 501,028
of these shares is subject to an employment agreement with one of the
Company's United States subsidiaries and entitlement to such shares vested
immediately. The chairman and chief executive officer's entitlement to the
remaining 3,507,193 shares is subject to employment, non-compete and
vesting terms under an employment agreement with one of the Company's
United States subsidiaries. The 3,507,193 shares were to vest ratably over
10 years, 10% each year on each anniversary date from the grant date.
However, effective August 30, 2000, the Company's Board
F-29
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
of Directors approved the accelerated vesting of all the restricted shares
granted to the chairman and chief executive officer resulting in immediate
vesting of all the shares. The Company recorded total $64,000, $NIL and
$NIL non-cash compensation expense associated with these awards in the year
ending December 31, 2000, 2001 and 2002, respectively. At the modification
date and subsequently the Company, based on historical evidence and the
Company's forecast of future employee separations, estimated that the
chairman and chief executive officer will not terminate employment and
appointment as director prior to the date that vesting in the shares would
have occurred absent the modification. Therefore, the Company has estimated
that additional compensation expense to be recognized as a result of the
modification is nil. Should actual results differ from this estimate,
adjustment in future reporting periods will be required.
23. EQUITY COMPENSATION PLANS
On December 30, 1999, the Company established the Global Sources Employee
Equity Compensation Trust (the "Trust") for the purpose of administering
monies and other assets to be contributed by the Company to the Trust for
the establishment of equity compensation and other benefit plans. The Trust
is administered by Harrington Trust Limited (the "Bermuda Trustee"). The
Bermuda Trustee in the exercise of its power under the Declaration of Trust
may be directed by the plan committee, including the voting of securities
held in the Trust. The Board of Directors of the Company will select the
members of the plan committee.
On February 4, 2000, in conjunction with the establishment of the Trust and
the Share Exchange, the Parent Company assigned 2,505,138 ordinary shares
of the Company, representing a 10% equity interest in the Company, for the
establishment of share option plans and/or share award plans, known as ECP
I, ECP II and ECP III. Subsequently, share option plans and/or share award
plans, known as ECP IV, ECP V, ECP VI and ECP VII were established.
Eligible employees, directors and consultants under ECP I are entitled to
purchase common shares of Global Sources Ltd. at a price determined by the
plan committee at the time of the grant. The exercise price of these
options may be below the fair market value of the Company's ordinary
shares. The plan committee determines who will receive, and the terms of,
the options.
Optionees may pay for ordinary shares purchased upon exercise of options in
the manner determined by the plan committee at the time of grant.
Eligible employees, directors and consultants under ECP II were entitled to
purchase common shares of Global Sources Ltd. at an exercise price
determined by the plan committee at the time of the grant. There are two
types of options under this plan. The exercise price of both of these
options were below the fair market value of the Company's ordinary shares
at that time. The plan committee determines who will receive, and the terms
of, the options. Employees could decide whether to take up the options for
a period of 95 days ending June 29, 2000. All the options granted were
exercised. Optionees were able to pay for ordinary shares purchased upon
exercise of options by check to the trust. Payment has been made to the
Trust. Entitlement of the employees, directors and consultants to these
common shares is subject to employment and vesting terms.
Eligible employees, directors and consultants under ECP III were awarded a
defined amount of compensation payable in Global Sources Ltd. common
shares, the number of which were determined by
F-30
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
dividing the amount of compensation awarded by an amount determined by the
plan committee prior to the Share Exchange.
Entitlement of the employees to these common shares is subject to
employment and vesting terms.
The non-cash compensation expense associated with awards in accordance with
APB 25 and SFAS 123, under ECP II and ECP III of approximately $2,948 and
$2,357, respectively, are recognized ratably over the three year vesting
term from the respective award dates.
Eligible employees, directors and consultants under ECP IV are awarded a
defined amount of compensation payable in Global Sources Ltd. common
shares, the number of which are determined by the plan committee
periodically.
Entitlement of the employees, directors and consultants to these common
shares is subject to employment and vesting terms.
Eligible employees, directors and consultants under ECP V were awarded a
one-time grant of shares, the number of which were determined by the plan
committee.
Entitlement of the employees to these common shares is subject to
employment and vesting terms.
The Equity Compensation Plan committee approved the awards of common shares
under ECP IV and ECP V on January 23, 2001. The Equity Compensation Plan
Committee approved additional awards of common shares under ECP IV on April
1, 2001 and July 1, 2001 and under ECP V on January 1, 2002.
The non-cash compensation expenses associated with the above awards in
accordance with APB 25 and SFAS 123, under ECP IV and ECP V of
approximately $3,086 and $1,940, respectively, are recognized over the five
year vesting term from the respective award dates.
Eligible employees, directors and consultants under ECP VI are awarded a
one-time grant of Global Sources Ltd. common shares, the number of which
are determined by the plan committee.
Entitlement of the employees, directors and consultants to these common
shares is subject to non-compete and vesting terms.
The Equity Compensation Plan committee approved ECP VI on March 13, 2001
and made awards of common shares under plan on various dates during the
year 2001 and 2002.
The non-cash compensation expenses associated with the awards in accordance
with APB 25 and SFAS 123, under ECP VI totaling to approximately $433, are
recognized over the five year vesting term from the respective award dates.
Eligible employees, directors and consultants under ECP VII are awarded a
grant of defined number of Global Sources Ltd. common shares, the number of
which are determined by the plan committee periodically.
F-31
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
The Equity Compensation Plan committee approved the awards of common shares
under ECP VII on January 1, 2002. The non-cash compensation expenses
associated with the above awards in accordance with APB 25 and SFAS 123,
under ECP VII of approximately $538 are recognized over the six years
vesting term from the respective award dates.
Entitlement of the employees, directors and consultants to these common
shares is subject to employment and vesting terms.
The Company expensed $1,689, $2,501 and $2,564 in non-cash compensation
costs associated with the awards under the above ECP plans in the years
ended December 31, 2000, 2001 and 2002, respectively.
F-32
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
ECP II ECP III ECP IV ECPV ECP VI ECP VII
PURCHASE GIFT PLAN GRANT PLAN GRANT PLAN GRANT PLAN GRANT GRANT
PLAN PLAN PLAN
Plan Inception MARCH, MARCH, MARCH, JANUARY, JANUARY, MARCH, JANUARY,
2000 2000 2000 2001 2001 2001 2002
Number of Shares:
At December 31, 1999... -- -- -- -- -- -- --
Original restricted
shares granted in 80,887 212,526 104,184 -- -- -- --
year 2000............
Shares forfeited to
beneficial trustee... -- (11,442) (1,334) -- -- -- --
Balance at December 80,887 201,084 102,850 -- -- -- --
31, 2000.............
Original restricted
shares granted in -- -- -- 522,354 303,000 78,300 --
year 2001............
Shares forfeited to
beneficial trustee... -- (24,468) (19,839) (87,837) (91,500) -- --
Balance at December 80,887 176,616 83,011 434,517 211,500 78,300 --
31, 2001.............
Original restricted
shares granted in -- -- -- -- 30,000 10,000 134,447
year 2002............
Shares forfeited to
beneficial trustee... -- (9,884) (2,279) (38,719) (28,400) -- (9,192)
Balance at December 80,887 166,732 80,732 395,798 213,100 88,300 125,255
31, 2002.............
Grant Price Per Share.. $24.00 $NIL $NIL $NIL $NIL $NIL $NIL
Weighted average fair
value of the shares $2.50 $26.50 $26.50 $8.67 $8.75 $4.13 $4.00
granted..............
Weighted average fair value of the shares granted is estimated to be the
average market value of the shares at the time of the grant.
24. DIRECTORS STOCK OPTION PLAN
A non-executive Director Option Plan was approved on October 26, 2000 by
the shareholders of the Company. Each eligible Director on the date of the
first board meeting of each calendar year, commencing in 2001, would
receive the grant of an option to purchase 20,000 common shares on that
date. The Options granted are subject to such terms and conditions as
determined by the Board of Directors at the grant.
The option price, per share, payable before the end of each February, is
determined by the Board of Directors for each such grant of options. The
non-executive Directors may decline all or part of the award, which is
non-transferable.
The Board granted the first awards under the above plan in 2001. The option
price was fifteen percent less than the average closing price of the shares
for the last five trading days of the previous calendar year. The award
vests over four years with one quarter of the shares vesting each year.
Full payment must be made upon exercising the option. Upon resignation of
an eligible Director, all unvested shares are forfeited and the option
price received for the forfeited unvested shares is refunded. Only one
director accepted the offer on February 10, 2001 for the 20,000 shares
granted under option. The $164
F-33
GLOBAL SOURCES LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
received as proceeds of this plan was included in additional paid-in
capital. On February 28, 2002, the Company issued to the director the 5,000
ordinary shares that vested on that date.
As per the terms of the plan, the Board granted options to all eligible
directors again in February 2002. These awards will vest after four years.
Optionees must pay 15% of the option price, which is the average closing
price of the shares for the last five trading days of year 2001, at the
time of exercising the option. The balance of 85% must be paid on or before
the vesting date. The resignation of a Director following his or her
exercise of the Grant of Options and payment of the Option Price shall not
cause a forfeiture of the unvested shares. All the eligible non-executive
Directors accepted the offer before February 28, 2002. The $50 received
towards the 15% of the option price was included in additional paid-in
capital.
The Board granted options to all eligible directors again in February 2003.
These awards will vest after four years. Optionees must pay 10% of the
option price, which is the average closing price of the shares for the last
five trading days of year 2002, at the time of exercising the option. The
balance of 90% must be paid on or before the vesting date. The resignation
of a Director following his or her exercise of the grant of options and
payment of the option price shall not cause a forfeiture of the unvested
shares. Three eligible directors accepted the offer before February 28,
2003.
25. CREDIT FACILITIES
On March 17, 2000, the Company entered into a credit facility with the Bank
of Bermuda (Isle of Man) Limited. The credit facility has a term of one
year and provides for borrowings of up to $25,000, with minimum borrowings
of $1,000. The lender may request security from time to time to secure
borrowings under the credit facility. The credit facility bears interest,
payable quarterly in arrears, at the London Inter-Bank Market Rate plus
0.5%. The Parent Company has guaranteed all of the Company's obligations
under the credit facility.
On March 20, 2002, the credit facility was renewed for $10,000 for one more
year subject to the same terms and conditions as applicable to the original
facility.
As of December 31, 2001 and 2002, the outstanding principal amount under
this credit facility was $NIL.
This credit facility was renewed for $10,000 for a further one year period
on March 7, 2003, subject to the same terms and conditions as applicable to
the original facility.
The Company also holds a Documentary Credit facility with the Hongkong and
Shanghai Banking Corporation Limited, for providing documentary credits to
the Company's suppliers. This facility has a maximum limit of $800. One of
the Company's fellow subsidiaries has guaranteed the Company's obligations
under the credit facility. As at December 31, 2002, the unutilized amount
under this facility was approximately $713.
F-34
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 18. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Companies Act 1981 of Bermuda requires every officer, including
directors, of a company in exercising powers and discharging duties, to act
honestly in good faith with a view to the best interests of the company, and to
exercise in comparable circumstances. The Companies Act further provides that
any provision, whether in the bye-laws of a company or in any contract between
the company and any officer or any person employed by the company as auditor,
exempting such officer or person from, or indemnifying him against, any
liability which by virtue of any rule of law would otherwise attach to him, in
respect of any willful negligence, willful default, fraud or dishonesty of which
he may be guilty in relation to the company shall be void.
Subject to certain provisions of our bye-laws, every director, officer and
committee member shall be indemnified out of our funds against all liabilities,
loss, damage or expense, including but not limited to liabilities under
contract, tort and statute or any applicable foreign law or regulation and all
reasonable legal and other costs and expenses properly payable, incurred or
suffered by him as director, officer or committee member; provided that the
indemnity contained in the bye-laws will not extend to any matter which would
render it void under the Companies Act as discussed above.
ITEM 19. EXHIBITS.
The exhibits to this registration statement are listed in the Exhibit Index
on page E-1 of this registration statement, which index is incorporated herein
by reference.
The Companies Act 1981 of Bermuda requires every officer, including
directors, of a company in exercising powers and discharging duties, to act
honestly in good faith with a view to the best interests of the company, and to
exercise the care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances. The Companies Act further provides that
any provision, whether in the bye-laws of a company or in any contract between
the company and any officer or any person employed by the company as auditor,
exempting such officer or person from, or indemnifying him against, any
liability which by virtue of any rule of law would otherwise attach to him, in
respect of any willful negligence, willful default, fraud or dishonesty of which
he may be guilty in relation to the company shall be void.
Subject to certain provisions of our bye-laws, every director, officer and
committee member shall be indemnified out of our funds against all liabilities,
loss, damage or expense, including but not limited to liabilities under
contract, tort and statute or any applicable foreign law or regulation and all
reasonable legal and other costs and expenses properly payable, incurred or
suffered by him as director, officer or committee member; provided that the
indemnity contained in the bye-laws will not extend to any matter which would
render it void under the Companies Act as discussed above.
ITEM 10. UNDERTAKINGS.
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of the prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
II-1
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(a) and (1)(b) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time will
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statement required by Item 8.A of Form 20-F (17
CFR 249.220f) at the start of any delayed offering or throughout a
continuous offering.
(5) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement will
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time will be deemed to be the initial bona fide offering thereof.
(6) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of a 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 will be
deemed to be part of this registration statement as of the time it was
declared effective.
(7) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus will be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time will be deemed to be the initial bona fide offering
thereof.
(8) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual
report to security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934;
and, where, interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide
such interim financial information.
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 provisions described under Item 18 above, 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.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Phoenix, Arizona, on April 9, 2004.
GLOBAL SOURCES LTD.
By: /s/ Merle A. Hinrichs
-----------------------------------------
Name: Merle A. Hinrichs
Title: Chairman and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS THAT each person whose signature appears
below does hereby constitute and appoint Merle A. Hinrichs, Eddie Heng Teng Hua
and William R. Seitz, and each of them, as his or her true and lawful
attorney-in-fact and agent and in his or her name, place, and stead, and in any
and all capacities, to sign his or her name to the Registration Statement of
Global Sources Ltd., a Bermuda corporation, on Form F-3 under the Securities Act
of 1933 and to any and all amendments or supplements thereto (including any
post-effective amendments, including any registration statement filed under Rule
462(b) under the Securities Act of 1933), with all exhibits thereto and other
documents in connection therewith and to cause the same to be filed with the
Securities and Exchange Commission, granting unto said attorneys and each of
them full power and authority to do and perform any act and thing necessary and
proper to be done in the premises, as fully and to all intents and purposes as
the undersigned could do if personally present, and the undersigned hereby
ratifies and confirms all that said attorneys or any one of them shall lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been duly signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Merle A. Hinrichs Chairman of the Board and Chief Executive Officer April 9, 2004
---------------------------- (principal executive officer)
Merle A. Hinrichs
/s/ Eddie Heng Teng Hua Chief Financial Officer and Director (principal April 9, 2004
---------------------------- financial officer and principal accounting officer)
Eddie Heng Teng Hua
/s/ Sarah Benecke Director April 9, 2004
----------------------------
Sarah Benecke
/s/ Roderick Chalmers Director April 9, 2004
----------------------------
Roderick Chalmers
/s/ Dr. H. Lynn Hazlett Director April 9, 2004
----------------------------
Dr. H. Lynn Hazlett
/s/ David F. Jones Director April 9, 2004
----------------------------
David F. Jones
----------------------------
/s/ Jeffrey J. Steiner Director April 9, 2004
Jeffrey J. Steiner
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
1.1* Form of Underwriting Agreement (Equity).
1.2* Form of Underwriting Agreement (Debt).
1.3* Form of Underwriting Agreement (Share Purchase Contracts).
1.4* Form of Underwriting Agreement (Share Purchase Units).
3.1*** Memorandum of Association of the Company (Incorporated by
reference to Global Sources Ltd.'s (previously named Fairchild
(Bermuda), Ltd.) registration statement on Form F-1 (File No.
383-11714), as filed with the SEC on April 3, 2000).
3.2*** Bye-laws of the Company (Incorporated by reference to Global
Sources Ltd.'s (previously named Fairchild (Bermuda), Ltd.)
registration statement on Form F-1 (File No. 383-11714),
as filed with the SEC on April 3, 2000).
3.3*** Amendments to the Bye-laws of Global Sources Ltd, as approved at
the May 6, 2002 Annual General Meeting of Shareholders.
(Incorporated by reference to Form 6-K filed with the SEC on May
6, 2002.)
4.1*** Specimen Common Share Certificate(Incorporated by reference to
Global Sources Ltd.'s (previously named Fairchild (Bermuda),
Ltd.) registration statement on Form F-1 (File No. 383-11714),
as filed with the SEC on April 3, 2000.).
4.2** Form of Senior Debt Securities Indenture.
4.3** Form of Senior Debt Securities (included as part of Exhibit 4.2).
4.4** Form of Subordinated Debt Securities Indenture.
4.5** Form of Subordinated Debt Securities (included as part of
Exhibit 4.4).
4.6* Form of Standard Share Warrant Agreement.
4.7* Form of Standard Share Warrant Certificate (included as part of
Exhibit 4.6).
4.8* Form of Standard Debt Warrant Agreement.
4.9* Form of Standard Debt Warrant Certificate (included as part of
Exhibit 4.8).
4.10* Form of Standard Share Purchase Contract Agreement.
5.1** Opinion of Appleby Spurling Hunter.
5.2** Opinion of Cahill Gordon & Reindel LLP.
12.1** Computation of ratio of earnings to fixed charges.
23.1** Consent of Appleby Spurling Hunter (included as part of
Exhibit 5.1).
23.2** Consent of Cahill Gordon & Reindel LLP (included as part of
Exhibit 5.2).
23.3** Consent of Ernst & Young
24.1** Power of Attorney (included on signature page to this
Registration Statement).
25.1* Form T-1 Statement of Eligibility of Trustee (Senior Debt
Securities Indenture and Subordinated
Debt Securities Indenture).
______________
* To be filed as an amendment to this registration statement or as an
exhibit to an Exchange Act report of the Registrant(s) and incorporated
herein by reference.
** Filed herewith.
*** Previously filed.
E-1
Exhibit 4.2
GLOBAL SOURCES LTD.
to
[NAME OF TRUSTEE],
Trustee
INDENTURE
Dated as of [ ]
Senior Debt Securities
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture,
dated as of [ ], 200[ ].
Trust Indenture
Act Section Indenture Section
----------- -----------------
ss.310(a)................................................. 609
(b)................................................ 608, 610
(c)................................................ Not Applicable
ss.311(a)................................................. 613
(b)................................................ 613
(c)................................................ Not Applicable
ss.312(a)................................................. 701, 702(a)
(b)................................................ 702(b)
(c)................................................ 702(c)
ss.313(a)................................................. 703(a)
(b)................................................ 703(b)
(c)................................................ 703(b)
(d)................................................ 703(c)
ss.314(a)................................................. 704
(b)................................................ Not Applicable
(c)................................................ 102
(d)................................................ Not Applicable
(e)................................................ 102
(f)................................................ Not Applicable
ss.315(a)................................................. 601
(b)................................................ 602, 703(b)
(c)................................................ 601(b)
(d)................................................ 601(c)
(e)................................................ 514
ss.316(a)(1).............................................. 512, 513
(b)................................................ 508
(c)................................................ 104(d)
ss.317(a)(1).............................................. 503
(a)(2)............................................. 504
(b)................................................ 1003
ss.318(a)................................................. 107
NOTE: This reconciliation and tie shall not, for any
purpose, be deemed to be a part of the Indenture.
TABLE OF CONTENTS
Page
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ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.................................................1
SECTION 102. Compliance Certificates and
Opinions..............................................7
SECTION 103. Form of Documents Delivered
to Trustee............................................8
SECTION 104. Acts of Holders.............................................8
SECTION 105. Notices, Etc., to Trustee
and Company..........................................10
SECTION 106. Notice to Holders; Waiver..................................10
SECTION 107. Conflict with Trust
Indenture Act........................................10
SECTION 108. Effect of Headings and Table
of Contents..........................................11
SECTION 109. Successors and Assigns.....................................11
SECTION 110. Separability Clause........................................11
SECTION 111. Benefits of Indenture......................................11
SECTION 112. Governing Law..............................................11
SECTION 113. Legal Holidays.............................................11
SECTION 114. Reference to Currency......................................11
SECTION 115. Agent for Service;
Submission to
Jurisdiction; Waiver
of Immunities........................................11
SECTION 116. Judgment Currency..........................................12
ARTICLE II
SECURITY FORMS
SECTION 201. Forms Generally............................................13
SECTION 202. Form of Trustee's Certificate of Authentication............13
SECTION 203. Securities Issuable in the Form of a Global Security.......14
ARTICLE III
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.......................16
SECTION 302. Denominations..............................................19
SECTION 303. Execution, Authentication, Delivery and Dating.............19
SECTION 304. Temporary Securities.......................................20
SECTION 305. Registration, Registration of Transfer and Exchange........21
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities...........22
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Page
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SECTION 307. Payment of Interest; Interest Rights Preserved.............22
SECTION 308. Persons Deemed Owners......................................24
SECTION 309. Cancellation...............................................24
SECTION 310. Computation of Interest....................................24
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture....................24
SECTION 402. Application of Trust Funds; Indemnification................26
SECTION 403. Defeasance and Discharge of Indenture......................26
SECTION 404. Defeasance of Certain Obligations..........................28
ARTICLE V
REMEDIES
SECTION 501. Events of Default..........................................29
SECTION 502. Acceleration of Maturity; Rescission and Annulment.........30
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee...............................32
SECTION 504. Trustee May File Proofs of Claim...........................33
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities...........................................33
SECTION 506. Application of Money Collected.............................34
SECTION 507. Limitation on Suits........................................34
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.................................35
SECTION 509. Restoration of Rights and Remedies.........................35
SECTION 510. Rights and Remedies Cumulative.............................35
SECTION 511. Delay or Omission Not Waiver...............................35
SECTION 512. Control by Holders.........................................36
SECTION 513. Waiver of Past Defaults....................................36
SECTION 514. Undertaking for Costs......................................36
SECTION 515. Waiver of Stay or Extension Laws...........................37
ARTICLE VI
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities........................37
SECTION 602. Notice of Defaults.........................................38
SECTION 603. Certain Rights of Trustee..................................39
-ii-
Page
----
SECTION 604. Not Responsible for Recitals or Issuance of Securities.....40
SECTION 605. May Hold Securities........................................40
SECTION 606. Money Held in Trust........................................40
SECTION 607. Compensation and Reimbursement.............................40
SECTION 608. Disqualification; Conflicting Interests....................41
SECTION 609. Corporate Trustee Required; Eligibility....................41
SECTION 610. Resignation and Removal; Appointment of Successor..........42
SECTION 611. Acceptance of Appointment by Successor.....................43
SECTION 612. Merger, Conversion, Consolidation or
Succession to Business...............................44
SECTION 613. Preferential Collection of Claims Against Company..........45
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders..............................................45
SECTION 702. Preservation of Information; Communications to Holders.....45
SECTION 703. Reports by Trustee.........................................47
SECTION 704. Reports by Company.........................................48
ARTICLE VIII
SUCCESSOR CORPORATION
SECTION 801. When Company May Merge or Transfer Assets..................48
ARTICLE IX
AMENDMENTS AND SUPPLEMENTAL INDENTURES
SECTION 901. Amendments or Supplemental Indentures Without
Consent of Holders...................................49
SECTION 902. Amendments or Supplemental Indentures with
Consent of Holders...................................51
SECTION 903. Execution of Supplemental Indentures.......................52
SECTION 904. Effect of Supplemental Indentures..........................52
SECTION 905. Conformity with Trust Indenture Act........................52
SECTION 906. Reference in Securities to Supplemental Indentures.........52
ARTICLE X
COVENANTS
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Page
----
SECTION 1001. Payment of Principal, Premium and Interest.................53
SECTION 1002. Maintenance of Office or Agency............................53
SECTION 1003. Money for Securities; Payments to Be Held in Trust.........53
SECTION 1004. Corporate Existence........................................55
SECTION 1005. Maintenance of Properties..................................55
SECTION 1006. Statement by Officers as to Default........................55
SECTION 1007. Waiver of Certain Covenants................................56
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article...................................56
SECTION 1102. Election to Redeem; Notice to Trustee......................56
SECTION 1103. Selection by Trustee of Securities to Be Redeemed..........57
SECTION 1104. Notice of Redemption.......................................57
SECTION 1105. Deposit of Redemption Price................................58
SECTION 1106. Securities Payable on Redemption Date......................58
SECTION 1107. Securities Redeemed in Part................................59
ARTICLE XII
SINKING FUNDS
SECTION 1201. Applicability of Article...................................59
SECTION 1202. Satisfaction of Sinking Fund Payments with
Securities...........................................60
SECTION 1203. Redemption of Securities for Sinking Fund..................60
-v-
INDENTURE, dated as of [ ], between Global Sources Ltd., a Bermuda
corporation (herein called the "Company" or the "Issuer"), having its principal
office at Canon's Court, 22 Victoria Street, Hamilton, HM 12 Bermuda, and [Name
of Trustee], a [ ], as trustee hereunder (herein called the "Trustee").
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, 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 covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities or of series thereof, as
follows:
ARTICLE I
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 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;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States, 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;
-2-
(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; and
(5) all references used herein to the male gender shall include the
female gender.
"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.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board duly authorized to act hereunder.
"Board Resolution" means a copy of a resolution, certified by the secretary
or an assistant secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, delivered to the Trustee.
"Business Day" means, with respect to any Securities, a day that in the
City of New York or in any Place of Payment is not a day on which banking
institutions are authorized by law or regulation to close.
"Capital Stock" for any entity means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) shares issued by that entity.
"Certificated Securities" means Securities that are in registered
definitive form.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, 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 Shares" means the common shares, $0.01 par value per share, of the
Company existing on the date of this Indenture or any other shares of Capital
Stock of the Company into which such common shares shall be reclassified or
changed.
-3-
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its chairman of the board, a vice chairman,
its president or a vice president, and by its treasurer, an assistant treasurer,
its secretary or an assistant secretary, and delivered to the Trustee.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time the trust created by this Indenture shall be administered, which
office, at the time of the execution of this Indenture, is located at [ ].
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, unless otherwise specified by the Company pursuant to
either Section 203 or 301, with respect to Securities of any series issuable or
issued as a Global Security, The Depository Trust Company, New York, New York,
or any successor thereto registered under the Securities Exchange Act of 1934,
as amended, or other applicable statute or regulation.
"Event of Default" has the meaning specified in Section 501.
"Global Security" means a Security issued to evidence all or a part of any
series of Securities which is executed by the Company and authenticated and
delivered by the Trustee to the Depositary or pursuant to the Depositary's
instruction, all in accordance with this Indenture and pursuant to a Company
Order, which shall be registered in the name of the Depositary or its nominee.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Holder Action" has the meaning specified in Section 702(d).
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more amendments or indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of particular series of Securities established as
contemplated by Section 301.
"Interest," when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
-4-
"Interest Payment Date," when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Issuer" means the Person named as the "Issuer" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Issuer" shall mean
such successor corporation.
"Maturity," when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the 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.
"Opinion of Counsel" means written opinion of counsel, who may be counsel
for the Company and who shall be acceptable to the Trustee.
"Original Issue Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"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 theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money or evidences of
indebtedness in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such Securities; provided that, if
such Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or 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
-5-
bona fide purchaser in whose hands such Securities are valid obligations of
the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities 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 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
Trustee the pledgee's right so 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. In case of a dispute as to
such right, any decision by the Trustee shall be full protection to the Trustee.
Upon request of the Trustee, the Company shall furnish to the Trustee promptly
an Officers' Certificate listing and identifying all Securities, if any, known
by the Company to be owned or held by or for the account of any of the
above-described persons; and, subject to Section 601, the Trustee shall be
entitled to accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purposes of any such determination.
"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.
"Person" means any individual, corporation, exempted limited company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Place of Payment," when used with respect to the Securities of any series,
means the place or places where the principal of (and premium, if any) and
interest on the Securities of that series are payable as specified as
contemplated by Section 301.
"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.
"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.
-6-
"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.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities of any series means the date specified for that purpose as
contemplated by Section 301.
"Responsible Officer," when used with respect to the Trustee, means any
officer of the Trustee assigned by the Trustee to administer its corporate trust
matters.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"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 principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" means, with respect to any Person:
(1) any corporation or company a majority of whose Capital Stock with
voting power, under ordinary circumstances, to elect directors is, at the
date of determination, directly or indirectly, owned by such Person (a
"subsidiary"), by one or more subsidiaries of such Person or by such Person
and one or more subsidiaries of such Person;
(2) a partnership in which such Person or a subsidiary of such Person
is, at the date of determination, a general partner of such partnership; or
(3) any partnership, limited liability company or other Person in
which such Person, a subsidiary of such Person or such Person and one or
more subsidiaries of such Person, directly or indirectly, at the date of
determination, have (x) at least a majority ownership interest or (y) the
power to elect or appoint or direct the election or appointment of the
managing partner or member of such Person or, if applicable, a majority of
the directors or other governing body of such Person.
-7-
"Trust Indenture Act" means the Trust Indenture Act of 1939 as amended and
in force at the date as of which this instrument was executed, except as
provided in Section 905.
"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 or
include each Person who is then a Trustee hereunder, and if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"U.S. Government Obligations" means securities which are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as to the timely
payment of principal and interest as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company which is a member of the Federal Reserve
System and having a combined capital and surplus of at least $50,000,000 as
custodian with respect to any such obligation evidenced by such depository
receipt or a specific payment of interest on or principal of any such obligation
held by such custodian for the account of the holder of a depository receipt;
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the obligation
set forth in (i) or (ii) above or the specific payment of interest on or
principal of such obligation evidenced by such depository receipt.
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 to the proposed action have been
complied with and, where appropriate as to matters of law, an Opinion of Counsel
stating that in the opinion of such counsel all such conditions precedent, if
any, have been complied with, except that in the case of any such application or
request as to which the furnishing of such documents is specifically required by
any provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
-8-
(1) a statement that the Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or covenant
has been complied with; and
(4) a statement as to whether, in the opinion of each such Person,
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 such matters is erroneous. Any certificate of counsel or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(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
-9-
Holders in person or by an agent duly appointed in writing; and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of 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 such instrument or writing,
or the authority of the Person executing the same, may be proved in accordance
with such reasonable rules and regulations as may be prescribed by the Trustee
or in any reasonable manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. Notwithstanding Trust Indenture Act Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities shall be computed as of such record date;
provided, however, that no such authorization, agreement or consent by such
Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) 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.
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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 hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: [ ], or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it 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, to the attention of the
general counsel of 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 herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other case 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 hereof limits, qualifies or conflicts with another
provision which is required or deemed to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required or deemed provision
shall control.
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SECTION 108. Effect of Headings and Table of Contents.
The article and section headings herein and the table of contents are for
convenience only and shall not affect the construction hereof.
SECTION 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 thereby.
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 hereto and their successors hereunder
and the Holders, 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.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal (and premium, if any) need not be
made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity, provided that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be.
SECTION 114. References to Currency.
All references in this Indenture to "dollars" or "$" are to the currency of
the United States of America.
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SECTION 115. Agent for Service; Submission to Jurisdiction; Waiver of
Immunities.
By the execution and delivery of this Indenture, the Company (i)
acknowledges that it has, by separate written instrument, designated and
appointed National Registered Agents, Inc. (the "Process Agent"), 440 9th
Avenue, 5th Floor, New York, New York 10001, United States, as its authorized
agent upon which process may be served in any suit, action or proceeding arising
out of or relating to the Notes or this Indenture that may be instituted in any
Federal or state court in the State of New York, The City of New York, the
Borough of Manhattan, or brought under Federal or state securities laws or
brought by the Trustee (whether in its individual capacity or in its capacity as
Trustee hereunder), and acknowledges that the Process Agent has accepted such
designation, (ii) submits to the jurisdiction of any such court in any such
suit, action or proceeding and (iii) agrees that service of process upon the
Process Agent and written notice of said service to it at its principal office
in accordance with Section 105 hereof), shall be deemed in every respect
effective service of process upon it in any such suit or proceeding. The Company
further agrees to take any and all action, including the execution and filing of
any and all such documents and instruments as may be necessary to continue such
designation and appointment of the Process Agent in full force and effect so
long as the Securities shall be outstanding; provided that the Company may (and
shall, to the extent the Process Agent ceases to be able to be served on the
basis contemplated herein) by written notice to the Trustee, designate such
additional or alternative agents for service of process under this Section 115
that (i) maintains an office located in the Borough of Manhattan, The City of
New York in the State of New York, (ii) are either (x) counsel for the Company
or (y) a corporate service company which acts as agent for service of process
for other Persons in the ordinary course of its business and (iii) agrees to act
as agent for service of process in accordance with this Section 115. Such notice
shall identify the name of such agent for process and the address of such agent
for process in the Borough of Manhattan, The City of New York, State of New
York. Notwithstanding the foregoing, there shall, at all times, be at least one
agent for service of process for the Company appointed and acting in accordance
with this Section 115.
To the extent that the Company has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, it hereby
irrevocably waives such immunity in respect of its obligations under the
above-referenced documents, to the extent permitted by law.
SECTION 116. Judgment Currency.
The Company hereby agrees to indemnify the Trustee and each Holder against
any loss incurred by any of them as a result of any judgment or order being
given or made for any amount due under this Indenture or the Securities and such
judgment or order being ex-
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pressed and paid in a currency (the "Judgment Currency") other than U.S. dollars
and as result of any variation as between (i) the rate of exchange at which the
U.S. dollar amount is converted into the Judgment Currency for the purpose of
such judgment or order and (ii) the spot rate of exchange in The City of New
York at which any such person on the date of payment of such judgment or order
is able to purchase U.S. dollars with the amount of the Judgment Currency
actually received by such person. The foregoing indemnity shall continue in full
force and effect notwithstanding any such judgment or order as aforesaid. The
term "spot rate of exchange" shall include any premiums and costs of exchange
payable in connection with the purchase of, or conversion into, U.S. dollars.
ARTICLE II
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities of each series shall be in substantially the forms
established in one or more indentures supplemental hereto or approved from time
to time by or pursuant to a Board Resolution in accordance with Section 301, in
each case with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and any indenture
supplemental hereto, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or securities
regulatory authority or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the secretary or an assistant secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.
The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, as evidenced by their execution of
such Securities.
SECTION 202. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication required by this article shall
be in substantially the form set forth below.
"This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
[NAME OF TRUSTEE],
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as Trustee
By
--------------------------------------
Authorized Signatory"
SECTION 203. Securities Issuable in the Form of a Global
Security.
(a) If the Issuer shall establish pursuant to Sections 201 and 301 that the
Securities of a particular series are to be issued in whole or in part in the
form of one or more Global Securities, then the Issuer shall execute and the
Trustee shall, in accordance with Section 303 and the Company Order delivered to
the Trustee thereunder, authenticate and deliver, such Global Security or
Securities, which (i) shall represent, and shall be denominated in an amount
equal to the aggregate principal amount of, the Outstanding Securities of such
series to be represented by such Global Security or Securities, (ii) shall be
registered in the name of the Depositary for such Global Security or Securities
or its nominee, (iii) shall be delivered by the Trustee to the Depositary or its
custodian or pursuant to the Depositary's instruction and (iv) shall bear a
legend substantially to the following effect: "UNLESS AND UNTIL IT IS EXCHANGED
IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS
GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE (I) BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR (II) BY A NOMINEE OF THE DEPOSITARY OR THE
DEPOSITARY TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT
IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN."
(b) Notwithstanding any other provision of this section or of Section 305,
unless the terms of a Global Security expressly permit such Global Security to
be exchanged in whole or in part for individual Securities, a Global Security
may be transferred, in whole but not in part and in the manner provided in
Section 305, only to another nominee of the Depositary for such Global Security,
or to a successor Depositary for such Global Security selected or approved by
the Issuer or to a nominee of such successor Depositary.
(c) (i) If at any time the Depositary for a Global Security notifies the
Issuer that it is unwilling or unable to continue as Depositary for such Global
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Security or if at any time the Depositary for the Securities for such series
shall no longer be eligible or in good standing under the Securities Exchange
Act of 1934, as amended, or other applicable statute or regulation, the Issuer
shall appoint a successor Depositary with respect to such Global Security. If a
successor Depositary for such Global Security is not appointed by the Issuer
within 90 days after the Issuer receives such notice or becomes aware of such
ineligibility, the Issuer will execute a Company Order for the authentication
and delivery of individual Securities of such series in exchange for such Global
Security, and the Trustee, upon receipt of such Company Order, will authenticate
and deliver individual Securities of such series of like tenor and terms in
definitive form in an aggregate principal amount equal to the principal amount
of the Global Security in exchange for such Global Security.
(ii) If an Event of Default shall have occurred and be continuing or an
event shall have occurred which with the giving of notice or lapse of time or
both, would constitute an Event of Default with respect to the Securities
represented by such Global Security, the Trustee, upon receipt of a Company
Order for the authentication and delivery of individual Securities of such
series in exchange for such Global Security, will authenticate and deliver
individual Securities of such series of like tenor and terms in definitive form
in an aggregate principal amount equal to the principal amount of the Global
Security in exchange for such Global Security.
(iii) The Issuer may at any time and in its sole discretion determine that
the Securities of any series issued or issuable in the form of one or more
Global Securities shall no longer be represented by such Global Security or
Securities. In such event the Issuer will execute, and the Trustee, upon receipt
of a Company Order for the authentication and delivery of individual Securities
of such series in exchange in whole or in part for such Global Security, will
authenticate and deliver individual Securities of such series of like tenor and
terms in definitive form in an aggregate principal amount equal to the principal
amount of such Global Security or Securities representing such series to be so
exchanged for such Global Security or Securities.
(iv) If specified by the Issuer pursuant to Section 301 with respect to
Securities issued or issuable in the form of a Global Security, the Depositary
for such Global Security may surrender such Global Security in exchange in whole
or in part for individual Securities of such series of like tenor and terms in
definitive form on such terms as are acceptable to the Issuer and such
Depositary. Thereupon the Issuer shall execute, and the Trustee shall
authenticate and deliver, without service charge, (1) to each Person specified
by such Depositary a new Security or Securities of the same series of like tenor
and terms and of any authorized denomination of $1,000 and any integral multiple
thereof as requested by such Person in aggregate principal amount equal to and
in exchange for such Person's beneficial interest in the Global Security; and
(2) to such Depositary a new Global Security of like tenor and terms and in a
denomination equal to the difference, if any, between the principal amount of
the surren-
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dered Global Security and the aggregate principal amount of Securities delivered
to Holders thereof.
(v) In any exchange provided for in any of the preceding four paragraphs,
the Issuer will execute and the Trustee will authenticate and deliver individual
Securities in definitive registered form in authorized denominations of $1,000
and any integral multiple thereof. Upon the exchange of a Global Security for
individual Securities, such Global Security shall be cancelled by the Trustee.
Securities issued in exchange for a Global Security pursuant to this section
shall be registered in such names and in such authorized denominations as the
Depositary for such Global Security, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Securities to the persons in whose names such Securities are
so registered.
ARTICLE III
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series,
(a) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 203, 304, 305, 306, 906 or 1107);
(b) the issue price, expressed as a percentage of the aggregate
principal amount;
(c) the date or dates on which the principal of the Securities of the
series is payable;
(d) the rate or rates at which the Securities of the series shall bear
interest, if any, the date or dates from which such interest shall accrue,
the Interest Payment Dates on which such interest shall be payable and the
Regular Record Date for the interest payable on the Interest Payment Date;
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(e) the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or periods
within which, the price or prices at which and the terms and conditions
upon which Securities of the series shall be redeemed or purchased, in
whole or in part, pursuant to such obligation;
(f) the period or periods within which, the price or prices or ratios
at which and the terms and conditions upon which Securities of the series
may be redeemed, converted or exchanged, in whole or in part;
(g) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of the series shall be
issuable;
(h) if other than the full principal amount, the portion of the
principal amount of Debt Securities of the series which will be payable
upon declaration of acceleration or provable in bankruptcy;
(i) any events of default not set forth in this Indenture;
(j) the currency or currencies, including composite currencies, in
which payment of the principal of (and premium, if any) and interest, if
any, on such Securities shall be payable (if other than the currency of the
United States of America), which unless otherwise specified shall be the
currency of the United States of America as at the time of payment is legal
tender for payment of public or private debts;
(k) if the principal of (and premium, if any) or interest, if any, on
such Securities is to be payable, at the election of the Company or any
Holder thereof, in a coin or currency other than that in which such
Securities are stated to be payable, then the period or periods within
which, and the terms and conditions upon which, such election may be made;
(l) whether interest will be payable in cash or additional Securities
at the Company's or the Holders' option and the terms and conditions upon
which the election may be made;
(m) if such Securities are to be denominated in a currency or
currencies, including composite currencies, other than the currency of the
United States of America, the equivalent price in the currency of the
United States of America for purposes of determining the voting rights of
Holders of such Securities as Outstanding Securities under this Indenture;
(n) if the amount of payments of principal of (and premium, if any),
or portions thereof, or interest, if any, on such Securities may be
determined with reference
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to an index, formula or other method based on a coin or currency other than
that in which such Securities are stated to be payable, the manner in which
such amounts shall be determined;
(o) any restrictive covenants or other material terms relating to the
offered debt securities, which covenants and terms shall not be
inconsistent with the provisions of this Indenture;
(p) whether the Securities of the series shall be issued in whole or
in part in the form of a Global Security or Securities; the terms and
conditions, if any, upon which such Global Security or Securities may be
exchanged in whole or in part for other individual Securities; and the
Depositary for such Global Security or Securities;
(q) any listing of such Securities on any securities exchange;
(r) additional or alternative provisions, if any, related to
defeasance and discharge of the offered debt securities;
(s) the applicability of any guarantees;
(t) if convertible into Common Shares, the terms on which such
Securities are convertible, including the initial conversion price, the
conversion period, any events requiring an adjustment of the applicable
conversion price and any requirements relating to the reservation of such
Common Shares for purposes of conversion;
(u) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified;
(v) each initial Place of Payment; and
(w) any other terms of the series, which terms shall not be
inconsistent with the provisions of this Indenture.
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided in or pursuant to such
Board Resolution and set forth in such Officers' Certificate or in any such
indenture supplemental hereto.
If any of the terms of the Securities of any series are established by
action taken pursuant to a Board Resolution, a copy of an appropriate record of
such action shall be certified by the secretary or an assistant secretary of the
Company and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of the Securities of any series.
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SECTION 302. Denominations.
The Securities of each series shall be issuable in registered form without
coupons in such denominations as shall be specified as contemplated by Section
301. In the absence of any such provisions with respect to the Securities of any
series, the Securities of such series shall be issuable 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 of Directors, a vice chairman, its president or one of its vice
presidents, under its corporate seal reproduced thereon attested by its
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 of any series 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 the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established in or
pursuant to one or more Board Resolutions as permitted by Sections 201 and 301,
or by one or more indentures supplemental hereto as provided by Section 901, in
authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and (subject to Section 601) shall be fully protected in
relying upon, an Opinion of Counsel stating
(1) that such form has been established in conformity with the
provisions of this Indenture;
(2) that such terms have been established in conformity with the
provisions of this Indenture;
(3) that this Indenture and such Securities, when authenticated and
delivered by the Trustee and issued by the Company in the manner and
subject to any conditions specified in such Opinion of Counsel, will
constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization and other laws of general
applicability relating to or affecting the enforcement of creditors' rights
and to general equity principles;
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(4) that all laws and requirements in respect of the execution and
delivery by the Company of the Securities have been complied with; and
(5) such other matters as the Trustee may reasonably request.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Each Security shall be dated the date of its authentication unless
otherwise provided by the terms established and contemplated by Section 301.
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 of any series, 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.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of the same series of authorized denominations. Until so
exchanged the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series.
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SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at one of its offices or agencies
maintained pursuant to Section 1002 or at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to
Section 203 and to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Securities and of transfers of Securities.
The Trustee initially is hereby appointed "Security Registrar" for the purpose
of registering Securities and transfers of Securities as herein provided. The
Company may act as Security Registrar and may change or appoint a Security
Registrar without prior notice to Holders or to the Trustee.
Subject to Section 203, upon surrender for registration of transfer of any
Security of any series at the office or agency in a Place of Payment for that
series, 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 the same series, of any authorized denominations and of a like
aggregate principal amount and tenor.
Subject to Section 203, at the option of the Holder, Securities of any
series may be exchanged for other Securities of the same series, of any
authorized denominations and of a like aggregate principal amount and tenor,
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.
Subject to Section 203, all Securities issued upon any registration or
transfer or exchange of Securities shall be 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 (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made 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 203, 304, 906 or 1107 not involving any transfer.
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The Company shall not be required (i) to issue, register the transfer of or
exchange Securities of any series during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities of that series selected for redemption (under Section 1103) 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.
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Securities.
If there shall be delivered to the Company and the Trustee (i)(A) any
mutilated Security or (B) 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 hold 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 upon
its request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security or in exchange for such mutilated Security, a
new Security of the same series and 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.
Every new Security of any series issued pursuant to this section in lieu of
any destroyed, lost or stolen Security or in exchange for such mutilated
Security, shall constitute an original additional contractual obligation of the
Company, whether or not the mutilated, 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
of that series 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 Secu-
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rity (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 of any series 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 of such series (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 of such series and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
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 of Securities of
such series 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
having been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities of such series (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 on the
Securities of any series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this clause, such manner of payment shall be deemed practicable by the
Trustee.
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Subject to the foregoing provisions of this section, each Security lawfully
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.
SECTION 308. Persons Deemed Owners.
Subject to Section 203, the Company, the Trustee and any agent of the
Company or the Trustee may 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 none of the Company, the Trustee or 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, registration of
transfer or exchange or for credit against any sinking fund payment 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. The Trustee shall destroy cancelled Securities and deliver a
certificate of such destruction to the Company.
SECTION 310. Computation of Interest.
Except as otherwise specified as contemplated by Section 301 for the
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a year of 12 30-day months.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
with respect to any series of Securities (except as to (i) any surviving rights
of registration of transfer or exchange of Securities herein expressly provided
for, (ii) rights hereunder of Holders to receive payments of principal of, and
premium, if any, and interest on, Securities, and other rights, duties and
obligations of the Holders as beneficiaries hereof with respect to the
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amounts, if any, so deposited with the Trustee, (iii) remaining obligations of
the Company to make mandatory sinking fund payments and (iv) the rights,
obligations and immunities of the Trustee hereunder), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture with respect to any series of
Securities, when
(1) either
(A) all Securities of such series theretofore authenticated and
delivered (other than (i) Securities of such series which have been
mutilated, destroyed, lost or stolen and which have been replaced or
paid as provided in Section 306 and (ii) Securities of such series for
whose payment money has theretofore 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 theretofore 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 as trust funds in
trust for the purpose an amount in cash 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
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) if all series of Securities are being discharged, the Company has
paid or caused to be paid all other sums payable hereunder by the Company;
and
(3) 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.
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Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, 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 next to
last paragraph of Section 1003, shall survive.
SECTION 402. Application of Trust Funds; Indemnification.
(a) Subject to the provisions of the next to last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401, all money
and U.S. Government Obligations deposited with the Trustee pursuant to Section
403 or 404 and all money received by the Trustee in respect of U.S. Government
Obligations deposited with the Trustee pursuant to Section 403 or 404 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 or received by the Trustee or to make mandatory sinking fund payments or
analogous payments as contemplated by Section 403 or 404, but such money need
not be segregated from other funds except to the extent required by law.
(b) The Company shall pay and shall indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against U.S. Government Obligations
deposited pursuant to Section 403 or 404, or the interest and principal received
in respect of such obligations other than any payable by or on behalf of
Holders.
(c) The Trustee shall deliver or pay to the Company from time to time upon
Company Request any U.S. Government Obligations or money held by it as provided
in Section 403 or 404 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are then in excess of the amount thereof which then
would have been required to be deposited for the purpose for which such
obligations or money were deposited or received.
SECTION 403. Defeasance and Discharge of Indenture.
The Company shall be deemed to have paid and discharged the entire
indebtedness on all the Outstanding Securities on the 91st day after the date of
the deposit referred to in subparagraph (1) of this section, and the provisions
of this Indenture, as it relates to such Outstanding Securities, shall no longer
be in effect (and the Trustee, at the expense of the Company, shall at Company
Request, execute proper instruments acknowledging the same), except as to:
(a) the rights of Holders of Securities to receive, from the trust
funds described in subparagraph (1) hereof, (i) payment of the principal of
(and premium, if
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any) and each installment of principal of (and premium, if any) or interest
on the Outstanding Securities on the Stated Maturity of such principal or
installment of principal or interest and (ii) the benefit of any mandatory
sinking fund payments applicable to the Securities on the day on which such
payments are due and payable in accordance with the terms of this Indenture
and the Securities;
(b) the Company's obligations with respect to such Securities under
Sections 305, 306, 1002 and 1003; and
(c) the obligations of the Company to the Trustee under Section 607,
provided that the following conditions shall have been satisfied:
(1) the Company has or caused to be irrevocably deposited (except as
provided in Section 402) with the Trustee as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the benefit
of the Holders of the Securities, (i) money in an amount, or (ii) U.S.
Government Obligations which through the payment of interest and principal
in respect thereof in accordance with their terms will provide not later
than one day before the due date of any payment referred to in clause (A)
or (B) of this subparagraph money in an amount, or (iii) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge (A)
the principal of (and premium, if any) and each installment of principal of
(and premium, if any) and interest on the Outstanding Securities on the
Stated Maturity of such principal or installment of principal or interest
or on the applicable Redemption Date and (B) any mandatory sinking fund
payments applicable to the Securities on the day on which such payments are
due and payable in accordance with the terms of this Indenture and of the
Securities;
(2) such deposit shall not cause the Trustee with respect to the
Securities to have a conflicting interest for purposes of the Trust
Indenture Act with respect to the Securities;
(3) such deposit will not result in a breach or violation of, or
constitute a default under, any applicable laws, this Indenture or any
other agreement or instrument to which the Company is a party or by which
it is bound;
(4) no Event of Default or event which with notice or lapse of time
would become an Event of Default with respect to the Securities shall have
occurred and be continuing on the date of such deposit or during the period
ending on the 91st day after such date; and
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(5) if the deposit referred to in subparagraph (1) of this section is
to be made on or prior to one year from the Stated Maturity for payment of
principal of the Outstanding Securities, the Company has delivered to the
Trustee an Opinion of Counsel with no material qualifications or a
favorable ruling of the Internal Revenue Service, in either case to the
effect that Holders of the Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the
same amount and in the same manner and at the same times, as would have
been the case if such deposit, defeasance and discharge had not occurred.
SECTION 404. Defeasance of Certain Obligations.
If this section is specified to be applicable to Securities of any series,
the Company may omit to comply with any term, provision or condition set forth
in the sections of this Indenture or such Security with respect to the
Securities of that series ("Covenant Defeasance") if:
(1) with reference to this section, the Company has deposited or
caused to be irrevocably deposited with the Trustee as trust funds in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Securities of that series, (i) money in an
amount, or (ii) U.S. Government Obligations which through the payment of
interest and principal in respect thereof in accordance with their terms
will provide not later than one day before the due date of any payment
referred to in clause (A) or (B) of this subparagraph money in an amount,
or (iii) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge (A)
the principal of (and premium, if any) and each installment of principal
(and premium, if any) and interest on the Outstanding Securities of that
series on the Stated Maturity of such principal or installment of principal
or interest and (B) any mandatory sinking fund payments or analogous
payments applicable to Securities of such series on the day on which such
payments are due and payable in accordance with the terms of the Indenture
and of such Securities;
(2) such deposit shall not cause the Trustee with respect to the
Securities of that series to have a conflicting interest for purposes of
the Trust Indenture Act with respect to the Securities of any series;
(3) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(4) if the deposit referred to in subparagraph (1) of this section is
to be made on or prior to one year from the Stated Maturity for payment of
principal of the
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Outstanding Securities, the Company has delivered to the Trustee an Opinion
of Counsel with no material qualifications or a favorable ruling of the
Internal Revenue Service, in either case to the effect that Holders of the
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance of certain obligations
and will be subject to federal income tax on the same amount and in the
same manner and at the same times, as would have been the case if such
deposit and defeasance had not occurred; and
(5) 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 defeasance contemplated by this section
have been complied with.
In the event the Company effects Covenant Defeasance with respect to any
Securities and such Securities are declared due and payable because of the
occurrence of any Event of Default, other than an Event of Default with respect
to any covenant as to which there has been Covenant Defeasance, the U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on such Securities at the time of the Stated Maturity but may not be
sufficient to pay amounts due on such Securities at the time of the acceleration
resulting from such Event of Default.
ARTICLE V
REMEDIES
SECTION 501. Events of Default.
"Event of Default" (except as otherwise specified or contemplated by
Section 301 for Securities of any series) wherever used herein with respect to
Securities of any series, means any one of the following events:
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for
a period of 60 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of a Security of that series; or
(4) default in the performance, or breach, of any material 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
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or which has expressly been included in this Indenture solely for the
benefit of series of Securities other than that series) for a period of 60
days after there has been given, and continuance of such 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 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) 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 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 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
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive days; or
(6) the commencement by the Company of a voluntary case or proceeding
under any applicable 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 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 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
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 and its willingness to have a case commenced against it or
to seek an order for relief under any applicable bankruptcy, insolvency or
other similar law or the taking of corporate action by the Company in
furtherance of any such action; or
(7) any other Event of Default expressly provided with respect to
Securities of that series.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization) with respect to Securities of any
series at the time Out-
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standing occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of that series may declare the principal amount (or, if the Securities of that
series are Original Issue Discount Securities, such portion of the principal
amount as may be specified in the terms of that series) of all of the Securities
of that series to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal amount (or specified amount) shall become immediately due and
payable.
In the case of an Event of Default resulting from bankruptcy, insolvency or
reorganization, which occurs and is continuing with respect to Securities of any
series at the time Outstanding, then all unpaid principal of and accrued
interest on all such Outstanding Securities of that series shall become
immediately due and payable without any notice or other action on the part of
the Trustee or the Holders of any Securities of such series.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, 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 of that series,
(B) the principal of (and premium, if any, on) any Securities of
that series which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate or rates prescribed
therefor in such Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed
therefor in such Securities, and
(D) all sums paid or advanced by the Trustee and any predecessor
Trustee hereunder and all sums due the Trustee and any predecessor
Trustee under Section 607;
and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due
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solely by such declaration of acceleration, have been cured or waived as
provided in Section 513.
No such rescission shall affect any subsequent 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 the rate
or rates prescribed therefor in such Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including all amounts due the Trustee and any predecessor Trustee
under Section 607.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such 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 such Securities, wherever
situated.
If any Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
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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 their
creditors, the Trustee (irrespective of whether the principal of 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,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims 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 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 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 in any such proceeding.
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.
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SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (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 and each
predecessor 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: To the Company.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series 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 with respect to the Securities of that
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series 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;
(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 of that series;
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it being understood and intended that no one or more of such 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 of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
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 Stated Maturity or Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, 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 herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities 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 any
acquiescence therein.
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Every right and remedy given by this article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
of any series (or if more than one series is affected thereby, of all series so
affected, voting as a single class) 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, with respect
to the Securities of such series, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, expose the Trustee to personal liability or be unduly
prejudicial to holders not joining therein, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
Nothing in this Indenture shall impair the right of the Trustee to 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 of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security of such series, or
(2) in respect of a covenant or provision hereof which under this
article cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require,
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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, the filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
section shall not apply to any suit instituted by the Company, to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Securities of any series, or to any suit instituted by any Holder
for the enforcement of the payment of the principal of (or premium, if any) or
interest on any Securities on or after the Stated Maturity or Maturities
expressed in such Security (or, in the case of redemption, on or after the
Redemption Date). This Section 514 shall be in lieu of Section 315(e) of the
Trust Indenture Act and such Section 315(e) is hereby expressly excluded from
this Indenture, as permitted by the Trust Indenture Act.
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 or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default with respect
to the Securities of any series,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture with respect to
such series, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(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
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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.
(b) In case an Event of Default has occurred with respect to
Securities of any series and is continuing, the Trustee shall exercise such
of the rights and powers vested in it by this Indenture with respect to
such series of Securities, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(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 subsection shall not be construed to limit the effect of
subsection (a) of this section;
(2) the Trustee shall not be liable for any error or 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 of any series, determined as provided in
Section 512, 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 with
respect to the Securities of such series; 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.
SECTION 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with respect
to the Securities of any series, the Trustee shall transmit by mail to all
Holders of Securities of
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such series, as their names and addresses appear in the Security Register,
notice of such default hereunder known to the Trustee, unless such default shall
have been cured or waived; provided, however, that, except in the case of a
default in the payment of the principal of (or premium, if any) or interest on
any Security of such series or in the payment of any sinking fund installment
with respect to Securities of such series, 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 Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders of Securities of such series; and provided, further,
that in the case of any default of the character specified in Section 501(4)
with respect to Securities of such series, no such notice to Holders shall be
given until at least 30 days after the occurrence thereof. For the purpose of
this section, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default with respect to
Securities of such series.
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 Board Resolution, resolution, Officers'
Certificate, certificate, statement, instrument, Opinion of Counsel,
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 mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the 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 rea-
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sonable 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 hereunder or
perform any duties hereunder 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 hereunder.
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 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 612, may otherwise deal
with, and collect obligations owed to it by, the Company with the same rights it
would have if it were not Trustee, 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.
SECTION 607. Compensation and Reimbursement.
The Company agrees
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(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) except as otherwise expressly provided herein, to reimburse each
of the Trustee and any predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by it 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 own negligence or bad faith; and
(3) to indemnify each of the Trustee and any predecessor Trustee for,
and to hold it harmless against, any loss, liability or expense, arising
out of or in connection with the acceptance or administration of the trust
or trusts hereunder and the performance of its duties hereunder, 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, except to the extent any such loss, liability or expense
is due to its own negligence or bad faith.
To ensure the performance of the obligations of the Company under this
section, the Trustee shall have a senior claim to which the Securities are
hereby made subordinate upon all property and funds held or collected by the
Trustee as such, except property and funds held in trust for the payment of
principal of, premium, if any, or interest on particular Securities.
SECTION 608. Disqualification; Conflicting Interests.
The Trustee shall comply with the terms of Section 310(b) of the Trust
Indenture Act.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall 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 exercise corporate trust powers having (or, in the case of the
subsidiary of a bank holding company that guarantees the obligations of the
Trustee under this Indenture, such holding company's parent shall have) a
combined capital and surplus of at least $50,000,000 subject to supervision or
examination by Federal or State authority. If such corporation or holding
company parent publishes reports of condition at least annually, pursuant to law
or the requirements of said supervising or examining authority, then for the
purposes of this section, the combined capital and surplus of such corporation
or holding company parent 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
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cease to be eligible in accordance with the provisions of this section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this article.
SECTION 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 in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If
the instrument of acceptance by a successor Trustee required by Section 611
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 with respect to the Securities of such series. If the acceptance of
appointment is substantially contemporaneous with the resignation, then the
notice called for by the first sentence of this subsection may be combined
with the instrument called for by Section 611.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series 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 therefor 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 Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver 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 with respect to all Securities, 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 with respect to all
Securities and the appointment of a successor Trustee or Trustees.
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(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, with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any such successor
Trustee may be appointed with respect to the Securities of one or more or all of
such series and that at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor appointed by the Company. If no successor Trustee with respect to the
Securities of any series shall have been so appointed by the Company or the
Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series 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
with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to all
Holders of Securities of such series as their names and addresses appear in the
Security Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed 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 the 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.
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(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each 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 with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) 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 referred to in
paragraph (a) or (b) of this section, as the case may be.
(d) 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 administration of this Indenture), shall be the
successor of the Trustee hereunder, provided such corporation
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shall be otherwise qualified and eligible under this article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any 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
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). A trustee who has resigned or been
removed shall be subject to the Trust Indenture Act Section 311(a) to the extent
provided therein.
ARTICLE VII
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 with
respect to the Securities of each series
(a) semi-annually, not more than fifteen days after each Regular
Record Date, or, in the case of any series of Securities on which
semi-annual interest is not payable, not more than fifteen days after such
semi-annual dates as may be specified by the Trustee, 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 or such semi-annual date, as the
case may be, and
(b) 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, however, that so long as the Trustee is the Security Registrar, no
such list need be furnished.
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
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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) If three or more Holders (herein referred to as "applicants")
apply in writing to the Trustee, and furnish to the Trustee reasonable
proof that each such applicant has owned a Security for a period of at
least six months preceding the date of such application, and such
application states that the applicants desire to communicate with other
Holders with respect to their rights under this Indenture or under the
Securities and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee
shall, within five Business Days after the receipt of such application, at
its election, either
(i) afford such applicants access to the information preserved at
the time by the Trustee in accordance with Section 702(a), or
(ii) inform such applicants as to the approximate number of
Holders whose names and addresses appear in the information preserved
at the time by the Trustee in accordance with Section 702(a), and as
to the approximate cost of mailing to such Holders the form of proxy
or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 702(a) a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interest of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee shall mail
copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of
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either of them shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with
Section 702(b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Section 702(b).
(d) Subject to Sections 702(a), 702(b), 702(c) and 601, if the Company or
any other person (other than the Trustee) shall desire to communicate with
Holders of Securities to solicit or obtain from them any proxy, consent,
authorization, waiver, approval of a plan of reorganization, arrangement or
readjustment or other action ("Holder Action"), the Trustee shall have no duty
to participate in such communication or solicitation or the processing of
responses in any manner except (i) to furnish the rules and regulations and to
perform the functions referred to in Section 104 and (ii) to receive (A) the
instruments evidencing the Holder Action together with (B) the Officers'
Certificate and Opinion of Counsel referred to below. The Company hereby
covenants that any and all communications and solicitations distributed by it in
connection with any Holder Action will comply in all material respects with
applicable law, including without limitation applicable law concerning adequacy
of disclosure. The Trustee shall have no responsibility for the accuracy or
completeness of any materials circulated to solicit any Holder Action nor for
any related communications nor for the compliance thereof with applicable law.
No Holder Action shall become effective until the Trustee shall have received
from the Company or other person who solicited the Holder Action (1) the
instruments evidencing such Holder Action and (2) (x) (in the case of Holder
Action solicited by the Company or the representative of the Company's estate if
the Company is the debtor in any bankruptcy or other insolvency proceeding) an
Officers' Certificate and (y) (in all cases) an Opinion of Counsel, each
specifying the Holder Action taken and stating that such Holder Action has been
duly and validly taken in compliance with this Indenture in all material
respects. Such Officers' Certificate, if any, shall also certify that (after
giving effect to such Holder Action) no Event of Default or event or condition
which, with notice or lapse of time or both, would become an Event of Default
has occurred and is continuing or has not been waived.
(e) The Depositary may grant proxies and otherwise authorize its
participants which own the Global Securities to give or take any Act which a
Holder is entitled to take under this Indenture; provided, however, that the
Depositary has delivered a list of such participants to the Trustee.
SECTION 703. Reports by Trustee.
(a) Within 60 days after [ ] of each year commencing with the first [ ]
following the date of this Indenture, the Trustee shall transmit by mail to all
Holders, as their names and addresses appear in the Security Register, a brief
report
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dated as of such [ ], to the extent required by Section 313(a) of the Trust
Indenture Act.
(b) The Trustee shall comply with Sections 313(b) and 313(c) of the Trust
Indenture Act.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with the Commission and with the Company. The
Company will notify the Trustee when any Securities are listed on any stock
exchange.
SECTION 704. Reports by Company.
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934; or, if the
Company is not required to file information, documents or reports
pursuant to either of said sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Securities Exchange Act
of 1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such
rules and regulations; and
(2) file with the Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations.
ARTICLE VIII
SUCCESSOR CORPORATION
SECTION 801. When Company May Merge or Transfer Assets.
The Company shall not consolidate or amalgamate with or merge with or into
any other Person (other than a Subsidiary) or convey, transfer, sell or lease
its properties and assets substantially as an entirety to any Person (other than
a Subsidiary), permit any Person
-49-
(other than a Subsidiary) to consolidate with or merge into the Company, or
permit any Person (other than a Subsidiary) to convey, transfer, sell or lease
that Person's properties and assets substantially as an entirety to the Company,
unless:
(1) either (a) the Company shall be the surviving Person or (b)
the Person (if other than the Company) formed by such consolidation or
into which the Company is merged or the Person which acquires by
conveyance, transfer or lease the properties and assets of the Company
substantially as an entirety shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all of the obligations of the
Company under the Securities and this Indenture;
(2) immediately after giving effect to such transaction, no Event
of Default, and no event that, after notice or lapse of time or both,
would become an Event of Default, shall have occurred and be
continuing; and
(3) the Company shall have delivered to the Trustee an Officers'
Certificate 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
comply with this Section 801 and that all conditions precedent herein
provided for relating to such transaction have been satisfied.
The successor Person formed by such consolidation or into which the Company
is merged or the successor Person 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 had been named as the Company herein; and thereafter, the Company
shall be discharged from all obligations and covenants under this Indenture and
the Securities. Subject to Section 903, the Company, the Trustee and the
successor Person shall enter into a supplemental indenture to evidence the
succession and substitution of such successor Person and such discharge and
release of the Company.
ARTICLE IX
AMENDMENTS AND SUPPLEMENTAL INDENTURES
SECTION 901. Amendments or Supplemental Indentures Without Consent of Holders.
The Company, when authorized by a Board Resolution, and the Trustee, at any
time and from time to time, may amend or supplement this Indenture or the
Securities without the consent of any Holder, so long as such changes, other
than those in clause (2), do not materially and adversely affect the interests
of the Holder:
-50-
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to make any modifications or amendments that do not, in the good
faith opinion of the Company's Board of Directors and the Trustee,
adversely affect the interests of the Holders in any material respect;
(3) to provide for the assumption of the Company's obligations under
this Indenture by a successor upon any merger, consolidation or asset
transfer as permitted by and in compliance with Article VIII of this
Indenture;
(4) to provide any security for or guarantees of the Securities;
(5) to add Events of Default with respect to the Securities; or
(6) to add to the Company's covenants for the benefit of the Holders
or to surrender any right or power conferred upon the Company by this
Indenture;
(7) to make any change necessary for the registration of the
Securities under the Securities Act of 1933, as amended, or to comply with
the Trust Indenture Act, or any amendment thereto, or to comply with any
requirement of the Commission in connection with the qualification of the
Indenture under the Trust Indenture Act, provided that such modification or
amendment does not, in the good faith opinion of the Company's Board of
Directors and the Trustee, adversely affect the interests of the Holders of
the Securities in any material respect; or
(8) to provide for uncertificated Securities in addition to or in
place of Certificated Securities or to provide for bearer Securities;
(9) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons;
(10) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only
when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit
of such provision;
(11) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(12) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add
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to or change any of the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 611(b).
SECTION 902. Amendments or Supplemental Indentures with Consent of Holders.
With the written consent of the Holders of not less than a majority in
aggregate principal amount of the Securities at the time Outstanding, the
Company, when authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may amend or supplement this Indenture or the Securities.
However, without the consent of each Holder affected, an amendment to this
Indenture or the Securities may not:
(1) change the Stated Maturity of the principal of or any installment
of interest with respect to the Securities;
(2) reduce the principal amount of, or the rate of interest on, the
Securities;
(3) change the currency of payment of principal of or interest on the
Securities;
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to the Securities;
(5) reduce the above-stated percentage of Holders of the Securities of
any series necessary to modify or amend this Indenture;
(6) modify the foregoing requirements or reduce the percentage of
Outstanding Securities necessary to waive any covenant or past default; and
(7) if the Securities are convertible, adversely affect the right to
convert the Securities into Common Shares in accordance with the provisions
of this Indenture.
It shall not be necessary for any Act of the Holders under this Section 902
to approve the particular form of any proposed amendment or supplemental
indenture, but it shall be sufficient if such Act approves the substance
thereof.
After an amendment or supplemental indenture under this Section 902 becomes
effective, the Company shall mail to each Holder a notice briefly describing the
amendment or supplemental indenture.
An amendment or supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of the Hold-
-52-
ers of Securities of such series with respect to such covenant or other
provision, shall be deemed not to affect the rights under this Indenture of the
Holders of Securities of any other series.
SECTION 903. Execution of Supplemental Indentures.
The Trustee shall sign any supplemental indenture authorized pursuant to
this article if the amendment contained therein does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign such supplemental indenture. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
601) shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore 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 shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and 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 of such series.
-53-
ARTICLE X
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of the Securities and this Indenture. At the option of the Company,
payment of principal (and premium, if any) and interest may be made by wire
transfer or (subject to collection) by check mailed to the address of the Person
entitled thereto at such address as shall appear in the Security Register.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities of that series and
this Indenture may be served. The Company hereby initially appoints the Trustee
its office or agency for each of said purposes. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of 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, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
SECTION 1003. Money for Securities; Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of that
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
dis-
-54-
posed of as herein provided and will promptly notify the Trustee of its action
or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, on or prior to each due date of the principal of (and
premium, if any) or interest on any Securities of that series, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure so to act.
The Company will cause each Paying Agent for any series of Securities 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 on the principal of (and
premium, if any) or interest on Securities of that series in trust 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 of that series) in the making of any
payment of principal (and premium, if any) or interest on the Securities of
that series; 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 in trust by such Paying Agent.
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 (and premium, if any)
or interest on any Security of any series and remaining unclaimed for two years
after such principal (and 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
-55-
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, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be mailed or published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the City, County and State of New York, or both,
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 mailing or
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
The Company shall have no obligation to make payment of principal of (or
premium, if any) or interest on any Security in immediately available funds,
except that if the Company shall have received original payment for Securities
in immediately available funds it shall make available immediately available
funds for payment of the principal of such Securities.
SECTION 1004. Corporate Existence.
Subject to Article VIII, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (charter and statutory) and franchises; provided, however, that the
Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Maintenance of Properties.
The Company will use its reasonable efforts to cause all material
properties used or useful in the conduct of its business to be maintained and
kept in good condition, repair and working order (subject to wear and tear) and
supplied with all necessary material equipment and will use its reasonable
efforts to cause to be made all necessary material repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this 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 and not disadvantageous in any material respect to the Holders.
SECTION 1006. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, a certificate of
the principal executive officer, principal financial officer or principal
accounting officer of the Company stating
-56-
whether or not to the best knowledge of the signers thereof the Company is in
default in the performance and observance of any of the terms, provisions and
conditions of this Indenture, and if the Company shall be in default, specifying
all such defaults and the nature and status thereof of which they may have
knowledge.
SECTION 1007. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Section 1006 if before or after the time for
such compliance the Holders of at least a majority in principal amount of the
Outstanding Securities (taken together as one class) shall, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such term, provision 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 term,
provision or condition shall remain in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for Securities of any series) in
accordance with this article.
SECTION 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
less than all the Securities of any series, the Company shall, at least 45 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 of such series to be redeemed, such notice
to be accompanied by a written statement signed by an authorized officer of the
Company stating that no defaults in the payment of interest or Events of Default
with respect to the Securities of that series have occurred (which have not been
waived or cured). In the case of any redemption of Securities prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate evidencing compliance with such restriction.
-57-
SECTION 1103. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
in its sole discretion shall deem fair and appropriate and which may provide for
the selection or redemption of portions (equal to the minimum authorized
denomination for Securities of that series or any integral multiple thereof) of
the principal amount of Securities of such series of a denomination larger than
the minimum authorized denomination for Securities of that series.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any 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 1104. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 45 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not such
Holder receives the notice. Failure to give notice by mail, or any defect in the
notice to any such Holder in respect of any Security, shall not affect the
validity of the proceedings for the redemption of any other Security.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and any accrued interest,
(3) if less than all the Outstanding Securities of any series are to
be redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price and any accrued
interest will become due and payable upon each such Security to be redeemed
together
-58-
with accrued interest thereon and, if applicable, that interest thereon
will cease to accrue on and after said date,
(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and any accrued interest,
(6) that the redemption is for a sinking fund, if such is the case,
and
(7) the CUSIP number and, if applicable, the ISIN number of the
Securities being redeemed.
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.
SECTION 1105. 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, in funds immediately available on the due 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.
SECTION 1106. 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 together with accrued interest thereon, and
from and after such date (unless the Company shall default in the payment of the
Redemption Price and 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, however, that
installments of interest whose Stated Maturity is on 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 (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security.
-59-
The Trustee shall not redeem any Securities of any series pursuant to this
article (unless all Outstanding Securities of such series are to be redeemed) or
mail or give any notice of redemption of Securities during the continuance of an
Event of Default hereunder known to the Trustee with respect to such series,
except that, where the mailing of notice of redemption of any Securities shall
theretofore have been made, the Trustee shall redeem or cause to be redeemed
such Securities, provided that it shall have received from the Company a sum
sufficient for such redemption. Except as aforesaid, any moneys theretofore or
thereafter received by the Trustee shall, during the continuance of such Event
of Default, be deemed to have been collected under Article V and held for the
payment of all such Securities of such series. In case such Event of Default
shall have been waived as provided in Section 513 or the default cured on or
before the sixtieth day preceding the Redemption Date, such moneys shall
thereafter be applied in accordance with the provisions of this article.
SECTION 1107. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (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 the same series, 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.
ARTICLE XII
SINKING FUNDS
SECTION 1201. Applicability of Article.
The provisions of this article shall be applicable to any sinking fund for
the retirement of Securities of a series except as otherwise specified as
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment." If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 1202. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such
series.
-60-
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption) and (2) may apply as credit Securities of
a series which have been redeemed either at the election of the Company pursuant
to the terms of such Securities or through the application of permitted optional
sinking fund payments pursuant to the terms of such Securities, in each case in
satisfaction of all or any part of any sinking fund payment with respect to the
Securities of such series required to be made pursuant to the terms of such
Securities as provided for by the terms of such series; provided that such
Securities have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company (1) will deliver to the Trustee an Officers'
Certificate (A) stating that no defaults in the payment of interest or Events of
Default with respect to Securities of that series have occurred (which have not
been waived or cured), (B) specifying the amount of the next ensuing sinking
fund payment for that series pursuant to the terms of Securities of that series,
(C) stating whether or not the Company intends to exercise its right, if any, to
make an optional sinking fund payment with respect to such series on the next
ensuing sinking fund payment date and, if so, specifying the amount of such
optional sinking fund payment and (D) specifying the portion of such sinking
fund payment, if any, which is to be satisfied by payment of cash and the
portion thereof, if any, which is to be satisfied by delivering and crediting
Securities of that series pursuant to Section 1202 and (2) will also deliver to
the Trustee any Securities to be so delivered. Not less than 30 days before each
such sinking fund payment date the Trustee shall select the Securities of such
series to be redeemed upon such sinking fund payment date in the manner
specified in Section 1103 and cause notice of the redemption thereof to be given
in the name of and at the expense of the Company in the manner provided in
Section 1104. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
1105, 1106 and 1107. Failure of the Company, on or before any such 60th day, to
deliver such Officers' Certificate and Securities specified in this section, if
any, shall not constitute a default but shall constitute, on and as of such
date, the irrevocable election of the Company (a) that the mandatory sinking
fund payment for such series due on the next succeeding sinking fund payment
date shall be paid entirely in cash without the option to deliver or credit
Securities of such series in respect thereof and (b) that the Company will make
no optional sinking fund payment with respect to Securities of such series as
provided in this article.
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The Trustee shall not redeem or cause to be redeemed any Security of a
series with sinking fund moneys or mail any notice of redemption of Securities
of such series by operation of the sinking fund during the continuance of a
default in payment of interest on such Securities or of any Event of Default
with respect to such series except that, where the mailing of notice of
redemption of any Securities shall theretofore have been made, the Trustee shall
redeem or cause to be redeemed such Securities, provided that it shall have
received from the Company a sum sufficient for such redemption. Except as
aforesaid, any moneys in the sinking fund for such series at the time when any
such default or Event of Default shall occur, and any moneys thereafter paid
into the sinking fund, shall, during the continuance of such default or Event of
Default, be deemed to have been collected under Article V and held for the
payment of all such Securities of such series. In case such Event of Default
shall have been waived as provided in Section 513 or the default cured on or
before the 60th day preceding the sinking fund payment date, such moneys shall
thereafter be applied on the next succeeding sinking fund payment date in
accordance with this section to the redemption of such 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.
IN WITNESS WHEREOF, GLOBAL SOURCES LTD. has caused this Indenture to be
duly executed as a deed the day and year first before written.
GLOBAL SOURCES LTD.
By: _________________________________
Name:
Title:
IN WITNESS WHEREOF, the undersigned, being duly authorized, has executed
this Indenture as of the date first above written.
[NAME OF TRUSTEE]
By: _________________________________
Name:
Title:
Exhibit 4.4
GLOBAL SOURCES LTD.
to
[NAME OF TRUSTEE],
Trustee
INDENTURE
Dated as of [ ]
Subordinated Debt Securities
Reconciliation and tie between Trust Indenture Act of 1939 and Indenture,
dated as of , .
Trust Indenture
Act Section Indenture Section
----------- -----------------
ss.310(a) ................................................ 609
(b).............................................. 608, 610
(c).............................................. Not Applicable
ss.311(a) ................................................ 613
(b).............................................. 613
(c).............................................. Not Applicable
ss.312(a) ................................................ 701, 702(a)
(b).............................................. 702(b)
(c).............................................. 702(c)
ss.313(a) ................................................ 703(a)
(b).............................................. 703(b)
(c).............................................. 703(b)
(d).............................................. 703(c)
ss.314(a) ................................................ 704
(b).............................................. Not Applicable
(c).............................................. 102
(d).............................................. Not Applicable
(e).............................................. 102
(f).............................................. Not Applicable
ss.315(a) ................................................ 601
(b).............................................. 602, 703(b)
(c).............................................. 601(b)
(d).............................................. 601(c)
(e).............................................. 514
ss.316(a)(1).............................................. 512, 513
(b).............................................. 508
(c).............................................. 104(d)
ss.317(a)(1).............................................. 503
(a)(2)........................................... 504
(b).............................................. 1003
ss.318(a) ................................................ 107
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
TABLE OF CONTENTS
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ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.................................................1
SECTION 102. Compliance Certificates and Opinions........................7
SECTION 103. Form of Documents Delivered to Trustee......................8
SECTION 104. Acts of Holders.............................................9
SECTION 105. Notices, Etc., to Trustee and Company......................10
SECTION 106. Notice to Holders; Waiver..................................10
SECTION 107. Conflict with Trust Indenture Act..........................10
SECTION 108. Effect of Headings and Table of Contents...................11
SECTION 109. Successors and Assigns.....................................11
SECTION 110. Separability Clause........................................11
SECTION 111. Benefits of Indenture......................................11
SECTION 112. Governing Law..............................................11
SECTION 113. Legal Holidays.............................................11
SECTION 114. Reference to Currency......................................11
SECTION 115. Agent for Service; Submission to Jurisdiction; Waiver
of Immunity .............................................12
SECTION 116. Judgment Currency .........................................12
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally............................................13
SECTION 202. Form of Trustee's Certificate of Authentication............13
SECTION 203. Securities Issuable in the Form of a Global Security.......14
ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.......................16
SECTION 302. Denominations..............................................18
SECTION 303. Execution, Authentication, Delivery and Dating.............18
SECTION 304. Temporary Securities.......................................20
SECTION 305. Registration, Registration of Transfer and Exchange........20
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities...........21
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SECTION 307. Payment of Interest; Interest Rights Preserved.............22
SECTION 308. Persons Deemed Owners......................................23
SECTION 309. Cancellation...............................................23
SECTION 310. Computation of Interest....................................23
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture....................24
SECTION 402. Application of Trust Funds; Indemnification................25
SECTION 403. Defeasance and Discharge of Indenture......................25
SECTION 404. Defeasance of Certain Obligations..........................27
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default..........................................28
SECTION 502. Acceleration of Maturity: Rescission and Annulment.........29
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee..................................................30
SECTION 504. Trustee May File Proofs of Claim...........................31
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities...............................................32
SECTION 506. Application of Money Collected.............................32
SECTION 507. Limitation on Suits........................................32
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest....................................33
SECTION 509. Restoration of Rights and Remedies.........................33
SECTION 510. Rights and Remedies Cumulative.............................34
SECTION 511. Delay or Omission Not Waiver...............................34
SECTION 512. Control by Holders.........................................34
SECTION 513. Waiver of Past Defaults....................................34
SECTION 514. Undertaking for Costs......................................35
SECTION 515. Waiver of Stay or Extension Laws...........................35
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities........................36
SECTION 602. Notice of Defaults.........................................37
SECTION 603. Certain Rights of Trustee..................................37
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SECTION 604. Not Responsible for Recitals or Issuance of Securities.....38
SECTION 605. May Hold Securities........................................38
SECTION 606. Money Held in Trust........................................39
SECTION 607. Compensation and Reimbursement.............................39
SECTION 608. Disqualification; Conflicting Interests....................39
SECTION 609. Corporate Trustee Required; Eligibility....................39
SECTION 610. Resignation and Removal; Appointment of Successor..........40
SECTION 611. Acceptance of Appointment by Successor.....................41
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business.................................................42
SECTION 613. Preferential Collection of Claims Against Company..........43
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders..43
SECTION 702. Preservation of Information; Communications to Holders.....43
SECTION 703. Reports by Trustee.........................................45
SECTION 704. Reports by Company.........................................45
ARTICLE EIGHT
SUCCESSOR CORPORATION
SECTION 801. When Company May Merge or Transfer Assets..................46
ARTICLE NINE
AMENDMENTS & SUPPLEMENTAL INDENTURES
SECTION 901. Amendments or Supplemental Indentures without Consent of
Holders..................................................47
SECTION 902. Amendments or Supplemental Indentures with Consent of
Holders..................................................48
SECTION 903. Execution of Supplemental Indentures.......................49
SECTION 904. Effect of Supplemental Indentures..........................49
SECTION 905. Conformity with Trust Indenture Act........................49
SECTION 906. Reference in Securities to Supplemental Indentures.........49
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.................50
SECTION 1002. Maintenance of Office or Agency............................50
SECTION 1003. Money for Securities; Payments to Be Held in Trust.........50
SECTION 1004. Corporate Existence........................................52
SECTION 1005. Maintenance of Properties..................................52
SECTION 1006. Statement by Officers as to Default........................52
SECTION 1007. Waiver of Certain Covenants................................53
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article...................................3
SECTION 1102. Election to Redeem; Notice to Trustee......................3
SECTION 1103. Selection by Trustee of Securities to Be Redeemed..........3
SECTION 1104. Notice of Redemption.......................................4
SECTION 1105. Deposit of Redemption Price................................5
SECTION 1106. Securities Payable on Redemption Date......................5
SECTION 1107. Securities Redeemed in Part................................6
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article...................................6
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities......6
SECTION 1203. Redemption of Securities for Sinking Fund..................7
ARTICLE THIRTEEN
SUBORDINATION
SECTION 1301. Agreement to Subordinate..................................58
SECTION 1302. Default on Senior Indebtedness............................58
SECTION 1303. Liquidation; Dissolution; Bankruptcy......................59
SECTION 1304. Subrogation...............................................60
SECTION 1305. Trustee to Effectuate Subordination.......................61
SECTION 1306. Notice by the Company.....................................61
SECTION 1307. Rights of the Trustee; Holders of Senior Indebtedness.....62
SECTION 1308. Subordination May Not Be Impaired.........................63
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SECTION 1309. Article Applicable to Paying Agents.......................63
SECTION 1310. Defeasance of This Article................................63
SECTION 1311. Subordination Language to Be Included in Securities.......64
-v-
INDENTURE, dated as of [ ], between Global Sources Ltd., a Bermuda
corporation (herein called the "Company" or the "Issuer"), having its principal
office at Canon's Court, 22 Victoria Street, Hamilton, HM 12 Bermuda, and [Name
of Trustee], a [ ], as trustee hereunder (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, 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 covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities or of series thereof, 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 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;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States, 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;
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(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; and
(5) all references used herein to the male gender shall include the
female gender.
"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.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board duly authorized to act hereunder.
"Board Resolution" means a copy of a resolution, certified by the secretary
or an assistant secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, delivered to the Trustee.
"Business Day" means, with respect to any Securities, a day that in the
City of New York or in any Place of Payment is not a day on which banking
institutions are authorized by law or regulation to close.
"Capital Stock" for any entity means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) shares issued by that entity.
"Certificated Securities" means Securities that are in registered
definitive form.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, 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 Shares" means the common shares, $0.01 par value per share, of the
Company existing on the date of this Indenture or any other shares of Capital
Stock of the Company into which such common shares shall be reclassified or
changed.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
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"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its chairman of the board, a vice chairman,
its president or a vice president, and by its treasurer, an assistant treasurer,
its secretary or an assistant secretary, and delivered to the Trustee.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time the trust created by this Indenture shall be administered, which
office, at the time of the execution of this Indenture, is located at [ ], Attn:
[ ].
"Default Notice" has the meaning specified in Section 13.02(b).
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, unless otherwise specified by the Company pursuant to
either Section 203 or 301, with respect to Securities of any series issuable or
issued as a Global Security, The Depository Trust Company, New York, New York,
or any successor thereto registered under the Securities Exchange Act of 1934,
as amended, or other applicable statute or regulation.
"Event of Default" has the meaning specified in Section 501.
"Global Security" means a Security issued to evidence all or a part of any
series of Securities which is executed by the Company and authenticated and
delivered by the Trustee to the Depositary or pursuant to the Depositary's
instruction, all in accordance with this Indenture and pursuant to a Company
Order, which shall be registered in the name of the Depositary or its nominee.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Holder Action" has the meaning specified in Section 702(d).
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more amendments or indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of particular series of Securities established as
contemplated by Section 301.
"Interest," when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date," when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Issuer" means the Person named as the "Issuer" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Issuer" shall mean
such successor corporation.
-4-
"Maturity," when used with respect to any Security, means the date on which
the principal of such Security or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the 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.
"Opinion of Counsel" means written opinion of counsel, who may be counsel
for the Company and who shall be acceptable to the Trustee.
"Original Issue Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"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 theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money or evidences of
indebtedness in the necessary amount has been theretofore deposited with
the Trustee or any Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the Company shall act as
its own Paying Agent) for the Holders of such Securities; provided that, if
such Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or 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;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities 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 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
Trustee the pledgee's right so to act with respect to such Securities and
-5-
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. In case of a dispute as
to such right, any decision by the Trustee shall be full protection to the
Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee
promptly an Officers' Certificate listing and identifying all Securities, if
any, known by the Company to be owned or held by or for the account of any of
the above-described persons; and, subject to Section 601, the Trustee shall be
entitled to accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not listed therein
are Outstanding for the purposes of any such determination.
"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.
"Person" means any individual, corporation, exempted limited company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Place of Payment," when used with respect to the Securities of any series,
means the place or places where the principal of (and premium, if any) and
interest on the Securities of that series are payable as specified as
contemplated by Section 301.
"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.
"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.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities of any series means the date specified for that purpose as
contemplated by Section 301.
"Responsible Officer," when used with respect to the Trustee, means any
officer of the Trustee assigned by the Trustee to administer its corporate trust
matters.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
-6-
"Senior Indebtedness," unless otherwise specified in one or more indentures
supplemental hereto or approved pursuant to a Board Resolution in accordance
with Section 301, means, with respect to the Company, (i) the principal
(including redemption payments), premium, if any, interest and other payment
obligations in respect of (A) indebtedness of the Company for money borrowed and
(B) indebtedness evidenced by securities, debentures, bonds, notes or other
similar instruments issued by the Company, including any such securities issued
under any deed, indenture or other instrument to which the Company is a party
(including, for the avoidance of doubt, indentures pursuant to which
subordinated debentures have been or may be issued); (ii) all capital lease
obligations of the Company; (iii) all obligations of the Company issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of the Company, all hedging agreements and agreements of a similar
nature thereto and all agreements relating to any such agreements, and all
obligations of the Company under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business); (iv) all
obligations of the Company for reimbursement on any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction; (v) all
obligations of the type referred to in clauses (i) through (iv) above of other
Persons for the payment of which the Company is responsible or liable as
obligor, guarantor or otherwise; (vi) all obligations of the type referred to in
clauses (i) through (v) above of other Persons secured by any lien on any
property or asset of the Company (whether or not such obligation is assumed by
the Company); and (vii) any deferrals, amendments, renewals, extensions,
modifications and refundings of all obligations of the type referred to in
clauses (i) through (vi) above, in each case whether or not contingent and
whether outstanding at the date hereof or thereafter incurred, except, in each
case, for the Securities and any such other indebtedness or deferral, amendment,
renewal, extension, modification or refunding that contains express terms, or is
issued under a deed, indenture or other instrument that contains express terms,
providing that it is subordinate to or ranks pari passu with the Securities.
Such Senior Indebtedness shall continue to be Senior Indebtedness and be
entitled to the benefits of the subordination provisions of this Indenture
irrespective of any amendment, modification or waiver of any term of such Senior
Indebtedness and notwithstanding that no express written subordination agreement
may have been entered into between the holders of such Senior Indebtedness and
the Trustee or any of the Holders.
"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 principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" means, with respect to any Person:
(1) any corporation or company a majority of whose Capital Stock with
voting power, under ordinary circumstances, to elect directors is, at the
date of determination, directly or indirectly, owned by such Person (a
"subsidi-
-7-
ary"), by one or more subsidiaries of such Person or by such Person and one
or more subsidiaries of such Person;
(2) a partnership in which such Person or a subsidiary of such Person
is, at the date of determination, a general partner of such partnership; or
(3) any partnership, limited liability company or other Person in
which such Person, a subsidiary of such Person or such Person and one or
more subsidiaries of such Person, directly or indirectly, at the date of
determination, have (x) at least a majority ownership interest or (y) the
power to elect or appoint or direct the election or appointment of the
managing partner or member of such Person or, if applicable, a majority of
the directors or other governing body of such Person.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as amended and
in force at the date as of which this instrument was executed, except as
provided in Section 905.
"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 or
include each Person who is then a Trustee hereunder, and if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"U.S. Government Obligations" means securities which are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as to the timely
payment of principal and interest as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company which is a member of the Federal Reserve
System and having a combined capital and surplus of at least $50,000,000 as
custodian with respect to any such obligation evidenced by such depository
receipt or a specific payment of interest on or principal of any such obligation
held by such custodian for the account of the holder of a depository receipt;
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the obligation
set forth in (i) or (ii) above or the specific payment of interest on or
principal of such obligation evidenced by such depository receipt.
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 to the
-8-
proposed action have been complied with and, where appropriate as to matters of
law, an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or covenant
has been complied with; and
(4) a statement as to whether, in the opinion of each such Person,
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 such matters is erroneous. Any certificate of counsel or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
-9-
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of 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 such instrument or writing,
or the authority of the Person executing the same, may be proved in accordance
with such reasonable rules and regulations as may be prescribed by the Trustee
or in any reasonable manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. Notwithstanding Trust Indenture Act Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities shall be computed as of such record date;
provided, however, that no such authorization, agreement or consent by such
Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) 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.
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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 hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: [ ], or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it 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, to the attention of the
general counsel of 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 herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other case 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 hereof limits, qualifies or conflicts with another
provision which is required or deemed to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required or deemed provision
shall control.
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SECTION 108. Effect of Headings and Table of Contents.
The article and section headings herein and the table of contents are for
convenience only and shall not affect the construction hereof.
SECTION 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 thereby.
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 hereto and their successors hereunder
and the Holders, 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.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal (and premium, if any) need not be
made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date or Redemption Date, or at the Stated
Maturity, provided that no interest shall accrue for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be.
SECTION 114. References to Currency.
All references in this Indenture to "dollars" or "$" are to the currency of
the United States of America.
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SECTION 115. Agent for Service; Submission to Jurisdiction; Waiver of
Immunities.
By the execution and delivery of this Indenture, the Company (i)
acknowledges that it has, by separate written instrument, designated and
appointed National Registered Agents, Inc. (the "Process Agent"), 440 9th
Avenue, 5th Floor, New York, New York 10001, United States, as its authorized
agent upon which process may be served in any suit, action or proceeding arising
out of or relating to the Notes or this Indenture that may be instituted in any
Federal or state court in the State of New York, The City of New York, the
Borough of Manhattan, or brought under Federal or state securities laws or
brought by the Trustee (whether in its individual capacity or in its capacity as
Trustee hereunder), and acknowledges that the Process Agent has accepted such
designation, (ii) submits to the jurisdiction of any such court in any such
suit, action or proceeding and (iii) agrees that service of process upon the
Process Agent and written notice of said service to it at its principal office
in accordance with Section 105 hereof), shall be deemed in every respect
effective service of process upon it in any such suit or proceeding. The Company
further agrees to take any and all action, including the execution and filing of
any and all such documents and instruments as may be necessary to continue such
designation and appointment of the Process Agent in full force and effect so
long as the Securities shall be outstanding; provided that the Company may (and
shall, to the extent the Process Agent ceases to be able to be served on the
basis contemplated herein) by written notice to the Trustee, designate such
additional or alternative agents for service of process under this Section 115
that (i) maintains an office located in the Borough of Manhattan, The City of
New York in the State of New York, (ii) are either (x) counsel for the Company
or (y) a corporate service company which acts as agent for service of process
for other Persons in the ordinary course of its business and (iii) agrees to act
as agent for service of process in accordance with this Section 115. Such notice
shall identify the name of such agent for process and the address of such agent
for process in the Borough of Manhattan, The City of New York, State of New
York. Notwithstanding the foregoing, there shall, at all times, be at least one
agent for service of process for the Company appointed and acting in accordance
with this Section 115.
To the extent that the Company has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, it hereby
irrevocably waives such immunity in respect of its obligations under the
above-referenced documents, to the extent permitted by law.
SECTION 116. Judgment Currency.
The Company hereby agrees to indemnify the Trustee and each Holder against
any loss incurred by any of them as a result of any judgment or order being
given or made for any amount due under this Indenture or the Securities and such
judgment or order being expressed and paid in a currency (the "Judgment
Currency") other than U.S. dollars and as result of any variation as between (i)
the rate of exchange at which the U.S. dollar amount is converted into the
Judgment Currency for the purpose of such judgment or order and (ii) the spot
rate of exchange in The City of New York at which any such person on the date of
payment of such judgment or order is able to purchase U.S. dollars with the
amount of the Judgment Currency
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actually received by such person. The foregoing indemnity shall continue in full
force and effect notwithstanding any such judgment or order as aforesaid. The
term "spot rate of exchange" shall include any premiums and costs of exchange
payable in connection with the purchase of, or conversion into, U.S. dollars.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities of each series shall be in substantially the forms
established in one or more indentures supplemental hereto or approved from time
to time by or pursuant to a Board Resolution in accordance with Section 301, in
each case with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and any indenture
supplemental hereto, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or securities
regulatory authority or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the secretary or an assistant secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.
The definitive Securities shall be printed, lithographed or engraved on
steel engraved borders or may be produced in any other manner, all as determined
by the officers executing such Securities, as evidenced by their execution of
such Securities.
SECTION 202. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication required by this article shall
be in substantially the form set forth below.
"This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
[NAME OF TRUSTEE],
as Trustee
By ________________________________________
Authorized Signatory"
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SECTION 203. Securities Issuable in the Form of a Global Security.
(a) If the Issuer shall establish pursuant to Sections 201 and 301 that the
Securities of a particular series are to be issued in whole or in part in the
form of one or more Global Securities, then the Issuer shall execute and the
Trustee shall, in accordance with Section 303 and the Company Order delivered to
the Trustee thereunder, authenticate and deliver, such Global Security or
Securities, which (i) shall represent, and shall be denominated in an amount
equal to the aggregate principal amount of, the Outstanding Securities of such
series to be represented by such Global Security or Securities, (ii) shall be
registered in the name of the Depositary for such Global Security or Securities
or its nominee, (iii) shall be delivered by the Trustee to the Depositary or its
custodian or pursuant to the Depositary's instruction and (iv) shall bear a
legend substantially to the following effect: "UNLESS AND UNTIL IT IS EXCHANGED
IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS
GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE (I) BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR (II) BY A NOMINEE OF THE DEPOSITARY OR THE
DEPOSITARY TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT
IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN."
(b) Notwithstanding any other provision of this section or of Section 305,
unless the terms of a Global Security expressly permit such Global Security to
be exchanged in whole or in part for individual Securities, a Global Security
may be transferred, in whole but not in part and in the manner provided in
Section 305, only to another nominee of the Depositary for such Global Security,
or to a successor Depositary for such Global Security selected or approved by
the Issuer or to a nominee of such successor Depositary.
(c) (i) If at any time the Depositary for a Global Security notifies the
Issuer that it is unwilling or unable to continue as Depositary for such Global
Security or if at any time the Depositary for the Securities for such series
shall no longer be eligible or in good standing under the Securities Exchange
Act of 1934, as amended, or other applicable statute or regulation, the Issuer
shall appoint a successor Depositary with respect to such Global Security. If a
successor Depositary for such Global Security is not appointed by the Issuer
within 90 days after the Issuer receives such notice or becomes aware of such
ineligibility, the Issuer will execute a Company Order for the authentication
and delivery of individual Securities of such series in exchange for such Global
Security, and the Trustee, upon receipt of such Company Order, will authenticate
and deliver individual Securities of such series of like tenor and terms in
definitive
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form in an aggregate principal amount equal to the principal amount of the
Global Security in exchange for such Global Security.
(ii) If an Event of Default shall have occurred and be continuing or an
event shall have occurred which with the giving of notice or lapse of time or
both, would constitute an Event of Default with respect to the Securities
represented by such Global Security, the Trustee, upon receipt of a Company
Order for the authentication and delivery of individual Securities of such
series in exchange for such Global Security, will authenticate and deliver
individual Securities of such series of like tenor and terms in definitive form
in an aggregate principal amount equal to the principal amount of the Global
Security in exchange for such Global Security.
(iii) The Issuer may at any time and in its sole discretion determine that
the Securities of any series issued or issuable in the form of one or more
Global Securities shall no longer be represented by such Global Security or
Securities. In such event the Issuer will execute, and the Trustee, upon receipt
of a Company Order for the authentication and delivery of individual Securities
of such series in exchange in whole or in part for such Global Security, will
authenticate and deliver individual Securities of such series of like tenor and
terms in definitive form in an aggregate principal amount equal to the principal
amount of such Global Security or Securities representing such series to be so
exchanged for such Global Security or Securities.
(iv) If specified by the Issuer pursuant to Section 301 with respect to
Securities issued or issuable in the form of a Global Security, the Depositary
for such Global Security may surrender such Global Security in exchange in whole
or in part for individual Securities of such series of like tenor and terms in
definitive form on such terms as are acceptable to the Issuer and such
Depositary. Thereupon the Issuer shall execute, and the Trustee shall
authenticate and deliver, without service charge, (1) to each Person specified
by such Depositary a new Security or Securities of the same series of like tenor
and terms and of any authorized denomination of $1,000 and any integral multiple
thereof as requested by such Person in aggregate principal amount equal to and
in exchange for such Person's beneficial interest in the Global Security; and
(2) to such Depositary a new Global Security of like tenor and terms and in a
denomination equal to the difference, if any, between the principal amount of
the surrendered Global Security and the aggregate principal amount of Securities
delivered to Holders thereof.
(v) In any exchange provided for in any of the preceding four paragraphs,
the Issuer will execute and the Trustee will authenticate and deliver individual
Securities in definitive registered form in authorized denominations of $1,000
and any integral multiple thereof. Upon the exchange of a Global Security for
individual Securities, such Global Security shall be cancelled by the Trustee.
Securities issued in exchange for a Global Security pursuant to this section
shall be registered in such names and in such authorized denominations as the
Depositary for such Global Security, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Securities to the persons in whose names such Securities are
so registered.
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ARTICLE THREE
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of any series,
(1) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Sections 203, 304, 305, 306, 906 or 1107);
(2) the issue price, expressed as a percentage of the aggregate
principal amount;
(3) the date or dates on which the principal of the Securities of the
series is payable;
(4) the rate or rates at which the Securities of the series shall bear
interest, if any, the date or dates from which such interest shall accrue,
the Interest Payment Dates on which such interest shall be payable and the
Regular Record Date for the interest payable on the Interest Payment Date;
(5) the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of a Holder thereof and the period or periods
within which, the price or prices at which and the terms and conditions
upon which Securities of the series shall be redeemed or purchased, in
whole or in part, pursuant to such obligation;
(6) the period or periods within which, the price or prices or ratios
at which and the terms and conditions upon which Securities of the series
may be redeemed, converted or exchanged, in whole or in part;
(7) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of the series shall be
issuable;
(8) if other than the full principal amount, the portion of the
principal amount of Debt Securities of the series which will be payable
upon declaration of acceleration or provable in bankruptcy;
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(9) any events of default not set forth in this Indenture;
(10) the currency or currencies, including composite currencies, in
which payment of the principal of (and premium, if any) and interest, if
any, on such Securities shall be payable (if other than the currency of the
United States of America), which unless otherwise specified shall be the
currency of the United States of America as at the time of payment is legal
tender for payment of public or private debts;
(11) if the principal of (and premium, if any) or interest, if any, on
such Securities is to be payable, at the election of the Company or any
Holder thereof, in a coin or currency other than that in which such
Securities are stated to be payable, then the period or periods within
which, and the terms and conditions upon which, such election may be made;
(12) whether interest will be payable in cash or additional Securities
at the Company's or the Holders' option and the terms and conditions upon
which the election may be made;
(13) if such Securities are to be denominated in a currency or
currencies, including composite currencies, other than the currency of the
United States of America, the equivalent price in the currency of the
United States of America for purposes of determining the voting rights of
Holders of such Securities as Outstanding Securities under this Indenture;
(14) if the amount of payments of principal of (and premium, if any),
or portions thereof, or interest, if any, on such Securities may be
determined with reference to an index, formula or other method based on a
coin or currency other than that in which such Securities are stated to be
payable, the manner in which such amounts shall be determined;
(15) any restrictive covenants or other material terms relating to the
offered debt securities, which covenants and terms shall not be
inconsistent with the provisions of this Indenture;
(16) whether the Securities of the series shall be issued in whole or
in part in the form of a Global Security or Securities; the terms and
conditions, if any, upon which such Global Security or Securities may be
exchanged in whole or in part for other individual Securities; and the
Depositary for such Global Security or Securities;
(17) if other than as set forth in this Indenture, any terms with
respect to subordination of such Securities, including, without limitation,
the definition of "Senior Indebtedness";
(18) any listing of such Securities on any securities exchange;
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(19) additional or alternative provisions, if any, related to
defeasance and discharge of the offered debt securities;
(20) the applicability of any guarantees;
(21) if convertible into Common Shares, the terms on which such
Securities are convertible, including the initial conversion price, the
conversion period, any events requiring an adjustment of the applicable
conversion price and any requirements relating to the reservation of such
Common Shares for purposes of conversion;
(22) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified;
(23) each initial Place of Payment; and
(24) any other terms of the series, which terms shall not be
inconsistent with the provisions of this Indenture.
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided in or pursuant to such
Board Resolution and set forth in such Officers' Certificate or in any such
indenture supplemental hereto.
If any of the terms of the Securities of any series are established by
action taken pursuant to a Board Resolution, a copy of an appropriate record of
such action shall be certified by the secretary or an assistant secretary of the
Company and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of the Securities of any series.
SECTION 302. Denominations.
The Securities of each series shall be issuable in registered form without
coupons in such denominations as shall be specified as contemplated by Section
301. In the absence of any such provisions with respect to the Securities of any
series, the Securities of such series shall be issuable 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 of Directors, a vice chairman, its president or one of its vice
presidents, under its corporate seal reproduced thereon attested by its
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.
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At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series 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 the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established in or
pursuant to one or more Board Resolutions as permitted by Sections 201 and 301,
or by one or more indentures supplemental hereto as provided by Section 901, in
authenticating such Securities, and accepting the additional responsibilities
under this Indenture in relation to such Securities, the Trustee shall be
entitled to receive, and (subject to Section 601) shall be fully protected in
relying upon, an Opinion of Counsel stating
(a) that such form has been established in conformity with the
provisions of this Indenture;
(b) that such terms have been established in conformity with the
provisions of this Indenture;
(c) that this Indenture and such Securities, when authenticated and
delivered by the Trustee and issued by the Company in the manner and
subject to any conditions specified in such Opinion of Counsel, will
constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization and other laws of general
applicability relating to or affecting the enforcement of creditors' rights
and to general equity principles;
(d) that all laws and requirements in respect of the execution and
delivery by the Company of the Securities have been complied with; and
(e) such other matters as the Trustee may reasonably request.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Each Security shall be dated the date of its authentication unless
otherwise provided by the terms established and contemplated by Section 301.
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.
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SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, 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.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of the same series of authorized denominations. Until so
exchanged the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at one of its offices or agencies
maintained pursuant to Section 1002 or at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to
Section 203 and to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Securities and of transfers of Securities.
The Trustee initially is hereby appointed "Security Registrar" for the purpose
of registering Securities and transfers of Securities as herein provided. The
Company may act as Security Registrar and may change or appoint a Security
Registrar without prior notice to Holders or to the Trustee.
Subject to Section 203, upon surrender for registration of transfer of any
Security of any series at the office or agency in a Place of Payment for that
series, 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 the same series, of any authorized denominations and of a like
aggregate principal amount and tenor.
Subject to Section 203, at the option of the Holder, Securities of any
series may be exchanged for other Securities of the same series, of any
authorized denominations and of a like aggregate principal amount and tenor,
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.
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Subject to Section 203, all Securities issued upon any registration or
transfer or exchange of Securities shall be 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 (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made 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 203, 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange Securities of any series during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities of that series selected for redemption (under Section 1103) 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.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If there shall be delivered to the Company and the Trustee (i)(A) any
mutilated Security or (B) 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 hold 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 upon
its request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security or in exchange for such mutilated Security, a
new Security of the same series and 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.
Every new Security of any series issued pursuant to this section in lieu of
any destroyed, lost or stolen Security or in exchange for such mutilated
Security, shall constitute an
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original additional contractual obligation of the Company, whether or not the
mutilated, 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 of that series 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 of any series 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 of such series (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 of such series and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
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 of Securities of
such series 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
having been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities of such series (or their respective
Predecessor Securities) are
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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 on the
Securities of any series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this section, each Security lawfully
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.
SECTION 308. Persons Deemed Owners.
Subject to Section 203, the Company, the Trustee and any agent of the
Company or the Trustee may 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 none of the Company, the Trustee or 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, registration of
transfer or exchange or for credit against any sinking fund payment 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. The Trustee shall destroy cancelled Securities and deliver a
certificate of such destruction to the Company.
SECTION 310. Computation of Interest.
Except as otherwise specified as contemplated by Section 301 for the
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a year of 12 30-day months.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
with respect to any series of Securities (except as to (i) any surviving rights
of registration of transfer or exchange of Securities herein expressly provided
for, (ii) rights hereunder of Holders to receive payments of principal of, and
premium, if any, and interest on, Securities, and other rights, duties and
obligations of the Holders as beneficiaries hereof with respect to the amounts,
if any, so deposited with the Trustee, (iii) remaining obligations of the
Company to make mandatory sinking fund payments and (iv) the rights, obligations
and immunities of the Trustee hereunder), and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture with respect to any series of Securities, when
(1) either
(A) all Securities of such series theretofore authenticated and
delivered (other than (i) Securities of such series which have been
mutilated, destroyed, lost or stolen and which have been replaced or
paid as provided in Section 306 and (ii) Securities of such series for
whose payment money has theretofore 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 theretofore 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 as trust funds in
trust for the purpose an amount in cash 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
Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
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(2) if all series of Securities are being discharged, the Company has
paid or caused to be paid all other sums payable hereunder by the Company;
and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, 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 next to
last paragraph of Section 1003, shall survive.
SECTION 402. Application of Trust Funds; Indemnification.
(a) Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401, all money and U.S.
Government Obligations deposited with the Trustee pursuant to Section 403 or 404
and all money received by the Trustee in respect of U.S. Government Obligations
deposited with the Trustee pursuant to Section 403 or 404 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 or
received by the Trustee or to make mandatory sinking fund payments or analogous
payments as contemplated by Section 403 or 404, but such money need not be
segregated from other funds except to the extent required by law.
(b) The Company shall pay and shall indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against U.S. Government Obligations
deposited pursuant to Section 403 or 404, or the interest and principal received
in respect of such obligations other than any payable by or on behalf of
Holders.
(c) The Trustee shall deliver or pay to the Company from time to time upon
Company Request any U.S. Government Obligations or money held by it as provided
in Section 403 or 404 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are then in excess of the amount thereof which then
would have been required to be deposited for the purpose for which such
obligations or money were deposited or received.
SECTION 403. Defeasance and Discharge of Indenture.
The Company shall be deemed to have paid and discharged the entire
indebtedness on all the Outstanding Securities on the 91st day after the date of
the deposit referred to in subparagraph (1) of this section, and the provisions
of this Indenture, as it relates to such Outstanding Securities, shall no longer
be in effect (and the Trustee, at the expense of the Company, shall at Company
Request, execute proper instruments acknowledging the same), except as to:
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(a) the rights of Holders of Securities to receive, from the trust
funds described in subparagraph (1) hereof, (i) payment of the principal of
(and premium, if any) and each installment of principal of (and premium, if
any) or interest on the Outstanding Securities on the Stated Maturity of
such principal or installment of principal or interest and (ii) the benefit
of any mandatory sinking fund payments applicable to the Securities on the
day on which such payments are due and payable in accordance with the terms
of this Indenture and the Securities;
(b) the Company's obligations with respect to such Securities under
Sections 305, 306, 1002 and 1003; and
(c) the obligations of the Company to the Trustee under Section 607,
provided that the following conditions shall have been satisfied:
(1) the Company has or caused to be irrevocably deposited (except as
provided in Section 402) with the Trustee as trust funds in trust,
specifically pledged as security for, and dedicated solely to, the benefit
of the Holders of the Securities, (i) money in an amount, or (ii) U.S.
Government Obligations which through the payment of interest and principal
in respect thereof in accordance with their terms will provide not later
than one day before the due date of any payment referred to in clause (A)
or (B) of this subparagraph money in an amount, or (iii) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge (A)
the principal of (and premium, if any) and each installment of principal of
(and premium, if any) and interest on the Outstanding Securities on the
Stated Maturity of such principal or installment of principal or interest
or on the applicable Redemption Date and (B) any mandatory sinking fund
payments applicable to the Securities on the day on which such payments are
due and payable in accordance with the terms of this Indenture and of the
Securities;
(2) such deposit shall not cause the Trustee with respect to the
Securities to have a conflicting interest for purposes of the Trust
Indenture Act with respect to the Securities;
(3) such deposit will not result in a breach or violation of, or
constitute a default under, any applicable laws, this Indenture or any
other agreement or instrument to which the Company is a party or by which
it is bound;
(4) no Event of Default or event which with notice or lapse of time
would become an Event of Default with respect to the Securities shall have
occurred and be continuing on the date of such deposit or during the period
ending on the 91st day after such date; and
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(5) if the deposit referred to in subparagraph (1) of this section is
to be made on or prior to one year from the Stated Maturity for payment of
principal of the Outstanding Securities, the Company has delivered to the
Trustee an Opinion of Counsel with no material qualifications or a
favorable ruling of the Internal Revenue Service, in either case to the
effect that Holders of the Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the
same amount and in the same manner and at the same times, as would have
been the case if such deposit, defeasance and discharge had not occurred.
SECTION 404. Defeasance of Certain Obligations.
If this section is specified to be applicable to Securities of any series,
the Company may omit to comply with any term, provision or condition set forth
in the sections of this Indenture or such Security with respect to the
Securities of that series ("Covenant Defeasance") if:
(1) with reference to this section, the Company has deposited or
caused to be irrevocably deposited with the Trustee as trust funds in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of the Securities of that series, (i) money in an
amount, or (ii) U.S. Government Obligations which through the payment of
interest and principal in respect thereof in accordance with their terms
will provide not later than one day before the due date of any payment
referred to in clause (A) or (B) of this subparagraph money in an amount,
or (iii) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge (A)
the principal of (and premium, if any) and each installment of principal
(and premium, if any) and interest on the Outstanding Securities of that
series on the Stated Maturity of such principal or installment of principal
or interest and (B) any mandatory sinking fund payments or analogous
payments applicable to Securities of such series on the day on which such
payments are due and payable in accordance with the terms of the Indenture
and of such Securities;
(2) such deposit shall not cause the Trustee with respect to the
Securities of that series to have a conflicting interest for purposes of
the Trust Indenture Act with respect to the Securities of any series;
(3) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(4) if the deposit referred to in subparagraph (1) of this section is
to be made on or prior to one year from the Stated Maturity for payment of
principal of the Outstanding Securities, the Company has delivered to the
Trustee an Opinion of Counsel with no material qualifications or a
favorable ruling of the Internal Revenue Service, in
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either case to the effect that Holders of the Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit and defeasance of certain obligations and will be subject to
federal income tax on the same amount and in the same manner and at the
same times, as would have been the case if such deposit and defeasance had
not occurred; and
(5) 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 defeasance contemplated by this section
have been complied with.
In the event the Company effects Covenant Defeasance with respect to any
Securities and such Securities are declared due and payable because of the
occurrence of any Event of Default, other than an Event of Default with respect
to any covenant as to which there has been Covenant Defeasance, the U.S.
Government Obligations on deposit with the Trustee will be sufficient to pay
amounts due on such Securities at the time of the Stated Maturity but may not be
sufficient to pay amounts due on such Securities at the time of the acceleration
resulting from such Event of Default.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default" (except as otherwise specified or contemplated by
Section 301 for Securities of any series) wherever used herein with respect to
Securities of any series, means any one of the following events:
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for
a period of 60 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of a Security of that series; or
(4) default in the performance, or breach, of any material 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 or which has expressly been included
in this Indenture solely for the benefit of series of Securities other than
that series) for a period of 60 days after there has been given, and
continuance of such by registered or certified mail, to the Company by the
Trustee or to the
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Company and the Trustee by the Holders of at least 25% in 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) 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 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 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
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive days; or
(6) the commencement by the Company of a voluntary case or proceeding
under any applicable 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 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 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
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 and its willingness to have a case commenced against it or
to seek an order for relief under any applicable bankruptcy, insolvency or
other similar law or the taking of corporate action by the Company in
furtherance of any such action; or
(7) any other Event of Default expressly provided with respect to
Securities of that series.
SECTION 502. Acceleration of Maturity: Rescission and Annulment.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency or reorganization) with respect to Securities of any
series at the time Outstanding occurs and is continuing, then in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series may declare the principal amount (or, if
the Securities of that series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that series)
of all of the Securities of that series to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal amount (or specified amount) shall
become immediately due and payable.
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In the case of an Event of Default resulting from bankruptcy, insolvency or
reorganization, which occurs and is continuing with respect to Securities of any
series at the time Outstanding, then all unpaid principal of and accrued
interest on all such Outstanding Securities of that series shall become
immediately due and payable without any notice or other action on the part of
the Trustee or the Holders of any Securities of such series.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, 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 of that series,
(B) the principal of (and premium, if any, on) any Securities of
that series which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate or rates prescribed
therefor in such Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed
therefor in such Securities, and
(D) all sums paid or advanced by the Trustee and any predecessor
Trustee hereunder and all sums due the Trustee and any predecessor
Trustee under Section 607;
and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.
No such rescission shall affect any subsequent 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,
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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 the rate
or rates prescribed therefor in such Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including all amounts due the Trustee and any predecessor Trustee
under Section 607.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such 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 such Securities, wherever
situated.
If any Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other 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 their
creditors, the Trustee (irrespective of whether the principal of 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,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims 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
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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 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 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 in any such proceeding.
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.
Any money collected by the Trustee pursuant to this article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (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 and each
predecessor 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: To the Company.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series 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
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(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities of that
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series 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;
(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 of that series;
it being understood and intended that no one or more of such 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 of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
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 Stated Maturity or Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, 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.
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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 herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities 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 any
acquiescence therein. Every right and remedy given by this article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Securities
of any series (or if more than one series is affected thereby, of all series so
affected, voting as a single class) 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, with respect
to the Securities of such series, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, expose the Trustee to personal liability or be unduly
prejudicial to holders not joining therein, 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 of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security of such series, or
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(2) in respect of a covenant or provision hereof which under this
article cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Securities of any series, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of (or premium,
if any) or interest on any Securities on or after the Stated Maturity or
Maturities expressed in such Security (or, in the case of redemption, on or
after the Redemption Date). This Section 514 shall be in lieu of Section 315(e)
of the Trust Indenture Act and such Section 315(e) is hereby expressly excluded
from this Indenture, as permitted by the Trust Indenture Act.
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 or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
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ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default with respect
to the Securities of any series,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture with respect to
such series, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(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.
(b) In case an Event of Default has occurred with respect to
Securities of any series and is continuing, the Trustee shall exercise such
of the rights and powers vested in it by this Indenture with respect to
such series of Securities, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(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 wilful misconduct, except that
(1) this subsection shall not be construed to limit the effect of
Subsection (a) of this section;
(2) the Trustee shall not be liable for any error or 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 of any series, determined as provided in
Section 512, 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 with
respect to the Securities of such series; and
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(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.
SECTION 602. Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with respect
to the Securities of any series, the Trustee shall transmit by mail to all
Holders of Securities of such series, as their names and addresses appear in the
Security Register, notice of such default hereunder known to the Trustee, unless
such default shall have been cured or waived; provided, however, that, except in
the case of a default in the payment of the principal of (or premium, if any) or
interest on any Security of such series or in the payment of any sinking fund
installment with respect to Securities of such series, 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 Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders of Securities of such series; and
provided, further, that in the case of any default of the character specified in
Section 501(4) with respect to Securities of such series, no such notice to
Holders shall be given until at least 30 days after the occurrence thereof. For
the purpose of this section, the term "default" means any event which is, or
after notice or lapse of time or both would become, an Event of Default with
respect to Securities of such series.
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 Board Resolution, resolution, Officers'
Certificate, certificate, statement, instrument, Opinion of Counsel,
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 mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any
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action hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an
Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, 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 hereunder or
perform any duties hereunder 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 hereunder.
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 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 612, may otherwise deal
with, and collect obligations owed to it by, the Company with the same rights it
would have if it were not Trustee, 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.
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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) except as otherwise expressly provided herein, to reimburse each
of the Trustee and any predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by it 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 own negligence or bad faith; and
(3) to indemnify each of the Trustee and any predecessor Trustee for,
and to hold it harmless against, any loss, liability or expense, arising
out of or in connection with the acceptance or administration of the trust
or trusts hereunder and the performance of its duties hereunder, 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, except to the extent any such loss, liability or expense
is due to its own negligence or bad faith.
To ensure the performance of the obligations of the Company under this
section, the Trustee shall have a senior claim to which the Securities are
hereby made subordinate upon all property and funds held or collected by the
Trustee as such, except property and funds held in trust for the payment of
principal of, premium, if any, or interest on particular Securities.
SECTION 608. Disqualification; Conflicting Interests.
The Trustee shall comply with the terms of Section 310(b) of the Trust
Indenture Act.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall 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 exercise corporate trust powers having (or, in the case of the
subsidiary of a bank holding company that guarantees the obligations of the
Trustee under this Indenture, such holding company's parent shall have) a
combined capital and
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surplus of at least $50,000,000 subject to supervision or examination by Federal
or State authority. If such corporation or holding company parent publishes
reports of condition at least annually, pursuant to law or the requirements of
said supervising or examining authority, then for the purposes of this section,
the combined capital and surplus of such corporation or holding company parent
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, it shall
resign immediately in the manner and with the effect hereinafter specified in
this article.
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 in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If
the instrument of acceptance by a successor Trustee required by Section 611
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 with respect to the Securities of such series. If the acceptance of
appointment is substantially contemporaneous with the resignation, then the
notice called for by the first sentence of this subsection may be combined
with the instrument called for by Section 611.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series 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 therefor 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 Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver 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 with respect to all Securities, 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,
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petition any court of competent jurisdiction for the removal of the Trustee with
respect to all Securities and the appointment of a successor Trustee or
Trustees.
(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, with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any such successor
Trustee may be appointed with respect to the Securities of one or more or all of
such series and that at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor appointed by the Company. If no successor Trustee with respect to the
Securities of any series shall have been so appointed by the Company or the
Holders and accepted appointment in the manner required by Section 611, any
Holder who has been a bona fide Holder of a Security of such series 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
with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to all
Holders of Securities of such series as their names and addresses appear in the
Security Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed 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 the 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.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each
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successor Trustee with respect to the Securities of one or more series shall
execute and deliver an indenture supplemental hereto wherein each successor
Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and to
vest in, each successor Trustee all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates, (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series as to which the retiring Trustee is not retiring shall continue
to be vested in the retiring Trustee, and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each 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 with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) 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 referred to in
paragraph (a) or (b) of this section, as the case may be.
(d) 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 administration of 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 any 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 deliver the Securities
so authenticated with the same effect as if such successor Trustee had itself
authenticated such Securities.
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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). A trustee who has resigned or been
removed shall be subject to the Trust Indenture Act Section 311(a) to the extent
provided therein.
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 with
respect to the Securities of each series
(a) semi-annually, not more than fifteen days after each Regular
Record Date, or, in the case of any series of Securities on which
semi-annual interest is not payable, not more than fifteen days after
such semi-annual dates as may be specified by the Trustee, 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 or such
semi-annual date, as the case may be, and
(b) 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, however, that so long as the Trustee is the Security Registrar, no
such list need be furnished.
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) If three or more Holders (herein referred to as "applicants")
apply in writing to the Trustee, and furnish to the Trustee reasonable
proof that each such applicant has owned a Security for a period of at
least six months preceding the date of such application, and such
application states that the applicants desire to communicate with
other Holders with respect to their rights under this Indenture or
under the Securities and is accompanied by a copy of the
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form of proxy or other communication which such applicants propose to
transmit, then the Trustee shall, within five Business Days after the
receipt of such application, at its election, either
(i) afford such applicants access to the information
preserved at the time by the Trustee in accordance with Section
702(a), or
(ii) inform such applicants as to the approximate number of
Holders whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with Section
702(a), and as to the approximate cost of mailing to such Holders
the form of proxy or other communication, if any, specified in
such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appear in the information preserved
at the time by the Trustee in accordance with Section 702(a) a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interest of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all the objections so sustained
have been met and shall enter an order so declaring, the Trustee shall mail
copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Securities, by receiving and holding the same, 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 the
disclosure of any such information as to the names and addresses of the Holders
in accordance with Section 702(b), regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 702(b).
(d) Subject to Sections 702(a), 702(b), 702(c) and 601, if the Company or
any other person (other than the Trustee) shall desire to communicate with
Holders of Securities to solicit or obtain from them any proxy, consent,
authorization, waiver, approval of a plan of reorganization, arrangement or
readjustment or other action ("Holder Action"), the Trustee shall have no duty
to participate in such communication or solicitation or the processing of
responses in any manner except (i) to furnish the rules and regulations and to
perform the functions referred to in Section 104 and (ii) to receive (A) the
instruments evidencing the Holder Action together with (B) the Officers'
Certificate and Opinion of Counsel referred to below. The Company
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hereby covenants that any and all communications and solicitations distributed
by it in connection with any Holder Action will comply in all material respects
with applicable law, including without limitation applicable law concerning
adequacy of disclosure. The Trustee shall have no responsibility for the
accuracy or completeness of any materials circulated to solicit any Holder
Action nor for any related communications nor for the compliance thereof with
applicable law. No Holder Action shall become effective until the Trustee shall
have received from the Company or other person who solicited the Holder Action
(1) the instruments evidencing such Holder Action and (2) (x) (in the case of
Holder Action solicited by the Company or the representative of the Company's
estate if the Company is the debtor in any bankruptcy or other insolvency
proceeding) an Officers' Certificate and (y) (in all cases) an Opinion of
Counsel, each specifying the Holder Action taken and stating that such Holder
Action has been duly and validly taken in compliance with this Indenture in all
material respects. Such Officers' Certificate, if any, shall also certify that
(after giving effect to such Holder Action) no Event of Default or event or
condition which, with notice or lapse of time or both, would become an Event of
Default has occurred and is continuing or has not been waived.
(e) The Depositary may grant proxies and otherwise authorize its
participants which own the Global Securities to give or take any Act which a
Holder is entitled to take under this Indenture; provided, however, that the
Depositary has delivered a list of such participants to the Trustee.
SECTION 703. Reports by Trustee.
(a) Within 60 days after [ ] of each year commencing with the first [ ]
following the date of this Indenture, the Trustee shall transmit by mail to all
Holders, as their names and addresses appear in the Security Register, a brief
report dated as of such [ ], to the extent required by Section 313(a) of the
Trust Indenture Act.
(b) The Trustee shall comply with Sections 313(b) and 313(c) of the Trust
Indenture Act.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with the Commission and with the Company. The
Company will notify the Trustee when any Securities are listed on any stock
exchange.
SECTION 704. Reports by Company.
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
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information, documents or reports pursuant to either of said sections, then
it shall file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and
regulations; and
(2) file with the Trustee and the Commission, in accordance with the
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations.
ARTICLE EIGHT
SUCCESSOR CORPORATION
SECTION 801. When Company May Merge or Transfer Assets.
The Company shall not consolidate or amalgamate with or merge with or into
any other person (other than a Subsidiary) or convey, transfer, sell or lease
its properties and assets substantially as an entirety to any person (other than
a Subsidiary), permit any person (other than a Subsidiary) to consolidate with
or merge into the Company, or permit any person (other than a Subsidiary) to
convey, transfer, sell or lease that person's properties and assets
substantially as an entirety to the Company, unless:
(1) either (a) the Company shall be the surviving person or (b) the
person (if other than the Company) formed by such consolidation or into
which the Company is merged or the person which acquires by conveyance,
transfer or lease the properties and assets of the Company substantially as
an entirety shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form reasonably satisfactory to
the Trustee, all of the obligations of the Company under the Securities and
this Indenture;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event that, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing; and
(3) the Company shall have delivered to the Trustee an Officers'
Certificate 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, comply with this
Section 801 and that all conditions precedent herein provided for relating
to such transaction have been satisfied.
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The successor person formed by such consolidation or into which the Company
is merged or the successor person 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 had been named as the Company herein; and thereafter, the Company
shall be discharged from all obligations and covenants under this Indenture and
the Securities. Subject to Section 903, the Company, the Trustee and the
successor person shall enter into a supplemental indenture to evidence the
succession and substitution of such successor person and such discharge and
release of the Company.
ARTICLE NINE
AMENDMENTS & SUPPLEMENTAL INDENTURES
SECTION 901. Amendments or Supplemental Indentures without Consent of Holders.
The Company, when authorized by a Board Resolution, and the Trustee, at any
time and from time to time, may amend or supplement this Indenture or the
Securities without the consent of any Holder, so long as such changes, other
than those in clause (2), do not materially and adversely affect the interests
of the Holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to make any modifications or amendments that do not, in the good
faith opinion of the Company's Board of Directors and the Trustee,
adversely affect the interests of the Holders in any material respect;
(3) to provide for the assumption of the Company's obligations under
this Indenture by a successor upon any merger, consolidation or asset
transfer as permitted by and in compliance with Article Eight of this
Indenture;
(4) to provide any security for or additional guarantees of the
Securities;
(5) to add Events of Default with respect to the Securities; or
(6) to add to the Company's covenants for the benefit of the Holders
or to surrender any right or power conferred upon the Company by this
Indenture;
(7) to make any change necessary for the registration of the
Securities under the Securities Act or to comply with the TIA, or any
amendment thereto, or to comply with any requirement of the SEC in
connection with the qualification of the Indenture under the TIA, provided
that such modification or amendment does not, in the good faith opinion of
the Company's Board of Directors and the Trustee, adversely affect the
interests of the Holders of the Securities in any material respect; or
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(8) to provide for uncertificated Securities in addition to or in
place of Certificated Securities or to provide for bearer Securities; or
(9) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons; or
(10) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only
when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit
of such provision; or
(11) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(12) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one Trustee, pursuant to the requirements
of Section 611(b).
SECTION 902. Amendments or Supplemental Indentures with Consent of Holders.
With the written consent of the Holders of not less than a majority in
aggregate principal amount of the Securities at the time Outstanding, the
Company, when authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may amend or supplement this Indenture or the Securities.
However, without the consent of each Holder affected, an amendment to this
Indenture or the Securities may not:
(1) change the Stated Maturity of the principal of or any installment
of interest with respect to the Securities;
(2) reduce the principal amount of, or the rate of interest on, the
Securities;
(3) change the currency of payment of principal of or interest on the
Securities;
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to the Securities;
(5) reduce the above-stated percentage of Holders of the Securities of
any series necessary to modify or amend this Indenture;
(6) modify the foregoing requirements or reduce the percentage of
Outstanding Securities necessary to waive any covenant or past default; and
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(7) if the Securities are convertible, adversely affect the right to
convert the Securities into Common Shares in accordance with the provisions
of this Indenture.
It shall not be necessary for any Act of the Holders under this Section 902
to approve the particular form of any proposed amendment or supplemental
indenture, but it shall be sufficient if such Act approves the substance
thereof.
After an amendment or supplemental indenture under this Section 902 becomes
effective, the Company shall mail to each Holder a notice briefly describing the
amendment or supplemental indenture.
An amendment or supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.
SECTION 903. Execution of Supplemental Indentures.
The Trustee shall sign any supplemental indenture authorized pursuant to
this article if the amendment contained therein does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign such supplemental indenture. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
601) shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore 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 shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform,
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in the opinion of the Trustee and 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 of such series.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of
Securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of the Securities and this Indenture. At the option of the Company,
payment of principal (and premium, if any) and interest may be made by wire
transfer or (subject to collection) by check mailed to the address of the Person
entitled thereto at such address as shall appear in the Security Register.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series of
Securities an office or agency where Securities of that series may be presented
or surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities of that series and
this Indenture may be served. The Company hereby initially appoints the Trustee
its office or agency for each of said purposes. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of 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, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more
other offices or agencies where the Securities of one or more series may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in each Place of Payment for Securities of any series for
such purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
SECTION 1003. Money for Securities; Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of that
series, segregate and hold in trust for the benefit of the
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Persons entitled thereto a sum sufficient to pay the principal (and 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 will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, on or prior to each due date of the principal of (and
premium, if any) or interest on any Securities of that series, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of its action
or failure so to act.
The Company will cause each Paying Agent for any series of Securities 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 on the principal of (and
premium, if any) or interest on Securities of that series in trust 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 of that series) in the making of any
payment of principal (and premium, if any) or interest on the Securities of
that series; 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 in trust by such Paying Agent.
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 (and premium, if any)
or interest on any Security of any series and remaining unclaimed for two years
after such principal (and 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, how-
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ever, that the Trustee or such Paying Agent, before being required to make any
such repayment, may at the expense of the Company cause to be mailed or
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the City, County
and State of New York, or both, 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 mailing or publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
The Company shall have no obligation to make payment of principal of (or
premium, if any) or interest on any Security in immediately available funds,
except that if the Company shall have received original payment for Securities
in immediately available funds it shall make available immediately available
funds for payment of the principal of such Securities.
SECTION 1004. Corporate 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 its corporate
existence, rights (charter and statutory) and franchises; provided, however,
that the Company shall not be required to preserve any such right or franchise
if the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Maintenance of Properties.
The Company will use its reasonable efforts to cause all material
properties used or useful in the conduct of its business to be maintained and
kept in good condition, repair and working order (subject to wear and tear) and
supplied with all necessary material equipment and will use its reasonable
efforts to cause to be made all necessary material repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this 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 and not disadvantageous in any material respect to the Holders.
SECTION 1006. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, a certificate of
the principal executive officer, principal financial officer or principal
accounting officer of the Company stating whether or not to the best knowledge
of the signers thereof the Company is in default in the performance and
observance of any of the terms, provisions and conditions of this Indenture, and
if the Company shall be in default, specifying all such defaults and the nature
and status thereof of which they may have knowledge.
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SECTION 1007. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Section 1006 if before or after the time for
such compliance the Holders of at least a majority in principal amount of the
Outstanding Securities (taken together as one class) shall, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such term, provision 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 term,
provision or condition shall remain in full force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for Securities of any series) in
accordance with this article.
SECTION 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
less than all the Securities of any series, the Company shall, at least 45 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 of such series to be redeemed, such notice
to be accompanied by a written statement signed by an authorized officer of the
Company stating that no defaults in the payment of interest or Events of Default
with respect to the Securities of that series have occurred (which have not been
waived or cured). In the case of any redemption of Securities prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture, the Company shall furnish the Trustee
an Officers' Certificate evidencing compliance with such restriction.
SECTION 1103. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
in its sole discretion shall deem fair and appropriate and which may provide for
the selection or redemption of portions (equal to the minimum authorized
denomination for Securities of that series or any integral multiple thereof) of
the principal amount of Secu-
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rities of such series of a denomination larger than the minimum authorized
denomination for Securities of that series.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any 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 1104. 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 his address appearing in the
Security Register. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not such
Holder receives the notice. Failure to give notice by mail, or any defect in the
notice to any such Holder in respect of any Security, shall not affect the
validity of the proceedings for the redemption of any other Security.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and any accrued interest,
(3) if less than all the Outstanding Securities of any series are to
be redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price and any accrued
interest will become due and payable upon each such Security to be redeemed
together with accrued interest thereon and, if applicable, that interest
thereon will cease to accrue on and after said date,
(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and any accrued interest,
(6) that the redemption is for a sinking fund, if such is the case,
and
(7) the CUSIP number and, if applicable, the ISIN number, of the
Securities being redeemed.
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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.
SECTION 1105. 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, in funds immediately available on the due 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.
SECTION 1106. 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 together with accrued interest thereon, and
from and after such date (unless the Company shall default in the payment of the
Redemption Price and 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, however, that
installments of interest whose Stated Maturity is on 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 (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security.
The Trustee shall not redeem any Securities of any series pursuant to this
article (unless all Outstanding Securities of such series are to be redeemed) or
mail or give any notice of redemption of Securities during the continuance of an
Event of Default hereunder known to the Trustee with respect to such series,
except that, where the mailing of notice of redemption of any Securities shall
theretofore have been made, the Trustee shall redeem or cause to be redeemed
such Securities, provided that it shall have received from the Company a sum
sufficient for such redemption. Except as aforesaid, any moneys theretofore or
thereafter received by the Trustee shall, during the continuance of such Event
of Default, be deemed to have been collected under Article Five and held for the
payment of all such Securities of such series. In case such Event of Default
shall have been waived as provided in Section 513 or the default cured on or
before the sixtieth day preceding the Redemption Date, such moneys shall
thereafter be applied in accordance with the provisions of this article.
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SECTION 1107. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (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 the same series, 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.
ARTICLE TWELVE
SINKING FUNDS
SECTION 1201. Applicability of Article.
The provisions of this article shall be applicable to any sinking fund for
the retirement of Securities of a series except as otherwise specified as
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment." If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 1202. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such
series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series (other than
any previously called for redemption) and (2) may apply as credit Securities of
a series which have been redeemed either at the election of the Company pursuant
to the terms of such Securities or through the application of permitted optional
sinking fund payments pursuant to the terms of such Securities, in each case in
satisfaction of all or any part of any sinking fund payment with respect to the
Securities of such series required to be made pursuant to the terms of such
Securities as provided for by the terms of such series; provided that such
Securities have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
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SECTION 1203. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company (1) will deliver to the Trustee an Officers'
Certificate (A) stating that no defaults in the payment of interest or Events of
Default with respect to Securities of that series have occurred (which have not
been waived or cured), (B) specifying the amount of the next ensuing sinking
fund payment for that series pursuant to the terms of Securities of that series,
(C) stating whether or not the Company intends to exercise its right, if any, to
make an optional sinking fund payment with respect to such series on the next
ensuing sinking fund payment date and, if so, specifying the amount of such
optional sinking fund payment and (D) specifying the portion of such sinking
fund payment, if any, which is to be satisfied by payment of cash and the
portion thereof, if any, which is to be satisfied by delivering and crediting
Securities of that series pursuant to Section 1202 and (2) will also deliver to
the Trustee any Securities to be so delivered. Not less than 30 days before each
such sinking fund payment date the Trustee shall select the Securities of such
series to be redeemed upon such sinking fund payment date in the manner
specified in Section 1103 and cause notice of the redemption thereof to be given
in the name of and at the expense of the Company in the manner provided in
Section 1104. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
1105, 1106 and 1107. Failure of the Company, on or before any such 60th day, to
deliver such Officers' Certificate and Securities specified in this section, if
any, shall not constitute a default but shall constitute, on and as of such
date, the irrevocable election of the Company (a) that the mandatory sinking
fund payment for such series due on the next succeeding sinking fund payment
date shall be paid entirely in cash without the option to deliver or credit
Securities of such series in respect thereof and (b) that the Company will make
no optional sinking fund payment with respect to Securities of such series as
provided in this article.
The Trustee shall not redeem or cause to be redeemed any Security of a
series with sinking fund moneys or mail any notice of redemption of Securities
of such series by operation of the sinking fund during the continuance of a
default in payment of interest on such Securities or of any Event of Default
with respect to such series except that, where the mailing of notice of
redemption of any Securities shall theretofore have been made, the Trustee shall
redeem or cause to be redeemed such Securities, provided that it shall have
received from the Company a sum sufficient for such redemption. Except as
aforesaid, any moneys in the sinking fund for such series at the time when any
such default or Event of Default shall occur, and any moneys thereafter paid
into the sinking fund, shall, during the continuance of such default or Event of
Default, be deemed to have been collected under Article Five and held for the
payment of all such Securities of such series. In case such Event of Default
shall have been waived as provided in Section 513 or the default cured on or
before the 60th day preceding the sinking fund payment date, such moneys shall
thereafter be applied on the next succeeding sinking fund payment date in
accordance with this section to the redemption of such 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.
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ARTICLE THIRTEEN
SUBORDINATION
SECTION 1301. Agreement to Subordinate.
(a) The Company covenants and agrees, and each Holder of Securities issued
hereunder by such Holder's acceptance thereof likewise covenants and agrees,
that (except as otherwise specified as contemplated by Section 301 for
Securities of any series) all Securities shall be issued subject to the
provisions of this article; and each Holder of a Security, whether upon original
issue or upon transfer or assignment thereof, accepts and agrees to be bound by
such provisions.
(b) The payment by the Company of the principal of, and interest on, the
Securities issued hereunder shall, to the extent and in the manner hereinafter
set forth, be subordinated and junior in right of payment to the prior payment
in full of all Senior Indebtedness of the Company, whether outstanding at the
date of this Indenture or thereafter incurred.
(c) No provision of this article shall prevent the occurrence of any
default or Event of Default hereunder.
SECTION 1302. Default on Senior Indebtedness.
(a) No direct or indirect payment by or on behalf of the Company of
principal of, premium, if any, or interest on the Securities, whether pursuant
to the terms of the Securities or upon acceleration, by way of repurchase,
redemption, defeasance or otherwise, will be made if, at the time of such
payment, there exists a default in the payment when due of all or any portion of
the obligations under or in respect of any Senior Indebtedness, whether at
maturity, on account of mandatory redemption or prepayment, acceleration or
otherwise, and such default shall not have been cured or waived or the benefits
of this sentence waived by or on of the holders of Senior Indebtedness.
(b) In addition, during the continuance of any non-payment default or
non-payment event of default with respect to any Senior Indebtedness pursuant to
which the maturity thereof may be accelerated, and upon receipt by the Trustee
of written notice (a "Payment Blockage Notice") from a holder or holders of such
Senior Indebtedness or the trustee or agent acting on behalf of such Senior
Indebtedness, then, unless and until such default or event of default has been
cured or waived or has ceased to exist or such Senior Indebtedness has been
discharged or repaid in full in cash, or the requisite holders of such Senior
Indebtedness have otherwise agreed in writing, no payment of any kind or
character with respect to any principal of or interest on or distribution will
be made by or on behalf of the Company on account of or with respect to the
Securities, during a period (a "Payment Blockage Period") commencing on the date
of receipt of such Payment Blockage Notice by the Trustee and ending 179 days
thereafter.
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Notwithstanding anything herein to the contrary, (x) in no event will a
Payment Blockage Period extend beyond 179 days from the date the Payment
Blockage Notice in respect thereof was given and (y) there must be 180 days in
any 360-day period during which no Payment Blockage Period is in effect. Not
more than one Payment Blockage Period may be commenced with respect to the
Securities during any period of 360 consecutive days. No default or event of
default that existed or was continuing on the date of commencement of any
Payment Blockage Period with respect to the Senior Indebtedness initiating such
Payment Blockage Period may be, or be made, the basis for the commencement of
any other Payment Blockage Period by the holder or holders of such Senior
Indebtedness or the trustee or agent acting on behalf of such Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default has been cured or waived for a period of not
less than 90 consecutive days.
(c) In the event that, notwithstanding the foregoing, any payment shall be
received by the Trustee when such payment is prohibited by the preceding
paragraph of this section, such payment shall be held in trust for the benefit
of, and shall be paid over or delivered to, the holders of Senior Indebtedness
or their respective representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated by
the Company, to the extent necessary to pay such Senior Indebtedness in full, in
cash, after giving effect to any concurrent payment or distribution to or for
the benefit of the holders of such Senior Indebtedness, before any payment or
distribution is made to the Holders or to the Trustee.
SECTION 1303. Liquidation; Dissolution; Bankruptcy.
(a) Upon any distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any total
or partial dissolution, winding-up, liquidation or reorganization of the
Company, whether voluntary or involuntary, assignment for the benefit of
creditors or marshalling of the Company's assets, or in bankruptcy, insolvency,
receivership or other similar proceedings, whether voluntary or involuntary, all
principal, premium, if any, and interest due or to become due to all Senior
Indebtedness of the Company shall first be paid in full in cash, or such payment
duly provided for to the satisfaction of the holders of the Senior Indebtedness,
before the Holders are entitled to receive or retain any payment; and upon any
such dissolution or winding-up or liquidation or reorganization, any payment by
the Company, or distribution of assets of the Company of any kind or character
whether in cash, property or securities, which the Holders or the Trustee would
be entitled to receive from the Company, except for the provisions of this
article, shall be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
or by the Holders or by the Trustee under this Indenture if received by them or
it, directly to the holders of Senior Indebtedness of the Company or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any instruments evidencing such Senior Indebtedness may have
been issued, as their respective interests may appear, as calculated by the
Company, to the extent necessary to pay such Senior Indebtedness in full in
cash, or such payment duly provided for to the satisfaction of the holders of
the Senior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of
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such Senior Indebtedness, before any payment or distribution is made to the
Holders or to the Trustee.
(b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness of the Company is paid in full, or
provision is made for such payment in money in accordance with its terms, such
payment or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of such Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any instruments evidencing such Senior Indebtedness may have
been issued, as their respective interests may appear, as calculated by the
Company, to the extent necessary to pay such Senior Indebtedness in full, in
cash, after giving effect to any concurrent payment or distribution to or for
the benefit of the holders of such Senior Indebtedness, before any payment or
distribution is made to the Holders or to the Trustee.
(c) For purposes of this article, the words "cash, property or securities"
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, the payment of which is
subordinated at least to the extent provided in this article with respect to the
Securities to the payment of all Senior Indebtedness of the Company that may at
the time be outstanding; provided, however, that (i) such Senior Indebtedness is
assumed by the new corporation, if any, resulting from any such reorganization
or readjustment, and (ii) the rights of the holders of such Senior Indebtedness
are not, without the consent of such holders, altered by such reorganization or
readjustment. The amalgamation or consolidation of the Company with, or the
merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its
properties or assets substantially as an entirety, to another corporation upon
the terms and conditions provided for in Article Eight of this Indenture shall
not be deemed a dissolution, winding-up, liquidation or reorganization for the
purposes of this Section 1303 if such other corporation shall, as part of such
consolidation, merger, conveyance or transfer, comply with the conditions stated
in Article Eight of this Indenture. Nothing in Section 1302 or in this section
shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 607 of this Indenture.
(d) If the Trustee or any Holder of Securities does not file a proper claim
or proof of debt in the form required in any proceeding referred to above prior
to 30 days before the expiration of the time to file such claim in such
proceeding, then the holder of any Senior Indebtedness is hereby authorized, and
has the right, to file an appropriate claim or claims for or on behalf of such
Holder of Securities.
SECTION 1304. Subrogation.
(a) Subject to the payment in full of all Senior Indebtedness of the
Company then outstanding, the rights of the Holders shall be subrogated to the
rights of the holders of such Senior Indebtedness to receive payments or
distributions of cash, property or securities of the
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Company applicable to such Senior Indebtedness until the principal of and
interest on the Securities shall be paid in full; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the Holders or the
Trustee would be entitled except for the provisions of this article, and no
payment over pursuant to the provisions of this article to or for the benefit of
the holders of such Senior Indebtedness by Holders or the Trustee, shall, as
between the Company, its creditors other than holders of Senior Indebtedness of
the Company, and the Holders, be deemed to be a payment by the Company to or on
account of such Senior Indebtedness. It is understood that the provisions of
this article are and are intended solely for the purposes of defining the
relative rights of the Holders, on the one hand, and the holders of such Senior
Indebtedness, on the other hand.
(b) Nothing contained in this article or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness of the Company, and the
Holders, the obligation of the Company, which is absolute and unconditional, to
pay to the Holders the principal of and interest on the Securities as and when
the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holders and creditors of
the Company other than the holders of Senior Indebtedness of the Company nor
shall anything herein or therein prevent the Trustee or any Holder of Securities
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 such Senior Indebtedness in respect of cash, property or securities
of the Company received upon the exercise of any such remedy.
(c) Upon any payment or distribution of assets of the Company referred to
in this article, the Trustee, subject to the provisions of Section 601 of this
Indenture, and the Holders shall be entitled to rely conclusively upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent
or other Person making such payment or distribution, delivered to the Trustee or
the Holders, for the purposes of ascertaining the Persons entitled to
participate in such distribution, the holders of 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 1305. Trustee to Effectuate Subordination.
Each Holder of Securities by such Holder's acceptance thereof authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
article and appoints the Trustee such Holder's attorney-in-fact for any and all
such purposes.
SECTION 1306. Notice by the Company.
(a) The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of
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monies to or by the Trustee in respect of the Securities pursuant to the
provisions of this article. 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 that would prohibit the making of any
payment of monies to or by the Trustee in respect of the Securities pursuant to
the provisions of this article, unless and until a Responsible Officer of the
Trustee shall have received written notice thereof from the Company or a Holder
or holders of Senior Indebtedness or from any representative or trustee
therefor; and before the receipt of any such written notice, the Trustee,
subject to the provisions of Section 601 of this Indenture, shall be entitled in
all respects to assume that no such facts exist; provided, however, 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 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 purposes for which such money
was received, and shall not be affected by any notice to the contrary that may
be received by it within two Business Days prior to such date.
(b) The Trustee, subject to the provisions of Section 601 of this
Indenture, shall be entitled to conclusively rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness of the Company (or a trustee or representative on behalf of such
holder), to establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder or
holders. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of such
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 such 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 1307. Rights of the Trustee; Holders of Senior Indebtedness.
(a) The Trustee in its individual capacity shall be entitled to all the
rights set forth in this article in respect of any Senior Indebtedness at any
time 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.
(b) With respect to the holders of Senior Indebtedness of the Company, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this article and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Section 601 of this Indenture, the Trustee shall
not be liable to any holder of such Senior Indebtedness if it shall pay over or
deliver to Holders, the Company or
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any other Person money or assets to which any holder of such Senior Indebtedness
shall be entitled by virtue of this article or otherwise.
SECTION 1308. Subordination May Not Be Impaired.
(a) No right of any present or future holder of any Senior Indebtedness of
the Company 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, or
by any noncompliance by the Company with the terms, provisions and covenants of
this Indenture, regardless of any knowledge thereof that any such holder may
have or otherwise be charged with.
(b) Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness of the Company may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this article or the obligations hereunder of the
Holders to the holders of such Senior Indebtedness, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend
or supplement in any manner such Senior Indebtedness or any instrument
evidencing the same or any agreement under which such Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release
any Person liable in any manner for the collection of such Senior Indebtedness;
and (iv) exercise or refrain from exercising or waive any rights against the
Company and any other Person.
(c) Each present and future holder of Senior Indebtedness shall be entitled
to the benefit of the provisions of this article notwithstanding that such
holder is not a party to this Indenture.
SECTION 1309. 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, however, that this
section shall not apply to the Company or any Affiliate of the Company if it or
such Affiliate acts as Paying Agent.
SECTION 1310. Defeasance of This Article.
Notwithstanding anything contained herein to the contrary, payments from
cash or the proceeds of United States Government Obligations held in trust under
Article Four hereof by the Trustee (or other qualifying trustee) and which were
deposited in accordance with the terms of Article Four hereof and not in
violation of Section 1302 hereof for the payment of prin-
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cipal of and interest on the Securities shall not be subordinated to the prior
payment of any Senior Indebtedness or subject to the restrictions set forth in
this article, and none of the Holders shall be obligated to pay over any such
amount to the Company or any holder of Senior Indebtedness or any other creditor
of the Company.
SECTION 1311. Subordination Language to Be Included in Securities.
Each Security shall contain a subordination provision which will be
substantially in the following form:
"The Securities are subordinated in right of payment, in the manner and to
the extent set forth in the Indenture, to the prior payment in full of all
Senior Indebtedness (as defined in the Indenture, or as set forth in one or more
indentures supplemental hereto, a Board Resolution in accordance with Section
301 of the Indenture or in this Security). Each Holder by accepting a Security
agrees to such subordination and authorizes the Trustee to give it effect."
S-1
IN WITNESS WHEREOF, GLOBAL SOURCES LTD. has caused this Indenture to be
duly executed as a deed the day and year first before written.
GLOBAL SOURCES LTD.
By:
-----------------------------------
Name:
Title:
S-2
IN WITNESS WHEREOF, the undersigned, being duly authorized, has executed
this Indenture as of the date first above written.
[NAME OF TRUSTEE]
By:
-----------------------------------
Name:
Title:
Exhibit 5.1
[Letterhead of Appleby Spurling Hunter]
e-mail
aerskine@applebyglobal.com
Global Sources Ltd
Canon's Court direct dial
22 Victoria Street Tel 298 3545
Hamilton HM 12 Fax 298 3425
Bermuda
Your ref:
appleby Ref:
AE/ag
Dear Sirs 12 April 2004
GLOBAL SOURCES LTD. (THE "COMPANY")
We have acted as special legal counsel in Bermuda to the Company in connection
with the filing by the Company with the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act") of a Registration Statement on Form F-3 to which this is an
exhibit (the "Registration Statement") in relation to the shelf registration of
(i) common shares of the Company ("Common Shares"), (ii) preference shares of
the Company ("Preference Shares"), (iii) unsecured senior debt securities
("Senior Debt Securities") to be issued pursuant to a senior debts securities
indenture (the "Senior Indenture") between the Company and a trustee to be
named, a form of which is attached to the Registration Statement, (iv)
subordinated debt securities ("Subordinated Debt Securities") to be issued
pursuant to a subordinated debt securities indenture (the "Subordinated
Indenture") between the Company and a trustee to be named, a form of which is
attached to the Registration Statement, (v) warrants to purchase Common Shares
and Preference Shares ("Shares Warrants") to be issued pursuant to a share
warrant agreement (the "Share Warrant Agreement"), (vi) warrants to purchase
Senior Debt Securities ("Debt Warrants"), to be issued pursuant to a debt
warrant agreement ("the Debt Warrant Agreement"), (vii) share purchase contracts
to purchase Common Shares ("Contracts") to be issued pursuant to a Share
Purchase Contract Agreement (the "Share Purchase Contract Agreement"), (viii)
share purchase units, each representing ownership of a Contract and as security
for the holder's obligation to purchase Common Shares and a Contract, any debt
obligations of third parties, including U.S. Treasury securities ("Units") (the
securities referred to in items (i) through (viii) above are herein sometimes
collectively referred to as the "Securities"), covering proceeds of sales of
Securities up to an aggregate of $300,000,000 which may be sold by Selling
Shareholders from time to time to purchasers including underwriters. The
12 April 2004
Securities may be issued from time to time by the Company from time to time by
the Company after the Registration Statement to which this opinion is an
exhibit, becomes effective.
For the purposes of giving this opinion, we have examined the following
documents:
(i) an electronic copy of the original Registration Statement on Forms F-3 with
respect to the Securities excluding Exhibits and the documents incorporated
by reference;
(ii) an electronic copy of a draft form of the Senior Indenture; and
(iii) an electronic copy of a draft form of the Subordinated Indenture.
The documents listed in items (i) through (iii) above are herein sometimes
collectively referred to as the "Documents" and the documents listed in items
(ii) and (iii) above are herein sometimes collectively referred to as to the
"Subject Documents" (which terms do not include any other instrument or
agreement whether or not specifically referred to therein or attached as an
exhibit or schedule thereto).
We have also reviewed the memorandum of association and the bye-laws of the
Company (the "Constitutional Documents").
Unless otherwise defined therein, capitalised terms have the meanings assigned
to them in the REGISTRATION STATEMENT.
ASSUMPTIONS
In stating our opinion we have assumed:
Page 2
12 April 2004
(a) the authenticity, accuracy and completeness of all Documents and other
documentation examined by us submitted to us as originals and the
conformity to authentic original documents of all Documents and such other
documentation submitted to us as certified, conformed, notarised or
photostatic copies;
(b) that each of the Documents and other such documentation which was received
by electronic means is complete, intact and in conformity with the
transmission as sent;
(c) the genuineness of all signatures on the Documents;
(d) the authority, capacity and power of each of the persons signing the
Documents (other than the Company in respect of the Subject Documents);
(e) that any representation, warranty or statement of fact or law, other than
as to the laws of Bermuda, made in any of the Documents is true, accurate
and complete;
(f) that the Subject Documents when executed, will constitute the legal, valid
and binding obligations of each of the parties thereto, other than the
Company, under the laws of its jurisdiction of incorporation or its
jurisdiction of formation;
(g) that the Subject Documents, when executed, will have been validly
authorised, executed and delivered by each of the parties thereto, other
than the Company, and the performance thereof is within the capacity and
powers of each such party thereto, and that each such party to which the
Company purportedly delivered the Subject Documents has actually received
and accepted delivery of such Subject Documents;
(h) that the Subject Documents will effect, and will constitute legal, valid
and binding obligations of each of the parties thereto, enforceable in
accordance with their
Page 3
12 April 2004
terms, under the laws of the State of New York by which they are expressed
to be governed;
(i) that the Subject Documents are in the proper legal form to be admissible in
evidence and enforced in the courts of the State of New York and in
accordance with the laws of the State of New York;
(j) that there are no provisions of the laws or regulations of any jurisdiction
other than Bermuda which would be contravened by the execution or delivery
of the Subject Documents or which would have any implication in relation to
the opinion expressed herein and that, in so far as any obligation under,
or action to be taken under, the Subject Documents is required to be
performed or taken in any jurisdiction outside Bermuda, the performance of
such obligation or the taking of such action will constitute a valid and
binding obligation of each of the parties thereto under the laws of that
jurisdiction and will not be illegal by virtue of the laws of that
jurisdiction;
(k) that the Company is not carrying on deposit-taking business in or from
within Bermuda under the provisions of the Banks and Deposit Companies Act
1999 as amended from time to time;
(l) that the Company Search was complete and accurate at the time of such
search and disclosed all information which is material for the purposes of
this opinion and such information has not since the date of the Company
Search been materially altered;
(m) that the Litigation Search was complete and accurate at the time of such
search and disclosed all information which is material for the purposes of
this opinion and such information has not since the date of the Litigation
Search been materially altered;
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12 April 2004
(n) that the Resolutions are in full force and effect and have not been
rescinded, either in whole or in part, accurately record the resolutions
passed by the Board of Directors of the Company adopted as unanimous
written resolutions of the Board of Directors of the Company, and that
there is no matter affecting the authority of the Directors to effect entry
by the Company into the Subject Documents, not disclosed by the
Constitutional Documents or the Resolutions, which would have any adverse
implication in relation to the opinions expressed herein;
(o) that when the Company enters into its obligations under the Subject
Documents it will do so in good faith for the purpose of carrying on its
business and that when it does so there will be reasonable grounds for
believing that the transactions contemplated by the Subject Documents would
benefit the Company;
(p) that each transaction to be entered into pursuant to the Subject Documents
is entered into in good faith and for full value and will not have the
effect of preferring one creditor over another;
(q) that the drafts of the Subject Documents which we have examined for the
purposes of this opinion do not differ in any material respect from those
drafts approved by the Board of Directors pursuant to the Resolutions, and
that, when executed and delivered, the Subject Documents will be in a form
which does not differ in any material respect from the drafts which we have
examined for the purposes of this opinion.
OPINION
Based upon and subject to the foregoing and subject to the reservations set out
below and to any matters not disclosed to us, we are of the opinion that:
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12 April 2004
(1) The Company is an exempted company incorporated with limited liability and
existing under the laws of Bermuda. The Company possesses the capacity to
sue and be sued in its own name and is in good standing under the laws of
Bermuda.
(2) Any Common Shares and any Preference Shares, when issued, as described in
the prospectus that forms part of the Registration Statement, provided that
such issue is made subject to and in accordance with the Constitutional
Documents of the Company and in accordance with Bermuda law, will be
validly issued, fully paid and non-assessable.
(3) The Senior Debt Securities and Subordinated Debt Securities, when issued as
described in accordance with the terms of the applicable Subject Documents,
will constitute the valid and binding obligations of the Company in
accordance with the terms thereof.
(4) Upon the due issuance of the Share Warrants, Debt Warrants, Contracts and
Units and the payment of the consideration thereof, such Securities will
constitute the valid and binding obligations of the Company in accordance
with the terms thereof.
(5) Based solely upon the Company Search and the Litigation Search:
(i) no litigation, administrative or other proceeding of or before any
governmental authority of Bermuda is pending against or affecting the
Company; and
(ii) no notice to the Registrar of Companies of the passing of a resolution
of members or creditors to wind up or the appointment of a liquidator
or receiver has been given. No petition to wind up the Company or
application to reorganise its affairs pursuant to a Scheme of
Arrangement or application for the appointment of a receiver has been
filed with the Supreme Court.
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12 April 2004
(6) A final and conclusive judgment of a foreign court against the Company
based upon the Subject Documents (other than a court of jurisdiction to
which The Judgments (Reciprocal Enforcement) Act 1958 applies, and it does
not apply to the courts of the State of New York) under which a sum of
money is payable (not being a sum payable in respect of taxes or other
charges of a like nature, in respect of a fine or other penalty, or in
respect of multiple damages as defined in The Protection of Trading
Interests Act 1981) may be the subject of enforcement proceedings in the
Supreme Court of Bermuda under the common law doctrine of obligation by
action on the debt evidenced by the foreign court's judgment. A final
opinion as to the availability of this remedy should be sought when the
facts surrounding the foreign court's judgment are known, but, on general
principles, we would expect such proceedings to be successful provided
that:
(i) the court which gave the judgment was competent to hear the action in
accordance with private international law principles as applied in
Bermuda; and
(ii) the judgment is not contrary to public policy in Bermuda, has not been
obtained by fraud or in proceedings contrary to natural justice and is
not based on an error in Bermuda law.
Enforcement of such a judgment against assets in Bermuda may involve the
conversion of the judgment debt into Bermuda dollars, but the Bermuda
Monetary Authority has indicated that its present policy is to give the
consents necessary to enable recovery in the currency of the obligation.
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12 April 2004
RESERVATIONS
We have the following reservations:
(a) The term "enforceable" as used in this opinion means that there is a
way of ensuring that each party performs an agreement or that there
are remedies available for breach.
(b) We express no opinion as to the availability of equitable remedies
such as specific performance or injunctive relief, or as to any
matters which are within the discretion of the courts of Bermuda in
respect of any obligations of the Company as set out in the Subject
Documents. In particular, we express no opinion as to the
enforceability of any present or future waiver of any provision of law
(whether substantive or procedural) or of any right or remedy which
might otherwise be available presently or in the future under the
Subject Documents.
(c) Enforcement of the obligations of the Company under the Subject
Documents may be limited or affected by applicable laws from time to
time in effect relating to bankruptcy, insolvency or liquidation or
any other laws or other legal procedures affecting generally the
enforcement of creditors' rights.
(d) Enforcement of the obligations of the Company may be the subject of a
statutory limitation of the time within which such proceedings may be
brought.
(e) Any agreement under the terms of the Subject Documents that the
Company will not exercise its statutory powers, may constitute an
unlawful fetter on the statutory powers of the Company. These powers
are powers which are reserved for exercise by the Shareholders of the
Company.
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12 April 2004
(f) We express no opinion as to any law other than Bermuda law and none of
the opinions expressed herein relates to compliance with or matters
governed by the laws of any jurisdiction except Bermuda. This opinion
is limited to Bermuda law as applied by the Courts of Bermuda at the
date hereof.
(g) Where an obligation is to be performed in a jurisdiction other than
Bermuda, the courts of Bermuda may refuse to enforce it to the extent
that such performance would be illegal under the laws of, or contrary
to public policy of, such other jurisdiction.
(h) We express no opinion as to the validity, binding effect or
enforceability of any provision incorporated into any of the Subject
Documents by reference to a law other than that of Bermuda, or as to
the availability in Bermuda of remedies which are available in other
jurisdictions.
(i) A receiver or manager of the Company appointed pursuant to the Subject
Documents is required to give notice to the Registrar of Companies in
Bermuda within seven days of the date of the order or appointment in
accordance with Section 60 of the Act and in the form provided for by
the Companies Forms Rules 1982. On payment of the appropriate fee, the
Registrar of Companies shall enter the fact of this appointment in the
register of charges maintained pursuant to Part V of the Act. Such a
receiver or manager must be duly qualified pursuant to and comply with
the provisions of Part XIV of the Act.
(j) Where a person is vested with a discretion or may determine a matter
in his or its opinion, such discretion may have to be exercised
reasonably or such an opinion may have to be based on reasonable
grounds.
(k) Any provision in the Subject Documents that certain calculations or
certificates will be conclusive and binding will not be effective if
such calculations or certificates
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12 April 2004
are fraudulent or erroneous on their face and will not necessarily
prevent juridical enquiries into the merits of any claim by an
aggrieved party.
(l) We express no opinion as to the validity or binding effect of any
provision in the Subject Documents for the payment of interest at a
higher rate on overdue amounts than on amounts which are current, or
that liquidated damages are or may be payable. Such a provision may
not be enforceable if it could be established that the amount
expressed as being payable was in the nature of a penalty; that is to
say a requirement for a stipulated sum to be paid irrespective of, or
necessarily greater than, the loss likely to be sustained. If it
cannot be demonstrated to the Bermuda court that the higher payment
was a reasonable pre-estimate of the loss suffered, the court will
determine and award what it considers to be reasonable damages.
Section 9 of The Interest and Credit Charges (Regulations) Act 1975
provides that the Bermuda courts have discretion as to the amount of
interest, if any, payable on the amount of a judgment after date of
judgment. If the Court does not exercise that discretion, then
interest will accrue at the statutory rate which is currently 7% per
annum.
(m) We express no opinion as to the validity or binding effect of any
provision of the Subject Documents which provides for the severance of
illegal, invalid or unenforceable provisions.
(n) A Bermuda court may refuse to give effect to any provisions of the
Subject Documents in respect of costs of unsuccessful litigation
brought before the Bermuda court or where that court has itself made
an order for costs.
(o) Searches of the Register of Companies at the office of the Registrar
of Companies and of the Supreme Court Causes Book at the Registry of
the Supreme Court are not conclusive and it should be noted that the
Register of Companies and the Supreme Court Causes Book do not reveal:
Page 10
12 April 2004
(i) details of matters which have been lodged for filing or
registration which as a matter of best practice of the Registrar
of Companies or the Registry of the Supreme Court would have or
should have been disclosed on the public file, the Causes Book or
the Judgment Book, as the case may be, but for whatever reason
have not actually been filed or registered or are not disclosed
or which, notwithstanding filing or registration, at the date and
time the search is concluded are for whatever reason not
disclosed or do not appear on the public file, the Causes Book or
Judgment Book;
(ii) details of matters which should have been lodged for filing or
registration at the Registrar of Companies or the Registry of the
Supreme Court but have not been lodged for filing or registration
at the date the search is concluded;
(iii) whether an application to the Supreme Court for a winding-up
petition or for the appointment of a receiver or manager has been
prepared but not yet been presented or has been presented but
does not appear in the Causes Book at the date and time the
search is concluded;
(iv) whether any arbitration or administrative proceedings are pending
or whether any proceedings are threatened, or whether any
arbitrator has been appointed; or
(v) whether a receiver or manager has been appointed privately
pursuant to the provisions of a debenture or other security,
unless notice of the fact has been entered in the Register of
Charges in accordance with the provisions of the Act.
Page 11
12 April 2004
Furthermore, in the absence of a statutorily defined system for
the registration of charges created by companies incorporated
outside Bermuda ("overseas companies") over their assets located
in Bermuda, it is not possible to determine definitively from
searches of the Register of Charges maintained by the Registrar
of Companies in respect of such overseas companies what charges
have been registered over any of their assets located in Bermuda
or whether any one charge has priority over any other charge over
such assets.
(p) In order to issue this opinion we have carried out the Company Search
as referred to in the First Schedule of this opinion and have not
enquired as to whether there has been any change since the date of
such search.
(q) In order to issue this opinion we have carried out the Litigation
Search as referred to in the First Schedule to this opinion and have
not enquired as to whether there has been any change since the date of
such search.
(r) In paragraph (1) above, the term "good standing" means that the
Company has received a Certificate of Compliance from the Registrar of
Companies.
(s) Any reference in this opinion to shares being "non-assessable" shall
mean, in relation to fully-paid shares of the company and subject to
any contrary provision in any agreement in writing between such
company and the holder of shares, that: no shareholder shall be
obliged to contribute further amounts to the capital of the company,
either in order to complete payment for their shares, to satisfy
claims of creditors of the company, or otherwise; and no shareholder
shall be bound by an alteration of the Memorandum of Association or
Bye-Laws of the company after the date on which he became a
shareholder, if and so far as the alteration requires him to take, or
subscribe for additional shares, or in any way increases his liability
to contribute to the share capital of, or otherwise to pay money to,
the company.
Page 12
12 April 2004
DISCLOSURE
This opinion is addressed to you in connection with the registration of the
Securities with the SEC and is not to be made available to, or relied on by any
other person or entity, or for any other purpose, without our prior written
consent. We consent to the filing of this opinion as an exhibit to the
Registration Statement of the Company.
We also consent to the reference to our Firm under the captions "Legal Matters"
and "Bermuda Tax Consequences" in the Registration Statement.
This opinion is addressed to you solely for your benefit and is neither to be
transmitted to any other person, nor relied upon by any other person (except
Cahill Gordon & Reindel LLP) or for any other purpose nor quoted or referred to
in any public document nor filed with any governmental agency or person, without
our prior written consent, except as may be required by law or regulatory
authority. Further, this opinion speaks as of its date and is strictly limited
to the matters stated herein and we assume no obligation to review or update
this opinion if applicable laws or the existing facts or circumstances should
change.
This opinion is governed by and is to be construed in accordance with Bermuda
law. It is given on the basis that it will not give rise to any legal
proceedings with respect thereto in any jurisdiction other than Bermuda.
Yours faithfully
/s/ APPLEBY SPURLING HUNTER
12 April 2004
FIRST SCHEDULE
1. The entries and filings shown in respect of the Company on the file of the
Company maintained in the Register of Companies at office of the Registrar
of Companies in Hamilton, Bermuda, as revealed by a search conducted on 8
April 2004 at 4.00 p.m. (the "Company Search").
2. The entries and filings shown in respect of the Company in the Supreme
Court Causes Book maintained at the Registry of the Supreme Court in
Hamilton, Bermuda, as revealed by a search conducted on 8 April 2004 at
3.50 p.m. in respect of the Company (the "Litigation Search").
3. Certified copies of the Certificate of Incorporation on Change of Name
dated 14 April 2000, Memorandum of Association and Bye-Laws adopted on 17
November 1999 as amended by the shareholder on 21 March 2000 and 6 May 2002
for the Company (collectively referred to as the "Constitutional
Documents").
4. Certified copy of the unanimous written resolutions of the Directors
effective 9 April 2004 (the "Resolutions").
5. A certified copy of the letter of permission dated 2 December 1999, issued
by the Bermuda Monetary Authority, Hamilton Bermuda in relation to the
Company.
6. A certified copy of the "Tax Assurance", dated 12 December 1999, issued by
the Registrar of Companies for the Minister of Finance in relation to the
Company.
7. A Certificate of Compliance, dated 12 April 2004, issued by the Ministry of
Finance in respect of the Company.
Page 14
12 April 2004
8. Certificate of Incumbency in respect of the Company dated 12 April 2004.
9. A certified copy of the Register of Shareholders in respect of the Company.
10. A certified copy of the Register of Directors and Officers in respect of
the Company.
11. Faxed copy of a draft Registration Statement on Form F-3.
12. Faxed copy of a form of draft Indenture between the Company and the trustee
(to be named later) in respect of the Senior Debt Securities (the "Senior
Indenture").
13. Faxed copy of a form of draft Indenture between the Company, the trustee
(to be named later) in respect of the Subordinated Debt Securities (the
"Subordinated Indenture").
Page 15
Exhibit 5.2
[Letterhead of Cahill Gordon & Reindel LLP]
(212) 701-3000
April 12, 2004
Global Sources Ltd.
Canon's Court
22 Victoria Street
Hamilton, HM 12 Bermuda
Ladies and Gentlemen:
We have acted as counsel to Global Sources Ltd., a Bermuda corporation (the
"Company"), in connection with:
1. the Registration Statement on Form F-3 (the "Registration
Statement") filed with the Securities and Exchange Commission (the
"Commission"), pursuant to which (A) the Company proposes to issue and/or
sell from time to time (i) Common Shares, par value $.01 per share (the
"Common Shares"), (ii) Preference Shares, par value $.01 per share (the
"Preference Shares"), (iii) debt securities consisting of debentures, notes
or other evidences of indebtedness representing unsecured, unsubordinated
obligations of the Company (the "Senior Debt Securities"), (iv) debt
securities consisting of debentures, notes or other evidences of
indebtedness representing unsecured, subordinated obligations of the
Company (the "Subordinated Debt Securities"), (v) warrants to purchase
Common Shares (the "Common Share Warrants"), (vi) warrants to purchase
Preference Shares (the "Preference Share Warrants"), (vii) warrants to
purchase Debt Securities (the "Debt Securities Warrants"), (viii) Common
Share purchase contracts obligating holders to purchase, and the Company to
sell to the holders thereof or the Company to purchase and the holders
thereof to sell to the Company at a future date (the "Common Share Purchase
Contracts") a specified number of Common Shares, (ix) Common Share purchase
units (the "Common Share Purchase Units") consisting of one or more Common
Share Purchase Contracts and any one or more of (a) debt or equity
obligations of third parties, including, but not limited to, U.S. Treasury
securities, (b) Preference Shares, (c)
-2-
Senior Debt Securities and (d) Subordinated Debt Securities; and (B) the
selling shareholders propose to sell from time to time additional Common
Shares;
2. the form of indenture, to be dated on or about the date of first
issuance of Senior Debt Securities thereunder (the "Senior Debt
Indenture"), between the Company and a trustee to be named (the "Senior
Debt Trustee"); and
3. the form of indenture, to be dated on or about the date of first
issuance of Subordinated Debt Securities thereunder (the "Subordinated Debt
Indenture"), between the Company and a trustee to be named (the
"Subordinated Debt Trustee").
The Common Shares, the Preference Shares, the Senior Debt Securities, the
Subordinated Debt Securities, the Common Share Warrants, the Preference Share
Warrants, the Debt Securities Warrants, the Common Share Purchase Contracts and
the Common Share Purchase Units are referred to herein collectively as the
"Offered Securities." The Offered Securities being registered under the
Registration Statement may be offered on a continued or delayed basis pursuant
to the provisions of Rule 415 of the Securities Act of 1933, as amended (the
"Securities Act").
In rendering the opinions set forth herein, we have examined originals,
photocopies or conformed copies certified to our satisfaction of corporate
records, agreements, instruments and documents of the Company, certificates of
public officials and other certificates and opinions and have made such other
investigations as we have deemed necessary in connection with the opinions set
forth herein. In our examination, we have assumed (a) the due organization and
valid existence of the Company, (b) the due authorization, execution,
authentication and delivery by all persons of the Registration Statement and
each of the documents related thereto, (c) that each of such parties has the
legal power to act in the respective capacity or capacities in which he, she or
it is to act thereunder, (d) the authenticity of all documents submitted to us
as originals, (e) the conformity to the original documents of all documents
submitted to us as copies and (f) the genuineness of all signatures on the
Registration Statement and all documents submitted to us.
Based upon and subject to the foregoing and assuming that (a) the
Registration Statement and any amendments thereto (including any post-effective
amendments) will have become effective and comply with all applicable laws at
the time the Offered Securities are offered or issued as contemplated by the
Registration Statement, (b) a prospectus supplement will have been prepared and
filed with the Commission describing the Offered Securities offered thereby and
will at all relevant times comply with all applicable laws, (c) all Offered
Securities will be issued and sold in compliance with applicable federal and
state securities laws and in the manner stated in the Registration Statement and
the appropriate prospectus supplement, (d) a definitive purchase, underwriting
or similar agreement and any other necessary agreement with respect to any
Offered Securities will have been duly authorized and validly executed and
delivered by each applicable Registrant and the other party or parties thereto,
(e) the applicable Indenture(s) will have been duly qualified under the Trust
Indenture Act of 1939, as amended, and (f) any Offered Securities issuable upon
conversion, exercise or exchange of any Offered Securities being offered or
issued
-3-
will be duly authorized, created and, if appropriate, reserved for issuance upon
such conversion, exercise or exchange, we advise you that in our opinion:
1. With respect to the Senior Debt Securities, when (A) the execution
of the Senior Debt Indenture has been duly authorized by the Company by
appropriate action, (B) the Senior Debt Indenture, in the form filed as an
exhibit to the Registration Statement, has been duly executed and delivered
by the Company and the Senior Debt Trustee, (C) the board of directors,
including any appropriate committee appointed thereby, and appropriate
officers of the Company have taken all necessary action to approve the
issuance and terms of the Senior Debt Securities and related matters, (D)
the terms of the Senior Debt Securities and their issuance and sale have
been duly established in conformity with the Senior Debt Indenture so as
not to violate any applicable law, the Memorandum of Association or
Bye-Laws of the Company or result in default under or breach of any
agreement or instrument binding upon the Company and so as to comply with
any requirement or restriction imposed by any court or governmental body
having jurisdiction over the Company, (E) either a supplemental indenture
has been duly authorized, executed and delivered by the Company and the
Senior Debt Trustee or a securities resolution has been duly executed
setting forth the terms of the Senior Debt Securities, in each case, in
accordance with the Senior Debt Indenture and (F) the Senior Debt
Securities, in the form established in accordance with the Senior Debt
Indenture filed as an exhibit to the Registration Statement, have been duly
executed and delivered by the Company and authenticated by the Senior Debt
Trustee in accordance with the provisions of the Senior Debt Indenture and
delivered and paid for as contemplated by any applicable purchase or
underwriting agreement and the Registration Statement, the Senior Debt
Securities will constitute valid and legally binding obligations of the
Company entitled to the benefits of the Senior Debt Indenture and
enforceable against the Company in accordance with their terms, except that
(a) the enforceability thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to or affecting creditors'
rights or remedies generally and (ii) general principles of equity and to
the discretion of the court before which any proceedings therefor may be
brought (regardless of whether enforcement is sought in a proceeding at law
or in equity) and (b) the enforceability of provisions imposing liquidated
damages, penalties or an increase in interest rate upon the occurrence of
certain events may be limited in certain circumstances ((a) and (b)
collectively, the "Enforceability Exceptions").
2. With respect to the Subordinated Debt Securities, when (A) the
execution of the Subordinated Debt Indenture has been duly authorized by
the Company by appropriate action, (B) the Subordinated Debt Indenture, in
the form filed as an exhibit to the Registration Statement, has been duly
executed and delivered by the Company and the Subordinated Debt Trustee,
(C) the board of directors, including any appropriate committee appointed
thereby, and appropriate officers of the Company have taken all necessary
action to approve the issuance and terms of the Subordinated Debt
Securities and related matters, (D) the terms of the Subordinated Debt
Securities and their issuance and sale
-4-
have been duly established in conformity with the Subordinated Debt
Indenture so as not to violate any applicable law, the Memorandum of
Association or Bye-Laws of the Company or result in default under or breach
of any agreement or instrument binding upon the Company and so as to comply
with any requirement or restriction imposed by any court or governmental
body having jurisdiction over the Company, (E) either a supplemental
indenture has been duly authorized, executed and delivered by the Company
and the Subordinated Debt Trustee or a securities resolution has been duly
executed setting forth the terms of the Subordinated Debt Securities, in
each case, in accordance with the Subordinated Debt Indenture and (F) the
Subordinated Debt Securities, in the form established in accordance with
the Subordinated Debt Indenture filed as an exhibit to the Registration
Statement, have been duly executed and delivered by the Company and
authenticated by the Subordinated Debt Trustee in accordance with the
provisions of the Subordinated Debt Indenture and delivered and paid for as
contemplated by any applicable purchase or underwriting agreement and the
Registration Statement, the Subordinated Debt Securities will constitute
valid and legally binding obligations of the Company, entitled to the
benefits of the Subordinated Debt Indenture and enforceable against the
Company in accordance with their terms, subject to the Enforceability
Exceptions.
3. With respect to the Common Share Warrants, when (A) the execution
of the warrant agreement pursuant to which the Common Share Warrants will
be issued (the "Common Share Warrant Agreement") has been duly authorized
by the Company by appropriate action, (B) the Common Share Warrant
Agreement has been duly executed and delivered by the Company and the
warrant agent thereunder, (C) the board of directors, including any
appropriate committee appointed thereby, and appropriate officers of the
Company have taken all necessary action to approve the issuance and terms
of the Common Share Warrants and related matters, including, without
limitation, any necessary reservation of Common Shares issuable upon
exercise of the Common Share Warrants and (D) the Common Share Warrants, in
the form included in the Common Share Warrant Agreement, have been duly
executed and delivered by the Company and countersigned by the warrant
agent thereunder pursuant to the Common Share Warrant Agreement and
delivered and paid for as contemplated by any applicable purchase or
underwriting agreement and the Registration Statement, the Common Share
Warrants will constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with its terms,
subject to the Enforceability Exceptions.
4. With respect to the Preference Share Warrants, when (A) the
execution of the warrant agreement pursuant to which the Preference Share
Warrants will be issued (the "Preference Share Warrant Agreement") has been
duly authorized by the Company by appropriate action, (B) the Preference
Share Warrant Agreement has been duly executed and delivered by the Company
and the warrant agent thereunder, (C) the board of directors, including any
appropriate committee appointed thereby, and appropriate officers of the
Company have taken all necessary action to approve the issuance and terms
of the Preference Share Warrants and related matters, including, without
limitation, any nec-
-5-
essary reservation of Preference Shares issuable upon exercise of the
Preference Share Warrants and (D) the Preference Share Warrants, in the
form included in the Preference Share Warrant Agreement, have been duly
executed and delivered by the Company and countersigned by the warrant
agent thereunder pursuant to the Preference Share Warrant Agreement and
delivered and paid for as contemplated by any applicable purchase or
underwriting agreement and the Registration Statement, the Preference Share
Warrants will constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with its terms,
subject to the Enforceability Exceptions.
5. With respect to the Debt Securities Warrants, when (A) the
execution of the warrant agreement pursuant to which the Debt Securities
Warrants will be issued (the "Debt Securities Warrant Agreement") has been
duly authorized by the Company by appropriate action, (B) the Debt
Securities Warrant Agreement has been duly executed and delivered by the
Company and the warrant agent thereunder, (C) the board of directors,
including any appropriate committee appointed thereby, and appropriate
officers of the Company have taken all necessary action to approve the
issuance and terms of the Debt Securities Warrants and related matters,
including, without limitation, any necessary reservation of Debt Securities
issuable upon exercise of the Debt Securities Warrants and (D) the Debt
Securities Warrants, in the form included in the Debt Securities Warrant
Agreement, have been duly executed and delivered by the Company and
countersigned by the warrant agent thereunder pursuant to the Debt
Securities Warrant Agreement and delivered and paid for as contemplated by
any applicable purchase or underwriting agreement and the Registration
Statement, the Debt Securities Warrants will constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with its terms, subject to the Enforceability Exceptions.
6. With respect to the Common Share Purchase Contracts, when (A) the
execution of the Common Share Purchase Contracts has been duly authorized
by the Company and each counter-party thereunder by appropriate action, (B)
the Common Share Purchase Contracts have been duly executed and delivered
by the Company and the counter-party thereunder, (C) the board of
directors, including any appropriate committee appointed thereby, and
appropriate officers of the Company have taken all necessary action to
approve the issuance and terms of the Common Share Purchase Contracts and
related matters and (D) the Common Share Purchase Contracts, in an
appropriate form, have been duly executed and delivered by the Company and
countersigned by the counter-party thereunder and delivered and paid for as
contemplated by any applicable purchase or underwriting agreement and the
Registration Statement, the Common Share Purchase Contracts will constitute
valid and legally binding obligations of the Company, enforceable against
the Company in accordance with its terms, subject to the Enforceability
Exceptions.
In giving our opinion, we are relying, without independent verification
(A) as to all matters of fact, upon certificates and written statements of
officers of the Company and (B) as to all
-6-
matters of Bermuda law, on the opinion of Appleby Spurling Hunter, dated of even
date herewith and filed as Exhibit 5.1 to the Registration Statement.
In rendering the opinion set forth above, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York and the
federal laws of the United States of America. Accordingly, our opinions
expressed in paragraphs 1 through 6 above are not intended as opinions under
Bermuda law, the jurisdiction of organization of the Company and are intended to
cover only the nature of the Offered Securities and Indentures as contracts and
obligations under the laws of the State of New York. The Offered Securities may
be issued from time to time on a delayed or continuous basis, and our opinion is
limited to the laws as in effect on the date hereof.
We hereby consent to the reference to our firm in the Registration
Statement under the caption "Legal Matters" and to the inclusion of this opinion
as an exhibit to the Registration Statement. Our consent to such reference does
not constitute a consent under Section 7 of the Securities Act, as in consenting
to such reference we have not certified any part of the Registration Statement
and do not otherwise come within the categories of persons whose consent is
required under Section 7 of the Securities Act or under the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Cahill Gordon & Reindel LLP
EXHIBIT 12.1
Ratio of Earnings to Fixed Charges and Preferred Share Dividends
(IN U.S. DOLLARS THOUSANDS, EXCEPT RATIO OF EARNINGS TO FIXED CHARGES)
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
1998 1999 2000 2001 2002 2003
INCOME/(LOSS) BEFORE INCOME TAXES 13,133 12,404 (66,856) 1,950 5,335 5,472
ADD / (DEDUCT)
Interest on short-term borrowings 1 649 172
Interest charged by Hung Lay Si Co. Ltd 336 336
EARNINGS AS ADJUSTED 13,469 12,741 (66,207) 2,122 5,335 5,472
FIXED CHARGES
Interest on short-term borrowings 1 649 172
Interest charged by Hung Lay Si Co. Ltd 336 336
FIXED CHARGES 336 337 649 172 NIL NIL
RATIO OF EARNINGS TO FIXED CHARGES 40 38 (102) 12 N.A. N.A.
Deficiency of earnings to cover fixed charges -- -- (66,856) -- -- --
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form F-3) and related Prospectus of Global Sources Ltd.
for the registration of $300 million of securities and to the incorporation by
reference therein of our report dated March 28, 2003, with respect to the
consolidated financial statements of Global Sources Ltd. included in its Annual
Report (Form 20-F) for the year ended December 31, 2002, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young
Singapore
April 8, 2004